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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended: September 30, 1995
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 0-7462
CPT HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0972129
(State of Incorporation) (I.R.S. Employer Identification No.)
1430 Broadway, 13th Floor
New York, New York 10018 10018
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (212)382-1313
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 whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No ___
As of September 1, 1995, 1,510,084 shares of Common Stock were issued and
outstanding.
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<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1: Financial Statements
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
($000's Except Per Share Amounts)
<TABLE>
Three Months Ended
September 30,
1995 1994
---- ----
<S> <C> <C>
Net sales $ 26,944 $ 1,527
Cost of sales 23,611 1,178
------- ------
Gross profit 3,333 349
Selling, general and administrative 1,427 283
--------- ---------
Operating income 1,906 66
Other expense:
Interest expense 1,799 --
Minority interest 82 13
Other expense net 22 1
-------- ---------
Income from continuing operations
before income taxes 3 52
Income taxes -- 40
--------- -------
Income from continuing operations 3 12
Loss from discontinued operations -- 389
--------- ------
Net income (loss) $ 3 $ (377)
======== =========
Primary and fully-diluted earnings (loss) per share:
From continuing operations $ -- $ .01
From discontinued operations -- (.26)
--------- ------
Total earnings (loss) per share $ -- $ (.25)
======== =========
Weighted average common and common
equivalent shares outstanding (000's) 3,208 1,510
===== =====
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($000's)
<TABLE>
September 30, June 30,
1995 1995
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 456 $ 972
Receivables - net of allowances 10,581 10,770
Inventories 9,650 8,009
Other current assets 82 200
---------- --------
Total current assets 20,769 19,951
Property, plant and equipment - net 37,568 36,860
Deferred financing costs, net 2,136 2,218
Goodwill 1,530 1,554
Other assets 653 620
---------- -------
Total assets $ 62,656 $ 61,203
======== ======
LIABILITIES & SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 11,237 $ 10,368
Accrued expenses 3,152 3,557
Current portion of long-term debt 2,423 2,116
------ -------
Total current liabilities 16,812 16,041
Long-term obligations 52,935 52,339
Minority interest 2,577 2,494
Shareholders' deficit:
Common stock authorized 30,000,000 shares
of $.05 par value each, 1,510,084 shares
issued and outstanding 76 76
Capital in excess of par value 5,361 5,361
Accumulated deficit (15,105) (15,108)
------ ------
Total shareholders' deficit (9,668) (9,671)
------- -------
Total liabilities and shareholders' deficit $ 62,656 $ 61,203
====== ========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($000's)
<TABLE>
Three Months Ended
September 30
1995 1994
---- ----
Cash flows from operating activities: Net income (loss):
<S> <C> <C>
From continuing operations $ 3 $ 12
From discontinued operations -- (389)
Adjustments to reconcile net loss to net cash provided (used) by
operations:
Minority interest in earnings of subsidiaries 82 13
Depreciation and amortization 797 104
Changes in working capital:
Decrease in receivables 189 528
Decrease (increase) in inventories (1,641) 295
Decrease in other current assets 118 32
Increase (decrease) in accounts payable
and accrued expenses 463 (281)
--------- ---------
Cash provided by operating activities 11 314
--------- ---------
Cash flows from investing activities:
Capital expenditures (1,383) (12)
Increase in other assets (33) --
--------- -----------
Cash used by investing activities (1,416) (12)
--------- ---------
Cash flows from financing activities:
Repayment on long-term obligations (361) (388)
Net borrowings under revolving credit facility 1,250 --
--------- --------
Cash provided (used) by financing activities 889 (388)
--------- --------
Net decrease in cash and cash equivalents (516) (86)
Cash and cash equivalents:
Beginning of period 972 294
-------- --------
End of period $ 456 $ 208
======= =======
Supplemental data - cash paid during the period for:
Interest $ 1,475 $ --
======== ======
Income taxes $ 7 $ 48
======== ========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE>
CPT HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial statements include the accounts of CPT
Holdings, Inc. and its direct and indirect majority-owned subsidiaries
(the "Company" or "CPT"), J&L Structural, Inc. ("J&L"), J&L Holdings
Corp. ("JLH"), Continuous Caster Corporation ("CCC") and Hupp Industries,
Inc. ("Hupp.") All material intercompany transactions have been eliminated
in consolidation.
The Company's operations include two distinct business segments within its
single indirect operating subsidiary, J&L: J&L Structural and Brighton. J&L
Structural manufacturers and fabricates lightweight structural steel shapes
which are distributed principally to the manufactured housing, tractor
trailer construction and ship building industries. Brighton designs,
manufacturers and sells steel piercer points which represent disposable
tooling used in the production of seamless steel tubes used in the
petrochemical industry. CCC is a majority-owned, indirect subsidiary which
holds title to 38 acres of undeveloped land adjacent to J&L in Aliquippa,
Pennsylvania.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10Q and do not include
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments considered necessary for a fair presentation have been
included. The results of operations for any interim period are not
necessarily indicative of the results for the year. These unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1995.
Discontinued Operations
On October 27, 1994, Hupp, its Senior Lender and the Company entered into a
secured party asset sale agreement under which the Senior Lender sold to a
third party, for approximately $1,780,000, their interests in substantially
all of Hupp's assets. Results of operations for Hupp for the fiscal quarter
ended September 30, 1994, are included in discontinued operations.
Acquisition
On April 6, 1995, J&L Acquisition Corp., a Delaware corporation ("JLA"), a
newly incorporated, indirect, majority-owned subsidiary of the Company,
acquired substantially all of the assets of J&L Structural, Inc. ("JLS")
and Trailer Components, Inc. ("TCI"), Pennsylvania corporations based in
Aliquippa, Pennsylvania, for $50,000,000 plus the assumption of certain
liabilities (the "Acquisition"). Simultaneously with the closing, JLA
changed its name to J&L Structural, Inc. ("J&L"). The Acquisition was
accounted for as a purchase effective April 6, 1995, and accordingly, at
such date the Company recorded the assets and liabilities assumed at their
estimated fair values, adjusted for the impact of the continuing residual
interest of predecessor owners.
As part of the Acquisition, the assets of Brighton Electric Steel Casting
Company ("BESCC"), an existing subsidiary of the Company and the direct
parent of J&L, were contributed to J&L and as of the date of acquisition
operates as a distinct division ("Brighton") of J&L. BESCC simultaneously
changed its name to J&L Holdings Corp. ("JLH"). Prior to the closing of the
Acquisition, BESCC redeemed its preferred stock from the holder thereof in
consideration for the issuance by the Company of a Deferred Purchase Money
Note in the approximate amount of $475,000, said amount equal to the stated
value for the preferred stock plus the accrued dividends thereon, bearing
interest at 11% and due December 15, 2002. The purchase price and related
expenses were funded as follows: (1) a $25,000,000 6-year Senior Term Loan
which includes a $3,000,000 Capital Expenditures Line of Credit bearing
interest at prime plus 2% and secured by a first lien on the assets of JLA;
(2) $23,000,000 of Subordinated Secured Notes each bearing interest at 13%,
secured by a Junior lien on the assets of J&L and including a grant of
warrants equal in the aggregate to 15.3% of the common stock ownership of
J&L (on a fully-diluted basis), exercisable at $.01 per share and subject
to certain exercise restrictions; (3) a $15,000,000 Revolving Line of
Credit bearing interest at prime plus 1.5% having an initial term of 5
years followed by a 1 year right of renewal at the lender's discretion; (4)
a capital contribution of approximately $2,500,000 by the shareholders of
JLS and TCI in return for the issuance of common stock representing 19.8%
of JLH, which was in turn contributed to J&L; and (5) a $5,000,000 capital
contribution from the Company to JLH which was, in turn, contributed by JLH
to J&L.
Also as part of the Acquisition, J&L distributed as a dividend to JLH the
right (which J&L acquired from JLS) to acquire a 38-acre parcel of
undeveloped land adjacent to the JLS rolling mill in Aliquippa,
Pennsylvania. JLH, in turn, contributed the right to acquire the 38-acre
parcel to CCC in exchange for all of the common stock of CCC. Shortly
thereafter, CCC acquired title to the 38-acre parcel, using funds which JLS
had placed in escrow prior to the Acquisition.
2. Inventories
<TABLE>
Inventories consisted of the following (in $000's):
September 30, June 30,
1995 1995
<S> <C> <C>
Raw materials $ 2,200 $ 2,427
Finished goods 7,450 5,582
--------- ---------
Total $ 9,650 $ 8,009
======== ========
3. Long-Term Obligations
Long-Term obligations consisted of the following (in $000's):
September 30, June 30,
1995 1995
Senior term loan $ 21,820 $ 22,000
Subordinated term notes 23,000 23,000
Revolving loan facility 4,297 3,229
Fixed rate 13% debenture 6,730 6,730
Deferred purchase money note 475 475
--------- ---------
56,322 55,434
Less: current portion of long-term debt 2,423 2,116
Less: discounts on long-term obligations 964 979
--------- ---------
Total $ 52,935 $ 52,339
======== ========
</TABLE>
<PAGE>
4. Litigation. Contingencies and Commitments
The Industrial and Allied Employees Union Local No. 73 Pension Plan (the
"Plan") issued a claim for payment of withdrawal liability totaling
approximately $870,000 under Section 4219 of ERISA as against Hupp, the
Company and all "controlled group" members, as a result of Hupp's cessation
of contributions to the Plan following the discontinuance of Hupp's
business in October 1994. The Company believes that it has meritorious
defenses against this claim, and in order to preserve the right to
challenge the claimed liability, the Company has been making monthly
installment payments to the Plan of approximately $25,000 since March 1995.
The Company has recorded an accrual totaling $200,000 as of June 30, 1995
in accordance with the requirements of Financial Accounting Standards Board
Statement No. 5 - Accounting for Contingencies. Management believes that
the effect of the ultimate resolution of this claim will not have a
material adverse impact on the financial position or results of the
Company.
J&L has signed a contract for turnkey development, fabrication and
installation of a new reheat furnace. The total estimated cost of the
project is approximately $8,300,000 of which a downpayment totaling
approximately $710,000 was made during September 1995. Project completion
is estimated to occur in May 1996.
<PAGE>
ITEM 2: Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
Significant Events
On April 6, 1995, J&L Acquisition Corp. ("JLA"), an indirect majority-owned
subsidiary of the Company, acquired the business and substantially all of the
assets of J&L Structural, Inc. ("JLS") and Trailer Components, Inc. ("TCI") (the
"Acquisition"). JLS and TCI were specialty manufacturers of high quality,
lightweight structural steel shapes used primarily in the manufactured housing,
truck trailer and highway safety systems industries. As part of the Acquisition,
the assets of Brighton Electric Steel Casting Company ("BESCC") a wholly-owned
subsidiary of CPT were also contributed to JLA, and thereafter, the results of
operations for BESCC was reported as a division ("Brighton") of JLA. Immediately
following the Acquisition, JLA changed its name to J&L Structural, Inc. ("J&L").
J&L is segmented into two distinct operating divisions, J&L Structural division
("J&L Structural") and Brighton, as a result of significant differences in both
customers and products. J&L Structural is also segmented into two separate
divisions which includes the Ambridge division (formerly TCI). This distinction
is due mainly to separate labor contracts which exist among the employees of J&L
Structural. The Ambridge division provides all finishing services required for
J&L Structural products.
As a result of continued losses at Hupp, the Company attempted to renegotiate
its forbearance agreement with its secured lender. The initial forbearance had
expired July 15, 1994. On October 27, 1994, however, the secured lender chose to
exercise its rights pursuant to the Credit and Security Agreement and held a
secured party sale of the assets of Hupp to an unrelated party. Results of
operations for Hupp for the fiscal quarter ended September 30, 1994 are included
in discontinued operations.
Results of Operations
Net Sales: The Company recorded net sales of $26,944,000 for the three months
ended September 30, 1995, which is comprised of $25,538,000 of net sales
attributable to J&L Structural and $1,406,000 attributable to Brighton. Product
demand for structural steel remains strong, particularly with respect to the
manufactured housing market. Low mortgage rates, enhancements to the
manufactured home product, and lower price points are factors contributing
heavily to this increased demand. Brighton's net sales for the three months
ended September 30, 1995, compares to the prior year net sales of $1,527,000
representing a 7.9% decrease. This decrease was due mainly to improvement in
their customers' ability to extend the useful life of a piercer point through
improved in-house maintenance.
Gross Margins: Gross margins as a percent of net sales was 12.4% and 22.9% for
the three month periods ended September 30, 1995 and 1994, respectively. Gross
margin for J&L Structural for the three month period ended September 30, 1995
was 12.0%. Gross margin was negatively impacted by higher than anticipated
billet costs, purchases of certain lower end products from outside suppliers
coupled with lower operating productivity and a decrease in production yields.
The Company's management feels that the reduced productivity is a temporary
situation due to the relative experience level of its work force. In late
January 1995, a decision was made, based on sales demand and forecast, to begin
a second shift of operations. This decision resulted in the hourly work force
increasing from 153 employees at January 1, 1995 to 244 as of September 30,
1995, a 59% increase in the production work force. Management has implemented a
productivity improvement program which includes employee orientation and
training, establishment of continuing direct responsibilities and increased
supervision and oversight.
Gross margins for BESCC/Brighton were 19.4% and 22.9% for the three-month
periods ended September 30, 1995 and 1994, respectively. The decrease in gross
margin was due mainly to increases in semi-variable overhead costs, the effect
of which was magnified as a result of the decrease in net sales discussed above.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses totaled $1,427,000 and $283,000, representing 5.3% and
18.5% of net sales, for the three months ended September 30, 1995 and 1994,
respectively. Selling, general and administrative expenses for J&L Structural
for the three months ended September 30, 1995 totaled $1,238,000 while the same
type of expenses for Brighton and CPT combined for the same period totaled
$189,000. The decrease in selling, general and administrative expenses for
Brighton and CPT combined resulted mainly from a reduction in salary and other
overhead expenses at CPT.
Discontinued Operations: The loss from discontinued operations represents the
loss from operations for Hupp for the three months ended September 30, 1994.
Liquidity and Capital Resources
Cash Flow: Cash and cash equivalents decreased $516,000 to $456,000 at the end
of the first fiscal quarter compared with $972,000 as of June 30, 1995. Cash
flow from operations for the three months ended September 30, 1995 totaled
$11,000. The low level of cash flow from operations resulted from the effect of
decreased gross margins and the building of inventories to more optimum levels.
Cash flows for the first three months of this fiscal year is not comparable to
the comparable period in the prior year.
The Company's investing activities included a downpayment totaling approximately
$710,000 toward the new reheat furnace installation project scheduled for
completion in May 1996. Total capital expenditures for this project will amount
to approximately $8,300,000.
The Company's financing activities for the first quarter of fiscal 1995 included
scheduled Senior Lender repayments totaling $361,000 and net borrowings under
the Revolving Credit Facility totaling $1,250,000. The Revolving Credit Facility
borrowing base as computed on September 30, 1995 totaled $13,760,000.
Liquidity: Although the Company's total equity represents a deficit of
$9,669,000, this position is due largely to the poor performance of previously
discontinued operations in addition to a basis adjustment for the leveraged
Acquisition in April 1995. Management expects that the Company's near term
capital requirements for working capital will be provided for primarily from
cash flow from operations. Funding for the new reheat furnace will be provided
from Pennsylvania Industrial Development Authority (PIDA) loans totaling
$400,000, the Capital Expenditures Line of Credit from the Company's Senior
Lender totaling $3,000,000 and working capital to include the unused borrowing
base of the Revolving Credit Facility.
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
The Company is presently engaged in litigation related to its business
activities. It is believed that the Company has meritorious defenses to such
lawsuits and is defending itself in the ordinary course of business.
ITEM 2: Changes in Securities
None
ITEM 3: Defaults Upon Senior Securities
The Senior Term Loan, Revolving Loan Facility and the Subordinated Term
Notes include certain provisions which, among other things, provide that J&L
will maintain certain financial ratios, limit the amount of annual capital
expenditures, maintain a minimum tangible net worth and limit the amount of
shareholder distributions. As of June 30, 1995, J&L was not in compliance with
the minimum net worth requirement of the loan agreements due mainly to the
application of predecessor basis accounting to the opening balance sheet of J&L
on the acquisition date. Application of predecessor basis accounting had the
effect of reducing property, plant and equipment and shareholder's equity;
however, it had no cash impact to the financial statements. As a result, on
October 12, 1995, the Company's lenders amended the relevant loan agreements to
ignore the effects of predecessor basis accounting in computing minimum tangible
net worth effective as of June 30, 1995.
As a part of its acquisition of Hupp Industries, Inc. ("Hupp"), Hupp entered
into a Credit and Security Agreement with a bank which provided certain working
capital as well as term financing. During the fiscal year ended June 30, 1994,
Hupp experienced financial problems which caused it to be in default under the
Credit and Security Agreement. After discussions with its senior lender, on
February 21, 1994 Hupp and the bank entered into a Conditional Forbearance
Agreement by which the bank agreed to forbear from declaring a default and
accelerating the maturity of the balance due under the Credit and Security
Agreement until July 15, 1994 and to defer certain required principal payments
owed by Hupp under the Credit and Security Agreement.
Hupp's financial condition worsened and, as a consequence, on October 27, 1994
the bank exercised its rights under the Credit and Security Agreement to conduct
a secured party sale of Hupp's assets to an unrelated third party.
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:
Exhibit 27: Financial Data Schedule for first Quarter 10-Q
(b) Reports on Form 8-K: Referenced to filing Form 8-K dated as of
November 4, 1994.
Referenced to filing Form 8-K dated as of
April 6, 1995.
<PAGE>
SIGNATURES
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.
CPT HOLDINGS. INC.
Dated: November 13, 1995 By: /s/William L. Remley
--------------------------
William L. Remley,
President & Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Jun-30-1996
<PERIOD-END> Sep-30-1995
<CASH> 456
<SECURITIES> 0
<RECEIVABLES> 10,851
<ALLOWANCES> 270
<INVENTORY> 9,650
<CURRENT-ASSETS> 20,769
<PP&E> 38,952
<DEPRECIATION> 1,384
<TOTAL-ASSETS> 62,656
<CURRENT-LIABILITIES> 16,812
<BONDS> 0
<COMMON> 76
0
0
<OTHER-SE> (9,744)
<TOTAL-LIABILITY-AND-EQUITY> 62,656
<SALES> 26,944
<TOTAL-REVENUES> 26,944
<CGS> 23,611
<TOTAL-COSTS> 23,611
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> 1,799
<INCOME-PRETAX> 3
<INCOME-TAX> 0
<INCOME-CONTINUING> 3
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
