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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: March 31, 1996
___ 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
(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 March 1, 1996, 1,510,084 shares of Common Stock were issued and
outstanding.
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<PAGE>
CPT HOLDINGS, INC.
INDEX
I. FINANCIAL INFORMATION
Page
Number
Item 1. Consolidated Financial Statements
Consolidated Statements of Operations
Three Months and Nine Months Ended March 31, 1996
and March 31, 1995 3
Consolidated Balance Sheets
March 31, 1996 and June 30, 1995 4
Consolidated Statements of Cash Flows
Three Months and Nine Months Ended March 31, 1996
and March 31, 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 8
II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1: Financial Statements
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
<TABLE>
Three Months Ended Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 24,047 $ 1,626 $ 75,806 $ 4,509
Cost of sales 20,775 1,210 66,116 3,406
----------- ---------- ---------- ----------
Gross profit 3,272 416 9,690 1,103
Selling, general and administrative 2,449 265 5,718 867
----------- ---------- ---------- ----------
Operating income 823 151 3,972 236
Other expense (income):
Interest expense 1,851 25 5,465 102
Minority interest 8 - (95) 73
Other expense (income), net (64) (1) 713 (5)
------------ ----------- ---------- -----------
Income (loss) from continuing operations
before income taxes (972) 127 (2,111) (66)
Income taxes - 10 - 72
----------- ---------- ---------- ----------
Income (loss) from continuing operations (972) 117 (2,111) (6)
Income from discontinued operations - - - 1,577
----------- ---------- ---------- ----------
Net income (loss) $ (972) $ 117 $ (2,111) $ 1,571
============ ========== =========== ==========
Primary and fully-diluted earnings (loss) per share:
From continuing operations $ (0.64) $ 0.08 $ (1.40) $ -
From discontinued operations - - -
------------------ ----------------- ----------
1.04
Total earnings (loss) per share $ (0.64) $ 0.08 $ (1.40) $ 1.04
============== ================= ========= ============
Weighted average common and common
equivalent shares outstanding (000's) 1,510 1,510 1,510 1,510
=========== ========== ========== ==========
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
March 31, June 30,
<TABLE>
1996 1995
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 710 $ 972
Receivables, net of allowances 9,603 10,770
Inventories 12,284 8,009
Other current assets 79 200
----------- ----------
Total current assets 22,676 19,951
Property, plant and equipment, net 40,576 36,860
Deferred financing costs, net 1,982 2,218
Goodwill 1,483 1,554
Other assets 729 620
----------- ----------
Total assets $ 67,446 $ 61,203
=========== ==========
LIABILITIES & SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 9,573 $ 10,368
Accrued expenses 3,863 3,557
Current portion of long-term debt 55,679 2,116
----------- ----------
Total current liabilities 69,115 16,041
Long-term obligations 7,714 52,339
Minority interest 2,399 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 (17,219) (15,108)
------------ ----------
Total shareholders' deficit (11,782) (9,671)
------------ ----------
Total liabilities and shareholders' deficit $ 67,446 $ 61,203
=========== ==========
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Three Months Ended Nine Months Ended
<TABLE>
March 31, March 31
1996 1995 1996 1995
---- ---- ---- ----
Cash flows from operating activities: Net income (loss):
<S> <C> <C> <C> <C>
From continuing operations ................................................ $ (972) $ 117 $(2,111) $ (6)
From discontinued operations .............................................. -- -- -- 1,577
Adjustments to reconcile net income (loss) to net cash provided (used) by
operations:
Minority interest in earnings of subsidiaries ............................. 8 -- (95) 73
Depreciation and amortization ............................................. 787 33 2,367 197
Gain from sale of Hupp assets ............................................. -- -- -- (1,577)
Changes in working capital:
Decrease (increase) in receivables ........................................ (372) (132) 1,167 1,276
Decrease (increase) in inventories ........................................ 158 (18) (4,275) 180
Decrease (increase) in other current assets ............................... (55) 51 121 (92)
Increase (decrease) in accounts payable
and accrued expenses .................................................. 1,389 200 (489) (226)
Decrease in other current liabilities ..................................... -- -- --
----- ------- -------
(552)
Cash provided (used) by operating activities ................................... 943 251 (3,315) 850
------- ----- ------- -------
Cash flows from investing activities:
Capital expenditures ...................................................... (2,411) (13) (5,725) (25)
Proceeds from sale of Hupp assets ......................................... -- -- -- 1,934
Increase in other assets .................................................. (76) (150) (108)
----- ------- -------
(200)
Cash provided (used) by investing activities .............................. (2,487) (163) (5,833) 1,709
------- ----- ------- -------
Cash flows from financing activities:
Repayment on long-term obligations ........................................ (570) -- (1,486) (2,678)
Borrowing under long term obligations ..................................... 1,000 -- 1,000 --
Borrowing under unsecured line of credit .................................. 509 -- 509 --
Net borrowings under revolving credit facility ............................ 1,127 -- 8,863 --
------- ----- ------- -------
Cash provided (used) by financing activities .............................. 2,066 -- 8,886 (2,678)
------- ----- ------- -------
Net increase (decrease) in cash and cash equivalents ........................... 522 88 (262) (119)
Cash and cash equivalents:
Beginning of period ....................................................... 188 87 972 294
------- ----- ------- -------
End of period ............................................................. $ 710 $ 175 $ 710 $ 175
======= ===== ======= =======
Supplemental data - cash paid during the period for:
Interest ....................................................................... $ 1,586 $ 25 $ 4,569 $ 102
======= ===== ======= =======
Income taxes ................................................................... $ -- $ 10 $ 167 $ 72
======= ===== ======= =======
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO 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 H. Industries, Inc.
(formerly known as 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
Electric Steel Casting Co. ("Brighton"). J&L Structural manufactures 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 fiscal year ended June 30,
1995.
The Company must adopt the recently issued Statement of Financial
Accounting Standards No. 121 - Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of ("FAS 121") during
fiscal 1997. FAS 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Management has not
adopted FAS 121, however, based on a preliminary assessment of its
provisions relative to the Company, they do not expect its adoption to have
a material impact on the financial statements.
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 and the
Company 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 nine months ended March 31, 1995, are included in discontinued
operations.
Acquisition
On April 6, 1995, J&L, a newly incorporated Delaware corporation and
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"). 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").
<PAGE>
2. Inventories
<TABLE>
Inventories consisted of the following (in $000's):
March 31, June 30,
1996 1995
<S> <C> <C>
Raw materials $ 3,941 $ 2,427
Finished goods 8,343 5,582
--------- ---------
Total $12, 284 $ 8,009
========= =========
3. Long-Term Obligations
Long-term obligations consisted of the following (in $000's):
March 31, June 30,
1996 1995
Senior term loan $ 21,514 $ 22,000
Subordinated term notes 23,000 23,000
Revolving loan facility 12,092 3,229
Unsecured line of credit 509 -
Fixed rate 13% debenture 6,730 6,730
Deferred purchase money note 475 475
--------- ---------
64,320 55,434
Less: current portion of long-term debt 55,679 2,116
Less: discounts on long-term obligations 927 979
--------- ---------
Total $ 7,714 $ 52,339
========= =========
</TABLE>
J&L's Senior Term Loan, Revolving Loan Facility and Subordinated Term Notes
(collectively, the "Credit Agreements") 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
March 31, 1996, J&L was not in compliance with its operating cash flow to
total debt service ratio covenant and the capital expenditures limitation
covenant with both its senior and subordinated lenders. The loan covenant
violations described above represent a default under the Credit Agreements
which entitles the lenders the ability to declare all of J&L's outstanding
obligations under the Credit Agreements due and payable subject to
applicable notice or demand. As a result, the Company has reclassified all
long-term obligations under the Credit Agreements to current liabilities.
See also Note 5.
Additional borrowings of $1 million were effected during the fiscal quarter
ended March 31, 1996 under J&L's Senior Term Loan in connection with a
special borrowing provision of up to $3 million for specified capital
projects.
On February 1, 1996, Trinity Investment Corp. ("Trinity") and the Company
executed an unsecured line of credit agreement totaling $1 million bearing
interest at 13% and payable with interest only semi-annually beginning
April 1, 1996 until due in March, 2002. In connection with the execution of
the line of credit, warrants to purchase 300,000 shares of Company common
stock have been issued to Trinity for a period of ten years with an
exercise price of $4.00 per share.
<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 accrued for the total amount claimed by the Plan, net of
monthly installment payments, as of March 31, 1996.
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 approximately $3,816,000 has
been disbursed against the project as of March 31, 1996. Project completion
is estimated to occur in July 1996.
5. Going Concern
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. Such
consolidated financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company's
continuation as a going concern is dependent on its ability to generate
sufficient cash flows from operations to meet its obligations on a timely
basis.
The Company shows a loss from operations totaling ($992,000) and
($2,111,000) for the three and nine month periods ended March 31, 1996,
respectively, while cash flows from operations totaled $943,000 and
($3,315,000) for the same respective periods. Significant transactions and
events having a negative impact on earnings and cash flows at J&L during
fiscal 1996 included a signing bonus and retroactive profit sharing plan
charge related to the new labor contract with the United Steelworkers of
America local union in December 1995 totaling $828,800. In addition,
unfavorable yield and productivity results experienced particularly during
the first six months of fiscal 1996 were a direct result of the significant
level of new employees hired to support a permanent second shift of
operations which was established late in fiscal 1995. Manufacturing
variances and the financial impact from missing certain production planning
objectives which related directly to the unfavorable levels of yield and
productivity performance totaled approximately $2,000,000 for the nine
months ended March 31, 1996. Separately, a CPT charge during the third
fiscal quarter of this year in the amount of $550,000 relating to a pension
claim for payment of withdrawal liability relating to Hupp also
significantly impacted Company earnings.
The Company's recent operating performance described above has resulted in
certain loan covenant violations under J&L's Credit Agreements referred to
in Note 3. These loan covenant violations represent a default under the
Credit Agreements which entitles the lenders the ability to declare all of
J&L's outstanding obligations under the Credit Agreements due and payable
subject to applicable notice or demand.
Management is confident of the Company's ability to generate sufficient
cash flows from operations in the future to meet obligations on a timely
basis. The combination of business growth adjustments and unusual charges
experienced during fiscal 1996, as described above, are not expected to
have a continuing impact on operations. Overall tonnage shipped remains
strong, productivity measurement trends are improving and positive
operational impact from the new reheat furnace following its July 1996
startup is expected, all of which should result in favorable levels of
financial performance for the Company. Management is currently involved in
active negotiations with its lenders and is confident that loan covenant
waivers or a loan amendment can be obtained for a temporary period in order
for expected improvements in operating results to be realized.
The foregoing paragraph is comprised of forward looking statements. The
Company wishes to caution readers that the following important factors,
among others, some of which are not within management's control, could
affect the Company's results of operations in the future and could cause
the Company's actual results of operations to differ
<PAGE>
materially from those expressed in the foregoing forward looking
statements: a significant downturn in manufactured housing construction and
sales may occur, the reheat furnace efficiency specifications may not be
realized, billet costs may continue to increase and the Company may not
have the ability to pass such costs to customers, and productivity
improvements may not be sustainable.
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
On April 6, 1995, J&L, an indirect majority-owned subsidiary of the Company,
acquired the business and substantially all of the assets of JLS and 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 BESCC, a wholly-owned subsidiary of CPT, were also contributed to
J&L, and thereafter, the results of operations for BESCC were reported as a
division ("Brighton") of J&L.
J&L is segmented into two distinct operating divisions, 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 finishing services required for certain J&L Structural
products.
As a result of continued losses at Hupp, on October 27, 1994, the secured lender
chose to exercise its rights pursuant to a 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 nine months ended March 31, 1995 are included in
discontinued operations.
Results of Operations
Net Sales: The Company recorded net sales of $24,047,000 and $1,626,000 for the
three month periods ended March 31, 1996 and 1995, respectively. The three month
net sales are comprised of $22,207,000 of net sales attributable to J&L
Structural and $1,840,000 attributable to Brighton. Net sales for the nine
months ended March 31, 1996 and 1995 were $75,806,000 and $4,509,000,
respectively. The nine month net sales are comprised of $71,153,000 attributable
to J&L Structural and $4,653,000 attributable to Brighton. Customer demand from
the manufactured housing industry remains strong, while demand from the
truck/trailer manufacturing industry continues to be soft. Tons shipped of
Junior Beams, which are used mainly by the Company's manufactured housing
customers, totaled 101,887 tons which is ahead of planned shipments by 10% for
the nine months ended March 31, 1996. The improvement in Junior Beam shipments
is offset partially by crossmember tons shipped to truck/trailer manufacturers
for the same period which totaled 28,304 tons or 33% behind planned shipments.
Overall sales for the nine months ended March 31, 1996 were negatively impacted
by low inventory levels experienced at J&L's downriver storage facility in Iuka,
Mississippi. In addition, an extended and unusually harsh winter season caused
certain customers, particularly the guard rail construction industry, to curtail
operations for longer periods than anticipated. Unfavorable productivity and
yield performance have also negatively impacted net sales for the nine months
ended March 31, 1996. The Company's management feels that the reduced
productivity and yield referred to above is a temporary situation due to the
relative inexperience 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, representing a 59% increase in
the production workforce. Management has implemented a productivity improvement
program which includes employee orientation, training and feedback,
establishment of continuing direct responsibilities and increased supervision
and oversight. Productivity and yield data for the most recent three months
continue to improve when compared against the first six months of this fiscal
year.
Gross margin: Gross margins expressed as a percentage of net sales for the three
months ended March 31, 1996 and 1995 were 13.6% and 25.6%, respectively. The
three month gross margin for the period ended March 31, 1996 was comprised of
12.8% attributable to J&L Structural and 23.8% attributable to Brighton. Gross
margins expressed as a percentage of net sales for the nine months ended March
31, 1996 and 1995 were 12.8% and 24.5%, respectively. The nine month gross
margin for the period ended March 31, 1996 was comprised of 12.2% attributable
to J&L Structural and 21.3% attributable to Brighton. Aggregate gross margins
for the nine months ended March 31, 1996 are 320 basis points below planned
level due mainly to productivity and yield performance, as discussed above, and
higher than anticipated billet costs. Billet costs are driven mainly by the cost
of scrap steel, its primary raw material component, which has been at record
high cost levels due to the overall strength of the steel industry during this
fiscal year. Gross margin improvement through sales price increases planned in
the third fiscal quarter did not materialize due to competitive market
conditions. Margins at Brighton during the three month period ended March 31,
1996 have improved over the first six months of the fiscal year due to success
in passing along certain price increases to customers due to higher raw material
costs and favorable product sales mix.
Selling, general and administrative: Selling, general and administrative expense
expressed as a percentage of net sales for the three months ended March 31, 1996
and 1995 were 10.2% and 16.3%, respectively. Selling, general and administrative
expense expressed as a percentage of net sales for the nine months ended March
31, 1996 and 1995 were 7.5% and 19.2%, respectively. Selling, general and
administrative expenses increased as a percentage of sales during the third
fiscal quarter due mainly to a provision totaling $550,000 for a pension
liability claim against the Company which is currently pending.
Interest expense: Interest expense for the three and nine month periods ended
March 31, 1996 was $1,851,000 and $5,465,000, respectively. The relatively flat
level of interest expense realized over the nine month fiscal period, in light
of higher borrowing levels, is reflective of lower interest rates in comparison
to the first fiscal quarter.
Other expense: Other expense for the nine months ended March 31, 1996 reflects
an $828,000 charge relating to the signing of a new 58 month labor contract with
J&L Structural's United Steelworkers of America local union on December 3, 1995.
This charge was comprised of a signing bonus of $1,500 per employee amounting to
approximately $295,000 in aggregate, coupled with a retroactive bonus charge for
calendar 1995 computed using the newly negotiated profit sharing computation
totaling $533,000.
Liquidity and Capital Resources
Cash Flows: Cash and cash equivalents increased $522,000 to $710,000 during the
third fiscal quarter. Cash provided (used) by operations for the three and nine
months ended March 31, 1996 totaled $943,000 and ($3,315,000), respectively.
Cash flows from operations for the three months ended March 31, 1996 was
positive for the first time during this fiscal year to date due to the positive
impact of improving productivity performance and maintaining more optimal levels
of finished goods inventory at Aliquippa and Iuka. Negative cash flows from
operations for the nine months ended March 31, 1996 resulted from poor
productivity performance which ultimately impacted the inventory management
plan. Increased manufacturing and shipping costs over planned levels accounted
for the majority of the shortfall in cash flows from operations during this
period.
As discussed in Note 3 to the consolidated financial statements, J&L is in
violation of certain of its loan covenants under the Credit Agreements with both
its senior and subordinated lenders. In addition to being in violation of its
capital expenditures limitation covenant, J&L is also in violation of its
operating cash flow to total debt service covenant ratio which totals .92:1.00
for a four rolling quarter measurement period. Under the terms of the Credit
Agreements, J&L has defaulted which could result in the Lenders declaring all of
J&L's outstanding obligations under the Credit Agreements due and payable
subject to applicable notice or demand. As a result, the Company has
reclassified all long-term obligations under the Credit Agreements to current
liabilities. Cash flow necessary to meet total debt service requirements for the
subsequent twelve months, assuming scheduled repayments, totals approximately
$10,500,000. Management projections indicate that J&L has the ability to exceed
this cash requirement based on the fact that overall tonnage shipped remains
strong, productivity measurement trends are improving and a positive gross
margin impact from the new reheat furnace following its July 1996 startup is
expected.
Readers should be aware that the foregoing sentence contained forward looking
statements which may not be realized. Several important factors listed in Note 5
to the consolidated financial statements contained herein, among others, could
affect the Company's results of operations in the future and could cause the
Company's actual results of operations to differ materially from those expressed
in the foregoing forward looking statements.
The Company's investing activities are comprised mainly of disbursements
totaling $3,816,000 against the new reheat furnace installation project
scheduled for completion in July 1996. Total capital expenditures estimated for
this project will amount to approximately $8,400,000.
<PAGE>
Liquidity: Although the Company's total equity represents a deficit of
$11,782,000, this position is due largely to a basis adjustment for the
leveraged Acquisition in April 1995 totaling approximately $9,705,000.
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 is being provided from state loans totaling
$1,100,000, the Capital Expenditures Line of Credit from J&L's senior lender
totaling $3,000,000, of which $2,000,000 remains available, and working capital
to include the unused borrowing base of the Revolving Credit Facility.
On February 1, 1996, Trinity Investment Corp. ("Trinity") and the Company
executed an unsecured line of credit agreement totaling $1 million bearing
interest at 13% and payable with interest only semi-annually beginning April 1,
1996 until due in March, 2002. This line of credit was drawn on immediately in
the amount of $456,406 to service interest due in arrears to date. In
conjunction with the execution of the line of credit, warrants to purchase
300,000 shares of Company common stock have been issued to Trinity for a period
of ten years with an exercise price of $4.00 per share.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
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 accrued for the total amount claimed by the
Plan, net of monthly installment payments, as of March 31, 1996.
The Company is presently engaged in other 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
J&L's Senior Term Loan, Revolving Loan Facility and Subordinated Term
Notes (collectively, the "Credit Agreements") 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 March 31, 1996,
J&L was not in compliance with its operating cash flow to total debt service
ratio covenant and the capital expenditures limitation covenant with both its
senior and subordinated lenders. The loan covenant violations described above
represent a default under the Credit Agreements which entitles the lenders the
ability to declare all of J&L's outstanding obligations under the Credit
Agreements due and payable subject to applicable notice or demand. As a result,
the Company has reclassified all long-term obligations under the Credit
Agreements to current liabilities. See also Note 5.
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, J&L and its 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.
Hupp had 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 the third quarter
10-Q
(b) Reports on Form 8-K: Referenced to filing Form 8-K dated
as of May 10, 1996.
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: May 21, 1996 By: /s/William L. Remley
--------------------------
William L. Remley,
President & Treasurer
