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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: December 31, 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
(Address of principal executive office) (Zip code)
Registrant 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 December 1, 1995, 1,510,084 shares of
Common Stock were issued and outstanding.
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PART 1. FINANCIAL INFORMATION
ITEM 1: Financial Statements
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands)
<TABLE>
Three Months Ended Six Months Ended
December 31, December 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $ 24,816 $ 1,357 $ 51,760 $ 2,884
Cost of sales 21,731 1,019 45,342 2,197
Gross profit 3,085 338 6,418 687
Selling, general and administrative 1,843 316 3,270 602
Operating income 1,242 22 3,148 85
Other expense (income):
Interest expense 1,815 77 3,614 77
Minority interest (186) 60 (104) 73
Other expense (income), net 755 (1) 778 (3)
Loss from continuing operations
before income taxes (1,142) (114) (1,140) (62)
Income taxes - 21 - 61
Loss from continuing operations (1,142) (135) (1,140) (123)
Income from discontinued operations - 1,577 - 1,577
Net income (loss) $ (1,142) $ 1,442 $ (1,140) $ 1,454
Primary and fully-diluted earnings (loss) per share:
From continuing operations $ (.35) $ (.09) $ (.34) $ (.08)
From discontinued operations - 1.04 - 1.04
Total earnings (loss) per share $ (.35) $ .95 $ (.34) $ .96
Weighted average common and common
equivalent shares outstanding (000's) 3,208 1,510 3,208 1,510
See Notes to Unaudited Consolidated Financial Statements
</TABLE>
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<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
December 31, June 30,
1995 1995
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 188 $ 972
Receivables, net of allowances 9,230 10,770
Inventories 12,442 8,009
Other current assets 24 200
Total current assets 21,884 19,951
Property, plant and equipment, net 38,839 36,860
Deferred financing costs, net 2,053 2,218
Goodwill 1,507 1,554
Other assets 653 620
Total assets $ 64,936 $ 61,203
LIABILITIES & SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 8,381 $ 10,368
Accrued expenses 3,666 3,557
Current portion of long-term debt 2,554 2,116
Total current liabilities 14,601 16,041
Long-term obligations 58,756 52,339
Minority interest 2,390 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 (16,248) (15,108)
Total shareholders' deficit (10,811) (9,671)
Total liabilities and shareholders' deficit $ 64,936 $ 61,203
See Notes to Unaudited Consolidated Financial Statements
</TABLE>
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<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($000's)
<TABLE>
hree Months Ended Six Months Ended
December 31, December 31,
1995 1994 1995 1994
Cash flows from operating activities: Net income (loss):
<S> <C> <C> <C> <C>
From continuing operations $ (1,142) $ (135) $ (1,140) $ (123)
From discontinued operations 1,577 1,577
Adjustments to reconcile net loss to net cash
provided (used) by operations:
Minority interest in earnings of subsidiaries (186) 61 (104) 73
Depreciation and amortization 784 60 1,580 164
Gain from sale of Hupp assets - (1,577) - (1,577)
Changes in working capital:
Decrease in receivables 1,351 882 1,540 1,410
Decrease (increase) in inventories (2,792) (97) (4,433) 198
Decrease (increase) in other current assets 77 (175) 194 (143)
Decrease in accounts payable
and accrued expenses (2,361) (147) (1,896) (428)
Decrease in other current liabilities - (164) - (552)
Cash provided (used) by operating activities (4,269) 285 (4,259) 599
Cash flows from investing activities:
Capital expenditures (1,931) - (3,313) (12)
Proceeds from sale of Hupp assets - 1,934 - 1,934
Increase in other assets - (50) (33) (50)
Cash provided (used) by investing activities (1,931) 1,884 (3,346) 1,872
Cash flows from financing activities:
Repayment on long-term obligations (555) (2,290) (916) (2,678)
Net borrowings under revolving credit facility 6,487 - 7,737 -
Cash provided (used) by financing activities 5,932 (2,290) 6,821 (2,678)
Net decrease in cash and cash equivalents (268) (121) (784) (207)
Cash and cash equivalents:
Beginning of period 456 208 972 294
End of period $ 188 $ 87 $ 188 $ 87
Supplemental data - cash paid during the period for:
Interest $ 1,508 $ 77 $ 2,983 $ 77
Income taxes $ 160 $ 21 $ 167 $ 69
See Notes to Unaudited Consolidated Financial Statements
</TABLE>
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CPT HOLDINGS, INC. AND SUBSIDIARIES
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 fiscal year ended June 30, 1995.
Discontinued Operations
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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 and six months ended December 31, 1994, are included in
discontinued operations.
Acquisition
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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").
<PAGE>
2. Inventories
Inventories consisted of the following (in $000's):
December 31, June 30,
1995 1995
Raw materials $ 3,893 $ 2,427
Finished goods 8,549 5,582
Total $ 12,442 $ 8,009
3. Long-Term Obligations
Long-term obligations consisted of the following (in $000's):
December 31, June 30,
1995 1995
Senior term loan $ 21,084 $ 22,000
Subordinated term notes 23,000 23,000
Revolving loan facility 10,965 3,229
Fixed rate 13% debenture 6,730 6,730
Deferred purchase money note 475 475
62,254 55,434
Less: current portion of long-term debt 2,553 2,116
Less: discounts on long-term obligations 945 979
Total $ 58,756 $ 52,339
The Company's Senior Term Loan, Revolving Loan Facility and 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 December 31, 1995, J&L was not in compliance
with its operating cash flow to total debt service ratio covenant with its
Senior Lender, and additionally, J&L was not in compliance with the capital
expenditures limitation covenant agreed to with both its Senior and Subordinated
Lenders. The Company's Lenders have waived their rights with respect to the
above covenant violations as of December 31, 1995, in response to the Company's
request to do so.
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 December, 2002. This line of credit was drawn on immediately
in the amount of $456,406 to satisfy interest due in arrears to date. In
conjunction with the execution of the line of credit, 300,000 warrants for
Company stock have been issued to Trinity for a period of ten years with an
exercise price of $4.00 per warrant.
<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 approximately $ 2,240,000 has been disbursed
against the project as of December 31, 1995. Project completion is estimated to
occur in June 1996.
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Significant Events
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On April 6, 1995, JLA, 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
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 finishing services required for
certain 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 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 fiscal quarter and six months ended December 31,
1994 are included in discontinued operations.
Results of Operations
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Net Sales: The Company recorded net sales of $24,816,000 and $1,357,000 for the
three month periods ended December 31, 1995 and 1994, respectively. The three
month net sales are comprised of $23,409,000 of net sales attributable to J&L
Structural and $1,407,000 attributable to Brighton. Net sales for the six months
ended December 31, 1995 and 1994 was $51,760,000 and $2,884,000, respectively.
The six month net sales are comprised of $48,947,000 attributable to J&L
Structural and $2,813,000 attributable to Brighton. Customer demand from the
manufactured housing industry remains strong, while demand from the
truck/trailer manufacturing industry has softened. Tons shipped of Junior Beams,
which are used mainly by the Company's manufactured housing customers, totaled
68,835 tons which is ahead of planned shipments by 13.4% for the six months
ended December 31, 1995. The improvement in Junior Beam shipments is offset
partially by crossmember tons shipped to truck/trailer manufacturers for the
same period which totaled 19,851, or 27.6% behind planned shipments. Overall
sales were negatively impacted by low inventory levels primarily experienced at
J&L's downriver storage facility in Iuka, Mississippi. In addition, an early
winter season caused certain customers, particularly the guard rail construction
industry, to curtail operations for the winter months. Lower than anticipated
productivity and yield performance have also negatively impacted net sales.
The Company's management feels that the reduced productivity and yield 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, 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 and training, establishment of continuing direct responsibilities
and increased supervision. Productivity and yield data for the last three months
including January 1996 indicate a positive improvement trend in these measures.
Gross margin: Gross margins expressed as a percentage of net sales for the three
months ended December 31, 1995 and 1994 were 12.4% and 24.9%, respectively. The
three month gross margin for the period ended December, 1995 was comprised of
12.0% attributable to J&L Structural and 19.8% attributable to Brighton. Gross
margins expressed as a percentage of net sales for the six months ended December
31, 1995 and 1994 were 12.4% and 23.8%, respectively. The six month gross margin
for the period ended December, 1995 was comprised of 12.0% attributable to J&L
Structural and 19.6% attributable to Brighton. Aggregate gross margins for the
six months ended December 31, 1995 are 320 basis points below planned level due
mainly to productivity and yield performance, as discussed above, lower net
sales of higher margin crossmember products 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 period. Management has acted
to improve gross margin by announcing price increases on certain products
effective January 1996. In addition, management has negotiated reductions in
billet costs from its billet suppliers effective January 1996. Margins at
Brighton during 1995 have been negatively impacted mainly due to lower sales of
high margin Hastalloy piercer points as a result of customer efforts to extend
their useful lives, and workers compensation rates which resulted from the
merger with J&L Structural
Selling, general and administrative: Selling, general and administrative expense
expressed as a percentage of net sales for the three months ended December 31,
1995 and 1994 were 7.4% and 23.3%, respectively. Selling, general and
administrative expense expressed as a percentage of net sales for the six months
ended December 31, 1995 and 1994 were 6.3% and 20.9%, respectively. Selling,
general and administrative expenses as a percentage of sales increased from the
first quarter due mainly to increased professional fees associated with the new
labor contract negotiated with the United States Workers of America and a
reduced level of overall overhead absorption based on lower net sales.
Interest expense: Interest expense for the three and six month periods ended
December 31, 1995 was $1,815,000 and $3,614,000 respectively. The relatively
flat level of interest expense between operating quarters in light of higher
borrowing levels is reflective of lower interest rates.
Other expense: Other expense results mainly from a $828,000 charge relating to
the signing of a new 58 month labor contract with J&L Structural's bargaining
employees 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 of $533,000 for calendar 1995 computed using the
newly negotiated profit sharing formula.
Liquidity and Capital Resources
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Cash Flow: Cash and cash equivalents decreased $268,000 to $188,000 since
September 30, 1995. Cash used by operations for the three and six months ended
December 31, 1995 totaled $4,269,000 and $4,258,000, respectively. The negative
cash flow from operations resulted from the net loss realized in the second
fiscal quarter coupled with a build-up in inventory levels. Due to the early
winter weather experienced this year, the highway guard rail business subsided
earlier than anticipated which left J&L overstocked with billets for wide flange
product totaling approximately $1,200,000.
The Company's investing activities are comprised mainly of disbursements
totaling $2,240,000 against the new reheat furnace installation project
scheduled for completion in June 1996. Total capital expenditures estimated for
this project will amount to approximately
$8,300,000.
Liquidity: Although the Company's total equity represents a deficit of
$10,811,000, 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 will be provided from state funding loans totaling
$1,000,000, 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.
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 December, 2002. This line of credit was drawn on immediately
in the amount of $456,406 to satisfy interest due in arrears to date. In
conjunction with the execution of the line of credit, 300,000 warrants for
Company stock have been issued to Trinity for a period of ten years with an
exercise price of $4.00 per warrant
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 Company's Senior Term Loan, Revolving Loan Facility and 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 December 31, 1995, J&L was not in compliance
with the capital expenditures limitation covenant agreed to with both its Senior
and Subordinated Lenders. The Company's Lenders have waived their rights with
respect to the above covenant violations as of December 31, 1995, in response to
the Company's request to do so.
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 exclude 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 second 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.
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: February 14, 1996 By: /s/William L. Remley
------------------------------------------------------------
William L. Remley,
President & Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Jun-30-1996
<PERIOD-END> Dec-31-1995
<CASH> 188
<SECURITIES> 0
<RECEIVABLES> 9472
<ALLOWANCES> 242
<INVENTORY> 12442
<CURRENT-ASSETS> 21884
<PP&E> 40883
<DEPRECIATION> 2044
<TOTAL-ASSETS> 64936
<CURRENT-LIABILITIES> 14601
<BONDS> 0
<COMMON> 76
0
0
<OTHER-SE> (10887)
<TOTAL-LIABILITY-AND-EQUITY> 64936
<SALES> 51760
<TOTAL-REVENUES> 51760
<CGS> 45342
<TOTAL-COSTS> 45342
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 3614
<INCOME-PRETAX> (1140)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1140)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1140)
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
