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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, 1997
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 ___
As of November 1, 1997, 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)
Three Months Ended
September 30,
1997 1996
---- ----
Net sales $ 28,147 $ 24,934
Cost of sales 23,868 21,795
------ ------
Gross profit 4,279 3,139
Selling, general and administrative 1,598 1,460
----- -----
Operating income 2,681 1,679
Other (income) expense:
Interest expense 1,920 1,772
Minority interest 196 48
Other, net 104 (34)
--- ---
Income (loss) from continuing operations
before income taxes 461 (107)
Income taxes - -
----- -----
Net income (loss) $ 461 $ (107)
========== ========
Primary and fully-diluted earnings
(loss) per share $ 0.22 $ (0.07)
========== ========
Weighted average common and common
equivalent shares outstanding (000's) 3,208 1,510
========== ========
See Notes to Unaudited Consolidated Financial Statements
2
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
($000's)
September 30, June 30,
1997 1997
ASSETS
Current Assets:
Cash and cash equivalents $ 420 $ 61
Receivables - net of allowances 9,665 9,471
Inventories 12,041 9,876
Other current assets 476 348
--- ---
Total current assets 22,602 19,756
Property, plant and equipment - net 43,086 43,749
Deferred financing costs, net 1,845 1,952
Goodwill 1,342 1,365
Other assets 349 348
--- ---
Total assets $ 69,224 $ 67,170
========= ==========
LIABILITIES & SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 11,453 $ 9,562
Accrued expenses 5,646 5,581
Due to affiliates 221 165
Current portion of long-term debt 3,641 3,378
----- -----
Total current liabilities 20,961 18,686
Long-term debt 56,077 56,955
Deferred taxes 540 540
Other long-term obligations 300 300
Minority interest 2,523 2,327
Shareholders' deficit:
Common stock authorized 30,000,000 shares
of $.05 per value each, 1,510,084 shares
issued and outstanding 76 76
Additional paid in capital 5,737 5,737
Accumulated deficit (16,990) (17,451)
------- -------
Total shareholders' deficit (11,177) (11,638)
------- -------
Total liabilities and shareholders' deficit $69,224 $67,170
======= =======
See Notes to Unaudited Consolidated Financial Statements
3
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($000's)
Three Months Ended
September 30,
1997 1996
---- ----
Cash flows from operating activities:
Net income (loss) $ 461 $ (107)
Adjustments to reconcile net income (loss) to net
cash provided by operations:
Minority interest in earnings of subsidiaries 196 48
Depreciation and amortization 1,096 913
Capitalized interest -
(130)
Changes in working capital:
Decrease (increase) in receivables (195) (801)
Decrease (increase) in inventories (2,165) 1,755
Decrease (increase) in other current assets (128) 8
Increase in accounts payable
and accrued expenses 2,012 2,034
----- -----
Cash provided by operating activities 1,277 3,720
----- -----
Cash flows from investing activities:
Capital expenditures (269) (2,330)
Decrease (increase) in other assets (1) 33
----- -----
Cash used by investing activities (270) (2,297)
----- -----
Cash flows from financing activities:
Repayment on long-term obligations (785) (668)
Net borrowings (repayments) under
revolving credit facility 137 (1,373)
Borrowings under Senior loan capital
expenditures line of credit - 500
Borrowings under unsecured line of credit
with affiliate - 34
----- -----
Cash used by financing activities (648) (1,507)
----- -----
Net increase (decrease) in cash and cash equivalents 359 (84)
Cash and cash equivalents:
Beginning of period 61 174
----- -----
End of period $ 420 $ 90
======== =========
Supplemental data - cash paid during the period for:
Interest, net of capitalized amounts $ 1,551 $ 1,462
======== =========
Income taxes $ - -
======== =========
See Notes to Unaudited Consolidated Financial Statements
4
<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 H. 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 manufactures and fabricates lightweight structural steel shapes
which are distributed principally to the manufactured housing, tractor
trailer construction, highway construction and ship building industries.
Brighton designs, manufactures 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 10-Q 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 (including normal recurring accruals) 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, 1997.
2. INVENTORIES
Inventories consisted of the following (in $000's):
September 30, June 30,
1997 1997
---- ----
Raw materials $ 3,388 $ 1,954
Finished goods 8,653 7,922
----- -----
Total $12,041 $ 9,876
======= ========
5
<PAGE>
3. LONG-TERM DEBT
Long-term debt consisted of the following (in $000's):
September 30, June 30,
1997 1997
---- ----
Senior term loan $ 19,369 $ 20,108
Subordinated term notes 23,000 23,000
Revolving loan facility 9,387 9,251
Fixed rate 13% debenture 6,730 6,730
Unsecured revolving credit facility 1,000 1,000
Deferred purchase money note 475 475
State loans 876 923
60,837 61,487
------ ------
Less current portion of long-term debt 3,641 3,378
Less discounts on long-term debt 1,119 1,154
----- -----
Total $ 56,077 $ 56,955
=========== =========
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 against Hupp, CPT 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.
On July 10, 1996, the arbitrator sustained the Plan's claim of withdrawal
liability against CPT. Pursuant to ERISA, CPT subsequently appealed the
arbitration decision to the U.S. District Court for the Northern District of
Ohio. As of September 30, 1997, CPT has made payments aggregating
approximately $766,000 to the Plan and as of June 30, 1996, has fully accrued
the amount of the outstanding claim less payments made through that date. On
September 17, 1997, in response to CPT's appeal, the District Court vacated
in part, and confirmed in part the arbitrator's award. In its final and
appealable judgment, the District Court ruled in favor of the Plan in the
amount of $62,696. The decision is now being appealed by the Plan. CPT has
not recorded any gain contingency with respect to this litigation.
J&L's workers compensation insurance program provides for self insurance with
stop-loss protection. Under this arrangement, for the policy year November
1996-1997, J&L was required to issue a letter of credit in the name of the
insurance company. At September 30, 1997, $1,000,000 was the maximum amount
available under the letter of credit. J&L is financially responsible for the
face value of this letter of credit. The face value of this letter of credit
reduces the availability under the Revolving Line of Credit facility. For the
policy year November, 1996-1997, J&L was required to maintain no other forms
of collateral relating to its workers' compensation program.
6
<PAGE>
In 1995, J&L signed a contract for turn-key development, fabrication and
installation of a new reheat furnace. Furnace start-up took place in July 1996,
with the entire project having a total cost of approximately $8.5 million. Of
this amount, $7.1 million has been disbursed through September 30, 1997, and the
remaining amount of $1.4 million representing the retention on the original
project has not been paid and is recorded in accounts payable at September 30,
1997. J&L is currently in the process of arbitration with the furnace builder
regarding the final payment as the Company believes performance testing results
did not meet contract specifications. A determination of the likely outcome of
the arbitration is unknown at this time.
The Company is not a party to any additional litigation, commitments or
contingent matters.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
J&L Structural, Inc. ("J&L") is segmented into two distinct operating divisions,
J&L Structural division ("J&L Structural") and Brighton Electric Steel Casting
Company ("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. 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.
Readers should be aware that the following paragraphs contain forward looking
statements regarding management's expectations for the continued growth of the
manufactured housing industry, realization of the benefits of the reheat furnace
and the adequacy of the Company's cash flows, which forward looking statements
may not be realized. Several important factors could cause the Company's actual
results of operations to differ materially from those expressed in the foregoing
forward looking statements, including: a significant downturn in manufactured
housing construction and sales may occur, the reheat furnace contract
specifications or the resulting production efficiencies expected therefrom may
never be reached, or billet costs may increase and the Company may not have the
ability to pass such costs to customers.
RESULTS OF OPERATIONS
NET SALES:
Net sales for the three-month periods ended September 30, were:
1997 1996
---- ----
J&L Structural $26,907,000 $23,548,000
Brighton 1,239,000 1,386,000
--------- ---------
Total $28,146,000 $24,934,000
=========== ===========
Net sales for J&L Structural during 1997 increased in comparison to the prior
year amounts primarily due to continued strength in the manufactured housing
industry which represents approximately 65% of J&L Structural's business. In
addition, renewed strength in the general construction industry representing
approximately 15% of J&L Structural's business has more than offset the impact
from the continued weakness in truck trailer manufacturing customer shipments of
crossmembers. Overall shipped tonnage increased by 16% over the comparable
period in the prior year.
7
<PAGE>
Brighton's sales reduction reflects extended (two week rather than one) summer
shut-downs for several customers during 1997, in addition to an employee strike
involving another customer which has been recently resolved.
GROSS MARGINS:
Gross margins for the three-month periods ended September 30,were:
1997 1996
---- ----
J&L Structural 15.7% 11.9%
Brighton 25.4% 24.1%
----- -----
Total 15.2% 12.6%
===== =====
Gross margins for J&L Structural improved significantly during 1997 in
comparison to the prior year due mainly to realization of productivity
improvements resulting from more efficient operation of the new reheat furnace.
During the comparable period in 1996, production inefficiencies due to certain
equipment improvements to the new reheat furnace which were completed during the
second fiscal quarter, as well as start-up costs relating to the changeover to
this significant piece of equipment, hindered operating performance. Billet
costs, which comprise more than 65% of J&L Structural's direct manufacturing
costs remained relatively stable during the comparable periods presented.
Brighton's gross margins have improved from the prior year period due mainly to
a greater mix of sales in its more profitable hastalloy products in addition to
lower raw material costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative expenses increased 9.5% over the comparable
period in the prior year. This increase was due to the hiring of an additional
sales and technical representative who will focus on manufactured housing
industry sales development, the incurrence of additional professional fees for
information systems development efforts, and legal costs associated with the
ongoing arbitration with the furnace builder.
OTHER INCOME / EXPENSE:
Other income/expense in the current year reflects expenditures which resulted
from professional costs incurred relating to a potential acquisition of a steel
company.
LIQUIDITY AND CAPITAL RESOURCES:
Cash flows from operations for the three months ended September 30,1997 and 1996
totaled $1,277,000 and $3,720,000, respectively. The decrease in cash flows
compared to the prior year was attributed primarily to higher inventory levels
in 1997 reflecting higher levels of productivity compared to 1996 and stronger
demand from many of J&L Structural's core markets.
The Company's investing activities for the three months ended September 30, 1997
reflect a normal level of maintenance capital spending. Capital spending during
the comparable period in 1996 included approximately $1.8 million representing
final expenditures associated with the new reheat furnace installation.
8
<PAGE>
Financing activities for the first quarter of fiscal year 1998 included
scheduled repayments of $785,000 on the senior term loan and state loans.
Additionally, net borrowings of $137,000 took place under the senior lender's
revolving credit facility. Outstanding debt as of September 30, 1997 totaled
$60,837,000 with related interest expense of $1,920,000 for the three months
ended September 30, 1997 representing an average borrowing rate approximating
12.5% over the period.
Cash and cash equivalents increased from $61,000 to $420,000 at the end of the
first fiscal quarter compared with June 30, 1997. Although the Company's total
equity represents a deficit of approximately $11,177,000, this position is due
largely to the poor performance of previously discontinued operations and a
basis adjustment for the leveraged Acquisition during fiscal 1995 totaling
($9,705,000). The Company's scheduled requirements for cash from operations
during the remainder of the fiscal year include approximately $2,593,000 of
principal repayments under the senior term loan and various state loans and
approximately $2,000,000 of estimated maintenance and new product development
capital spending. Additionally, it is anticipated that the arbitration with the
furnace builder, described in Note 4 herein, will be settled by fiscal year end.
Management expects that cash flows from operations will continue to satisfy the
Company's requirements to fund operating expenses, debt service and capital
expenditures in the future.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Investors are cautioned that
any forward-looking statements, including statements regarding the intent,
belief, or current expectations of the Company or its management, are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those in the forward-looking
statements as a result of various factors including, but not limited to (i) a
significant downturn in manufactured housing construction and sales and (ii)
billet costs and other raw material costs may rise as a result of increasing
scrap metal pricing and J&L may not have the ability to pass such costs to
customers.
9
<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 against Hupp, CPT 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. On July 10, 1996, the
arbitrator sustained the Plan's claim of withdrawal liability against CPT.
Pursuant to ERISA, CPT subsequently appealed the arbitration decision to the
U.S. District Court for the Northern District of Ohio. As of September 30, 1997,
CPT has made payments aggregating approximately $766,000 to the Plan and as of
June 30, 1996, has fully accrued the amount of the outstanding claim less
payments made through that date. On September 17, 1997, in response to CPT's
appeal, the District Court vacated in part, and confirmed in part the
arbitrator's award. In its final and appealable judgment, the District Court
ruled in favor of the Plan in the amount of $62,696. The decision is now being
appealed by the Plan. CPT has not recorded any gain contingency with respect to
this litigation.
In 1995, J&L signed a contract for turn-key development, fabrication and
installation of a new reheat furnace. Furnace start-up took place in July 1996,
with the entire project having a total cost of approximately $8.5 million. Of
this amount, $7.1 million has been disbursed through September 30, 1997, and the
remaining amount of $1.4 million representing the retention on the original
project has not been paid and is recorded in accounts payable at September 30,
1997. J&L is currently in the process of arbitration with the furnace builder
regarding the final payment as the Company believes performance testing results
did not meet contract specifications. A determination of the likely outcome of
the arbitration is unknown at this time.
The Company is not a party to any additional litigation, commitments or
contingent matters.
ITEM 2: CHANGES IN SECURITIES
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: OTHER INFORMATION
None
10
<PAGE>
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: None
11
<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 14, 1997 By: /s/William L. Remley
___________________________
William L. Remley,
President & Treasurer
Dated: November 14, 1997 By: /s/Richard L. Kramer
___________________________
Richard L. Kramer,
Chairman of the Board,
Secretary and Director
Dated: November 14, 1997 By: /s/Richard C. Hoffman
___________________________
Richard C. Hoffman, Director
12
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