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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, 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 ___
As of January 31, 1997, 1,510,084 shares of Common Stock were issued and
outstanding.
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1: Financial Statements
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands, except per share amounts)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
Net sales $ 22,846 $ 24,816 $ 47,780 $ 51,760
Cost of sales 20,296 21,731 42,092 45,342
------------ ----------- ----------- ----------
Gross profit 2,550 3,085 5,688 6,418
Selling, general and administrative 1,596 1,843 3,055 3,270
------------ ----------- ----------- ----------
Operating income 954 1,242 2,633 3,148
Other expense (income):
Interest expense 1,874 1,815 3,646 3,614
Minority interest (113) (186) (65) (104)
Other expense (income), net (34) 755 (68) 778
------------ ----------- ----------- ----------
Loss before income taxes (773) (1,142) (880) (1,140)
Income taxes - - - -
------------ ----------- ----------- ----------
Net loss $ (773) $ (1,142) $ (880) $ (1,140)
============ =========== =========== ==========
Primary and fully-diluted loss per share $ (.51) $ (.76) $ (.58) $ (.75)
============ =========== =========== ==========
Weighted average common and common
equivalent shares outstanding (000's) 1,510 1,510 1,510 1,510
============ =========== ========== ==========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(Unaudited)
<TABLE>
<S> <C> <C>
December 31, June 30,
1996 1996
ASSETS
Current assets:
Cash and cash equivalents $ 157 $ 174
Receivables, net of allowances 6,309 8,506
Inventories 9,606 10,813
Other current assets 79 130
------------ ----------
Total current assets 16,151 19,623
Property, plant and equipment, net 45,943 44,500
Deferred financing costs, net 2,168 2,374
Goodwill 1,412 1,460
Other assets 583 627
------------ ----------
Total assets $ 66,257 $ 68,584
============ ==========
LIABILITIES & SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 8,783 $ 8,881
Accrued expenses 3,827 4,052
Current portion of long-term debt 3,011 2,776
------------ -----------
Total current liabilities 15,621 15,709
Long-term debt 57,594 58,888
Other long-term obligations 400 400
Minority interest 2,506 2,571
Shareholders' deficit:
Common stock authorized 30,000,000 shares
of $.05 par value each, 1,510,084 shares
issued and outstanding 76 76
Additional paid in capital 5,737 5,737
Accumulated deficit (15,677) (14,797)
------------ -----------
Total shareholders' deficit (9,864) (8,984)
------------ -----------
Total liabilities and shareholders' deficit $ 66,257 $ 68,584
============ ===========
See Notes to Unaudited Consolidated Financial Statements
</TABLE>
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
Cash flows from operating activities:
Net loss $ (773) $ (1,142) $ (880) $ (1,140)
Adjustments to reconcile net loss to net cash
provided (used) by operations:
Minority interest in earnings of subsidiaries (113) (186) (65) (104)
Depreciation and amortization 1,038 784 1,951 1,580
Capitalized interest - - (130) -
Changes in working capital:
Decrease in receivables 2,997 1,351 2,197 1,540
Decrease (increase) in inventories (547) (2,792) 1,207 (4,433)
Decrease in other current assets 42 77 51 194
Decrease in accounts payable
and accrued expenses (2,358) (2,361) (324) (1,896)
----------- ------------ ----------- ------------
Cash provided (used) by operating activities 286 (4,269) 4,007 (4,259)
----------- ------------ ----------- ------------
Cash flows from investing activities:
Capital expenditures (641) (1,931) (2,971) (3,313)
Decrease (increase) in other assets 11 - 44 (33)
---------- ------------ ----------- ------------
Cash used by investing activities (630) (1,931) (2,927) (3,346)
---------- ------------ ----------- ------------
Cash flows from financing activities:
Repayment on long-term obligations (701) (555) (1,369) (916)
Net borrowings (repayments) under 111 6,487 (1,262) 7,737
revolving credit facility
Borrowings under unsecured line of credit - - 34 -
Borrowings under senior term loan 500 - 1,000 -
Borrowings from state development loans 500 - 500 -
---------- ------------ ----------- ------------
Cash provided (used) by financing activities 410 5,932 (1,097) 6,821
---------- ------------ ----------- ------------
Net increase (decrease) in cash and cash equivalents 66 (268) (17) (784)
Cash and cash equivalents:
Beginning of period 91 456 174 972
----------- ------------ ----------- ------------
End of period $ 157 $ 188 $ 157 $ 188
=========== ============ =========== ============
Supplemental data - cash paid during the period for:
Interest $ 1,567 $ 1,508 $ 3,029 $ 2,983
=========== ============ =========== ============
Income taxes $ - $ 160 $ - $ 167
=========== ============ =========== ============
See Notes to Unaudited Consolidated Financial Statements
</TABLE>
<PAGE>
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 H. Industries, Inc. (formerly,
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 manufactures and fabricates lightweight structural steel shapes
which are distributed principally to the manufactured housing, tractor
trailer manufacturing and highway construction 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 considered necessary for a fair presentation
which were of a normal and recurring nature 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, 1996.
2. Inventories
Inventories consisted of the following (in $000's):
<TABLE>
<S> <C> <C>
December 31, June 30,
1996 1996
Raw materials $ 1,754 $ 1,971
Finished goods 7,852 8,842
--------- ---------
Total $ 9,606 $ 10,813
========= =========
</TABLE>
3. Long-Term Debt
Long-term debt consisted of the following (in $000's):
<TABLE>
<S> <C> <C>
December 31, June 30,
1996 1996
Senior term loan $ 21,530 $ 21,884
Subordinated term notes 23,000 23,000
Revolving loan facility 8,618 9,880
Fixed rate 13% debenture 6,730 6,730
Unsecured revolving credit facility 1,000 966
Note payable to state 485 --
Deferred purchase money note 475 475
--------- ---------
61,838 62,935
Less: current portion of long-term debt 3,011 2,776
Less: discounts on long-term debt 1,233 1,271
--------- ---------
Total $ 57,594 $ 58,888
========= =========
</TABLE>
<PAGE>
J&L'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, 1996, J&L was not in
compliance with its operating cash flow and total debt service covenants
with its senior and subordinated lenders. J&L's lenders have waived their
rights with respect to the above covenant violations as of December 31,
1996, in response to J&L's request to do so.
On October 30, 1996, J&L closed on certain state debt totaling $500,000
which was available to it in order to assist in the financing of the new
reheat furnace. This debt bears interest at 3% and amortizes over 60 months
beginning December 1, 1996 with monthly payments totaling $8,984.
Two additional borrowings under J&L's Senior Term Loan of $500,000 each
were effected during the fiscal quarter ended September 30, 1996 and during
October 1996, respectively. These borrowings were made in connection with a
special borrowing provision of up to $3 million for specified capital
projects. As of October 30, 1996, J&L borrowed all funds available under
its Senior Term Loan.
Effective October 1, 1996, Trinity Investment Corp. ("Trinity"), an
affiliated company, issued waivers of demand for payment of interest to CPT
under its fixed rate 13% debenture and its unsecured revolving credit
facility, which was due on this date. The waiver extends the payment date
to April 1, 1997.
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, 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, an 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, which appeal remains pending. As of December 31,
1996, CPT has made payments aggregating approximately $545,000 to the Plan
and as of June 30, 1996, has fully accrued the amount of the outstanding
claim less payments made through the June 30, 1996 date. The Company will
continue to make monthly installment payments to the plan of approximately
$25,000 against the remaining obligation under this claim.
The Company is party to several lawsuits arising in the ordinary course of
its business. The Company's management and legal counsel believe that there
are valid defenses to the claims being asserted. While the Company's
ultimate liability with respect to these lawsuits cannot be determined at
this time, management believes the resolution thereof will not have a
materially adverse effect on the financial position or results of
operations of the Company.
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 (formerly TCI) and
the Aliquippa 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 following 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 on to customers.
<PAGE>
Results of Operations
Net Sales for the three and six month periods ended December 31, were:
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
J&L Structural $21,135,000 $23,409,000 $44,683,000 $48,947,000
Brighton 1,711,000 1,407,000 3,097,000 2,813,000
--------- --------- --------- ---------
Total $22,846,000 $24,816,000 $47,780,000 $51,760,000
</TABLE>
Net sales for J&L Structural for the three and six months ended
December 31, 1996 decreased from the same periods in the prior year
due to lower volume and lower average pricing. Total tonnage shipped
for the three and six months ended December 31, 1996 decreased 6.6%
and 6.0 %, respectively, from the same periods in the previous year.
Manufactured housing related shipments of Junior Beams (registered
trademark), which represent approximately 65% of J&L Structural's
business, continue to increase as growth in this industry is projected
to continue, albeit at a slower rate than the industry has most
recently experienced, due to increasing product acceptance as a result
of quality and design improvements. J&L Structural maintains a
significant market share of total structural steel beam shipments in
this business segment. Junior Beam (registered trademark) tonnage
shipments have decreased 1.0% and increased 5.3% compared to the three
and six month periods in the previous year, respectively. These
results were further impacted by lower volume experienced in the
truck/trailer manufacturing, highway construction and steel service
center segments of our business. Truck/trailer manufacturing business
shipments of crossmembers were off 44.0% and 38.7% compared to the
three and six month periods in the previous year, respectively. The
significant decline in sales to this industry reflects a general
reduction in truck/trailer manufacturing volume in response to market
wide sluggish demand. The current backlog of orders for crossmembers
does not indicate a significant near term turnaround. Highway
construction business has picked up during the second quarter of
fiscal 1997 mainly as a result of relatively mild weather through
December 1996 compared to the unusually severe weather experienced
throughout last year's winter season. The first six months of fiscal
1997 was sluggish as a result of prolonged state budget negotiations
during 1996, particularly in the state of New York, which resulted in
the elimination of certain highway projects until calendar 1997. J&L
Structural experienced a volume increase in wide flange beams of 31.0%
and a reduction of 1.1% compared to the three and six month periods in
the previous year, respectively. Steel service center business was
down approximately 1.2% and 16.3% during the three and six month
periods ended December 31, 1996 compared to the same periods in the
previous year, respectively, as a result of reduced volume to the
construction industry. The second quarter performance was partially
offset by favorable weather conditions compared to the previous year
as discussed earlier. The highway construction and steel service
center business combined represent approximately 20% of J&L
Structural's overall business volume.
The overall reduction in average pricing to J&L Structural of 2.9%
compared to the same six month period last year resulted mainly from
the lower mix of crossmembers to total tonnage shipped this year.
Crossmembers carry the highest price per ton due to the value-added
processing which is performed prior to shipment.
Brighton's sales for the current three and six month periods, as
measured in dollars, increased 21.6% and 10.1% as compared to the same
periods in the previous fiscal year, respectively. However, overall
mix shifted to more production of the higher profit hastalloy versus
lower margin carbide steel product. This shift was due mostly to
timing of orders rather than market share movement.
<PAGE>
Gross Margins for the three and six months ended December 31, were:
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
J&L Structural 10.0% 12.0% 11.0% 12.0%
Brighton 26.1% 19.8% 25.3% 19.6%
---- ---- ---- ----
Total 11.2% 12.4% 11.9% 12.4%
</TABLE>
<PAGE>
Gross margins for J&L Structural were lower compared to prior period
results for both the three and six months due to lower overall sales
volumes and production inefficiencies due to start-up costs for the
newly installed reheat furnace. As of the second fiscal quarter end,
the furnace builder has completed certain identified equipment
improvements and is expected to soon be conducting final equipment
testing to verify conformance with contracted equipment specifications
and performance. Productivity measures observed during December 1996
and January 1997 have indicated steady improvement, and management
believes that the Company should begin in the near term to realize the
benefits of this significant capital investment.
The negative impact on J&L Structural's gross margins was somewhat
mitigated by a reduction in billet costs of 4.6% over the same period
in the previous year as a result of lower steel scrap costs, which
play a major factor in billet pricing, and improved supply agreements
with certain billet suppliers.
Brighton's gross margins have significantly improved in comparison to
the same period in the prior year due mainly to a greater mix of sales
of its most profitable, hastalloy product.
Selling, general and administrative expenses compared favorably with
the prior year due to ongoing cost control emphasis at J&L Structural
and the finalization of certain corporate charges relating to
litigation regarding Hupp.
Liquidity and Capital Resources
Cash flows from operations for the three and six months ended December
31, 1996 and 1995 totaled $286,000, $4,006,000, ($4,269,000) and
($4,259,000), respectively. The improvement in cash flow over the
prior year was due mainly to the fact that J&L Structural was
significantly building inventories during the second quarter of fiscal
1996. Reduced inventory levels in early fiscal 1996 resulted from
production inefficiencies experienced with establishing a second
production shift. Productivity inefficiencies relating to the start-up
of the new reheat furnace were experienced during the first half of
fiscal 1997, and have had a negative impact on working capital.
Productivity and resulting gross margins are expected to improve in
the near term as yield and tons per hour improvements are realized.
The Company's investing activities included capital expenditures
totaling approximately $641,000 and $2,971,000 for the three and six
months ended December 31, 1996. Capital expenditures included final
expenditures associated with the new reheat furnace installation of
which approximately $1,400,000 remains outstanding as a holdback
pending satisfaction of the contractor's contractual performance
guarantees to be demonstrated in the final equipment testing program.
Financing activities for the second quarter of fiscal 1997 included
scheduled Senior Lender repayments totaling $701,000, net borrowings
under the Senior Lender revolving credit facility totaling $111,000,
borrowings under the Senior Loan capital expenditures line of credit
totaling $500,000 and borrowings under a state lending program
relating to the reheat furnace installation totaling $500,000. J&L
completed the installation of a new reheat furnace in late July 1996;
however, until final satisfaction of equipment performance guarantees
is given by the contractor based on testing, J&L has not released
final payments under the contract totaling approximately $1,400,000.
Additional borrowings for capital expenditure funding to be provided
by state and county sources totaling approximately $850,000 have been
approved and are expected to close by April, 1997.
Total outstanding debt of J&L, which excludes affiliated debt, as of
December 31, 1996 and June 30, 1996 totals $53,633,000 and
$54,764,000, respectively. Interest expense on unaffiliated debt of
J&L totaled $3,076,000 for the six months ended December 31, 1996,
which represents an effective average borrowing rate approximating
11.4% over the period.
J&L is in violation of its debt service coverage covenants with its
senior and subordinated lenders based on computations performed as of
the December 31, 1996 measurement date. These covenants have been
waived as of such measurement date by the lenders at the request of
J&L management. 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.
<PAGE>
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.
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, 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, an 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, which
appeal remains pending. As of December 31, 1996, CPT has made payments
aggregating approximately $545,000 to the Plan and as of June 30, 1996, has
fully accrued the amount of the outstanding claim less payments made through the
June 30, 1996 date. The company will continue to make monthly installment
payments to the plan of approximately $25,000 against the remaining obligation
under this claim.
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
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, 1996, J&L was not in compliance
with its operating cash flow and total debt service covenants with its senior
and subordinated lenders. J&L's lenders have waived their rights with respect to
the above covenant violations as of December 31, 1996, in response to J&L's
request to do so.
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: None
<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: February 14, 1997 By: /s/William L. Remley
William L. Remley,
President & Treasurer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 157
<SECURITIES> 0
<RECEIVABLES> 6645
<ALLOWANCES> 336
<INVENTORY> 9606
<CURRENT-ASSETS> 16151
<PP&E> 50986
<DEPRECIATION> 5043
<TOTAL-ASSETS> 66257
<CURRENT-LIABILITIES> 15621
<BONDS> 0
<COMMON> 76
0
0
<OTHER-SE> (9940)
<TOTAL-LIABILITY-AND-EQUITY> 66257
<SALES> 22846
<TOTAL-REVENUES> 22846
<CGS> 20296
<TOTAL-COSTS> 20296
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1874
<INCOME-PRETAX> (773)
<INCOME-TAX> 0
<INCOME-CONTINUING> (773)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (773)
<EPS-PRIMARY> (.51)
<EPS-DILUTED> (.51)
</TABLE>
