- ------------------------------------------------------------------------------
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, 1998
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 May 15, 1998 1,510,084 shares of Common Stock were issued and outstanding.
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1
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1: Financial Statements
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
($000's Except Per Share Amounts)
<TABLE>
Three Months Ended Nine Months Ended
March 31, March 31,
<S> <C> <C> <C> <C>
1998 1997 1998 1997
---- ---- ---- ----
Net sales $ 28,370 $ 23,155 $ 81,948 $ 70,935
Cost of sales 24,250 19,997 70,135 62,089
----------- ----------- ------------ ------------
Gross profit 4,120 3,158 11,813 8,846
Selling, general and
administrative 1,881 1,698 5,169 4,754
----------- ----------- ------------ ------------
Operating income 2,239 1,460 6,644 4,092
Other expense (income):
Interest expense 1,859 1,920 5,734 5,565
Minority interest 101 3 296 (62)
Other, net 130 ( 21) 318 (89)
----------- ------------ ------------ -------------
Income (loss) before
income taxes 149 (442) 296 (1,332)
Income taxes 43 - 137 -
----------- ----------- ------------ ------------
Net income (loss) $ 106 $ (442) $ 159 $ (1,322)
======== ========= ========= ==========
Earnings per common
share:
Basic $ 0.07 $ (0.29) $ 0.11 $ (0.88)
========= ========== ========= ==========
Diluted $ 0.02 $ (0.29) $ (0.02) $ (0.88)
========= ========== ========== ==========
Weighted average common
shares outstanding
(000's) 1,510 1,510 1,510 1,510
=========== =========== ============ ============
Weighted average common
and common
equivalent shares
outstanding (000's) 2,150 1,510 1,510 1,510
=========== =========== ============ ============
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
2
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
($000's)
March 31, June 30,
ASSETS 1998 1997
- ------ ---- ----
Current assets:
Cash and cash equivalents $ 441 $ 61
Receivables - net of allowances 9,216 9,471
Inventories 12,098 9,876
Other current assets 780 348
---------- ----------
Total current assets 22,535 19,756
Property, plant and equipment - net 41,622 43,749
Deferred financing costs, net 1,629 1,952
Goodwill 1,296 1,365
Other assets 348 348
---------- ----------
Total assets $ 67,430 $ 67,170
========== ==========
LIABILITIES & SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 10,856 $ 9,562
Accrued expenses 6,615 5,581
Due to affiliates 1 165
Current portion of long-term debt 4,174 3,378
---------- ----------
Total current liabilities 21,646 18,686
Long-term debt 53,800 56,955
Other long-term obligations 840 840
Minority interest 2,623 2,327
Shareholders' deficit:
Common stock authorized 30,000,000 shares of
$.05 par value each, 1,510,084 shares issued 76 76
and outstanding
Additional paid in capital 5,737 5,737
Accumulated deficit (17,292) (17,451)
----------- -----------
Total shareholders' deficit (11,479) (11,638)
----------- -----------
Total liabilities and shareholders' deficit $ 67,430 $ 67,170
========== ==========
See Notes to Unaudited Consolidated Financial Statements
3
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($000's)
<TABLE>
Three Months Ended Nine Months Ended
March 31, March 31,
<S> <C> <C> <C> <C>
1998 1997 1998 1997
---- ---- ---- ----
Cash flows from operating activities:
Net income (loss) ............................... $ 106 $ (442) $ 159 $(1,322)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operations:
Minority interest in earnings
(loss) of subsidiaries .................... 101 3 296 (62)
Depreciation and amortization ................ 1,110 1,082 3,314 3,032
Capitalized interest ......................... - - - (130)
Changes in working capital:
(Increase) decrease in receivables ........... (2,199) (2,432) 255 (236)
(Increase) decrease in inventories ........... (1,208) (1,083) (2,222) 125
(Increase) decrease in other current assets .. (390) 19 (433) 70
Increase in accounts payable and
accrued expenses .......................... 2,766 1,662 2,164 1,338
------- ------- ------- -------
Net cash provided (used) by
operating activities ...................... 286 (1,191) 3,533 2,815
------- ------- ------- -------
Cash flows from investing activities:
Capital expenditures ......................... (247) (361) (689) (3,332)
Decrease in other assets ..................... - 235 - 279
------- ------- ------- -------
Net cash used by investing activities ........ (247) (126) (689) (3,053)
------- ------- ------- -------
Cash flows from financing activities:
Repayment on long-term obligations ........... (823) (726) (2,412) (2,095)
Net borrowings (repayments) under
revolving credit facility ................. 965 1,914 (52) 653
Borrowings under unsecured line of credit .... - - - 34
Borrowings under senior term loan ............ - - - 1,000
Borrowings from state development loans ...... - - - 500
------- ------- ------- -------
Net cash provided (used) by
financing activities ...................... 142 1,188 (2,464) 92
------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents ............................... 181 (129) 380 (146)
Cash and cash equivalents:
Beginning of period .......................... 260 157 61 174
------- ------- ------- -------
End of period ................................ $ 441 $ 28 $ 441 $ 28
======= ======= ======= =======
Supplemental data - cash paid during the period for:
Interest, net of capitalized amounts ......... 1,485 $ 1,557 $ 4,576 $ 4,586
======= ======= ======= =======
Income taxes ................................. $ - $ - $ - $ -
======= ======= ======= =======
</TABLE>
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 manufacturing, 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 for Form 10-Q and Article 10
of Regulation S-X 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. Certain amounts
included in the prior periods' financial statements have been reclassified
to conform with the current periods' presentation. 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):
March 31, June 30,
1998 1997
---- ----
Raw materials $ 2,064 $1,954
Finished goods 10,034 7,922
------- ------
$12,098 $9,876
======= ======
5
<PAGE>
3. Long-Term Debt
Long-term debt consisted of the following (in $000's):
March 31, June 30,
1998 1997
---- ----
Senior term loan $ 17,838 $ 20,108
Subordinated term notes 23,000 23,000
Revolving loan facility 9,198 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 781 923
--------- ---------
59,022 61,487
Less current portion of long-term debt 4,174 3,378
Less discounts on long-term debt 1,048 1,154
--------- ---------
Total $ 53,800 $ 56,955
========= =========
Effective April 1, 1998, Trinity Investment Corp. ("Trinity"), an affiliated
company, issued waivers of demand for payment of interest for 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 October 1, 1998.
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 March 31, 1998, CPT has made payments aggregating approximately
$766,000 to the Plan and as of the same date, 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
judgement, 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 March 31, 1998, $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. J&L is currently
insured under a fixed cost, fully insured 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 startup 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 March 31,
1998, 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
March 31, 1998. 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.
5. Earnings Per Share
In 1997, the Financial Accounting Standards Boards issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("FAS 128"). FAS
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented, and where
necessary, restated to conform to the FAS 128 requirements.
The following table sets forth the computation of basic and diluted earnings
per common share (in $000's, except per share amounts):
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
<TABLE>
---- ---- ---- ----
Numerator:
<S> <C> <C> <C> <C>
Net income (loss) .................... $ 106 $ (442) $ 159 $ (1,322)
Dilution on earnings resulting
from subsidiary warrants .......... (63) -- (183) --
----------- ---------- ----------- -----------
Net income (loss) available to
common shareholders ..................... $ 43 $ (442) $ (24) $ (1,322)
=========== ========== =========== ===========
Denominator:
Denominator for basic earnings
per share-weighted average
shares ............................ 1,510,084 1,510,084 1,510,084 1,510,084
Effect of dilutive securities:
Warrants .......................... 639,456 - - -
----------- ---------- ----------- -----------
Denominator for diluted earnings
per share-adjusted weighted-average
shares and assumed conversion ..... 2,149,540 1,510,084 1,510,084 1,510,084
=========== ========== =========== ===========
Basic earnings per common share ...... $ 0.07 $ (0.29) $ 0.11 $ (0.88)
=========== ========== =========== ===========
Diluted earnings per common share .... $ 0.02 $ (0.29) $ (0.02) $ (0.88)
=========== ========== =========== ===========
</TABLE>
7
<PAGE>
On April 1, 1995, the Company issued warrants exercisable for 2,000,000 shares
of the Company's common stock for a period of ten years from the date of
issuance at $1 per share.
On February 1, 1996, the Company issued a warrant exercisable for 300,000 shares
of the Company's common stock, for a period of ten years from the date of
issuance at $4 per share. These warrants which could potentially dilute earnings
per share in the future were not included in the diluted computation because the
weighted average price per share for the three and nine months ended March 31,
1998 and 1997 did not exceed the exercise price.
ITEM 2: Management's Discussion and Analysis of Financial Condition And
Results Of Operations
J&L is segmented into two distinct operating divisions, J&L Structural division
("J&L Structural") and Brighton Electric Steel Casting Company division
("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.
Results of Operations
Net Sales
Net sales for the three month and nine month periods ended March 31, were:
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
---- ---- ---- ----
J&L Structural $ 26,478,000 $ 21,631,000 $ 77,078,000 $ 66,314,000
Brighton 1,892,000 1,524,000 4,870,000 4,621,000
------------ ------------ ------------ ------------
Total $ 28,370,000 $ 23,155,000 $ 81,948,000 $ 70,935,000
============ ============ ============ ============
Net sales for J&L Structural during 1998 increased in comparison to the prior
year amounts primarily due to continued strength in the manufactured housing and
general construction industries which together represent over 80% of J&L
Structural's end markets. Overall tonnage shipped increased by 16.5% and 22.9%
over the comparable three and nine month periods in the prior year,
respectively.
Brighton's sales increase for the current three and nine month periods reflects
strong sales to larger volume customers.
8
<PAGE>
Gross Margins
Gross margins for the three month and nine month periods ended March 31, were:
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
---- ---- ---- ----
J&L Structural 13.1% 12.5% 13.5% 11.5%
Brighton 34.4% 30.4% 28.6% 26.9%
----- ----- ----- -----
Total 14.5% 13.6% 14.4% 12.5%
===== ===== ===== =====
Gross margins for J&L Structural improved during fiscal 1998 in comparison to
the prior year due mainly to realization of productivity improvements resulting
from more efficient operation of the new reheat furnace and sale of higher
margin products, particularly for the construction market, offset partially by
higher billet costs. During the comparable periods in fiscal 1997, margins were
lower due to production inefficiencies resulting from required equipment
improvements to the new reheat furnace which were completed during the second
fiscal quarter, and to startup costs relating to the extended period of the
equipment changeover process. Billet costs, which comprise approximately 70% of
J&L Structural's manufacturing costs, have increased on average by approximately
5% and 2% for the three and nine month periods ended March 31, 1998,
respectively, compared to the prior year.
Brighton's gross margins for the three and nine month periods improved
significantly, primarily due to a shift in product mix towards higher margin
products sold to large customers, and lower material costs.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses increased 10.8% and 8.7% for the
three and nine months ended March 31, 1998, respectively over the comparable
periods 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, professional fees for information systems
development efforts and mill improvement analysis, 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 March 31,1998 and 1997
totaled $286,000 and $(1,191,000), respectively, while the nine months ended
March 31, 1998 and 1997 totaled $3,533,000 and $2,815,000, respectively. The
increase in cash flows for the three and nine month periods ending March 31,
1998 compared to the same periods in the prior year was attributed primarily to
improved earnings from operations.
The Company's investing activities for the three and nine months ended March 31,
1998 reflect maintenance capital spending. Capital spending during the
comparable periods in 1997, represented final expenditures associated with the
new reheat furnace installation.
Financing activities for the three and nine months ended March 31, 1998 included
scheduled repayments of $823,000 and $2,412,000, respectively, on the senior
term loan and state loans. Additionally, net borrowings of $965,000 and
repayments of $52,000 took place under the senior lender's revolving credit
facility for the three and nine months ended March 31, 1998, respectively.
Outstanding debt as of March 31, 1998 totaled $59,022,000 with related interest
expense of $5,734,000 for the nine months ended March 31, 1998 representing an
average borrowing rate approximating 12.9% over the period excluding the yield
impact from amortization of deferred financing costs.
9
<PAGE>
Cash and cash equivalents increased from $61,000 to $441,000 for the nine months
ended March 31, 1998. Although the Company's total equity represents a deficit
of approximately $11,479,000, this position is due largely to the poor
performance of previously discontinued operations and a basis adjustment for the
carried predecessor interest in the acquisition of J&L during fiscal 1995
totaling ($9,705,000). The Company's scheduled requirements for cash from
operations during the next twelve months include approximately $4,174,000 of
principal repayments under the senior term loan and various state loans and
approximately $2,500,000 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 during calendar
1998. 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.
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 March 31, 1998, CPT has made payments aggregating approximately
$766,000 to the Plan and as of the same date, 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
judgement, 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.
10
<PAGE>
In 1995, J&L signed a contract for turn-key development, fabrication and
installation of a new reheat furnace. Furnace startup 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 March
31,1998, 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 December 31, 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
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27: Financial Data Schedule for Third 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: May 15, 1998 By: /s/William L. Remley
-----------------------
William L. Remley,
President & Treasurer
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 441
<SECURITIES> 0
<RECEIVABLES> 9248
<ALLOWANCES> 506
<INVENTORY> 12098
<CURRENT-ASSETS> 22535
<PP&E> 51349
<DEPRECIATION> 9727
<TOTAL-ASSETS> 67430
<CURRENT-LIABILITIES> 21646
<BONDS> 0
<COMMON> 76
0
0
<OTHER-SE> (11555)
<TOTAL-LIABILITY-AND-EQUITY> 67430
<SALES> 28370
<TOTAL-REVENUES> 28370
<CGS> 24250
<TOTAL-COSTS> 26104
<OTHER-EXPENSES> 231
<LOSS-PROVISION> 27
<INTEREST-EXPENSE> 1859
<INCOME-PRETAX> 149
<INCOME-TAX> 43
<INCOME-CONTINUING> 149
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106
<EPS-PRIMARY> .07
<EPS-DILUTED> .02
</TABLE>
