- ------------------------------------------------------------------------------
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, 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 February 13, 1998 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)
<TABLE>
Three Months Ended Six Months Ended
December 31, December 31,
<S> <C> <C> <C> <C>
1997 1996 1997 1996
---- ---- ---- ----
Net sales $ 25,431 $ 22,846 $ 53,578 $ 47,780
Cost of sales 22,016 20,454 45,885 42,370
---------- ----------- ------------ ------------
Gross profit 3,415 2,392 7,693 5,410
Selling, general and
administrative 1,690 1,438 3,288 2,777
---------- ----------- ------------ ------------
Operating income 1,725 954 4,405 2,633
Other (income) expense:
Interest expense 1,955 1,874 3,875 3,646
Minority interest (1) (113) 195 (65)
Other, net 84 ( 34) 187 ( 68)
---------- ------------ ------------ -------------
(Loss) income before
income taxes (313) (773) 148 (880)
Income taxes 94 - 94 -
---------- ----------- ------------ ------------
Net (loss) income $ (407) $ (773) $ 54 $ (880)
=========== ========= ============ ==========
Basic earnings per
common share $ (0.27) $ (0.51) $ 0.04 $ (0.58)
============ ========== ============ ==========
Diluted earnings per
common share $ (0.27) $ (0.51) $ (0.04) $ (0.58)
============ ========== ============= ==========
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
2
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
($000's)
December 31, June 30,
ASSETS 1997 1997
- ------ ---- ----
Current assets:
Cash and cash equivalents $ 260 $ 61
Receivables - net of allowances 7,016 9,471
Inventories 10,890 9,876
Other current assets 390 348
--------- ----------
Total current assets 18,556 19,756
Property, plant and equipment - net 42,321 43,749
Deferred financing costs, net 1,737 1,952
Goodwill 1,318 1,365
Other assets 348 348
--------- ----------
Total assets $ 64,280 $ 67,170
========= ==========
LIABILITIES & SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 8,931 $ 9,562
Accrued expenses 5,642 5,581
Due to affiliates 133 165
Current portion of long-term debt 3,906 3,378
--------- ----------
Total current liabilities 18,612 18,686
Long-term debt 53,890 56,955
Deferred taxes 540 540
Other long-term obligations 300 300
Minority interest 2,522 2,327
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 (17,397) (17,451)
--------- -----------
Total shareholders' deficit (11,584) (11,638)
--------- -----------
Total liabilities and shareholders' deficit $ 64,280 $ 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 Six Months Ended
December 31, December 31,
1997 1996 1997 1996
---- ---- ---- ----
Cash flows from operating activities:
Net (loss) income $(407) $(773) $ 54 $ (880)
Adjustments to reconcile net (loss)
income to net
cash provided by operations:
Minority interest in (loss)
earnings of subsidiaries (1) (113) 195 (65)
Depreciation and amortization 1,106 1,038 2,201 1,951
Capitalized interest - - - (130)
Changes in working capital:
Decrease in receivables 2,649 2,997 2,455 2,197
Decrease (increase) in inventories 1,151 (547) (1,014) 1,207
Decrease (increase) in other 86 42 (42) 51
current assets
Decrease in accounts payable and
accrued expenses (2,614) (2,358) (602) (324)
--------- -------- -------- ---------
Net cash provided by operating
activities 1,970 286 3,247 4,007
-------- ------- ------- --------
Cash flows from investing activities:
Capital expenditures (173) (641) (442) (2,971)
Increase in other assets - 11 - 44
-------- ------- ------- --------
Net cash used by investing
activities (173) (630) (442) (2,927)
--------- -------- -------- ---------
Cash flows from financing activities:
Repayment on long-term obligations (804) (701) (1,589) (1,369)
Net (repayments) borrowings under
revolving credit facility (1,153) 111 (1,017) (1,262)
Borrowings under unsecured line of
credit - - - 34
Borrowings under senior term loan - 500 - 1,000
Borrowings from state development - 500 - 500
-------- ------- ------- --------
loans
Net cash (used) provided by
financing activities (1,957) 410 (2,606) (1,097)
--------- ------- -------- ---------
Net (decrease) increase in cash and
cash equivalents (160) 66 199 (17)
Cash and cash equivalents:
Beginning of period 420 91 61 174
-------- ------- ------- --------
End of period $ 260 $ 157 $ 260 $ 157
======== ======= ======= ========
Supplemental data - cash paid
during the period for:
Interest, net of capitalized
amounts $ 1,573 $ 1,567 $ 3,124 $ 3,029
======== ======= ======= ========
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 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 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.
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):
December 31, June 30,
1997 1997
---- ----
Raw materials $ 2,883 $ 1,954
Finished goods 8,007 7,922
----- -----
Total $10,890 $ 9,876
====== =====
5
<PAGE>
3. Long-Term Debt
Long-term debt consisted of the following (in $000's):
December 31, June 30,
1997 1997
- --- ---- ----
Senior term loan $ 18,613 $ 20,108
Subordinated term notes 23,000 23,000
Revolving loan facility 8,233 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 828 923
----------- ---------
58,879 61,487
Less current portion of long-term debt 3,906 3,378
Less discounts on long-term debt 1,083 1,154
----------- ---------
Total $ 53,890 $ 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 December 31, 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 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 December 31, 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. 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 December 31,
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
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.
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 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):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
Numerator:
<S> <C> <C> <C> <C>
Net (loss) income ................. $ (407) $ (773) $ 54 $ (880)
Dilution on earnings resulting from
subsidiary warrants ......... -- -- (121) --
_____ ____ _____ _____
Net loss available to common
shareholders ................ $ (407) $ (773) $ (67) $ (880)
Denominator:
Denominator for basic earnings per
share-weighted average shares 1,510,084 1,510,084 1,510,084 1,510,084
Basic earnings per common share ... $ (0.27) $ (0.51) $ 0.04 $ (0.58)
Diluted earnings per common share . $ (0.27) $ (0.51) $ (0.04) $ (0.58)
</TABLE>
7
<PAGE>
On April 1, 1995, the Company issued 2,000,000 warrants for the Company's common
stock which are exercisable for a period of ten years from the date of issuance
at $1 per warrant. These warrants, although dilutive to earnings per share, were
not included in the diluted computation because they would have been
antidilutive for all periods presented.
On February 1, 1996, the Company issued 300,000 warrants for the Company's
common stock, which are exercisable for a period of ten years from the date of
issuance at $4 per warrant. 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 six months ended
December 31, 1997 and 1996 did not exceed the exercise price.
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.
Results of Operations
Net Sales
Net sales for the three month and six month periods ended December 31, were:
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
J&L Structural $23,693,000 $21,135,000 $50,600,000 $44,683,000
Brighton 1,738,000 1,711,000 2,978,000 3,097,000
--------- --------- --------- ---------
Total $25,431,000 $22,846,000 $53,578,000 $47,780,000
=========== =========== =========== ===========
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 20% of J&L Structural's business has more than offset the impact
from the continued weakness in customer shipments of crossmembers to the truck
trailer market. Overall shipped tonnage increased by 10.6% and 13.4% over the
comparable three and six month periods in the prior year, respectively.
Brighton's sales reduction for the current six month period reflects extended
(two week rather than one) summer shut-downs for several customers, in addition
to an employee strike involving another customer which has been recently
resolved. Brighton's sales increase for the current three month period reflects
increased unit shipments to most customers, offset by the lingering effects of
the aforementioned employee strike.
8
<PAGE>
Gross Margins
Gross margins for the three month and six month periods ended December 31,
were:
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
---- ---- ---- ----
J&L Structural 12.6% 9.2% 13.7% 10.4%
Brighton 24.6% 26.1% 24.9% 25.3%
----- ----- ----- -----
Total 13.4% 10.5% 14.4% 11.3%
===== ===== ===== =====
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
and production of higher margin products, particularly for the construction
market. During the comparable periods in 1996, production inefficiencies
resulted from required equipment improvements to the new reheat furnace which
were completed during the second fiscal quarter, as well as startup costs
relating to the extended period of changeover to this vital piece of equipment,
hindered operating performance. Billet costs, which comprise approximately 70 %
of J&L Structural's manufacturing costs remained relatively stable during the
comparable periods presented.
Brighton's gross margins have decreased in comparison to the prior year periods
due mainly to product mix changes.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 17.5% and 18.4% for the
three and six months ended December 31, 1997, 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 December 31,1997 and 1996
totaled $1,970,000 and $286,000, respectively, while the six months ended
December 31, 1997 and 1996 totaled $3,247,000 and $4,007,000, respectively. The
increase in cash flows from operations for the three months ended December 31,
1997 compared to the same period in the prior year reflect reduced inventory
levels due to second quarter shipments being higher than anticipated. The
decrease in cash flows for the six month period ending December 31, 1997
compared to the same period in the prior year was attributed primarily to higher
inventory levels in 1997 reflecting higher levels of operations compared to 1996
resulting from stronger demand from most of J&L Structural's core markets.
9
<PAGE>
The Company's investing activities for the three and six months ended December
31, 1997 reflect maintenance capital spending. Capital spending during the
comparable periods in 1996 included approximately $200,000 and $2,000,000,
representing final expenditures associated with the new reheat furnace
installation.
Financing activities for the three and six months ended December 31, 1997
included scheduled repayments of $804,000 and $1,589,000, respectively on the
senior term loan and state loans. Additionally, net repayments of $1,153,000 and
$1,017,000 were made under the senior lender's revolving credit facility for the
three and six months ended December 31, 1997, respectively. Outstanding debt as
of December 31, 1997 totaled $58,879,000 with related interest expense of
$3,875,000 for the six months ended December 31, 1997 representing an average
borrowing rate approximating 12.2% over the period excluding the impact of
amortization of deferred financing costs.
Cash and cash equivalents increased from $61,000 to $260,000 for the six months
ended December 31, 1997. Although the Company's total equity represents a
deficit of approximately $11,584,000, 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 $3,906,000 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 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.
10
<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
December 31, 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 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.
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 December 31, 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 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.
11
<PAGE>
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 First Quarter 10-Q
(b) Reports on Form 8-K: None
12
<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 13, 1998 By: /s/William L. Remley
-----------------------
William L. Remley
President & Treasurer
Dated: February 13, 1998 By: /s/Richard L. Kramer
-----------------------
Richard L. Kramer
Chairman of the Board,
Secretary and Director
Dated: February 13, 1998 By: /s/Richard C. Hoffman
------------------------
Richard C. Hoffman
Director
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 260
<SECURITIES> 0
<RECEIVABLES> 7545
<ALLOWANCES> 529
<INVENTORY> 10890
<CURRENT-ASSETS> 18556
<PP&E> 51102
<DEPRECIATION> 8782
<TOTAL-ASSETS> 64280
<CURRENT-LIABILITIES> 18612
<BONDS> 0
<COMMON> 76
0
0
<OTHER-SE> (11660)
<TOTAL-LIABILITY-AND-EQUITY> 64280
<SALES> 25431
<TOTAL-REVENUES> 25431
<CGS> 22016
<TOTAL-COSTS> 23691
<OTHER-EXPENSES> 84
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 1955
<INCOME-PRETAX> (313)
<INCOME-TAX> 94
<INCOME-CONTINUING> (407)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (407)
<EPS-PRIMARY> .04
<EPS-DILUTED> (.04)
</TABLE>
