SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required] For the fiscal year ended: June 30, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
OF 1934 [No Fee Required]
Commission File Number 0-7462
CPT HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0972129
(State of Incorporation) (IRS Employer identification No.)
1430 Broadway, 13th Floor
New York, New York 10018
(Address of principal executive (Zip code)
offices)
Registrant's telephone number, including area code: (212) 382-1313
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
As of August 31, 1998, the aggregate market value of shares of Common Stock of
the registrant held by non-affiliates was approximately $989,185.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No ___
As of August 31, 1998, 1,510,084 shares of Common Stock were outstanding.
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PART I
ITEM 1. BUSINESS
General
CPT Holdings, Inc. ("CPT" or the "Company"), is a holding company which,
through its indirect operating subsidiary, J&L Structural, Inc., a Delaware
corporation ("J&L"), is a nationwide independent producer of high quality
lightweight structural steel shapes, with a leading market share in the
Northeast, Southeast and Mid-Atlantic regions. The Company's products are used
primarily in the manufactured housing, tractor trailer, construction,
shipbuilding and the oil field service and petrochemical industries. The Company
competes effectively on the basis of product quality, customer service and
price, in a number of niche markets characterized by few competitors. The
Company operates a uniquely designed mill on 33 acres in Aliquippa, Pennsylvania
which enables the Company to efficiently produce thin, lightweight profile
structural steel shapes (primarily I-Beams). The Company, through the Brighton
Electric Steel Casting Division of J&L ("Brighton"), also has a dominant market
share in the domestic small piercer point market.
CPT, a Minnesota corporation, was incorporated in 1971 as CPT Corporation.
Its principal offices are located at 1430 Broadway, 13th Floor, New York, New
York and its telephone number is (212) 382-1313. CPT adopted its current form as
a holding company in accordance with its Amended Plan of Reorganization (the
"Reorganization Plan") approved by the U.S. Bankruptcy Court for the District of
Minnesota. The Reorganization Plan became effective as of July 23, 1991.
References to the Company are intended to include CPT and its direct and
indirect subsidiaries, unless the context provides otherwise.
On February 8, 1993, Hupp Industries, Inc., now known as H. Industries,
Inc., ("Hupp") became a majority-owned subsidiary of CPT when CPT acquired 80.1%
of the capital stock of Hupp. Hupp was also a manufacturer of heating,
ventilating and air conditioning equipment used primarily in commercial as well
as military applications. Through its wholly owned division, DCM Corporation,
Hupp was also a manufacturer of fractional horsepower electrical motors. Hupp
experienced operating difficulties in both its air conditioning and electrical
motor manufacturing businesses and in February 1994 decided to discontinue the
manufacture of its air conditioning products. Hupp continued to experience
financial problems that caused certain defaults under its Credit and Security
Agreement with its bank. Despite efforts to bring the operations of Hupp to
profitability, Hupp was unable to eliminate its losses. As a consequence, on
October 27, 1994, Hupp's senior lender exercised its rights and conducted a
secured party sale of the assets of Hupp to an unrelated party. Hupp had no
assets and no employees subsequent to October 1994.
On April 6, 1995, J&L, a newly incorporated, indirect, majority-owned
subsidiary of the Company, acquired substantially all of the assets of J&L
Structural, Inc. ("JLS") and Trailer Components, Inc. ("TCI"), Pennsylvania
corporations based in Aliquippa, Pennsylvania, for $50 Million plus the
assumption of certain liabilities (the "Acquisition"). JLS was a nationwide
independent producer of high quality lightweight structural steel shapes used
primarily in the manufactured housing, truck trailer and highway safety systems
industries. TCI provided secondary services to JLS that are now provided by the
Ambridge division of J&L.
As part of the Acquisition, the assets of Brighton Electric Steel Casting
Company ("BESCC"), an existing subsidiary of CPT and the direct parent of J&L,
were contributed to J&L and BESCC changed its name to J&L Holdings Corp.
("JLH"). Prior to the closing of the Acquisition, BESCC redeemed its preferred
stock from the holder thereof in consideration for the issuance by CPT of a
Deferred Purchase Money Note in the approximate amount of $475,000, said amount
equal to the stated value of the preferred stock plus the accrued dividends
thereon, bearing interest at 11 percent and due December 15, 2002.
Also as part of the Acquisition, J&L distributed as a dividend to JLH the
right (which J&L acquired from JLS) to acquire a 38-acre parcel of undeveloped
land adjacent to the JLS rolling mill in Aliquippa, Pennsylvania. JLH, in turn,
contributed the right to acquire the 38-acre parcel to Continuous Caster
Corporation, a newly- incorporated Delaware corporation, ("CCC") in exchange for
all of the common stock of CCC. Shortly thereafter, CCC acquired title to the
38-acre parcel, using funds that JLS had placed in escrow prior to the
Acquisition.
Further information regarding the Acquisition is contained in Form 8-K
filed by the Company with the Securities and Exchange Commission on April 21,
1995, which is hereby incorporated by reference herein.
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J&L Structural, Inc.
J&L is segmented into two distinct operating divisions, J&L Structural
division ("J&L Structural") and Brighton, as a result of significant differences
in both customers and products. J&L Structural is also segmented into two
separate divisions which includes the Ambridge division (formerly TCI). This
distinction is due mainly to separate labor contracts that exist among the
employees of J&L Structural. The Ambridge division provides finishing services
required for certain J&L Structural products. The following narrative on the
business will be segmented on this basis.
J&L Structural Division
Products
J&L Structural is a producer of high quality lightweight structural steel
shapes (primarily I-Beams) which are used primarily in the manufactured housing,
truck trailer, and highway safety systems industries.
J&L Structural's products are monitored, tested and inspected throughout
the manufacturing process to ensure that all aspects of quality meet applicable
industry or customer specifications. The products are also inspected to ensure
integrity of surface and dimensions.
J&L Structural's product lines are described below:
JUNIOR(R) Beams are hot rolled lightweight steel beam sections produced by
rolling heated steel billets through J&L Structural's fourteen stand rolling
mill. These sections have been accepted by designers and engineers for over half
a century as the lightest hot-rolled structurals in their size class. JUNIOR(R)
Beams are available in 3 to 12.5 inch depths, ranging in weight from 2.9 to 12.5
pounds per foot. A total of fourteen weights of JUNIOR(R) Beams are currently
available. JUNIOR(R) Beams are manufactured in a wide range of steel grades
including conventional and high strength steels. Strict quality control at J&L
Structural's mill assures a homogeneous product, uniform in mechanical and
chemical properties and possessing dimensions within close rolling tolerance
limits. JUNIOR(R) Beams have the strength, light weight and versatility to be
used by makers of manufactured housing and truck trailers, industrial and
commercial contractors and machinery builders. JUNIOR(R) Beams are primarily
used by the manufactured housing industry as undercarriage structural support.
Crossmembers are fabricated by the Ambridge division from JUNIOR(R) Beams.
Crossmembers are used by the truck trailer and truck body industry in the
production of trailer frames. These manufacturers space Crossmembers along the
entire length of the trailer to provide structural support to the body and
floor.
JUNIOR(R) Channels are available in four sizes and varying weights. They
generally weigh significantly less than the lightest standard structural steel
shape of equal depth, while exhibiting the characteristics of form and constancy
of dimension offered by a standard hot-rolled section. JUNIOR(R) Channels are
preferred over formed plate channels since they assure perfect fitting square
corners and true lines. These advantages permit flexibility of design with
minimum weight and lower cost without sacrificing structural strength. JUNIOR(R)
Channels offer excellent application flexibility in architecture and
construction, particularly in the construction of commercial and industrial
stairways. Additionally, truck trailer manufacturers are able to reduce weight
in their finished product through the use of JUNIOR(R) Channels as side rails.
Wide Flange Beams offer durability and economical installation to builders
of highway safety systems as well as for general construction applications. On a
pound-per-foot basis, J&L Structural's Wide Flange Beams are among the lightest
and lowest cost hot-rolled steel structurals available for highway guardrail
posts.
Standard I-Beams are produced by J&L Structural in sections of 3" x 5.7
and 7.5 pounds per foot and 4" x 7.7 and 9.5 pounds per foot in the same variety
of grades and lengths as available for its other products. The lighter weight
three-inch section is used as a highway guardrail post section.
Split Tees (often referred to as Split Beams) are JUNIOR(R) Beams that are
split longitudinally through the web section. This process produces two
identical T-sections that are used for ship hull reinforcement.
J&L Structural's philosophy from its inception has been to incrementally
expand its product offerings and capabilities while, at the same time, striving
to maintain high levels of profitability. The Company expects to continue to add
new products, new sizes and/or serve new markets on an "incremental" basis in
the future.
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Suppliers
Steel billets, J&L Structural's primary raw materials, are purchased from
several domestic mini-mills as well as from foreign sources and are delivered to
J&L Structural's mill by barge, rail or truck. J&L Structural issues a billet
quality standard which must be met by all suppliers. This standard includes
specifications for billet chemistry, dimension and surface quality. Currently,
J&L Structural purchases semifinished steel from two main suppliers and several
alternate sources. The loss or reduction in capability of either of these main
billet suppliers would require J&L Structural to rely more heavily on their
other current sources of supply. Management maintains good relationships with
all its suppliers and would not expect any significant impact on its financial
statements or its ability to source an adequate supply of billets assuming a
need to change its supplier mix.
Marketing and Distribution
J&L Structural focuses its marketing efforts directly on end users of its
products. J&L Structural's primary marketing strategy is to position itself as a
high-quality niche manufacturer of a variety of lightweight structural steel
products. Customer service and product quality are pivotal elements of that
strategy, and as a result, J&L Structural maintains close ties with its
customers and their markets. Due to its unique mill design and flexible
operating schedule, J&L Structural is able to change its mill frequently at
minimal cost. This allows for quick response to customer requirements, while
maintaining reasonable inventory levels. As a result, J&L Structural has
established a record of superior customer service which differentiates it from
its competition.
J&L Structural maintains a sales force of five salaried employees, two of
whom are stationed in the field and three in Aliquippa. In addition, J&L engages
a commissioned sales agent who handles sales opportunities in Mexico and the
rest of Latin America, as well as a commissioned sales agent to handle certain
domestic sales opportunities.
Over 85 % of J&L Structural's shipments go directly to an end user rather
than a service center or steel distributor. J&L Structural ships to customers
from three strategic locations: Aliquippa, Pennsylvania; Ambridge, Pennsylvania;
and Iuka, Mississippi. The Mississippi location is a down-river public warehouse
that charges J&L Structural a fee for unloading barges and for warehousing beams
prior to shipping to customers in the Southeast. J&L Structural's location in
the Mid-Atlantic region on the inland waterway system provides good proximity to
its major markets. J&L Structural's barge facility provides low cost
transportation for the bulk movement of JUNIOR(R) Beams to be sold to the
manufactured housing industry in Alabama, Mississippi, Tennessee and other
Southeastern states. Moreover, Indiana, North Carolina and Pennsylvania are
leading states in the production of manufactured homes and all are within
one-day truck transportation. Additionally, Indiana leads the country in the
production of truck trailers.
Moreover, J&L Structural's location also enables it to utilize barge, rail
and truck lines to transport both its raw materials and finished goods, thereby
allowing it to be responsive to its customers. In July 1998 the Company began
leasing warehouse space in Houston, Texas and is currently in the process of
seeking an additional distribution facility in the Southeast in order to enhance
its storage capacity. The additional storage capacity is expected to lower J&L
Structural's freight costs, giving it the potential to achieve higher margins in
that region.
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Competition
J&L Structural competes effectively in all of its major product areas on
the basis of product quality, customer service and price in a number of niche
markets characterized by few competitors. Its location on the Ohio River allows
it to ship products to customers and obtain raw materials on a very
cost-effective basis in comparison to its competitors and provides it with
expanded geographic coverage in an industry which is largely regional.
While J&L Structural has competition in all of its major product lines,
the thin, lightweight sections J&L Structural manufactures are difficult to
produce and therefore, the number of competitors producing these items is
limited. The unique design and relatively small size of J&L Structural's mill
enables it to efficiently produce thin, lightweight profiles. Under existing
industry configurations and considering the aggregate demand for its niche
products, the Company believes that replication of J&L Structural's unique mill
design by other companies wishing to compete in these markets would not be
economical. J&L Structural's small powerful mill is better suited to produce the
items in its product line than larger mills operated by competitors that produce
a broader range of products.
Three large steel minimills announced plans for the greenfield
construction of melt shops and structural rolling mills that would have the
ability to produce bantam beams similar to J&L Structural's products. The
earliest of these announced plants is scheduled to start up in the Spring of
1999. Due to the intensive level of customer service necessary to satisfy this
limited niche market, it is difficult to determine the impact, if any, that
these new production facilities will have on J&L's primary markets.
J&L Structural's commitment to providing a focused product line that is
keyed off customer needs differentiates it from its competitors. In particular,
J&L Structural: (i) provides superior service and consistently high quality
products to its customers, many of which purchase all or substantially all of
their requirements for lightweight steel shapes from J&L Structural, (ii)
maintains adequate inventories and a flexible operating schedule which makes it
more responsive to customer needs and market conditions, (iii) focuses its
marketing directly on end users, (iv) relative to its competitors, produces a
narrow, more focused range of products, and (v) provides value-added finishing
services to meet specific customer needs.
Foreign manufacturers do not play a significant role in the domestic
structural markets which J&L Structural serves.
Employees
As of August 31, 1998, J&L Structural employed a total of 274 employees.
The United Steelworkers of America represents approximately 191 employees at J&L
Structural (excluding the Ambridge division) under a labor agreement that
expires in September 2000. The Ambridge division of J&L Structural and its 44
unionized employees are also represented by the United Steelworkers of America
on a five-year labor agreement, expiring in October 1999. The Company believes
that it has excellent relationships with both union locals. J&L Structural has
never experienced a work stoppage, has experienced few employee grievances and
has very little employee turnover.
Backlog & Seasonality
The backlog of unfilled orders for J&L Structural typically averages less
than 60 days. This remains the case even in strong markets due to frequent
product rollings and adequate finished inventory levels that allow J&L
Structural's customers to work within short lead times. As of August 31, 1998,
J&L Structural had open orders totaling $4,288,000. This compares with a backlog
of $4,402,000 at the same date in 1997.
The winter months are generally slower activity months for J&L Structural
due to the seasonality of the manufactured housing market and significant
seasonal reductions in highway construction and repair programs.
Environmental Compliance
U.S. steel producers, including J&L Structural, are subject to stringent
Federal, state and local environmental laws and regulations concerning, among
other things, air emissions, waste water discharge, and solid and hazardous
waste disposal. Company spending, in the future, for compliance with these
environmental laws and regulations is not anticipated to be significant. No
significant environmental problems have arisen concerning the use or operation
of J&L Structural's facilities or the conduct of its business.
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Brighton Electric Steel Casting Division
Products
The principal product manufactured by Brighton is piercer points, which
are disposable tooling used by the steel industry in the production of seamless
steel tubes. Piercer points are bullet-shaped castings which are driven into the
core of heated steel billets and, therefore, are central in the manufacturing
process of seamless steel tubing products. Generally, seamless tubes are
required in applications where welded seamed tubes lack rigidity and structural
strength. Seamless tubing has a multitude of applications ranging from oil
production to bearings used in the automotive industry.
The Company believes that Brighton is the largest producer of small
piercer points (1 to 250 pounds) in the United States. Brighton also produces
piercer points up to 400 pounds. In addition to piercer points, Brighton
supplies high alloy grate bars used by the steel industry, as well as hi-mill
castings and equalizer plates used in the suspension systems of railway cars.
Brighton's manufacturing capabilities provide it with the opportunity to develop
new markets for its molded alloy steel castings.
The manufacturing process at Brighton begins with the production of a
pattern. Brighton relies to a great extent on an outside pattern shop. Once a
pattern is produced, a mold is manufactured at Brighton's facilities. Molten
metal is then poured into the mold, allowed to cool and then "shaken" free of
the mold to complete the finished product. From this step Brighton may heat the
molded metal product in one of its annealing ovens after which it is machined to
final tolerances.
The piercer points are usable by customers for only a limited amount of
production before they become too worn for the process. In some processes, two
piercer points are used for larger seamless tubes. Depending on the process and
materials used to manufacture seamless tubing, a piercer point generally has a
useful life of between two to 750 manufacturing runs before it must be replaced.
Used piercer points are then returned to Brighton for remolding into other
piercer points.
Suppliers
Brighton purchases a variety of raw materials, including alloys (such as
chrome, nickel, molybdenum and tungsten), foundry sand and grinding materials.
Brighton currently has strong and established relationships with all of its
major suppliers of raw materials. Brighton has not experienced any problems in
obtaining an adequate supply of raw materials at reasonable prices and it
expects the availability of future supplies to be sufficient. Nevertheless,
limited supplies of these raw materials and/or extraordinary high prices for
such materials could, among other things, cause Brighton to lose business by
failing to meet demand, squeeze its profit margins and/or encourage the use of
substitute products.
Marketing and Distribution
Brighton has a dominant market share of the small piercer points business
in the United States and excels in providing quality service and products.
However, Brighton's customer base is limited. Essentially, the customer base
consists of several major accounts that account for approximately 90% of
Brighton's revenues. A major loss of one or more of its accounts or a
significant reduction in demand by the steel industry would have an adverse
impact on Brighton's profitability.
Competition
Brighton has limited competition in the small piercer point (1 to 250
pounds) market. Its main competition is Columbiana Foundry ("Columbiana") based
in Columbiana, Ohio which produces a wide variety of castings, including piercer
points. In the past, Columbiana has focused its efforts on producing larger
piercer points.
Employees
As of August 31, 1998, Brighton employed a total of 20 employees. Most of
Brighton's personnel are represented by the United Steelworkers of America under
a contract that expires in December 2001. The Company considers its employee
relations at Brighton to be good.
Backlog & Seasonality
Brighton typically ships products within 30 days of receipt of an order.
Therefore, Brighton does not maintain a significant backlog of unshipped orders.
As of August 31, 1998, Brighton had firm open orders totaling $567,000. This
compares to a backlog of $450,000 at the same date in 1997. Brighton does not
consider its business to be seasonal.
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Environmental Compliance
Brighton operates with several environmental permits issued by the
Pennsylvania Department of Environmental Protection. No significant
environmental problems have arisen concerning the use or operation of Brighton's
facilities or the conduct of its business. However, a change in the law or
regulations at either the federal, state or local level could adversely impact
the operations of Brighton.
Financial Information Regarding Industry Segments and Foreign and Domestic
Operations
Financial information about the Company's various industry segments and
its foreign and domestic operations and export sales is contained in Note 13 of
the Notes to the Consolidated Financial Statements of the Company contained in
item 14 of this Form 10-K. The Company's continuing operations do not currently
have significant export sales or any foreign operations.
ITEM 2. PROPERTIES
CPT's principal executive offices are located at 1430 Broadway, 13th
Floor, New York, New York. The New York offices are occupied under a subleasing
arrangement on a month-to-month lease.
The Company's facilities include: (i) J&L Structural - a reheat furnace, a
unique close-tolerance fourteen stand continuous rolling mill, a hot bed,
straighteners, and sawing, stacking and bundling facilities located on
approximately 33 acres on the Ohio River in Aliquippa, Pennsylvania, with over
265,000 square feet under roof and an adjacent barge loading facility; (ii) J&L
Structural's Ambridge division - a fabricating facility located in a leased
facility in Ambridge, Pennsylvania, approximately five miles from the main
facilities; and (iii) Brighton's headquarters and manufacturing plant, a 25,000
square foot facility, located in Beaver Falls, Pennsylvania, approximately 10
miles from J&L Structural. J&L Structural's Aliquippa facility is secured by
mortgages to its senior and subordinated lenders.
CCC holds title to 38 acres of undeveloped land adjacent to J&L Structural
in Aliquippa, Pennsylvania. The property was acquired subject to an agreed order
between CCC and the Pennsylvania Department of Environmental Protection. Under
the agreement by which this parcel was acquired, the Beaver County Corporation
for Economic Development has a right of first refusal to repurchase the parcel
for an amount approximating the purchase price plus all environmental testing
and remediation costs incurred by CCC and its affiliates if CCC or its
affiliates attempt to sell or transfer the property to a third party whose
intent is other than to ultimately construct a melt shop and continuous caster
on the property.
ITEM 3. 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 ("District
Court"). As of August 31, 1997, CPT has made payments aggregating approximately
$741,000 to the Plan and as of June 30, 1996, had 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. As the
decision is currently on appeal, CPT has not recorded any gain contingency.
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 June 30, 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 June 30, 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 involved in various legal actions arising in the normal
course of business. While it is not possible to determine with certainty the
outcome of these matters, in the opinion of management, the eventual resolution
of the claims and actions outstanding will not have a material adverse effect on
the Company's financial position or operating results.
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ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
Between September 1992 and August 1994, CPT's Common Stock was included in
the NASDAQ Small Cap Market, also known as the NASDAQ System. In August of 1994,
the Common Stock of CPT was delisted from the Small Cap Market for failure to
meet the minimum bid price of $1.00. Since August of 1994, the Company's Common
Stock has traded over-the-counter with quotations for the stock available in the
"pink sheets" or through the over-the-counter Bulletin Board of the National
Association of Securities Dealers, Inc.
The following table sets forth for each of the periods indicated, the
range of the high and low bid prices for CPT's common stock, rounded to the
nearest 1/64 of a dollar, based on quotations obtained from the NASDAQ Small Cap
Market and through the over-the-counter bulletin board.
Fiscal 1998
High Low
First Quarter (7/1-9/30/97) $2.25 $1.00
Second Quarter (10/1-12/31/97) 2.13 1.31
Third Quarter (1/1-3/31/98) 1.69 1.38
Fourth Quarter (4/1-6/30/98) 2.56 1.50
Fiscal 1997
High Low
First Quarter (7/1-9/30/96) $3.75 $2.12
Second Quarter (10/1-12/31/96) 3.00 0.75
Third Quarter (1/1-3/31/97) 1.70 0.62
Fourth Quarter (4/1-6/30/97) 1.25 0.94
The quoted bid prices reflect inter-dealer prices without retail mark-ups,
mark-downs, or commissions and may not necessarily reflect actual transactions.
As of August 31, 1998, there were approximately 1,756 common stockholders.
Dividend Policy
CPT has not paid any cash dividends on its common stock within the last
three fiscal years and has no plan to pay any dividends in the foreseeable
future.
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ITEM 6. SELECTED FINANCIAL DATA
Selected Income Statement Data as of and for the Years Ended June 30: (1)(2)
(in 000's except per share data)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Total net revenue $110,830 $98,199 $101,011 $31,208 $5,785
Income (loss) from continuing
operations after income taxes 558 (2,654) (2,654) 410 232
Loss from operations
of discontinued subsidiaries - - - (553) (2,201)
Net gain (loss) on disposal of
discontinued subsidiaries - - 2,220 2,129 (6,371)
Income (loss) before income
taxes and extraordinary items 558 (2,654) 311 1,986 (8,340)
Gain on extraordinary item - - - 3,527 -
Net income (loss) 558 (2,654) 311 5,513 (8,340)
Earnings (loss) per share
assuming full dilution:
From continuing operations $ 0.10 $(1.76) $(1.26) $ .27 $.15
From discontinued operations - - 1.46 1.04 (5.67)
Extraordinary item - - - 2.34 -
---- ---- ---- ---- ----
Net earnings (loss) per share $ 0.10 $(1.76) $ 0.21 $ 3.65 $(5.52)
====== ====== ====== ====== ======
Fully-diluted common and
common equivalent shares
outstanding (000's) 2,243 1,510 1,510 1,510 1,510
Selected Balance Sheet Data(2):
Total current assets $21,899 $19,756 $19,623 $19,951 $5,045
Total assets 66,405 67,170 68,584 61,203 8,431
Current liabilities 21,058 18,686 15,709 16,041 11,857
Long-term obligations, net of
current portion 53,571 57,255 59,288 52,339 2,500
Redeemable preferred stock - - - - 350
Common shareholders'
deficit (11,080) (11,638) (8,984) (9,671) (6,472)
(1) As a result of the final discontinuance of operations for Hupp as of
October 27, 1994, the consolidated statements of operations for fiscal years
ended June 30, 1996, 1995, and 1994 have reflected the results of operations of
Hupp as discontinued operations. In addition, certain secured and unsecured
liabilities associated with the operations of Hupp have been treated as forgiven
in the years ended June 30, 1996 and 1995 based on the outcome of certain
bankruptcy proceedings and a secured party asset sale.
See Note 1 to the Consolidated Financial Statements.
(2) On April 6, 1995, J&L, an indirect, majority-owned subsidiary of the
Company, acquired the business and substantially all of the assets of JLS and
TCI. The Acquisition was accounted for as a purchase and the results of
operations for the acquired assets from the date of acquisition (April 6, 1995)
through June 30, 1995, were included in the Company's consolidated statement of
operations for the fiscal year ended June 30, 1995.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Significant Events
The Company evaluates potential prospects for growth of its business from
time to time, including through acquisitions of existing businesses. In April
1997, the Company announced a proposal to negotiate the acquisition of Steel of
West Virginia, Inc. for $9.00 per share in cash, however, was unsuccessful in
this endeavor. Costs incurred relating to this event totaled approximately
$600,000.
On October 27, 1994, due to continuing operating losses, Hupp's senior
lender proceeded with a secured party sale of the assets of Hupp to an unrelated
party. As a result, all operations of Hupp and its wholly-owned division DCM
were discontinued shortly thereafter. The loss from the final discontinuation of
operations has been reflected in the fiscal 1995 financial statements and
results for the previous fiscal years ended June 30, 1994 and 1993 have been
restated to show the discontinuation. In addition, on July 24, 1995, a final
decree was issued by the Bankruptcy Court for the Northern District of Ohio
closing the Chapter 11 case filed by Hupp prior to the Company's acquisition of
Hupp. As a result, certain notes payable, unsecured creditor obligations and
administrative claims relating to the Chapter 11 filing and totaling
approximately $3,527,000 were forgiven. Certain other unsecured liabilities of
Hupp which remained outstanding subsequent to the secured party sale of assets
discussed above which totaled approximately $2,220,000, were written off during
the year ended June 30, 1996. The $2,220,000 and $3,527,000 have been recorded
in the Company's consolidated statement of operations as a gain from
discontinued operations and an extraordinary item for the fiscal years ended
June 30, 1996 and 1995, respectively.
Results of Operations
Net Sales
The Company recorded net sales of $110,830,000 for the fiscal year 1998
which compares to net sales of $98,199,000 and $101,011,000 recorded for the
years ended June 30, 1997 and 1996, respectively. For fiscal year 1998,
$104,227,000 was attributable to the J&L Structural operations, while $6,603,000
was attributable to Brighton's operation. This compares to $92,144,000 and
$94,609,000 for J&L and $6,055,000 and $6,402,000 for Brighton in fiscal years
1997 and 1996, respectively. The increase in net sales at J&L compared to the
prior fiscal year was due primarily to the continuing growth of the manufactured
housing segment of the Company's business as well as a significant increase in
sales volume of steel service center products. Tonnage increases of
approximately 9.1% and 4.0% during 1997 and 1996, respectively, were noted in
the manufactured housing segment, while the construction and steel service
center market showed increases of approximately 70.0% and 0% during 1997 and
1996, respectively. J&L experienced a slight volume decrease in the competitive
highway safety system market, while sales volume in the truck trailer segment
was relatively constant during 1998 compared to 1997, but fell 23.0% during 1997
compared to 1996 due to a reduction of inventories and a general consolidation
of accounts. Brighton's net sales typically fluctuate around a narrow range
dependent primarily on product mix of deliveries.
The Company recorded net sales of $28,882,000 and $27,264,000 for the
three-month periods ended June 30, 1998 and 1997, respectively. The three-month
net sales for June 30, 1998 and 1997 are comprised of $27,149,000 and
$1,733,000, and $25,830,000 and $1,434,000 for J&L Structural and Brighton,
respectively. Volume increases, primarily in shipments to customers in the
manufactured housing and construction services industries accounted for the 5.1%
increase in net sales between years.
Gross Margins
Gross margins as a percentage of net sales were 14.4%, 12.2%, and 12.9%,
respectively for fiscal years 1998, 1997, and 1996. Gross margins for J&L
Structural for fiscal 1998 were 13.7% while margins at Brighton during that
period were 29.5%. These percentages compare to 11.2% and 27.7% for fiscal 1997
and 11.4% and 24.2% for fiscal 1996, respectively.
At J&L Structural, productivity and yield issues encountered during fiscal
year 1997 with the startup of a new reheat furnace did not allow the Company to
realize many of the benefits that had been anticipated from this equipment.
During fiscal year 1998, as these technical and operating issues were resolved,
operating performance improved. Additionally, in fiscal year 1997, a charge
totaling $767,000 was taken in the fourth quarter representing engineering and
feasibility studies relating to the intended construction of a melt shop and
caster, which would produce billets to be processed by J&L Structural. This
non-recurring charge during fiscal 1997 had the effect of reducing margins at
J&L Structural by 0.8% for that year. Additionally, during fiscal 1998,
significant volume increases of 13% allowed the spread of production costs which
helped improve product margin. The favorable effect of improved productivity and
yield related to the reheat furnace as well as the increased sales volume during
1998 was somewhat offset by slightly higher billet costs from Company suppliers.
10
<PAGE>
Brighton margins improved significantly between fiscal 1998 and 1997,
reflecting the sale of higher priced, higher margin items.
Gross margins as a percentage of net sales for the three-month periods
ended June 30, 1998 and 1997 were 13.2% and 31.8%, and 10.3% and 30.2% for J&L
Structural and Brighton, respectively. Quarterly comparison for J&L Structural
reflect improved productivity and yield as well as slight volume improvement
offset by higher billet costs and the fourth quarter 1997 non-recurring charge
for deferred costs mentioned previously. Quarterly comparisons of Brighton's
gross margins illustrates an improvement based on increased volume.
Selling, General and Administrative Expenses
Selling, general and administrative expenses totaled $7,278,000,
$6,576,000 and $7,075,000 for the fiscal years 1998, 1997 and 1996,
respectively. As a percentage of revenues, the amounts represented 6.6%, 6.7%
and 7.0% of net revenues, respectively. Expenses in fiscal year 1998 included
over $250,000 in legal and professional fees relating to arbitration issues in
connection with the reheat furnace retention holdback discussed more fully in
Note 11 to the financial statements, and over $100,000 of costs related to a
business system/computer study. Research and development costs included in
general and administrative expenses totaled approximately $213,000, $230,000 and
$0 for fiscal 1998, 1997 and 1996, respectively. During fiscal 1996,
approximately $600,000 was expensed in general and administrative expenses
related to additional accruals for the Hupp litigation with the pension plan
sponsor discussed more fully in Note 11 to the financial statements.
Interest Expense
Interest expense totaled $7,624,000, $7,517,000 and $7,193,000 for the
fiscal years 1998, 1997 and 1996, respectively. The increase in interest expense
during fiscal 1998 and 1997 when compared to fiscal 1996 was due primarily to
approximately $130,000 and $262,000 of incremental interest expense being
capitalized during the construction phase of the new reheat furnace in 1997 and
1996, respectively, in addition to a slight increase in the prime lending rate
during fiscal 1996.
Other Income/Expense
Expenses for fiscal 1998 and 1997 reflect expenditures incurred resulting
from professional fees relating to the failed acquisition of a steel company.
Expenses for fiscal 1996 reflect a charge of $828,000, related to the signing of
a labor agreement with the local United Steelworkers of Americas union.
Liquidity and Capital Resources
The Company's cash flows from operating activities totaled $4,243,000,
$4,646,000, and $1,866,000 for the fiscal years ended June 30, 1998, 1997, and
1996, respectively. The slight reduction in cash flows from operations during
fiscal 1998 compared to fiscal 1997 resulted from higher earnings offset
entirely by a buildup in inventory levels from the less than optimum levels
which existed at the close of fiscal 1997. Lower cash flows from operations
during fiscal 1996 compared to fiscal 1997 resulted mainly from a buildup of
inventories in preparation of the startup of the new reheat furnace in July
1996.
The Company's cash flows from investing activities totaled ($1,379,000),
($3,219,000) and ($9,973,000) for the fiscal years ended June 30, 1998, 1997 and
1996, respectively. Capital expenditures during fiscal 1998 were primarily
maintenance and refurbishment spend. During fiscal 1996 & 1997, J&L completed
the installation of a new reheat furnace, the total contracted cost of which was
$8.5 million of which $7.1 million has been expended during these years. The
remaining $1.4 million owed to the contractor under the terms of the contract
represents a retention amount. Differences between the Company and the
contractor relating to numerous technical and operating issues on the
construction and operation of the new furnace still remain unaddressed, and
resolution of these issues will take place in binding arbitration. The timing
for resolution and final determination of the portion of the $1.4 million, if
any, which will be owed to the contractor is unknown at this time. The balance
of funds utilized for investing activities is primarily directed toward
maintenance and refurbishment spending.
The Company's cash flows from financing activities totaled ($2,886,000),
($1,540,000) and $7,309,000 for fiscal 1998, 1997 and 1996, respectively. Fiscal
1998 reflects net repayments under the Company's existing credit arrangements.
During fiscal 1997 and 1996, the reheat furnace project was financed through
borrowings from the senior lender capital expenditure facility, borrowings from
state and county sources and from the excess availability that existed under the
revolving credit facility. These credit advances were somewhat offset by
approximately $2.1 million repayments of term debt.
Cash and cash equivalents totaled $37,000, $61,000, and $174,000 as of June
30, 1998, 1997, and 1996, respectively. Although the Company's total equity
represents a deficit of approximately $11,080,000, this position is due largely
to the basis adjustment for the Company's leveraged acquisition of J&L
Structural during fiscal 1995. Management believes that cash flow from
operations will continue to satisfy the Company's requirements to fund operating
expenses, debt service, and maintenance and refurbishment capital expenditures
in the future.
11
<PAGE>
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 forward-looking statements as
a result of various factors including, but not limited to: (i) a significant
downturn in manufactured housing construction and sales, (ii) significant
negative pricing actions by competitors or (iii) billet costs may increase and
J&L may not have the ability to pass such costs to customers.
Recent Accounting Standards
In June 1997, the FASB issued Statement of Financial Accounting Standards
SFAS No. 130, Reporting Comprehensive Income, which establishes standards for
the reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. SFAS No. 130 is not expected to
have a material impact on the Company. The standard will be effective for the
Company for the year ending June 30, 1999.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information, which changes the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about reportable segments in interim financial reports issued to
shareholders. In accordance with SFAS No. 131, the Company will be required to
make expanded disclosures relating to its products and markets. The standard
will be effective for the Company for the year ending June 30, 1999.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures
about Pensions and Other Post-retirement Benefits, which standardizes the
disclosure requirement for pensions and other post-retirement benefits. The
implementation of SFAS No. 132 is not expected to have a material impact on the
Company's financial statements. The standard will be effective for the Company
for the year ending June 30, 1999.
The Company is exposed to certain market risks from transactions that are
entered into during the normal course of business. The Company's policies do not
permit active trading of, or speculation in, derivative financial instruments.
The Company's primary market risk exposure relates to interest rate risk. The
Company manages its interest rate risk in order to balance its exposure between
fixed and variable rates while attempting to minimize its interest costs.
Year 2000 Disclosure
The Company's management has begun a program to ensure the Company's
computer systems, related business applications and production machinery are
compliant for the year 2000. The Company has contracted with and believes that
its year 2000 issues will be addressed by software system engineers. The system
revisions will occur and be tested during the first half of fiscal 1999.
Management believes that the risks of implementation are minimal as their
consultants are quite familiar with the Company's systems and have performed
systems modifications successfully in the past. The cost of these modifications
should total less than $100,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INCLUDED IN ITEM 14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
12
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of the directors and executive officers of
CPT as of August 31, 1998 are as follows:
Name Age Positions
----------------------------------------------------------------------
Richard L. Kramer 49 Chairman of the Board, Director and
Secretary of CPT
William L. Remley 47 President, Treasurer and Director of
CPT
Richard C. Hoffman 50 Director of CPT
Mr. Kramer has served as Chairman of the Board, a Director, and Secretary
of the Company since January 3, 1992. Mr. Kramer is also Chairman and a director
of Mentmore Holdings Corporation ("Mentmore"), Texfi Industries Inc., a textile
and apparel manufacturing firm, Weldotron Corporation, a packaging equipment
manufacturer, Orion Acquisition Corp. II, an investment company, MC Equities,
Inc., an insurance holding company, Stellex Industries, Inc., an aerospace and
machining manufacturing firm, Precise Holding Corporation, a full service,
custom injection molder of precision plastic products, and Republic Properties
Corporation, a private real estate development firm. Mr. Kramer is also Chairman
of the Board, a Director, Vice President and Secretary for Trinity Investment
Corp. ("Trinity"), Ascott Wing, Inc. ("Ascott") and Halton House Limited.
Mr. Remley has served as a Director, President and Treasurer of CPT since
January 3, 1992. Mr. Remley is also President, Chief Executive Officer and a
director of Mentmore Holdings Corporation and Weldotron Corporation, a packaging
equipment manufacturer, Vice-Chairman, Chief Executive Officer and a director of
Texfi Industries, Inc. Mr. Remley is the Vice Chairman, Chief Executive Officer
and a director of Stellex Industries, Inc., an aerospace and machining
manufacturing firm. Mr. Remley is also a director of MC Equities, Inc., an
insurance holding company, Orion Acquisition Corp. II, an investment company,
Republic Properties Corporation, a private real estate development firm, Precise
Holding Corporation, a full service custom injection molder of precision plastic
products, and Sunderland Industrial Holdings Corporation.
Mr. Hoffman is a licensed attorney who has served as General Counsel of
the Company since January 1995 and Assistant Secretary since July 1995. He
currently practices law as Richard C. Hoffman P.C. in Greenwich, Connecticut.
13
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to Mr. William L.
Remley for the fiscal years 1998, 1997 and 1996, as the only paid executive
officer of the Company.
Annual Compensation
--------------------------------------------------------
Name and Salary Bonus Other Annual
Principal Position Year ($) ($) Compensation
------------------ ---- ---- --- ------------
(a) (b) (c) (d) (e)
William L. Remley 1998 -0- -0- $12,000
President (1)
1997 -0- -0- $12,000
1996 -0- -0- $12,000
(1) Mr. Remley is an executive officer and director of Mentmore, which pursuant
to a Management Agreement, provides the Company and its subsidiaries with
general management, advisory, consulting and other services in exchange for
an annual management fee. See Part III, Item 13 ("Certain Transactions.")
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The distribution of shares of the Company's Common Stock to certain March
20, 1998, the Company filed an Application to Reopen Case with the United lasses
of claimants under the Reorganization Plan has not been completed. On States
Bankruptcy Court, District of Minnesota, Fourth Division (the "Bankruptcy
Court"), which was granted by the Bankruptcy Court on March 27, 1998. On April
21, 1998, the Company filed a Motion for Authority to Make Final Distribution
and Other Relief as is Necessary for the Consummation of the Plan, which was
granted on May 13, 1998 pursuant to an order entered by the Bankruptcy Court
(the "Distribution Order"). The Company is in the process of complying with the
procedures set forth in the Distribution Order to effect a final distribution of
shares of Common Stock under the Reorganization Plan. As of August 31, 1998
Norwest Bank Minnesota, N.A. ("Norwest") held 378,600 shares of Common Stock as
the escrow agent of the shares of Common Stock to be distributed in the final
distribution.
The following table sets forth certain information, as of August 31, 1998,
with respect to the beneficial ownership of Common Stock by each person who is
known by the Company to own beneficially more than 5% of outstanding shares of
CPT's Common Stock, by each director of CPT, and by all officers and directors
as a group:
Number of
Shares
Beneficially Percent of
Name Owned (1) Common Stock
Richard L. Kramer (2) -0- -0-
William L. Remley (2) -0- -0-
Ascott Wing, Inc. (3) 604,586 15.87%
Trinity Investment Corp. (4)(5) 2,372,500 62.27%
Halton House Limited (3)(5)(6) 2,977,086 78.14%
The Halton Declaration of Trust
(3)(5)(6) 2,977,086 78.14%
Bahamas Protectors Ltd., a Bahamian
corporation (3)(5)(6) 2,977,086 78.14%
All Directors and Officers as a group(3
persons including those named above)
(4)(5)(7) 2,977,086 78.14%
(1) The Persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by each of
them, subject to community property laws, where applicable, and the information
contained in other footnotes to the table.
(2) Messrs. Kramer and Remley are directors and executive officers of Ascott
Wing, Inc. and Trinity Investment Corp. (See Notes 3, 4 and 5.) Messers. Kramer
and Remley disclaim beneficial ownership of the Common Stock held of record by
Ascott Wing and Trinity, and Warrants to purchase Common Stock held by Trinity.
(3) The principal offices of Ascott Wing are at 1430 Broadway, 13th Floor, New
York, New York 10018. Halton House Limited, owns all of the outstanding stock of
Ascott. Halton House Limited's principal offices are located at c/o Coutts and
Company (Bahamas) LTD., P.O. Box N7788, West Bay Street, Nassau, Bahamas.
William L. Remley and Richard L. Kramer are directors and executive officers of
Ascott Wing and Halton House Limited. The Halton Declaration of Trust ("Halton
Trust") whose principal address is c/o Coutts and Company (Bahamas) LTD, P.O.
Box N7788, West Bay Street, Nassau, Bahamas, is the majority owner of Halton
House Limited. All powers with respect to investment voting securities
beneficially owned by Halton Trust are exercisable by Bahamas Protectors Ltd., a
Bahamian corporation, protector under the constituent documents of Halton Trust.
Bahamas Protectors Ltd.'s business address is c/o Private Trust Corp., Charlotte
House, Charlotte Street, Nassau, Bahamas.
14
<PAGE>
(4) The principal offices of Trinity are at 1430 Broadway, 13th Floor, New York,
New York 10018. Halton House Limited owns all of the outstanding stock of
Trinity (see Note 2 above). William L. Remley and Richard L. Kramer are
directors and executive officers of Trinity.
(5) Includes 2,300,000 shares that could be acquired upon exercise of two
separate Warrants: one warrant representing a right to purchase 2,000,000 shares
at an exercise price of $1.00 per share and one warrant representing a right to
purchase 300,000 shares at an exercise price of $4.00 per share. (see Item 13).
(6) Includes shares owned by Ascott and shares subject to a Warrant owned by
Trinity (see Note 4 above).
(7) Includes shares over which Mr. Remley and Mr. Kramer may be deemed to share
voting and investment power (see Notes 3 and 4 above).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 1, 1996, Trinity and CPT entered into an unsecured line of
credit agreement totaling $1 million and bearing interest at 13% payable with
interest only semi-annually beginning April 1, 1996, until due in December,
2002. This line of credit was established to satisfy debt service at the holding
company level. In conjunction with the execution of the line of credit, 300,000
warrants for CPT stock have been issued to Trinity for a period of ten years
with an exercise price of $4.00 per warrant.
On April 1, 1995, CPT entered into a Credit Agreement and Security
Agreement with Trinity wherein Trinity agreed to loan CPT the principal amount
of $6,730,000 for the purpose of making a required $5,000,000 equity capital
infusion to JLH in order to consummate the Acquisition of the assets of JLS and
TCI, to retire the existing Variable Rate Debenture of CPT to Trinity in the
amount of $900,000 dated February 5, 1993 and to satisfy and retire certain
other short-term obligations of CPT plus accrued interest. Included within the
Credit Agreement was the following:
1. A fixed rate Debenture of CPT dated April 1, 1995 under which CPT
promises to pay Trinity, or any subsequent holder of the Debenture, the
principal sum of $6,730,000, plus accrued and unpaid interest at the fixed rate
of 13% per annum and costs provided therein, on or before December 15, 2002.
2. A Warrant Purchase Agreement dated April 1, 1995 by and between CPT and
Trinity, in which (i) CPT granted to Trinity Warrants to purchase up to
2,000,000 shares of the common stock of CPT at an exercise price of $ 1.00 per
share, (ii) CPT made certain representations to Trinity regarding its
capitalization, the shares of Common Stock outstanding, the authorization of the
Warrant and the continued truth and accuracy of representations of CPT in the
Credit Agreement and Security Agreement, (iii) Trinity made certain
representations to CPT, including representations regarding the status of the
Warrant (and the underlying shares of Common Stock, if issued) as "restricted
securities" due to the anticipated issuance of such securities pursuant to
exemptions from registration under the Securities Act of 1933, as amended, and
(iv) CPT granted Trinity certain rights to receive financial information and
reports of the Company and to inspect the assets, properties, books and records
of the Company and its subsidiaries.
3. Security Agreement dated April 1, 1995, between CPT and Trinity in
which CPT pledged all of its shares of JLH to Trinity as collateral for the
performance of its obligations under the new Credit Agreement.
Trinity has its principal business and executive offices at 1430 Broadway,
13th Floor, New York, New York 10018. Trinity is engaged in the investment
business. Richard L. Kramer is Chairman of the Board, a Director, Vice President
and Secretary of Trinity, and William L. Remley is a Director, President and
Treasurer of Trinity.
Halton House Limited, a Bahamian Corporation, owns all of the outstanding
capital stock of Trinity and Ascott Wing. Halton House Limited is a holding
company with interests in investment and industrial/ manufacturing/technology
companies. Richard L. Kramer is Chairman of the Board, a Director, Vice
President and Secretary of Halton House Limited, and William L. Remley is a
Director, President and Treasurer of Halton House Limited. Halton House Limited
is owned beneficially by The Halton Declaration of Trust which is a trust
created under the laws of the Bahamas. As of August 26, 1998, all powers with
respect to investment or voting securities beneficially owned by The Halton
Declaration of Trust are currently exercisable by Bahamas Protectors Ltd., a
Bahamian corporation, protector under the constituent documents of The Halton
Declaration of Trust.
Ascott Wing has its principal business and executive offices at 1430
Broadway, 13th Floor, New York, New York 10018. Ascott Wing is engaged in the
investment business. Richard L. Kramer is Chairman of the Board, a Director,
Vice President and Secretary of Ascott Wing, and William L. Remley is a
Director, President and Treasurer of Ascott Wing. The preferred stock redemption
obligation to Ascott Wing including accrued dividends through March 15, 1995,
totaling $475,204 was converted to a deferred purchase money note bearing
interest at a rate of 11% and payable interest only annually beginning March 15,
1996 and due December, 2002.
15
<PAGE>
A management agreement exists between CPT and J&L whereby CPT or its
designated affiliate provides executive management advisory services to J&L. The
contract term of the agreement is for a period of six years through March, 2001
and is subject to being automatically renewed annually thereafter, unless
terminated by either party to the agreement. Annual compensation to CPT under
this agreement totals $600,000, which includes out-of-pocket expenses incurred
by CPT of up to $150,000 annually. CPT exercised its right under the agreement
to designate Mentmore Holdings Corporation ("Mentmore") as the management
advisory service provider and as a result has assigned all fees to which CPT is
entitled under this agreement to Mentmore. Management fee expense paid to
Mentmore for each of the years ended June 30, 1998, 1997 and 1996 under this
agreement totaled $600,000, respectively. Richard L. Kramer is Chairman of the
Board, a Director and Secretary of Mentmore, and William L. Remley is a
Director, President and Treasurer of Mentmore.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. Documents to be filed as part of this Report.
1. The following financial statements of the Company and the report of
its independent auditors are filed herewith:
Page of this Report
Independent Auditors' Report of Deloitte & Touche LLP.............18
Financial Statements:
Consolidated Balance Sheets as of June 30, 1998 and 1997..........19
Consolidated Statements of Operations for the Years Ended
June 30, 1998, 1997, 1996 ...................................20
Consolidated Statements of Changes in Shareholders' Deficit
for the Years Ended June 30, 1998, 1997, 1996................21
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1998, 1997, 1996....................................22
Notes to Consolidated Financial Statements........................24
2. The following financial statement schedules of the Company are filed
herewith:
Page of this Report
Financial Statement Schedules
I - Condensed Financial Information of Registrant...........33
II - Valuation and Qualifying Accounts.......................34
Exhibit 27 - Financial Data Schedule.........................35
Schedules other than those listed above are omitted because of the absence
of the conditions under which they are required or because the information
required is included in the financial statements or the notes thereto.
B. Reports on Form 8-K
None
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
Dated: September 29, 1998 CPT HOLDINGS, INC.
By: /s/William L. Remley
----------------------------
William L. Remley, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Richard L. Kramer Chairman of the Board, September 29, 1998
- --------------------- Secretary and Director
Richard L. Kramer
/s/ William L. Remley President, Treasurer and September 29, 1998
- --------------------- Director (Principal
William L. Remley Executive, Accounting
and Financial Officer)
/s/ Richard C. Hoffman Director September 29, 1998
- ----------------------
Richard C. Hoffman
17
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
CPT Holdings, Inc. and Subsidiaries
We have audited the consolidated balance sheets of CPT Holdings, Inc. and
Subsidiaries as of June 30, 1998 and 1997, and the related consolidated
statements of operations, changes in shareholders' deficit and cash flows for
each of the three years in the period ended June 30, 1998. Our audits also
included the financial statement schedules listed in the Index at Item 14. These
financial statements and the financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of CPT Holdings, Inc. and Subsidiaries
as of June 30, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 1998 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
September 4, 1998
18
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1998 and 1997
(000's)
ASSETS 1998 1997
- ------ ---- ----
Current assets:
Cash and cash equivalents $ 37 $ 61
Receivables, net 8,946 9,471
Inventories 12,722 9,876
Deferred tax asset - 202
Receivable from affiliate 26 -
Other current assets 168 146
--- ---
Total current assets 21,899 19,756
Property, plant and equipment, net 41,364 43,749
Goodwill, net of accumulated amortization of
$612 and $518, respectively 1,271 1,365
Deferred financing costs, net of accumulated
amortization of $1,390 and $960,
respectively 1,522 1,952
Other assets 349 348
--- ---
Total assets $ 66,405 $ 67,170
========= =========
LIABILITIES & SHAREHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $4,321 $3,378
Accounts payable 10,507 9,562
Accrued liabilities 6,230 5,581
Payable to affiliate - 165
----- -----
Total current liabilities 21,058 18,686
Long-term debt, net of current portion 53,371 56,955
Other long-term obligations 200 300
Deferred tax liability - 540
Minority interest in consolidated
subsidiaries 2,856 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 (16,893) (17,451)
------- -------
Total shareholders' deficit (11,080) (11,638)
-------- --------
Total liabilities and shareholders'
deficit $ 66,405 $ 67,170
======== ========
The accompanying notes are an integral part of these statements.
19
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended June 30, 1998, 1997 and 1996
(000's Except Per Share Amounts)
1998 1997 1996
Net sales ---- ---- ----
Cost of sales $110,830 $98,199 $101,011
94,869 86,247 88,016
Gross profit -------- -------- --------
15,961 11,952 12,995
Selling, general and administrative
7,278 6,576 7,075
Operating income -------- -------- --------
Other expense (income): 8,683 5,376 5,920
Interest expense
Minority interest 7,624 7,517 7,193
Other, net 529 (244) 77
309 420 659
Income (loss) before income taxes -------- -------- --------
Income taxes benefit (provision) 221 (2,317) (2,009)
337 (337) 100
Income (loss) from continuing operations -------- --------- --------
Discontinued operation: 558 (2,654) (1,909)
Net gain on disposal of
discontinued subsidiary - - 2,220
-------- -------- --------
Net income (loss) $ 558 $(2,654) $ 311
======== ======== ========
Earnings(loss) per common share:
Basic $ 0.37 $ (1.76) $ 0.21
======= ======== =======
Diluted $ 0.10 $ (1.76) $ 0.21
======= ======== =======
Weighted average common shares
outstanding (000's) 1,510 1,510 1,510
======== ======== ========
Weighted average common and common
equivalent shares outstanding
(000's) 2,243 1,510 1,510
======== ======== ========
The accompanying notes are an integral part of these statements.
20
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
For the Years Ended June 30, 1998, 1997 and 1996
($000's, Except Share Amounts)
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit
------ ------ ------- -------
Balance at June 30, 1995 1,510,084 $ 76 $ 5,361 $ (15,108)
Fair value of warrants
issued with unsecured
line of credit agreement - - 376 -
Net income - - - 311
--- --- --- ---
Balance at June 30, 1996 1,510,084 76 5,737 (14,797)
Net loss - - - (2,654)
--- --- --- -------
Balance at June 30, 1997 1,510,084 76 5,737 (17,451)
Net income - - - 558
--- --- --- ---
Balance at June 30, 1998 1,510,084 $ 76 $5,737 $ (16,893)
========= ======== ====== =========
The accompanying notes are an integral part of these statements
21
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 1998, 1997 and 1996
(000's)
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Net income (loss)
From continuing operations $ 558 $(2,654) $(1,909)
From discontinued operations - - 2,220
----- ------- -------
558 (2,654) 311
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Minority interest in earnings (loss) of
subsidiaries 529 (244) 77
Gain on discontinued operations - - (2,220)
Depreciation and amortization 4,431 4,107 3,333
Deferred caster and melt shop charge - 767 -
Deferred taxes (337) 337 -
Changes in current assets and liabilities:
Decrease (increase) in accounts
receivable 525 (965) 2,264
(Increase) decrease in inventories (2,846) 937 (2,804)
(Increase) decrease in other current
assets (48) (16) 70
Increase in accounts payable and
accrued liabilities 1,594 2,210 881
(Decrease) increase in other current
liabilities (165) 165 (46)
---- --- ---
Net cash provided by operating
activities 4,241 4,646 1,866
----- ----- -----
Cash flows from investing activities:
Decrease (increase) in other non-current
assets (1) 279 -
Capital expenditures (1,378) (3,498) (9,973)
------ ------ ------
Net cash used in investing
activities (1,379) (3,219) (9,973)
------ ------ ------
(CONTINUED)
22
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
For the Years Ended June 30, 1998, 1997 and 1996
(000's)
1998 1997 1996
---- ---- ----
Cash flows from financing activities:
Proceeds from issuance of long-term debt $ - $1,000 $2,000
Net borrowings (repayments) under Revolving
Credit Facility 592 (621) 6,659
Borrowings under state/local loans - 1,000 -
Repayments of state/local loans - (78) -
Borrowings under unsecured line of credit - 34 966
Repayments of long-term debt (3,378) (2,775) (2,116)
Other (100) (100) (200)
---- ---- ----
Net cash (used) provided by financing
activities (2,886) (1,540) 7,309
------ ------ -----
Net decrease in cash and cash equivalents (24) (113) (798)
Cash and cash equivalents:
Beginning of year 61 174 972
End of year $ 37 $ 61 $ 174
------- ------ -----
Supplemental Data - Cash paid during the
year for:
Interest, net of capitalized amounts $ 6,036 $ 6,268 $ 7,565
--------- ---------- --------
Income taxes $ - $ - $ 169
--------- ---------- --------
The accompanying notes are an integral part of these statements.
23
<PAGE>
NOTE 1 - BASIS OF PRESENTATION
Consolidated Accounts
The accompanying consolidated financial statements include the accounts of
CPT Holdings, Inc., a Minnesota corporation and its direct and indirect
majority-owned subsidiaries (the "Company"), J&L Structural, Inc. ("J&L"), a
Delaware Corporation, J&L Holdings Corp. ("JLH"), a Delaware Corporation,
Continuous Caster Corporation ("CCC"), a Delaware Corporation and H.
Industries, Inc. ("Hupp.") All material intercompany transactions have been
eliminated in consolidation.
Discontinued Operations
On October 27, 1994, Hupp, its senior lender and the Company entered into a
secured party asset sale agreement under which the senior lender and the Company
sold to a third party, for approximately $1,780,000, their interests in
substantially all of Hupp's assets. Pursuant to a sharing arrangement, the
Company received $75,000 from the senior lender from these proceeds.
Additionally, the bank and the Company agreed separately upon a sharing
arrangement in all payments received on Hupp's $213,000 note receivable in which
both held perfected security interests. Under the arrangement, the Company
received a maximum of $75,000 and all remaining amounts were retained by the
senior lender. Subsequent to the secured party sale, Hupp's historical
operations ended, and Hupp was left with virtually no assets from which to pay
its remaining unsecured obligations, including approximately $1,275,000 to the
senior lender. This transaction was estimated to result in a loss totaling
$3,049,000 which was recorded as an accrued loss on sale of assets at June 30,
1994. The actual loss incurred as a result of the asset sale totaled
approximately $920,000. The difference between the actual and estimated loss was
due to changes in estimates with regard to certain contingencies and changes in
financial position with regard to certain working capital items. As a result of
the submission of a final decree on July 24, 1995, which closed Hupp's Chapter
11 case filed prior to the Company's acquisition of Hupp stock in February 1993,
certain outstanding notes payable, unsecured creditor obligations and
administrative claims of Hupp totaling approximately $3,527,000 have been
recognized as an extraordinary gain on extinguishment of debt for the fiscal
year ended June 30, 1995. Additionally, during fiscal 1996, the remaining
liabilities of Hupp were written off, resulting in $2,220,000 of income from
discontinued operations in the year ended June 30, 1996.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. The Business
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 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.
b. Inventories
The Company's inventories are valued at the lower of cost (first-in
first-out basis) or market value.
c. Cash Equivalents
For purposes of cash flows reporting, all investments purchased with
maturities of 90 days or less are treated as cash equivalents.
24
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
d. Property and Depreciation
Property and equipment are stated at cost. Expenditures for additions,
renewals and improvements of property and equipment are capitalized, and
expenditures for repairs and maintenance and gains or losses on disposals
are included in results of operations. Depreciation was computed using
primarily the straight-line method over the following estimated lives:
Building 30 years
Machinery and equipment 7- 20 years
Furniture and fixtures 5 - 7 years
Office equipment 5 years
Roll inventory 3 years
e. Goodwill
The goodwill associated with acquisitions is amortized on a straight-line
basis over a period of 20 years.
f. Deferred Financing Costs
Amortization of deferred financing costs is charged to interest expense on
a periodic basis using a straight-line method over the average term of the
Company's senior and subordinated loan facilities with independent
lenders.
g. Impairment
On an ongoing basis, management reviews the valuation of property, plant
and equipment and intangible assets. As part of the review, the Company
estimates the value and future benefits of the cash flow generated by the
related subsidiaries to determine that no impairment has occurred.
h. Revenue Recognition
Revenue is recognized when product is shipped to dealers, distributors and
direct customers.
i. Research and Development
All product development costs are expensed as incurred. For the years
ended June 30, 1998, 1997 and 1996, these amounts were approximately
$219,000, $230,000 and $54,000, respectively.
j. Insurance
J&L provides health insurance coverage to its employees under a
self-insurance program that includes stop-loss coverage. Insurance expense
is recognized based on estimated losses incurred under the program.
Components of insurance expense include paid claims, incurred but not paid
claims and estimated incurred but not reported claims.
k. Income Taxes
The Company accounts for income taxes utilizing the asset and liability
method as prescribed by Statement of Financial Accounting Standards
("SFAS") No. 109 - Accounting for Income Taxes. Deferred income taxes are
recognized for the tax consequences of temporary differences between the
financial statement carrying amounts and the tax basis of existing assets
and liabilities by applying enacted statutory tax rates applicable to
future years. Deferred tax assets are reduced by a valuation allowance if
it is more likely than not that such benefits will not be realized, based
upon available evidence.
25
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
l. Earnings Per Share
In 1997, the Financial Accounting Standards Boards issued SFAS 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):
Years Ended
June 30,
-----------
1998 1997 1996
---- ---- ----
Numerator:
Income (loss) from
continuing operations $ 558 $ (2,654) $ (1,909)
Dilution on earnings
resulting from
subsidiary warrants (329) - -
Gain from discontinued
operations - - 2,220
------- ------- --------
Net income (loss) available
to common shareholders $ 229 (2,654) $ 311
Denominator:
Denominator for basic
earnings per
share-weighted average
shares 1,510,084 1,510,084 1,510,084
Effect of dilutive
securities:
Warrants 732,573 - -
------- ------- --------
Denominator for diluted
earnings per share-adjusted
weighted-average shares
and assumed conversion 2,242,657 1,510,084 1,510,084
========= ========= =========
Basic earnings (loss) per
common share before
discontinued operations $ 0.37 $ (1.76) $ (1.26)
Basic earnings per common
share from discontinued
operations - - 1.47
--------- --------- ---------
Basic earnings(loss) per
common share $ 0.37 $ (1.76) $ 0.21
========= ========= =========
Diluted earnings (loss)
per common share before
discontinued operations $ 0.10 $ (1.76) $ (1.26)
Diluted earnings per common
share from discontinued
operations $ - - 1.47
--------- --------- ---------
Diluted earnings (loss) per
common share $ 0.10 $ (1.76) $ 0.21
========= ========= =========
26
<PAGE>
m. Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at June 30:
(000's)
1998 1997
---- ----
Trade receivables $8,940 $9,428
Other 357 261
------ ------
9,297 9,689
Less allowance for doubtful accounts 211 151
Less allowance for discounts and returns 140 67
------ ------
Accounts receivable, net $8,946 $9,471
====== ======
For the years ended June 30, 1998 and 1997, no customer accounted for more than
10% of the Company's net sales.
NOTE 4 - INVENTORIES
Inventories consisted of the following at June 30:
(000's)
1998 1997
---- ----
Raw materials $ 3,401 $ 1,954
Finished goods 9,321 7,922
----- -----
Total $ 12,722 $ 9,876
========= ========
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at June 30:
(000's)
1998 1997
---- ----
Land and land improvements $ 382 $ 320
Building 2,126 1,972
Machinery and equipment 46,751 46,285
Furniture and fixtures 363 358
Office equipment 404 343
Roll inventory 1,766 1,320
Construction-in-process 246 62
--- --
52,038 50,660
Less accumulated
depreciation (10,674) (6,911)
------ -----
Total $ 41,364 $ 43,749
======== ========
27
<PAGE>
NOTE 6 - ACCRUED LIABILITIES
Accrued liabilities consisted of the following at June 30:
(000's)
1998 1997
---- ----
Salaries $2,043 $1,825
Interest 2,845 1,595
Hupp pension contingency 129 179
Other liabilities 1,213 1,982
----- -----
Total $6,230 $5,581
====== ======
NOTE 7 - LONG-TERM DEBT
<TABLE>
<CAPTION>
<S> <C> <C>
Long-term debt consisted of the following at June 30: (000's) 1998 1997
- ----------------------------------------------------- ---- ----
Senior Term Loan, $25,000,000 principal amount, interest at prime plus 2.0%,
payable in monthly installments, beginning August 1, 1995, with final payment
due April 1, 2001, senior position collateralized by all the assets, contracts,
real property and common stock of J&L. $16,920 $20,108
Revolving Loan Facility, $15,000,000 principal amount, interest at prime plus
1.5%, payable April 1, 2000, with a one-year renewal option, senior position
collateralized by all the assets, contracts, and real property and common stock
of J&L. Assets available as collateral, trade accounts receivable, amounts and
inventory values, totaled approximately $14,907,000 at June 30, 1998 9,843 9,251
Subordinated Term Notes, $23,000,000 principal amount, interest at the fixed
rate of 13%, payable interest only quarterly beginning June 30, 1995 through
March 31, 2002 and then quarterly principal payments of $1,500,000 plus interest
until due in June, 2005, subordinated position to the senior debt with respect
to collateralization by all the assets, contracts, real property and common
stock of J&L. The Notes have been discounted $153,000 at the date of issuance
for financial statement reporting purposes as a result of the fair value
attributed to their related warrants (see Note 1). 23,000 23,000
Machinery and Equipment Loan Fund (MELF) loan, $500,000 principal amount,
interest a fixed rate of 3%, payable monthly beginning December 1, 1996, with
final payment due November 1, 2001, subordinated position to senior and
subordinated debt with respect to collateralization by all assets, contracts and
real property of J&L. 342 438
Beaver County Enterprise Zone and Development Fund loans, $250,000 principal
amount each, interest at 3% and 4.125% respectively, payable monthly beginning
June 1, 1997, with final payment due May 1, 2001, subordinated position to the
senior and subordinated debt with respect to collateralization by all assets,
contracts and real property of J&L. 391 485
Fixed rate 13% debenture agreement with a related investment company, $6,730,000
principal amount, payable semi-annually interest only beginning October 1, 1995
and due December 2002, secured by the Company's stock held in JLH. The debenture
has been discounted $840,000 at the date of issuance for financial statement
reporting purposes as a result of the fair value attributed to the related
warrants (see below). 6,730 6,730
Deferred purchase money note payable to a related holding company, interest
fixed at 11%, payable annually interest only beginning March 15, 1996 and due
December 2002. 475 475
Unsecured line of credit to $1,000,000 with a related investment company,
bearing interest at 13% and payable with interest only semi-annually beginning
April 1, 1996 until due in March, 2002. The line of credit has been discounted
$376,000 at the date of issuance for financial statement reporting purposes as a
result of the fair value attributed to the related warrants (see below). 1,000 1,000
===== =====
Total 58,701 61,487
Less-current maturities 4,321 3,378
Less-discounts on long term obligations 1,009 1,154
----- -----
Long-term obligations, net $ 53,371 $ 56,955
======== ========
</TABLE>
28
<PAGE>
The following table sets forth the scheduled maturities of the long-term debt of
the Company as of June 30:
(000's)
-------
1999 $ 4,321
2000 14,532
2001 8,517
2002 1,625
2003 6,000
Thereafter 23,706
------
$ 58,701
J&L capitalized interest on the reheat furnace construction project in fiscal
1997 and 1996 totaling approximately $130,000 and $262,000, respectively.
Included within the $25,000,000 Senior Term Loan, above, the lender provided a
Capital Expenditure Line of Credit in the principal amount of $3,000,000, which
bears interest at the same rate as the Senior Term Loan. At June 30, 1998 and
1997, $3,000,000 had been borrowed against this facility and was outstanding.
Borrowings made under this Line of Credit are payable in equal monthly
installments beginning May 1, 1998 with the final payment to be made April 1,
2001.
Under the amended terms of the Revolving Loan, the Company used $1,500,000 of
its credit availability to issue a Letter of Credit. Letters of Credit have been
issued to an insurance company totaling $1,000,000 which collateralize the costs
of certain insurance programs (see Note 11) and a new billet supplier totaling
$500,000 which collateralizes the purchase of raw materials.
The Senior Term Loan, Revolving Loan Facility and the 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 June 30, 1998, J&L was in compliance with the
provisions of its loan agreements,
The Company continues to remain unable to meet its debt service obligations
under various related party obligations including its credit agreement and
unsecured line of credit totaling $6,730,000 and $1,000,000 with accrued
interest totaling $1,934,000 and $225,000, respectively, to Trinity Investment
Corp., and a deferred purchase money note to Ascott Wing, Inc. totaling $475,000
plus accrued interest totaling $113,000 through June 30, 1998. Both Trinity
Investment Corp. and Ascott Wing, Inc. have agreed to extend a previously issued
waiver deferring any payments due under these obligations from July 1, 1998 to
July 1, 1999.
The fair market value of J&L's fixed rate long-term debt on June 30, 1998,
including current maturities, approximates its book value. The fair market value
estimate was based on cash flow yield to maturity and comparing that amount to
market quotations where possible. Management is not aware of any significant
factors that would alter this estimate after that date.
NOTE 8 - INCOME TAXES
The (benefit) provision for income taxes consisted of the following:
(000's)
-------
1998 1997 1996
---- ---- ----
Federal income tax benefit $ - $ - $ (100)
State deferred tax (benefit) provision (337) 337 -
------- ------ -------
Total $ (337) $ 337 $ (100)
======= ====== =======
The effective income tax rate on income (loss) from continuing operations
differs from the statutory federal income tax rate for the fiscal years ended
June 30, 1998, 1997, and 1996, as follows:
(000's)
1998 1997 1996
---- ---- ----
Income tax (benefit) at U.S. Federal
statutory rate of 34% $ 75 $ (788) $ (683)
Impact of change in State Tax Law (307) - -
State income taxes - 337 -
Utilization of net operating loss
carryforwards, changes in
valuation allowance and other (105) 788 583
-- --- ---
Income tax charge (benefit) $ (337) $ 337 $(100)
Management has calculated its federal and state net operating loss carryforwards
at June 30, 1998 to be approximately $100,377,000 and $10,169,000, respectively.
Such losses can be carried forward and expire in varying amounts from June 30,
2008 to 2013.
29
<PAGE>
Temporary differences between financial statement carrying amounts and tax bases
of assets and liabilities at June 30, 1998 and 1997 were as follows:
1998 1997
---- ----
Current deferred taxes:
Accrued expenses $ 474,407 $ 862,700
Inventory 346,918 389,100
Valuation allowance (821,325) (1,049,334)
-------- ----------
Net current deferred tax asset $ - $ 202,466
======== ==========
Non-current deferred taxes:
Property, plant and equipment and intangibles $(4,434,523) $(4,097,600)
Net operating losses (federal and state) 35,110,977 34,237,700
Other 87,307 -
Valuation allowance (30,763,761) (30,679,749)
----------- -----------
Total non-current deferred tax liability $ - $ (539,649)
=========== ==========
The Company reduced valuation allowances by approximately $337,000 during 1998
to reflect the effect of legislation enacted in 1998, which extended the
carryforward period for state tax net operating losses. Management has recorded
valuation allowances at June 30, 1998 and 1997 against deferred tax assets to
the extent that their estimate of recovering these future deductions against
future taxable income is less than likely.
NOTE 9 - CAPITAL STOCK
Warrants for 300,000 shares of Company common stock were issued to Trinity in
conjunction with the unsecured line of credit agreement executed on February 1,
1996. The warrants are exercisable for a period of ten years at $4.00 per
warrant.
Warrants for 2,000,000 shares of Company common stock were issued to Trinity in
conjunction with an amended credit agreement executed on April 1, 1995. These
warrants are exercisable for a period of ten years at $1.00 per warrant.
NOTE 10 - BENEFIT PLANS
J&L maintains a defined contribution (money purchase) plan for substantially all
employees whereby J&L makes contributions, at designated rates, based on hours
worked. All contributions required under the plan have been funded as of June
30, 1998, 1997 and 1996. Pension expense for the years ended June 30, 1998,
1997, and 1996 was approximately $584,000, $582,000 and $486,000, respectively.
J&L participates in the National Industrial Group Pension Plan (NIGPP) which is
a multi-employer defined benefit pension plan covering all employees of
Brighton's collective bargaining unit. All contributions required under the plan
have been funded as of June 30, 1998, 1997 and 1996. A withdrawal from the plan
would trigger an obligation to the plan for a portion of the unfunded benefit
obligation. Pension expense for the years ended June 30, 1998, 1997 and 1996 was
approximately $34,000, $40,000 and $40,000, respectively.
J&L provides a profit sharing plan for substantially all employees. The amount
available for profit sharing is based on a return on sales formula using defined
levels of pretax income. For those employees compensated under terms of
collective bargaining agreements, distributions are calculated and paid
quarterly. For other eligible employees, calculations and distributions are made
at J&L's fiscal year end. Such amounts have been reflected as current
liabilities in the accompanying consolidated balance sheets. Profit sharing
expense for the years ended June 30, 1998, 1997 and 1996 was approximately
$1,111,000, $764,000 and $1,238,000, respectively.
J&L also maintains separate 401(k) or salary deferral plans for substantially
all of its employees. Participation in these plans is based on hours of service.
Both plans provide for employee contributions up to 20% of wages subject to
certain adjustments. The plan associated with the collective bargaining
agreement provides for discretionary company contributions. For the years ended
June 30, 1998, 1997 and 1996, no employer contributions had been made.
In connection with its collective bargaining agreement with the Industrial and
Allied Employees Union Local No. 73 (the "Union"), Hupp participated in a
multi-employer defined benefit pension plan. The plan covered all of Hupp's
employees who were members of the Union. As a result of the secured party asset
sale on October 27, 1994, described in Note 1, Hupp was deemed to have withdrawn
from the plan. This withdrawal triggered a demand for payment of withdrawal
liability by the Union (see Note 11).
30
<PAGE>
NOTE 11 - LITIGATION, COMMITMENTS AND CONTINGENCIES
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 August 31, 1998,
CPT has made payments aggregating approximately $741,000 to the Plan and as of
June 30, 1998, 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. As the decision is
currently on appeal, CPT has not recorded any gain contingency.
J&L's former workers compensation insurance program provided 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. The letter of credit called for quarterly step-ups in the
amounts available for draw with the maximum aggregate amount of $1,000,000 being
available after August 29, 1997. At June 30, 1998, $1,000,000 was the maximum
amount available under the letter. 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 described in Note
7. 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 covered under a fixed cost, fully insured workers compensation
program.
In 1995, J&L signed a contract for turnkey 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 June 30, 1998, and the
remaining amount of $1.4 million representing the retention on the original
project has not been paid and is shown in accounts payable on the Company's
consolidated balance sheets at June 30, 1998 and 1997. J&L is currently in the
process of arbitration with the furnace supplier regarding the final payment. A
determination of the likely outcome of the arbitration is unknown at this time.
The Company is involved in various legal actions arising in the normal course of
business. While it is not possible to determine with certainty the outcome of
these matters, in the opinion of management, the eventual resolution of the
claims and actions outstanding will not have a material adverse effect on the
Company's financial position or operating results.
NOTE 12 - RELATED PARTY TRANSACTIONS
A management agreement exists between the Company and J&L whereby the Company or
its designated affiliate provides executive management advisory services to J&L.
The contract term of the agreement is for a period of six years through March
2001 and is subject to being automatically renewed annually thereafter, unless
terminated by any party to the agreement. Annual amounts due to the Company
under this agreement total $600,000, which includes out-of-pocket expenses
incurred by the Company of up to $150,000 annually. The Company exercised its
right under the agreement to designate Mentmore Holdings Corporation
("Mentmore") as the management advisory service provider and as a result has
assigned all fees the Company is entitled to under this agreement to Mentmore.
Management fee expense paid to Mentmore for each of the years ended June 30,
1998, 1997 and 1996 under this agreement totaled $600,000.
Richard L. Kramer is Chairman of the Board, a Director and Secretary of
Mentmore. William L. Remley is a director and President of Mentmore. The
Chairman of the Board of the Company is also the Chairman of the Board, a
Director, Vice President and Secretary of Trinity and Ascott Wing. The President
and Treasurer of the Company is also a Director, President and Treasurer of
Trinity and Ascott Wing, and a Trustee for The A.J. 1989 Trust. Various lending
and stock purchase warrant agreements have been executed by the Company with
Trinity (see Note 9). Various loans to the Company had been made by The A.J.
1989 Trust, and a Deferred Purchase Money Note exists in consideration for BESCC
preferred stock redeemed on March 15, 1995.
Long-term employment contracts exist with three executives at J&L, formerly
owners of JLS. These employment contracts extend for five-year periods each
through March, 2000.
31
<PAGE>
NOTE 13 - SEGMENT INFORMATION
The Company's continuing operations include two distinct business segments
within its single operating subsidiary, J&L. J&L Structural manufactures and
fabricates lightweight structural steel shapes which are distributed principally
to the manufactured housing, truck trailer construction and highway safety
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. Financial information for continuing operations
by business segment for the fiscal years ended June 30, is as follows:
(000's)
1998 1997 1996
---- ---- ----
Sales to unaffiliated customers:
BESCC/Brighton ................. $ 6,603 $ 6,055 $ 6,402
J&L Structural ................. 104,227 92,144 94,609
--------- --------- ---------
Total .......................... $ 110,830 $ 98,199 $ 101,011
========= ========= =========
Depreciation and amortization:
CPT Holdings, Inc. ............. $ 133 $ 110 $ 75
BESCC/Brighton ................. 192 162 140
J&L Structural ................. 4,107 3,835 3,118
--------- --------- ---------
Total .......................... $ 4,432 $ 4,107 $ 3,333
========= ========= =========
Operating income:
CPT Holdings, Inc. ............. $ (259) $ (302) $ (1,227)
BESCC/Brighton ................. 1,348 1,107 996
J&L Structural ................. 7,649 4,764 6,151
Continuous Caster Corp. ........ (55) (193) --
--------- --------- ---------
Total .......................... $ 8,683 $ 5,376 $ 5,920
========= ========= =========
Identifiable assets:
CPT Holdings, Inc. ............. $ 3 $ 21
BESCC/Brighton ................. 4,811 3,847
J&L Structural ................. 61,491 63,147
Continuous Caster Corp ......... 100 155
--------- ---------
Total .......................... $ 66,405 $ 67,170
========= =========
Capital expenditures:
BESCC/Brighton ................. $ 211 $ 85
J&L Structural ................. 1,167 3,413
--------- ---------
Total .......................... $ 1,378 $ 3,498
========= =========
BESCC/Brighton's revenue was generated from five customers that comprised 84%,
80% and 77% of its total revenue in 1998, 1997 and 1996, respectively.
32
<PAGE>
CPT HOLDINGS, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
June 30,
(000's)
1998 1997 1996
---- ---- ----
Balance Sheets
--------------
Assets
Cash and cash equivalents $ 2 $ 18
Prepaid expenses and other - 203
EITF 88-16 basis adjustment (9,705) (9,705)
Investment in subsidiary 9,529 7,506
----- -----
Total assets $ (174) $ (1,978)
======== ========
Liabilities and Shareholders' Deficit
Accrued liabilities $ 3,185 $ 2,079
Due to subsidiaries 152 200
Long-term obligations 7,321 7,188
Common stock: authorized 30,000,000
shares at $0.05 par value each,
1,510,084 shares issued and
outstanding 76 76
Additional paid-in capital 5,737 5,737
EITF 88-16 basis adjustment (9,705) (9,705)
Accumulated deficit (6,940) (7,553)
------ ------
Total shareholders' deficit (10,832) (11,445)
------- -------
Total liabilities and shareholders'
deficit $ (174) $(1,978)
======== =======
Statement of Cash Flows
-----------------------
Cash flows from operating activities $ (140) $ (370) $(1,610)
Cash flows from investing activities - - 299
Cash flows from financing activities 124 297 966
--- --- ---
Decrease in cash and cash equivalent (16) (73) (345)
Cash and cash equivalents:
Beginning of year 18 91 436
-- -- ---
End of year $ 2 $ 18 $ 91
======== ====== =======
Statements of Earnings (Loss)
-----------------------------
Earnings (loss) in subsidiary $ 2,146 $ (992) $ 311
Other income 132 48 80
Interest expense, net (1,406) (1,215) (1,073)
Operating expenses (259) (302) (1,227)
---- ---- ------
Net income (loss) $ 613 $(2,461) $(1,909)
========= ======= =======
33
<PAGE>
CPT HOLDINGS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended June 30, 1998, 1997 and 1996
(000's)
Column A Column B Column C Column D Column E Column F
----------------------------------------------------------------------------
Description Balance Charges Retirement Other Balance
at to costs (1) charges at end
beginning & expenses add of period
of (deduct)
period
------------------------------ --------------------------------------------
1998
----
Allowance for
Doubtful
Accounts in
Accounts
Receivable $151 $158 $98 $ - $211
==== ==== === ====== ====
Allowance for
Sales Discounts
and Claims $67 $567 $494 $ - $140
=== ==== ==== ====== ====
1997
----
Allowance for
Doubtful
Accounts in
Accounts
Receivable $206 $ 60 $115 $ - $151
==== ==== ==== ====== ====
Allowance for
Sales Discounts
and Claims $101 $266 $300 $ - $ 67
==== ==== ==== ====== ====
1996
----
Allowance for
Doubtful
Accounts in
Accounts
Receivable $244 $ 76 $114 $ - $206
==== ===== === ====== ====
Allowance for
Sales Discounts
and Claims $ 84 $329 $312 $ - $101
==== ==== ==== ====== ====
(1) Represents write-offs of uncollectable accounts or realized sales discounts
and claims.
34
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 37
<SECURITIES> 0
<RECEIVABLES> 9,297
<ALLOWANCES> 351
<INVENTORY> 12,722
<CURRENT-ASSETS> 21,899
<PP&E> 52,038
<DEPRECIATION> 10,674
<TOTAL-ASSETS> 66,405
<CURRENT-LIABILITIES> 21,058
<BONDS> 0
<COMMON> 76
0
0
<OTHER-SE> (11,516)
<TOTAL-LIABILITY-AND-EQUITY> 66,405
<SALES> 110,830
<TOTAL-REVENUES> 110,830
<CGS> 94,869
<TOTAL-COSTS> 94,869
<OTHER-EXPENSES> 8,116
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,624
<INCOME-PRETAX> 221
<INCOME-TAX> (337)
<INCOME-CONTINUING> 558
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 558
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.10
</TABLE>
