<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-7462
CPT HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0972129
(State of Incorporation) (I.R.S. Employer Identification No.)
680 Fifth Avenue, 8th Floor
New York, New York 10019
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (212) 931-5260
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 No X
As of June 1, 2000, 1,486,740 shares of Common Stock were issued and
outstanding.
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PART 1. FINANCIAL INFORMATION
ITEM 1: Financial Statements
CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(000's Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 19,463 $ 24,972 $ 59,658 $ 75,977
Cost of sales 19,128 20,866 55,319 65,127
------------ ------------ ------------ ------------
Gross profit 335 4,106 4,339 10,850
Selling, general and administrative
1,500 1,883 4,357 5,448
------------ ------------ ------------ ------------
Operating (loss) income (1,165) 2,223 (18) 5,402
Other expense (income):
Interest expense 1,763 1,779 5,266 5,506
Minority interest (491) 170 (782) 208
Other, net (3) 5 (13) 10
------------ ------------ ------------ ------------
Income (loss) before income taxes
(2,434) 269 (4,489) (322)
Provision for income taxes - - - -
------------ ------------ ------------ ------------
Net income (loss) $ (2,434) $ 269 $ (4,489) $ (322)
============ ============ ============ ============
Earnings (loss) per common share:
Basic $ (1.63) $ 0.18 $ (2.98) $ (0.21)
============ ============ ============ ============
Diluted $ (1.63) $ 0.09 $ (2.98) $ (0.30)
============ ============ ============ ============
Weighted average common shares
outstanding
1,497 1,510 1,506 1,510
============ ============ ============ ============
Weighted average common and common
equivalent shares outstanding
1,497 1,510 1,506 1,510
============ ============ ============ ============
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
2
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CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
($000's)
<TABLE>
<CAPTION>
March 31, June 30,
ASSETS 2000 1999
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 135 $ 117
Receivables - net of allowances of $409 and $455, respectively 8,104 7,263
Inventories 9,011 10,542
Other current assets 339 663
---------- ----------
Total current assets 17,589 18,585
Property, plant and equipment, net of accumulated depreciation of $17,620
and $14,472, respectively 45,849 38,865
Deferred financing costs, net of accumulated amortization of $674 and $479,
respectively 1,155 1,075
Goodwill, net of accumulated amortization of $777 and $706, respectively 1,106 1,177
Other assets 313 348
---------- ----------
Total assets $ 66,012 $ 60,050
========== ==========
LIABILITIES & SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 9,713 $ 7,380
Accrued expenses 8,366 7,030
Due to affiliates 270 253
Current portion of long-term debt 63,042 2,691
---------- ----------
Total current liabilities 81,391 17,354
Long-term debt, net of current portion - 52,804
Minority interest in consolidated subsidiaries 1,998 2,780
Shareholders' deficit:
Common stock authorized 30,000,000 shares of $.05 par value each,
issued and outstanding 1,510,084 shares in 2000 (including 23,344 76 76
treasury shares) and 1,510,084 shares in 1999
Additional paid-in capital 5,737 5,737
Accumulated deficit (23,190) (18,701)
---------- ----------
Total shareholders' deficit (17,377) (12,888)
---------- ----------
Total liabilities and shareholders' deficit $ 66,012 $ 60,050
========== ==========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
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CPT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
($000's)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,489) $ (322)
Adjustments to reconcile net loss to net
cash provided by operations:
Minority interest in (loss) earnings of subsidiaries (782) 208
Depreciation and amortization 3,554 3,459
Changes in working capital:
(Increase) decrease in receivables (841) 1,130
Decrease in inventories 1,531 1,930
(Increase) decrease in other assets 359 (64)
Increase (decrease) in accounts payable and accrued expenses
3,686 (942)
---------- ----------
Cash provided by operating activities 3,018 5,399
---------- ----------
Cash flows from investing activities:
Capital expenditures (10,132) (1,019)
---------- ----------
Cash used in investing activities (10,132) (1,019)
---------- ----------
Cash flows from financing activities:
Borrowings on long-term obligations 6,650 -
Repayments on long-term obligations (2,130) (3,208)
Net borrowings under revolving credit facility 2,887 (1,129)
Payment of deferred financing fees (275) -
---------- ----------
Cash provided by (used in) financing activities 7,132 (4,337)
---------- ----------
Net increase in cash and cash equivalents 18 43
Cash and cash equivalents:
Beginning of period 117 37
---------- ----------
End of period $ 135 $ 80
========== ==========
Supplemental data - cash paid during the period for:
Interest $ 3,486 $ 4,235
========== ==========
Income taxes $ - $ -
========== ==========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
4
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CPT HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying financial statements include the accounts of CPT Holdings,
Inc. and its direct and indirect majority-owned subsidiaries (collectively
the "Company" or "CPT"): J&L Structural, Inc. ("J&L"), J&L Holdings Corp.
("JLH"), Continuous Caster Corporation ("CCC") and H. Industries, Inc.
("Hupp"). All material intercompany transactions have been eliminated in
consolidation.
The Company's operations include two distinct business segments within its
single indirect operating subsidiary, J&L: J&L Structural and Brighton
Electric Steel Company ("Brighton"). J&L Structural manufactures and
fabricates lightweight structural steel shapes which are distributed
principally to the manufactured housing, tractor trailer manufacturing,
highway construction, service center and construction industries. Brighton
designs, manufactures and sells steel piercer points which represent
disposable tooling used in the production of seamless steel tubes used in the
petrochemical industry. CCC is a majority-owned, indirect subsidiary which
holds title to 38 acres of undeveloped land adjacent to the J&L facility in
Aliquippa, Pennsylvania.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and Article 10 of
Regulation S-X and do not include the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (including normal recurring
accruals) considered necessary for a fair presentation have been included.
The results of operations for any interim period are not necessarily
indicative of the results for the year. Certain amounts included in the prior
periods' financial statements have been reclassified to conform with the
current periods' presentation. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes included in the Company's Annual Report on Form
10-K for the year ended June 30, 1999.
2. Inventories
Inventories consisted of the following (in $000's):
March 31, June 30,
2000 1999
---- ----
Raw materials $ 2,377 $ 2,628
Finished goods 6,634 7,914
-------- --------
$ 9,011 $ 10,542
======== ========
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3. Long-Term Debt
Long-term debt consisted of the following (in $000's):
March 31, June 30,
2000 1999
---- ----
Senior term loan $ 17,191 $ 19,000
Subordinated term notes 23,000 23,000
Equipment loan with senior lender 6,238 -
Revolving loan facility 8,517 5,630
Fixed rate 13% debenture 6,730 6,730
Unsecured revolving credit facility 1,000 1,000
Deferred purchase money note 475 475
State loans 628 537
--------- ---------
63,779 56,372
Less current portion of long-term debt 63,042 2,691
Less discounts on long-term debt 737 877
--------- ---------
Total $ - $ 52,804
========= =========
The senior term loan, revolving loan facility and subordinated term notes
include certain provisions which, among other things, require that J&L
maintain certain financial ratios, limit the amount of annual capital
expenditures, maintain a minimum tangible net worth and limit the amount of
shareholder distributions. J&L failed to comply with certain provisions under
its senior term loan during the fiscal quarter ended March 31, 2000 by
failing to maintain a specified level of minimum tangible net worth.
Additionally, J&L failed to comply with certain provisions of its
subordinated term notes during the fiscal quarter ended March 31, 2000 by
failing to pay accrued interest as scheduled on March 30, 2000, and by
failing to maintain certain financial ratios, such as operating cash flow to
contractual senior debt service and operating cash flow to contractual total
debt service.
J&L's management is currently in discussions with its lenders regarding the
current defaults, projected operating results and liquidity. However, due to
an inability thus far to secure waivers and prospective debt agreement
amendments from its lenders relating to the current defaults, J&L has
classified the balance of its outstanding debt as current. As a result of the
above mentioned defaults, J&L has been denied the remaining availability
under its equipment loan totaling approximately $1.6 million by its senior
lender. However, through the date of this Report neither the senior lender
nor the subordinated lenders have demanded payment which is a prescribed
remedy under their respective credit agreements. Furthermore, through the
date of this Report the senior lender has continued to allow J&L to operate
under the terms of the revolving loan facility which is based on outstanding
levels of trade receivables and inventory. However, no assurances can be
given that it will continue to do so.
4. Litigation, Contingencies and Commitments
As a result of the defaults under J&L's various debt agreements as described
more fully in Note 3, J&L's sources of liquidity are currently limited to
operating cash flow and, for as long as J&L's senior lender permits,
borrowings under its revolving loan facility. Operating difficulties
experienced by J&L subsequent to commissioning of the recent plant upgrade in
addition to a general industry slowdown in manufactured housing production
that is approaching one year in duration,
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have not allowed the Company to meet all lender and vendor obligations on a
timely basis. Although some improvement in plant operating performance is
evident, significant uncertainty exists with regard to (1) the ability to
reach acceptable levels of plant operating performance and (2) the timing of
a rebound in the manufactured housing production cycle.
Management's plan to address J&L's short-term liquidity issues centers on a
possible sale of Brighton and continued cooperation from trade vendors in
providing modifications to payment terms. Management has received indications
of interest on a sale of the Brighton assets suggesting that a closing by
late summer may be feasible. The estimated proceeds from this proposed sale
could provide J&L sufficient liquidity for a reasonable period of time during
which J&L could work toward necessary improvement in plant operating
performance and determine whether the projected level of market acceptance
exists for several new commodity sections being produced as a result of the
expanded capabilities of the mill. The successful achievement of the
foregoing events alone, however, would not guarantee that J&L can continue to
meet its outstanding obligations as they come due. Market factors beyond the
control of management such as competitive pricing of finished goods, market
pricing of raw materials (primarily billets) and cyclical downturns in the
end markets served by J&L all have significant impact on operating cash flow.
In addition, under the terms of J&L's senior and subordinated debt
agreements, a sale of Brighton is not permitted without the consents of the
lenders thereunder. J&L's ability to obtain consents for the Brighton
transaction cannot be determined until the lenders have had a chance to
review the terms of any proposed transaction and address other issues
relating to their respective debt agreements. Further, even if consents for a
Brighton sale can be secured, no assurances can be given that management will
succeed in negotiating with its lenders for the use of all or a significant
part of the Brighton sale proceeds for working capital purposes. Management
believes that the continuation of operations at J&L as a going concern is
highly unlikely without (1) the consummation of the Brighton sale in the near
future coupled with an ability to utilize a significant amount of the
proceeds therefrom for working capital purposes, (2) significant improvement
in plant operating performance and (3) obtaining waivers and prospective debt
agreement amendments from both its senior and subordinated lenders. Based on
the limited time available to resolve these issues and discussions to date
with the Company's lenders, management may determine that a formal
reorganization proceeding may provide J&L with its best opportunity to
achieve its objective.
The Company completed hot commissioning of its $11.8 million plant upgrade in
February 2000. Cash payments through March 31, 2000 totaled $8.9 million with
the balance of the payments for spares, retainage and certain ancillary
equipment to be disbursed over the next six to nine months.
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.
7
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5. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per common share (in $000's, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net (loss) earnings $ (2,434) $ 269 $ (4,489) $ (322)
Dilution from subsidiary warrants - (129) - (129)
----------- ----------- ----------- -----------
Net (loss) earnings to common shareholders $ (2,434) $ 140 $ (4,489) $ (451)
=========== =========== =========== ===========
Denominator:
Weighted average shares: Basic 1,496,856 1,510,084 1,505,675 1,510,084
Effect of dilutive securities: Warrants - - - -
----------- ----------- ----------- -----------
Weighted average shares: Diluted 1,496,856 1,510,084 1,505,675 1,510,084
=========== =========== =========== ===========
Loss per common share: Basic $ (1.63) $ 0.18 $ (2.98) $ (0.21)
=========== =========== =========== ===========
Loss per common share: Diluted $ (1.63) $ 0.09 $ (2.98) $ (0.30)
=========== =========== =========== ===========
</TABLE>
On April 1, 1995, the Company issued a warrant exercisable for 2,000,000 shares
of the Company's common stock for a period of ten years from the date of
issuance at $1 per share.
On February 1, 1996, the Company issued a warrant exercisable for 300,000 shares
of the Company's common stock, for a period of ten years from the date of
issuance at $4 per share. These warrants, which could potentially dilute
earnings per share in the future, were not included in the diluted computation
because the weighted average price per share for the three and nine months ended
March 31, 2000 and 1999 did not exceed the exercise price.
As a result of a final distribution process relating to unclaimed
bankruptcy-related shares dating from pre-1992, CPT was distributed 23,344
treasury shares on February 8, 2000 at no cost.
8
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ITEM 2: Management's Discussion and Analysis of Financial Condition And Results
Of Operations
CPT Holdings is a holding company with no independent operations outside of its
operating company, J&L Structural, Inc. which operates in the steel industry
through two segments, J&L Structural and Brighton Electric Steel Casting Company
("Brighton"). J&L Structural operates through two separate divisions which
includes the Aliquippa division and the Ambridge division. This distinction is
due mainly to separate labor contracts which exist among the employees of J&L
Structural. The Ambridge division provides finishing services required for
certain J&L Structural products that are produced at the Aliquippa division.
Cautionary Statement on Forward-Looking Statements
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Investors are cautioned that
any forward-looking statements, including statements regarding the intent,
belief, or current expectations of the Company or its management, are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those in the forward-looking
statements as a result of various factors including, but not limited to (i) the
continuation of the downturn in manufactured housing construction and sales,
(ii) billet costs and other raw material costs may rise as a result of
increasing scrap metal pricing and J&L may not have the ability to pass such
costs to customers, (iii) the inability of J&L to realize the necessary
improvement in plant operating performance projected as a result of the new
upgrade, (iv) the level of market acceptance for several new commodity sections
being produced as a result of the expanded capabilities of the mill, (v) the
anticipated sale of Brighton may not occur soon enough or at all or may result
in the realization of less working capital available to J&L than anticipated and
(vi) the severe liquidity constraints on J&L.
Overview
Management believes that unfavorable trends in the markets in which J&L
competes, as well as poor operating performance at J&L for most of this fiscal
year have put the continuation of operations of J&L as a going concern in
substantial doubt. As a result of imbalances in the flow of worldwide steel
scrap and finished structural product which occurred during the latter half of
1998, coupled with the introduction of new domestic light structural rolling
capacity, J&L has experienced significant pricing pressure in its Junior Beam(R)
product line, which accounted for approximately 50% of J&L's total tonnage
shipped during the nine-months ended March 31, 2000. In addition, the
manufactured housing producers are suffering from inventory management issues
resulting in lower volume demand of approximately 20% industry-wide since July
1999. Turmoil in securitizations of sub-standard, asset-backed mortgages which
began during 1998, as well as the rapid vertical integration strategy that was
pursued by certain of the leaders in the manufactured housing industry, are
considered root causes of the current downturn.
J&L responded to these new challenges by pursuing a plan to expand its product
line into more commodity sections that are directed to the steel service centers
which ultimately supply the construction services industry. Management
commissioned a feasibility study late in fiscal 1998 that examined J&L's
opportunities in this segment. As a result, management endeavored to commission
a partial plant upgrade of J&L's Aliquippa facility that would provide J&L the
capability to produce several additional commodity sections and also other
quality and process improvement features. Hot commissioning of the plant upgrade
took place a few months ago, but not without some unexpected mechanical and
control software-related issues. Management believes that most of the
significant obstacles have been resolved. However, there remain significant
challenges in fully and efficiently
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utilizing the facility's new equipment. Management has engaged an outside
operations consulting group to independently evaluate both plant and
administrative operations and practices.
Results of Operations
Net Sales
Net sales for the three month and nine month periods ended March 31 (in 000's):
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
---------- ---------- ---------- ----------
J&L Structural $ 17,679 $ 23,957 $ 54,982 $ 72,966
Brighton 1,784 1,015 4,676 3,011
---------- ---------- ---------- ----------
Total $ 19,463 $ 24,972 $ 59,658 $ 75,977
========== ========== ========== ==========
Net sales for three months and nine months ended March 31, 2000 for J&L
Structural decreased by 26.2% and 24.6%, respectively, over the comparable
periods of the prior year reflecting reduced shipping levels and reductions in
sales prices. Tonnage shipped for the three months and nine months ended March
31, 2000 was down 21.4% and 17.3%, respectively, compared to the previous year.
Average sales prices for the three months and nine months ended March 31, 2000
for J&L Structural's products decreased by 6.21% and 8.87%, respectively, over
the comparable periods in the prior year. The decrease in sales primarily
reflects a softening in demand from the manufactured housing industry which has
decreased approximately 20% since July 1999, as industry manufacturers ("OEMs")
address inventory management issues. Many of the OEMs had aggressively expanded
their operations through consolidation and vertical integration over the last
few years; however, demand has not kept pace with the increased industry
capacity. In addition, certain losses of customer volume in manufactured housing
related product have resulted from the highly competitive pricing environment
experienced over the most current nine months.
Brighton's sales increased for the current three and nine month periods
reflecting the renewed health in the oil and gas exploration and distribution
business resulting in increased demand for its core product, piercer points.
Gross Margins
Gross margins for the three month and nine month periods ended March 31, were:
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
---------- ---------- ---------- ----------
J&L Structural 1.1% 16.2% 5.6% 13.9%
Brighton 29.8% 22.3% 27.3% 23.8%
---------- ---------- ---------- ----------
Total 1.7% 16.4% 7.3% 14.3%
========== ========== ========== ==========
Gross margins for the three months and nine months ended March 31, 2000 for J&L
Structural declined 15.1% and 8.3%, respectively, in comparison to the same
period in the prior year. The decrease in gross margins resulted primarily from
the evolution of our Junior Beam(R) product from a more niche oriented product
to a commodity product commanding less of a pricing premium. In addition, a
significant decrease in production efficiencies over the period, particularly
during the second and third fiscal quarters, contributed to the gross margin
shortfall. This poor performance resulted from reduced
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production volume during the period, coupled with start-up difficulties
resulting from the recent upgrade at J&L's Aliquippa facility.
Brighton's gross margins for the three and nine month periods increased
significantly, primarily due to improved plant utilization as a result of the
increased industry demand discussed above.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses for the three months and nine
months ended March 31, 2000 decreased by 20.3% and 20.0%, respectively, as
compared to prior year results, primarily as a result of nonrecurring consulting
fees and legal costs associated with a protracted arbitration proceeding with a
furnace builder which was concluded during fiscal 1999.
Interest Expense
Interest expense decreased $16,000 and $240,000 for the three and nine-month
periods ended March 31, 2000, respectively, compared to the same period in the
prior fiscal year. The decrease was attributable primarily to a lower borrowing
rate in the current period under the new senior credit facility and the
capitalization of approximately $288,000 in interest expense related to the mill
upgrade. The new senior credit agreement which was consummated on June 30, 1999,
has a stipulated borrowing rate option based on a Eurodollar rate plus a margin
of 2.75% and 3.0% for the revolver and term loan, respectively. J&L's former
senior credit facility only provided a prime rate option plus a margin of 1.5%
and 2.0% for the revolver and term loan, respectively. Interest rate increases
in Europe over the most recent fiscal quarter narrowed this benefit. As a result
of our debt agreement defaults described under "Liquidity and Capital
Resources", J&L is required to pay default rates of interest under its senior
and subordinated debt agreements. In addition, J&L is ineligible to use the
Eurodollar rate borrowing option under its senior credit facility. The impact of
these higher interest rates will significantly impact fourth quarter interest
expense. The continuing impact will be dependent on J&L's ability to negotiate
waivers of default and certain prospective covenant amendments to J&L's senior
and subordinated credit agreements. No assurances can be given that the Company
will be able to do so.
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Liquidity and Capital Resources
Net cash flows from operations for the nine months ended March 31, 2000 and 1999
totaled $3,018,000 and $5,399,000, respectively. The decrease in cash flows was
primarily attributable to increased operating losses and receivables which
impact was partially offset by aggressive management of trade payables. The
increase in receivables over June 30, 1999 levels is a result of a 15% increase
in days sales outstanding which is currently averaging approximately 33 days.
Net cash used in investing activities for the nine months ended March 31, 2000
and 1999 totaled $10,132,000 and $1,019,000, respectively. During fiscal 2000,
J&L commenced an $11.8 million plant upgrade project which is substantially
complete. Capital expenditures totaling $8,858,000 have been expended on a
life-of-project basis relating to the mill upgrade project, while fiscal 2000
expenditures for the project through March 31, 2000 totaled $8,470,000.
Investing activities during the comparable period in the prior year primarily
reflect normal maintenance capital spending.
Net cash provided by (used in) financing activities for the nine months ended
March 31, 2000 and 1999 totaled $7,132,000 and $(4,337,000), respectively.
During fiscal 2000, net cash flows represent scheduled repayments of $2,130,000
on the senior term and state loans, borrowings of $2,887,000 under the senior
lender's revolving credit facility and borrowings of $6,650,000 on long term
debt which predominantly represents the capital expenditures line provided with
the senior credit agreement. In addition, $275,000 was paid for expenses related
to the refinancing of senior debt which occurred on June 30, 1999 and on a new
state loan in December 1999. The average borrowing rate approximated 11.4% over
the period which was computed excluding the yield impact from amortization of
deferred financing costs and capitalized interest.
The senior term loan, revolving loan facility and subordinated term notes
include certain provisions which, among other things, require that J&L maintain
certain financial ratios, limit the amount of annual capital expenditures,
maintain a minimum tangible net worth and limit the amount of shareholder
distributions. J&L failed to comply with certain provisions under its senior
term loan during the fiscal quarter ended March 31, 2000 by failing to maintain
a specified level of minimum tangible net worth. Additionally, J&L failed to
comply with certain provisions of its subordinated term notes during the fiscal
quarter ended March 31, 2000 by failing to pay accrued interest as scheduled on
March 30, 2000, and by failing to maintain certain financial ratios, such as
operating cash flow to contractual senior debt service and operating cash flow
to contractual total debt service.
J&L's management is currently in discussions with its lenders regarding the
current defaults, projected operating results and liquidity. However, due to an
inability thus far to secure waivers and prospective debt agreement amendments
from its lenders relating to the current defaults, J&L has classified the
balance of its outstanding debt as current. As a result of the above mentioned
defaults, J&L has been denied the remaining availability under its equipment
loan totaling approximately $1.6 million by its senior lender. However, through
the date of this Report neither the senior lender nor the subordinated lenders
have demanded payment which is a prescribed remedy under their respective credit
agreements. Furthermore, through the date of this Report the senior lender has
continued to allow J&L to operate under the terms of the revolving loan facility
which is based on outstanding levels of trade receivables and inventory.
However, no assurances can be given that it will continue to do so.
Cash and cash equivalents at March 31, 2000 and 1999 totaled $135,000 and
$80,000, respectively. Cash availability under J&L Structural's revolving loan
facility totaled approximately $1,163,000 as of March 31, 2000. The Company's
scheduled requirements for use of cash from operations during the next twelve
months include approximately $3,940,000 of scheduled principal repayments under
the senior term loans and various state loans (not considering the potential for
a demand order noticed under any of J&L's
12
<PAGE>
credit agreements), $5,000,000 in capital spending comprised of maintenance, new
product development, and the finalization of the mill upgrade, and an estimated
$6,250,000 of cash interest expense to unaffiliated lenders (not considering
default rate interest penalties discussed earlier). Available sources of cash to
satisfy the above described requirements will be limited to cash generated from
operations and net sales proceeds from the anticipated Brighton sale discussed
below. Management is uncertain that the quantity and timing of cash flows from
operations and other sources described above will be sufficient to provide J&L
with adequate working capital to satisfy its requirements to fund necessary
operating expenses, scheduled debt service and capital expenditures during the
next twelve months.
Management's plan to address J&L's short-term liquidity issues centers on a
possible sale of Brighton and continued cooperation from trade vendors in
providing modifications to payment terms. Management has received indications of
interest on a sale of the Brighton assets suggesting that a closing by late
summer may be feasible. The estimated proceeds from this proposed sale could
provide J&L sufficient liquidity for a reasonable period of time during which
J&L could work toward necessary improvement in plant operating performance and
determine whether the projected level of market acceptance exists for several
new commodity sections being produced as a result of the expanded capabilities
of the mill. The successful achievement of the foregoing events alone, however,
would not guarantee that J&L can continue to meet its outstanding obligations as
they come due. Market factors beyond the control of management such as
competitive pricing of finished goods, market pricing of raw materials
(primarily billets) and cyclical downturns in the end markets served by J&L all
have significant impact on operating cash flow. In addition, under the terms of
J&L's senior and subordinated debt agreements, a sale of Brighton is not
permitted without the consents of the lenders thereunder. J&L's ability to
obtain consents for the Brighton transaction cannot be determined until the
lenders have had a chance to review the terms of any proposed transaction and
address other issues relating to their respective debt agreements. Further, even
if consents for a Brighton sale can be secured, no assurances can be given that
management will succeed in negotiating with its lenders for the use of all or a
significant part of the Brighton sale proceeds for working capital purposes.
Management believes that the continuation of operations at J&L as a going
concern is highly unlikely without (1) the consummation of the Brighton sale in
the near future coupled with an ability to utilize a significant amount of the
proceeds therefrom for working capital purposes, (2) significant improvement in
plant operating performance and (3) obtaining waivers and prospective debt
agreement amendments from both its senior and subordinated lenders. Based on the
limited time available to resolve these issues and discussions to date with the
Company's lenders, management may determine that a formal reorganization
proceeding may provide J&L with its best opportunity to achieve its objective.
Recent Accounting Standards
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. Because of the Company's minimal use of derivatives, the
Company does not anticipate that the adoption of the new Statement will have a
significant effect on earnings or the financial position of the Company. The
standard will be effective for the Company for the fiscal year beginning July 1,
2000.
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<PAGE>
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk
The Company's primary market risk exposure is that of interest rate risk
associated with its various debt instruments. The Company has not entered into
any derivative financial instruments to manage its interest rate risks to date.
At March 31, 2000, the Company's total outstanding debt was comprised of fixed
interest rate obligations of $31,833,000 and variable interest rate obligations
of $31,946,000.
The table below provides information (in thousands of dollars) about the
Company's maturity schedule and fair values of its outstanding debt:
<TABLE>
<CAPTION>
Variable Rate Debt Fixed Rate Debt
---------------------------------------- ---------------------------------------------------------------------
Year ending Senior Equipment Revolving Loan Subordinated Fixed Rate Unsecured Deferred State Loans
June 30 Term Loan Loan Facility Term Notes 13% Debenture Revolving Purchase
Credit Money Note
Facility
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2000 $ 17,191 $ 6,238 $ 8,517 $ 23,000 $ 6,730 $ 1,000 $ 475 $ 628
2001 - - - - - - -
2002 - - - - - - - -
2003 - - - - - - - -
2004 - - - - - - - -
Thereafter - - - - - - - -
-------- -------- --------- ---------- ---------- ---------- ---------- --------
Total $ 17,191 $ 6,238 $ 8,517 $ 23,000 $ 6,730 $ 1,000 $ 475 $ 628
======== ======== ========= ========== ========== ========== ========== ========
Fair Value $ 17,191 $ 6,238 $ 8,517 $ 23,000 $ 6,730 $ 1,000 $ 475 $ 628
======== ======== ========= ========== ========== ========== ========== ========
</TABLE>
Based upon the Company's current level of variable rate debt, a 1% increase or
decrease in interest rates will cause an approximate $320,000 increase or
decrease in annual interest expense. For the nine months ended March 31, 2000,
the weighted average interest rate for the variable rate and fixed rate debt was
approximately 8.6% and 13.0%, respectively.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
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.
ITEM 2: Changes in Securities
None
ITEM 3: Defaults Upon Senior Securities
J&L failed to comply with certain provisions under its senior term loan
during the fiscal quarter ended March 31, 2000 by failing to maintain a
specified level of minimum tangible net worth. Additionally, J&L failed to
comply with certain provisions of its subordinated term notes during the
fiscal quarter ended March 31, 2000 by failing to pay accrued interest as
scheduled on March 30, 2000, and by failing to maintain certain financial
ratios, such as operating cash flow to contractual senior debt service and
operating cash flow to contractual total debt service.
J&L's management is currently in discussions with its lenders regarding the
current defaults, projected operating results and liquidity. However, due to
an inability thus far to secure waivers and prospective debt agreement
amendments from its lenders relating to the current defaults, J&L has
classified the balance of its outstanding debt as current. As a result of the
above mentioned defaults, J&L has been denied the remaining availability
under its equipment loan totaling approximately $1.6 million by its senior
lender. However, through the date of this Report neither the senior lender
nor the subordinated lenders have demanded payment which is a prescribed
remedy under their respective credit agreements. Furthermore, through the
date of this Report the senior lender has continued to allow J&L to operate
under the terms of the revolving loan facility which is based on outstanding
levels of trade receivables and inventory. However, no assurances can be
given that it will continue to do so.
ITEM 4: Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27: Financial Data Schedule for Third Quarter 10-Q
(b) Reports on Form 8-K: None
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CPT HOLDINGS, INC.
Dated: June 14, 2000 By: /s/ William L. Remley
-------------------------
William L. Remley,
President & Treasurer
16
