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, truck trailer, and highway safety systems 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 an 80 % 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 which 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 which 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 which 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.
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 which 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-inch depths, ranging in weight from 2.9 to 11.8 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 pounds per foot and 3" x 7.5 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 which are split longitudinally through the web section. This process produces two identical T-sections which 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. For example, J&L Structural is actively pursuing the possibility of rolling certain products in a manner that would reduce their current weight per foot and/or increase the products' engineered efficiency. Management believes that a new rolling process would have significant market implications, since end users are interested in cost savings through the use of lighter weight, structurally efficient products.
Suppliers
Steel billets, J&L Structural's primary raw materials, are purchased from several domestic mini-mills 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. J&L Structural typically purchases billets from two main suppliers and several alternate suppliers. Currently, over one-half of J&L Structural's semifinished steel requirements are sourced through one of its main suppliers. The loss or reduction in capability of this supplier 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.
J&L is currently conducting a review of the feasibility of commencing construction of a melt shop/continuous caster complex in order to reduce its dependence on billet suppliers. Currently under consideration are two proposals on this project, however, no firm commitments have been made to date. While a final decision whether or not to construct a caster and melt shop has not been made, the Company and J&L believe this is the probable course of action.
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, a commissioned sales agent handles sales opportunities in Mexico and the rest of Latin America.
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 addition, the Company is in the process of seeking an additional distribution facility in the Southeast in order to enhance its storage capacity. The additional storage capacity is also expected to lower J&L Structural's freight costs, giving it the ability to seek higher margins in that region.
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.
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, 1996, J&L Structural employed a total of 283 employees. The United Steelworkers of America represents approximately 189 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 52 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 an excellent relationship 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
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, 1996, J&L Structural had firm open orders totaling $7,040,000. This compares with a backlog of $8,677,000 at the same date in 1995. The reduction in backlog in comparison to the previous year is due mainly to the continued slowdown in the truck/trailer manufacturing industry.
The winter months are generally slower activity months for J&L Structural due to the seasonality of the manufactured housing consumer markets 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. The Company can be expected to spend substantial amounts for compliance with these environmental laws and regulations in the future.
No significant environmental problems have arisen concerning the use or operation of J&L Structural's facilities or the conduct of its business.
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 cause Brighton to, among other things, lose business by failing to meet demand, squeeze its profit margins and/or encourage the use of substitute products.
Marketing and Distribution
Brighton has 80% 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 which 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 a significant adverse impact on Brighton's profitability.
Brighton sells to and services its customers directly with its own personnel. In its effort to expand beyond its piercer-point business, Brighton has in recent years engaged two manufacturing representative firms. The diversification effort has increased its new non-piercer point sales from 15% of total sales in fiscal year 1989 to approximately 26% of total sales for the division in fiscal year 1996. In addition, the enhanced sales and marketing effort has created an increased market awareness of Brighton's capabilities in producing specialty high alloy steel castings.
Competition
Brighton has limited competition in the small piercer point (1 to 250 pounds) market. Its only 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, 1996, Brighton employed a total of 24 employees. Most of Brighton's personnel are represented by the United Steelworkers of America under a contract which expires in December 1997. The Company considers its employee relations at Brighton to be good.
Backlog
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, 1996, Brighton had firm open orders totaling $435,000. This compares to a backlog of $416,000 at the same date in 1995. Brighton does not consider its business to be seasonal.
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 14 of the Notes to the Consolidated Financial Statements of the Company contained in item 8 of this Form 10-K. The Company's continuing operations do not currently have significant export sales or any foreign operations.
ITEM 2.
ITEM 2. PROPERTIES CPT's principal executive offices were formerly located at 1140 Connecticut Avenue, N.W., Suite 1201, Washington, D.C. in approximately 2,000 square feet of office space, for which a lease existed with a term expiring in May 1998. On November 1, 1994 the Company moved its executive offices to 1430 Broadway, 13th Floor, New York, New York. The New York offices are occupied under a subleasing arrangement on a month to month lease. In December 1995, a settlement was reached with the landlord of CPT's former offices which released the Company from any future obligations under the 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 which required CCC to perform certain environmental remediation which has been completed at a cost totaling $52,000. 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.
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. As of August 31, 1996, CPT has made payments aggregating approximately $446,000 to the Plan and as of June 30, 1996, has fully accrued the amount of the outstanding claim less payments made through that date. The Company will continue to make monthly payments to the Plan of approximately $25,000 against the remaining obligation under this claim.
The Company is a party to several lawsuits arising in the ordinary course of its business. The Company's management and legal counsel believe that there are valid defenses to the claims being asserted. While the Company's ultimate liability with respect to these lawsuits cannot be determined at this time, management believes the resolution thereof will not have a material adverse effect on the financial position or results of operations of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE
PART II
ITEM 5.
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.
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, 1996, there were approximately 1,763 common stockholders.
Dividend Policy
CPT has not paid any cash dividends on its common stock within the last two fiscal years and has no plan to pay any dividends in the foreseeable future.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA (in thousands except per share data)
Selected Income Statement Data (1)(2):
(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, 1994 and 1993 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 year ended June 30, 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 as discussed in Note 1 to the Consolidated Financial Statements. 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.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Significant Events
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 year-end 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 ended June 30, 1996 and 1995, respectively.
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 as discussed in Note 1 to the Consolidated Financial Statements. JLS and TCI were specialty manufacturers of high quality, lightweight structural steel shapes used primarily in the manufactured housing, truck trailer and highway safety systems industries. The results of operations for the acquired assets from the date of acquisition (April 6, 1995) through June 30, 1995, were included in the consolidated statement of operations for the fiscal year ended June 30, 1995. The assets of BESCC were also contributed to J&L on the acquisition date, and therefore, the results of operations for BESCC subsequent to April 6, 1995 are reported as a division (Brighton) within the newly formed subsidiary, J&L.
Results of Operations
Net Sales
The Company recorded net sales of $101,011,000 for the fiscal year 1996 which compares to net sales of $31,208,000 and $5,785,000 recorded for the fiscal years ending June 30, 1995 and 1994, respectively. Comparability of the periods is impacted primarily by the Acquisition on April 5, 1995. For fiscal 1996, $94,609,000 of total net sales were attributable to J&L Structural while $6,402,000 were attributable to Brighton. Domestic trailer orders for truck/trailer manufacturers have declined sharply over the year, while severe winter weather curtailed highway construction and certain manufactured housing operations for longer periods than anticipated. Certain of our customers in the manufactured housing industry, however, have experienced in excess of 20% growth in sales dollar volume over the last year. Comparing Brighton/BESCC net sales for fiscal 1996 to net sales for fiscal 1995 and 1994 totaling $6,060,000 and $5,785,000 indicates increases of 5.6% and 4.8%, respectively.
The Company recorded net sales of $25,205,000 and $26,699,000 for the three month periods ended June 30, 1996 and 1995, respectively. The three month net sales for June 30, 1996 and 1995, are comprised of $23,457,000, $1,748,000, $25,148,000 and $1,551,000 for J&L Structural and Brighton, respectively. The decrease in J&L Structural revenues of 6.7% from the prior year's quarterly performance resulted from a decrease in both tonnage shipped and average price realized per ton. Shipments of crossmembers, which represent the Company's highest priced product per ton, to truck/trailer customers and wide flange beams used in highway guard rail construction were down 57.2% and 42.9%, respectively, compared to the same period in the prior year. Poor crossmember and wide flange shipments, however, were partially offset by an increase in JUNIOR(R) beam shipments to the manufactured housing business by 17.0% in comparison to the same period in fiscal 1995.
Gross Margins
Gross margins as a percentage of total net sales were 12.9%, 16.9% and 26.7%, respectively for fiscal years 1996, 1995 and 1994. Gross margins for J&L Structural for the year ending June, 1996 were 11.4% while margins for Brighton during that period were 24.4%. Gross margins for 1996 were reduced overall at J&L Structural due to two major reasons, unfavorable productivity and yield performance and higher than anticipated billet costs with little improvement in sales pricing. Unfavorable productivity and yield performance have negatively impacted margins for fiscal 1996. The Company's management feels that the reduced productivity resulted from the relative inexperience of its work force. In late January 1995, a decision was made, based on sales demand and forecast, to begin a second shift of operations. This decision resulted in the hourly work force increasing from 153 at January 1, 1995, to 244 as of September 30, 1995, representing a 59% increase in the production workforce. Management implemented a productivity improvement program during the second fiscal quarter which includes employee orientation, training and feedback, establishment of continuing direct responsibilities and increased supervision and oversight. Productivity and yield data began to improve during the second half of the fiscal year ended June 30, 1996. Billet costs are driven mainly by the cost of scrap steel, its primary raw material component, which has been at record high cost levels due to the overall strength of the steel industry during this fiscal year. Gross margin improvement through sales price increases did not materialize due to competitive market conditions. Margins at Brighton were consistent with the overall gross margin for the prior fiscal year.
Gross margins as a percentage of total net sales for the three months ended June 30, 1996 and 1995, were 14.5%, 32.9%, 14.9%, and 25.1% for J&L Structural and Brighton, respectively. The decrease in gross margin for J&L Structural for the comparable periods was due mainly to reduced volume which was partially offset by increased productivity. The increase in gross margin for Brighton for the comparable periods was due mainly to a shift in production mix to higher margin products.
Selling, General and Administrative Expenses
Selling, general and administrative expenses totaled $7,075,000, $3,169,000 and $1,466,000 for fiscal years 1996, 1995 and 1994, respectively. As a percentage of net revenue, these expenses represented 7.0%, 10.2% and 25.3% of net revenues. During fiscal 1996, approximately $600,000 was related to additional expense necessary to support a contingency related to litigation with a Hupp pension plan sponsor (see Note 12 to the Consolidated Financial Statements). During fiscal 1995, approximately $500,000 related to a one time charge to J&L Structural relating to Acquisition costs, and approximately $300,000 related to expense necessary at CPT to support the Hupp pension plan litigation referred to above.
Other Expenses
Other expense for the fiscal year ended June 30, 1996 reflects an $828,000 charge relating to the signing of a new 58 month labor contract with J&L Structural's United Steelworkers of America local union on December 3, 1995. This charge was comprised of a signing bonus of $1,500 per employee amounting to approximately $295,000 in aggregate, coupled with a retroactive bonus charge for calendar 1995 computed using the newly negotiated profit sharing computation totaling $533,000.
Liquidity and Capital Resources
The Company's cash flows from operating activities totaled $1,866,000, $3,056,000, and $368,000 for the fiscal years ended June 30, 1996, 1995, and 1994, respectively. The decrease in cash flows from operations between fiscal 1996 and 1995 resulted mainly from a buildup of inventories from less than optimum levels in the prior year. The significant improvement in cash flows from operations between fiscal 1995 and 1994 was due mainly to the discontinuance of Hupp operations and the Acquisition.
J&L completed the installation of a new reheat furnace which was placed into service on July 26, 1996. The final cost of the project is estimated at approximately $8.5 million of which $6.7 million has been expended through June 30, 1996. This project has been financed through June 30, 1996 from borrowings of $2 million under the senior lender capital expenditure facility and from excess availability which existed under its revolving credit facility also with the senior lender. Subsequent to June 30, 1996, additional funding for the project includes $1.0 million of borrowings under the senior lender capital expenditure facility, and loans from state and county sources totaling approximately $1,350,000 which have been approved and are expected to close by October 31, 1996.
The successful operation of the new reheat furnace is expected to yield significant improvement in throughput and yield performance. As with any startup to a significant segment of a production facility, a ramp-up period is anticipated whereby realization of the equipment's full potential will not occur immediately. Management expects that this initial start-up phase could last through the second quarter of fiscal 1997.
The Company's cash flows from financing and investing activities for fiscal 1996 included the financing of capital spending in the amount of approximately $9.6 million, of which the reheat furnace described above, as well as an annealing furnace for Brighton totaling $800,000, comprised the majority of this investment. In both instances, the replaced furnaces were outdated technologically and were experiencing greater levels of maintenance and downtime in recent years. Management believes that productivity will be significantly improved as a result of these equipment upgrades. The Company's cash flows from financing and investing activities for fiscal 1995 were comprised almost exclusively of sources and uses of cash relating to the Acquisition. See the Company's Consolidated Statements of Cash Flows included in the Consolidated Financial Statements.
Cash and cash equivalents totaled $174,000, $972,000, and $294,000 as of June 30, 1996, 1995, and 1994, respectively. Although the Company's total equity represents a deficit of approximately $8,984,000, this position is due largely to the poor performance of previously discontinued operations and the basis adjustment for the leveraged Acquisition during fiscal 1995 (refer to the Statement of Changes in Shareholder's Equity (Deficiency) in the Consolidated Financial Statements). Management expects that cash flows from operations will continue to satisfy the Company's requirements to fund operating expenses, debt service and capital expenditures in the future.
Readers should be aware that the foregoing paragraphs contained forward looking statements regarding management's expectations for the reheat furnace and cash flows, which forward looking statements may not be realized. Several important factors could cause the Company's actual results of operations to differ materially from those expressed in the foregoing forward looking statements, including: a significant downturn in manufactured housing construction and sales may occur, the reheat furnace specifications may not be realized, or billet costs may increase and the Company may not have the ability to pass such costs to customers.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INCLUDED IN ITEM 14
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On May 6, 1996, the Board of Directors of CPT approved Deloitte & Touche LLP as its independent accountant for the year ending June 30, 1996, and, simultaneously, management of CPT informed the former accountant, Grant Thornton LLP, that it had been dismissed. CPT did not have any disagreements with Grant Thornton regarding any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. Refer to Form 8-K dated May 6, 1996, as filed by the registrant with the Securities Exchange Commission on May 10, 1996 and Exhibit 1 thereto, incorporated herein by reference.
PART III
ITEM 10.
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, 1996 are as follows:
Name Age Positions Richard L. Kramer 47 Chairman of the Board, Director and Secretary of CPT William L. Remley 45 President, Treasurer and Director of CPT John D. Mazzuto 46 Director of CPT Richard C. Hoffman 48 Assistant Secretary
Mr. Kramer has served as Chairman of the Board, a Director, and Secretary of the Company since January 3, 1992. For more than the past five years, Mr. Kramer has served as Chairman of the Board, a Director, and as a director of Republic Properties Corporation, a private real estate development firm. Since 1988, Mr. Kramer served as Chairman of the Board of Sunderland Industrial Holdings Corporation, a private holding company in various industrial manufacturing businesses. Mr. Kramer is also Chairman of the Board of Weldotron Corporation, Chairman of the Board of Texfi Industries, Inc., and Chairman of the Board, a Director and Secretary for Mentmore Holdings Corporation ("Mentmore"). Mr. Kramer is also Chairman of the Board, a Director, Vice President and Secretary for Trinity Investment Corp. ("Trinity"), Ascott Wing, Inc. ("Ascott Wing") and Halton House Limited.
Mr. Remley has served as a Director, President and Treasurer of CPT since January 3, 1992. Since 1988, Mr. Remley has served as Vice Chairman of Sunderland Industrial Holdings Corporation, a private holding company in various industrial manufacturing businesses. Mr. Remley is also Vice Chairman and Chief Executive Officer of Weldotron Corporation; Vice Chairman, Chief Executive Officer and President and a Director of Texfi Industries, Inc.; a Director, President and Treasurer of Trinity; a Director, President and Treasurer of Ascott Wing; a Trustee for The A.J. 1989 Trust and a Director, President and Treasurer of Mentmore.
Mr. Mazzuto has served as a Director of CPT since January 1993. Mr. Mazzuto is Chairman of Greystone Partners which provides investment banking services focused on clients' capital structuring or restructuring needs. Before becoming Chairman of Greystone, Mr. Mazzuto was President and Chief Executive Officer of North American operations of Asian Oceanic Group ("AOG"). Prior to joining AOG, Mr. Mazzuto was a Managing Director of Corporate Finance at Chemical Bank. Mr. Mazzuto also serves as Chairman of Communications Group, Inc. Mr. Mazzuto is a Director of Weldotron Corporation and Texfi Industries, Inc. 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 is also President of InterUrban Management, Inc., a real estate brokerage and management company in Dallas, Texas. He is currently practices law as Richard C. Hoffman P.C. in Greenwich, Connecticut.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to Mr. William L. Remley for the fiscal years 1994, 1995 and 1996, as the only paid executive officer of the Company.
In fiscal 1995, no director received fees for the attendance at Company Board meetings. However, beginning July 1995, all directors of the Company received director's fees totaling of $12,000.00 annually.
(1) Reflects the period from July 1, 1994 through December 31, 1994. Mr. Remley ceased receiving compensation thereafter.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Norwest Bank Minnesota, N.A. ("Norwest") serves as escrow agent of certain shares of the Company's Common Stock for the benefit of holders of "Allowed Claims" and for the benefit of stockholders of CPT Corporation, pursuant to the Reorganization Plan. As escrow agent, Norwest held approximately 378,571 shares of Common Stock for the benefit of such persons as of August 30, 1996.
The following table sets forth certain information, as of August 30, 1996, 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:
(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) 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 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.
(3) 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.
(4) Includes 2,000,000 shares that could be acquired upon exercise of a Warrant at an exercise price of $1.00 per share.
(5) Includes shares owned by Ascott and shares subject to a Warrant owned by Trinity (see Note 4 above).
(6) Includes shares over which Mr. Remley and Mr. Kramer may be deemed to share voting and investment power (seeNotes 2 and 3 above).
ITEM 13.
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 31, 1996, 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.
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 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 the years ended June 30, 1996 and 1995 under this agreement totaled $600,000 and $150,000, 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.
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 22 Independent Auditors' Report of Grant Thornton LLP 23 Financial Statements Consolidated Balance Sheets as of June 30, 1996 and 1995 24 Consolidated Statements of Operations for the Years Ended June 30, 1996, 1995, 1994 25 Consolidated Statements of Changes in Shareholders' Equity (Deficiency)for the Years Ended June 30, 1996, 1995, 1994 26 Consolidated Statements of Cash Flows for the Years Ended June 30, 1996, 1995, 1994 27 Notes to Consolidated Financial Statements 29
2. The following financial statement schedules of the Company and the related reports of independent auditors are filed herewith:
Page of this Report
Independent Auditors' Report of Deloitte & Touche LLP on Schedules 44 Independent Auditors' Report of Grant Thornton LLP on Schedules 45 Financial Statement Schedules I - Condensed Financial Information of Registrant 46 II - Valuation and Qualifying Accounts 47
Exhibit 11 - Computation of Earnings Per Share 48 Exhibit 27 - Financial Data Schedule 49
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 Form 8-K filed by the Company on May 10, 1996 - Change in Accountants Form 8-K filed by the Company on May 30, 1996 - Second Amendment to Credit Agreements with Senior and Subordinated Lenders to Cure Financial Covenant Violations
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 30, 1996 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 30, 1996 - - --------------------- Richard L. Kramer Secretary and Director
/s/ William L. Remley President, Treasurer September 30, 1996 William L. Remley and Director (Principal Executive, Accounting and Financial Officer)
/s/ John D. Mazzuto Director September 30, 1996 - - ------------------- John D. Mazzuto
INDEPENDENT AUDITORS' REPORT
Board of Directors CPT Holdings, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of CPT Holdings, Inc. and Subsidiaries as of June 30, 1996, and the related consolidated statements of operations, changes in shareholders' equity (deficiency) and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above present fairly, in all material respects, the financial position of CPT Holdings, Inc. and Subsidiaries as of June 30, 1996 and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania September 5, 1996
Report of Independent Certified Public Accountants
Board of Directors CPT Holdings, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of CPT Holdings, Inc. and Subsidiaries as of June 30, 1995, and the related consolidated statements of operations, changes in shareholders' equity (deficiency) and cash flows for each of the two years in the period ended June 30, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of CPT Holdings, Inc. and Subsidiaries as of June 30, 1995 and the consolidated results of their operations and their consolidated cash flows for each of the two years in the period ended June 30, 1995 in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Pittsburgh, Pennsylvania September 26, 1995, except for Note 7, to which the date is October 12, 1995.
CPT Holdings, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30,
ASSETS
CPT Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS Years ended June 30,
The accompanying notes are an integral part of these statements.
CPT Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)
Years ended June 30, 1996, 1995, 1994
The accompanying notes are an integral part of these statements.
CPT Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30,
(CONTINUED)
CPT Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended June 30,
Information regarding non-cash investing and financing activities:
Reduction in equity and property, plant & equipment totaling $9,705,000 due to the basis adjustment for the leveraged Acquisition during fiscal 1995.
The accompanying notes are an integral part of these statements
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. Certain reclassifications have been made to prior year amounts to conform to the 1996 presentation.
Acquisitions
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"). The Acquisition was accounted for as a purchase effective April 6, 1995, and accordingly, at such date the Company recorded the assets and liabilities assumed at their estimated fair values, adjusted for the impact of the continuing residual interest of predecessor owners. Consequently, the accompanying financial statements for fiscal 1995 reflect the results of operations and cash flows of J&L from the period from the Acquisition (April 6, 1995) to June 30, 1995. Because the Acquisition qualified as a highly leveraged transaction and a portion of the predecessor ownership will remain as indirect stockholders of J&L, application of the guidance in Emerging Issues Task Force (EITF) Issue No. 88-16 - "Basis in Leveraged Buyout Transactions" resulted in a reduction of property, plant and equipment and common shareholders' equity in the amount of $9,705,000.
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 as of the date of the Acquisition operate as a distinct division of J&L ("Brighton"). BESCC simultaneously 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 the Company of a Deferred Purchase Money Note in the approximate amount of $475,000, said amount equal to the stated value for the preferred stock plus the accrued dividends thereon, bearing interest at 11% and due December 15, 2002.
The purchase price and related expenses were funded as follows: (1) a $25 Million 6-year Senior Term Loan bearing interest at prime plus 2% and secured by a first lien on the assets of J&L; (2) $23 Million of Subordinated Term Notes, each bearing interest at 13%, secured by a junior lien on the assets of J&L and including a grant of warrants equal in the aggregate to 15.3% of the common stock ownership of J&L (on a fully-diluted basis), exercisable at $.01 per share and subject to certain exercise restrictions; (3) a $15 Million Revolving Line of Credit bearing interest at prime plus 1.5% having an initial term of 5 years followed by a 1 year right of renewal at the lender's discretion; (4) a capital contribution of approximately $2.5 Million by the shareholders of JLS and TCI in return for the issuance of common
NOTE 1 - BASIS OF PRESENTATION - (CONTINUED)
stock representing 19.8% of JLH, which was in turn contributed to J&L; and (5) a $5 Million capital contribution from the Company to JLH which was, in turn, contributed by JLH to J&L.
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 CCC in exchange for all of the common stock of CCC. Shortly thereafter, CCC acquired title to the 38-acre parcel, using funds which JLS had placed in escrow prior to the Acquisition.
Discontinued Operations and Extraordinary Item
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. There are no remaining assets or liabilities of Hupp existing on its balance sheet as of 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.
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.
On an ongoing basis, management reviews the valuation and amortization of goodwill. As part of the review, the Company estimates the value and future benefits of the net income generated by the related subsidiaries to determine that no impairment has occurred.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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. Revenue Recognition
Revenue is recognized when product is shipped to dealers, distributors and direct customers.
h. Research and Development
All product development costs are expensed as incurred. Product development costs of $268,000 were included in discontinued operations in fiscal 1994.
i. Insurance
J&L provides health insurance and workers' compensation coverages to its employees under separate self-insurance programs that include certain stop-loss coverages. 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.
j. Income Taxes
The Company accounts for income taxes utilizing the asset and liability method as prescribed by Statement of Financial Accounting Standards 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 bases 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.
k. Earnings Per Share
The computation of primary earnings per share does not include certain outstanding stock warrants as common stock equivalents in the circumstance that the average stock price for the period is below the warrant exercise price making the warrants antidilutive.
i. 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
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at June 30:
Included within construction-in-process as of June 30, 1996 is approximately $694,000 of costs incurred by J&L related to the possible construction of a caster and melt shop, which would produce billets to be processed by J&L. J&L currently buys billets for its operations from third party vendors. While a final decision whether or not to construct a caster and melt shop has not been made, J&L and the Company believe this is the probable course of action.
NOTE 6 - ACCRUED LIABILITIES
NOTE 7 - LONG-TERM OBLIGATIONS
At June 30, 1996, the following table sets forth the scheduled maturities of the long-term debt of the Company (in thousands of dollars):
June 30, 1997 $ 2,776 1998 3,133 1999 3,792 2000 14,034 2001 8,030 Thereafter 29,899 $ 61,664
J&L capitalized interest on capital projects during their construction period in fiscal 1996 totaling approximately $262,000.
Included within the $25,000,000 Senior Term Loan, above, the lender is providing a Capital Expenditure Line of Credit in the principal amount of $3,000,000. This facility, which bears interest at the same rate as the Senior Term Loan, is available for a thirty-six month period and terminates as of April 30, 1998. At June 30, 1996, $2,000,000 had been borrowed against this facility. Any 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 terms of the Revolving Loan, the Company used $500,000 of its credit availability to issue a Letter of Credit. This Letter has been issued to an insurance company collateralizing the costs of certain insurance programs (see Note 12).
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, 1996, J&L was not in violation of any existing loan covenants under its amended credit agreements with its senior and subordinated lenders.
As of March 31, 1996 and December 31, 1995, J&L was not in compliance with its operating cash flow to total debt service ratio covenant and its capital expenditures limitation covenant. On May 30, 1996, J&L successfully negotiated a second amendment to the credit agreements with its senior and subordinated lenders which adjusted the measurement levels of certain financial covenants and cured the violations referred to above.
NOTE 7 - LONG-TERM OBLIGATIONS -(CONTINUED)
As of June 30, 1995, J&L was not in compliance with the minimum net worth requirement of the Senior Term Loan and Subordinated Term Notes due mainly to the application of EITF No. 88-16, the effects of which on the Company's financial statements had not been determined at the time of the closing of the Acquisition. The provisions of EITF No. 88-16 require that certain continuing shareholder interests be valued at their predecessor basis rather than at fair value to the extent of the lesser of their predecessor interest in the purchased company or continuing interest in the acquiring company. Application of EITF No. 88-16 had the effect of reducing property, plant and equipment and shareholder's equity; however, it had no cash impact to the financial statements. As a result, on October 12, 1995, J&L's lenders amended the Senior Term Loan and Subordinated Term Notes to ignore the effects of EITF No. 88-16 in computing minimum tangible net worth effective as of June 30, 1995.
The fair market value of J&L's fixed rate long-term debt on June 30, 1996, including current maturities, approximates its book value. The fair market value estimate was based on a stable interest rate environment over the period since the Acquisition and management's assessment of the market environment for private placement mezzanine funding. Management is not aware of any significant factors that would alter this estimate after that date.
On February 1, 1996, the Company entered into an unsecured line of credit agreement with Trinity Investment Corp. ("Trinity") for $1,000,000. As part of this agreement, a stock warrant purchase agreement was executed whereby Trinity was issued 300,000 warrants to purchase the same number of common stock shares of the Company at an exercise price of $4.00 per warrant for a period of ten years. These warrants have been valued at $376,000 as of the date of issuance utilizing the Black Scholes option pricing model as a basis for the measurement. The value of the warrants has been recorded as an increase in additional paid-in capital of the Company.
On April 1, 1995, the Company entered into a Credit Agreement ("Amended Credit Agreement") with Trinity which agreed to lend an aggregate of $6,730,000 in order to repay and satisfy the following, as well as to fund a $5,000,000 capital contribution to JLH:
a) variable rate debenture in the original principal amount of $900,000 together with accrued interest thereon totaling approximately $185,000;
b) certain intercompany advances plus accrued interest totaling approximately $270,000;
c) promissory note payable to The A.J. 1989 Trust which originated in February 1994 in the original principal amount of $200,000 together with accrued interest thereon totaling approximately $22,000; and
d) certain non-interest bearing intercompany advances from The A.J. 1989 Trust totaling approximately $150,000.
Additionally, as part of the Amended Credit Agreement, a stock warrant purchase agreement was executed whereby Trinity was issued 2,000,000 warrants to purchase the same number of common stock shares of the Company at an exercise price of $1 per warrant for a period of ten years. These warrants have been valued at $840,000 as of the date of issuance utilizing the Black Scholes option pricing
NOTE 7 - LONG-TERM OBLIGATIONS -(CONTINUED)
model. The value of the warrants has been recorded as an increase in additional paid-in capital of the Company.
On March 15, 1995, BESCC redeemed its preferred stock from Ascott Wing, Inc., a related party, in consideration for the issuance by the Company of a Deferred Purchase Money Note in the approximate amount of $475,000, said amount equal to the stated value for the preferred stock plus the accrued dividends thereon.
On February 8, 1993, the Company entered into a Credit Agreement (the "Credit Agreement") with Trinity, and Trinity agreed to loan the Company the principal amount of $900,000 for the purposes of making the Hupp acquisition. Included within the Credit Agreement is a variable rate debenture agreement, a warrant purchase agreement and a security agreement. An aggregate of 302,000 warrants for the purchase of common stock of the Company at an exercise price of $1.25 per warrant were issued in conjunction with the Credit Agreement. These warrants were irrevocably cancelled without consideration by Trinity in March of 1995.
NOTE 8 - INCOME TAXES
For the years ended June 30, 1996, 1995, and 1994 the provision for income taxes consisted of the following:
Management has calculated its net operating loss carryforward at June 30, 1996 to be approximately $73 million. Such losses can be carried forward and expire in the tax years ending June 30, 2002 through 2011.
Temporary differences between financial statement carrying amounts and tax bases of assets and liabilities at June 30, 1996 and 1995 were as follows:
Management has recorded a valuation allowance against the deferred tax assets due to their belief that recovery of these future deductions against future taxable income is less than likely.
NOTE 9 - CAPITAL STOCK
Preferred Stock
The preferred stock redemption obligation including accrued dividends through March 15, 1995 totaling $475,204 was converted to a deferred purchase money note payable to a related holding company (see Note 7).
Warrants
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 the Amended Credit Agreement executed on April 1, 1995. These warrants are exercisable for a period of ten years at $1.00 per warrant.
Warrants for 302,000 shares of Company common stock were issued to Trinity in conjunction with the Credit Agreement executed on February 8, 1993. These warrants were irrevocably cancelled without consideration by Trinity in March 1995.
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, 1996. Pension expense for this plan for the year ended June 30, 1996 and for the period from the date of Acquisition (April 6, 1995) to June 30, 1995, was approximately $486,000 and $90,000, 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, 1996. A withdrawal from the plan would trigger an obligation to the plan for a portion of the unfunded benefit obligation. Pension expense for this plan for the year ended June 30, 1996, and for the period from the date of Acquisition (April 6, 1995) to June 30, 1995, was approximately $40,000 and $11,000.
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 year ended June 30, 1996 and for the period from the date
NOTE 10 - BENEFIT PLANS - (CONTINUED)
of Acquisition (April 6, 1995) to June 30, 1995, was approximately $1,238,000 and $189,000, 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 periods ended June 30, 1996 and 1995, 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. Pension expense approximated $99,000, and $38,000 for the fiscal years ended June 30, 1995 and 1994, respectively. 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 12).
Hupp had a profit-sharing plan covering all employees not covered by a collective bargaining agreement. Under this plan, eligible employees were permitted to defer a portion of their gross compensation up to a maximum amount as provided for by the plan or pursuant to Section 401(k) of the Internal Revenue Code. Hupp matched a portion of each employee's contribution subject to plan limitations. Contributions by Hupp approximated $11,000 for the year ended June 30, 1994. In conjunction with the secured party asset sale and discontinuance of Hupp operations, the plan has been terminated and final distributions to participants have occurred.
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, 1996, CPT has made payments aggregating approximately $446,000 to the Plan and as of June 30, 1996, has fully accrued the amount of the outstanding claim less payments made through the June 30, 1996 date. The Company will continue to make monthly instalment payments to the plan of approximately $25,000 against the remaining obligation under this claim.
The Company is a party to several lawsuits arising in the ordinary course of its business. The Company's management and legal counsel believe that there are valid defenses to the claims being asserted. While the Company's ultimate liability with respect to these lawsuits cannot be determined at this time, management believes the resolution thereof will not have a materially adverse effect on the financial position or results of operations of the Company.
NOTE 11 - LITIGATION, COMMITMENTS AND CONTINGENCIES - (CONTINUED)
J&L's workers compensation insurance program provides for self insurance with stop-loss protection. Under this arrangement, for the policy year November 1995-1996, J&L was required to issue a $500,000 letter of credit in the name of the insurance company. 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 years November, 1995-1996 and 1994-1995, J&L elected to place on deposit with the insurance company an amount equal to $340,000 and $330,000, respectively. On June 30, 1996 and 1995, approximately $279,000 and $266,000, respectively, remained on deposit with the insurance company, and is reflected as an Other Asset in the accompanying balance sheets.
J&L has signed a contract for turnkey development, fabrication and installation of a new reheat furnace. The total estimated cost of the project is approximately $8,500,000 of which $6,700,000 has been incurred through June 30, 1996. The project was completed and placed in service in late July 1996.
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 the years ended June 30, 1996 and 1995 under this agreement totaled $600,000 and $150,000, respectively.
Mentmore engages in investment banking and corporate management services. An investment banking fee totaling $500,000 was paid to Mentmore by J&L during fiscal 1995 in conjunction with the Acquisition. 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 Notes 7 and 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 (see Note 7).
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.
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, tractor trailer construction and ship building industries. Brighton designs, manufactures and sells steel piercer points which represent disposable tooling used in the production of seemless steel tubes used in the petrochemical industry. The remaining operations of Hupp were discontinued on October 27, 1994, as a result of a secured party sale of all of its assets (see Note 1). Results of operations for Hupp have been included in discontinued operations for all fiscal years presented. Hupp manufactured heating, ventilating and air conditioning equipment used primarily in commercial applications and fractional horsepower electrical motors and mobile products used primarily in the heavy duty and off-road truck markets.
BESCC/Brighton's revenue was generated by five customers that comprised 77%, 73% and 82% of its total revenue in 1996, 1995, and 1994, respectively.
INDEPENDENT AUDITORS' REPORT
Board of Directors CPT Holdings, Inc. and Subsidiaries
We have audited the consolidated financial statements of CPT Holdings, Inc. and Subsidiaries as of June 30, 1996 and for the year then ended, and have issued our report thereon dated September 5, 1996; such report is included elsewhere in this Form 10-K. Our audit also included the financial statement schedules of CPT Holdings, Inc. and Subsidiaries as of and for the year ended June 30, 1996, listed in Item 14. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audit. 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 5, 1996
Report of Independent Certified Public Accountants
Board of Directors CPT Holdings, Inc. and Subsidiaries
In connection with our audit of the consolidated financial statements of CPT Holdings, Inc. and Subsidiaries referred to in our report dated September 26, 1995, which is included in the 1995 Annual Report to Shareholders, we have also audited Schedules I & II and Exhibit II as of and for each of the two year periods ended June 30, 1995. In our opinion, these schedules present fairly, in all material respects, the information required to be set forth therein.
GRANT THORNTON LLP
Pittsburgh, Pennsylvania September 26, 1995 except for Note 7, to which the date is October 12, 1995
CPT HOLDINGS, INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT June 30, ($000's)
CPT HOLDINGS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the years ended June 30, 1995, 1994 and 1993 ($000's)
(1) Represents write-offs of uncollectable accounts or realized sales discounts and claims.
EXHIBIT 11 CPT Holdings, Inc. and Subsidiaries COMPUTATION OF EARNINGS PER SHARE Years ended June 30,