UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER: 333-34061
CAMBRIDGE, INDUSTRIES, INC.
CE AUTOMOTIVE TRIM SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Cambridge - DELAWARE Cambridge - 38-3188000
CE-Michigan CD-38-2173408
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
555 Horace Brown Drive 48071
Madison Heights, MI (ZipCode)
(Address of principal executive offices)
(248) 616-0500 None
(Registrant's telephone number, including (Name of exchange on which
area code) registered)
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 the
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares of Common Stock, $0.01 par value per share, outstanding at
March 31, 1999: 1,000
CAMBRIDGE INDUSTRIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
PAGE NO.
--------
Part I - Financial Information:
Item 1 -- Financial Statements
Consolidated Balance Sheets - March 31, 1999 and
December 31, 1998 3
Consolidated Statements of Operations-- Three Months
ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows - Three Months
ended March 31, 1999 and 1998 5
Notes to the Unaudited Consolidated Financial Statements 6
Item 2 - Management's discussion and analysis of financial condition
and results of operations 16
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31,
1999 1998
---------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash............................................. $ 145 $ 4,474
Receivables...................................... 70,509 80,516
Inventories...................................... 24,153 25,625
Reimbursable tooling costs....................... 19,022 22,914
Deferred income taxes and other.................. 5,283 5,788
--------- ---------
Total current assets............................... 119,112 139,317
Property, plant and equipment, net of accumulated
depreciation of $96,725 and $89,904 respectively.. 190,250 193,338
Other assets....................................... 32,461 31,167
--------- ---------
Total assets....................................... $ 341,823 $ 363,822
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current portion of long-term debt................ $ 6,978 $ 17,272
Accounts payable................................. 48,203 65,227
Accrued liabilities.............................. 30,084 30,140
--------- ---------
Total current liabilities.......................... 85,265 112,639
Non-current liabilities:
Long-term debt................................... 323,522 315,029
Post-retirement health care benefits............. 24,156 23,431
Deferred income taxes and other liabilities...... 3,545 3,545
--------- ---------
Total liabilities.................................. 436,488 454,644
Commitments and contingencies (Note 3)
Stockholder's deficit:
Common stock, $.01 par value, 3,000 shares
authorized, 1,000 shares issued and
outstanding..................................... - -
Paid-in capital.................................. 17,808 17,808
Accumulated other comprehensive income........... (28) (466)
Accumulated deficit.............................. (112,445) (108,164)
--------- ---------
Total stockholder's deficit........................ (94,665) (90,822)
--------- ---------
Total liabilities and stockholder's deficit........ $ 341,823 $ 363,822
========= =========
See accompanying Notes to Unaudited Consolidated Financial Statements
3
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
---------------------
1999 1998
-------- --------
Sales ....................................................... $126,030 $121,141
Cost of sales ............................................... 112,137 109,158
-------- --------
Gross profit ................................................ 13,893 11,983
Selling, general and administrative expenses................. 10,274 9,374
-------- --------
Income from operations....................................... 3,619 2,609
Other expense (income):
Interest expense .......................................... 8,687 7,980
Other, net ................................................ 524 111
-------- --------
Loss before income tax and
change in accounting method................................. (5,592) (5,482)
Income tax benefit............. ............................. (1,510) (2,171)
Cumulative effect of change in accounting method
(net of tax benefit of $112)................................ (199) -
-------- --------
Net loss.......... .......................................... $ (4,281) $ (3,311)
======== ========
See accompanying Notes to Unaudited Consolidated Financial Statements
4
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Three Months Ended
March 31,
------------------
1999 1998
------- -------
Cash flows from operating activities:
Net loss................................................... $ (4,281) $ (3,311)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.............................. 7,772 8,173
Post-retirement benefit expenses, net of cash payments..... 725 722
Deferred income tax benefit................................ (1,668) (798)
Equity loss in joint venture............................... 400 -
Cumulative effect of accounting change..................... 311 -
Changes in assets and liabilities, excluding the effect of
acquisitions:
Receivables................................................ 9,963 20,915
Inventories................................................ 1,386 727
Reimbursable tooling costs................................. 3,801 (1,901)
Accounts payable and accrued liabilities................... (17,102) (11,545)
Other...................................................... 102 1,096
--------- --------
Net cash provided by operating activities.................... 1,409 14,078
Cash flows from investing activities:
Sales of property, plant and equipment..................... 262 -
Acquisitions, net of cash acquired......................... - (600)
Purchase of property, plant and equipment.................. (5,462) (5,033)
--------- --------
Net cash used in investing activities........................ (5,200) (5,633)
Cash flows from financing activities:
Net change in revolving debt............................... 14,500 (8,000)
Repayment of long-term debt and capital lease obligations.. (14,700) (3,054)
--------- --------
Net cash used in financing activities........................ (200) (11,054)
-------- --------
Effect of foreign currency rate fluctuations on cash......... (338) (57)
-------- --------
Net decrease in cash......................................... (4,329) (2,666)
Cash at beginning of period.................................. 4,474 3,788
-------- --------
Cash at end of period........................................ $ 145 $ 1,122
======== ========
See accompanying Notes to Unaudited Consolidated Financial Statements.
5
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with Rule 10-01 of Regulation S-X and, in the opinion of
management, contain all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the financial position of Cambridge
Industries, Inc. and its subsidiaries (the "Company") as of March 31, 1999, the
results of its operations for the three months ended March 31, 1999 and 1998,
and its cash flows for the three months ended March 31, 1999 and 1998.
During the fourth quarter of 1998, the Company recorded significant adjustments
that impacted reported results for the first three quarters of 1998. These
adjustments corrected the treatment of amounts originally applied against
purchase accounting reserves and charged them to operations. The effect of
these adjustments was to reduce gross profit by $1.3 million and increase net
loss by $1.2 million from the previously reported results for the quarter ending
March 31, 1998.
The unaudited consolidated financial statements should be read in conjunction
with the Company's consolidated financial statements as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998. The
results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the operating results for the full year.
The Company adopted Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities", in the first quarter of 1999. This statement requires
companies to expense all previously capitalized start up costs upon adoption and
requires all future start up costs to be treated as period costs. In accordance
with the provisions of the statement, in the first quarter of 1999 the Company
wrote off $0.3 million of start up costs associated with its joint venture with
Dos Manos Technologies.
The Company's total comprehensive income was as follows:
THREE MONTHS ENDED MARCH 31,
-----------------------------
1999 1998
---- ----
Net loss................................................... $(4,281) $(3,311)
Other comprehensive income:
Unrealized foreign currency translation.................. 438 (57)
------- -------
Total comprehensive loss................................... $(3,843) $(3,368)
======= =======
6
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
2. INVENTORIES
At March 31, 1999 and December 31, 1998, inventories consist of the following:
March 31, December 31,
1999 1998
---------- ------------
Finished goods .................................................................... $ 4,012 $ 4,890
Work-in-process ................................................................... 6,505 8,106
Raw materials ..................................................................... 12,963 11,946
Supplies........................................................................... 1,392 1,571
--------- ----------
Total ..................................................................... 24,872 26,513
Less allowance for obsolescence and lower of cost or market reserve................ (719) (888)
--------- ----------
Inventories, net........................................................... $ 24,153 $ 25,625
========= ==========
3. COMMITMENT AND CONTINGENCIES
The Company has letters of credit outstanding of $4,650 at March 31, 1999.
The Company is subject to lawsuits and claims pending or asserted with respect
to matters in the ordinary course of business. The Company does not believe
that the outcome of these uncertainties will have a material impact on the
Company's financial position, results of operations, or cash flows.
4. BUSINESS SEGMENTS
The Company's businesses are organized, managed, and internally reported as
three segments. The segments, which are based on differences in customers and
products, technologies and services, are Automotive and Light Truck, Commercial
Truck and Industrial and Non-Automotive. The Automotive and Light Truck
Industry Segment produces molded engineered plastic components for automotive
original equipment manufacturers. This segment primarily supplies components
for automotive interiors, exteriors, and power trains. The Commercial Truck
Industry Segment produces molded-engineered plastics for the commercial
transportation industry. The segment primarily supplies external body panel
components for class 4 through class 8 commercial trucks. The Industrial and
Non-Automotive Segment produces various plastic components for the agricultural,
appliance, commercial construction, and recreational transportation industries.
Net sales by segment exclude inter-segment sales. Operating income consists of
net sales less applicable operating costs and expenses related to those sales.
The Company's general corporate expenses are excluded from segment operating
income. Earnings before interest, taxes, depreciation and amortization
("EBITDA") by segment consists of operating income, other expense (income) net,
adjusted for interest, taxes, depreciation, and amortization. The Company is
not dependent on any single product or market.
7
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
BUSINESS SEGMENT INFORMATION
QUARTER ENDED MARCH 31
Commercial Corporate & Total
Year Automotive Truck Industrial Unallocated Company
---- ---------- ----- ---------- ----------- -------
Net Sales 1999 $64,800 $55,575 $5,655 $126,030
1998 64,168 47,934 9,039 121,141
Operating Income* 1999 3,834 3,998 (602) $(3,611) 3,619
1998 4,202 945 365 (2,903) 2,609
EBITDA** 1999 7,807 7,247 (404) (5,463) 10,867
1998 8,174 4,548 732 (2,783) 10,671
* Operating income includes unallocated corporate overhead expenses.
** EBITDA includes operating income, other expense (income) net, adjusted for
interest, taxes, depreciation and amortization.
The following table reconciles EBITDA to pretax income (loss):
1999 1998
---- ----
EBITDA $10,867 $10,671
Less:
Depreciation and amortization 7,772 8,173
Interest expense 8,687 7,980
------- -------
Pretax loss, before cumulative effect
of change in accounting method $(5,592) $(5,482)
======= =======
5. CONSOLIDATING INFORMATION
The Company's senior subordinated notes (the "Notes") are guaranteed by CE
Automotive Trim Systems, Inc. ("CE"), a wholly owned consolidated subsidiary of
the Company, but are not guaranteed by the Company's other consolidated
subsidiaries, Voplex of Canada and its Brazilian subsidiary, Cambridge
Industrial do Brasil, Ltd. The following condensed consolidating financial
information presents the financial position, results of operations and cash
flows of (i) the Company, as parent, as if it accounted for its subsidiaries on
the equity method; (ii) CE, the guarantor subsidiary, and (iii) Voplex of Canada
and the Brazilian subsidiary, as non-guarantor subsidiaries.
8
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
Separate financial statements of CE are not presented herein as management does
not believe that such statements are material. CE had no revenues or operations
during the periods presented. The financial position and operating results of
the non-guarantor subsidiaries do not include any allocation of overhead or
similar charges.
9
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 1999
(Dollars in Thousands)
NON-
GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
---------- ------------- ---------- -------------- -------------
ASSETS
Current Assets
Cash.......................................... $ - $ 145 $ - $ - $ 145
Receivables................................... 64,063 6,446 - - 70,509
Inventories................................... 22,479 1,674 - - 24,153
Reimbursable tooling costs.................... 18,842 180 - - 19,022
Deferred income taxes and other............... 5,207 76 - - 5,283
--------- ---------- ---------- ------------- -----------
Total current assets...................... 110,591 8,521 - 119,112
Property, plant and equipment, net................ 187,607 2,643 - - 190,250
Other long-term assets............................ 32,609 (148) - - 32,461
Investment in consolidated subsidiaries........... 5,815 - - (5,815) -
--------- ---------- ---------- ------------- -----------
Total assets.............................. $ 336,622 $ 11,016 $ - $(5,815) $ 341,823
========= ========== ========== ============= ===========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT
Current Liabilities
Current portion of long-term debt............. $ 6,553 $ 425 $ - $ - $ 6,978
Accounts payable.............................. 47,038 1,165 - - 48,203
Accrued liabilities........................... 29,630 454 - - 30,084
--------- ---------- ---------- ------------- -----------
Total current liabilities................. 83,221 2,044 - - 85,265
Non-current liabilities
Long-term debt................................ 320,485 3,037 - - 323,522
Post-retirement healthcare benefits........... 24,156 - - - 24,156
Deferred income taxes and other liabilities 3,545 3,545
--------- ---------- ---------- ------------- -----------
Total liabilities......................... 431,407 5,081 - - 436,488
Stockholder's equity (deficit)
Common stock.................................. - - - - -
Paid-in capital............................... 17,808 5,257 - (5,257) 17,808
Accumulated other comprehensive
income....................................... (148) 120 - - (28)
Retained earnings (accumulated deficit)....... (112,445) 558 - (558) (112,445)
--------- ---------- ---------- ------------- -----------
Total stockholder's equity (deficit)...... (94,785) 5,935 - (5,815) (94,665)
--------- ---------- ---------- ------------- -----------
Total liabilities and stockholder's
equity (deficit).......................... $ 336,622 $ 11,016 $ - $ (5,815) $ 341,823
========= ========== ========== ============= ===========
10
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 1998
NON-GUARANTOR GUARANTOR ELIMINATIONS/
------------- ---------- ------------
PARENT SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
---------- -------------- ---------- -------------- -------------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets
Cash............................................. $ 4,141 $ 333 $ - $ - $ 4,474
Receivables...................................... 74,310 6,206 - - 80,516
Inventories...................................... 23,745 1,880 - - 25,625
Reimbursable tooling costs....................... 22,590 324 - - 22,914
Deferred income taxes and other.................. 5,703 85 - - 5,788
--------- ------- ---------- ----------- ---------
Total current assets........................ 130,489 8,828 - - 139,317
Property, plant and equipment, net................... 189,559 3,779 - - 193,338
Other long-term assets............................... 31,080 87 - - 31,167
Investment in consolidated subsidiaries.............. 6,395 - - (6,395) -
--------- -------- ---------- ----------- ---------
Total assets................................ $ 357,523 $ 12,694 $ - $ (6,395) $ 363,822
========= ======== ========== =========== =========
LIABILITIES AND STOCKHOLDER'S
EQUITY (DEFICIT)
Current liabilities
Current portion of long-term debt................ $ 16,729 $ 543 $ - $ - $ 17,272
Accounts payable................................. 64,073 1,154 - - 65,227
Accrued liabilities.............................. 29,739 401 - - 30,140
--------- -------- ---------- ----------- ---------
Total current liabilities................... 110,541 2,098 - - 112,639
Non-current liabilities
Long-term debt................................... 310,510 4,519 - - 315,029
Post-retirement healthcare benefits.............. 23,431 - - - 23,431
Other liabilities................................ 3,545 - - - 3,545
--------- -------- ---------- ----------- ---------
Total liabilities........................... 448,027 6,617 - - 454,644
--------- -------- ---------- ----------- ---------
Stockholder's equity (deficit)
Common stock..................................... - - - - -
Paid-in capital.................................. 17,808 5,257 - (5,257) 17,808
Accumulated other comprehensive income........... (148) (318) - - (466)
Retained earnings (accumulated deficit).......... (108,164) 1,138 - (1,138) (108,164)
--------- -------- ---------- ----------- ---------
Total stockholder's equity (deficit)........ (90,504) 6,077 - (6,395) (90,822)
--------- -------- ---------- ----------- ---------
Total liabilities and equity (deficit)...... $ 357,523 $ 12,694 $ - $ (6,395) $ 363,822
========= ======== ========== =========== =========
11
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(Dollars in Thousands)
NON-
GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARY SUBSIDIARY ADJUSTMENTS CONSOLIDATED
------------ ---------- ---------- ----------- ------------
Sales................................................. $ 123,711 $ 2,319 $ - $ - $ 126,030
Cost of sales......................................... 109,635 2,502 - - 112,137
--------- -------- ------- -------- ---------
Gross profit.......................................... 14,076 (183) - - 13,893
Selling, general and administrative
expenses........................................... 9,981 293 - - 10,274
--------- -------- ------- -------- ---------
Income from operations................................ 4,095 (476) - - 3,619
Other expense (income)
Interest expense................................ 8,633 54 - - 8,687
Other, net...................................... 524 - - - 524
--------- -------- ------- -------- ---------
Loss before income tax and
and change in accounting method.................... (5,062) (530) - - (5,592)
Income tax expense (benefit).......................... (1,560) 50 - - (1,510)
--------- -------- ------- -------- ---------
Loss before equity in income of
consolidated subsidiaries........................... (3,502) (580) - - (4,082)
Cumulative effect of change in accounting
method (net of tax benefit of $112)................. (199) - - - (199)
Equity in income (loss) of consolidated
subsidiaries........................................ (580) - - 580 -
--------- -------- ------- -------- ---------
Net loss.............................................. $ (4,281) $ (580) $ - $ 580 $ (4,281)
========= ======== ======= ======== =========
12
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(Dollars in Thousands)
NON -
GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
------------ ------------ ---------- ----------- ------------
Sales ................................................ $ 116,233 $ 4,908 $ - $ - $ 121,141
Cost of sales ........................................ 104,979 4,179 - - 109,158
--------- --------- -------- ---------- ---------
Gross profit ......................................... 11,254 729 - - 11,983
Selling, general and administrative
expenses........................................... 9,037 458 - (121) 9,374
--------- --------- -------- -------- ---------
Income from operations ............................... 2,217 271 - 121 2,609
Other expense (income)
Interest expense ............................... 7,915 65 - - 7,980
Other, net ..................................... 111 (121) - 121 111
--------- --------- -------- -------- ---------
Income (loss) before income tax ...................... (5,809) 327 - - (5,482)
Income tax expense (benefit).......................... (2,226) 55 - - (2,171)
--------- --------- -------- -------- ---------
Income (loss) before equity in income of
consolidated subsidiaries .......................... (3,583) 272 - - (3,311)
Equity in income of consolidated
subsidiaries ....................................... 272 - - (272) -
--------- --------- -------- -------- ---------
Net income (loss) .................................... $ (3,311) $ 272 $ - $ (272) $ (3,311)
========= ========= ======== ======== =========
13
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999
(Dollars in Thousands)
NON-
GUARANTOR GUARANTOR
PARENT SUBSIDIARY SUBSIDIARY CONSOLIDATED
------------ ---------- ---------- ------------
Net cash provided by (used in) operating activities............. $ 1,250 $ 159 $ - $ 1,409
--------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment, net................. (5,191) (9) - (5,200)
--------- -------- ------- --------
NET CASH USED IN INVESTING ACTIVITIES ........................ (5,191) (9) - (5,200)
--------- -------- ------- --------
Cash flows from financing activities
Net borrowings from revolving debt ............................. 14,500 - - 14,500
Repayment of long-term debt .................................... (14,700) - - (14,700)
--------- -------- ------- --------
NET CASH USED IN FINANCING ACTIVITIES......................... (200) - - (200)
--------- -------- ------- --------
Effect of foreign currency rate fluctuations on cash ........... - (338) - (338)
--------- -------- ------- --------
Net increase(decrease) in cash ................................. (4,141) (188) - (4,329)
Cash at beginning of period .................................... 4,141 333 - 4,474
--------- -------- ------- --------
Cash at end of period .......................................... $ - $ 145 $ - $ 145
========= ======== ======= ========
14
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998
(Dollars in Thousands)
NON-
GUARANTOR GUARANTOR
PARENT SUBSIDIARY SUBSIDIARY CONSOLIDATED
------------ ---------- ---------- ------------
Net cash provided by (used in) operating activities.............. $ 15,177 $ (1,099) $ - $ 14,078
--------- --------- ------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired .............................. (600) - - (600)
Purchases of property, plant and equipment....................... (4,971) (62) - (5,033)
--------- --------- ------- ---------
NET CASH USED IN INVESTING ACTIVITIES ......................... (5,571) (62) - (5,633)
--------- --------- ------- ---------
Cash flows from financing activities
Net borrowings from revolving debt .............................. (8,000) - - (8,000)
Repayment of long-term debt ..................................... (3,054) - - (3,054)
--------- --------- ------- ---------
NET CASH USED IN FINANCING ACTIVITIES ......................... (11,054) - - (11,054)
--------- --------- ------- ---------
Effect of foreign currency rate fluctuations on cash ............ - (57) - (57)
--------- --------- ------- ---------
Net decrease in cash ............................................ (1,448) (1,218) - (2,666)
Cash at beginning of period ..................................... 1,646 2,142 - 3,788
--------- --------- ------- ---------
Cash at end of period ........................................... $ 198 $ 924 $ - $ 1,122
========= ========= ======= =========
15
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING INFORMATION
This Quarterly Report contains, and from time to time the Company expects to
make, certain forward-looking statements regarding its business, financial
condition and results of operations. In connection with the "Safe Harbor"
provisions of the Private Securities Reform Act of 1995 (the "Reform Act"), the
Company intends to caution readers that there are several important factors that
could cause the Company's actual results to differ materially from those
projected in its forward-looking statements, whether written or oral, made
herein or that may be made from time to time by or on behalf of the Company.
Readers are cautioned that such forward-looking statements are only predictions
and that actual events or results may differ materially. The Company undertakes
no obligation to publicly release the results of any revisions to the forward-
looking statements to reflect events or circumstances or to reflect the
occurrence of unanticipated events.
The Company wishes to ensure that meaningful cautionary statements accompany any
forward-looking statements in order to comply with the terms of the safe harbor
provided by the Reform Act. Accordingly, the Company has set forth a list of
important factors that could cause the Company's actual results to differ
materially from those expressed in forward-looking statements or predictions
made herein and from time to time by the Company. Specifically, the Company's
business, financial condition and results of operations could be materially
different from such forward-looking statements and predictions as a result of
(i) customer pressures that could impact sales levels and product mix, including
customer sourcing decisions, customer evaluation of market pricing on products
produced by the Company and customer cost-cutting programs; (ii) the impact on
the Company's operations and cash flows caused by labor strikes or work
stoppages at the Company's OEM customers; (iii) operational difficulties
encountered during the launch of major new OEM programs; (iv) the ability of the
Company to integrate acquisitions into its existing operations and achieve
expected cost savings; (v) the availability of funds to the Company for
strategic acquisitions and capital investments to enhance existing production
and distribution capabilities; and (vi) the ability of the Company, as well as
its vendors, and customers, to address year 2000 processing issues on a timely
basis.
RESULTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
---------- -----------
% OF SALES % OF SALES
Sales ......................................................... 100.0% 100.0%
Gross profit .................................................. 11.0% 9.9%
Selling, general and administrative expenses .................. 8.2% 7.7%
Loss before income tax ........................................ (4.4)% (4.5)%
Net loss ...................................................... (3.4)% (2.7)%
16
REVENUES
The Company's sales increased $4.9 million, or 4.0% to $126.0 million in the
three month period ended March 31, 1999, compared to $121.1 million in the three
month period ended March 31, 1998. This increase is primarily attributable to
higher sales in the commercial truck segment. Sales in this segment increased
$7.6 million or 15.9% over the same quarter of the prior year. Sales in the
industrial products segment decreased by $3.4 million or 37.4% compared to the
same quarter of the prior year. The automotive segment experienced a slight
increase in sales.
Higher sales in the commercial truck segment were primarily the result of (1) a
stronger market; (2) new business with Volvo and (3) increased sales to
Freightliner in 1999 because of the temporary interruption in the production of
Ford's HN80 heavy truck platform in the first quarter of 1998 while it was moved
from Kentucky to Ontario, Canada.
An overall softening in the agricultural market resulted in lower sales in the
industrial products group. This trend is expected to continue for the remainder
of 1999.
Sales were slightly higher in the automotive segment compared to the same
quarter in the previous year. This increase consists of sales on new programs
such as the GMX 220 (LeSabre), DaimlerChrysler Minivan, GM800 skid plates,
Chevrolet Corvette, GMT600 Chevy Van and the splash fender on the Ford Ranger.
This increase was substantially offset by lower volumes on the Dodge Viper and
the phase out of several programs such as the louver on the DaimlerChrysler Jeep
Grand Cherokee.
GROSS PROFIT
Gross profit increased $1.9 million from $12.0 million in the first three months
of 1998 to $13.9 million in the first three months of 1999. Gross margin as a
percent of sales increased by 11.0% from 9.9% in 1998 up to 11.0% in 1999. The
automotive segment's gross profit increased by $0.2 million or 2.4% from $8.2
million in 1998 to $8.4 million in 1999. The increase in gross profit resulted
from higher tooling profit recognized on programs which was substantially offset
by lower gross profit on part sales due to reduced volumes on the Dodge Viper.
Gross profit in the commercial truck segment increased by $2.8 million or 97%
from $2.9 million in 1998 to $5.7 million in 1999. This increase was due to (1)
higher sales volumes, and (2) improved plant efficiencies resulting in lower
direct labor and overhead costs. The industrial segment's gross profit decreased
by $1.1 million from $0.9 million in 1998 to $(0.2) million in 1999. The decline
was due to the lower sales volume experienced in the first quarter of 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") of $10.3 million increased
to 8.2% of sales for the three months ended March 31, 1999, compared to $9.4
million or 7.7% of sales for the same period in 1998. The $0.9 million increase
resulted from the Company's continuing investment in program management, lean
manufacturing, research and development, sales and marketing, and information
services.
17
OPERATING INCOME
Operating income increased by $1.0 million or 38.7% from $2.6 million in 1998 to
$3.6 million in 1999. Operating income as a percentage of sales increased from
2.2% in 1998 to 2.9% in 1999. The automotive segment's operating income
decreased by $0.4 million or 9.5% from $4.2 million in 1998 to $3.8 million in
1999. This decrease is primarily attributable to higher salaries and wages and
fringe benefit costs incurred to manage new programs. Operating income in the
commercial truck segment increased by $3.1 million or 344% from $0.9 million in
1998 to $4.0 million in 1999. This increase is due to the $2.9 million
improvement in gross margin and a $0.2 million reduction in staff costs
primarily consisting of salaries, fringe benefits, and travel. Operating income
in the industrial products division decreased by $1.0 million from $0.4 million
in 1998 to $(0.6) million in 1999. This decrease is attributable to the sharp
decline in revenue. Corporate and unallocated costs increased by $0.7 million
from $2.9 million in 1998 to $3.6 million in 1999. This increase is primarily
attributable to additional costs incurred for lean manufacturing, research and
development, sales and marketing, and information services.
NET LOSS
The Company recorded a net loss of $4.3 million in the first quarter of 1999,
compared to a net loss of $3.3 million in 1998. This $1.0 million increase in
net loss was the result of the $1.0 million increase in operating income offset
by an increase in interest expense of $0.7 million, a $0.4 million equity loss
from the Company's joint venture, a $.3 million pre-tax write off of acquisition
costs relating to the Company's joint venture and a decline in the Company's
effective income tax rate which resulted in a lower income tax benefit of $0.7
million.
The $0.7 million increase in interest expense was primarily attributable to an
increase in the interest rates on the revolving credit and term debt. The
Company's borrowing rate on its bank debt increased by 1% effective January 1,
1999, in connection with the Fourth Waiver and Amendment of the credit
agreement.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs historically have been for operating expenses,
working capital and capital expenditures. Acquisitions have been financed
through debt facilities collateralized by the Company's assets and cash flows.
Management expects future cash will be required for capital expenditures and to
fund working capital as the Company continues to expand its operations.
Management expects capital expenditures to be approximately $25.4 million in
1999.
The Company's credit agreement (prior to the Fourth Waiver and Amendment)
allowed the Company to borrow up to $280.0 million. The credit agreement
consisted of $205.0 million in aggregate principal amount of term loans and a
$75.0 million revolving credit facility available for working capital and
general corporate purposes. The A Term Loans and B Term Loans of the credit
agreement mature on the fifth and eighth anniversary of the initial borrowing,
respectively, and will require annual principal payments (payable in quarterly
installments) totaling approximately $13.9 million in 1999, $16.4 million in
2000, $21.4 million in 2001, $34.0 million
18
in 2002, $35.0 million in 2003, $40.0 million in 2004, and $37.1 million in
2005. The revolving credit portion of the credit agreement matures on the fifth
anniversary of the initial borrowing. The interest rate under the credit
agreement is based on the Eurodollar rate plus the applicable Eurodollar margin.
In July 1997, the Company issued $100 million face amount of its 10 1/4% senior
subordinated notes (the "Notes") due in 2007.
In September 1998, the Company entered into a Second Waiver and Amendment and in
January 1999 the Company entered into a Third Waiver and Amendment pursuant to
which certain restrictive covenants contained in the credit agreement were
waived and amended. On February 23, 1999, the Company entered into a Fourth
Waiver and Amendment to the credit agreement with the Agent and other
institutions, which is effective as of December 31, 1998 through and including
March 31, 2000. Under the Fourth Waiver and Amendment, the aggregate
outstanding principal amount of the revolving credit facility shall not at any
time exceed $65 million, and shall not exceed $50 million on the last day of the
month. The amendments in 1999 required the Company to prepay $13.9 million of
term loans during the first quarter of 1999 and pay a $1.4 million amendment
fee. The Fourth Waiver and Amendment also increased the interest rate by 1.0 %
on the term loans and the revolving credit facility. In addition, certain
restrictive covenants were waived and amended. The credit agreement, together
with the Second, Third, and Fourth Waivers and Amendments, is referred to as the
("Credit Agreement"). Letters of Credit outstanding under the Credit Agreement
are limited to $5.3 million.
The amended Credit Agreement eliminated covenant requirements at December 31,
1998, and amended the covenants for periods through March 31, 2000. The Company
was in compliance with the amended covenants as of March 31, 1999.
The Company believes that, based on current levels of operations and anticipated
growth, its cash from operations together with other available sources of
liquidity, including borrowings under the Credit Agreement, will be sufficient
over the next several years to make required payments of principal and interest
on its debt, including payments due on the Notes and remaining obligations under
the Credit Agreement, permit anticipated capital expenditures and fund working
capital requirements.
CASH FLOWS
Three Months Ended
March 31,
Cash flow from: 1999 1998
--------- ---------
Operating activities $ 1,409 $ 14,078
Investing activities (5,200) (5,633)
Financing activities (200) (11,054)
Foreign currency fluctuations (338) (57)
------- --------
Net cash flow $(4,329) $ (2,666)
======= ========
19
During the first quarter of 1999, the Company provided cash flow from operations
of $1.4 million. Cash generated from operations before changes in working
capital items was $3.3 million and consisted of non-cash adjustments of (1) $7.8
million of depreciation and amortization; (2) $.7 million charge to income for
post-retirement benefits; (3) $1.7 million deferred income tax benefit; (4) $0.3
million cumulative effect of accounting change; and (5) $0.4 million equity loss
in the Company's joint venture. Increases in working capital used cash of $1.9
million. The increases in working capital were primarily the result of the
timing of cash receipts and cash payments.
Net cash flow from operating activities for the 1998 period was $14.1 million.
Net loss for the 1998 period was $3.3 million. The non-cash adjustments of $8.1
million primarily consisted of depreciation and amortization of $8.2 million, a
non-cash charge to income for postretirement benefits of $0.7 million, and a
$0.8 deferred income tax benefit. Changes in working capital components
provided $9.3 million; primarily the result of timing of collections on trade
accounts receivable and payments of accounts payable and accrued interest.
The Company spent approximately $5.5 million on capital items for the three-
month period ended March 31, 1999, in comparison to approximately $5.0 million
for the 1998 period. Items purchased in 1999 relate to the GM Truck Box
program, Ford Dutch door, GMT 800 program, other programs and various equipment
upgrades.
At March 31, 1999, the following summarizes the debt outstanding and unused
credit availability (dollars in thousands):
Total Amount Unused
Commitment Outstanding Availability
---------- ----------- ------------
Revolving credit $ 50,000 $ 38,500 $ 11,500
Term debt 205,000 183,800 0
Senior subordinated notes 100,000 100,000 0
Capital leases & seller notes 4,930 4,930 0
Other 3,270 3,270 0
-------- -------- ----------
Total $363,200 $330,500 $ 11,500
======== ======== ==========
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer and other operating systems as the millennium (year 2000)
approaches. The issue is whether the date sensitive information within the
various operating systems will properly recognize the date when the year changes
to 2000. The systems that do not properly recognize such information could
generate erroneous data or cause a system to fail.
The "Year 2000" problem relates to computer systems that have time and date-
sensitive programs that were designed to read years beginning with "19", but may
not properly recognize the year 2000. If a computer system or software
application used by the Company or a third party dealing with the Company fails
because of the inability of the system or application to properly read the year
"2000," the results could conceivably have a material adverse effect on the
Company.
20
As a key supplier to the transportation industry, the Company's major exposure
for Year 2000 problems is the effect of shutting down production at one of its
customers' factories. While lost revenues from such an event are a concern for
the Company, the greater risks are the consequential damages for which the
Company could be liable if it in fact is found responsible for the shutdown of
one of its customers' facilities. Such a finding could have a material adverse
impact on the Company's results of operations.
The most likely way in which the Company would shut down production at a
customer's facility is by being unable to supply parts to that customer. The
parts supplied by the Company, in most instances, are integral components of the
end products produced by the customer, and the inability to provide them may
render the customer unable to manufacture and sell its products. Breakdowns in
any number of the Company's computer systems and applications could prevent the
Company from being able to manufacture and ship its products. Examples are
failures in the Company's manufacturing application software, barcoding systems,
computer chips embedded in plant floor equipment, lack of supply of materials
from its suppliers, or lack of power, heat or water from utilities servicing its
facilities. The Company's products do not contain computer devices that require
remediation to meet Year 2000 requirements. A review of the Company's status
with respect to remediating its computer systems for Year 2000 compliance is
presented below.
The Company utilizes an IBM AS400 based computer system for its financial and
manufacturing reporting systems. In addition to this centralized processing
system, the company is installing local-area networks ("LANs") and wide-area
networks ("WANs"). All AS400 software, both operating system and applications,
have undergone revisions, or are in the process of undergoing revisions to
ensure their compliance with Y2K requirements. To date, the Company has
incurred $0.2 million related to software upgrades and hardware replacement.
The Company estimates that additional costs of approximately $0.8 million will
be incurred during 1999. All of the expenditures related to the year 2000
remediation have been funded thorough normal operating cash flows. The operating
system on the AS400 has been upgraded to the latest version that IBM guarantees
to be Year 2000 compliant.
As for applications software, the Company's Information System group currently
shows a schedule of being Y2K compliant by the month end of July 1999. Some
mission critical applications such as material requirements planning and
shipping control have already been reviewed and upgraded to Y2K compliance.
Personal computers and network systems are also in the process of being upgraded
to Windows NT. This process has required the replacement of more than ninety
percent of all current personal computers and file servers. The replacement is
scheduled to be finished by late August or September of 1999. All applications
being processed on personal computers are non-mission critical. The only
remaining area for some concern is in end-user computing - the processing of
data in spreadsheets and personal data bases that a particular user may have set
up. The correction of any date-related calculations is expected to be made by
the end users.
Although there can be no assurance that the Company will identify and correct
every Year 2000 problem found in the computer applications used in its
production processes, the Company
21
believes that it has in place a comprehensive program to identify and correct
any such problems, and expects to have substantially completed the remediation
of its production systems by the end of calendar year 1999.
The Company is also reviewing its building and utility systems (heat, light,
phones, etc.) for the impact of Year 2000. Many of the systems in this area are
Year 2000 ready. While the Company is working diligently with all of its
utility suppliers and has no reason to expect that they will not meet their
required Year 2000 compliance targets, there can be no assurance that these
suppliers will in fact meet the Company's requirements. The failure of any such
supplier to fully remediate its systems for Year 2000 compliance could cause a
shutdown of one or more of the Company's plants, which could impact the
Company's ability to meet its obligations to supply products to its customers.
The Company has also commenced a program to assess the Year 2000 compliance
efforts of its equipment and material suppliers. The Company has sent
comprehensive questionnaires to all of its significant suppliers regarding their
Year 2000 compliance and is attempting to identify any problem areas with
respect to them. This program will be ongoing and the Company's efforts with
respect to specific problems identified will depend in part upon its assessment
of the risk that any such problems may cause the shutdown of a customer's plant
or other problem which the Company believes would have a material adverse impact
on its operations. Because the Company cannot control the conduct of its
suppliers, there can be no guarantee that Year 2000 problems originating with a
supplier will not occur. The Company has not yet developed contingency plans in
the event of a Year 2000 failure caused by a supplier or third party, but
intends to do so if a specific problem is identified through the program
described above. In some cases, especially with respect to its utility vendors,
alternative suppliers may not be available.
As a Tier 1 supplier in the auto industry, the Company takes an active role in
many industry-sponsored organizations, including the Automotive Industry Action
Group ("AIAG"). The AIAG has been proactive in working with OEM's and Tier 1, 2
and 3 suppliers to ensure that the industry as a whole addresses the Year 2000
problem. Tools to assist in achieving compliance include standardized
questionnaires, regular meetings of members, follow-up by AIAG personnel
regarding answers to questionnaires, etc. The Company continues to work with
such industry groups to ensure compliance.
The information presented above sets forth the key steps taken by the Company to
address the Year 2000 problem. There can be no absolute assurance that third
parties will convert their systems in a timely manner and in a way that is
compatible with the Company's systems. The Company believes that its actions
with suppliers will minimize these risks and that the cost of Year 2000
compliance for its information and production systems will not be material to
its consolidated results of operations and financial position
22
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.
Cambridge Industries, Inc.
--------------------------
Date: May 14, 1999
---------------- /s/ John M. Colaianne
__________________________
John M. Colaianne
Chief Financial Officer
/s/ Jon W. Anderson
__________________________
Jon W. Anderson
Corporate Controller
23