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 June 30, 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
Madison Heights, MI 48071
(Address of principal executive offices) (ZipCode)
(248) 616-0500 None
(Registrant's telephone number, (Name of exchange on which registered)
including area code)
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
June 30, 1999: 1,000
CAMBRIDGE INDUSTRIES, INC.
FORM 10Q
FOR THE QUARTER ENDED JUNE 30, 1999
INDEX
PAGE NO.
--------
Part I -- Financial Information
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets - June 30, 1999 and December 31, 3
1998
Condensed Consolidated Statements of Operations - Three and Six Months 4
Ended June 30, 1999 and 1998
Condensed Consolidated Statements of Cash Flows - Six Months Ended June 5
30, 1999 and 1998
Notes to the Condensed Unaudited Consolidated Financial Statements 6
Item 2 - Management's discussion and analysis of financial condition and
results of operations 18
2
Part I - Financial Information
Item 1 - Financial Statements
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30, December 31,
1999 1998
-------------------------
(unaudited)
Assets
Current assets:
Cash ..................................................... $ 609 $ 4,474
Receivables .............................................. 77,655 80,516
Inventories (Note 3) ..................................... 23,807 25,625
Reimbursable tooling costs ............................... 23,281 22,914
Deferred income taxes and other .......................... 10,233 5,788
--------- ---------
Total current assets .............................................. 135,585 139,317
Property, plant and equipment, net of accumulated
depreciation of $103,342 and $89,904 respectively ............... 186,003 193,338
Other assets ...................................................... 31,979 31,167
--------- ---------
Total assets ...................................................... $ 353,567 $ 363,822
========= =========
Liabilities and stockholders' equity (deficit)
Current liabilities:
Current portion of long-term debt ........................ $ 11,057 $ 17,272
Accounts payable ......................................... 55,450 65,227
Accrued liabilities ...................................... 32,188 30,140
--------- ---------
Total current liabilities ......................................... 98,695 112,639
Noncurrent liabilities:
Long-term debt ........................................... 321,746 315,029
Postretirement health care benefits ...................... 24,982 23,431
Deferred income taxes and other .......................... 3,546 3,545
--------- ---------
Total liabilities ................................................. 448,969 454,644
Commitments and contingencies (Note 4)
Stockholders' equity (deficit):
Common stock, $.01 par value, 3,000 shares
Authorized, 1,000 shares issued and
outstanding ............................................ 1
Paid-in capital .......................................... 17,787 17,808
Accumulated other comprehensive income.................... (13) (466)
Accumulated deficit ............................................... (113,177) (108,164)
--------- ---------
Total stockholders'(deficit) ...................................... (95,402) (90,822)
--------- ---------
Total liabilities and stockholders' equity (deficit) .............. $ 353,567 $ 363,822
========= =========
See accompanying Notes to Condensed Unaudited Consolidated Financial Statements
3
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(dollars in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1999 1998* 1999 1998*
--------- --------- --------- ----------
Sales ....................................... $ 144,617 $ 119,719 $ 270,647 $ 240,860
Cost of Sales ............................... 125,223 104,054 237,360 213,212
--------- --------- --------- ---------
Gross Profit ................................ 19,394 15,665 33,287 27,648
Selling, general and administrative expenses 11,469 9,160 21,743 18,534
--------- --------- --------- ---------
Income from Operations ...................... 7,925 6,505 11,544 9,114
Other expense (income):
Interest expense ....................... 8,680 7,696 17,367 15,676
Equity loss in joint venture............ 726 0 1,126 0
Other, net (55) (207) 69 (96)
--------- --------- --------- ---------
Income (loss) before income tax and change in
accounting method ........................ (1,426) (984) (7,018) (6,466)
Income tax expense (benefit) ................ (691) (433) (2,201) (2,604)
Cumulative effect of accounting change,
net of tax benefit of $112................ 199
--------- --------- --------- ---------
Net (loss)................................... $ (735) $ (551) $ (5,016) $ (3,862)
========= ========= ========= =========
See accompanying Notes to Condensed Unaudited Consolidated Financial Statements.
*1998 data has been restated.
4
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
Six Months Ended
June 30,
---------------------
1999 1998*
--------- ---------
Cash flows from operating activities:
Net (loss) ........................................................ $ (5,016) $ (3,862)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ..................................... 15,032 15,139
Postretirement benefit expenses, net of cash payments ............. 1,551 1,427
Deferred U.S. income tax provision ................................ (2,414) (2,731)
Equity loss in joint venture ...................................... 1,126 --
Cumulative effect of accounting change ............................ 311 --
Changes in assets and liabilities
Receivables ....................................................... 2,862 13,372
Inventories ....................................................... 1,817 839
Reimbursable tooling costs ........................................ (368) (3,676)
Accounts payable and accrued liabilities .......................... (7,729) (13,405)
Other ............................................................. (3,743) 4,426
-------- --------
Net cash provided by operating activities .............................. 3,429 11,509
Cash flows from investing activities:
Purchase of property, plant and equipment.......................... (8,059) (11,546)
Other ............................................................. 561 (850)
-------- --------
Net cash (need) in investing activities................................. (7,498) (12,396)
Cash flows from financing activities:
Net change in revolving debt ...................................... 17,500 4,000
Repayment of long-term debt and capital lease obligations ......... (16,998) (4,953)
-------- --------
Net cash provided by (used for) financing activities ................... 502 (953)
-------- --------
Effect of foreign currency rate fluctuations on cash ................... (298) (81)
-------- --------
Net decrease in cash ................................................... (3,865) (1,921)
Cash at beginning of period ............................................ 4,474 3,788
-------- --------
Cash at end of period .................................................. $ 609 $ 1,867
======== ========
See accompanying Notes to Condensed Unaudited Consolidated Financial Statements.
*1998 data has been restated.
5
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
1. Basis of Presentation
The accompanying condensed 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 June 30, 1999 and
the results of its operations for the three and six month periods ended June 30,
1999 and 1998, and its cash flows for the six month period ended June 30, 1999.
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 on the first two quarters of 1998 was to reduce gross profit by $0.2
million and $1.3 million and increase net loss by $0.1 million and $1.2 million
from the previously reported results for the quarters ending June 30, 1998 and
March 31, 1998, respectively.
The condensed unaudited consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements as of December
31, 1998 and for each of the three years in the periods ended December 31, 1998,
1997, and 1996. The results of operations for the three and six month periods
ended June 30, 1999 and 1998 are not necessarily indicative of the operating
results for the full year. Certain reclassifications have been made to prior
year financial statements to conform to the 1998 presentations.
2. Changes in Accounting Principles
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 (0.2 million, net of tax) of start up costs
associated with its joint venture with Dos Manos Technologies.
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, ("SFAS 130"), "Reporting Comprehensive Income." SFAS 130
requires that all items recognized under accounting standards as components of
comprehensive earnings be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements. This
Statement also requires that an entity classify items of other comprehensive
earnings by their nature in an annual financial statement. For example, other
comprehensive earnings may include foreign currency translation adjustments,
minimum pension liability adjustments, and unrealized gains and losses on
marketable securities classified as available-for-sale. Annual financial
statements for prior periods will be reclassified, as required. The Company's
total comprehensive earnings were as follows:
6
Three Months Ended Six Months Ended
June 30, June 30,
----------------- ----------------
1999 1998 1999 1998
------ ----- ------ -----
(Dollars in Thousands) (Dollars in Thousands)
Net income (loss) $ (735) $ (551) $(5,016) $(3,862)
Other comprehensive income:
Unrealized Foreign Currency Translation 15 (24) 453 (81)
------- ------- ------- -------
Total comprehensive earnings $ (720) $ (575) $(4,563) $(3,943)
======= ======= ======= =======
3. Inventories
At June 30, 1999 (unaudited) and December 31, 1998, inventories consist of the
following:
June 30, December 31,
1999 1998
--------- -----------
(dollars in thousands)
Finished goods ...................................................... $ 5,156 $ 4,890
Work-in-process ..................................................... 6,081 8,106
Raw materials ....................................................... 12,579 11,946
Supplies ............................................................ 1,261 1,571
-------- --------
Total ...................................................... 25,077 26,513
Less allowance for obsolescence and lower of cost or market reserve.. (1,270) (888)
-------- --------
Inventories ................................................ $ 23,807 $ 25,625
======== ========
4. Commitment and Contingencies
The company has letters of credit outstanding of $4,650 at June 30, 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 or results of operations or cash flows.
5. 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.
7
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.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
Business Segment Information
Six Months Ended June 30
Commercial Corporate & Total
Year Automotive Truck Industrial Unallocated Company
---- ---------- ----- ---------- ----------- -------
Net Sales 1999 $144,602 $114,879 $11,166 $ - $270,647
1998 124,278 98,496 18,086 240,860
Operating Income* 1999 11,360 9,207 (913) (8,110) 11,544
1998 8,074 5,469 831 (5,260) 9,114
EBITDA** 1999 18,322 15,185 (547) (7,579) 25,381
1998 15,767 12,211 1,519 (5,148) 24,349
Three Months Ended June 30
Commercial Corporate & Total
Year Automotive Truck Industrial Unallocated Company
---- ---------- ----- ---------- ----------- -------
Net Sales 1999 $79,802 $59,304 $5,511 $ - $144,617
1998 60,110 50,562 9,047 - 119,719
Operating Income* 1999 7,526 5,209 (311) (4,499) 7,925
1998 3,872 4,524 466 (2,357) 6,505
EBITDA** 1999 10,515 7,938 (143) (3,796) 14,514
1998 7,593 7,663 787 (2,365) 13,678
* Operating income includes unallocated corporate overhead expenses.
** EBITDA includes operating income, other expense (income) net, adjusted for
interest, taxes, depreciation and amortization.
8
The following table reconciles EBITDA to pretax income (loss):
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
---- ---- ---- ----
EBITDA $ 14,514 $ 13,678 $ 25,381 $ 24,349
Less:
Depreciation and amortization 7,260 6,966 15,032 15,139
Interest expense 8,680 7,696 17,367 15,676
-------- -------- -------- --------
Pretax loss, before cumulative effect
of change in accounting method $ (1,426) $ (984) $ (7,018) $ (6,466)
======== ======== ======== ========
6. 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 two other consolidated
subsidiaries, its Brazilian subsidiary, Cambridge Industrial do Brasil, Ltd.,
and Voplex of Canada. 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.
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
June 30, 1999
(Dollars in Thousands)
Non-
guarantor Guarantor Eliminations/
Parent subsidiaries subsidiary adjustments Consolidated
------ ------------ ---------- ----------- ------------
ASSETS
Current Assets
Cash .................................... $ 293 $ 316 $ -- $ -- $ 609
Receivables ............................. 71,448 6,207 -- -- 77,655
Inventories ............................. 22,099 1,708 -- -- 23,807
Reimbursable tooling costs .............. 22,679 602 -- -- 23,281
Deferred income taxes and other ......... 10,182 51 -- -- 10,233
--------- --------- ------------- --------- ---------
Total current assets ................ 126,701 8,884 -- -- 135,585
Property, plant and equipment, net ........... 183,479 2,524 -- -- 186,003
Other long-term assets ....................... 32,118 (139) -- -- 31,979
Investment in consolidated subsidiaries ...... 6,211 -- -- (6,211) --
--------- --------- ------------- --------- ---------
Total assets ........................ $ 348,509 $ 11,269 $ $ (6,211) $ 353,567
========= ========= ============= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Current portion of long-term debt ....... $ 10,632 $ 425 $ -- $ -- $ 11,057
Accounts payable ........................ 54,554 896 -- 55,450
Accrued liabilities ..................... 31,591 597 -- -- 32,188
--------- --------- ------------- --------- ---------
Total current liabilities ........... 96,777 1,918 -- 98,695
Noncurrent liabilities
Long-term debt .......................... 318,741 3,005 -- -- 321,746
Workers' compensation ................... -- -- -- -- --
Postretirement healthcare benefits ...... 24,982 -- -- -- 24,982
Deferred income taxes and other long-
term liabilities ...................... 3,546 -- -- -- 3,546
--------- --------- ------------- --------- ---------
Total liabilities ................... 444,046 4,923 -- -- 448,969
---------
Stockholders' equity (deficit)
Common stock ............................ 1 -- -- -- 1
Paid-in capital ......................... 17,787 5,257 -- (5257) 17,787
Unrealized foreign currency translation . (148) 135 -- -- (13)
Retained earnings (accumulated deficit) . (113,177) 954 -- (954) (113,177)
--------- --------- ------------- --------- ---------
Total stockholders' equity (deficit). (95,537) 6,346 -- (6,211) (95,402)
--------- --------- ------------- --------- ---------
Total liabilities and stockholders'
equity (deficit) .................. $ 348,509 $ 11,269 $ -- $ (6,211) $ 353,567
========= ========= ============= ========= =========
10
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 1998
(Dollars in Thousands)
Non-
guarantor Guarantor Eliminations/
Parent subsidiaries subsidiary adjustments Consolidated
------ ------------ ---------- ----------- ------------
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 STOCKHOLDERS' 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
Noncurrent liabilities
Long-term debt ............................. 310,510 4,519 -- -- 315,029
Workers' compensation ...................... -- -- -- -- --
Postretirement healthcare benefits ......... 23,431 -- -- -- 23,431
Other liabilities .......................... 3,545 -- -- -- 3,545
--------- --------- ---------- --------- ---------
Total liabilities ...................... 448,027 6,617 -- -- 454,644
Stockholders' equity (deficit)
Common stock ............................... -- -- -- -- --
Paid-in capital ............................ 17,808 5,257 -- (5,257) 17,808
Unrealized foreign currency translation ......... (148) (318) -- -- (466)
Retained earnings (accumulated deficit) .... (108,164) 1,138 -- (1,138) (108,164)
--------- --------- ---------- --------- ---------
Total stockholders' 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 June 30, 1999
(Dollars in Thousands)
Non-
guarantor Guarantor Eliminations/
Parent subsidiaries subsidiary adjustments Consolidated
------ ------------ ---------- ----------- ------------
Sales .................................. $ 141,597 $ 3,020 $ -- $ -- $ 144,617
Cost of sales .......................... 122,553 2,670 -- -- 125,223
--------- --------- ---------- --------- ---------
Gross profit ........................... 19,044 350 -- -- 19,394
Selling, general and administrative
expenses ............................ 11,130 339 -- -- 11,469
--------- --------- ---------- --------- ---------
Income from operations ................. 7,914 11 -- -- 7,925
Other expense (income)
Interest expense .................. 8,624 56 -- -- 8,680
Equity loss in joint venture....... 726 -- -- -- 726
Other, net ........................ (55) -- -- -- (55)
--------- --------- ---------- --------- ---------
Income (loss) before income tax ........ (1,381) (45) -- -- (1,426)
Income tax expense (benefit) ........... (742) 51 -- -- (691)
--------- --------- ---------- --------- ---------
Income (loss) before equity in income of
consolidated subsidiaries ............ (639) (96) -- -- (735)
Equity in income of consolidated
subsidiaries ......................... (96) -- -- 96 --
--------- --------- ---------- --------- ---------
Net income (loss) ...................... $ (735) $ (96) $ -- $ 96 $ (735)
========= ========= ========== ========= =========
12
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended June 30, 1998
(Dollars in Thousands)
Non-
guarantor Guarantor Eliminations/
Parent subsidiaries subsidiary adjustments Consolidated
------ ------------ ---------- ----------- ------------
Sales .................................. $ 115,039 $ 4,680 $ -- $ -- $ 119,719
Cost of sales .......................... 100,169 3,885 -- -- 104,054
--------- --------- ----------- --------- ---------
Gross profit ........................... 14,870 795 -- 15,665
Selling, general and administrative
expenses ............................ 8,725 435 -- -- 9,160
--------- --------- ----------- --------- ---------
Income from operations ................. 6,145 360 -- -- 6,505
Other expense (income)
Interest expense .................. 7,628 68 -- -- 7,696
Other, net ........................ (131) (76) -- -- (207)
--------- --------- ----------- --------- ---------
Income (loss) before income tax ........ (1,352) 368 -- -- (984)
Income tax expense (benefit) ........... (504) 71 -- -- (433)
--------- --------- ----------- --------- ---------
Income (loss) before equity in income of
consolidated subsidiaries ............ (848) 297 -- -- (551)
Equity in income of consolidated
subsidiaries ......................... 297 -- -- (297) --
--------- --------- ----------- --------- ---------
Net income (loss) ...................... $ (551) $ 297 $ -- $ (297) $ (551)
========= ========= =========== ========= =========
13
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Six Months Ended June 30, 1999
(Dollars in Thousands)
Non-
guarantor Guarantor Eliminations/
Parent subsidiaries subsidiary adjustments Consolidated
------ ------------ ---------- ----------- ------------
Sales .................................. $ 265,308 $ 5,339 $ -- $ -- $ 270,647
Cost of sales .......................... 232,188 5,172 -- -- 237,360
--------- --------- ---------- --------- ---------
Gross profit ........................... 33,120 167 -- -- 33,287
Selling, general and administrative
expenses ............................ 21,111 632 -- -- 21,743
--------- --------- ---------- --------- ---------
Income from operations ................. 12,009 (465) -- -- 11,544
Other expense (income)
Interest expense .................. 17,257 110 -- -- 17,367
Equity loss in joint venture....... 1,126 -- -- -- 1,126
Other, net ........................ 69 -- -- -- 69
--------- --------- ---------- --------- ---------
Income before income tax ............... (6,443) (575) -- -- (7,018)
Income tax expense ..................... (2,302) 101 -- -- (2,201)
--------- --------- ---------- --------- ---------
Income (loss) before equity in income of
consolidated subsidiaries ............ (4,141) (676) -- -- (4,817)
Equity in income of consolidated
subsidiaries ......................... (676) -- -- 676 --
Cumulative effect of accounting change,
net of tax benefit ................... (199) (199)
--------- --------- ---------- --------- ---------
Net income (loss) ...................... $ (5,016) $ 676 $ -- $ 676 $ (5,016)
========= ========= ========== ========= =========
14
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Six Months Ended June 30, 1998
(Dollars in Thousands)
Non-
guarantor Guarantor Eliminations/
Parent subsidiaries subsidiary adjustments Consolidated
------ ------------ ---------- ----------- ------------
Sales .................................. $ 231,272 $ 9,588 $ -- $ -- $ 240,860
Cost of sales .......................... 205,148 8,064 -- -- 213,212
--------- --------- ---------- --------- ---------
Gross profit ........................... 26,124 1,524 -- -- 27,648
Selling, general and administrative
expenses ............................ 17,641 893 -- -- 18,534
--------- --------- ---------- --------- ---------
Income from operations ................. 8,483 631 -- -- 9,114
Other expense (income)
Interest expense .................. 15,543 133 -- -- 15,676
Other, net ........................ 101 (197) -- -- (96)
--------- --------- ---------- --------- ---------
Income (loss) before income tax ........ (7,161) 695 -- -- (6,466)
Income tax expense (benefit) ........... (2,730) 126 -- -- (2,604)
--------- --------- ---------- --------- ---------
Income (loss) before equity in income of
consolidated subsidiaries ............ (4,431) 569 -- -- (3,862)
Equity in income of consolidated
subsidiaries ......................... 569 -- -- (569) --
--------- --------- ---------- --------- ---------
Net income (loss) ...................... $ (3,862) $ 569 $ -- $ (569) $ (3,862)
========= ========= ========== ========= =========
15
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended June 30, 1999
(Dollars in Thousands)
Non-
guarantor Guarantor
Parent subsidiaries subsidiary Consolidated
------ ------------ ---------- ------------
Net cash provided by (used in) operating activities..... $ 3,057 $ 372 $ -- $ 3,429
-------- -------- -------- --------
Cash flows from investing activities
Other ................................................... 561 -- -- 561
Purchases of property, plant and equipment .............. (7,968) (91) -- (8,059)
-------- -------- -------- --------
Net cash used in investing activities .............. (7,407) (91) -- (7,498)
-------- -------- -------- --------
Cash flows from financing activities
Net borrowings from revolving debt ...................... (17,500) -- -- 17,500
Repayment of long-term debt ............................. (16,998) -- -- (16,998)
-------- --------
Net cash used in financing activities .............. 502 -- -- 502
-------- -------- -------- --------
Effect of foreign currency rate fluctuations on cash .... -- (298) -- (298)
-------- -------- -------- --------
Net increase(decrease) in cash .......................... (3,848) (17) -- (3,865)
Cash at beginning of period ............................. 4,141 333 -- 4,474
-------- -------- -------- --------
Cash at end of period ................................... $ 293 $ 316 $ -- $ 609
======== ======== ======== ========
16
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Six Months Ended June 30, 1998
(Dollars in Thousands)
Non-
guarantor Guarantor
Parent subsidiaries subsidiary Consolidated
------ ------------ ---------- ------------
Net cash provided by (used in) operating activities $ 12,310 $ (801) $ -- $ 11,509
-------
Cash flows from investing activities
Acquisitions, net of cash acquired ................. (850) -- -- (850)
Purchases of property, plant and equipment ......... (11,447) (99) -- (11,546)
-------- -------- ------- --------
Net cash (used) in investing activities ......... (12,297) (99) -- (12,396)
-------
Cash flows from financing activities
Net borrowings from revolving debt ................. 4,000 -- -- 4,000
Repayment of long-term debt ........................ (4,953) -- -- (4,953)
-------- ------- --------
Net cash (used) in financing activities ......... (953) -- -- (953)
-------- -------
Effect of foreign currency rate fluctuations on cash -- (81) -- (81)
-------- -------- ------- --------
Net (decrease) in cash ............................... (940) (981) -- (1,921)
Cash at beginning of period ........................ 1,646 2,142 -- 3,788
-------- -------- ------- --------
Cash at end of period .............................. $ 706 $ 1,161 $ -- $ 1,867
======== ======== ======= ========
17
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 or 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.
Automotive Industry Work Stoppage
If the UAW is unable to achieve a timely contractual agreement with the
automakers later this year, it may engage in a work stoppage. As Ford and
General Motors are the Company's two largest customers, a work stoppage could
have a materially adverse effect on the Company's sales, earnings, and cash
flow. Due to the uncertainty of that occurrence, the customer(s) involved, and
unknown duration, the potential magnitude of the effect of a work stoppage
cannot by reasonably predicted by the Company.
Results of Operations
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------- ------- ------- -------
% of % of % of % of
Sales Sales Sales Sales
------- ------- ------- -------
Sales ...................................... 100.0% 100.0% 100.0% 100.0%
Gross Profit ............................... 13.4% 13.1% 12.3% 11.5%
Selling, general and administrative expenses 7.9% 7.7% 8.0% 7.7%
Income (loss) before income tax ............ (1.0)% (.8)% (2.6)% (2.7)%
Net income (loss) .......................... (.5)% (.5)% (1.9)% (1.6)%
18
Three Months Ended June 30, 1999 vs. Three Months Ended June 30, 1998
Sales
The Company's sales increased by $24.9 million, or 20.1% to $144.6 million in
the three month period ended June 30, 1999, compared to $119.7 million in the
three month period ended June 30, 1998. The increase in sales was primarily the
result of added business on Chrysler mini-van nosecones, takeover business on
the GM H-car, Freightliner business that was in a ramp-up stage during the
comparable period last year, and overall strong volumes in the automotive and
commercial truck industries. The increases were somewhat offset by reduced
volumes in the Company's agricultural and industrial products markets, including
our activities in Brazil.
Gross Profit
Gross profit increased by $3.7 million, or 23.8%, to $19.4 million for the
second quarter of 1999, compared to $15.7 million for the second quarter of
1998. Gross margin as a percent of sales increased from 13.1% in 1998 to 13.4%
in 1999.
The gross profit in the automotive segment increased by $3.2 million, from $9.1
million for the second quarter of 1998, to $12.3 million for the second quarter
of 1999. Increased sales volumes and improved product mix were the principal
reasons for this increase. The gross profit in the commercial truck segment
increased by $1.5 million, from $5.4 million for the second quarter of 1998 to
$6.9 million for the second quarter of 1999. Incremental spending for product
launch costs partially offset favorable volume and mix in the commercial truck
segment. The industrial segment's gross profit decreased by $1.0 million from
$1.2 million for the second quarter of 1998 to $0.2 million for the second
quarter of 1999. The principal reasons for the decrease in gross profit were
reduced demand in the agricultural sector and year-to-date losses incurred at
the Company's Brazilian operation due to the weakness in the Brazilian market.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A"') of $11.5 million
increased to $7.9% of sales for the three months ended June 30, 1999 period,
compared to $9.2 million or 7.7% of sales for the same 1998 period. The increase
in SG&A of $2.3 million was primarily due to the Company's expenditures required
to manage future booked business in such areas as program management, business
expansion efforts, sales and marketing, and information systems.
Net Income
The company recorded a net loss of $0.7 million in the 1999 period, compared to
the net loss of $0.6 million in the 1998 period. This increase in net loss was
the result of the items mentioned above and an increase in interest expense of
$1.0 million to $8.7 million for the 1999 period, compared to $7.7 million for
the 1998 period. The increase in interest expense for the 1999 period was due to
an increase in interest rates and higher debt levels.
Six Months Ended June 30, 1999 vs. Six Months Ended June 30, 1998
Sales
Sales increased $29.8 million or 12.4% to $270.6 million in the six month period
ended June 30, 1999, compared to $240.9 million in the six month period ended
June 30, 1998. The increase was primarily attributable to changes in volumes on
certain programs and changes in product mix as indicated above.
19
Gross Profit
Gross profit increased by $5.6 million or 20.3%, to $33.3 million for 1999,
compared to $27.6 million in 1998. Gross margin, as a percent of sales,
increased from 11.5% in 1998 to 12.3% in 1999.
The automotive segment's gross profit increased by $3.2 million, from $17.3
million for the six months ended June 30, 1998 to $20.5 million for the six
months ended June 30, 1999. Higher volumes and favorable product mix were the
principal reasons for the increase. Gross profit for the commercial truck
segment increased by $4.4 million, from $8.2 million for the six months ended
June 30, 1998 to $12.6 million for the six months ended June 30, 1999. Favorable
volume and product mix were the principal reasons for this increase. Incremental
spending for product launch costs partially offset favorable volume and mix in
the commercial truck segment. The industrial product segment's gross profit
decreased by $2.0 million from $2.1 million for the six months ended June 30,
1998 to $0.1 million for the comparable 1999 period. The principal reasons for
the decrease in profit were reduced demand in the agricultural sector and year-
to-date losses incurred at the Company's Brazilian operation due to the weakness
in the Brazilian market.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") of $21.7 million increased
to 8.0% of sales for the six months ended June 30, 1999, compared to $18.5
million or 7.7% of sales for the same 1998 period. The increase in SG&A of $3.2
million was primarily due to the Company's expenditures required to manage
future booked business in such areas as program management, business expansion
efforts, sales and marketing, and information systems.
Net Income
The Company recorded a net loss of $5.0 million in the 1999 period, compared to
the net loss of $3.9 million in the 1998 period. This increased loss was the
result of the items mentioned above and an increase in interest expense of $1.7
million to $17.4 million for the 1999 period, compared to $15.7 million for the
1998 period. The increase in interest expense for the 1999 period was primarily
attributable to the increase in interest rates, an increase in debt levels,
and amortization of additional deferred financing costs which were incurred in
January 1999 as a result of the Fourth Waiver and Amendment of the Company's
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 $26.2 million in
1999.
The Company's credit agreement (prior to the Fourth Waiver and Amendment
described below) 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 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.
20
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 and June 30,
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 fund working capital requirements and make
required payments of principal and interest on its debt, including payments due
on the Notes and remaining obligations under the Credit Agreement. The Company
may require additional funds to permit anticipated capital expenditures and may
meet such needs by issuing debt or equity securities of the Company. However,
there can be no assurances that such funds will be available on terms and
conditions favorable to the Company.
Cash Flows
Three Months Ended Six Months Ended
June 30, June 30,
Cash flow from: 1999 1998 1999 1998
--------- --------- --------- ----------
Operating activities $ 2,020 $ (2,569) $ 3,429 $ 11,509
Investing activities (2,298) (6,763) (7,498) (12,396)
Financing activities 702 10,101 502 (953)
Foreign currency fluctuations 40 (24) (298) (81)
-------- -------- -------- --------
Net cash flow $ 464 $ 745 $ (3,865) $ (1,921)
======== ======== ======== ========
During the second quarter of 1999, the Company provided cash flow from
operations of $2.0 million. Cash generated from operations before changes in
working capital items was $8.1 million and consisted of non-cash adjustments of
(1) $7.2 million of depreciation and amortization; (2) $.8 million charge to
income for post-retirement benefits; (3) $(0.6) million deferred income tax
benefit; and (4) $0.7 million equity loss in the Company's joint venture
Increases in working capital used cash of $5.4 million. The increases in working
capital were primarily the result of the timing of cash receipts and cash
payments.
21
Net cash flow from operating activities for the second quarter of 1998 was
$(2.6) million. Net loss for the second quarter of 1998 was $.5 million. The
non-cash adjustments of $7.7 million primarily consisted of depreciation and
amortization of $7.0 million, and a non-cash charge to income for postretirement
benefits of $0.7 million. Changes in working capital components used $10.5
million; primarily the result of timing of collections on trade accounts
receivable and payments of accounts payable and accrued interest.
The Company spent approximately $2.6 million on capital items for the
three-month period ended June 30, 1999, in comparison to approximately $6.5
million for the 1998 period. Items purchased in 1999 relate to the GM H-car
program, Ford tri-door, GMT 800 program, other programs and various equipment
upgrades.
At June 30, 1999, the following summarizes the debt outstanding and unused
credit availability (dollars in thousands):
Total Amount Unused
Commitment Outstanding Availability
---------- ----------- ------------
Revolving credit* $ 65,000 $ 41,500 $ 23,500
Term debt 205,000 183,800 0
Senior subordinated notes 100,000 100,000 0
Capital leases & seller notes 4,819 4,819 0
Other 2,684 2,684 0
-------- -------- --------
Total $377,503 $332,803 $ 23,500
======== ======== ========
*As described in the preceeding section on Liquidity and Capital Resources, the
revolving credit facility shall not exceed at any time $65 million, and shall
not exceed $50 million on the last day of each month.
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.
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
22
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. 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 achieved
Y2K compliance during July 1999. They will continue to test the system to verify
its readiness during the balance of the year.
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 September or October 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 has identified and corrected
every Year 2000 problem found in the computer applications used in its
production processes, the Company believes that it has in place a comprehensive
program to identify and correct any such problems, and now considers its
information systems software to be year 2000 compliant.
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
23
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.
24
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: August 12, 1999
----------------
/s/ Donald C. Campion
---------------------------------
Donald C. Campion
Chief Financial Officer
/s/ Donald C. Campion
---------------------------------
Donald C. Campion
Chief Accounting Officer
25