Attached files
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EX-32 - EX-32 - CPM Holdings, Inc. | cpmhex32063012.htm |
EX-31.1 - EX-31.1 - CPM Holdings, Inc. | cpmhex311063012.htm |
EX-31.2 - EX-31.2 - CPM Holdings, Inc. | cpmhex312063012.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2012
Commission file number: 333-172207
CPM Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) | 06-1612494 (I.R.S. Employer Identification No.) | |
2975 Airline Circle, Waterloo, Iowa (Address of principal executive offices) | 50703 (Zip Code) |
(319) 464-8275
(Registrant’s telephone number, 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 such filing requirements for the past 90 days. Yes o No þ
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding at August 14, 2012 | |
Common Stock, $0.001 par value per share | 936,913 shares |
CPM Holdings, Inc.
Form 10-Q
For the Quarterly Period Ended June 30, 2012
TABLE OF CONTENTS
BEGINNING | ||
PAGE | ||
EX-31.1 | ||
EX-31.2 | ||
EX-32 | ||
2
CPM Holdings, Inc.
Form 10-Q
For the Quarterly Period Ended June 30, 2012
PART I. Financial Information
Item 1. Financial Statements.
CPM Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
(dollars in thousands, except per share information) | September 30, 2011 | June 30, 2012 | ||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 81,288 | $ | 72,489 | ||||
Restricted customer deposits | 26,853 | 30,989 | ||||||
Accounts receivable, net | 48,570 | 52,259 | ||||||
Inventories | 54,026 | 75,285 | ||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | 24,585 | 22,674 | ||||||
Prepaid expenses and other current assets | 4,004 | 5,533 | ||||||
Deferred taxes | 1,523 | 1,592 | ||||||
Total current assets | 240,849 | 260,821 | ||||||
Property, plant and equipment, net | 17,547 | 16,606 | ||||||
Trademarks | 54,178 | 53,917 | ||||||
Goodwill | 140,086 | 137,721 | ||||||
Other intangibles, net | 58,882 | 48,720 | ||||||
Total assets | $ | 511,542 | $ | 517,785 | ||||
Liabilities and Equity | ||||||||
Current liabilities | ||||||||
Current portion of long-term debt | $ | — | $ | — | ||||
Accounts payable | 31,869 | 31,443 | ||||||
Accrued expenses | 44,401 | 60,782 | ||||||
Billings in excess of costs and estimated earnings on uncompleted contracts | 59,812 | 51,023 | ||||||
Total current liabilities | 136,082 | 143,248 | ||||||
Long-term debt, less current portion | 172,796 | 159,986 | ||||||
Deferred taxes | 27,233 | 27,876 | ||||||
Other liabilities | 2,616 | 2,303 | ||||||
Total liabilities | 338,727 | 333,413 | ||||||
Commitments and contingencies | ||||||||
Equity | ||||||||
Parent Company stockholders’ equity | ||||||||
Common stock, $.001 par value, authorized shares 1,100,000; shares issued and outstanding 936,913 | 1 | 1 | ||||||
Additional paid-in capital | 83,105 | 83,382 | ||||||
Retained earnings | 84,456 | 102,942 | ||||||
Accumulated other comprehensive loss | (7,003 | ) | (11,416 | ) | ||||
Total Parent Company stockholders’ equity | 160,559 | 174,909 | ||||||
Noncontrolling interest | 12,256 | 9,463 | ||||||
Total equity | 172,815 | 184,372 | ||||||
Total liabilities and equity | $ | 511,542 | $ | 517,785 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
CPM Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three months ended | Nine months ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
(dollars in thousands) | 2011 | 2012 | 2011 | 2012 | |||||||||||
Net sales | $ | 129,130 | $ | 99,123 | $ | 305,554 | $ | 336,522 | |||||||
Cost of goods sold | 90,055 | 66,500 | 217,205 | 234,898 | |||||||||||
Gross profit | 39,075 | 32,623 | 88,349 | 101,624 | |||||||||||
Operating expenses | |||||||||||||||
Selling, general and administrative expenses | 16,224 | 14,350 | 39,539 | 41,852 | |||||||||||
Amortization expense | 2,668 | 2,625 | 7,977 | 8,068 | |||||||||||
Management fees | 500 | 500 | 1,625 | 2,237 | |||||||||||
Total operating expenses | 19,392 | 17,475 | 49,141 | 52,157 | |||||||||||
Income from operations | 19,683 | 15,148 | 39,208 | 49,467 | |||||||||||
Other expense (income) | |||||||||||||||
Interest expense | 6,174 | 5,095 | 18,176 | 16,749 | |||||||||||
Interest income | (418 | ) | (593 | ) | (1,585 | ) | (1,912 | ) | |||||||
Total other expense | 5,756 | 4,502 | 16,591 | 14,837 | |||||||||||
Income before income taxes | 13,927 | 10,646 | 22,617 | 34,630 | |||||||||||
Income tax expense | 4,690 | 3,259 | 7,839 | 13,972 | |||||||||||
Net income | 9,237 | 7,387 | 14,778 | 20,658 | |||||||||||
Less: Net income attributable to noncontrolling interest | 2,425 | 43 | 4,834 | 2,172 | |||||||||||
Net income attributable to Parent Company | $ | 6,812 | $ | 7,344 | $ | 9,944 | $ | 18,486 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
CPM Holdings, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity and Comprehensive Income (Loss)
(Unaudited)
Parent Company Stockholders’ Equity | ||||||||||||||||||||||||||||||
Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Parent Company Stockholders' Equity | Noncontrolling Interest in Subsidiary | |||||||||||||||||||||||||||
Common Stock | Retained Earnings | Total Equity | ||||||||||||||||||||||||||||
(dollars in thousands) | Shares | Amount | ||||||||||||||||||||||||||||
Balances at September 30, 2010 | 936,913 | $ | 1 | $ | 82,478 | $ | 67,965 | $ | (5,958 | ) | $ | 144,486 | $ | 4,893 | $ | 149,379 | ||||||||||||||
Stock-based compensation | — | — | 627 | — | — | 627 | — | 627 | ||||||||||||||||||||||
Comprehensive income (loss), net of tax | ||||||||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | (1,045 | ) | (1,045 | ) | 377 | (668 | ) | |||||||||||||||||||
Net income | — | — | — | 16,491 | — | 16,491 | 6,986 | 23,477 | ||||||||||||||||||||||
Total comprehensive income | 15,446 | 7,363 | 22,809 | |||||||||||||||||||||||||||
Balances at September 30, 2011 | 936,913 | 1 | 83,105 | 84,456 | (7,003 | ) | 160,559 | 12,256 | 172,815 | |||||||||||||||||||||
Stock-based compensation | — | — | 277 | — | — | 277 | — | 277 | ||||||||||||||||||||||
Dividends | — | — | — | — | — | — | (5,015 | ) | (5,015 | ) | ||||||||||||||||||||
Comprehensive income, net of tax | ||||||||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | (4,413 | ) | (4,413 | ) | 50 | (4,363 | ) | |||||||||||||||||||
Net income | — | — | — | 18,486 | — | 18,486 | 2,172 | 20,658 | ||||||||||||||||||||||
Total comprehensive income | 14,073 | 2,222 | 16,295 | |||||||||||||||||||||||||||
Balances at June 30, 2012 | 936,913 | $ | 1 | $ | 83,382 | $ | 102,942 | $ | (11,416 | ) | $ | 174,909 | $ | 9,463 | $ | 184,372 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
5
CPM Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended | |||||||
June 30, | |||||||
(dollars in thousands) | 2011 | 2012 | |||||
Net cash provided by operating activities | $ | 48,540 | $ | 12,692 | |||
Cash flows from investing activities | |||||||
Purchases of property, plant and equipment | (1,917 | ) | (2,054 | ) | |||
Proceeds on sales of property, plant and equipment | 428 | 129 | |||||
Net cash used in investing activities | (1,489 | ) | (1,925 | ) | |||
Cash flows from financing activities | |||||||
Payments of long-term debt | — | (14,262 | ) | ||||
Proceeds from revolving credit facilities | — | 82,238 | |||||
Payments on revolving credit facilities | — | (82,238 | ) | ||||
Payments of dividends | — | (5,015 | ) | ||||
Net cash used in financing activities | — | (19,277 | ) | ||||
Effect of foreign exchange rate changes on cash and cash equivalents | 3,301 | (289 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 50,352 | (8,799 | ) | ||||
Cash and cash equivalents | |||||||
Beginning of period | 58,691 | 81,288 | |||||
End of period | $ | 109,043 | $ | 72,489 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
6
CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands, except per share information)
1. | Basis of Presentation |
The interim consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair presentation of the Company’s consolidated financial position, results of operations and cash flows for the periods presented pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These adjustments consist of normal, recurring items. The results of operations for any interim period are not necessarily indicative of results for the full year. The interim consolidated financial statements and notes are presented as permitted by the requirements for Quarterly Reports on Form 10-Q.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, pursuant to such rules and regulations. These interim consolidated financial statements should be read in conjunction with the Company’s annual consolidated financial statements and related notes for the fiscal year ended September 30, 2011 included on Form 10-K, filed with the SEC.
During the quarter ended June 30, 2012, the Company identified certain errors related to the elimination of intercompany sales that resulted in consolidated net sales and cost of goods sold being overstated. The cumulative impact of the correction was recorded as a reduction in net sales and cost of sales of $8.0 million during the three month and nine month periods ending June 30, 2012, of which $7.3 million was in the Engineered Process System reporting segment. These corrections had no impact on gross profit or net income, and there is no impact on the consolidated balance sheets, equity statements or cash flow statements for any of the prior periods. The Company has evaluated the impact on prior periods under the guidance in ASC 250-10 (SEC Staff Accounting Bulletin No. 99 “Materiality”) and concluded these matters are not material to any of the prior periods.
2. | Description of Business |
CPM Holdings, Inc. (the “Company” or “CPM” or “Parent”), is engaged in the design, production and marketing of process systems, equipment and parts and services utilized primarily in the agricultural and food producing/processing industries. The Company’s businesses fall into three reporting segments: Process Equipment, Engineered Process Systems and All Other.
The Process Equipment segment manufactures and sells process machinery and other equipment utilized primarily in the agricultural and food producing/processing industries. Products include the manufacture of mills, flakers, and dryers.
The Engineered Process Systems segment sells engineering, design and layout services along with outsourced process equipment for oilseed processing, biodiesel and edible oil refining industries.
The All Other segment designs, manufactures and sells process machinery for the plastics compounding, two-piece beverage container and other industries.
Operations are worldwide and include production and sales facilities in the United States, the Netherlands, United Kingdom, Germany, Singapore, China, Brazil and Argentina.
3. | Significant Accounting Policies |
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and its controlled, majority owned subsidiaries. The Company classifies noncontrolling interest as part of consolidated net income (loss) and includes the accumulated amount of noncontrolling interest as part of equity. Noncontrolling interest primarily relates to the minority shareholder of Wuhan Crown Friendship Edible Oil Engineering Co., Ltd., the Company's joint venture in China. Significant intercompany accounts and transactions have been eliminated in consolidation.
7
CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands, except per share information)
Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents, restricted customer deposits, accounts receivable, prepaid expenses and other current assets, accounts payable and long-term debt. The carrying values approximated fair value for cash and cash equivalents, restricted customer deposits, accounts receivable, prepaid expenses and other current assets, accounts payable and the revolving credit facility loan because of the short term nature of these instruments. The fair value of the senior notes, as determined by management based on the quoted market price for the same or similar issues of debt (classified as level 2) is approximately $186,000 and $171,000 at September 30, 2011 and June 30, 2012, respectively.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board (the "FASB") issued ASU 2011-05, Presentation of Comprehensive Income. This standard eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. An entity can elect to present items of net income and other comprehensive income in one continuous statement - referred to as the statement of comprehensive income - or in two separate, but consecutive, statements. Each component of net income and each component of other comprehensive income, together with totals for comprehensive income and its two parts - net income and other comprehensive income, would need to be displayed under either alternative. The new requirements are effective for public entities for fiscal years beginning after December 15, 2011 and interim and annual periods thereafter. The Company believes this pronouncement will not have a material impact on its financial position or results of operations and is currently evaluating the impact on the form and content of the Company's financial statements and related disclosures.
In September 2011, the FASB issued FASB ASU No. 2011-08, “Testing Goodwill for Impairment,” which is now codified under FASB ASC Topic 350, “Intangibles - Goodwill and Other.” This new guidance allows an entity to first assess qualitative factors to evaluate if the existence of events or circumstances leads to a determination that it is necessary to perform the current two-step test. After assessing the totality of events or circumstances, if it is determined it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. Otherwise, the entity is required to perform Step 1 of the impairment test. An entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to Step 1 of the two-step impairment test, and then resume performing the qualitative assessment in any subsequent period. Reporting units with zero or negative carrying amounts continue to be required to perform a qualitative assessment in place of Step 1 of the impairment test. FASB ASU No. 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The Company has not elected early adoption and is currently evaluating the impact of this pronouncement on the Company's financial statements and related disclosures. The Company does not expect this pronouncement to have a material impact on the financial statements and related disclosures.
4. | Selected Consolidated Financial Statement Information |
Inventories
September 30, 2011 | June 30, 2012 | ||||||
Raw materials | $ | 13,869 | $ | 16,542 | |||
Work-in-process | 7,412 | 17,450 | |||||
Finished goods | 32,745 | 41,293 | |||||
$ | 54,026 | $ | 75,285 |
8
CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands, except per share information)
Accrued Warranties
Twelve months ended September 30, 2011 | Nine months ended June 30, 2012 | ||||||
Accrued warranties | |||||||
Beginning of period | $ | 2,089 | $ | 1,706 | |||
Warranty liability assumed in acquisition | 345 | — | |||||
Settlements made | (1,160 | ) | (973 | ) | |||
Change in liability related to product warranties issued | 432 | 1,975 | |||||
End of period | $ | 1,706 | $ | 2,708 |
Accrued warranties are included as a component of accrued expenses on the accompanying balance sheets.
Contracts in Progress
September 30, 2011 | June 30, 2012 | ||||||
Costs incurred on uncompleted contracts | $ | 365,906 | $ | 475,337 | |||
Estimated earnings on uncompleted contracts | 85,011 | 117,795 | |||||
Less: Billings on contracts in progress | (486,144 | ) | (621,481 | ) | |||
$ | (35,227 | ) | $ | (28,349 | ) |
These amounts are included in the consolidated financial statements as follows:
September 30, 2011 | June 30, 2012 | ||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | $ | 24,585 | $ | 22,674 | |||
Billings in excess of costs and estimated earnings on uncompleted contracts | (59,812 | ) | (51,023 | ) | |||
$ | (35,227 | ) | $ | (28,349 | ) |
5. | Acquisitions |
2011 Acquisition
On September 13, 2011, the Company purchased Kimba Germany GMBH, Cimbria SKET GMBH and a 51% holding in MDV Magdeburg-Dessauer GMBH (altogether referred to as "Sket") for $23,252. Direct acquisition costs totaling $443 in fiscal 2011 and $41 in fiscal 2012 were expensed as incurred. Sket provides engineered solutions and process equipment in preparation, refining and oleochemical processing and compliments the Company's existing businesses by broadening product portfolios, engineering capabilities, application expertise, and worldwide market coverage. The acquisition was funded through available cash. The pro forma impact of the Sket acquisition was not significant to the results of the Company for the fiscal year ended September 30, 2011. The Sket results have been included in the Company’s results of operations since the date of acquisition. The estimated fair value of assets acquired and liabilities assumed are as follows:
9
CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands, except per share information)
Cash | $ | 2,952 | ||
Accounts receivable | 7,935 | |||
Costs in excess of billings | 3,641 | |||
Property, plant and equipment | 243 | |||
Goodwill | 14,532 | |||
Other intangibles | 5,794 | |||
Accounts payable | (5,728 | ) | ||
Accrued expenses | (2,774 | ) | ||
Billings in excess of costs | (1,449 | ) | ||
Deferred taxes | (1,894 | ) | ||
$ | 23,252 |
The goodwill is not deductible for tax purposes. We believe this acquisition resulted in goodwill as it broadens product portfolios, engineering capabilities, application expertise, and worldwide market coverage. The identifiable other intangibles for Sket include trade names, customer relationships, customer contracts, and software and are amortized over a period of one to ten years with a weighted average useful life of seven years.
6. | Debt |
The Company’s debt at September 30, 2011 and June 30, 2012, consists of the following:
September 30, 2011 | June 30, 2012 | ||||||
Senior Notes, net of unamortized discount | $ | 172,796 | $ | 159,986 | |||
Revolving credit facility loan | — | — | |||||
172,796 | 159,986 | ||||||
Less: Amounts due within one year | — | — | |||||
$ | 172,796 | $ | 159,986 |
In August 2009, the Company issued $200,000 of Senior Notes due September 1, 2014 at 98.101% of par (the “Senior Notes”), resulting in an original issue discount of $3,798. The original issue discount, net of accumulated amortization was $2,139 and $1,524 at September 30, 2011 and June 30, 2012, respectively. The original issue discount is being amortized using the effective interest method over the term of the debt. The Senior Notes bear interest at 10.625% per year and provide for semi-annual interest payments, in arrears, due on March 1 and September 1. All principal will be paid at maturity. The net proceeds from the offering were used to retire the remaining outstanding borrowings on the previous term loan and revolving credit facility, which provided for a term loan of $210,000 and a revolving credit facility up to $30,000.
The Senior Notes are subject to certain covenants and restrictions, such as restrictions on the payment of dividends, incurrence of certain additional indebtedness, issuance of preferred stock or entering into certain merger transactions, as defined by the Senior Notes Offering Memorandum. The Senior Notes are collateralized by a second priority interest in the Company’s U.S. current assets and a first priority interest in substantially all of the Company’s U.S. other assets. The Senior Notes are also guaranteed by the Company’s U.S. subsidiaries.
The Senior Notes contain an optional redemption feature whereby the Company can redeem all or a portion of the Senior Notes, including applicable premiums for early redemptions as defined in the agreement. In addition, the Senior Notes have a change of control provision which gives each holder the right to require the Company to purchase all or a portion of such holders’ Senior Notes upon a change in control, as defined in the agreement, at a purchase price equal to 101% of the principal amount plus accrued interest to the date of purchase.
During 2011, the Company repurchased Senior Notes having a face value of $25,065 in the open market. As a result of the repurchases, the Company recorded a loss of $2,012 which represents the difference between the acquired debt's purchase price of $26,765 and its carrying value of $24,753. This loss is included in interest expense in the
10
CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands, except per share information)
consolidated statements of operations. At the time of the repurchases, the Company also wrote off $836 of unamortized deferred financing costs related to the repurchased debt.
During the nine months ended June 30, 2012, the Company repurchased Senior Notes having a face value of $13,425 in the open market. As a result of the repurchases, the Company recorded a loss of $1,000 which represents the difference between the acquired debt's purchase price of $14,262 and its carrying value of $13,262. This loss is included in interest expense in the consolidated statements of operations. At the time of the repurchases, the Company also wrote off $441 of unamortized deferred financing costs related to the repurchased debt.
In November 2009, the Company entered into a Credit Agreement (the “Credit Agreement”) with certain financial institutions which provides for a revolving credit facility consisting of a revolving credit loan and letters of credit in an aggregate amount of up to $14,500, including swing line loans in the principal amount of $5,000. The swing line loans are sub-facilities of the revolving credit facility used for daily fluctuations on borrowings. There were no loans outstanding under the revolving credit facility as of September 30, 2011 and June 30, 2012, respectively. The availability under the facility is subject to a borrowing base, which is based on the eligible receivables, inventory and certain other commitments of the Company’s U.S. subsidiaries. The credit available for borrowing was limited by the borrowing base to $14,500 and $6,253 on September 30, 2011 or June 30, 2012. The Credit Agreement expires on April 20, 2013.
At the Company’s option, borrowings under the revolving credit facility are either Base Rate loans, bearing interest at a rate equal to the greater of (a) the lender’s prime rate (3.25% at June 30, 2012), (b) the LIBOR rate (0.24% at June 30, 2012) plus 1.00% or (c) the federal funds rate (0.09% at June 30, 2012) plus 0.50%; or Eurodollar loans, bearing interest at the adjusted LIBOR rate (0.3% at June 30, 2012). Interest on the Base Rate loans is payable on the last day of each calendar month. Interest on the Eurodollar loans is payable on the last day of each interest period relating to such loan, but not to exceed six months. An applicable margin is added for the Base Rate loans and Eurodollar loans ranging from 2.75% and 4.25%, based on the Company’s fixed charge coverage ratio at the end of a given period, as further defined in the Credit Agreement.
Commitment fees on the revolving credit facility range from 0.625% to 0.75% per year payable quarterly in amounts. Commitment fees on the letters of credit vary, as further defined in the Credit Agreement, and range from 3.75% to 4.25% (or 2.00% if cash collateralized) payable quarterly. Total commitment fees under the revolving credit facility were $41 and $10 for the three month periods ending June 30, 2011, and 2012, respectively, and $100 and $40 for the nine month periods ending June 30, 2011 and 2012, respectively. Outstanding letters of credit were $4,183 and $8,247 at September 30, 2011 and June 30, 2012, respectively. In conjunction with entering into the Credit Agreement in fiscal 2010, the Company paid $914 in costs capitalized as deferred financing fees, consisting of legal, accounting and deal fees directly related to consummation of the Credit Agreement.
Borrowings under the revolving credit facility are subject to certain restrictive financial covenants, including a fixed charge coverage ratio. The Credit Agreement also includes a subjective acceleration clause which permits the financial institution to accelerate the due date of the facility under certain circumstances, including, but not limited to, material adverse effect on the Company’s financial status or otherwise. Borrowings under the Credit Agreement are collateralized by a first priority security interest in substantially all U.S. current assets of the Company and are guaranteed by the Company’s U.S. subsidiaries. The Credit Agreement also requires the Company to maintain all of its U.S. lockbox accounts, disbursement accounts and other operating accounts with the lenders.
7. | Income Taxes |
The Company recognizes the financial statement effect of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. We have adequately provided for liabilities resulting from tax assessments by taxing authorities, positions taken by these tax authorities could have a material impact on the Company's effective tax rate in future periods. The Company does not expect a significant change in the liability for unrecognized tax benefits in the next 12 months.
The Company files tax returns as prescribed by tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state and foreign jurisdictions. The Company is potentially subject to income tax examinations for the fiscal years 2008 through 2011.
11
CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands, except per share information)
8. | Commitments and Contingencies |
Environmental Health and Safety Matters
We are subject to a variety of environmental standards imposed by federal, state, local and foreign environmental laws and regulations, including those governing the discharge of pollutants into the air, water and land, the management and disposal of hazardous substances and wastes and the responsibility to investigate and cleanup contaminated sites that are or were owned, leased, operated or used by us or our predecessors. In the opinion of management, the ultimate disposition of matters arising from these environmental standards will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.
Litigation
The Company is involved in various legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters, individually and in aggregate, will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.
9. | Segment Data |
The Company identified three reportable segments: Process Equipment, Engineered Process Systems and All Other. Segment selection was based on the internal organizational structure, management of operations and performance evaluation by the chief operating decision maker.
Corporate and Unallocated includes corporate expenses determined to be nonallocable to the segments, interest income, interest expense and income taxes. Assets included in Corporate and Unallocated principally are cash and cash equivalents, certain prepaid expenses and other current assets, and deferred taxes. Segment allocated assets are primarily accounts receivable, inventories, property, plant and equipment, goodwill and intangible assets, and certain other assets. Reconciling items included in Corporate and Unallocated are created based on accounting differences between segment reporting and the consolidated, external reporting as well as internal allocation methodologies.
Segment detail is summarized as follows:
12
CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands, except per share information)
Process Equipment Segment | Engineered Process Systems Segment | All Other | Corporate and Unallocated | Total Company | |||||||||||
Three months ended June 30, 2011 | |||||||||||||||
Net sales | 50,323 | 68,240 | 10,567 | — | 129,130 | ||||||||||
Income (loss) before income taxes | 9,511 | 10,415 | 871 | (6,870 | ) | 13,927 | |||||||||
Depreciation and amortization | 699 | 1,941 | 831 | 896 | 4,367 | ||||||||||
Capital expenditures | 1,052 | 36 | 19 | — | 1,107 | ||||||||||
Nine months ended June 30, 2011 | |||||||||||||||
Net sales | 120,689 | 153,795 | 31,070 | — | 305,554 | ||||||||||
Income (loss) before income taxes | 20,296 | 19,920 | 2,724 | (20,323 | ) | 22,617 | |||||||||
Depreciation and amortization | 2,231 | 5,831 | 2,455 | 2,611 | 13,128 | ||||||||||
Capital expenditures | 1,351 | 99 | 153 | 314 | 1,917 | ||||||||||
Three months ended June 30, 2012 | |||||||||||||||
Net sales | 43,723 | 39,969 | 15,431 | — | 99,123 | ||||||||||
Income (loss) before income taxes | 9,105 | 4,533 | 3,134 | (6,126 | ) | 10,646 | |||||||||
Depreciation and amortization | 620 | 2,376 | 360 | 1,180 | 4,536 | ||||||||||
Capital expenditures | 524 | 116 | 274 | — | 914 | ||||||||||
Nine months ended June 30, 2012 | |||||||||||||||
Net sales | 123,600 | 170,910 | 42,012 | — | 336,522 | ||||||||||
Income (loss) before income taxes | 24,881 | 22,280 | 6,915 | (19,446 | ) | 34,630 | |||||||||
Depreciation and amortization | 1,860 | 7,324 | 1,068 | 2,505 | 12,757 | ||||||||||
Capital expenditures | 1,254 | 321 | 468 | 11 | 2,054 | ||||||||||
Total assets at June 30, 2012 | 225,785 | 231,058 | 32,040 | 28,902 | 517,785 |
10. | Related Party Transactions |
The Company has a management advisory agreement with GGEP Management, L.L.C. and GGEP Management Ltd. (“Gilbert”) which are related parties. The agreement requires an annual management fee of up to $2,500 per year for management services provided, plus certain fees and expenses. Expense under the management agreement was $500 for the three month periods ended June 30, 2011 and 2012, respectively and $1,625 and $2,237 for the nine month periods ended June 30, 2011 and 2012 respectively. The Company had $500 of management fees included in current liabilities at September 30, 2011 and June 30, 2012, respectively.
13
CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands, except per share information)
11. | Guarantor Subsidiary Financial Information |
The Senior Notes issued in August 2009 (Note 6) have been guaranteed, fully and unconditionally, except for customary release provisions, on a joint and several basis, by its 100% owned U.S. domestic subsidiaries. The following condensed consolidating balance sheets at September 30, 2011 and June 30, 2012, the condensed consolidating statements of operations for the three and nine month periods ended June 30, 2011 and 2012, and the condensed consolidating statements of cash flows for the nine month periods ended June 30, 2011 and 2012 have been prepared in accordance with the requirements for presentation of Rule 3-10(f) of Regulation S-X promulgated under the Securities Act. These condensed consolidating statements reflect CPM Holdings, Inc. as the issuer of the Senior Notes, the Company’s wholly owned U.S. domestic subsidiaries as the guarantors presented on a combined basis, the Company’s non-guarantor subsidiaries presented on a combined basis, and consolidating and eliminating adjustments, to combine such entities on a consolidated basis.
During the quarter ended June 30, 2012, the Company made immaterial corrections to prior period condensed consolidating balance sheets and condensed consolidating statements of cash flows to conform with current period presentation. In the September 30, 2011 condensed consolidating balance sheets, the corrections consisted of a change in the presentation of long-term deferred taxes and income taxes receivable of the Parent Issuer. In the condensed consolidating statements of cash flows for the nine months ended June 30, 2011, the Company corrected the classification of cash dividends received by the Guarantor Subsidiaries from the Non-Guarantor subsidiaries to present them as cash flows from operating activities of the Guarantor Subsidiaries. These amounts were previously classified as cash flows from financing activities of the Guarantor Subsidiaries. These corrections had no impact on the Company's consolidated financial statements. The Company has concluded that these matters are immaterial to the guarantor subsidiary financial statement information presented in current and prior periods.
14
CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands, except per share information)
Condensed Consolidating Balance Sheet
September 30, 2011
(dollars in thousands) | Parent Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Assets | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 564 | $ | 80,724 | $ | — | $ | 81,288 | ||||||||||
Restricted customer deposits | — | 4,183 | 22,670 | — | 26,853 | |||||||||||||||
Accounts receivable, net | 2,260 | 58,707 | 36,184 | (48,581 | ) | 48,570 | ||||||||||||||
Inventories | — | 25,635 | 28,391 | — | 54,026 | |||||||||||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | — | 4,717 | 19,868 | — | 24,585 | |||||||||||||||
Prepaid expenses and other current assets | 2,202 | 1,296 | 2,708 | (2,202 | ) | 4,004 | ||||||||||||||
Deferred taxes | — | 1,350 | 173 | — | 1,523 | |||||||||||||||
Total current assets | 4,462 | 96,452 | 190,718 | (50,783 | ) | 240,849 | ||||||||||||||
Property, plant and equipment, net | — | 11,825 | 5,722 | — | 17,547 | |||||||||||||||
Investment in subsidiaries | 323,506 | 65,968 | — | (389,474 | ) | — | ||||||||||||||
Deferred taxes | 1,187 | — | — | (1,187 | ) | — | ||||||||||||||
Trademarks | — | 53,778 | 400 | — | 54,178 | |||||||||||||||
Goodwill | — | 116,693 | 23,393 | — | 140,086 | |||||||||||||||
Other intangibles, net | 5,748 | 45,485 | 7,649 | — | 58,882 | |||||||||||||||
Total assets | $ | 334,903 | $ | 390,201 | $ | 227,882 | $ | (441,444 | ) | $ | 511,542 | |||||||||
Liabilities and Equity | ||||||||||||||||||||
Current liabilities | ||||||||||||||||||||
Accounts payable | $ | — | $ | 16,540 | $ | 63,910 | $ | (48,581 | ) | $ | 31,869 | |||||||||
Accrued expenses | 1,548 | 20,055 | 25,000 | (2,202 | ) | 44,401 | ||||||||||||||
Billings in excess of costs and estimated earnings on uncompleted contracts | — | 12,264 | 47,548 | — | 59,812 | |||||||||||||||
Total current liabilities | 1,548 | 48,859 | 136,458 | (50,783 | ) | 136,082 | ||||||||||||||
Long-term debt | 172,796 | — | — | — | 172,796 | |||||||||||||||
Deferred taxes | — | 15,220 | 13,200 | (1,187 | ) | 27,233 | ||||||||||||||
Other liabilities | — | 2,616 | — | — | 2,616 | |||||||||||||||
Total liabilities | 174,344 | 66,695 | 149,658 | (51,970 | ) | 338,727 | ||||||||||||||
Commitments and contingencies | ||||||||||||||||||||
Equity | ||||||||||||||||||||
Total Parent Company stockholders’ equity | 160,559 | 323,506 | 65,968 | (389,474 | ) | 160,559 | ||||||||||||||
Noncontrolling interest | — | — | 12,256 | — | 12,256 | |||||||||||||||
Total equity | 160,559 | 323,506 | 78,224 | (389,474 | ) | 172,815 | ||||||||||||||
Total liabilities and equity | $ | 334,903 | $ | 390,201 | $ | 227,882 | $ | (441,444 | ) | $ | 511,542 |
15
CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands, except per share information)
Condensed Consolidating Statement of Operations
Three Months Ended June 30, 2011
(dollars in thousands) | Parent Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Net sales | $ | — | $ | 51,493 | $ | 84,171 | $ | (6,534 | ) | $ | 129,130 | |||||||||
Cost of goods sold | — | 36,429 | 60,160 | (6,534 | ) | 90,055 | ||||||||||||||
Gross profit | — | 15,064 | 24,011 | — | 39,075 | |||||||||||||||
Operating expenses | 77 | 7,174 | 12,141 | — | 19,392 | |||||||||||||||
Income (loss) from operations | (77 | ) | 7,890 | 11,870 | — | 19,683 | ||||||||||||||
Interest expense (income), net | 6,071 | 94 | (409 | ) | — | 5,756 | ||||||||||||||
Income (loss) before income taxes | (6,148 | ) | 7,796 | 12,279 | — | 13,927 | ||||||||||||||
Income tax expense (benefit) | (2,237 | ) | 2,724 | 4,203 | — | 4,690 | ||||||||||||||
Income (loss) before equity in income (loss) of subsidiaries | (3,911 | ) | 5,072 | 8,076 | — | 9,237 | ||||||||||||||
Equity in income (loss) of subsidiaries | 10,723 | 5,651 | — | (16,374 | ) | — | ||||||||||||||
Net income (loss) | 6,812 | 10,723 | 8,076 | (16,374 | ) | 9,237 | ||||||||||||||
Less: Net income attributable to noncontrolling interest | — | — | 2,425 | — | 2,425 | |||||||||||||||
Net income (loss) attributable to Parent Company | $ | 6,812 | $ | 10,723 | $ | 5,651 | $ | (16,374 | ) | $ | 6,812 |
Condensed Consolidating Statement of Operations
Nine Months Ended June 30, 2011
(dollars in thousands) | Parent Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Net sales | $ | — | $ | 125,606 | $ | 199,066 | $ | (19,118 | ) | $ | 305,554 | |||||||||
Cost of goods sold | — | 90,333 | 145,990 | (19,118 | ) | 217,205 | ||||||||||||||
Gross profit | — | 35,273 | 53,076 | — | 88,349 | |||||||||||||||
Operating expenses | 232 | 22,457 | 26,452 | — | 49,141 | |||||||||||||||
Income (loss) from operations | (232 | ) | 12,816 | 26,624 | — | 39,208 | ||||||||||||||
Interest expense (income), net | 18,286 | (151 | ) | (1,544 | ) | — | 16,591 | |||||||||||||
Income (loss) before income taxes | (18,518 | ) | 12,967 | 28,168 | — | 22,617 | ||||||||||||||
Income tax expense (benefit) | (6,536 | ) | 4,658 | 9,717 | — | 7,839 | ||||||||||||||
Income (loss) before equity in income (loss) of subsidiaries | (11,982 | ) | 8,309 | 18,451 | — | 14,778 | ||||||||||||||
Equity in income (loss) of subsidiaries | 21,926 | 13,617 | — | (35,543 | ) | — | ||||||||||||||
Net income (loss) | 9,944 | 21,926 | 18,451 | (35,543 | ) | 14,778 | ||||||||||||||
Less: Net income attributable to noncontrolling interest | — | — | 4,834 | — | 4,834 | |||||||||||||||
Net income (loss) attributable to Parent Company | $ | 9,944 | $ | 21,926 | $ | 13,617 | $ | (35,543 | ) | $ | 9,944 |
16
CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands, except per share information)
Condensed Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2011
(dollars in thousands) | Parent Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Net cash provided by (used in) operating activities | $ | (18,519 | ) | $ | 42,332 | $ | 33,824 | $ | (9,097 | ) | $ | 48,540 | ||||||||
Cash flows from investing activities | ||||||||||||||||||||
Purchases of property, plant and equipment | — | (1,280 | ) | (637 | ) | — | (1,917 | ) | ||||||||||||
Proceeds on sales of property, plant, and equipment | — | 349 | 79 | — | 428 | |||||||||||||||
Net cash used in investing activities | — | (931 | ) | (558 | ) | — | (1,489 | ) | ||||||||||||
Cash flows from financing activities | ||||||||||||||||||||
Proceeds from (payments of) dividends | — | — | (9,097 | ) | 9,097 | — | ||||||||||||||
Advances from (to) consolidated subsidiaries | 18,519 | (22,845 | ) | 4,326 | — | — | ||||||||||||||
Net cash provided by (used in) financing activities | 18,519 | (22,845 | ) | (4,771 | ) | 9,097 | — | |||||||||||||
Effect of foreign exchange rate changes on cash and cash equivalents | — | — | 3,301 | — | 3,301 | |||||||||||||||
Net increase in cash and cash equivalents | — | 18,556 | 31,796 | — | 50,352 | |||||||||||||||
Cash and cash equivalents | ||||||||||||||||||||
Beginning of period | — | 2,930 | 55,761 | — | 58,691 | |||||||||||||||
End of period | $ | — | $ | 21,486 | $ | 87,557 | $ | — | $ | 109,043 |
17
CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands, except per share information)
Condensed Consolidating Balance Sheet
June 30, 2012
(dollars in thousands) | Parent Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Assets | ||||||||||||||||||||
Current assets | ||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 21,236 | $ | 51,253 | $ | — | $ | 72,489 | ||||||||||
Restricted customer deposits | — | 438 | 30,551 | — | 30,989 | |||||||||||||||
Accounts receivable, net | 2,260 | 60,515 | 55,717 | (66,233 | ) | 52,259 | ||||||||||||||
Inventories | — | 40,587 | 34,698 | — | 75,285 | |||||||||||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | — | 4,730 | 17,944 | — | 22,674 | |||||||||||||||
Prepaid expenses and other current assets | 8,165 | 984 | 4,549 | (8,165 | ) | 5,533 | ||||||||||||||
Deferred taxes | — | 1,419 | 173 | — | 1,592 | |||||||||||||||
Total current assets | 10,425 | 129,909 | 194,885 | (74,398 | ) | 260,821 | ||||||||||||||
Property, plant and equipment, net | — | 11,170 | 5,436 | — | 16,606 | |||||||||||||||
Investment in subsidiaries | 325,321 | 68,264 | — | (393,585 | ) | — | ||||||||||||||
Deferred taxes | 1,187 | — | — | (1,187 | ) | — | ||||||||||||||
Trademarks | — | 53,514 | 403 | — | 53,917 | |||||||||||||||
Goodwill | — | 115,030 | 22,691 | — | 137,721 | |||||||||||||||
Other intangibles, net | 3,924 | 39,049 | 5,747 | — | 48,720 | |||||||||||||||
Total assets | $ | 340,857 | $ | 416,936 | $ | 229,162 | $ | (469,170 | ) | $ | 517,785 | |||||||||
Liabilities and Equity | ||||||||||||||||||||
Current liabilities | ||||||||||||||||||||
Current portion of long-term debt | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Accounts payable | — | 34,025 | 63,651 | (66,233 | ) | 31,443 | ||||||||||||||
Accrued expenses | 5,962 | 27,992 | 34,993 | (8,165 | ) | 60,782 | ||||||||||||||
Billings in excess of costs and estimated earnings on uncompleted contracts | — | 11,350 | 39,673 | — | 51,023 | |||||||||||||||
Total current liabilities | 5,962 | 73,367 | 138,317 | (74,398 | ) | 143,248 | ||||||||||||||
Long-term debt, net of current portion | 159,986 | — | — | — | 159,986 | |||||||||||||||
Deferred taxes | — | 15,945 | 13,118 | (1,187 | ) | 27,876 | ||||||||||||||
Other liabilities | — | 2,303 | — | — | 2,303 | |||||||||||||||
Total liabilities | 165,948 | 91,615 | 151,435 | (75,585 | ) | 333,413 | ||||||||||||||
Commitments and contingencies | ||||||||||||||||||||
Equity | ||||||||||||||||||||
Total Parent Company stockholders’ equity | 174,909 | 325,321 | 68,264 | (393,585 | ) | 174,909 | ||||||||||||||
Noncontrolling interest | — | — | 9,463 | — | 9,463 | |||||||||||||||
Total equity | 174,909 | 325,321 | 77,727 | (393,585 | ) | 184,372 | ||||||||||||||
Total liabilities and equity | $ | 340,857 | $ | 416,936 | $ | 229,162 | $ | (469,170 | ) | $ | 517,785 |
18
CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands, except per share information)
Condensed Consolidating Statement of Operations
Three Months Ended June 30, 2012
(dollars in thousands) | Parent Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Net sales | $ | — | $ | 50,178 | $ | 67,949 | $ | (19,004 | ) | $ | 99,123 | |||||||||
Cost of goods sold | — | 35,254 | 50,250 | (19,004 | ) | 66,500 | ||||||||||||||
Gross profit | — | 14,924 | 17,699 | — | 32,623 | |||||||||||||||
Operating expenses | 92 | 8,546 | 8,837 | — | 17,475 | |||||||||||||||
Income (loss) from operations | (92 | ) | 6,378 | 8,862 | — | 15,148 | ||||||||||||||
Interest expense (income), net | 5,000 | 71 | (569 | ) | — | 4,502 | ||||||||||||||
Income (loss) before income taxes | (5,092 | ) | 6,307 | 9,431 | — | 10,646 | ||||||||||||||
Income tax expense (benefit) | (1,818 | ) | 1,440 | 3,637 | — | 3,259 | ||||||||||||||
Income (loss) before equity in income (loss) of subsidiaries | (3,274 | ) | 4,867 | 5,794 | — | 7,387 | ||||||||||||||
Equity in income (loss) of subsidiaries | 10,618 | 5,751 | — | (16,369 | ) | — | ||||||||||||||
Net income (loss) | 7,344 | 10,618 | 5,794 | (16,369 | ) | 7,387 | ||||||||||||||
Less: Net income attributable to noncontrolling interest | — | — | 43 | — | 43 | |||||||||||||||
Net income (loss) attributable to Parent Company | $ | 7,344 | $ | 10,618 | $ | 5,751 | $ | (16,369 | ) | $ | 7,344 |
Condensed Consolidating Statement of Operations
Nine Months Ended June 30, 2012
(dollars in thousands) | Parent Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Net sales | $ | — | $ | 145,044 | $ | 221,014 | $ | (29,536 | ) | $ | 336,522 | |||||||||
Cost of goods sold | — | 103,614 | 160,820 | (29,536 | ) | 234,898 | ||||||||||||||
Gross profit | — | 41,430 | 60,194 | — | 101,624 | |||||||||||||||
Operating expenses | 277 | 24,075 | 27,805 | — | 52,157 | |||||||||||||||
Income (loss) from operations | (277 | ) | 17,355 | 32,389 | — | 49,467 | ||||||||||||||
Interest expense (income), net | 16,427 | 234 | (1,824 | ) | — | 14,837 | ||||||||||||||
Income (loss) before income taxes | (16,704 | ) | 17,121 | 34,213 | — | 34,630 | ||||||||||||||
Income tax expense (benefit) | (5,963 | ) | 6,080 | 13,855 | — | 13,972 | ||||||||||||||
Income (loss) before equity in income (loss) of subsidiaries | (10,741 | ) | 11,041 | 20,358 | — | 20,658 | ||||||||||||||
Equity in income (loss) of subsidiaries | 29,227 | 18,186 | — | (47,413 | ) | — | ||||||||||||||
Net income (loss) | 18,486 | 29,227 | 20,358 | (47,413 | ) | 20,658 | ||||||||||||||
Less: Net income attributable to noncontrolling interest | — | — | 2,172 | — | 2,172 | |||||||||||||||
Net income (loss) attributable to Parent Company | $ | 18,486 | $ | 29,227 | $ | 18,186 | $ | (47,413 | ) | $ | 18,486 |
19
CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands, except per share information)
Condensed Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2012
(dollars in thousands) | Parent Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||
Net cash provided by (used in) operating activities | $ | (8,539 | ) | $ | 40,269 | $ | (5,359 | ) | $ | (13,679 | ) | $ | 12,692 | |||||||
Cash flows from investing activities | ||||||||||||||||||||
Purchases of property, plant and equipment | — | (1,341 | ) | (713 | ) | — | (2,054 | ) | ||||||||||||
Proceeds on sales of property, plant and equipment | — | — | 129 | — | 129 | |||||||||||||||
Net cash used in investing activities | — | (1,341 | ) | (584 | ) | — | (1,925 | ) | ||||||||||||
Cash flows from financing activities | ||||||||||||||||||||
Payments of long-term debt | (14,262 | ) | — | — | — | (14,262 | ) | |||||||||||||
Proceeds from revolving credit facilities | — | 82,238 | — | — | 82,238 | |||||||||||||||
Payments on revolving credit facilities | — | (82,238 | ) | — | — | (82,238 | ) | |||||||||||||
Proceeds from (payments of) dividends | — | — | (18,694 | ) | 13,679 | (5,015 | ) | |||||||||||||
Advances from (to) consolidated subsidiaries | 22,801 | (18,256 | ) | (4,545 | ) | — | — | |||||||||||||
Net cash provided by (used in) financing activities | 8,539 | (18,256 | ) | (23,239 | ) | 13,679 | (19,277 | ) | ||||||||||||
Effect of foreign exchange rate changes on cash and cash equivalents | — | — | (289 | ) | — | (289 | ) | |||||||||||||
Net increase (decrease) in cash and cash equivalents | — | 20,672 | (29,471 | ) | — | (8,799 | ) | |||||||||||||
Cash and cash equivalents | ||||||||||||||||||||
Beginning of period | — | 564 | 80,724 | — | 81,288 | |||||||||||||||
End of period | $ | — | $ | 21,236 | $ | 51,253 | $ | — | $ | 72,489 |
20
CPM Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(dollars in thousands, except per share information)
12. | Subsequent Events |
Senior Secured Notes Tender Offer
On July 31, 2012, the Company commenced a cash tender offer for any and all of its outstanding 10-5/8% Senior Secured Notes due 2014. In conjunction with the tender offer, the Company is soliciting consents from holders of the Notes to certain proposed amendments to the indenture governing the Notes. The tender offer and consent solicitation will expire at 12:01 a.m., New York City time, on August 28, 2012 (the "Expiration Time"), unless extended or earlier terminated by the Company. The Company reserves the right to terminate, withdraw or amend the tender offer and consent solicitation at any time, subject to applicable law.
Holders who validly tender Notes on or prior to 5:00 p.m., New York City time, on August 13, 2012 (the "Consent Expiration Time"), will be eligible to receive $1,056.88 per $1,000 principal amount of Notes tendered, which includes a consent payment of $30 and the tender offer consideration of $1,026.88. Holders who validly tender Notes after the Consent Expiration time and prior to the Expiration Time, will be eligible to receive the tender offer consideration, but not the consent payment.
The purpose of the tender offer is for the Company to acquire all outstanding Notes. The Company intends to finance the purchase of the Notes in the tender offer and consent solicitation using the proceeds from one or more new debt financing transactions.
Acquisition
In July 2012, the Company purchased the remaining 40% noncontrolling interest in Wuhan Crown Friendship Edible Oil Engineering Co., Ltd., the Company's joint venture in China for $33.8 million. As a result of the acquisition, the Company owns 100% of Wuhan Crown Friendship Edible Oil Engineering Co., Ltd. The acquisition was funded though available cash.
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. The statements in this discussion regarding market conditions and outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under “Forward-Looking Statements” and “Risk Factors” in our Annual Report on Form 10-K as filed with the SEC on December 29, 2011. Our actual results may differ materially from those contained in or implied by any forward-looking statements.
Overview
Company Overview
We are a global leader in the design, production and marketing of high-quality, efficient, durable process systems, equipment and after-market parts and services for the oilseed, animal feed, breakfast cereal and snack food and biofuels processing industries. We believe that we have the number one or number two global market position, based on sales revenue, in each of our core markets. We have an installed base of more than 25,000 proprietary machines and provided after-market parts and services to over 2,500 customers in fiscal 2011. We serve a diverse customer base from small independent producers to large, blue-chip companies. We employ a flexible, modular design philosophy which minimizes engineering investment while meeting exacting customer requirements. We outsource most of our machining and fabrication of components and perform assembly and testing either in-house or at the customer’s location. This business model provides a flexible cost structure and limits capital expenditure requirements.
Business Segments
We operate our company through three business segments: our Engineered Process Systems segment, our Process Equipment segment, and All Other. Our Process Equipment segment manufactures and sells process machinery and other equipment utilized primarily in the agricultural and food producing/processing industries. Our Engineered Process Systems segment sells engineering, design and layout services, along with outsourced process equipment, for the oilseed processing, biodiesel and edible oil refining industries. The remainder of our business is included in our All Other segment and involves the design, manufacturing and selling of process machinery for the plastics compounding, two-piece beverage container and other industries.
Market Conditions and Outlook
For the nine months ended June 30, 2012, our net sales and operating income increased at each of our business segments when compared to the nine months ended June 30, 2011. These results are consistent with the increase in our backlog and the improvements in our end markets. We believe that our improved performance will continue at each of our business units through the remainder of fiscal 2012. This belief is supported by our backlog as evidenced below. There can be no assurance, however, that our performance in fiscal 2012 will meet our forecast.
Due to our high level of outsourcing, we continue to be able to rapidly adjust our operations in response to the improving market conditions. This allows us to take advantage of the new opportunities as they are presented.
Backlog
As of June 30, 2012, we had a consolidated backlog of $251.9 million. This figure compares to a consolidated backlog of $266.1 million and $246.6 million at September 30, 2011 and June 30, 2011, respectively. An order normally becomes part of our backlog after we receive a customer down payment or a letter of credit against the order. Our backlog is a measure of unrecognized revenue on booked orders. Our backlog provides revenue visibility into the next three to 18 months, depending on project lead-times and delivery requirements. Historically, once placed in our backlog, our customers have rarely canceled orders. There can be no assurance, however, that our consolidated backlog will convert into revenue.
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Results of Operations
The following table sets forth, for the periods indicated, amounts derived from our consolidated statements of operations and related percentages of total net sales.
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||||||
(Dollars in thousands) | 2011 | 2012 | 2011 | 2012 | |||||||||||||||||||||||
Statement of Operations Data: | |||||||||||||||||||||||||||
Net sales | |||||||||||||||||||||||||||
Process Equipment | $ | 50,323 | 39.0 | % | $ | 43,723 | 44.1 | % | $ | 120,689 | 39.5 | % | $ | 123,600 | 36.7 | % | |||||||||||
Engineered Process Systems | 68,240 | 52.8 | 39,969 | 40.3 | 153,795 | 50.3 | 170,910 | 50.9 | |||||||||||||||||||
All Other | 10,567 | 8.2 | 15,431 | 15.6 | 31,070 | 10.2 | 42,012 | 12.5 | |||||||||||||||||||
Total net sales | 129,130 | 100.0 | 99,123 | 100.0 | 305,554 | 100.0 | 336,522 | 100.0 | |||||||||||||||||||
Cost of goods sold | 90,055 | 69.7 | 66,500 | 67.1 | 217,205 | 71.1 | 234,898 | 69.8 | |||||||||||||||||||
Gross profit | 39,075 | 30.3 | 32,623 | 32.9 | 88,349 | 28.9 | 101,624 | 30.2 | |||||||||||||||||||
Selling, general and administrative expenses | 16,224 | 12.6 | 14,350 | 14.5 | 39,539 | 12.9 | 41,852 | 12.4 | |||||||||||||||||||
Other operating expenses | 3,168 | 2.5 | 3,125 | 3.2 | 9,602 | 3.1 | 10,305 | 3.1 | |||||||||||||||||||
Income from operations | 19,683 | 15.2 | 15,148 | 15.2 | 39,208 | 12.9 | 49,467 | 14.7 | |||||||||||||||||||
Interest expense, net | 5,756 | 4.5 | 4,502 | 4.5 | 16,591 | 5.4 | 14,837 | 4.4 | |||||||||||||||||||
Income before income taxes | 13,927 | 10.7 | 10,646 | 10.7 | 22,617 | 7.5 | 34,630 | 10.3 | |||||||||||||||||||
Income tax expense | 4,690 | 3.6 | 3,259 | 3.3 | 7,839 | 2.6 | 13,972 | 4.2 | |||||||||||||||||||
Net income | 9,237 | 7.1 | 7,387 | 7.4 | 14,778 | 4.9 | 20,658 | 6.1 | |||||||||||||||||||
Net income attributable to noncontrolling interest | 2,425 | 1.9 | 43 | — | 4,834 | 1.6 | 2,172 | 0.6 | |||||||||||||||||||
Net income attributable to Parent Company | $ | 6,812 | 5.2 | % | $ | 7,344 | 7.4 | % | $ | 9,944 | 3.3 | % | $ | 18,486 | 5.5 | % |
Three months ended June 30, 2012 compared to three months ended June 30, 2011
Net sales. Net sales for the three months ended June 30, 2012 decreased by $30.0 million, or 23.2%, to $99.1 million from $129.1 million for the corresponding period in 2011. In our Process Equipment segment, net sales decreased by $6.6 million, or 13.1%, to $43.7 million compared to $50.3 million for the corresponding period in 2011. Sales of oilseed processing equipment decreased by $6.7 million, primarily in Asia and sales of biomass pelleting equipment decreased by $1.6 million primarily in Europe. Those decreases were partially offset by increases in thermal processing equipment sales of $1.8 million, primarily in Africa.
Net sales in our Engineered Process Systems segment for the three months ended June 30, 2012 decreased by $28.3 million, or 41.4%, to $40.0 million compared to $68.2 million for the corresponding period in 2011. Sales of oilseed processing equipment decreased by $25.8 million including a decrease of $27.2 million to Asia which was partially offset by increases in sales to other miscellaneous geographies. The decrease in oilseed processing equipment sales was partially offset by increases in refining equipment sales of $3.8 million, primarily in Europe and Latin America and increases in biodiesel equipment sales of $2.7 million, primarily in Latin America. The preceding includes $5.4 million of sales contributed by Sket for the three months ended June 30, 2012 compared to $0 for the three months ended June 30, 2011 as Sket was acquired in September of 2011. As described in Note 1 to the consolidated financial statements, during the three months ended June 30, 2012, the Company recorded the cumulative impact of a correction of an immaterial error related to the elimination of sales and cost of sales. This correction resulted in a reduction of sales in our Engineered Process Systems segment of $7.3 million for the three months ended June 30, 2012, compared to $0 for the corresponding period in 2011. The Company determined that the impact of this error was not material to any prior periods.
Net sales in our All Other segment increased $4.9 million, or 46.0%, to $15.4 million for the three months ended June 30, 2012, from $10.6 million for the corresponding period in 2011, due to increased extrusion machinery sales of $3.6 million, primarily in Asia and increased thermal processing equipment sales of $1.0 million, primarily in Europe.
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Cost of goods sold. Cost of goods sold decreased by $23.6 million from $90.1 million or 69.7% of net sales, for the three months ended June 30, 2011 to $66.5 million, or 67.1% of net sales, for the three months ended June 30, 2012. The primary factor in the decrease in cost of goods sold as a percentage of net sales was the correction of an immaterial error related to the elimination of sales and cost of sales as discussed in Note 1 to the consolidated financial statements. The impact of correcting this matter was to reduce net sales and cost of goods sold by $8.0 million for the three months ended June 30, 2012. Fluctuations in the proportion of sales at each segment added to the decrease in cost of goods sold as a percentage of net sales. Our Engineered Process Systems segment, which historically generates our lowest profit margins accounted for 40% of our total sales for the three months ended June 30, 2012 compared to 53% of our total sales for the three months ended June 30, 2011. These decreases were partially offset by slight increases in cost of goods sold as a percentage of net sales for our Process Equipment segment and our Engineered Process Systems segment.
Gross profit. As a result of the foregoing, gross profit for the three months ended June 30, 2012 decreased by $6.5 million, or 16.5%, to $32.6 million, or 32.9% of net sales, from $39.1 million, or 30.3% of net sales, for the corresponding period in 2011.
Selling, general and administrative expenses. SG&A expenses decreased from $16.2 million for the three months ended June 30, 2011 to $14.4 million for the corresponding period in 2012, a decrease of approximately $1.9 million, or 11.6%. The primary reasons for the decrease are non-recurring expenses during the three months ended June 30, 2011 of $1.4 million related to the closure of our manufacturing facility in the United Kingdom and non-recurring legal and accounting expenses of $0.7 million related to our Registration Statement on Amended Form S-4 filed with the SEC on May 16, 2011. In addition, supplementary compensation expenses decreased by $1.2 million during the three months ended June 30, 2012 compared to the corresponding period in 2011. These decreases were partially offset by $1.2 million in additional SG&A expenses of Sket for the three months ended June 30, 2012 which had not yet been acquired during the corresponding period in 2011 and non-recurring legal and accounting expenses during the three months ended June 30, 2012 of $0.7 million related to the acquisition of the remaining 40% noncontrolling interest in Wuhan Crown Friendship Edible Oil Engineering Co., Ltd., the Company's joint venture in China. As a percentage of net sales, SG&A expenses increased from 12.6% for the three months ended June 30, 2011 to 14.5% for the corresponding period in the current year. The percentage increase in SG&A expenses as a percentage of net sales is a direct result of the fixed nature of a majority of our SG&A expenses and our decrease in sales.
Other operating expenses. Other operating expenses were $3.2 million and $3.1 million for the three months ended June 30, 2011 and 2012, respectively, and are comprised primarily of amortization expense and management fees. Both amortization expense and management fees were consistent for the three months ended June 30, 2011 compared to the three months ended June 30, 2012.
Income from operations. Income from operations decreased from $19.7 million for the three months ended June 30, 2011 to $15.1 million during the corresponding period in 2012, a decrease of $4.6 million primarily as a result of the factors mentioned above, particularly the decreased sales. As a percentage of net sales, income from operations was 15.2% for the three months ended June 30, 2011 and 2012, respectively .
Interest expense, net. Interest expense, net, for the three months ended June 30, 2012, was $4.5 million compared to $5.8 million, for the corresponding period in 2011. The decrease of $1.3 million in interest expense is proportionate to the decrease in outstanding senior notes during the three months ended June 30, 2012 compared to the three months ended June 30, 2011.
Provision for income taxes. The provision for income taxes was $3.3 million for the three months ended June 30, 2012 compared to $4.7 million for the corresponding period in 2011. The provision for income taxes reflects the combined federal, state and foreign effective tax rate of approximately 30.6% and 33.7% for the three months ended June 30, 2012 and 2011, respectively. Our combined effective tax rate reflects the different federal, state and foreign statutory rates of the various jurisdictions in which we operate and the proportion of taxable income earned in each of those tax jurisdictions. The provision for income taxes for the three month periods ended June 30, 2012 and 2011 differs from the expected income tax expense computed by applying the statutory United States federal tax rates to income before income taxes primarily due to state income taxes, permanent differences between book income and taxable income, fluctuations in our reserve for uncertain tax positions and our limited ability to utilize foreign tax credits to offset U.S. tax liabilities.
Net income attributable to noncontrolling interest. This is the net income attributable to our joint venture partner. The decrease of $2.4 million from $2.4 million for the three months ended June 30, 2011 to a small profit for the corresponding period in 2012 is a result of the decreased profitability of our Chinese joint venture.
Net income attributable to parent company. As a result of the foregoing, net income increased from $6.8 million for the three months ended June 30, 2011 to $7.3 million for the three months ended June 30, 2012.
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Nine months ended June 30, 2012 compared to nine months ended June 30, 2011
Net sales. Net sales for the nine months ended June 30, 2012 increased by $31.0 million, or 10.1%, to $336.5 million from $305.6 million for the corresponding period in 2011. In our Process Equipment segment, net sales increased by $2.9 million, or 2.4%, to $123.6 million compared to $120.7 million for the corresponding period in 2011. This increase was primarily attributable to increased thermal processing equipment sales of $3.0 million. Sales of thermal processing equipment increased by $5.3 million to Africa, $1.7 million to Latin America, $1.0 million to Europe and $0.9 million to Asia and were partially offset by decreases of $5.3 million to the United States and $0.4 million to Canada.
Net sales in our Engineered Process Systems segment for the nine months ended June 30, 2012 increased by $17.1 million, or 11.1%, to $170.9 million compared to $153.8 million for the corresponding period in 2011. The increase was attributable to increases in sales of refining equipment of $21.0 million and biodiesel equipment of $18.6 primarily in Europe, Latin America, and Asia. These increases were partially offset by decreases in sales of oilseed processing equipment of $13.4 million as decreases in sales to Asia were partially offset by increases in North America, Latin America, Europe and other miscellaneous geographies. The preceding includes $19.8 million of sales contributed by Sket for the nine months ended June 30, 2012 compared to $0 for the nine months ended June 30, 2011 as Sket was acquired in September of 2011. As described in Note 1 to the consolidated financial statements, during the nine months ended June 30, 2012, the Company recorded the cumulative impact of a correction of an immaterial error related to the elimination of sales and cost of sales. This correction resulted in a reduction of sales in our Engineered Process Systems segment of $7.3 million for the nine months ended June 30, 2012, compared to $0 for the corresponding period in 2011. The Company determined that the impact of this error was not material to any prior periods.
Net sales in our All Other segment increased $10.9 million, or 35.2%, to $42.0 million for the nine months ended June 30, 2012, from $31.1 million for the corresponding period in 2011 due to increased thermal processing equipment sales of $5.1 million, primarily in and Asia and Europe and increased extrusion parts and machinery sales of $5.0 million, primarily in Asia.
Cost of goods sold. Cost of goods sold increased by $17.7 million from $217.2 million or 71.1% of net sales, for the nine months ended June 30, 2011 to $234.9 million, or 69.8% of net sales, for the nine months ended June 30, 2012. The primary factor in the decrease in cost of goods sold as a percentage of net sales the correction of an immaterial error related to the elimination of sales and cost of sales as discussed in Note 1 to the consolidated financial statements. The impact of correcting this matter was to reduce net sales and cost of goods sold by $8.0 million for the nine months ended June 30, 2012. In addition, cost of goods sold as a percentage of net sales decreased slightly in our Process Equipment and Engineered Process Systems segments and remained constant in our All Other segment. The decrease at our Process Equipment segment was driven primarily by improved pricing as market conditions have returned to normal combined with efficiencies gained due to increased volume. The decreases experienced at our Engineered Process Systems segment are primarily a result of reduced volume and improved profitability in Asia. Sales to Asia, where we generally experience our lowest margins, accounted for 53% of the total sales volume for the Engineered Process Systems segment for the nine months ended June 30, 2011 compared to 25% for the nine months ended June 30, 2012.
Gross profit. As a result of the foregoing, gross profit for the nine months ended June 30, 2012 increased by $13.3 million, or 15.0%, to $101.6 million, or 30.2% of net sales, from $88.3 million, or 28.9% of net sales, for the corresponding period in 2011.
Selling, general and administrative expenses. SG&A expenses increased from $39.5 million for the nine months ended June 30, 2011 to $41.9 million for the corresponding period in 2012, an increase of approximately $2.3 million, or 5.8%. The increase reflects the inclusion of $3.4 million in SG&A expenses of Sket for the nine months ended June 30, 2012 which had not yet been acquired during the corresponding period in 2011, non-recurring legal and accounting expenses of $0.7 million related to the acquisition of the remaining 40% noncontrolling interest in Wuhan Crown Friendship Edible Oil Engineering Co., Ltd., the Company's joint venture in China, $0.5 million in expenses related to a non-recurring corporate strategic initiative and increased direct selling costs increased during the nine months ended June 30, 2012 resulting from higher net sales. These increases are offset partially by non-recurring expenses during the nine months ended June 30, 2011of $1.7 million related to the closure of our manufacturing facility in the United Kingdom and legal and accounting expenses of $1.0 million related to our Registration Statement on Amended Form S-4 filed with the SEC on May 16, 2011. As a percentage of net sales, SG&A expenses decreased from 12.9% for the nine months ended June 30, 2011 to 12.4% for the corresponding period in the current year. The percentage decrease in SG&A expenses as a percentage of net sales is a direct result of the fixed nature of a majority of our SG&A expenses and our increase in sales.
Other operating expenses. Other operating expenses increased from $9.6 million for the nine months ended June 30, 2011 to $10.3 million for the corresponding period in 2012, an increase of approximately $0.7 million. The increase relates primarily to a $0.6 million increase in management fees and expenses and a $0.1 increase in amortization expense.
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Income from operations. Income from operations increased from $39.2 million for the nine months ended June 30, 2011 to $49.5 million during the corresponding period in 2012, an increase of $10.3 million. As a percentage of net sales, income from operations increased from 12.9% for the nine months ended June 30, 2011 to 14.7% for the nine months ended June 30, 2012 as a result of the factors mentioned above, particularly the increased sales.
Interest expense, net. Interest expense, net, for the nine months ended June 30, 2012, was $14.8 million, compared to $16.6 million for the nine months ended June 30, 2011. The decrease of $1.8 million resulted from a decrease in interest accrued on the senior notes in the amount of $2.9 million during the nine months ended March 31, 2012 compared to the corresponding period in 2011 resulting from the lower outstanding balance on the senior notes. That decrease was partially offset by a $1.0 million loss on repurchases of senior notes and a $0.4 million write off of deferred financing costs related to the repurchased notes included as a component of interest expense during the nine months ended June 30, 2012. Interest income increased by $0.3 million during the nine months ended March 31, 2012 compared to the corresponding period in 2011.
Provision for income taxes. The provision for income taxes was $14.0 million for the nine months ended June 30, 2012 compared to $7.8 million for the corresponding period in 2011. The provision for income taxes reflects the combined federal, state and foreign effective tax rate of approximately 40.3% and 34.7% for the nine months ended June 30, 2012 and 2011, respectively. The increase in the effective tax rate was the result of unfavorable discrete items during the nine months ended June 30, 2012 compared to a net benefit from discrete items during the corresponding period in 2011. The discrete items related primarily to foreign earnings inclusions related to dividends paid from certain foreign subsidiaries and resolution to uncertain tax positions associated with an IRS audit during fiscal year 2012. Our combined effective tax rate reflects the different federal, state and foreign statutory rates of the various jurisdictions in which we operate and the proportion of taxable income earned in each of those tax jurisdictions. The provision for income taxes for the nine months periods ended June 30, 2012 and 2011 differs from the expected income tax expense computed by applying the statutory United States federal tax rates to income before income taxes primarily due to state income taxes, permanent differences between book income and taxable income, the release and recording of valuation allowances against foreign losses, fluctuations in our reserve for uncertain tax positions and our limited ability to utilize foreign tax credits to offset U.S. tax liabilities.
Net income attributable to noncontrolling interest. This is the net income attributable to our joint venture partner. The decrease of $2.7 million from $4.8 million for the nine months ended June 30, 2011 to $2.2 million for the corresponding period in 2012 is a result of the decreased profitability of our Chinese joint venture.
Net income attributable to parent company. As a result of the foregoing, net income increased from $9.9 million for the nine months ended June 30, 2011 to $18.5 million for the nine months ended June 30, 2012.
Liquidity and Capital Resources
The following table summarizes our net cash from our operating activities, investing activities and financing activities and the effect of foreign exchange rate changes on cash and cash equivalents for the first nine months of fiscal 2011 and 2012:
Nine Months Ended June 30, | ||||||||
(Dollars in thousands) | 2011 | 2012 | ||||||
Net cash provided by (used in): | ||||||||
Operating activities | $ | 48,540 | $ | 12,692 | ||||
Investing activities | (1,489 | ) | (1,925 | ) | ||||
Financing activities | — | (19,277 | ) | |||||
Effect of foreign exchange rate changes on cash and cash equivalents | 3,301 | (289 | ) | |||||
Net increase (decrease) in cash and cash equivalents | $ | 50,352 | $ | (8,799 | ) |
We have historically financed operations with internally generated funds. Accordingly, we have traditionally not needed to access the capital markets in order to finance our ongoing operations.
Net cash provided by operating activities was $12.7 million for the nine months ended June 30, 2012 compared to net cash provided by operating activities of $48.5 million for the corresponding period in 2011. The decrease in cash provided by operating activities of $35.8 million is a result of increases in cash caused by an increase in net income of $5.9 million which included non-cash losses on the repurchase of senior notes during 2011 of $1.4 million, reduced by decreases in cash caused by fluctuations in deferred taxes of $15.2 million and fluctuations in working capital of $26.7 million.
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Net income increased by $5.9 million to $20.7 million for the nine months ended June 30, 2012 compared to $14.8 million for the nine months ended June 30, 2011. Net income for the nine months ended June 30, 2012 includes non-cash losses on the repurchase of senior notes of $1.4 million including the write-off of related deferred financing costs. There were no such repurchases during the nine months ended June 30, 2011. Cash increases related to net income plus non-cash losses were offset by cash decreases of $26.7 million related to fluctuations in working capital balances. For the nine months ended June 30, 2012, fluctuations in working capital were a use of cash of $22.6 million comprised of decreases in cash caused by the fluctuations of accounts receivable, restricted customer deposits, inventories, prepaid expenses and other current assets, accounts payable, and billings in excess of costs and estimated earnings on uncompleted contracts, partially offset by increases in cash caused by the fluctuations of costs and estimated earnings in excess of billings on uncompleted contracts and accrued expenses. For the nine months ended June 30, 2011, fluctuations in working capital provided cash of $4.1 million comprised of increases in cash caused by fluctuations of accounts payable, billings in excess of costs and estimated earnings on uncompleted contracts and accrued expenses, partially offset by decreases in cash caused by fluctuations in accounts receivable, restricted customer deposits, costs and estimated earnings in excess of billings on uncompleted contracts, inventory and prepaid expenses and other current assets.
Net cash flow used in investing activities was $1.5 million and $1.9 million for the nine months ended June 30, 2011 and 2012, respectively and related to capital expenditures net of proceeds on disposal.
Net cash flows used in financing activities were $19.3 million during the nine months ended June 30, 2012 compared to no cash flows related to financing activities for the nine months ended June 30, 2011. The use of cash during the nine months ended June 30, 2012 was primarily for the repurchase of senior notes of $14.3 million and the payment of dividends of $5.0 million to our joint venture partner in China.
In November 2009, we entered into a U.S. based senior secured revolving credit facility. Our senior secured revolving credit facility provides up to $14.5 million of revolving credit borrowings, subject to a borrowing base, which is based on the eligible accounts receivable and inventory of our U.S subsidiaries less our aggregate net exposure under permitted hedging obligations and subject to certain reserves. The credit facility expires on April 20, 2013. A portion of the availability under the credit facility is available for the issuance of letters of credit and that the face amount of any outstanding letters of credit will reduce availability under our senior secured revolving credit facility on a dollar-for-dollar basis. Borrowings under the credit facility are subject to certain restrictive covenants, including a fixed charge coverage ratio. At June 30, 2012, we had $14.5 million of unused credit under this facility, of which $6.3 million was available for borrowing based on our borrowing base calculation.
We believe that our operating cash flow and amounts available for borrowing under our senior secured revolving credit facility will be adequate to fund our capital expenditures and working capital requirements for the next twelve months.
On July 31, 2012, the Company commenced a cash tender offer for any and all of its outstanding 10-5/8% Senior Secured Notes due 2014. The purpose of the tender offer is for the Company to acquire all outstanding Notes. The Company intends to finance the purchase of the Notes in the tender offer and consent solicitation using the proceeds from one or more new debt financing transactions. The Company can provide no assurance regarding the terms of any such refinancing transactions or that any refinancing transactions will occur.
Financial Covenants
We are subject to certain restrictive financial covenants contained in our senior secured revolving credit facility including a fixed charge coverage ratio. At September 30, 2011 and June 30, 2012, we were in compliance with all covenants under the facility.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks, which include changes in interest rate, foreign exchange rates and commodity prices. We do not engage in financial transactions for trading or speculative purposes. There have been no material changes in this item from the discussion contained in our Annual Report on Form 10-K, as filed with the SEC on December 29, 2011.
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Item 4. Controls and Procedures.
We conducted an evaluation of our disclosure controls and procedures defined under Rule 13a-15e promulgated under the Securities Exchange Act of 1934 (Exchange Act) as of June 30, 2012. As noted in Item 1A. Risk Factors, to our 2011 Annual Report on Form 10-K, material weaknesses in internal controls over financial reporting were disclosed. These material weaknesses may also constitute deficiencies in our disclosure controls. During the period covered by this report our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were not effective, however based on significant work performed to date, management believes that there are no material inaccuracies or omissions of material fact in this report. Management, to the best of its knowledge, believes that the financial statements contained in this report are fairly presented in all material respects.
There was no change in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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CPM Holdings, Inc.
Form 10-Q
For the Quarterly Period Ended June 30, 2012
PART II. Other Information
Item 1. Legal Proceedings.
Discussion of legal matters is incorporated by reference from Part I, Item 1, Note 8, "Commitments and Contingencies", of this document, and should be considered an integral part of Part II, Item 1, "Legal Proceedings".
Item 1A. Risk Factors.
While we attempt to identify, manage, and mitigate risks and uncertainties associated with our business to the extent practical under the circumstances, some level of risk and uncertainty will always be present. In our Annual Report Form 10-K, as filed with the SEC on December 29, 2011, the section titled Risk Factors (pages 12 through 16) describes some of the risks and uncertainties associated with our business. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows, projected results, and future prospects. We do not believe that there have been any material changes to the risk factors previously disclosed in our Annual Report on Form 10-K, as filed with the SEC on December 29, 2011.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
There were no sales of unregistered equity securities during the quarter ended June 30, 2012.
Item 3. Defaults Upon Senior Securities.
No matters requiring disclosure.
Item 4. Mine Safety Disclosures.
No matters requiring disclosure.
Item 5. Other Information.
No matters requiring disclosure.
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Item 6. Exhibits.
Index to Exhibits:
Exhibit | ||
No. | Description | |
31.1* | Rule 13a-14(a) Certification by Principal Executive Officer. | |
31.2* | Rule 13a-14(a) Certification by Principal Financial Officer. | |
32** | Section 1350 Certifications by Principal Executive Officer and Principal Financial Officer. | |
* | Filed herewith | |
** | Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of Regulation S-K under the Exchange Act. | |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.
CPM HOLDINGS, INC. | |||||
Date: | August 14, 2012 | By: | /s/ Douglas Ostrich | ||
Douglas Ostrich | |||||
Chief Financial Officer | |||||
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrants and in the capacities and on August 14, 2012.
Signatures | Title | |
/s/ Ted Waitman | President, Chief Executive Officer and Director | |
Ted Waitman | (Principal Executive Officer) | |
/s/ Douglas Ostrich | Chief Financial Officer, Treasurer and Secretary | |
Douglas Ostrich | (Principal Financial Officer) | |
/s/ Steven Gilbert* | Director | |
Steven Gilbert | ||
/s/ Steven Kotler* | Director | |
Steven Kotler | ||
/s/ Richard Gaenzle, Jr.* | Director | |
Richard Gaenzle, Jr. | ||
/s/ Larry Pitsch* | Director | |
Larry Pitsch | ||
* | By: | /s/ Douglas Ostrich | ||
Douglas Ostrich | ||||
Attorney-in-fact | ||||
S- 1
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.
CPM ACQUISITION CORP. | |||||
Date: | August 14, 2012 | By: | /s/ Douglas Ostrich | ||
Douglas Ostrich | |||||
Chief Financial Officer | |||||
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrants and in the capacities and on August 14, 2012.
Signatures | Title | |
/s/ Ted Waitman | President, Chief Executive Officer and Director | |
Ted Waitman | (Principal Executive Officer) | |
/s/ Douglas Ostrich | Chief Financial Officer, Treasurer and Secretary | |
Douglas Ostrich | (Principal Financial Officer) | |
/s/ Steven Gilbert* | Director | |
Steven Gilbert | ||
/s/ Steven Kotler* | Director | |
Steven Kotler | ||
/s/ Richard Gaenzle, Jr.* | Director | |
Richard Gaenzle, Jr. | ||
/s/ Larry Pitsch* | Director | |
Larry Pitsch | ||
* | By: | /s/ Douglas Ostrich | ||
Douglas Ostrich | ||||
Attorney-in-fact | ||||
S- 2
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.
CROWN ACQUISITION CORP. | |||||
Date: | August 14, 2012 | By: | /s/ Douglas Ostrich | ||
Douglas Ostrich | |||||
Chief Financial Officer | |||||
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrants and in the capacities and on August 14, 2012.
Signatures | Title | |
/s/ Ted Waitman | President, Chief Executive Officer and Director | |
Ted Waitman | (Principal Executive Officer) | |
/s/ Douglas Ostrich | Chief Financial Officer, Treasurer and Secretary | |
Douglas Ostrich | (Principal Financial Officer) | |
/s/ Steven Gilbert* | Director | |
Steven Gilbert | ||
/s/ Steven Kotler* | Director | |
Steven Kotler | ||
/s/ Richard Gaenzle, Jr.* | Director | |
Richard Gaenzle, Jr. | ||
/s/ Larry Pitsch* | Director | |
Larry Pitsch | ||
* | By: | /s/ Douglas Ostrich | ||
Douglas Ostrich | ||||
Attorney-in-fact | ||||
S- 3
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.
CPM WOLVERINE PROCTOR, LLC | |||||
Date: | August 14, 2012 | By: | /s/ Douglas Ostrich | ||
Douglas Ostrich | |||||
Chief Financial Officer | |||||
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrants and in the capacities and on August 14, 2012.
Signatures | Title | |
/s/ Ted Waitman | President, Chief Executive Officer and Director | |
Ted Waitman | (Principal Executive Officer) | |
/s/ Douglas Ostrich | Chief Financial Officer, Treasurer and Secretary | |
Douglas Ostrich | (Principal Financial Officer) | |
S- 4
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.
CROWN IRON WORKS COMPANY | |||||
Date: | August 14, 2012 | By: | /s/ Douglas Ostrich | ||
Douglas Ostrich | |||||
Chief Financial Officer | |||||
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrants and in the capacities and on August 14, 2012.
Signatures | Title | |
/s/ Ted Waitman | President, Chief Executive Officer and Director | |
Ted Waitman | (Principal Executive Officer) | |
/s/ Douglas Ostrich | Chief Financial Officer, Treasurer and Secretary | |
Douglas Ostrich | (Principal Financial Officer) | |
/s/ Steven Gilbert* | Director | |
Steven Gilbert | ||
/s/ Steven Kotler* | Director | |
Steven Kotler | ||
/s/ Richard Gaenzle, Jr.* | Director | |
Richard Gaenzle, Jr. | ||
/s/ Larry Pitsch* | Director | |
Larry Pitsch | ||
* | By: | /s/ Douglas Ostrich | ||
Douglas Ostrich | ||||
Attorney-in-fact | ||||
S- 5
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.
CPM SA, LLC | |||||
Date: | August 14, 2012 | By: | /s/ Douglas Ostrich | ||
Douglas Ostrich | |||||
Chief Financial Officer | |||||
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrants and in the capacities and on August 14, 2012.
Signatures | Title | |
/s/ Ted Waitman | President, Chief Executive Officer and Director | |
Ted Waitman | (Principal Executive Officer) | |
/s/ Douglas Ostrich | Chief Financial Officer, Treasurer and Secretary | |
Douglas Ostrich | (Principal Financial Officer) | |
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