<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------------------------------------
Commission file number 0-27738
---------------------------------------------------------
THE JPM COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1702908
--------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Route 15 North, Lewisburg, PA 17837
- --------------------------------------------------------------------------------
(Address of principal executive offices) (ZIP Code)
Registrants telephone number, including area code 717-524-8200
-----------------------------
Not Applicable
- -------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 10 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 X No
------- -------
Indicate the number of shares outstanding of each of the issuer's of common
stock, as of the latest practicable date.
At June 30, 1997, 6,920,511 shares of common stock, $.000067 par value, are
issued and outstanding.
<PAGE>
THE JPM COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited-in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 28,761 $ 21,869 $ 85,642 $ 61,882
Cost of sales 22,218 17,694 68,046 52,041
------- ------- ------- -------
Gross profit 6,543 4,175 17,596 9,841
Selling, general and administrative 2,513 2,076 7,359 5,638
Costs related to merger 743 - 743 -
------- ------- ------- -------
Operating profit 3,287 2,099 9,494 4,203
Other income (expense)
Interest expense (195) (195) (451) (731)
Other (net) (186) 30 63 (63)
------- ------- ------- -------
(381) (165) (388) (794)
------- ------- ------- -------
Income before taxes, minority interest 2,906 1,934 9,106 3,409
Provision for income taxes 1,162 748 3,642 1,328
------- ------- ------- -------
Income before minority interest 1,744 1,186 5,464 2,081
Minority interest - 52 - 423
------- ------- ------- -------
Net income 1,744 1,134 5,464 1,658
Cumulative dividend on preferred stock - 20 - 140
------- ------- ------- -------
Net income applicable to common stock $ 1,744 $ 1,114 $ 5,464 $ 1,518
===== ===== ===== =====
Earnings per share $ 0.23 $ 0.15 $ 0.73 $ 0.25
Weighted average number of shares 7,544,861 6,227,621 7,436,337 5,193,606
</TABLE>
The accompanying notes are an integral part of these statements.
Page 2
<PAGE>
THE JPM COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, 1997 September 30, 1996
------------- ------------------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,477 $ 1,411
Accounts receivable, net 13,261 12,228
Inventories, net 13,972 11,342
Other current assets 1,117 934
------- -------
Total current assets 29,827 25,915
Property, plant and equipment, net 10,893 8,536
Notes receivable related parties - 206
Excess of cost over fair
value of assets acquired, net 4,421 4,640
Other assets 876 565
------- -------
$46,017 $39,862
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 2,001 $ 1,532
Current maturities of long-term debt 693 637
Accounts payable 6,590 6,877
Accrued expenses 4,514 4,486
Income taxes payable 618 1,090
Deferred income taxes payable 1,089 1,087
------- -------
Total current liabilities 15,505 15,709
Long-term debt, less due currently 3,831 3,264
Other long-term liabilities 1,036 962
------- -------
20,372 19,935
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 10,000,000 shares
authorized; none issued and outstanding - -
Common stock $.000067 par value, 40,000,000 shares
authorized issued 6,921,000 at June 30, 1997,
6,810,000 in 1996 - -
Additional paid-in capital 16,466 16,212
Retained earnings 9,179 3,715
------- -------
Total shareholder's equity 25,645 19,927
------- -------
$ 46,017 $39,862
======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
Page 3
<PAGE>
THE JPM COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited-In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,464 $ 1,658
Adjustments to reconcile net income to
net cash:
Depreciation and amortization 1,334 1,010
Foreign currency translation (gain) loss (154) (12)
Provision for doubtful accounts 94 30
Loss (gain) on sale of property, plant
and equipment 31 (5)
Deferred tax provision 5 116
Minority interest - 423
Deferred compensation expense 74 90
Change in assets and liabilities:
(Increase) decrease in accounts
receivable (1,249) (4,624)
(Increase) decrease in inventories (2,630) (2,132)
(Increase) decrease in other assets (298) (91)
Increase (decrease) in accounts
payable (286) 2,122
Increase (decrease) in accrued
expenses 180 785
Increase (decrease) in income taxes
payable (471) 349
------- -------
Net cash provided by (used in)
operating activities 2,094 (281)
------- -------
Cash flows from investing activities:
Payments for businesses acquired - (3,400)
Capital expenditures (2,593) (2,100)
Proceeds from the sales of property,
plant & equipment 211 37
Deferred compensation plan contributions (77) (68)
Loans to related parties, net 206 380
------- -------
Net cash (used in) investing activities (2,253) (5,151)
------- -------
Cash flows from financing activities:
Net borrowings (repayments) under
credit facilities 476 (4,699)
Proceeds from issuance of long-term
debt 19 525
Principal payments on long-term debt (523) (1,407)
Net proceeds from sale of common stock - 14,389
Proceeds from exercise of stock options 253 -
Preferred stock redemption - (1,885)
Preferred stock dividends paid - (601)
------- -------
Net cash provided by financing
activities 225 6,322
------- -------
Increase in cash 66 890
Cash at beginning of the period 1,411 1,280
------- -------
Cash at the end of the period $ 1,477 $ 2,170
======= =======
</TABLE>
Supplemental information relative to non-cash investing and financing activity-
See notes.
The accompanying notes are an integral part of these statements.
Page 4
<PAGE>
Business Combination
- --------------------
On June 4, 1997 the Company completed a merger with Denron by exchanging 791,170
shares of the Company's common stock for all of the outstanding common stock of
Denron. Each share of Denron stock was exchanged for 1.055 shares of JPM common
stock.
The merger is intended to be constituted as a tax-free reorganization and has
been accounted for as a pooling of interests under Accounting Principles Board
Opinion No. 16. Accordingly, all prior period consolidated financial statements
presented have been restated to include the combined results of operations,
financial position and cash flows of Denron as though it had always been a part
of the Company.
Prior to the merger, Denron's fiscal year ended on March 31. In recording the
business combination, Denron's 1996 prior period financial statements have been
restated to a year ended September 30, to conform with the Company's fiscal
year-end.
There were no transactions between JPM and Denron prior to the combination, and
immaterial adjustments were recorded to conform Denron's accounting policies.
The combined results of operations for the separate companies and the combined
amounts presented in the consolidated financial statements follow:
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(in thousands)
Net sales
JPM $21,181 $15,555 $65,151 $42,410
Denron 6,950 6,314 20,491 19,472
------- ------- ------- -------
Combined $28,761 $21,869 $85,642 $61,882
======= ======= ======= =======
Net income applicable to common stock
JPM $ 1,629 $ 961 $ 5,028 $ 1,471
Denron 115 173 436 187
------- ------- ------- -------
Combined $ 1,744 $ 1,134 $ 5,464 $ 1,658
======= ======= ======= =======
</TABLE>
In connection with the merger, the Company recorded in the third quarter a
charge to operating expenses of $743,000 for direct costs pertaining to the
merger transaction. Merger transaction costs consisted primarily of fees for
investment bankers, attorneys, accountants, financial printing and related
charges.
Accounting Policies
- -------------------
The consolidated balance sheet as of June 30, 1997, and the related consolidated
statements of operations and cash flows for the three month and nine month
periods ended June 30, 1997 and June 30, 1996, have been prepared by the Company
without audit. In the opinion of the management, the financial statements
include all of the adjustments necessary for fair presentation. All adjustments
made were of a normal recurring nature. Interim results are not necessarily
indications of results for a full year. For further financial information, refer
to the audited financial statements of the Company and the notes thereto for the
fiscal year ended September 30, 1996, included in the Company's Form 10-K dated
December 13, 1996.
Page 5
<PAGE>
Inventories
- -----------
Inventories are valued at the lower cost or market as determined on the first-
in, first out basis. Cost includes raw materials, direct labor and manufacturing
overhead. The Company generally provides reserves for inventory considered to be
in excess of 12 months of future demand.
<TABLE>
<CAPTION>
June 30, Sept. 30,
(in thousands) 1997 1996
---- ----
<S> <C> <C>
Finished goods $ 2,468 $ 1,540
Work-in-process 1,248 1,870
Raw material 10,749 8,539
Valuation reserves (673) (607)
------- -------
$13,972 $11,342
======= =======
</TABLE>
Supplemental Cash Flow Information
- ----------------------------------
During the first quarter of fiscal 1997, the Company incurred a capital lease
obligation of $1,122 associated with the lease of a manufacturing facility in
Beaver Springs, PA.
Supplemental Earnings Per Share Information (SFAS 128)
- -------------------------------------------------------
In February, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128), which
establishes new standards for computing and presenting earnings per share
("EPS"). SFAS 128 replaces the presentation of primary EPS with a presentation
of basic EPS. It also requires dual presentation of basic diluted EPS on the
face of the income statement for all entities with a complex capital structure.
SFAS 128 is effective for financial statements issued for periods ending after
December 15, 1997 and earlier adoption is not permitted. EPS included in the
accompanying financial information is computed in accordance with APB Opinion
No. 15, "Earnings per Share". Had the provisions of SFAS 128 been effective for
the Company's third quarter of fiscal 1997, basic EPS and diluted EPS on a pro
forma basis would be approximately $0.32 per share and $0.27 per share,
respectively, for the three months ended June 30, 1997.
Page 6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
The Company's current and historic results reflect its acquisition of Denron,
Inc. ("Denron") through a pooling of interests transaction on June 4, 1997. See
"Business Combinations".
Net sales for the three and nine month periods ended June 30, 1997 increased
$6,892,000, or 31.5%, and $23,760,000, or 38.4%, respectively, compared to the
same periods one year earlier. The net sales increase for both the three and
nine month periods were primarily the result of internal sales growth through
increased volumes with existing customers. Sales during the three month period,
were negatively impacted by seasonal slowness in its customer's computer and
telecommunications business.
Gross profit increased $2,368,000, or 56.7%, and $7,755,000, or 78.8%, to
$6,543,000 and $17,596,000 respectively, for the three month and nine month
periods when compared to the corresponding periods one year earlier. Gross
profit as a percentage of net sales increased to 22.8% from 19.1% and to 20.6%
from 15.9%, respectively, for the three month and nine month periods compared to
the same periods one year earlier. The increase in gross margin as a percentage
of net sales for the three and nine month periods was primarily the result of a
favorable product mix, decreased raw material costs related to the Company's
ability to acquire materials at lower prices because of increased purchase
volumes and the greater absorption of fixed costs because of greater sales
volumes. The ability to acquire materials at lower prices is attributable to
higher volume purchase discounts.
Selling, general and administrative ("SG & A") expenses increased $1,183,000, or
56.8% for the three month period and $2,464,000, or 43.7%, for the nine month
period, compared to the same periods one year earlier. As a percent of net
sales, SG & A increased to 11.3% from 9.5% for the three month period and to
9.5% from 9.1% for the nine month period compared to the same periods one year
earlier. Before the $743,000 charge for costs related to the merger with
Denron, the three and nine month period's SG & A percentages were 8.7% and
8.6%, respectively. In addition to the charge for costs related to the merger,
SG &A expense increases were attributable to compensation expense necessary to
support the Company's growth and to commissions paid on the sale of certain of
the Company's products.
The Company's effective tax rate for the three month and nine month periods
remained at 40%.
Net earnings increased $630,000, or 55.6% ,and $3,946,000, or 260%, to
$1,744,000 and $5,464,000, respectively, compared to the same periods one year
earlier. The net earnings increase during the three and nine month periods was
primarily due to the increased sales and margins as discussed above.
Earnings per share increased to $0.23 from $0.15 and $0.73 from $0.25 for the
three and nine month periods, respectively, compared to the same periods one
year earlier. Earnings per share for both periods were negatively affected by
$0.06 for the $743,000 charge for costs related to the merger with Denron.
Liquidity and Capital Resources
- -------------------------------
Operating activities during the nine months of fiscal 1997 provided cash in the
amount of $2,094,000, primarily attributable to net income and depreciation
which offset inreases in accounts receivable and inventory, as compared to cash
used in the amount of $281,000 during the same period one year earlier. Working
capital at June 30, 1997 was $14,322,000, an increase of $4,116,000 from
September 30, 1996. During the nine months the Company had capital expenditures
of $2,593,000, comprised mainly of production equipment. During the nine month
period the Company also entered into an agreement for $1,122,000 for the lease
of the new facility in Beaver Springs, PA.
Page 7
<PAGE>
On May 30, 1997, the Company entered into a $20,000,000 bank line of credit
secured by the Company's accounts receivables and inventory. The interest rate
is the bank's prime rate minus .25% or a LIBOR-based rate determined by a
sliding scale based on the Company's debt to equity ratio, currently at the
bank's LIBOR rate plus 1.25% for borrowings of 30, 60 and 90 days.
Borrowings under the Company's line of credit at June 30, 1997 were $2,001,000
against a borrowing availability of $16,007,000 based on the collateral base
and the $20,000,000 limit.
On June 4, 1997 the Company completed a merger with Denron by exchanging 791,170
shares of the Company's common stock for all of the outstanding common stock of
Denron. Each share of Denron stock was exchanged for 1.055 shares of JPM common
stock.
The merger is intended to be constituted as a tax-free reorganization and has
been accounted for as a pooling of interests under Accounting Principles Board
Opinion No. 16. Accordingly, all prior period consolidated financial statements
presented have been restated to include the combined results of operations,
financial position and cash flows of Denron as though it had always been a part
of the Company.
Prior to the merger, Denron's fiscal year ended on March 31. In recording the
business combination, Denron's 1996 prior period financial statements have been
restated to a year ended September 30, to conform with the Company's fiscal
year-end.
On April 22, 1997, the Company announced that it had reached an agreement in
principle to acquire the assets of Corma GmbH located in Leuchtenberg, Germany
and Corma s.r.o. located in Bor, Czech Republic for approximately $2,000,000.
JPM had previously announced a manufacturing services agreement with Corma to
manufacture products to support JPM's customers in Europe. The initial
agreement is to provide wire harnesses and cable assemblies to Interbold, the
joint venture between IBM and Diebold for ATM's in the European market.
The Company believes cash flow from operations and funds available from its bank
line of credit will be sufficient to satisfy its working capital requirements
and capital expenditure needs for at least the next twelve months. However,
depending upon its rate of growth, acquisitions and profitability, the Company
may require additional equity or debt financing to meet its working capital
requirements or capital expenditure needs, including the possible need for
additional manufacturing capacity.
Subsequent to the close of the third quarter, the Company announced that it had
begun preparation of a registration statement for an underwritten secondary
offering of common stock. Although the size and terms of the offering have not
yet been determined, the offering is anticipated to be approximately 3,000,000
shares to be apportioned between the Company and certain of its current
shareholders in an approximate 2 to 1 ratio. The Company anticipates utilizing
the proceeds from such offering to fund Company growth, to participate in the
continued industry consolidation, to expand both domestically and
internationally and for other business purposes. The Company expects to file its
registration statement in the next few months and any sales will be made only by
means of a written prospectus.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1955.
This filing may contain forward-looking statements that involve risks and
uncertainties, Among the important factors which could cause actual results to
differ materially from those in the forward-looking statements are the impact of
a competitive products and pricing, product demand, the presence of empetitors
with greater financial resources, and commercialization risks, costs associated
with integration and administraiton of acquired operations, capacity and supply
constraints or difficulties, the results of financing efforts and other factors
detailed in the Company's filings with the Securities and Exchange Commission
including its recent filings on Forms 10-K, 10-Q and Schedule 14A.
Page 8
<PAGE>
PART II-OTHER INFORMATION
Item 1. N/A
- -------
Item 2. N/A
- -------
Item 3. N/A
- -------
Item 4. N/A
- -------
Item 5. N/A
- -------
Item 6. Exhibits and Reports on Form 8-K.
- ------- ---------------------------------
(a) Exhibits:
27-Financial Data Schedule
(b) Reports of Form 8-K: On March 12, 1997, the Company filed notice of
the execution of a definitive merger agreement for the acquisition
of Denron, Inc. On June 4, 1997 the Company filed a notice of the
closing of the Denron acquisition.
Page 9
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE JPM COMPANY
---------------
Registrant
Date: August 11, 1997 By: /s/ John H. Mathias
-----------------------------------
John H. Mathias
Chairman of the Board and Chief Executive
Officer (Principal Executive Officer)
Date: August 11, 1997 By: /s/ William D. Baker
-----------------------------------
William D. Baker
Vice President, Chief Financial Officer
and Treasurer
(Principal Financial Officer and
Accounting Officer)
Page 10
<PAGE>
EXHIBIT INDEX
-------------
Exhibit numbers are in accordance with the
Exhibit Table in Item 601 of Regulation S-K
-------------------------------------------
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description Sequential Page No.
- ----------- ------------------- -------------------
<S> <C> <C>
27 Financial Data Schedule 12
The following exhibits are incorporated by reference from the Company's annual
report on Form 10-K filed on December 13, 1996.
3.1.* Amended and Restated Articles of Incorporation
of the Company
3.2.* Amended and Restated Bylaws of the Company
4.1.* Specimen Certification of Common Stock of the Company
10.4.* List of contracts identified in Item 16 of the company's
Registration Statement
24.1. Power of Attorney
</TABLE>
* Filed as part of the Company's registration statement filed on Form S-1
on February 9, 1996 and declared effective April 30, 1996.
Page 11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE JPM COMPANY AND SUBSIDIARIES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 1,477
<SECURITIES> 0
<RECEIVABLES> 13,463
<ALLOWANCES> 202
<INVENTORY> 13,972
<CURRENT-ASSETS> 29,827
<PP&E> 19,044
<DEPRECIATION> 8,151
<TOTAL-ASSETS> 46,017
<CURRENT-LIABILITIES> 15,505
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 25,645
<TOTAL-LIABILITY-AND-EQUITY> 46,017
<SALES> 85,642
<TOTAL-REVENUES> 85,642
<CGS> 68,046
<TOTAL-COSTS> 76,148
<OTHER-EXPENSES> 63
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 451
<INCOME-PRETAX> 9,106
<INCOME-TAX> 3,642
<INCOME-CONTINUING> 5,464
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,464
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.73
</TABLE>
