<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 March 31, 1998
-----------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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.)
155 North 15th Street, Lewisburg, PA 17837
- -----------------------------------------------------------------------------
(Address of principal executive offices) (ZIP Code)
Registrants telephone number, including area code 717-524-8225
----------------------------
Route 15 North, Lewisburg, PA 17837
- -----------------------------------------------------------------------------
(Former address of principal executive offices) (ZIP Code)
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 classes
of common stock, as of the latest practicable date.
At March 31, 1998, 7,041,646 shares of common stock, $.000067 par value, were
issued and outstanding.
<PAGE>
THE JPM COMPANY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited-in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 30,373 $ 30,160 $ 61,839 $ 56,881
Cost of sales 24,971 24,144 51,214 45,828
----------- ----------- ----------- -----------
Gross profit 5,402 6,016 10,625 11,053
Selling, general and 3,566 2,566 6,817 4,846
administrative
Secondary offering costs - - 400 -
Plant shutdown expenses 1,412 - 1,412 -
----------- ---------------- ----------------------------------
Operating profit 424 3,450 1,996 6,207
Other income (expense)
Interest expense (443) (146) (707) (256)
Other (net) (13) (50) 48 249
--------------------------------- ----------- -----------
(456) (196) (659) (7)
----------- ----------- ----------- -----------
Income before taxes (32) 3,254 1,337 6,200
Provision for income taxes (12) 1,302 508 2,480
----------- ----------- ----------- -----------
Net income (loss) $ (20) $ 1,952 $ 829 $ 3,720
=========== =========== =========== ===========
Basic earnings per share $ 0.00 $ 0.28 $ 0.12 $ 0.54
=========== =========== =========== ===========
Diluted earnings per share $ 0.00 $ 0.26 $ 0.11 $ 0.50
=========== =========== =========== ===========
Average number of shares
outstanding (Basic) 7,007,000 6,858,000 6,992,000 6,836,000
Average number of shares
outstanding (Diluted) 7,425,000 7,475,000 7,492,000 7,417,000
</TABLE>
The accompanying notes are an integral part of these statements.
Page 2
<PAGE>
THE JPM COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
March 31, 1998 September 30, 1997
------------------ ------------------
(unaudited)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 2,018 $ 543
Accounts receivable, net 14,479 12,692
Inventories, net 21,492 19,328
Other current assets 2,881 2,045
------------ -------------
Total current assets 40,870 34,608
Property, plant and equipment, net 16,889 13,552
Excess of cost over fair value of assets acquired, net 4,490 4,807
Other assets 1,331 1,163
------------ -------------
$ 63,580 $ 54,130
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 13,038 $ 8,182
Current maturities of long-term debt 1,502 1,517
Accounts payable 6,048 6,841
Accrued expenses 5,913 3,924
Deferred income taxes 1,322 1,532
------------ -------------
Total current liabilities 27,823 21,996
Long-term debt 5,397 2,805
Other long-term liabilities 1,182 1,098
------------ -------------
34,402 25,899
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 7,042,000 at March 31, 1998 and 6,077,000 at
September 30, 1997 - -
Additional paid-in capital 17,316 17,187
Retained earnings 11,873 11,044
Cumulative translation adjustment (11) -
------------ -------------
Total shareholders' equity 29,178 28,231
------------ -------------
$ 63,580 $ 54,130
============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
Page 3
<PAGE>
THE JPM COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited-in thousands)
<TABLE>
<CAPTION>
Six Months Ended
March 31, March 31,
1998 1997
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 829 $ 3,720
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 1,369 809
Foreign currency translation (gain) loss (92) (335)
Loss (gain) on sale of property, plant and equipment - 41
Deferred taxes (231) -
Deferred compensation expense 105 34
Change in assets and liabilities:
(Increase) decrease in accounts receivable (2,444) (3,321)
(Increase) decrease in inventories (2,164) (1,343)
(Increase) decrease in other assets (242) (470)
Increase (decrease) in accounts payable (793) (1,382)
Increase (decrease) in accrued expenses 2,070 1,687
Increase (decrease) in income taxes payable - (381)
----------- -----------
Net cash provided by (used in) operating activities (1,593) (941)
----------- -----------
Cash flows from investing activities:
Capital expenditures (4,389) (1,389)
Proceeds from the sale of property, plant and equipment - 5
Loans to related parties, net - 206
Deferred compensation plan contributions (105) (38)
----------- -----------
Net cash provided by (used in) investing activities (4,494) (1,216)
Cash flows from financing activities:
Net borrowings (repayments) under credit facilities 4,856 1,289
Proceeds from issuance of long-term debt 2,898 70
Principal payments on long-term debt (321) (348)
Proceeds from exercise of stock options 129 120
----------- -----------
Net cash provided by (used in) financing activities 7,562 1,131
----------- -----------
Increase (decrease) in cash 1,475 (1,026)
Cash at beginning of the period 543 1,411
----------- -----------
Cash at end of the period $ 2,018 $ 385
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 4
<PAGE>
Accounting Policies
- -------------------
The consolidated balance sheet as of March 31, 1998 and the related consolidated
statements of operations and cash flows for the three and six month periods
ended March 31, 1998 and March 31, 1997, 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
indicative 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, 1997, included in the Company's Form 10-K dated
November 24, 1997.
Inventories
- -----------
Inventories are valued at the lower of 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>
March 31, September 30,
(in thousands) 1998 1997
----------- ------------
<S> <C> <C> <C> <C>
Finished goods $ 6,310 $ 4,103
Work-in-process 3,236 2,810
Raw material and supplies 12,730 13,108
Valuation reserves (784) (693)
------ ------
$ 21,492 $ 19,328
====== ======
</TABLE>
Earnings Per Share Information (SFAS 128)
- -----------------------------------------
The Company has adopted 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 and 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. All
prior period EPS information has been restated in accordance with SFAS 128. The
difference between the basic average number of shares outstanding and the
diluted average number of shares outstanding is the treasury stock method
calculation of the unexercised stock options granted under the Company's 1993
and 1995 stock option plans.
Short-Term Borrowings
- ---------------------
On April 9, 1998, the Company increased its revolving line of credit to permit
the Company to draw up to $60,000,000. This expanded facility is a revolving
credit facility maturing in three years. The borrowing rate under the terms of
the agreement is an adjustable rate that varies between an interest rate of
prime plus 0% up to .25% or a LIBOR rate plus .875% up to 2.0%.
Closing of South Carolina Manufacturing Facility
- ------------------------------------------------
On March 27, 1998, the Company announced plans to cease operations at its
Winnsboro, S.C. manufacturing location and subsequently transfer all business to
other plants in Pennsylvania, California and Mexico.
June 1 has been set as the closure date. The Company has accrued expenses
totaling approximately $1.4 million in closing and severance costs. These costs
are reflected in the income statement as a separate line item described as
"Plant shutdown expenses".
Page 5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Net sales for the three and six months ended March 31, 1998 increased $213,000
or .07% and $4,958,000 or 8.7% to $30,373,000 and $61,839,000, respectively,
compared to the same periods one year earlier. The net increase for both the
three and the six month periods was primarily the result of internal sales
growth through increased volumes with existing customers.
Gross profit decreased $614,000 or -10.2%, and decreased $428,000 or -3.9% for
the three and six month periods, respectively, when compared to the
corresponding periods one year earlier. Gross profit as a percentage of net
sales decreased to 17.8% from 20.0% and 17.2% from 19.4%, respectively for the
three and six month periods compared to the same periods one year earlier. The
decrease in gross profit as a percentage of net sales for the three and six
month periods was primarily the result of an increase in labor costs related to
new product start-up costs, a 4% wage increase in direct labor granted in
October to substantially all of the Company's Pennsylvania and South Carolina
employees and lower direct labor productivity related to the new product start-
up and support. The Company believes that its margins will continue to be
depressed in the short-term for the above reasons. As a result of these
factors, the Company continues to evaluate its cost structures against its
expectations of growth.
Selling, general and administrative ("SG & A") expenses increased $1,000,000 or
39.0% and $1,971,000 or 40.7% for the three and six month periods, respectively,
when compared to the same periods one year earlier. As a percentage of sales,
SG&A increased to 11.74% from 8.51% for the three month period and 11.0% from
8.52% for the six month period compared to the same periods one year earlier.
The six month comparison excludes the $400,000 charge for the write-off of
expenses related to the cancelled secondary offering. In addition to the
charge for costs related to the cancelled secondary offering, the increased SG &
A expense was primarily attributable to compensation expense necessary to
support the Company's growth both domestically and internationally, travel
expense, costs related to hiring new employees and to higher commissions paid on
the sale of certain of the Company's products.
On March 27, 1998, the Company announced the closure of its Winnsboro South
Carolina manufacturing facility. June 1 has been set as the closure date with
business to be transferred to other plants. Accrued expenses relating to the
closure amount to approximately $1,412,000 resulting in a net after tax
reduction of income amounting to $875,000 or $0.12 per share.
The Company's effective tax rate for the three and six month period remained at
38%.
Net loss for the three months ending March 31, 1998 amounted to -$20,000 after
the charge and net earnings were $829,000 for the six months ending March 31,
1998, including the first quarter write-off of the cancelled secondary offering
($0.03 per share). This compares to net earnings of $1,952,000 and $3,720,000
for the three and six month periods one year earlier. Without the respective
write-offs of both the South Carolina facility and the cancelled secondary
offering, net earnings would have been $855,000 or -56.2% and $1,952,000 or
- -47.5% in comparison to the same period one year earlier. The net earnings
decrease during the three and six month periods was primarily due to the
decreased margins and increased SG & A expense as discussed above. Due to the
reasons discussed under gross profit and under SG & A expenses, the Company
anticipates that its net profit will continue to be lower than historical norms
for at least the next quarter.
Diluted earnings per share for the three and six month periods decreased to
$0.00 (after the $0.12 per share charge for the write-off of expenses related to
the closure of the South Carolina facility) and $0.11 (after the $0.12 per share
charge for the write-off of expenses related to the closure of the South
Carolina facility and the $0.03 per share charge for the write-off of expenses
related to the cancelled secondary offering), respectively, from $0.26 and $0.50
for the three and six month periods one year earlier, respectively.
Page 6
<PAGE>
Year 2000 Issues
- ----------------
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Based on a recent assessment, the Company determined that it will be required to
replace portions of its software so that its computer systems will properly
utilize dates beyond December 31, 1999. The Company presently believes that
with modifications to existing software, the Year 2000 Issue can be mitigated.
However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Company.
The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
Issue. The Company's total Year 2000 project costs include the estimated costs
and time associated with the impact of a third party's Year 2000 Issue on the
Company, and are based on presently available information. However, there can
be no guarantee that the systems of other companies on which the Company's
systems rely will be timely converted, or that a failure to convert by another
company, or a conversion that is incompatible with the Company's systems, would
not have material adverse effect on the Company. The Company has determined it
has no exposure to contingencies related to the Year 2000 Issue for the products
it has sold.
The Company plans to complete the Year 2000 project by December 31, 1998. The
total cost of the Year 2000 project is estimated at $100,000, substantially all
of which is to purchase a revision of its current software, and is being funded
through operating cash flows.
The costs of the project and the date on which the Company plans to complete the
Year 2000 modifications are based on management's best estimates, which were
derived utilizing assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from these plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
Liquidity and Capital Resources
- -------------------------------
Operating activities during the six months of fiscal 1998 utilized cash in the
amount of $1,593,000, primarily attributable to increases in accounts receivable
and inventory, as compared to cash used in the amount of $941,000 during the
same period one year earlier. Working capital at March 31, 1998 was
$13,047,000, an increase of $435,000 from September 30, 1997. During the first
six months of fiscal 1998, the Company had capital expenditures of $4,389,000,
comprised mainly of costs related to the remodeling and expansion of a small
manufacturing facility into the Company's corporate office and the purchase of
telephone and teleconferencing equipment.
Borrowings under the Company's line of credit at March 31, 1998 were
$13,038,000. $10,000,000 was borrowed under the terms of the line of credit
agreement at a LIBOR rate of 6.94%, the remainder was borrowed at an interest
rate of 8.25% against a borrowing availability of $30,000,000.
On April 9, 1998, the Company increased its revolving line of credit to permit
the Company to draw up to $60,000,000. This expanded facility is a revolving
credit facility maturing in three years. The borrowing rate under the terms of
the agreement is an adjustable rate that varies between an interest rate of
prime plus 0% up to .25% or a LIBOR rate plus .875% up to 2.0%.
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.
Page 7
<PAGE>
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995.
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
competitive products and pricing, product demand, the presence of competitors
with greater financial resources, commercialization risks, costs associated with
integration and administration 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) None
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: May 13, 1998 By: /s/John H. Mathias
--------------------- ---------------------------------------
John H. Mathias
Chairman of the Board and Chief Executive
Officer (Principal Executive Officer)
Date: May 13, 1998 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
-------------------------------------------
Exhibit No. Exhibit Description
- ----------- -------------------
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
27 Financial Data Schedule
* 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 FROMMTHE
CONSOLIDATED FINANCIAL STATEMENTS OF THE JPM COMANY AND SUBSIDIARIES AND IS
QUALIFIEDIN ITS ENTIRETY BE REFERENCE TO SUCH FINANCIAL STATEMENTS. CONSOLIDATED
FINANCIAL STATEMENTS OF THE JPM COMPANY AND SUBSIDIARIES AND IS QUALIFIED IN ITS
ENTIRETY BY REFRENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 2,018
<SECURITIES> 0
<RECEIVABLES> 14,705
<ALLOWANCES> 226
<INVENTORY> 21,492
<CURRENT-ASSETS> 40,870
<PP&E> 26,426
<DEPRECIATION> 9,537
<TOTAL-ASSETS> 63,580
<CURRENT-LIABILITIES> 27,823
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 29,178
<TOTAL-LIABILITY-AND-EQUITY> 63,580
<SALES> 61,839
<TOTAL-REVENUES> 61,839
<CGS> 51,214
<TOTAL-COSTS> 58,431
<OTHER-EXPENSES> (48)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 707
<INCOME-PRETAX> 1,337
<INCOME-TAX> 508
<INCOME-CONTINUING> 829
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 829
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.11
</TABLE>
