<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, 2000
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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
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THE JPM COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1702908
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
155 North 15th Street, Lewisburg, PA 17837
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(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code 570-524-8225
-------------------
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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 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 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 August 15, 2000, 7,400,286 shares of common stock, $.000067 par value,
were issued and outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
THE JPM COMPANY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited-in thousands, except per share amounts)
Three Months Ended Nine Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 41,530 $ 42,985 $ 127,583 $ 127,864
Cost of sales 42,082 35,477 115,954 105,472
----------- ----------- ----------- -----------
Gross profit (loss) (552) 7,508 11,629 22,392
Selling, general and
administrative expenses 5,036 3,754 13,070 11,351
Plant shutdown expenses - - - 178
----------- ----------- ----------- -----------
Operating profit (loss) (5,588) 3,754 (1,441) 10,863
Other income (expense)
Interest expense (2,032) (956) (4,967) (2,931)
Other, net (307) 70 (297) (22)
----------- ----------- ----------- -----------
(2,339) (886) (5,264) (2,953)
----------- ----------- ----------- -----------
Income (loss) before income taxes and
minority interest (7,927) 2,868 (6,705) 7,910
Provision for income taxes 239 1,078 804 2,888
----------- ----------- ----------- -----------
Income (loss) before minority interest (8,166) 1,790 (7,509) 5,022
Minority interest 128 34 241 311
----------- ----------- ----------- -----------
Net income (loss) $ (8,294) $ 1,756 $ (7,750) $ 4,711
=========== =========== =========== ===========
Basic earnings (loss) per share $ (1.12) $ 0.24 $ (1.05) $ 0.65
=========== =========== =========== ===========
Diluted earnings (loss) per share $ (1.12) $ 0.23 $ (1.05) $ 0.62
=========== =========== =========== ===========
Average number of shares
outstanding (Basic) 7,375 7,356 7,369 7,297
Average number of shares
outstanding (Diluted) 7,375 7,633 7,369 7,586
The accompanying notes are an integral part of these statements.
</TABLE>
Page-2
<PAGE>
<TABLE>
<CAPTION>
THE JPM COMPANY CONDENSED CONSOLIDATED BALANCE SHEET (in thousands)
June 30, September 30,
2000 1999
----------------- -------------------
<S> <C> <C>
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,860 $ 969
Accounts receivable, net 24,190 21,755
Inventories, net 46,565 37,227
Other current assets 9,823 5,802
------------- --------------
Total current assets 82,438 65,753
Property, plant and equipment, net 30,711 31,164
Excess of cost over fair value of net assets acquired and other intangible
assets, net 28,144 24,773
Other assets 2,743 2,870
------------- --------------
$ 144,036 $ 124,560
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 69,472 $ 744
Notes payable 2,000 2,000
Accounts payable 20,789 18,375
Accrued expenses 9,307 4,753
Deferred income taxes 3,589 3,589
------------- --------------
Total current liabilities 105,157 29,461
Long-term debt 4,863 53,100
Other long-term liabilities 2,855 2,428
Minority interest 938 698
------------- --------------
113,813 85,687
SHAREHOLDERS' EQUITY
Preferred stock, no par value, 10,000
shares authorized; none issued and outstanding - -
Common Stock, $.000067 par value,
40,000 shares authorized, issued
7,380 at June 30, 2000 and
7,060 at September 30, 1999 - -
Additional paid-in capital 20,390 20,373
Retained earnings 11,160 18,910
Accumulated other comprehensive loss (1,327) (410)
-------------- -----------
Total shareholders' equity 30,223 38,873
-------------- -----------
$ 144,036 $ 124,560
============== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
Page-3
<PAGE>
<TABLE>
<CAPTION>
THE JPM COMPANY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited-in thousands)
Nine Months Ended
June 30, June 30,
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (7,750) $ 4,711
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,625 2,997
Provision for losses on accounts receivable
and inventories 2,895 63
Foreign currency translation (gain) loss (406) (81)
Loss (gain) on sale of property, plant and equipment - (18)
Deferred taxes 209 1,769
Minority interest 240 311
Deferred compensation expense 218 149
Change in assets and liabilities,
net of effects from businesses acquired:
(Increase) decrease in accounts receivable (3,180) (2,467)
(Increase) decrease in inventories (11,990) (8,124)
(Increase) decrease in other assets (3,826) (1,748)
Increase (decrease) in accounts payable 3,389 7,433
Increase (decrease) in accrued expenses 4,568 1,254
--------- --------
Net cash provided by (used in) operating activities (12,008) 6,249
--------- ---------
Cash flows from investing activities:
Payments for assets and businesses acquired, net of cash
acquired ($465 in 1999) - (5,827)
Capital expenditures (5,899) (9,496)
Proceeds from sale of property, plant and equipment 3,500 28
Deferred compensation plan contributions (218) (157)
--------- ---------
Net cash provided by (used in) investing
activities (2,617) (15,452)
--------- ---------
Cash flows from financing activities:
Net borrowings (repayments) under credit facilities 16,285 7,468
Principal payments on long-term debt (497) (419)
Proceeds from exercise of stock options 18 230
--------- ---------
Net cash provided by (used in) financing activities 15,806 7,279
--------- ---------
Effect of changes in exchange rates on cash (290) (159)
--------- ---------
Increase (decrease) in cash 891 (2,083)
Cash at beginning of period 969 2,625
--------- ---------
Cash at end of period $ 1,860 $ 542
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
Page-4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share data)
Accounting Policies
The consolidated balance sheet as of June 30, 2000 and the related
consolidated statements of operations and of cash flows for the three and nine
month periods ended June 30, 2000 and June 30, 1999 have been prepared by the
Company without audit. In the opinion of management, the financial statements
include all of the adjustments necessary for fair presentation. Interim results
are not necessarily indicative of results for a full year. These financial
statements should be read in conjunction with the audited financial statements
of the Company and the notes thereto for the fiscal year ended September 30,
1999, included in the Company's Form 10-K dated December 27, 1999.
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 estimated valuation
reserves for inventory based on usage.
<TABLE>
June 30, September 30,
2000 1999
<S> <C> <C>
------------ ------------
Finished goods $ 12,030 $ 10,392
Work-in-process 6,701 5,134
Raw material and supplies 31,369 23,039
Valuation reserves (3,535) (1,338)
------------ ------------
$ 46,565 $ 37,227
============ ============
</TABLE>
Comprehensive Income
The components of accumulated other comprehensive loss are as follows:
<TABLE>
June 30, September 30,
2000 1999
----------- ----------
<S> <C> <C>
Foreign currency translation adjustments $ (1,327) $ (410)
---------- ----------
Accumulated other comprehensive loss $ (1,327) $ (410)
========== ==========
</TABLE>
The components of comprehensive income of the Company for the three and
nine month periods ended June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net income (loss) $(8,294) $ 1,756 $(7,750) $4,711
Other comprehensive income (loss):
Foreign currency translation adjustments (1,086) 171 (917) (109)
--------- --------- -------- -------
Other comprehensive income (loss) (1,086) 171 (917) (109)
--------- --------- -------- -------
Comprehensive income (loss) $(9,380) $ 1,927 $(8,667) $4,602
======== ======== ======= ======
</TABLE>
Page-5
<PAGE>
Earnings Per Share Information
The difference between the basic average number of shares outstanding and
the diluted average number of shares outstanding is due to the treasury stock
method calculation of the impact of unexercised stock options granted under the
Company's stock option plans.
Financing Arrangements
The Company has a $70,000 bank revolving line of credit that expires in
April 2001 and provides for both short- and long-term borrowing. The interest
rate on the line is an adjustable rate which varies between the bank's prime
lending rate plus 0% up to 3.0% or, at the Company's election, a LIBOR-based
rate plus 0.875% up to 3.75% measured on a sliding scale tied to the Company's
debt to annualized EBITDA ratio. Borrowings and commitments under the line of
credit were $68,951 at June 30, 2000. At December 31, 1999, March 31, 2000, and
June 30, 2000, the Company requested and received from its bank group a waiver
for its loan convenant that measures EBITDA to total debt. At March 31, 2000,
and June 30, 2000, the Company also requested and received from its bank group a
waiver for its loan covenant that measures fixed charge coverage. At June 30,
2000, the Company also requested and received from its bank group a waiver for
its covenant that measures debt to total capital. The current temporary waiver
is effective through October 1, 2000. As a result of higher borrowings and the
waivers, the interest rate on borrowings under the line of credit agreement
increased by 1.0% effective January 24, 2000, and increased an additional 0.5%
effective May 11, 2000. In addition to increased interest rates, the loan
agreement has been amended to modify certain convenants to reflect the Company's
higher debt and lower annualized EBITDA due to the Company's loss in the quarter
ended March 31, 2000. The loan agreement now includes mandatory principal
repayments and line availability reductions beginning in early fiscal 2001 based
on an excess cash flow calculation. The Company's current financing agreement
with the banks expires April 9, 2001, and all bank group debt is therefore
classified as current on the Company's balance sheet as of June 30, 2000. The
Company is actively reviewing financing alternatives with its bank group. Should
the Company and its banks not be able to reach an agreement on refinancing and
extending the due date of the Company's bank debt, the Company will not be able
to make the debt repayment terms without obtaining other external financing.
Recent Accounting Pronouncements
On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and if it is, the type
of hedge transaction. Management of the Company anticipates that due to its
limited use of derivative instruments, the adoption of SFAS 133 will not have a
significant effect on the Company's results of operations or its financial
position.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulleting (SAB) No. 101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements filed with the Commission. In June
2000, the SEC issued SAB No. 101B, "Second Amendment: Revenue Recognition in
Financial Statements". SAB 101B delays the implementation of SAB 101 until no
later than the fourth fiscal quarter of fiscal years beginning after December
15, 1999. Management of the Company believes that adoption of SAB 101 will not
have a material effect on the financial position or results of operations of the
Company.
Reclassification
Certain prior year balances have been reclassified for comparative
purposes.
Page-6
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table presents, in thousands of dollars and as a percentage
of sales, certain selected consolidated financial data for the quarters ended
June 30, 2000 and 1999.
<TABLE>
June 30, Change June 30,
(in thousands) 2000 1999 in Dollars 2000 1999
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales............ $ 41,530 $ 42,985 $ (1,455) 100.0% 100.0%
Cost of sales........ 42,082 35,477 6,605 101.3 82.6
-------------------------------------------------------
Gross profit......... (552) 7,508 (8,060) (1.3) 17.4
Selling, general and
administrative expenses. 5,036 3,754 1,282 12.1 8.7
-----------------------------------------------------
Income from operations.. (5,588) 3,754 (9,342) (13.4) 8.7
Interest expense........ (2,032) (956) (1,076) (4.9) (2.2)
Other income (expense).. (307) 70 (377) ( .8) 0.2
-----------------------------------------------------
Income before taxes and
minority interest......$ (7,927) $ 2,868 $(10,795) (19.1)% 6.7%
=======================================================
</TABLE>
Results of Operations
Net sales for the three months ended June 30, 2000 decreased by $1,455, or
3.4%, to $41,530 compared to the same period one year earlier. The decrease for
the three month period was primarily the result of decreased sales to the
Company's computer customers and plant capacity imbalances that have prevented
the Company from increasing new business at certain of its manufacturing
facilities. Net sales for the nine months ended June 30, 2000, decreased by $281
or .2% to $127,583 as compared to the first nine months of fiscal 1999. The
flatness in sales was attributable to increased sales to customers in the
telecommunications market offset by reduced sales to customers in the computer
market. The amount of the Company's sales to its customers in the computer
market is directly affected by the timing of the introduction of new products by
the customers and the product life cycle of the customers' products.
Gross profit for the three and nine months ended June 30, 2000, decreased
$8,060 or 107.3%, and $10,763 or 48.1% respectively, when compared to the
corresponding periods one year earlier. Gross profit as a percentage of net
sales for the three and nine month periods decreased from 17.4% to (1.3%) and
from 17.5% to 9.1%, respectively, when compared to the same periods one year
earlier. The decrease in gross profit as a percentage of sales was attributable
to increased demand at the Company's higher cost Canadian and United States
operations and available capacity at the Company's lower cost Mexican
facilities, product mix, and certain non-recurring charges. As a result of the
capacity imbalance, the Company incurred costs associated with product transfer,
hiring and training new employees, increased overtime and expedited logistics
expenses that had a negative impact on gross profit during the three and nine
month periods.
Non-recurring charges totaling $3.6 million pre-tax were recorded in the
three months ended June 30, 2000. The charges included $2.3 million for
inventory valuation adjustments related to changes in reserve estimates and the
completion of recent physical inventories, $0.8 million for certain severance
and accrued vacation costs and $0.5 million for other valuation reserve
adjustments and professional fees. These non-recurring charges reduced gross
profit by $3.2 million and selling, general and administrative expenses by $0.4
million in both the three and nine month periods.
Selling, general and administrative ("SG & A") expenses for the three
months ended June 30, 2000, increased by $1,282, or 34.2%, compared to the three
months ended June 30, 1999, despite the lower sales volume. SG&A for the nine
months ended June 30, 2000, increased by $1,719 or 15.1%, compared to the same
period in 1999. The increase in SG&A is due primarily to increased personnel
costs. SG&A for the three and nine month periods ended June 30, 1999, excludes
plant shutdown expense of $178 related to the South Carolina manufacturing
facility. SG&A as a percentage of sales for the three and nine month periods
increased from 8.7% to 12.1% and from 8.9% to 10.2%, respectively, primarily due
to lower absorption of fixed SG&A costs.
Interest expense for the three and nine months ended June 30, 2000
increased $1,076 or 112.6% to $2,032 and $2,036 or 69.5% to $4,967,
respectively, compared to the same fiscal 1999 periods. The increase is
attributable to the borrowings related to increases in working capital and
higher interest rates in fiscal 2000.
Page-7
<PAGE>
In the three and nine month periods ended June 30, 2000, income tax expense
of $239 and $804 was recorded on losses of $7,927 and $6,705, respectively, to
reflect certain foreign and local taxes. Due to the Company's current net
operating loss carry-forward position, the Company did not record future tax
benefits that would normally be expected to result from current losses. The
effective income tax rate was 36.5% for the nine months ended June 30, 1999.
Net loss for the three and nine month periods ended June 30, 2000 amounted
to $8,294 and $7,750, respectively. The losses during the three and nine month
periods were due to decreased gross profit and increased SG&A and interest rates
as discussed above. This compares to net income of $1,756 for the three month
period and net income of $4,711 for the nine month period one year earlier. Loss
per share for the current three and nine month periods were ($1.12) and ($1.05),
in comparison to earnings per share of $.23 and $.62 for the three and nine
month periods one year earlier.
Liquidity and Capital Resources
Operating activities during the nine months of fiscal 2000 utilized cash in
the amount of $12,008, primarily attributable to funding the Company's net loss
and increases in accounts receivable and inventories, as compared to cash
provided in the amount of $6,249 during the same period one year earlier.
Working capital at June 30, 2000, was ($22,719), a decrease of $59,011 from
September 30, 1999. The decrease in working capital is primarily due to the
short-term classification of the Company's bank group debt. During the first
nine months of fiscal 2000, the Company had capital expenditures of $5,899
partially funded by proceeds from the sale/leaseback of a building in Mexico.
Borrowings and committments under the Company's line of credit at June 30,
2000 were $68,951 at an average interest rate of 10.35%. The increase of $19,483
during the nine months ended June 30, 2000 was used primarily to fund losses and
increased working capital levels. The Company had availability of $1,049
remaining under its line of credit at June 30, 2000.
At June 30, 2000, the Company requested and received from its bank group a
temporary waiver for all its loan covenants. The temporary waiver is effective
through October 1, 2000. The Company's current financing agreement with the
banks expires April 9, 2001, and all bank group debt is therefore classified as
current on the Company's balance sheet as of June 30, 2000. The Company is
actively reviewing financing alternatives with its bank group. Should the
Company and its bank groups not be able to reach an agreement on refinancing and
extending the due date of the Company's bank debt, the Company will not be able
to make the debt repayment terms without obtaining other external financing.
Subject to successful refinancing or extension of the Company's bank debt,
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. The Company
is also required to pay by September 14, 2000, contingent cash consideration of
up to $4.5 million pursuant to an earnout arrangement included in the Antrum
stock purchase agreement. The Company believes funds available from its
operations and working capital line of credit will be sufficient to satisfy this
obligation. 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.
The Company has engaged Lehman Brothers, Inc. to review strategic
alternatives for financing and partnership. This process has resulted in
multiple preliminary expressions of interest by organizations representing
several key industry sectors. There are no assurances that such efforts will
result in completion of a transaction.
Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes from the information concerning the
Company's "Market Risk" as previously reported in the Company's Annual Report on
Form 10-K for the year ended September 30, 1999.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995.
This report may contain forward-looking statements that involve risks and
uncertainties. Among the important factors which could cause actual results to
differ materially from those forward-looking statements are the results of the
Lehman Brothers strategic review process referred to above, the refinancing or
extension of the Company's bank debt, costs associated with the integration and
administration of acquired operations, costs related to the start-up of new
business with new or existing customers, the impact of competitive products and
pricing, product demand, the presence of competitors with greater financial
resources, availability of additional sources of financing and commercialization
risks, capacity and supply constraints or difficulties, delays in product
transfers, the results of financing efforts and other factors detailed in the
Company's filings with the Securities and Exchange Commission including recent
filings of Forms 10-K and 10-Q.
Page-8
<PAGE>
PART II - OTHER INFORMATION
Item 1. N/A
Item 2. N/A
Item 3. Default Upon Senior Securities
At June 30, 2000, the Company was in violation of its
loan convenants that measure EBITDA to total debt and fixed
charge coverage. The discussion in "Management's Discussion
and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" is
incorporated herein by reference.
Item 4. N/A
Item 5. N/A
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Amended and Restated Articles of Incorporation of
the Company
Amended and Restated Bylaws of the Company
Specimen Certificate of Common Stock of the Company
Financial Data Schedule
Employment Agreement dated May 9, 2000 by and between Jack
J. Fitzgibbons and The JPM Company
Employment Agreement dated May 31, 2000 by and between
Thomas A. Zuzzio and The JPM Company
(b) Reports on Form 8-K
None
<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 22, 2000 By:/s/ John H. Mathias
--------------- ----------------------
John H. Mathias
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: August 22, 2000 By: /s/ Kevin J. Bratton
--------------- ------------------------
Kevin J. Bratton
Chief Financial Officer
(Principal Financial Officer)
<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 Certificate of Common Stock of the Company
27 Financial Data Schedule
99.1 Employment Agreement dated May 9, 2000 by and between Jack J.
Fitzgibbons and The JPM Company.
99.2 Employment Agreement dated May 31, 2000 by and between Thomas A.
Zuzzio and the The JPM Company.
* Filed as part of the Company's Registration Statement filed on Form S-1 on
February 9, 1996 and declared effective April 30, 1996.
