<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the Quarter Ended September 30, 1999
Commission file number 0-24415
-------
JPS Packaging Company
(Exact name of registrant as specified in its charter)
Delaware 31-1311495
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4200 Somerset Drive, Suite 208
Prairie Village, KS 66208
913-381-0008
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 (of 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.
(1) Yes [X] No [ ] (2) Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, [X]
As of September 30, 1999 there were 5,555,205 shares of Common Stock
outstanding.
1
<PAGE>
JPS PACKAGING COMPANY
FORM 10-Q
September 30, 1999
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INTRODUCTORY COMMENTS
---------------------
The Consolidated Financial Statements included herein have been prepared by
Management, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although Management believes that the disclosures are
adequate to enable a reasonable understanding of the information presented. It
is recommended that these Consolidated Financial Statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's Annual Report filed March 30, 1999 on Form 10-K for the year ended
December 31, 1998.
Except for historical information contained herein, the matters set forth
in this report or in oral statements made by officers of the Company are
forward-looking statements that involve certain risks and uncertainties that
could cause actual results to differ materially from those in the forward-
looking statements. The Company's expectations respecting future revenues and
profits assume, among other things, reasonable continued growth in the general
economy which affects demand for the Company's products, reasonable stability in
raw material pricing, changes in which affect customer purchasing decisions as
well as the Company's revenues and margins. Investors are advised to consider
these and other risks and uncertainties that may be discussed in documents filed
by the Company with the Securities and Exchange Commission.
2
<PAGE>
JPS PACKAGING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Sales $20,103 $18,034 $61,319 $60,292
Cost of Goods Sold 18,823 16,871 55,477 55,453
------- ------- ------- -------
Gross Profit 1,280 1,163 5,842 4,839
Selling, General and Administrative Expenses 2,054 2,062 6,709 9,124
Transaction Expense - - - 689
------- ------- ------- -------
Operating Loss (774) (899) (867) (4,974)
Interest Expense, Net 31 11 35 11
------- ------- ------- -------
Loss from Continuing Operations Before Income Taxes (805) (910) (902) (4,985)
Income Tax Benefit (Note 5) - - - (1,426)
------- ------- ------- -------
Loss from Continuing Operations (805) (910) (902) (3,559)
Discontinued Operations (net of tax):
Loss from discontinued operation - (155) - (445)
Gain on sale of discontinued operation - - 415 -
------- ------- ------- -------
Net Loss $ (805) $(1,065) $ (487) $(4,004)
======= ======= ======= =======
Net Loss Per Share From Continuing Operations:
Basic and Diluted $ (0.14) $ (0.16) $(0.16) $ (0.64)
Net Loss Per Share
Basic and Diluted $ (0.14) $ (0.19) $(0.09) $ (0.72)
Average Number of Common Shares Outstanding 5,587 5,553 5,553 5,553
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
JPS PACKAGING COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(In thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 35 $ 2,414
Accounts receivable 11,836 9,803
Inventories (Note 3) 12,205 9,066
Other current assets 784 424
Current deferred income taxes 369 369
------- -------
Total current assets 25,229 22,076
Property, plant and equipment 69,851 67,464
Less: Accumulated depreciation 42,559 39,110
------- -------
Property, plant and equipment, net 27,292 28,354
OTHER ASSETS
Goodwill, net 2,130 2,350
Prepaid pension 442 471
Other 443 456
------- -------
Total other assets 3,015 3,277
------- -------
Total Assets $55,536 $53,707
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
JPS PACKAGING COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(In thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Bank overdraft $ 981 $ -
Accounts payable 4,492 3,986
Accrued customer rebates 1,149 1,476
Accrued vacation 753 681
Short term borrowing (Note 4) 1,000 -
Other accrued liabilities 2,245 2,171
------- -------
Total current liabilities 10,620 8,314
Deferred income taxes 3,835 3,835
------- -------
Total liabilities 14,455 12,149
STOCKHOLDERS' EQUITY (Note 1)
Common stock, par value $0.01, authorized 15,000,000
shares; issued and outstanding 5,555,205 shares
at September 30, 1999 and 5,552,705 shares at
December 31, 1998 - -
Preferred stock, par value $0.01, authorized
1,000,000 shares; none outstanding
Additional paid-in capital 47,754 47,744
Retained earnings (deficit) (6,729) (6,242)
------- -------
Total stockholders' equity 41,081 41,558
------- -------
Total Liabilities and Stockholders' Equity $55,536 $53,707
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
JPS PACKAGING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1999 1998
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss (487) (4,004)
Adjustments To Reconcile Net Loss to Net Cash
Provided (Used) by Operating Activities:
Loss from Discontinued Operations - 445
Gain on Sale of Discontinued Operation (415)
Depreciation and Amortization 3,841 3,878
Loss on Disposal of Equipment 16 11
Deferred Income Taxes - 263
Changes in Assets and Liabilities:
Accounts Receivable, Net (2,033) 1,934
Inventories (3,139) 1,513
Accounts Payable 506 1,898
Other (202) (133)
---------------- ----------------
Net Cash Provided (Used) by Continuing Operations (1,913) 5,805
Net Cash Used by Discontinued Operation (285) (41)
---------------- ----------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (2,198) 5,764
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (2,574) (1,115)
Proceeds from Disposal of Assets - 21
Proceeds from Sale of Discontinued Operation 402 -
---------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES (2,172) (1,094)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in bank overdraft 981 -
Net borrowing under credit line 1,000 -
Proceeds from exercise of stock options 10 -
Distributions To Parent, Net - (1,788)
---------------- ----------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 1,991 (1,788)
---------------- ----------------
Net Increase (Decrease) In Cash (2,379) 2,882
CASH AND EQUIVALENTS, Beginning of Period 2,414 333
---------------- ----------------
CASH AND EQUIVALENTS, End of Period 35 3,215
================ ================
Supplemental Cash Flow Information:
Cash Paid During the Period for
Interest $ 52 -
Income Taxes - -
Non-cash Investing Activities:
Note Receivable from Disposal of Discontinued Operation $ 403 -
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
JPS PACKAGING COMPANY
SEPTEMBER 30, 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements include the accounts of
JPS Packaging and its wholly owned subsidiary (the Company). The entity
operates facilities in San Leandro, California, and Akron, Ohio.
On March 24, 1998, the Company was reorganized and incorporated as a
Delaware corporation (the reorganization). The newly formed Company included
the accounts of two former wholly owned subsidiaries of Sealright Co., Inc.
(Sealright) and the accounts of a portion of Sealright and another subsidiary.
The information included in these condensed consolidated financial
statements reflects all adjustments (consisting only of normal recurring
accruals) which, in the opinion of management, are necessary for a fair
statement of the results for the interim periods presented.
7
<PAGE>
NOTE 2 - ACCOUNTING PRINCIPLES AND POLICIES
The accompanying financial statements have been prepared consistent with
the accounting principles and policies described more fully in Note 1 of the
Company's Annual Report for the year ended December 31, 1998 with the exception
of the change from the LIFO inventory method to FIFO (as more fully described in
note 3 below). Consistent with such Annual Report, financial information for
1998 has been reclassified to present the Raleigh, North Carolina machine
manufacturing business as a discontinued operation.
Net income (loss) per share for period ended September 30, 1998 is based on
the number of common shares issued in connection with the reorganization.
NOTE 3 - INVENTORIES
Inventories are stated at lower of cost or market. The Company has elected
to change to the FIFO (first-in, first-out) method of inventory valuation.
Finished products, work in process and raw material inventories were previously
valued using the LIFO (last-in, first-out) method. The Company believes the
change to the FIFO method of inventory valuation will result in better matching
of raw material cost to the selling price of finished goods and will also better
reflect the current inventory value at period end dates. All previously reported
results have been restated to reflect the application of this accounting change.
Net loss previously reported for fiscal year 1996 was increased by $194,700 or
$0.03 per share, net loss for 1997 was increased by $60,400 or $0.01 per share
and in 1998 the net loss increased by $200,000 or $0.04 per share. The net loss
for nine months ended September 30, 1998 was increased by $75,000 or $0.01 per
share. The was no effect on the first and third quarter income and the effect on
third quarter earnings was an increase of $75,000 or $0.01 per share. There was
no effect for the interim periods in 1999. The effect on retained earnings for
the period ended December 31, 1998 was a decrease of $344,000.
Work in process and finished goods inventories include the cost of material,
labor and factory overhead required in the production of the Company's products.
Inventories at September 30, 1999 and December 31, 1998 consisted of the
following:
<TABLE>
<CAPTION>
(In thousands)
-------------------------------------------------
September 30, December 31,
1999 1998
----------------------- -----------------------
<S> <C> <C>
Raw materials $ 5,187 $3,666
Work in process 2,336 2,211
Finished goods 4,682 3,189
----------------------- -----------------------
Total FIFO basis $12,205 $9,066
======================= =======================
</TABLE>
8
<PAGE>
NOTE 4 - SHORT TERM BORROWINGS
The Company has a $15,000,000 credit facility which expires June 30, 2001, of
which $1,000,000 was borrowed at September 30, 1999 and none in 1998. The
facility is secured by certain assets of the Company, principally inventory,
receivables and property, plant, and equipment. The borrowings under the
facility are limited to a percentage of accounts receivable and inventory. At
September 30, 1999, the Company had unused borrowing capacity of $12.5 million.
The initial interest rate is the prime rate of Harris Trust and Savings Bank or
LIBOR plus 250 basis points.
Pursuant to the debt agreement, the Company must comply with various financial
convenants. During the third quarter 1999 the Company did not meet the
quarterly EBITDA test and was granted a waiver for the period.
NOTE 5 - INCOME TAXES
The operations of the Company were historically included in the consolidated
Federal income tax returns of Sealright. The policy of Sealright was to
allocate consolidated Federal income taxes to members of the affiliated group,
including the Company, on a stand-alone basis. Subsequent to the spin off the
Company files separate tax returns.
9
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
Three months ended September 30, 1999 and September 30, 1998
Net sales for the third quarter of 1999 were $20.1 million versus $18.0
million in the third quarter of 1998, an increase of approximately $2.1 million,
or 11.5%. The increase is attributable to both new business and increased volume
with existing customers. The total increase is offset by a decline of
approximately $1 million in bottle label sales from 1998. The decline in bottle
label sales is due primarily to a decline in the share of the beverage market
held by the soft drink business. The Company expects the decline to be
temporary.
Consolidated gross margin was $1.3 million for the third quarter of 1999 as
compared to $1.2 million in 1998. The resulting gross margin was 6.4% of sales
in 1999 and 1998. Unprecedented increases in raw material prices, not yet passed
through to customers, had a negative impact on the gross margin. The Company is
committed to passing on price increases whenever possible considering the
competitive pressures. In 1999 the gross profit percentage was also impacted by
a less profitable product sales mix and start up expenses due to new product and
customer scale up.
Selling, general and administrative expenses (SG&A) were $2.1 million for the
third quarter 1999 as compared to $2.1 million during the third quarter of 1998.
As a percentage of sales SG&A decreased from 11.4% in 1998 to 10.2% in 1999.
The Company's efforts to reduce SG&A at the facility and corporate level have
attributed to the constant level of expense from 1998 to 1999.
Interest expense was $31,000 for the third quarter ended September 30, 1999
compared to $11,000 for 1998. Borrowing has increased from 1998 due to the
increase in sales and the related increase in inventory and accounts receivable.
Nine months ended September 30, 1999 and September 30, 1998
Net sales for the nine months ended September 30, 1999 were $61.3 million
versus $60.3 million during the same period in 1998, an increase of $1.0
million. An increase in sales to new and existing customers helped offset a
decline of $3.2 million in the bottle label sales. Approximately 70% of the
decline in the bottle label sales is expected to be temporary and is
attributable to the loss of the beverage market share held by the soft drink
industry.
10
<PAGE>
Consolidated gross margin was $5.8 million for the nine months ended September
30, 1999 compared to $4.8 million during 1998. The resulting gross margin was
9.5% in 1999, an increase from 8.0% in 1998. Increased sales volume in the San
Leandro facility and decreased overhead spending in both plants have had a
positive impact on the gross margin.
Selling, general and administrative expenses (SG&A) have decreased to $6.7
million in 1999 from $9.1 million in 1998. SG&A included $1.3 million of non-
recurring SG&A expense in 1998. Adjusting for this item SG&A expense was down
approximately 14% as a result of decreased corporate overhead.
Interest expense was $35,000 for the nine months compared to $11,000 in 1998.
Borrowing has increased primarily due to the increase in sales and the related
increase in inventory and accounts receivable.
Liquidity and Capital Resources
Net cash used by continuing operations was $1.9 million for the nine months
ended September 30, 1999 compared to cash provided of $5.8 million for the same
time period in 1998. Cash was used primarily in 1999 for inventory and
receivables related to the increase in sales, and for increased capital
expenditures. For the first nine months of 1999, the Company had capital
expenditures of $2.6 million for improvements to production related equipment
and the purchase of computer hardware and software.
The Company has historically relied on internally generated cash from
operations as well as funding from Sealright. As a result of the separation from
Sealright, the Company established a $15,000,000 credit facility with a bank, of
which $1,000,000 was borrowed at September 30, 1999. The facility is secured by
certain assets of the Company, principally inventory, receivables and property,
plant, and equipment. The borrowings under the facility are limited to a
percentage of accounts receivable and inventory. At September 30, 1999, the
Company had unused borrowing capacity of $12.5 million. The initial interest
rate is the prime rate of Harris Trust and Savings Bank or LIBOR plus 250 basis
points. Management believes that cash generated by operations and funds
available under the revolving credit facility will be sufficient to meet the
Company's expected operating needs, planned capital expenditures and debt
service requirements.
Pursuant to its debt agreement, the Company must comply with various financial
covenants. As of September 30, 1999, the Company was not in compliance with the
quarterly EBITDA covenant and was granted a waiver. The Company is in the
process of renegotiating amendments with the bank and expects a final agreement
during the fourth quarter.
11
<PAGE>
Discontinued Operation
In June 1999, the Company completed the sale of Styrotech, a machine
manufacturing subsidiary, realizing cash proceeds of $402,000 and a note
receivable of $403,000. The sale resulted in a $415,000 gain after accounting
for receivables and liabilities retained by the Company.
Year 2000 Compliance
During the third quarter the Company completed final implementation and
testing of it's information system and believes the system to be year 2000
compliant. The Company has expended approximately $320,000, of which $95,000 was
charged to operations in the first nine months of 1999, to modify the systems.
The Company's major suppliers have indicated they are year 2000 compliant or
will be year 2000 compliant by December 31, 1999. Where necessary, alternative
suppliers have been identified and will be used if problems should arise in
purchasing necessary materials.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities which has been amended by SFAS No. 137. SFAS
No. 137 changed the effective date of implementation from July 1, 1999 to
January 1, 2001. The statement establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. The statement requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company will adopt the provisions of SFAS
No. 133 effective January 1, 200l. The Company does not expect implementation to
have any effect on its financial statements.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1.) Legal Proceeding
None
Item 2.) Changes in Securities
None
Item 3.) Defaults Upon Senior Securities
None
Item 4.) Submission of Matters to a Vote of Securities Holders
None
Item 5.) Other Materially Important Events
None
Item 6.) Exhibits and Reports on Form 8-K
(a) Exhibits
18 Letter re Change in Accounting Principle
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the third quarter
of 1999.
SALES OF UNREGISTERED SECURITIES
None
13
<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.
JPS PACKAGING COMPANY
Date: November 9, 1999 /s/ Brian Stevenson
By: Brian Stevenson
CEO
Date: November 9, 1999 /s/ John T. Carper
By: John T. Carper
President & CFO
14
<PAGE>
EXHIBIT 18
October 18, 1999
JPS Packaging Company
4200 Somerset Drive, Suite 208
Prairie Village, Kansas 66208
Ladies and Gentlemen:
We have been furnished with a copy of Form 10-Q of JPS Packaging Company (the
Company) for the three months ended September 30, 1999, and have read the
Company's statements contained in notes 2 and 3 to the condensed financial
statements included therein. As stated in note 3, the Company changed its method
of accounting for inventory from the LIFO inventory valuation method to FIFO,
and states that the new adopted accounting principle is preferable in the
circumstances because it provides for the best matching of raw material cost to
the product's selling price, and thus presents a clearer picture of operating
results. In accordance with your request, we have reviewed and discussed with
Company officials the circumstances and business judgment and planning upon
which the decision to make this change in the method of accounting was based.
We have not audited any financial statements of the Company as of any date or
for any period subsequent to December 31, 1998, nor have we audited the
information set forth in the aforementioned notes 2 and 3 to the condensed
financial statements; accordingly, we do not express an opinion concerning the
factual information contained therein.
With regard to the aforementioned accounting change, authoritative criteria have
not been established for evaluating the preferability of one acceptable method
of accounting over another acceptable method. However, for purposes of the
Company's compliance with the requirements of the Securities and Exchange
Commission, we are furnishing this letter.
Based on our review and discussion, with reliance on management's business
judgment and planning, we concur that the newly adopted method of accounting is
preferable in the Company's circumstances.
Very truly yours,
KPMG LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Company's 10-Q for the nine months 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> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 35
<SECURITIES> 0
<RECEIVABLES> 12,084
<ALLOWANCES> 248
<INVENTORY> 12,205
<CURRENT-ASSETS> 25,229
<PP&E> 69,851
<DEPRECIATION> 42,559
<TOTAL-ASSETS> 55,536
<CURRENT-LIABILITIES> 10,620
<BONDS> 0
0
0
<COMMON> 56
<OTHER-SE> 41,025
<TOTAL-LIABILITY-AND-EQUITY> 55,536
<SALES> 61,319
<TOTAL-REVENUES> 61,319
<CGS> 55,477
<TOTAL-COSTS> 55,477
<OTHER-EXPENSES> 6,709
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35
<INCOME-PRETAX> (902)
<INCOME-TAX> 0
<INCOME-CONTINUING> (902)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (487)
<EPS-BASIC> (.09)
<EPS-DILUTED> (.09)
</TABLE>
