<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 March 31, 1999
Commission file number 0-24415
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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 March 31, 1999 there were 5,552,705 shares of Common Stock outstanding.
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JPS PACKAGING COMPANY
FORM 10-Q
March 31, 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.
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JPS PACKAGING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Net Sales $20,713 $20,012
Cost of Goods Sold 18,297 18,422
-------------- --------------
Gross Profit 2,416 1,590
Selling, General and Administrative Expenses 2,400 3,120
-------------- --------------
Operating Income (Loss) 16 (1,530)
Interest Income (Expense), Net 20 -
-------------- --------------
Income (Loss) from Continuing Operations Before
Income Taxes 36 (1,530)
Income Taxes (Note 2) - (546)
-------------- --------------
Income (Loss) from Continuing Operations 36 (984)
Loss from Discontinued Operation, net of tax - (168)
-------------- --------------
Net Income (Loss) $ 36 $(1,152)
============== ==============
Net Income (Loss) Per Share From Continuing Operations:
Basic and Diluted $ 0.01 $ (0.18)
Net Income (Loss) Per Share
Basic and Diluted $ 0.01 $ (0.21)
Average Number of Common Shares Outstanding 5,553 5,539
</TABLE>
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JPS PACKAGING COMPANY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(In thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash and equivalents $ 1 $ 2,414
Accounts receivable 12,776 9,803
Inventories (Note 3) 12,069 9,535
Other current assets. 302 424
Current deferred income taxes 369 369
-------------- -----------------
Total current assets 25,517 22,545
Property, plant and equipment 68,363 67,464
Less: Accumulated depreciation 40,316 39,110
-------------- -----------------
Property, plant and equipment, net 28,047 28,354
OTHER ASSETS
Goodwill, net 2,277 2,350
Prepaid pension 471 471
Other 358 456
-------------- -----------------
Total other assets 3,106 3,277
-------------- -----------------
Total Assets $56,670 $54,176
============== =================
</TABLE>
See accompanying notes to financial statements.
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JPS PACKAGING COMPANY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(In thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
---------------------- -----------------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Bank overdrafts $ 1,378 $ -
Accounts payable 5,835 3,986
Accrued customer rebates 923 1,476
Accrued vacation 741 681
Other accrued liabilities 1,895 2,171
---------------------- -----------------------
Total current liabilities 10,772 8,314
Deferred income taxes 3,960 3,960
---------------------- -----------------------
Total liabilities 14,732 12,274
STOCKHOLDERS' EQUITY (Note 1 and 6)
Common stock, par value $0.01, 15,000,000 shares 56 56
authorized; 5,552,705 shares issued and
outstanding at March 31, 1999 and December 31, 1998
Preferred stock, par value $0.01, 1,000,000 shares - -
authorized; none outstanding
Additional paid-in capital 47,744 47,744
Retained earnings (deficit) (5,862) (5,898)
---------------------- -----------------------
Total stockholders' equity 41,938 41,902
---------------------- -----------------------
Total Liabilities and Stockholders' Equity $56,670 $54,176
====================== =======================
</TABLE>
See accompanying notes to financial statements.
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JPS PACKAGING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND MARCH 31, 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1999 March 31, 1998
-------------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) 36 (1,152)
Adjustments To Reconcile Net Income (Loss) to Net Cash
Provided (Used) by Operating Activities:
Loss from Discontinued Operations - (168)
Depreciation and Amortization 1,280 1,319
Deferred Income Taxes - 150
Changes in Assets and Liabilities:
Accounts Receivable, Net (2,973) 1,866
Inventories (2,534) (284)
Accounts Payable 1,848 455
Other (619) (1,489)
-------------------- --------------------
Net Cash Provided (Used) by Continuing Operations (2,962) 697
Net Cash Provided by Discontinued Operation 70 349
-------------------- --------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (2,892) 1,046
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (899) (358)
Proceeds from Disposal of Assets - 21
-------------------- --------------------
NET CASH USED IN INVESTING ACTIVITIES (899) (337)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in bank overdrafts 1,378 -
Distributions To Parent, Net - (753)
-------------------- --------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 1,378 (753)
-------------------- --------------------
Net Decrease In Cash (2,413) (44)
CASH, Beginning of Period 2,414 333
-------------------- --------------------
CASH, End of Period 1 289
==================== ====================
Supplemental Cash Flow Information:
Cash Paid During the Period for
Interest - -
Income Taxes - -
</TABLE>
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JPS PACKAGING COMPANY
MARCH 31, 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - FINANCIAL STATEMENT PRESENTATION
The accompanying financial statements include 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 resulting entity operates
the San Leandro, California, Raleigh, North Carolina, and Akron, Ohio,
facilities and is collectively referred to as JPS Packaging Company (the
Company).
On March 24, 1998, the Company was reorganized and incorporated as a
Delaware corporation (the reorganization). The Company is authorized to issue
15,000,000 shares of common stock, $0.01 par value, and 1,000,000 shares of
preferred stock, $0.01 par value. The Company has one wholly owned subsidiary,
incorporated in North Carolina.
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.
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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. Consistent with
such Annual Report, financial information for 1998 has been restated to present
the Raleigh, North Carolina machine manufacturing business as a discontinued
operation.
Net income (loss) per share for period ended March 31, 1998 is based on the
number of common shares issued in connection with the reorganization.
The Company adopted Financial Accounting Standards Board (FASB) Statement
No. 130, "Reporting Comprehensive Income," in the first quarter of 1998, however
the Company had no items that would be considered components of other
comprehensive income.
NOTE 3 - INVENTORIES
Inventories are stated at lower of cost or market. Finished products, work
in process and raw material inventories are carried at last-in, first-out (LIFO)
cost. Certain machine parts and supplies inventories are carried at first-in,
first-out (FIFO) cost. Inventories include the cost of material, labor and
factory overhead required in the production of the Company's products.
Inventories at March 31, 1999 and December 31, 1998 were:
<TABLE>
<CAPTION>
(In thousands)
------------------------
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Inventories carried on LIFO basis
Raw materials $ 4,644 $3,666
Work in process 2,872 2,211
Finished goods 4,084 3,189
--------- ------------
Total FIFO basis 11,600 9,066
LIFO basis in excess of FIFO basis 469 469
--------- ------------
Total LIFO basis $12,069 $9,535
========= ============
</TABLE>
Because the inventory determination under the LIFO method can only be made
at the end of each fiscal year based on the inventory levels and costs at that
time, interim LIFO determinations, including those at March 31, 1999, must
necessarily be based on management's estimate of expected year-end inventory
levels and costs. Since estimates of future inventory levels and prices are
subject to many factors beyond the control of management, interim financial
results are subject to final year-end LIFO inventory amounts. Accordingly,
inventory components reported for the period ended March 31, 1999, are estimates
based on management's knowledge of the Company's production cycle, the costs
associated with this cycle and the sales and purchasing volume of the Company.
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NOTE 4 - 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 tax expense 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.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
Three months ended March 31, 1999 and March 31, 1998
Net sales for the first quarter of 1999 were $20.7 million versus $20.0
million in the first quarter of 1998, an increase of approximately $.7 million,
or 3.5%. Sales in the San Leandro facility were up approximately $1.5 million or
19% from first quarter 1998. The increase is attributable to both the addition
of new customers and an increase in volume with existing customers. The increase
in San Leandro was offset by a decline in sales in the Akron facility of 3%.
This decrease was due primarily to the loss of three customers.
Consolidated gross margin was $2.4 million for the first quarter of 1999 as
compared to $1.6 million during the first quarter of 1998. The resulting gross
margin was 11.7% of sales in 1999, an increase from 7.9% in 1998. Gross margin
increased primarily due to material cost savings at both plants. Increased sales
volume in the San Leandro facility combined with increased efficiency at both
plants have also had a positive impact.
Selling, general and administrative expenses (SG&A) were $2.4 million for
the first quarter of 1999 as compared to $3.1 million during the first quarter
of 1998. The major decrease in SG&A expense is attributable to the reduction in
allocated corporate expense from Sealright. As a percentage of sales SG&A
decreased from 15.6% in 1998 to 11.6% in 1999. Higher sales volume and reduced
spending accounted for the decrease as a percentage of sales.
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Liquidity and Capital Resources
Net cash used by continuing operations was $3.0 million for the three months
ended March 31, 1999 compared to cash provided of $697 thousand for the same
time period in 1998. Cash was primarily used in the first quarter of 1999 to
purchase raw materials and to carry receivables related to the increase in
sales. The increase in sales in San Leandro and the seasonal increase in the
soft drink industry created a need for higher inventory levels than at December
31, 1998.
For the first three months of 1999, the Company had capital expenditures of
$899 thousand 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 none was borrowed at March 31, 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 March 31, 1999, the Company had unused
borrowing capacity of $14.8 million. The initial interest rate is the prime rate
of Harris Trust and Savings Bank or LIBOR plus 275 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 March 31, 1999, the Company was in compliance with these
financial covenants.
Discontinued Operation
During the third quarter of 1998 the Company decided to exit its Styrotech
machine manufacturing business. The Company has been seeking a buyer and at the
end of March 1999 had an interested buyer who had signed a letter of intent.
Year 2000 Compliance
The Company's information systems are not currently year 2000 compliant.
Management estimates that it will cost approximately $350,000 to modify the
information systems and become year 2000 compliant. The Company has expended
approximately
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$320,000 of which $95,000 was charged to operations in the first quarter of
1999. The Company is currently implementing and testing the necessary changes,
and management believes the information systems should be year 2000 compliant by
August 31, 1999. However, there can be no assurance that the information systems
will be compliant prior to the beginning of year 2000 and could therefore have
an adverse effect on the future financial results of the Company. The Company
does not have a formal contingency plan in place should the information systems
not be compliant prior to the beginning of year 2000, and will develop a
contingency plan by September 30, 1999.
The Company is currently in the process of determining whether its major
suppliers are year 2000 compliant and will have a plan for those who are not
compliant by September 30, 1999. The Company doesn't anticipate any problems in
securing the necessary inventory for production as there are multiple vendors
which can supply the necessary products.
New Accounting Pronouncements
In June, 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. 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 July 1, 1999. The Company does
not expect implementation to have any effect on its financial statements.
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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
None
SALES OF UNREGISTERED SECURITIES
None
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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: April 20, 1999 /s/ Brian Stevenson
By: Brian Stevenson
CEO
Date: April 20, 1999 /s/ John T. Carper
By: John T. Carper
President & CFO
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
JPS Packaging Company and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 13,009
<ALLOWANCES> 233
<INVENTORY> 12,069
<CURRENT-ASSETS> 25,517
<PP&E> 68,363
<DEPRECIATION> 1,207
<TOTAL-ASSETS> 56,670
<CURRENT-LIABILITIES> 10,772
<BONDS> 0
0
0
<COMMON> 56
<OTHER-SE> 41,882
<TOTAL-LIABILITY-AND-EQUITY> 56,670
<SALES> 20,713
<TOTAL-REVENUES> 20,713
<CGS> 18,297
<TOTAL-COSTS> 18,297
<OTHER-EXPENSES> 2,380
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 36
<INCOME-TAX> 0
<INCOME-CONTINUING> 36
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
