<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 June 30, 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 June 30, 1999 there were 5,552,705 shares of Common Stock outstanding.
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JPS PACKAGING COMPANY
FORM 10-Q
June 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.
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JPS PACKAGING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED JUNE 30, 1999 AND 1998
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
1999 1998 1999 1998
------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Net Sales 20,502 22,246 $41,215 $42,258
Cost of Goods Sold 18,354 20,047 36,651 38,469
------------- -------------- -------------- -------------
Gross Profit 2,148 2,199 4,564 3,789
Selling, General and
Administrative Expenses 2,258 3,942 4,658 7,062
Transaction Expense - 689 - 689
------------- -------------- -------------- -------------
Operating Loss (110) (2,432) (94) (3,962)
Interest Expense, Net (24) - (4) -
------------- -------------- -------------- -------------
Loss from
Continuing Operations
Before Income Taxes (134) (2,432) (98) (3,962)
Income Tax Benefit (Note 2) - (842) - (1,388)
------------- -------------- -------------- -------------
Loss from
Continuing Operations (134) (1,590) (98) (2,574)
Discontinued Operations
(net of tax):
Loss from discontinued
operation - (122) - (290)
Gain on sale of
discontinued operation 415 - 415 -
------------- -------------- -------------- -------------
Net Income (Loss) 281 (1,712) $ 317 $(2,864)
============= ============== ============== =============
Net Loss Per Share From
Continuing Operations:
Basic and Diluted $(0.02) $(0.29) $(0.02) $ (0.47)
Net Income (Loss) Per Share
Basic and Diluted $ 0.05 $(0.31) $ 0.05 $ (0.52)
Average Number of Common
Shares Outstanding 5,592 5,539 5,566 5,539
</TABLE>
See accompanying notes to consolidated financial statements.
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JPS PACKAGING COMPANY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31,1998
(In thousands,except share data)
ASSETS
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 37 $ 2,414
Accounts receivable 12,439 9,803
Inventories (Note 3) 13,493 9,535
Other current assets. 518 424
Current deferred income taxes 369 369
------------ ----------------
Total current assets 26,856 22,545
Property, plant and equipment 69,059 67,464
Less: Accumulated depreciation 41,349 39,110
------------ ----------------
Property, plant and equipment, net 27,710 28,354
OTHER ASSETS
Goodwill, net 2,203 2,350
Prepaid pension 464 471
Other 203 456
------------ ----------------
Total other assets 2,870 3,277
------------ ----------------
Total Assets $ 57,436 $ 54,176
============ ================
</TABLE>
See accompanying notes to consolidated financial statements.
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JPS PACKAGING COMPANY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31,1998
(In thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
--------------- -----------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Bank overdraft $ 819 $ -
Accounts payable 6,043 3,986
Accrued customer rebates 836 1,476
Accrued vacation 856 681
Short term borrowing 969 -
Other accrued liabilities 1,734 2,171
-------------- ----------------
Total current liabilities 11,257 8,314
Deferred income taxes 3,960 3,960
-------------- ----------------
Total liabilities 15,217 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 June 30, 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) (5,581) (5,898)
-------------- ----------------
Total stockholders' equity 42,219 41,902
-------------- ----------------
Total Liabilities and Stockholders' Equity $ 57,436 $ 54,176
============== ================
</TABLE>
See accompanying notes to consolidated financial statements.
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JPS PACKAGING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND JUNE 30, 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1999 June 30, 1998
------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) 317 (2,864)
Adjustments To Reconcile Net Income (Loss) to Net Cash
Provided (Used) by Operating Activities:
Loss from Discontinued Operations - 290
Gain on Sale of Discontinued Operation (415)
Depreciation and Amortization 2,559 2,555
Loss on Disposal of Equipment 13 -
Deferred Income Taxes - 300
Changes in Assets and Liabilities:
Accounts Receivable, Net (2,635) (1,604)
Inventories (3,958) 1,021
Accounts Payable 2,055 960
Other (435) 1,318
------------------- -------------------
Net Cash Provided (Used) by Continuing Operations (2,499) 1,976
Net Cash Used by Discontinued Operation (285) (576)
------------------- -------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (2,784) 1,400
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (1,783) (414)
Proceeds from Disposal of Assets - 21
Proceeds from Sale of Discontinued Operation 402 -
------------------- -------------------
NET CASH USED IN INVESTING ACTIVITIES (1,381) (393)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in bank overdraft 819 -
Net borrowing under credit line 969 1,000
Distributions To Parent, Net - (1,788)
------------------- -------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 1,788 (788)
------------------- -------------------
Net Increase (Decrease) In Cash (2,377) 219
CASH AND CASH EQUIVALENTS, Beginning of Period 2,414 333
CASH AND CASH EQUIVALENTS, End of Period 37 552
=================== ===================
Supplemental Cash Flow Information:
Cash Paid During the Period for
Interest $ 15 -
Income Taxes - -
Non-cash Investing Activities:
Note Receivable from Disposal of Discontinued Operation $ 403 -
</TABLE>
See Accompanying Notes To Consolidated Financial Statements.
6
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JPS PACKAGING COMPANY
JUNE 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.
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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 reclassified to
present the Raleigh, North Carolina machine manufacturing business as a
discontinued operation.
Net income (loss) per share for period ended June 30, 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. Inventories include the cost of material, labor and factory overhead
required in the production of the Company's products. Inventories at June 30,
1999 and December 31, 1998 were:
<TABLE>
<CAPTION>
(In thousands)
----------------------------------
JUNE 30, DECEMBER 31,
1999 1998
---------------- ---------------
<S> <C> <C>
Inventories carried on LIFO basis
Raw materials $ 5,985 $ 3,666
Work in process 2,109 2,211
Finished goods 4,930 3,189
---------------- ---------------
Total FIFO basis 13,024 9,066
LIFO basis in excess of FIFO basis 469 469
---------------- ---------------
Total LIFO basis $13,493 $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 June 30, 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 June 30, 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.
8
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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 June 30, 1999 and June 30, 1998
Net sales for the second quarter of 1999 were $20.5 million versus $22.2
million in the second quarter of 1998, a decline of approximately $1.7 million,
or 7.7%. The decline in sales is attributed to the soft drink roll fed bottle
label sales in the Akron facility. These sales were down over $2.0 million
compared to the same quarter last year. Approximately 50% of this decline is
considered to be temporary. An increase in sales in the San Leandro facility
from new business and increased volume with existing customers helped to offset
the decline in the soft drink roll fed bottle label business.
Consolidated gross margin was $2.1 million for the second quarter of 1999 as
compared to $2.2 million in 1998. The resulting gross margin was 10.5% of sales
in 1999, an increase from 9.9% in 1998. The increase in gross margin is
primarily due to reduction of overhead expenses in both plants.
Selling, general and administrative expenses (SG&A) were $2.3 million for the
second quarter 1999 as compared to $3.9 million during the first quarter of
1998. As a percentage of sales SG&A decreased from 17.7% in 1998 to 11.0% in
1999. In 1998 SG&A expense included $1.3 million in non-recurring expenses
related to the separation from Sealright. Adjusting 1998 for these expenses the
percentage of sales in 1998 is 11.8%. The major decrease in SG&A expense is
attributable to the reduction in allocated corporate expense from Sealright.
Six months ended June 30, 1999 and June 30, 1998
Net sales for the six months ended June 30, 1999 were $41.2 million versus
$42.3 million during the same period in 1998, a decline of $1.1 million. The
decrease is attributable to the decline in the Akron facility roll fed bottle
label sales in the second quarter. Sales in the San Leandro facility have
increased 13% from 1998 and partially offset the $2.0 million loss in soft drink
roll fed bottle label sales.
Consolidated gross profit was $4.6 million for the six months ended June 30,
1999 compared to $3.8 million during 1998. The resulting gross margin was 11.1%
in 1999, an increase form 9.0% 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. Also,
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material cost savings at both facilities have contributed to an improved gross
margin.
Selling, general and administrative expenses have decreased to $4.7 million in
1999 from $7.1 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
18.8% as a result of decreased corporate overhead.
Liquidity and Capital Resources
Net cash used by continuing operations was $2.5 million for the six months
ended June 30, 1999 compared to cash provided of $2.0 million 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 at the
San Leandro facility.
For the first six months of 1999, the Company had capital expenditures of $1.8
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 $969,203 was borrowed at June 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 June 30, 1999, the Company had unused
borrowing capacity of $13.4 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 June 30, 1999, the Company was in compliance with these
financial covenants.
Discontinued Operation
In June 1999 the Company completed the sale of Styrotech, a machine
manufacturing business, realizing cash proceeds of $402,000 and a note
receivable of $402,000. The sale resulted in a $415,000 gain after accounting
for receivables and liabilities retained by the Company.
11
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Year 2000 Compliance
The Company's information systems are not currently year 2000 compliant.
Management believes final testing and implementation should be completed by
August 31, 1999. The Company has expended approximately $320,000 of which
$95,000 was charged to operations in the first six months of 1999, to modify the
systems. 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 has determined that its major suppliers are year 2000 compliant
or will be year 2000 compliant by December 31, 1999. Where necessary,
alternative suppliers or other contingency plans are scheduled to be finalized
by September 30, 1999.
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.
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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
At the Company's annual meeting held April 26, 1999 shareholders were
asked to vote on the election of directors and the appointment of independent
auditors. The following results were recorded.
1. Election of Directors
The shareholders were asked to elect the following slate of existing
directors to serve until their successors have been duly elected and qualified
or until their death, resignation or removal from office. The nominees were G.
Kenneth Baum, Leo Benatar, John T. Carper, D. Patrick Curran, N. Brian
Stevenson, Charles A. Sullivan, and William D. Thomas. The directors group as a
whole received at least 3,410,811 votes in favor, representing 61% of shares
outstanding.
2. Election of Independent Auditors
The Shareholders were asked to appoint KPMG LLP as independent
auditors of the Company for 1999. The proposal was approved with the
following votes:
For 3,409,236
Against 101,963
Withheld 867
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Item 5.) Other Materially Important Events
None
Item 6.) Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the second quarter of
1999.
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: August 9, 1999 /s/ Brian Stevenson
By: Brian Stevenson
CEO
Date: August 9, 1999 /s/ John T. Carper
By: John T. Carper
President & CFO
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Company's 10-Q for the six months and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 37
<SECURITIES> 0
<RECEIVABLES> 12,699
<ALLOWANCES> 260
<INVENTORY> 13,493
<CURRENT-ASSETS> 26,856
<PP&E> 27,710
<DEPRECIATION> 2,486
<TOTAL-ASSETS> 57,436
<CURRENT-LIABILITIES> 11,257
<BONDS> 0
0
0
<COMMON> 56
<OTHER-SE> 42,163
<TOTAL-LIABILITY-AND-EQUITY> 57,436
<SALES> 41,215
<TOTAL-REVENUES> 41,215
<CGS> 36,651
<TOTAL-COSTS> 36,651
<OTHER-EXPENSES> 4,658
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> (98)
<INCOME-TAX> 0
<INCOME-CONTINUING> (98)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 317
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
