10-Q 1 june10q.txt JUNE 10Q 2001 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, 2001 -------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------------------------------------- Commission file number 0-27738 -------------------------------------------- THE JPM COMPANY (Exact name of registrant as specified in its charter) Pennsylvania 23-1702908 ------------------------------------------------------------------------ (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) 155 North 15th Street, Lewisburg, PA 17837 ------------------------------------------------------------------------ (Address of principal executive offices) (ZIP Code) Registrants telephone number, including area code 570-524-8225 ---------------------- ------------------------------------------------------------------------ (Former address of principal executive offices) (ZIP Code) Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 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 10, 2001, 7,400,286 shares of common stock, $.000067 par value, were issued and outstanding. PART I - FINANCIAL INFORMATION Item 1. Financial Statements

The accompanying notes are an integral part of these statements. Page-2

The accompanying notes are an integral part of these statements. Page-3

The accompanying notes are an integral part of these statements. Page-4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share data) Basis of Presentation The consolidated balance sheet as of June 30, 2001, and the related consolidated statements of operations and cash flows for the nine month periods ending June 30, 2001 and June 30, 2000 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. All adjustments made were of a normal recurring nature. Interim results are not necessarily indicative of results for a full year. A review of the Company's interim financial information included in the Form 10-Q filing has not been completed by the Company's independent accountants. 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, 2000, included in the Company's Form 10-K dated January 24, 2001. Inventories Inventories are valued at the lower of cost or market as determined on the first-in, first-out basis. Cost includes raw materials, direct labor and manufacturing overhead. The Company generally provides reserves for inventory considered to be in excess of 12 months of usage or sale, as well as inventory in excess of forecasted future demand. June 30, September 30, 2001 2000 ------------ ------------ Finished goods $ 6,609 $ 10,604 Work-in-process 2,056 4,323 Raw material and supplies 21,993 26,718 Valuation reserves (7,376) (4,593) ------------ ------------ $ 23,282 $ 37,052 ============ ============ Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss are as follows: June 30, September 30, 2001 2000 ----------- ---------- Foreign currency translation adjustments $ (3,195) $(1,810) ---------- ---------- Accumulated other comprehensive loss $ (3,195) $ (1,810) ========== ========== The components of accumulated other comprehensive loss of the Company for the three and nine month periods ended June 30, 2001 and 2000 are as follows:

Page-5 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 $74,400 bank revolving line of credit that expires on December 31, 2001. The interest rate on the line is the banks' prime lending rate plus 1.0%. The agreement requires mandatory principal payments and certain other principal payments should the Company sell certain assets or collect certain accounts receivable. The agreement includes a number of monthly reporting requirements and financial covenants commencing January 1, 2001 based on monthly net income or net loss projections and three-month rolling EBITDA projections. At March 31, 2001, the Company requested and received from its bank group a waiver for the non-payment of certain accrued interest and of covenants related to net income or net loss projections and three-month rolling EBITDA projections. Deferred interest payments are waived until the earlier of ten days following receipt by the Company of the banks' written demand or September 30, 2001. This waiver was effective until June 30, 2001. The Company was not in compliance with its loan agreement or waivers at June 30, 2001, and has not reached a written agreement with its bank group to obtain additional waivers or amend its loan agreement to bring the Company into compliance. Consequently, the Company is currently in default under its credit agreement and substantially all the Company's debt is callable at any time. This default, unless resolved, could lead to curtailment of the Company's business operations, sale of certain assets or the commencement of insolvency proceedings by its creditors. The Company is currently negotiating with the bank group for an additional waiver or amendment to its loan agreement. At June 30, 2001, the Company had $1,537 available under the bank agreement. The Company is highly leveraged and as a result of this leverage and the existing line of credit default, access to additional funding sources is limited. 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 (October 1, 2000 for the Company). 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. The Company has adopted SFAS 133 effective October 1, 2000. There are no transactions that qualified for or have received hedge accounting. Accordingly, the Company has recorded a non-cash charge to income of $1,123 in the first nine months of fiscal 2001 related to the change in fair value of its interest rate swap agreements. In addition, if further reductions in interest rates occur the Company expects to record additional non-cash losses on the swaps. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101, as amended, summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Company expects that the adoption of SAB 101 will not have a material impact on its financial position or results of operations. In March 2000, FASB issued FASB Interpretation (FIN) 44, "Accounting for Certain Transactions Involving Stock Compensation", which clarifies the application of Accounting Principles Board Opinion 25 for certain issues. The interpretation was generally effective July 1, 2000, except for certain provisions which were effective after December 15, 1998. The adoption of FIN 44 did not have a material impact on the Company's financial statements. Page-6 In October 2000, the Emerging Issues Task Force (EITF) of FASB issued EITF 00-10, "Accounting for Shipping and Handling Fees and Costs", and EITF 00-14, "Accounting for Certain Sales Incentives". EITF 00-10 addresses the income statement classification for shipping and handling fees and costs. EITF 00-14 addresses recognition, measurement, and income statement classification for certain sales incentives including discounts, coupons, rebates, free products or services. The Company is currently examining its practices in light of this interpretive guidance and does not expect a material impact from the application of EITF 00-10 and EITF 00-14. In July 2001, the Financial Accounting Standards Board issued SFAS No. 141 "Business Combinations" (SFAS 141) and SFAS No. 142 "Goodwill and Other Intangible Assets" (SFAS 142), which are effective July 1, 2001 and January 1, 2002, respectively. SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Under SFAS 142, amortization of goodwill, including goodwill recorded in past business combinations, will discontinue upon adoption of this standard. In addition, goodwill recorded as a result of business combinations completed during the six-month period ending December 31, 2001, will not be amortized. All goodwill and intangible assets will be tested for impairment in accordance with the provisions of the Statement. The Company is currently reviewing the provisions of SFAS 141 and SFAS 142 and assessing the impact of adoption. Reclassification Certain prior year balances have been reclassified for comparative purposes. Page-7 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, 2001 and 2000. (in thousands of dollars) June 30 June 30 Change in June 30 June 30 2001 2000 Dollars 2001 2000 -------------- -------------- ------------ -------------- --------------- Net sales $ 26,470 $ 41,530 (15,060) 100.0% 100.0% Cost of sales 28,548 42,082 13,534 107.9% 101.3% -------------- -------------- ------------ -------------- --------------- Gross loss (2,078) (552) (1,526) (7.9%) (1.3%) Selling, general and administrative expenses 3,640 5,036 1,396 13.8% 12.1% -------------- -------------- ------------ -------------- --------------- Loss from operations (5,718) (5,588) (130) (21.7%) (13.5%) Interest expense (1,937) (2,032) 95 (7.3%) (4.9%) Other expense (407) (307) (100) (1.5%) (0.7%) -------------- -------------- ------------ -------------- --------------- Loss before taxes and minority interest (8,062) (7,927) (135) (30.5%) (19.1%) ============== ============== ============ ============== ===============

Results of Operations Net sales for the three months ended June 30, 2001 decreased by $15,060, or 36.3%, to $26,470 compared to the same period one year earlier. The decrease for the three month period was primarily the result of decreased sales to substantially all of the Company's customers particularly those in the telecommunications industry. Net sales for the nine months ended June 30, 2001, decreased by $23,626 or 18.5% to $103,957 as compared to the first nine months of fiscal 2000. The decrease in sales was attributable to reduced sales to customers in all markets.. Gross profit for the three and nine months ended June 30, 2001, decreased $1,526 or 276.4%, and $11,214 or 96.4% 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 (1.3%) to (7.9%) and from 9.1% to 0.4%, respectively, when compared to the same periods one year earlier. The decrease in gross profit as a percentage of sales was attributable to approximately $3.0 million of additional charges, sharply decreased sales in all markets and plant realignment. Selling, general and administrative ("SG&A") expenses for the three months ended June 30, 2001, decreased by $1,396 or 27.7%, compared to the three months ended June 20, 2000. SG&A for the nine months ended June 30, 2001, decreased by $2,138 or 16.4%, compared to the same period in 2000. The decrease in SG&A is due primarily to reduced personnel expenses. Page-8 Additional charges totalling $3.0 million pre-tax were recorded in the three months ended June 30, 2001. The charges included $2.2 million for inventory valuation adjustments related to changes in reserve estimates and other inventory adjustments, and $0.8 million for other valuation reserves and adjustments. Interest expense for the three months ended June 30, 2001, decreased by $95 or 4.7% compared to the corresponding period one year earlier. Interest expense for the nine months ended June 30, 2001, increased by $1,256 or 25.3% compared to the nine months ended June 30, 2000. In the three and nine month periods ended June 30, 2001, income tax expense of $118 and $1,265 was recorded on losses of $8,062 and $20,259, 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. Net loss for the three and nine month periods ended June 30, 2001 amounted to $8,302 and $22,450, respectively. The loss during the three month period was attributable to decreased revenue and gross profit. The loss during the nine month period was also the result of decreased revenue and gross profit, in addition to increased interest expense. This compares to net loss of $8,294 for the three month period and net loss of $7,750 for the nine month period one year earlier. Loss per share for the current three and nine month periods were ($1.12) and ($3.03), in comparison to loss per share of $(1.12) and $(1.05) for the three and nine month periods, respectively, one year earlier. Liquidity and Capital Resources Operating activities during the first nine months of fiscal 2001 utilized cash in the amount of $833 compared to cash utilized of $12,008 during the same period last year. Working capital at June 30, 2001 was a net liability of $52,578 compared to a net asset of $36,642 at June 30, 2000. The decrease in working capital was due to the Company's bank line of credit being classified as a current liability due to its maturity date of December 31, 2001. The Company has a bank revolving line of credit for $74,400, that was amended on December 22, 2000 and January 23, 2001, and expires on December 31, 2001. The agreement includes an interest rate at the banks' prime lending rate plus 1.0%. The commitment fee on the unused portion of the line is 0.5%. The agreement requires mandatory principal payments of $50 per month for January through March 2001 and $150 per month for April through December 2001. The Company made the mandatory principal payments through July 2001 but did not make the August 2001 payment. In addition, there are certain other principal payments required should the Company sell certain assets or collect certain account receivables. As of August 16, 2001, the Company has not made any of these payments. The agreement includes a number of reporting requirements and financial covenants commencing January 2001, based on monthly net income or net loss projections and three-month rolling earnings before interest, taxes, depreciation and amortization ("EBITDA") projections. At March 31, 2001, the Company requested and received from its bank group a waiver for the non-payment of certain accrued interest and of covenants related to net income or net loss projections and three-month rolling EBITDA projections. Deferred interest payments are waived until the earlier of ten days following receipt by the Company of the banks' written demand or September 30, 2001. This waiver is effective until June 30, 2001. The Company was not in compliance with its loan agreement or waivers at June 30, 2001, and has not reached a written agreement with its bank group to obtain additional waivers or amend its loan agreement to bring the Company into compliance. Consequently, the Company is currently in default under its credit agreement and substantially all the Company's debt is callable at any time. This default, unless resolved, could lead to curtailment of the Company's business operations, sale of certain assets or the commencement of insolvency proceedings by its creditors. The Company is currently negotiating with the bank group for an additional waiver or amendment to its loan agreement. At June 30, 2001, the Company had $1,537 available under the bank agreement. The Company is highly leveraged and as a result of this leverage and the existing line of credit default, access to additional funding sources is limited. The Company cannot be certain that its cash flow from operations and funds available from its line of credit will be sufficient to satisfy working capital requirements and capital expenditure needs through October 1, 2001. The Company expects capital expenditures to be approximately $1,200 for the fiscal year ending September 30, 2001. Page-9 In July 2000, the Company engaged Lehman Brothers, Inc., an investment banking firm, to review strategic alternatives for financing and partnership. This process has resulted in expressions of interest but there are no assurances that such efforts will result in a financing or sales transaction. "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995. This report contains 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 ability of the company to meet its bank covenants and meet its needs for additional liquidity; results of a review of strategic alternatives for financing and partnership currently being performed by Lehman Brothers; the ability of the company to effectively realign operations; the risks associated with global operations, including interruptions and delays in delivery and supply and currency fluctuations; 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; capacity and supply constraints or difficulties; the difficulty and delays inherent in new product launches; the delay or cancellation of orders; the lack of firm purchase commitments in the industry; the rapid obsolescence of unused electronic inventories; and other factors detailed in the Company's filings with the Securities and Exchange Commission including recent filing of Form 10-K. Item 3. 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, 2000. Page-10 PART II - OTHER INFORMATION Item 1. N/A Item 2. N/A Item 3. (a) Material Default with Respect to Indebtedness As of June 30, 2001, the Company was in default of its loan agreement. Refer to discussion under the Financing Arrangements and the Liquidity and Capital Resources sections. 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 Certification of Common Stock of the Company (b) Reports on Form 8-K None 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 20, 2001 By:/s/ John H. Mathias --------------- ---------------------- John H. Mathias Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date: August 20, 2001 By: /s/ Kevin J. Bratton --------------- ------------------------ Kevin J. Bratton Chief Financial Officer (Principal Financial Officer) EXHIBIT INDEX Exhibit numbers are in accordance with the Exhibit Table in Item 601 of Regulation S-K Exhibit No. Exhibit Description 3.1.* Amended and Restated Articles of Incorporation of the Company 3.2.* Amended and Restated Bylaws of the Company 4.1.* Specimen Certification of Common Stock of the Company * Filed as part of the Company's Registration Statement filed on Form S-1 on February 9, 1996 and declared effective April 30, 1996.

JPM CO 10-Q