EXHIBIT 99.2
FINANCIAL STATEMENTS OF JPS INDUSTRIES, INC.
As of and for the six months ended
May 2, 2015
and
May 3, 2014
JPS Industries, Inc.
Condensed Consolidated Financial Statements
As of and for the three and six month periods ended May 2, 2015 and May 3, 2014
Index to Condensed Consolidated Financial Statements
Page | ||||
Condensed Consolidated Balance Sheets | ||||
At May 2, 2015 and November 1, 2014 | 2 | |||
Condensed Consolidated Statements of Operations and Comprehensive Income | ||||
Three and six months ended May 2, 2015 and May 3, 2014 | 3 | |||
Consolidated Statement of Shareholders' Equity | ||||
At May 2, 2015 | 4 | |||
Condensed Consolidated Statements of Cash Flows | ||||
Six months ended May 2, 2015 and May 3, 2014 | 5 | |||
Notes to Condensed Consolidated Financial Statements | 6 | |||
JPS INDUSTRIES, INC. | ||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
(Dollars in thousands) | ||||||||
(Unaudited) | ||||||||
May 2, | November 1, | |||||||
2015 | 2014 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | 3,572 | $ | 2,713 | ||||
Cash held in escrow | 900 | 1,500 | ||||||
Accounts receivable, net of reserves of $10 | 24,055 | 19,760 | ||||||
Inventories | 22,944 | 21,600 | ||||||
Deferred income taxes | 4,905 | 4,905 | ||||||
Prepaid expenses | 321 | 476 | ||||||
Total current assets | 56,697 | 50,954 | ||||||
Property, plant and equipment, net | 13,574 | 13,246 | ||||||
Deferred income taxes | 44,706 | 45,714 | ||||||
Goodwill | 10,100 | 10,100 | ||||||
Account receivable non-current | 3,209 | 3,209 | ||||||
Other assets | 183 | 273 | ||||||
Total assets | $ | 128,469 | $ | 123,496 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 13,886 | $ | 10,780 | ||||
Current portion of accrued pension costs | 814 | 1,267 | ||||||
Accrued expenses, salaries, benefits and withholding | 2,090 | 3,655 | ||||||
Total current liabilities | 16,790 | 15,702 | ||||||
Accrued pension costs | 19,655 | 17,987 | ||||||
Other long-term liabilities | 150 | 150 | ||||||
Total liabilities | 36,595 | 33,839 | ||||||
Shareholders' equity | ||||||||
Common stock, $.01 par value; authorized - 22,000,000 shares; | ||||||||
issued and outstanding - 10,408,460 shares in 2015 | ||||||||
and 10,392,460 shares in 2014 | 104 | 104 | ||||||
Accumulated other comprehensive loss | (77,513 | ) | (77,513 | ) | ||||
Additional paid-in capital | 130,689 | 130,330 | ||||||
Accumulated equity | 38,594 | 36,736 | ||||||
Total shareholders' equity | 91,874 | 89,657 | ||||||
Total liabilities and shareholders' equity | $ | 128,469 | $ | 123,496 | ||||
The accompanying notes are an integral part of these consolidated financial statements. |
JPS INDUSTRIES, INC. | ||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME | ||||||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
May 2, | May 3, | May 2, | May 3, | |||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Net sales | $ | 44,887 | $ | 43,856 | $ | 78,734 | $ | 78,889 | ||||||||
Cost of sales | 36,984 | 36,249 | 65,165 | 65,711 | ||||||||||||
Gross profit | 7,903 | 7,607 | 13,569 | 13,178 | ||||||||||||
Selling, general and administrative | 3,975 | 2,402 | 6,928 | 4,963 | ||||||||||||
Distribution expense | 1,023 | 945 | 1,850 | 1,891 | ||||||||||||
Pension expense | 834 | 988 | 1,668 | 1,908 | ||||||||||||
Operating profit | 2,071 | 3,272 | 3,123 | 4,416 | ||||||||||||
Interest expense, net | 91 | 206 | 184 | 442 | ||||||||||||
Income before income taxes | 1,980 | 3,066 | 2,939 | 3,974 | ||||||||||||
Income tax provision | 728 | 1,137 | 1,081 | 1,462 | ||||||||||||
Income from continuing operations | 1,252 | 1,929 | 1,858 | 2,512 | ||||||||||||
Discontinued operations: | ||||||||||||||||
Gain on sale, net of taxes | — | 7,471 | — | 7,471 | ||||||||||||
Income, net of taxes | — | 437 | — | 999 | ||||||||||||
Net income | $ | 1,252 | $ | 9,837 | $ | 1,858 | $ | 10,982 | ||||||||
Other comprehensive income (loss), after tax | ||||||||||||||||
Net actuarial pension (loss) gain adjustment | $ | — | $ | — | $ | — | $ | — | ||||||||
Comprehensive Income | $ | 1,252 | $ | 9,837 | $ | 1,858 | $ | 10,982 | ||||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: | ||||||||||||||||
Basic | 10,379,127 | 10,281,460 | 10,379,127 | 10,281,460 | ||||||||||||
Diluted | 10,651,866 | 10,348,981 | 10,651,866 | 10,348,981 | ||||||||||||
Basic earnings per common share | $ | 0.12 | $ | 0.96 | $ | 0.18 | $ | 1.07 | ||||||||
Diluted earnings per common share | 0.12 | 0.95 | 0.17 | 1.06 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements. |
JPS INDUSTRIES, INC. | ||||||||||||||||||||
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY | ||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Total | ||||||||||||||||||||
Common | Add'l Paid-In | Accum. Other | Accum. | Shareholders' | ||||||||||||||||
Stock | Capital | Comp. Loss | Equity | Equity | ||||||||||||||||
Balance - November 1, 2014 | $ | 104 | $ | 130,330 | $ | (77,513 | ) | $ | 36,736 | $ | 89,657 | |||||||||
Net income | — | — | — | 1,858 | 1,858 | |||||||||||||||
Restricted stock grant | — | 359 | — | — | 359 | |||||||||||||||
Balance - May 2, 2015 | $ | 104 | $ | 130,689 | $ | (77,513 | ) | $ | 38,594 | $ | 91,874 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements. |
JPS INDUSTRIES, INC. | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(Dollars in thousands) | ||||||||
(Unaudited) | ||||||||
Six Months Ended | ||||||||
May 2, | May 3, | |||||||
2015 | 2014 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 1,858 | $ | 10,982 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
(Income)/loss from discontinued operations | — | (999 | ) | |||||
Gain on sale of discontinued operations | — | (7,471 | ) | |||||
Depreciation and amortization | 790 | 788 | ||||||
Stock compensation expense | 359 | 36 | ||||||
Amortization of deferred financing costs | 106 | 151 | ||||||
Deferred income tax provision (benefit) | 1,081 | 1,462 | ||||||
Pension plan contributions | (453 | ) | (5,531 | ) | ||||
Other, net | 1,668 | 1,908 | ||||||
Changes in assets and liabilities: | ||||||||
Restricted cash | — | 3,685 | ||||||
Cash held in escrow | 600 | (1,500 | ) | |||||
Accounts receivable | (4,295 | ) | 2,282 | |||||
Inventories | (1,344 | ) | (2,756 | ) | ||||
Prepaid expenses and other assets | 66 | (271 | ) | |||||
Accounts payable | 3,106 | 2,589 | ||||||
Accrued expenses and other liabilities | (1,565 | ) | (4,102 | ) | ||||
Net cash provided by (used in) continuing operating activities | 1,977 | 1,253 | ||||||
Net cash provided by (used in) discontinued operating activities | — | 990 | ||||||
Net cash provided by (used in) operating activities | 1,977 | 2,243 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Property and equipment additions | (1,118 | ) | (574 | ) | ||||
Proceeds from sale of discontinued operations | — | 23,825 | ||||||
Net cash provided by (used in) investing activities | (1,118 | ) | 23,251 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Revolving credit facility borrowings (repayments), net | — | (15,162 | ) | |||||
Repayment of other long-term debt | — | (7,965 | ) | |||||
Net cash provided by (used in) financing activities | — | (23,127 | ) | |||||
NET INCREASE (DECREASE) IN CASH | 859 | 2,367 | ||||||
Cash at beginning of period | 2,713 | 1,656 | ||||||
Cash at end of period | $ | 3,572 | $ | 4,023 | ||||
The accompanying notes are an integral part of these consolidated financial statements. |
JPS INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – MAY 2, 2015
1. DESCRIPTION OF THE COMPANY
JPS Industries, Inc. is a major U.S. manufacturer of sheet and mechanically formed glass and aramid materials for specialty applications in a wide expanse of markets requiring highly engineered components. JPS’s products are used in a wide range of applications including: advanced composite materials; civilian and military aerospace components; printed electronic circuit boards; filtration and insulation products; specialty commercial construction substrates; automotive and industrial components; and soft body armor for civilian and military applications. Headquartered in Greenville, South Carolina, the Company operates three manufacturing locations in Anderson and Slater, South Carolina, and Statesville, North Carolina.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation – Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted, although the Company believes that the disclosures made are adequate to make the information not misleading. This quarterly report should be read in conjunction with the Company’s audited consolidated financial statements for the year ended November 1, 2014. Management believes that it has made the necessary adjustments so that these consolidated interim financial statements are presented fairly. Results of any interim period are not necessarily indicative of the entire year.
Principles of Consolidation – The consolidated financial statements include JPS Industries, Inc. and its direct subsidiaries, all of which are wholly owned. Significant intra-entity transactions and accounts have been eliminated. Unless the context otherwise requires, the terms “JPS” and the “Company” as used in these Consolidated Financial Statements mean JPS Industries, Inc. together with its 100% owned subsidiaries, JPS Elastometrics Corp. and JPS Composite Materials Corp.
Escrowed Cash – The cash held in escrow at November 1, 2014 and May 2, 2015 of $1.5 million and $0.9 million, respectively, consists of funds set aside at closing of the Stevens Urethane sale to Argotec LLC, which is described more fully at Note 13.
Inventories – Inventories are stated at the lower of cost or market. Cost, which includes labor, material and factory overhead, is determined on the first-in, first-out basis.
Fair Value of Financial Instruments – The carrying amounts of all financial instruments approximate their estimated fair values in the accompanying consolidated balance sheets. The carrying amounts of cash, accounts receivable, accounts payable, and accrued expenses approximate fair value because of the short maturity of these items. The carrying value of financial instruments such as debt approximates fair value because interest rates on these instruments change with market rates.
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1 - Quoted market prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than Level 1 inputs that are either directly or indirectly observable; and
Level 3 - Unobservable inputs developed using estimates and assumptions developed by us, which reflect those that a market participant would use.
Revenue Recognition and Accounts Receivable – Revenue from product sales is recognized at the time ownership of goods transfers to the customer and the earnings process is complete in accordance with FASB ASC 605, Revenue Recognition. The Company makes ongoing estimates relating to the collectability of its accounts receivable and maintains an allowance for estimated losses resulting from the inability of customers to make required payments. In determining the amount of the allowance, the Company considers historical level of credit losses and makes judgments about the creditworthiness of significant customers based on ongoing credit evaluations. A significant aged account receivable is discussed at Note 11.
Income Taxes – Deferred tax assets and liabilities are determined based on the difference between the financial statement bases and tax bases of assets and liabilities using enacted tax rates. A valuation allowance is recorded to reduce a deferred tax asset to that portion that is expected to more likely than not be realized. Uncertain tax positions are accounted for in accordance with ASC Topic 740.
Accounts Payable – As a result of the Company’s cash management system, checks issued but not presented to the bank for payment may create negative book cash balances. Such negative balances are included in accounts payable on the accompanying consolidated balance sheets and totaled approximately $2.8 million and $2.1 million at November 1, 2014 and May 2, 2015, respectively.
New Accounting Pronouncements
In April 2014, the FASB issued Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08), to change the criteria for determining which disposals can be presented as discontinued operations and enhanced the related disclosure requirements. ASU 2014-08 is effective for fiscal years beginning after December 15, 2014. The adoption of this standard is not expected to have an impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The Standard is effective for fiscal years beginning after December 15, 2016. In August 2015, the FASB issued Accounting Standards Update NO. 2015-14, Revenue from Contracts with Customers: Topic 606 (ASU 2015-14), to defer the effective date of ASU 2014-09 for all entities by one year. Management is evaluating the impact the adoption of this statement will have on the Company’s consolidated financial statements.
In June 2014, the FASB issued Accounting Standards Update No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (ASU 2014-12), which requires that a performance target that affects vesting and could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in ASC 718, Stock Compensation, as it relates to such awards. The amendments in this ASU are effective for fiscal years beginning after December 15, 2014. The adoption of this standard is not expected to have an impact on the Company’s consolidated financial statements.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (ASU 2014-15). The update requires companies
to assess their ability to meet their financial obligations over the coming year as of the date the financial statements are released. The amendments in this ASU are effective for fiscal years beginning after December 15, 2014. The adoption of this standard is not expected to have an impact on the Company’s consolidated financial statements.
In April 2015, the FASB issued Accounting Standards Update No. 2015-04, Practical Expedient for the Measurement Date of an Employer's Defined Benefit Obligation and Plan Assets (ASU 2015-04), which changes the measurement date for defined benefit plan assets and obligations. For an entity with a fiscal year-end that does not coincide with a month-end, the amendments in this Update provide a practical expedient that permits the entity to measure defined benefit plan assets and obligations using the month end that is closest to the entity's fiscal year-end and apply that practical expedient consistently from year to year. ASU 2015-04 is effective for fiscal years beginning after December 15, 2015. Management is evaluating the impact the adoption of this statement will have on the Company's consolidated financial statements.
In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Simplifying the Measurement of Inventory (ASU 2015-11 ), which changes guidance for subsequent measurement of inventory within the scope of the Update from the lower of cost or market to the lower of cost and net realizable value. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016. The adoption of this standard is not expected to have an impact on the Company's consolidated financial statements.
3. | BALANCE SHEET COMPONENTS |
The components of certain balance sheet accounts are (in thousands):
May 2, 2015 | November 1, 2014 | |||||
Inventories: | ||||||
Raw materials and supplies | $ | 3,891 | $ | 7,850 | ||
Work-in-process | 11,813 | 5,255 | ||||
Finished goods | 7,240 | 8,495 | ||||
$ | 22,944 | $ | 21,600 | |||
Property, plant and equipment, net: | ||||||
Land and improvements | $ | 1,589 | $ | 1,589 | ||
Buildings and improvements | 9,324 | 9,077 | ||||
Machinery and equipment | 50,440 | 50,305 | ||||
Leasehold improvements | 11 | 11 | ||||
Furniture, fixtures and other | 1,067 | 1,067 | ||||
62,431 | 62,049 | |||||
Less accumulated depreciation | (50,228 | ) | (49,559 | ) | ||
12,203 | 12,490 | |||||
Construction in progress | 1,371 | 756 | ||||
$ | 13,574 | $ | 13,246 | |||
Other assets: | $ | 18 | $ | 108 | ||
Deferred financing costs, net | 165 | 165 | ||||
Assets held for sale | $ | 183 | $ | 273 | ||
Other long-term liabilities | ||||||
Uncertain tax positions | $ | 150 | $ | 145 | ||
Accrued postemployment benefit plan liability | — | 5 | ||||
$ | 150 | $ | 150 | |||
4. DEBT
Revolving Credit Facility – The Company maintains a Revolving Credit and Security Agreement, (the “revolving credit facility”) with Wells Fargo Bank. The revolving credit facility provides for (i) a revolving loan and letters of credit in a maximum principal amount equal to the lesser of (a) $40 million or (b) a specified borrowing base, which is based upon eligible receivables and inventory (as defined) and (ii) a term loan of $20 million which was repaid April 30, 2014. In June 2015, the revolving loan was amended to extend its maturity date from June 9, 2015 to June 9, 2020, and was later terminated subsequent to the merger discussed in Note 14.
At May 2, 2015, the Company had no borrowings outstanding and $26.5 million available for borrowing under the revolving credit facility.
The revolving credit facility restricts investments, capital expenditures, acquisitions and dividends. The revolving credit facility contains financial covenants relating to minimum levels of EBITDA, as defined, and a minimum fixed charge coverage ratio, as defined. The revolving credit facility bears interest at a rate of LIBOR plus an applicable margin based upon the Company’s average excess availability. These margins range from 2.00% to 2.75%. As of May 2, 2015, the Company’s interest rate under the revolving credit facility was 2.18%.
Other – The loans and extensions of credit to the Company under the revolving credit facility are guaranteed by JPS Elastomerics Corp. and JPS Composite Materials Corp. Substantially all of the Company's assets are pledged as collateral for the revolving credit facility.
Interest expense for the three and six month periods ending May 2, 2015 consisted entirely of amortization of debt issuance expenses and commitment fees.
5. EQUITY COMPENSATION
Outside directors receive grants annually under the 2008 Stock Incentive Plan, vesting over a one-year period, upon election to a new one-year term. In 2014 and 2015, the award amount was 4,000 shares each. The company recognized incentive compensation for restricted stock in the amounts of $78,800 and $17,875 during the three months ended May 2, 2015 and May 3, 2014, respectively, and $125,600 and $35,750 in the six months ended May 2, 2015 and May 2, 2014, respectively.
On May 20, 2014, the Company granted options totaling 415,058 shares to CEO Mikel Williams, having a strike price of $5.05. One third of the options vested at the date of grant, with additional thirds vesting on May 2, 2015 and May 2, 2016. Vesting and exercise of these options are subject to various conditions and limitations. The Company valued these options at $1,402,899 based on the Black-Scholes model. The company recognized incentive compensation related to Mr. Williams’ options in the amounts of $117,000 during the three months ended May 2, 2015 and $234,000 in the six months ended May 2, 2015 and no expense in the corresponding periods in 2014. There were no other outstanding options.
6. EARNINGS PER SHARE OF COMMON STOCK
The following table presents the computation of basic and dilutive earnings per share of our common stock (in thousands, except per share):
Three Months Ended | Six Months Ended | |||||||||||
May 2, | May 3, | May 2, | May 3, | |||||||||
2015 | 2014 | 2015 | 2014 | |||||||||
Weighted-average number of common shares outstanding | 10,379,127 | 10,281,460 | 10,379,127 | 10,281,460 | ||||||||
Issued upon assumed exercise of outstanding stock options | 254,072 | 57,521 | 254,072 | 57,251 | ||||||||
Effect of issuance of restricted common shares | 18,667 | 10,000 | 18,667 | 10,000 | ||||||||
Weighted average and potential dilutive outstanding | 10,651,866 | 10,348,981 | 10,651,866 | 10,348,981 | ||||||||
Income from continuing operations, net of tax | $ | 1,252 | $ | 1,929 | $ | 1,858 | $ | 2,512 | ||||
Income from continuing operations, net of tax, per share | $ | 0.12 | $ | 0.19 | $ | 0.18 | $ | 0.24 | ||||
Income from continuing operations, net of tax, per diluted share | $ | 0.12 | $ | 0.19 | $ | 0.17 | $ | 0.24 | ||||
Net income from discontinued operations | - | $ | 7,908 | - | $ | 8,470 | ||||||
Discontinued operations, net of tax, per share | - | $ | 0.77 | - | $ | 0.82 | ||||||
Discontinued operations, net of tax, per diluted share | - | $ | 0.76 | - | $ | 0.82 | ||||||
Net income | $ | 1,252 | $ | 9,837 | $ | 1,858 | $ | 10,982 | ||||
Net income per share | $ | 0.12 | $ | 0.96 | $ | 0.18 | $ | 1.07 | ||||
Net income per diluted share | $ | 0.12 | $ | 0.95 | $ | 0.17 | $ | 1.06 |
7. INCOME TAXES
For the three months ended May 2, 2015 and May 3, 2014, tax provisions from continuing operations of $0.7 million and $1.1 million were recorded, respectively. The effective tax rates in the three months ended May 2, 2015 and May 3, 2014 were 36.8% and 37.1%, respectively. For the six months ended May 2, 2015 and May 3, 2014, tax provisions from continuing operations of $1.1 million and $1.5 million were recorded, respectively. The effective tax rates in the six months ended May 2, 2015 and May 3, 2014 were 36.8% and 36.8%, respectively. The provision for income taxes is based on the current estimate of the annual effective tax rate, adjusted for discrete items that occurred within the respective periods. Changes in the effective tax rate are due principally from differences in income among state jurisdictions.
8. COMMITMENTS AND CONTINGENCIES
Leases – The Company leases office facilities, machinery and computer equipment under noncancellable operating leases.
Litigation – The Company is exposed to a number of asserted and unasserted potential claims encountered in the normal course of business including certain asbestos-based claims. The Company believes it has meritorious defenses in all lawsuits in which the Company or its subsidiaries is a defendant. Management believes that none of this litigation, if determined unfavorable to the Company or its subsidiaries, would have a material adverse effect on the financial condition or results of operations of the Company unless some of the losses are subsequently determined to be uninsured.
On June 9, 2014, the Board of Directors of the Company appointed a Special Committee, consisting of Company Board members Robert J. Capozzi and Alan B. Howe, each of whom is an independent director. The Special Committee was appointed to, among other things, study and determine the strategic alternatives available to the Company and to communicate with Handy & Hardman Ltd. (H&H), an affiliate of Steel Partners Holdings, L.P. (“Steel Partners”), regarding an offer made by H&H to acquire all shares of stock of the Company. On December 10, 2014, Mr. Capozzi and Mr. Howe, in their capacities as Special Committee members, filed a complaint in Delaware Chancery Court against Jack L. Howard and John J. Quicke, each of whom served on the Company’s Board and were affiliated with Steel Partners (the “Delaware Action”). The complaint sought certain injunctive relief and declaratory relief relating to actions by Mr. Howard and Mr. Quicke and the authority of the Special Committee. The Company was not a party to the Delaware Action.
Additionally, on January 26, 2015, Steel Partners filed a lawsuit against the Company, the members of the Special Committee and two executive officers seeking, among other things, to schedule an injunction hearing to (i) prevent the Company's pension plan from freely voting its shares of Company stock at the 2015 Annual Meeting or, alternatively, (ii) prevent the seating of any directors voted at the 2015 Annual Meeting until resolution of the lawsuit. This suit, as well as that described above, was dismissed with prejudice on July 3, 2015 as a result of the merger described in Note 14.
9. RETIREMENT PLANS
Defined Benefit Pension Plan – Substantially all of the Company’s employees employed prior to April 1, 2005 have benefits under a Company-sponsored defined benefit pension plan. The defined benefit pension plan was “frozen” effective December 31, 2005. Employees no longer earn additional benefits after that date. Benefits earned prior to December 31, 2005 will be paid out to eligible participants following retirement. The gain that resulted from the freeze was substantially offset by previously unrecognized actuarial losses.
The defined benefit pension plan was “unfrozen” for employees who were active employees on or after June 1, 2012. This new benefit, calculated based on years of service and a capped average salary, will be added to the amount of the pre-2005 benefit.
Components of net periodic pension cost include the following (in thousands):
Six Months Ended | Six Months Ended | |||||
May 2, 2015 | May 2, 2014 | |||||
Service cost-benefits earned during the period | $ | 50 | $ | 54 | ||
Interest cost on projected benefit obligation | 2,201 | 2,444 | ||||
Expected return on plan assets | (3,618 | ) | (3,269 | ) | ||
Recognized actuarial loss | 2,522 | 2,439 | ||||
Intraperiod expense allocation | 513 | 240 | ||||
Net periodic pension cost (benefit) | $ | 1,668 | $ | 1,908 | ||
The company contributed $0.5 million to the plan during the six months ended May 2, 2015 and expects to contribute another $0.8 million during the remainder of 2015.
10. NON-CURRENT ASSETS HELD FOR SALE
During the first quarter of 2011, the Company reclassified the land and building owned in Westfield, North Carolina to Assets Held for Sale and, accordingly, ceased to depreciate the assets. This land and building were formerly part of the Stevens Roofing division which was acquired by DOW Building Solutions (DOW) in 2008 through an asset sale that did not include the real property. In 2012, 136 of the 220 acres surrounding the facility were sold for $341,000. The building and remaining land has subsequently been written down to $165,000 and continues to be marketed.
11. | ACCOUNT RECEIVABLE – NON CURRENT |
Included in accounts receivable is a receivable in the amount of $4.2 million from a ballistics customer who filed bankruptcy during 2010. Management regularly assesses the progress of the bankruptcy proceedings and believes the entire outstanding balance has a more likely than not chance of full recovery upon settlement and distribution of the funds of the bankruptcy estate, including assets of the former CEO currently held in trust by the government. However, due to the age of the receivable, coupled with some possibility that the final amount to be received may not be the full amount due, management elected to record a $0.8 million reserve during 2014 in addition to the $0.2 million previously recorded. Additionally, based on management’s estimate of the timing of collection, the net amount of the receivable has been classified as an other noncurrent asset.
12. GOODWILL
During fiscal year 2007, JPS acquired goodwill of $7.6 million in connection with the acquisition of the assets comprising the Anderson, South Carolina and Statesville, North Carolina operations of Hexcel Reinforcements Corp. Goodwill was increased by $0.3 million and $2.2 million in 2008 and 2009 respectively, due to the increase in purchase price resulting from the contingent earn-out payments which were recorded as additional costs of the acquisition and included in goodwill. Goodwill is non amortizing for book purposes, but is deductible for income tax purposes.
13. | DISCONTINUED OPERATIONS |
On April 30, 2014, the Company completed the sale of the assets of the Stevens Urethane division of its wholly owned subsidiary, JPS Elastomerics Corp., to Argotec LLC. The consideration for the sale consisted of approximately $25 million cash, of which $1.5 million was initially held in escrow pending any indemnification claims by the purchaser, subject to arbitration. The escrow was partially released to JPS during the second quarter of 2015 in the amount of $0.5 million per the agreement, and to Argotec in the amount of $0.1 million to satisfy the required true-up of the working capital adjustment. The remaining $0.9 million is scheduled to be released to JPS in August 2015.
Additionally, Argotec LLC will pay to JPS contingent consideration based on a formula related to certain sales occurring during the period from the date of sale until December 31, 2016, not to exceed $3 million. JPS has accounted for the contingent consideration as a gain contingency and as such will not recognize any gain until the consideration is received.
The proceeds of the sale were used to repay the Company's term loan and the outstanding balance on its revolving credit facility. The remainder was used to fund additional contributions to the Company's defined benefit pension plan.
Because Stevens Urethane represented a major line of business and because the operations and cash flows could be clearly distinguished, the sale was treated as a discontinued operation. In the Consolidated Statements of Operations and Comprehensive Income, income (loss) from discontinued operations is reported separately from income and expenses from continuing operations. In the Consolidated Statements of Cash Flows, the cash flows from discontinued operations are presented separately from cash flows of continuing operations. The results of the discontinued operation are summarized below (in thousands).
Three Months Ended | Six Months Ended | |||||
May 2, 2014 | May 2, 2014 | |||||
Sales | $ | 6,404 | $ | 13,421 | ||
Income (loss) before income taxes | 719 | 1,643 | ||||
Income tax (expense) benefit | (282 | ) | (644 | ) | ||
Net income (loss) | $ | 437 | $ | 999 | ||
Gain on sale of Stevens Urethane (net of tax expense of $4,968) | $ | — | $ | 7,471 |
14. | SUBSEQUENT EVENTS |
On June 1, 2015, Handy & Harman Ltd. (“HNH”), a diversified global industrial company, and JPS announced that they entered into a definitive merger agreement pursuant to which HNH would acquire JPS. Consummation of the transaction occurred on July 2, 2015 after approval by a majority of all the outstanding shares of JPS and a majority of JPS’s outstanding shares not owned by HNH, its affiliates or any of their respective representatives. Under the terms of the merger agreement, all stockholders of JPS (other than HNH and its affiliates) received $11.00 per share in cash for each share of JPS they owned at the effective time of the merger. As a result, HNH owned all of the shares of JPS common stock and on August 3, 2015 merged JPS with and into HNH Acquisition, LLC which was the surviving entity in such merger and was renamed JPS Industries Holdings, LLC.