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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended October 31, 1998
[ ] 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: 33-27038
JPS TEXTILE GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 57-0868166
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
555 North Pleasantburg Drive, Suite 202, Greenville, SC 29607
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (864) 239-3900
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 per share, 22,000,000 shares authorized;
10,000,000 shares issued and outstanding
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: [X]
Indicate by check mark if disclosure of delinquent filers, pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: [ ]
As of January 29, 1999, the aggregate market value of the Registrant's
Common Stock held by non-affiliates, based upon the closing price of the Common
Stock on January 29, 1999, as reported by the Nasdaq National Market, was
approximately $34,183,830.
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court: [X]
As of the date hereof, 10,000,000 of the registrant's Common Stock $.01
par value per share, were issued and outstanding.
The Registrant's Definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on March 24, 1999 is incorporated by reference in Part
III of this Form 10-K to the extent stated herein.
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JPS TEXTILE GROUP, INC.
Table of Contents
PART I
Item 1. BUSINESS........................................................................................... 3
Item 2. PROPERTIES......................................................................................... 13
Item 3. LEGAL PROCEEDINGS.................................................................................. 14
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS................................................. 14
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS........................................................................ 14
Item 6. SELECTED HISTORICAL FINANCIAL DATA................................................................. 15
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.......................................................................... 18
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.......................................... 29
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................................................ 31
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE................................................................ 64
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................................................. 64
Item 11. EXECUTIVE COMPENSATION............................................................................. 64
Item 12. SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT........................................ 64
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................................... 65
Item 14. EXHIBITS, FINANCIAL SCHEDULE AND REPORTS ON FORM 8-K............................................... 65
INDEX TO EXHIBITS.................................................................................. 66
SIGNATURES......................................................................................... 71
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PART I
ITEM 1. BUSINESS
JPS Textile Group, Inc. is a Delaware corporation incorporated in December 1986,
with its principal executive offices located at 555 North Pleasantburg Drive,
Suite 202, Greenville, South Carolina 29607; telephone number (864) 239-3900.
Unless the context otherwise requires, the terms "JPS" and the "Company" as used
in this Form 10-K means JPS Textile Group, Inc. and JPS Textile Group, Inc.
together with its subsidiaries, respectively.
THE 1988 ACQUISITION
On May 9, 1988, the Company acquired substantially all the assets of certain
operating divisions of J.P. Stevens & Co., Inc. ("J.P. Stevens") in exchange for
approximately $527 million in cash and reorganized the newly acquired divisions
into wholly-owned subsidiaries. At that time, JPS raised $100 million by issuing
certain debt and equity securities in order to partially finance the
acquisition. In June 1989, JPS raised $323.6 million by issuing certain public
debt and equity securities to refinance certain outstanding notes and a portion
of the indebtedness incurred in connection with the acquisition. Due to
prevailing market conditions, the securities were priced for sale at higher
rates than JPS anticipated would be necessary at the time of the acquisition. As
a result of the high interest rates and a weak business environment for certain
of its subsidiaries, JPS realized lower than expected operating earnings and
cash flow which, in turn, materially impaired its ability to service its
outstanding debt and fund capital expenditures.
THE 1991 RESTRUCTURING
In 1990, JPS negotiated the terms of a recapitalization proposal with a steering
committee comprised of institutional holders of a substantial amount of the
then-outstanding securities, which culminated in JPS's prepetition solicitation
of votes to accept or reject a plan of reorganization under chapter 11, title 11
of the United States Code (the "Bankruptcy Code"). The plan was overwhelmingly
accepted. On February 7, 1991, JPS filed a petition for relief under the
Bankruptcy Code, and approximately 42 days thereafter, JPS's plan was confirmed
by the bankruptcy court and JPS emerged from chapter 11 on April 2, 1991.
Pursuant to that plan, in exchange for JPS's outstanding debt securities and
JPS's equity securities, JPS issued (i) $100 million in principal amount of
senior secured notes due June 1, 1995 and June 1, 1996 (all of which were
redeemed in 1994), (ii) $151.1 million in principal amount of 10.85% Senior
Subordinated Discount Notes due June 1, 1999 (the "10.85% Notes"), (iii) $125
million in principal amount of 10.25% Senior Subordinated Notes due June 1, 1999
(the "10.25% Notes"), (iv) $75 million in principal amount of 7% Subordinated
Debentures due May 15, 2000 (the "7% Subordinated Debentures"), (v) 390,719
shares of Series A Senior Preferred Stock (the "Old Senior Preferred Stock"),
(vi) 10,000 shares of Series B Junior Preferred Stock (the "Old Junior Preferred
Stock"), (vii) 490,000 shares of class A common stock, par value $0.01 per share
(the "Class A Common Stock") and (viii) 510,000 shares of class B common stock,
par value $0.01 per share (the "Class B Common Stock" and, together with the
Class A Common Stock, the "Old Common Stock"). The 1991 restructuring did not
significantly reduce the amount of JPS's outstanding indebtedness.
DISPOSITIONS OF ASSETS; PLANT CLOSING
Subsequent to the 1991 restructuring, JPS adopted and implemented various
strategies aimed at improving and realizing value in its operating subsidiaries.
These strategies included, among other things, the exit, through asset sales or
otherwise, of certain product lines.
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The Automotive Asset Sale
On June 28, 1994, the Company sold the businesses and assets of JPS Auto, Inc.
("Auto") and the synthetic industrial fabrics division of JPS Converter and
Industrial Corp. ("C&I") and JPS's investment in common stock of the managing
general partner of Cramerton Automotive Products, L.P. (an 80% owned joint
venture) for approximately $283 million.
The Carpet Asset Sale
On November 16, 1995, JPS and JPS Carpet Corp. ("Carpet") sold substantially all
the assets of Carpet used in the business of designing and manufacturing tufted
carpets for sale to residential, commercial and hospitality markets (the "Carpet
Business") to Gulistan Holdings Inc. ("Gulistan Holdings") and Gulistan Carpet
Inc., a wholly-owned subsidiary of Gulistan Holdings Inc. ("Gulistan Carpet"
and, together with Gulistan Holdings, "Gulistan"), for approximately $19 million
in cash, a promissory note due November 2001 issued by Gulistan Holdings in the
original principal amount of $10 million and payable to the order of Carpet, $5
million of preferred stock of Gulistan Holdings, and warrants to purchase 25% of
the common stock of Gulistan Holdings (collectively, the "Gulistan Securities").
Due to Gulistan's recurring losses, on August 28, 1997, the Company sold the
Gulistan Securities to Gulistan for $2 million in cash.
Plant Closing
On August 28, 1996, the Company implemented a plan to close its Dunean plant in
Greenville, South Carolina, as a result of management's determination that a
permanent decline in the Company's spun apparel business had occurred. This
plant had been operating on a reduced schedule due to poor market conditions and
financial projections indicated it would continue to do so. This plant was
closed on October 28, 1996 and sold on August 14, 1997 for approximately $1.2
million in cash.
The Rubber Products Group Sale
On September 30, 1996, JPS Elastomerics Corp. ("Elastomerics") sold
substantially all the assets of the Company's rubber products division, a
business engaged in the manufacture and sale of natural and synthetic elastic
for use in apparel products, diaper products and specialty industrial
applications to Elastomer Technologies Group, Inc. for approximately $5.1
million in cash.
THE 1997 RESTRUCTURING
As a result of the continued downturn in the apparel fabrics market and various
other factors, JPS determined that it would be unable to meet certain debt
obligations on its public bonds that would become due commencing in June, 1997.
Accordingly, on May 15, 1997, JPS, JPS Capital Corp., a wholly-owned subsidiary
of JPS ("JPS Capital") and an unofficial committee (the "Unofficial Bondholder
Committee") comprised of institutions that owned, or represented owners that
beneficially owned, approximately 60% of the 10.85% Notes, the 10.25% Notes and
the 7% Subordinated Debentures (the "Old Debt Securities") reached an agreement
in principle on the terms of a restructuring to be accomplished under chapter 11
of the Bankruptcy Code which culminated in a Joint Plan of Reorganization (as
amended, the "Plan of Reorganization") proposed by JPS and JPS Capital under
chapter 11 of the Bankruptcy Code. Pursuant to a disclosure statement, dated
June 25, 1997 (the "Disclosure Statement"), on June 26, 1997, JPS and JPS
Capital commenced a prepetition solicitation of votes by the holders of Old Debt
Securities and Old Senior Preferred Stock to accept or reject the Plan of
Reorganization. Under the Plan of Reorganization, the holders of Old Debt
Securities and Old Senior Preferred Stock were the only holders of impaired
claims and impaired equity interests entitled to receive a distribution, and
therefore, pursuant to section 1126 of the Bankruptcy Code, were the only
holders entitled to vote on the
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Plan of Reorganization. At the conclusion of the 32-day solicitation period, the
Plan of Reorganization had been accepted by holders of more than 99% of the Old
Debt Securities that voted on the Plan of Reorganization and by holders of 100%
of the Old Senior Preferred Stock that voted on the Plan of Reorganization.
On August 1, 1997, JPS commenced its voluntary reorganization case under chapter
11 of the Bankruptcy Code in the Bankruptcy Court for the Southern District of
New York (the "Bankruptcy Court"), and filed the Plan of Reorganization and the
Disclosure Statement. None of JPS's subsidiaries, including JPS Capital which
was a co-proponent of the Plan of Reorganization, commenced a case under the
Bankruptcy Code. Pursuant to orders of the Bankruptcy Court entered on September
9, 1997, the Bankruptcy Court (i) approved the Disclosure Statement and the
solicitation of votes on the Plan of Reorganization and (ii) confirmed the Plan
of Reorganization. The Plan of Reorganization became effective on October 9,
1997 (the "Effective Date") resulting in, among other things, the cancellation
of the Old Senior Preferred Stock, Old Junior Preferred Stock, and Old Common
Stock, and the issuance of 10,000,000 shares of common stock, $.01 par value per
share (the "Common Stock").
Through the implementation of the Plan of Reorganization as of the Effective
Date, JPS's most significant financial obligations were restructured:
$240,091,318 in face amount of outstanding Old Debt Securities were exchanged
for, among other things, $14 million in cash, 99.25% of the shares of Common
Stock and $34 million in aggregate principal amount (subject to adjustment on
the maturity date) of contingent payment notes issued by JPS Capital (the
"Contingent Notes"); the Old Senior Preferred Stock, the Old Junior Preferred
Stock and the Old Common Stock were canceled; warrants to purchase up to 5% of
the common stock of JPS (the "New Warrants") with an initial purchase price of
$98.76 per share were issued in respect of the Old Senior Preferred Stock; and
the obligations of JPS under its former working capital facility were satisfied
and the Revolving Credit Facility was obtained. JPS's senior management received
approximately 0.75% of the Common Stock in lieu of payment under their
contractual retention bonus agreements. As a result of the restructuring, JPS's
only significant debt obligation is its guaranty of the obligations of its
operating subsidiaries under the Revolving Credit Facility. The equipment loan
contracts, which are long-term obligations of the operating subsidiaries, are
not guaranteed by, or otherwise obligations of, JPS. In August 1998, the Company
reduced its long-term debt and related investments by repaying all of the
approximately $34 million in principal amount of JPS Capital's Contingent Notes.
EVENTS OCCURRING SUBSEQUENT TO OCTOBER 31, 1998
The Boger City Asset Sale (Home Fashion Textiles)
Pursuant to an Asset Purchase Agreement dated as of January 11, 1999, as
amended, JPS Converter and Industrial Corp. has agreed to sell substantially all
of the assets of the Company's Boger City Plant located in Lincolnton, North
Carolina. This plant is engaged primarily in the manufacture and sale of home
fashion textiles and accounted for sales of $33.6 million, $30.9 million and
$22.8 million in Fiscal 1996, 1997 and 1998, respectively. The consideration for
the sale will consist of approximately $7.9 million in cash, subject to a
post-closing adjustment based upon the amount of inventories transferred. A
charge of approximately $12.5 million related principally to the loss on
impairment of long-lived assets, including related organization value in excess
of amounts allocable to identifiable assets, has been included in the results of
operations in Fiscal 1998. See discussion under Item 7, "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS." The net
proceeds from the sale will be used to reduce the Company's outstanding
indebtedness. The closing of the sale of the Boger City Plant is expected to
occur early in the Company's 1999 second fiscal quarter.
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Plant Closing (Apparel Fabrics)
On February 10, 1999, the Company announced a plan to close its Angle Plant
located in Rocky Mount, Virginia. This plant was engaged primarily in the
manufacture and sale of apparel fabrics constructed of filament yarns. A charge
of approximately $4.3 million, related principally to the loss on impairment of
long-lived assets, including related reorganization value in excess of amounts
allocable to identifiable assets, has been included in the results of operations
in Fiscal 1998. The Company expects the plant closing to be substantially
complete by the end of its 1999 third fiscal quarter.
GENERAL
The Company is a major U.S. manufacturer of speciality extruded and woven
materials for a number of applications and greige goods (unfinished woven
fabrics) and yarn principally used in the manufacture of apparel. JPS products
are used in a wide range of applications including: commercial and institutional
roofing, reservoir and landfill liners and covers, printed circuit boards,
advanced composite materials, tarpaulins, awnings, athletic tapes, wallboard
tapes and tile backings, security glazing, athletic shoes, as well as medical,
automotive and industrial components and in consumer apparel products. As of
October 31, 1998, the Company conducted its operations from ten manufacturing
plants in five states and employed approximately 3,400 people. After giving
effect to the plant sale and plant closure discussed above, the Company will
operate eight plants with approximately 2,900 employees. Following are general
comments as they relate to each of the Company's segments:
Industrial Products
The Company is a well-established manufacturer of scrim-reinforced,
heat-weldable, single-ply roofing membrane that is sold globally through a
network of roofing distributors. The Company offers two roofing products: a
Hypalon(R) (chlorosulfonated polyethylene)-based material and a
polypropylene-based material. Both products are sold primarily to the CII
(commercial, industrial, institutional) industries and are used in both new and
retrofit construction.
The Company is also a major manufacturer of Environmental Geomembranes that are
sold on a global basis. As with the roofing products, the Company offers two
geomembrane products: Hypalon(R)-based material and a polypropylene-based
material. Geomembranes are sold to a limited number of fabricators/installers,
and are used primarily as floating covers and liners for potable water
reservoirs, landfill caps, wastewater liners and floating covers and mining heap
leach pads.
The Company produces specialty substrates woven from fiberglass and other
specialty fibers for a variety of applications such as printed circuit boards,
flame-retardancy, filtration products, tarpaulins, awnings, athletic tapes,
advanced composite materials, building products, defense, aerospace and general
industry sectors. In addition, the Company manufactures polyurethane film,
sheet, tubing, cord and profile used in athletic, automotive, medical,
industrial and consumer products as well as in security glazing applications.
Besides single-ply roofing and geomembranes, the Company is also a producer of
substrates used for wallboard tape, tile backing, as well as reinforcement for
roofing membranes, geomembranes and synthetic wall surfaces.
Apparel Fabrics
The Company is a leading manufacturer of greige goods (unfinished woven fabrics)
and yarn. The Company's products are used in the manufacture of a broad range of
consumer apparel products including blouses, dresses and sportswear.
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The Company produces fabrics from spun and filament yarns that are used
ultimately in the manufacture of apparel such as blouses, dresses and
sportswear. Greige goods are produced from a variety of fibers, including flax,
rayon, acetate, polyester and cotton yarns, and are primarily sold to other
textile manufacturers for use in producing printed and dyed fabrics.
The Company produces a variety of rayon and polyester spun yarns for its own use
and for sale to manufacturers of knitted apparel. On February 10, 1999, the
Company announced that it will close a plant principally engaged in the
manufacture and sale of apparel fabric. Production from this facility will be
absorbed by the remaining apparel fabric plants.
Home Fashion Textiles
The Company produces a variety of unfinished and loom finished woven fabrics and
yarns for use in the manufacture of draperies, curtain and lampshades and is a
major producer of solution-dyed drapery fabrics. As discussed above, subsequent
to October 31, 1998, the Company has agreed to sell a plant which accounts for a
major portion of the home fashion textiles segment and which produces 100% of
the unfinished woven fabrics included in this segment. On and after the closing
of the sale of the Boger City Plant, the Company's continuing home fashion
textiles business will consist primarily of yarn production.
SUBSIDIARIES
JPS's wholly-owned operating subsidiaries include Elastomerics and C&I. JPS's
other wholly-owned subsidiaries do not have any significant operations: JPS
Capital, International Fabrics, Inc. ("Fabrics"), Auto and Carpet. JPS business
units are managed in three separate groups: Elastomerics, Industrial Fabrics and
Apparel Fabrics. The Elastomerics and Industrial Fabrics units comprise the
Industrial Products group. The units are held by JPS's wholly-owned Elastomerics
and C&I subsidiaries. Each business unit has independent administrative,
manufacturing, and marketing capabilities for all material aspects of their
operations, including product design, technical development, customer service,
purchasing, and collections. JPS's parent company corporate group is responsible
for finance, strategic planning, legal, tax and regulatory affairs for its
subsidiaries. JPS Capital was formed in 1994 as a special purpose subsidiary to
hold (and invest) $39.5 million, representing a portion of the proceeds received
from the sale of the assets of JPS's automotive division in June 1994, including
the assets of Auto. Prior to the Effective Date, the funds held by JPS Capital
aggregated approximately $48 million, of which $14 million was distributed on
the Effective Date pursuant to the Plan of Reorganization to holders of certain
issues of Old Debt Securities on the Effective Date. In connection with the
implementation of the Plan of Reorganization, approximately $34 million in
aggregate principal amount of Contingent Notes were issued by JPS Capital on the
Effective Date to holders of certain issues of Old Debt Securities. On August
31, 1998, the Company repaid all of the approximately $34 million in principal
amount of Contingent Notes.
Auto and Carpet formerly owned and operated JPS's automotive products and carpet
businesses, respectively. The assets of those businesses were sold in 1994 and
1995, respectively. See "Disposition of Assets; Plant Closing."
MANUFACTURING
The Company operates ten facilities and will operate eight facilities after the
previously described plant sale and plant closure, in five states boasting
state-of-the-art manufacturing equipment. The vast majority of JPS equipment is
automated and computer controlled for maximum efficiency, cost control and
consistency. Following are comments on manufacturing as they relate to each of
the Company's segments:
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Industrial Products
Construction products are produced from raw materials, where they are blended to
proprietary specifications along with fire-retardant and UV stabilizers and then
calendered on state-of-the-art equipment.
Polyurethane is extruded in highly automated, computer controlled, blown film
and sheet fed extrusion processes from raw urethane resins. Depending on
end-uses, some materials are manufactured in clean zone environments.
Other industrial products are produced from substrates of fiberglass and
synthetic fibers.
Apparel Fabrics and Home Fashion Textiles
In the manufacture of woven textile products, the Company purchases synthetic
and natural fibers and spins them into yarn or purchases filament yarn for
processing. In addition, the Company purchases certain spun yarns. Yarns are
then coated, sized or directly woven into unfinished fabric. Upon completion of
the weaving process, fabrics are generally shipped to customers who dye, finish,
coat and cut those fabrics for resale.
The Company has a capital spending plan to lower cost and improve productivity
and efficiency, as described in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" included in Item 7 herein. The
Company believes that its manufacturing facilities and capital spending plan are
sufficient for its production requirements.
RAW MATERIALS
The Company maintains good relationships with its suppliers and has, where
possible, diversified its supplier base so as to avoid a disruption of supply.
In most cases, the Company's raw materials are staple goods that are readily
available from numerous domestic fiber and chemical manufacturers. For several
products, however, branded goods or other circumstances prevent such a
diversification, and an interruption of the supply of these raw materials could
have a significant negative impact on the Company's ability to produce certain
products. The construction products group has negotiated comprehensive supply
agreements for all its polymer, chemical and accessory products, with multiple
production sites assuring an uninterrupted supply. The urethane products group
purchases under contract from all major thermoplastic polyurethane suppliers.
The Company believes that its practice of purchasing such items from large,
stable companies minimizes the risk of interrupting the supply of raw materials.
MARKETING AND COMPETITION
The following is a discussion of marketing and competitive factors as they
relate to each of the Company's segments:
Industrial Products
The commercial roofing industry is highly competitive with a number of major
participants in all segments of the industry. Many of the Company's competitors
are significantly larger in terms of aggregate sales and financial resources. In
the specialty segment of the single-ply market where the Company competes, there
are more than ten competitors, with the Company having the largest market share
in this segment. Due to the success of the Company's EP product line, launched
in 1993, management expects continued growth in this sector. The Company markets
it products under the "Stevens" brand name using a push-pull strategy; pushing
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products through distribution to the roofing contractor and pulling products
through the market by creating demand for the products on the part of building
owners, architects and specifiers.
The Company has approximately twenty field sales staff (domestically), as well
as a network of independent representatives, distributors and
distributor-representatives as its sales force. In addition, the Company
operates a sales office in the United Kingdom. Marketing efforts in the roofing
industry include (i) new product development to meet changing market demands,
(ii) providing proprietary accessory products, (iii) implementing several
contractor-specific programs and (iv) a strong marketing communications effort.
On the geomembrane side, the Company markets to only a limited number of
fabricators/installers. The Company's marketing efforts are focused exclusively
on supporting those companies in a variety of ways.
The urethane products group also has a strong marketing and sales effort with
both direct sales personnel and a nationwide network of independent
representatives. The market for polyurethane film and sheet is fairly focused
and thus there are only a few competitors for sales in each product segment --
aliphatic and aromatic film and sheet. None of the Company's products are sold
"off the shelf," as each application has specific end-use performance
requirements. As with the construction products group, marketing efforts in the
urethane group include a variety of new product developments to meet changing
market demands and a strong marketing communications effort.
Other industrial products are marketed directly to other manufacturers and
distributors. The Company believes that price and its ability to meet customer
technical specifications are important competitive factors.
Apparel Fabrics
The textile industry is highly competitive and includes a number of participants
with aggregate sales and financial resources greater than the Company's. The
Company generally competes on the basis of price, quality, design and customer
service. Many companies compete in limited segments of the textile market. In
recent years, a large and growing percentage of domestic consumer apparel demand
has been met by foreign competitors whose products, both fabrics and garments,
are imported into the United States. The Company is well-positioned due to its
ability to respond quickly to changing styling and fashion trends. This ability
generally provides advantages for domestic textile manufacturers. Although no
single company dominates the industry, most market segments are dominated by a
small number of competitors. The Company believes it has a significant market
share in the market for rayon and acetate apparel fabrics, rayon yarn and
solution-dyed satin fabrics.
The Company's marketing efforts include the development of new product designs
and styles which meet customer needs. The Company's operating units have been
established suppliers to each of its markets for many years and are taking
advantage of well-established customer relationships to increase product
development with its customers. The "J.P. Stevens" trade name, which the Company
has a non-exclusive, royalty-free license to use until May 2013 (see "Patents,
Licenses and Trademarks" below), is widely recognized. The Company believes that
its relatively broad base of manufacturing operations provides it with a
competitive advantage in developing new textile products. In addition to its
direct marketing capabilities, the Company markets certain of its products
through distributors.
The Company markets its spun and filament fabrics to converters who finish
and/or dye these products prior to shipping to finished apparel manufacturers.
The Company has sought to maintain a relatively high proportion of such sales in
product areas where its manufacturing flexibility can provide a competitive
advantage.
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Regarding yarn sales, the Company competes with a large number of companies
which sell yarn to woven and knit goods manufacturers. Yarns are generally sold
on a direct basis, and the Company believes that quality and price are the
primary competitive factors.
Home Fashion Textiles
Effective with the sale of its Boger City Plant as discussed above, the Company
will exit a major portion of its home fashion textiles business. The remaining
business will consist solely of yarn sales. As discussed above, yarns are
generally sold on a direct basis, and the Company believes that quality and
price are the primary competitive factors.
CUSTOMERS
No customer accounts for more than 10% of the Company's sales. However, the loss
of certain customers could have a material adverse effect on sales.
PRODUCT DEVELOPMENT
The following is a discussion of product development as it relates to each of
the Company's segments:
Industrial Products
On-going product development activities include a constant evaluation of new
advanced polymers and polymer compounds, as well as the evaluation and analysis
of material additives required in the manufacture of commercial roofing
products, geomembranes and thermoplastic polyurethane. As appropriate, additives
are required to ensure long-term UV stability, fire or chemical resistance or to
ensure that a specific product can be used in contact with drinking water.
For its roofing products, the Company continues to develop advanced material
products that meet fire, wind and other building code requirements on a global
basis. Such building codes vary from country to country, even regionally,
presenting a challenge to the manufacturer. Geomembranes must also meet
stringent code requirements of several countries, particularly when used in
potable water reservoirs.
Polyurethane film and sheet materials are not available in "off the shelf"
configurations. The Company offers both aliphatic and aromatic polyurethane
products. Aliphatic, which is used in glass clad polycarbonate laminates for
security glazing applications, is extruded in a clean zone environment to ensure
maximum product cleanliness. Aromatic materials are extruded by blown film and
flat sheet fed technologies. The Company spends a considerable amount of R&D
effort to develop material additives that enable end products to be more fire
resistant, more breathable, more permeable, etc. In addition, the Company must
provide specific surface finishes and textures that may be required for end-use
applications.
Other industrial R&D efforts include silane finishes for quartz reinforced
laminates, alkali resistant meshes for exterior Insulation Facing Systems, and
finish additives that enhance the flex life of filtration bags and enable end
products to meet higher temperature requirements. In 1998, a new Technical
Services Center was established at the Slater facility for renewed emphasis on
new products and processes.
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Apparel Fabrics and Home Fashion Textiles
In general, the textile industry expends its efforts on design innovation and
capital expenditures for process enhancements rather than on basic research,
relying on fiber suppliers or machinery manufacturers for basic research.
The Company's research and development activities are directed toward the
development of new fabrics and styles which meet specific styling requirements.
Significant time is spent by employees in activities such as meeting with
stylists, designers, customers, suppliers and machinery manufacturers, as well
as producing samples and running trials in order to develop new products and
markets. These activities are performed at various levels and at various
locations, and their specifically identifiable incremental costs are not
material in relation to the Company's total operating costs.
BACKLOG
Unfilled open orders, which the Company believes are firm, were $38.5 million at
October 31, 1998 and $73.3 million at November 1, 1997. The Company generally
fills its open orders in the following fiscal year and the Company expects that
all of the open orders as of October 31, 1998 will be filled in the 52-week
period ending October 30, 1999 ("Fiscal 1999"). Unfilled open orders, which the
Company believes are firm, were approximately $38.8 million at December 31, 1998
compared to $62.9 million at December 31, 1997. The decrease in open orders at
December 31, 1998 as compared to December 31, 1997 is primarily due to a
decrease in customer demand for apparel fabrics and is representative of a
change in the timing of orders given to the Company creating shorter lead times
from order to delivery due to customers managing their inventory exposure. The
Company believes that the amount of backlog provides some indication of the
sales volume that can be expected in coming months, although changes in economic
conditions may result in deferral or acceleration of orders which may affect
sales volume for a period.
No significant portion of the Company's business is subject to renegotiation of
profits, or termination of contracts or subcontracts at the election of the
government.
PATENTS, LICENSES AND TRADEMARKS
The following is a discussion of patent licenses and trademarks as they relate
to each of the Company's segments:
Industrial Products
Products, such as commercial roofing, geomembranes and polyurethane, are
marketed under the "Stevens" brand name. As such, the Company is in the process
of securing trademarks for the following names: Stevens Roofing Systems, Stevens
EP, Stevens Hypalon, Stevens Walkway Roll, Stevens Geomembranes and Stevens
Urethane. In addition, the Company currently holds trademarks on the names
Hi-Tuff, Hi-Tuff/EP and Hi-Tuff/Hypalon in Europe and in Asia.
In terms of product licensing, the Company is currently involved with two
manufacturing licensees: Tsutsunaka Plastics Industries ("TPI") of Japan and
Protan A/S of Norway. The Company has licensed roofing technology to Protan for
manufacturing and marketing TPO-based roofing products in the Scandinavian
countries. In addition, Stevens roofing and geomembrane compound and
manufacturing technologies have been licensed to TPI for the production of
membranes in Japan.
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12
A total of three patents and thirty trademarks are secured or in the process of
being secured by the Company on other industrial businesses. These include, but
are not limited to: alkali resistant meshes for Exterior Insulation Facing
Systems trademarked under the names of Versaflex, Duraflex, Ultraflex and
Standardflex; filtration products trademarked under the names AcidGuard and
Ultraflex; and substrates meeting high temperature requirements trademarked
under the name Tempratex.
Apparel Fabrics and Home Fashion Textiles
Certain products are sold under registered trademarks which have been licensed
royalty-free to the Company from J.P. Stevens until May 2013, including
trademarks for certain products using the "J.P. Stevens" name. Patented
processes used in the manufacturing process are not a significant part of these
segments. The segments do not license their name or products to others except
for the licenses of certain trade names granted royalty free to operations that
the Company has sold.
EMPLOYEES
As of October 31, 1998, the Company had approximately 3,400 employees of which
approximately 2,900 were hourly and approximately 500 were salaried. After
giving effect to the plant sale and plant closure discussed above, the Company
will have approximately 2,900 employees of which approximately 2,500 will be
hourly and approximately 400 will be salaried. The Company's employees are not
represented by unions. The Company believes its relations with its employees to
be good and has not had any work stoppages or strikes.
ENVIRONMENTAL AND REGULATORY MATTERS
The Company is subject to various federal, state and local government laws and
regulations concerning, among other things, the discharge, storage, handling and
disposal of a variety of hazardous and non-hazardous substances and wastes. The
Company's plants generate small quantities of hazardous waste that are either
recycled or disposed of off-site by or at licensed disposal or treatment
facilities.
The Company believes that it is in substantial compliance with all existing
environmental laws and regulations to which it is subject. In addition, the
Company is subject to liability under environmental laws relating to the past
release or disposal of hazardous materials. To date, and in management's belief
for the foreseeable future, liability under and compliance with existing
environmental laws has not had and will not have a material adverse effect on
the Company's financial or competitive positions. No representation or assurance
can be made, however, that any change in federal, state or local requirements or
the discovery of unknown problems or conditions will not require substantial
expenditures by the Company.
SEASONALITY
Certain portions of the business of the Company are seasonal (principally
construction products) and sales of these products tend to decline during winter
months in correlation with construction activity. These declines have
historically tended to result in lower sales and operating profits in the first
and second quarters than in the third and fourth quarters of the Company's
fiscal year. An increasing emphasis on export sales has mitigated some of the
seasonality in the construction products business.
WORKING CAPITAL
Information regarding the Company's working capital position and practices is
set forth in Item 7 of this Form 10-K under the caption "Liquidity and Capital
Resources."
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Financial information for the Industrial Products, Apparel Fabrics and Home
Fashion Textiles industry segments is set forth in Note 13 to the Consolidated
Financial Statements included in Item 8 herein.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in this Item 1 "BUSINESS" and Item 7 "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" that
are not historical facts are forward-looking statements subject to the safe
harbor created by the Private Securities Litigation Reform Act of 1995. The
Company cautions readers of this Annual Report on Form 10-K that a number of
important factors could cause the Company's actual results in Fiscal 1999 and
beyond to differ materially from those expressed in any such forward-looking
statements. These factors include, without limitation, the general economic and
business conditions affecting the textile industry, the Company's ability to
meet its debt service obligations, competition from a variety of large textile
mills and foreign textile manufacturers which export to the U.S., the
seasonality of the Company's sales, the volatility of the Company's raw
materials cost and the Company's dependence on key personnel.
ITEM 2. PROPERTIES.
The following table sets forth certain information relating to the Company's
principal facilities (segment information relates to principal use). All of the
facilities owned or leased by the Company are used for manufacturing, except for
the facility in New York, New York, which is used for sales offices. Except as
noted, all of the Company's facilities are owned in fee and substantially all
owned facilities are pledged as collateral for the Company's bank financing
arrangement.
Square Square
Location Footage Location Footage
-------- ------- -------- -------
Apparel Fabrics Industrial Products
--------------- -------------------
Laurens, SC 475,000 Kingsport, TN 625,000
Greenville, SC 460,000 Slater, SC 433,000
Stanley, NC 338,000 Westfield, NC 237,000
S. Boston, VA 286,000 Easthampton, MA 50,000
Rocky Mount, VA 88,000 (1)
All Segments
Home Fashion Textiles ------------
---------------------
New York, NY (3) 10,000
Lincolnton, NC 387,000 (2)
(1) Subsequent to October 31, 1998, the Company announced it would close
this facility in Fiscal 1999. See discussion under Item 7,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
(2) Subsequent to October 31, 1998, the Company entered into an agreement
to sell this facility. See discussion under Item 7, "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
(3) The New York, NY facility is leased by the Company under a lease
agreement which expires on May 30, 1999.
-13-
14
The Company also leases certain other warehouse facilities, various regional
sales offices, a subsidiary's corporate office and its corporate headquarters.
The Company believes that all of its facilities are suitable and adequate for
the current and anticipated conduct of its operations.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to lawsuits in the normal course of its business. The
Company believes that it has meritorious defenses in all lawsuits in which the
Company or its subsidiaries is a defendant. Except as discussed below,
management believes that none of this litigation, if determined unfavorable to
the Company, would have a material adverse effect on the financial condition or
results of operations of the Company.
In June 1997, Sears Roebuck and Co. ("Sears") filed a multi-count complaint, in
the Circuit Court of Cook County, Illinois (Case No. 97C8586), against
Elastomerics and two other defendants alleging an unspecified amount of damages
in connection with the alleged premature deterioration of the Company's roofing
membrane installed on approximately 150 Sears stores. No trial date has been
established. The Company believes it has meritorious defenses to the claims and
intends to defend the lawsuit vigorously. Management, however, cannot determine
the outcome of the lawsuit or estimate the range of loss, if any, that may
occur. An unfavorable resolution of the actions could have a material adverse
effect on the business, results of operations or financial condition of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
No matters were submitted to a vote of securityholders during the fourth quarter
of Fiscal 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
On October 9, 1997 (the Effective Date of the Plan of Reorganization proposed by
JPS and JPS Capital and confirmed by order of the Bankruptcy Court entered on
September 9, 1997), 10,000,000 shares of Common Stock, par value of $.01 per
share, of JPS and warrants to purchase up to 526,316 shares of common stock of
JPS at an initial purchase price of $98.76 per share were issued by JPS and
distributed pursuant to the Plan of Reorganization.
The Common Stock of the Company was approved for listing and trading on the
Nasdaq National Market System under the stock symbol "JPST", effective January
30, 1998. Prior to that time, there was only sporadic trading of the Common
Stock in the over-the-counter market. The following table presents the high and
low sales prices for the Common Stock for each full quarterly period since the
Common Stock became eligible for trading on Nasdaq.
FISCAL 1998 HIGH LOW
----------- ---- ---
Second Quarter $13 3/8 $11 3/4
Third Quarter 14 1/2 11 1/2
Fourth Quarter 13 3 3/4
As of January 29, 1999, there were approximately nine holders of record of the
Company's Common Stock.
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The Company has never paid a dividend on its Common Stock. The Company presently
intends to retain earnings to fund working capital and for general corporate
purposes, and, therefore, does not intend to pay cash dividends on shares of the
Common Stock in the foreseeable future. The payment of future cash dividends, if
any, would be made only from assets legally available therefor, and would also
depend on the Company's financial condition, results of operations, current and
anticipated capital requirements, restrictions under then existing indebtedness
(including, without limitation, indebtedness evidenced by the Revolving Credit
Facility (as defined below) and refundings and refinancings thereof) and other
factors deemed relevant by JPS's Board of Directors.
The Company's ability to pay cash dividends is dependent on its earnings and
cash flow. The subsidiaries that are borrowers under certain credit agreements
are restricted from paying cash dividends to JPS with respect to their capital
stock unless, among other things, JPS and its subsidiaries satisfy certain
specified financial tests.
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA.
(Dollars in Thousands Except Per Share Data)
The following table presents selected consolidated historical financial data for
the Company as of the dates and for the fiscal years or periods indicated. The
selected historical financial data for each of the three years ended November 2,
1996, the period from November 3, 1996 to October 9, 1997, the period from
October 10, 1997 to November 1, 1997 and the year ended October 31, 1998 have
been derived from the Consolidated Financial Statements of the Company for such
periods, which have been audited. The presentation of certain previously
reported amounts has been reclassified to conform to the current presentation
and to reflect discontinued operations of the automotive assets (sold in 1994)
and the Carpet Business (sold on November 16, 1995) as discussed in Note 3 to
the Consolidated Financial Statements of the Company at Item 8 in this Form
10-K. The financial statements for the period from October 10, 1997 to November
1, 1997 and for the year ended October 31, 1998 reflect the Company's emergence
from chapter 11 and were prepared utilizing the principles of fresh start
accounting contained in the American Institute of Certified Public Accountants'
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code". As a result of the implementation of fresh start
accounting, certain of the selected financial data for the period from October
10, 1997 to November 1, 1997 and for the year ended October 31, 1998 is not
comparable to the selected financial data of prior periods. Therefore, selected
financial data for the "Reorganized Company" has been separately identified from
that of the "Predecessor Company". The following information should be read in
conjunction with the Consolidated Financial Statements of the Company and Notes
thereto, and "Management's Discussion and Analysis of Financial Conditions and
Results of Operations" presented elsewhere herein.
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Predecessor Company
----------------------------------------------------- Reorganized Company
| --------------------------
Fiscal Year Ended | Fiscal Year
--------------------------------------- Period from | Period from Ended
10/29/94 10/28/95 11/2/96 11/3/96 | 10/10/97 10/31/98
(52 Weeks) (52 Weeks) (53 Weeks) to 10/9/97 | to 11/1/97 (52 Weeks)
---------- ---------- ---------- ---------- | ---------- ----------
|
INCOME STATEMENT DATA: |
Net sales $ 461,871 $ 472,565 $ 448,824 $ 379,643 | $ 38,728 $ 389,218
Cost of sales 397,921 406,070 397,804 327,667 | 31,058 331,473
----------- ----------- ----------- ----------- | ------------ ------------
Gross profit 63,950 66,495 51,020 51,976 | 7,670 57,745
Selling, general and |
administrative expenses 39,805 39,586 40,579 37,146 | 2,466 40,190
Other income (expense), net (2,914) (6,248) (2,498) (622)| 11 (54)
Charges for plant closing, loss on |
sale of certain operations, write- |
down of certain long-lived assets |
and restructuring costs -- -- (30,028) 574 | -- (19,245)
----------- ----------- ----------- ----------- | ------------ ------------
Operating profit (loss) 21,231 20,661 (22,085) 14,782 | 5,215 (1,744)
Valuation allowance on |
Gulistan securities -- -- (4,242) (5,070)| -- --
Interest income 749 2,821 2,856 2,744 | 93 1,038
Interest expense (55,570) (39,946) (40,510) (32,164)| (584) (8,592)
----------- ----------- ----------- ----------- | ------------ ------------
Income (loss) before |
reorganization items, income |
taxes, discontinued operations, |
extraordinary items and |
cumulative effects of |
accounting changes (3) (33,590) (16,464) (63,981) (19,708)| 4,724 (9,298)
Reorganization items: |
Fair-value adjustments -- -- -- (4,651)| -- --
Professional fees and |
expenses -- -- (2,255) (8,420)| -- --
----------- ----------- ----------- ----------- | ------------ ------------
Income (loss) before income taxes, |
discontinued operations, |
extraordinary items and |
cumulative effects of |
accounting changes (33,590) (16,464) (66,236) (32,779)| 4,724 (9,298)
Income taxes (benefit) 2,800 1,200 (300) (8,822)| 2,007 1,366
----------- ----------- ----------- ----------- | ------------ ------------
Income (loss) before discontinued |
operations, extraordinary |
items and cumulative effects |
of accounting changes (36,390) (17,664) (65,936) (23,957)| 2,717 (10,664)
Discontinued operations, |
net of taxes: |
Income (loss) from |
discontinued operations 23,628 (7,079) -- -- | -- --
Net gain (loss) on sale of |
discontinued operations 132,966 (26,241) (1,500) -- | -- --
Extraordinary gain (loss) on |
early extinguishment of debt (7,410) 20,120 -- 100,235 | -- --
Cumulative effects of accounting |
changes, net of taxes (708) -- -- -- | -- --
----------- ----------- ----------- ----------- | ------------ ------------
Net income (loss) $ 112,086 $ (30,864) $ (67,436) $ 76,278 | $ 2,717 $ (10,664)
=========== =========== =========== =========== | ============ ============
Income (loss) applicable to |
common stock $ 108,753 $ (34,695) $ (71,941) $ 72,451 | $ 2,717 $ (10,664)
=========== =========== =========== =========== | ============ ============
Weighted average number |
of shares outstanding(1) 1,000,000 1,000,000 1,000,000 1,000,000 | 10,000,000 10,000,000
=========== =========== =========== =========== | ============ ============
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Predecessor Company Reorganized Company
--------------------------------------------------- | ------------------------
Fiscal Year Ended | Fiscal Year
-------------------------------------- Period from | Period from Ended
10/29/94 10/28/95 11/2/96 11/3/96 | 10/10/97 10/31/98
(52 Weeks) (52 Weeks) (53 Weeks) to 10/9/97 | to 11/1/97 (52 Weeks)
---------- ---------- ---------- ----------- | ----------- -----------
|
INCOME STATEMENT DATA: |
Basic and diluted earnings (loss) |
per common share: (1) |
Income (loss) before discontinued |
operations, extraordinary items |
and cumulative effects of |
accounting changes $ (39.73) $ (21.50) $ (70.44) $ (27.79) | $ 0.27 $ (1.07)
Discontinued operations, net of |
taxes: |
Income (loss) from discontinued |
operations 23.63 (7.08) -- -- | -- --
Net gain (loss) on sale of |
discontinued operations 132.97 (26.24) (1.50) -- | -- --
Extraordinary gain (loss), net of |
taxes (7.41) 20.12 -- 100.24 | -- --
Cumulative effects of accounting |
changes, net of taxes (0.71) -- -- -- | -- --
--------- --------- -------- -------- | ------ -------
Net income (loss) $ 108.75 $ (34.70) $ (71.94) $ 72.45 | $ 0.27 $ (1.07)
========= ========= ======== ======== | ====== =======
10/29/94 10/28/95 11/2/96 11/1/97 10/31/98
-------- -------- ------- ------- --------
BALANCE SHEET DATA:
Working capital, excluding net
assets held for sale $ 65,855 $ 72,670 $(257,866)(2) $ 82,132 $ 81,177
Total assets 452,811 412,822 335,927 322,381 272,922
Total long-term debt, less current portion 335,472 327,668 4,226 (2) 94,891 99,089
Senior redeemable preferred stock 24,340 28,171 32,676 -- --
Shareholders' equity (deficit) (2,350) (37,045) (108,986) 126,047 109,528
(1) In accordance with the provisions of SFAS No. 128, the presentation of
earnings per share data for all periods presented has been restated to
conform to SFAS No. 128.
(2) All of the Company's senior credit facility revolving line of credit
and all of the Company's subordinated notes and debentures are
classified as current liabilities as of November 2, 1996.
(3) The following non-cash charges have been included in the determination
of income (loss) before reorganization items, income taxes,
discontinued operations, extraordinary items and cumulative effects of
accounting changes for the periods shown above:
Predecessor Company Reorganized Company
------------------------------------------------- | --------------------------------
Fiscal Year Ended |
------------------------------------ Period from | Period from Fiscal Year Ended
10/29/94 10/28/95 11/2/96 11/3/96 | 10/10/97 10/31/98
(52 Weeks) (52 Weeks) (53 Weeks ) to 10/9/97 | to 11/1/97 (52 Weeks)
---------- ---------- ----------- ---------- | ---------- ----------
|
Certain non-cash charges to income: |
Depreciation $22,242 $20,820 $21,756 $16,986 | $ 681 $10,189
Amortization of goodwill |
and other 964 965 983 894 | 165 2,273
Product liability charge -- 5,000 -- -- | -- --
Plant closing, loss on sale of |
certain operations, writedown |
of certain long-lived assets |
and restructuring costs -- -- 17,554 -- | -- 19,245
Early retirement offer -- -- 1,125 -- | -- --
Valuation allowance on |
Gulistan securities -- -- 4,242 5,070 | -- --
Other non-cash charges to income 131 371 769 1,092 | 127 533
Non-cash interest 11,161 8,818 10,088 7,303 | 20 329
------- ------- ------- ------- | ------- -------
$34,498 $35,974 $56,517 $31,345 | $ 993 $32,569
======= ======= ======= ======= | ======= =======
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18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
On October 9, 1997, JPS consummated a Plan of Reorganization as discussed in
Item 1 herein under the caption "The 1997 Restructuring". The following
discussion should be read in conjunction with Item 1 and with the Consolidated
Financial Statements of the Company and the Notes thereto included in Item 8
herein.
Pro Forma(9)
Predecessor Company | ---------------------------- Reorganized Company(4)
------------------------------- | (Unaudited) -----------------------------
Fiscal Year Period From | Fiscal Year Ended Period from Fiscal Year
Ended 11/3/96 | ---------------------------- 10/10/97 Ended
11/2/96 to 10/9/97 | 11/2/96 11/1/97 to 11/1/97 10/31/98
----------- ----------- | ----------- ----------- ------------ -----------
|
NET SALES |
Industrial products $ 193,001 $ 179,434 | $ 193,001 $ 197,281 $ 17,847 $ 189,658
Apparel fabrics 221,799 167,070 | 221,799 185,660 18,590 170,877
Home fashion textiles 34,024 33,139 | 34,024 35,430 2,291 28,683
----------- ----------- | ----------- ----------- ---------- -----------
$ 448,824 $ 379,643 | $ 448,824 $ 418,371 $ 38,728 $ 389,218
=========== =========== | =========== =========== ========== ===========
OPERATING PROFIT |
(LOSS) |
Industrial products $ 5,947 (2) $ 16,748 | $ 8,752 (2) $ 21,241 $ 2,652 $ 16,275 (5)
Apparel fabrics (22,422)(3) 1,210 | (15,063)(3) 9,253 2,201 2,274 (6)
Home fashion textiles 647 976 | 1,791 2,980 693 (7,689)(7)
Indirect corporate |
expenses, net (6,257) (4,152)| (7,611) (5,728) (331) (12,604)(8)
----------- ----------- | ----------- ----------- ---------- -----------
Operating Profit (Loss) (22,085) 14,782 | (12,131) 27,746 5,215 (1,744)
Valuation allowance on |
Gulistan securities (4,242) (5,070)| -- -- -- --
Interest income 2,856 2,744 | 1,130 1,192 93 1,038
Interest expense (40,510) (32,164)| (8,561) (8.676) (584) (8,592)
----------- ----------- | ----------- ----------- ---------- -----------
Income (loss) before |
reorganization items, |
income taxes, |
discontinued operations |
and extraordinary |
items $ (63,981) $ (19,708)| $ (19,562) $ 20,262 $ 4,724 $ (9,298)
=========== =========== | =========== =========== ========== ===========
|
OTHER DATA |
|
EBITDA(1) |
Industrial products $ 22,207 $ 22,002 | $ 20,890 $ 24,743 $ 2,935 $ 21,307
Apparel fabrics 10,574 10,046 | 12,154 13,151 2,498 11,328
Home fashion textiles 3,164 3,514 | 3,199 4,236 792 845
Indirect corporate |
expenses, net (6,393) (11,470)| (4,173) (3,415) (165) (3,517)
----------- ----------- | ----------- ----------- ---------- -----------
Total EBITDA $ 29,552 $ 24,092 | $ 32,070 $ 38,715 $ 6,060 $ 29,963
=========== =========== | =========== =========== ========== ===========
(1) EBITDA represents operating income plus depreciation, amortization and
certain other charges (credits) aggregating approximately $30.0
million, ( $0.6 million) and $19.2 million in Fiscal 1996, the period
from November 3, 1996 to October 9, 1997, and Fiscal 1998,
respectively. These other charges (credits) represent the "plant
closing, loss on sale of certain operations, writedown of certain
long-lived assets and restructuring costs" as presented separately in
the Consolidated Financial Statements of the Company and Notes thereto,
and in Item 6, "Selected Historical Financial Data" presented elsewhere
herein. EBITDA as determined by the Company may not be comparable to
the EBITDA measure as reported by other companies. This presentation of
EBITDA is not intended to represent cash flow from operations as
defined by GAAP and should not be considered as an indicator of
operating performance or an alternative to cash flow or operating
income (as measured by GAAP) or as a measure of liquidity. In addition,
this measure does not represent
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19
funds available for discretionary use. It is included herein to provide
additional information with respect to ability of the Company to meet
its future debt service, capital expenditures and working capital
requirements.
(2) The Fiscal 1996 operating profit for industrial products includes
charges of approximately $8.1 million for writedown of certain
long-lived assets and $1.5 million for loss on sale of certain
operations
(3) The Fiscal 1996 operating loss for apparel fabrics includes charges of
approximately $14.2 million for plant closing and $6.2 million for loss
on sale of certain operations.
(4) The financial statements for the period from October 10, 1997 to
November 1, 1997 and the year ended October 31, 1998 reflect the
Company's emergence from chapter 11 and were prepared utilizing the
principles of fresh start reporting contained in the American Institute
of Certified Public Accountants' Statement of Position 90-7, "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code." As
a result of the implementation of fresh start accounting, the financial
information for the period from October 10, 1997 to November 1, 1997
and the year ended October 31, 1998 is not comparable to the financial
information of prior periods.
(5) The Fiscal 1998 operating profit for industrial products includes
charges of approximately $0.7 million for writedown of certain
long-lived assets.
(6) The Fiscal 1998 operating profit for apparel fabrics includes charges
of approximately $3.7 million for writedown of certain long-lived
assets and approximately $0.7 million for certain restructuring costs.
(7) The Fiscal 1998 operating loss for home fashion textiles includes
charges of approximately $7.2 million for writedown of certain
long-lived assets.
(8) The Fiscal 1998 operating loss related to indirect corporate expenses
includes charges of approximately $6.9 million for writedown of certain
long-lived assets (excess reorganization costs).
(9) The pro forma financial information was prepared for comparison
purposes and gives effect to the Plan of Reorganization as if the
transactions had occurred on October 29, 1995 (for Fiscal 1996) and
November 3, 1996 (for Fiscal 1997). The unaudited pro forma financial
information was derived by adjusting the historical consolidated
financial statements of the Company for the effects of fresh start
accounting as described in Note 1 to the Consolidated Financial
Statements included in Item 8 herein. Such adjustments primarily relate
to decreased depreciation expense resulting from revaluation of the
Company's fixed assets, decreased interest expense resulting from
extinguishment of Old Debt Securities in the reorganization, increased
amortization resulting from reorganization value in excess of amounts
allocable to identifiable assets and the elimination of reorganization
items, and their related tax effects. This pro forma information is
provided for informational purposes only and should not be construed to
be indicative of the results of operations of the Company had the
transactions been consummated on the respective dates indicated and are
not intended to be predictive of the results of operations of the
Company for any future period.
RESULTS OF OPERATIONS
The financial statements for the periods subsequent to the consummation of the
Plan of Reorganization (period from October 10, 1997 to November 1, 1997 and
Fiscal 1998) were prepared under the principles of fresh start reporting for
companies emerging from a plan of reorganization and are not comparable to prior
periods. The Company believes that the most meaningful comparisons to Fiscal
1998 are made using the pro forma financial information (for Fiscal 1996 and
1997) and therefore this discussion addresses such pro forma information.
GENERAL COMMENTS
Fiscal 1998 was a disappointing year financially; however, the Company continued
to reposition itself as a diversified industrial and speciality products
company. Recently, the Company announced several important actions which should
improve profitability in Fiscal 1999 and beyond, and reinforce plans to pursue
profitable growth strategies globally in industrial products, while continuing
to streamline the apparel and yarn businesses.
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20
With sales growth in each of the product segments through the first half of the
year and continued implementation of capacity expansion and cost reduction
programs in manufacturing facilities, the Company was optimistic that growth
targets for the year would be achieved. In the last half of the year, however,
global economic issues, adverse market conditions in electronic products and
circuit boards and athletic footwear, and the continued negative impact of
imported apparel fabrics, contributed to declining sales across all of the
segments and margin contraction.
Based on a rigorous assessment of product lines, market positions and
opportunities for profitable growth, the Company recently announced two
strategic initiatives. One is to close the Angle Plant (Apparel Fabrics) and
consolidate its operations into the more modern and versatile plant in South
Boston, Virginia. The second initiative is to sell the Boger City Plant, which
generates a majority of the Company's home fashion textiles business. The sale
of the Boger City Plant should close early in the second fiscal quarter of 1999.
Additionally, Company-wide cost reduction measures were also implemented at the
beginning of Fiscal 1999, which included the elimination of certain jobs at
projected annualized savings of $1.3 million.
The Company's focus for the remainder of Fiscal 1999 and the next several years
remains to continue its leadership position as a manufacturer of industrial
products, to continue to improve the efficiency and capacity of manufacturing
facilities, to bring to market innovative new products and to expand the
industrial products business globally.
FISCAL 1998 COMPARED TO FISCAL 1997 (PRO FORMA)
Consolidated net sales decreased $29.2 million, or 7.0%, from $418.4 million in
Fiscal 1997 to $389.2 million in Fiscal 1998. Operating income (loss) decreased
$29.4 million from a pro forma operating profit of $27.7 million in Fiscal 1997
to an operating loss of $1.7 million in Fiscal 1998. Fiscal 1998 results include
charges for loss on writedown of certain long-lived assets and certain
restructuring charges which totaled approximately $19.2 million. Excluding such
charges for comparative purposes, operating profit in Fiscal 1998 was $17.5
million compared to pro forma operating profit of $27.7 million in Fiscal 1997.
At the end of Fiscal 1998, the Company implemented cost reduction measures,
which included the elimination of certain jobs, resulting in projected future
annual savings of approximately $1.3 million.
Net sales in Fiscal 1998 in the industrial products segment, which includes
single-ply roofing and environmental membrane, woven substrates constructed of
cotton, synthetics and fiberglass for lamination, insulation and filtration
applications and extruded urethane products decreased $7.6 million, or 3.9%, to
$189.7 million from $197.3 million in Fiscal 1997. Sales of fiberglass products
decreased $1.9 million in Fiscal 1998. The electronics industry represents the
largest customer segment for the Company's fiberglass products. Global consumer
demand for electronic products did not meet expectations and, combined with
other factors, including the weakness in Asian economies, led to a slowdown in
demand for certain fiberglass products used in the manufacture of electrical
circuit boards. Management expects that demand for its fiberglass products will
recover and continue to grow in the future, but such resumed growth depends, to
some extent, on the timing and strength of a recovery of growth in global
consumer demand for electronic products. In Fiscal 1998, the Company completed
its capacity expansion and modernization program which it believes will
contribute to lower costs and higher productivity in the future. In view of this
market softness, the Company has taken a number of steps to improve capacity
utilization including finalizing arrangements with its largest customers to
purchase greater quantities of the Company's production. These aggressive
marketing efforts, combined with the Company's reputation for quality and
service, have increased the Company's market opportunities and enhanced its
prospects for future growth. Net sales of roofing membrane increased $0.3
million in Fiscal 1998. The domestic roofing market in Fiscal 1998 was
characterized by intense competition and market consolidation as growth rates
receded from the double-digit levels of the mid-1990's. New and aggressive
competitors in the Company's market niches have presented additional challenges
for growth. The Company is addressing those challenges through aggressive
pricing strategies, which are supported by lower
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manufacturing costs, and strengthening sales management in certain key
territories where such threats are most apparent. Sales of urethane products
decreased $3.5 million in Fiscal 1998, as a result of the decline in demand for
certain of the Company's products used in the manufacture of athletic footwear.
The athletic footwear industry has been depressed as a result of shifting
consumer preference in casual footwear. However, the Company has initiated an
aggressive marketing campaign of new product introduction to help offset the
loss of sales of athletic footwear. Sales of liner membrane decreased $1.0
million in Fiscal 1998 due to declining unit volumes. Sales of cotton industrial
products decreased $0.4 million in Fiscal 1998 due to declining unit volume and
unit selling prices.
Operating profit in Fiscal 1998 for the industrial products segment decreased
$4.9 million from pro forma operating profit of $21.2 million in Fiscal 1997 to
operating profit of $16.3 million in Fiscal 1998. Fiscal 1998 included charges
for writedown of certain long-lived assets of approximately $0.7 million.
Excluding the effects of such charges, operating profit decreased by $4.2
million. Lower unit prices for fiberglass products and lower unit sales in many
of the industrial product groups caused the decline. The Company believes that
through a series of customer agreements and other marketing improvements, future
sales of industrial products will be improved. However, price pressure is
expected to continue in the foreseeable future, but will be mitigated to some
degree through improvements in manufacturing efficiencies related to capital
expenditures, lower raw material costs and an improved product mix.
Net sales of apparel fabrics, which include unfinished woven apparel fabrics
(greige goods) and yarn primarily for women's wear, decreased $14.8 million, or
8.0%, from $185.7 million in Fiscal 1997 to $170.9 million in Fiscal 1998.
Market conditions for apparel fabrics constructed primarily of filament yarn
weakened during Fiscal 1998 producing unit volumes and average reduced selling
prices well below prior-year levels. Apparel imports and shifting consumer
preference in women's apparel reduced demand for domestically produced fabrics
and resulted in an over-produced market. In addition, apparel manufacturers
substituted lower cost imported polyester fabrics for acetate-rich fabrics.
Sales of fabric constructed primarily of spun yarns exceeded expectations for
Fiscal 1998 increasing from $68.4 million in Fiscal 1997 to $72.8 million in
Fiscal 1998. The Company is continuing to develop new fabric construction and
styles in an effort to improve sales and profitability of its product mix.
Operating profit in Fiscal 1998 for the apparel fabrics group decreased $7.0
million from pro forma operating profit of $9.3 million in Fiscal 1997 to
operating profit of $2.3 million in Fiscal 1998. Fiscal 1998 included charges of
approximately $4.4 million for certain restructuring costs and writedown of
certain long-lived assets. Excluding the effects of such charges, operating
profit decreased $2.6 million principally due to the lower sales volume, lower
unit prices and the effects of production curtailment to manage inventory
levels.
As a result of the Company's assessment of the market conditions for apparel
products constructed primarily of filament yarns, management concluded,
subsequent to October 31, 1998, that its Angle Plant located in Rocky Mount,
Virginia, should be closed. The plant was primarily engaged in the manufacture
and sale of apparel fabric constructed of filament yarns. The results of
operations for Fiscal 1998 includes a charge for writedown of certain long-lived
assets of approximately $2.7 million related principally to the loss on
impairment of the plant in accordance with Statement of Accounting Standard
("SFAS") No. 121, "Accounting for the Impairment of Long- Lived Assets and for
Long-Lived Assets to Be Disposed Of." The Company expects to complete the plant
closing by the end of its Fiscal 1999 third quarter and expects that the plant
closure will result in improved earnings and cash flow from operations in the
future. The Company estimates that approximately $1.4 million in plant closing
costs will be incurred in Fiscal 1999 relating primarily to employee severance
and plant run-out costs.
Additionally, in Fiscal 1998, the Company implemented cost reduction measures
which included, among other things, personnel reduction and the idling of
certain manufacturing equipment. The results of operations in Fiscal 1998
includes charges for writedown of certain long-lived assets of approximately
$1.7 million for asset impairment and restructuring costs of approximately $0.7
million for employee severance costs.
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Net sales in Fiscal 1998 in the home fashions textiles segment, which includes
woven drapery fabrics and yarns for the home furnishings industry, decreased
$6.7 million from $35.4 million in Fiscal 1997 to $28.7 million in Fiscal 1998.
This segment suffered from major changes by prominent retailers and shifting
consumer preferences. As a result, the Company's market position deteriorated
from the prior year leading to lower unit demand and generally weaker selling
prices and margins.
Operating profit in Fiscal 1998 for the home fashion textiles segment decreased
to an operating loss of $7.7 million from a pro forma operating profit of $3.0
million in Fiscal 1997. Fiscal 1998 included charges of approximately $7.2
million related to a loss on impairment of certain long-lived assets. Excluding
the effects of such charges, operating profit decreased $3.5 million due to
lower demand, weaker margins and the impact of lower production.
Pursuant to the terms of an Asset Purchase Agreement dated as of January 11,
1999, as amended, between JPS Converter and Industrial Corp., a wholly-owned
subsidiary of JPS, and Belding Hausman Incorporated, JPS Converter and
Industrial Corp. agreed to sell substantially all of the assets of its Boger
City Plant located in Lincolnton, North Carolina. This plant is primarily
engaged in the manufacture and sale of home fashion textiles and accounted for
sales of approximately $33.6 million, $30.9 million and $22.8 million in Fiscal
1996, 1997 and 1998, respectively. The consideration for the sale will consist
of approximately $7.9 million in cash, subject to a post-closing adjustment
based upon the amount of inventories transferred. The cash proceeds will be used
by the Company to reduce outstanding borrowings under its Revolving Credit
Facility and an equipment loan. In accordance with SFAS No. 121, the results of
operations for Fiscal 1998 includes a charge for writedown of certain long-lived
assets of approximately $7.2 million for the excess of the carrying value of the
plant over its fair value based on the estimated proceeds from the sale.
Indirect corporate expenses increased $6.9 million from $5.7 million (pro forma)
in Fiscal 1997 to $12.6 million in Fiscal 1998. In accordance with SFAS No. 121,
a portion of the excess reorganization costs arising from the 1997 financial
restructuring was allocated to the assets of the plant being sold and the plant
being closed as discussed above. The carrying amount of such allocated excess
reorganization costs of $6.9 million was charged to operations in Fiscal 1998.
Reorganization-related fees and expenses incurred in Fiscal 1997 totaled $8.4
million. Such fees and expenses, which represent fees and expenses of the
Company's financial advisor, legal counsel and other professionals associated
with the Company's 1997 financial restructuring and the financial advisor and
legal counsel for the holders of a substantial majority of the Company's old
outstanding bonds, have been excluded from the Fiscal 1997 pro forma financial
statements. No such expenses were incurred in Fiscal 1998.
Because of Gulistan's recurring losses during Fiscal 1997, the Company sold its
debt and equity securities of Gulistan Holdings consisting of a $10 million
Promissory Note due in November 2001, $5 million of preferred stocks redeemable
in November 2005 and warrants to purchase up to 25% of the common stock of
Gulistan Holdings. Proceeds from the sale were $2 million. The writedown of the
carrying value of the Gulistan securities to $2 million was reported in the
period from November 3, 1996 to October 9, 1997. Such writedown, which totaled
$5.1 million in Fiscal 1997, has been excluded from the Fiscal 1997 pro forma
financial statements.
As a result of the application of fresh start accounting as required by
Statement of Position 90-7 ("SOP 90-7") of the American Institute of Certified
Public Accountants, entitled "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code", a gain on early extinguishment of debt of
approximately $100.2 million and reorganization items of approximately $13.1
million were recorded as of the Effective Date. The reorganization items include
professional fees and expenses of approximately $8.4 million (discussed above)
and fair value adjustments of approximately $4.7 million. These items have been
excluded from the Fiscal 1997 pro forma financial information.
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Interest income and expense in Fiscal 1998 are consistent with the pro forma
Fiscal 1997 amounts.
FISCAL 1997 (PRO FORMA) COMPARED TO FISCAL 1996 (PRO FORMA)
Consolidated net sales declined $30.4 million, or 6.8%, from $448.8 million in
Fiscal 1996 to $418.4 million in Fiscal 1997. Pro forma operating profit (loss)
increased $39.8 million from a pro forma operating loss of $12.1 million in
Fiscal 1996 to a pro forma operating profit of $27.7 million in Fiscal 1997.
Fiscal 1996 results included charges for plant closing, loss on sale of certain
operations, and writedown of certain long-lived assets which totaled $30
million. Excluding such charges for comparative purposes, pro forma operating
profit in Fiscal 1996 was $17.9 million. All segments reported improved earnings
in Fiscal 1997 compared to Fiscal 1996.
Net sales in Fiscal 1997 in the industrial products segment increased $4.3
million, or 2.2%, to $197.3 million from $193.0 million in Fiscal 1996. Net
sales in Fiscal 1996 included $4.0 million of industrial elastic sales. The
Company sold its rubber products business, which produced these elastic
products, in September 1996 and therefore Fiscal 1997 includes no industrial
elastic sales.
Sales of fiberglass products increased $5.0 million in Fiscal 1997 primarily as
a result of the continued growth in demand for fabrics used in the manufacture
of electrical circuit boards. The Company expanded and enhanced its productive
capacity and invested in additional machinery and equipment in order to satisfy
customer demand and improve product quality. Sales of roofing membrane increased
$1.4 million from Fiscal 1996. The Company's "Hi-Tuff/EP" line of roofing
products increased in sales as a result of the membrane's competitive price and
outstanding performance characteristics. Sales of urethane products increased
$3.7 million from Fiscal 1996 primarily as a result of stronger demand for
certain of the Company's products used in the manufacture of athletic footwear.
The Company was successful in developing a variety of urethane film and sheet
products for specific customer requirements. Sales of cotton industrial products
increased $3.7 million from Fiscal 1996 due to improved unit volumes and selling
prices. Sales of other industrial products declined $5.5 million primarily as a
result of the exit of certain low margin products and redirecting such weaving
capacity toward more profitable goods.
Pro forma operating profit in Fiscal 1997 for the industrial products segment
increased by $12.5 million from $8.8 million in Fiscal 1996 to $21.2 million in
Fiscal 1997. Included in the Fiscal 1996 pro forma operating profit are charges
of approximately $9.6 million for writedown of certain long-lived assets and
loss on sale of operations. Adjusting for such charges, pro forma operating
profit in Fiscal 1997 increased by $2.8 million (15.2%) from Fiscal 1996. The
increases in sales as described above, and the exit of certain low margin
product lines, combined with improved operating efficiencies, increased pro
forma operating income in Fiscal 1997.
Net sales in Fiscal 1997 in the apparel fabrics segment declined $36.1 million
(16.3%) from $221.8 million in Fiscal 1996 to $185.7 million in Fiscal 1997.
Much of this decline in net sales was expected as a result of the Company's
actions in Fiscal 1996 to exit certain product lines which included plant
closings and asset sales. Net sales in Fiscal 1996 included $12.8 million of
apparel elastics sales. As discussed below, the Company sold its rubber products
business, which produced these elastic products, in September 1996. Apparel
fabric sales declined $20.5 million in Fiscal 1997 primarily as a result of the
Company's decision in Fiscal 1996 to close one of its facilities in Greenville,
South Carolina and cease production of certain commodity-type apparel fabrics
which, due to competitive pressures from abroad, carried very weak margins.
Pro forma operating profit (loss) in Fiscal 1997 for the apparel fabrics segment
increased by $24.4 million from a $15.1 million pro forma loss to a pro forma
operating profit of $9.3 million. Fiscal 1996 included charges of approximately
$20.4 million for plant closing and loss on sale of certain operations. Pro
forma operating profit before such charges increased by $4.0 million from $5.3
million in Fiscal 1996 to $9.3 million in Fiscal 1997. The improvement is the
result of several factors. Fiscal 1997 results were not adversely affected by
the negative
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operating margins associated with the product lines exited during Fiscal 1996.
In addition, manufacturing efficiency and productivity improved as a result of
certain capital projects completed during Fiscal 1997.
Net sales in Fiscal 1997 in the home fashion textiles segment, increased $1.4
million (4.1%) to $35.4 million in Fiscal 1997 from $34.0 million in Fiscal 1996
primarily as a result of new product development and styling which resulted in
higher unit volumes and selling prices.
Pro forma operating profit in Fiscal 1997 for the home fashion textiles segment
increased $1.2 million (67%) to $3.0 million from $1.8 million in Fiscal 1996.
The aforementioned volume and product mix enhancements were the primary causes
for improved operating results. Substantially all of such improvement in pro
forma operating increase occurred during the first half of Fiscal 1997.
Indirect corporate expenses (pro forma) declined by $1.9 million from $7.6
million in Fiscal 1996 to $5.7 million in Fiscal 1997. Fiscal 1996 pro forma
expenses included a $1.1 million charge resulting from an early retirement offer
extended to certain salaried employees. Fiscal 1996 also included an expense of
$1.0 million for management services provided by a former shareholder pursuant
to a management services agreement. Pursuant to the Plan of Reorganization on
the Effective Date, such agreement was canceled and rejected and claims for
rejection damages were waived. Accordingly, no such expense was incurred in
Fiscal 1997. Offsetting such decreases were slightly higher employee
compensation costs and insurance costs.
Reorganization-related fees and expenses incurred in Fiscal 1997 totaled $8.4
million. These fees and expenses totaled $2.3 million in Fiscal 1996. The
writedown of the carrying value of the Gulistan securities totaled $4.2 million
in Fiscal 1996 and $5.1 million in Fiscal 1997 and has been excluded from the
pro forma financial statements.
Pro forma interest income and expense in Fiscal 1997 were consistent with the
pro forma amounts in Fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity for operations and expansion are
funds generated internally and borrowings under its Revolving Credit Facility
(as defined below). On October 9, 1997, Elastomerics and C&I (the "Borrowing
Subsidiaries") and JPS entered into the Credit Facility Agreement, (the "Credit
Agreement"), by and among the financial institutions party thereto, Citibank, as
agent, and NationsBank, N.A., as co-agent. The Credit Agreement provides for a
revolving credit loan facility and letters of credit (the "Revolving Credit
Facility") in a maximum principal amount equal to the lesser of (a) $135 million
and (b) a specified borrowing base (the "Borrowing Base"), which is based upon
eligible receivables, eligible inventory and a specified dollar amount
(currently $52,000,000 (subject to reduction) based on fixed assets of the
Borrowing Subsidiaries), except that (i) no Borrowing Subsidiary may borrow an
amount greater than the Borrowing Base attributable to it (less any reserves as
specified in the Credit Agreement) and (ii) letters of credit may not exceed $20
million in the aggregate. The Credit Agreement contains restrictions on
investments, acquisitions and dividends unless, among other things, the Company
satisfies a specified pro forma fixed charge coverage ratio and maintains a
specified minimum availability under the Revolving Credit Facility for a stated
period of time, and no default exists under the Credit Agreement. The Credit
Agreement also restricts, among other things, indebtedness, liens, affiliate
transactions, operating leases, fundamental changes and asset sales other than
the sale of up to $35 million of fixed assets, subject to the satisfaction of
certain conditions. The Credit Agreement contains financial covenants relating
to minimum levels of EBITDA, minimum interest coverage ratio, minimum fixed
charge coverage ratio and maximum capital expenditures. The maturity date of the
Revolving Credit Facility is October 9, 2002. On October 30, 1998, the Credit
Agreement was amended to, among other things (i) modify the financial covenants
relating to minimum levels of EBITDA, minimum interest coverage ratio, minimum
fixed charge coverage ratio and maximum capital
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expenditures, (ii) modify the interest rate margin and unused commitment fees
and (iii) provide additional reduction of the fixed asset portion of the
Borrowing Base. As of October 31, 1998, the Company was in compliance with these
restrictions and all financial covenants, as amended. All loans outstanding
under the Revolving Credit Facility, as amended, bear interest at either the
Eurodollar Rate (as defined in the Credit Agreement) or the Base Rate (as
defined in the Credit Agreement) plus an applicable margin (the "Applicable
Margin") based upon the Company's fixed charge coverage ratio (which margin will
not exceed 2.50% for Eurodollar Rate borrowings and .25% for Base Rate
borrowings). The weighted average interest rate at October 31, 1998 is
approximately 6.9%. The Company pays a fee of .25% per annum if a specified
fixed charge coverage ratio is satisfied and a letter of credit fee equal to the
Applicable Margin for Eurodollar Rate borrowings. Borrowings under the Revolving
Credit Facility are made or repaid on a daily basis in amounts equal to the net
cash requirements or proceeds for that business day. As of October 31, 1998,
unused and outstanding letters of credit totaled $1,526,000. The outstanding
letters of credit reduce the funds available under the Revolving Credit
Facility. At October 31, 1998, the Company had approximately $38.3 million
available for borrowing under the Revolving Credit Facility.
Net cash provided by operations increased by approximately $16.5 million in
Fiscal 1998 compared to the combined periods from November 3, 1996 to October 9,
1997 and October 10, 1997 to November 1, 1997 (Fiscal 1997) primarily due to the
fact that Fiscal 1997 included payment of $14.0 million to holders of the 10.85%
Notes and 10.25% Notes and certain interest payments associated with the Old
Debt Securities. Working capital at October 31, 1998 was approximately $90.8
million compared to $82.1 million at November 1, 1997, principally due to the
estimated proceeds from the plant sale discussed above. Accounts receivable
decreased by approximately $11.6 million at October 31, 1998 compared to
November 1, 1997 due principally to a decrease in sales in Fiscal 1998 and the
timing of customer receipts. Inventories increased by approximately $9.8 million
in Fiscal 1998 as a result of the lower sales volume. Accounts payable and
accrued expenses decreased approximately $4.2 million in Fiscal 1998 principally
due to lower operating activity in the later part of the year.
The principal use of cash in Fiscal 1998 was for property, plant and equipment
expenditures of $22.4 million for upgrade and capacity improvements for the
Company's manufacturing operations. As of October 31 1998, the Company had
commitments of $1.1 for capital expenditures. The Company anticipates making
capital expenditures in Fiscal 1999 of approximately $8.2 million and expects
such amounts to be funded by cash from operations, bank and other equipment
financing sources.
On August 31, 1998, the Company reduced its long-term debt and related
investments by repaying all of the approximately $34 million in principal amount
of JPS Capital's Contingent Notes.
In Fiscal 1998, the Company entered into a seven-year lease agreement
(classified as capital lease) for certain machinery and equipment. The total
cost of the assets to be covered by the lease is limited to approximately $5.0
million. The total cost of assets under lease at October 31, 1998 was
approximately $3.5 million. The lease provides for an early buyout option at the
end of six years and includes purchase and renewal options at fair market value
at the end of the lease term.
Based upon the Company's ability to generate working capital through its
operations and its Revolving Credit Facility, the Company believes that it has
the financial resources necessary to pay its capital obligations and implement
its business plan for at least the next twelve months.
INFLATION AND TAX MATTERS
The Company is subject to the effects of changing prices. It has generally been
able to pass along inflationary increases in its costs by increasing the prices
for its products; however, market conditions sometimes preclude this practice.
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For the fiscal year ending October 31, 1998 the Company recorded a tax expense
of $1.4 million. A tax expense was recorded even though the Company had current
year losses. This expense was due to the nondeductibility of certain expenses
for tax purposes and the recording of an additional valuation allowance on the
Company's deferred tax assets. The nondeductible items consist primarily of
reorganization value in excess of amounts allocable to identifiable assets. The
additional valuation allowance was provided based on management's assessment of
the ability to recognize the net deferred tax assets. See Note 9 to the
Consolidated Financial Statements for additional information.
For the period from October 10, 1997 to November 1, 1997, the Company recorded a
tax expense of $2.0 million. The tax expense for the period ending November 1,
1997 includes the utilization of a portion of the deferred tax asset, described
below, which was recorded as of the Effective Date of the Plan of Reorganization
of the Company. The effective tax rate exceeds the statutory federal income tax
rate due to the impact of items not deductible for federal income tax purposes
and because of state income taxes.
The Company recorded a tax benefit for the period ending October 9, 1997 of
approximately $8.8 million. This consists of a benefit from the implementation
of the Plan of Reorganization net of state taxes on subsidiary operations that
could not be offset by operating loss carryovers or current year losses of JPS
or its subsidiaries. The benefit arose as consummation of the Plan of
Reorganization substantially deleveraged JPS. Accordingly, the reserve
established against the deferred tax assets that was required due to the
operating history was significantly reduced. However, the deferred tax asset
attributable to the net operating loss carryforwards was also reduced as a
result of the reduction in net operating loss carryforwards that is required for
reorganizations such as that provided in the Plan of Reorganization. The
reduction in reserves and reduction in deferred tax liabilities exceeded the
reduction in the gross deferred tax asset by a net amount of $9.7 million thus
resulting in a deferred tax benefit. The recording of the tax benefit and the
net deferred tax asset reflects the Company's determination that it is more
likely than not that these deferred tax assets, net of the valuation allowance,
will be realized based on current income tax laws and expectations of future
taxable income stemming from the reversal of deferred tax liabilities or
operations. Uncertainties surrounding income tax law changes, shifts in
operations between state taxing jurisdictions and future operating income levels
may, however, affect the ultimate realization of all or some portion of these
deferred income tax assets. In addition, the Company evaluates the valuation
allowance on quarterly basis to determine whether or not adjustment is required.
There was no adjustment to the valuation allowance for the period ending
November 1, 1997.
The Internal Revenue Code (the "Code") provides that there are no taxes payable
on gains such as the extraordinary gain on early extinguishment of debt that was
realized on the reorganization of the Company in the period from November 3,
1996 to October 9, 1997. However, the Company was required under provisions of
the Code to reduce certain net operating loss carryforwards and certain other
tax attributes as a result of such gain. Beginning net operating loss carryovers
were reduced by approximately $64 million. In addition, alternative minimum tax
credit carryovers were reduced by approximately $0.7 million. As a result of
valuation allowances on these assets, there was no tax expense attributable to
such reductions. In addition to attribute reduction, any remaining net operating
loss carryforwards and certain other tax attributes are subject to the
limitations imposed by Section 382 of the Code. The effect of these limitations
was to limit the utilization of the approximately $28 million in remaining net
operating loss carryovers and certain other attributes to an annual amount of
approximately $6.6 million (subject to certain adjustments).
The Company recorded a net $0.3 million income tax benefit on continuing
operations in Fiscal 1996. The Company had a $0.5 million deferred state tax
benefit from the charge for the plant closing and writedown of certain
long-lived assets. While no tax expense resulted from applying the statutory tax
rate to the loss before income taxes, the Company was not able to fully offset
subsidiary income in all tax jurisdictions with net operating losses of the
Company or other subsidiaries or operating loss carryovers. As a result, a $0.2
million provision for state income taxes was required in Fiscal 1996.
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During Fiscal 1994, the Company utilized approximately $141 million of net
operating loss carryforwards to offset the gain on sale of the automotive
assets. Income tax expense incident to the sale was reduced by approximately $49
million as a result of such utilization. Federal alternative minimum and state
taxes of approximately $2.8 million were recognized as a result of the sale.
Although the Company believed use of its net operating loss carryforwards to
offset the gain on the automotive assets would more likely than not be sustained
under existing tax laws, uncertainty existed primarily due to the fact that
applicable regulations under Section 382 of the Code had not been issued.
Therefore, in accordance with provisions of the indentures governing the Old
Debt Securities, the Company set aside, in a special-purpose subsidiary, a
portion ($39.5 million) of the net proceeds from the sale of the automotive
assets to satisfy, if necessary, these possible contingent tax liabilities. As
of November 1, 1997 and November 2, 1996, the aggregate fair value of the
investments was approximately $34.6 million and $46.2 million, respectively.
Under the terms of the Plan of Reorganization, the holders of the 10.25% and
10.85% Notes received $14 million in cash from these investments and Contingent
Notes with an aggregate principal amount of $34 million payable from these
investments upon the occurrence of certain events. The respective amounts of the
cash distribution and the initial principal amount of the Contingent Notes were
determined based on the assumptions used to determine the original amount set
aside for contingent tax liabilities related to the 1994 sale of the Company's
automotive business with adjustments for certain events arising subsequent to
the sale and such original determination. A current liability in an amount equal
to the approximate aggregate fair value of invested funds was recorded in the
Company's Consolidated Balance Sheet as of November 1, 1997. In accordance with
the indenture for the Contingent Notes, during 1998 a determination was made
that the Maturity Date (as defined in the indenture) would occur on August 31,
1998. Funds in the amount of $35,536,460 were placed with the paying agent on or
before August 28, 1998. On August 31, 1998 the Contingent Notes were no longer
deemed outstanding and all rights with respect to such notes ceased, other than
the right of the holders thereof to receive the principal amount and accrued
interest (as defined) payable under each Contingent Note held by them.
Even before giving effect to the previously described limitations on use of net
operating loss carryforwards occurring under the Plan of Reorganization, due to
the Company's operating history, it was uncertain that it would be able to
utilize all deferred tax assets. Therefore, for years ending prior to November
1, 1997, a valuation allowance had been provided equal to the deferred tax
assets remaining after deducting all deferred tax liabilities, exclusive of
those related to certain deferred state tax liabilities. As described above, a
portion of the valuation allowance was reversed and a tax benefit recognized
upon the Effective Date of the Plan of Reorganization.
YEAR 2000 COMPLIANCE
Description of Year 2000 Issue
As a result of the existence of computer programs and chips embedded in process
control equipment that use two digits rather than four to define the applicable
year, a concern commonly known as "Year 2000" has arisen globally. Computer
programs and equipment having time-sensitive software or imbedded processors may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations causing disruptions of
operations, such as production shutdowns, or a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
Mission-critical applications which could be impacted include purchasing and
inventory management, production control, general ledger accounting, billing,
payroll and disbursements.
The Company's Plan
In Fiscal 1997, the Company conducted a comprehensive review of its computer
systems to identify those systems that could be affected by the Year 2000 issue.
The Company has developed and is currently implementing its plan to address the
Year 2000 issue. Task teams led by senior executives identified six project
phases including (i) inventory of systems and process exposure, (ii) risk
assessment and prioritization, (iii) remediation of non-compliant
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systems, (iv) testing and development of compliant systems, (v) maintenance once
compliance is achieved and (vi) contingency planning. The Company has completed
the inventory and risk assessment phases and is currently in the remediation and
testing phases of the project. Remediation involves repair of existing systems
and equipment, and, in some cases, complete replacement with purchased systems
and equipment that are Year 2000 compliant. Replaced and modified systems are
subjected to rigorous testing in a non-production environment in parallel with
production data and, once deployed, are continually monitored for compliance.
Activities to maintain such compliance include monitoring of reprogrammed
systems once back in production, audits of critical systems, vendor compliance
certifications and testing of contingency plans. Management has also reviewed
production equipment used in its operations and has performed a written survey
of its equipment vendors to certify that the systems imbedded in sophisticated
production equipment are Year 2000 compliant. In addition, all new equipment
purchases are screened for Year 2000 compliance. The Company expects that the
remediation phase will be substantially completed by the end of August 1999.
However, testing and maintenance will continue throughout 1999.
The Company has prepared and mailed letters to vendors and service providers to
discern their Year 2000 compliance status and testing procedures. Most of these
vendors and service providers supply raw materials and equipment to the Company.
The majority of responses have been received and no negative responses have been
received. However, many of the responses will require additional follow-up which
is to be completed by September 1999.
The Company is in the initial steps of developing contingency plans for its
mission-critical applications. The contingency plans will address (i) the
development of a contingency planning framework, including common approaches and
criteria, (ii) clear assignment of accountability for executing the contingency
planning framework, (iii) monitoring of results and (iv) testing and validation.
It is anticipated the contingency plans will enable the business to continue in
the event there are any system interruptions.
Costs Associated with Year 2000 Compliance
The incremental cost of addressing the Year 2000 issue will be substantially
absorbed in the normal budget for improvement in management information systems
and by normal costs for administrative and technical employees. The Company,
however, retains contract programmers to work on discrete projects and will
continue this practice into the foreseeable future. The incremental cost of
addressing the Year 2000 issue is estimated at $210,000 with $69,000 having been
spent as of October 31, 1998. Most of these expenditures have been for
remediation or replacement of existing systems. Management believes that the
cost of Year 2000 modifications will not have a material effect on results of
operations. The estimated cost of the Year 2000 project and the dates on which
the Company believes it will be completed are based on management's best
estimate. There can be no assurances that these estimates will not change.
Specific factors that could cause material differences with actual results
include, but are not limited to, the results of testing and the timeliness and
effectiveness of remediation efforts of third parties.
Risks Presented by Year 2000 Issues
There can be no assurance given that any or all of the Company's systems are or
will be Year 2000 compliant. A failure by the Company to resolve a material Year
2000 issue could result in an interruption in, or failure of, normal business
operations and could materially and adversely affect the Company's financial
condition. In addition, due to the uncertainties inherent in the Year 2000
problem, the Company cannot insure that its most important vendors, customers
and service providers will be Year 2000 compliant on time. The failure of
critical third parties to timely correct their Year 2000 problems could
materially and adversely affect the Company's operations and financial
condition, even resulting in an interruption in normal business operations if a
critical supplier is unable to meet commitments in a timely manner. However, as
a result of the activities described above, and assuming the remaining project
phases are completed in satisfactory manner, management believes that the Year
2000 issue will not pose significant operational problems for the Company's
computer or process systems.
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RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 provides for the disclosure
of comprehensive income and its components with the same prominence as net
income, in a full set of general purpose financial statements. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events from nonowner sources. This statement
will require additional disclosure but will not have a material impact on the
Company's financial position, results of operations or cash flows. The adoption
of SFAS No. 130 is effective for the Company in Fiscal 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information." SFAS No. 131 requires publicly-held
companies to report financial and other information about key revenue-producing
segments of the enterprise for which such information is available and is
utilized by the chief operating decision maker in allocating resources and
assessing performance. Specific information to be reported for individual
segments includes profit or loss, certain revenue and expense items and total
assets. A reconciliation of segment information to amounts reported in the
financial statements is also to be provided. SFAS No. 131 is effective for the
Company at the Fiscal 1999 year end, unless adopted earlier. Management of the
Company has not yet evaluated the effects of this change on its reporting
segments.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures About
Pensions and Other Postretirement Benefits - an Amendment of FASB Statements No.
87, 88 and 106." SFAS No. 132 revises disclosures about pension and other
postretirement benefit plans, but it does not change the measurement or
recognition of those plans and therefore will not have a significant impact on
the Company's financial position, results of operations or cash flows. SFAS No.
132 is effective for the Company in Fiscal 1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. SFAS No. 133 will be effective for the Company
in Fiscal 2000. Management of the Company has not yet evaluated the effects of
this statement on the Company's financial position, results of operations or
cash flows.
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", which provides guidance on
accounting for the costs of computer software developed or obtained for internal
use. SOP 98-1 requires external and internal indirect costs of developing or
obtaining internal-use software to be capitalized as a long-lived asset and also
requires training costs included in the purchase price of computer software and
costs associated with research and development to be expensed as incurred. SOP
98-1 will be effective for the Company in Fiscal 1999. Management of the Company
has not yet evaluated the effects of this statement on the Company's financial
position, results of operations and cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk. The Company has exposure to interest rate changes primarily
relating to interest rate changes under its Revolving Credit Facility. The
Company's Revolving Credit Facility bears interest at rates which vary with
changes in (i) the London Interbank Offered Rate (LIBOR) or (ii) a rate of
interest announced publicly by Citibank in New York, New York. The Company does
not speculate on the future direction of interest rates. As of October 31, 1998,
approximately $94.1 million of the Company's debt bore interest at variable
rates. The Company believes that the effect, if any, of reasonably possible
near-term changes in interest rates on the Company's consolidated financial
position, results of operations or cash flows would not be significant.
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30
Commodity price risk. A portion of the Company's raw materials are staple goods
that are affected by commodity pricing and are, therefore, subject to price
volatility caused by weather, production problems, delivery difficulties and
other factors which are outside the control of the Company. In most cases,
essential raw materials are available from several sources. For several raw
materials, however, branded goods or other circumstances may prevent such
diversification and an interruption of the supply of these raw materials could
have a significant impact on the Company's ability to produce certain products.
The Company has established long-term relationships with key suppliers and may
enter into purchase contracts or commitments of one year or less for certain raw
materials. Such agreements generally include a pricing schedule for the period
covered by the contract or commitment. The Company believes that any changes in
commodity pricing which cannot be adjusted for by changes in its product pricing
or other strategies, would not be significant.
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31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
JPS Textile Group, Inc.:
We have audited the accompanying consolidated balance sheets of JPS Textile
Group, Inc. and subsidiaries (the "Company") as of October 31, 1998 and November
1, 1997, and the related consolidated statements of operations, shareholders'
equity and of cash flows for the year ended October 31, 1998 and for the period
from October 10, 1997 to November 1, 1997 (Reorganized Company consolidated
operations), and the consolidated statements of operations, senior redeemable
preferred stock and shareholders' equity (deficit) and of cash flows for the
period from November 3, 1996 to October 9, 1997 and the year ended November 2,
1996 (Predecessor Company consolidated operations). Our audits also included the
financial statement schedule listed in the index at page S-1. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, on September 9,
1997, the Bankruptcy Court entered an order confirming the Company's plan of
reorganization, which became effective after the close of business on October 9,
1997. The accompanying consolidated financial statements subsequent to October
9, 1997 were prepared in conformity with AICPA Statement of Position 90-7,
"Financial Reporting for Entities in Reorganization Under the Bankruptcy Code".
Accordingly, the Reorganized Company is a new entity with assets, liabilities,
and a capital structure having carrying values not comparable with prior periods
as described in Note 1.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at October 31, 1998 and
November 1, 1997, and the results of its operations and its cash flows for the
year ended October 31, 1998 and the period from October 10, 1997 to November 1,
1997 (Reorganized Company) and for the period from November 3, 1996 to October
9, 1997 and the year ended November 2, 1996 (Predecessor Company) in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
February 1, 1999
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32
JPS TEXTILE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
November 1, October 31,
1997 1998
----------- -----------
ASSETS (Note 7)
CURRENT ASSETS:
Cash $ 3,888 $ 1,549
Accounts receivable, less allowance of $1,053
in 1997 and $1,565 in 1998 79,569 67,949
Inventories (Notes 2 and 5) 44,770 51,542
Prepaid expenses and other (Notes 5 and 6) 37,085 4,101
Net assets held for sale (Note 4) -- 9,652
-------- --------
Total current assets 165,312 134,793
PROPERTY, PLANT AND EQUIPMENT, net 104,554 98,456
(Notes 2 and 5)
REORGANIZATION VALUE IN EXCESS
OF AMOUNTS ALLOCABLE TO IDENTIFIABLE
ASSETS, less accumulated amortization of
$164 in 1997 and $2,438 in 1998 (Notes 1, 2, and 4) 45,690 36,532
OTHER ASSETS (Note 5) 6,825 3,141
-------- --------
Total assets $322,381 $272,922
======== ========
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33
November 1, October 31,
1997 1998
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 24,353 $ 22,158
Accrued interest 421 1,055
Accrued salaries, benefits and withholdings
(Note 10) 9,148 8,447
Other accrued expenses (Notes 5 and 10) 13,182 11,257
Current portion of long-term debt (Note 7) 36,076 1,047
-------- ---------
Total current liabilities 83,180 43,964
LONG-TERM DEBT (Note 7) 94,891 99,089
OTHER LONG-TERM LIABILITIES
(Notes 5, 10 and 11) 18,263 20,341
-------- ---------
Total liabilities 196,334 163,394
-------- ---------
COMMITMENTS AND CONTINGENCIES
(Notes 7 and 10)
SHAREHOLDERS' EQUITY (Note 8):
Common stock 100 100
Additional paid-in capital 123,230 123,230
Additional minimum pension liability adjustment (Note 11) -- (5,855)
Retained earnings (deficit) 2,717 (7,947)
-------- ---------
Total shareholders' equity 126,047 109,528
-------- ---------
Total liabilities and shareholders' equity $322,381 $ 272,922
======== =========
See notes to consolidated financial statements.
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JPS TEXTILE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Data)
Predecessor Company Reorganized Company
---------------------------------- | ----------------------------------
Fiscal Year | Fiscal Year
Ended Period from | Period from Ended
November 2, November 3, 1996 | October 10, 1997 October 31,
1996 to October 9, 1997 | to November 1, 1997 1998
----------- ------------------ | ------------------- ------------
|
Net sales $ 448,824 $ 379,643 | $ 38,728 $ 389,218
Cost of sales 397,804 327,667 | 31,058 331,473
--------- --------- | -------- ---------
Gross profit 51,020 51,976 | 7,670 57,745
Selling, general and administrative |
expenses (Note 10) 40,579 37,146 | 2,466 40,190
Other income (expense), net (Note 10) (2,498) (622) | 11 (54)
Charges for plant closing, loss |
on sale of certain operations, |
writedown of certain long-lived |
assets and restructuring |
costs (Notes 2 and 4) (30,028) 574 | -- (19,245)
--------- --------- | -------- ---------
Operating profit (loss) (22,085) 14,782 | 5,215 (1,744)
Valuation allowance on Gulistan |
securities (Note 3) (4,242) (5,070) | -- --
Interest income 2,856 2,744 | 93 1,038
Interest expense (Note 7) (40,510) (32,164) | (584) (8,592)
--------- --------- | -------- ---------
Income (loss) before reorganization |
items, income taxes, discontinued |
operations and extraordinary items (63,981) (19,708) | 4,724 (9,298)
Reorganization items (Note 1): |
Fair-value adjustments -- (4,651) | -- --
Professional fees and expenses (2,255) (8,420) | -- --
--------- --------- | -------- ---------
Income (loss) before income taxes, |
discontinued operations and |
extraordinary items (66,236) (32,779) | 4,724 (9,298)
Provision (benefit) for income |
taxes (Note 9) (300) (8,822) | 2,007 1,366
--------- --------- | -------- ---------
Income (loss) before discontinued |
operations and extraordinary |
items (65,936) (23,957) | 2,717 (10,664)
Loss on sale of discontinued |
operations, $0 taxes (Note 3) (1,500) -- | -- --
--------- --------- | -------- ---------
Income (loss) before extraordinary |
items (67,436) (23,957) | 2,717 (10,664)
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CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
Predecessor Company Reorganized Company
--------------------------------- | -------------------------------------
Fiscal Year | Fiscal Year
Ended Period from | Period from Ended
November 2, November 3, 1996 | October 10, 1997 October 31,
1996 to October 9, 1997 | to November 1, 1997 1998
----------- ------------------ | ------------------- -------------
|
|
Extraordinary gain on early |
extinguishment of debt, |
$0 taxes (Notes 1 and 7) -- 100,235 | -- --
----------- ---------- | ----------- ------------
Net income (loss) (67,436) 76,278 | 2,717 (10,664)
|
Senior redeemable preferred |
stock in-kind dividends |
and discount accretion 4,505 3,827 | -- --
----------- ---------- | ----------- ------------
Income (loss) applicable to |
common stock $ (71,941) $ 72,451 | $ 2,717 $ (10,664)
=========== ========== | =========== ============
Weighted average number |
of common shares |
outstanding (A) 1,000,000 1,000,000 | 10,000,000 10,000,000
=========== ========== | =========== ============
Basic and diluted earnings |
(loss) per common |
share (A): |
Income (loss) before |
discontinued operations |
and extraordinary items $ (70.44) $ (27.79) | $ 0.27 $ (1.07)
Net loss on sale of dis- |
continued operations (1.50) -- | -- --
Extraordinary gain -- 100.24 | -- --
------------ ---------- | ----------- ------------
Net income (loss) $ (71.94) $ 72.45 | $ 0.27 $ (1.07)
============ ========== | =========== ============
(A) In accordance with the provisions of Statement of Financial Accounting
Standard No. 128 ("SFAS No. 128"') "Earning Per Share", the presentation
of earnings per share data for all periods presented has been restated to
conform to SFAS no. 128.
See notes to consolidated financial statements.
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JPS TEXTILE GROUP, INC.
CONSOLIDATED STATEMENTS OF SENIOR REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT)
(In Thousands)
Shareholders' Equity (Deficit)
-----------------------------------------------------------------
Senior Additional
Redeemable Junior Minimum Additional Retained
Preferred Common Preferred Pension Paid-In Earnings
Stock Stock Stock Liability Capital (Deficit)
---------- ------ --------- ----------- ---------- ---------
Predecessor Company
Balance - October 28, 1995 $ 28,171 $ 10 $ 250 $ 0 $ 29,613 $ (66,918)
Net loss for 53 weeks (67,436)
Preferred stock-in-kind dividends
and discount accretion 4,505 (4,505)
-------- ------- ----- --------- -------- ---------
Balance - November 2, 1996 32,676 10 250 0 25,108 (134,354)
Net income for the period from
November 3, 1996 to
October 9, 1997 76,278
Preferred stock-in-kind dividends
and discount accretion 3,827 (3,827)
Fresh start adjustments (36,503) 90 (250) 101,949 58,076
-------- ------- ----- --------- -------- ---------
Reorganized Company
Balance - October 9, 1997 0 100 0 0 123,230 0
Net income for the period from
October 10, 1997 to November 1,
1997 2,717
-------- ------- ----- --------- -------- ---------
Balance - November 1, 1997 0 100 0 0 123,230 2,717
Additional minimum pension liability
adjustment (5,855)
Net loss for 52 weeks (10,664)
-------- ------- ----- --------- -------- ---------
Balance - October 31, 1998 $ 0 $ 100 $ 0 $ (5,855) $123,230 $ (7,947)
======== ======= ===== ========= ======== =========
See notes to consolidated financial statements.
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JPS TEXTILE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Predecessor Company Reorganized Company
---------------------------------- | -----------------------------------
Fiscal Year | Fiscal Year
Ended Period from | Period from Ended
November 2, November 3, 1996 | October 10, 1997 October 31,
1996 to October 9, 1997 | to November 1, 1997 1998
------------ ------------------ | ------------------- -----------
|
CASH FLOWS FROM |
OPERATING ACTIVITIES |
Net income (loss) $ (67,436) $ 76,278 | $ 2,717 $(10,664)
--------- -------- | -------- --------
Adjustments to reconcile net |
income (loss) to net cash |
provided by (used in) operating |
activities: |
Charges for plant closing, |
loss on sale of certain |
operations, writedown of |
certain long-lived assets and |
restructuring costs 30,028 (574) | -- 19,245
Loss on sale of |
discontinued operations 1,500 -- | -- --
Extraordinary gain on |
early extinguishment of debt -- (100,235) | -- --
Depreciation and amortization, |
except amounts included |
in interest expense 22,739 17,880 | 846 12,462
Interest accretion and debt |
issuance cost amortization 10,088 7,303 | 20 329
Reorganization charges -- 5,581 | -- --
Tax benefit from reduction |
of valuation allowance -- (9,745) | -- --
Deferred income tax |
provision (benefit) (500) -- | 1,256 (817)
Valuation allowance on |
Gulistan securities 4,242 5,070 | -- --
Other, net (3,163) (3,229) | (295) (2,294)
Changes in assets and liabilities: |
Accounts receivable 10,372 10,599 | (15,002) 11,620
Inventories (2,635) (6,920) | 9,664 (9,884)
Prepaid expenses and other |
assets (2,348) (18,565) | 816 (123)
Accounts payable (3,983) 1,243 | (1,599) (1,419)
Accrued expenses and other |
liabilities (1,688) 15,432 | 650 (2,777)
--------- -------- | -------- --------
Total adjustments 64,652 (76,160) | (3,644) 26,342
--------- -------- | -------- --------
Net cash provided by (used in) |
operating activities (2,784) 118 | (927) 15,678
--------- -------- | -------- --------
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CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Predecessor Company Reorganized Company
-------------------------------- | ---------------------------------
Fiscal | Fiscal
Year Ended Period from | Period from Year Ended
November 2, November 3, 1996 | October 10, 1997 October 31,
1996 to October 9,1997 | to November 1, 1997 1998
---------- ----------------- | ------------------- ----------
|
CASH FLOWS FROM |
INVESTING ACTIVITIES |
Property and equipment additions (9,834) (14,467) | (1,618) (22,423)
Proceeds from sale of |
discontinued operations, net 17,077 -- | -- --
Proceeds from sale of certain |
operations 5,113 988 | -- --
Proceeds from sale of long-term |
investments -- 49,500 | -- 35,382
Purchase of investments -- (33,500) | -- --
-------- -------- | ------- --------
Net cash provided by (used in) |
investing activities 12,356 2,521 | (1,618) 12,959
-------- -------- | ------- --------
|
CASH FLOWS FROM |
FINANCING ACTIVITIES |
Financing costs incurred (614) (1,465) | (66) (146)
Proceeds from issuance of |
long-term debt 29 -- | -- --
Revolving credit facility |
borrowings (repayments), net (6,087) 3,361 | 3,245 1,849
Purchases and repayment of other |
long-term debt, net (2,792) (2,655) | (86) (32,679)
-------- -------- | ------- --------
Net cash provided by (used in) |
financing activities (9,464) (759) | 3,093 (30,976)
-------- -------- | ------- --------
|
NET INCREASE (DECREASE) |
IN CASH 108 1,880 | 548 (2,339)
Cash at beginning of period 1,352 1,460 | 3,340 3,888
-------- -------- | ------- --------
Cash at end of period $ 1,460 $ 3,340 | $ 3,888 $ 1,549
======== ======== | ======= ========
|
SUPPLEMENTAL INFORMATION |
ON CASH FLOWS FROM |
CONTINUING OPERATIONS: |
Interest paid $ 30,709 $ 7,944 | $ 24 $ 7,629
Income taxes paid (received), net 693 (46) | (8) 1,044
Non-cash financing activities: |
Capital lease obligation -- -- | -- 3,519
Senior redeemable preferred |
stock dividends-in-kind 3,114 -- | -- --
See notes to consolidated financial statements.
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39
JPS TEXTILE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND BASIS OF PRESENTATION
Unless the context otherwise requires, the terms "JPS" and the
"Company" as used in these Consolidated Financial Statements mean JPS
Textile Group, Inc. and JPS Textile Group, Inc. together with its
subsidiaries, respectively.
The 1988 Acquisition - JPS purchased from J.P. Stevens & Co., Inc.
("J.P. Stevens") substantially all of the property, plant and
equipment, inventories, certain other assets and the business of five
former divisions of J.P. Stevens (the "Predecessor Stevens Divisions")
on May 9, 1988 (the "Acquisition"). The purchase was financed through
long-term borrowings and the sale of preferred and common stock. The
Company operates principally as a manufacturer of industrial products,
apparel fabrics and home fashion textiles. These products are sold
primarily to the athletic, automotive, medical, construction,
electrical, filtration, recreational, composite, defense, aerospace,
environmental and domestic clothing industries. As described in Notes 3
and 4, certain of the acquired businesses and operations have been
subsequently sold.
The 1991 Restructuring - In 1990, JPS negotiated the terms of a
recapitalization proposal with a steering committee comprised of
institutional holders of a substantial amount of the then-outstanding
securities, which culminated in JPS's prepetition solicitation of votes
to accept or reject a chapter 11 plan of reorganization. The plan was
overwhelmingly accepted. On February 7, 1991, JPS filed a petition for
relief under the Bankruptcy Code, and approximately 42 days thereafter,
JPS's plan was confirmed by the bankruptcy court and JPS emerged from
chapter 11 on April 2, 1991. Pursuant to that plan, in exchange for
JPS's outstanding debt securities and JPS's equity securities, JPS
issued (i) $100 million in principal amount of senior secured notes due
June 1, 1995 and June 1, 1996 (all of which were redeemed in 1994),
(ii) $151.1 million in principal amount of 10.85% Senior Subordinated
Discount Notes due June 1, 1999 (the "10.85% Notes"), (iii) $125
million in principal amount of 10.25% Senior Subordinated Notes due
June 1, 1999 (the "10.25% Notes"), (iv) $75 million in principal amount
of 7% Subordinated Debentures due May 15, 2000 (the "7% Subordinated
Debentures"), (v) 390,719 shares of Series A Senior Preferred Stock
(the "Old Senior Preferred Stock"), (vi) 10,000 shares of Series B
Junior Preferred Stock (the "Old Junior Preferred Stock"), (vii)
490,000 shares of class A common stock, par value $0.01 per share (the
"Class A Common Stock") and (viii) 510,000 shares of class B common
stock, par value $0.01 per share (the "Class B Common Stock" and,
together with the Class A Common Stock, the "Old Common Stock"). Since
this reorganization did not meet the criteria for "fresh-start"
accounting, the primary adjustment to historical carrying values as a
result of the reorganization was to state the new long-term debt and
senior redeemable preferred stock at present values of amounts to be
paid determined at appropriate current interest rates as of April 2,
1991, the effective date of the plan. The resulting present value
discount was amortized as interest expense or dividends over the life
of the related debt or senior redeemable preferred stock instrument
using the interest method.
The 1997 Restructuring - In 1996, JPS and JPS Capital Corp., a
wholly-owned subsidiary of JPS ("JPS Capital") commenced negotiations
with an unofficial committee (the "Unofficial Bondholder Committee")
comprised of institutions that owned, or represented holders that
beneficially owned, approximately 60% of the 10.85% Notes, the 10.25%
Notes and the 7% Subordinated Debentures (the "Old Debt Securities").
On May 15, 1997, the parties reached an agreement in principle on the
terms of a restructuring to be accomplished under chapter 11 of the
Bankruptcy Code which culminated in a
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40
Joint Plan of Reorganization (as amended the "Plan of Reorganization")
proposed by JPS and JPS Capital under the Bankruptcy Code. Pursuant to
a disclosure statement, dated June 25, 1997 (the "Disclosure
Statement"), on June 26, 1997, JPS and JPS Capital commenced a
prepetition solicitation of votes by the holders of Old Debt Securities
and Old Senior Preferred Stock to accept or reject the Plan of
Reorganization. Under the Plan of Reorganization, the holders of Old
Debt Securities and Old Senior Preferred Stock were the only holders of
impaired claims and impaired equity interests entitled to receive a
distribution, and therefore, pursuant to section 1126 of the Bankruptcy
Code, were the only holders entitled to vote on the Plan of
Reorganization. At the conclusion of the 32-day solicitation period,
the Plan of Reorganization had been accepted by holders of more than
99% of the Old Debt Securities that voted on the Plan of Reorganization
and by holders of 100% of the Old Senior Preferred Stock that voted on
the Plan of Reorganization.
On August 1, 1997, JPS commenced its voluntary reorganization case
under chapter 11 of the Bankruptcy Code in the United States Bankruptcy
Court for the Southern District of New York (the "Bankruptcy Court"),
and filed the Plan of Reorganization and the Disclosure Statement. None
of JPS's subsidiaries, including JPS Capital which was a co-proponent
of the Plan of Reorganization, commenced a case under the Bankruptcy
Code. Pursuant to orders of the Bankruptcy Court entered on September
9, 1997, the Bankruptcy Court (i) approved the Disclosure Statement and
the solicitation of votes on the Plan of Reorganization and (ii)
confirmed the Plan of Reorganization. The Plan of Reorganization became
effective on October 9, 1997 (the "Effective Date") resulting in, among
other things, the cancellation of the Old Senior Preferred Stock, Old
Junior Preferred Stock, and Old Common Stock, and the issuance of 10
million shares of $.01 par value new common stock (the "Common Stock").
Through the implementation of the Plan of Reorganization as of the
Effective Date, JPS's most significant financial obligations were
restructured: $240,091,318 in face amount of outstanding Old Debt
Securities were exchanged for, among other things, $14 million in cash,
99.25% of the shares of Common Stock and approximately $34 million in
aggregate principal amount (subject to adjustment on the maturity date)
of contingent payment notes issued by JPS Capital (the "Contingent
Notes"); the Old Senior Preferred Stock, the Old Junior Preferred Stock
and the Old Common Stock were canceled; warrants to purchase up to 5%
of the common stock of JPS (the "New Warrants") with an initial
purchase price of $98.76 per share were issued in respect of the Old
Senior Preferred Stock; and the obligations of JPS under its former
working capital facility were satisfied and the Revolving Credit
Facility was obtained. JPS's senior management received approximately
0.75% of the Common Stock in lieu of payment under their contractual
retention bonus agreements. In August 1998, the Company reduced its
long-term debt and related investments by repaying all of the
approximately $34 million in principal amount of JPS Capital's
Contingent Notes.
The Plan of Reorganization was accounted for pursuant to Statement of
Position 90-7 ("SOP 90-7") of the American Institute of Certified
Public Accountants, entitled "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code." The accompanying
consolidated financial statements reflect the use of "fresh start"
reporting as required by SOP 90-7, in which assets and liabilities were
adjusted to their fair values and resulted in the creation of a new
reporting entity (the "Company" or the "Reorganized Company") with no
retained earnings or accumulated deficit as of October 9, 1997.
Accordingly, the consolidated financial statements for the periods
prior to October 9, 1997 (the "Predecessor Company") are not comparable
to consolidated financial statements presented subsequent to October 9,
1997. A black line has been drawn on the accompanying consolidated
financial statements and notes thereto to distinguish between the
Reorganized Company and Predecessor Company balances.
The total reorganization value assigned to the Company's assets was
determined, by independent valuation, by calculating projected cash
flows before debt service requirements, for a three-year period, plus
an estimated terminal value of the Company (calculated using a multiple
of projected EBITDA),
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each discounted back to its present value using a discount rate of 10%
(estimating the after-tax weighted average cost of capital). The above
calculations resulted in an estimated reorganization value attributable
to the common stock of approximately $123.3 million of which the Excess
Reorganization Value was approximately $45.9 million. The Excess
Reorganization Value is being amortized over twenty years.
As a result of the restructuring and the application of fresh start
accounting as required by SOP 90-7, a gain on early extinguishment of
debt of approximately $100.2 million and reorganization items of
approximately $13.1 million were recorded in the Predecessor Company
period ending October 9, 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include JPS Textile Group, Inc. and its direct subsidiaries, all of
which are wholly owned. Significant intercompany transactions and
accounts have been eliminated.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
The Company's most significant financial statement estimates include
the estimate of the allowance for doubtful accounts, reserve for
self-insurance liabilities, and the reserve for roofing products sold
under warranties, including those sold by the Predecessor Stevens
Division operations (discussed in Note 10). Management determines its
estimate of the allowance for doubtful accounts considering a number of
factors, including historical experience, aging of the accounts and the
current creditworthiness of its customers. The Company self-insures,
with various insured stop-loss limitations, its workers' compensation,
general liability and health claims. Management determines its estimate
of the reserve for self-insurance considering a number of factors,
including historical experience and third party claims administrator
and actuarial assessment of the liabilities for reported claims and
claims incurred but not reported. Management believes that its
estimates provided in the financial statements, including those for the
above-described items, are reasonable and adequate. However, actual
results could differ from those estimates.
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.
Investments - At November 1, 1997, all debt and equity securities are
classified as held-for-sale and reported at fair value as determined
based on market prices or dealer quotes. In August 1998, all debt and
equity securities were sold and the proceeds were used to repay all of
the approximately $34 million in principal amount of the Contingent
Notes plus accrued interest.
Property, Plant and Equipment - As a result of the adoption of fresh
start accounting as described in Note 1, property, plant and equipment
was adjusted to estimated fair value as of October 9, 1997 and
historical accumulated depreciation was eliminated. Property, plant and
equipment is recorded at cost and depreciation is recorded using the
straight-line method for financial reporting purposes. The estimated
useful lives used in the computation of depreciation are as follows:
Land improvements 10 to 45 years
Buildings and improvements 25 to 45 years
Machinery and equipment 3 to 15 years
Furniture, fixtures and other 5 to 10 years
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Capital Leases - Assets under capital leases are amortized in
accordance with the Company's normal depreciation policy and the charge
to earnings is included in depreciation expense in the accompanying
consolidated financial statements.
Reorganization Value in Excess of Amounts Allocable to Identifiable
Assets - Reorganization value in excess of amounts allocable to
identifiable assets results from the application of "fresh start"
reporting, as discussed in Note 1, which requires the Predecessor
Company's unidentified intangibles, net of amortization, to be reduced
to zero and a new amount to be recorded equaling the excess of the fair
value of the Company over the fair value allocated to its identifiable
assets. This excess is classified as reorganization value in excess of
amounts allocable to identifiable assets and is being amortized over a
twenty-year period. In Fiscal 1998, the Company wrote off approximately
$6.9 million of the reorganization value in excess of amounts which was
allocable to identifiable assets in relation to the plant sale and
plant closure discussed in Note 4.
Debt Issuance Costs - Costs incurred in securing and issuing long-term
debt are deferred and amortized over the terms of the related debt in
amounts which approximate the interest method of amortization.
Product Warranties - On certain of its products, the Company provides a
warranty against defects in materials and workmanship under separately
priced extended warranty contracts generally for a period of ten years.
Revenue from such extended warranty contracts is deferred and
recognized as income on a straight-line basis over the contract period.
The cost of servicing such product warranties is charged to expense as
incurred.
Postretirement Benefits - The Company accounts for postretirement
benefits other than pensions using the principles of Statement of
Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions". SFAS No. 106 requires
that the projected future cost of providing postretirement benefits,
such as health care and life insurance, be recognized as an expense as
employees render service. See Note 11 for a further description of the
accounting for postretirement benefits.
Postemployment Benefits - The Company accounts for postemployment
benefits using the principles of SFAS No. 112, "Employers' Accounting
for Postemployment Benefits". SFAS No. 112 requires that the cost of
benefits provided to former or inactive employees after employment but
before retirement be recognized on the accrual basis of accounting. See
Note 11 for a further description of the accounting for postemployment
benefits.
Fair Value of Financial Instruments - The carrying amounts of all
financial instruments approximate their estimated fair values in the
accompanying 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 debt issued pursuant to the Company's senior credit facility
approximates fair value because interest rates on these instruments
change with market rates. The carrying value of other debt instruments,
including capital lease obligations, approximate fair value because
interest rates on such debt approximates rates that are currently
available to the Company for issuance of debt with similar terms and
remaining maturities.
Revenue Recognition - The Company recognizes revenue from product sales
when it has shipped the goods or ownership has been transferred to the
customer for goods to be held for future shipment at the customer's
request.
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Advertising Costs - The Company defers advertising related costs until
the advertising is first run in magazines or other publications or in
the case of brochures, until the brochures are printed and available
for distribution. Advertising costs expensed were approximately
$1,967,000 in Fiscal 1996, $1,947,000 and $122,000 in the period from
November 3, 1996 to October 9, 1997 and the period from October 10,
1997 to November 1, 1997, respectively, and $1,581,000 in Fiscal 1998.
Income Taxes - The Company accounts for income taxes using the
principles of SFAS No. 109, "Accounting for Income Taxes". Under SFAS
No. 109, deferred taxes represent the future income tax effect of
temporary differences between the book and tax bases of the Company's
assets and liabilities, assuming they will be realized and settled at
the amount reported in the Company's financial statements.
Earnings Per Share - In 1997, the Financial Accounting Standards Board
(FASB) issued SFAS No. 128, "Earnings Per Share." SFAS No. 128 replaced
the previously required primary and fully diluted earnings per share
with basic and diluted earnings per share. Basic earnings per share is
computed using the weighted average number of common shares. Diluted
earnings per share is computed using the weighted average number of
common shares and potentially dilutive common shares outstanding during
the period. Potentially dilutive common shares consist primarily of
stock options and warrants. In the period from October 10, 1997 to
November 1, 1997 and the year ended October 31, 1998, the inclusion of
additional shares assuming the exercise of stock options and warrants
are antidilutive. Therefore, basic and diluted earnings per share are
the same. All earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to SFAS No. 128
requirements.
Cash Flows - For purposes of reporting cash flows, cash includes cash
on hand and in banks. The Company has no investments that are deemed to
be cash equivalents.
Effects of Recent Accounting Pronouncements - In June 1997, the FASB
issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
provides for the disclosure of comprehensive income and its components,
with the same prominence as net income in a full set of general purpose
financial statements. Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and
other events from nonowner sources. This statement will require
additional disclosure but will not have a material impact on the
Company's financial position, results of operations or cash flows. The
adoption of SFAS No. 130 is effective for the Company in Fiscal 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments
of an Enterprise and Related Information." SFAS No. 131 requires
publicly-held companies to report financial and other information about
key revenue-producing segments of the enterprise for which such
information is available and is utilized by the chief operating
decision maker in allocating resources and assessing performance.
Specific information to be reported for individual segments includes
profit or loss, certain revenue and expense items and total assets. A
reconciliation of segment information to amounts reported in the
financial statements is also to be provided. SFAS No. 131 is effective
for the Company at the Fiscal 1999 year end, unless adopted earlier.
Management of the Company has not yet evaluated the effects of this
change on its reporting segments.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits - an Amendment of FASB
Statements No. 87, 88 and 106." SFAS No. 132 revises disclosures about
pension and other postretirement benefit plans, but it does not change
the measurement or recognition of those plans and therefore will not
have a significant impact on the Company's financial position, results
of operations or cash flows. SFAS No. 132 is effective for the Company
in Fiscal 1999.
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In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies
to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the
values of those derivatives would be accounted for depending on the use
of the derivative and whether it qualifies for hedge accounting. SFAS
No. 133 will be effective for the Company in Fiscal 2000. Management of
the Company has not yet evaluated the effects of this statement on the
Company's financial position, results of operations or cash flows.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use",
which provides guidance on accounting for the costs of computer
software developed or obtained for internal use. SOP 98-1 requires
external and internal indirect costs of developing or obtaining
internal-use software to be capitalized as a long-lived asset and also
requires training costs included in the purchase price of computer
software and costs associated with research and development to be
expensed as incurred. SOP 98-1 will be effective for the Company in
Fiscal 1999. Management of the Company has not yet evaluated the
effects of this statement on the Company's financial position, results
of operations and cash flows.
Fiscal Year - The Company's operations are based on a fifty-two or
fifty-three week fiscal year ending on the Saturday closest to October
31. Fiscal 1996 had fifty-three weeks. The 1997 fiscal year consisted
of fifty-two weeks including the period from November 3, 1996 to
October 9, 1997 (Predecessor Company) and the period from October 10,
1997 to November 1, 1997 (Reorganized Company). Fiscal 1998 had
fifty-two weeks.
Reclassifications - Certain Fiscal 1996 and 1997 amounts have been
reclassified to conform to the 1998 presentation.
3. SALE OF DISCONTINUED OPERATIONS
Carpet Business - On November 16, 1995, pursuant to the terms of an
Asset Transfer Agreement dated as of November 16, 1995, by and among
JPS, JPS Carpet Corp. ("Carpet"), a wholly-owned subsidiary of JPS,
Gulistan Holdings Inc. and Gulistan Carpet Inc., a wholly-owned
subsidiary of Gulistan Holdings Inc. (collectively, "Gulistan"), the
Company and Carpet consummated the sale of substantially all of the
assets of Carpet used in the business of designing and manufacturing
tufted carpets for sale to residential, commercial and hospitality
markets (the "Carpet Business").
The consideration for the sale of the Carpet Business consisted of
approximately $22.5 million in cash, subject to certain post-closing
adjustments based on the audited amount of working capital transferred
on November 16, 1995, and other debt and equity securities of Gulistan
as follows: a $10 million Promissory Note due in November 2001, $5
million of preferred stock redeemable in November 2005, and warrants to
purchase 25% of the common stock of Gulistan. Based on an independent
valuation at the asset transfer date, the Company determined the fair
value of these debt and equity securities to be approximately $11.3
million. In addition, certain post-closing adjustments, which resulted
in a loss of $1.5 million, were recognized in Fiscal 1996 on the sale
of discontinued operations.
The Company did not record interest income on any of the Gulistan
securities held by the Company because of net losses reported by
Gulistan since the date of sale. Also, in accordance with relevant
accounting literature, the Company recorded a valuation allowance
against its investment in Gulistan securities and corresponding charges
to income of approximately $4.2 million in Fiscal 1996 and $2.1 million
in the period from November 3, 1996 to October 9, 1997 as a result of
the net losses incurred
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by Gulistan. On August 28, 1997, the Company sold its investment in the
Gulistan securities to Gulistan for $2.0 million in cash resulting in
an additional charge of approximately $3.0 million.
Automotive Businesses - On June 28, 1994, the Company sold the business
and assets of JPS Auto, Inc. ("Auto") and the synthetic industrial
fabrics division of JPS Converter and Industrial Corp., a wholly owned
subsidiary of JPS ("C&I"), and JPS' investment in common stock of
Cramerton Automotive Products, L.P. (an 80% owned joint venture) for
approximately $283 million.
4. SALE OF CERTAIN OPERATIONS, PLANT CLOSING, WRITEDOWN OF CERTAIN LONG-
LIVED ASSETS AND RESTRUCTURING COSTS
Pursuant to an Asset Purchase Agreement dated September 30, 1996
between JPS Elastomerics Corp. ("Elastomerics"), a wholly-owned
subsidiary of the Company, and Elastomer Technologies Group, Inc.
("Elastomer") and a Receivables Purchase Agreement dated September 30,
1996 between Elastomerics and the Bank of New York Commercial
Corporation, Elastomerics sold substantially all the assets of its
rubber products division, a business engaged in the manufacture and
sale of natural and synthetic elastic for use in apparel products,
diaper products and specialty industrial applications (the "Rubber
Products Business"). The Rubber Products Business had accounted for
sales of $16.8 million in Fiscal 1996 (eleven months). Under the terms
of the agreement, Elastomer agreed to assume substantially all the
liabilities and obligations associated with the Rubber Products
Business. The Company and its subsidiaries agreed not to compete
directly or indirectly with the business that was sold for a period of
two years. The consideration for the Rubber Products Business consisted
of approximately $5.1 million in cash, subject to certain post-closing
adjustments based on the audited amount of working capital transferred
on the closing date, and resulted in a loss of approximately $7.7
million. This loss on sale was charged to operations in Fiscal 1996.
The net proceeds from the sale, after fees and expenses, was
approximately $4.8 million and was used to reduce the Company's
outstanding indebtedness. In April 1997, the Company paid $0.3 million
to Elastomer as final settlement for certain post-closing adjustments
based on the audited amount of net assets transferred.
On August 28, 1996, the Company implemented a plan to close its Dunean
plant in Greenville, South Carolina, as a result of management's
determination that a permanent decline in the Company's spun apparel
business had occurred. This plant had been operating on a reduced
schedule due to poor market conditions and financial projections
indicated it would continue to do so. As a result of the plant closing,
the accompanying Consolidated Statement of Operations includes a
"charge for plant closing" of approximately $14.2 million for Fiscal
1996 related principally to the estimated loss on the impairment of
long-lived assets in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of", and employee severance costs. The plant closing was
completed on October 28, 1996 and the plant was sold on August 14, 1997
for approximately $1.2 million in cash.
Also in 1996, in connection with the Company's review of present and
expected conditions in the markets it serves, management determined
that its plant in Kingsport, Tennessee, which manufactures cotton
fabrics, was impaired under the criteria of SFAS No. 121 because
expected future cash flows from the operation of the plant were less
than the carrying value of the plant assets. The accompanying
Consolidated Statement of Operations for Fiscal 1996 includes a
"writedown of certain long-lived assets" of $8.1 million for the excess
of the carrying value of the plant over its estimated fair value.
Estimated fair value was determined based on an independent appraisal
of the plant's property, plant and equipment.
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Pursuant to an Asset Purchase Agreement dated as of January 11, 1999,
as amended, between C&I and Belding Hausman Incorporated, C&I agreed to
sell substantially all the assets of its Boger City Plant located in
Lincolnton, North Carolina. This plant is primarily engaged in the
manufacture and sale of home fashion textiles and accounted for sales
of approximately $33.6 million, $30.9 million and $22.8 million in
Fiscal 1996, 1997 and 1998, respectively. The consideration for the
sale will consist of approximately $7.9 million in cash, subject to a
post-closing adjustment based upon the amount of inventories
transferred. The cash proceeds will be used by the Company to reduce
outstanding borrowings under its credit facility and certain equipment
loans. In accordance with SFAS No. 121, the accompanying Fiscal 1998
Consolidated Statement of Operations includes a "charge for writedown
of certain long-lived assets" of approximately $12.5 million
representing the loss on impairment of assets (approximately $7.2
million) for the excess of the carrying value of the plant over its net
realizable value and the writeoff of approximately $5.3 million of
related reorganization value in excess of amounts allocable to
identifiable assets. This transaction is expected to close early in the
Company's second fiscal quarter of Fiscal 1999.
On February 10, 1999, the Company announced that it would close its
Angle Plant located in Rocky Mount, Virginia, as a result of the
Company's assessment of the market conditions for apparel products
constructed primarily of filament yarns. As a result of this decision,
the accompanying Fiscal 1998 Consolidated Statement of Operations
includes a "charge for writedown of certain long-lived assets" of
approximately $4.3 million representing the loss on impairment of
assets (approximately $2.7 million) for the excess of the carrying
value of the plant over its estimated net realizable value (as
determined by independent appraisal or quoted prices from used
equipment dealers) and the writeoff of approximately $1.6 million of
related reorganization value in excess of amounts allocable to
identifiable assets in accordance with SFAS No. 121. This plant closing
is expected to be completed by the end of the Company's Fiscal 1999
third fiscal quarter. The Company expects to incur approximately $1.4
million in plant closing costs in Fiscal 1999 related principally to
employee severance and plant run-out costs.
In Fiscal 1998, the Company implemented certain cost reduction measures
which included personnel reductions and the idling of certain
manufacturing equipment. The accompanying Fiscal 1998 Consolidated
Statement of Operations includes a "charge for writedown of certain
long-lived assets" of approximately $1.7 million for the impairment of
idled assets and a "charge for restructuring costs" of approximately
$0.7 million related to employee severance costs.
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5. BALANCE SHEET COMPONENTS
The components of certain balance sheet accounts are (in thousands):
November 1, October 31,
1997 1998
---------- ----------
Inventories:
Raw materials and supplies $ 12,508 $ 10,382
Work-in-process 17,168 16,690
Finished goods 15,094 24,470
--------- ---------
$ 44,770 $ 51,542
========= =========
Prepaid expenses and other:
Investments $ 34,597
Deferred current tax 867 $ 1,509
Prepaid insurance 555 883
Other 1,066 1,709
--------- ---------
$ 37,085 $ 4,101
========= =========
Property, plant and equipment, net:
Land and improvements $ 4,187 $ 3,667
Buildings and improvements 13,548 12,818
Machinery and equipment 81,108 87,774
Furniture, fixtures and other 1,069 1,355
--------- ---------
99,912 105,614
Less accumulated depreciation (681) (8,692)
--------- ---------
99,231 96,922
Construction in progress 5,323 1,534
--------- ---------
$ 104,554 $ 98,456
========= =========
Other noncurrent assets:
Unamortized debt issuance costs $ 1,438 $ 1,255
Prepaid pension costs 2,043 --
Deferred income tax 3,344 1,886
--------- ---------
$ 6,825 $ 3,141
========= =========
Other accrued expenses:
Roofing product liability costs $ 1,500 $ 2,000
Taxes payable other than income taxes 1,090 1,356
Income taxes 3,292 2,813
Other 7,300 5,088
--------- ---------
$ 13,182 $ 11,257
========= =========
Other long-term liabilities:
Roofing product liability costs and deferred warranty income $ 14,744 $ 14,974
Accrued pension costs -- 2,036
Accrued postretirement benefit plan liability 3,393 3,331
Other 126 --
--------- ---------
$ 18,263 $ 20,341
========= =========
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6. INVESTMENTS
In connection with the sale of the Automotive Assets in June 1994, the
Company invested $39.5 million of the sale proceeds in long-term
securities. During 1997, the original investments matured and were
reinvested as detailed below. As of November 1, 1997, all investment
securities had a contractual maturity of less than one year. During
1998, these long-term securities were sold and the proceeds were used
to repay all of the approximately $34 million in principal amount plus
accrued interest of the Company's Contingent Notes. The following table
details the adjusted cost and fair value of the reinvested amounts at
November 1, 1997 (in thousands):
Adjusted Cost
Held for Sale: and Fair Value
-------------- --------------
U.S. Treasury obligations $ 28,553
Corporate obligations 5,938
Other 106
-----------
$ 34,597
===========
7. LONG-TERM DEBT
Long-term debt consists of (in thousands):
November 1, October 31,
1997 1998
---------- ----------
Senior credit facility, revolving line of credit $ 92,246 $ 94,095
Contingent Notes 34,540 --
Equipment financing 4,181 2,645
Capital lease obligation -- 3,396
--------- ---------
Total 130,967 100,136
Less current portion (36,076) (1,047)
--------- ---------
Long-term portion $ 94,891 $ 99,089
========= =========
Senior Credit Facility - On October 9, 1997, Elastomerics and C&I (the
"Borrowing Subsidiaries") and JPS entered into the Credit Facility
Agreement, (the "Credit Agreement"), by and among the financial
institutions party thereto, Citibank, as agent, and NationsBank, N.A.,
as co-agent. The Credit Agreement provides for a revolving credit loan
facility and letters of credit (the "Revolving Credit Facility") in a
maximum principal amount equal to the lesser of (a) $135 million and
(b) a specified borrowing base (the "Borrowing Base"), which is based
upon eligible receivables, eligible inventory and a specified dollar
amount (currently $52,000,000 (subject to reduction) based on fixed
assets of the Borrowing Subsidiaries), except that (i) no Borrowing
Subsidiary may borrow an amount greater than the Borrowing Base
attributable to it (less any reserves as specified in the Credit
Agreement) and (ii) letters of credit may not exceed $20 million in the
aggregate. The Credit Agreement contains restrictions on investments,
acquisitions and dividends unless, among other things, the Company
satisfies a specified pro forma fixed charge coverage ratio and
maintains a specified minimum availability under the Revolving Credit
Facility for a stated period of time, and no default exists under the
Credit Agreement. The Credit Agreement also restricts, among other
things, indebtedness, liens, affiliate transactions, operating leases,
fundamental changes and asset sales other than the sale of up to $35
million of fixed assets, subject to the satisfaction of certain
conditions. The Credit Agreement contains financial covenants relating
to minimum levels of EBITDA, minimum interest coverage ratio, minimum
fixed charge coverage ratio and maximum capital expenditures. The
maturity date of the Revolving Credit Facility is October 9, 2002. On
October 30, 1998, the Credit Agreement was amended to, among other
things (i) modify the financial covenants relating to minimum levels of
EBITDA, minimum interest
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coverage ratio, minimum fixed charge coverage ratio and maximum capital
expenditures, (ii) modify the interest rate margin and unused
commitment fees and (iii) provide additional reduction of the fixed
asset portion of the Borrowing Base. As of October 31, 1998, the
Company was in compliance with these restrictions and all financial
covenants, as amended. All loans outstanding under the Revolving Credit
Facility, as amended, bear interest at either the Eurodollar Rate (as
defined in the Credit Agreement) or the Base Rate (as defined in the
Credit Agreement) plus an applicable margin (the "Applicable Margin")
based upon the Company's fixed charge coverage ratio (which margin will
not exceed 2.50% for Eurodollar Rate borrowings and .25% for Base Rate
borrowings). The weighted average interest rate at October 31, 1998 is
approximately 6.9%. The Company pays a fee of .25% per annum if a
specified fixed charge coverage ratio is satisfied and a letter of
credit fee equal to the Applicable Margin for Eurodollar Rate
borrowings. Borrowings under the Revolving Credit Facility are made or
repaid on a daily basis in amounts equal to the net cash requirements
or proceeds for that business day. As of October 31, 1998, unused and
outstanding letters of credit totaled $1,526,000. The outstanding
letters of credit reduce the funds available under the Revolving Credit
Facility. At October 31, 1998, the Company had approximately $38.3
million available for borrowing under the Revolving Credit Facility.
The loans and extensions of credit to the Borrowing Subsidiaries under
the Credit Agreement are guaranteed by JPS and its other existing
subsidiaries other than JPS Capital, and are secured by the assets of
JPS (excluding the stock of JPS Capital) and its existing subsidiaries
other than JPS Capital.
Contingent Notes - As discussed in Note 1, on the Effective Date, under
the terms of the Plan of Reorganization, JPS Capital, the Company and
First Trust National Association, as trustee, entered into an
indenture, dated as of the Effective Date (the "Contingent Note
Indenture"), pursuant to which JPS Capital issued the Contingent Notes
in an initial principal amount of approximately $34 million. On August
31, 1998, the Company repaid the approximately $34 million in principal
amount of Contingent Notes plus accrued interest with the proceeds from
the sale of related investments discussed in Note 6. Accordingly, the
Company has no further obligation under the Contingent Note Indenture.
Equipment Financing - The Company has financed a portion of its
equipment purchases with loans from a finance company and certain
equipment vendors at fixed interest rates ranging from 7.6% to 9.7%.
Monthly principal payments are due in various amounts as determined by
the terms of the loans which have final maturity dates through December
2001.
Capital Lease Obligation - In Fiscal 1998, the Company entered into a
seven-year lease agreement (classified as a capital lease) for certain
machinery and equipment. The total cost of the assets to be covered by
the lease is limited to approximately $5.0 million. The total costs of
assets under lease at October 31, 1998 was approximately $3.5 million.
The lease provides for an early buyout option at the end of six years
and includes purchase and renewal options at the end of the lease term.
The lease has an implied interest rate of approximately 7.4%. See Note
10 for obligations under capital leases.
Other - Substantially all of the Company's assets are pledged as
collateral for the Credit Agreement and the equipment financing.
Interest expense includes $10,088,000 in Fiscal 1996, $7,303,000 in the
period from November 3, 1996 to October 9, 1997, $19,000 in the period
from October 10, 1997 to November 1, 1997 and $329,000 in Fiscal 1998,
representing amortization of debt issuance expenses and accretion of
interest on the discounted notes and accrued product liability costs
(see Note 10).
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Maturities - Aggregate principal maturities of all long-term debt,
exclusive of the capital lease obligation, are as follows (in
thousands):
Fiscal Year Ending
------------------
1999 $ 688
2000 638
2001 639
2002 94,775
-----------
$ 96,740
===========
8. EQUITY SECURITIES AND SENIOR REDEEMABLE PREFERRED STOCK
Through the implementation of the Plan of Reorganization as of the
Effective Date, approximately $240 million in face amount of
outstanding debt securities were exchanged for, among other things, $14
million in cash, 9,924,623 shares of Common Stock and approximately $34
million in aggregate principal amount of Contingent Notes. The Old
Senior Preferred Stock, Old Junior Preferred Stock and Old Common Stock
were canceled. Warrants to purchase up to 5% of the Common Stock
exercisable until October 9, 2000 with an initial purchase price of
$98.76 per share were issued in respect of the Old Senior Preferred
Stock. Senior management received 75,377 shares of Common Stock on the
Effective Date in lieu of payment under their contractual retention
bonus arrangements.
Certain information on equity securities November 1, 1997 and October
31, 1998 is as follows:
Shares Issued and Outstanding
--------------------------------
Par Value November 1, October 31,
Per Share Authorized 1997 1998
--------- ---------- -------------- ---------------
New Common Stock .01 22,000,000 10,000,000 10,000,000
Until the Effective Date, the Old Senior Preferred Stock was
redeemable, prior to its maturity date of May 15, 2003, at 103% of the
liquidation preference of $100 per share. Dividends were cumulative and
calculated based on an annual rate of 6% of the liquidation preference.
Under the terms of various credit agreements, dividends had to be in
the form of additional shares until 1998. In connection with the 1991
restructuring, the Old Senior Preferred Stock was discounted to its
estimated net present value with the net discount of $23,351,000
reflected as an adjustment of additional paid-in capital.
The difference between the net carrying amount of the Old Senior
Preferred Stock and its mandatory value was amortized using the
interest method of amortization over the life of the shares by charges
to additional paid-in capital or, if available, by charges to retained
earnings. The Company did not issue first, second or third quarter
Fiscal 1997 dividends on its senior redeemable preferred stock. Such
cumulative dividends that had not been declared or issued totaled
$3,827,000 at October 9, 1997.
1997 Incentive and Capital Accumulation Plan
As of the Effective Date, the Company adopted the 1997 Incentive and
Capital Accumulation Plan (the "Incentive Plan") which provides certain
key employees and non-employee directors of the Company the right to
acquire shares of Common Stock or monetary payments based on the value
of such shares. Pursuant to the Incentive Plan, approximately 853,000
shares of Common Stock were reserved for issuance to the participants
in the form of stock options, stock appreciation rights, stock awards,
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performance awards, and stock units that may be granted by the
compensation committee comprised of certain members of the Company's
Board of Directors. The Incentive Plan will terminate ten years from
the date of adoption.
On October 30, 1997, options to acquire approximately 569,000 shares of
the shares reserved pursuant to the Incentive Plan were granted to
senior management of the Company. These options include a combination
of time vesting options which vest solely on the lapse of time and
performance options which vest upon achievement of specified corporate
performance goals and the lapse of time. These options are according to
specific vesting schedules as set forth in individual participant's
grant letters. In addition, on the Effective Date, each non-employee
director (except one, who waived his right to receive such options)
received options to purchase 25,000 shares of Common Stock. These
options vest equally in amounts of 5,000 shares per director, on the
Effective Date and the first, second, third and fourth anniversaries of
the Effective Date. On October 31, 1998, 94,009 options were canceled
due to the failure of the Company to meet its specified performance
goals for Fiscal 1998.
A summary of the activity in the Company's stock options for the year
ended October 31, 1998 and the period from the Effective Date to
November 1, 1997 is presented below:
Number of Shares Exercise Price
---------------- --------------
Options granted on the Effective Date 100,000 $12.33
Options granted during the period from the
Effective Date to November 1, 1997 568,990 12.33
Options exercised -- --
Options canceled -- --
-------- ------
Outstanding at November 1, 1997 668,990 12.33
Options granted -- --
Options exercised -- --
Options canceled (94,009) 12.33
-------- ------
Outstanding at October 31, 1998 574,981 $12.33
======== ======
Exercisable at October 31, 1998 139,009 $12.33
======== ======
Exercisable at November 1, 1997 20,000
========
Weighted average remaining contractual life (years) 9
========
The Company applies the principles of APB Opinion 25 in accounting for
employee stock option plans. The time vesting options are fixed as to
the number of shares that may be acquired and the amount to be paid by
the employee. Under APB Opinion 25, the Company generally recognizes no
compensation expense with respect to such awards because the quoted
market price and the amount to be paid by the employee are the same on
the date of grant. The performance vesting options are variable in
nature and the Company measures compensation expense for the difference
between the quoted market price on the date on which both the number of
shares that may be acquired by an individual employee and the option
price are known. In Fiscal 1998, no compensation expense was recognized
on the performance options. Had compensation cost been determined on
the basis of SFAS No. 123, "Accounting for Stock-Based Compensation",
compensation expense would have been recorded based on the estimated
fair value of stock options granted during the period from the
Effective Date to November 1, 1997. The total fair value of stock
options granted for the period from October 10, 1997 to November 1,
1997 was estimated at $3,266,000, based upon the Black-Scholes option
pricing model. The following weighted-average assumptions were used in
the Black-Scholes option pricing model for stock options granted during
the period from the Effective Date to November 1, 1997 (i) risk-free
interest rates of approximately 5.7%, (ii) a weighted average expected
life of approximately 4.4 years from the grant date and (iii) 38%
volatility. The expected life of the stock options granted and the
stock price volatility during the
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52
expected life of the options were estimated based upon historical
information from public textile companies and management's
expectations. Had compensation cost for the Company's stock option
plans been determined based on the estimated fair value at the grant
dates for awards under those plans consistent with the method of SFAS
123, the Company's income and earnings per share would have been
reduced to the pro forma amounts shown below (in thousands except per
share amounts):
Period from
October 10, 1997 Fiscal
To November 1, 1997 1998
------------------- ---------
Net income (loss)
As reported $2,717 $(10,664)
Pro forma $2,647 $(11,242)
Earnings per share
As reported $ 0.27 $ (1.07)
Pro forma $ 0.26 $ (1.12)
9. INCOME TAXES
The provision (benefit) for income taxes on continuing operations
included in the consolidated statements of operations consists of the
following (in thousands):
Predecessor Company Reorganized Company
------------------------------- | -------------------------------
Period from | Period from
Fiscal November 3, 1996 | October 10, 1997 Fiscal
1996 to October 9, 1997 | to November 1, 1997 1998
----- ------------------ | ------------------- -------
|
Current state provision (benefit) $ 200 $ 923 | $ (17) $ 550
Deferred federal provision (benefit) -- (6,080) | 1,714 1,041
Deferred state provision (benefit) (500) (3,665) | 310 (225)
----- ------- | ------- -------
Provision (benefit) for income |
taxes $(300) $(8,822) | $ 2,007 $ 1,366
===== ======= | ======= =======
There is no current provision for Federal income taxes.
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A reconciliation between income taxes at the 35% statutory Federal
income tax rate and the provision (benefit) for income taxes for the
Fiscal 1996, the period from November 3, 1996 to October 9, 1997, the
period from October 10, 1997 to November 1, 1997 and the Fiscal 1998 is
as follows (in thousands):
Predecessor Company Reorganized Company
---------------------------------- | -------------------------------
Period from | Period from
Fiscal November 3, 1996 | October 10, 1997 Fiscal
1996 to October 9, 1997 | to November 1, 1997 1998
-------- ------------------ | ------------------- -------
|
Income tax provision (benefit) |
at Federal statutory rate $(23,183) $(11,473) | $1,653 $(3,254)
Increase (decrease) in income |
taxes arising from effect of: |
State and local income taxes (300) (2,742) | 293 325
Non-deductible reorganization |
costs -- 2,947 | -- --
Amortization of and |
deductions for goodwill or |
excess reorganization value 344 312 | 57 3,205
Losses not resulting in tax |
benefits -- 8,158 | -- --
Change in valuation reserve 22,730 (6,080) | -- 980
Other 109 56 | 4 110
-------- -------- | ------ -------
Provision (benefit) for income |
taxes $ (300) $ (8,822) | $2,007 $ 1,366
======== ======== | ====== =======
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Presented below are the elements which comprise deferred tax assets and
liabilities (in thousands):
November 1, October 31,
1997 1998
---------- -----------
Gross deferred assets:
Estimated allowance for doubtful accounts $ 1,035 $ 306
Excess of tax over financial statement basis of inventory 580 798
Accruals deductible for tax purposes when paid 2,275 2,202
Deferred compensation deductible for tax purposes when paid -- 323
Postretirement benefits deductible for tax purposes when paid 1,562 1,477
Pension liability deductible for tax purposes when paid -- 774
Miscellaneous 120 --
Alternative minimum tax credit carryforward available 1,827 1,773
Deferred financial statement income recognized for tax purposes
when received 5,013 5,396
Excess of tax over financial statement carrying value of
investment in discontinued operation -- 982
Excess of tax basis of intangibles over financial statement basis 10,406 9,926
Net operating loss carryforward 11,880 11,813
Less valuation allowance (28,444) (32,117)
-------- --------
Gross deferred assets 6,254 3,653
-------- --------
Gross deferred liabilities:
Pension asset recognized for book purposes (776) --
Excess of financial statement over tax basis of property, plant,
and equipment (1,267) (258)
-------- --------
Gross deferred liabilities (2,043) (258)
-------- --------
Net deferred tax asset $ 4,211 $ 3,395
======== ========
Recognized in the accompanying consolidated balance sheets
as follows:
Prepaid expenses and other $ 867 $ 1,509
Other non-current assets 3,344 1,886
-------- --------
$ 4,211 $ 3,395
======== ========
For the Fiscal Year Ended October 31, 1998, the Company recorded a tax
expense of approximately $1.4 million. An expense was recorded even
though the Company had a loss from operations. This expense is due to
the fact that certain deductions taken for financial reporting
purposes, principally the amortization and writeoff of a portion of the
excess reorganization value, are not allowed for tax purposes. In
addition, the Company recorded an additional valuation allowance on its
deferred tax assets. This additional allowance was required due to the
limitation on asset recognition when, among other factors, there is a
history of recent losses. The Company did record a current state tax
expense of $0.6 million. The current state tax expense results from
filing separate state tax returns in some jurisdictions and the
inability to offset income from profitable subsidiaries with losses
from other subsidiaries. A deferred tax benefit was also recorded for
subsidiary losses that could not be currently utilized. As a result of
a valuation allowance, no benefit was recorded on the additional
pension liability recorded as an adjustment to equity (see Note 11).
For the period from October 10, 1997 to November 1, 1997, the Company
recorded a tax expense of $2.0 million. The tax expense for the period
ending November 1, 1997 includes the utilization of a portion of the
deferred tax asset, described below, which was recorded as of the
Effective Date of the Plan of Reorganization of the Company. The
effective tax rate exceeds the statutory federal income tax rate due to
the impact of items not deductible for federal income tax purposes and
because of state income taxes.
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The Company recorded a tax benefit for the period ending October 9,
1997 of approximately $8.8 million. This consists of a benefit from the
implementation of the Plan of Reorganization net of state taxes on
subsidiary operations that could not be offset by operating loss
carryovers or current year losses of JPS or its subsidiaries. The
benefit arose as consummation of the Plan of Reorganization
substantially deleveraged JPS. The deferred tax asset attributable to
the net operating loss carryforwards was reduced as a result of the
reduction in net operating loss carryforwards that is required for
reorganizations such as that provided in the Plan of Reorganization,
and the reserve established against the deferred tax assets that was
required due to the operating history was also significantly reduced.
The reduction in reserves and reduction in deferred tax liabilities
during the period ended October 9, 1997 resulted in a deferred tax
benefit of $9.7 million. The recording of the tax benefit and the net
deferred tax asset reflected the Company's determination that it was
more likely than not that these deferred tax assets, net of the
valuation allowance, would be realized based on current income tax laws
and expectations of future taxable income stemming from operations or
the reversal of deferred tax liabilities. Uncertainties surrounding
income tax law changes, shifts in operations between state taxing
jurisdictions and future operating income levels may, however, affect
the ultimate realization of all or some portion of these deferred
income tax assets.
At October 31, 1998, the Company had regular federal net operating loss
carryforwards for tax purposes of approximately $26 million. The net
operating loss carryforwards expire in years 2004 through 2012. The
Company also has federal alternative minimum tax net operating loss
carryforwards of approximately $23 million which expire in 2004 through
2013. Alternative minimum tax credits can be carried forward
indefinitely and used as a credit against regular federal taxes,
subject to limitation. During 1997, the Company reduced beginning net
operating loss carryforwards by approximately $64 million due to the
provisions of the Code requiring attribute reduction in certain
reorganizations, such as the Plan of Reorganization. The Company was
also required to reduce alternative minimum tax credit carryforwards by
approximately $737,000 as a result of these provisions.
The Company's future ability to utilize its net operating loss
carryforwards is limited under the income tax laws as a result of the
change in the ownership of the Company's stock occurring as a part of
the reorganization. The effect of such an ownership change is to limit
the annual utilization of the net operating loss carryforwards to an
amount equal to the value of the Company immediately after the time of
the change (subject to certain adjustments) multiplied by the Federal
long-term tax exempt rate. Due to the Company's operating history, it
is uncertain that it will be able to utilize all deferred tax assets.
Therefore, a valuation allowance has been provided. The Company is
required, under accounting guidelines, to reduce reorganization value
in excess of amounts allocable to identifiable assets by the amount of
any reduction in the valuation allowance established upon completion of
the Plan of Reorganization. The amount of valuation allowance subject
to such treatment was $28.4 million at both October 31, 1998 and
November 1, 1997.
10. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities, machinery and computer equipment
under noncancellable operating leases and, beginning in Fiscal 1998,
certain capital leases. Rent expense was approximately $5,158,000,
$5,178,000, $399,000 and $5,862,000 in Fiscal 1996, the period from
November 3, 1996 to October 9, 1997, the period from October 10, 1997
to November 1, 1997 and Fiscal 1998, respectively.
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56
Future minimum payments, by year and in the aggregate, under the
noncancellable capital and operating leases with terms of one year or
more consist of the following at October 31, 1998 (in thousands):
Capital Operating
Fiscal Year Ending Lease Leases
------------------ ------- ------
1999 $ 607 $4,005
2000 607 3,190
2001 607 1,277
2002 607 418
2003 607 35
Thereafter 1,353 --
------ ------
Total future minimum lease payments 4,388 $8,925
======
Less: amount representing interest 992
------
Present value of net minimum lease payments
(included in long-term debt - see Note 7) $3,396
======
The Company has planned expenditures of approximately $8.2 million for
property, plant and equipment additions in Fiscal 1999. At October 31,
1998, the Company had commitments for capital expenditures of
approximately $1.1 million.
On the Effective Date, the Company entered into employment agreements
with certain of its executives and key employees. These agreements have
three-year terms and are automatically extended on an annual basis
after the third year unless the Company or the participant elects in
advance not to extend the employment period. The employment agreements
provide specific salary levels and bonus eligibility for each
participant. In addition, the agreements provide severance benefits if
the Company terminates the participant's employment for reasons other
than for cause (as defined). Under the terms of the employment
agreements, on the Effective Date, the participants received, in the
aggregate, a retention grant cash payment of $588,000 and 75,377 shares
of Common Stock.
The Company has provided for all estimated future costs associated with
certain roofing products sold by the Predecessor Stevens Division
operations. The liability for future costs associated with these
roofing products is subject to management's best estimate, including
factors such as expected future claims by geographic region and roofing
compound applied; expected costs to repair or replace such roofing
products; estimated remaining length of time that such claims will be
made by customers; and the estimated costs to litigate and settle
certain claims now in litigation. Based on warranties that were issued
on the roofs, the Company estimates that these roofing product claims
will be substantially settled by the year 2000. Management updates its
assessment of the adequacy of the remaining reserve for these roofing
products quarterly and if it is deemed that an adjustment to the
reserve is required, it will be charged to operations in the period in
which such determination is made. The Company charges the costs of
settling these roofing product claims as a reduction of the recorded
liability balance and, accordingly, such costs are not charged against
the results of operations. Costs associated with these product
liability claims were $3,111,000, $1,815,000, $521,000 and $1,053,000
in Fiscal 1996, the period from November 3, 1996 to October 9, 1997,
the period from October 10, 1997 to November 1, 1997 and Fiscal 1998,
respectively. Approximately $3.8 million and $2.8 million was accrued
for these estimated future costs at November 1, 1997 and October 31,
1998, respectively.
The Company is exposed to a number of asserted and unasserted potential
claims encountered in the normal course of business. Except as
discussed below, management believes that none of this litigation, if
determined unfavorable to the Company, would have a material adverse
effect on the financial condition or results of operations of the
Company.
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In June 1997, Sears Roebuck and Co. ("Sears") filed a multi-count
complaint against Elastomerics and two other defendants alleging an
unspecified amount of damages in connection with the alleged premature
deterioration of the Company's roofing membrane installed on
approximately 150 Sears stores. No trial date has been established. The
Company believes it has meritorious defenses to the claims and intends
to defend the lawsuit vigorously. Management, however, cannot determine
the outcome of the lawsuit or estimate the range of loss, if any, that
may occur. Accordingly, no provision has been made for any loss which
may result. An unfavorable resolution of the actions could have a
material adverse effect on the business, results of operations or
financial condition of the Company.
11. RETIREMENT PLANS
Defined Benefit Pension Plan - Substantially all of the Company's
employees are covered by a Company-sponsored defined benefit pension
plan. The plan also provides benefits to individuals employed by the
automotive businesses which were sold by the Company on June 28, 1994,
the Carpet Business sold on November 16, 1995 and the Rubber Products
Business sold on September 30, 1996. The benefits of these former
employees were "frozen" at the respective dates of sale of the
businesses. Accordingly, these former employees will retain benefits
earned through the respective disposal dates, however, they will not
accrue additional benefits. In addition, the plan provides benefits to
individuals employed by the Dunean plant which was closed effective
October 28, 1996. Benefits for employees who were terminated as a
result of the plant closing were also "frozen" as of October 28, 1996
and no additional benefits will accrue subsequent to that date. The
plan provides pension benefits that are based on the employees'
compensation during the last ten years of employment. The Company's
policy is to fund the annual contribution required by applicable
regulations.
Assets of the pension plan are invested in common and preferred stocks,
government and corporate bonds, real estate and various short-term
investments.
A reconciliation as of the most recent measurement date (October 31,
1998) of the funded status of the plan with amounts reported in the
Company's Consolidated Balance Sheets follows (in thousands):
November 1, October 31,
1997 1998
----------- -----------
Actuarial present value of benefit obligations:
Vested $90,574 $ 105,595
Non-vested 197 296
------- ---------
Accumulated benefit obligation 90,771 105,891
Provision for future pay increases 5,528 5,731
------- ---------
Total projected benefit obligation 96,299 111,622
Plan assets at fair value 97,312 103,855
------- ---------
Projected benefit obligation (greater than) less than plan assets 1,013 (7,767)
Unrecognized net loss 1,030 11,586
Additional minimum liability recognized as a reduction of
shareholders' equity -- (5,855)
------- ---------
Pension asset (liability) in accompanying
Consolidated Balance Sheets $ 2,043 $ (2,036)
======= =========
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Predecessor Company Reorganized Company
-------------------------------- | -------------------------------
Period from | Period from
Fiscal November 3, 1996 | October 10, 1997 Fiscal
1996 to October 9, 1997 | to November 1, 1997 1998
------- ------------------ | ------------------- -------
|
Components of net periodic |
pension cost: |
Service cost-benefits earned |
during the period $ 2,378 $ 2,026 | $ 136 $ 2,239
Interest cost on projected |
benefit obligation 7,048 6,683 | 449 7,505
Return on plan assets (7,674) (7,184) | (483) (8,543)
Net amortization and deferral 451 330 | -- --
------- ------- | ----- -------
Net periodic pension cost $ 2,203 $ 1,855 | $ 102 $ 1,201
======= ======= | ===== =======
As of October 31, 1998, the Company reduced the weighted-average
discount rate used in determining the actuarial present value of the
projected benefit obligation from 7.8% to 6.75%, which more closely
approximates current interest rates on high-quality long-term
obligations. The provisions of SFAS No. 87, "Employers' Accounting for
Pensions," required the Company to record an additional minimum pension
liability of approximately $5.9 million at October 31, 1998. The
liability represents the amount by which the accumulated benefit
obligation exceeds the sum of the fair market value of plan assets and
accrued amounts previously recorded. This amount is recorded as a
reduction to a separate component of shareholders' equity on the
accompanying Consolidated Balance Sheet as of October 31, 1998. The
assumed rate of increase in compensation levels was based on
age-related tables at November 1, 1997 and October 31, 1998. Effective
November 1, 1993, the Company amended the benefit formula for salaried
employees to provide for an additional benefit based on compensation in
excess of the average social security wage base.
As a result of the application of fresh start accounting as described
in Note 1, all unamortized prior service costs and unrecognized gains
were immediately recognized as of October 9, 1997 and included in
reorganization items for the period then ended.
On February 15, 1996, the Company offered special early retirement
benefits to approximately fifty salaried employees who met certain
criteria. Approximately $2.2 million of pension benefits were paid in
lump-sums by the plan to twenty-eight employees who accepted the offer.
In Fiscal 1996, a charge of $1,125,000 representing the actuarial cost
to the plan of the early retirement offer as accepted by the employees
is included in other expense in the accompanying Consolidated Statement
of Operations.
Also in Fiscal 1996, the Company recognized losses of approximately
$632,000 for pension curtailment and special termination benefits in
accordance with SFAS No. 88, "Employees' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination
Benefits", which related primarily to the sale of the Rubber Products
Business and the Dunean plant closing and related termination of
participation in the plan of these employees.
401(k) Savings Plan - The Company also has a savings, investment and
profit-sharing plan available to employees meeting eligibility
requirements. The plan is a tax qualified plan under Section 401(k) of
the Internal Revenue Code. The Company makes a matching contribution of
25% of each participant's contribution with a maximum matching
contribution of 1-1/2% of the participant's base compensation. Company
contributions were approximately $587,000 in Fiscal 1996, $523,000 in
the period from November 3, 1996 to October 9, 1997, $47,000 in the
period from October 10, 1997 to November 1, 1997 and $598,000 in Fiscal
1998.
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59
Postretirement Benefits - The Company has several unfunded
postretirement plans that provide certain health care and life
insurance benefits to eligible retirees. The plans are contributory,
with retiree contributions adjusted periodically, and contain
cost-sharing features such as deductibles and coinsurance. The
Company's life insurance plan provides benefits to both active
employees and retirees. Active employee contributions in excess of the
cost of providing active employee benefits are applied to reduce the
cost of retirees' life insurance benefits. The following table sets
forth the status of the Company's postretirement plans as recorded in
the accompanying Consolidated Balance Sheets (in thousands):
Accumulated postretirement benefit obligation (APBO):
November 1, October 31,
1997 1998
----------- -----------
Retirees $1,444 $ 1,683
Fully eligible active plan participants 1,130 1,076
Other active plan participants 807 965
Unrecognized gain (loss) 12 (393)
------ -------
Accrued postretirement benefit plan liability $3,393 $ 3,331
====== =======
Net periodic postretirement benefit expense included the following
components (in thousands):
Predecessor Company Reorganized Company
------------------------------- | ------------------------------
Period from | Period from
Fiscal November. 3, 1996 | October 10, 1997 Fiscal
1996 to October. 9, 1997 | to November 1, 1997 1998
------ ------------------- | ------------------- ------
|
Service cost for benefits earned $ 5 $ 5 | $ 6 $107
Interest cost on APBO 297 229 | 16 267
---- ---- | --- ----
Net periodic postretirement cost $302 $234 | $22 $374
==== ==== | === ====
As of October 1, 1998, the Company decreased the discount rate
assumption from 7.8% to 6.75%, which more closely approximates current
interest rates on high-quality, long-term obligations. The Company
estimates that the projected future annual costs of postretirement
benefits will increase approximately 12% due to the effects of this
change in discount rate assumption.
As a result of the application of fresh start accounting as described
in Note 1, all unamortized gains were fully recognized as of October 9,
1997 and included in reorganization items for the period then ended.
In Fiscal 1996, the Company recognized a curtailment gain of
approximately $347,000 related to the sale of the Rubber Products
Business and the Dunean plant closing, and related termination of
participation in the plans of these employees.
Since the Company has capped its annual liability per person and all
future cost increases will be passed on to retirees, the annual rate of
increase in health care costs does not affect the postretirement
benefit obligation.
Postemployment Benefits - The Company provides certain benefits to
former or inactive employees after employment but before retirement. In
accordance with SFAS No. 112, these benefits are recognized on the
accrual basis of accounting. The liability for postemployment benefits
at November 1, 1997 and October 31, 1998 is included in other long-term
liabilities in the accompanying consolidated financial statements.
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60
12. RELATED PARTIES
The Company incurred fees of $1,000,000 in Fiscal 1996 for management
services provided by a former shareholder pursuant to a management
services agreement. On the Effective Date, the agreement was canceled
and rejected and rejection damage claims were waived by the
shareholders.
13. BUSINESS SEGMENTS
The Company competes in three industry segments: Industrial Products,
Apparel Fabrics and Home Fashion Textiles. The industrial products
segment manufactures commercial roofing products made from woven
synthetic substrates and rubber-based specialty polymer compounds,
other building construction products made from glass and synthetic
fibers, various industrial products which generally have insulation or
filtration characteristics, and other rubber products and various
extruded polyurethane products. The apparel fabrics segment
manufactures a broad range of apparel fabrics and apparel related
products, including unfinished woven apparel fabrics (greige goods) for
men's, women's and children's wear and spun yarns for use in apparel.
The home fashion textiles segment manufactures a variety of unfinished
woven fabrics and yarns for use in the manufacturing of draperies,
curtains and lampshades and is a major producer of solution-dyed
drapery fabrics. As discussed in Note 4, the Company has agreed to sell
a major portion of its home fashion textiles business.
Export sales are approximately 4% of net sales and the Company has no
significant foreign operations. Earnings by business segment represent
operating profit, excluding net unallocated corporate operating
expenses. Identifiable segment assets are those assets used in the
operations of the segment. Corporate assets are cash and other assets
including reorganization value in excess of amounts allocable to
identifiable assets.
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Industry segment information (in thousands):
Predecessor Company Reorganized Company
------------------------------------- | -------------------------------------
Fiscal Year | Fiscal Year
Ended Period from | Period from Ended
November 2, November 3, 1996 | October 10, 1997 October 31,
1996 to October 9, 1997 | to November 1, 1997 1998
----------- ------------------ | ------------------- -----------
|
Net sales: |
Industrial products $ 193,001 $ 179,434 | $ 17,847 $ 189,658
Apparel fabrics 221,799 167,070 | 18,590 170,877
Home fashion textiles 34,024 33,139 | 2,291 28,683
--------- --------- | --------- ---------
$ 448,824 $ 379,643 | $ 38,728 $ 389,218
========= ========= | ========= =========
Operating profit (loss): |
Industrial products $ 5,947 $ 16,748 | $ 2,652 $ 16,275
Apparel fabrics (22,422) 1,210 | 2,201 2,274
Home fashion textiles 647 976 | 693 (7,689)
Indirect corporate expenses, net (6,257) (4,152) | (331) (12,604)(1)
--------- --------- | --------- ---------
|
Operating profit (loss) (22,085) 14,782 | 5,215 (1,744)
|
Valuation allowance on |
Gulistan Securities (4,242) (5,070) | -- --
Interest income 2,856 2,744 | 93 1,038
Interest expense (40,510) (32,164) | (584) (8,592)
Restructuring fees and expenses (2,255) (13,071) | -- --
--------- --------- | --------- ---------
|
Income (loss) before income taxes, |
discontinued operations and |
extraordinary items $ (66,236) $ (32,779) | $ 4,724 $ (9,298)
========= ========= | ========= =========
|
Depreciation and amortization |
expense: |
Industrial products $ 6,282 $ 5,032 | $ 283 $ 4,425
Apparel fabrics 12,946 9,410 | 297 4,533
Home fashion textiles 2,517 2,537 | 100 1,211
--------- --------- | --------- ---------
Total segments 21,745 16,979 | 680 10,169
Corporate and other 994 901 | 166 2,293
--------- --------- | --------- ---------
$ 22,739 $ 17,880 | $ 846 $ 12,462
========= ========= | ========= =========
Capital expenditures: |
Industrial products $ 4,545 $ 3,636 | $ 1,130 $ 16,420
Apparel fabrics 4,389 10,473 | 472 5,470
Home fashion textiles 899 353 | 16 520
--------- --------- | --------- ---------
Total segments 9,833 14,462 | 1,618 22,410
Corporate and other 1 5 | -- 13
--------- --------- | --------- ---------
$ 9,834 $ 14,467 | $ 1,618 $ 22,423
========= ========= | ========= =========
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Industry segment information (in thousands) (Continued):
Predecessor
Company Reorganized Company
------------ | -------------------------------
November 2, | November 1, October 31,
1996 | 1997 1998
------------ | ----------- -----------
|
Identifiable assets: |
Industrial products $101,376 | $100,140 $113,650
Apparel fabrics 127,909 | 110,891 100,950
Home fashion textiles 21,333 | 21,028 15,970
-------- | -------- --------
Total segments 250,618 | 232,059 230,570
Corporate and other 85,309 | 90,322 42,352
-------- | -------- --------
$335,927 | $322,381 $272,922
======== | ======== ========
(1) Indirect corporate expenses include charges of approximately $6.9
million for writedown of reorganization values in excess of amounts
allocable to identifiable assets in relation to the plant sale and
plant closing discussed in Note 4.
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Unaudited interim financial data (in thousands except per share amounts):
The results for each quarter include all adjustments which are, in the opinion
of management, necessary for a fair presentation of the results for interim
periods. The consolidated financial results on an interim basis are not
necessarily indicative of future financial results on either an interim or
annual basis. Selected consolidated financial data for each quarter within
Fiscal 1997 and Fiscal 1998 are as follows:
Reorganized
Predecessor Company Company
------------------------------------------------------------ | -------------------
|
Period from | Period from
First Second Third August 3, 1997 | October 10, 1997
Year Ended November 1, 1997: Quarter Quarter Quarter to October 9, 1997 | to November 1, 1997
-------- --------- -------- ------------------ | -------------------
Net sales $ 97,167 $ 108,138 $ 95,883 $ 78,455 | $ 38,728
Cost of sales 84,934 93,038 80,682 69,013 | 31,058
-------- --------- -------- --------- | --------
Gross profit 12,233 15,100 15,201 9,442 | 7,670
Selling, general and |
administrative expenses 9,314 10,293 10,256 7,283 | 2,466
Other income (expense), net (6) (377) (102) 437 | 11
-------- --------- -------- --------- | --------
Operating profit 2,913 4,430 4,843 2,596 | 5,215
Valuation allowance on |
Gulistan securities (1,299) (789) (2,982) -- | --
Interest income 737 734 761 512 | 93
Interest expense (10,174) (10,049) (10,086) (1,855) | (584)
-------- --------- -------- --------- | --------
Income (loss) before |
reorganization items, income |
taxes and extraordinary items (7,823) (5,674) (7,464) 1,253 | 4,724
Reorganization items: |
Fair-value adjustments -- -- -- (4,651) | --
Professional fees and |
expenses (1,162) (1,982) (3,332) (1,944) | --
-------- --------- -------- --------- | --------
Income (loss) before income |
taxes and extraordinary items (8,985) (7,656) (10,796) (5,342) | 4,724
Provision (benefit) for |
income taxes 157 252 275 (9,506) | 2,007
-------- --------- -------- --------- | --------
Income (loss) before |
extraordinary items (9,142) (7,908) (11,071) 4,164 | 2,717
Extraordinary gain on early |
extinguishment of debt -- -- -- 100,235 | --
-------- --------- -------- --------- | --------
Net income (loss) $ (9,142) $ (7,908) $(11,071) $ 104,399 | $ 2,717
======== ========= ======== ========= | ========
Income (loss) applicable to |
common stock $(10,407) $ (9,185) $(12,356) $ 104,399 | $ 2,717
======== ========= ======== ========= | ========
Basic earnings (loss) per |
common share: |
Income (loss) before extra- |
ordinary gain on early |
extinguishment of debt $ (10.40) $ (9.19) $ (12.36) $ 4.16 | $ 0.27
Extraordinary gain on early |
extinguishment of debt -- -- -- 100.24 | --
-------- --------- -------- --------- | --------
Net income (loss) $ (10.40) $ (9.19) $ (12.36) $ 104.40 | $ 0.27
======== ========= ======== ========= | ========
In accordance with the provision of SFAS No. 128, the presentation of earnings
per share data for all periods presented has been restated to conform to SFAS
No. 128.
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64
Reorganized Company
--------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- -------- ---------
Year Ended October 31, 1998:
Net sales $ 100,800 $ 101,348 $ 86,993 $ 100,077
Cost of sales 85,414 84,521 73,473 88,065
--------- --------- -------- ---------
Gross profit 15,386 16,827 13,520 12,012
Selling, general and administrative expenses 10,509 9,987 9,632 10,062
Other income (expense), net 24 35 (40) (73)
Charges for plant closing, loss on sale of certain
operations, writedown of certain long-lived
assets and restructuring costs -- -- -- (19,245)
--------- --------- -------- ---------
Operating profit (loss) 4,901 6,875 3,848 (17,368)
Interest income 325 239 324 150
Interest expense (2,284) (2,094) (2,132) (2,082)
--------- --------- -------- ---------
Income (loss) before income taxes 2,942 5,020 2,040 (19,300)
Provision (benefit) for income taxes 1,250 2,150 1,101 (3,135)
--------- --------- -------- ---------
Net income (loss) $ 1,692 $ 2,870 $ 939 $ (16,165)
========= ========= ======== =========
Net income (loss) per common share $ 0.17 $ 0.29 $ 0.09 $ (1.62)
========= ========= ======== =========
During the period from August 3, 1997 to October 9, 1997, the Company
consummated its Plan of Reorganization, as described in Note 1. Accordingly,
the results of operations subsequent to October 9, 1997 are not comparable
to results of operations for periods preceding that date.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 of Form 10-K with respect to identification
of directors and executive officers is incorporated by reference from the
information contained in the section captioned "Ratification of Directors" in
the Company's definitive Proxy Statement for the Annual Meeting of Stockholders
to be held March 24, 1999 (the "Proxy Statement"), a copy of which will be
filed with the Securities and Exchange Commission before the meeting date.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 of Form 10-K is incorporated by reference
from the information contained in the section captioned "Executive Compensation
and Other Matters" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT.
The information required by Item 12 of Form 10-K is incorporated by reference
from the information contained in the section captioned "Security Ownership of
Principal Stockholders and Management" in the Proxy Statement.
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65
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 13, if any, is incorporated in a section
captioned "Certain Relationships and Related Transactions" in the Proxy
Statement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K.
(a) (1) The following financial statements are included in Item 8:
(i) Independent Auditors' Report.
(ii) Consolidated Balance Sheets as of October 31, 1998
and November 1, 1997.
(iii) Consolidated Statements of Operations for the fiscal
year ended October 31, 1998 (Reorganized Company),
the periods from October 10, 1997 to November 1, 1997
(Reorganized Company) and November 3, 1996 to October
9, 1997 (Predecessor Company) and the fiscal year
ended November 2, 1996 (Predecessor Company).
(iv) Consolidated Statements of Senior Redeemable
Preferred Stock and Shareholders' Equity (Deficit)
for the fiscal year ended October 31, 1998
(Reorganized Company), the periods from October 10,
1997 to November 1, 1997 (Reorganized Company) and
November 3, 1996 to October 9, 1997 (Predecessor
Company) and the fiscal year ended November 2, 1996.
(v) Consolidated Statements of Cash Flows for the fiscal
year ended October 31, 1998 (Reorganized Company),
the periods from October 10, 1997 to November 1, 1997
(Reorganized Company) and November 3, 1996 to October
9, 1997 (Predecessor Company) and the fiscal year
ended November 2, 1996 (Predecessor Company).
(vi) Notes to Consolidated Financial Statements.
The registrant is primarily a holding company and all direct subsidiaries are
wholly owned.
(2) The financial statement schedule required by Item 8 is listed
on Index to Financial Statement Schedule, starting at page S-1
of this report.
(3) The exhibits required by Item 601 of Regulation S-K are listed
in the accompanying Index to Exhibits. Registrant will furnish
to any securityholder, upon written request, any exhibit
listed in the accompanying Index to Exhibits upon payment by
such securityholder of registrant's reasonable expenses in
furnishing any such exhibit.
(b) No reports on Form 8-K were filed during the quarter ended October 31,
1998.
(c) Reference is made to Item 14(a)(3) above.
(d) Reference is made to Item 14(a)(2) above.
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INDEX TO EXHIBITS
The following is a complete list of Exhibits filed as part of this report, which
are incorporated herein:
Exhibit
Number Description
- ------ -----------
2.1(i) Joint Plan of Reorganization for JPS Textile Group, Inc., a
Delaware corporation ("JPS"), proposed by JPS and JPS Capital
Corp., a Delaware corporation, pursuant to chapter 11 of title 11
United States Code (the "Bankruptcy Code"), dated August 1, 1997
(as amended, the "Plan").(K)
2.1(ii) Revised Technical and Conforming Amendment to the Plan, dated
September 4, 1997.(L)
3.1 Restated Certificate of Incorporation of JPS, filed with the
Secretary of State of the State of Delaware on October 9, 1997.(P)
3.2 Amended and Restated By-laws of JPS.(P)
4.1 Indenture, dated as of October 9, 1997 (the "Contingent Note
Indenture"), between JPS Capital Corp. ("Capital") and First Trust
National Association ("First Trust"), as Trustee, relating to
Capital's Contingent Notes (the "Contingent Notes").(K)
4.2 Form of Contingent Note, incorporated by reference to Exhibit A to
the Contingent Note Indenture.(K)
10.1 Loan and Security Agreement, dated as of October 30, 1991, (the
"CIT Loan Agreement"), between JPS Converter and Industrial Corp.,
a Delaware corporation ("JCIC") and The CIT Group/Equipment
Financing, Inc. ("CIT").(A)
10.2 First Amendment to the CIT Loan Agreement, dated as of June 26,
1992, by and between JCIC and CIT.(A)
10.3 Second Amendment to the CIT Loan Agreement, dated as of December
22, 1992, by and between JCIC and CIT.(A)
10.4 Agreement of Lease, dated as of June 1, 1988, by and between 1185
Avenue of the Americas Associates ("1185 Associates") and JCIC.(A)
10.5 Lease Modification and Extension Agreement, dated as of April 2,
1991, by and between 1185 Associates and JCIC.(A)
10.6 Third Amendment to the CIT Loan Agreement, dated as of August 6,
1993, by and between JCIC and CIT.(B)
10.7 Trademark License Agreement, dated as of May 9, 1988, by and
between J.P. Stevens and JPS Acquisition Corp. (predecessor to the
Company.)(B)
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Exhibit
Number Description
- ------ -----------
10.8 Omnibus Real Estate Closing Agreement, dated as of May 9, 1988, by
and among J.P. Stevens, JPS Acquisition Corp., JPS Acquisition
Automotive Products Corp., JPS Acquisition Carpet Corp., JPS
Acquisition Industrial Fabrics Corp., JPS Acquisition Converter
and Yarn Corp. and JPS Acquisition Elastomerics Corp.(B)
10.9 Purchase Agreement, dated as of April 24, 1988, by and among JPS
Holding Corp., the Company, Odyssey Partners, West
Point-Pepperell, Inc., STN Holdings Inc., Magnolia Partners, L.P.
and J.P. Stevens.(B)
10.10 Asset Purchase Agreement, dated as of May 25, 1994, by and among
the Company, JAPC, JCIC, JPS Auto Inc., a Delaware corporation,
and Foamex International Inc., a Delaware corporation.(C)
10.11 Fourth Amended and Restated Credit Agreement (the "Existing Credit
Agreement"), dated as of June 24, 1994, by and among the Company,
JCIC, JPS Elastomerics Corp., a Delaware corporation ("JEC"), JPS
Carpet Corp., a Delaware corporation ("JCC"), the financial
institutions listed on the signature pages thereof, Citibank, N.A.
("Citibank") as Agent and Administrative Agent, and General
Electric Capital Corporation ("GECC") as Co-Agent and Collateral
Agent.(D)
10.12 First Amendment to the Existing Credit Agreement, dated as of
November 4, 1994, by and among the Company, JCIC, JEC, JCC, the
financial institutions listed on the signature pages thereof,
Citibank, as Agent and Administrative Agent, and GECC, as Co-Agent
and Collateral Agent.(E)
10.13 Second Amendment to the Existing Credit Agreement, dated as of
December 21, 1994, by and among the Company, JCIC, JEC, JCC, the
financial institutions listed on the signature pages thereof,
Citibank, as Agent and Administrative Agent, and GECC as Co-Agent
and Collateral Agent.(E)
10.14 Fourth Amendment to CIT Loan Agreement, dated as of December 29,
1994, by and between JCIC and CIT.(E)
10.15 Lease Modification and Extension Agreement, dated as of April 30,
1993, by and between 1185 Associates and JCIC.(E)
10.16 Third Amendment to Existing Credit Agreement, dated as of May 31,
1995 by and among the Company, JCIC, JEC, JCC, the financial
institutions listed on the signature pages thereof, Citibank, as
Agent and Administrative Agent, and GECC, as Co-Agent and
Collateral Agent.(F)
10.17 Fourth Amendment to Existing Credit Agreement, dated as of October
28, 1995 by and among the Company, JCIC, JEC, JCC, the financial
institutions listed on the signature pages thereof, Citibank, as
Agent and Administrative Agent, and GECC, as Co-Agent and
Collateral Agent.(G)
10.18 Lease Modification and Extension Agreement, dated as of November
17, 1994, by and between 1185 Associates and JCIC.(G)
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Exhibit
Number Description
- ------ -----------
10.19 Asset Transfer Agreement, dated as of November 16, 1995, by and
among the Company, JPS Carpet Corp., a Delaware corporation,
Gulistan Holdings Inc. ("GHI"), a Delaware corporation and
Gulistan Carpet Inc., a Delaware Corporation and wholly-owned
subsidiary of GHI.(H)
10.20 Fifth Amendment to the Fourth Amended & Restated Credit Agreement,
dated as of May 6, 1996, by and among the Company, JPS
Elastomerics Corp., JPS Converter and Industrial Corp., JPS Auto
Inc., JPS Carpet Corp., International Fabrics, Inc., the financial
institutions listed on the signature pages thereof, Citibank, N.A.
as agent and Administrative Agent and General Electric Capital
Corporation as Co-Agent and Collateral Agent.(I)
10.21 Sixth Amendment to the Fourth Amended & Restated Credit Agreement,
dated as of May 15, 1996, by and among the Company, JPS
Elastomerics Corp., JPS Converter and Industrial Corp., JPS Auto
Inc., JPS Carpet Corp., International Fabrics, Inc., the financial
institutions listed on the signature pages thereof, Citibank, N.A.
as agent and Administrative Agent and General Electric Capital
Corporation as Co-Agent and Collateral Agent.(I)
10.22 Seventh Amendment to the Fourth Amended and Restated Credit
Agreement, dated as of July 22, 1996, by and among the Company,
JPS Elastomerics Corp., JPS Converter and Industrial Corp., JPS
Auto Inc., JPS Carpet Corp., International Fabrics, Inc., the
financial institutions listed on the signature pages thereof,
Citibank, N.A. as agent and Administrative Agent and General
Electric Capital Corporation as Co-Agent and Collateral Agent.(J)
10.23 Eighth Amendment to the Fourth Amended and Restated Credit
Agreement, dated as of September 6, 1996, by and among the
Company, JPS Elastomerics Corp., JPS Converter and Industrial
Corp., JPS Auto Inc., JPS Carpet Corp., International Fabrics,
Inc., the financial institutions listed on the signature pages
thereof, Citibank, N.A. as agent and Administrative Agent and
General Electric Capital Corporation as Co-Agent and Collateral
Agent.(J)
10.24 Employment Agreement dated October 9, 1997, between the Company
and Jerry E. Hunter. (P)
10.25 Employment Agreement dated October 9, 1997, between the Company
and David H. Taylor. (P)
10.26 Employment Agreement dated October 9, 1997, between the Company
and Monnie L. Broome.(P)
10.27 Employment Agreement, dated May 1, 1993 and amended September 11,
1995 between the Company and Carl Rosen.(J)
10.28 Employment Agreement, dated December 23, 1991 and amended August
20, 1996 and December 23, 1996 between the Company and Bruce
Wilby.(G)
10.29 Asset Purchase Agreement, dated as of September 30, 1996 between
Elastomer Technologies Group, Inc. a Delaware Corporation, and JPS
Elastomerics Corp., a Delaware Corporation and wholly- owned
subsidiary of the Company.(G)
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Exhibit
Number Description
- ------ -----------
10.30 Receivables Purchase Agreement dated as of September 30, 1996
between The Bank of New York Commercial Corporation, a New York
Corporation and JPS Elastomerics Corp., a Delaware Corporation and
wholly-owned subsidiary of the Company.(G)
10.31 Registration Rights Agreement, dated as of October 9, 1997, by and
among JPS and the holders of JPS's Common Stock.(P)
10.32 Ninth Amendment to Existing Credit Agreement, dated as of February
21, 1997, by and among JPS, JCIC, JEC, JCC, the financial
institutions listed on the signature pages thereof, Citibank, as
agent and Administrative Agent and GECC as Co-Agent and Collateral
Agent.(N)
10.33 Tenth Amendment to the Existing Credit Agreement, dated as of
April 29, 1997, by and among JPS, JCIC, JEC, JCC, the financial
institutions listed on the signature pages thereof, Citibank, as
agent and Administrative Agent and GECC as Co-Agent and Collateral
Agent.(O)
10.34 Eleventh Amendment to the Existing Credit Agreement, dated as of
May 15, 1997, by and among JPS, JCIC, JEC, JCC, the financial
institutions listed on the signature pages thereof, Citibank, as
agent and Administrative Agent and GECC as Co-Agent and Collateral
Agent.(O)
10.35 Credit Facility Agreement, dated as of October 9, 1997, by and
among JPS, C&I, Elastomerics, the financial institutions listed on
the signature pages thereto, and the agent and co-agent party
thereto.(M)
10.36 1997 Incentive and Capital Accumulation Plan dated as of October
9, 1997.(P)
10.37 Warrant Agreement dated as of October 9, 1997.(P)
10.38 First Amendment to the Credit Facility Agreement, dated as of
October 30, 1998, by and among JPS, C&I, Elastomerics, the
financial institutions listed on the signature pages thereto, and
the agent and co-agent party thereto.(Q)
10.39 Asset Purchase Agreement, dated as of January 11, 1999, by and
between C&I and Belding Hausman Incorporated.(Q)
10.40 Amendment No. 1 to Asset Purchase Agreement, dated as of February
8, 1999, by and between C&I and Belding Hausman Incorporated. (Q)
10.41 JPS Guaranty Letter, dated as of January 11, 1999, by and between
JPS and Belding Hausman Incorporated. (Q)
10.42 Employment Agreement dated November 11, 1999, between the Company
and John W. Sanders, Jr. (Q)
11.1 Statement re: Computation of Per Share Earnings - not required
since such computation can be clearly determined from the material
contained herein.
12.1 Computation of Ratio of Earnings to Fixed Charges - not required
for Form 10-K per Item 503(d) of Regulation S-K.
-69-
70
Exhibit
Number Description
- ------ -----------
12.2 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends--not required for Form 10-K per Item
503(d) of Regulation S-K.
21.1 List of Subsidiaries of the Company.(E)
24.1 Power of Attorney relating to JPS (included as part of the
signature page hereof).(M)
27.1 Financial data schedule (for SEC use only).(Q)
- ------------------------------------
(A) Previously filed as an exhibit to Registration Statement No. 33-58272
on Form S-1, declared effective by the SEC on July 26, 1993, and
incorporated herein by reference.
(B) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended October 30, 1993.
(C) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended April 30, 1994.
(D) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 30, 1994.
(E) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended October 29, 1994.
(F) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended April 29, 1995.
(G) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended November 2, 1996.
(H) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated December 1, 1995.
(I) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended April 27, 1996.
(J) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 27, 1996.
(K) Previously filed as an exhibit to JPS's Current Report on Form 8-K
dated July 2, 1997.
(L) Previously filed as an exhibit JPS's Registration Statement on Form 8-A
filed on September 8, 1997.
(M) Previously filed.
(N) Previously filed as an exhibit to JPS's Quarterly Report on Form 10-Q
for the quarter ended February 1, 1997.
(O) Previously filed as an exhibit to JPS's Quarterly Report on Form 10-Q
for the quarter ended May 3, 1997.
(P) Previously filed as an exhibit to JPS's Annual Report on Form 10-K for
the year ended November 1, 1997.
(Q) Filed herewith.
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71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 TEXTILE GROUP, INC.
Date: February 16, 1999 By: /s/ Jerry E. Hunter
------------------------------------
JERRY E. HUNTER
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Jerry E. Hunter Director, Chairman of the Board, February 16, 1999
- --------------------------------- President and Chief Executive Officer
JERRY E. HUNTER
/s/ John W. Sanders, Jr. Executive Vice President - Finance & February 16, 1999
- --------------------------------- Chief Financial Officer
JOHN W. SANDERS, JR.
/s/ Robert J. Capozzi Director February 16, 1999
- ---------------------------------
ROBERT J. CAPOZZI
/s/ Jeffrey S. Deutschman Director February 16, 1999
- ---------------------------------
JEFFREY S. DEUTSCHMAN
/s/ Nicholas P. DiPaolo Director February 16, 1999
- ---------------------------------
NICHOLAS P. DIPAOLO
/s/ Michael L. Fulbright Director February 16, 1999
- ---------------------------------
MICHAEL L. FULBRIGHT
/s/ John M. Sullivan, Jr. Director February 16, 1999
- ----------------------------------
JOHN M. SULLIVAN, JR.
/s/ L. Allen Ollis Controller February 16, 1999
- ----------------------------------
L. ALLEN OLLIS
-71-
72
JPS TEXTILE GROUP, INC. INDEX
TO SCHEDULE
INDEX TO FINANCIAL STATEMENT SCHEDULE
For the Fiscal Year Ended November 2, 1996 and the periods from November 3, 1996
to October 9, 1997 (Predecessor) and from October 10, 1997 to November 1, 1997
and for the Fiscal Year Ended October 31, 1998 (Reorganized Company).
FINANCIAL STATEMENT SCHEDULE
II. Valuation and Qualifying Accounts and Reserves S-2
Note: All other schedules are omitted because they are not applicable or not
required, or because the required information is shown either in the
consolidated financial statements or in the notes thereto.
S-1
73
JPS TEXTILE GROUP, INC. SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
Column A Column B Column C Column D Column E
-------------- ---------- ------------------------ ---------- ----------
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts Deductions End of
Classification of Period Expenses Describe Describe Period
-------------- ---------- ---------- ----------- ---------- ----------
(a) (b)
Allowances Deducted from Asset to Which They Apply:
Predecessor
Fiscal Year Ended November 2, 1996 (53 Weeks)
Allowance for doubtful accounts $ 1,950 $ 72 $ 563 $ 237 $2,348
Claims, returns and other allowances 181 -- 338 356 163
------- ------- ------- ------ ------
$ 2,131 $ 72 $ 901 $ 593 $2,511
======= ======= ======= ====== ======
For the Period From November 3, 1996
to October 9, 1997
Allowance for doubtful accounts $ 2,348 $ 781 $(1,258) $ 24 $1,847
Claims, returns and other allowances 163 -- 164 179 148
------- ------- ------- ------ ------
$ 2,511 $ 781 $(1,094) $ 203 $1,995
======= ======= ======= ====== ======
Reorganized Company
For the Period From October 10, 1997
to November 1, 1997
Allowance for doubtful accounts $ 1,847 $ -- $ (945) $ -- $ 902
Claims, returns and other allowances 148 -- 7 4 151
------- ------- ------- ------ ------
$ 1,995 $ -- $ (938) $ 4 $1,053
======= ======= ======= ====== ======
Fiscal Year Ended October 31, 1998 (52 Weeks)
Allowance for doubtful accounts $ 902 $ (28) $ 536 $ -- $1,410
Claims, returns and other allowances 151 -- 239 235 155
------- ------- ------- ------ ------
$ 1,053 $ (28) $ 775 $ 235 $1,565
======= ======= ======= ====== ======
(a) Change in various reserves charged to net sales.
(b) Uncollected receivables written off, net of recoveries.
S-2