1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 27, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
------------ ------------
Commission File Number 33-27038
JPS TEXTILE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 57-0868166
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
555 North Pleasantburg Drive, Suite 202, Greenville, South Carolina 29607
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (864) 239-3900
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 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. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 490,000 shares of the
Company's Class A Common Stock and 510,000 shares of Class B Common Stock were
outstanding as of June 11, 1996.
1
2
JPS TEXTILE GROUP, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION Number
Item 1. Condensed Consolidated Balance Sheets
April 27, 1996 (Unaudited) and October 28, 1995 ................ 3
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended April 27, 1996 and
April 29, 1995 (Unaudited) ..................................... 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended April 27, 1996 and
April 29, 1995 (Unaudited) ..................................... 5
Notes to Condensed Consolidated Financial Statements (Unaudited) .. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................... 10
PART II. OTHER INFORMATION ................................................. 16
2
3
Item 1. Financial Statements
JPS TEXTILE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
April 27, October 28,
1996 1995
----------- -----------
(Unaudited)
ASSETS
Current Assets:
Cash $ 971 $ 1,352
Accounts receivable 83,449 88,186
Inventories 50,720 48,729
Prepaid expenses and other 1,217 2,545
Net assets held for sale - 28,932
----------- -----------
Total current assets 136,357 169,744
Property, plant and equipment, net 154,929 161,436
Excess of cost over fair value of net assets acquired, net 31,007 31,489
Other assets (Note 4) 54,944 50,153
----------- -----------
Total $377,237 $412,822
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Senior credit facility, revolving line of credit (Note 3) $ 75,747
Accounts payable 29,663 $ 29,754
Accrued interest 9,714 9,895
Accrued salaries, benefits and withholdings 11,983 11,503
Other accrued expenses 16,194 12,699
Current portion of long-term debt 2,765 2,770
----------- -----------
Total current liabilities 146,066 66,621
Long-term debt 239,019 327,668
Deferred income taxes 4,165 4,165
Other long-term liabilities 19,200 23,242
----------- -----------
Total liabilities 408,450 421,696
----------- -----------
Senior redeemable preferred stock 30,363 28,171
----------- -----------
Shareholders' equity (deficit):
Junior preferred stock 250 250
Common stock 10 10
Additional paid-in capital 27,421 29,613
Deficit (89,257) (66,918)
----------- -----------
Total shareholders' deficit (61,576) (37,045)
----------- -----------
Total $377,237 $412,822
=========== ==========
Note: The condensed consolidated balance sheet at October 28, 1995 has been
extracted from the audited financial statements.
See notes to condensed consolidated financial statements.
3
4
JPS TEXTILE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Data)
(Unaudited)
<Caption
Three Months Ended Six Months Ended
-------------------- -------------------
April 27, April 29, April 27, April 29,
1996 1995 1996 1995
--------- --------- --------- ---------
Net sales $124,437 $123,099 $223,178 $240,415
Cost of sales 109,881 104,166 198,727 205,234
--------- --------- --------- ---------
Gross profit 14,556 18,933 24,451 35,181
Selling, general and administrative expenses 10,838 10,794 20,713 21,223
Other expense, net 1,708 276 1,949 660
--------- --------- --------- ---------
Operating profit 2,010 7,863 1,789 13,298
Valuation allowance on Gulistan securities
(Note 4) (2,568) - (4,068) -
Interest income 693 685 1,388 1,351
Interest expense (9,828) (9,769) (19,565) (20,066)
Debt restructuring fees and expenses (Note 3) (175) - (175) -
--------- --------- --------- ---------
Loss before income taxes, discontinued
operations and extraordinary gain (9,868) (1,221) (20,631) (5,417)
Income taxes 138 636 208 936
--------- --------- --------- ---------
Loss before discontinued operations
and extraordinary gain (10,006) (1,857) (20,839) (6,353)
Loss from discontinued operations, net of taxes - (1,484) - (2,686)
Gain (loss) on sale of discontinued operations,
net of taxes (1,500) 1,040 (1,500) 1,040
Extraordinary gain on early extinguishment of debt,
net of taxes - - - 20,120
--------- --------- -------- ---------
Net income (loss) (11,506) (2,301) (22,339) 12,121
Senior redeemable preferred stock in-kind
dividends and discount accretion 1,109 970 2,192 1,900
--------- --------- --------- ---------
Income (loss) applicable to common stock $(12,615) $(3,271) $(24,531) $10,221
========= ========= ========= =========
Weighted average common shares outstanding 1,000,000 1,000,000 1,000,000 1,000,000
========= ========= ========= =========
Earnings (loss) per common share:
Loss before discontinued operations
and extraordinary gain $ (11.12) $ (2.83) $ (23.03) $ (8.25)
Loss from discontinued operations - (1.48) - (2.69)
Gain (loss) on sale of discontinued operations (1.50) 1.04 (1.50) 1.04
Extraordinary gain on early
extinguishment of debt - - - 20.12
--------- --------- --------- ---------
Net income (loss) $ (12.62) $ (3.27) $ (24.53) $ 10.22
========= ========= ========= =========
4
See notes to condensed consolidated financial statements.
5
JPS TEXTILE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
--------------------------
April 27, April 29,
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (22,339) $ 12,121
--------- ---------
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Loss from discontinued operations - 2,686
Loss (gain) on sale of discontinued operations 1,500 (1,040)
Extraordinary gain on early extinguishment of debt - (20,120)
Depreciation and amortization, except amounts included
in interest expense 11,846 11,102
Interest accretion and debt issuance cost amortization 4,622 4,464
Valuation allowance on Gulistan securities 4,068 -
Other, net 2,452 (277)
Changes in assets and liabilities:
Accounts receivable 4,737 7,318
Inventory (1,991) (3,189)
Prepaid expenses and other assets 142 322
Accounts payable (93) (4,442)
Accrued expenses and other liabilities (3,931) (2,900)
--------- ---------
Total adjustments 23,352 (6,076)
--------- ---------
Net cash provided by operating activities 1,013 6,045
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment additions (4,865) (14,642)
Receipts from discontinued operations, net 364 745
Proceeds from sales of discontinued operations, net 20,161 1,040
--------- ---------
Net cash provided by (used in) investing activities 15,660 (12,857)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Financing costs incurred - (25)
Revolving credit facility borrowings (repayments), net (15,979) 43,427
Proceeds from issuance of long-term debt - 5,000
Repayment and purchases of long-term debt (1,075) (43,092)
--------- ---------
Net cash provided by (used in) financing activities (17,054) 5,310
--------- ---------
Net decrease in cash (381) (1,502)
Cash at beginning of period 1,352 1,844
--------- ---------
Cash at end of period $ 971 $ 342
========= =========
Supplemental cash flow information:
Interest paid $ 15,124 $ 17,965
Income taxes paid 557 3,365
Non-cash financing activities:
Senior redeemable preferred stock dividends-in-kind 1,534 1,446
See notes to condensed consolidated financial statements.
5
6
JPS TEXTILE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
1. JPS Textile Group, Inc. (the "Company") has prepared, without
audit, the interim condensed consolidated financial statements and related
notes. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at April 27, 1996 for all
periods presented have been made.
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 amount of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these condensed consolidated financial statements be read in
conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the fiscal year ended
October 28, 1995. The results of operations for the interim period are
not necessarily indicative of the operating results of the full year.
In the 1995 six-month period, the Company estimated that the open market
purchases of certain of its debt securities would result in additional
tax liabilities of approximately $3.2 million. Such amount was recorded
as a reduction of the extraordinary gain from early extinguishment of
debt in the 1995 six-month period. This amount of tax was based on
management's best estimate at that time of alternative minimum taxable
income for Fiscal 1995. During the fourth quarter of Fiscal 1995,
management's estimate of Fiscal 1995 alternative minimum taxable income
was revised downward. Accordingly, the Company reduced the $3.2 million
tax estimate by $2.6 million to $0.6 million during the fourth quarter of
Fiscal 1995. The Company has restated the extraordinary gain in the 1995
six-month period for this report on Form 10-Q to give effect to the
revised amount of tax on the extraordinary gain.
The Company has reclassified $1.5 million in the October 28, 1995 balance
sheet from property, plant and equipment to other current assets. The
reclassified amount represents the Company's progress payments in 1995 on
equipment which was subsequently financed under an operating lease in the
1996 first quarter. The Company had the operating lease agreement in
place in 1995, however this particular equipment had not been designated
to be financed under that agreement until the first quarter of 1996. The
reclassification treats the $1.5 million as a temporary deposit on the
October 28, 1995 balance sheet, subsequently reimbursed to the Company
from the proceeds of the operating lease. In the 1996 six-month period,
the $1.5 million is treated in the statement of cash flows as a reduction
of other current assets which results in cash provided by operating
activities.
Certain other 1995 amounts have been reclassified to conform to the 1996
presentation. In addition, see Note 3 of the Notes to Consolidated
Financial Statements in the Company's Annual Report on Form 10-K for the
fiscal year ended October 28, 1995 regarding reclassifications of 1995
amounts for discontinued operations.
6
7
2. Inventories (In Thousands):
April 27, October 28,
1996 1995
--------- -----------
Raw materials $12,406 $13,909
Work-in-process 19,171 18,334
Finished goods 19,143 16,486
------- -------
Total $50,720 $48,729
======= =======
3. Long-Term Debt
On May 6, 1996, the senior credit facility was amended to, among other
things, allow the Company to engage financial advisors and to engage a
financial advisor on the behalf of its debt security holders, change the
termination date of the facility from December 1, 1996 to November 1,
1996, increase the interest rate margins by 0.25% and limit the amount of
borrowing base allocable to inventory to $22 million. The Company has
classified the $75.7 million outstanding under its senior credit facility
revolving line of credit as a current liability because the facility is
currently scheduled to terminate on November 1, 1996. As discussed in
Note 12 of the Notes to Consolidated Financial Statements in the Company's
Annual Report on Form 10-K for the fiscal year ended October 28, 1995, the
senior revolving credit facility (or a similar credit facility) is
essential for the Company's continued operations. Prior to the expiration
of the Company's senior revolving credit facility on November 1, 1996,
management will discuss extension of the facility with its banks.
Mandatory principal payments of approximately $69 million on the Company's
senior subordinated discount notes and senior subordinated notes are due
June 1, 1997. Although such principal payments are not scheduled until
June 1997, the Company's projected cash flows and capital resources are
insufficient to satisfy such obligations. The Company cannot predict what
effect, if any, that the mandatory payments on the debt securities in June
1997 will have on the negotiations with the banks to extend the facility
beyond November 1, 1996. However, the Company does not expect that an
extension of the facility beyond May 31, 1997 will be negotiated unless
such debt securities are extended, replaced or refinanced.
As discussed in the Company's 1995 Annual Report, it has been the
Company's intention to engage advisors in order to expeditiously reach an
understanding with its bondholders about an extension, replacement or
refinancing of its debt securities. On May 8, 1996, the Company engaged
The Blackstone Group L.P. to act as its financial advisor in connection
with a potential financial restructuring. In addition, at the request of
the holders of a substantial majority of its outstanding bonds, the
Company engaged Houlihan, Lokey, Howard & Zukin, Inc., effective April 10,
1996, to act as financial advisor to the holders of a substantial
majority, in principal amount, of each issue of the Company's outstanding
debt securities in connection with such a financial restructuring. Fees
for these advisors and other fees and expenses associated with this matter
are classified in the statement of operations as debt restructuring fees
and expenses.
The Company's ability to accomplish a restructuring of the terms of its
debt securities or any refinancing will depend on a number of factors,
including its operating performance, market conditions and the terms of
any extension, replacement or refinancing. Management is unable to
predict the Company's ability to accomplish the foregoing extension of its
bank financing and extension, replacement or refinancing of its debt
securities. Recent forecasts of the Company's operating performance
indicate that, unless business conditions improve, in order for the
Company to be in compliance with certain of the financial covenants in the
senior credit facility as of the end of the Company's third and fourth
fiscal quarters in fiscal year 1996, such covenants will need to be
appropriately amended. The Company intends to make a request to its
lenders under the senior credit facility for such amendments.
7
8
4. Discontinued Operations
On November 16, 1995, pursuant to the terms of an Asset Transfer
Agreement dated as of November 16, 1995, by and among the Company, JPS
Carpet Corp. ("Carpet"), a wholly-owned subsidiary of the Company,
Gulistan Holdings Inc. and Gulistan Carpet Inc., a wholly-owned subsidiary
of Gulistan Holdings Inc. (collectively, with Gulistan Holdings Inc.,
"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"). Pursuant to the Asset
Transfer Agreement, Gulistan agreed to assume substantially all of the
liabilities and obligations associated with the Carpet Business. Gulistan
was formed and its common stock is owned by certain members of the former
management team at Carpet. The Company and its subsidiaries have agreed,
for a three-year period, not to compete directly or indirectly with the
business that was sold. The Consolidated Statements of Operations and
Cash Flows for 1995 have been reclassified to reflect the Carpet Business
as discontinued operations.
The consideration for 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, the Company has
determined the fair value of these debt and equity securities to be
approximately $11.3 million. These debt and equity securities are
included in other non-current assets on the April 27, 1996 balance sheet.
Since the disposal of the Carpet Business occurred subsequent to the end
of Fiscal 1995, the net assets of the Carpet Business (adjusted to
estimated net realizable value) have been classified as "net assets held
for sale" on the October 28, 1995 balance sheet. As of October 28, 1995,
the Company adjusted the net assets of the Carpet Business to their
estimated net realizable value, which resulted in a charge to the 1995
Consolidated Statement of Operations of $30.7 million, classified as loss
on sale of discontinued operations. The loss on the sale is not currently
recognizable for tax purposes and the Company has recorded no net tax
benefit as a result of this loss due to uncertainties regarding the
ability to utilize these losses in future years.
The final amount of net cash proceeds applied by the Company to reduce
outstanding borrowings under its bank credit agreement is approximately
$16.7 million (net of fees, expenses and the post-closing adjustment
resulting from the level of working capital transferred at the closing
date). In May 1996, the Company and Gulistan agreed on the amount of the
post-closing adjustment. As a result, the Company has increased its
accrual for the post-closing adjustment payable in the April 27, 1996
financial statements by $1.5 million to $3.5 million and has recognized
an additional loss of $1.5 million on the sale of discontinued operations.
Net sales from the discontinued operations of the Carpet Business were
$28.9 million and $58.8 million in the second quarter and six-month period
of 1995, respectively. The Company has allocated to the discontinued
operations a pro-rata portion of the interest expense of its senior credit
facility, which pro-rata portion was approximately $0.4 million and $0.9
million in the second quarter and six-month period of 1995, respectively.
In the 1996 six-month period, Gulistan reported net losses of
approximately $4.4 million before interest expense on the promissory note
held by the Company. Accordingly, the Company did not record interest
income on the $10 million promissory note or income from the accretion of
the discounts recorded to adjust the promissory note and the $5 million
redeemable preferred stock of Gulistan to their fair value on November
16, 1995. Also, in accordance with relevant accounting literature, the
Company has recorded a valuation allowance against its investment in the
Gulistan securities and a corresponding charge to income of $4.1 million
as a result of the net loss ($4.4 million reduced by the $0.3 million of
common equity held
8
9
by Gulistan management) incurred by Gulistan during the 1996 six-month
period. The relevant accounting literature requires the Company to record
the loss incurred by Gulistan as a valuation allowance reducing the
carrying value of the Gulistan securities held by the Company. The
valuation allowance will be increased or reduced (but not below zero) with
a corresponding charge or credit to income to give effect to future losses
or earnings of Gulistan as those losses or earnings occur.
5. Contingencies
The Company has provided for all estimated future costs associated with
certain defective roofing products sold by the Predecessor Stevens
Division operations. The liability for future costs associated with these
defective 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 and those that may result in future litigation.
Based on warranties that were issued on the roofs, the Company estimates
that the defective roofing product claims will be substantially settled by
2000. The liability for such defective products was $9.3 million at
October 28, 1995 and $7.2 million at April 27, 1996. The Company records
the costs of meeting these obligations as a reduction of the balance of
the recorded liability and, accordingly, such costs are not reflected in
results of operations. Management updates its assessment of the adequacy
of the remaining reserve for defective 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.
At April 27, 1996, the Company had net operating loss carryforwards for
tax purposes of approximately $67 million. The net operating losses
expire in years 2005 through 2008. The Company's ability to utilize its
net operating losses may be significantly limited under the income tax
laws should there be changes in the ownership of the Company's stock which
constitute an ownership change for tax purposes. The effect of such an
ownership change would be to significantly limit the annual utilization of
the net operating loss carryforwards and certain built-in losses to an
amount equal to the value of the Company immediately prior to the time of
the change (subject to certain adjustments) multiplied by the Federal
long-term tax exempt rate. The Company does not believe that its losses
are currently subject to this limitation on utilization of the loss
carryforwards. However, there can be no assurance that this limitation
will not apply in the future. 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 equal to the deferred
tax assets remaining after deducting all deferred tax liabilities,
exclusive of those related to certain deferred state tax liabilities.
6. Early Retirement Offer
On February 15, 1996, the Company extended an offer of special early
retirement termination benefits to approximately 50 salaried employees who
met certain criteria as of that date. Approximately $2.2 million of
pension benefits were paid in lump-sums by the Company's defined benefit
pension plan to the 28 employees who accepted the offer. Other expense
for the second quarter of 1996 includes a charge of $1.1 million
representing the actuarial cost to the pension plan of such early
retirement at the time such offers were accepted by the employees. The
expense reduced prepaid pension costs classified as other non-current
assets.
9
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
The following should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing in Item 7
of the Company's Annual Report on Form 10-K for the fiscal year ended October
28, 1995. The statements contained herein that are not historical facts may be
forward-looking statements subject to the safe harbor created by the Private
Securities Litigation Reform Act of 1995. The Company cautions readers of this
Quarterly Report on Form 10-Q that a number of important factors could cause
the Company's actual results in future periods 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, competition from other existing or new textile manufacturers
and the Company's ability to meet debt service obligations and other liquidity
needs.
(In Thousands)
Three Months Ended Six Months Ended
----------------------- ---------------------
April 27, April 29, April 27, April 29,
1996 1995 1996 1995
--------- -------- --------- ---------
NET SALES
Apparel Fabrics and Products $ 67,484 $ 64,737 $115,986 $129,159
Industrial Fabrics and Products 46,837 48,889 89,456 92,993
Home Fashion Textiles 10,116 9,473 17,736 18,263
-------- -------- -------- --------
Net Sales $124,437 $123,099 $223,178 $240,415
======== ======== ======== ========
OPERATING PROFIT
Apparel Fabrics and Products $ 561 $ 5,444 $ (1,283) $ 10,529
Industrial Fabrics and Products 3,597 3,292 6,393 4,686
Home Fashion Textiles 342 536 268 867
Indirect Corporate Expenses, net (2,490) (1,409) (3,589) (2,784)
-------- -------- -------- --------
Operating Profit 2,010 7,863 1,789 13,298
Valuation allowance on Gulistan securities (2,568) - (4,068) -
Interest income 693 685 1,388 1,351
Interest expense (9,828) (9,769) (19,565) (20,066)
Restructuring fees and expenses (175) - (175) -
-------- ------- -------- --------
Loss before income taxes, discontinued
operations and extraordinary gain $ (9,868) $(1,221) $(20,631) $ (5,417)
======== ======= ======== ========
RESULTS OF OPERATIONS
Three Months Ended April 27, 1996 (the "1996 Second Quarter") Compared To The
Three Months Ended April 29, 1995 (the "1995 Second Quarter"):
- -------------------------------------------------------------------------------
Consolidated net sales for the 1996 second quarter increased 1.1% to $124.4
million from $123.1 million in the 1995 second quarter. Net sales in the
Apparel Fabrics and Products segment increased 4.2% to $67.5 million for the
1996 second quarter from $64.7 million for the 1995 second quarter principally
due to an increase in yards sold in 1996 (primarily of apparel fabrics
manufactured with filament yarns). Industrial Fabrics and Products sales
decreased 4.2% to $46.8 million for the 1996 second quarter from $48.9 million
for the 1995 second quarter
10
11
as sales declines for cotton and synthetic industrial fabrics were partially of
fset by increases in fiberglass fabrics and other industrial products. Net
sales of fiberglass fabrics increased $2.3 million due to increased demand and
stronger pricing for fabrics used in the manufacture of electronic circuit
boards. Single-ply roofing and environmental containment membrane product
sales increased $1.1 million to $13.7 million for the 1996 second quarter due
to the continued increase in demand for the Company's roofing products and
higher average selling prices for such roofing products. Cotton industrial
fabric sales decreased $3.8 million to $7.2 million due to significantly lower
product demand. Synthetic industrial fabric sales declined $1.6 million to
$1.9 million for the 1996 second quarter due to lower demand and the Company's
decision to exit the markets for certain unprofitable types of fabrics. Home
Fashion Textiles sales increased 6.8% to $10.1 million for the 1996 second
quarter from $9.5 million for the 1995 second quarter due to an increased
volume of yards of fabric sold.
Operating profit in the 1996 second quarter fell to $2.0 million from $7.9
million for the 1995 second quarter generally due to a less favorable apparel
fabric market environment. The Apparel Fabrics and Products segment earned a
profit of $0.6 million for the 1996 second quarter as compared to a $5.4
million profit for the 1995 second quarter due to less favorable product mix.
The product mix in the 1996 second quarter included a higher ratio of
commodity-type fabrics with lower margins than was experienced in the 1995
second quarter. This represents the continuation of the trend the Company
experienced during the second half of Fiscal 1995. This period, including the
first six months of 1996, has been marked by poorer retail apparel sales,
falling margins and rising raw material costs. Operating profits for
Industrial Fabrics and Products increased 9.3% to $3.6 million in the 1996
second quarter from $3.3 million in the 1995 second quarter as a result of a
more profitable product mix, increased selling prices for electrical composite
fabrics and manufacturing efficiency gains. Home Fashion Textiles experienced
a $0.2 million decrease in operating profits in the 1996 second quarter to $0.3
million from $0.5 million in the 1995 second quarter due to a less favorable
product mix of fabrics sold in 1996.
Indirect corporate expenses increased by $1.1 million to $2.5 million for the
1996 second quarter as compared to the 1995 second quarter due to a $1.1
million charge to other expense for the early retirement offer accepted by
certain employees resulting in a corresponding reduction to prepaid pension
costs.
In the second quarter of 1996, Gulistan reported net losses of approximately
$2.6 million before interest expense on the promissory note held by the
Company. Accordingly, the Company did not record interest income on the $10
million promissory note due in November 2001 from Gulistan or income from the
accretion of the discounts recorded to adjust the promissory note and the $5
million redeemable preferred stock of Gulistan to their fair value on November
16, 1995. Also, in accordance with relevant accounting literature, the Company
has recorded a valuation allowance against its investment in the Gulistan
securities and a corresponding charge to income of $2.6 million as a result of
the net loss incurred by Gulistan during the 1996 second quarter. The relevant
accounting literature requires the Company to record the loss incurred by
Gulistan as a valuation allowance reducing the carrying value of the Gulistan
securities held by the Company. The valuation allowance will be increased or
reduced (but not below zero) with a corresponding charge or credit to income to
give effect to future losses or earnings of Gulistan as those losses or
earnings occur.
Interest expense for the 1996 second quarter of $9.8 million was generally
level with the 1995 second quarter as a lower average interest rate on bank
borrowings offset slightly higher average borrowings in 1996.
11
12
Six Months Ended April 27, 1996 (the "1996 Six-Month Period") Compared To The
Six Months Ended April 29, 1995 (the "1995 Six-Month Period"):
- --------------------------------------------------------------------------------
Consolidated net sales for the 1996 six-month period decreased 7.2% to $223.2
million from $240.4 million in the 1995 six-month period with most of the
decline occurring in apparel fabrics and products. Net sales in the Apparel
Fabrics and Products segment decreased 10.2% to $116.0 million for the 1996
six-month period from $129.2 million for the 1995 six-month period principally
due to lower demand resulting in lower unit volume, especially for fabrics
woven from spun yarns. Competitive pressures and a lackluster retail
environment have caused this lower demand for apparel fabrics, continuing a
sales decline which began in the second half of 1995. The 3.8% decrease in
Industrial Fabrics and Products sales to $89.5 million for the 1996 six-month
period from $93.0 million for the 1995 six-month period is the net result of
increases in certain product lines and decreases in others. Net sales of
fiberglass fabrics increased $4.1 million due to increased demand and stronger
pricing for electrical composite fabrics. Single-ply roofing product sales
increased 11.1% ($2.3 million) to $23.0 million for the 1996 six-month period
due to the continued increase in demand for the Company's roofing products and
higher average selling prices for such roofing products. Cotton industrial
fabric sales decreased $6.5 million to $14.6 million due to significantly lower
product demand for bookbinding and laminating fabrics combined with increased
foreign imports of athletic tape fabrics. Synthetic industrial fabric sales
declined $3.8 million to $3.6 million for the 1996 six-month period due to
lower demand and the Company's decision to exit the markets for certain
unprofitable types of fabrics. Improved demand resulted in a $0.4 million
increase in extruded urethane product sales to $10.9 million for the 1996
six-month period. Home Fashion Textiles sales decreased 2.9% to $17.7 million
for the 1996 six-month period from $18.3 million for the 1995 six-month period
due to weaker demand for fabrics used for draperies and other home accessories.
Operating profits in the 1996 six-month period fell to $1.8 million from $13.3
million for the 1995 six-month period. The Apparel Fabrics and Products
segment operated at a loss of $1.3 million for the 1996 six-month period as
compared to a $10.5 million profit for the 1995 six-month period due to lower
sales volume and a less favorable product mix. The product mix in the 1996
six-month period included a higher ratio of commodity-type fabrics than was
experienced in the 1995 six-month period. This represents the continuation of
the trend the Company experienced during the second half of Fiscal 1995. This
period, including the 1996 six-month period, has been marked by poorer retail
apparel sales, falling margins and rising raw material costs. In addition,
the Company curtailed production in many of its apparel fabric manufacturing
plants during the 1996 six-month period in response to lower customer demand.
Operating profits for Industrial Fabrics and Products increased 36% to $6.4
million in the 1996 six-month period from $4.7 million in the 1995 six-month
period as a result of a more profitable product mix, increased selling prices
for electrical composite fabrics and manufacturing efficiency gains. Home
Fashion Textiles experienced a $0.6 million decrease in operating profits in
the 1996 six-month period to $0.3 million from $0.9 million in the 1995
six-month period due to weaker demand for home furnishing fabrics and a less
favorable product mix of fabrics sold in 1996.
Indirect corporate expenses increased $0.8 million to $3.6 million for the 1996
six-month period as compared to the 1995 six-month period due to the cost of
the early retirement offer accepted by certain employees net of lower employee
compensation costs in 1996.
In the first six months of 1996, Gulistan reported net losses of approximately
$4.4 million before interest expense on the promissory note held by the
Company. Accordingly, the Company did not record interest income on the $10
million promissory note due from Gulistan or income from the accretion of the
discounts recorded to adjust the promissory note and the $5 million redeemable
preferred stock of Gulistan to their fair value on November 16, 1995. Also, in
accordance with relevant accounting literature, the Company has recorded a
valuation allowance against its investment in the Gulistan securities and a
corresponding charge to income of $4.1 million as a result of the net loss
($4.4 million reduced by the $0.3 million of common equity held by Gulistan
management) incurred by Gulistan during the 1996 six-month period.
12
13
Interest expense decreased 2.5% to $19.6 million for the 1996 six-month period
from $20.1 million for the 1995 six-month period principally due to a lower
average interest rate on the revolving credit facility in the 1996 six-month
period and the reduction in debt resulting from the reductions in outstanding
principal amounts of the Company's notes and debentures as the Company
purchased a portion of its debt securities during the 1995 first quarter on the
open market. These securities were purchased at prices less than their
carrying values using loan proceeds from the revolving credit facility.
LIQUIDITY AND CAPITAL RESOURCES
The Company has classified the $75.7 million outstanding under its senior
credit facility revolving line of credit as a current liability because the
facility is currently scheduled to terminate on November 1, 1996 (as discussed
below). Working capital decreased from $103.1 million at October 28, 1995 to a
working capital deficiency of $9.7 million at April 27, 1996 principally due to
the classification of the $75.7 million outstanding under the senior credit
facility as a current liability at April 27, 1996 and the sale in November 1995
of the net assets held for sale (see below). A 5.4% decline in accounts
receivable reduced working capital $4.7 million due to lower sales in April
1996 than in October 1995. Inventories increased $2.0 million (4.1%) from
October 28, 1995 to April 27, 1996 principally due to an increase in finished
goods, also resulting from the lower level of sales in April 1996 than in
October 1995.
On November 16, 1995, pursuant to the terms of an Asset Transfer Agreement
dated as of November 16, 1995, by and among the Company, JPS Carpet Corp.
("Carpet"), a wholly-owned subsidiary of the Company, Gulistan Holdings Inc.
and Gulistan Carpet Inc., a wholly-owned subsidiary of Gulistan Holdings Inc.
(collectively, with Gulistan Holdings Inc., "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"). Pursuant to the
Asset Transfer Agreement, Gulistan agreed to assume substantially all of the
liabilities and obligations associated with the Carpet Business. Gulistan was
formed and its common stock is owned by certain members of the former
management team at Carpet. The Company and its subsidiaries have agreed, for a
three-year period, not to compete directly or indirectly with the business that
was sold. Certain amounts in the Consolidated Statements of Operations and
Cash Flows for 1995 have been reclassified to reflect the Carpet Business as
discontinued operations.
The consideration for 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, the Company has determined the fair value of these
debt and equity securities to be approximately $11.3 million. These debt and
equity securities are included in other non-current assets on the April 27,
1996 balance sheet. Since the disposal of the Carpet Business occurred
subsequent to the end of Fiscal 1995, the net assets of the Carpet Business
(adjusted to net realizable value) have been classified as "net assets held for
sale" on the October 28, 1995 balance sheet.
The final amount of net cash proceeds applied by the Company to reduce
outstanding borrowings under the credit agreement for the senior credit
facility will be approximately $16.7 million (net of fees, expenses and the
post-closing adjustment resulting from the level of working capital transferred
at the closing date). In May 1996, the Company and Gulistan agreed on the
amount of the post-closing adjustment. As a result, the Company has increased
its accrual for the post-closing adjustment payable in the April 27, 1996
financial statements by $1.5 million to $3.5 million and has recognized an
additional loss of $1.5 million on the sale of discontinued operations.
13
14
The Company's principal sources of liquidity for operations and expansion are
funds generated internally and borrowings by its subsidiaries, JPS Converter
and Industrial Corp. and JPS Elastomerics Corp., under a revolving credit
facility, which facility (the "Senior Credit Facility") provides for revolving
credit loans and letters of credit in a maximum principal amount of $118
million, subject to a specified borrowing base based upon the sum of (a) a
specified percentage of eligible accounts receivable and (b) the lesser of (i)
$22 million and (ii) a specified percentage of eligible inventory, except that
(A) neither borrower may borrow an amount greater than the borrowing base
attributable to it, (B) letters of credit may not exceed $15 million in the
aggregate and (C) $20 million of the revolving credit facility is available,
not subject to such borrowing base, to purchase property, plant and equipment
or to finance or refinance such purchases, provided that the aggregate of all
revolving credit loans may not exceed the lesser of (a) $118 million and (b)
the sum of the borrowing base plus $25 million (subject to certain reductions).
All loans borrowed under the Senior Credit Facility, subsequent to the
application of sales proceeds from the sale of the Carpet business to reduce
the outstanding balance under the Senior Credit Facility, were used to provide
funds needed for the operations and capital expenditures to the extent such
funds were not provided for by the net cash flow from operations during the
1996 six-month period. On May 6, 1996, the Company and its lenders amended the
Senior Credit Facility agreement to allow the Company to, among other things,
engage financial advisors and engage a financial advisor on the behalf of its
debt security holders, change the termination date of the facility from
December 1, 1996 to November 1, 1996, increase the interest rate margins by
0.25% and limit the amount of borrowing base allocable to inventory to $22
million, as described above. All loans under the Senior Credit Facility (after
giving effect to the above-referenced amendment), bear interest at a Base Rate,
as defined, plus 1.25% per annum (9.50% at April 27, 1996, based on the
post-amendment interest rates) or at the Eurodollar Rate, as defined, plus
2.75% per annum (approximately 8.2% at April 27, 1996, based on the
post-amendment interest rates). $36.7 million of the Senior Credit Facility
was available for borrowing on April 27, 1996. Loans made under the Senior
Credit Facility are made or repaid on a daily basis in amounts equal to the net
cash requirements for that business day, thereby reducing net borrowings to the
maximum extent possible.
Management continually reviews various options for enhancing liquidity and its
cash flow to cash requirements coverage, both operationally and financially.
Such options include strategic dispositions and financing and refinancing
activities aimed at increasing cash flow and reducing cash requirements, the
principal items of which are interest and capital expenditures. Management
believes that the Company's capital resources and expected cash flows will be
adequate to meet its operating and working capital needs during Fiscal 1996.
The Senior Credit Facility (or a similar credit facility) is essential for the
Company's continued operations. Prior to the expiration of the Senior Credit
Facility on November 1, 1996, management will discuss extension of the Senior
Credit Facility with its banks. Mandatory principal payments of approximately
$69 million on the Company's senior subordinated discount notes and senior
subordinated notes are due June 1, 1997. Although such principal payments are
not scheduled until June 1997, the Company's projected cash flows and capital
resources are insufficient to satisfy such obligations. The Company cannot
predict what effect, if any, that the mandatory payments on the debt securities
in June 1997 will have on the negotiations with the banks to extend the Senior
Credit Facility beyond November 1, 1996. However, the Company does not expect
that an extension of the Senior Credit Facility beyond May 31, 1997 will be
negotiated unless such debt securities are extended, replaced or refinanced.
14
15
As discussed in the Company's 1995 Annual Report, it has been the Company's
intention to engage advisors in order to expeditiously reach an understanding
with its bondholders about an extension, replacement or refinancing of its debt
securities. On May 8, 1996, the Company engaged The Blackstone Group L.P. to
act as its financial advisor in connection with a potential financial
restructuring. In addition, at the request of the holders of a substantial
majority of its outstanding bonds, the Company engaged Houlihan, Lokey, Howard
& Zukin, Inc., effective April 10, 1996, to act as financial advisor to the
holders of a substantial majority, in principal amount, of each issue of the
Company's outstanding debt securities in connection with such a financial
restructuring.
The Company's ability to accomplish a restructuring of the terms of its debt
securities or any refinancing will depend on a number of factors, including its
operating performance, market conditions and the terms of any extension,
replacement or refinancing. Management is unable to predict the Company's
ability to accomplish the foregoing extension of its bank financing and
extension, replacement or refinancing of its debt securities. Recent
forecasts of the Company's operating performance indicate that, unless business
conditions improve, in order for the Company to be in compliance with certain
of the financial covenants in the Senior Credit Facility as of the end of the
Company's third and fourth fiscal quarters in fiscal year 1996, such covenants
will need to be appropriately amended. The Company intends to make a request
to its lenders under the Senior Credit Facility for such amendments.
15
16
JPS TEXTILE GROUP, INC.
PART II - OTHER INFORMATION
Item
1. Legal Proceedings None
2. Changes in Securities None
3. Defaults Upon Senior Securities None
4. Submission of Matters to a Vote of Security Holders None
5. Other Information None
6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
(10.1) 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.
(10.2) 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.
(11) Statement re: Computation of Per Share
Earnings - not required since such computation
can be clearly determined from the material
contained herein.
(27) Financial Data Schedule (for SEC use only).
(b) Current Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JPS TEXTILE GROUP, INC.
Date: June 11, 1996 /s/ David H. Taylor
--------------------------------------
David H. Taylor
Executive Vice President - Finance,
Secretary and Chief Financial Officer
16