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 February 1, 1997
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 March 18, 1997.
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JPS TEXTILE GROUP, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION Number
Item 1. Condensed Consolidated Balance Sheets
February 1, 1997 (Unaudited) and November 2, 1996................. 3
Condensed Consolidated Statements of Operations
Three Months Ended February 1, 1997 and
January 27, 1996 (Unaudited)...................................... 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended February 1, 1997 and
January 27, 1996 (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................................................... 14
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Item 1. Financial Statements
JPS TEXTILE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands) February 1, November 2,
1997 1996
----------- -----------
(Unaudited)
ASSETS
Current Assets:
Cash $ 1,031 $ 1,460
Accounts receivable 71,223 75,166
Inventories (Note 2) 47,879 48,374
Prepaid expenses and other 2,664 1,967
--------- ---------
Total current assets 122,797 126,967
Property, plant and equipment, net 120,830 124,004
Excess of cost over fair value of net assets acquired, net 30,265 30,506
Other assets (Note 5) 53,190 54,450
--------- ---------
Total $ 327,082 $ 335,927
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 22,164 $ 24,708
Accrued interest 15,785 9,608
Accrued salaries, benefits and withholdings 9,594 10,440
Other accrued expenses 12,205 13,987
Senior credit facility, revolving line of credit (Note 3) 82,558 85,639
Current portion of long-term debt 242,847 240,451
--------- ---------
Total current liabilities 385,153 384,833
Long-term debt 3,768 4,226
Deferred income taxes 3,665 3,665
Other long-term liabilities 19,949 19,513
--------- ---------
Total liabilities 412,535 412,237
--------- ---------
Senior redeemable preferred stock (Note 6) 33,941 32,676
--------- ---------
Shareholders' equity (deficit):
Junior preferred stock 250 250
Common stock 10 10
Additional paid-in capital 23,842 25,108
Deficit (143,496) (134,354)
--------- ---------
Total shareholders' deficit (119,394) (108,986)
--------- ---------
Total $ 327,082 $ 335,927
========= =========
Note: The condensed consolidated balance sheet at November 2, 1996 has been
extracted from the audited financial statements.
See notes to condensed consolidated financial statements.
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JPS TEXTILE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Data)
(Unaudited)
Three Months Ended
--------------------------
February 1, January 27,
1997 1996
----------- -----------
Net sales $ 97,167 $ 98,741
Cost of sales 84,934 88,846
----------- -----------
Gross profit 12,233 9,895
Selling, general and administrative expenses 9,314 9,875
Other expense, net 6 241
----------- -----------
Operating profit (loss) 2,913 (221)
Valuation allowance on Gulistan securities (1,299) (1,500)
Interest income 737 695
Interest expense (10,174) (9,737)
Debt restructuring fees and expenses (1,162) --
----------- -----------
Loss before income taxes (8,985) (10,763)
Provision for income taxes 157 70
----------- -----------
Net loss (9,142) (10,833)
Senior redeemable preferred stock in-kind dividends and
discount accretion 1,265 1,083
----------- -----------
Loss applicable to common stock $ (10,407) $ (11,916)
=========== ===========
Weighted average common shares outstanding 1,000,000 1,000,000
=========== ===========
Net loss per common share $ (10.41) $ (11.92)
=========== ===========
See notes to condensed consolidated financial statements.
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JPS TEXTILE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended
------------------------
February 1, January 27,
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (9,142) $(10,833)
-------- --------
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization, except amounts included
in interest expense 4,684 5,768
Interest accretion and debt issuance cost amortization 2,431 2,293
Valuation allowance on Gulistan securities 1,299 1,500
Other, net 844 737
Changes in assets and liabilities:
Accounts receivable 3,943 17,524
Inventories 495 (7,435)
Prepaid expenses and other assets (1,431) 846
Accounts payable (2,544) (3,534)
Accrued expenses and other liabilities 3,649 (10,465)
-------- --------
Total adjustments 13,370 7,234
-------- --------
Net cash provided by (used in) operating activities 4,228 (3,599)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment additions (1,165) (2,230)
Receipts from discontinued operations, net -- 22,708
-------- --------
Net cash (used in) provided by investing activities (1,165) 20,478
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Revolving credit facility repayments, net (3,081) (16,518)
Repayment and purchases of long-term debt (411) (513)
-------- --------
Net cash used in financing activities (3,492) (17,031)
-------- --------
Net decrease in cash (429) (152)
Cash at beginning of period 1,460 1,352
-------- --------
Cash at end of period $ 1,031 $ 1,200
======== ========
Supplemental cash flow information:
Interest paid $ 1,566 $ 12,758
Income taxes paid 213 272
Non-cash financing activities:
Senior redeemable preferred stock dividends-in-kind -- 762
See notes to condensed consolidated financial statements.
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JPS TEXTILE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
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 February 1,
1997 and 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
November 2, 1996. The results of operations for the interim period are
not necessarily indicative of the operating results for the full year.
2. Inventories (In Thousands):
February 1, November 2,
1997 1996
----------- -----------
Raw materials and supplies $ 11,897 $ 13,155
Work-in-process 16,683 16,912
Finished goods 19,299 18,307
-------- --------
Total $ 47,879 $ 48,374
======== ========
3. Long-Term Debt
As discussed in Note 14 of the Notes to Consolidated Financial
Statements in the Company's Annual Report on Form 10-K for the fiscal
year ended November 2, 1996, the senior credit facility (or a similar
credit facility) under the restated credit agreement is essential for
the Company's continued operations. The existing senior credit facility
was scheduled to expire on March 1, 1997 unless the Company commenced a
case under Chapter 11 of the Bankruptcy Code on or prior to such date.
Accordingly, the Company negotiated an extension of that facility.
Pursuant to an amendment, dated as of February 21, 1997, to the
restated credit agreement, the senior credit facility was amended to
provide that the expiration date thereof will be extended to May 1,
1997 unless the Company commences a case under Chapter 11 of the
Bankruptcy Code on or prior to such date. If such a case is commenced
on or prior to May 1, 1997, the senior credit facility will be extended
automatically to the earlier of November 1, 1997 or the effective date
of a reorganization under Chapter 11 of the Bankruptcy Code. At this
time, the Company has not made a decision to commence such a case under
the Bankruptcy Code. The Company has classified the $82.6 million
outstanding under its senior credit facility as a current liability in
the accompanying condensed consolidated balance sheet. The
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financial covenants contained in the restated credit agreement are
based upon the activities of the consolidated operating subsidiaries
(JPS Converter & Industrial Corp. and JPS Elastomerics Corp.) rather
than the consolidated Company (i.e. excludes the assets and liabilities
of the parent company and other non-operating subsidiaries). The
restated credit agreement does not permit additional borrowings by the
borrowing subsidiaries for, among other things, loans or dividends to
the Company for the payment of interest on its notes and debentures. As
a result of this restriction on the use of proceeds of revolving loans,
the Company did not make scheduled November 15, 1996 interest payments
of approximately $1.9 million on its subordinated debentures and did
not make scheduled December 1, 1996 interest payments of approximately
$5.4 million on its senior subordinated discount notes and
approximately $3.6 million on its senior subordinated notes. The
failure to make these scheduled interest payments constitutes an event
of default under the indentures governing these debt securities. As a
result, the holders of these debt securities are entitled to accelerate
the debt represented thereby. Accordingly, these debt obligations are
classified as current liabilities in the accompanying condensed
consolidated balance sheets. The Company does not have the ability to
repay such indebtedness if the same were to be accelerated.
The indentures governing the notes and debentures also provide for the
payment of interest on overdue installments of interest, payable on
demand at the rate of 1% per annum in excess of the interest rate then
in effect. In the first quarter of 1997, the Company accrued
approximately $241,000 under these provisions, all of which remained
unpaid as of February 1, 1997.
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 of its debt obligations. 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 advisors to the holders of the Company's
debt securities in connection with such a financial restructuring.
Thereafter, at the further request of such holders, the Company engaged
Fried, Frank, Harris, Shriver & Jacobson, effective October 30, 1996 to
act as attorneys to the holders of the Company's 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 accompanying condensed consolidated statements of operations as
"debt restructuring fees and expenses". The Company has provided
substantial information to these advisors on a confidential basis
regarding the Company's business, strategies, plans and prospects. The
Company is discussing the terms of a potential financial restructuring
with the financial advisors and the holders of a substantial majority
of its outstanding bonds. The Company's ability to accomplish a
restructuring of the terms of its debt securities or any refinancing
thereof will depend on a number of factors, including its operating
performance, market conditions and the ability of the Company and its
bondholders to come to an agreement as to the appropriate terms of any
such restructuring. Although no agreement, formal or informal, has been
reached between the Company and its bondholders regarding the terms of
a potential financial restructuring, management is optimistic that a
restructuring will be accomplished. Management is unable to predict the
impact of any such restructuring on the accompanying condensed
consolidated financial statements. If the Company is not successful in
this regard, the default on the Company's debt securities and its
inability to service such debt as required raise substantial doubt
about the Company's ability to continue as a going concern.
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4. Sale of Certain Operations and Plant Closing
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), of which $3.2
million occurred in the first quarter of 1996. 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 have 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 audit of the working capital transferred on the closing date has
not been finalized, however, it is not expected that the final
determination of the working capital transferred will have a
significant effect on the financial statements. 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.
Effective October 28, 1996, the Company closed 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 Consolidated
Statement of Operations for Fiscal 1996 included 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",
employee severance costs and estimated costs for equipment relocation.
Of the approximately $4.8 million in exit costs associated with the
plant closing, approximately $2.0 million related to equipment
relocation and employee severance was unpaid at February 1, 1997.
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 substantially all the
defective roofing product claims will be resolved by 2000. The
liability for such defective products was approximately $5.8 million at
February 1, 1997 and $6.2 million at November 2, 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.
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At February 1, 1997, the Company had net regular operating loss
carryforwards for tax purposes of approximately $92 million. The net
operating losses expire in years 2005 through 2012. The Company's
future 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 this potential
limitation on loss carryforwards currently applies. However, there can
be no assurance that the Internal Revenue Service will not take a
contrary position or that such limitation will not become applicable
for subsequent taxable periods. 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.
In connection with the sale of its Automotive business in June 1994,
the Company invested $39.5 million of the sale proceeds in long-term
securities (principally United States Treasury Securities maturing in
1997) designated by management to be available to satisfy possible
contingent tax liabilities. The investments are classified as
"held-to-maturity" and recorded at amortized cost. As of February 1,
1997 and November 2, 1996, the aggregate fair value of the United
States Treasury Securities was approximately $46.7 million and $46.2
million, respectively.
6. Senior Preferred Stock
Dividends on the Company's senior preferred stock are cumulative and
calculated based on an annual rate of 6% of the liquidation preference
and are paid quarterly. Under the terms of various credit agreements,
dividends must be in the form of additional shares until 1998. The
Company did not declare and accordingly has not distributed the
scheduled November 15, 1996 and February 15, 1997 preferred stock
dividends of 8,079 shares and 8,203 shares, respectively.
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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 November
2, 1996.
(In Thousands)
Three Months Ended
------------------------
February 1, January 27,
1997 1996
----------- -----------
Net Sales
Apparel fabrics and products $ 47,320 $ 48,502
Industrial fabrics and products 40,775 42,619
Home fashion textiles 9,072 7,620
-------- --------
Net Sales $ 97,167 $ 98,741
======== ========
Operating Profit (loss):
Apparel fabrics and products $ 655 $ (1,844)
Industrial fabrics and products 2,695 2,796
Home fashion textiles 728 (74)
Indirect corporate expenses, net (1,165) (1,099)
-------- --------
Operating profit (loss) 2,913 (221)
Valuation allowance on Gulistan Securities (1,299) (1,500)
Interest income 737 695
Interest expense (10,174) (9,737)
Restructuring fees and expenses (1,162) --
-------- --------
Loss before income taxes $ (8,985) $(10,763)
======== ========
RESULTS OF OPERATIONS
Three Months Ended February 1, 1997 (the "1997 First Quarter") Compared to the
Three Months Ended January 27, 1996 (the "1996 First Quarter")
Consolidated net sales in the 1997 first quarter decreased 1.5% to $97.2 million
from $98.7 million in the 1996 first quarter. Net sales in the Apparel Fabrics
and Products segment decreased 2.5% to $47.3 million in the 1997 first quarter
from $48.5 million in the 1996 first quarter principally due to the sale of the
Company's rubber products business in September 1996 offset by an increase in
sales of unfinished woven apparel fabrics. The rubber products business, which
produced and sold elastic apparel products, generated sales of $3.2 million in
the 1996 first quarter. The improvement in sales of unfinished woven apparel
fabrics is attributable to slightly improving retail market conditions
(particularly in women's wear), continued expansion of the Company's presence in
international markets such as Mexico and a more favorable mix of higher priced
specialty products. In October 1996, the Company closed its Dunean facility in
Greenville, South Carolina, which produced unfinished woven apparel fabric, in
order to improve its manufacturing efficiencies and cost effectiveness. The
capacity associated with this facility, which generated 1996 first quarter sales
of $5.9 million, was effectively transferred to other plants and this event did
not have a significant impact on sales volume for the 1997 first quarter
compared to the 1996 first quarter.
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Net sales in the Industrial Fabrics and Products segment decreased 4.2% to $40.8
million in the 1997 first quarter from $42.6 million in the 1996 first quarter
principally due to a variety of factors affecting its various product lines.
Sales of fiberglass fabrics decreased 2.4% to $16.3 million in the 1997 first
quarter from $16.7 million in the 1996 first quarter due to production downtime
resulting from equipment installation for added capacity and production
changeovers. Sales of electrical composite fabrics used in circuit boards have
increased for the last several years as global demand for electronic products
has grown. Management expects this demand to continue in the foreseeable future.
Sales of roofing membrane increased 10.9% to $12.2 million in the 1997 first
quarter from $11.0 million in the 1996 first quarter due to the continued
success of the Company's "Hi-Tuff/EP" line of roofing products. Sales of
industrial rubber products decreased $0.9 million due to the sale of the
Company's rubber products business in September 1996. Sales of cotton industrial
fabrics decreased 8.1% or $0.6 million as a result of weak markets and intense
foreign competition, particularly from China. Sales of other synthetic
industrial fabrics and yarns decreased 56.2% or $0.9 million principally as a
result of weak demand for fabrics used in fire resistant products and the exit
from certain industrial fabric markets.
Net sales for the Home Fashion Textile segment increased 19.7% to $9.1 million
in the 1997 first quarter from $7.6 million in the 1996 first quarter
principally due to a stronger retail market, development of new products and
expansion of the Company's customer base.
Operating results in the 1997 first quarter improved to an operating profit of
$2.9 million from an operating loss of $0.2 million in the 1996 first quarter.
The Apparel Fabrics and Products segment operated at a profit of $0.7 million in
the 1997 first quarter as compared to a loss of $1.8 million in the 1996 first
quarter. This improvement is attributable to the sale of the rubber products
business, which contributed $0.7 million to the loss in the 1996 first quarter,
and the closing of the Dunean facility which allowed the Company to eliminate
certain overhead costs while improving its overall manufacturing efficiency and
cost effectiveness in the 1997 first quarter.
The Industrial Fabrics and Products segment operated at a profit of $2.7 million
in the 1997 first quarter, down slightly from $2.8 million in the 1996 first
quarter. This was principally due to the decrease in sales volume in electrical
composite fabrics in the 1997 first quarter, offset by improvements in the
product mix of roofing product sales and higher pricing on certain fiberglass
insulation and filtration fabrics.
The Home Fashion Textile segment improved to an operating profit of $0.7 million
in the 1997 first quarter from an operating loss of $0.1 million in the 1996
first quarter principally due to the increase in sales volume and improving
margins resulting from increases in unit selling prices and a more favorable
product mix.
Indirect corporate expenses increased to $1.2 million in the 1997 first quarter
from $1.1 million in the 1996 first quarter due to an increase in certain
insurance costs.
The Company holds various securities from the sale, in a prior year, of the
assets and business of JPS Carpet Corp., its wholly-owned subsidiary, to
Gulistan Holdings, Inc. The Company has not recorded interest income on any of
the Gulistan securities and, in accordance with relevant accounting literature,
has recorded a valuation allowance against its investment in the securities with
a corresponding charge to income of $1.3 million as a result of the net loss
incurred by Gulistan in the 1997 first quarter. This valuation allowance of $1.3
million was less than the $1.5 million valuation allowance recorded by the
Company in the 1996 first quarter.
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Interest expense in the 1997 first quarter was $10.2 million, or $0.5 million
more than the 1996 first quarter primarily due to the compounding effect of
accretion of debt discounts and non-cash interest and the accrual of interest on
overdue installments of interest calculated in accordance with the provisions of
the indentures governing the Company's notes and debentures.
Debt restructuring fees and expenses totaled $1.2 million in the 1997 first
quarter with no corresponding charges in the 1996 first quarter. Such expenses
represent fees and expenses of the Company's financial advisor, the financial
advisor for the holders of a substantial majority of its outstanding bonds, the
Company's legal counsel, the legal counsel to the holders of a substantial
majority of the Company's outstanding bonds and other professionals associated
with the Company's financial restructuring.
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). At February 1, 1997, the Company had $17.8 million available
for borrowing under the Revolving Credit Facility. 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.
The working capital deficits at February 1, 1997 and November 2, 1996 of $262.3
million and $257.9 million respectively, reflect the classification of the
amount outstanding under the Revolving Credit Facility ($82.6 million at
February 1, 1997 and $85.6 million at November 2, 1996) and the carrying value
of notes and debentures ($240.0 million at February 1, 1997 and $237.7 million
at November 2, 1996) as current liabilities. Excluding the effects of the
Revolving Credit Facility and the notes and debentures, working capital
decreased $5.1 million from $65.4 million at November 2, 1996 to $60.3 million
at February 1, 1997, principally due to the $3.9 million decline in accounts
receivable and the $0.5 million decline in inventories, each resulting from
lower sales volume in February 1997 than in October 1996.
The Company and its operating subsidiaries (being hereinafter collectively
referred to as the "Borrowing Subsidiaries") are parties to the Fourth Amended
and Restated Credit Agreement, dated as of June 24, 1994, as amended (the
"Restated Credit Agreement"), by and among the financial institutions party
thereto, Citibank, N.A. as administrative agent and co-agent, and General
Electric Capital Corporation, as collateral agent and co-agent. The Restated
Credit Agreement, as amended, 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) $118 million and (b) a specified borrowing
base, which is based upon eligible receivables and inventory of the Borrowing
Subsidiaries (the "Borrowing Base"), except that (i) no Borrowing Subsidiary may
borrow an amount greater than the Borrowing Base attributable to it, (ii)
letters of credit may not exceed $15 million in the aggregate, and (iii) $20
million of the Revolving Credit Facility is available, not subject to the
Borrowing Base, to purchase property, plant and equipment or to finance or
refinance such purchases ("Capex Loans"), provided that the aggregate of all
revolving credit loans, including Capex Loans, and letters of credit may not
exceed the lesser of (A) $118 million and (B) the sum of the Borrowing Base plus
$25 million (subject to certain reductions).
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As discussed in Note 14 of the Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the fiscal year ended November 2, 1996,
the Revolving Credit Facility (or a similar credit facility) is essential for
the Company's continued operations. The existing Revolving Credit Facility was
scheduled to expire on March 1, 1997 unless the Company commenced a case under
Chapter 11 of the Bankruptcy Code on or prior to such date. Accordingly, the
Company negotiated an extension of that facility. Pursuant to an amendment,
dated as of February 21, 1997, to the Restated Credit Agreement, the Revolving
Credit Facility was amended to provide that the expiration date thereof will be
May 1, 1997 unless the Company commences a case under Chapter 11 of the
Bankruptcy Code on or prior to such date. If such a case is commenced on or
prior to May 1, 1997, the Revolving Credit Facility will be extended
automatically to the earlier of November 1, 1997 or the effective date of a
reorganization under Chapter 11 of the Bankruptcy Code. At this time, the
Company has not made a decision to commence such a case under the Bankruptcy
Code. The Company has classified the $82.6 million outstanding under its
Revolving Credit Facility as a current liability in the accompanying condensed
consolidated balance sheet. The financial covenants contained in the Restated
Credit Agreement are based upon the activities of the consolidated operating
subsidiaries (JPS Converter & Industrial Corp. and JPS Elastomerics Corp.)
rather than the consolidated Company (i.e. excludes the assets and liabilities
of the parent company and other non-operating subsidiaries). The Restated Credit
Agreement does not permit additional borrowings by the Borrowing Subsidiaries
for, among other things, loans or dividends to the Company for the payment of
interest on its notes and debentures. As a result of the aforementioned
restriction on the use of proceeds of revolving loans, the Company did not make
scheduled November 15, 1996 interest payments of approximately $1.9 million on
its subordinated debentures and did not make scheduled December 1, 1996 interest
payments of approximately $5.4 million on its senior subordinated discount notes
and approximately $3.6 million on its senior subordinated notes. The failure to
make these scheduled interest payments constitutes an event of default under the
indentures governing these debt securities. As a result, the holders of these
debt securities are entitled to accelerate the debt represented thereby.
Accordingly, these debt obligations are classified as current liabilities in the
accompanying condensed consolidated balance sheets. The Company does not have
the ability to repay such indebtedness if the same were to be accelerated.
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 of its
debt obligations. 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 advisors to the
holders of the Company's debt securities in connection with such a financial
restructuring. Thereafter, at the further request of such holders, the Company
engaged Fried, Frank, Harris, Shriver & Jacobson, effective October 30, 1996 to
act as attorneys to the holders of the Company's debt securities in connection
with such a financial restructuring. The Company has provided substantial
information to these advisors on a confidential basis regarding the Company's
business, strategies, plans and prospects. The Company is discussing the terms
of a potential financial restructuring with the financial advisors and the
holders of a substantial majority of its outstanding bonds. The Company's
ability to accomplish a restructuring of the terms of its debt securities or any
refinancing thereof will depend on a number of factors, including its operating
performance, market conditions and the ability of the Company and its
bondholders to come to an agreement as to the appropriate terms of any such
restructuring. Although no agreement, formal or informal, has been reached
between the Company and its bondholders regarding the terms of a potential
financial restructuring, management is optimistic that a restructuring will be
accomplished. Management is unable to predict the impact of any such
restructuring on the accompanying condensed consolidated financial statements.
If the Company is not successful in this regard, the default on the Company's
debt securities and its inability to service such debt as required raise
substantial doubt about the Company's ability to continue as a going concern.
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JPS TEXTILE GROUP, INC.
PART II - OTHER INFORMATION
Item
1. Legal Proceedings None
2. Changes in Securities None
3. Defaults Upon Senior Securities
(a) The Company did not make scheduled interest payments of approximately
$1.9 million on its subordinated debentures due November 15, 1996 and
did not make scheduled interest payments of approximately $5.4 million
and $3.6 million on its senior subordinated discount notes and senior
subordinated notes, respectively, due December 1, 1996. The aggregate
principal amount of such indebtedness is approximately $240.1 million.
The terms of the indentures governing the Company's subordinated debt
provide that such a failure to pay interest when due results in an
event of default on such indebtedness and as a result, the holders of
these debt securities are entitled to accelerate the debt represented
thereby. The Company has engaged financial advisors regarding
extension, replacement or refinancing of its debt securities.
(b) Dividends on the Company's senior preferred stock are cumulative and
calculated based on an annual rate of 6% of the liquidation preference
and are paid quarterly. Under the terms of various credit agreements,
dividends must be in the form of additional shares until 1998. The
Company did not declare and accordingly has not distributed the
scheduled November 15, 1996 and February 15, 1997 senior preferred
stock dividends of 8,079 shares and 8,203 shares, respectively.
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) Ninth amendment to the Fourth Amended & Restated Credit
Agreement, dated as of February 21, 1997, by and among the
Company, JPS Elastomerics Corp., JPS Converter & 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
(b) Current Reports on Form 8-K:
Report on Form 8-K dated December 15, 1996, containing disclosure of
the Company's default on the indentures governing its subordinated
debentures, senior subordinated discount notes and senior subordinated
notes due to the Company's failure to make scheduled interest payments
on November 15, 1996 and December 1, 1996.
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: March 18, 1997 /s/ David H. Taylor
-------------------
David H. Taylor
Executive Vice President - Finance,
Secretary and Chief Financial Officer
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