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 May 2, 1998
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: 10,000,000 shares of the
Company's Common Stock were outstanding as of May 29, 1998.
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JPS TEXTILE GROUP, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION Number
Item 1. Condensed Consolidated Balance Sheets
May 2, 1998 (Unaudited) and November 1, 1997................................. 3
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended May 2, 1998 (Reorganized Company)
and May 3, 1997 (Predecessor Company) (Unaudited)............................ 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended May 2, 1998 (Reorganized Company) and
May 3, 1997 (Predecessor Company) (Unaudited)................................ 5
Notes to Condensed Consolidated Financial Statements (Unaudited)................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................... 11
PART II. OTHER INFORMATION ............................................................... 17
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Item 1. Financial Statements
JPS TEXTILE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
May 2, November 1,
1998 1997
-------- -----------
(Unaudited)
ASSETS
Current assets:
Cash $ 1,604 $ 3,888
Accounts receivable 67,721 79,569
Inventories (Note 2) 51,486 44,770
Prepaid expenses and other (Note 4) 37,613 37,085
-------- -----------
Total current assets 158,424 165,312
Property, plant and equipment, net 111,853 104,554
Reorganization value in excess of amounts
allocable to identifiable assets 44,563 45,690
Other assets 5,709 6,825
-------- -----------
Total assets $320,549 $ 322,381
======== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 24,708 $ 24,353
Accrued interest 1,382 421
Accrued salaries, benefits and withholdings 9,585 9,148
Other accrued expenses 11,706 13,182
Current portion of long-term debt (Notes 3 and 4) 35,569 36,076
-------- -----------
Total current liabilities 82,950 83,180
Long-term debt (Note 3) 88,843 94,891
Other long-term liabilities 18,147 18,263
-------- -----------
Total liabilities 189,940 196,334
-------- -----------
Shareholders' equity:
Common stock 100 100
Additional paid-in capital 123,230 123,230
Retained earnings 7,279 2,717
-------- -----------
Total shareholders' equity 130,609 126,047
-------- -----------
Total liabilities and shareholders' equity $320,549 $ 322,381
======== ===========
Note: The condensed consolidated balance sheet at November 1, 1997 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 Share and Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
Reorganized | Predecessor Reorganized | Predecessor
Company | Company Company | Company
------------ | ----------- ------------ | -----------
May 2, | May 3, May 2, | May 3,
1998 | 1997 1998 | 1997
------------ | ----------- ------------ | -----------
| |
Net sales $ 101,348 | $ 108,137 $ 202,148 | $ 205,303
Cost of sales 84,521 | 93,037 169,935 | 177,970
------------ | ----------- ------------ | -----------
Gross profit 16,827 | 15,100 32,213 | 27,333
| |
Selling, general and administrative | |
expenses 9,987 | 10,293 20,496 | 19,607
Other income (expense), net 35 | (377) 59 | (383)
------------ | ----------- ------------ | -----------
| |
Operating profit 6,875 | 4,430 11,776 | 7,343
Valuation allowance on Gulistan | |
securities -- | (789) -- | (2,088)
Interest income 239 | 734 564 | 1,471
Interest expense (2,094) | (10,049) (4,378) | (20,223)
Reorganization fees and expenses -- | (1,982) -- | (3,144)
------------ | ----------- ------------ | -----------
| |
Income (loss) before income taxes 5,020 | (7,656) 7,962 | (16,641)
Provision for income taxes 2,150 | 252 3,400 | 409
------------ | ----------- ------------ | -----------
Net income (loss) 2,870 | (7,908) 4,562 | (17,050)
| |
Senior redeemable preferred | |
stock-in-kind dividends and | |
discount accretion -- | 1,277 -- | 2,542
------------ | ----------- ------------ | -----------
| |
Income (loss) applicable to common | |
stock $ 2,870 | $ (9,185) $ 4,562 | $ (19,592)
============ | =========== ============ | ===========
| |
Earnings (loss) per share (Note 5): | |
Basic $ 0.29 | $ (9.19) $ 0.46 | $ (19.59)
Diluted 0.29 | (9.19) 0.46 | (19.59)
| |
Number of shares used in per share | |
calculation: | |
Basic 10,000,000 | 1,000,000 10,000,000 | 1,000,000
Diluted 10,014,407 | 1,000,000 10,007,204 | 1,000,000
See notes to condensed consolidated financial statements.
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JPS TEXTILE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
----------------
Reorganized | Predecessor
Company | Company
----------- | ------------
May 2, | May 3,
1998 | 1997
----------- | ------------
|
CASH FLOWS FROM OPERATING ACTIVITIES |
Net income (loss) $ 4,562 | $ (17,050)
----------- | ------------
Adjustments to reconcile net income (loss) to net cash provided by |
operating activities: |
Depreciation and amortization, except amounts included |
in interest expense 5,830 | 9,578
Interest accretion and debt issuance cost amortization 169 | 4,919
Valuation allowance on Gulistan securities -- | 2,088
Other, net (1,384) | 959
Changes in assets and liabilities: |
Accounts receivable 11,848 | 2,982
Inventories (6,716) | 2,426
Prepaid expenses and other assets 2,022 | (1,764)
Accounts payable 355 | (1,279)
Accrued expenses and other liabilities (268) | 9,632
----------- | ------------
Total adjustments 11,856 | 29,541
----------- | ------------
Net cash provided by operating activities 16,418 | 12,491
----------- | ------------
|
CASH FLOWS USED IN INVESTING ACTIVITIES |
Property and equipment additions (12,002) | (4,702)
----------- | ------------
|
CASH FLOWS FROM FINANCING ACTIVITIES |
Financing costs incurred (146) | (100)
Revolving credit facility repayments, net (5,677) | (6,456)
Repayment of other long-term debt (877) | (1,409)
----------- | ------------
Net cash used in financing activities (6,700) | (7,965)
----------- | ------------
|
Net decrease in cash (2,284) | (176)
Cash at beginning of period 3,888 | 1,460
----------- | ------------
|
Cash at end of period $ 1,604 | $ 1,284
=========== | ============
|
Supplemental cash flow information: |
Interest paid $ 3,248 | $ 4,008
Income taxes paid 609 | 226
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
Unless the context otherwise requires, the terms "JPS" and the
"Company" as used in these consolidated financial statements mean
JPS Textile Group and JPS Textile Group, Inc. together with its
subsidiaries, respectively.
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 May 2, 1998 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 1, 1997. The results of operations for the interim period are
not necessarily indicative of the operating results for the full year.
As discussed in Note 1 of the Notes to Consolidated Financial
Statements in the Company's Annual Report on Form 10-K for the fiscal
year ended November 1, 1997, on August 1, 1997, JPS (but no subsidiary
of JPS) commenced a voluntary reorganization case under chapter 11,
title 11 of the United States Code (the "Bankruptcy Code") in the
Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Court") and filed a Joint Plan of Reorganization proposed by JPS and
its wholly-owned subsidiary, JPS Capital Corp. ("JPS Capital"). The
Plan of Reorganization was previously accepted, pursuant to a
prepetition solicitation of votes, by holders of more than 99% of the
public debt securities that voted thereon and holders of 100% of the
Series A Senior Preferred Stock that voted thereon (the holders of
JPS's public debt securities and Series A Senior Preferred Stock being
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, the only holders entitled to vote on the
Plan of Reorganization). The Plan of Reorganization was confirmed by
the Bankruptcy Court on September 9, 1997 and became effective on
October 9, 1997 (the "Effective Date"), resulting in, among other
things, the cancellation of JPS's Series A Senior Preferred Stock,
Series B Junior Preferred Stock, class A common stock and class B
common stock, and the issuance by JPS of 10,000,000 shares of common
stock, $.01 par value per share (the "Common Stock"). Through the
implementation of the Plan of Reorganization, (a) JPS's public debt
securities, having a face amount of approximately $241.1 million, were
converted into $14 million of cash, 99.25% of the Common Stock issued
by JPS on the Effective Date, and $34 million in aggregate principal
amount (subject to adjustment on the maturity date) of contingent
payment notes of JPS Capital, (b) JPS issued, in respect of its Series
A Senior Preferred Stock, warrants to purchase up to 5% of the Common
Stock, (c) the obligations of JPS under its former working capital
facility were satisfied and a new revolving credit
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agreement was obtained, and (d) JPS's senior management received
approximately 0.75% of the Common Stock issued by JPS on the Effective
Date.
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 period 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 condensed
consolidated financial statements and notes thereto to distinguish
between the Reorganized Company and Predecessor Company balances.
In the three months and six months ended May 3, 1997, the Company
incurred professional fees and expenses of approximately $2.0 and $3.1
million, respectively, in connection with the Plan of Reorganization.
Such amounts are classified in the accompanying condensed consolidated
statements of operations as "reorganization fees and expenses."
2. Inventories (in thousands):
May 2, November 1,
1998 1997
---------- -----------
Raw materials and supplies $ 13,029 $ 12,508
Work-in-process 17,134 17,168
Finished goods 21,323 15,094
---------- -----------
Total $ 51,486 $ 44,770
========== ===========
3. Long-Term Debt (in thousands):
May 2, November 1,
1998 1997
---------- -----------
Senior credit facility, revolving line of credit $ 86,568 $ 92,246
Contingent notes (see Note 4) 34,540 34,540
Equipment financing 3,304 4,181
---------- -----------
Total 124,412 130,967
Less current portion 35,569 36,076
---------- -----------
Long-term portion $ 88,843 $ 94,891
========== ===========
4. 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. Based on
warranties that were issued on the roofs, the Company estimates that
substantially all the defective roofing product claims will be resolved
by the year 2000. The liability for such defective products was
approximately $3.4 million at May 2, 1998 and $3.8 million at November
1, 1997. The Company
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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 May 2, 1998, the Company had net operating loss carryforwards for
regular federal income tax purposes of approximately $25 million
(subject to adjustment by the Internal Revenue Service). The net
operating loss carryforwards expire in years 2004 through 2011. The
Company also has federal alternative minimum tax net operating loss
carryforwards of approximately $20 million (subject to adjustment)
which expire in 2005 through 2012. Alternative minimum tax credits of
approximately $1.8 million can be carried forward indefinitely and used
as a credit against regular federal taxes, subject to limitation. The
Company utilized approximately $3 million of net operating loss
carryforwards for regular federal income tax purposes during the
six-month period ended May 2, 1998. The Company's 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 Plan of 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 of approximately $28 million has been provided.
On the Effective Date, under the terms of the Plan of Reorganization,
JPS Capital, JPS and First Trust National Association, as trustee,
entered into an indenture, dated as of the Effective Date, pursuant to
which JPS Capital issued contingent notes in an initial principal
amount of approximately $34 million, subject to adjustment as set forth
below. The contingent notes are unsecured obligations of JPS Capital
and are contingent as to timing and amount.
The timing and amount of payments due pursuant to the contingent notes
will depend upon the amount of cash on hand at JPS Capital at maturity,
which in turn will depend on the ultimate resolution of certain
possible contingent tax liabilities of the Company. JPS Capital was
established in 1994 at the time of the Company's sale of its automotive
assets. During fiscal year 1994, the Company utilized approximately
$141 million of tax net operating loss carryforwards to offset the gain
recognized on such sale. Although the Company believes that the use of
such carryforwards to offset such gain more likely than not will be
sustained under existing tax laws, uncertainty existed at the time of
such sale and continues to exist. Therefore, the Company set aside in
JPS Capital a portion of the net proceeds from such sale to satisfy, if
necessary, these possible contingent tax liabilities. Such amounts were
invested in United States Treasury Securities and subsequently
reinvested in United States Treasury Securities and corporate
obligations by JPS Capital. As of the Effective Date, JPS Capital held
funds of approximately $34 million. Pursuant to the Plan of
Reorganization, JPS Capital will continue to hold those funds on behalf
of the JPS tax affiliates, and following the final resolution of such
possible contingent tax liabilities, provide to them from such funds
the amounts with which they will satisfy their finally determined
liabilities.
In the event the aggregate funds held by JPS Capital are less than $34
million following the date on which the possible contingent tax
liability in respect of the Company's 1994 fiscal year is finally
resolved, and to the extent of any such liability, satisfied, the
aggregate principal amount of the contingent notes will be reduced to
equal the aggregate funds held by JPS Capital. The contingent notes
will mature and be payable on the forty-fifth day following the date on
which the possible contingent tax liability in respect of fiscal year
1994 is finally resolved, and to the extent of any such
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liability satisfied. No interest is payable on the contingent notes
prior to maturity. However, on the maturity date thereof, as provided
above, interest will be payable on the contingent notes to the extent
the aggregate funds held by JPS Capital on such date exceeds $34
million. If, on such date, the aggregate principal amount, reduced as
provided above, is zero or less, the contingent notes will be deemed
automatically canceled and no longer an obligation of JPS Capital.
5. Earnings Per Share
Effective November 2, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" which
requires the presentation of basic and diluted earnings per share, as
defined. Basic earnings per share for the three months and six months
ended May 2, 1998 and May 3, 1997, was computed by dividing net income
by the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share includes the effect of
dilutive stock options. The presentation of earnings per share for all
periods presented has been restated to conform to SFAS No. 128.
A reconciliation of the income available to common shareholders and the
number of common shares outstanding, is as follows:
Three Months Ended Six Months Ended
-------------------------------- ------------------------------
Reorganized | Predecessor Reorganized | Predecessor
Company | Company Company | Company
------------- | ------------- ------------- | -----------
May 2, | May 3, May 2, | May 3,
1998 | 1997 1998 | 1997
------------- | ------------- ------------- | -----------
| |
Income available to common shareholders: | |
Net income (loss) used for | |
both basic and dilutive | |
earnings per share | |
(in thousands) $ 2,870 | $ (9,185) $ 4,562 | $ (19,592)
============= | ============= ============= | ===========
| |
Common shares outstanding: | |
Denominator for basic | |
earnings per share - | |
weighted average shares 10,000,000 | 1,000,000 10,000,000 | 1,000,000
Effect of dilutive stock options 14,407 | -- 7,204 | --
------------- | ------------- ------------- | -----------
| |
Denominator for diluted | |
earnings per share - adjusted | |
weighted average shares and | |
assumed conversion 10,014,407 | 1,000,000 10,007,204 | 1,000,000
============= | ============= ============= | ===========
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6. 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 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. 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. 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 in
fiscal 1999.
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. SFAS
No. 132 is effective for the Company in fiscal 1999.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The financial statements for the period subsequent to the Effective Date (three
months and six months ended May 2, 1998) were prepared under the principles of
fresh-start reporting for companies emerging from chapter 11 reorganization and
are not comparable to prior periods. The Company believes that the most
meaningful comparison is made using the pro forma financial information, and
therefore, this discussion addresses such pro forma information. The unaudited
pro forma financial information for the three months and six months ended May 3,
1997 gives effect to the Plan of Reorganization as if the transactions had
occurred on November 3, 1996 and was derived by adjusting the historical
consolidated financial statements of the Company for the effects of fresh-start
accounting. Such adjustments primarily relate to decreased depreciation expense
resulting from revaluation of the Company's fixed assets, decreased interest
expense resulting from extinguishment of certain 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 November 3, 1996 and are not intended to be predictive of the
results of operations of the Company for any future period.
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
1, 1997.
Three Months Ended Six Months Ended
--------------------------- ---------------------------
Reorganized Predecessor Reorganized Predecessor
Company Company Company Company
May 2, May 3, May 2, May 3,
1998 1997 1998 1997
----------- ----------- ----------- -----------
(Pro Forma) (Pro Forma)
Net sales:
Apparel fabrics and products $ 43,706 $ 47,559 $ 96,297 $ 94,877
Industrial fabrics and products 49,521 49,973 91,518 90,749
Home fashion textiles 8,121 10,605 14,333 19,677
----------- ----------- ----------- -----------
Net sales $ 101,348 $ 108,137 $ 202,148 $ 205,303
=========== =========== =========== ===========
Operating profit:
Apparel fabrics and products $ 3,180 $ 2,887 $ 6,545 $ 4,977
Industrial fabrics and products 4,883 4,137 7,923 7,457
Home fashion textiles 206 920 113 1,919
Indirect corporate expenses, net (1,394) (1,393) (2,805) (2,893)
----------- ----------- ----------- -----------
Operating profit 6,875 6,551 11,776 11,460
Interest income 239 297 564 591
Interest expense (2,094) (2,163) (4,378) (4,461)
----------- ----------- ----------- -----------
Income before income taxes $ 5,020 $ 4,685 $ 7,962 $ 7,590
=========== =========== =========== ===========
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RESULTS OF OPERATIONS
Three Months Ended May 2, 1998 (the "1998 Second Quarter") Compared to the (Pro
Forma) Three Months Ended May 3, 1997 (the "1997 Second Quarter")
Consolidated net sales decreased $6.8 million or 6.3% from $108.1 million in the
1997 second quarter to $101.3 million in the 1998 second quarter. Operating
profit increased $0.3 million to $6.9 million in the 1998 second quarter from a
pro forma operating profit of $6.6 million in the 1997 second quarter.
Net sales in the apparel fabrics and products segment, which includes unfinished
woven apparel fabrics (greige goods) and yarn primarily for women's wear
decreased $3.9 million or 8.2% from $47.6 million in the 1997 second quarter to
$43.7 million in the 1998 second quarter. This decrease is primarily
attributable to the continued rise in imported apparel products in garment form
which has diminished the market for domestically-produced apparel fabric. As a
result, domestic competition has intensified placing additional pressure on
selling prices, particularly on acetate-rich fabrics. The Company has partially
offset this decline by successfully developing and marketing certain other
higher-styled apparel fabrics. Management expects market conditions to remain
difficult through the remainder of 1998 and will continue its strategy of
innovative product development, quality and efficiency improvement, and
exploration of new markets.
Operating profit in the 1998 second quarter for the apparel fabrics and products
segment increased by $0.3 million to $3.2 million from pro forma operating
profit of $2.9 million in the 1997 second quarter. This increase is attributable
to a more profitable product mix and certain improvements in manufacturing
efficiencies and productivity resulting from the Company's capital spending
plan. The Company expects to realize further improvements in its cost structure
as a result of the capital spending plan.
Net sales in the industrial fabrics and products segment, which includes
single-ply roofing and environmental membrane, woven fabrics constructed of
cotton, synthetics and fiberglass for lamination, insulation and filtration
applications and extruded urethane products, decreased $0.5 million or 1.0% from
$50.0 million in the 1997 second quarter to $49.5 million in the 1998 second
quarter. Sales of fiberglass fabrics increased slightly by $0.1 million from
$20.7 million in the 1997 second quarter to $20.8 million in the 1998 second
quarter. Global consumer demand for electronic products has not kept pace with
expectations and, combined with other factors, including the weakness in the
Asian economies, has led to a slowdown in demand for fiberglass fabrics used in
the manufacture of electrical circuit boards. Major computer manufacturers and
their suppliers have cut production to manage inventories. Management expects
that demand for its fiberglass products will recover and continue to grow in the
future, but such resumed growth will depend, to some extent, on the timing of a
recovery of growth in global consumer demand for electronic products. The
Company has expanded and enhanced its productive capacity and expects to
continue to invest in additional machinery and equipment. Sales of roofing
membrane decreased $0.7 million or 5.1% from $13.6 million in the 1997 second
quarter to $12.9 million in the 1998 second quarter. The Company's "Hi-Tuff/EP"
line of roofing products has enjoyed success in recent years as a result of the
membrane's competitive price and outstanding performance characteristics. The
Company expects its roofing sales to recover and continue to grow as the Company
capitalizes on the market enthusiasm for its line of roofing products. Sales of
urethane products in the 1998 second quarter decreased $0.5 million or 7.5% from
$6.7 million in the 1997 second quarter to $6.2 million in the 1998 second
quarter because of a decline in demand for certain of the Company's products
used in the manufacture of athletic footwear. The athletic footwear industry has
recently experienced a decline in unit demand resulting from, among other
things, the shifting consumer preferences in casual footwear. Sales of liner
products increased $0.6 million or 67.0% from $0.9 million in the 1997 second
quarter to $1.5 million in the 1998 second quarter primarily due to an increase
in demand for environmental liners. Sales of cotton industrial fabrics increased
$0.5 million or 5.7% from $8.8 million in the 1997 second quarter to $9.3
million in the 1998 second quarter due to an improvement in market conditions in
this business and an improved product mix.
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Operating profit in the 1998 second quarter for the industrial fabrics and
products segment increased $0.8 million to $4.9 million from pro forma operating
profit of $4.1 million in the 1997 second quarter primarily as a result of
changes in the product mix and improvements in manufacturing efficiencies and
productivity related to the Company's capital spending plan.
Net sales in the home fashion textiles segment, which includes woven drapery
fabrics and yarns for the home furnishings industry, decreased $2.5 million or
23.6% from $10.6 million in the 1997 second quarter to $8.1 million in the 1998
second quarter due to a soft home furnishings market for the Company's fabrics
in the 1998 second quarter compared to a stronger market in the 1997 second
quarter.
Operating profit in the 1998 second quarter for the home fashion textiles
segment decreased to $0.2 million from a pro forma operating profit of $0.9
million in the 1997 second quarter principally due to the decrease in sales
volume and a generally weaker product mix.
Indirect corporate expenses remained constant at $1.4 million in the 1998 second
quarter compared to the 1997 second quarter (pro forma).
Reorganization-related fees and expenses incurred in the 1997 second quarter
totaled $2.0 million and represented fees and expenses of the Company's
financial advisor, legal counsel and other professionals associated with the
Company's financial restructuring and the financial advisor and legal counsel
for the holders of a substantial majority of the Company's old outstanding
bonds. Such fees and expenses have been excluded from the pro forma financial
statements.
In the 1997 second quarter, the Company held debt and equity securities of
Gulistan Holdings, Inc. As a result of net losses incurred by Gulistan, the
Company recorded a valuation allowance against its investment in the securities
with a corresponding charge to income of $0.8 million. These securities were
sold in August 1997 for $2 million. Accordingly, the charge of $0.8 million has
been excluded from the 1997 second quarter pro forma financial information.
Interest income and expense in the 1998 second quarter are consistent with the
1997 second quarter pro forma amounts.
Six Months Ended May 2, 1998 (the "1998 Six-Month Period") Compared to the (Pro
Forma) Six Months Ended May 3, 1997 (the "1997 Six-Month Period")
Consolidated net sales decreased $3.2 million or 1.6% from $205.3 million in the
1997 six-month period to $202.1 million in the 1998 six-month period. Operating
profit increased $0.3 million to $11.8 million in the 1998 six-month period from
$11.5 million in the 1997 six-month period.
Net sales in the apparel fabrics and products segment increased $1.4 million or
1.5% from $94.9 million in the 1997 six-month period to $96.3 million in the
1998 six-month period. This increase is attributable to a higher level of demand
for certain of the Company's apparel fabrics in the first quarter of fiscal 1998
resulting from the exit of certain domestic competitors. In addition, the
Company utilized certain productive capacity for apparel products in the 1998
six-month period that was utilized for home fashion fabrics in the 1997
six-month period. As imports of apparel products in garment form increased
during the 1998 six-month period and competitive pressures intensified, the
demand for domestically-produced apparel fabric diminished in the 1998 six-month
period.
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Operating profit in the 1998 six-month period for the apparel fabrics and
products segment increased by $1.5 million to $6.5 million from pro forma
operating profit of $5.0 million in the 1997 six-month period. This increase is
attributable to the increase in sales volume, a more profitable product mix and
improvements in manufacturing efficiencies and productivity resulting from the
Company's capital spending plan.
Net sales in the industrial fabrics and products segment increased $0.8 million
or 0.9% from $90.7 million in the 1997 six-month period to $91.5 million in the
1998 six-month period. Sales of fiberglass fabrics increased $1.0 million or
2.7% from $37.1 million in the 1997 six-month period to $38.1 million in the
1998 six-month period as a result of increased sales of fiberglass fabrics used
in the manufacture of electrical circuit boards. Although demand for these
fabrics has recently declined as a result of weak Asian economies and lower
production of electronic products, the Company expects this demand to improve.
Sales of roofing membrane decreased $1.4 million or 5.4% from $25.8 million in
the 1997 six-month period to $24.4 million in the 1998 six-month period because
of the unusually adverse weather conditions throughout much of the United
States. Sales of urethane products in the 1998 six-month period decreased $0.6
million or 4.8% from the 1997 six-month period because of the decline in demand
for certain of the Company's products used in the manufacture of athletic
footwear. Sales of cotton industrial fabrics in the 1998 six-month period
increased $2.4 million or 15.3% from the 1997 six-month period due to improved
unit volumes and selling prices. Sales of liner products in the 1998 six-month
period increased $0.3 million from the 1997 six-month period primarily as a
result of higher sales of environmental liners.
Operating profit in the 1998 six-month period for the industrial fabrics and
products segment increased $0.4 million to $7.9 million from pro forma operating
profit of $7.5 million in the 1997 six-month period primarily as a result of a
change in the product mix and improvements in manufacturing efficiencies and
productivity related to the Company's capital spending plan.
Net sales in the home fashion textiles segment decreased $5.4 million or 27.4%
from $19.7 million in the 1997 six-month period to $14.3 million in the 1998
six-month period due to a soft home furnishings market in the 1998 six-month
period compared to an extremely strong market in the 1997 six-month period.
Operating profit in the 1998 six-month period for the home fashion textiles
segment decreased to $0.1 million from pro forma operating profit of $1.9
million in the 1997 six-month period principally due to the decrease in sales
volume and a generally weaker product mix.
Indirect corporate expenses decreased $0.1 million from $2.9 million (pro forma)
in the 1997 six-month period to $2.8 million in the 1998 six-month period
principally due to slightly lower insurance costs.
Reorganization-related fees and expenses incurred in the 1997 six-month period
totaled $3.1 million and represented fees and expenses of the Company's
financial advisor, legal counsel and other professionals associated with the
Company's financial restructuring and the financial advisor and legal counsel
for the holders of a substantial majority of the Company's old outstanding
bonds. Such fees and expenses have been excluded from the pro forma financial
statements.
In the 1997 six-month period, the Company held debt and equity securities of
Gulistan Holdings, Inc. As a result of net losses incurred by Gulistan, the
Company recorded a valuation allowance against its investment in the securities
with a corresponding charge to income of $2.1 million. These securities were
sold in August 1997 for $2 million. Accordingly, the charge of $2.1 million has
been excluded from the 1997 six-month period pro forma financial information.
Interest income and expense in the 1998 six-month period are consistent with the
1997 six-month period pro forma amounts.
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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). JPS Elastomerics Corp. and JPS Converter and Industrial
Corp., each a wholly-owned subsidiary of JPS (collectively, the "Borrowing
Subsidiaries"), and JPS have entered into the Credit Facility Agreement, dated
as of October 9, 1997 (the "Credit Agreement"), with 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 ($55,000,000 (subject to reduction)) based on
fixed assets of the Borrowing Subsidiaries, except that (i) neither 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 maturity date of the
Revolving Credit Facility is October 9, 2002. All loans outstanding under the
Revolving Credit Facility 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 consolidated leverage ratio (which margin will not exceed .25% for
Base Rate borrowings and 1.75% for Eurodollar Rate borrowings). The Company pays
(i) a fee on the average unused commitments under the Revolving Credit Facility
of .25% per annum (if a specified leverage ratio is maintained) and (ii) 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. At May 2, 1998, the Company had approximately $46.7 million
available for borrowing under the Revolving Credit Facility.
During the six months ended May 2, 1998, cash provided by operating activities
was $16.4 million. Working capital decreased from $82.1 million at November 1,
1997 to $75.5 million at May 2, 1998. Cash decreased by $2.3 million from
November 1, 1997 to May 2, 1998 due principally to the timing of customer
receipts and the purchase of capital equipment in the six months ended May 2,
1998. Accounts receivable decreased by $11.8 million from November 1, 1997 to
May 2, 1998 due to seasonally lower sales in April 1998 compared to October
1997. Inventories increased by $6.7 million, primarily in finished goods, during
the six months ended May 2, 1998 as a result of the lower sales volume in that
period. Accrued interest increased $1.0 million from November 1, 1997 to May 2,
1998 due to the timing of interest payments on the Company's revolving credit
facility and the accrual of interest on the contingent notes. Other accrued
expenses decreased $1.5 million during the 1998 six-month period due to the
payment of certain accrued restructuring fees and expenses.
The principal uses of cash in the 1998 six-month period were property, plant and
equipment expenditures of $12.0 million for upgrade and capacity improvements of
the Company's manufacturing operations and repayment of debt of $6.7 million. As
of May 2, 1998, the Company had commitments of $6.6 million for capital
expenditures. The Company anticipates making capital expenditures in fiscal 1998
of approximately $25 million.
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.
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The Company, like most other manufacturing companies, utilizes a number of
computer software programs and systems throughout its organization. To the
extent the Company's software applications contain source code that is unable to
appropriately interpret the upcoming Year 2000, some level of modification or
replacement of such applications will be necessary.
The Company is in the process of completing its Year 2000 assessment and
remediation efforts. The Company expects that the primary costs will be
associated with remediation and testing of its internal systems and that a major
portion of these costs will be met from existing resources through
reprioritization of technology development initiatives. In addition, the
assessment of the readiness of external entities with which the Company
interfaces, such as vendors, customers and others is ongoing. The Company has
been and continues to be engaged in a number of projects to upgrade its computer
information systems which will, among other things, be Year 2000 compliant. The
Company believes that it is taking all appropriate steps to assure Year 2000
compliance, but is dependent on vendor compliance to some extent. The Company
requires its systems and software vendors to represent that their products are,
or will be, Year 2000 compliant. The Company does not anticipate that Year 2000
issues will have a material impact on its business, financial condition or
results of operations.
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JPS TEXTILE GROUP, INC.
PART II - OTHER INFORMATION
Item
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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:
(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: 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: 6/15/98 /s/ David H. Taylor
----------------------------- ------------------------------
David H. Taylor
Executive Vice President - Finance,
Secretary and Chief Financial Officer
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