ITEM 1. BUSINESS
JPS Textile Group, Inc. is a Delaware corporation incorporated in December 1986, with its principal executive offices located at 555 North Pleasantburg Drive, Suite 202, Greenville, South Carolina 29607; telephone number (864) 239-3900. Unless the context otherwise requires, the terms "JPS" and the "Company" as used in this Form 10-K means JPS Textile Group, Inc. and JPS Textile Group, Inc. together with its subsidiaries, respectively.
THE 1988 ACQUISITION
On May 9, 1988, the Company acquired substantially all the assets of certain operating divisions of J.P. Stevens & Co., Inc. ("J.P. Stevens") in exchange for approximately $527 million in cash and reorganized the newly acquired divisions into wholly-owned subsidiaries. At that time, JPS raised $100 million by issuing certain public debt and equity securities in order to partially finance the acquisition. In June 1989, JPS raised $323.6 million by issuing certain public debt and equity securities to refinance certain outstanding notes and a portion of the indebtedness incurred in connection with the acquisition. Due to prevailing market conditions, the securities were priced for sale at higher rates than JPS anticipated would be necessary at the time of the acquisition. As a result of the high interest rates and a weak business environment for certain of its subsidiaries, JPS realized lower than expected operating earnings and cash flow which, in turn, materially impaired its ability to service its outstanding debt and fund capital expenditures.
THE 1991 RESTRUCTURING
In 1990, JPS negotiated the terms of a recapitalization proposal with a steering committee comprised of institutional holders of a substantial amount of the then-outstanding securities, which culminated in JPS's prepetition solicitation of votes to accept or reject a plan of reorganization under chapter 11, title 11 of the United States Code (the "Bankruptcy Code"). The plan was overwhelmingly accepted. On February 7, 1991, JPS filed a petition for relief under the Bankruptcy Code, and approximately 42 days thereafter, JPS's plan was confirmed by the bankruptcy court and JPS emerged from chapter 11 on April 2, 1991. Pursuant to that plan, in exchange for JPS's outstanding debt securities and JPS's equity securities, JPS issued (i) $100 million in principal amount of senior secured notes due June 1, 1995 and June 1, 1996 (all of which were redeemed in 1994), (ii) $151.1 million in principal amount of 10.85% Senior Subordinated Discount Notes due June 1, 1999 (the "10.85% Notes"), (iii) $125 million in principal amount of 10.25% Senior Subordinated Notes due June 1, 1999 (the "10.25% Notes"), (iv) $75 million in principal amount of 7% Subordinated Debentures due May 15, 2000 (the "7% Subordinated Debentures"), (v) 390,719 shares of Series A Senior Preferred Stock (the "Old Senior Preferred Stock"), (vi) 10,000 shares of Series B Junior Preferred Stock (the "Old Junior Preferred Stock"), (vii) 490,000 shares of class A common stock, par value $0.01 per share (the "Class A Common Stock") and (viii) 510,000 shares of class B common stock, par value $0.01 per share (the "Class B Common Stock" and, together with the Class A Common Stock, the "Old Common Stock"). The 1991 restructuring did not significantly reduce the amount of JPS's outstanding indebtedness.
DISPOSITIONS OF ASSETS; PLANT CLOSING
Subsequent to the 1991 restructuring, JPS adopted and implemented various strategies aimed at improving and realizing value in its operating subsidiaries. These strategies included, among other things, the exit, through asset sales or otherwise, of certain product lines.
The Automotive Asset Sale. On June 28, 1994, the Company sold the businesses and assets of JPS Auto, Inc. ("Auto") and the synthetic industrial fabrics division of JPS Converter and Industrial Corp. ("C&I") and JPS's investment in common stock of the managing general partner of Cramerton Automotive Products, L.P. (an 80% owned joint venture) for approximately $283 million.
The Carpet Asset Sale. On November 16, 1995, JPS and JPS Carpet Corp. ("Carpet") transferred substantially all the assets of Carpet used in the business of designing and manufacturing tufted carpets for sale to residential, commercial and hospitality markets (the "Carpet Business") to Gulistan Holdings Inc. ("Gulistan Holdings") and Gulistan Carpet Inc., a wholly-owned subsidiary of Gulistan Holdings Inc. ("Gulistan Carpet" and, together with Gulistan Holdings, "Gulistan"), for approximately $19 million in cash, a promissory note due November 2001 issued by Gulistan Holdings in the original principal amount of $10 million and payable to the order of Carpet, $5 million of preferred stock of Gulistan Holdings, and warrants to purchase 25% of the common stock of Gulistan Holdings (collectively, the "Gulistan Securities"). On August 28, 1997, the Company sold the Gulistan Securities to Gulistan for $2 million in cash.
Plant Closing. On August 28, 1996, the Company implemented a plan to close its Dunean plant in Greenville, South Carolina, as a result of management's determination that a permanent decline in the Company's spun apparel business had occurred. This plant had been operating on a reduced schedule due to poor market conditions and financial projections indicated it would continue to do so. This plant was closed on October 28, 1996 and sold on August 14, 1997 for approximately $1.2 million in cash.
The Rubber Products Group Sale. On September 30, 1996, JPS Elastomerics Corp. ("Elastomerics") sold substantially all the assets of the Company's rubber products division, a business engaged in the manufacture and sale of natural and synthetic elastic for use in apparel products, diaper products and specialty industrial applications to Elastomer Technologies Group, Inc. for approximately $5.1 million in cash.
THE 1997 RESTRUCTURING
As a result of the continued downturn in the apparel fabrics market and various other factors, JPS determined that it would be unable to meet certain debt obligations on its public bonds that would become due commencing in June, 1997. Accordingly, on May 15, 1997, JPS, JPS Capital Corp., a wholly owned subsidiary of JPS ("JPS Capital") and an unofficial committee (the "Unofficial Bondholder Committee") comprised of institutions that owned, or represented owners that beneficially owned, approximately 60% of the 10.85% Notes, the 10.25% Notes and the 7% Subordinated Debentures (the "Old Debt Securities") reached an agreement in principle on the terms of a restructuring to be accomplished under chapter 11 of the Bankruptcy Code which culminated in a Joint Plan of Reorganization (as amended, the "Plan of Reorganization") proposed by JPS and JPS Capital under chapter 11 of the Bankruptcy Code. Pursuant to a disclosure statement, dated June 25, 1997 (the "Disclosure Statement"), on June 26, 1997, JPS and JPS Capital commenced a prepetition solicitation of votes by the holders of Old Debt Securities and Old Senior Preferred Stock to accept or reject the Plan of Reorganization. Under the Plan of Reorganization, the holders of Old Debt Securities and Old Senior Preferred Stock were the only holders of impaired claims and impaired equity interests entitled to receive a distribution, and therefore, pursuant to section 1126 of the Bankruptcy Code, were the only holders entitled to vote on the Plan of Reorganization. At the conclusion of the 32-day solicitation period, the Plan of Reorganization had been accepted by holders of more than 99% of the Old Debt Securities that voted on the Plan of Reorganization and by holders of 100% of the Old Senior Preferred Stock that voted on the Plan of Reorganization.
On August 1, 1997, JPS commenced its voluntary reorganization case under chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"), and filed the Plan of Reorganization and the Disclosure Statement. None of JPS's subsidiaries, including JPS Capital which was a co-proponent of the Plan of Reorganization, commenced a case under the Bankruptcy Code. Pursuant to orders of the Bankruptcy Court entered on September 9, 1997, the Bankruptcy Court (i) approved the Disclosure Statement and the solicitation of votes on the Plan of Reorganization and (ii) confirmed the Plan of Reorganization. The Plan of Reorganization became effective on October 9, 1997 (the "Effective Date") resulting in, among other things, the cancellation of the Old Senior Preferred Stock, Old Junior Preferred Stock, and Old Common Stock, and the issuance of 10,000,000 shares of common stock, $.01 par value per share (the "Common Stock").
Through the implementation of the Plan of Reorganization as of the Effective Date, JPS's most significant financial obligations were restructured: $240,091,318 in face amount of outstanding Old Debt Securities were converted to, among other things, $14 million in cash, 99.25% of the shares of Common Stock and $34 million in aggregate principal amount (subject to adjustment on the maturity date) of contingent payment notes issued by JPS Capital (the "Contingent Notes"); the Old Senior Preferred Stock, the Old Junior Preferred Stock and the Old Common Stock were cancelled; warrants to purchase up to 5% of the common stock of JPS (the "New Warrants") with an initial purchase price of $98.76 per share were issued in respect of the Old Senior Preferred Stock; and the obligations of JPS under its former working capital facility were satisfied and the Revolving Credit Facility was obtained. JPS's senior management received approximately 0.75% of the Common Stock in lieu of payment under their contractual retention bonus agreements. As a result of the restructuring, JPS's only significant debt obligation is its guaranty of the obligations of its operating subsidiaries under the Revolving Credit Facility.
GENERAL
The Company is one of the largest domestic manufacturers of textile and textile-related products for the apparel, industrial and home fashion markets. The Company conducts its operations from ten manufacturing plants in five states and employs approximately 3,700 people.
APPAREL FABRICS AND PRODUCTS
The Company is a leading manufacturer of greige goods (unfinished woven fabrics) and yarn. The Company's products are used in the manufacture of a broad range of consumer apparel products including blouses, dresses, sportswear and undergarments.
Greige Goods. The Company produces fabrics from spun and filament yarns that are used ultimately in the manufacture of apparel such as blouses, dresses and sportswear. Greige goods are produced from rayon, acetate, polyester and cotton yarns, and are primarily sold to other textile manufacturers for use in producing printed and dyed fabrics.
Yarn. The Company produces a variety of rayon and polyester spun yarns for its own use and for sale to manufacturers of knitted apparel.
INDUSTRIAL FABRICS AND PRODUCTS
Commercial Roofing Products. The Company is a well-established manufacturer of single-ply membrane roofs that are made from woven synthetic fabrics and rubber-based or polypropylene specialty polymer compounds which are sold principally to roofing distributors for use in both the new and replacement commercial markets.
Other Building Construction Products. The Company is a producer of fabrics made from glass and synthetic fibers that are used in a number of applications in the building construction industry. Products include various scrims used for wallboard tapes and certain roofing applications, and reinforcement substrates used for the installation of internal and external tiles and synthetic wall surfaces. The Company produces and sells membrane products (similar to commercial roofing products) for use in environmental containment applications such as reservoir liners and covers.
Other Industrial Products. The Company produces a wide variety of other industrial textile products that are used in various industries for many different end uses. Many of these products have characteristics that provide insulation or filtration properties. These specialty fabrics are used in the manufacture of such products as flame-retardant clothing, filtration products, tarpaulins, awnings, athletic tapes, printed circuit boards and advanced composites. In addition, the Company produces urethane products for use in the manufacture of various products such as athletic shoes, "bulletproof" glass, disposable intravenous bags, seamless welded drive belts and tubing.
HOME FASHION TEXTILES
The Company produces a variety of unfinished woven fabrics and yarns for use in the manufacture of draperies, curtains and lampshades and is a major producer of solution-dyed drapery fabrics.
SUBSIDIARIES
JPS's wholly-owned operating subsidiaries include Elastomerics and C&I. JPS's other wholly-owned subsidiaries do not have any significant operations: JPS Capital, International Fabrics, Inc. ("Fabrics"), Auto and Carpet. The operating subsidiaries each have independent administrative, manufacturing, and marketing capabilities for all material aspects of their operations, including product design, customer service, purchasing, and collections. JPS provides all finance and strategic planning services and handles the legal, tax, and regulatory affairs for its subsidiaries. JPS Capital was formed in 1994 as a special purpose subsidiary to hold (and invest) $39.5 million, representing a portion of the proceeds received from the sale of the assets of JPS's automotive division in June 1994, including the assets of Auto. These funds were set aside to satisfy possible contingent tax liabilities incurred in connection with that sale, and will serve as the primary source of payment of any such liabilities. Prior to the Effective Date, the funds held by JPS Capital aggregated approximately $48 million, of which $14 million was distributed on the Effective Date pursuant to the Plan of Reorganization to holders of certain issues of Old Debt Securities on the Effective Date. The funds held by JPS Capital currently aggregate approximately $34 million. In connection with the implementation of the Plan of Reorganization, approximately $34 million in aggregate principal amount (subject to adjustment on the maturity date thereof) of Contingent Notes were issued by JPS Capital on the Effective Date to holders of certain issues of Old Debt Securities.
Auto and Carpet formerly owned and operated JPS's automotive products and carpet businesses, respectively. The assets of those businesses were sold in 1994 and 1995, respectively. See "--Disposition of Assets; Plant Closing."
In addition to its direct ownership interest in the foregoing domestic corporations, JPS has an indirect ownership interest in a foreign corporation. Specifically, in 1996, JPS's wholly-owned subsidiary, Fabrics, acquired a 50% ownership interest in the Mexican corporation, Ingenieria Textil Mexicana, S.A. de C.V. ("ITM"), which is engaged in the manufacture and sale of textile products for the apparel industry in Mexico.
MANUFACTURING
The Company's experienced workforce and wide variety of yarn making, fabric forming and other manufacturing equipment allow the Company to rapidly and efficiently change its product mix to meet style and seasonal requirements. The Company's activities generally encompass all phases of manufacturing its products.
In the manufacture of woven textile products, the Company purchases synthetic and natural fibers and spins them into yarn or purchases filament yarn for processing. In addition, the Company purchases certain spun yarns. Yarns are then coated, sized or directly woven into unfinished fabric. Upon completion of the weaving process, fabric is generally shipped to customers who dye, finish, coat and cut those fabrics for resale.
Single-ply membrane roofing is made by processing a Company-manufactured woven substrate with specialty polymers. Other industrial fabric products are produced from either woven fiberglass or cotton and synthetic fibers, which fibers are processed into yarn, woven and finished into fabrics by the Company. Other specialty industrial products are produced by extrusion of urethane resins.
The Company has an aggressive capital spending plan to expand capacity in certain segments and improve productivity in other segments, as described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7 herein. The Company believes that its manufacturing facilities and capital spending plan are sufficient for its production requirements.
RAW MATERIALS
The Company maintains good relationships with its suppliers and has, where possible, diversified its supplier base so as to avoid a disruption of supply. In most cases, the Company's raw materials are staple goods that are readily available from numerous domestic fiber and chemical manufacturers. For several products, however, branded goods or other circumstances prevent such a diversification, and an interruption of the supply of these raw materials could have a significant negative impact on the Company's ability to produce certain products. The Company believes that its practice of purchasing such items from large, stable companies minimizes the risk of such an interruption in supply.
MARKETING AND COMPETITION
The textile industry is highly competitive and includes a number of participants with aggregate sales and financial resources greater than the Company's. The Company generally competes on the basis of price, quality, design and customer service. Many companies compete in limited segments of the textile market. In recent years, a large and growing percentage of domestic consumer apparel demand has been met by foreign competitors whose products, both fabrics and garments, are imported into the United States. The Company is well-positioned due to its ability to respond quickly to changing styling and fashion trends. This ability generally provides advantages for domestic textile manufacturers. Although no single company dominates the industry, most market segments are dominated by a small number of competitors. The Company believes it has a significant market share in the market for rayon and acetate apparel fabrics, rayon yarn, solution-dyed satin fabrics and quartz fabrics.
The Company's marketing efforts include the development of new product designs and styles which meet customer needs. The Company's operating units have been established suppliers to each of its markets for many years and are taking advantage of well-established customer relationships to increase product development with its customers. The "J.P. Stevens" trade name, which the Company has a non-exclusive, royalty-free license to use (see "--Patents, Licenses and Trademarks" below), is widely recognized throughout the textile industry. The Company believes that its relatively broad base of manufacturing operations provides
it with a competitive advantage in developing new textile products. In addition to its direct marketing capabilities, the Company markets certain of its products through distributors.
The following is a discussion of marketing and competitive factors as they relate to each of the Company's segments.
Apparel Fabrics and Products
Greige Goods. The Company markets its spun and filament fabrics to converters who finish and/or dye these products prior to shipping to finished apparel manufacturers. The Company has sought to maintain a relatively high proportion of such sales in product areas where its manufacturing flexibility can provide a competitive advantage.
Yarn. The Company competes with a large number of companies which sell yarn to woven and knit goods manufacturers. Yarns are generally sold on a direct basis, and the Company believes that quality and price are the primary competitive factors.
Industrial Fabrics and Products
Construction Products. The Company markets its single-ply roofing products on a direct basis to roofing distributors. The Company competes with manufacturers of this and other types of roofing products. The Company believes that its product's ease of installation and warranty are important competitive factors.
Other Products. Other industrial fabrics and products are marketed directly to other manufacturers and distributors. The Company believes that price and its ability to meet customer technical specifications are important competitive factors.
Home Fashion Textiles
The Company's home fashion operations compete with a large number of manufacturers of similar woven fabric products. In general, product markets are differentiated on the basis of price and quality. The Company believes that design and style features are important competitive factors.
CUSTOMERS
No customer accounts for more than 10% of the Company's sales. However, the loss of certain customers could have a material adverse effect on sales.
PRODUCT DEVELOPMENT
In general, the textile industry expends its efforts on design innovation and capital expenditures for process enhancements rather than on basic research, relying on fiber suppliers or machinery manufacturers for basic research.
The Company's research and development activities are directed toward the development of new fabrics and styles which meet specific styling requirements (in the case of apparel and home furnishing fabrics and products) or other specific properties such as insulation, weight, strength, filtration or laminate adherence (in the case of industrial fabrics and products). Significant time is spent by employees in activities such as meeting
with stylists, designers, customers, suppliers and machinery manufacturers, as well as producing samples and running trials in order to develop new products and markets. These activities are performed at various levels and at various locations, and their specifically identifiable incremental costs are not material in relation to the Company's total operating costs.
BACKLOG
Unfilled open orders, which the Company believes are firm, were $73.3 million at November 1, 1997 and $52.6 million at November 2, 1996. The Company generally fills its open orders in the following fiscal year and the Company expects that all of the open orders as of November 1, 1997 will be filled in the 52-week period ending October 31, 1998 ("Fiscal 1998"). Unfilled open orders, which the Company believes are firm, were approximately $62.9 million at December 31, 1997 compared to $60.8 million at December 31, 1996. The increase in open orders at December 31, 1997 as compared to December 31, 1996 is primarily due to an increase in customer demand for apparel fabrics and products and is representative of a change in the timing of the acceptance of certain orders by the Company. The Company believes that the amount of backlog provides some indication of the sales volume that can be expected in coming months, although changes in economic conditions may result in deferral or acceleration of orders which may affect sales volume for a period.
No significant portion of the Company's business is subject to renegotiation of profits, or termination of contracts or subcontracts at the election of the government.
PATENTS, LICENSES AND TRADEMARKS
Certain of the Company's products are sold under registered trademarks which have been licensed royalty-free to the Company from J.P. Stevens until May 2013, including trademarks for certain products using the "J.P. Stevens" name. Patented processes used in the manufacturing process are not a significant part of the Company's business. The Company does not license its name or products to others except for the licenses of certain trade names granted royalty free to operations that the Company has sold.
EMPLOYEES
The Company currently has approximately 3,700 employees of which approximately 3,200 are hourly and approximately 500 are salaried. The Company's employees are not represented by unions. The Company believes its relations with its employees to be good and has not had any work stoppages or strikes.
ENVIRONMENTAL AND REGULATORY MATTERS
The Company is subject to various federal, state and local government laws and regulations concerning, among other things, the discharge, storage, handling and disposal of a variety of hazardous and non-hazardous substances and wastes. The Company's plants generate small quantities of hazardous waste that are either recycled or disposed of off-site by or at licensed disposal or treatment facilities.
The Company believes that it is in substantial compliance with all existing environmental laws and regulations to which it is subject. In addition, the Company is subject to liability under environmental laws relating to the past release or disposal of hazardous materials. To date, and in management's belief for the foreseeable future, liability under and compliance with existing environmental laws has not had and will not have a material adverse effect on the Company's financial or competitive positions. No representation or assurance can be made, however, that any change in federal, state or local requirements or the discovery of unknown problems or conditions will not require substantial expenditures by the Company.
SEASONALITY
Certain portions of the business of the Company are seasonal (principally construction products) and sales of these products tend to decline during winter months in correlation with construction activity. These declines have historically tended to result in lower sales and operating profits in the first and second quarters than in the third and fourth quarters of the Company's fiscal year.
WORKING CAPITAL
Information regarding the Company's working capital position and practices is set forth in Item 7 of this Form 10-K under the caption "Liquidity and Capital Resources."
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in this Item 1 "BUSINESS" and Item 7 "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" that are not historical facts are forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. The Company cautions readers of this Annual Report on Form 10-K that a number of important factors could cause the Company's actual results in Fiscal 1998 and beyond to differ materially from those expressed in any such forward-looking statements. These factors include, without limitation, the general economic and business conditions affecting the textile industry, the Company's ability to meet its debt service obligations, competition from a variety of large textile mills and foreign textile manufacturers which export to the U.S., the seasonality of the Company's sales, the volatility of the Company's raw materials cost, and the Company's dependence on key personnel.
ITEM 2.
ITEM 2. PROPERTIES.
The following table sets forth certain information relating to the Company's principal facilities (segment information relates to principal use). All of the facilities owned or leased by the Company are used for manufacturing, except for the facility in New York, New York, which is used for sales offices. Except as noted, all of the Company's facilities are owned in fee and substantially all owned facilities are pledged as collateral for the Company's bank financing arrangement.
(1) The New York, NY facility is leased by the Company under a lease agreement which expires on May 30, 1999.
The Company also leases certain other warehouse facilities, various regional sales offices, a subsidiary's corporate office and its corporate headquarters. The Company believes that all of its facilities are suitable and adequate for the current and anticipated conduct of its operations.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various legal proceedings which are routine litigations incidental to the conduct of its business or the conclusion of JPS's chapter 11 case. Management believes that none of this litigation, if determined unfavorably to the Company, would have a material adverse effect on the financial condition or results of operations of the Company. No proceeding was terminated in the fourth quarter of Fiscal 1997 that had a material adverse effect on the financial condition or results of operations of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
No matters were submitted to a vote of securityholders during the fourth quarter of Fiscal 1997.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
To date, there has been only sporadic trading of the Common Stock in the over-the-counter market. Based upon limited information available, the Company believes that over-the-counter trades of Common Stock have been in the range of $10.50 to $14.50 per share. The Common Stock of the Company has been approved for listing and trading on the Nasdaq National Market System effective January 30, 1998.
As of January 7, 1998, there were approximately 11 holders of record of the Company's Common Stock.
The Company presently intends to retain earnings to fund working capital and for general corporate purposes, and, therefore, does not intend to pay cash dividends on shares of the Common Stock in the foreseeable future. The payment of future cash dividends, if any, would be made only from assets legally available therefor, and would also depend on the Company's financial condition, results of operations, current and anticipated capital requirements, restrictions under then existing indebtedness (including, without limitation, indebtedness evidenced by the Revolving Credit Facility (as defined below) and refundings and refinancings thereof) and other factors deemed relevant by JPS's Board of Directors.
The Company's ability to pay cash dividends is dependent on its earnings and cash flow. The subsidiaries that are borrowers under certain credit agreements are restricted from paying cash dividends to JPS with respect to their capital stock unless, among other things, JPS and its subsidiaries satisfy certain specified financial tests.
On October 9, 1997 (the Effective Date of the Plan of Reorganization proposed by JPS and JPS Capital and confirmed by order of the Bankruptcy Court entered on September 9, 1997), 10,000,000 shares of Common Stock, par value of $.01 per share, of JPS and warrants to purchase up to 526,316 shares of common stock of JPS at an initial purchase price of $98.76 per share were issued by JPS and distributed pursuant to the Plan of Reorganization.
ITEM 6.
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA. (Dollars in Thousands Except Per Share Data)
The following table presents selected consolidated historical financial data for the Company as of the dates and for the fiscal years indicated. The selected historical financial data for each of the five years ended November 2, 1996, the period from November 3, 1996 to October 9, 1997 and the period from October 10, 1997 to November 1, 1997 has been derived from the Consolidated Financial Statements of the Company for such periods, which have been audited. The presentation of certain previously reported amounts has been reclassified to conform to the current presentation and to reflect discontinued operations of the automotive assets (sold in 1994) and the Carpet Business (sold on November 16, 1995) as discussed in Note 5 to the Consolidated Financial Statements of the Company at Item 8 in this Form 10-K. The financial statements for the period from October 10, 1997 to November 1, 1997 reflect the Company's emergence from chapter 11 and were prepared utilizing the principles of fresh start accounting contained in the American Institute of Certified Public Accountants' Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code". As a result of the implementation of fresh start accounting, certain of the selected financial data for the period from October 10, 1997 to November 1, 1997 is not comparable to the selected financial data of prior periods. Therefore, selected financial data for the "Reorganized Company" has been separately identified from that of the "Predecessor Company". The selected unaudited pro forma financial data for the fiscal year ended November 1, 1997 gives effect to the Plan of Reorganization and adoption of fresh start reporting as if they had occurred on November 3, 1996. 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 transaction been consummated on the date indicated and is not intended to be predictive of the results of operations of the Company for any future period. The following information should be read in conjunction with the Consolidated Financial Statements of the Company and Notes thereto, and "Management's Discussion and Analysis of Financial Conditions and Results of Operations" presented elsewhere herein.
(1) Share and per share data are not meaningful on or prior to October 9, 1997 due to the significant change in the capital structure in connection with the Plan of Reorganization.
(2) All of the Company's senior credit facility revolving line of credit and all of the Company's subordinated notes and debentures are classified as current liabilities as of November 2, 1996.
(3) The following non-cash charges have been included in the determination of income (loss) before reorganization items, income taxes, discontinued operations, extraordinary items and cumulative effects of accounting changes for the periods shown above:
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
On October 9, 1997, JPS consummated a Plan of Reorganization as discussed in Item 1 herein under the caption "The 1997 Restructuring". The following discussion should be read in conjunction with Item 1 and with the Consolidated Financial Statements of the Company and the Notes thereto included in Item 8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
JPS Textile Group, Inc.:
We have audited the accompanying consolidated balance sheets of JPS Textile Group, Inc. and subsidiaries (the "Company") as of November 1, 1997 (Reorganized Company consolidated balance sheet) and November 2, 1996 (Predecessor Company consolidated balance sheet), and the related consolidated statements of operations and shareholders' equity and of cash flows for the period from October 10, 1997 to November 1, 1997 (Reorganized Company consolidated operations), and the consolidated statements of operations, senior redeemable preferred stock and shareholders' equity (deficit) and of cash flows for the period from November 3, 1996 to October 9, 1997 and each of the two years in the period ended November 2, 1996 (Predecessor Company consolidated operations). Our audits also included the financial statement schedule listed in the index at page S-1. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, on September 9, 1997, the Bankruptcy Court entered an order confirming the plan of reorganization which became effective after the close of business on October 9, 1997. The accompanying consolidated financial statements as of November 1, 1997 and for the period from October 10, 1997 to November 1, 1997 have been prepared in conformity with AICPA Statement of Position 90-7, "Financial Reporting for Entities in Reorganization Under the Bankruptcy Code". Accordingly, the Reorganized Company is a new entity with assets, liabilities, and a capital structure having carrying values not comparable with prior periods as described in Note 1.
In our opinion, the Reorganized Company consolidated financial statements present fairly, in all material respects, the financial position of the Company at November 1, 1997, and the results of its operations and its cash flows for the period from October 10, 1997 to November 1, 1997 in conformity with generally accepted accounting principles. Further, in our opinion, the Predecessor Company consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Predecessor Company as of November 2, 1996 and the results of its operations and its cash flows for the period from November 3, 1996 to October 9, 1997 and each of the two years in the period ended November 2, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Greenville, South Carolina December 18, 1997
JPS TEXTILE GROUP, INC.
CONSOLIDATED BALANCE SHEETS (In Thousands)
See notes to consolidated financial statements.
JPS TEXTILE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands Except Per Share Data)
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(A) Share and per share data are not meaningful on or prior to October 9, 1997 due to the significant change in the capital structure in connection with the Plan of Reorganization.
See notes to consolidated financial statements.
JPS TEXTILE GROUP, INC.
CONSOLIDATED STATEMENTS OF SENIOR REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (DEFICIT) (In Thousands)
See notes to consolidated financial statements.
JPS TEXTILE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
See notes to consolidated financial statements.
JPS TEXTILE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND BASIS OF PRESENTATION
Unless the context otherwise requires, the terms "JPS" and the "Company" as used in these Consolidated Financial Statements mean JPS Textile Group, Inc. and JPS Textile Group, Inc. together with its subsidiaries, respectively.
The 1988 Acquisition - JPS purchased from J.P. Stevens & Co., Inc. ("J.P. Stevens") substantially all of the property, plant and equipment, inventories, certain other assets and the business of five former divisions of J.P. Stevens (the "Predecessor Stevens Divisions") on May 9, 1988 (the "Acquisition"). The purchase was financed through long-term borrowings and the sale of preferred and common stock. The Company operates principally as a manufacturer of apparel fabrics and products, industrial fabrics and products and home fashion textiles. These products are sold primarily to the domestic clothing manufacturing and construction industries. As described in Notes 5 and 6, certain of the acquired businesses and operations have been subsequently sold.
The 1991 Restructuring - In 1990, JPS negotiated the terms of a recapitalization proposal with a steering committee comprised of institutional holders of a substantial amount of the then-outstanding securities, which culminated in JPS's prepetition solicitation of votes to accept or reject a chapter 11 plan of reorganization. The plan was overwhelmingly accepted. On February 7, 1991, JPS filed a petition for relief under the Bankruptcy Code, and approximately 42 days thereafter, JPS's plan was confirmed by the bankruptcy court and JPS emerged from chapter 11 on April 2, 1991. Pursuant to that plan, in exchange for JPS's outstanding debt securities and JPS's equity securities, JPS issued (i) $100 million in principal amount of senior secured notes due June 1, 1995 and June 1, 1996 (all of which were redeemed in 1994), (ii) $151.1 million in principal amount of 10.85% Senior Subordinated Discount Notes due June 1, 1999 (the "10.85% Notes"), (iii) $125 million in principal amount of 10.25% Senior Subordinated Notes due June 1, 1999 (the "10.25% Notes"), (iv) $75 million in principal amount of 7% Subordinated Debentures due May 15, 2000 (the "7% Subordinated Debentures"), (v) 390,719 shares of Series A Senior Preferred Stock (the "Old Senior Preferred Stock"), (vi) 10,000 shares of Series B Junior Preferred Stock (the "Old Junior Preferred Stock"), (vii) 490,000 shares of class A common stock, par value $0.01 per share (the "Class A Common Stock") and (viii) 510,000 shares of class B common stock, par value $0.01 per share (the "Class B Common Stock" and, together with the Class A Common Stock, the "Old Common Stock"). Since this reorganization did not meet the criteria for "fresh-start" accounting, the primary adjustment to historical carrying values as a result of the reorganization was to state the new long-term debt and senior redeemable preferred stock at present values of amounts to be paid determined at appropriate current interest rates as of April 2, 1991, the effective date of the plan. The resulting present value discount was amortized as interest expense or dividends over the life of the related debt or senior redeemable preferred stock instrument using the interest method.
The 1997 Restructuring - In 1996, JPS, and JPS Capital Corp., a wholly-owned subsidiary of JPS ("JPS Capital") commenced negotiations with an unofficial committee (the "Unofficial Bondholder Committee") comprised of institutions that owned, or represented holders that beneficially owned, approximately 60% of the 10.85% Notes, the 10.25% Notes and the 7% Subordinated Debentures (the "Old Debt Securities"). On May 15, 1997, the parties reached an agreement in principle on the terms of a restructuring to be accomplished under chapter 11 of the Bankruptcy Code which culminated in
a Joint Plan of Reorganization (as amended the "Plan of Reorganization") proposed by JPS and JPS Capital under the Bankruptcy Code. Pursuant to a disclosure statement, dated June 25, 1997 (the "Disclosure Statement"), on June 26, 1997, JPS and JPS Capital commenced a prepetition solicitation of votes by the holders of Old Debt Securities and Old Senior Preferred Stock to accept or reject the Plan of Reorganization. Under the Plan of Reorganization, the holders of Old Debt Securities and Old Senior Preferred Stock were the only holders of impaired claims and impaired equity interests entitled to receive a distribution, and therefore, pursuant to section 1126 of the Bankruptcy Code, were the only holders entitled to vote on the Plan of Reorganization. At the conclusion of the 32-day solicitation period, the Plan of Reorganization had been accepted by holders of more than 99% of the Old Debt Securities that voted on the Plan of Reorganization and by holders of 100% of the Old Senior Preferred Stock that voted on the Plan of Reorganization.
On August 1, 1997, JPS commenced its voluntary reorganization case under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"), and filed the Plan of Reorganization and the Disclosure Statement. None of JPS's subsidiaries, including JPS Capital which was a co-proponent of the Plan of Reorganization, commenced a case under the Bankruptcy Code. Pursuant to orders of the Bankruptcy Court entered on September 9, 1997, the Bankruptcy Court (i) approved the Disclosure Statement and the solicitation of votes on the Plan of Reorganization and (ii) confirmed the Plan of Reorganization. The Plan of Reorganization became effective on October 9, 1997 (the "Effective Date") resulting in, among other things, the cancellation of the Old Senior Preferred Stock, Old Junior Preferred Stock, and Old Common Stock, and the issuance of 10 million shares of $.01 par value new common stock (the "Common Stock").
Through the implementation of the Plan of Reorganization as of the Effective Date, JPS's most significant financial obligations were restructured: $240,091,318 in face amount of outstanding Old Debt Securities were converted to, among other things, $14 million in cash, 99.25% of the shares of Common Stock and approximately $34 million in aggregate principal amount (subject to adjustment on the maturity date) of contingent payment notes issued by JPS Capital (the "Contingent Notes"); the Old Senior Preferred Stock, the Old Junior Preferred Stock and the Old Common Stock were cancelled; warrants to purchase up to 5% of the common stock of JPS (the "New Warrants") with an initial purchase price of $98.76 per share were issued in respect of the Old Senior Preferred Stock; and the obligations of JPS under its former working capital facility were satisfied and the Revolving Credit Facility was obtained. JPS's senior management received approximately 0.75% of the Common Stock in lieu of payment under their contractual retention bonus agreements.
2. FRESH START REPORTING
The Plan of Reorganization was accounted for pursuant to Statement of Position 90-7 ("SOP 90-7") of the American Institute of Certified Public Accountants, entitled "Financial Reporting by Entities in Reorganization under the Bankruptcy Code." The accompanying consolidated financial statements reflect the use of "fresh start" reporting as required by SOP 90-7, in which assets and liabilities were adjusted to their fair values and resulted in the creation of a new reporting entity (the "Company" or the "Reorganized Company") with no retained earnings or accumulated deficit as of October 9, 1997. Accordingly, the consolidated financial statements for the periods prior to October 9, 1997 (the "Predecessor Company") are not comparable to consolidated financial statements presented subsequent to October 9, 1997. A black line has been drawn on the accompanying consolidated financial statements and notes thereto to distinguish between the Reorganized Company and Predecessor Company balances.
The total reorganization value assigned to the Company's assets was determined, by independent valuation, by calculating projected cash flows before debt service requirements, for a three-year period, plus an estimated terminal value of the Company (calculated using a multiple of projected EBITDA), each discounted back to its present value using a discount rate of 10% (estimating the after-tax weighted average cost of capital). The above calculations resulted in an estimated reorganization value attributable to the common stock of approximately $123.3 million of which the Excess Reorganization Value was approximately $45.9 million. The Excess Reorganization Value will be amortized over twenty years.
As a result of the restructuring and the application of fresh start accounting as required by SOP 90-7, a gain on early extinguishment of debt of approximately $100.2 million and reorganization items of approximately $13.1 million were recorded in the Predecessor Company period ending October 9, 1997.
The effect of the Plan of Reorganization and the implementation of fresh start accounting on the Company's consolidated balance sheet as of October 9, 1997 was as follows (in thousands) (unaudited):
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(a) To record the transactions associated with the Plan of Reorganization as described in Note 1 and eliminate the deficit in retained earnings.
(b) To record the adjustments to assets and liabilities to reflect their estimated fair value, including the establishment of reorganization value in excess of amounts allocable to identifiable assets.
3. PRO FORMA FINANCIAL INFORMATION (Unaudited)
The following unaudited pro forma consolidated statement of operations combines the period from November 3, 1996 to October 9, 1997 and the period from October 10, 1997 to November 1, 1997 and reflects the financial results of the Company as if the Plan of Reorganization had been effective November 3, 1996 (in thousands except share and per share data). The pro forma information does not purport to be indicative of the results that actually would have been obtained had such transactions been completed as of the beginning of the period presented or that may be obtained in the future.
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(a) The following table details the net adjustment to cost of goods sold related to fresh start accounting:
(b) The following table details the net adjustment to selling, general and administrative expenses:
(c) Reflects the elimination of the valuation allowance on Gulistan Securities since these assets were sold in connection with the reorganization.
(d) Reflects the elimination of interest income on the $14 million cash distribution to the holders of 10.25% Notes and 10.85% Notes.
(e) The following table details the net adjustment to interest expense related to the reorganization:
(f) Reflects the elimination of reorganization items.
(g) Reflects the estimated income tax effects reflecting the reorganization and the application of fresh start accounting. Pro forma income tax expense is calculated using a 38% effective tax rate times taxable income before amortization of excess reorganization value. Cash tax expense is calculated after giving effect to certain differences in taxable income for tax purposes including the amortization of excess reorganization value and differences in depreciation expense and pension expense.
(h) Reflects the elimination of the gain on early extinguishment of debt.
4. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include JPS Textile Group, Inc. and its direct subsidiaries, all of which are wholly owned. Significant intercompany transactions and accounts have been eliminated.
Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company's most significant financial statement estimates include the estimate of the allowance for doubtful accounts, reserve for self-insurance liabilities and the reserve for certain defective roofing products sold by the Predecessor Stevens Division operations (discussed in Note 12). Management determines its estimate of the allowance for doubtful accounts considering a number of factors, including historical experience, aging of the accounts and the current creditworthiness of its customers. The Company self-insures, with various insured stop-loss limitations, its workers' compensation, general liability and health claims. Management determines its estimate of the reserve for self-insurance considering a number of factors, including historical experience and third party claims administrator and actuarial assessment of the liabilities for reported claims and claims incurred but not reported. Management believes that its estimates provided in the financial statements, including those for the above-described items, are reasonable and adequate. However, actual results could differ from those estimates.
Inventories - Inventories are stated at the lower of cost or market. Cost, which includes labor, material and factory overhead, is determined on the first-in, first-out basis.
Investments - At November 1, 1997, all debt and equity securities are classified as held-for-sale and reported at fair value as determined based on market prices or dealer quotes. At November 2, 1996, all debt and equity securities were classified as held-to-maturity and carried at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity.
Property, Plant and Equipment - As a result of the adoption of fresh start accounting as described in Note 2, property, plant and equipment was adjusted to estimated fair value as of October 9, 1997 and historical accumulated depreciation was eliminated. Property, plant and equipment is recorded at cost and depreciation is recorded using the straight-line method for financial reporting purposes. The estimated useful lives used in the computation of depreciation are as follows:
Excess of Cost Over Fair Value of Net Assets Acquired - Excess of cost over fair value of net assets acquired was being amortized on a straight-line basis over a period of forty years. As a result of the implementation of fresh start accounting as described in Note 2, the excess of cost over fair value of net assets acquired was written off as of October 9, 1997.
Reorganization Value in Excess of Amounts Allocable to Identifiable Assets - Reorganization value in excess of amounts allocable to identifiable assets results from the application of "fresh start" reporting, as discussed in Note 2, which requires the Predecessor Company's unidentified intangibles, net of amortization, to be reduced to zero and a new amount to be recorded equaling the excess of the fair value of the Company over the fair value allocated to its identifiable assets. This excess is classified as reorganization value in excess of amounts allocable to identifiable assets and is being amortized over a twenty-year period.
Debt Issuance Costs - Costs incurred in securing and issuing long-term debt are deferred and amortized over the terms of the related debt in amounts which approximate the interest method of amortization.
Product Warranties - On certain of its products, the Company provides a warranty against defects in materials and workmanship under separately priced extended warranty contracts generally for a period of ten years. Revenue from such extended warranty contracts is deferred and recognized as income on a straight-line basis over the contract period. The cost of servicing such product warranties is charged to expense as incurred.
Postretirement Benefits - The Company accounts for postretirement benefits other than pensions using the principles of Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". SFAS No. 106 requires that the projected future cost of providing postretirement benefits, such as health care and life insurance, be recognized as an expense as employees render service. See Note 13 for a further description of the accounting for postretirement benefits.
Postemployment Benefits - The Company accounts for postemployment benefits using the principles of SFAS No. 112, "Employers' Accounting for Postemployment Benefits". SFAS No. 112 requires that the cost of benefits provided to former or inactive employees after employment but before retirement be recognized on the accrual basis of accounting. See Note 13 for a further description of the accounting for postemployment benefits.
Revenue Recognition - The Company recognizes revenue from product sales when it has shipped the goods or ownership has been transferred to the customer for goods to be held for future shipment at the customer's request.
Advertising Costs - The Company defers advertising related costs until the advertising is first run in magazines or other publications or in the case of brochures, until the brochures are printed and available for distribution. Advertising costs were approximately $1,355,000 and $1,967,000 in Fiscal 1995 and 1996, respectively, and $1,947,000 and $122,000 in the period from November 3, 1996 to October 9, 1997 and the period from October 10, 1997 to November 1, 1997, respectively.
Income Taxes - The Company accounts for income taxes using the principles of SFAS No. 109, "Accounting for Income Taxes". Under SFAS No. 109, deferred taxes represent the future income tax effect of temporary differences between the book and tax bases of the Company's assets and liabilities, assuming they will be realized and settled at the amount reported in the Company's financial statements.
Earnings Per Share - Earnings per share is computed by dividing earnings applicable to common stock by the weighted average number of shares of common stock outstanding during the period. In the period from October 10, 1997 to November 1, 1997, the inclusion of additional shares assuming the exercise of stock options and warrants was antidilutive. Therefore, primary and fully diluted earnings per share are the same. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128 "Earnings Per Share", which will be effective during Fiscal 1998. The Company does not believe that the adoption of SFAS No. 128 will have a significant effect on its earnings per share disclosure.
Cash Flows - For purposes of reporting cash flows, cash includes cash on hand and in banks. The Company has no investments that are deemed to be cash equivalents.
Fiscal Year - The Company's operations are based on a fifty-two or fifty-three week fiscal year ending on the Saturday closest to October 31. Fiscal 1995 consisted of fifty-two weeks and Fiscal 1996 had fifty-three weeks. The 1997 fiscal year consisted of fifty-two weeks including the period from November 3, 1996 to October 9, 1997 (Predecessor Company) and the period from October 10, 1997 to November 1, 1997 (Reorganized Company).
Reclassifications - Certain Fiscal 1995 and 1996 amounts have been reclassified to conform to the 1997 presentation.
5. SALE OF DISCONTINUED OPERATIONS
Carpet Business - On November 16, 1995, pursuant to the terms of an Asset Transfer Agreement dated as of November 16, 1995, by and among JPS, JPS Carpet Corp. ("Carpet"), a wholly-owned subsidiary of JPS, Gulistan Holdings Inc. and Gulistan Carpet Inc., a wholly-owned subsidiary of Gulistan Holdings Inc. (collectively, "Gulistan"), the Company and Carpet consummated the sale of substantially all of the assets of Carpet used in the business of designing and manufacturing tufted carpets for sale to residential, commercial and hospitality markets (the "Carpet Business"). 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 consideration for the sale of the Carpet Business consisted of approximately $22.5 million in cash, subject to certain post-closing adjustments based on the audited amount of working capital transferred on November 16, 1995, and other debt and equity securities of Gulistan as follows: a $10 million Promissory Note due in November 2001, $5 million of preferred stock redeemable in November 2005, and warrants to purchase 25% of the common stock of Gulistan. Based on an independent valuation at the asset transfer date, the Company determined the fair value of these debt and equity securities to be approximately $11.3 million. These debt and equity securities are included in other non-current assets on the November 2, 1996 Consolidated Balance Sheet. As of October 28, 1995, the Company adjusted the net assets of the Carpet Business to their 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 was not currently recognizable for tax purposes and the Company recorded no net tax benefit as a result of this loss due to uncertainties regarding the ability to utilize these losses in future years. Net sales from the discontinued operations of the Carpet Business were $120.1 million in Fiscal 1995.
In May 1996, the Company and Gulistan agreed on the amount of the post-closing adjustment. As a result, the Company paid a post-closing adjustment of $3.5 million (an estimated post-closing adjustment of $2.0 million was included in the Fiscal 1995 loss on sale of discontinued operations) and recognized in Fiscal 1996 an additional loss of $1.5 million on the sale of discontinued operations. The final amount of net cash proceeds applied by the Company to reduce outstanding borrowings under its senior credit facility was 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).
The Company did not record interest income on any of the Gulistan securities held by the Company because of net losses reported by Gulistan since the date of sale. Also, in accordance with relevant accounting literature, the Company recorded a valuation allowance against its investment in Gulistan securities and corresponding charges to income of approximately $4.2 million in Fiscal 1996 and $2.1 million in the period from November 3, 1996 to October 9, 1997 as a result of the net losses incurred by Gulistan. On August 28, 1997, the Company sold its investment in the Gulistan securities to Gulistan for $2.0 million in cash resulting in an additional charge of approximately $3.0 million.
Automotive Businesses - On June 28, 1994, pursuant to the terms of an Asset Purchase Agreement dated May 25, 1994 (the "Asset Purchase Agreement"), by and among JPS, JPS Auto Inc., a wholly-owned subsidiary of JPS ("Auto"), JPS Converter and Industrial Corp., a wholly-owned subsidiary of JPS ("C&I"), Foamex International Inc. ("Foamex") and JPS Automotive Products Corp., an indirect, wholly-owned subsidiary of Foamex ("Purchaser"), the Company consummated the disposition of its automotive assets to the Purchaser.
The sale price for the automotive assets was approximately $283 million, consisting of $264 million of cash paid at closing and $15 million of assumed debt as of June 28, 1994. In addition, certain post-closing adjustments which resulted in a gain of $4.4 million, net of $0.1 million of taxes, were recognized in Fiscal 1995.
The Company has allocated to the discontinued operations of the automotive assets and the Carpet Business a pro-rata portion of the interest expense of its senior credit facility, which pro-rata portion was approximately $1.6 million in Fiscal 1995.
6. SALE OF CERTAIN OPERATIONS, PLANT CLOSING AND WRITEDOWN OF CERTAIN LONG-LIVED ASSETS
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 $20.7 million and $16.8 million in Fiscal 1995 and 1996 (eleven months), respectively. 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 net proceeds from the sale, after fees and expenses, was approximately $4.8 million
and was used to reduce the Company's outstanding indebtedness. In April 1997, the Company paid $0.3 million to Elastomer as final settlement for certain post-closing adjustments based on the audited amount of net assets transferred.
On August 28, 1996, the Company implemented a plan to close its Dunean plant in Greenville, South Carolina, as a result of management's determination that a permanent decline in the Company's spun apparel business had occurred. This plant had been operating on a reduced schedule due to poor market conditions and financial projections indicated it would continue to do so. As a result of the plant closing, the accompanying Consolidated Statement of Operations includes a "charge for plant closing" of approximately $14.2 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. The plant closing was completed on October 28, 1996 and the plant was sold on August 14, 1997 for approximately $1.2 million in cash.
Also, in connection with the Company's review of present and expected conditions in the markets it serves, management determined that its plant in Kingsport, Tennessee, which manufactures cotton fabrics, was impaired under the criteria of SFAS No. 121 because expected future cash flows from the operation of the plant were less than the carrying value of the plant assets. The accompanying Consolidated Statement of Operations for Fiscal 1996 includes a "writedown of certain long-lived assets" of $8.1 million for the excess of the carrying value of the plant over its estimated fair value. Estimated fair value was determined based on an independent appraisal of the plant's property, plant and equipment.
7. BALANCE SHEET COMPONENTS
The components of certain balance sheet accounts are (in thousands):
8. INVESTMENTS
In connection with the sale of the Automotive Assets in June 1994, the Company invested $39.5 million of the sale proceeds in long-term securities. During 1997, the original investments matured and were reinvested as detailed below. The following table details the original and reinvested amounts at November 2, 1996 and November 1, 1997 (in thousands):
At November 2, 1996, the investments are included in other assets and classified as long-term. At November 1, 1997, the investments are included in other current assets because, as discussed in Note 9, the Company expects to use these investments to satisfy certain contingent liabilities in 1998. All investment securities at November 1, 1997 have a contractual maturity of less than one year.
9. LONG-TERM DEBT
Long-term debt consists of (in thousands):
Senior Credit Facility - Until the Effective Date, JPS and its operating subsidiaries (being hereinafter collectively referred to as the "Borrowing Subsidiaries") were 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. ("Citibank"), as administrative agent and co-agent, and General Electric Capital Corporation ("GECC"), as collateral agent and co-agent. The Restated Credit Agreement provided for a revolving credit loan facility and letters of credit (the "Old Revolving Credit Facility") in a maximum principal amount equal to the lesser of (a) $118 million and (b) a specified borrowing base, which was based upon eligible receivables and inventory of the Borrowing Subsidiaries (the "Borrowing Base"), except that (i) no Borrowing Subsidiary could borrow an amount greater than the Borrowing Base attributable to it, (ii) letters of credit could not exceed $15 million in the aggregate, and (iii) $20 million of the Old Revolving Credit Facility was 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 did not exceed the lesser of (A) $118 million and (B) the sum of the Borrowing Base plus $25 million (subject to certain reductions). Borrowings under the Restated Credit Agreement bore interest at a Base Rate (as defined) plus 1.0% per annum or at the Eurodollar Rate (as defined) plus 2.5% per annum. A fee of 1/2 of 1% per annum was paid on the unused line of credit.
During the first quarter of Fiscal 1995, the Company borrowed $36,607,000 under the Restated Credit Agreement and made open market purchases of certain of its outstanding notes and debentures with an aggregate face value (including interest due at maturity) of $68,318,000 and a carrying value of $59,225,000. The Company recognized an extraordinary gain from early extinguishment of debt of $20,120,000, net of expenses of $1,898,000 and income taxes of $600,000.
On the Effective Date, JPS and the Borrowing Subsidiaries entered into the Credit Facility Agreement, dated as of the Effective Date (the "Credit Agreement"), by and among the financial institutions party thereto, Citibank, as agent, and NationsBank, N.A., as co-agent. The Credit Agreement provides for a revolving credit loan facility and letters of credit (the "Revolving Credit Facility") in a maximum principal amount equal to the lesser of (a) $135 million and (b) a specified borrowing base (the "Borrowing Base"), which is based upon eligible receivables, eligible inventory and a specified dollar amount ($55,000,000 (subject to reduction) based on fixed assets of the Borrowing Subsidiaries), except that (i) no Borrowing Subsidiary may borrow an amount greater than the Borrowing Base attributable to it (less any reserves as specified in the Credit Agreement) and (ii) letters of credit may not exceed $20 million in the aggregate. The maturity date of the Revolving Credit Facility is October 9, 2002. Until delivery of the Company's certificate with respect to its compliance with the terms of the Credit Agreement during the second fiscal quarter of 1998 (the date of such delivery being the "Delivery Date"), all borrowings under the Revolving Credit Facility bear interest at either (i) the Eurodollar Rate (as defined in the Credit Agreement) plus 1.5% per annum or (ii) the Base Rate (as defined in the Credit Agreement) and, thereafter, will bear interest at the Base Rate or the Eurodollar Rate 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 weighted average interest rate at November 1, 1997 is approximately 7.33%. The Company currently pays (i) a fee of .375% per annum on the average unused commitments under the Revolving Credit Facility until the Delivery Date and thereafter such fees will be reduced to .25% per annum if a specified leverage ratio is satisfied and (ii) a letter of credit fee equal to the Applicable Margin for Eurodollar Rate borrowings. As of November 1, 1997, unused and outstanding letters of credit totaled $2,040,000. The outstanding letters of credit reduce the funds available under the Revolving Credit Facility. At November 1, 1997, the Company had $40,714,000 available for borrowing under the Revolving Credit Facility.
The Credit Agreement contains restrictions on investments, acquisitions and dividends unless, among other things, the Company satisfies a specified pro forma fixed charge coverage ratio and maintains a specified minimum availability under the Revolving Credit Facility for a stated period of time, and no default exists under the Credit Agreement. The Credit Agreement also restricts, among other things, indebtedness, liens, affiliate transactions, operating leases, fundamental changes and asset sales other than the sale of up to $35 million of fixed assets, subject to the satisfaction of certain conditions. The Credit Agreement contains financial covenants relating to minimum levels of EBITDA (as defined), minimum interest coverage ratio, minimum fixed charge coverage ratio and maximum capital expenditures. As of November 1, 1997, the Company was in compliance with these restrictions and all financial covenants.
The loans and extensions of credit to the Borrowing Subsidiaries under the Credit Agreement are guaranteed by JPS and its other existing subsidiaries other than JPS Capital, and are secured by the assets of JPS (excluding the stock of JPS Capital) and its existing subsidiaries other than JPS Capital.
10.85% Notes - The Company issued the 10.85% Notes in the 1991 reorganization. The 10.85% Notes began accruing interest on June 1, 1992 at 10.85% with 9.85% paid semi-annually and 1% payable at maturity. Interest payable at maturity compounded semi-annually at the annual rate of 10.85%. In connection with the 1991 reorganization, the carrying value of the 10.85% Notes was reduced to its estimated net present value using an effective interest rate of 13%. As discussed in Note 1, under the terms of the Plan of Reorganization, the discount notes were converted to cash, Common Stock and Contingent Notes as of the Effective Date.
10.25% Notes - The Company issued the 10.25% Notes in the 1991 reorganization. The 10.25% Notes began accruing interest June 1, 1992 at 10.25% with 9.25% paid semi-annually and 1% payable at maturity. Interest payable at maturity compounded semi-annually at the annual rate of 10.25%. In connection with the 1991 reorganization, the notes were adjusted to their estimated net present value by recording a discount resulting in an effective interest rate of 13%. As discussed in Note 1, under the terms of the Plan of Reorganization, the 10.25% Notes were converted to cash, Common Stock and Contingent Notes as of the Effective Date.
7% Subordinated Debentures - In connection with the 1991 reorganization, the debentures were adjusted to an estimated net present value by recording a discount of $24,390,000 resulting in an effective interest rate of 13.5%. The subordinated debentures accrued interest at 7%, payable semi-annually. As discussed in Note 1, under the terms of the Plan of Reorganization, the 7% Subordinated Debentures were converted to Common Stock as of the Effective Date.
Contingent Notes - As discussed in Note 1, on the Effective Date, under the terms of the Plan of Reorganization, JPS Capital, the Company and First Trust National Association, as trustee, entered into an indenture, dated as of the Effective Date (the "Contingent Note Indenture"), pursuant to which JPS Capital issued the Contingent Notes in an initial principal amount of approximately $34 million, subject to adjustment as set forth below. The Contingent Notes are unsecured obligations of JPS Capital and are contingent as to timing and amount of payments.
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, in accordance with provisions of the Old Debt Securities, 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 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 cancelled and no longer an obligation of JPS Capital.
The Contingent Note Indenture prohibits redemption by JPS Capital of any portion of the Contingent Notes prior to maturity other than with funds contributed to it by the Company in the Company's sole discretion. No acceleration of obligations under the Contingent Notes may occur prior to maturity.
Except as specifically provided in the Contingent Note Indenture, neither JPS Capital, JPS, nor the trustee under the Contingent Note Indenture may amend or waive compliance by JPS Capital or reorganized JPS with any provision of the Contingent Notes or the Contingent Note Indenture without the requisite consent of the holders of the Contingent Notes and a final order of the Bankruptcy Court. In addition, prior to maturity, the Restated Certificate of Incorporation of JPS Capital (i) restricts the Company from transferring, pledging or otherwise disposing of any shares of capital stock of JPS Capital, and (ii) prohibits JPS Capital from declaring any dividends, making any distributions to JPS or any other entity, incurring any obligations or liens, or making any transfer or disposition of property not permitted by JPS Capital's Restated Certificate of Incorporation.
Due to the uncertainties in connection with the contingent tax liabilities described above, the Company has not assigned a fair value to the Contingent Notes.
Equipment Financing - The Company has financed a portion of its equipment purchases with loans from a finance company and certain equipment vendors at fixed interest rates ranging from 7.6% to 9.7%. Monthly principal payments are due in various amounts as determined by the terms of the loans which have final maturity dates through December 2001.
Other - Substantially all of the Company's assets are pledged as collateral for the Credit Agreement and the equipment financing.
Interest expense includes $8,818,000 in Fiscal 1995, $10,088,000 in Fiscal 1996, $7,303,000 in the period from November 3, 1996 to October 9, 1997 and $19,000 in the period from October 10, 1997 to November 1, 1997, representing amortization of debt issuance expenses and accretion of interest on the discounted notes and accrued product liability costs (see Note 12).
Maturities - Aggregate principal maturities of all long-term debt are as follows (in thousands):
10. EQUITY SECURITIES AND SENIOR REDEEMABLE PREFERRED STOCK
Through the implementation of the Plan of Reorganization as of the Effective Date, approximately $240 million in face amount of outstanding debt securities were converted to, among other things, $14 million in cash, 9,924,623 shares of Common Stock and approximately $34 million in aggregate principal amount of Contingent Notes. The Old Senior Preferred Stock, Old Junior Preferred Stock and Old Common Stock were cancelled. Warrants to purchase up to 5% of the Common Stock exercisable until October 9, 2000 with an initial purchase price of $98.76 per share were issued in respect of the Old Senior Preferred Stock. Senior management received 75,377 shares of Common Stock on the Effective Date in lieu of payment under their contractual retention bonus arrangements.
Certain information on equity securities and senior redeemable preferred stock at November 2, 1996 and November 1, 1997 is as follows:
(1) The aggregate number of authorized shares of preferred stock is 700,000, including both the senior redeemable preferred stock and the junior preferred stock.
Until the Effective Date, the Old Senior Preferred Stock was redeemable, prior to its maturity date of May 15, 2003, at 103% of the liquidation preference of $100 per share. Dividends were cumulative and calculated based on an annual rate of 6% of the liquidation preference. Under the terms of various credit agreements, dividends had to be in the form of additional shares until 1998. In connection with the 1991 restructuring, the Old Senior Preferred Stock was discounted to its estimated net present value with the net discount of $23,351,000 reflected as an adjustment of additional paid-in capital.
The difference between the net carrying amount of the Old Senior Preferred Stock and its mandatory value was amortized using the interest method of amortization over the life of the shares by charges to additional paid-in capital or, if available, by charges to retained earnings. The unamortized discount was approximately $21,844,000 at November 2, 1996. The Company did not issue first, second or third quarter Fiscal 1997 dividends on its senior redeemable preferred stock. Such cumulative dividends that had not been declared or issued totaled $3,827,000 at October 9, 1997.
1997 Incentive and Capital Accumulation Plan
As of the Effective Date, the Company adopted the 1997 Incentive and Capital Accumulation Plan (the "Incentive Plan") which provides certain key employees and non-employee directors of the Company the right to acquire shares of Common Stock or monetary payments based on the value of such shares. Pursuant to the Incentive Plan, approximately 853,000 shares of Common Stock were reserved for issuance to the participants in the form of stock options, stock appreciation rights, stock awards, performance awards, and stock units that may be granted by the compensation committee comprised of certain members of the Company's Board of Directors. The Incentive Plan will terminate ten years from the date of adoption.
On October 30, 1997, options to acquire approximately 569,000 shares of the shares reserved pursuant to the Incentive Plan were granted to senior management of the Company. These options include a combination of time vesting options which vest solely on the lapse of time and performance options which vest upon achievement of specified corporate performance goals and the lapse of time. These options are according to specific vesting schedules as set forth in individual participant's grant letters. In addition, on the Effective Date, each non-employee director (except one, who waived his right to receive such options) received options to purchase 25,000 shares of Common Stock. These options vest equally in amounts of 5,000 shares per director, on the Effective Date and the first, second, third and fourth anniversaries of the Effective Date.
A summary of the activity in the Company's stock options for the period from the Effective Date to November 1, 1997 is presented below:
The Company applies the principles of APB Opinion 25 in accounting for employee stock option plans. Had compensation cost been determined on the basis of SFAS No. 123, "Accounting for Stock-Based Compensation", compensation expense would have been recorded based on the estimated fair value of stock options granted during the period from the Effective Date to November 1, 1997. The total fair value of stock options granted for the period from October 10, 1997 to November 1, 1997 was estimated at $3,266,000, based upon the Black-Scholes option pricing model. The following weighted-average assumptions were used in the Black-Scholes option pricing model for stock options granted during the period from the Effective Date to November 1, 1997 (i) risk-free interest rates of approximately 5.7%, (ii) a weighted average expected life of approximately 4.4 years from the grant date, and (iii) 38% volatility. The expected life of the stock options granted and the stock price
volatility during the expected life of the options were estimated based upon historical information from public textile companies and management's expectations. Had compensation cost for the Company's stock option plans been determined based on the estimated fair value at the grant dates for awards under those plans consistent with the method of SFAS 123, the Company's income and earnings per share would have been decreased by approximately $70,000 and $0.01 respectively, for the period from October 10, 1997 to November 1, 1997.
11. INCOME TAXES
The provision (benefit) for income taxes on continuing operations included in the consolidated statements of operations consists of the following (in thousands):
There is no current provision for Federal income taxes.
A reconciliation between income taxes at the 35% statutory Federal income tax rate and the provision (benefit) for income taxes for the fiscal years ended 1995 and 1996, the period from November 3, 1996 to October 9, 1997 and the period from October 10, 1997 to November 1, 1997 is as follows (in thousands):
Presented below are the elements which comprise deferred tax assets and liabilities (in thousands):
The Company recorded a tax benefit for the period ending October 9, 1997 of approximately $8.8 million. This consists of a benefit from the implementation of the Plan of Reorganization net of state taxes on subsidiary operations that could not be offset by operating loss carryovers or current year losses of JPS or its subsidiaries. The benefit arose as consummation of the Plan of Reorganization substantially deleveraged JPS. The deferred tax asset attributable to the net operating loss carryforwards was reduced as a result of the reduction in net operating loss carryforwards that is required for reorganizations such as that provided in the Plan of Reorganization, and the reserve established against the deferred tax assets that was required due to the operating history was also significantly reduced. The reduction in reserves and reduction in deferred tax liabilities during the period ended October 9, 1997 results in a deferred tax benefit of $9.7 million. The recording of the tax benefit and the net deferred tax asset reflects the Company's determination that it is more likely
than not that these deferred tax assets, net of the valuation allowance, will be realized based on current income tax laws and expectations of future taxable income stemming from operations or the reversal of deferred tax liabilities. Uncertainties surrounding income tax law changes, shifts in operations between state taxing jurisdictions and future operating income levels may, however, affect the ultimate realization of all or some portion of these deferred income tax assets.
At November 1, 1997, the Company had regular federal net operating loss carryforwards for tax purposes of approximately $28 million. 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 $22 million which expire in 2005 through 2012. Alternative minimum tax credits can be carried forward indefinitely and used as a credit against regular federal taxes, subject to limitation. During 1997, the Company reduced net operating loss carryforwards by approximately $60 million due to the provisions of the Code requiring attribute reduction in certain reorganizations, such as the Plan of Reorganization. The Company was also required to reduce alternative minimum tax credit carryforwards by approximately $737,000 as a result of these provisions. The Company utilized approximately $2 million of net operating losses during the period from October 10, 1997 to November 1, 1997.
The Company's future ability to utilize its net operating loss carryforwards is limited under the income tax laws as a result of the change in the ownership of the Company's stock occurring as a part of the reorganization. The effect of such an ownership change is to limit the annual utilization of the net operating loss carryforwards to an amount equal to the value of the Company immediately after the time of the change (subject to certain adjustments) multiplied by the Federal long-term tax exempt rate. Due to the Company's operating history, it is uncertain that it will be able to utilize all deferred tax assets. Therefore, a valuation allowance has been provided.
12. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities, machinery and computer equipment under noncancellable operating leases. Rent expense was approximately, $3,411,000, $5,158,000, $5,178,000 and $399,000 in Fiscal 1995, Fiscal 1996, the period from November 3, 1996 to October 9, 1997 and the period from October 10, 1997 to November 1, 1997, respectively.
Future minimum payments, by year and in the aggregate, under the noncancellable operating leases with terms of one year or more consist of the following at November 1, 1997 (in thousands):
The Company has planned expenditures of approximately $25.0 million for property, plant and equipment additions in Fiscal 1998. At November 1, 1997, the Company had commitments for capital expenditures of approximately $1.5 million.
On the Effective Date, the Company entered into employment agreements with certain of its executives and key employees. These agreements have three-year terms and are automatically extended on an annual basis after the third year unless the Company or the participant elects in advance not to extend the employment period. The employment agreements provide specific salary levels and bonus eligibility for each participant. In addition, the agreements provide severance benefits if the Company terminates the participant's employment for reasons other than for cause (as defined). Under the terms of the employment agreements, on the Effective Date, the participants received, in the aggregate, a retention grant cash payment of $588,000 and 75,377 shares of Common Stock.
The Company has provided for all estimated future costs associated with certain 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 the defective roofing product claims will be substantially settled by 2000. 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. Based on management's estimate of a range of future costs, the Company recorded a $5,000,000 addition to the liability for such defective products, charged to other expense in the accompanying Fiscal 1995 Consolidated Statement of Operations. The Company charges the costs of settling these defective material obligations as a reduction of the recorded liability balance and, accordingly, such costs are not charged against the results of operations. Payments on the defective product liability claims were $4,040,000, $3,111,000, $1,815,000 and $521,000 in Fiscal 1995, Fiscal 1996, the period from November 3, 1996 to October 9, 1997 and the period from October 10, 1997 to November 1, 1997, respectively.
The Company is exposed to a number of asserted and unasserted potential claims encountered in the normal course of business. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company's financial position or future results of operations.
13. RETIREMENT PLANS
Defined Benefit Pension Plan - Substantially all of the Company's employees are covered by a Company-sponsored defined benefit pension plan. The plan also provides benefits to individuals employed by the automotive businesses which were sold by the Company on June 28, 1994, the Carpet Business sold on November 16, 1995 and the Rubber Products Business sold on September 30, 1996. The benefits of these former employees were "frozen" at the respective dates of sale of the businesses. Accordingly, these former employees will retain benefits earned through the respective disposal dates, however, they will not accrue additional benefits. In addition, the plan provides benefits to individuals employed by the Dunean plant which was closed effective October 28, 1996. Benefits for employees who were terminated as a result of the plant closing were also "frozen" as of October 28, 1996 and no additional benefits will accrue subsequent to that date. The plan provides pension benefits that are based on the employees' compensation during the last ten years of employment. The Company's policy is to fund the annual contribution required by applicable regulations.
Assets of the pension plan are invested in common and preferred stocks, government and corporate bonds, real estate and various short-term investments.
A reconciliation as of the most recent measurement date (November 1, 1996) of the funded status of the plan with amounts reported in the Company's Consolidated Balance Sheets follows (in thousands):
As a result of the application of fresh start accounting as described in Note 2, all unamortized prior service costs and unrecognized gains were immediately recognized as of October 9, 1997 and included in reorganization items for the period then ended.
On February 15, 1996, the Company offered special early retirement benefits to approximately fifty salaried employees who met certain criteria. Approximately $2.2 million of pension benefits were paid in lump-sums by the plan to twenty-eight employees who accepted the offer. In Fiscal 1996 a charge of $1,125,000 representing the actuarial cost to the plan of the early retirement offer as accepted by the employees is included in other expense in the accompanying Consolidated Statement of Operations.
In Fiscal 1996 the Company recognized losses of approximately $632,000 for pension curtailment and special termination benefits in accordance with SFAS No. 88, "Employees' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits", which related primarily to the sale of the Rubber Products Business and the Dunean plant closing and related termination of participation in the plan of these employees.
The weighted-average discount rate used in determining the actuarial present value of the projected benefit obligation at November 2, 1996 and November 1, 1997 was 7.8%. The expected long-term rate of return on assets was 9% at November 2, 1996 and November 1, 1997. The assumed rate of increase in compensation levels was based on age-related tables at November 2, 1996 and November 1, 1997. Effective November 1, 1993, the Company amended the benefit formula for salaried employees to provide for an additional benefit on compensation in excess of the average social security wage base.
401(k) Savings Plan - The Company also has a savings, investment and profit-sharing plan available to employees meeting eligibility requirements. The plan is a tax qualified plan under Section 401(k) of the Internal Revenue Code. The Company makes a matching contribution of 25% of each participant's contribution with a maximum matching contribution of 1-1/2% of the participant's base compensation. Company contributions were approximately $589,000 in Fiscal 1995, $587,000 in Fiscal 1996, $523,000 in the period from November 3, 1996 to October 9, 1997 and $47,000 in the period from October 10, 1997 to November 1, 1997.
Postretirement Benefits - The Company has several unfunded postretirement plans that provide certain health care and life insurance benefits to eligible retirees. The plans are contributory, with retiree contributions adjusted periodically, and contain cost-sharing features such as deductibles and coinsurance. The Company's life insurance plan provides benefits to both active employees and retirees. Active employee contributions in excess of the cost of providing active employee benefits are applied to reduce the cost of retirees' life insurance benefits. The following table sets forth the status of the Company's postretirement plans as recorded in the accompanying Consolidated Balance Sheets (in thousands):
Accumulated postretirement benefit obligation (APBO):
Net periodic postretirement benefit expense included the following components (in thousands):
As a result of the application of fresh start accounting as described in Note 1, all unamortized gains were fully recognized as of October 9, 1997 and included in reorganization items for the period then ended.
In Fiscal 1996, the Company recognized a curtailment gain of approximately $347,000 related to the sale of the Rubber Products Business and the Dunean plant closing, and related termination of participation in the plans of these employees.
Since the Company has capped its annual liability per person and all future cost increases will be passed on to retirees, the annual rate of increase in health care costs does not affect the postretirement benefit obligation.
The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.8% as of November 2, 1996 and November 1, 1997.
Postemployment Benefits - The Company provides certain benefits to former or inactive employees after employment but before retirement. In accordance with SFAS No. 112, these benefits are recognized on the accrual basis of accounting. The liability for postemployment benefits at November 2, 1996 and November 1, 1997 is included in other long-term liabilities in the accompanying consolidated financial statements.
14. RELATED PARTIES
The Company incurred fees of $1,000,000 in each of Fiscal 1995 and 1996 for management services provided by a former shareholder pursuant to a management services agreement. The accompanying Consolidated Balance Sheet as of November 2, 1996 includes accrued fees of $1,000,000 in other accrued expenses. On the Effective Date, the agreement was cancelled and rejected and rejection damage claims were waived by the shareholders. Accordingly, no amount was accrued for the period from November 3, 1996 to October 9, 1997.
15. BUSINESS SEGMENTS
The Company competes in three industry segments: Apparel Fabrics and Products, Industrial Fabrics and Products and Home Fashion Textiles. The apparel fabrics and products segment manufactures a broad range of apparel fabrics and apparel related products, including unfinished woven apparel fabrics (greige goods) for men's, women's and children's wear, and spun yarns for use in apparel. The industrial fabrics and products segment manufactures commercial roofing products made from woven synthetic fabrics and rubber-based specialty polymer compounds, other building construction products made from glass and synthetic fibers, various industrial products which generally have insulation or
filtration characteristics, and other rubber products and various extruded polyurethane products. The home fashion textiles segment manufactures a variety of unfinished woven fabrics and yarns for use in the manufacturing of draperies, curtains and lampshades and is a major producer of solution-dyed drapery fabrics.
Export sales are approximately 4% of net sales and the Company has no significant foreign operations. Earnings by business segment represent operating profit, excluding net unallocated corporate operating expenses. Identifiable segment assets are those assets used in the operations of the segment. Corporate assets are cash and other assets.
Industry segment information (in thousands):
Industry segment information (in thousands) (Continued):
Unaudited interim financial data (in thousands):
The results for each quarter include all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for interim periods. The consolidated financial results on an interim basis are not necessarily indicative of future financial results on either an interim or annual basis. Selected consolidated financial data for each quarter within Fiscal 1996 and Fiscal 1997 are as follows:
Net income (loss) per share on or prior to October 9, 1997 are not meaningful due to the significant change in the capital structure in connection with the Plan of Reorganization.
During the second quarter of Fiscal 1996, the Company finalized the selling price for the assets and operations of the Carpet business which resulted in loss on sale of discontinued operations of $1.5 million.
During the period from August 3, 1997 to October 9, 1997, the Company consummated its Plan of Reorganization, as described in Notes 1, 2 and 3. Accordingly, the results of operations subsequent to October 9, 1997 are not comparable to results of operations for periods preceding that date.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information with respect to the persons who are members of the Board of Directors or executive officers of JPS. Each director took office as of the Effective Date and will serve until a successor is elected and qualified or until his earlier resignation or removal.
The business experience of each of the directors and executive officers during the past five years is as follows:
Mr. Capozzi became a director of JPS on the Effective Date and is a Managing Director of Magten Asset Management Corp. ("Magten"), an investment advisory firm established in 1978. Magten, a registered investment adviser under the Investment Advisers Act of 1940, as amended, beneficially owns approximately 19.05% of the Common Stock of JPS as of December 3, 1997. See "Security Ownership of Principal Shareholders and Management." Mr. Capozzi has been with Magten since 1986. Currently, Mr. Capozzi serves as a member of the Board of Directors of Magten Offshore Fund Ltd.
Mr. Deutschman became a director of JPS on the Effective Date and is a private investor and merchant banker. From 1992 to 1995, he was a Managing Director with Aurora Capital Partners, L.P. Prior to that, he was a Managing Director and principal of Deutschman Clayton & Company. Mr. Deutschman has been Co- Chairman of the Board of Directors of The Cherokee Group, a designer, manufacturer, and marketer of casual apparel, and an officer and director of Fair Holdings Corporation and Fair Lanes, Inc., a manager and operator of bowling centers.
Mr. DiPaolo became a director of JPS on the Effective Date and was Chairman of the Board, President and Chief Executive Officer of Salant Corporation, a diversified apparel company listed on the New York Stock Exchange from March 1991 until his retirement in May 1997. Prior to that, Mr. DiPaolo served as President and Chief Operating Officer of Salant Corporation since June 1988. From 1985 to 1988, Mr. DiPaolo served as President and Chief Operating Officer of Manhattan Industries, which was merged into Salant Corporation in 1988. Prior to that he was Chairman and Chief Executive Officer of the Villager, a women's sportswear company, from 1979 to 1985. Mr. DiPaolo has served on the Board of Directors of Manhattan Far East, a trading company based in Hong Kong. He is also a member of the Board of Directors of the American Apparel Manufacturers Association and other industry associations.
Mr. Fulbright became a director of JPS on the Effective Date and has served as President and Chief Executive Officer of The Bibb Company, a diversified textile company, since August 1996. Prior to that, he served as President of the Denim Division of Cone Mills, Inc. from December 1994 to August 1996. Prior to that, Mr. Fulbright was employed with Springs Industries, serving as President of the Greige Manufacturing Division from August 1992 to November 1994, as President of Wamsutta/Pacific Home Products from July 1986 to July 1992, and as Executive Vice President of Wamsutta/Pacific Home Products from December 1985 to July 1986. Prior to that, Mr. Fulbright was employed by M. Lowenstein Corporation and WestPoint Pepperell.
Mr. Hunter was appointed as a director of JPS on April 6, 1993 and as Chief Executive Officer of JPS on November 29, 1994. Mr. Hunter has served as President of JPS since September 1988. Prior to that time, from May 1988 to September 1988, he was Executive Vice-President--Operations. In addition, on January 18, 1994, Mr. Hunter was appointed as Chief Operating Officer of JPS Converter and Industrial Corp., a wholly-owned subsidiary of JPS, and he also serves as a Vice-President of each of JPS's subsidiaries. From April 1986 to May 1988, he was Vice-President--Technical Services at J.P. Stevens. From March 1983 to March 1986, he was Senior Vice-President at Cannon Mills, Inc., a textile manufacturer. Prior to March 1983, he was employed by Springs Industries, a textile manufacturer, for 21 years.
Mr. Sullivan became a director of JPS on the Effective Date and has served as President of American Silk Mills Corp. since 1985, as President and Chief Executive Officer of Gerli & Co., Inc. since 1987, as President of International Silk Association (USA), N.Y., N.Y. since 1988, and as Co-Chairman of the Home Furnishings Committee, I.S.A., Lyons France, since 1995. From 1987 to 1991, Mr. Sullivan served as President of Cheney Brothers Inc. Prior to that, he served as Executive Vice President (Merchandising, Marketing & Sales) of Gerli & Co., Inc. from 1984 to 1987. Prior to that, Mr. Sullivan served as President of A.H. Rice Company Inc., Pittsfield, Massachusetts from 1982 to 1989, as Vice President of Marketing and Sales for Gerli & Co., Inc. from 1979-1982, and as Sales Manager of American Silk Mills Corp. from 1974 to 1979.
Mr. Taylor was appointed as a director of JPS on April 15, 1993. Mr. Taylor has served as Executive Vice- President--Finance and Secretary of JPS since June 1991, and prior thereto he was Controller and Assistant Secretary of JPS since May 1988. Prior to that time, he was a Senior Manager at Deloitte Haskins & Sells, a public accounting firm, by which he was employed from June 1977 through May 1988. In addition, Mr. Taylor serves as a Vice-President and Assistant Secretary of each of JPS's subsidiaries.
None of the directors or executive officers listed herein is related to any other such director or executive officer.
Committees of the Board of Directors
The Board of Directors has established an Audit Committee and a Compensation Committee.
The Audit Committee, which consists of Messrs. Deutschman and Sullivan, makes recommendations to the Board of Directors regarding the independent auditors to be nominated for ratification by the shareholders, reviews the independence of such auditors, approves the scope of the annual activities of the independent auditors and reviews audit results.
Prior to the Effective Date, the Compensation Committee consisted of certain members of the Board of Directors of JPS who, as of the Effective Date, were replaced by the current Board of Directors of JPS. The Compensation Committee, which consists of Messrs. Capozzi, DiPaolo and Fulbright, recommends to the Board of Directors compensation plans and arrangements with respect to the Company's executive officers and key personnel.
Item 11.
Item 11. EXECUTIVE COMPENSATION.
The following summary compensation table sets forth information concerning compensation for the last three years for services in all capacities awarded to, earned by or paid to the Company's Chief Executive Officer and the five other most highly compensated executive officers of the Company during Fiscal 1997.
SUMMARY COMPENSATION TABLE
(1) Such executive officers of the Company's subsidiaries perform certain policy-making functions for the Company and are therefore included herein pursuant to Item 402(a)(3) of Regulation S-K and Rule 36-7 under the Exchange Act.
(2) Employer-matching 401(k) plan contribution, employer-provided life insurance premiums and imputed lease value of company-provided automobiles.
Agreements with Executive Officers
On the Effective Date, JPS entered into an employment agreement with Jerry E. Hunter. The agreement, which provides that Mr. Hunter will serve as President and Chief Executive Officer of JPS until the third anniversary of the Effective Date (the "Termination Date"), shall automatically be extended on an annual basis following the Termination Date unless either party elects in advance not to extend the employment period. The initial base salary under the agreement is $380,000 and may be increased but not reduced over the term of the agreement. In addition, under the new employment agreement, on the Effective Date Mr. Hunter received a retention grant cash payment of $256,274 and 32,852 shares of Common Stock. Mr. Hunter is eligible for an annual bonus up to 50% of base salary based upon the Company's attainment of certain performance goals specified in the 1997 Management Incentive Bonus Plan. If JPS terminates Mr. Hunter's employment for reasons other than for cause (as defined in the agreement), he will be entitled to severance benefits equal to (i) his annual base salary continued through the Termination Date or for one year from the date of termination, if later, (ii) his target annual bonus continued through the Termination Date or for one year, if greater and (iii) continuation of all health and life insurance benefits for up to twenty-four months following the termination of employment. In the event JPS reduces Mr. Hunter's base salary or bonus, materially changes the requirements of his position or requires that he relocate his principal residence, or in the event Mr. Hunter elects to terminate his employment no earlier than six months following a change in control (as defined in the agreement), Mr. Hunter may voluntarily terminate his employment with JPS with such termination being treated, for purposes of severance benefits, as a termination by JPS.
On the Effective Date, JPS entered into substantially similar employment agreements with David H. Taylor and Monnie L. Broome, with Mr. Taylor serving as Executive Vice President--Finance and Secretary of JPS and Mr. Broome serving as Vice President--Human Resources of JPS. Under the agreements, base salary for Mr. Taylor is $225,000 and for Mr. Broome is $180,000. In addition, under the new employment agreements, Mr. Taylor received a retention grant cash payment of $163,694 and 20,984 shares of Common Stock and Mr. Broome received a retention grant cash payment of $115,531 and 14,810 shares of Common Stock. Each of Mr. Taylor and Mr. Broome is also eligible for an annual bonus of up to 50% of his salary based upon the Company's attainment of certain performance goals specified in the 1997 Management Incentive Bonus Plan. The new employment agreements of Mr. Taylor and Mr. Broome do not provide that within six months following a change in control, Mr. Taylor or Mr. Broome (as the case may be) may voluntarily terminate their employment with JPS, with such termination being treated, for purposes of severance benefits, as a termination by JPS.
On December 23, 1991, the Company entered into an employment agreement with Bruce R. Wilby. This agreement, as amended, provides severance benefits in the event Mr. Wilby is terminated prior to December 23, 1999 for reasons other than for cause (as defined in the agreement). If such termination occurs, Mr. Wilby is entitled to receive an amount equal to his annual base salary including normal fringe benefits payable in the normal course as if employment had not been terminated. As of January 30, 1998, there have been no payments under this agreement.
On May 1, 1993, the Company entered into an employment agreement with Carl Rosen. This agreement, as amended, provides that Mr. Rosen will serve as President of JPS Converter & Industrial Corp. until April 30, 1998. Base salary under the agreement is currently $265,000 and may be increased but not reduced over the term of the agreement. Mr. Rosen is eligible for an annual bonus with a target level equal to 50% of base salary. If the Company terminates Mr. Rosen's employment for reasons other than for cause (as defined in the agreement), he is entitled to severance benefits equal to his annual base salary including fringe benefits plus a pro rata bonus amount up to the date of termination. In the event the Company reduces Mr. Rosen's base salary or bonus or materially changes the requirements of his position, Mr. Rosen may voluntarily terminate his employment with the Company with such termination being treated, for purposes of severance benefits, as a termination by the Company.
Retirement Pension Plan
The Company maintains a Retirement Pension Plan for all employees (the "Pension Plan"), including its salaried employees. The Pension Plan is a defined benefit pension plan providing a formula benefit with contributions determined on an actuarial basis. The Pension Plan generally covers all employees 21 years of age or older who have completed one year of service with the Company. The Pension Plan generally takes into account annual compensation earned under certain predecessor plans of J.P. Stevens.
The following table indicates the approximate amounts of annual retirement income that would be payable to a salaried employee under the Pension Plan based on the compensation levels and years of credited service shown. There would be no social security or other offset deducted from the amounts shown.
* Assumes individual retires at age 65 in 1997 with the indicated years of service and compensation. The social security integration level of such individuals would be $29,304. The social security integration level is adjusted annually.
Credited years of service for benefit accrual under the Pension Plan as of November 1, 1997 for the following executive officers are:
Jerry E. Hunter 11 years Carl Rosen 6 years David H. Taylor 9 years Monnie L. Broome 9 years Bruce R. Wilby 22 years Heyward D. Maddox 29 years
Annual retirement benefits for salaried employees are generally computed as the sum of 0.6% of a participant's average compensation (the annual average of five consecutive, complete plan years of highest compensation during the last 10 plan years of service) multiplied by the years of benefit service plus 0.6% of a participant's compensation which exceeds the Participant's Social Security Integration Level (equal to $29,304 in 1997) multiplied by the participant's years of benefit service. The Pension Plan provides that each participant's benefits fully vest after five years of service or the attainment of age 55.
This table may understate the benefits available to certain participants because salaried employees who were covered by the Pension Plan before July 1, 1989 are entitled to the greater of the benefit formula noted above or the prior benefit formula, plus additional accrued benefits under the new formula since July 1, 1989. Under the prior formula, a participant's annual pension payable as of normal retirement age was equal to 1% of the portion of "final average compensation" which was equal to the "social security integration level" in effect for the year of retirement, plus 1.5% of the portion of the participant's final average compensation in excess of the social security integration level, the sum of which was multiplied by the number of years of credited service not exceeding 35. In addition, as noted below, the table assumes that covered compensation was limited to the current allowable amount for all years while benefits may have been accrued in years when limitations were higher.
Compensation covered by the Pension Plan consists of all payments made to a participant for personal services rendered as an employee of the Company which are subject to federal income tax withholding, excluding imputed income attributable to certain fringe benefit programs. In accordance with the Revenue Reconciliation Act of 1993 with respect to salaried employees, plan compensation covers up to an adjusted maximum of $160,000 per individual for the plan year beginning November 1, 1997. Plan compensation was subject to substantially higher limits in previous years ($235,840 for 1994). The amounts shown are also subject to possible maximum limitations under Section 415 of the Internal Revenue Code of 1986, as amended (the "Code"), and are subject to possible reduction for amounts payable under other JPS qualified plans.
1997 Management Incentive Bonus Plan
The Company's 1997 Management Incentive Bonus Plan provides incentives for key management employees of the Company and its subsidiaries based upon the financial performance of the Company. The plan is designed to provide incentives to maximize operating earnings while minimizing the net assets required to generate those earnings. Targets are set annually for operating earnings (defined as EBITDA before bonus expense and restructuring and reorganization expenses) and net assets employed (defined as average total assets less average current liabilities other than debt-related liabilities such as accrued interest) for each fiscal year and for each operating subsidiary. If actual operating earnings and net assets employed are equal to the targets, a targeted bonus is paid to each participant. To the extent actual operating earnings are greater than the target, amounts in excess of the targeted bonuses are paid to each participant. Likewise, operating earnings lower than target result in a bonus payment that is less then the targeted bonus. A participant's bonus is reduced to zero if actual operating earnings are 80% of target or less. The operating earnings target is adjusted up or down by 12.5% of the excess or deficiency of actual net assets employed compared to the target for net assets employed. Targeted bonus amounts expressed as a percentage of salary for participants in the plan range from 15% to 50%. Individuals listed on the Summary Compensation Table have targeted bonus amounts equal to 50% of salary.
1997 Incentive and Capital Accumulation Plan
The Company's Incentive and Capital Accumulation Plan (the "Incentive Plan") is intended to provide incentives that will attract, retain, and motivate highly competent individuals as key employees of the Company and its subsidiaries, by providing them with opportunities to acquire shares of Common Stock or monetary payments based on the value of such shares. Pursuant to the Incentive Plan, 853,485 shares of Common Stock are reserved for issuance to salaried key employees and non-employee directors of the Company pursuant to benefits in the form of stock options, stock appreciation rights, stock awards, performance awards, and stock units that may be granted by the compensation committee comprised of disinterested members of the Company's Board of Directors. The Incentive Plan will terminate on the tenth anniversary of its adoption.
On October 30, 1997, options to acquire approximately 569,000 shares of the shares reserved pursuant to the Incentive Plan were granted to senior management of the Company. These options include a combination of time vesting options which vest solely on the lapse of time and performance options which vest upon achievement of specified corporate performance goals. These options are according to specific vesting schedules set forth in individual participant's grant letters. In addition, on the Effective Date, each non-employee director (except one, who waived his right to receive options) received options to purchase 25,000 shares of Common Stock.
In the event the employment of any of Jerry E. Hunter, David H. Taylor or Monnie L. Broome, is terminated by the Company without "cause" or by such employee for "good reason" (as such terms are defined in each such employee's employment agreement), such employee's rights immediately will be fully vested in 100% of the shares granted to him.
The following table contains information about stock options granted in 1997 to the executive officers:
(1) The exercise price (the price that the executive officer must pay to purchase each share of common stock that is subject to option) is equal to the fair market value of the stock on the date of grant of the option. All options shown were granted on October 30, 1997.
(2) One-half of options granted become exercisable ratably over three years from the fiscal year end. The remaining one-half of options granted are subject to the Company meeting certain performance goals in addition to the time requirements applicable to the other options. All options expire 10 years from grant. Vesting accelerates in the event of death, disability, involuntary termination, and in certain other events at the discretion of the compensation committee of the Board of Directors.
(3) The potential realizable value shown for the executive officers is net of the option exercise price. The dollar gains under these columns result from calculations assuming 5% and 10% growth rates in stock price as prescribed by the Securities and Exchange Commission and achievement of performance of goals, and are not intended to forecast future price appreciation of JPS Textile Group, Inc. common stock. The gains reflect a future value based upon growth at these prescribed rates. It is important to note that options have value to the executive officers and to other option recipients only if the stock price advances beyond the grant date price shown in the Table during the effective option period.
Compensation of Directors
Each director who is not an employee of the Company will be paid $20,000 annually for his services as a director, $1,200 for attendance at each meeting of the Board of Directors and each committee meeting which does not occur in conjunction with a directors' meeting, and $1,000 annually for his or her services as the chairman of any committee. In addition, each non-employee director received on the Effective Date a grant of options to purchase 25,000 shares of common stock of JPS (other than Robert J. Capozzi who has waived his right to receive such options) at an exercise price based on the per share price of the Common Stock as of the Effective Date (which was $12.33 per share). With respect to the options granted to each non-employee director on the Effective Date, options to purchase 5,000 shares of common stock of JPS vested on the Effective Date and with respect to the balance of the options so granted, options to purchase 5,000 shares of common stock of JPS will vest on each of the first, second, third and fourth anniversaries of the Effective Date. Moreover, non-employee directors are eligible to participate in the Incentive Plan. Under the Incentive Plan each non-employee director appointed subsequent to the Effective Date will receive on the date such director is appointed (the "Appointment Date") a grant of options to purchase 25,000 shares of common stock of JPS at an exercise price based on the per share price of the common stock of JPS as of the Appointment Date. With respect to the options granted to each non-employee director appointed subsequent to the Effective Date, options to purchase 5,000 shares of common stock of JPS will vest on the applicable Appointment Date and with respect to the balance of the options so granted, options to purchase 5,000 shares of common stock of JPS will vest on each of the first, second, third and fourth anniversaries of such Appointment Date.
Item 12.
Item 12. SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT.
Based upon information known to JPS as of January 7, 1998, the following table sets forth the ownership of the shares of Common Stock issued and outstanding as of such date by (a) each person or group that is the beneficial owner of more than 5% of such shares on such date, (b) each director of JPS on such date and (c) all directors of JPS as a group on such date.
(1) After giving effect to (i) the exercise in full of the New Warrants issued on the Effective Date and (ii) the exercise in full of all options to purchase shares of common stock of JPS which became vested on the Effective Date.
(2) Includes shares of the Common Stock held by Magten in accounts managed by Magten on behalf of various investment advisory clients, including the City of Los Angeles Fire and Police Pension Systems (719,411 shares, or 6.82%, of the Common Stock) and Hughes Retirement Plans Trust (575,617 shares, or 5.46%, of the Common Stock). Certain of such shares are held for the benefit of family interests of Talton R. Embry, the Chairman, a director and controlling shareholder of Magten, or in employee plans with respect to which Mr. Embry serves as a trustee. Magten has shared voting and investment power over all of such 1,905,447 shares.
(3) The general partner and investment advisor of TCW Shared Opportunity Fund II, L.P. ("SHOP II") is TCW Investment Management Company ("TIMCO"). Messrs. Mark L. Attanasio, Robert D. Beyer, Jean-Marc Chapus and Mark L. Gold are portfolio managers of SHOP II and exercise voting and dispositive power on its behalf. Messrs. Attanasio, Beyer, Chapus and Gold disclaim any beneficial ownership of the capital stock of JPS.
(4) Represents options granted to non-employee directors of JPS (other than Robert J. Capozzi) on the Effective Date. See "EXECUTIVE COMPENSATION--Compensation of Directors."
(5) By virtue of 1,905,435 shares of Common Stock of JPS beneficially owned by Magten, of which Mr. Capozzi is Managing Director. Mr. Capozzi disclaims beneficial ownership of all of these shares. Mr. Capozzi has informed JPS that he has waived his entitlement to receive any options to purchase shares of common stock of JPS to which each non-employee director will be entitled on the Effective Date. See "EXECUTIVE COMPENSATION--Compensation of Directors."
(6) Includes 1,905,435 shares of Common Stock of JPS beneficially owned by Magten. See Note 5.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K.
(a) (1) The following financial statements are included in Item 8:
(i) Independent Auditors' Report. (ii) Consolidated Balance Sheets as of November 1, 1997 (Reorganized Company) and November 2, 1996 (Predecessor Company). (iii) Consolidated Statements of Operations for the periods from October 10, 1997 to November 1, 1997 (Reorganized Company) and November 3, 1996 to October 9, 1997 (Predecessor Company) and the fiscal years ended November 2, 1996 and October 28, 1995 (Predecessor Company). (iv) Consolidated Statements of Senior Redeemable Preferred Stock and Shareholders' Equity (Deficit) for the periods from October 10, 1997 to November 1, 1997 (Reorganized Company) and November 3, 1996 to October 9, 1997 (Predecessor Company) and the fiscal years ended November 2, 1996 and October 28, 1995 (Predecessor Company). (v) Consolidated Statements of Cash Flows for the periods from October 10, 1997 to November 1, 1997 (Reorganized Company) and November 3, 1996 to October 9, 1997 (Predecessor Company) and the fiscal years ended November 2, 1996 and October 28, 1995 (Predecessor Company). (vi) Notes to Consolidated Financial Statements.
The registrant is primarily a holding company and all direct subsidiaries are wholly owned.
(2) The financial statement schedule required by Item 8 is listed on Index to Financial Statement Schedule, starting at page S-1 of this report.
(3) The exhibits required by Item 601 of Regulation S-K are listed in the accompanying Index to Exhibits. Registrant will furnish to any securityholder, upon written request, any exhibit listed in the accompanying Index to Exhibits upon payment by such securityholder of registrant's reasonable expenses in furnishing any such exhibit.
(b) No reports on Form 8-K were filed during the quarter ended November 1, 1997.
(c) Reference is made to Item 14(a)(3) above.
(d) Reference is made to Item 14(a)(2) above.
INDEX TO EXHIBITS
The following is a complete list of Exhibits filed as part of this report, which are incorporated herein:
Exhibit Number Description - ------- -----------
2.1(i) Joint Plan of Reorganization for JPS Textile Group, Inc., a Delaware corporation ("JPS"), proposed by JPS and JPS Capital Corp., a Delaware corporation, pursuant to chapter 11 of title 11 United States Code (the "Bankruptcy Code"), dated August 1, 1997 (as amended, the "Plan").(K)
2.1(ii) Revised Technical and Conforming Amendment to the Plan, dated September 4, 1997.(L)
3.1 Restated Certificate of Incorporation of JPS, filed with the Secretary of State of the State of Delaware on October 9, 1997.(P)
3.2 Amended and Restated By-laws of JPS.(P)
4.1 Indenture, dated as of October 9, 1997 (the "Contingent Note Indenture"), between JPS Capital Corp. ("Capital") and First Trust National Association ("First Trust"), as Trustee, relating to Capital's Contingent Notes (the "Contingent Notes").(K)
4.2 Form of Contingent Note, incorporated by reference to Exhibit A to the Contingent Note Indenture.(K)
10.1 Loan and Security Agreement, dated as of October 30, 1991, (the "CIT Loan Agreement"), between JPS Converter and Industrial Corp., a Delaware corporation ("JCIC") and The CIT Group/Equipment Financing, Inc. ("CIT").(A)
10.2 First Amendment to the CIT Loan Agreement, dated as of June 26, 1992, by and between JCIC and CIT.(A)
10.3 Second Amendment to the CIT Loan Agreement, dated as of December 22, 1992, by and between JCIC and CIT.(A)
10.4 Agreement of Lease, dated as of June 1, 1988, by and between 1185 Avenue of the Americas Associates ("1185 Associates") and JCIC.(A)
10.5 Lease Modification and Extension Agreement, dated as of April 2, 1991, by and between 1185 Associates and JCIC.(A)
10.6 Third Amendment to the CIT Loan Agreement, dated as of August 6, 1993, by and between JCIC and CIT.(B)
10.7 Trademark License Agreement, dated as of May 9, 1988, by and between J.P. Stevens and JPS Acquisition Corp. (predecessor to the Company.)(B)
Exhibit Number Description - ------- -----------
10.8 Omnibus Real Estate Closing Agreement, dated as of May 9, 1988, by and among J.P. Stevens, JPS Acquisition Corp., JPS Acquisition Automotive Products Corp., JPS Acquisition Carpet Corp., JPS Acquisition Industrial Fabrics Corp., JPS Acquisition Converter and Yarn Corp. and JPS Acquisition Elastomerics Corp.(B)
10.9 Purchase Agreement, dated as of April 24, 1988, by and among JPS Holding Corp., the Company, Odyssey Partners, West Point-Pepperell, Inc., STN Holdings Inc., Magnolia Partners, L.P. and J.P. Stevens.(B)
10.10 Asset Purchase Agreement, dated as of May 25, 1994, by and among the Company, JAPC, JCIC, JPS Auto Inc., a Delaware corporation, and Foamex International Inc., a Delaware corporation.(C)
10.11 Fourth Amended and Restated Credit Agreement (the "Existing Credit Agreement"), dated as of June 24, 1994, by and among the Company, JCIC, JPS Elastomerics Corp., a Delaware corporation ("JEC"), JPS Carpet Corp., a Delaware corporation ("JCC"), the financial institutions listed on the signature pages thereof, Citibank, N.A. ("Citibank") as Agent and Administrative Agent, and General Electric Capital Corporation ("GECC") as Co-Agent and Collateral Agent.(D)
10.12 First Amendment to the Existing Credit Agreement, dated as of November 4, 1994, by and among the Company, JCIC, JEC, JCC, the financial institutions listed on the signature pages thereof, Citibank, as Agent and Administrative Agent, and GECC, as Co-Agent and Collateral Agent.(E)
10.13 Second Amendment to the Existing Credit Agreement, dated as of December 21, 1994, by and among the Company, JCIC, JEC, JCC, the financial institutions listed on the signature pages thereof, Citibank, as Agent and Administrative Agent, and GECC as Co-Agent and Collateral Agent.(E)
10.14 Fourth Amendment to CIT Loan Agreement, dated as of December 29, 1994, by and between JCIC and CIT.(E)
10.15 Lease Modification and Extension Agreement, dated as of April 30, 1993, by and between 1185 Associates and JCIC.(E)
10.16 Third Amendment to Existing Credit Agreement, dated as of May 31, 1995 by and among the Company, JCIC, JEC, JCC, the financial institutions listed on the signature pages thereof, Citibank, as Agent and Administrative Agent, and GECC, as Co-Agent and Collateral Agent.(F)
10.17 Fourth Amendment to Existing Credit Agreement, dated as of October 28, 1995 by and among the Company, JCIC, JEC, JCC, the financial institutions listed on the signature pages thereof, Citibank, as Agent and Administrative Agent, and GECC, as Co-Agent and Collateral Agent.(G)
10.18 Lease Modification and Extension Agreement, dated as of November 17, 1994, by and between 1185 Associates and JCIC.(G)
Exhibit Number Description - ------- -----------
10.19 Asset Transfer Agreement, dated as of November 16, 1995, by and among the Company, JPS Carpet Corp., a Delaware corporation, Gulistan Holdings Inc. ("GHI"), a Delaware corporation and Gulistan Carpet Inc., a Delaware Corporation and wholly-owned subsidiary of GHI.(H)
10.20 Fifth Amendment to the Fourth Amended & Restated Credit Agreement, dated as of May 6, 1996, by and among the Company, JPS Elastomerics Corp., JPS Converter and Industrial Corp., JPS Auto Inc., JPS Carpet Corp., International Fabrics, Inc., the financial institutions listed on the signature pages thereof, Citibank, N.A. as agent and Administrative Agent and General Electric Capital Corporation as Co-Agent and Collateral Agent.(I)
10.21 Sixth Amendment to the Fourth Amended & Restated Credit Agreement, dated as of May 15, 1996, by and among the Company, JPS Elastomerics Corp., JPS Converter and Industrial Corp., JPS Auto Inc., JPS Carpet Corp., International Fabrics, Inc., the financial institutions listed on the signature pages thereof, Citibank, N.A. as agent and Administrative Agent and General Electric Capital Corporation as Co-Agent and Collateral Agent.(I)
10.22 Seventh Amendment to the Fourth Amended and Restated Credit Agreement, dated as of July 22, 1996, by and among the Company, JPS Elastomerics Corp., JPS Converter and Industrial Corp., JPS Auto Inc., JPS Carpet Corp., International Fabrics, Inc., the financial institutions listed on the signature pages thereof, Citibank, N.A. as agent and Administrative Agent and General Electric Capital Corporation as Co-Agent and Collateral Agent.(J)
10.23 Eighth Amendment to the Fourth Amended and Restated Credit Agreement, dated as of September 6, 1996, by and among the Company, JPS Elastomerics Corp., JPS Converter and Industrial Corp., JPS Auto Inc., JPS Carpet Corp., International Fabrics, Inc., the financial institutions listed on the signature pages thereof, Citibank, N.A. as agent and Administrative Agent and General Electric Capital Corporation as Co-Agent and Collateral Agent.(J)
10.24 Employment Agreement dated October 9, 1997, between the Company and Jerry E. Hunter. (P)
10.25 Employment Agreement dated October 9, 1997, between the Company and David H. Taylor. (P)
10.26 Employment Agreement dated October 9, 1997, between the Company and Monnie L. Broome.(P)
10.27 Employment Agreement, dated May 1, 1993 and amended September 11, 1995 between the Company and Carl Rosen.(J)
10.28 Employment Agreement, dated December 23, 1991 and amended August 20, 1996 and December 23, 1996 between the Company and Bruce Wilby.(G)
10.29 Asset Purchase Agreement, dated as of September 30, 1996 between Elastomer Technologies Group, Inc. a Delaware Corporation, and JPS Elastomerics Corp., a Delaware Corporation and wholly-owned subsidiary of the Company.(G)
Exhibit Number Description - -------- -----------
10.30 Receivables Purchase Agreement dated as of September 30, 1996 between The Bank of New York Commercial Corporation, a New York Corporation and JPS Elastomerics Corp., a Delaware Corporation and wholly-owned subsidiary of the Company.(G)
10.31 Registration Rights Agreement, dated as of October 9, 1997, by and among JPS and the holders of JPS's Common Stock.(P)
10.32 Ninth Amendment to Existing Credit Agreement, dated as of February 21, 1997, by and among JPS, JCIC, JEC, JCC, the financial institutions listed on the signature pages thereof, Citibank, as agent and Administrative Agent and GECC as Co-Agent and Collateral Agent.(N)
10.33 Tenth Amendment to the Existing Credit Agreement, dated as of April 29, 1997, by and among JPS, JCIC, JEC, JCC, the financial institutions listed on the signature pages thereof, Citibank, as agent and Administrative Agent and GECC as Co-Agent and Collateral Agent.(O)
10.34 Eleventh Amendment to the Existing Credit Agreement, dated as of May 15, 1997, by and among JPS, JCIC, JEC, JCC, the financial institutions listed on the signature pages thereof, Citibank, as agent and Administrative Agent and GECC as Co-Agent and Collateral Agent.(O)
10.35 Credit Facility Agreement, dated as of October 9, 1997, by and among JPS, C&I, Elastomerics, the financial institutions listed on the signature pages thereto, and the agent and co-agent party thereto.(M)
10.36 1997 Incentive and Capital Accumulation Plan dated as of October 9, 1997.(P)
10.37 Warrant Agreement dated as of October 9, 1997.(P)
11.1 Statement re: Computation of Per Share Earnings - not required since such computation can be clearly determined from the material contained herein.
12.1 Computation of Ratio of Earnings to Fixed Charges - not required for Form 10-K per Item 503(d) of Regulation S-K.
12.2 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends--not required for Form 10-K per Item 503(d) of Regulation S-K.
21.1 List of Subsidiaries of the Company.(E)
24.1 Power of Attorney relating to JPS (included as part of the signature page hereof).(M)
27.1 Financial data schedule.(P)
- ------------------------------------ (A) Previously filed as an exhibit to Registration Statement No. 33-58272 on Form S-1, declared effective by the SEC on July 26, 1993, and incorporated herein by reference. (B) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended October 30, 1993.
(C) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1994. (D) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended July 30, 1994. (E) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended October 29, 1994. (F) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended April 29, 1995. (G) Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended November 2, 1996. (H) Previously filed as an exhibit to the Company's Current Report on Form 8-K dated December 1, 1995. (I) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended April 27, 1996. (J) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended July 27, 1996. (K) Previously filed as an exhibit to JPS's Current Report on Form 8-K dated July 2, 1997. (L) Previously filed as an exhibit JPS's Registration Statement on Form 8-A filed on September 8, 1997. (M) Previously filed. (N) Previously filed as an exhibit to JPS's Quarterly Report on Form 10-Q for the quarter ended February 1, 1997. (O) Previously filed as an exhibit to JPS's Quarterly Report on Form 10-Q for the quarter ended May 3, 1997. (P) Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
JPS TEXTILE GROUP, INC.
Date: January 30, 1998 By: /s/ Jerry E. Hunter ------------------------------------ Jerry E. Hunter Chairman of the Board, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
JPS TEXTILE GROUP, INC. INDEX TO SCHEDULE
INDEX TO FINANCIAL STATEMENT SCHEDULE For the Fiscal Years Ended October 28, 1995, November 2, 1996 and the periods from November 3, 1996 to October 9, 1997 and from October 10, 1997 to November 1, 1997.
FINANCIAL STATEMENT SCHEDULE
II. Valuation and Qualifying Accounts and Reserves S-2
Note: All other schedules are omitted because they are not applicable or not required, or because the required information is shown either in the consolidated financial statements or in the notes thereto.
S-1
JPS TEXTILE GROUP, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS)
(a) Change in various reserves charged to net sales.
(b) Uncollected receivables written off, net of recoveries.
S-2