Item 1. Business
Response to Item 1 of Form 10-K is in accordance with General Instruction I(2)(d) to Form 10-K.
GENERAL JPS Automotive, Inc. ("JPS Automotive") manufactures and supplies a complete line of automotive textile and specialty textile products to North American automobile and light truck manufacturers. JPS Automotive's products include molded floor carpet systems, seating upholstery fabric ("bodycloth"), headliner fabric, and interior and trunk trim components. JPS Automotive's customers include domestic original equipment manufacturers, such as General Motors ("GM"), DaimlerChrysler and Ford, as well as the domestic operations of certain foreign OEMs ("Transplant OEMs" and collectively with domestic OEMs, "OEMs"), including Honda, Mazda, Mitsubishi, Nissan, NuMMI (a joint venture between GM and Toyota), Subaru and Toyota. Many of these relationships require JPS Automotive to provide design and engineering support for new products and new applications for existing products. JPS Automotive Products Corp. ("Products Corp.") is a wholly owned subsidiary of JPS Automotive.
On December 11, 1996, Collins & Aikman Corporation ("C&A"), through its subsidiaries, acquired JPS Automotive L.P. from Foamex International Inc. ("Foamex") pursuant to an Equity Purchase Agreement dated August 28, 1996, as amended December 11, 1996 (the "1996 Acquisition"). In the 1996 Acquisition, Collins & Aikman Products Co. ("C&A Products"), a wholly owned subsidiary of C&A, acquired a .9999% limited partnership interest in JPS Automotive L.P. from Foamex and a 99% limited partnership interest in JPS Automotive L.P. from Foamex-JPS Automotive L.P. ("FJPS"). PACJ, Inc., a wholly owned subsidiary of C&A Products, acquired a .0001% general partnership interest in JPS Automotive L.P. from JPSGP Inc. ("JSGP"). Accordingly, 100% of the partnership interests in JPS Automotive L.P. were owned by PACJ, Inc. and C&A Products, which are, respectively, indirect and direct wholly-owned subsidiaries of C&A. Additionally, on December 11, 1996, C&A Products also acquired from Seiren Co. Ltd. and its affiliates a minority interest in Cramerton Automotive Products, L.P. and Cramerton Management Corporation, which were JPS Automotive subsidiaries. JPS Automotive subsequently acquired the minority interest held by C&A Products and now owns 100% of Cramerton. In December 1997, Cramerton Automotive Products, L.P. was merged into Cramerton Management Corporation and the surviving entity was renamed Cramerton Automotive Products, Inc. ("Cramerton").
On January 28, 2000, JPS Automotive L.P. merged with and into its general partner, PACJ, Inc. In the merger, all of the outstanding limited partnership interests previously owned by C&A Products and the general partnership interests held by PACJ, Inc. were canceled without any payment being made thereon. As a result of the merger, PACJ, Inc. has changed its name to JPS Automotive, Inc. and has assumed all of the obligations under the indenture governing the JPS Automotive 11-1/8 Senior Notes due 2001 (the "Senior Notes").
The principal executive offices of JPS Automotive are located at 5755 New King Court, Troy, Michigan, 48098 and its telephone number is (248) 824-2500.
References in this report to JPS Automotive means JPS Automotive, Inc. and, where relevant, its subsidiaries.
PRODUCTS AND OPERATING SEGMENTS
JPS Automotive has two operating segments: Automotive Carpet and Automotive Fabric.
AUTOMOTIVE CARPET
JPS Automotive's carpet operations produce complete molded floor systems and cut and/or molded interior trim and trunk parts. Prior to 1998, JPS Automotive manufactured rolled carpet goods which were incorporated by JPS Automotive into its own products as well as sold to other automotive suppliers who then incorporated these goods into their products. In the second quarter of 1998, JPS Automotive closed its facility which manufactured roll goods and initiated a contract manufacturing arrangement with C&A Products to supply its future roll goods
requirements. See Note 12 to the Notes to the JPS Automotive Consolidated Financial Statements.
Molded floor carpet systems include polyethylene or extruded thermo plastic (mass back) underlay carpet. Truck trim products consist of one piece molded trunk systems and assemblies.
AUTOMOTIVE FABRICS
JPS Automotive sells bodycloth and headliner fabric to other automotive suppliers. JPS Automotive's bodycloth fabric is typically specified by the OEM, though the product normally is shipped and billed directly to other OEM suppliers. Contract terms often parallel the terms between the OEM and the primary supplier with respect to certain aspects such as timing, product specifications and quantity. JPS Automotive's principal upholstery fabric customers, the Transplant OEMs, demand high-end automotive fabric products with respect to construction, weight and styling. OEMs typically do not specify a certain company's headliner fabric, but rather specify fabric type or construction when awarding headliner system contracts. In 1998, JPS Automotive relocated its bodycloth manufacturing operations to a C&A Products facility, which is producing bodycloth for JPS Automotive on a subcontract basis. In 1999, JPS Automotive completed the sale of its 400,000 square foot facility located in Cramerton, North Carolina. JPS Automotive is in the process of relocating the headliner business from the Cramerton (the "Cramerton facility") facility to a C&A Products facility. See Notes 7 and 12 to the Notes to the JPS Automotive Consolidated Financial Statements.
MARKETING AND SALES
In conjunction with the elimination of certain redundant sales and administrative functions following the 1996 Acquisition, C&A Products performs substantially all of the sales and marketing functions for JPS Automotive. This allows JPS Automotive to continue to provide its customers, which include both OEMs and independent OEM suppliers, with integrated product systems and design and engineering support which management believes reduce costs and enhance value. See Notes 7 and 12 to the Notes to the JPS Automotive Consolidated Financial Statements.
MANUFACTURING AND RAW MATERIALS
Manufacturing operations are currently conducted at two facilities with a total of approximately 1.2 million square feet. In connection with the 1996 Acquisition, JPS closed one manufacturing facility in 1997, a second facility in January 1998, and a third facility in June 1998. JPS Automotive sold the Cramerton facility in 1999. As a result, JPS Automotive is in the process of constructing additional space at a C&A Products facility where bodycloth and headliner manufacturing processes are being performed by C&A Products on a subcontract basis for JPS Automotive. See Notes 7 and 12 to the Notes to the JPS Automotive Consolidated Financial statements. JPS Automotive believes its facilities, taking into account its arrangements with C&A, are adequate to meet its current production requirements.
The principal raw materials used by JPS Automotive are carpet fibers (nylon, polyester and polypropylene), primary carpet backing and extrusion coating materials and other nylon and polyester fibers for knitting. Many of JPS Automotive's products contain branded raw materials specified by the customer and any substitution of such raw materials would have to be made in consultation with the customer. C&A Products provides purchasing services for JPS Automotive in accordance with the arrangements between JPS Automotive and C&A Products. Raw materials are purchased from a few large suppliers; however, management believes there are readily available substitute sources of supply for raw materials should the need for alternate sources arise. The price of man-made fibers, such as nylon and polyester, is influenced principally by demand, manufacturing capacity and polymer and petroleum prices.
EMPLOYEES
As of December 25, 1999, JPS Automotive employed approximately 1,200 persons. JPS Automotive considers relations with its employees to be generally good.
COMPETITION
The market for JPS Automotive's products is highly competitive and is concentrated amongst a small number of North American based companies. Competition is based primarily on price, quality of products and service. Some of JPS Automotive's competitors are larger and have substantially greater financial resources.
TRANSACTIONS AND ARRANGEMENTS WITH AFFILIATES
For a discussion of certain transactions and arrangements between C&A Products and JPS Automotive, see Note 12 to the Notes to the JPS Automotive Consolidated Financial Statements.
YEAR 2000 ISSUES
For a discussion of the impact of Year 2000 compliance issues, see "ITEM 7, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Impact of Year 2000 Compliance".
ITEM 2.
ITEM 2. PROPERTIES
Response to Item 2 of Form 10-K is in accordance with General Instruction I(2)(d) to Form 10-K. JPS Automotive conducts its automotive carpet operations at a manufacturing facility located in South Carolina. Floor space at the facility totals approximately 0.8 million square feet. JPS Automotive conducted its automotive fabrics business at the 0.4 million square foot Cramerton facility. JPS Automotive constructed additional space at an existing C&A Products facility, where C&A Products is producing bodycloth for JPS Automotive on a subcontract basis. JPS Automotive is currently in the process of relocating its headliner business to the C&A Products facility, which has begun producing headliner for JPS Automotive on a subcontract basis. JPS Automotive expects the headliner relocation to be completed during the second quarter of fiscal 2000.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
From time to time, JPS Automotive is involved in various legal proceedings. Management believes that such proceedings are routine in nature and incidental to the conduct of its business, and that none of such proceedings, if determined adversely to JPS Automotive, would have a material adverse effect on the consolidated financial condition or results of operations of JPS Automotive.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted pursuant to General Instruction I(2)(c) to Form 10-K
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
JPS Automotive does not have an established public trading market for its equity securities. The equity securities are held by two wholly-owned subsidiaries of C&A. Products Corp. is a wholly-owned subsidiary of JPS Automotive, Inc.
The indenture governing the Senior Notes generally prohibits JPS Automotive from making certain restricted payments and investments (generally, dividends and distributions on its equity interests; purchases or redemptions of its equity interests; purchases of any indebtedness subordinated to Senior Notes and investments other than as permitted) ("Restricted Payment") unless (i) there is no default under the Senior Notes indenture, (ii) after giving pro forma effect to the Restricted Payment, JPS Automotive would be permitted to incur at least $1.00 of additional indebtedness under the indenture's general test for the incurrence of indebtedness which is a specified ratio (currently 2.5 to 1.0) of cash flow to interest expense and (iii) the
aggregate of all Restricted Payments from the issue date is less than a specified threshold (based, generally, on 50% of cumulative consolidated net income since the issue date plus 100% of the aggregate net cash proceeds of the issuance by JPS Automotive of certain equity and convertible debt securities and cash contributions to JPS Automotive) (the "Restricted Payments Tests"). These conditions were satisfied as of December 25, 1999. The Restricted Payments Tests are subject to a number of significant exceptions.
During fiscal year 1999, JPS Automotive made distributions to C&A Products totaling $3.0 million. During fiscal 1998, JPS Automotive made distributions to C&A Products totaling $10.0 million.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Omitted pursuant to General Instruction (2)(a) to Form 10-K.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Pursuant to General Instruction I(2)(a) to Form 10-K, the following discussion is management's narrative analysis of the results of operations explaining the reasons for material changes in the amount of revenue and expense items between the most recent fiscal year presented and the fiscal year immediately preceding it.
JPS Automotive manufactures and supplies textiles and specialty textile products for passenger car and light truck production in North America. On December 11, 1996, C&A, through its subsidiaries, acquired JPS Automotive from Foamex International in the 1996 Acquisition. The following discussion should be read in conjunction with the consolidated financial statements and related notes thereto of JPS Automotive and Products Corp. included in this report.
1999 COMPARED TO 1998
Net Sales: Net sales for JPS Automotive were $262.8 million in 1999 as compared to $255.6 million in the comparable 1998 period, which represents an increase of 2.8%. A strike at General Motors during 1998 negatively impacted sales by approximately $8.3 million in 1998. The sales increase is partially offset by the decrease in fabric sales due to the continued increase in demand for leather seating applications.
Gross Profit: Gross profit as a percentage of sales decreased to 9.3% in 1999 from 11.1% in 1998. The primary driver of this decrease was $3.7 million of income recognized by Automotive Carpet in 1998 for a reversal of previously established warranty reserves originally recorded for estimated repair and/or replacement costs, offset by a $1.0 million charge for idle equipment at Automotive Fabrics. In addition, in 1999, Automotive Carpet incurred a net charge of $2.2 million, representing the net cumulative impact of a change in the calculation of amounts owed to C&A Products under the terms of the intercompany arrangements discussed in Note 12 to the Notes to the JPS Automotive Consolidated Financial Statements.
Selling, General and Administrative Expenses: Selling, general, and administrative expenses decreased 4.9% to $11.5 million in 1999 down $0.6 million from the comparable 1998 period. Selling, general and administrative expenses for fiscal 1998 were reduced by $4.2 million of income recognized by JPS Automotive related to the collection of a fully reserved receivable balance due from Enjema. Excluding the impact of the Enjema receivable collection, selling, general and administrative expenses would have decreased 29.4% from the comparable 1998 period. This decrease is primarily related to the elimination of certain redundant sales and administrative functions in connection with the 1996 Acquisition as well as cost-cutting efforts at its fabrics operations. This decrease is partially offset by an allocation from C&A Products for administrative services. See Note 12 to the Notes to the JPS Automotive Consolidated Financial Statements.
Restructuring Charge and Impairment of Long-lived Assets: JPS Automotive recognized a $8.6 million charge in 1999 for restructuring and impairment of long-lived assets. See Note 7 to the Notes to the JPS Automotive Consolidated Financial Statements.
Interest Expense: Interest expense, net of interest income, was $8.3 million during 1999 compared to $8.2 million during the comparable 1998 period. During 1999, $0.2 million of interest, related to the construction of additional space for the production of bodycloth at a C&A Products facility, was capitalized.
Income Taxes: JPS Automotive recognized an income tax benefit of $1.1 million during 1999 compared to an income tax provision of $3.6 million in the comparable 1998 period. JPS Automotive's effective tax rates for 1999 was 26.2% compared to 41.6% in the comparable 1998 period. The percentage decrease is due to the impact of certain state taxes and nondeductible goodwill, which do not fluctuate with income.
Cumulative Effect of Change in Accounting Principle: JPS Automotive adopted the provisions of Statement of Position No. 98-5, "Reporting on the Costs of Start- Up Activities ("SOP 98-5") at the beginning of the first quarter of 1999. SOP 98-5 provides guidance on the financial reporting of start-up costs and organization costs and requires that all nongovernmental entities expense the costs of start-up activities as these costs are incurred instead of being capitalized and amortized. The initial impact of adopting SOP 98-5 resulted in a charge of $0.8 million, net of income taxes of $0.5 million.
Net Income:. The combined effect of the foregoing resulted in a net loss of $3.8 million during 1999, compared to net income of $4.9 million during the comparable 1998 period.
LIQUIDITY AND CAPITAL RESOURCES
JPS Automotive's operating cash requirements consist principally of working capital requirements, scheduled payments of principal and interest on its outstanding indebtedness and capital expenditures. JPS Automotive believes the cash flow from operating activities, cash on hand and periodic capital contributions and borrowings will be adequate to meet operating cash requirements. For a discussion of certain transactions and arrangements and proposed transactions and arrangements between C&A Products and JPS Automotive, see Note 12 to the Notes to the JPS Automotive Consolidated Financial Statements.
IMPACT OF YEAR 2000 COMPLIANCE
In accordance with arrangements between JPS Automotive and C&A Products, C&A Products provides administrative and management services to JPS Automotive. These services include business planning and management information systems services for JPS Automotive. Accordingly, JPS Automotive is part of C&A Products' comprehensive plan intended to address Year 2000 issues. JPS Automotive has currently not experienced any significant systems or other Year 2000 problems. C&A Products' comprehensive plan to address Year 2000 issues (the "Year 2000 Plan") included the acceleration of the Business Systems Integration Plan (the "BSIP Plan"). The total cost of the JPS Automotive's Year 2000 Plan was $0.7 million. Included in this amount are $0.5 million of salaries and other payroll costs of Company employees to the extent that they devoted a portion of their time to the project.
SAFE HARBOR STATEMENT
This Form 10-K contains statements which, to the extent they are not historical fact, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the "Safe Harbor Acts"). All forward-looking statements involve risks and uncertainties. The forward-looking statements in this Form 10-K are intended to be subject to the safe harbor protection provided by the Safe Harbor Acts.
Risks and uncertainties that could cause actual results to vary materially from those anticipated in the forward-looking statements included in this Form 10-K include industry-based factors such as possible declines in the North American automobile and light truck build, labor strikes at JPS Automotive's major customers, changes in consumer preferences, dependence on significant automotive customers, changes in the popularity of particular car models or particular interior trim packages, the loss of programs on particular car models, the level of competition in the automotive supply industry, pricing pressure from automotive customers, and Year 2000 compliance issues, as well as factors more specific to JPS Automotive, such as the substantial leverage of JPS Automotive and limitations imposed by the Senior Notes. For a discussion of certain of these and other
important factors which may affect the operations, products and markets of JPS Automotive, see "ITEM 1. BUSINESS" and the above discussion in this "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," and Notes to JPS Automotive Consolidated Financial Statements and see also JPS Automotive's other filings with the Securities and Exchange Commission.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
JPS Automotive does not have any exposure to market risk for changes in interest rates and foreign exchange rates.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Consolidated Financial Statements of JPS Automotive and subsidiaries and Products Corp. included herein and listed on the indices to the Consolidated Financial Statements and Financial Statement Schedule as set forth in Item 14 of this Form 10-K.
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 Registrants
Omitted pursuant to General Instruction I(2)(c) to Form 10-K.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Omitted pursuant to General Instruction I(2)(c) to Form 10-K.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Omitted pursuant to General Instruction I(2)(c) to Form 10-K.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted pursuant to General Instruction I(2)(c) to Form 10-K.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Financial Statements The financial statements listed in the accompanying Index to Consolidated Financial Statements are filed as part of this Report on Form 10-K.
(b) Reports on Form 8-K During the last quarter of the period covered by this Report or Form 10-K, the Company filed no reports on Form 8-K.
(c) Exhibits
Exhibit Number Description
3.1 Certificate of Incorporation of Products Corp. is hereby incorporated by reference to Exhibit 3.1 of Products Corp.'s Registration Statement on Form S-1, Registration No. 33-75510.
3.2 By-laws of Products Corp. are hereby incorporated by reference to Exhibit 3.2 of Products Corp.'s Registration Statement on Form S-1, Registration No. 33-75510.
3.3 PACJ's Certificate of Incorporation.
3.4 Bylaws of PACJ, Inc.
3.5 Agreement and Plan of Merger dated as of January 1, 2000 by and between PACJ, Inc. and JPS Automotive L.P. is hereby incorporated by reference to Exhibit 2.1 of the Form 8-K of JPS Automotive and Products Corp. dated January 28, 2000.
4.1 Indenture dated as of June 28, 1994, between Products Corp., as Issuer, JPS Automotive, as Guarantor, and Shawmut Bank Connecticut, N.A., as Trustee, relating to $180,000,000 principal amount of 11- 1/8% Senior Notes due 2001 including form of the JPS Automotive Senior Note is hereby incorporated by reference to Exhibit 4.2 of Products Corp.'s Registration Statement on Form S-1, Registration No. 33-75510.
4.2 First Supplemental Indenture, dated as of October 5, 1994, between Products Corp. and JPS Automotive, as Co-Obligors, and Shawmut Bank Connecticut, N.A., as Trustee, relating to the JPS Automotive Senior Notes is hereby incorporated by reference to Exhibit 4.48A of Form 10-Q of JPS Automotive and Products Corp. for the fiscal quarter ended October 2, 1994.
4.3 Second Supplemental Indenture dated January 28, 2000 by and among JPS Automotive L.P., JPS Automotive Products Corp., PACJ, Inc. and State Street Bank and Trust Company, as Successor Trustee is hereby incorporated by reference to Exhibit 4.1 of the Form 8-K of JPS Automotive and Products Corp. dated January 28, 2000.
Certain instruments defining the rights of security holders have been excluded herefrom in accordance with Item 601(b)(4)(iii)(A) of Regulation S-K. The Registrants hereby agree to furnish a copy of any such instrument to the Commission upon request.
10.1 Services Agreement, by and between JPS Automotive and Foamex International is hereby incorporated by reference to Exhibit 10.2 of Products Corp.'s Registration Statement on Form S-1, Registration No. 33-75510.
10.2 Supply Agreement, by and among Foamex International and certain of its affiliates and JPS Automotive is incorporated by reference to Exhibit 10.8 of Products Corp.'s Registration Statement on Form S-1, Registration No. 33-75510.
10.3 Tax-sharing Agreement, by and among JPS Automotive and its partners is incorporated by reference to Exhibit 10.9 of Products Corp.'s Registration Statement on Form S-1, Registration No. 33-75510.
10.4 Assignment dated as of December 11, 1996, from Foamex International to C&A Products relating to Services Agreement, is hereby incorporated by reference to Exhibit 10.10 of the Form 10-K of JPS Automotive and Products Corp. for the transition period from January 1, 1996 to December 28, 1996.
10.5 Assignment dated as of December 11, 1996, from Foamex-JPS Automotive L.P. to C&A Products relating to Tax-Sharing Agreement, is hereby incorporated by reference to Exhibit 10.11 of the Form 10-K of JPS Automotive and Products Corp. for the transition period from January 1, 1996 to December 28, 1996.
10.6 Assignment dated as of December 11, 1996, from JPSGP, Inc. to C&A Products relating to Tax-Sharing Agreement, is hereby incorporated by reference to Exhibit 10.12 of the Form 10-K of JPS Automotive and Products Corp. for the transition period from January 1, 1996 to December 28, 1996.
10.7 Assignment dated as of December 11, 1996, from Foamex to C&A Products relating to Supply Agreement, is hereby incorporated by reference to Exhibit 10.13 of the Form 10-K of JPS Automotive and Products Corp. for the transition period from January 1, 1996 to December 28, 1996.
10.8 Equity Purchase Agreement by and among JPSGP, Inc., Foamex - JPS Automotive L.P. and Collins & Aikman Products Co. dated August 28, 1996, is hereby incorporated by reference to Exhibit 2.1 of Collins & Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended July 27, 1996.
10.9 Amendment No. 1 to Equity Purchase Agreement by and among JPSGP, Inc., Foamex - JPS Automotive L.P., Foamex International Inc. and Collins & Aikman Products Co. dated as of December 11, 1996, is hereby incorporated by reference to Exhibit 2.2 of Collins & Aikman Corporation's Current Report on Form 8-K dated December 10, 1996.
10.10 Post 1996 Acquisition Arrangements Under JPS Automotive Services Agreement is hereby incorporated by reference to Exhibit 10.15 of the Form 10-K of JPS Automotive and Products Corp. for the fiscal year ended December 27, 1997.
10.11 Asset Purchase Agreement dated as of June 30, 1997 by and among JPS Automotive L.P. and Safety Components International, Inc. is hereby incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K of JPS Automotive and Products Corp. dated July 24, 1997.
10.12 Closing Agreement dated as of July 24, 1997 by and among JPS Automotive L.P., Safety Components International, Inc. and Safety Components Fabric Technologies, Inc. is hereby incorporated by reference to Exhibit 2.2 of the Current Report on Form 8-K of JPS Automotive and Products Corp. dated July 24, 1997.
27 Financial Data Schedules
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized on the 24th day of March, 2000.
JPS AUTOMOTIVE, INC.
By: /s/ Rajesh K. Shah ------------------------------------- Rajesh K. Shah Executive Vice President and Chief Financial Officer
JPS AUTOMOTIVE PRODUCTS CORP.
By: /s/ Rajesh K. Shah ------------------------------------ Rajesh K. Shah Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrants and in the capacities and on the dates indicated:
Signatures Title Date - ---------- ----- ----
/s/ Thomas E. Evans Director and Chief Executive March 24, 2000 - -------------------- Officer of JPS Automotive, Inc. Thomas E. Evans (Principal Executive Officer)
/s/ Rajesh K. Shah Director and Executive Vice March 24, 2000 - -------------------- President and Chief Financial Rajesh K. Shah Officer (Principal Financial and Accounting Officer) of JPS Automotive Products Corp and JPS Automotive, Inc.
JPS AUTOMOTIVE L.P. JPS AUTOMOTIVE PRODUCTS CORP.
Index to Consolidated Financial Statements
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To JPS Automotive, Inc.:
We have audited the accompanying consolidated balance sheets of JPS Automotive L.P. (a Delaware limited partnership and an indirect subsidiary of Collins & Aikman Corporation) and subsidiaries as of December 25, 1999, and December 26, 1998, and the related consolidated statements of operations, owners' equity, and cash flows for each of the three fiscal years in the period ended December 25, 1999. These consolidated financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. 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.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of JPS Automotive L.P. and subsidiaries as of December 25, 1999 and December 26, 1998, and the results of their operations and their cash flows for each of the three fiscal years in the period ended December 25, 1999, in conformity with accounting principles generally accepted in the United States.
As explained in Note 3 to the consolidated financial statements, effective December 27, 1998, JPS Automotive L.P. changed its method of accounting for start-up costs and organization costs in accordance with SOP 98-5, "Reporting on the Costs of Start-up Activities".
Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP Charlotte, North Carolina, March 1, 2000.
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands)
The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OWNERS' EQUITY (in thousands)
The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
JPS Automotive L.P. and subsidiaries ("JPS Automotive" or the "Company") operate in the automotive products segment in North America, including the design, manufacture and sale of carpet components and interior fabrics for passenger cars and light trucks.
On December 11, 1996, Collins & Aikman Corporation ("C&A"), through its subsidiaries, acquired JPS Automotive from Foamex International Inc. ("Foamex") pursuant to an Equity Purchase Agreement dated August 28, 1996, as amended December 11, 1996 (the "1996 Acquisition"). In the 1996 Acquisition, Collins & Aikman Products Co. ("C&A Products"), a wholly owned subsidiary of C&A, acquired a .9999% limited partnership interest in JPS Automotive from Foamex and a 99% limited partnership interest in JPS Automotive from Foamex- JPS Automotive L.P. ("FJPS"). PACJ, Inc., a wholly owned subsidiary of C&A Products, acquired a .0001% general partnership interest in JPS Automotive from JPSGP Inc. ("JPSGP"). Accordingly, 100% of the partnership interests in JPS Automotive are owned by PACJ, Inc. and C&A Products, which are, respectively, indirect and direct wholly owned subsidiaries of C&A. Additionally, on December 11, 1996, C&A Products also acquired from Seiren Co. Ltd. and its affiliates a minority interest in Cramerton Automotive Products, L.P. and Cramerton Management Corporation, which are JPS Automotive subsidiaries that were merged in December 1997 under the name Cramerton Automotive Products, Inc. ("Cramerton"). JPS Automotive subsequently acquired the minority interest previously held by C&A Products and now owns 100% of Cramerton.
On January 28, 2000, JPS Automotive merged into and with its general partner, PACJ, Inc. See Note 18.
2. JPS AUTOMOTIVE ACQUISITION:
As discussed in Note 1, on December 11, 1996, C&A, through its subsidiaries, acquired JPS Automotive from Foamex pursuant to an Equity Purchase Agreement dated August 28, 1996, as amended December 11, 1996. The purchase price for the 1996 Acquisition was an aggregate of approximately $220 million, consisting of approximately $195 million of indebtedness of JPS Automotive and $25 million in cash paid to Foamex. During 1997, C&A finalized the purchase price and received approximately $11.2 million from the seller as a reduction of the purchase price.
In connection with the 1996 Acquisition, C&A, through its subsidiaries, acquired approximately $68 million of the Company's outstanding 11-1/8% Senior Notes due 2001 (the "Senior Notes"), which were subsequently retired by the Company. In addition, at the time of closing, approximately $15 million of the Company's outstanding debt was repaid. See Note 6. The Senior Notes formerly held by C&A and the funds used to repay the Company's outstanding bank indebtedness were recorded as capital contributions to the Company from C&A and its subsidiaries.
The aggregate investment of approximately $119 million in connection with the acquisition of JPS Automotive by C&A and its subsidiaries was funded by borrowings under C&A's credit facilities.
The 1996 Acquisition has been accounted for as a purchase and, pursuant to the provisions of Staff Accounting Bulletin No. 54 ("SAB No. 54") and the rules of pushdown accounting, the 1996 Acquisition gave rise to a new basis of accounting. The purchase price and related acquisition expenses exceeded the fair value of the net assets acquired. The purchase price in excess of the net assets acquired has been pushed down and recorded in the accompanying consolidated balance sheet as goodwill. The excess of the purchase price over the estimated fair value of the net assets acquired (goodwill) is being amortized over 40 years.
Following the acquisition by C&A Products of JPS Automotive in December 1996, C&A Products began to develop plans to rationalize certain manufacturing locations as well as marketing and administrative functions. These transactions and arrangements and proposed transactions and
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
arrangements were approved by the Board of Directors of PACJ, Inc., the general partner of JPS Automotive, and were reviewed by an investment banking firm of national standing, which issued an opinion confirming they are fair to JPS Automotive from a financial point of view. See Note 12 for further discussion.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION - The consolidated financial statements include the accounts of JPS Automotive and all subsidiaries that JPS Automotive directly or indirectly controls, either through majority ownership or otherwise. Intercompany accounts and transactions have been eliminated in consolidation.
FISCAL YEAR - JPS Automotive's fiscal year ends on the last Saturday of December.
ACCOUNTING ESTIMATES - The preparation of consolidated 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 disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
INVENTORIES - Inventories are stated at the lower of cost or market. The cost of the inventories is determined on a first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. The range of useful lives estimated for buildings is generally 25 to 40 years and the range for machinery, equipment and furnishings is 3 to 15 years. Leasehold improvements are amortized over the shorter of the terms for the respective leases or the estimated lives of the leasehold improvements. It is the Company's policy to capitalize interest on ongoing projects. During 1999, $0.2 million of interest, related to the construction of additional space for the production of bodycloth and headliner at a C&A Products facility, was capitalized. See Note 12.
LONG-LIVED ASSETS - Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. SFAS No. 121 requires that long- lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, and that certain long-lived assets and identifiable intangibles to be disposed of be reported at the lower of carrying amount or fair value less cost to sell. In conjunction with the Reorganization, hereinafter defined, JPS Automotive recorded an asset impairment of $2.0 million.
DEBT ISSUANCE COSTS - Debt issuance costs consist of amounts incurred in obtaining long-term financing. These costs are amortized over the term of the related debt using the interest method. Accumulated amortization as of December 25, 1999, was approximately $2.2 million.
GOODWILL - As discussed in Note 2, the acquisition of JPS Automotive by C&A has been accounted for as a purchase and, pursuant to SAB No. 54 and the rules of pushdown accounting, gave rise to a new basis of accounting. As a result, the amount by which the purchase price and related acquisition expenses exceeded the fair value of the net assets acquired has been recorded by JPS Automotive as goodwill in the accompanying December 25, 1999 and December 26, 1998 consolidated balance sheets and is being amortized over a 40-year period. Accumulated amortization as of
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 25, 1999 and December 26, 1998 was approximately $8.0 million and $5.3 million, respectively. The carrying value of goodwill is reviewed periodically based on the undiscounted cash flows and pretax income over the remaining amortization period. Should this review indicate that the goodwill balance will not be recoverable, the Company's carrying value of goodwill will be reduced. At December 25, 1999, the Company believes the goodwill is fully recoverable.
ENVIRONMENTAL MATTERS - The Company records its best estimate when it believes it is probable that an environmental liability has been incurred and the amount of loss can be reasonably estimated. The Company also considers estimates of certain reasonably possible environmental liabilities in determining the aggregate amount of environmental reserves. See Note 13.
REVENUE RECOGNITION - JPS Automotive recognizes revenue from product sales when it has shipped the goods. JPS Automotive generally allows its customers the right of return only in the case of defective products. JPS Automotive provides a reserve for estimated defective product costs at the time of the sale of the products.
INCOME TAXES - Income taxes for all periods are determined in accordance with SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 requires the use of the asset and liability method in which deferred income taxes are provided for temporary differences between the financial reporting and income tax basis of assets and liabilities using the income tax rates, under existing legislation, expected to be in effect at the date such temporary differences are expected to reverse.
Immediately prior to the 1996 Acquisition, JPS Automotive was converted from a Delaware limited partnership into an association which is taxable as a corporation for federal, state and local income tax purposes. The Company is included in the consolidated federal income tax return of C&A. Income taxes for periods subsequent to the 1996 Acquisition reflect the pushdown of JPS Automotive's impact on the consolidated tax position of C&A.
JPS Automotive has a tax-sharing agreement that provides for payment to the partners of amounts that would be required to be paid if JPS Automotive were a corporation filing separate income tax returns. At the time of the 1996 Acquisition, Foamex assigned to C&A Products the tax-sharing agreement.
NEWLY ISSUED ACCOUNTING STANDARDS - In April 1998, the American Institute of Certified Public Accountants issued Statement of Position No. 98-5, "Reporting on the Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5 provides guidance on the financial reporting of start-up costs and organization costs and requires that all nongovernmental entities expense the costs of start-up activities as these costs are incurred instead of being capitalized and amortized. SOP 98-5 is effective for financial statements for fiscal years beginning after December 15, 1998, and the initial application of this pronouncement was reported as a cumulative effect of a change in accounting principle. JPS Automotive adopted SOP 98-5 on December 27, 1998. The initial impact of the adoption of SOP 98-5 at the beginning of fiscal 1999 was $0.8 million, net of income taxes of $0.5 million.
In September 1999, the FASB's Emerging Issues Task Force ("EITF") reached a consensus regarding EITF Issue No. 99-5, "Accounting for Pre-Production Costs Related to Long-Term Supply Arrangements" ("EITF No. 99-5"). EITF No. 99-5 requires that design and development costs for products to be sold under long- term supply arrangements be expensed as incurred, and costs incurred for molds, dies and other tools that will be used in producing the products under long-term supply agreements be capitalized and amortized over the shorter of the expected useful life of the assets or the term of the supply arrangement. The consensus can be applied prospectively to costs incurred after December 31, 1999 or as a cumulative effect of a change in accounting principle as of the beginning of a company's fiscal year. JPS Automotive is currently analyzing the impact of EITF No. 99-5.
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVENTORIES:
The components of inventories consist of (in thousands):
5. ACCRUED EXPENSES:
Accrued expenses are summarized below (in thousands):
6. LONG-TERM DEBT:
Long-term debt consists of (in thousands):
The Senior Notes were issued on June 28, 1994. Interest on the Senior Notes is payable semiannually on June 15 and December 15 of each year. The Senior Notes mature on June 15, 2001.
On the 1996 Acquisition date, $180 million principal amount of the Senior Notes were outstanding. As discussed in Note 12, of this amount, approximately $68 million had been purchased by C&A prior to the 1996 Acquisition on the open market and were subsequently retired by JPS Automotive. The total capital contribution resulting in the retirement of these Senior Notes was approximately $70.2 million. In addition, in connection with the purchase accounting for the 1996 Acquisition, the remaining approximately $112 million in face value of Senior Notes were recorded at a market value of $117.2 million on the date of the 1996 Acquisition. The bond premium is being amortized as a reduction of interest expense over the remaining term of the Senior Notes and will result in an effective interest rate of approximately 10% for periods after the 1996 Acquisition.
The Company is not required to make mandatory redemption or sinking fund payments except in the case of certain asset sales or a change of control (as defined in the indenture for the Senior Notes). In addition, the Senior Notes are not subject to optional redemption, except in connection with certain public offerings of common stock or following a change of control (as so defined). The 1996 Acquisition resulted in a change of control which, under the terms of the indenture for the Senior Notes, gave holders of the Senior Notes the right to put their notes to JPS Automotive at a price of 101% of their principal amount plus accrued interest. Approximately $3.9 million principal amount of Senior Notes were so put to
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the Company and then repurchased on March 10, 1997. In addition, JPS Automotive repurchased $23 thousand principal amount of Senior Notes in conjunction with an offer to purchase as a result of the 1997 sale of its airbag industrial fabric operation ("Airbag"). See Note 11. In addition, during 1997, JPS Automotive repurchased $19.4 million of Senior Notes in the open market. These notes were subsequently retired. In conjunction with the 1997 repurchases, JPS Automotive recognized an extraordinary loss of $721 thousand, net of income taxes of $442 thousand. To fund these purchases (including premium and interest paid), C&A Products made capital contributions as well as loaned funds in accordance with the revolving credit arrangement discussed in Note 12. During 1998, JPS Automotive repurchased on the open market and retired $2.6 million principal amount of Senior Notes. In conjunction with the 1998 repurchases, JPS Automotive recognized an extraordinary loss of $132 thousand, net of income taxes of $90 thousand. There were no repurchases for JPS Automotive during 1999.
The indenture governing the Senior Notes generally prohibits JPS Automotive from making certain payments and investments (generally, dividends and distributions on its equity interests, purchases or redemptions of its equity interests, purchases of any indebtedness subordinated to the Senior Notes and investments other than as permitted) (the "Restricted Payments") unless (i) there is no default under the Senior Notes indenture; (ii) after giving pro forma effect to the Restricted Payment, JPS Automotive would be permitted to incur at least $1.00 of additional indebtedness under the indenture's general test for the incurrence of indebtedness which is a specified ratio (currently 2.5 to 1.0) of cashflow to interest expense, and (iii) the aggregate of all Restricted Payments from the issue date is less than a specified threshold (based, generally, on 50% of JPS Automotive's cumulative consolidated net income, since the issue date, plus 100% of the aggregate net cash proceeds of the issuance by JPS Automotive of certain equity and convertible debt securities and cash contributions to JPS Automotive) (the "Restricted Payments Tests"). These conditions were satisfied immediately following the 1996 Acquisition, and as of December 25, 1999. The Restricted Payments Tests are subject to a number of significant exceptions. The indenture governing the Senior Notes also contains other restrictive covenants (including, among others, limitations on the incurrence of indebtedness and preferred stock, asset dispositions and transactions with affiliates including C&A and C&A Products) which are customary for such securities. These covenants are also subject to a number of significant exceptions.
The Senior Notes rank senior in right of payment to all existing or future subordinated indebtedness of JPS Automotive and on an equal basis in right of payment with all existing or future senior indebtedness of JPS Automotive.
Total interest paid by JPS Automotive on all indebtedness was $9.6 million, $9.5 million and $10.9 million for the years ended December 25, 1999, December 26, 1998 and December 27, 1997, respectively.
7. RESTRUCTURING:
On February 10, 1999, C&A Products announced a comprehensive plan (the "Reorganization") to reorganize its global automotive carpet, acoustics, plastics and accessory floormats businesses. During 1999, JPS Automotive recognized a restructuring charge related to the Reorganization of $0.3 million. The restructuring charge of $0.3 million represents severance costs associated with the reduction of administrative personnel at JPS Automotive's carpet facility. As of December 25, 1999, approximately $0.1 million had been spent in severance and related costs.
On September 22, 1999, JPS Automotive completed the sale of its facility located in Cramerton, North Carolina for a sales price of $6 million, resulting in a loss on the sale of $4.9 million, and additional asset impairments, of certain machinery and equipment used in production, of $2.0 million. In addition, JPS Automotive established a reserve of $1.4 million for severance costs to be paid to the approximately 150 employees affected by the sale. At December 25, 1999, approximately 100 employees had been terminated. As of December 25, 1999, approximately $0.4 million had been spent in severance and related costs. JPS Automotive and C&A Products are in the process of relocating the headliner business from the Cramerton, North Carolina facility to a C&A Products facility where C&A Products has begun producing headliner for JPS Automotive on a subcontract basis.
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with the 1996 Acquisition, JPS Automotive eliminated certain redundant sales and administrative functions and closed one manufacturing facility in 1997, a second facility in January 1998, and a third facility in June 1998. In June 1999, JPS Automotive completed the process of relocating bodycloth production from a JPS Automotive facility to an existing C&A Products facility. These actions affected approximately 640 employees. Total costs accrued for the shutdown of facilities and severance and other personnel costs were $2.7 million and $7.7 million, respectively. The remaining reserve of $0.1 million will be used for severance benefits.
8. EMPLOYEE BENEFIT PLANS:
The 1996 Acquisition did not significantly affect the employee benefit plans offered to the employees of JPS Automotive. Effective December 31, 1997, the defined benefit, defined contribution and postretirement benefit plans of JPS Automotive were merged into the plans of C&A. Under the provisions of these plan mergers, the accounts established in the C&A plans for the active plan participants were credited for benefits earned in the JPS Automotive plans through December 31, 1997. These plan mergers did not significantly affect the benefits provided to retired, fully vested or active plan participants.
DEFINED PENSION AND POSTRETIREMENT BENEFIT PLANS - Salaried and certain hourly employees of JPS Automotive participate in a plan sponsored by C&A products. Benefits are based on the employees' final average compensation, years of benefit service, the covered compensation in effect at retirement and the employees' ages when payment begins. The funding policy is to contribute annually an amount that both satisfies the minimum funding requirements of the Employee Retirement Income Security Act of 1974 and does not exceed the full funding limitations of the Internal Revenue Code of 1986, as amended. Plan investments consist primarily of equity and fixed income securities.
JPS Automotive also provides postretirement health care and life insurance benefits for eligible employees and retirees of the Company and retirees of the Predecessor Company. These plans are unfunded and JPS Automotive retains the right to modify or eliminate these benefits.
In December 1997, another subsidiary of C&A Products assumed the postretirement benefit liabilities of certain participants who, as of January 1, 1997, were either active and fully eligible or retired. As a result, postretirement benefit liabilities totaling $1.3 million and related deferred tax assets of $0.5 million were eliminated and a gain of $0.8 million was recorded as a fiscal 1997 net capital contribution from C&A Products due to the related party nature of this transaction. JPS Automotive will remain contingently liable for these postretirement liabilities.
The following tables provide a reconciliation of the projected benefit obligation, a reconciliation of plan assets, the funded status of the plans, and amounts recognized in the JPS Automotive's consolidated balance sheets, at December 25, 1999 and December 26, 1998 (in thousands):
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 25, 1999, there were no pension plans with accumulated benefit obligation in excess of plan assets. As of December 26, 1998, the projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $3.8 million, $3.5 million and $2.6 million, respectively.
The net periodic benefit cost of continuing operations for 1999, 1998, and 1997 includes the following components (in thousands):
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Weighted average assumptions used in the above actuarial computations are summarized as follows:
Since JPS Automotive 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.
DEFINED CONTRIBUTION PLAN - JPS Automotive participates in the C&A Products defined contribution plan qualified under Section 401(k) of the Internal Revenue Code that covers eligible nonunion employees. Employee contributions are voluntary and subject to certain limitations as imposed by the Internal Revenue Code. JPS Automotive's contributions for the years ended December 25, 1999, December 26, 1998 and December 27, 1997 were approximately $0.2 million, $0.1 million and $0.3 million, respectively.
9. INCOME TAXES:
Immediately prior to the 1996 Acquisition, JPS Automotive was converted from a Delaware limited partnership into an association which is taxable as a corporation for federal, state and local income tax purposes. The purchase of the entire equity interest in JPS Automotive has been treated as a stock acquisition for federal, state and local income tax purposes. JPS Automotive remains a Delaware limited partnership for all purposes other than federal and state income taxes.
The acquisition of Cramerton resulted in a termination of the partnership's tax status, resulting in a step-up to fair market value for the underlying assets of Cramerton. Cramerton, a Delaware limited partnership, was recognized as a partnership for tax purposes subsequent to the acquisition. In December 1997, Cramerton was merged into its managing general partner and became taxable as a corporation.
The Company is included in the consolidated federal income tax return of C&A. Income taxes for periods subsequent to the 1996 Acquisition reflect the pushdown of JPS Automotive's impact on the consolidated tax position of C&A.
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The provision (benefit) for income taxes of continuing operations includes the following (in thousands):
For the periods prior to the 1996 Acquisition, no amounts were payable by JPS Automotive under the provisions of its tax-sharing agreement. For the periods subsequent to the 1996 Acquisition, no amounts were payable by or due to JPS Automotive under the terms of the tax-sharing agreement assumed by C&A Products in the 1996 Acquisition. However, as discussed in Note 12, C&A has agreed to reimburse JPS Automotive for tax benefits utilized in its consolidated tax return totaling $3.7 million for fiscal 1999 and $0.3 million for fiscal 1998.
A reconciliation of the statutory federal income taxes (based on 35% rate) of continuing operations to the effective income tax is as follows (in thousands):
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As a result of the change in the Company's tax status that resulted from the 1996 Acquisition, deferred tax assets and liabilities of JPS Automotive and Cramerton are provided on the temporary differences between the financial reporting and tax bases of the Company's assets and liabilities. While the equity purchase of JPS Automotive results in carryover tax basis in the assets, such carryover basis reflects the fair market value as a result of the deemed taxable sale and revaluation to fair market value in the hands of the seller just prior to the purchase by C&A and its subsidiaries. The components of the net deferred tax assets as of December 25, 1999 and December 26, 1998, were as follows (in thousands):
The above amounts have been classified in the consolidated December 25, 1999, and December 26, 1998, balance sheets as follows (in thousands):
No income taxes were paid for the years ended December 25, 1999, December 26, 1998 and December 27, 1997.
10. COMMITMENTS AND CONTINGENCIES:
Operating Leases - JPS Automotive is obligated under various noncancellable lease agreements for rental of facilities, machinery and computer equipment which remained outstanding following the 1996 Acquisition. Total minimum rental commitments required under operating leases at December 25, 1999, are (in thousands):
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Rental expense charged to continuing operations under operating leases by the Company approximated $0.8 million, $1.0 million and $1.2 million for the years ended December 25, 1999, December 26, 1998 and December 27, 1997, respectively. Rental expense includes the minimum rental payments under operating leases and other short-term rentals.
11. DISCONTINUED OPERATIONS:
On July 24, 1997, JPS Automotive completed the sale of Airbag to Safety Components International, Inc. for a purchase price of approximately $56.3 million. No gain or loss was recorded on the sale since the sales price approximated the acquisition fair value of Airbag. Pursuant to the indenture governing the Senior Notes, in connection with the sale of Airbag, the Company caused JPS Automotive to make an offer to purchase (up to the amount of the net proceeds from the sale) the Senior Notes at 100% of their principal amount. Pursuant to such offer, JPS Automotive repurchased and retired $23 thousand principal amount of Senior Notes. During October 1997, the Company caused JPS Automotive to use a portion of the proceeds remaining from the sale of Airbag to make a distribution of $35.0 million to C&A Products, as permitted under the restricted payments provision of the Senior Notes indenture. See Note 6.
JPS Automotive has accounted for the financial results and net assets of Airbag as a discontinued operation. Net sales and net income of Airbag prior to its sale were approximately $41.0 million and $1.7 million for the year ended December 27, 1997.
12. RELATED-PARTY TRANSACTIONS AND ALLOCATIONS:
At December 25, 1999, C&A Products has pledged the ownership interests in its significant subsidiaries, including its partnership interests in the Company, as security for debt of C&A Products totaling $418.6 million.
Following the acquisition by C&A Products of JPS Automotive in December 1996, C&A Products began to develop plans to rationalize certain manufacturing locations as well as marketing and administrative functions. This rationalization involved transactions and arrangements between JPS Automotive and C&A Products, which were approved by the Board of Directors of PACJ, Inc., the general partner of JPS Automotive, and were reviewed by an investment banking firm of national standing, which rendered an opinion that they were fair to JPS Automotive from a financial point of view.
The transactions and arrangements and proposed transactions and arrangements include the following: (i) the provision by C&A Products of additional administrative, management, marketing and program management services pursuant to a preexisting services agreement assigned to C&A Products by Foamex (the "Existing Services Agreement"), (ii) the purchase from and sale to C&A Products and its subsidiaries of certain manufacturing assets, (iii) the transfer of manufacturing responsibility for certain automotive programs, and for the manufacturing of automotive carpet roll goods, to C&A Products and its subsidiaries and from C&A Products to JPS Automotive, and (iv) the transfer of certain automotive programs from JPS Automotive to C&A Products and its subsidiaries and from C&A Products to JPS Automotive.
The compensation paid by JPS Automotive to C&A Products for the services provided by C&A Products under the Existing Services Agreement, including the additional services described above, includes all reasonable expenses of C&A Products employees assigned to perform the services, all reasonable out-of- pocket expenses incurred by C&A Products and an amount to cover C&A Products' overhead, not to exceed the lesser of (x) C&A Products' budgeted estimate for such costs for 1997, as adjusted annually for changes in general producer price levels for the carpet industry and (y) the actual annual cost savings achieved from the elimination of managerial, marketing and program management functions at JPS Automotive. Assets sold by JPS Automotive to C&A Products in connection with the rationalization process are generally sold for a purchase price equal to the greater of the book value of the assets sold or their appraised fair market value. Assets sold by C&A Products to JPS Automotive
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
generally are sold for a purchase price equal to the lesser of their book value or fair market value, as determined by an independent appraisal in the case of assets having book values in excess of $100,000 at the time of the sale. Where manufacturing responsibility for a program is transferred, the manufacturer receives a fee equal to its costs of production, including management overhead, plus a 10% fee. In addition, a party for whom carpet roll goods are manufactured pays for the goods at the manufacturer's standard cost, subject to certain exceptions, including that in no event will JPS Automotive pay to C&A Products an amount greater than JPS Automotive's standard cost to produce carpet roll goods. During 1999, JPS Automotive and C&A Products evaluated the terms of the transactions and determined that certain costs had been excluded from the fee calculations. As a result, C&A Products billed JPS Automotive approximately $3.9 million in December 1999, representing the cumulative amount owed C&A Products for 1997, 1998 and 1999, under the terms of the intercompany arrangements. In addition, JPS Automotive billed C&A Products approximately $1.7 million in December 1999, representing the cumulative amount owed JPS Automotive for 1997, 1998 and 1999, under the terms of the intercompany arrangements.
During the first quarter of 1998, pursuant to the rationalization process, JPS Automotive transferred to Collins & Aikman Canada Inc. ("C&A Canada") and C&A Products two programs for the production of automotive carpet products for aggregate consideration of $4.3 million. One of these contracts was manufactured by C&A Canada for JPS Automotive during a portion of 1997 on a royalty basis. Due to the related party nature of the transfer, the $4.3 million received by JPS Automotive, and the related tax provision of $1.6 million, was treated as a capital contribution from C&A Products in the accompanying financial statements. At December 26, 1998, uncollected capital contributions are included in the balance of receivables from related parties. During 1998, C&A Products transferred to JPS Automotive as an equity contribution all but one of the automotive soft trim programs formerly produced by C&A Products at its Salisbury, North Carolina, facility. Twenty-seven programs relating to the closure of the Salisbury facility were transferred to JPS Automotive during the second quarter of 1998 in accordance with the arrangements between JPS Automotive and C&A Products. JPS Automotive did not pay any amounts to C&A Products for these contracts. C&A Products also agreed to make additional cash equity contributions to JPS Automotive if JPS Automotive was unable to earn a specified level of operating profit on the contracts transferred from the Salisbury plant. JPS Automotive did not earn the specified level of operating profit and C&A Products made an additional equity contribution of $1.4 million to JPS Automotive in the fourth quarter of 1998. During 1999, JPS Automotive earned the specified level of operating profit on these contracts.
JPS Automotive paid or accrued the following amounts in connection with the transactions described above and related transactions for the years ended December 25, 1999, December 26, 1998, and December 27, 1997 respectively: (i) $7.5 million, $7.8 million and $5.5 million for administrative and other services, (ii) $112.1 million, $62.5 million and $7.3 million for contract manufacturing services, (including the purchase of roll goods) provided to JPS Automotive by C&A Products and its subsidiaries. In addition, during 1999, 1998 and 1997, respectively, JPS Automotive recorded sales of $23.1 million and $33.2 million and 7.9 million relating to contract manufacturing services (including the sale of roll goods) provided to C&A Products and its subsidiaries.
During 1998, machinery and equipment was sold to C&A Products for an aggregate sales price of $0.9 million with the resulting gain of $244 thousand, net of income taxes of $145 thousand, recorded as a capital contribution from C&A Products due to the related-party nature of the transactions. At December 26, 1998, uncollected capital contributions are included in the balance of receivables from related parties. Finally, during 1997, machinery and equipment was sold to C&A Products for an aggregate sales price of $6.0 million with the resulting gain of $3.8 million and the related income taxes recorded as a capital contribution from C&A Products due to the related-party nature of the transactions.
C&A Products and JPS Automotive have entered into several additional arrangements including, among others, those described below.
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended December 27, 1997, C&A Products and JPS Automotive entered into reciprocal revolving credit arrangements whereby JPS Automotive may borrow up to $5 million from C&A Products and C&A Products may borrow up to $5 million from JPS Automotive. The borrower is charged interest on any outstanding balance at a rate equal to the rate charged to C&A Products under its revolving credit agreement. During the years ended December 25, 1999, December 26, 1998 and December 27, 1997, C&A Products was charged $0.1 million, $0.3 million and $0.1 million, respectively, in net interest. At December 25, 1999, there was an outstanding balance of $4.6 million owed to JPS Automotive under this arrangement.
In accordance with C&A Products' normal practice, C&A Products developed tooling for JPS Automotive, for which JPS Automotive reimbursed C&A Products its costs. The development of tooling was managed by JPS Automotive prior to the 1996 Acquisition.
During December 1999, as permitted by the indenture governing the Senior Notes, JPS Automotive purchased accounts receivable from a subsidiary of C&A Products located in Mexico for $4.8 million, representing a gross balance of $5.1 million, discounted at 5%. The purchased receivables have terms similar to JPS Automotive's trade accounts receivable.
JPS Automotive and C&A Products generally settle intercompany balances within ten days after a period end. In December 1999, C&A Products began offering a two percent discount for early payment of intercompany balances. As a result, JPS Automotive paid intercompany payable balances with C&A Products of $9.8 million, prior to December 25, 1999, and received a discount of $0.2 million.
During the years ended December 25, 1999 and December 26, 1998, Cramerton capitalized costs of approximately $1.2 million and $9.1 million, respectively, related to the construction of additional space at a C&A Products facility and the purchase of additional machinery and equipment for the production of bodycloth. C&A Products is manufacturing bodycloth for JPS Automotive on a subcontract basis at this location.
On September 22, 1999, JPS Automotive completed the sale of its facility in Cramerton, North Carolina. JPS Automotive and C&A Products are relocating Cramerton's headliner business to a C&A Products facility where C&A Products has begun producing headliner for JPS Automotive on a subcontract basis. In connection with this move, during 1999, Cramerton capitalized costs of $1.8 million related to the purchase of additional machinery and equipment for the production of headliner.
C&A Products and JPS Automotive are also parties to a tax sharing agreement (the "Tax Sharing Agreement") that was assigned to C&A Products by Foamex in connection with the 1996 Acquisition. The Tax Sharing Agreement provides that JPS Automotive will make certain payments to its partners (principally C&A Products) in amounts equal to the taxes JPS Automotive would be required to pay if it were separately taxed. JPS Automotive and C&A Products maintain the Tax Sharing Agreement in lieu of adding JPS Automotive as a party to C&A's tax sharing arrangement. For the years ended December 25, 1999, December 26, 1998 and December 27, 1997, JPS Automotive recorded $3.7 million, $0.3 million and $6.2 million, respectively, as an estimated amount due to C&A Products under the terms of the Tax Sharing Agreement.
In September 1998, JPS Automotive distributed its 50% ownership in Industrias Enjema S.A. de C.V. ("Enjema") to C&A Products. C&A Products acquired from a third party the other 50% interest in Enjema in August 1998 for approximately $1.0 million. No book value was assigned to JPS Automotive's 50% interest. In addition, in September 1998, JPS Automotive received payment from Enjema for receivables generated when Enjema was managed by third parties. JPS Automotive had previously fully reserved these receivables. As a result of the payment, JPS Automotive reversed this reserve, resulting in a reduction of selling, general and administrative expenses.
13. ENVIRONMENTAL:
JPS Automotive is subject to various federal, state and local environmental laws and regulations that (i) affect ongoing operations and may increase capital costs and operating expenses and (ii) impose
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
liability for the costs of investigation and remediation and certain other damages related to on-site and off-site contamination. JPS Automotive believes it has obtained or applied for the material permits necessary to conduct its business. To date, compliance with applicable environmental laws has not had and, in the opinion of management, based on the facts presently known to it, is not expected to have a material adverse effect on JPS Automotive's consolidated financial condition or results of operations.
In December 1997, another subsidiary of C&A Products assumed substantially all of the environmental liabilities of JPS Automotive and its subsidiaries existing as of October 1, 1997 in exchange for a payment of approximately $4.1 million. As a result, environmental liabilities totaling $4.6 million were eliminated and a gain of $0.5 million was recorded as a 1997 capital contribution from C&A Products due to the related party nature of this transaction. JPS Automotive will remain contingently liable for these environmental liabilities.
Although it is possible that new information or future events could require JPS Automotive to reassess its potential exposure relating to its exposure for environmental matters, management believes that, based on the facts presently known to it, the resolution of such environmental matters will not have a material adverse effect on JPS Automotive's consolidated financial position or results of operations. The possibility exists, however, that new environmental legislation may be passed or environmental regulations may be adopted, or other environmental conditions may be found to exist, that may require expenditures not currently anticipated which may be material, and there can be no assurance that JPS Automotive has identified or properly assessed all potential environmental liability arising from its activities or properties.
14. LITIGATION:
From time to time, JPS Automotive has been involved in various legal proceedings. Management believes that such litigation is routine in nature and incidental to the conduct of its business, and that none of such litigation, if determined adversely to JPS Automotive, would have a material adverse effect on the consolidated financial position or results of operations of JPS Automotive.
15. FINANCIAL INSTRUMENTS:
Disclosure About Fair Value of Financial Instruments - The following disclosures of the estimated fair value amounts have been determined based on JPS Automotive's assessment of available market information and appropriate valuation methodologies.
The estimated fair values of JPS Automotive's financial instruments are as follows (in thousands):
Carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value due to the short-term nature of these instruments.
The fair value of long-term debt is estimated using quoted market prices.
Fair value estimates are made at a specific point in time, based on relevant market information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. INFORMATION ABOUT THE COMPANY'S OPERATIONS
JPS Automotive's customers primarily produce automobiles and light trucks in North America. JPS Automotive performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Receivables generally are due within 45 days, and credit losses have consistently been within management's expectations and are provided for in the consolidated financial statements.
Direct and indirect sales to significant third party customers in excess of ten percent of consolidated net sales from continuing operations are as follows:
JPS Automotive's two reportable segments are Automotive Carpet and Automotive Fabric. JPS Automotive's reportable segments are considered to be strategic business units by management. Each business segment utilizes different technology and focuses on specific vehicle interior systems. The Automotive Carpet segment produces molded floor carpet and luggage compartment trim. The Automotive Fabric segment produces seating upholstery fabric ("bodycloth") and headliner fabric.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. JPS Automotive evaluates performance based on profit or loss from operations before interest expense, other income and expense, income taxes and before adjustments made pursuant to the transactions and arrangements made between C&A Products and JPS Automotive. See Note 12.
Information about JPS Automotive's reportable segments is presented below (in thousands).
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Other includes restructuring charges and impairment of long-lived assets of $8.6 million as well as adjustments made pursuant to the transactions and arrangements between JPS Automotive and C&A Products. See Note 12.
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. QUARTERLY FINANCIAL DATA (UNAUDITED):
The quarterly financial data of JPS Automotive is as follows (in thousands):
(1) During 1999, the Company incurred restructuring charges and impairment of long-lived assets of $6.6 million in the third quarter and $2.0 million in the fourth quarter.
(2) The adoption of a new accounting standard resulted in a cumulative effect of change in accounting principle in the amount of $0.8 million, net of income taxes of $0.5 million for the year ended December 25, 1999.
(3) The repurchase of $2.6 million principal amount of Senior Notes at prices in excess of carrying value during 1998 resulted in an extraordinary loss of $132 thousand, net of income taxes of $90 thousand for the year ended December 26, 1998.
18. SUBSEQUENT EVENT:
On January 28, 2000, JPS Automotive merged with and into its general partner PACJ, Inc. In the merger, all of the outstanding limited partnership interests previously owned by C&A Products and the general partnership interests held by PACJ, Inc. were canceled without any payment being made thereon. As a result of the merger, PACJ, Inc. has changed its name to JPS Automotive, Inc. and has assumed all of the obligations under the indenture governing the Senior Notes.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of JPS Automotive Products Corp.:
We have audited the accompanying balance sheets of JPS Automotive Products Corp. (a Delaware corporation and subsidiary of JPS Automotive L.P.) as of December 25, 1999 and December 26, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these balance sheets based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet. 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.
In our opinion, the balance sheets referred to above present fairly, in all material respects, the financial position of JPS Automotive Products Corp. as of December 25, 1999 and December 26, 1998, in comformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina March 1, 2000.
JPS AUTOMOTIVE PRODUCTS CORP. BALANCE SHEETS (dollars in thousands)
The accompanying Notes to Financial Statements are an integral part of these balance sheets.
JPS AUTOMOTIVE PRODUCTS CORP.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
JPS Automotive Products Corp. ("Products Corp.") operated in the industrial fabrics and products segment, including the design, manufacture and sale of carpet components and interior fabrics for passenger cars and light trucks and other specialty industrial fabrics.
Products Corp., a newly formed entity, was acquired by JPS Automotive L.P. ("JPS Automotive"), a partnership in which Foamex-JPS Automotive L.P. ("FJPS") owned a 99% limited partnership interest and JPSGP Inc. owned a 1% general partnership, for nominal consideration on May 25, 1994. FJPS and JPSGP Inc. were wholly owned subsidiaries of Foamex International Inc. ("Foamex"). On June 28, 1994, FJPS and JPSGP Inc. invested $90.0 million in JPS Automotive which, in turn, invested a like amount in Products Corp.
On June 28, 1994, Products Corp. acquired the assets of the automotive products and industrial fabrics divisions of JPS Textile Group, Inc. Effective October 3, 1994, Products Corp. transferred and assigned substantially all of its assets, subject to substantially all of its liabilities, to JPS Automotive, which agreed to assume such liabilities. Subsequently, Products Corp. did not have any operations and, accordingly, no statement of operations or cash flows has been presented for 1999, 1998 or 1997.
Prior to October 3, 1994, Products Corp. was the beneficial owner of an 80% interest in Cramerton Automotive Products, L.P. Products Corp. owned a 79.5% limited partnership interest and, through Cramerton Management Corporation, beneficially owned a 0.5% general partnership interest. These interests were transferred to JPS Automotive on October 3, 1994.
On December 11, 1996, Collins & Aikman Corporation ("C&A"), through its subsidiaries, acquired JPS Automotive, including its ownership interest in Products Corp., from Foamex pursuant to an Equity Purchase Agreement dated August 28, 1996, as amended December 11, 1996 (the "1996 Acquisition"). The purchase price for the 1996 Acquisition was an aggregate of approximately $220 million, consisting of approximately $195 million of indebtedness of JPS Automotive and approximately $25 million in cash paid to Foamex. During 1997, C&A finalized the purchase price and received approximately $11.2 million from the seller as a reduction of the purchase price. The 1996 Acquisition has been accounted for as a purchase; however, adjustment was not required because the historical value of the assets and liabilities of Products Corp. reflected fair value at the time of the 1996 Acquisition.
As a result of the 1996 Acquisition, Products Corp.'s fiscal year ends on the last Saturday of December.
2. COMMITMENTS AND CONTINGENCIES:
11-1/8% SENIOR NOTES OF JPS AUTOMOTIVE DUE 2001 (SENIOR NOTES)
Products Corp. is the co-obligor (and co-registrant) for the Senior Notes. The Senior Notes were issued on June 28, 1994. Interest on the Senior Notes is payable semiannually on June 15 and December 15 of each year, commencing on December 15, 1994. The Senior Notes mature on June 15, 2001.
At the time of the 1996 Acquisition, $180 million principal amount of the Senior Notes were outstanding. Of this amount, $68 million had been purchased by C&A prior to the 1996 Acquisition on the open market and were subsequently retired. JPS Automotive is not required to make mandatory redemption or sinking fund payments except in the case of certain asset sales or a change of control (as defined in the
indenture for the Senior Notes). In addition, the Senior Notes are not subject to optional redemption, except in connection with certain public offerings of common stock or following a change of control (as so defined). The 1996 Acquisition resulted in a change of control which, under the terms of the indenture for the Senior Notes, gave holders of the Senior Notes the right to put their notes to JPS Automotive at a price of 101% of their principal amount plus accrued interest. Approximately $3.9 million principal amount of Senior Notes were so put to JPS Automotive and then repurchased on March 10, 1997. In conjunction with an offer to purchase as a result of the 1997 sale of Airbag, JPS Automotive repurchased $23 thousand principal amount of Senior Notes. Additionally, for the twelve months ended December 26, 1998, JPS Automotive repurchased, in the open market, $2.6 million principal amount of Senior Notes. There were no repurchases for JPS Automotive during 1999. At December 25, 1999, approximately $87.3 million of Senior Notes (including a premium of $1.3 million) were outstanding.
The indenture governing the Senior Notes generally prohibits JPS Automotive from making certain payments and investments (generally, dividends and distributions on its equity interests, purchases or redemptions of its equity interests, purchases of any indebtedness subordinated to the Senior Notes and investments other than as permitted) (the "Restricted Payments") unless (i) there is no default under the Senior Notes indenture; (ii) after giving pro forma effect to the Restricted Payment, JPS Automotive would be permitted to incur at least $1.00 of additional indebtedness under the indenture's general test for the incurrence of indebtedness which is a specified ratio (currently 2.5 to 1.0) of cashflow to interest expense, and (iii) the aggregate of all Restricted Payments from the issue date is less than a specified threshold (based, generally, on 50% of JPS Automotive's cumulative consolidated net income, since the issue date plus 100% of the aggregate net cash proceeds of the issuance by JPS Automotive of certain equity and convertible debt securities and cash contributions to JPS Automotive) (the "Restricted Payments Tests"). These conditions were satisfied immediately following the 1996 Acquisition, and as of December 25, 1999. The Restricted Payments Tests are subject to a number of significant exceptions. The indenture governing the Senior Notes also contains other restrictive covenants (including, among others, limitations on the incurrence of indebtedness and preferred stock, asset dispositions and transactions with affiliates including C&A and C&A Products Co.) which are customary for such securities. These covenants are also subject to a number of significant exceptions.
The Senior Notes rank senior in right of payment to all existing or future subordinated indebtedness of JPS Automotive and on an equal basis in right of payment with all existing or future senior indebtedness of JPS Automotive.
JPS AUTOMOTIVE L.P. JPS AUTOMOTIVE PRODUCTS CORP. INDEX TO FINANCIAL STATEMENT SCHEDULE
PAGE
Index to Financial Statement Schedule S-1 Schedule II - Valuation and Qualifying Accounts and Reserves - JPS Automotive L.P. S-2
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.
S-1
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES(1) (DOLLARS IN THOUSANDS)
(1) Amounts for all periods have been restated to exclude amounts related to the discontinued operations.
(2) Includes elimination of amounts included in the allowance for doubtful accounts for receivable from Enjema which was repaid subsequent to C&A Product's acquisition of the remaining 50% interest.
(3) Uncollected receivables written off, net of recoveries, reclassifications to other accounts, and usage of restructuring reserves.
S-2