<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 27, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
------------ ------------
Commission File Number 33-27038
JPS TEXTILE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 57-0868166
- ---------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
555 North Pleasantburg Drive, Suite 202, Greenville, South Carolina 29607
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (864) 239-3900
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 490,000 shares of the
Company's Class A Common Stock and 510,000 shares of Class B Common Stock were
outstanding as of March 11, 1996.
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JPS TEXTILE GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
<S> <C> <C>
Item 1. Condensed Consolidated Balance Sheets
January 27, 1996 (Unaudited) and October 28, 1995 . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations
Three Months Ended January 27, 1996 and
January 28, 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended January 27, 1996 and
January 28, 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements (Unaudited) . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 10
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
2
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Item 1. Financial Statements
JPS TEXTILE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
January 27, October 28,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 1,200 $ 1,352
Accounts receivable 70,662 88,186
Inventories 56,163 48,729
Prepaid expenses and other 1,207 2,545
Net assets held for sale - 28,932
---------- ----------
Total current assets 129,232 169,744
Property, plant and equipment, net 158,137 161,436
Excess of cost over fair value of net assets acquired, net 31,248 31,489
Other assets (Note 4) 58,747 50,153
---------- ----------
Total $ 377,364 $ 412,822
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Senior credit facility, revolving line of credit (Note 3) $ 75,208
Accounts payable 26,147 $ 29,754
Accrued interest 4,580 9,895
Accrued salaries, benefits and withholdings 10,980 11,503
Other accrued expenses 15,559 12,699
Current portion of long-term debt 2,771 2,770
---------- ----------
Total current liabilities 135,245 66,621
Long-term debt 237,481 327,668
Deferred income taxes 4,165 4,165
Other long-term liabilities 20,181 23,242
---------- ----------
Total liabilities 397,072 421,696
---------- ----------
Senior redeemable preferred stock 29,254 28,171
---------- ----------
Shareholders' equity (deficit):
Junior preferred stock 250 250
Common stock 10 10
Additional paid-in capital 28,529 29,613
Deficit (77,751) (66,918)
---------- ----------
Total shareholders' deficit (48,962) (37,045)
---------- ----------
Total $ 377,364 $ 412,822
========== ==========
</TABLE>
Note: The condensed consolidated balance sheet at October 28, 1995 has
been extracted from the audited financial statements.
See notes to condensed consolidated financial statements.
3
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JPS TEXTILE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
January 27, January 28,
1996 1995
---------- ----------
<S> <C> <C>
Net sales $ 98,741 $ 117,316
Cost of sales 88,846 101,068
---------- ---------
Gross profit 9,895 16,248
Selling, general and administrative expenses 9,875 10,429
Other expense, net 241 384
---------- ---------
Operating profit (loss) (221) 5,435
Valuation allowance on Gulistan securities (Note 4) (1,500) -
Interest income 695 666
Interest expense (9,737) (10,297)
---------- ---------
Loss before income taxes, loss from discontinued operations
and extraordinary gain (10,763) (4,196)
Income taxes 70 300
---------- ---------
Loss before loss from discontinued operations and
extraordinary gain (10,833) (4,496)
Loss from discontinued operations, net of taxes - (1,202)
Extraordinary gain on early extinguishment of debt, net of taxes - 20,120
---------- ---------
Net income (loss) (10,833) 14,422
Senior redeemable preferred stock in-kind dividends and
discount accretion 1,083 930
---------- ---------
Income (loss) applicable to common stock $ (11,916) $ 13,492
========== =========
Weighted average common shares outstanding
1,000,000 1,000,000
========== =========
Earnings (loss) per common share:
Loss before loss from discontinued operations and
extraordinary gain $ (11.92) $ (5.43)
Loss from discontinued operations - (1.20)
Extraordinary gain on early extinguishment of debt - 20.12
---------- ---------
Net income (loss) $ (11.92) $ 13.49
========== =========
</TABLE>
See notes to condensed consolidated financial statements.
4
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JPS TEXTILE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
January 27, January 28,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (10,833) $ 14,422
--------- ---------
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Loss from discontinued operations - 1,202
Extraordinary gain on early extinguishment of debt - (20,120)
Depreciation and amortization, except amounts included
in interest expense 5,768 5,563
Interest accretion and debt issuance cost amortization 2,293 2,377
Valuation allowance on Gulistan securities 1,500 -
Other, net 737 (282)
Changes in assets and liabilities:
Accounts receivable
17,524 7,460
Inventory (7,435) (2,985)
Prepaid expenses and other assets 846 (697)
Accounts payable (3,534) 1,599
Accrued expenses and other liabilities (10,465) (9,999)
--------- ---------
Total adjustments 7,234 (15,882)
--------- ---------
Net cash used in operating activities
(3,599) (1,460)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment additions (2,230) (6,203)
Receipts from discontinued operations, net 22,708 2,152
--------- ---------
Net cash provided by (used in) investing activities 20,478 (4,051)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Financing costs incurred - (25)
Revolving credit facility borrowings (repayments), net (16,518) 44,048
Proceeds from issuance of long-term debt
- 5,000
Repayment and purchases of long-term debt (513) (42,264)
--------- ---------
Net cash provided by (used in) financing activities (17,031) 6,759
--------- ---------
Net increase (decrease) in cash (152) 1,248
Cash at beginning of period 1,352 1,844
--------- ---------
Cash at end of period $ 1,200 $ 3,092
========= =========
Supplemental cash flow information:
Interest paid $ 12,758 $ 15,040
Income taxes paid 272 828
Non-cash financing activities:
Senior redeemable preferred stock dividends-in-kind 762 718
</TABLE>
See notes to condensed consolidated financial statements.
5
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JPS TEXTILE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. JPS Textile Group, Inc. (the "Company") has prepared, without audit,
the interim condensed consolidated financial statements and related
notes. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at January
27, 1996 for all periods presented have been made.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these condensed consolidated financial statements be read in
conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the fiscal year ended
October 28, 1995. The results of operations for the interim period
are not necessarily indicative of the operating results of the full
year.
In the first quarter of Fiscal 1995, the Company estimated that the
open market purchases of certain of its debt securities would result
in additional tax liabilities of approximately $3.2 million. Such
amount was recorded as a reduction of the extraordinary gain from
early extinguishment of debt in the 1995 first fiscal quarter. This
amount of tax was based on management's best estimate at that time of
alternative minimum taxable income for Fiscal 1995. During the fourth
quarter of Fiscal 1995, management's estimate of Fiscal 1995
alternative minimum taxable income was revised downward. Accordingly,
the Company reduced the $3.2 million tax estimate by $2.6 million to
$0.6 million during the fourth quarter of Fiscal 1995. The Company
has restated the extraordinary gain in the first quarter of Fiscal
1995 for this report on Form 10-Q to give effect to the revised amount
of tax on the extraordinary gain.
The Company has reclassified $1.5 million in the October 28, 1995
balance sheet from property, plant and equipment to other current
assets. The reclassified amount represents the Company's progress
payments in 1995 on equipment which was subsequently financed under an
operating lease in the 1996 first quarter. The Company had the
operating lease agreement in place in 1995, however this particular
equipment had not been designated to be financed under that agreement
until the first quarter of 1996. The reclassification treats the $1.5
million as a temporary deposit on the October 28, 1995 balance sheet,
subsequently reimbursed to the Company from the proceeds of the
operating lease. In the 1996 first quarter, the $1.5 million is
treated in the statement of cash flows as a reduction of other current
assets which results in cash provided by operating activities.
Certain other 1995 amounts have been reclassified to conform to the
1996 presentation. In addition, see Note 3 of the Notes to
Consolidated Financial Statements in the Company's Annual Report on
Form 10-K for the fiscal year ended October 28, 1995 regarding
reclassifications of 1995 amounts for discontinued operations.
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2. Inventories (In Thousands):
<TABLE>
<CAPTION>
January 27, October 28,
1996 1995
----------- ----------
<S> <C> <C>
Raw materials $ 14,873 $ 13,909
Work-in-process 20,489 18,334
Finished goods 20,801 16,486
-------- --------
Total $ 56,163 $ 48,729
======== ========
</TABLE>
3. Long-Term Debt
The Company has classified the $75.2 million outstanding under its
senior credit facility revolving line of credit as a current
liability because the facility is currently scheduled to terminate on
December 1, 1996. As discussed in Note 12 of the Notes to
Consolidated Financial Statements in the Company's Annual Report on
Form 10-K for the fiscal year ended October 28, 1995, the revolving
credit facility (or a similar credit facility) is essential for the
Company's continued operations. Prior to the expiration of the
Company's revolving credit facility on December 1, 1996, management
will discuss extension of the facility with its banks. The Company
cannot predict what effect, if any, that the mandatory payments on the
debt securities in June 1997 will have on the negotiations with the
banks to extend the revolving credit facility beyond December 1, 1996.
4. Discontinued Operations
On November 16, 1995, pursuant to the terms of an Asset Transfer
Agreement dated as of November 16, 1995, by and among the Company, JPS
Carpet Corp. ("Carpet"), a wholly-owned subsidiary of the Company,
Gulistan Holdings Inc. and Gulistan Carpet Inc., a wholly-owned
subsidiary of Gulistan Holdings Inc. (collectively, with Gulistan
Holdings Inc., "Gulistan"), the Company and Carpet consummated the
sale of substantially all of the assets of Carpet used in the business
of designing and manufacturing tufted carpets for sale to residential,
commercial and hospitality markets (the "Carpet Business"). Pursuant
to the Asset Transfer Agreement, Gulistan agreed to assume
substantially all of the liabilities and obligations associated with
the Carpet Business. Gulistan was formed and its common stock is
owned by certain members of the former management team at Carpet. The
Company and its subsidiaries have agreed, for a three-year period, not
to compete directly or indirectly with the business that was sold.
The Consolidated Statements of Operations and Cash Flows for 1995 have
been reclassified to reflect the Carpet Business as discontinued
operations.
The consideration for the Carpet Business consisted of approximately
$22.5 million in cash, subject to certain post-closing adjustments
based on the audited amount of working capital transferred on November
16, 1995, and other debt and equity securities of Gulistan as follows:
a $10 million Promissory Note due in November 2001, $5 million of
preferred stock redeemable in November 2005, and warrants to purchase
25% of the common stock of Gulistan. Based on an independent
valuation, the Company has determined the fair value of these debt and
equity securities to be approximately $11.3 million. Since the
disposal of the Carpet Business occurred subsequent to the end of
Fiscal 1995, the net assets of the Carpet Business (adjusted to net
realizable value) have been classified as "net assets held for sale"
on the October 28, 1995 balance sheet. 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 is not currently
recognizable for tax purposes and the Company has recorded no net tax
benefit as a result of this loss due to uncertainties regarding the
ability to utilize these losses in future years.
7
<PAGE> 8
In the first quarter of 1996, Gulistan reported net losses of
approximately $1.8 million before interest expense on the promissory
note held by the Company. Accordingly, the Company did not record
interest income on the $10 million promissory note or income from the
accretion of the discounts recorded to adjust the promissory note and
the $5 million redeemable preferred stock of Gulistan to their fair
value on November 16, 1995. Also, in accordance with relative
accounting literature, the Company has recorded a valuation allowance
against its investment in the Gulistan securities and a corresponding
charge to income of $1.5 million as a result of the net loss ($1.8
million reduced by the $0.3 million of common equity held by Gulistan
management) incurred by Gulistan during the 1996 first quarter. The
relevant accounting literature requires the Company to record the loss
incurred by Gulistan as a valuation allowance reducing the carrying
value of the Gulistan securities held by the Company. The valuation
allowance will be increased or reduced (but not below zero) with a
corresponding charge or credit to income to give effect to future
losses or earnings of Gulistan as those losses or earnings occur.
The final amount of net cash proceeds applied by the Company to reduce
outstanding borrowings under its bank credit agreement is expected to
be approximately $19.0 million (net of fees, expenses and the
estimated post-closing adjustment resulting from the level of working
capital transferred at the closing date) based on management's best
estimate of the certain post-closing adjustments for the working
capital transferred.
Net sales from the discontinued operations of the Carpet Business were
$29.9 million in the first quarter of 1995. The Company has allocated
to the discontinued operations a pro-rata portion of the interest
expense of its senior credit facility, which pro-rata portion was
approximately $0.4 million in the first quarter of 1995.
5. Contingencies
The Company has provided for all estimated future costs associated
with certain defective roofing products sold by the Predecessor
Stevens Division operations. The liability for future costs
associated with these defective roofing products is subject to
management's best estimate, including factors such as expected future
claims by geographic region and roofing compound applied; expected
costs to repair or replace such roofing products; estimated remaining
length of time that such claims will be made by customers; and the
estimated costs to litigate and settle certain claims now in
litigation and those that may result in future litigation. Based on
warranties that were issued on the roofs, the Company estimates that
the defective roofing product claims will be substantially settled by
2000. The liability for such defective products was $9,270,000 at
October 28, 1995 and $8,192,000 at January 27, 1996. The Company
records the costs of meeting these obligations as a reduction of the
balance of the recorded liability and, accordingly, such costs are not
reflected in results of operations. Management updates its assessment
of the adequacy of the remaining reserve for defective roofing
products quarterly and if it is deemed that an adjustment to the
reserve is required, it will be charged to operations in the period in
which such determination is made.
At January 27, 1996, the Company had net operating loss carryforwards
for tax purposes of approximately $61 million. The net operating
losses expire in years 2005 through 2008. The Company's ability to
utilize its net operating losses may be significantly limited under
the income tax laws should there be changes in the ownership of the
Company's stock which constitute an ownership change for tax purposes.
The effect of such an ownership change would be to significantly limit
the annual utilization of the net operating loss carryforwards and
certain built-in losses to an amount equal
8
<PAGE> 9
to the value of the Company immediately prior to the time of the
change (subject to certain adjustments) multiplied by the Federal
long-term tax exempt rate. The Company does not believe that its
losses are currently subject to this limitation on utilization of the
loss carryforwards. However, there can be no assurance that this
limitation will not apply in the future. Due to the Company's
operating history, it is uncertain that it will be able to utilize all
deferred tax assets. Therefore, a valuation allowance has been
provided equal to the deferred tax assets remaining after deducting
all deferred tax liabilities, exclusive of those related to certain
deferred state tax liabilities.
6. Subsequent Event
On February 15, 1996, the Company extended an offer of special early
retirement termination benefits to approximately 50 salaried employees
who meet certain criteria. If all such qualified employees accept the
offer of early retirement benefits, approximately $5.0 million of
pension benefits would be payable in lump-sums by the Company's
defined benefit pension plan. In such event, the Company would
recognize a $2.0 million expense in its financial statements
representing the actuarial cost to the pension plan of such early
retirement at the time such offers were accepted by the employees,
which is expected to be in the second fiscal quarter of 1996. The
Company expects that only a portion of the qualified employees will
accept this offer. The resulting expense will reduce prepaid pension
costs classified as other non-current assets.
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing in Item 7
of the Company's Annual Report on Form 10-K for the fiscal year ended October
28, 1995.
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended
------------------
January 27, January 28,
1996 1995
----------- ------------
<S> <C> <C>
NET SALES
Apparel Fabrics and Products $ 48,502 $ 64,422
Industrial Fabrics and Products 42,619 44,104
Home Fashion Textiles 7,620 8,790
-------- ------------
Net Sales $ 98,741 $ 117,316
======== ============
OPERATING PROFIT (Loss)
Apparel Fabrics and Products $ (1,844) $ 5,085
Industrial Fabrics and Products 2,796 1,394
Home Fashion Textiles (74) 331
Indirect Corporate Expenses, net (1,099) (1,375)
-------- ------------
Operating Profit (Loss) (221) 5,435
Valuation allowance on Gulistan securities (1,500) -
Interest income 695 666
Interest expense (9,737) (10,297)
-------- ------------
Loss before income taxes, loss from discontinued operations and
extraordinary gain $(10,763) $ (4,196)
======== ============
</TABLE>
RESULTS OF OPERATIONS
1996 First Quarter Compared to 1995 First Quarter
Consolidated net sales for the 1996 first quarter decreased 15.8% to $98.7
million from $117.3 million in the 1995 first quarter with most of the decline
occurring in apparel fabrics and products. Net sales in the Apparel Fabrics
and Products segment decreased 24.7% to $48.5 million for the 1996 first
quarter from $64.4 million for the 1995 first quarter principally due to lower
demand and a lower priced product mix. Commodity type fabrics which carry
lower prices increased as a percent of total apparel fabric sales in the 1996
first quarter compared to the 1995 first quarter. The sales mix in the 1995
first quarter contained a much higher percentage of higher priced specialty
fabrics as a result of the Company's change in its product offering to
emphasize such specialty fabrics with more fashion and styling characteristics.
Competitive pressures and a lackluster retail environment have caused customers
to significantly reduce their purchases of such specialty fabrics, continuing a
sales decline which began in the second half of 1995. The 3.4% decrease in
Industrial Fabrics and Products sales to $42.6 million for the 1996 first
quarter from $44.1 million for the 1995 first quarter is a result of increases
and decreases in sales of various product lines. Net sales of fiberglass
fabrics increased $1.8 million due to increased demand for construction related
products and stronger pricing for electrical composite fabrics.
10
<PAGE> 11
Single-ply roofing product sales increased $1.6 million due to the continued
increase in demand for the Company's roofing products and higher average
selling prices for such roofing products. Cotton industrial fabric sales
decreased $2.8 million to $7.4 million due to significantly lower product
demand. Synthetic industrial fabric sales declined $2.2 million to $1.7
million for the 1996 first quarter due to lower demand and the Company's
decision to exit the markets for certain unprofitable types of fabrics.
Improved demand resulted in a $0.3 million increase in extruded urethane
product sales. Home Fashion Textiles sales decreased 13.4% to $7.6 million for
the 1996 first quarter from $8.8 million for the 1995 first quarter due to a
decline in demand for fabrics used for draperies and other home accessories.
Operating results in the 1996 first quarter fell to an operating loss of $0.2
million from an operating profit of $5.4 million for the 1995 first quarter.
The Apparel Fabrics and Products segment operated at a loss of $1.8 million for
the 1996 first quarter as compared to a $5.1 million profit for the 1995 first
quarter due to lower sales volume and a less favorable product mix. The
product mix in the 1996 first quarter included a higher ratio of commodity-type
fabrics than was experienced in the 1995 first quarter. This represents the
continuation of the trend the Company experienced during the second half of
Fiscal 1995. This period, including the 1996 first quarter, has been marked by
poorer retail apparel sales, falling margins, and rising raw material costs.
In addition, the Company curtailed production in many of its apparel fabric
manufacturing plants during the 1996 first quarter in response to lower
customer demand.
Operating profits for Industrial Fabrics and Products increased 100% to $2.8
million in the 1996 first quarter from $1.4 million in the 1995 first quarter
as a result of a more profitable product mix, increased selling prices for
electrical composite fabrics and manufacturing efficiency gains. Home Fashion
Textiles experienced a $0.4 million decrease in operating profits in the 1996
first quarter to a loss of $0.1 million from a profit of $0.3 million in the
1995 first quarter due to weaker demand for home furnishing fabrics and a less
favorable product mix of fabrics sold in 1996.
Indirect corporate expenses declined by $0.3 million to $1.1 million for the
1996 first quarter as compared to the 1995 first quarter due to lower employee
compensation, professional fees and amortization expense.
In the first quarter of 1996, Gulistan reported net losses of approximately
$1.8 million before interest expense on the promissory note held by the
Company. Accordingly, the Company did not record interest income on the $10
million promissory note due from Gulistan or income from the accretion of the
discounts recorded to adjust the promissory note and the $5 million redeemable
preferred stock of Gulistan to their fair value on November 16, 1995. Also, in
accordance with relevant accounting literature, the Company has recorded a
valuation allowance against its investment in the Gulistan securities and a
corresponding charge to income of $1.5 million as a result of the net loss
($1.8 million reduced by the $0.3 million of common equity held by Gulistan
management) incurred by Gulistan during the 1996 first quarter. The relevant
accounting literature requires the Company to record the loss incurred by
Gulistan as a valuation allowance reducing the carrying value of the Gulistan
securities held by the Company. The valuation allowance will be increased or
reduced (but not below zero) with a corresponding charge or credit to income to
give effect to future losses or earnings of Gulistan as those losses or
earnings occur.
Interest expense decreased 5.5% to $9.7 million for the 1996 first quarter from
$10.3 million for the 1995 first quarter principally due to the reduction in
debt resulting from the reductions in outstanding principal amounts of the
Company's notes and debentures as the Company purchased a portion of its debt
securities during the 1995 first quarter on the open market. These securities
were purchased at prices less than their carrying values using loan proceeds
from the revolving credit facility. A lower average interest rate on the
revolving credit facility in the 1996 first quarter was offset by higher
average borrowings.
11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
The Company has classified the $75.2 million outstanding under its senior
credit facility revolving line of credit as a current liability because the
facility is currently scheduled to terminate on December 1, 1996 (see final
paragraph under "Liquidity and Capital Resources"). Working capital, excluding
the revolving line of credit and net assets held for sale, decreased
approximately 6.7% to $69.2 million at January 27, 1996 from $74.2 million at
October 28, 1995. A 19.9% decline in accounts receivable reduced working
capital $17.5 million due to the lower sales in the 1996 first quarter of the
fiscal year than in the fourth quarter of 1995. Inventories increased $7.4
million (15.3%) from October 28, 1995 to January 27, 1996 principally due to an
increase in finished goods, also resulting from the low level of sales of
apparel and cotton industrial fabrics during the 1996 first quarter. Accrued
interest and compensation decreased $5.8 million during the 1996 first quarter
due to the scheduled timing of interest and annual incentive compensation
payments. Other accrued expenses increased $2.9 million principally due to the
reclassification of the sales price adjustment payable to the purchaser of the
Carpet business sold in November 1995. Such amount was previously classified
in the October 28, 1995 balance sheet as a reduction of net assets held for
sale.
On November 16, 1995, pursuant to the terms of an Asset Transfer Agreement
dated as of November 16, 1995, by and among the Company, JPS Carpet Corp.
("Carpet"), a wholly-owned subsidiary of the Company, Gulistan Holdings Inc.
and Gulistan Carpet Inc., a wholly-owned subsidiary of Gulistan Holdings Inc.
(collectively, with Gulistan Holdings Inc., "Gulistan"), the Company and Carpet
consummated the sale of substantially all of the assets of Carpet used in the
business of designing and manufacturing tufted carpets for sale to residential,
commercial and hospitality markets (the "Carpet Business"). Pursuant to the
Asset Transfer Agreement, Gulistan agreed to assume substantially all of the
liabilities and obligations associated with the Carpet Business. Gulistan was
formed and its common stock is owned by certain members of the former
management team at Carpet. The Company and its subsidiaries have agreed, for a
three-year period, not to compete directly or indirectly with the business that
was sold. Certain amounts in the Consolidated Statements of Operations and
Cash Flows for 1995 have been reclassified to reflect the Carpet Business as
discontinued operations.
The consideration for the Carpet Business consisted of approximately $22.5
million in cash, subject to certain post-closing adjustments based on the
audited amount of working capital transferred on November 16, 1995, and other
debt and equity securities of Gulistan as follows: a $10 million Promissory
Note due in November 2001, $5 million of preferred stock redeemable in November
2005, and warrants to purchase 25% of the common stock of Gulistan. Based on
an independent valuation, the Company has determined the fair value of these
debt and equity securities to be approximately $11.3 million. Since the
disposal of the Carpet Business occurred subsequent to the end of Fiscal 1995,
the net assets of the Carpet Business (adjusted to net realizable value) have
been classified as "net assets held for sale" on the October 28, 1995 balance
sheet.
The final amount of net cash proceeds applied by the Company to reduce
outstanding borrowings under its bank credit agreement is expected to be
approximately $19.0 million (net of fees, expenses and the estimated
post-closing adjustment resulting from the level of working capital transferred
at the closing date) based on management's best estimate of the certain
post-closing adjustments for the working capital transferred.
The Company's principal sources of liquidity for operations and expansion are
funds generated internally and borrowings by its subsidiaries, JPS Converter
and Industrial Corp. and JPS Elastomerics Corp., under a revolving credit
facility, which facility (the "Facility") provides for revolving credit loans
and letters of credit in a maximum principal amount of $118 million, subject to
a specified borrowing base based upon a specified percentage of eligible
accounts receivable and inventory, except that (i) neither borrower may borrow
an amount greater than
12
<PAGE> 13
the borrowing base attributable to it, (ii) letters of credit may not exceed
$15 million in the aggregate and (iii) $20 million of the revolving credit
facility is available, not subject to such borrowing base, to purchase
property, plant and equipment or to finance or refinance such purchases,
provided that the aggregate of all revolving credit loans may not exceed the
lesser of (a) $118 million and (b) the sum of the borrowing base plus $25
million (subject to certain reductions). All loans borrowed under the
Facility, subsequent to the application of sales proceeds from the sale of the
Carpet business to reduce the outstanding balance under the Facility, were used
to provide funds needed for operations and capital expenditures to the extent
such funds were not provided for by the net cash flow from operations during
the 1996 first quarter. All loans under the Facility bear interest at a Base
Rate, as defined, plus 1% per annum (9.50% at January 27, 1996) or at the
Eurodollar Rate, as defined, plus 2.5% per annum (approximately 8.1% at
January 27, 1996). $28.7 million of the Facility was available for borrowing
on January 27, 1996. Loans made under the Facility are made or repaid on a
daily basis in amounts equal to the net cash requirements for that business
day, thereby reducing net borrowings to the maximum extent possible.
Management continually reviews various options for enhancing liquidity and its
cash flow to cash requirements coverage, both operationally and financially.
Such options include strategic dispositions and financing and refinancing
activities aimed at increasing cash flow and reducing cash requirements, the
principal items of which are interest and capital expenditures. Management
believes that the Company's capital resources and expected cash flows will be
adequate to meet its operating and working capital needs during Fiscal 1996.
The Facility (or a similar credit facility) is essential for the Company's
continued operations. Prior to the expiration of the Facility on December 1,
1996, management will discuss extension of the Facility with its banks.
Mandatory principal payments of approximately $69 million on the Company's
senior subordinated discount notes and senior subordinated notes are due June
1, 1997. Although such principal payments are not scheduled until June 1997,
the Company's projected cash flows and capital resources are insufficient to
satisfy such obligations. The Company cannot predict what effect, if any, that
the mandatory payments on the debt securities in June 1997 will have on the
negotiations with the banks to extend the Facility beyond December 1, 1996.
However, the Company does not expect that an extension of the Facility beyond
May 31, 1997 will be negotiated unless such debt securities are extended,
replaced or refinanced. Accordingly, management expects to engage advisors and
discuss extension, replacement or refinancing of the debt securities with its
securityholders. The Company's ability to accomplish a restructuring of the
terms of its debt securities or any refinancing will depend on a number of
factors, including its operating performance, market conditions and the terms
of any extension, replacement or refinancing. Management is unable to predict
the Company's ability to accomplish the foregoing extension of its bank
financing and extension, replacement or refinancing of its debt securities.
13
<PAGE> 14
JPS TEXTILE GROUP, INC.
PART II - OTHER INFORMATION
<TABLE>
<S> <C> <C>
Item
- ----
1. Legal Proceedings None
2. Changes in Securities None
3. Defaults Upon Senior Securities None
4. Submission of Matters to a Vote of Security Holders None
5. Other Information None
6. Exhibits and Reports on Form 8-K:
</TABLE>
(a) Exhibits:
(11) Statement re: Computation of Per Share Earnings - not
required since such computation can be clearly determined
from the material contained herein.
(27) Financial Data Schedule (for SEC use only)
(b) Current Reports on Form 8-K:
Report on Form 8-K dated February 16, 1996, containing a
press release dated February 8, 1996 which reported
certain quarterly operating results and segment data for
fiscal years 1994 and 1995 restated for discontinued
operations.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JPS TEXTILE GROUP, INC.
Date: 3/12/96 /s/ David H. Taylor
---------- -------------------
David H. Taylor
Executive Vice President
- Finance,
Secretary and Chief
Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE BODY OF THE ACCOMPANYING FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-28-1995
<PERIOD-END> JAN-27-1996
<CASH> 1,200
<SECURITIES> 0
<RECEIVABLES> 73,026
<ALLOWANCES> 2,364
<INVENTORY> 56,163
<CURRENT-ASSETS> 129,232
<PP&E> 281,990
<DEPRECIATION> 123,853
<TOTAL-ASSETS> 377,364
<CURRENT-LIABILITIES> 135,245
<BONDS> 237,481
29,254
250
<COMMON> 10
<OTHER-SE> (49,222)
<TOTAL-LIABILITY-AND-EQUITY> 377,364
<SALES> 98,741
<TOTAL-REVENUES> 98,741
<CGS> 88,846
<TOTAL-COSTS> 88,846
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,737
<INCOME-PRETAX> (10,763)
<INCOME-TAX> 70
<INCOME-CONTINUING> (10,833)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,833)
<EPS-PRIMARY> (11.92)
<EPS-DILUTED> (11.92)
</TABLE>
