<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-38261
Prospectus Supplement No. 1 dated September 15, 1998 to
Prospectus dated July 2, 1998
JPS TEXTILE GROUP, INC.
This Supplement is a part of the Prospectus, dated July 2, 1998, relating
to the offering of 2,473,811 shares of common stock, par value $.01 per share
(the "Common Stock"), of JPS Textile Group, Inc. (the "Company") from time to
time by certain selling stockholders of the Company.
THIRD QUARTER RESULTS
A copy of the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 1, 1998, as amended, is attached hereto.
<PAGE> 2
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 August 1, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________.
Commission File Number 33-27038
JPS TEXTILE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 57-0868166
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
555 North Pleasantburg Drive, Suite 202, Greenville, South Carolina 29607
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (864) 239-3900
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 10,000,000 shares of the
Company's Common Stock were outstanding as of September 15, 1998.
-1-
<PAGE> 3
JPS TEXTILE GROUP, INC.
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION Number
<S> <C> <C>
Item 1. Condensed Consolidated Balance Sheets
August 1, 1998 (Unaudited) and November 1, 1997.............................. 3
Condensed Consolidated Statements of Operations
Three Months and Nine Months Ended August 1, 1998
(Reorganized Company) and August 2, 1997
(Predecessor Company) (Unaudited)............................................ 4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended August 1, 1998 (Reorganized Company) and
August 2, 1997 (Predecessor Company) (Unaudited)............................. 5
Notes to Condensed Consolidated Financial Statements (Unaudited)................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................... 10
PART II. OTHER INFORMATION................................................................ 16
</TABLE>
-2-
<PAGE> 4
Item 1. Financial Statements
JPS TEXTILE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
August 1, November 1,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,778 $ 3,888
Accounts receivable 60,168 79,569
Inventories (Note 2) 59,739 44,770
Prepaid expenses and other (Note 4) 38,539 37,085
-------- --------
Total current assets 161,224 165,312
Property, plant and equipment, net 116,084 104,554
Reorganization value in excess of amounts
allocable to identifiable assets 43,990 45,690
Other assets 5,505 6,825
-------- --------
Total assets $326,803 $322,381
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,584 $ 24,353
Accrued interest 1,955 421
Accrued salaries, benefits and withholdings 6,631 9,148
Other accrued expenses 10,513 13,182
Current portion of long-term debt (Note 3) 35,331 36,076
-------- --------
Total current liabilities 76,014 83,180
Long-term debt (Note 3) 100,154 94,891
Other long-term liabilities (Note 4) 19,087 18,263
-------- --------
Total liabilities 195,255 196,334
-------- --------
Shareholders' equity:
Common stock 100 100
Additional paid-in capital 123,230 123,230
Retained earnings 8,218 2,717
-------- --------
Total shareholders' equity 131,548 126,047
-------- --------
Total liabilities and shareholders' equity $326,803 $322,381
======== ========
</TABLE>
Note: The condensed consolidated balance sheet at November 1, 1997 has been
extracted from the audited financial statements.
See notes to condensed consolidated financial statements.
-3-
<PAGE> 5
JPS TEXTILE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Share and Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------- ---------------------------------
Reorganized | Predecessor Reorganized | Predecessor
Company | Company Company | Company
------------ | ------------ ------------ | ------------
August 1, | August 2, August 1, | August 2,
1998 | 1997 1998 | 1997
------------ | ------------ ------------ | ------------
<S> <C> | <C> <C> | <C>
Net sales $ 86,993 | $ 95,883 $ 289,141 | $ 301,188
Cost of sales 73,473 | 80,682 243,408 | 258,654
------------ | ------------ ------------ | ------------
Gross profit 13,520 | 15,201 45,733 | 42,534
| |
Selling, general and administrative | |
expenses 9,632 | 10,256 30,128 | 29,863
Other income (expense), net (40) | (102) 19 | (485)
------------ | ------------ ------------ | ------------
| |
Operating profit 3,848 | 4,843 15,624 | 12,186
Valuation allowance on Gulistan | |
securities -- | (2,982) -- | (5,070)
Interest income 324 | 761 888 | 2,232
Interest expense (2,132) | (10,086) (6,510) | (30,309)
Reorganization fees and expenses -- | (3,332) -- | (6,476)
------------ | ------------ ------------ | ------------
| |
Income (loss) before income taxes 2,040 | (10,796) 10,002 | (27,437)
Provision for income taxes 1,101 | 275 4,501 | 684
------------ | ------------ ------------ | ------------
Net income (loss) 939 | (11,071) 5,501 | (28,121)
| |
Senior redeemable preferred | |
stock-in-kind dividends and | |
discount accretion -- | 1,285 -- | 3,827
------------ | ------------ ------------ | ------------
| |
Income (loss) applicable to common | |
stock $ 939 | $ (12,356) $ 5,501 | $ (31,948)
============ | ============ ============ | ============
| |
Earnings (loss) per share (Note 5): | |
Basic $ 0.09 | $ (12.36) $ 0.55 | $ (31.95)
Diluted 0.09 | (12.36) 0.55 | (31.95)
| |
Number of shares used in per share | |
calculation: | |
Basic 10,000,000 | 1,000,000 10,000,000 | 1,000,000
Diluted 10,052,158 | 1,000,000 10,022,188 | 1,000,000
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE> 6
JPS TEXTILE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------
Reorganized | Predecessor
Company | Company
----------- | -----------
August 1, | August 2,
1998 | 1997
----------- | -----------
<S> <C> | <C>
CASH FLOWS FROM OPERATING ACTIVITIES |
Net income (loss) $ 5,501 | $(28,121)
-------- | --------
Adjustments to reconcile net income (loss) to net cash provided by |
operating activities: |
Depreciation and amortization, except amounts included |
in interest expense 8,957 | 14,470
Interest accretion and debt issuance cost amortization 249 | 7,181
Valuation allowance on Gulistan securities -- | 5,070
Other, net (1,796) | (1,724)
Changes in assets and liabilities: |
Accounts receivable 19,401 | 11,601
Inventories (14,969) | (5,717)
Prepaid expenses and other assets 1,889 | (2,939)
Accounts payable (2,768) | (4,087)
Accrued expenses and other liabilities (3,159) | 13,994
-------- | --------
Total adjustments 7,804 | 37,849
-------- | --------
Net cash provided by operating activities 13,305 | 9,728
-------- | --------
|
CASH FLOWS USED IN INVESTING ACTIVITIES |
Property and equipment additions (18,787) | (6,959)
-------- | --------
|
CASH FLOWS FROM FINANCING ACTIVITIES |
Financing costs incurred (146) | (100)
Revolving credit facility borrowings (repayments), net 5,072 | (910)
Repayment of other long-term debt (1,274) | (1,990)
Proceeds from issuance of long-term debt 720 | --
-------- | --------
Net cash provided by (used in) financing activities 4,372 | (3,000)
-------- | --------
|
Net decrease in cash (1,110) | (231)
Cash at beginning of period 3,888 | 1,460
-------- | --------
|
Cash at end of period $ 2,778 | $ 1,229
======== | ========
|
Supplemental cash flow information: |
Interest paid $ 4,728 | $ 5,960
Income taxes paid 869 | 147
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE> 7
JPS TEXTILE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Unless the context otherwise requires, the terms "JPS" and the
"Company" as used in these consolidated financial statements mean JPS
Textile Group and JPS Textile Group, Inc. together with its
subsidiaries, respectively.
The Company has prepared, without audit, the interim condensed
consolidated financial statements and related notes. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position,
results of operations and cash flows at August 1, 1998 and for all
periods presented have been made.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these condensed consolidated financial statements be read in
conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the fiscal year ended
November 1, 1997. The results of operations for the interim period are
not necessarily indicative of the operating results for the full year.
As discussed in Note 1 of the Notes to Consolidated Financial
Statements in the Company's Annual Report on Form 10-K for the fiscal
year ended November 1, 1997, on August 1, 1997, JPS (but no subsidiary
of JPS) commenced a voluntary reorganization case under chapter 11,
title 11 of the United States Code (the "Bankruptcy Code") in the
Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Court") and filed a Joint Plan of Reorganization proposed by JPS and
its wholly-owned subsidiary, JPS Capital Corp. ("JPS Capital"). The
Plan of Reorganization was previously accepted, pursuant to a
prepetition solicitation of votes, by holders of more than 99% of the
public debt securities that voted thereon and holders of 100% of the
Series A Senior Preferred Stock that voted thereon (the holders of
JPS's public debt securities and Series A Senior Preferred Stock being
the only holders of impaired claims and impaired equity interests
entitled to receive a distribution and therefore, pursuant to section
1126 of the Bankruptcy Code, the only holders entitled to vote on the
Plan of Reorganization). The Plan of Reorganization was confirmed by
the Bankruptcy Court on September 9, 1997 and became effective on
October 9, 1997 (the "Effective Date"), resulting in, among other
things, the cancellation of JPS's Series A Senior Preferred Stock,
Series B Junior Preferred Stock, class A common stock and class B
common stock, and the issuance by JPS of 10,000,000 shares of common
stock, $.01 par value per share (the "Common Stock"). Through the
implementation of the Plan of Reorganization, (a) JPS's public debt
securities, having a face amount of approximately $241.1 million, were
converted into $14 million of cash, 99.25% of the Common Stock issued
by JPS on the Effective Date, and $34 million in aggregate principal
amount (subject to adjustment as described in Note 3) of contingent
payment notes of JPS Capital, (b) JPS issued, in respect of its Series
A Senior Preferred Stock, warrants to purchase up to 5% of the Common
Stock, (c) the obligations of JPS under its former working capital
facility were satisfied and a new revolving
-6-
<PAGE> 8
credit agreement was obtained, and (d) JPS's senior management received
approximately 0.75% of the Common Stock issued by JPS on the Effective
Date.
The Plan of Reorganization was accounted for pursuant to Statement of
Position 90-7 ("SOP 90-7") of the American Institute of Certified
Public Accountants, entitled "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code." The accompanying
consolidated financial statements reflect the use of "fresh start"
reporting as required by SOP 90-7, in which assets and liabilities were
adjusted to their fair values and resulted in the creation of a new
reporting entity (the "Company" or the "Reorganized Company") with no
retained earnings or accumulated deficit as of October 9, 1997.
Accordingly, the consolidated financial statements for periods prior to
October 9, 1997 (the "Predecessor Company") are not comparable to
consolidated financial statements presented subsequent to October 9,
1997. A black line has been drawn on the accompanying condensed
consolidated financial statements and notes thereto to distinguish
between the Reorganized Company and Predecessor Company balances.
In the three months and nine months ended August 2, 1997, the Company
incurred professional fees and expenses of approximately $3.3 and $6.5
million, respectively, in connection with the Plan of Reorganization.
Such amounts are classified in the accompanying condensed consolidated
statements of operations as "reorganization fees and expenses."
2. Inventories (in thousands):
<TABLE>
<CAPTION>
August 1, November 1,
1998 1997
---------- -----------
<S> <C> <C>
Raw materials and supplies $ 12,882 $ 12,508
Work-in-process 17,145 17,168
Finished goods 29,712 15,094
---------- -----------
Total $ 59,739 $ 44,770
========== ===========
</TABLE>
3. Long-Term Debt (in thousands):
<TABLE>
<CAPTION>
August 1, November 1,
1998 1997
---------- -----------
<S> <C> <C>
Senior credit facility, revolving line of credit $ 97,318 $ 92,246
Contingent notes 34,540 34,540
Equipment financing and capital lease obligations 3,627 4,181
---------- -----------
Total 135,485 130,967
Less current portion 35,331 36,076
---------- -----------
Long-term portion $ 100,154 $ 94,891
========== ===========
</TABLE>
As discussed in Note 9 of the Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the fiscal year ended November
1, 1997, on the Effective Date, under the terms of the Plan of
Reorganization, JPS Capital, JPS and U.S. Bank National Association
(formerly First Trust National Association), as trustee, entered into
an indenture, dated as of the Effective Date, pursuant to which JPS
Capital issued contingent notes in an initial principal amount of
approximately $34 million which represented the funds held by JPS
Capital on the Effective Date. Subsequent to the Effective Date, JPS
Capital continued to hold and invest these funds awaiting final
resolution of certain possible tax contingencies. On July 20, 1998, the
Company made the necessary determination under the indenture governing
the contingent notes and accordingly, the maturity date of the
contingent notes was August 31, 1998, on which date they were repaid.
The principal and interest repaid on that date per $1000 of face amount
of contingent notes were $1,000 and $45.19, respectively.
During the quarter ended August 1, 1998, the Company entered into a
seven-year lease agreement
-7-
<PAGE> 9
(classified as a capital lease) for certain machinery and equipment.
The total cost of the assets to be covered by the lease is limited to
approximately $5.0 million. The total cost of assets under lease at
August 1, 1998 was approximately $0.7 million. The lease provides for
an early buyout option at the end of six years and includes purchase
and renewal options at fair market values at the end of the lease term.
4. Contingencies
The Company has provided for all estimated future costs associated with
certain defective roofing products sold by the Predecessor Stevens
Division operations. The liability for future costs associated with
these defective roofing products is subject to management's best
estimate, including factors such as expected future claims by
geographic region and roofing compound applied; expected costs to
repair or replace such roofing products; estimated remaining length of
time that such claims will be made by customers; and the estimated
costs to litigate and settle certain claims now in litigation. Based on
warranties that were issued on the roofs, the Company estimates that
substantially all the defective roofing product claims will be resolved
by the year 2000. The liability for such defective products was
approximately $3.2 million at August 1, 1998 and $3.8 million at
November 1, 1997. 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 August 1, 1998, the Company had net operating loss carryforwards for
regular federal income tax purposes of approximately $24 million
(subject to adjustment by the Internal Revenue Service). The net
operating loss carryforwards expire in years 2004 through 2011. The
Company also has federal alternative minimum tax net operating loss
carryforwards of approximately $19 million (subject to adjustment)
which expire in 2005 through 2012. Alternative minimum tax credits of
approximately $1.8 million can be carried forward indefinitely and used
as a credit against regular federal taxes, subject to limitation. The
Company utilized approximately $4 million of net operating loss
carryforwards for regular federal income tax purposes during the
nine-month period ended August 1, 1998. The Company's ability to
utilize its net operating loss carryforwards is limited under the
income tax laws as a result of the change in the ownership of the
Company's stock occurring as a part of the Plan of Reorganization. The
effect of such an ownership change is to limit the annual utilization
of the net operating loss carryforwards to an amount equal to the value
of the Company immediately after the time of the change (subject to
certain adjustments) multiplied by the Federal long-term tax exempt
rate. Due to the Company's operating history, it is uncertain that it
will be able to utilize all deferred tax assets. Therefore, a valuation
allowance of approximately $28 million has been provided.
5. Earnings Per Share
Effective November 2, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" which
requires the presentation of basic and diluted earnings per share, as
defined. Basic earnings per share for the three months and nine months
ended August 1, 1998 and August 2, 1997, was computed by dividing net
income by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share includes the
effect of dilutive stock options. The presentation of earnings per
share for all periods presented has been restated to conform to SFAS
No. 128.
A reconciliation of the income available to common shareholders and the
number of common shares
-8-
<PAGE> 10
outstanding, is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ---------------------------
Reorganized Predecessor Reorganized Predecessor
Company Company Company Company
----------- ------------ ----------- -----------
August 1, August 2, August 1, August 2,
1998 1997 1998 1997
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Income available to common shareholders:
Net income (loss) used for
both basic and dilutive
earnings per share
(in thousands) $ 939 $ (12,356) $ 5,501 $ (31,948)
=========== ============ =========== ===========
Common shares outstanding:
Denominator for basic
earnings per share -
weighted average shares 10,000,000 1,000,000 10,000,000 1,000,000
Effect of dilutive stock options 52,158 -- 22,188 --
----------- ------------ ----------- -----------
Denominator for diluted
earnings per share - adjusted
weighted average shares and
assumed conversion 10,052,158 1,000,000 10,022,188 1,000,000
=========== ============ =========== ===========
</TABLE>
6. Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 provides
for the disclosure of comprehensive income and its components in a full
set of general purpose financial statements. Comprehensive income is
defined as the change in equity of a business enterprise during a
period from transactions and other events from nonowner sources. The
adoption of SFAS No. 130 is effective for the Company in fiscal 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments
of an Enterprise and Related Information." SFAS No. 131 requires
publicly-held companies to report financial and other information about
key revenue-producing segments of the enterprise for which such
information is available and is utilized by the chief operating
decision maker in allocating resources. Specific information to be
reported for individual segments includes profit or loss, certain
revenue and expense items and total assets. A reconciliation of segment
information to amounts reported in the financial statements is also to
be provided. SFAS No. 131 is effective for the Company in fiscal 1999.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits - an Amendment of FASB
Statements No. 87, 88 and 106." SFAS No. 132 revises disclosures about
pension and other postretirement benefit plans, but it does not change
the measurement or recognition of those plans. SFAS No. 132 is
effective for the Company in fiscal 1999.
-9-
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The financial statements for the period subsequent to the Effective Date (three
months and nine months ended August 1, 1998) were prepared under the principles
of fresh-start reporting for companies emerging from chapter 11 reorganization
and are not comparable to prior periods. The Company believes that the most
meaningful comparison is made using the pro forma financial information, and
therefore, this discussion addresses such pro forma information. The unaudited
pro forma financial information for the three months and nine months ended
August 2, 1997 gives effect to the Plan of Reorganization as if the transactions
had occurred on November 3, 1996 and was derived by adjusting the historical
consolidated financial statements of the Company for the effects of fresh-start
accounting. Such adjustments primarily relate to decreased depreciation expense
resulting from revaluation of the Company's fixed assets, decreased interest
expense resulting from extinguishment of certain old debt securities in the
reorganization, increased amortization resulting from reorganization value in
excess of amounts allocable to identifiable assets and the elimination of
reorganization items, and their related tax effects. This pro forma information
is provided for informational purposes only and should not be construed to be
indicative of the results of operations of the Company had the transactions been
consummated on November 3, 1996 and are not intended to be predictive of the
results of operations of the Company for any future period.
The following should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing in Item 7
of the Company's Annual Report on Form 10-K for the fiscal year ended November
1, 1997.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
Reorganized Predecessor Reorganized Predecessor
Company Company Company Company
----------- ----------- ----------- -----------
August 1, August 2, August 1, August 2,
1998 1997 1998 1997
----------- ----------- ----------- -----------
(Pro Forma) (Pro Forma)
<S> <C> <C> <C> <C>
Net sales:
Industrial fabrics and products $ 46,365 $ 50,836 $ 137,883 $ 141,584
Apparel fabrics and products 33,719 36,813 130,016 131,693
Home fashion textiles 6,909 8,234 21,242 27,911
--------- --------- --------- ---------
Net sales $ 86,993 $ 95,883 $ 289,141 $ 301,188
========= ========= ========= =========
Operating profit:
Industrial fabrics and products $ 5,256 $ 6,484 $ 13,179 $ 13,941
Apparel fabrics and products 216 1,104 6,761 6,081
Home fashion textiles (236) 722 (123) 2,641
Indirect corporate expenses, net (1,388) (1,341) (4,193) (4,234)
--------- --------- --------- ---------
Operating profit 3,848 6,969 15,624 18,429
Interest income 324 299 888 890
Interest expense (2,132) (2,096) (6,510) (6,557)
--------- --------- --------- ---------
Income before income taxes $ 2,040 $ 5,172 $ 10,002 $ 12,762
========= ========= ========= =========
</TABLE>
-10-
<PAGE> 12
RESULTS OF OPERATIONS
Three Months Ended August 1, 1998 (the "1998 Third Quarter") Compared to the
(Pro Forma) Three Months Ended August 2, 1997 (the "1997 Third Quarter")
Consolidated net sales decreased $8.9 million, or 9.3%, from $95.9 million in
the 1997 third quarter to $87.0 million in the 1998 third quarter. Operating
profit decreased $3.1 million to $3.9 million in the 1998 third quarter from a
pro forma operating profit of $7.0 million in the 1997 third quarter.
Net sales in the industrial fabrics and products segment, which includes single
ply roofing and environmental membrane, woven fabrics constructed of fiberglass,
synthetics and cotton for lamination, insulation and filtrations applications
and extruded urethane products decreased $4.5 million, or 8.8%, from $50.8
million in the 1997 third quarter to $46.4 million in the 1998 third quarter.
Sales of fiberglass fabrics decreased $0.9 million, or 5.0%, from $17.4 million
in the 1997 third quarter to $16.5 million in the 1998 third quarter. The
largest customer segment for the Company's fiberglass is the electronics
industry which uses fiberglass fabrics in the manufacture of printed circuit
boards. Global consumer demand for electronic products has not kept pace with
expectations and, combined with other factors, including the weakness in the
Asian economies, has led to a slowdown in demand for fiberglass fabrics used in
the manufacture of electrical circuit boards. Major computer manufacturers and
their suppliers have cut production to manage inventories. Management expects
that demand for its fiberglass products will recover and continue to grow in the
future, but such resumed growth will depend, to some extent, on the timing and
strength of a recovery of growth in global consumer demand for electronic
products. The Company's planned 1998 capacity expansion and modernization
program, which the Company believes will contribute to lower costs and higher
productivity in the future, is now substantially complete. In view of the
current market softness, the Company has taken a number of steps to insure that
such capacity expansion is effectively utilized, including finalizing
arrangements with its largest customers to purchase greater quantities of the
Company's production. These aggressive marketing efforts, combined with the
Company's improving reputation for quality and service have increased the
Company's market opportunities and enhanced its prospects for future growth. Net
sales of roofing membrane decreased $0.4 million, or 2.1%, from $15.7 million in
the 1997 third quarter to $15.3 million in the 1998 third quarter. The domestic
roofing market in 1998 has been characterized by intense competition and market
consolidation as growth rates recede from the double-digit rates of the
mid-1990's. New and aggressive competitors in the Company's market niches have
presented additional challenges for growth. The Company is addressing these
challenges through aggressive pricing strategies and strengthening sales
management in certain key territories where such competitive threats are most
apparent. Sales of urethane products declined $1.5 million, or 20.6%, from $7.2
million in the 1997 third quarter to $5.7 million in the 1998 third quarter as a
result of a decline in demand for certain of the Company's products used in the
manufacture of athletic footwear. The athletic footwear industry is currently
depressed as a result of changing consumer preferences in casual footwear. The
Company has partially offset this decline with increased sales of urethane
products to other industrial customers. Sales of cotton industrial fabrics
declined $0.6 million, or 7.6%, from $8.4 million in the 1997 third quarter to
$7.8 million in the 1998 third quarter due to lower unit volume and unit selling
prices.
Operating profit in the 1998 third quarter for the industrial fabrics and
products segment decreased to $5.3 million from $6.5 million (pro forma) in the
1997 third quarter. Lower unit prices for roofing membrane and fiberglass
fabrics, and lower unit sales in almost all industrial product groups caused the
decline. This impact has been mitigated by improvements in manufacturing
efficiency related to the Company's capital spending plan and other cost
reductions.
Net sales of apparel fabrics and products, which includes unfinished woven
apparel fabrics (greige goods) and yarn primarily for women's wear, decreased
$3.1 million, or 8.4%, to $33.7 million in the 1997 third quarter from $36.8
million in the 1998 third quarter. Market conditions for apparel fabrics have
been mixed. Sales of fabric styles constructed primarily of spun yards have
exceeded expectations, while market conditions for
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<PAGE> 13
other apparel fabrics constructed primarily of filament yarns have weakened
dramatically during the second and third quarters producing unit volumes and
average reduced selling prices well below prior-year levels. The continued use
of imported apparel products has reduced demand for domestically produced
fabrics and resulted in a generally over-produced market, as apparel
manufacturers substitute lower cost imported polyester fabrics for acetate-rich
fabrics.
Operating profits in the 1998 third quarter for the apparel fabrics and products
segment decreased $0.9 million to $0.2 million from $1.1 million (pro forma) in
the 1997 third quarter. Operating margins declined as a result of lower unit
prices and the effects of production curtailment to manage inventory levels.
Net sales in the home fashions textiles market, which includes woven drapery
fabrics and yarns for the home furnishings industry, decreased $1.3 million, or
15.9%, from $8.2 million in the 1997 third quarter to $6.9 million in the 1998
third quarter. This segment of the Company's business continues to suffer from
major changes by prominent retailers and shifting consumer tastes. As a result,
the Company's market position has deteriorated from the prior year. These
changes have led to lower unit demand and generally weaker selling prices and
margins.
Operating profit in the 1998 third quarter for the home fashions textiles
segment declined to a $0.2 million loss from a pro forma operating profit of
$0.7 million in the 1997 third quarter. Lower demand, weaker margins, and the
impact of lower production have driven operating profits down.
Indirect corporate expenses were $1.4 million in the 1998 third quarter compared
to the $1.3 million (pro forma) in the 1997 third quarter.
Reorganization-related fees and expenses incurred in the 1997 third quarter
totaled $3.3 million and represented fees and expenses of the Company's
financial advisor, legal counsel and other professionals associated with the
Company's financial restructuring and the financial advisor and legal counsel
for the holders of a substantial majority of the Company's old outstanding
bonds. Such fees and expenses have been excluded from the pro forma financial
statements.
In the 1997 third quarter, the Company held debt and equity securities of
Gulistan Holdings, Inc. As a result of net losses incurred by Gulistan, the
Company recorded a valuation allowance against its investment in the securities
with a corresponding charge to income of $3.0 million. These securities were
sold in August 1997 for $2 million. Accordingly, the charge of $3.0 million has
been excluded from the 1997 third quarter pro forma financial information.
Interest income and expense in the 1998 third quarter are consistent with the
1997 third quarter pro forma amounts.
Nine Months Ended August 1, 1998 (the "1998 Nine-Month Period") Compared to the
(Pro Forma) Nine Months Ended August 2, 1997 (the "1997 Nine-Month Period")
Consolidated net sales decreased $12.1 million, or 4.0%, from $301.2 million in
the 1997 nine-month period to $289.1 million in the 1998 nine-month period.
Operating profit decreased $2.8 million to $15.6 million in the 1998 nine-month
period from $18.4 million (pro forma) in the 1997 nine-month period.
Net sales in the industrial fabrics and products segment decreased $3.7 million,
or 2.6%, from $141.6 million in the 1997 nine-month period to $137.9 million in
the 1998 nine-month period. Sales of fiberglass fabrics decreased $0.7 million,
or 1.2%, from $57.7 million in the 1997 nine-month period to $57.0 million in
the 1998 nine-month period as a result of decreased sales of fiberglass fabrics
used in the manufacture of electrical
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<PAGE> 14
circuit boards. Demand for these fabrics has declined as a result of weak Asian
economies and lower production of electronic products. The Company expects this
demand to recover as global consumer demand for electronic products improves.
Sales of roofing membrane decreased $1.7 million, or 4.1%, from $41.4 million in
the 1997 nine-month period to $39.7 million in the 1998 nine-month period
because of increased competition and market consolidation in the domestic
roofing market. Sales of urethane products in the 1998 nine-month period
decreased $2.1 million, or 10.7%, from the 1997 nine-month period because of the
decline in demand for certain of the Company's products used in the manufacture
of athletic footwear. Sales of cotton industrial fabrics in the 1998 nine-month
period increased $1.7 million, or 7.0%, from the 1997 nine-month period due to
improved unit volumes and selling prices in the first half of fiscal 1998. Sales
of liner products in the 1998 nine-month period remained flat with the 1997
nine-month period at $2.7 million.
Operating profit in the 1998 nine-month period for the industrial fabrics and
products segment decreased $0.7 million to $13.2 million from pro forma
operating profit of $13.9 million in the 1997 nine-month period primarily as a
result of a change in the product mix and improvements in manufacturing
efficiencies and productivity related to the Company's capital spending plan.
Net sales in the apparel fabrics and products segment decreased $1.7 million, or
1.3%, from $131.7 million in the 1997 nine-month period to $130.0 million in the
1998 nine-month period. As imports of apparel products in garment form increased
during the 1998 nine-month period and competitive pressures intensified, the
demand for domestically-produced apparel fabric diminished especially in the
second and third quarters.
Operating profit in the 1998 nine-month period for the apparel fabrics and
products segment increased by $0.7 million to $6.8 million from pro forma
operating profit of $6.1 million in the 1997 nine-month period. This increase is
primarily attributable to improvements in manufacturing efficiencies and
productivity resulting from the Company's capital spending plan offset by lower
unit prices and the effects of production curtailment to manage inventory
levels.
Net sales in the home fashion textiles segment decreased $6.7 million, or 24.0%,
from $27.9 million in the 1997 nine-month period to $21.2 million in the 1998
nine-month period due to a soft home furnishings market in the 1998 nine-month
period compared to an extremely strong market in the 1997 nine-month period.
Operating loss in the 1998 nine-month period for the home fashion textiles
segment decreased to $0.1 million from pro forma operating profit of $2.6
million in the 1997 nine-month period principally due to the decrease in sales
volume and a generally weaker product mix.
Indirect corporate expenses remained constant at $4.2 million in the 1998
nine-month period compared to the 1997 nine-month period (pro forma).
Reorganization-related fees and expenses incurred in the 1997 nine-month period
totaled $6.5 million and represented fees and expenses of the Company's
financial advisor, legal counsel and other professionals associated with the
Company's financial restructuring and the financial advisor and legal counsel
for the holders of a substantial majority of the Company's old outstanding
bonds. Such fees and expenses have been excluded from the pro forma financial
statements.
In the 1997 nine-month period, the Company held debt and equity securities of
Gulistan Holdings, Inc. As a result of net losses incurred by Gulistan, the
Company recorded a valuation allowance against its investment in the securities
with a corresponding charge to income of $5.1 million. These securities were
sold in August 1997 for $2 million. Accordingly, the charge of $5.1 million has
been excluded from the 1997 nine-month period pro forma financial information.
Interest income and expense in the 1998 nine-month period are consistent with
the 1997 nine-month period pro forma amounts.
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<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity for operations and expansion are
funds generated internally and borrowings under its Revolving Credit Facility
(as defined below). JPS Elastomerics Corp. and JPS Converter and Industrial
Corp., each a wholly-owned subsidiary of JPS (collectively, the "Borrowing
Subsidiaries"), and JPS have entered into the Credit Facility Agreement, dated
as of October 9, 1997 (the "Credit Agreement"), with the financial institutions
party thereto, Citibank, as agent, and NationsBank, N.A., as co-agent. The
Credit Agreement provides for a revolving credit loan facility and letters of
credit (the "Revolving Credit Facility") in a maximum principal amount equal to
the lesser of (a) $135 million and (b) a specified borrowing base (the
"Borrowing Base"), which is based upon eligible receivables, eligible inventory
and a specified dollar amount ($55,000,000 (subject to reduction)) based on
fixed assets of the Borrowing Subsidiaries, except that (i) neither Borrowing
Subsidiary may borrow an amount greater than the Borrowing Base attributable to
it (less any reserves as specified in the Credit Agreement) and (ii) letters of
credit may not exceed $20 million in the aggregate. The maturity date of the
Revolving Credit Facility is October 9, 2002. All loans outstanding under the
Revolving Credit Facility bear interest at either the Eurodollar Rate (as
defined in the Credit Agreement) or the Base Rate (as defined in the Credit
Agreement) plus an applicable margin (the "Applicable Margin") based upon the
Company's consolidated leverage ratio (which margin will not exceed .25% for
Base Rate borrowings and 1.75% for Eurodollar Rate borrowings). The Company pays
(i) a fee on the average unused commitments under the Revolving Credit Facility
of .25% per annum (if a specified leverage ratio is maintained) and (ii) a
letter of credit fee equal to the Applicable Margin for Eurodollar Rate
borrowings. Borrowings under the Revolving Credit Facility are made or repaid on
a daily basis in amounts equal to the net cash requirements or proceeds for that
business day. At August 1, 1998, the Company had approximately $33.2 million
available for borrowing under the Revolving Credit Facility.
In the quarter ended August 1, 1998, the Company entered into a seven-year lease
agreement (classified as a capital lease) for certain machinery and equipment.
The total cost of the assets to be covered by the lease is limited to
approximately $5.0 million. The total cost of assets under lease at August 1,
1998 was approximately $0.7 million. The lease provides for an early buyout
option at the end of six years and includes purchase and renewal options at fair
market values at the end of the lease term.
During the nine months ended August 1, 1998, cash provided by operating
activities was $13.3 million. Working capital increased from $82.1 million at
November 1, 1997 to $85.2 million at August 1, 1998. Cash decreased by $1.1
million from November 1, 1997 to August 1, 1998 due principally to the timing of
customer receipts and the purchase of capital equipment in the nine months ended
August 1, 1998. Accounts receivable decreased by $19.4 million from November 1,
1997 to August 1, 1998 due to seasonally lower sales in July 1998 compared to
October 1997. Inventories increased by $15.0 million, primarily in finished
goods, during the nine months ended August 1, 1998 as a result of the lower
sales volume in that period. Accounts payable decreased $2.8 million due to
normal plant shutdowns in July 1998 and lower operating activity. Accrued
interest increased $1.5 million from November 1, 1997 to August 1, 1998 due to
the timing of interest payments on the Company's revolving credit facility and
the accrual of interest on the contingent notes. Accrued salaries, benefits and
withholdings decreased $2.5 million due to the payment of accrued vacation in
July 1998. Other accrued expenses decreased $2.7 million during the 1998
nine-month period due to the payment of certain accrued restructuring fees and
expenses.
The principal use of cash in the 1998 nine-month period property, plant and
equipment expenditures of $18.8 million for upgrade and capacity improvements of
the Company's manufacturing operations. As of August 1, 1998, the Company had
commitments of $3.0 million for capital expenditures. The Company anticipates
making capital expenditures in fiscal 1998 of approximately $25 million.
On August 31, 1998, the Company reduced its long-term debt by repaying all of
the $34.5 million in principal
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<PAGE> 16
amount of JPS Capital's contingent notes.
Based upon the Company's ability to generate working capital through its
operations and its Revolving Credit Facility, the Company believes that it has
the financial resources necessary to meet its obligations and implement its
business plan.
YEAR 2000
As a result of the existence of computer programs and chips embedded in process
control equipment that use two digits rather than four to define the applicable
year, a concern commonly known as "Year 2000" has arisen globally. Computer
programs and equipment having time-sensitive software or imbedded processors may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations causing disruptions of
operations, such as production shutdowns, or a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The Company has developed and is currently implementing its plan to address the
Year 2000 issue. Task teams led by senior executives identified six project
phases including (i) inventory of systems and process exposure, (ii) risk
assessment and prioritization, (iii) remediation of non-compliant systems (iv)
testing and development of compliant systems, (v) contingency planning and (vi)
maintenance once compliance is achieved. The Company has completed the inventory
and risk assessment phases and is currently in the remediation and testing
phases of the project. Remediation involves repair of existing systems and
equipment, and in some cases complete replacement with purchased systems and
equipment that are Year 2000 compliant. Replaced and modified systems are
subjected to rigorous testing in a non-production environment in parallel with
production data and, once deployed, are continually monitored for compliance.
Activities to maintain such compliance include monitoring of reprogrammed
systems once back in production, audits of critical systems vendor compliance
certifications and testing of contingency plans. Management has also reviewed
production equipment used in its operations and has implemented a formal
communication program with equipment vendors to certify that the systems
imbedded in sophisticated production equipment are Year 2000 compliant. In
addition, all new equipment purchases are screened for Year 2000 compliance.
The Company has implemented a formal communication program with significant
suppliers and service providers to determine the extent to which the Company's
interface systems are vulnerable to third party failure to properly address
their own Year 2000 issues. Appropriate contingency plans are being developed to
address identified risks in this area.
The Company expects that its Year 2000 compliance program will be substantially
complete by the end of its second fiscal quarter of 1999. As a result of the
activities described above, and assuming the remaining project phases are
completed in satisfactory manner, management believes that the Year 2000 issue
will not pose significant operational problems for the Company's computer or
process systems. Our best efforts notwithstanding, there can be no guarantee
that the systems of other companies on which the Company's systems rely will be
converted timely or properly, and that any failure to convert timely or properly
would not have a material adverse effect on the Company's systems.
The incremental cost of addressing the Year 2000 issue will be substantially
absorbed in the normal budget for improvement in management information systems
and by normal costs for administrative and technical employees. The Company does
not anticipate incurring significant additional third party costs to test or
reprogram systems. The Company, however, retains contract programmers to work on
discrete projects and will continue this practice into the foreseeable future.
Management believes that the cost of Year 2000 modifications will not have a
material effect on results of operations.
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<PAGE> 17
JPS TEXTILE GROUP, INC.
PART II - OTHER INFORMATION
<TABLE>
<CAPTION>
Item
- ----
<S> <C> <C>
1. Legal Proceedings None
2. Changes in Securities None
3. Defaults Upon Senior Securities None
4. Submission of Matters to a Vote of Security Holders None
5. Other Information None
6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
(11) Statement re: Computation of Per Share Earnings - not required
since such computation can be clearly determined from the
material contained herein.
(27) Financial Data Schedule
(b) Current Reports on Form 8-K: None
</TABLE>
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: September 14, 1998 /s/ David H. Taylor
---------------------- -------------------
David H. Taylor
Executive Vice President - Finance,
Secretary and Chief Financial Officer
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