<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 May 1, 1999
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 June 7, 1999.
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<PAGE> 2
JPS TEXTILE GROUP, INC.
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION Number
<S> <C> <C>
Item 1. Condensed Consolidated Balance Sheets
May 1, 1999 (Unaudited) and October 31, 1998................................. 3
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended May 1, 1999 and
May 2, 1998 (Unaudited)...................................................... 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended May 1, 1999 and
May 2, 1998 (Unaudited)...................................................... 5
Notes to Condensed Consolidated Financial Statements (Unaudited)................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................... 18
PART II. OTHER INFORMATION ........................................................................ 19
</TABLE>
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<PAGE> 3
Item 1. Financial Statements
<TABLE>
<CAPTION>
JPS TEXTILE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands) May 1, October 31,
1999 1998
--------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,010 $ 1,549
Accounts receivable 46,791 62,556
Inventories (Note 2) 53,054 46,836
Prepaid expenses and other (Note 5) 6,129 4,101
Net assets of discontinued operations (Note 4) 5,077 15,406
Net assets held for sale -- 9,652
--------- ---------
Total current assets 113,061 140,100
Property, plant and equipment, net 88,112 87,890
Reorganization value in excess of amounts
allocable to identifiable assets 31,928 36,532
Other assets 4,212 3,141
--------- ---------
Total assets $ 237,313 $ 267,663
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,164 $ 19,890
Accrued interest 964 1,055
Accrued salaries, benefits and withholdings 13,526 6,835
Other accrued expenses 13,512 10,274
Current portion of long-term debt (Note 3) 938 1,047
--------- ---------
Total current liabilities 47,104 39,101
Long-term debt (Note 3) 86,679 98,693
Other long-term liabilities 20,429 20,341
--------- ---------
Total liabilities 154,212 158,135
--------- ---------
Shareholders' equity:
Common stock 100 100
Additional paid-in capital 123,230 123,230
Accumulated other comprehensive loss (5,855) (5,855)
Accumulated deficit (34,374) (7,947)
--------- ---------
Total shareholders' equity 83,101 109,528
--------- ---------
Total liabilities and shareholders' equity $ 237,313 $ 267,663
========= =========
</TABLE>
Note: The condensed consolidated balance sheet at October 31, 1998 has been
extracted from the audited financial statements (as reclassified for
discontinued operations, see Note 4).
See notes to condensed consolidated financial statements.
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<PAGE> 4
JPS TEXTILE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Share and Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
May 1, May 2, May 1, May 2,
1999 1998 1999 1998
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales $ 72,285 $ 86,531 $ 142,669 $ 174,409
Cost of sales 61,167 71,352 120,655 144,912
------------ ----------- ------------ -----------
Gross profit 11,118 15,179 22,014 29,497
Selling, general and administrative
expenses 9,879 9,249 18,726 19,097
Other income (expense), net (233) 34 (94) 59
Charges for plant closing and
restructuring costs (3,718) -- (3,718) --
------------ ----------- ------------ -----------
Operating profit (loss) (2,712) 5,964 (524) 10,459
Interest expense 1,884 1,854 3,775 3,814
------------ ----------- ------------ -----------
Income (loss) before income taxes
and discontinued operations (4,596) 4,110 (4,299) 6,645
Provision (benefit) for income taxes (1,105) 1,786 (1,249) 2,863
------------ ----------- ------------ -----------
Income (loss) before discontinued
operations (3,491) 2,324 (3,050) 3,782
Discontinued operations (net of taxes):
Income (loss) from discontinued
operations (313) 547 (898) 780
Net loss on disposal of discontinued
operations (22,479) -- (22,479) --
------------ ----------- ------------ -----------
Net income (loss) $ (26,283) $ 2,871 $ (26,427) $ 4,562
============ =========== ============ ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 10,000,000 10,000,000 10,000,000 10,000,000
Basic and diluted earnings (loss) per
common share:
Income (loss) before discontinued
operations $ (0.35) $ 0.23 $ (0.30) $ 0.38
Discontinued operations, net of taxes:
Income (loss) from discontinued
operations (0.03) 0.06 (0.09) 0.08
Net loss on disposal of
discontinued operations (2.25) -- (2.25) --
------------ ----------- ------------ -----------
Net income (loss) $ (2.63) $ 0.29 $ (2.64) $ 0.46
============ =========== ============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 5
JPS TEXTILE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------
May 1, May 2,
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(26,427) $ 4,562
-------- --------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization, except amounts included
in interest expense 6,031 5,830
Interest accretion and debt issuance cost amortization 167 169
Other, net 475 (604)
Charges for plant closing and restructuring costs 3,718 --
Loss (income) from discontinued operations 898 (780)
Loss on disposal of discontinued operations 22,479 --
Changes in assets and liabilities:
Accounts receivable 15,491 11,848
Inventories (5,732) (6,716)
Prepaid expenses and other assets (139) 2,022
Accounts payable (3,650) 355
Accrued expenses and other liabilities (5,639) (268)
-------- --------
Total adjustments 34,099 11,856
-------- --------
Net cash provided by operating activities 7,672 16,418
-------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES
Property and equipment additions (3,171) (12,002)
Proceeds from sale of assets 8,391 -0-
-------- --------
Net cash provided by (used in) investing activities 5,220 (12,002)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Financing costs incurred (250) (146)
Revolving credit facility borrowings (repayments), net (12,190) (5,677)
Borrowings (repayments) of other long-term debt 9 (877)
-------- --------
Net cash used in financing activities (12,431) (6,700)
-------- --------
Net increase (decrease) in cash 461 (2,284)
Cash at beginning of period 1,549 3,888
-------- --------
Cash at end of period $ 2,010 $ 1,604
======== ========
Supplemental cash flow information:
Interest paid $ 3,176 $ 3,248
Income taxes paid 326 609
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 6
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 condensed consolidated financial statements
mean JPS Textile Group, Inc. and JPS Textile Group, Inc. together with
its subsidiaries, respectively.
The Company has prepared, without audit, the interim condensed
consolidated financial statements and related notes. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position,
results of operations and cash flows at May 1, 1999 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
October 31, 1998. The results of operations for the interim period are
not necessarily indicative of the operating results for the full year.
2. Inventories (in thousands):
<TABLE>
<CAPTION>
May 1, October 31,
1999 1998
--------- -----------
<S> <C> <C>
Raw materials and supplies $ 9,404 $ 10,382
Work-in-process 13,204 16,690
Finished goods 30,446 19,764
-------- --------
Total $ 53,054 $ 46,836
======== ========
</TABLE>
3. Long-Term Debt (in thousands):
<TABLE>
<CAPTION>
May 1, October 31,
1999 1998
--------- -----------
<S> <C> <C>
Senior credit facility, revolving line of credit $ 81,905 $ 94,095
Equipment financing 1,200 2,249
Capital lease obligation 4,512 3,396
-------- --------
Total 87,617 99,740
Less current portion (938) (1,047)
-------- --------
Long-term portion $ 86,679 $ 98,693
======== ========
</TABLE>
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<PAGE> 7
4. Discontinued Operations and Certain Other Charges
In the quarter ended May 1, 1999, management of the Company
recommended, and the Board of Directors of the Company approved, a plan
to exit the Company's cotton commercial products and yarn sales
segments which will result in the closure of the Company's Borden Plant
in Kingsport, Tennessee and Stanley Plant in Stanley, North Carolina
before the end of the Company's Fiscal 1999 third quarter. The
accompanying condensed consolidated statements of operations include a
charge for loss on disposal of discontinued operations of approximately
$22.5 million representing the writedown of the plant assets to net
realizable value, employee severance, plant run-out costs and other
plant closing costs. In addition, the results of operations for all
periods presented have been reclassified to reflect these segments as
discontinued operations. In the quarter ended May 1, 1999, the Company
recorded a tax benefit of approximately $1.2 million on the
discontinued operations. The benefit is limited as a result of
uncertainties regarding the ability to utilize these losses in future
years. The benefit recorded represents the amount of loss expected to
be utilized during the current year to offset income from continuing
operations. Net sales from the discontinued operation of the cotton
commercial products and yarn sales segments were approximately $11.0
million and $14.8 million in the three months ended May 1, 1999 and May
2, 1998, respectively, and approximately $19.6 million and $27.7
million in the six months ended May 1, 1999 and May 2, 1998,
respectively. The net assets of these segments (adjusted to net
realizable value) are classified as "net assets of discontinued
operations" on the accompanying condensed consolidated balance sheets.
On February 10,1999, the Company announced that it would close its
Angle Plant located in Rocky Mount, Virginia, as a result of the
Company's assessment of the market conditions for apparel products
constructed primarily of filament yarns. As a result of this decision,
the results of operations for Fiscal 1998 included a "charge for
writedown of certain long-lived assets" of approximately $4.3 million
representing the loss on impairment of assets (approximately $2.7
million) for the excess of the carrying value of the plant over its
estimated net realizable value (as determined by independent appraisal
or quoted prices from used equipment dealers) and the writeoff of
approximately $1.6 million of related reorganization value in excess of
amounts allocable to identifiable assets in accordance with SFAS No.
121. In the quarter ended May 1, 1999, the Company recorded an
additional "charge for plant closing" of approximately $1.8 million
principally for employee severance related to the Angle shutdown. This
plant closing is expected to be completed by the end of the Company's
Fiscal 1999 third quarter.
The Company also recorded other non-recurring restructuring charges of
approximately $1.9 million related principally to employee severance
and the buy-out of lease commitments on certain permanently idled
equipment.
5. Contingencies
The Company has provided for all estimated future costs associated with
certain roofing products including those sold by the Predecessor
Stevens Division operations. The liability for future costs associated
with these 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. The liability for such
products was approximately $2.5 million at May 1, 1999 and $2.8 million
at October 31, 1998. 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 these roofing
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<PAGE> 8
products quarterly and if it is deemed that an adjustment to the
reserve is required, it will be charged to operations in the period in
which such determination is made.
At May 1, 1999, the Company had net operating loss carryforwards for
regular federal income tax purposes of approximately $29 million
(subject to adjustment by the Internal Revenue Service). The net
operating loss carryforwards expire in years 2004 through 2013. The
Company also has federal alternative minimum tax net operating loss
carryforwards of approximately $23 million (subject to adjustment)
which expire in 2004 through 2013. 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 generated approximately $3.0 million of net operating loss
carryforwards for regular federal income tax purposes during the six
month period ended May 1, 1999.
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,
including tax benefits that may be realized upon the disposition of
discontinued operations. Therefore, a valuation allowance of
approximately $35 million has been provided.
The Company is exposed to a number of asserted and unasserted potential
claims encountered in the normal course of business. Except as
discussed below, management believes that none of this litigation, if
determined unfavorable to the Company, would have a material adverse
effect on the financial condition or results of operations of the
Company.
In June 1997, Sears Roebuck and Co. ("Sears") filed a multi-count
complaint against JPS Elastomerics Corp. ("Elastomerics"), a
wholly-owned subsidiary of JPS, and two other defendants alleging an
unspecified amount of damages in connection with the alleged premature
deterioration of the Company's roofing membrane installed on
approximately 150 Sears stores. The Company believes it has meritorious
defenses to the claims and intends to defend the lawsuit vigorously.
Management, however, cannot determine the outcome of the lawsuit or
estimate the range of loss, if any, that may occur. Accordingly, no
provision has been made for any loss which may result. An unfavorable
resolution of the actions could have a material adverse effect on the
business, results of operations or financial condition of the Company.
6. Comprehensive Income
Effective November 1, 1998, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income",
which establishes standards for reporting and display of changes in
equity during a period from transactions and other events from nonowner
sources. The statement requires certain items such as minimum pension
liability adjustments, unrealized gains or losses on available-for-sale
securities and foreign currency translation adjustments to be included
in other comprehensive income. In the quarters ended May 1, 1999 and
May 2, 1998 there were no components of other comprehensive income. The
accumulated other comprehensive loss is comprised of an additional
minimum pension liability recorded in the fourth quarter of Fiscal
1998.
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<PAGE> 9
7. Segment Reporting
Effective in the quarter ended May 1, 1999, the Company adopted SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related
Information." The Company's reportable segments are Elastomerics,
Glass, and Apparel. The reportable segments were determined using the
Company's method of internal reporting, which divides and analyzes the
business by the nature of the products manufactured and sold. The
customer base, manufacturing process and method of distribution does
vary significantly by product. The Elastomerics segment principally
manufactures and markets extruded products including high performance
roofing products, environmental-geomembranes and various polyurethane
products. The Glass segment produces and markets specialty substrates
woven from fiberglass and other specialty fibers for a variety of
applications such as printed circuit boards, filtration, advanced
composites, building products, defense and aerospace. The Apparel
segment produces and markets unfinished woven fabrics for use in a
broad range of consumer apparel products for use in the women's dress
and sportswear markets.
During the process of implementing SFAS No. 131, the Company identified
two other segments which met its criteria as reportable segments. These
two segments are the cotton commercial products segment and the yarn
sales segment. As discussed in Note 4, in the quarter ended May 1,
1999, management of the Company approved a plan to exit these segments.
Such segments are reported in the accompanying condensed consolidated
financial statements as discontinued operations and are not included in
the segment information below or in Item 2 contained herein.
The Company evaluates the performance of its reportable segments and
allocates resources principally based on the segment's operating
profit, defined as earnings before interest and taxes. The following
table presents certain information regarding the business segments:
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended Six Months Ended
------------------ ----------------
May 1, May 2, May 1, May 2,
1999 1998 1999 1998
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales:
Elastomerics $ 21,049 $ 20,565 $ 38,886 $ 37,981
Glass 22,125 21,192 41,925 38,569
Apparel 31,882 46,345 66,870 100,941
-------- --------- --------- ---------
75,056 88,102 147,681 177,491
Less intersegment sales (1) (2,771) (1,571) (5,012) (3,082)
-------- --------- --------- ---------
Net sales $ 72,285 $ 86,531 $ 142,669 $ 174,409
======== ========= ========= =========
Operating profit:
Elastomerics $ 2,425 $ 2,022 $ 3,957 $ 3,123
Glass 533 2,265 2,051 3,652
Apparel (2) (2,052) 3,032 (1,480) 6,445
Indirect corporate
expenses, net (3) (3,618) (1,355) (5,052) (2,761)
-------- --------- --------- ---------
Operating profit (loss) (2,712) 5,964 (524) 10,459
Interest expense (1,884) (1,854) (3,775) (3,814)
-------- --------- --------- ---------
Income (loss) before income taxes
and discontinued operations $ (4,596) $ 4,110 $ (4,299) $ 6,645
======== ========= ========= =========
</TABLE>
-9-
<PAGE> 10
<TABLE>
<CAPTION>
May 1, October 31,
1999 1998
-------- -----------
<S> <C> <C>
Identifiable assets:
Elastomerics $ 44,963 $ 46,764
Glass 54,346 54,133
Apparel 92,226 109,008
-------- --------
Total segments 191,535 209,905
Corporate and other 40,701 42,352
Net assets of discontinued operations 5,077 15,406
-------- --------
Total assets $237,313 $267,663
======== ========
</TABLE>
(1) Intersegment sales consist primarily of the transfer of certain scrim
products manufactured by the Glass segment to the Elastomerics segment. All
intersegment revenues and profits are eliminated in the accompanying
condensed consolidated financial statements.
(2) The operating loss for the Apparel segment in the periods ended May 1, 1999
includes plant closing costs of approximately $1.8 million and other
restructuring charges of approximately $0.6 million.
(3) Indirect corporate expenses for the periods ended May 1, 1999 include
other restructuring charges of approximately $1.3 million.
8. Earnings Per Share
In the quarter ended May 1, 1998, 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 period ended May 1, 1999 and May
2, 1998, was computed by dividing net income by the weighted average number
of shares of common stock outstanding during the period. The presentation
of diluted earnings per share was not required for the period ended May 1,
1999 and May 2, 1998 since the inclusion of additional shares assuming the
exercise of stock options and warrants is antidilutive.
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<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This quarterly report on Form 10-Q contains forward-looking information
statements that involve risks and uncertainties. Such forward looking statements
include, but are not limited to, statements regarding the Company's expectations
of the impact of the year 2000 issue on results of operations. The Company's
actual results, performance or achievements could differ materially from the
results expressed in, or implied by, these forward-looking statements, which are
made only as of the date hereof.
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
31, 1998. As discussed in Note 7 of the Notes to Condensed Consolidated
Financial Statements included in Item 1 herein, effective in the quarter ended
May 1, 1999, the Company adopted SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information." Accordingly, segment information for prior
periods has been restated to conform to the current presentation.
<TABLE>
<CAPTION>
(In Thousands)
Three Months Ended Six Months Ended
------------------------ ------------------------
May 1, May 2, May 1, May 2,
1999 1998 1999 1998
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales:
Elastomerics $ 21,049 $ 20,565 $ 38,886 $ 37,981
Glass 22,125 21,192 41,925 38,569
Apparel 31,882 46,345 66,870 100,941
-------- --------- --------- ---------
75,056 88,102 147,681 177,491
Less intersegment sales (2,771) (1,571) (5,012) (3,082)
-------- --------- --------- ---------
Net sales $ 72,285 $ 86,531 $ 142,669 $ 174,409
======== ========= ========= =========
Operating profit:
Elastomerics $ 2,425 $ 2,022 $ 3,957 $ 3,123
Glass 533 2,265 2,051 3,652
Apparel (2,052) 3,032 (1,480) 6,445
Indirect corporate expenses, net (3,618) (1,355) (5,052) (2,761)
-------- --------- --------- ---------
Operating profit (loss) (2,712) 5,964 (524) 10,459
Interest expense (1,884) (1,854) (3,775) (3,814)
-------- --------- --------- ---------
Income (loss) before income taxes
and discontinued operations $ (4,596) $ 4,110 $ (4,299) $ 6,645
======== ========= ========= =========
</TABLE>
INTRODUCTION
The Company is continuing to reposition itself as a diversified industrial and
speciality products company as it streamlines its apparel business and exits
other textile businesses. Certain actions have been taken to improve
profitability in Fiscal 1999, as the Company pursues profitable growth
strategies globally in industrial products. As discussed below, on March 2,
1999, the Company completed the sale of its Boger City Plant, which generated a
majority of the Company's home fashion textiles business. The closing of the
Company's
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<PAGE> 12
Angle Plant, which produces apparel products, is proceeding and the Company
expects such closing will be completed by the end of its third fiscal quarter.
In addition, in the quarter ended May 1, 1999, management of the Company
approved a plan to exit the Company's cotton commercial products and yarn sales
segments thereby narrowing its textile business to apparel fabrics only and
bringing heightened focus on its extruded and glass products businesses. The
cotton commercial products and yarn sales segments are reported in the
accompanying condensed consolidated financial statements as discontinued
operations. The Company now operates in three business segments: Elastomerics,
Glass and Apparel. The Company also announced that it will change its name to
JPS Industries, Inc. to reflect the changing direction of the Company.
RESULTS OF OPERATIONS
Three Months Ended May 1, 1999 (the "1999 Second Quarter") Compared to the Three
Months Ended May 2, 1998 (the "1998 Second Quarter")
Consolidated net sales decreased $14.2 million, or 16.4%, from $86.5 million in
the 1998 second quarter to $72.3 million in the 1999 second quarter. Operating
profit (loss) decreased $8.7 million from an operating profit of $6.0 million in
the 1998 second quarter to an operating loss of $2.7 million in the 1999 second
quarter. The 1999 second quarter includes charges for plant closing and
restructuring costs of approximately $3.7 million. Excluding such charges for
comparative purposes, operating profit in the 1999 second quarter was $1.0
million compared to $6.0 million in the 1998 second quarter.
Net sales in the 1999 second quarter in the Elastomerics segment, which includes
single-ply roofing, environmental membrane and extruded urethane products,
increased $0.4 million, or 1.9%, to $21.0 million from $20.6 million in the 1998
second quarter. This increase is primarily attributable to increased sales of
roofing products resulting from favorable weather conditions in the eastern
United States allowing higher winter construction. The domestic roofing market
continues to be characterized by intense competition and market consolidation.
The Company has addressed these factors with aggressive pricing strategies and
has strengthened its sales management in key territories. Sales of extruded
urethane products were also higher in the 1999 second quarter as a result of
higher demand for certain of the Company's blown film products.
Operating profit in the 1999 second quarter for the Elastomerics segment
increased $0.4 million from $2.0 million in the 1998 second quarter to $2.4
million in the 1999 second quarter. This increase is due to the increase in
sales volume, lower costs and improved product mix in the 1999 second quarter.
Net sales in the Glass segment, which includes woven substrates constructed of
synthetics and fiberglass for lamination, insulation and filtration
applications, increased $0.9 million, or 4.2%, from $21.2 million in the 1998
second quarter to $22.1 million in the 1999 second quarter. The electronics
industry represents the largest customer segment for the Company's fiberglass
products. In Fiscal 1998, global consumer demand for electronic products did not
meet expectations and, combined with other factors, including the weakness in
Asian economies, led to a slowdown in demand for certain fiberglass fabrics used
in the manufacture of electrical circuit boards. In view of this market
softness, the Company took a number of steps to improve capacity utilization
including finalizing arrangements with its largest customers to purchase greater
quantities of the Company's production. These actions led to improved sales in
the 1999 second quarter compared to the 1998 second quarter.
Operating profit in the 1999 second quarter for the Glass segment decreased $1.8
million from $2.3 million in the 1998 second quarter to $0.5 million in the 1999
second quarter. This decrease reflects continued pricing pressure as a result of
the Asian economic situation and the global supply imbalance. Additionally, the
Glass segment's operating results were negatively impacted by approximately $2.0
million for inventory valuation and reduction and quality issues related to the
start-up of new equipment and changes in product mix.
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<PAGE> 13
Net sales of apparel fabrics, which include unfinished woven apparel fabrics
(greige goods) primarily for women's wear, decreased $14.4 million, or 31.1%,
from $46.3 million in the 1998 second quarter to $31.9 million in the 1999
second quarter. Market conditions for apparel fabrics has weakened significantly
since the 1998 second quarter, which was exceptionally strong, with unit volumes
and selling prices well below prior-year levels. The high level of apparel
imports continue to negatively affect demand for domestically produced fabrics.
In addition, apparel manufacturers are continuing the trend of substituting
lower cost imported polyester fabrics for acetate-rich fabrics.
Operating profit in the 1999 second quarter for the Apparel segment decreased
$5.1 million from an operating profit of $3.0 million in the 1998 second quarter
to an operating loss of $2.1 million in the 1999 second quarter. The 1999 second
quarter includes charges for plant closing and restructuring costs which totaled
approximately $2.4 million. Excluding such charges for comparative purposes,
operating profit in the 1999 second quarter was $0.3 million compared to $3.0
million in the 1998 second quarter. This decrease is primarily attributable to
the lower sales volume, lower unit prices and the effects of production
curtailment to manage inventory levels.
As a result of this market softness and the Company's assessment of the ongoing
market condition for apparel products, management concluded that its Angle Plant
located in Rocky Mount, Virginia, should be closed. As discussed in the
Company's Annual Report Form 10-K for the fiscal year ended October 31, 1998,
the results of operations for Fiscal 1998 included a charge for writedown of
certain long-lived assets of approximately $4.3 million related principally to
the loss on impairment of the plant in accordance with SFAS No. 121. In the 1999
second quarter, the Company recorded additional charges for plant closing of
approximately $1.8 million principally related to employee severance. In
addition, the Company recorded a charge for restructuring of approximately $0.6
million for the buy-out of lease commitments on certain permanently idled
equipment. The Company expects to complete the plant closing by the end of its
1999 third quarter and expects that the plant closure will result in improved
earnings and cash flow from operations in the future.
Intersegment sales consist primarily of the transfer of certain scrim products
manufactured by the Glass segment to the Elastomerics segment. All intersegment
sales and profits are eliminated in the accompanying condensed consolidated
financial statements.
Indirect corporate expenses increased $2.2 million in the 1999 second quarter
compared to the 1998 second quarter principally due to employee severance
recorded in relation to the resignation of Jerry E. Hunter, former President,
Chief Executive Officer and Chairman of the Board of Directors of the Company on
February 27, 1999. Also contributing to the increase was higher legal and
professional fees and stock option expense.
Interest expense in the 1999 second quarter were consistent with the 1998 second
quarter.
Six Months Ended May 1, 1999 (the "1999 Six-Month Period") Compared to the Six
Months Ended May 2, 1998 (the "1998 Six-Month Period")
Consolidated net sales decreased $31.7 million, or 18.2%, from $174.4 million in
the 1998 six-month period to $142.7 million in the 1999 six-month period.
Operating profit (loss) decreased $11.0 million from an operating profit of
$10.5 million in the 1998 six-month period to an operating loss of $0.5 million
in the 1999 six-month period. The 1999 six-month period includes charges for
plant closing and restructuring costs of approximately $3.7 million. Excluding
such charges for comparative purposes, operating profit in the 1999 six-month
period was $3.2 million compared to $10.5 million in the 1998 six-month period.
Net sales in the 1999 six-month period in the Elastomerics segment increased
$0.9 million, or 2.4%, to $38.9 million from $38.0 million in the 1998 six-month
period. This increase is primarily attributable to increased
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<PAGE> 14
sales of roofing products resulting from favorable weather conditions in the
eastern United States allowing higher winter construction. Sales of
liner products were also higher in the 1999 six-month period due to
international sales related to the 2000 Summer Olympics.
Operating profit in the 1999 six-month period for the Elastomerics segment
increased $0.9 million from $3.1 million in the 1998 six-month period to $4.0
million in the 1999 six-month period. This increase is due to the increase in
sales volume, lower costs and improved product mix in the 1999 six-month period.
Net sales in the Glass segment increased $3.3 million, or 8.5%, from $38.6
million in the 1998 six-month period to $41.9 million in the 1999 six-month
period. The Company's actions to improve capacity utilization and increase
market share, as described earlier, led to the improved sales in the 1999
six-month period.
Operating profit in the 1999 six-month period for the Glass segment decreased
$1.6 million from $3.7 million in the 1998 six-month period to $2.1 million in
the 1999 six-month period. This decrease reflects continued pricing pressure as
result of the Asian economic situation and the global supply imbalance.
Additionally, the Glass segment's operating results were negatively impacted by
approximately $2.0 million for inventory valuation and reduction and quality
issues related to the start-up of new equipment and changes in product mix.
Net sales of apparel fabrics decreased $34.0 million, or 34.0%, from $100.9
million in the 1998 six-month period to $66.9 million in the 1999 six-month
period. Market conditions for apparel fabrics has weakened significantly since
the 1998 six-month period, which was exceptionally strong, with unit volumes and
selling prices well below prior-year levels. The high level of apparel imports
continue to negatively affect demand for domestically produced fabrics. In
addition, apparel manufacturers are continuing the trend of substituting lower
cost imported polyester fabrics for acetate-rich fabrics.
Operating profit in the 1999 six-month period for the Apparel segment decreased
$7.9 million from an operating profit of $6.4 million in the 1998 six-month
period to an operating loss of $1.5 million in the 1999 six-month period. The
1999 six-month period includes charges for plant closing and restructuring costs
which totaled approximately $2.4 million. Excluding such charges for comparative
purposes, operating profit in the 1999 six-month period was $0.9 million
compared to $6.4 million in the 1998 six-month period. This decrease is
primarily attributable to the lower sales volume, lower unit prices and the
effects of production curtailment to manage inventory levels.
Intersegment sales consist of the transfer of certain scrim products
manufactured by the Glass segment to the Elastomerics segment. All intersegment
sales and profits are eliminated in the accompanying condensed consolidated
financial statements.
Indirect corporate expenses increased $2.3 million in the 1999 six-month period
compared to the 1998 six-month period principally due to employee severance
recorded in relation to the resignation of Jerry E. Hunter, former President,
Chief Executive Officer and Chairman of the Board of Directors of the Company on
February 27, 1999. Also contributing to the increase were higher legal and
professional fees and stock option expense.
Interest expense in the 1999 six-month period was consistent with the 1998
six-month period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity for operations and expansion are
funds generated internally and
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<PAGE> 15
borrowings under its Revolving Credit Facility (as defined below). On October 9,
1997, Elastomerics and C&I (the "Borrowing Subsidiaries") and JPS entered into
the Credit Facility Agreement, (the "Credit Agreement"), by and among the
financial institutions party thereto, Citibank, as agent, and NationsBank, N.A.,
as co-agent. The Credit Agreement provides for a revolving credit loan facility
and letters of credit (the "Revolving Credit Facility") in a maximum principal
amount equal to the lesser of (a) $135 million and (b) a specified borrowing
base (the "Borrowing Base"), which is based upon eligible receivables, eligible
inventory and a specified dollar amount (currently $45,002,000 (subject to
reduction) based on fixed assets of the Borrowing Subsidiaries), except that (i)
no Borrowing Subsidiary may borrow an amount greater than the Borrowing Base
attributable to it (less any reserves as specified in the Credit Agreement) and
(ii) letters of credit may not exceed $20 million in the aggregate. The Credit
Agreement contains restrictions on investments, acquisitions and dividends
unless, among other things, the Company satisfies a specified pro forma fixed
charge coverage ratio and maintains a specified minimum availability under the
Revolving Credit Facility for a stated period of time, and no default exists
under the Credit Agreement. The Credit Agreement also restricts, among other
things, indebtedness, liens, affiliate transactions, operating leases,
fundamental changes and asset sales other than the sale of up to $35 million of
fixed assets, subject to the satisfaction of certain conditions. The Credit
Agreement contains financial covenants relating to minimum levels of EBITDA,
minimum interest coverage ratio, minimum fixed charge coverage ratio and maximum
capital expenditures. The maturity date of the Revolving Credit Facility is
October 9, 2002. On October 30, 1998 and April 30, 1999, the Credit Agreement
was amended to, among other things (i) modify the financial covenants relating
to minimum levels of EBITDA, minimum interest coverage ratio, minimum fixed
charge coverage ratio and maximum capital expenditures and (ii) modify the
interest rate margin and unused commitment fees. As of May 1, 1999, the Company
was in compliance with these restrictions and all financial covenants, as
amended. All loans outstanding under the Revolving Credit Facility, as amended,
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 fixed charge coverage ratio
(which margin will not exceed 2.50% for Eurodollar Rate borrowings and 1.00% for
Base Rate borrowings). The weighted average interest rate at May 1, 1999 is
approximately 7.2%. The Company pays an unused commitment fee of .375% but
declining to .25% per annum if a specified fixed charge coverage ratio is
satisfied and 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. As of May 1, 1999, unused and outstanding
letters of credit totaled $1,526,000. The outstanding letters of credit reduce
the funds available under the Revolving Credit Facility. At May 1, 1999, the
Company had approximately $32.4 million available for borrowing under the
Revolving Credit Facility.
In Fiscal 1998, the Company entered into a seven-year lease agreement
(classified as 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 May 1, 1999 was approximately
$5.0 million. The lease provides for an early buyout option at the end of six
years and includes purchase and renewal options at fair market value at the end
of the lease term.
During the 1999 second quarter, cash provided by operating activities was $7.7
million. Working capital decreased from $101.0 million at October 31, 1998 to
$66.0 million at May 1, 1999. Accounts receivable decreased by $15.8 million
from October 31, 1998 to May 1, 1999 due to lower sales in May 1999 compared to
October 1998. Inventories increased by $6.2 million, primarily in finished
goods, during the 1999 second quarter as a result of the lower sales volume in
that period. Accounts payable decreased by $1.7 million from October 31, 1998 to
May 1, 1999 primarily as a result of the slowdown in sales volume in May 1999
compared to October 1998 and the corresponding decrease in production
requirements. Accrued salaries, benefits and withholding increased $6.7 million
from October 31, 1998 to May 1, 1999 due to the accrual of severance in relation
to plant closings and other restructuring activities. Other accrued expenses
increased $3.2 million during the 1999 second quarter due to the accrual of
plant closing costs related to the Borden and Stanley
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<PAGE> 16
Plants.
The principal use of cash in the 1999 second quarter was for capital
expenditures of $1.5 million and net repayment of borrowings under the Revolving
Credit Facility of $12.2 million. As of May 1, 1999, the Company had commitments
of $0.7 million for capital expenditures. The Company anticipates making capital
expenditures in Fiscal 1999 of approximately $7.9 million and expects such
amounts to be funded by cash from operations, bank and other equipment financing
services.
Based upon the Company's ability to generate working capital through its
operations and its Revolving Credit Facility, the Company believes that it has
the financial resources necessary to pay its capital obligations and implement
its business plan.
YEAR 2000 COMPLIANCE
Description of Year 2000 Issue
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.
Mission-critical applications which could be impacted include purchasing and
inventory management, production control, general ledger accounting, billing,
payroll and disbursements.
The Company's Plan
In Fiscal 1997, the Company conducted a comprehensive review of its computer
systems to identify those systems that could be affected by the Year 2000 issue.
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) maintenance once compliance is
achieved and (vi) contingency planning. The Company has completed the inventory
and risk assessment phases, most of the remediation and testing phase and is
currently developing contingency plans for critical systems, suppliers,
customers and service providers. Additionally, testing of remediated IT and
process systems will continue through the calendar year-end. Remediation
involved 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 have been 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 performed a written survey of its 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 expects that the contingency planning phase will be substantially
completed by the end of August 1999. However, testing and maintenance will
continue throughout 1999.
The Company has corresponded and met with critical vendors and service providers
to discern their Year 2000 compliance status and testing procedures. Most of
these vendors and service providers supply raw materials
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<PAGE> 17
and equipment to the Company. The majority of responses have been received, with
some requiring additional follow-up which is to be completed by September 1999.
The Company is currently developing contingency plans for its mission-critical
applications. The contingency plans will address (i) the development of a
contingency planning framework, including common approaches and criteria, (ii)
clear assignment of accountability for executing the contingency planning
framework, (iii) monitoring of results and (iv) testing and validation. It is
anticipated the contingency plans will enable the business to continue in the
event there are any system interruptions.
Costs Associated with Year 2000 Compliance
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,
however, retains contract programmers to work on discrete projects and will
continue this practice into the foreseeable future. The incremental cost of
addressing the Year 2000 issue is estimated at $210,000, with $95,000 having
been spent as of May 1, 1999. Most of these expenditures have been for
remediation or replacement of existing systems. Management believes that the
cost of Year 2000 modifications will not have a material effect on results of
operations. The estimated cost of the Year 2000 project and the dates on which
the Company believes it will be completed are based on management's best
estimate. There can be no assurances that these estimates will not change.
Specific factors that could cause material differences with actual results
include, but are not limited to, the results of testing and the timeliness and
effectiveness of remediation efforts of third parties.
Risks Presented by Year 2000 Issues
There can be no assurance given that any or all of the Company's systems are or
will be Year 2000 compliant. A failure by the Company to resolve a material Year
2000 issue could result in an interruption in, or failure of, normal business
operations and could materially and adversely affect the Company's financial
condition. In addition, due to the uncertainties inherent in the Year 2000
problem, the Company cannot insure that its most important vendors, customers
and service providers will be Year 2000 compliant on time. The failure of
critical third parties to timely correct their Year 2000 problems could
materially and adversely affect the Company's operations and financial
condition, even resulting in an interruption in normal business operations if a
critical supplier is unable to meet commitments in a timely manner. However, 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.
RECENT ACCOUNTING PRONOUNCEMENTS
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 and therefore will not have a significant impact on
the Company's financial position, results of operations or cash flows. SFAS No.
132 is effective for the Company in Fiscal 1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. SFAS No. 133 will be effective for the Company
in Fiscal 2000. Management of the Company has not yet evaluated the
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<PAGE> 18
effects of this statement on the Company's financial position, results of
operations or cash flows.
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", which provides guidance on
accounting for the costs of computer software developed or obtained for internal
use. SOP 98-1 requires external and internal indirect costs of developing or
obtaining internal-use software to be capitalized as a long-lived asset and also
requires training costs included in the purchase price of computer software and
costs associated with research and development to be expensed as incurred. SOP
98-1 is effective for the Company in Fiscal 1999.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest rate risk. The Company has exposure to interest rate changes primarily
relating to interest rate changes under its Revolving Credit Facility. The
Company's Revolving Credit Facility bears interest at rates which vary with
changes in (i) the London Interbank Offered Rate (LIBOR) or (ii) a rate of
interest announced publicly by Citibank in New York, New York. The Company does
not speculate on the future direction of interest rates. As of May 1, 1999,
approximately $81.9 million of the Company's debt bore interest at variable
rates. The Company believes that the effect, if any, of reasonably possible
near-term changes in interest rates on the Company's consolidated financial
position, results of operations or cash flows would not be significant.
Commodity price risk. A portion of the Company's raw materials are staple goods
that are affected by commodity pricing and are, therefore, subject to price
volatility caused by weather, production problems, delivery difficulties and
other factors which are outside the control of the Company. In most cases,
essential raw materials are available from several sources. For several raw
materials, however, branded goods or other circumstances may prevent such
diversification and an interruption of the supply of these raw materials could
have a significant impact on the Company's ability to produce certain products.
The Company has established long-term relationships with key suppliers and may
enter into purchase contracts or commitments of one year or less for certain raw
materials. Such agreements generally include a pricing schedule for the period
covered by the contract or commitment. The Company believes that any changes in
commodity pricing which cannot be adjusted for by changes in its product pricing
or other strategies, would not be significant.
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<PAGE> 19
JPS TEXTILE GROUP, INC.
PART II - OTHER INFORMATION
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:
(a) Exhibits:
(10) Second Amendment to the Credit Facility Agreement, dated as of
April 30, 1999, by and among JPS, C&I, Elastomerics, the financial
institutions listed on the signature pages thereto, and the agent
and co-agent thereto.
(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:
(i) Report dated February 27, 1999 disclosing the resignation
of Jerry E. Hunter as President, Chief Executive Officer and
Chairman of the Board of Directors of the Company and the
election of Michael L. Fulbright as President, Chief Executive
Officer and Chairman of the Board of Directors of the Company.
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: June 11, 1999 /s/ John W. Sanders, Jr.
-------------------------------------
John W. Sanders, Jr.
Executive Vice President - Finance &
Chief Financial Officer
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<PAGE> 1
EXHIBIT 10
EXECUTION COPY
SECOND AMENDMENT TO CREDIT FACILITY AGREEMENT
THIS SECOND AMENDMENT TO CREDIT FACILITY AGREEMENT dated as of April
30, 1999 (this "Second Amendment") is entered into among JPS Textile Group,
Inc. (the "Company"), JPS Elastomerics Corp. and JPS Converter and Industrial
Corp. (together, the "Borrowing Subsidiaries"), Citibank, N.A. ("Citibank"), as
agent and collateral agent (the "Agent"), NationsBank, N.A., as co-agent (the
"Co-Agent"), and the Lenders, and relates to that certain Credit Facility
Agreement dated as of October 9, 1997 (as amended by the First Amendment to
Credit Facility Agreement dated as of October 30, 1998, and as further amended,
restated, supplemented or modified from time to time, the "Credit Agreement")
among the Company, the Borrowing Subsidiaries, the Agent, the Co-Agent and the
Lenders.
W I T N E S S E T H:
WHEREAS, the Company and the Borrowing Subsidiaries have requested
that the Lenders, the Agent and the Co-Agent agree to amend the Credit
Agreement as provided for herein;
NOW, THEREFORE, in consideration of the above premises, the Company,
the Borrowing Subsidiaries, the Agent, the Co-Agent and the Lenders agree as
follows:
1. Definitions. Capitalized terms used and not otherwise defined
herein have the meanings assigned to them in the Credit Agreement.
2. Amendments to the Credit Agreement. Upon the "Second Amendment
Effective Date" (as defined in Section 4 below), the Credit Agreement is hereby
amended as follows:
2.1 Section 1.01. Section 1.01 of the Credit Agreement is amended as
follows:
(a) The definition of "Applicable Margin" is amended to read in full
as follows:
"Applicable Margin" means (x) for all periods ending on or before the
end of Fiscal Year 2000, (i) in the case of Base Rate Loans, 0.75% and (ii) in
the case of Eurodollar Rate Loans, 2.25%; and (y) at all times thereafter, (i)
in the case of Base Rate Loans, the applicable rate per annum set forth below
under the heading "Base Rate Margin" and (ii) in the case of Eurodollar Rate
Loans, the applicable rate per annum set forth below under the heading
"Eurodollar Rate Margin":
<PAGE> 2
<TABLE>
<CAPTION>
FIXED CHARGE BASE RATE MARGIN EURODOLLAR RATE
COVERAGE RATIO MARGIN
- -------------------------------- ---------------- ---------------
<S> <C> <C>
if >= 3.25 to 1 0.25% 1.75%
if >= 2.50 to 1 but < 3.25 to 1 0.50% 2.00%
if >= 2.00 to 1 but < 2.50 to 1 0.75% 2.25%
if < 2.00 to 1 1.00% 2.50%
</TABLE>
(b) The definition of "EBITDA" is amended to read in full as follows:
"EBITDA" shall mean, for any period, with respect to the Company and
its Subsidiaries on a consolidated basis during such period, all of the
following as determined in conformity with GAAP, (i) the sum of the amounts for
such period of (A) Consolidated Net Income, (B) depreciation, amortization
expense (including amortization of excess reorganization value) and other
non-cash charges identified to the Agent by the Company and reasonably
acceptable to the Agent, (C) consolidated interest expense (including fees for
Letters of Credit), (D) Federal, state, local and foreign income taxes, (E)
warranty receipts to the extent not included in Consolidated Net Income, (F)
Transaction Costs (and other reorganization expenses incurred prior to the
Effective Date) to the extent deducted in the calculation of Consolidated Net
Income and (G) for the period from the second fiscal quarter of Fiscal Year
1999 through and including the first fiscal quarter of Fiscal Year 2000,
Restructuring Expenses incurred from the beginning of the period being measured
through and including the second fiscal quarter of Fiscal Year 1999, up to (x)
48,500,000 for each of the second and third fiscal quarters of Fiscal Year 1999
and (y) $29,300,000 for each of the fourth fiscal quarter of Fiscal Year 1999
and the first fiscal year quarter of Fiscal Year 2000; minus (ii) gains (or
PLUS losses) from asset sales calculated pursuant to GAAP for such period.
(c) The following definition of "Cash Restructuring Expenses" is
added in proper alphabetical order:
"Cash Restructuring Expenses" shall mean the aggregate of all fees,
costs and expenses payable by the Company or any Borrowing Subsidiary in cash
or other consideration in connection with the Restructuring.
(d) The following definition of "Non-Cash Restructuring Expenses" is
added in proper alphabetical order:
"Non-Cash Restructuring Expenses" shall mean the aggregate of all
fees, costs and expenses payable by the Company or any Borrowing Subsidiary in
connection with a Restructuring other than Cash Restructuring Expenses.
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<PAGE> 3
(e) The following definition of "Restructuring" is added in proper
alphabetical order:
"Restructuring" shall mean any activities associated with the
downsizing or exiting in whole or in part of a business or market segment or
manufacturing facility.
(f) The following definition of "Restructuring Expenses" is added in
proper alphabetical order:
"Restructuring Expenses" shall mean Cash Restructuring Expenses and
Non-Cash Restructuring Expenses.
2.2 Section 8.01. Section 8.01 of the Credit Agreement is amended
to read in full as follows:
8.01. Minimum EBITDA. EBITDA of the Company and its Subsidiaries
on a consolidated basis, as determined as of the last day of each
fiscal quarter set forth below for the twelve month period ending on
such day, shall not be less than the minimum amount set forth opposite
such fiscal quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Minimum Amount
-------------- --------------
<S> <C>
The second fiscal quarter of Fiscal Year 1999 20,000,000
The third fiscal quarter of Fiscal Year 1999 18,000,000
The fourth fiscal quarter of Fiscal Year 1999 18,000,000
The first fiscal quarter of Fiscal Year 2000 18,000,000
The second fiscal quarter of Fiscal Year 2000 18,000,000
The third fiscal quarter of Fiscal Year 2000 20,000,000
The fourth fiscal quarter of Fiscal Year 2000 22,000,000
The first fiscal quarter of Fiscal Year 2001 22,000,000
The second fiscal quarter of Fiscal Year 2001 22,000,000
The third fiscal quarter of Fiscal Year 2001 22,000,000
The fourth fiscal quarter of Fiscal Year 2001 25,000,000
The first fiscal quarter of Fiscal Year 2002 25,000,000
The second fiscal quarter of Fiscal Year 2002 25,000,000
The third fiscal quarter of Fiscal Year 2002 25,000,000
The fourth fiscal quarter of Fiscal Year 2002
and thereafter 27,500,000
</TABLE>
2.3 Section 8.02. Section 8.02 of the Credit Agreement is amended to
read in full as follows:
8.02. Minimum Interest Coverage Ratio. The Interest Coverage
Ratio of the Company and its Subsidiaries on a consolidated basis,
as determined as of the last day
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<PAGE> 4
of each fiscal quarter for the twelve month period ending on such day, shall not
be less than the minimum ratio set forth opposite such fiscal quarter.
<TABLE>
<CAPTION>
Fiscal Quarter Minimum Amount
-------------- --------------
<S> <C>
The second fiscal quarter of Fiscal Year 1999 1.5 to 1.
The third fiscal quarter of Fiscal Year 1999 2.50 to 1.
The fourth fiscal quarter of Fiscal Year 1999 2.50 to 1.
The first fiscal quarter of Fiscal Year 2000 2.50 to 1.
The second fiscal quarter of Fiscal Year 2000 2.50 to 1.
The third fiscal quarter of Fiscal Year 2000 2.75 to 1.
The fourth fiscal quarter of Fiscal Year 2000 3.50 to 1.
</TABLE>
2.4 Section 8.03. Section 8.03 of the Credit Agreement is amended to
read in full as follows:
8.03. Minimum Fixed Charge Coverage Ratio. The Fixed Charge
Coverage Ratio of the Company and its Subsidiaries on a consolidated basis,
as determined as of the last day of each fiscal quarter set forth below for
the twelve month period ending on such day, shall not be less than the
minimum ratio set forth opposite such fiscal quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Minimum Ratio
-------------- -------------
<S> <C>
The third fiscal quarter of Fiscal Year 1999 0.90 to 1
The fourth fiscal quarter of Fiscal Year 1999 1.40 to 1
The first fiscal quarter of Fiscal Year 2000 1.75 to 1
The second fiscal quarter of Fiscal Year 2000 1.75 to 1
The third fiscal quarter of Fiscal Year 2000 2.00 to 1
and thereafter
</TABLE>
2.5 Section 8.04. Section 8.04 of the Credit Agreement is amended to
read in full as follows:
8.04. Maximum Capital Expenditures. Capital Expenditures made or
incurred by the Company and its Subsidiaries on a consolidated basis for
any Fiscal Year shall not exceed in the aggregate the maximum amount set
forth below opposite such Fiscal Year:
<TABLE>
<CAPTION>
Fiscal Year Maximum Amount
----------- --------------
<S> <C>
1999 8,000,000
2000 5,000,000
2001 10,000,000
2002 10,000,000;
</TABLE>
-4-
<PAGE> 5
provided, however, if the maximum amount set forth above opposite any
Fiscal Year exceeds the amount of Capital Expenditures made or incurred by
the Company and its Subsidiaries on a consolidated basis for such Fiscal
Year, then Capital Expenditures made or incurred by the Company and its
Subsidiaries on a consolidated basis for the next Fiscal Year may exceed
the maximum amount set forth above opposite such next Fiscal Year (but not
subsequent Fiscal Years) by the amount of such excess from the immediately
preceding Fiscal Year; provided further, however, that, notwithstanding
anything contained in this Agreement to the contrary, (i) Capital
Expenditures made or incurred by the Company and its Subsidiaries on a
consolidated basis (x) for Fiscal Year 1999 shall not in any event exceed
$8,000,000, and (y) for Fiscal Year 2000 shall not in any event exceed
$5,000,000; and (ii) the terms of any external financing (other than any
Permitted Financing) incurred after the Effective Date pursuant to Section
7.01(v), the proceeds of which are used by the Company and/or its
Subsidiaries to make or incur Capital Expenditures shall be in form and
substance satisfactory to the Requisite Lenders.
2.6 New Section 8.05. A new Section 8.05 is added to the Credit
Agreement, which shall read in full as follows:
8.05. Maximum Cash Restructuring Expenses. Cash Restructuring
Expenses made or incurred by the Company and its Subsidiaries on a
consolidated basis for Fiscal Year 1999 shall not exceed in the
aggregate $16,000,000.
3. Representations and Warranties. Each of the Borrowers hereby
represents and warrants to each Lender, the Agent and the Co-Agent that, as of
the Second Amendment Effective Date and after giving effect to this Second
Amendment:
(a) Each of the representations and warranties contained in this
Second Amendment, the Credit Agreement as amended hereby and the other
Loan Documents are true and correct in all material respects on and as
of the Second Amendment Effective Date, as if then made, other than
representations and warranties which expressly speak as of a different
date; and
(b) No Default or Event of Default has occurred and is continuing.
4. Second Amendment Effective Date. This Second Amendment shall
become effective as of the date hereof (the "Second Amendment Effective Date")
when each of the following conditions shall have been satisfied:
(a) The Agent shall have received, by facsimile, counterparts of this
Second Amendment executed by the Company, each Borrowing Subsidiary,
the Agent, the Co-Agent and the Requisite Lenders, and acknowledged by
each of JCC, JPS Auto and International Fabrics.
-5-
<PAGE> 6
(a) The Agent shall have received all fees and other amounts required
to be paid in connection with this Second Amendment, including, without
limitation, as required pursuant to Section 6(a) of this Second Amendment.
(c) Each of the representations and warranties contained in this
Second Amendment, the Credit Agreement as amended hereby and the other Loan
Documents shall be true and correct in all material respects on and as of
the Second Amendment Effective Date, as if then made, other than
representations and warranties which expressly speak as of a different date.
(d) No Event of Default or Default shall have occurred and be
continuing on the Second Amendment Effective Date.
5. Reference to and Effect on the Loan Documents.
(a) On and after the Second Amendment Effective Date, each reference
in the Credit Agreement as amended hereby to "this Agreement", "hereunder",
"hereof" or words of like import, and each reference in the other Loan Documents
to the Credit Agreement, shall mean and be a reference to the Credit Agreement
as amended hereby.
(b) Except as specifically amended above, all of the terms of the
Credit Agreement and all other Loan Documents shall remain unchanged and in full
force and effect.
(c) The execution, delivery and effectiveness of this Second Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of any Lender, the Agent or the Co-Agent under the Credit
Agreement or any of the Loan Documents, nor constitute a waiver of any provision
of the Credit Agreement or any of the Loan Documents.
6. Fees, Costs and Expenses.
(a) The Company and the Borrowing Subsidiaries jointly and severally
agree to pay on the Second Amendment Effective Date, to the Administrative Agent
for the account of the Lenders who have executed and delivered this Second
Amendment on or before June 7, 1999, in proportion to such Lenders' respective
Pro Rata Shares, a non-refundable fee equal to 0.25% of the aggregate amount of
the Commitments held by such Lenders, provided that such fee shall be refunded
in full if this Second Amendment has not been executed by the Requisite Lenders
on or before June 7, 1999.
(b) The Company and the Borrowing Subsidiaries jointly and severally
agree to pay upon demand in accordance with the terms of Section 11.03 of the
Credit Agreement all reasonable costs and expenses of the Agent in connection
with the preparation, reproduction, negotiation, execution and delivery of this
Second Amendment and all other Loan Documents entered into in connection
herewith, including, without limitation, the reasonable fees, expenses and
disbursements of legal counsel for the Agent with respect to any of the
foregoing.
-6-
<PAGE> 7
7. Miscellaneous. The headings herein are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof.
8. Counterparts. This Second Amendment may be executed in any number
of counterparts and by the different parties hereto in separate counterparts,
each of which when so executed and delivered by facsimile shall be an original,
but all of which shall together constitute one and the same instrument.
9. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE INTERPRETED, AND THE
RIGHTS AND LIABILITIES OF THE PARTIES HERETO AND TO THE CREDIT AGREEMENT AS
AMENDED HEREBY DETERMINED, IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the Agent, the Co-Agent, the Lenders, the Company
and the Borrowing Subsidiaries have caused this Second Amendment to be executed
by their respective officers thereunto duly authorized as of the date first
above written.
JPS TEXTILE GROUP, INC.
By: /s/ John W. Sanders, Jr.
---------------------------------------
Title: EVP & CFO
JPS CONVERTER AND INDUSTRIAL CORP.
By: /s/ John W. Sanders, Jr.
---------------------------------------
Title: VP
JPS ELASTOMERICS CORP.
By: /s/ John W. Sanders, Jr.
---------------------------------------
Title: VP
CITIBANK, N.A., as Agent, as Issuing Bank and as a
Lender
By: /s/ Brenda M. Cotsen
---------------------------------------
Title: Vice President
-8-
<PAGE> 9
NATIONSBANK, N.A., as Co-Agent and as a Lender
By: /s/ Robert J. Dysart
---------------------------------
Title: Vice President
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ James P. Morgan
---------------------------------
Title: Duly Authorized Signatory
HELLER FINANCIAL, INC.
By:
---------------------------------
Title:
BNY FINANCIAL CORPORATION
By: /s/ Stephen V. Mangiante
---------------------------------
Title: Vice President
BANKBOSTON, N.A.
By: /s/ John K. Hood
---------------------------------
Title: Managing Dir.
-9-
<PAGE> 10
ACKNOWLEDGMENT
Reference is hereby made to (i) the Guaranty dated as of March 18, 1993
executed by JPS Carpet Corp., (ii) the Guaranty dated as of March 18, 1993
executed by JPS Auto Inc., and (iii) the Guaranty dated as of August 5, 1993
executed by International Fabrics, Inc., each as amended as of October 9, 1997
(each, as so amended, a "Guaranty") in favor of the Agent and the Lenders. Each
of the undersigned hereby consents to the terms of the foregoing Second
Amendment to Credit Facility Agreement, and agrees that the terms thereof shall
not affect in any way its obligations and liabilities under each such Guaranty
or any other Loan Document (as defined therein), all of which obligations and
liabilities shall remain in full force and effect and each of which is hereby
reaffirmed.
JPS CARPET CORP.
By: /s/ John W. Sanders, Jr.
------------------------------
Title: VP
JPS AUTO INC.
By: /s/ John W. Sanders, Jr.
------------------------------
Title: VP
INTERNATIONAL FABRICS, INC.
By: /s/ John W. Sanders, Jr.
------------------------------
Title: VP
-10-
<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> 6-MOS
<FISCAL-YEAR-END> OCT-30-1999
<PERIOD-END> MAY-01-1999
<CASH> 2,010
<SECURITIES> 0
<RECEIVABLES> 48,177
<ALLOWANCES> 1,386
<INVENTORY> 53,054
<CURRENT-ASSETS> 113,061
<PP&E> 100,420
<DEPRECIATION> 12,308
<TOTAL-ASSETS> 237,313
<CURRENT-LIABILITIES> 47,104
<BONDS> 86,679
0
0
<COMMON> 100
<OTHER-SE> 83,001
<TOTAL-LIABILITY-AND-EQUITY> 237,313
<SALES> 142,669
<TOTAL-REVENUES> 142,669
<CGS> 120,655
<TOTAL-COSTS> 120,655
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,775
<INCOME-PRETAX> (4,299)
<INCOME-TAX> (1,249)
<INCOME-CONTINUING> (3,050)
<DISCONTINUED> (23,377)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,427)
<EPS-BASIC> (2.64)
<EPS-DILUTED> (2.64)
</TABLE>
