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 quarter ended September 26, 1998
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 33-75510-01; 1-12944
JPS AUTOMOTIVE L.P.
JPS AUTOMOTIVE PRODUCTS CORP.
(State or other Jurisdiction of (IRS Employer Identification
incorporation or Organization) No. 57-1060375
Delaware No. 57-0993690)
Delaware
701 McCullough Drive
Charlotte, NC 28262
Telephone (704) 547-8500
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 .
--- ---
JPS Automotive L.P. and JPS Automotive Products Corp. meet the conditions
set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are
therefore filing this form with the reduced disclosure format.
As of November 9, 1998, the number of outstanding shares of JPS Automotive
Products Corp. common stock was 100.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
---------------------------- ----------------------------
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales........................... $ 51,103 $ 59,430 $ 186,808 $ 179,573
Cost of goods sold.................. 48,134 51,567 168,332 153,601
----------- ----------- ----------- -----------
Gross profit........................ 2,969 7,863 18,476 25,972
Selling, general and administrative
expenses......................... (302) 3,959 8,045 12,687
----------- ----------- ----------- -----------
Operating income.................... 3,271 3,904 10,431 13,285
Interest expense, net............... 2,182 1,904 6,393 7,513
Other expense (income), net......... 28 - (3) (5)
----------- ----------- ----------- -----------
Income from continuing operations
before income taxes............... 1,061 2,000 4,041 5,777
Income tax expense.................. 488 881 1,814 2,654
----------- ----------- ----------- -----------
Income from continuing operations... 573 1,119 2,227 3,123
Income from discontinued operations,
net of income tax of $0 and
$1,044........................... - 78 - 1,662
----------- ----------- ----------- -----------
Income before extraordinary loss.... 573 1,197 2,227 4,785
Extraordinary loss, net of income
tax of $58 and $442.............. - - (86) (721)
----------- ----------- ----------- -----------
Net income.......................... $ 573 $ 1,197 $ 2,141 $ 4,064
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
I-1
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
September 26, December 27,
ASSETS 1998 1997
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................. $ 1,801 $ 9,271
Accounts receivable, net................... 40,299 37,038
Inventories................................ 14,408 19,275
Receivables from related parties........... 5,579 1,974
Revolving loan due from C&A Products....... 4,500 4,500
Deferred tax assets........................ 4,073 5,369
Other current assets....................... 3,171 4,269
-------- ------
Total current assets...................... 73,831 81,696
-------- ------
Property, plant and equipment, net........... 52,510 55,470
Goodwill, net................................ 101,344 103,310
Demand receivable due from C&A for income taxes 6,996 6,548
Other assets................................. 3,458 3,583
-------- -------
$ 238,139 $ 250,607
========== =========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable........................... $ 7,156 $ 12,083
Accrued expenses........................... 12,159 13,677
-------- ------
Total current liabilities................. 19,315 25,760
-------- ------
Long-term debt............................... 89,109 91,843
Other liabilities............................ 11,654 10,008
Commitments and contingencies................
Owners' equity:
General partner............................ 48,073 48,073
Limited partner............................ 69,988 74,923
-------- ------
Total owners' equity.................... 118,061 122,996
-------- ------
$ 238,139 $ 250,607
========== =========
</TABLE>
See accompanying notes.
I-2
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------
September 26, September 27,
1998 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations............ $ 2,227 $ 3,123
Adjustments to derive cash flow from continuing
operating activities:
Deferred income tax expense............... 3,950 -
Depreciation and amortization............. 6,933 6,457
Interest accretion and debt issuance cost
amortization............................ (164) (206)
Other, net ............................... (740) 2,718
Changes in operating assets and liabilities (4,839) (7,718)
----------- -----------
Net cash provided by continuing operations 7,367 4,374
----------- -----------
Net cash provided by discontinued operations - 1,735
----------- -----------
INVESTING ACTIVITIES
Additions to property, plant and equipment... (2,074) (5,018)
Sales of property, plant and equipment....... 575 -
Proceeds from disposition of discontinued
operations................................... - 55,900
Other, net................................... (4) (5)
----------- -----------
Net cash provided by (used in) investing
activities........................... (1,503) 50,877
----------- -----------
FINANCING ACTIVITIES
Distributions to C&A Products................ (10,000) -
Capital contributions from partners.......... 2,930 23,233
Changes in amounts due C&A Products, net..... (4,053) -
Repayments of long-term debt................. (2,066) (25,704)
Other, net................................... (145) -
----------- -----------
Net cash used in financing activities (13,334) (2,471)
----------- -----------
Net increase (decrease) in cash and cash
equivalents............................... (7,470) 54,515
Cash and cash equivalents at beginning of period 9,271 198
----------- -----------
Cash and cash equivalents at end of period... $ 1,801 $ 54,713
=========== ===========
</TABLE>
See accompanying notes.
I-3
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Condensed Consolidated Financial Statements:
The condensed consolidated financial statements include the accounts of
JPS Automotive L.P. and its subsidiaries ("JPS Automotive"). In the opinion of
management of JPS Automotive, the accompanying condensed consolidated financial
statements reflect all adjustments considered necessary for a fair presentation
of the consolidated financial position, results of operations and cash flows.
Results of operations for interim periods are not necessarily indicative of
results for the full year. Certain prior quarter items have been reclassified to
conform with the third quarter presentation. For further information, refer to
the consolidated financial statements and notes thereto included in JPS
Automotive's Report on Form 10-K for the year ended December 27, 1997.
On December 11, 1996, Collins & Aikman Corporation ("C&A"), through its
subsidiaries, acquired JPS Automotive from Foamex International Inc. ("Foamex")
pursuant to an Equity Purchase Agreement dated August 28, 1996, as amended
December 11, 1996 (the "1996 Acquisition"). In the 1996 Acquisition, Collins &
Aikman Products Co. ("C&A Products"), a wholly owned subsidiary of C&A, acquired
a .9999% limited partnership interest in JPS Automotive from Foamex and a 99%
limited partnership interest in JPS Automotive from Foamex - JPS Automotive L.P.
("FJPS"). PACJ, Inc., a wholly owned subsidiary of C&A Products, acquired a
.0001% general partnership interest in JPS Automotive from JPSGP Inc. ("JPSGP").
Accordingly, 100% of the partnership interests in JPS Automotive are owned by
PACJ, Inc. and C&A Products, which are, respectively, indirect and direct wholly
owned subsidiaries of C&A. Additionally, on December 11, 1996, C&A Products
acquired from Seiren Co. Ltd. and its affiliates the 20% minority interest in
Cramerton Automotive Products, L.P. ("Cramerton"). JPS Automotive subsequently
acquired the 20% minority interest previously held by the Seiren entities.
2. Goodwill:
Goodwill, representing the excess of purchase price over the fair value of
net assets acquired in the 1996 Acquisition, is being amortized on a
straight-line basis over a period of forty years. Amortization of goodwill was
$0.7 million and $2.0 million for the quarter and nine months ended September
26, 1998, respectively, and $0.6 million and $1.9 million for the quarter and
nine months ended September 27, 1997, respectively. Accumulated amortization at
September 26, 1998 was $4.6 million. The carrying value of goodwill is reviewed
periodically based on the undiscounted cash flows and pretax income over the
remaining amortization periods. Should this review indicate that the goodwill
balance will not be recoverable, JPS Automotive's carrying value of the goodwill
will be reduced. At September 26, 1998, JPS Automotive believes the recorded
value of its goodwill of $101.3 million is fully recoverable.
3. Facility Closing Costs:
In connection with the 1996 Acquisition, JPS Automotive eliminated certain
redundant sales and administrative functions and closed one manufacturing
facility in 1997, a second facility in January 1998, and a third facility in
June 1998. JPS Automotive currently is in the process of relocating certain
manufacturing processes from a JPS Automotive facility to an existing facility
of another C&A Products subsidiary.
These actions affect approximately 640 employees. Total costs accrued for
the shutdown of facilities and severance and other personnel costs were $2.7
million and $7.7 million, respectively.
The components of the reserves for the relocation and facility closures,
which are expected to be completed in the second quarter of fiscal 1999, are as
follows (in thousands):
<TABLE>
<CAPTION>
Original Changes In Remaining
Reserve Reserve Reserve
------- ------- -------
<S> <C> <C> <C>
Anticipated expenditures to close and
dispose of
idled facilities....................... $ 2,746 $ (2,459) $ 287
Anticipated severance benefits............ 7,655 (5,177) 2,478
----------- --------- -----------
$ 10,401 $ (7,636) $ 2,765
=========== ========= ===========
</TABLE>
I-4
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
4. Related-party Transactions and Allocations:
At September 26, 1998, C&A Products has pledged the ownership interests in
its significant subsidiaries, including its partnership interests in JPS
Automotive, as security for debt of C&A Products totaling $368.8 million.
Following the 1996 Acquisition, C&A Products began to develop plans to
rationalize certain manufacturing locations as well as marketing and
administrative functions. This rationalization involved transactions and
arrangements between JPS Automotive and C&A Products which were approved by the
Board of Directors of PACJ, Inc., the general partner of JPS Automotive, and
were reviewed by an investment banking firm of national standing, which rendered
an opinion that they were fair to JPS Automotive from a financial point of view.
The transactions and arrangements and proposed transactions and
arrangements include the following: (i) the provision by C&A Products of
additional administrative, management, marketing and program management services
pursuant to a preexisting services agreement assigned to C&A Products by Foamex
(the "Existing Services Agreement"), (ii) the purchase from and sale to C&A
Products and its subsidiaries of certain manufacturing assets, (iii) the
transfer of manufacturing responsibility for certain automotive programs, and
for the manufacturing of automotive carpet roll goods, to C&A Products and its
subsidiaries and from C&A Products to JPS Automotive, and (iv) the transfer of
certain automotive programs from JPS Automotive to C&A Products and its
subsidiaries and from C&A Products to JPS Automotive. For a description of the
compensation to be paid by JPS Automotive to C&A Products and by C&A Products to
JPS Automotive pursuant to the transactions and arrangements described above,
see Note 12 to JPS Automotive's consolidated financial statements included in
JPS Automotive's Annual Report on Form 10-K for the fiscal year ended December
27, 1997 (the "1997 10-K").
During the first quarter of 1998, pursuant to the rationalization process,
JPS Automotive transferred to Collins & Aikman Canada Inc. ("C&A Canada") and
C&A Products two programs for the production of automotive carpet products for
aggregate consideration of $4.3 million. One of these programs was performed by
C&A Canada for JPS Automotive during a portion of 1997 on a royalty basis. Due
to the related party nature of the transfer, the $4.3 million received by JPS
Automotive, net of the related tax provision of $1.6 milllion, has been treated
as a capital contribution from C&A Products in the accompanying financial
statements. During the remainder of 1998, C&A Products has agreed to transfer to
JPS Automotive as an equity contribution all but one of the automotive soft trim
programs formerly produced by C&A Products at its Salisbury, North Carolina,
facility. Twenty-seven contracts relating to the closure of the Salisbury
facility were transferred to JPS Automotive during the second quarter of 1998 in
accordance with the arrangements between JPS Automotive and C&A Products. JPS
Automotive did not pay any amounts to C&A Products for these contracts. No
contracts relating to the closure of the Salisbury facility were transferred to
JPS Automotive during the third quarter of 1998. C&A Products has also agreed to
make additional cash equity contributions to JPS Automotive if JPS Automotive is
unable to earn a specified level of operating profit on the contracts
transferred from the Salisbury plant.
In addition, pursuant to the rationalization process, during the third
quarter of 1998 JPS Automotive transferred equipment to C&A Products for
aggregate consideration of $0.7 million. In accordance with the arrangements
between JPS Automotive and C&A Products, JPS Automotive received fair market
value and recorded the excess between book and fair market value as a capital
contribution of $227 thousand, net of income taxes of $129 thousand.
JPS Automotive paid or accrued the following amounts in connection with
the transactions and arrangements described above and related transactions for
the quarter and nine months ended September 26, 1998: (i) $1.9 million and $5.7
million, respectively, for administrative and other services, and (ii) $13.3
million and $41.9 million, respectively, for contract manufacturing services
(including the purchase of roll goods) provided to JPS Automotive by C&A
Products and its subsidiaries. In addition, for the quarter and nine months
ended September 26, 1998, JPS Automotive recorded sales of $5.9 million and
$26.7 million, respectively, relating to contract manufacturing services
(including the sale of roll goods) provided to C&A Products and its
subsidiaries.
For the quarter and nine months ended September 27, 1997, JPS Automotive
was charged $0.6 million and $2.1 million, respectively, by C&A Products for
certain administrative and management services in accordance with the Existing
Services Agreement.
I-5
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
C&A Products and JPS Automotive entered into several additional
arrangements including, among others, those described below.
During the year ended December 27, 1997, C&A Products and JPS Automotive
entered into reciprocal revolving credit arrangements whereby JPS Automotive may
borrow up to $5 million from C&A Products and C&A Products may borrow up to $5
million from JPS Automotive. The borrower is charged interest on any outstanding
balance at a rate equal to the rate charged to C&A Products under its revolving
credit agreement. During the quarter and nine months ended September 26, 1998,
C&A Products was charged $83 thousand and $0.3 million, respectively, in net
interest related to these revolving credit arrangements. At September 26, 1998,
there was an outstanding balance of $4.5 million owed to JPS Automotive under
this arrangement.
In connection with certain manufacturing activities conducted by C&A
Products for Cramerton during the third quarter and nine months ended September
26, 1998, Cramerton resold to C&A Products at cost approximately $0.3 million
and $0.9 million, respectively, in yarn that had been purchased by Cramerton for
use in the manufacturing activities conducted for Cramerton. In addition, in
accordance with C&A Products' normal practice, C&A Products developed tooling
for JPS Automotive, for which JPS Automotive reimbursed C&A Products its costs.
The development of tooling was managed by JPS Automotive prior to the 1996
Acquisition.
During the third quarter of 1998, JPS Automotive and C&A Canada exchanged
responsibility for the production of certain automotive carpet products. Due to
the related party nature of this exchange, this transaction did not have an
effect on the financial statements.
C&A Products and JPS Automotive are also parties to a tax sharing
agreement (the "Tax Sharing Agreement") that was assigned to C&A Products by
Foamex in connection with the 1996 Acquisition. The Tax Sharing Agreement
provides that JPS Automotive will make certain payments to its partners
(principally C&A Products) in amounts equal to the taxes JPS Automotive would be
required to pay if it were separately taxed. JPS Automotive and C&A Products
maintain the Tax Sharing Agreement in lieu of adding JPS Automotive as a party
to C&A's tax sharing arrangement. As of September 26, 1998 no amounts were
payable under the Tax Sharing Agreement. In addition, because JPS Automotive is
part of C&A's consolidated tax return, C&A effectively utilizes the tax benefits
generated by JPS Automotive in its consolidated tax return, which resulted in
benefits totaling $0.4 million for the nine months ended September 26, 1998,
$6.2 million for 1997 and $0.3 million for the period from December 12, 1996 to
December 28, 1996. C&A Products has agreed to reimburse JPS Automotive for these
benefits on demand by JPS Automotive.
In September 1998, JPS Automotive distributed its 50% ownership interest
in Industrias Enjema S.A. de C.V. ("Enjema") to C&A Products Co. C&A Products
acquired, from a third party, the other 50% interest in Enjema in August 1998
for approximately $1 million. No book value was assigned to JPS Automotive's 50%
interest.
In addition, in September 1998, JPS Automotive received payment from
Enjema for receivables generated when Enjema was managed by third parties. JPS
Automotive had previously fully reserved these receivables. As a result of the
payment, JPS Automotive reversed this reserve, resulting in a reduction of
selling, general and administrative expenses of $4.2 million.
5. Commitments and Contingencies:
See "PART II - OTHER INFORMATION, Item 1. Legal Proceedings." The ultimate
outcome of the legal proceedings to which JPS Automotive is a party will not, in
the opinion of JPS Automotive's management based on the facts presently known to
it, have a material adverse effect on the consolidated financial condition or
results of operations of JPS Automotive.
JPS Automotive is subject to various federal, state and local
environmental laws and regulations that (i) affect ongoing operations and may
increase capital costs and operating expenses and (ii) impose liability for the
costs of investigation and remediation and certain other damages related to
on-site and off-site contamination. JPS Automotive believes it has obtained or
applied for the material permits necessary to conduct its business. To date,
compliance with applicable environmental laws has not had and, in the opinion of
management, based on the facts presently known to it, is not expected to have a
material adverse effect on JPS Automotive's consolidated financial condition or
results of operations.
I-6
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (concluded)
(Unaudited)
In December 1997, another subsidiary of C&A Products assumed substantially
all of the environmental liabilities of JPS Automotive and its subsidiaries in
exchange for a payment from JPS Automotive of approximately $4.1 million. JPS
Automotive will remain contingently liable for these environmental liabilities.
In the opinion of management, based on the facts presently known to it,
the environmental costs and contingencies will not have a material adverse
effect on JPS Automotive's consolidated financial condition or results of
operations. However, there can be no assurance that JPS Automotive has
identified or properly assessed all potential environmental liabilities arising
from the activities or properties of JPS Automotive, its present and former
subsidiaries and their corporate predecessors.
6. Discontinued Operations:
On July 24, 1997, JPS Automotive completed the sale of its Air Restraint
and Technical Products Division ("Airbag") to Safety Components International,
Inc. for a purchase price of approximately $56 million. No gain or loss was
recorded on the sale since the sales price approximated the acquisition fair
value of Airbag. Airbag reported income of $0.1 million and $1.7 million in the
quarter and nine months ended September 27, 1997.
7. Newly Issued Accounting Standards:
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position No. 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5"). SOP 98-5 provides guidance on the financial
reporting of start-up costs and organization costs. It requires that all
nongovernmental entities expense the costs of start-up activities as these costs
are incurred instead of being capitalized and amortized. SOP 98-5 is effective
for financial statements for fiscal years beginning after December 15, 1998 and
the initial application of this pronouncement is to be reported as the
cumulative effect of a change in accounting principle. JPS Automotive currently
estimates that the impact of adoption of SOP 98-5 at the beginning of fiscal
1999 will be in the range of $0.5 million to $1.0 million.
I-7
<PAGE>
JPS AUTOMOTIVE PRODUCTS CORP.
(A Wholly-Owned Subsidiary of JPS Automotive L.P.)
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 26, December 27,
1998 1997
------------- ------------
(in thousands)
ASSETS
<S> <C> <C>
Current assets - Cash..................... $ 1 $ 1
============= =============
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities .............................. $ - $ -
============= =============
Shareholder's equity:
Common stock, par value $0.01 per
share;
10,000,000 shares authorized,
100 shares issued and outstanding... - -
Additional paid-in capital............. 1 1
------------- -------------
Total shareholder's equity.......... 1 1
------------- -------------
$ 1 $ 1
============= =============
</TABLE>
See accompanying notes.
I-8
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of JPS Automotive L.P.)
NOTE TO BALANCE SHEETS (Unaudited)
1. Commitments and Contingencies
JPS Automotive Products Corp. ("Products Corp.") is a joint obligor (and
co-registrant) with JPS Automotive L.P. of the 11-1/8% Senior Notes due 2001
(the "Senior Notes"), which had an outstanding balance of $89.1 million
(including a premium of $2.4 million) as of September 26, 1998.
I-9
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Pursuant to General Instruction H(2)(a) to Form 10-Q, the following
discussion is a management's narrative analysis of the results of operations
explaining the reasons for material changes in the amount of revenue and expense
items between the most recent fiscal year-to-date period presented and the
corresponding year-to-date period in the preceding fiscal year.
JPS Automotive manufactures and supplies textiles and specialty textile
products for passenger car and light truck production in North America. On
December 11, 1996, C&A, through its subsidiaries, acquired JPS Automotive from
Foamex in the 1996 Acquisition. The following discussion should be read in
conjunction with the condensed consolidated financial statements and related
notes thereto of JPS Automotive and Products Corp. included in this report.
Nine Months Ended September 26, 1998 Compared to Nine Months Ended
September 27, 1997.
Consolidated Results of Operations
Net Sales: Net sales for the nine months ended September 26, 1998 were $186.8
million as compared to $179.6 million for the nine months ended September 27,
1997. The $7.2 million increase in sales is partially due to new bodycloth
business on the Nissan Altima and to increased sales to the Mercedes M-class and
the GM APV. Also, automotive carpet products sales to C&A Products increased by
approximately $8 million over the comparable period of 1997. This increased
activity is due to the closure of C&A Products' Salisbury facility and to the
transfer of programs between C&A Products and JPS Automotive. The increase in
sales was somewhat offset by the adverse effect on sales of an increased demand
for leather seating applications, which management expects to continue for the
foreseeable future. In addition, the General Motors strike negatively impacted
sales in the nine months ended September 26, 1998. The strike began on June 5,
1998 and ended on July 29, 1998.
Gross Profit: Gross profit as a percentage of sales decreased to 9.9% for the
nine months ended September 26, 1998 from 14.5% in the comparable period of
1997. The decrease in gross profit is due in part to lower volume and
unfavorable product mix in automotive bodycloth and inefficiencies associated
with the relocation and closing of certain manufacturing facilities.
Selling, General and Administrative Expenses: Selling, general, and
administrative expenses decreased 36.6% to $8.0 million for the nine months
ended September 26, 1998 from $12.7 million in the comparable 1997 period. This
decrease is a result of lower administrative costs resulting from the
elimination of certain redundant sales and administrative functions in
connection with the 1996 Acquisition. In addition, during the third quarter of
1998, JPS Automotive recognized $4.2 million in income related to the collection
of a fully reserved receivable balance due from Enjema. See Note 4 to the Notes
to JPS Automotive's Condensed Consolidated Financial Statements.
Interest Expense: Interest expense decreased to $6.4 million for the nine months
ended September 26, 1998 from $7.5 million in the comparable period in 1997
primarily due to lower overall debt levels following the 1996 Acquisition. From
the first quarter of 1997 through the third quarter of 1998, $25.0 million
principal amount of Senior Notes have been repurchased, on the open market or
otherwise, by JPS Automotive and retired. During the second quarter of 1997, C&A
Products and JPS Automotive entered into reciprocal revolving credit
arrangements whereby JPS Automotive may borrow up to $5 million from C&A
Products, and C&A Products may borrow up to $5 million from JPS Automotive, at
interest rates equal to those charged to C&A Products under its revolving credit
facility with The Chase Manhattan Bank. For the nine months ended September 26,
1998, $0.3 million in net interest was charged to C&A Products in connection
with these revolving credit arrangements.
Income Taxes: The income tax provision for the nine months ended September 26,
1998 decreased to $1.8 million from $2.7 million in the comparable 1997 period.
Income from Discontinued Operations: Income from Airbag was $1.7 million
for the nine months ended September 27, 1997. Airbag was sold in July
1997.
Extraordinary Loss: For the nine months ended September 26, 1998, JPS Automotive
recognized an extraordinary loss of $86 thousand, net of income taxes of $58
thousand, relating to the purchase by JPS Automotive of $2.0 million principal
amount of Senior Notes at prices in excess of carrying values. The extraordinary
loss of $0.7 million, net of income taxes of $0.4 million, in the comparable
period of 1997 relates to the purchase of $19.4 million principal amount of
Senior Notes at prices in excess of carrying values.
I-10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Net Income: Net income decreased to $2.1 million for the nine months ended
September 26, 1998 from $4.1 in the comparable period of 1997 primarily due to
the reasons cited above.
Liquidity and Capital Resources
JPS Automotive's operating cash requirements consist principally of
working capital requirements, scheduled payments of principal and interest on
its outstanding indebtedness and capital expenditures. JPS Automotive believes
the cash flow from operating activities, cash on hand and periodic borrowings,
if necessary, will be adequate to meet operating cash requirements. For a
discussion of certain transactions and arrangements and proposed transactions
and arrangements between C&A Products and JPS Automotive, see Note 4 to the
Notes to JPS Automotive's Condensed Consolidated Financial Statements.
Impact of Year 2000 Compliance
As previously discussed in Note 4 to the Notes to JPS Automotive's
Condensed Consolidated Financial Statements, in accordance with arrangements
between JPS Automotive and C&A Products, C&A Products provides administrative
and management services to JPS Automotive. These services include business
planning and management information systems services for JPS Automotive.
Accordingly, JPS Automotive is part of C&A Products' comprehensive plan intended
to address Year 2000 issues. C&A Products has selected a team of managers and
outside consultants to identify, evaluate and implement a time-table aimed at
bringing critical business systems and applications into Year 2000 compliance
prior to December 31, 1999. The plan addresses JPS Automotive's information
technology and non-information technology and categorizes them into the
following areas which are vulnerable to Year 2000 risk: (i) business computer
systems, including financial, human resources, purchasing, manufacturing and
sales and marketing systems; (ii) manufacturing, warehousing and servicing
equipment, including shop floor controls; (iii) technical infrastructure,
including local area networks, mainframes and communication systems; (iv)
end-user computing, including personal computers; (v) suppliers, agents and
service providers, including systems which interface with customers; (vi)
environmental operations, including fire, security, emission and waste controls
and elevators; and (vii) dedicated research and development facilities,
including CAD/CAE/CAM systems and product testing systems.
JPS Automotive has evaluated the state of readiness of each area
vulnerable to Year 2000 risk using the following definitions:
Inventory - Systems are being surveyed and documented regarding
compliance
Remediation - Strategies are being implemented to modify or
replace affected hardware and software
Testing - Systems are being tested by C&A Products employees or
third party consultants
Complete - Systems are Year 2000 compliant
Currently, JPS Automotive estimates that it is in the Remediation stage
for each area of Year 2000 risk and currently expects its systems to become Year
2000 compliant during 1999. Based upon the current status of its Year 2000
efforts, JPS Automotive has not developed a formal contingency plan. However,
JPS Automotive will develop an informal contingency plan in the event that it
does not expect to be fully Year 2000 compliant within the current time
estimates.
JPS Automotive has coordinated its Year 2000 compliance efforts with a
plan to make its computer systems consistent with other operations of C&A
Products. As a result, the majority of the Year 2000 compliance work for JPS
Automotive is being performed by employees of other C&A Products divisions or
subsidiaries and is included in the amounts charged to JPS Automotive for
administrative and other services in accordance with the arrangements between
JPS Automotive and C&A Products. See Note 4 to the Notes to JPS Automotive's
Condensed Consolidated Financial Statements. The additional cost to be borne by
JPS Automotive for its efforts to address the Year 2000 issue is anticipated to
be approximately $130 thousand. Included in this estimate is $70 thousand of
salaries and other payroll costs of employees to the extent that they have
devoted a portion of their time to the project. Approximately $14 thousand of
these costs have been incurred through September 26, 1998, including $12
thousand of salaries and other payroll costs. JPS Automotive has been expensing
and capitalizing the costs to complete the Year 2000 plan in accordance with
appropriate accounting policies. JPS Automotive is funding the
expenditures related to the Year 2000 plan with cash flows from operations.
I-11
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (concluded)
Due to the general uncertainty inherent in the Year 2000 process at this
stage, it is difficult to determine a reasonably likely Year 2000 worst case
scenario. One possible scenario would be the failure of JPS Automotive's key
suppliers to become compliant. To mitigate the risk of this, JPS Automotive is
in the process of issuing questionnaires to its suppliers and visiting certain
of these suppliers to assess their Year 2000 readiness. This process is expected
to continue over the next several months. Based upon the responses which JPS
Automotive will receive through the questionnaires and meetings, JPS Automotive
will develop contingency plans in the event that these suppliers will not be
Year 2000 compliant in a timely manner. Due to the number of suppliers that JPS
Automotive deals with, JPS Automotive is unable to make a meaningful estimate of
the revenue that would be lost in the event such a scenario was realized.
C&A Products' and JPS Automotive's Year 2000 efforts are ongoing and their
overall plan, as well as the consideration of contingency plans, will continue
to evolve as new information becomes available. JPS Automotive currently
anticipates that, with the modifications discussed above, the Year 2000 issue
should not pose significant operational problems for JPS Automotive. However, if
such modifications are not made, or are not completed timely, or contingency
plans fail, the Year 2000 issue could have a material adverse impact on the
operations of JPS Automotive. Success of the Year 2000 plan may to some extent
depend on the availability of outside consultants. Further, there is no
guarantee that the systems of other companies on which JPS Automotive's systems
rely will be timely converted and would not have an adverse effect on JPS
Automotive's systems.
The cost to JPS Automotive of its Year 2000 efforts and the dates by which
JPS Automotive believes it will be Year 2000 compliant are based on management's
current best estimates, which were derived based on numerous assumptions of
future events, some of which are beyond the control of JPS Automotive, including
the continued availability of certain resources, third party modification plans
and other factors. There can be no guarantee, however, that these estimates will
be achieved, and actual results could differ materially from those anticipated.
Safe Harbor Statement
This Form 10-Q contains statements which, to the extent they are not
historical fact, constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of Securities Exchange
Act of 1934 (the "Safe Harbor Acts"). All forward-looking statements involve
risks and uncertainties. The forward-looking statements in this Form 10-Q are
intended to be subject to the safe harbor protection provided by the Safe Harbor
Acts.
Risks and uncertainties that could cause actual results to vary materially
from those anticipated in the forward-looking statements included in this Form
10-Q include industry-based factors such as possible declines in the North
American automobile and light truck build, labor strikes at JPS Automotive's
major customers, changes in consumer preferences, dependence on significant
automotive customers, changes in the popularity of particular car models or
particular interior trim packages, the loss of programs on particular car
models, the level of competition in the automotive supply industry and Year 2000
compliance issues, as well as factors more specific to JPS Automotive, such as
the substantial leverage of JPS Automotive and limitations imposed by the Senior
Notes. For a discussion of certain of these and other important factors which
may affect the operations, products and markets of JPS Automotive, see
"Business" in the 1997 10-K and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the 1997 10-K, JPS
Automotive's Reports on Form 10-Q for the fiscal quarters ended March 28, 1998
and June 27, 1998 and above in this Form 10-Q and also see JPS Automotive's
other filings with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Omitted pursuant to General Instruction H(2)(c) to Form 10-Q.
I-12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no material developments in legal proceedings
involving JPS Automotive or its subsidiaries since those reported, if any, in
JPS Automotive's Annual Report on Form 10-K for the fiscal year ended December
27, 1997.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit
Number Description
3.1 Certificate of Incorporation of Products Corp. is hereby
incorporated by reference to Exhibit 3.1 of Products Corp.'s
Registration Statement on Form S-1, Registration No. 33-75510.
3.2 By-laws of Products Corp. are hereby incorporated by reference
to Exhibit 3.2 of Products Corp.'s Registration Statement on
Form S-1, Registration No. 33-75510.
3.3 Certificate of Limited Partnership of JPS Automotive is hereby
incorporated by reference to Exhibit 3.3 of Products Corp.'s
Registration Statement on Form S-1, Registration No. 33-75510.
3.4 First Amended and Restated Agreement of Limited Partnership of JPS
Automotive, dated as of June 27, 1994, is hereby incorporated by
reference to Exhibit 3.4 of the Form 10-K of JPS Automotive and
Products Corp. for fiscal 1994.
3.5 Certificate of Amendment of Certificate of Limited Partnership of JPS
Automotive dated December 11, 1996 is hereby incorporated by
reference to Exhibit 3.5 of the Form 10-K of JPS Automotive and
Products Corp. for the transition period from January 1, 1996 to
December 28, 1996.
3.6 First Amendment to First Amended and Restated Agreement of Limited
Partnership of JPS Automotive dated as of December 11, 1996 is hereby
incorporated by reference to Exhibit 3.6 of the Form 10-K of JPS
Automotive and Products Corp. for the transition period from January
1, 1996 to December 28, 1996.
3.7 Second Amendment to First Amended and Restated Agreement of Limited
Partnership of JPS Automotive dated as of December 11, 1996, is
hereby incorporated by reference to Exhibit 3.7 of the Form 10-K of
JPS Automotive and Products Corp. for the transition period from
January 1, 1996 to December 28, 1996.
4.1 Indenture dated as of June 28, 1994, between Products Corp., as
Issuer, JPS Automotive, as Guarantor, and Shawmut Bank Connecticut,
N.A., as Trustee, relating to $180,000,000 principal amount of
11-1/8% Senior Notes due 2001 including form of the JPS Automotive
Senior Note is hereby incorporated by reference to Exhibit 4.2 of
Products Corp.'s Registration Statement on Form S-1, Registration No.
33-75510.
II-1
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
Exhibit
Number Description
- ------ -----------
4.2 First Supplemental Indenture, dated as of October 5, 1994, between
Products Corp. and JPS Automotive, as Co-Obligors, and Shawmut Bank
Connecticut, N.A., as Trustee, relating to the JPS Automotive Senior
Notes is hereby incorporated by reference to Exhibit 4.48A of Form
10-Q of JPS Automotive and Products Corp. for the fiscal quarter
ended October 2, 1994.
Certain instruments defining the rights of security holders have been
excluded herefrom in accordance with Item 601(b)(4)(iii) of
Regulation S-K. The Registrants hereby agree to furnish a copy of any
such instrument to the Commission upon request.
10.1 Services Agreement, by and between JPS Automotive and Foamex
International is hereby incorporated by reference to Exhibit 10.2 of
Products Corp.'s Registration Statement on Form S-1, Registration No.
33-75510.
10.2 Supply Agreement, by and among Foamex International and certain of
its affiliates and JPS Automotive is incorporated by reference to
Exhibit 10.8 of Products Corp.'s Registration Statement on Form S-1,
Registration No. 33-75510.
10.3 Tax-sharing Agreement, by and among JPS Automotive and its partners
is incorporated by reference to Exhibit 10.9 of Products Corp.'s
Registration Statement on Form S-1, Registration No. 33-75510.
10.4 Assignment dated as of December 11, 1996, from Foamex International
to C&A Products relating to Services Agreement, is hereby
incorporated by reference to Exhibit 10.10 of the Form 10-K of JPS
Automotive and Products Corp. for the transition period from January
1, 1996 to December 28, 1996.
10.5 Assignment dated as of December 11, 1996, from Foamex-JPS Automotive
L.P. to C&A Products relating to Tax-Sharing Agreement, is hereby
incorporated by reference to Exhibit 10.11 of the Form 10-K of JPS
Automotive and Products Corp. for the transition period from January
1, 1996 to December 28, 1996.
10.6 Assignment dated as of December 11, 1996, from JPSGP, Inc. to C&A
Products relating to Tax-Sharing Agreement, is hereby incorporated by
reference to Exhibit 10.12 of the Form 10-K of JPS Automotive and
Products Corp. for the transition period from January 1, 1996 to
December 28, 1996.
10.7 Assignment dated as of December 11, 1996, from Foamex to C&A Products
relating to Supply Agreement, is hereby incorporated by reference to
Exhibit 10.13 of the Form 10-K of JPS Automotive and Products Corp.
for the transition period from January 1, 1996 to December 28, 1996.
10.8 Equity Purchase Agreement by and among JPSGP, Inc., Foamex - JPS
Automotive L.P. and Collins & Aikman Products Co. dated August 28,
1996, is hereby incorporated by reference to Exhibit 2.1 of Collins &
Aikman Corporation's Report on Form 10-Q for the fiscal quarter ended
July 27, 1996.
10.9 Amendment No. 1 to Equity Purchase Agreement by and among
JPSGP, Inc., Foamex - JPS Automotive L.P., Foamex International
Inc. and Collins & Aikman Products Co. dated as of December 11,
1996, is hereby incorporated by reference to Exhibit 2.2 of
Collins & Aikman Corporation's Current Report on Form 8-K dated
December 10, 1996.
10.10 Post 1996 Acquisition Arrangements Under JPS Automotive Services
Agreement is hereby incorporated by reference to Exhibit 10.15 of the
Form 10-K of JPS Automotive and Products Corp. for the fiscal year
ended December 27, 1997.
10.11 Asset Purchase Agreement dated as of June 30, 1997 by and among JPS
Automotive L.P. and Safety Components International, Inc. is hereby
incorporated by reference to Exhibit 2.1 of the Current Report on
Form 8-K of JPS Automotive and Products Corp.
dated July 24, 1997.
II-2
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
Exhibit
Number Description
- ------ -----------
10.12 Closing Agreement dated as of July 24, 1997 by and among JPS
Automotive L.P., Safety Components International, Inc. and
Safety Components Fabric Technologies, Inc. is hereby
incorporated by reference to Exhibit 2.2 of the Current Report
on Form 8-K of JPS Automotive and Products Corp. dated July 24,
1997.
27 Financial Data Schedules
(b) Reports on Form 8-K
During the quarter for which this Report on Form 10-Q is filed, JPS
Automotive and Products Corp. did not file any reports on Form 8-K.
II-3
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrants have duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized, on the 9th day of
November, 1998.
JPS AUTOMOTIVE L.P.
By: PACJ, Inc.
General Partner
By: /s/ J. Michael Stepp
----------------------------
J. Michael Stepp
Executive Vice President and
Chief Financial Officer
JPS AUTOMOTIVE PRODUCTS CORP.
By: /s/ J. Michael Stepp
----------------------------
J. Michael Stepp
Executive Vice President and
Chief Financial Officer
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This schedule contains summary financial information extracted from JPS
Automotive Products Corp. balance sheet at September 26, 1998, and such is
qualified in its entirety by reference to such financial statements.
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<NAME> JPS AUTOMOTIVE PRODUCTS CORP.
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<FISCAL-YEAR-END> DEC-26-1998
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This schedule contains summary financial information extracted from the
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</LEGEND>
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<NAME> JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-26-1998
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