SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 26, 1998
Commission file numbers: 33-75510-01; 1-12944
JPS AUTOMOTIVE L.P.
JPS AUTOMOTIVE PRODUCTS CORP.
----------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 57-1060375
DELAWARE 57-0993690
- -------------------------------------- ---------------------
(State or other Jurisdiction of (I.R.S. Employer
incorporation or Organization) Identification
Number)
701 MCCULLOUGH DRIVE, CHARLOTTE, NC 28262
- -------------------------------------- ---------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (704) 547-8500
Securities registered pursuant to Section 12(b) of the Act: 11-1/8% SENIOR NOTES
DUE 2001, WHICH ARE
TRADED ON THE NEW
YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrants (1) have 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 periods that the
registrant was required to file such reports), and (2) have been subject to such
filing requirements for the past 90 days. YES [X] NO (See Note in the Index
hereto)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
None of the voting securities of JPS Automotive L.P. or JPS Automotive
Products Corp. is held by non-affiliates.
As of March 25, 1999, there were 100 shares of JPS Automotive Products
Corp. common stock outstanding.
JPS Automotive L.P. and JPS Automotive Products Corp. meet the
conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K and
are therefore filing this form with the reduced disclosure format.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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JPS AUTOMOTIVE L.P.
JPS AUTOMOTIVE PRODUCTS CORP.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 26, 1998
INDEX
<TABLE>
10-K
PAGE
<S> <C> <C> <C>
PART I
Item 1. Business (A) 1
Item 2. Properties (A) 3
Item 3. Legal Proceedings 3
Item 4. Submission of Matters to a Vote of Security Holders (A) 3
PART II
Item 5. Market for Registrants' Common Equity and Related
Stockholder Matters 3
Item 6. Selected Financial Data (A) 4
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations (A) 4
Item 7A. Quantitative and Qualitative Disclosures about Market 7
Risk (A)
Item 8. Financial Statements and Supplementary Data 7
Item 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure 7
PART III
Item 10. Directors and Executive Officers of the Registrants (A) 8
Item 11. Executive Compensation (A) 8
Item 12. Security Ownership of Certain Beneficial Owners and
Management (A) 8
Item 13. Certain Relationships and Related Transactions (A) 8
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 8
</TABLE>
(A) Omitted or amended as all of the equity securities of the Registrants are
owned indirectly by Collins & Aikman Corporation and the Registrants
therefore meet the Conditions set forth in General Instructions I(1)(a) and
(b) of Form 10-K and are filing this Form with reduced disclosure format.
The Registrants will furnish a copy of any exhibit to this Form 10-K upon the
request in writing of any holder of 11-1/8% Senior Notes due 2001 and upon the
payment of a fee equal to the Registrants' reasonable expenses in furnishing
such exhibit.
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PART I
ITEM 1. BUSINESS
Response to Item 1 of Form 10-K is in accordance with General Instruction
I(2)(d) to Form 10-K.
GENERAL
JPS Automotive ("JPS Automotive") produces and supplies a complete line of
automotive textile and specialty textile products to North American automobile
and light truck manufacturers. JPS Automotive's products include molded floor
carpet systems, seating upholstery fabric ("bodycloth"), headliner fabric, and
luggage compartment trim. JPS Automotive's customers include domestic original
equipment manufacturers, such as General Motors ("GM"), DaimlerChrysler, and
Ford, as well as the domestic operations of certain foreign OEMs ("Transplant
OEMs" and collectively with domestic OEMs, "OEMs"), including Honda, Mazda,
Mitsubishi, Nissan, NuMMI (a joint venture between GM and Toyota), Subaru and
Toyota. JPS Automotive Products Corp. ("Products Corp.") is a wholly owned
subsidiary of JPS Automotive.
On December 11, 1996, Collins & Aikman Corporation ("C&A"), through its
subsidiaries, acquired JPS Automotive 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. ("JSGP").
Accordingly, 100% of the partnership interests in JPS Automotive are owned by
PACJ, Inc. and C&A Products, which are, respectively, indirect and direct
wholly-owned subsidiaries of C&A. Additionally, on December 11, 1996, C&A
Products also acquired from Seiren Co. Ltd. and its affiliates a minority
interest in Cramerton Automotive Products, L.P. and Cramerton Management
Corporation, which were JPS Automotive subsidiaries. In December 1997, Cramerton
Automotive Products, L.P. was merged into Cramerton Management Corporation and
the surviving entity was renamed Cramerton Automotive Products, Inc.
("Cramerton"). JPS Automotive subsequently acquired the minority interest held
by C&A Products and now owns 100% of Cramerton.
On July 24, 1997, JPS Automotive completed the sale of its Air Restraint and
Technical Products Division ("Airbag"), an airbag and industrial fabric
business, to Safety Components International, Inc. for a sales price of
approximately $56 million. No gain or loss was recorded on the sale since the
sales price approximated the fair value and book value of Airbag.
In September 1998, JPS Automotive distributed its 50% ownership interest in
Industrias Enjema S.A. de C.V. ("Enjema"), a carpet systems manufacturer located
in Mexico, to C&A Products. C&A Products acquired, from a third party, the other
50% interest in Enjema in August 1998 for approximately $1 million.
The principal executive offices of JPS Automotive are located at 701 McCullough
Drive, Charlotte, North Carolina, 28262 and its telephone number is (704)
547-8500.
References in this report to JPS Automotive means JPS Automotive L.P. and, where
relevant, its subsidiaries.
PRODUCTS AND OPERATING SEGMENTS
JPS Automotive has two operating segments: Automotive Carpet and Automotive
Fabric.
AUTOMOTIVE CARPET
JPS Automotive's automotive carpet operations produce complete molded floor
carpet and luggage comparment trim. Prior to 1998, JPS Automotive manufactured
rolled carpet goods for use in its own products and for sale to other
automotive suppliers. In the second quarter of 1998, JPS Automotive closed its
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facility which manufactured roll goods and initiated a contract manufacturing
arrangement with C&A Products to supply its future roll goods requirements. See
Note 12 to JPS Automotive Consolidated Financial Statements.
Molded floor carpets include polyethylene, barrier-backed and molded urethane
underlay carpet. Luggage compartment trim includes one-piece molded trunk
systems and assemblies, wheelhouse covers and center pan mats, seatbacks,
tireboard covers and other trunk trim products.
AUTOMOTIVE FABRIC
JPS Automotive sells bodycloth and headliner fabric to other automotive
suppliers. JPS Automotive's bodycloth fabric is typically specified by the OEM,
though the product normally is shipped and billed directly to other OEM
suppliers. Contract terms often parallel the terms between the OEM and the
primary supplier with respect to timing, product specifications and quantity.
JPS Automotive's principal upholstery fabric customers, other automotive
suppliers, demand high quality automotive fabric products with respect to
construction, weight and styling. OEMs typically do not specify a certain
company's headliner fabric, but rather specify fabric type or construction when
awarding purchase contracts. In 1998, JPS Automotive relocated its bodycloth
manufacturing operations to a C&A Products facility, and entered into a contract
manufacturing arrangement with C&A Products. See Notes 7 and 12 to the JPS
Automotive Consolidated Financial Statements.
MARKETING AND SALES
In conjunction with the elimination of certain redundant sales and
administrative functions following the 1996 Acquisition, C&A Products performs
substantially all of the sales and marketing functions for JPS Automotive. This
allows JPS Automotive to continue to provide integrated product systems and
design and engineering support which management believes reduces costs and
enhances value. See Notes 7 and 12 to the JPS Automotive Consolidated Financial
Statements.
MANUFACTURING AND RAW MATERIALS
Manufacturing operations are currently conducted at two facilities with a
total of approximately 1.2 million square feet. In connection with the 1996
Acquisition, JPS closed one manufacturing facility in 1997, a second facility in
January 1998, and a third facility in June 1998. In addition, JPS Automotive is
in the process of constructing additional space at a C&A Products facility where
bodycloth is being produced by C&A Products for JPS Automotive in
conjunction with a contract manufacturing arrangement. See Notes 7 and 12 to
the JPS Automotive Consolidated Financial statements. JPS Automotive believes
its facilities, taking into account its arrangements with C&A, are adequate to
meet its current production requirements.
The principal raw materials used by JPS Automotive are carpet fibers (nylon,
polyester and polypropylene), primary carpet backing and extrusion coating
materials and other nylon and polyester fibers for knitting. Many of JPS
Automotive's products contain branded raw materials specified by the customer
and any substitution of such raw materials would have to be made in consultation
with the customer. JPS Automotive purchases its raw materials from a few large
suppliers; however, JPS Automotive believes there are readily available
substitute sources of supply for its raw materials should the need for alternate
sources arise. The price of man-made fibers, such as nylon and polyester, is
influenced by demand, manufacturing capacity and polymer and petroleum prices.
EMPLOYEES
As of December 26, 1998, JPS Automotive employed approximately 1,500 persons.
JPS Automotive considers relations with its employees to be generally good.
COMPETITION
The market for JPS Automotive's products is highly competitive and is
concentrated among a small number of North American based companies.
Competition is based primarily on price, quality of products and service.
Certain of JPS Automotive's competitors are larger and have substantially
greater financial resources.
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TRANSACTIONS AND ARRANGEMENTS WITH AFFILIATES
For a discussion of certain transactions and arrangements between C&A Products
and JPS Automotive, see Note 12 to JPS Automotive Consolidated Financial
Statements.
YEAR 2000 ISSUES
For a discussion of the impact of Year 2000 compliance issues, see "ITEM 7,
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Impact of Year 2000 Compliance".
ITEM 2. PROPERTIES
Response to Item 2 of Form 10-K is in accordance with General Instruction
I(2)(d) to Form 10-K. JPS Automotive conducts its operations in two
manufacturing facilities, both of which are owned. Floor space at the two
facilities, which are located in North Carolina and South Carolina, totals
approximately 1.2 million square feet. JPS Automotive is in the process of
constructing additional space at an existing C&A Products facility, where C&A
Products is producing bodycloth for JPS Automotive on a subcontract basis.
ITEM 3. LEGAL PROCEEDINGS
From time to time, JPS Automotive is involved in various legal proceedings.
Management believes that such proceedings are routine in nature and incidental
to the conduct of its business, and that none of such proceedings, if determined
adversely to JPS Automotive, would have a material adverse effect on the
consolidated financial condition or results of operations of JPS Automotive.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted pursuant to General Instruction I(2)(c) to Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
JPS Automotive does not have an established public trading market for its equity
securities. The equity securities are held by two wholly-owned subsidiaries of
C&A. Products Corp. is a wholly-owned subsidiary of JPS Automotive L.P.
The indenture governing JPS Automotive's 11-1/8% Senior Notes due 2001 (the
"Senior Notes") generally prohibits JPS Automotive from making certain
restricted payments and investments (generally, dividends and distributions on
its equity interests; purchases or redemptions of its equity interests;
purchases of any indebtedness subordinated to Senior Notes and investments other
than as permitted) ("Restricted Payments") unless (i) there is no default under
the Senior Notes indenture, (ii) after giving pro forma effect to the Restricted
Payment, JPS Automotive would be permitted to incur at least $1.00 of additional
indebtedness under the indenture's general test for the incurrence of
indebtedness which is a specified ratio (currently 2.5 to 1.0) of cash flow to
interest expense and (iii) the aggregate of all Restricted Payments from the
issue date is less than a specified threshold (based, generally, on 50% of
cumulative consolidated net income since the issue date plus 100% of the
aggregate net cash proceeds of the issuance by JPS Automotive of certain equity
and convertible debt securities and cash contributions to JPS Automotive) (the
"Restricted Payments Tests"). These conditions were satisfied as of December 26,
1998. The Restricted Payments Tests are subject to a number of significant
exceptions.
During fiscal year 1998, JPS Automotive made distributions to C&A Products
totaling $10.0 million. During fiscal 1997, JPS Automotive made distributions to
C&A Products totaling $44.6 million, which included a $35 million distribution
of a portion of the proceeds received from the sale of Airbag.
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ITEM 6. SELECTED FINANCIAL DATA
Omitted pursuant to General Instruction I(2)(a) to Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Pursuant to General Instruction I(2)(a) to Form 10-K, the following discussion
is management's narrative analysis of the results of operations explaining the
reasons for material changes in the amount of revenue and expense items between
the most recent fiscal year presented and the fiscal year immediately preceding
it.
JPS Automotive produces and supplies textiles and specialty textile products
for automobile and light truck production in North America. On December 11,
1996, C&A, through its subsidiaries, acquired JPS Automotive from Foamex
International in the 1996 Acquisition. The following discussion should be read
in conjunction with the consolidated financial statements and related notes
thereto of JPS Automotive and Products Corp. included in this report.
1998 COMPARED TO 1997
OPERATING SEGMENTS:
JPS Automotive has two operating segments: Automotive Carpet and Automotive
Fabric.
AUTOMOTIVE CARPET
NET SALES: Automotive Carpet sales increased 6.7% to $168.9 million in 1998,
up $10.6 million from 1997. Due to the closure of C&A Products' Salisbury,
North Carolina facility and the transfer of programs between C&A Products and
JPS Automotive, automotive carpet products sales to C&A Products increased by
approximately $6.7 million over the comparable 1997 period. In addition,
revenues increased due to strong sales on the Mercedes M-class and the GM
Alero/Grand Am. This increase was offset by a 54 day GM strike, which reduced
sales by approximately $8.3 million.
OPERATING INCOME: Operating income decreased 39.9% to $9.5 million in 1998 from
$15.9 million in 1997. This decrease is due to inefficiencies associated with
the relocation of certain carpet manufacturing operations from a C&A Products
facility to a JPS Automotive facility. Also, in 1998, operating income was
negatively impacted by the General Motors strike by approximately $1.8 million.
JPS Automotive experienced sales volume losses to General Motors during the
strike and also incurred a number of cost increases as production was resumed
following the strike.
AUTOMOTIVE FABRIC
NET SALES: Automotive Fabric sales decreased 22.4% to $67.8 million in 1998,
down $19.6 million from 1997. Sales were adversely impacted by an increased
demand for leather seating applications, which management expects to continue at
its current level for the foreseeable future, an unfavorable mix on several
models, and weak sales on the Toyota Camry.
OPERATING INCOME (LOSS): Automotive Fabric operating income (loss) decreased
139% to ($1.7) million in 1998 from $4.3 million in 1997. The Automotive Fabric
segment experienced unfavorable manufacturing variances resulting from lower
volume and an unfavorable product mix and also incurred charges related to idle
equipment.
JPS AUTOMOTIVE AS A WHOLE
NET SALES: Net sales for JPS Automotive were $255.6 million in 1998 as compared
to $247.3 million in the comparable 1997 period. This increase is primarily due
to the factors discussed above.
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GROSS PROFIT: Gross profit as a percentage of sales decreased to 11.1% in
1998 from 15.0% in 1997. The decrease in gross profit is due in part to lower
volume and unfavorable product mix in automotive fabric and inefficiencies
associated with the relocation and closing of certain manufacturing facilities.
In addition, during the fourth quarter of 1998, JPS Automotive's fabric segment
recorded a $1.0 million charge for idle equipment. These decreases were
partially offset by $3.7 million of income recognized by the Automotive Carpet
segment for a reversal of previously established warranty reserves originally
recorded for estimated costs to repair or replace products no longer
manufactured. The warranty claims for these items have been significantly below
expected amounts and the remaining reserve was deemed unnecessary by management.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general, and
administrative expenses decreased 21.7% to $12.1 million in 1998 from $15.5
million in 1997. This decrease is due primarily to JPS Automotive recognizing a
$4.2 million reduction of expense related to the collection of an accounts
receivable balance due from Enjema, which had previously been written off.
Although there has been an elimination of certain redundant sales and
administrative functions in connection with the 1996 Acquisition, selling,
general and administrative expenses remained consistent with 1997 amounts due to
an allocation from C&A Products for such services. See Note 12 to the JPS
Automotive Consolidated Financial Statements.
INTEREST EXPENSE: Interest expense, net of interest income, decreased to $8.2
million in 1998 from $9.5 million in the comparable 1997 period primarily due
to lower overall debt levels following the 1996 Acquisition. From the first
quarter of 1997 through the fourth quarter of 1998, $25.9 million principal
amount of Senior Notes were 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. During 1998, $0.3 million in net interest was charged to C&A
Products in connection with these revolving credit arrangements. See Note 12 to
the JPS Automotive Consolidated Financial Statements.
OTHER INCOME: Other income for 1998 and 1997 related to the sales of fixed
assets.
INCOME TAXES: The income tax provision in 1998 decreased to $3.6 million from
$5.2 million in 1997.
INCOME FROM DISCONTINUED OPERATIONS: Income from Airbag was $1.7 million in
1997. Airbag was sold in July 1997.
EXTRAORDINARY LOSS: JPS Automotive recognized an extraordinary loss of $132
thousand, net of income taxes of $90 thousand, relating to the repurchase by JPS
Automotive of $2.6 million principal amount of Senior Notes at prices in excess
of carrying values during 1998. The extraordinary loss of $0.7 million, net of
income taxes of $0.4 million, in the comparable period of 1997 relates to the
repurchase of $19.4 million principal amount of Senior Notes at prices in excess
of carrying values.
NET INCOME: Net income decreased to $4.9 million in 1998 from $8.0 million in
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 capital
contributions and borrowings will be adequate to meet operating cash
requirements. For a discussion of certain transactions and arrangements and
proposed transactions and arrangements between C&A Products and JPS Automotive,
see Note 12 to the JPS Automotive Consolidated Financial Statements.
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IMPACT OF YEAR 2000 COMPLIANCE
In accordance with arrangements between JPS Automotive and C&A Products, C&A
Products provides administrative and management services to JPS Automotive. See
Note 12 to the JPS Automotive Consolidated Financial Statements. 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 Testing phase for
most areas of Year 2000 risk and currently expects its systems to become Year
2000 compliant during 1999.
JPS Automotive is in the process of finalizing formal contingency plans. These
contingency plans include, among other things, the following: (i) establishing
back-up production capacities with other C&A Products facilities to shift the
manufacturing of similar products between plants if a JPS Automotive plant
should be unable to complete its scheduled production requirements; (ii)
carrying extra inventory of raw materials and finished goods to cover production
requirements if critical suppliers indicate that they will not be Year 2000
compliant in a timely manner; and (iii) maintaining offline documentation of
production schedules, releases, and inventory levels. JPS Automotive has not
quantified the costs associated with these contingency plans.
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 12 to the JPS Automotive 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 $374 thousand.
Included in this estimate is $180 thousand of salaries and other payroll costs
of employees to the extent that they have devoted a majority of their time to
the project. Approximately $162 thousand of these costs have been incurred
through December 26, 1998, including $136 thousand of salaries and other payroll
costs. JPS Automotive is funding the expenditures related to the Year 2000 plan
with cash flows from operations.
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 address this possible scenario, JPS Automotive
is in the process of assessing responses to questionnaires previously issued 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.
JPS Automotive is incorporating the responses received from the suppliers in
formulating contingency
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plans. 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-K contains statements which, to the extent they are not historical
fact, constitute forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934 (the "Safe Harbor Acts"). All forward-looking statements involve risks and
uncertainties. The forward-looking statements in this Form 10-K are intended to
be subject to the safe harbor protection provided by the Safe Harbor Acts.
Risks and uncertainties that could cause actual results to vary materially from
those anticipated in the forward-looking statements included in this Form 10-K
include industry-based factors such as possible declines in the North American
automobile and light truck build, labor strikes at JPS Automotive's major
customers, changes in consumer preferences, dependence on significant automotive
customers, changes in the popularity of particular car models or particular
interior trim packages, the loss of programs on particular car models, the level
of competition in the automotive supply industry, pricing pressure from
automotive customers, and Year 2000 compliance issues, as well as factors more
specific to JPS Automotive, such as the substantial leverage of JPS Automotive
and limitations imposed by the Senior Notes. For a discussion of certain of
these and other important factors which may affect the operations, products and
markets of JPS Automotive, see "ITEM 1. BUSINESS" and the above discussion in
this "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," and Notes to JPS Automotive Consolidated Financial
Statements and see also JPS Automotive's other filings with the Securities and
Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Omitted pursuant to General Instruction I(2)(a) to Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Consolidated Financial Statements of JPS Automotive and subsidiaries and
Products Corp. included herein and listed on the indices to the Consolidated
Financial Statements and Financial Statement Schedule as set forth in Item 14 of
this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
Omitted pursuant to General Instruction I(2)(c) to Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Omitted pursuant to General Instruction I(2)(c) to Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Omitted pursuant to General Instruction I(2)(c) to Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted pursuant to General Instruction I(2)(c) to Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements
The financial statements listed in the accompanying Index to Consolidated
Financial Statements are filed as part of this Report on Form 10-K.
(b) Reports on Form 8-K
During the last quarter of the period covered by this Report on Form 10-K,
the Company filed no reports on Form 8-K.
(c) Exhibits
EXHIBIT
NUMBER DESCRIPTION
3.1 Certificate of Incorporation of Products Corp. is hereby incorporated
by reference to Exhibit 3.1 of Products Corp.'s Registration Statement
on Form S-1, Registration No. 33-75510.
3.2 By-laws of Products Corp. are hereby incorporated by reference to
Exhibit 3.2 of Products Corp.'s Registration Statement on Form S-1,
Registration No. 33-75510.
3.3 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.
8
<PAGE>
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.
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)(A) of
Regulation S-K. The Registrants hereby agree to furnish a copy of
any such instrument to the Commission upon request.
10.1 Services Agreement, by and between JPS Automotive and Foamex
International is hereby incorporated by reference to Exhibit 10.2
of Products Corp.'s Registration Statement on Form S-1,
Registration No. 33-75510.
10.2 Supply Agreement, by and among Foamex International and certain of
its affiliates and JPS Automotive is incorporated by reference to
Exhibit 10.8 of Products Corp.'s Registration Statement on Form
S-1, Registration No. 33-75510.
10.3 Tax-sharing Agreement, by and among JPS Automotive and its partners
is incorporated by reference to Exhibit 10.9 of Products Corp.'s
Registration Statement on Form S-1, Registration No. 33-75510.
10.4 Assignment dated as of December 11, 1996, from Foamex International
to C&A Products relating to Services Agreement, is hereby
incorporated by reference to Exhibit 10.10 of the Form 10-K of JPS
Automotive and Products Corp. for the transition period from
January 1, 1996 to December 28, 1996.
10.5 Assignment dated as of December 11, 1996, from Foamex-JPS
Automotive L.P. to C&A Products relating to Tax-Sharing Agreement,
is hereby incorporated by reference to Exhibit 10.11 of the Form
10-K of JPS Automotive and Products Corp. for the transition period
from January 1, 1996 to December 28, 1996.
10.6 Assignment dated as of December 11, 1996, from JPSGP, Inc. to C&A
Products relating to Tax-Sharing Agreement, is hereby incorporated
by reference to Exhibit 10.12 of the Form 10-K of JPS Automotive
and Products Corp. for the transition period from January 1, 1996
to December 28, 1996.
10.7 Assignment dated as of December 11, 1996, from Foamex to C&A
Products relating to Supply Agreement, is hereby incorporated by
reference to Exhibit 10.13 of the Form 10-K of JPS Automotive and
Products Corp. for the transition period from January 1, 1996 to
December 28, 1996.
9
<PAGE>
10.8 Equity Purchase Agreement by and among JPSGP, Inc., Foamex -
JPS Automotive L.P. and Collins & Aikman Products Co. dated August
28, 1996, is hereby incorporated by reference to Exhibit 2.1 of
Collins& Aikman Corporation's Report on Form 10-Q for the fiscal
quarter ended July 27, 1996.
10.9 Amendment No. 1 to Equity Purchase Agreement by and among JPSGP,
Inc., Foamex - JPS Automotive L.P., Foamex International Inc. and
Collins & Aikman Products Co. dated as of December 11, 1996, is
hereby incorporated by reference to Exhibit 2.2 of Collins & Aikman
Corporation's Current Report on Form 8-K dated December 10, 1996.
10.10 Post 1996 Acquisition Arrangements Under JPS Automotive Services
Agreement is hereby incorporated by reference to Exhibit 10.15 of
the Form 10-K of JPS Automotive and Products Corp. for the fiscal
year ended December 27, 1997.
10.11 Asset Purchase Agreement dated as of June 30, 1997 by and among JPS
Automotive L.P. and Safety Components International, Inc. is hereby
incorporated by reference to Exhibit 2.1 of the Current Report on
Form 8-K of JPS Automotive and Products Corp. dated July 24, 1997.
10.12 Closing Agreement dated as of July 24, 1997 by and among JPS
Automotive L.P., Safety Components International, Inc. and Safety
Components Fabric Technologies, Inc. is hereby incorporated by
reference to Exhibit 2.2 of the Current Report on Form 8-K of JPS
Automotive and Products Corp. dated July 24, 1997.
27 Financial Data Schedules
10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrants have duly caused this report to be signed on their
behalf by the undersigned, thereunto duly authorized on the 25th day of March,
1999.
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
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrants and
in the capacities and on the dates indicated:
<TABLE>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Thomas E. Hannah Director and Chief Executive March 25, 1999
- -------------------- Officer of PACJ, Inc.
Thomas E. Hannah (Principal Executive Officer)
/s/ J. Michael Stepp Director and Executive Vice President March 25, 1999
- --------------------- and Chief Financial Officer (Principal
J. Michael Stepp Financial and Accounting Officer) of
JPS Automotive Products Corp, and
PACJ, Inc.
</TABLE>
11
<PAGE>
JPS AUTOMOTIVE L.P.
JPS AUTOMOTIVE PRODUCTS CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
PAGE
<S> <C>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1
- -------------------------------------------------------------------------------
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES:
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 26, 1998, and December 27, 1997 F-3
Consolidated Statements of Operations for the years ended December 26, 1998
and December 27, 1997, for the period from December 12, 1996 to December 28,
1996 and for the period from January 1, 1996 to December 11, 1996 F-4
Consolidated Statements of Owners' Equity for the years ended December 26,
1998 and December 27, 1997, for the period from December 12, 1996 to
December 28, 1996,and for the period from January 1, 1996 to December 11,
1996 F-5
Consolidated Statements of Cash Flows for the years ended December 26, 1998
and December 27, 1997, for the period from December 12, 1996 to December
28, 1996, and for the period from January 1, 1996 to December 11, 1996 F-6
Notes to Consolidated Financial Statements F-7
JPS AUTOMOTIVE PRODUCTS CORP:
Report of Independent Public Accountants F-25
Balance Sheets as of December 26, 1998, and December 27, 1997 F-26
Notes to Financial Statements F-27
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of JPS Automotive L.P.:
We have audited the accompanying consolidated balance sheets of JPS Automotive
L.P. (a Delaware limited partnership and an indirect subsidiary of Collins &
Aikman Corporation) and subsidiaries as of December 26, 1998, and December 27,
1997, and the related consolidated statements of operations, owners' equity, and
cash flows for the years ended December 26, 1998, and December 27, 1997, the
period from December 12, 1996 to December 28, 1996, and the period from January
1, 1996, to December 11, 1996. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of JPS
Automotive L.P. and subsidiaries as of December 26, 1998, and December 27, 1997,
and the results of their operations and their cash flows for the years ended
December 26, 1998, and December 27, 1997, the period from December 12, 1996 to
December 28, 1996, and the period from January 1, 1996, to December 11, 1996, in
conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. Schedule II is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not a required part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in our audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
February 22, 1999.
F-2
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
DECEMBER 26, DECEMBER 27,
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 171 $ 9,271
Accounts receivable, net of allowance $2,254 and $6,018 36,139 37,038
Inventories............................................ 11,308 19,275
Revolving loan due from C&A Products................... 1,500 4,500
Deferred tax assets.................................... 3,203 5,369
Receivables from related parties....................... 10,403 1,974
Other current assets................................... 1,344 4,269
----------- ---------
Total current assets.............. 64,068 81,696
Property, plant and equipment:
Land and land improvements............................. 4,380 4,581
Buildings and leasehold improvements................... 17,292 12,412
Machinery, equipment and furnishings................... 43,988 43,433
Construction in progress............................... 6,375 415
----------- ---------
Total....................................... 72,035 60,841
Less - Accumulated depreciation and amortization....... (10,903) (5,371)
----------- ---------
Property, plant and equipment, net.......... 61,132 55,470
Goodwill, net............................................. 100,688 103,310
Demand receivable due from C&A for income taxes........... 6,887 6,548
Debt issuance costs, net.................................. 1,934 2,667
Other assets.............................................. 3,222 916
----------- ---------
$237,931 $250,607
=========== =========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 10,795 $ 12,083
Accrued expenses....................................... 6,383 13,677
----------- ---------
Total current liabilities................... 17,178 25,760
Long-term debt............................................ 88,247 91,843
Other liabilities......................................... 10,224 10,008
Commitments and contingencies.............................
Owners' equity:
General partner........................................ 48,073 48,073
Limited partner........................................ 74,209 74,923
----------- ---------
Total owners' equity........................ 122,282 122,996
----------- ---------
$237,931 $250,607
=========== =========
</TABLE>
The Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
F-3
<PAGE>
<TABLE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
PREDECESSOR
COMPANY
-----------
PERIOD FROM PERIOD FROM
DECEMBER 12, JANUARY 1,
YEAR ENDED YEAR ENDED 1996, TO 1996, TO
DECEMBER 26, DECEMBER 27, DECEMBER 28, DECEMBER 11,
1998 1997 1996 1996
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Net sales........................ $255,627 $247,271 $6,370 $219,039
Cost of goods sold............... 227,254 210,281 6,008 182,818
-------- -------- ------ --------
Gross profit..................... 28,373 36,990 362 36,221
Selling, general and
administrative expenses....... 12,122 15,478 885 18,740
-------- -------- ------ --------
Income (loss) from operations.... 16,251 21,512 (523) 17,481
Interest expense, net of interest
income of $969, $1,151, $19
and $114 (8,159) (9,530) (531) (20,249)
Other income (expense), net...... 616 313 2 (4,782)
Minority interest in consolidated
subsidiary.................... - - - 551
-------- -------- ------ --------
Income (loss) before income taxes 8,708 12,295 (1,052) (6,999)
Income tax provision (benefit)... 3,626 5,199 (388) 352
-------- -------- ------ --------
Income (loss) from continuing
operations.................... 5,082 7,096 (664) (7,351)
Income from discontinued
operations, net of income
taxes of $0, $1,044, $11 and $0 - 1,662 18 3,615
-------- -------- ------ --------
Income (loss) before
extraordinary loss............. 5,082 8,758 (646) (3,736)
Extraordinary loss on
extinguishment of debt, net of
income taxes of $90 and $442.. 132 721 - -
-------- -------- ------ --------
Net income (loss)................ $ 4,950 $ 8,037 $ (646) $ (3,736)
======= ======== ========= ============
</TABLE>
The Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
F-4
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OWNERS' EQUITY
(IN THOUSANDS)
<TABLE>
LIMITED GENERAL
PARTNER PARTNER TOTAL
--------- -------- ---------
<S> <C> <C> <C>
PREDECESSOR COMPANY:
Balance, December 31, 1995....................... $105,054 $1,061 $106,115
Net loss......................................... (3,699) (37) (3,736)
-------- ------ --------
Balance, December 11, 1996....................... 101,355 1,024 102,379
Acquisition of JPS Automotive by Collins & Aikman
Corporation................................... (101,355) (1,024) (102,379)
-------- ------ --------
$ - $ - $ -
======== ====== ========
- -----------------------------------------------------------------------------------------------
JPS AUTOMOTIVE:
Pushdown of acquisition basis and
initial contributions by partners............. $ 70,980 $48,074 $119,054
Cash contributions by partners................... 4,117 - 4,117
Net loss......................................... (645) (1) (646)
-------- ------- --------
Balance, December 28, 1996....................... 74,452 48,073 122,525
Contributions by partners-
Cash.......................................... 32,369 - 32,369
Other (Note 12)............................... 5,142 - 5,142
Distributions to partners........................ (44,625) - (44,625)
True-up of pushdown acquisition basis............ (452) - (452)
Net income....................................... 8,037 - 8,037
-------- ------- --------
Balance, December 27, 1997....................... 74,923 48,073 122,996
Distributions to partners........................ (10,000) - (10,000)
Contributions from partners - Other (Note 12).... 4,336 - 4,336
Net income....................................... 4,950 - 4,950
-------- ------ --------
Balance, December 26, 1998....................... $ 74,209 $48,073 $122,282
========= ======= ========
</TABLE>
The Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements.
F-5
<PAGE>
<TABLE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
PREDECESSOR
COMPANY
------------
PERIOD FROM PERIOD FROM
DECEMBER 12, JANUARY 1,
YEAR ENDED YEAR ENDED 1996, TO 1996, TO
DECEMBR 26, DECEMBER 27, DECEMBER 28, DECEMBER 11,
1998 1997 1996 1996
---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Income (loss) from continuing operations $ 5,082 $ 7,096 $ (664) $ (7,351)
Adjustments to derive cash flow
from continuing operating activities:
Deferred income tax expense........ 6,307 11,190 (60) -
Depreciation and amortization...... 9,221 7,868 373 10,492
Interest accretion and debt issuance
cost amortization................ (217) (322) - 1,115
Other, net......................... (616) 215 (21) 3,898
Changes in operating assets and
liabilities, net of acquisition:
Accounts receivable............ 899 (10,414) (102) 776
Inventories.................... 7,967 (4,986) 596 40
Accounts payable............... (1,288) 69 (2,846) (3,483)
Other assets and liabilities... (9,517) (6,401) (10,784) 7,781
-------- -------- ------- ---------
Net cash provided by (used in)
continuing operations.......... 17,838 4,315 (13,508) 13,268
Net cash provided by (used in)
discontinued operations, net..... - 478 (1,777) 11,105
-------- -------- ------- ---------
Net cash provided by (used in)
operating activities........... 17,838 4,793 (15,285) 24,373
-------- -------- ------- ---------
INVESTING ACTIVITIES:
Capital expenditures, net............ (12,007) (3,692) (435) (4,438)
Proceeds from disposition of
discontinued operations............ - 55,900 - -
Payment to related party for assumption
of environmental liabilities....... - (4,136) - -
Other, net........................... - 1,391 - 85
-------- -------- ------- ---------
Net cash provided by (used in)
investing activities........... (12,007) 49,463 (435) (4,353)
-------- -------- ------- ---------
FINANCING ACTIVITIES:
Net proceeds from (repayments and
advances on) revolving loans....... 3,000 (4,500) - (9,563)
Repayment of long-term debt.......... (2,707) (25,627) (26,878) (1,415)
Capital contributions from partners.. 4,336 32,369 30,995 -
Distributions to C&A Products........ (10,000) (44,625) - -
Changes in amounts due C&A Products, net (9,406) (2,800) - -
Distributions to minority interest... - - - (78)
Other................................ (154) - - -
-------- -------- ------- ---------
Net cash provided by (used in)
financing activities........... (14,931) (45,183) 4,117 (11,056)
-------- -------- ------- ---------
Net increase (decrease) in cash and cash (9,100) 9,073 (11,603) 8,964
equivalents..........................
Cash and cash equivalents at beginning of
period.............................. 9,271 198 11,801 2,837
-------- -------- ------- ---------
Cash and cash equivalents at end of period $ 171 $ 9,271 $ 198 $ 11,801
======== ======== ======= =========
</TABLE>
The Notes to Consolidated Financial Statements are
an integral part of these consolidated financial statements
F-6
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
JPS Automotive L.P. and subsidiaries ("JPS Automotive" or the "Company")
operate in the automotive products segment in North America, including the
design, production and sale of carpet components and interior fabrics for
passenger cars and light trucks.
On December 11, 1996, Collins & Aikman Corporation ("C&A"), through its
subsidiaries, acquired JPS Automotive from Foamex International Inc. ("Foamex")
pursuant to an Equity Purchase Agreement dated August 28, 1996, as amended
December 11, 1996 (the "1996 Acquisition"). In the 1996 Acquisition, Collins &
Aikman Products Co. ("C&A Products"), a wholly owned subsidiary of C&A, acquired
a .9999% limited partnership interest in JPS Automotive from Foamex and a 99%
limited partnership interest in JPS Automotive from Foamex- JPS Automotive L.P.
("FJPS"). PACJ, Inc., a wholly owned subsidiary of C&A Products, acquired a
.0001% general partnership interest in JPS Automotive from JPSGP Inc. ("JPSGP").
Accordingly, 100% of the partnership interests in JPS Automotive are owned by
PACJ, Inc. and C&A Products, which are, respectively, indirect and direct wholly
owned subsidiaries of C&A. Additionally, on December 11, 1996, C&A Products also
acquired from Seiren Co. Ltd. and its affiliates a minority interest in
Cramerton Automotive Products, L.P. and Cramerton Management Corporation, which
are JPS Automotive subsidiaries that were merged in December 1997 under the name
Cramerton Automotive Products, Inc. ("Cramerton"). JPS Automotive subsequently
acquired the minority interest previously held by C&A Products and now owns 100%
of Cramerton.
The consolidated balance sheets as of December 26, 1998, and December
27, 1997, and the consolidated statements of operations, cash flows and owners'
equity for the years ended December 26, 1998 and December 27, 1997, and the
period from December 12, 1996 to December 28, 1996, pertain to JPS Automotive.
The consolidated statements of operations, cash flows and owners' equity for the
period from January 1, 1996, to December 11, 1996 pertain to JPS Automotive
under its prior ownership by Foamex ("the Predecessor Company")
2. JPS AUTOMOTIVE ACQUISITION:
As discussed in Note 1, on December 11, 1996, C&A, through its
subsidiaries, acquired JPS Automotive from Foamex pursuant to an Equity Purchase
Agreement dated August 28, 1996, as amended December 11, 1996. The purchase
price for the 1996 Acquisition was an aggregate of approximately $220 million,
consisting of approximately $195 million of indebtedness of JPS Automotive and
$25 million in cash paid to Foamex. During 1997, C&A finalized the purchase
price and received approximately $11.2 million from the seller as a reduction of
the purchase price.
In connection with the 1996 Acquisition, C&A, through its subsidiaries,
acquired approximately $68 million of the Company's outstanding 11-1/8% Senior
Notes due 2001 (the "Senior Notes"), which were subsequently retired by the
Company. In addition, at the time of closing, approximately $15 million of the
Company's outstanding debt was repaid. (See Note 6.) The Senior Notes formerly
held by C&A and the funds used to repay the Company's outstanding bank
indebtedness were recorded as capital contributions to the Company from C&A and
its subsidiaries.
The aggregate investment of approximately $119 million in connection
with the acquisition of JPS Automotive by C&A and its subsidiaries was funded by
borrowings under C&A's credit facilities.
The 1996 Acquisition has been accounted for as a purchase and, pursuant
to the provisions of Staff Accounting Bulletin No. 54 ("SAB No. 54") and the
rules of pushdown accounting, the 1996 Acquisition gave rise to a new basis of
accounting. The purchase price and related acquisition expenses exceeded the
fair value of the net assets acquired. The purchase price in excess of the net
assets acquired has been pushed down and recorded in the accompanying
consolidated balance sheet as goodwill. The excess of the purchase price over
the estimated fair value of the net assets acquired (goodwill) is being
amortized over 40 years.
F-7
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition to the pushdown of goodwill, adjustments to certain assets
and liabilities of the Predecessor Company were recorded by the Company as a
result of the 1996 Acquisition and the application of pushdown accounting. A
comparison of the Company's assets and liabilities to those of the Predecessor
Company is as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR JPS AUTOMOTIVE
COMPANY
------------ --------------
DECEMBER 11, DECEMBER 12,
1996 1996
---- ----
<S> <C> <C>
Current assets...................... $133,690 $111,409
Property, plant and equipment, net.. 85,080 59,366
Debt issuance costs, net............ 6,113 3,370
Goodwill............................ 117,664 114,884
Other assets........................ 1,146 7,180
Current liabilities................. 40,665 47,260
Long-term debt...................... 190,608 117,170
Other liabilities................... 3,425 12,695
Minority interest................... 6,616 0
</TABLE>
The above December 12, 1996, balances, which were subject to postclosing
adjustment, reflect the revaluation of the JPS Automotive assets and liabilities
to their estimated fair values at the date of the 1996 Acquisition. The purchase
price allocation related to the JPS Automotive acquisition established certain
reserves related to management's plans to rationalize certain acquired
manufacturing facilities. (See Note 7). During 1997, C&A finalized the
purchase price and received approximately $11.2 million from the seller as a
reduction of the purchase price. The impact of management's final plans, the
settlement of the purchase price adjustment and certain other revisions to
preliminary estimates resulted in a reduction of goodwill during fiscal 1997 of
approximately $5.0 million.
Unaudited pro forma consolidated income from continuing operations of
the Company for the period from January 1, 1996, to December 28, 1996, and for
the year ended December 31, 1995, assuming that the 1996 Acquisition occurred at
the beginning of each period, would have been approximately $0.4 million and
$7.4 million, respectively. Unaudited pro forma consolidated net income for the
same periods using the same assumptions would have been approximately $4.0
million and $13.5 million, respectively. The pro forma adjustments, which would
not affect net sales, reflect primarily reduced depreciation, goodwill
amortization and interest expense offset by the pro forma impact of income
taxes.
Following the acquisition by C&A Products of JPS Automotive in December
1996, C&A Products began to develop plans to rationalize certain manufacturing
locations as well as marketing and administrative functions. These transactions
and arrangements and proposed transactions and arrangements were approved by the
Board of Directors of PACJ, Inc., the general partner of JPS Automotive, and
were reviewed by an investment banking firm of national standing, which issued
an opinion confirming they are fair to JPS Automotive from a financial point of
view. See Note 12 for further discussion.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION - The consolidated financial statements include the
accounts of JPS Automotive and all subsidiaries that JPS Automotive directly or
indirectly controls, either through majority ownership or otherwise. Minority
interest represents the minority partners' proportionate shares of the equity in
Cramerton prior to the 1996 Acquisition. Intercompany accounts and transactions
have been eliminated in consolidation. Investments in 20% to 50% controlled
companies are accounted for on the equity method.
F-8
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEAR - As a result of the 1996 Acquisition, JPS Automotive's
fiscal year ends on the last Saturday of December.
ACCOUNTING ESTIMATES - 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 at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments with an original maturity of three months or less when purchased to
be cash equivalents.
INVENTORIES - Inventories are stated at the lower of cost or market. The
cost of the inventories is determined on a first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated
at cost and are depreciated using the straight-line method over the estimated
useful lives of the assets. The range of useful lives estimated for buildings is
generally 25 to 40 years and the range for machinery, equipment and furnishings
is 3 to 15 years. Leasehold improvements are amortized over the shorter of the
terms for the respective leases or the estimated lives of the leasehold
improvements. For income tax purposes, the Company uses accelerated depreciation
methods.
In connection with the 1996 Acquisition, the Company's property, plant
and equipment was recorded at the appraised values reflecting the intended
future use of the facilities and equipment. Reserves for facility shutdowns and
other associated costs were provided for in the purchase accounting adjustments.
(See Note 7.)
LONG-LIVED ASSETS - In 1996, the Predecessor Company adopted Statement
of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
SFAS No. 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets to
be held and used and for long-lived assets and certain identifiable intangibles
to be disposed of. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable and that certain long-lived
assets and identifiable intangibles to be disposed of be reported at the lower
of carrying amount or fair value less cost to sell. The adoption of SFAS No. 121
did not have a material impact on the consolidated results of operations. During
the period from January 1, 1996, to December 11, 1996, the continuing operations
of the Predecessor Company recorded a charge of approximately $4.4 million for
the write-down of certain machinery and equipment to their estimated realizable
values as the assets were assessed by management to have no continuing use due
primarily to the loss of certain programs and a loss of a headliner customer.
The write-down of machinery and equipment is included in other income (expense),
net, in the accompanying consolidated statement of operations.
DEBT ISSUANCE COSTS - Debt issuance costs consist of amounts incurred in
obtaining long-term financing. These costs are amortized over the term of the
related debt using the interest method. Accumulated amortization as of December
26, 1998, was approximately $1.4 million.
In connection with the 1996 Acquisition and the subsequent retirement of
debt, $2.7 million of debt issuance costs were eliminated as a result of the
application of pushdown accounting. (See Note 2.)
F-9
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GOODWILL - As discussed in Note 2, the acquisition of JPS Automotive by
C&A has been accounted for as a purchase and, pursuant to SAB No. 54 and the
rules of pushdown accounting, gave rise to a new basis of accounting. As a
result, the amount by which the purchase price and related acquisition expenses
exceeded the fair value of the net assets acquired has been recorded by JPS
Automotive as goodwill in the accompanying December 26, 1998, and December 27,
1997, consolidated balance sheet and is being amortized over a 40-year period.
Accumulated amortization as of December 26, 1998, and December 27, 1997, was
approximately $5.3 million and $2.6 million, respectively. The carrying value of
goodwill will be reviewed periodically based on the undiscounted cash flows and
pretax income over the remaining amortization period. Should this review
indicate that the goodwill balance will not be recoverable, the Company's
carrying value of goodwill will be reduced. At December 26, 1998, the Company
believes the goodwill is fully recoverable.
ENVIRONMENTAL MATTERS - The Company records its best estimate when it
believes it is probable that an environmental liability has been incurred and
the amount of loss can be reasonably estimated. The Company also considers
estimates of certain reasonably possible environmental liabilities in
determining the aggregate amount of environmental reserves.
In December 1997, another subsidiary of C&A Products assumed
substantially all of the environmental liabilities of JPS Automotive and its
subsidiaries existing as of October 1, 1997 in exchange for a payment of
approximately $4.1 million. As a result, environmental liabilities totaling $4.6
million have been excluded from the accompanying balance sheets and a gain of
$0.5 million has been recorded as a 1997 capital contribution from C&A Products
due to the related party nature of this transaction. JPS Automotive will remain
contingently liable for these environmental liabilities.
REVENUE RECOGNITION - JPS Automotive recognizes revenue from product
sales when it has shipped the goods or ownership has been transferred to the
customer for goods to be held for future shipment at the customer's request. JPS
Automotive generally allows its customers the right of return only in the case
of defective products. JPS provides a reserve for estimated defective product
costs at the time of the sale of the products.
INCOME TAXES - Income taxes for all periods are determined in accordance
with SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 requires the use
of the asset and liability method in which deferred income taxes are provided
for temporary differences between the financial reporting and income tax basis
of assets and liabilities using the income tax rates, under existing
legislation, expected to be in effect at the date such temporary differences are
expected to reverse.
Immediately prior to the 1996 Acquisition, JPS Automotive was converted
from a Delaware limited partnership into an association which is taxable as a
corporation for Federal, state and local income tax purposes. The Company is
included in the consolidated Federal income tax return of C&A. Income taxes for
periods subsequent to the 1996 Acquisition reflect the pushdown of JPS
Automotive's impact on the consolidated tax position of C&A.
The Predecessor Company, as a limited partnership, was not subject to
Federal income taxes and, therefore, no current or deferred income tax provision
has been provided for such taxes prior to the 1996 Acquisition. However, the
limited partnership had provided for the income taxes of certain states for
which it is subject and Federal and state income taxes associated with the
operations of Products Corp. The partners included their respective shares of
income or loss of JPS Automotive on their Federal and applicable state income
tax returns. JPS Automotive had a tax-sharing agreement that provided for
payment to the partners of amounts that would be required to be paid if JPS
Automotive were a corporation filing separate income tax returns. At the time of
the 1996 Acquisition, Foamex assigned to C&A Products the tax-sharing agreement.
RECLASSIFICATIONS - Certain amounts in the fiscal 1997 financial
statements have been reclassified to conform with the fiscal 1998 presentation.
F-10
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEWLY ISSUED ACCOUNTING STANDARDS - In March 1998, the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
No. ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use". SOP 98-1 provides guidance on the accounting for the
costs of computer software developed or obtained for internal use. SOP 98-1 is
effective for financial statements for fiscal years beginning after December 15,
1998 and should be applied to internal use computer software costs incurred in
those fiscal years for all projects, including those projects in progress upon
initial application. The Company does not expect the adoption of this standard
to have a material impact on its consolidated financial position or results of
operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs
of Start-up Activities". SOP 98-5 provides guidance on the financial reporting
of start-up costs and organization costs and requires that all nongovernmental
entities expense the costs of start-up activities as these costs are incurred
instead of being capitalized and amortized. SOP 98-5 is effective for financial
statements for fiscal years beginning after December 15, 1998, and the initial
application of this pronouncement is to be reported as the cumulative effect of
a change in accounting principle. JPS Automotive adopted SOP 98-5 on December
27, 1998. The impact of the adoption of SOP 98-5 at the beginning of fiscal 1999
was approximately $0.8 million, net of income taxes.
4. INVENTORIES:
The components of inventories consist of (in thousands):
DECEMBER 26, DECEMBER 27,
1998 1997
---- ----
Raw materials and supplies....... $4,359 $ 7,254
Work-in-process.................. 5,183 8,407
Finished goods................... 1,766 3,614
----- -----
$ 11,308 $19,275
======== ========
5. ACCRUED EXPENSES:
Accrued expenses are summarized below (in thousands):
DECEMBER 26, DECEMBER 27,
1998 1997
---- ----
Payroll, severance and employee
benefits....................... $ 4,258 $8,777
Other............................. 2,125 4,900
------ -----
$ 6,383 $13,677
========= =======
6. LONG-TERM DEBT:
Long-term debt consists of (in thousands):
DECEMBER 26, DECEMBER 27,
1998 1997
---- ----
11-1/8% senior notes due 2001..... $86,043 $88,668
Premium on senior notes........... 2,204 3,175
----- -----
$88,247 $91,843
======= =======
The Senior Notes were issued on June 28, 1994. Interest on the Senior
Notes is payable semiannually on June 15 and December 15 of each year. The
Senior Notes mature on June 15, 2001.
On the 1996 Acquisition date, $180 million principal amount of the
Senior Notes were outstanding. Of this amount, approximately $68 million had
been purchased by C&A prior to the 1996 Acquisition on the open market and were
subsequently retired by JPS Automotive. The total capital contribution resulting
in the retirement of these Senior Notes was approximately $70.2 million. In
addition, in connection with the purchase accounting for the 1996 Acquisition,
the remaining approximately $112 million in face value of Senior Notes were
recorded at a market value of $117.2 million on the date of the 1996
Acquisition. The bond premium is being amortized as a reduction
F-11
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of interest expense over the remaining term of the Senior Notes and will result
in an effective interest rate of approximately 10% for periods after the 1996
Acquisition.
The Company is not required to make mandatory redemption or sinking fund
payments except in the case of certain asset sales or a change of control (as
defined in the indenture for the Senior Notes). In addition, the Senior Notes
are not subject to optional redemption, except in connection with certain public
offerings of common stock or following a change of control (as so defined). The
1996 Acquisition resulted in a change of control which, under the terms of the
indenture for the Senior Notes, gave holders of the Senior Notes the right to
put their notes to JPS Automotive at a price of 101% of their principal amount
plus accrued interest. Approximately $3.9 million principal amount of Senior
Notes were so put to the Company and then repurchased on March 10, 1997. In
addition, JPS Automotive repurchased $23 thousand principal amount of Senior
Notes in conjunction with an offer to purchase as a result of the 1997 sale of
Airbag. (See Note 11.) In addition, during 1997, JPS Automotive repurchased
$19.4 million of Senior Notes in the open market. These notes were subsequently
retired. In conjunction with the 1997 repurchases, JPS Automotive recognized an
extraordinary loss of $721 thousand, net of income taxes of $442 thousand. To
fund these purchases (including premium and interest paid), C&A Products made
capital contributions as well as loaned funds in accordance with the revolving
credit arrangement discussed in Note 12. During 1998, JPS Automotive repurchased
on the open market and retired $2.6 million principal amount of Senior Notes. In
conjunction with the 1998 repurchases, JPS Automotive recognized an
extraordinary loss of $132 thousand, net of income taxes of $90 thousand.
The indenture governing the Senior Notes generally prohibits JPS
Automotive from making certain payments and investments (generally, dividends
and distributions on its equity interests, purchases or redemptions of its
equity interests, purchases of any indebtedness subordinated to the Senior Notes
and investments other than as permitted) (the "Restricted Payments") unless (i)
there is no default under the Senior Notes indenture; (ii) after giving pro
forma effect to the Restricted Payment, JPS Automotive would be permitted to
incur at least $1.00 of additional indebtedness under the indenture's general
test for the incurrence of indebtedness which is a specified ratio (currently
2.5 to 1.0) of cashflow to interest expense, and (iii) the aggregate of all
Restricted Payments from the issue date is less than a specified threshold
(based, generally, on 50% of JPS Automotive's cumulative consolidated net
income, since the issue date plus 100% of the aggregate net cash proceeds of the
issuance by JPS Automotive of certain equity and convertible debt securities and
cash contributions to JPS Automotive) (the "Restricted Payments Tests"). These
conditions were satisfied immediately following the 1996 Acquisition, and as of
December 26, 1998. The Restricted Payments Test are subject to a number of
significant exceptions. The indenture governing the Senior Notes also contains
other restrictive covenants (including, among others, limitations on the
incurrence of indebtedness and preferred stock, asset dispositions and
transactions with affiliates including C&A and C&A Products) which are customary
for such securities. These covenants are also subject to a number of significant
exceptions.
The Senior Notes rank senior in right of payment to all existing or
future subordinated indebtedness of JPS Automotive and on an equal basis in
right of payment with all existing or future senior indebtedness of JPS
Automotive.
Total interest paid by JPS Automotive on all indebtedness was $9.5
million, $10.9 million, $10.0 million and $11.6 million for the years ended
December 26, 1998, December 27, 1997 and for the periods from December 12, 1996
to December 28, 1996, and from January 1, 1996 to December 11, 1996,
respectively.
7. 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 is currently in the process of relocating
certain manufacturing processes from a JPS Automotive facility to an existing
facility of another Collins & Aikman subsidiary.
F-12
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
These actions affected approximately 640 employees. Total costs accrued
for the shutdown of facilities and severance and other personnel costs were $2.7
million and $7.7 million, respectively.
The components of the reserves for the relocation and facility closures,
which are expected to be completed in second quarter of fiscal 1999, are as
follows (in thousands):
<TABLE>
<CAPTION>
CHANGES IN REMAINING RESERVE
ORIGINAL RESERVE RESERVE DECEMBER 26, 1998
<S> <C> <C> <C>
Anticipated expenditures to close
and dispose of idled facilities $2,746 $(2,327) $ 419
Anticipated severance benefits... 7,655 (6,134) 1,521
------- ------- -------
$10,401 $(8,461) $ 1,940
======= ======= =======
</TABLE>
8. EMPLOYEE BENEFIT PLANS:
The 1996 Acquisition did not significantly affect the employee benefit
plans offered to the employees of JPS Automotive. Effective January 1, 1998, the
defined benefit, defined contribution and post-retirement medical plans of JPS
Automotive were merged into the plans of C&A. Under the provisions of these plan
mergers, the accounts established in the C&A plans for the active plan
participants were credited for benefits earned in the JPS Automotive plans
through December 31, 1997. These plan mergers did not significantly affect the
benefits provided to retired, fully vested or active plan participants.
DEFINED PENSION AND POSTRETIREMENT BENEFIT PLANS - Effective January 1,
1995, the Predecessor Company adopted the Retirement Pension Plan for Employees
of JPS Automotive L.P. (the "Plan") for salaried and certain hourly employees.
Benefits are based on the employees' final average compensation, years of
benefit service, the covered compensation in effect at retirement and the
employees' ages when payment begins.
As part of the 1996 Acquisition, JPS Automotive recognized all prior
service cost, net losses and minimum liabilities. Accordingly, the period from
December 12, 1996, to December 28, 1996, does not reflect any net amortization
or deferrals.
JPS Automotive's funding policy is to contribute annually an amount that
both satisfies the minimum funding requirements of the Employee Retirement
Income Security Act of 1974 and does not exceed the full funding limitations of
the Internal Revenue Code of 1986, as amended. Plan investments consist
primarily of equity and fixed income securities.
JPS Automotive also provides postretirement health care and life
insurance benefits for eligible employees and retirees of the Company and
retirees of the Predecessor Company. These plans are unfunded and JPS Automotive
retains the right to modify or eliminate these benefits.
In December 1997, another subsidiary of C&A Products assumed the
postretirement benefit liabilities of certain participants who, as of January 1,
1997, were either active and fully eligible or retired. As a result,
postretirement benefit liabilities totaling $1.3 million and related deferred
tax assets of $0.5 million have been excluded from the accompanying December 26,
1998 and December 27, 1997, balance sheets and recorded as a fiscal 1997 net
capital contribution of $0.8 million from C&A Products due to the related party
nature of this transaction. JPS Automotive will remain contingently liable for
these postretirement liabilities.
The following tables provide a reconciliation of the projected benefit
obligation, a reconciliation of plan assets, the funded status of the plans, and
amounts recognized in the JPS Automotive's consolidated balance sheets, at
December 26, 1998 and December 27, 1997 (in thousands).
F-13
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
FISCAL YEAR ENDED FISCAL YEAR ENDED
DECEMBER 26, DECEMBER 27, DECEMBER 26, DECEMBER 27,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of $ 3,697 $ 2,666 $ 1,980 $ 3,269
year
Service cost 1,300 901 218 194
Interest cost 266 267 139 236
Actuarial gain (1,041) - (784) (135)
Transfer of benefit liabilities - - -- (1,329)
Benefits paid (434) (137) (6) (255)
------ ------ ------ ------
Benefit obligation at end of year . $ 3,788 $ 3,697 $ 1,547 $ 1,980
======= ======= ======= =======
CHANGE IN PLAN ASSETS:
Fair value of plan assets at
beginning of year $ 2,377 $ 1,323 $ -- $ --
Actual return on plan assets 435 141 -- --
Employer contributions 237 1,050 6 255
Benefits paid (434) (137) (6) (255)
------- ------- --- ---
Fair value of plan assets at end of
year $ 2,615 $ 2,377 $ -- $ --
======= ======= === ===
FUNDED STATUS:
Funded status $(1,173) $(1,320) $(1,547) $(1,980)
Unrecognized net loss (gain) (1,221) 29 (919) (135)
------- ------- ------- -------
Accrued benefit liability $(2,394) $(1,291) $(2,466) $(2,115)
======= ======= ======= =======
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and
fair value of plan assets for the pension plans with accumulated benefit
obligations in excess of plan assets were $3.8 million, $3.5 million, and $2.6
million, respectively, as of December 26, 1998 and $3.7 million, $2.5 million
and $2.4 million respectively, as of December 27, 1997.
F-14
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net periodic benefit cost of continuing operations for 1998, 1997, and
1996 includes the following components (in thousands):
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
----------------- -----------------------
PERIOD FROM PERIOD FROM
DECEMBER 12, DECEMBER 12,
FISCAL YEAR 1996 TO FISCAL YEAR 1996 TO
ENDED DECEMBER 28, ENDED DECEMBER 28,
---------- ------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost............................ $ 1,300 $901 $ 37 $ 218 $ 194 $ (1)
Interest cost........................... 266 267 5 139 236 4
Expected return on plan assets.......... (225) (65) (2) - - -
------- ---- ---------- ------- ------ --------
Net periodic benefit cost............... $ 1,341 $ 1,103 $ 40 $ 357 $ 430 $ 3
======= ======= ========== ======= ====== ========
</TABLE>
Information pertaining to the Predecessor Company for the period from
January 1, 1996 to December 11, 1996 has not been provided due to lack of
availability and meaningfulness.
Weighted average assumptions used in the above actuarial computations
are summarized as follows:
<TABLE>
<CAPTION>
PENSION POSTRETIREMENT
BENEFITS BENEFITS
----------- --------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
---- ---- ---- ----
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER:
Discount rate 6.8% 7.0% 6.8% 7.0%
Expected return on plan assets 9.0% 9.0%
Rate of compensation increase 4.5% 4.5%
</TABLE>
Since JPS Automotive has capped its annual liability per person and all
future cost increases will be passed on to retirees, the annual rate of increase
in health care costs does not affect the postretirement benefit obligation.
DEFINED CONTRIBUTION PLAN - JPS Automotive participates in the C&A
Products defined contribution plan qualified under Section 401(k) of the
Internal Revenue Code that covers eligible nonunion employees. Employee
contributions are voluntary and subject to certain limitations as imposed by
the Internal Revenue Code. For salaried employees, JPS Automotive makes a
matching contribution of 50% of each employee's contribution with a maximum
matching contribution of 1-1/2% of each employee's base compensation. The
Predecessor Company also provided an additional 25% match of each employee's
contribution to a fund which invested in Foamex common stock with a maximum
contribution of 3% of each employee's base compensation. JPS Automotive's
contributions were approximately $0.1 million for the year ended December 26,
1998, and $0.3 million for the year ended December 27, 1997, and $25 thousand
for the period from December 12, 1996 to December 28, 1996; the Predecessor
Company's contributions were approximately $0.4 million for the period from
January 1, 1996, to December 11, 1996. Additionally, all employees participate
in C&A Products Profit Sharing Account Plan which typically provides a 2%
company contribution for all employees.
F-15
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES:
Immediately prior to the 1996 Acquisition, JPS Automotive was converted
from a Delaware limited partnership into an association which is taxable as a
corporation for federal, state and local income tax purposes. The purchase of
the entire equity interest in JPS Automotive has been treated as a stock
acquisition for federal, state and local income tax purposes. JPS Automotive
remains a Delaware limited partnership for all purposes other than federal and
state income taxes.
The acquisition of Cramerton resulted in a termination of the
partnership's tax status, resulting in a step-up to fair market value for the
underlying assets of Cramerton. Cramerton, a Delaware limited partnership, was
recognized as a partnership for tax purposes subsequent to the acquisition. In
December 1997, Cramerton was merged into its managing general partner and became
taxable as a corporation.
The Company is included in the consolidated federal income tax return of
C&A. Income taxes for periods subsequent to the 1996 Acquisition reflect the
pushdown of JPS Automotive's impact on the consolidated tax position of C&A.
The provision (benefit) for income taxes of continuing operations
includes the following (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
-----------
FISCAL PERIOD FROM PERIOD FROM
YEAR FISCAL DECEMBER 12, JANUARY 1,
ENDED YEAR ENDED 1996, TO 1996, TO
DECEMBER DECEMBER DECEMBER 28, DECEMBER 11,
26, 1998 27, 1997 1996 1996
--------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Federal-
Current................. $(2,860) $(5,840) $(328) -
Deferred................ 5,902 10,194 (49) -
-------- --------- ----------- ----------
3,042 4,354 (377) -
-------- --------- ----------- ----------
State-
Current................. 179 (151) - 352
Deferred................ 405 996 (11) -
-------- --------- ----------- ----------
584 845 (11) 352
-------- --------- ----------- ----------
$3,626 $ 5,199 $(388) $352
======== ========= =========== ==========
</TABLE>
For the periods prior to the 1996 Acquisition, no amounts were payable
by JPS Automotive under the provisions of its tax-sharing agreement. For the
periods subsequent to the 1996 Acquisition, no amounts were payable by or due to
JPS Automotive under the terms of the tax-sharing agreement assumed by C&A
Products in the 1996 Acquisition. However, as discussed in Note 12, C&A has
agreed to reimburse JPS Automotive for tax benefits utilized in its consolidated
tax return totaling $0.3 million for fiscal 1998 and $6.2 million for fiscal
1997.
F-16
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the statutory federal income taxes of continuing
operations to the effective income tax is as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
-----------
FISCAL FISCAL PERIOD FROM PERIOD FROM
YEAR ENDED YEAR ENDED DECEMBER 12, JANUARY 1,
DECEMBER 26, DECEMBER 27, 1996, TO 1996, TO
1998 1997 DECEMBER 28, DECEMBER 11,
---- --- 1996 1996
---- ----
<S> <C> <C> <C> <C>
Statutory income tax....... $3,048 $4,303 $(368) $(2,445)
State income taxes, net of
federal................. 380 549 (7) 352
Permanent difference on
goodwill and partnership
income.................. 210 268 - 2,445
Other...................... (12) 79 (13) -
------ ------ ----- --------
$3,626 $5,199 $(388) $ 352
------ ------ ----- --------
</TABLE>
As a result of the change in the Company's tax status that resulted from
the 1996 Acquisition, deferred tax assets and liabilities of JPS Automotive and
Cramerton are provided on the temporary differences between the financial
reporting and tax bases of the Company's assets and liabilities. While the
equity purchase of JPS Automotive results in carryover tax basis in the assets,
such carryover basis reflects the fair market value as a result of the deemed
taxable sale and revaluation to fair market value in the hands of the seller
just prior to the purchase by C&A and its subsidiaries. The components of the
net deferred tax assets as of December 26, 1998, and December 27, 1997, were as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 26, DECEMBER 27,
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets-
Pension and postretirement benefits............. $ 1,513 $942
Other employee benefits......................... 565 1,893
Premium on Senior Notes......................... 1,297 2,534
Other liabilities and reserves.................. 3,848 4,651
----- ------
7,223 10,020
----- ------
Deferred tax liabilities-
Goodwill amortization........................... (2,638) (1,396)
Fixed assets.................................... (6,720) (5,173)
----- ------
(9,358) (6,569)
------ ------
Net deferred tax assets (liabilities).............. $(2,135) $ 3,451
------- -------
</TABLE>
The above amounts have been classified in the consolidated December 26,
1998, and December 27, 1997, balance sheets as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 26, DECEMBER 27,
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets (liabilities)-
Current......................................... $ 3,203 $5,369
Noncurrent, included in other noncurrent
liabilities.................................. (5,338) (1,918)
------ ------
$(2,135) $3,451
======= ======
</TABLE>
F-17
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
No income taxes were paid for the years ended December 26, 1998,
December 27, 1997 and for the periods from December 12, 1996 to December 28,
1996, and from January 1, 1996 to December 11, 1996.
10. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES - JPS Automotive is obligated under various
noncancellable lease agreements for rental of facilities, machinery and computer
equipment which remained outstanding following the 1996 Acquisition. Many of the
leases contain renewal options with varying terms and escalation clauses that
provide for increased rentals based upon increases in the Consumer Price Index,
real estate taxes and lessors' operating expenses. Total minimum rental
commitments required under operating leases at December 26, 1998, are (in
thousands):
1999....................... $247
2000....................... 167
2001....................... 55
2002 ...................... 2
----
$471
====
Rental expense charged to continuing operations under operating leases
by the Company approximated $1.0 million for the year ended December 26, 1998,
and $1.2 million for the year ended December 27, 1997, and $0.1 million for the
period from December 12, 1996 to December 28, 1996, and by the Predecessor
Company approximated $1.6 million for the period from January 1, 1996, to
December 11, 1996. Rental expense includes the minimum rental payments under
operating leases and other short-term rentals.
11. DISCONTINUED OPERATIONS:
On July 24, 1997, JPS Automotive completed the sale of Airbag to
Safety Components International, Inc. for a purchase price of $56.3 million. No
gain or loss was recorded on the sale since the sales price approximated the
acquisition fair value of Airbag. Pursuant to the indenture governing the Senior
Notes, in connection with the sale of Airbag, the Company caused JPS Automotive
to make an offer to purchase (up to the amount of the net proceeds from the
sale) the Senior Notes at 100% of their principal amount. Pursuant to such
offer, JPS Automotive repurchased and retired $23 thousand principal amount of
Senior Notes. During October 1997, the Company caused JPS Automotive to use a
portion of the proceeds remaining from the sale of Airbag to make a distribution
of $35.0 million to C&A Products, as permitted under the restricted payments
provision of the Senior Notes indenture. (See Note 6.)
JPS Automotive has accounted for the financial results and net assets of
Airbag as a discontinued operation. Net sales of Airbag prior to its sale were
approximately $41.0 million for the year ended December 27, 1997, $2.1 million
for the period from December 12, 1996 to December 28, 1996, and $62.8 million
for the period from January 1, 1996 to December 11, 1996. Net income of Airbag
for 1997, the period from December 12, 1996 to December 28, 1996, and for the
period from January 1, 1996 to December 11, 1996 was $1.7 million, $18 thousand
and $3.6 million, respectively.
12. RELATED-PARTY TRANSACTIONS AND ALLOCATIONS:
At December 26, 1998, C&A Products has pledged the ownership interests
in its significant subsidiaries, including its partnership interests in the
Company, as security for debt of C&A Products totaling $368.9 million.
F-18
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following the acquisition by C&A Products of JPS Automotive in December
1996, C&A Products began to develop plans to rationalize certain manufacturing
locations as well as marketing and administrative functions. This
rationalization involved transactions and arrangements between JPS Automotive
and C&A Products, which were approved by the Board of Directors of PACJ, Inc.,
the general partner of JPS Automotive, and were reviewed by an investment
banking firm of national standing, which rendered an opinion that they were fair
to JPS Automotive from a financial point of view.
The transactions and arrangements and proposed transactions and
arrangements include the following: (i) the provision by C&A Products of
additional administrative, management, marketing and program management services
pursuant to a preexisting services agreement assigned to C&A Products by Foamex
(the "Existing Services Agreement"), (ii) the purchase from and sale to C&A
Products and its subsidiaries of certain manufacturing assets, (iii) the
transfer of manufacturing responsibility for certain automotive programs, and
for the manufacturing of automotive carpet roll goods, to C&A Products and its
subsidiaries and from C&A Products to JPS Automotive, and (iv) the transfer of
certain automotive programs from JPS Automotive to C&A Products and its
subsidiaries and from C&A Products to JPS Automotive.
The compensation paid by JPS Automotive to C&A Products for the services
provided by C&A Products under the Existing Services Agreement, including the
additional services described above, includes all reasonable expenses of C&A
Products employees assigned to perform the services, all reasonable
out-of-pocket expenses incurred by C&A Products and an amount to cover C&A's
Products' overhead, not to exceed the lesser of (x) C&A Products' budgeted
estimate for such costs for 1998, as adjusted annually for changes in general
producer price levels for the carpet industry and (y) the actual annual cost
savings achieved from the elimination of managerial, marketing and program
management functions at JPS Automotive. Assets sold by JPS Automotive to C&A
Products in connection with the rationalization process are generally sold for a
purchase price equal to the greater of the book value of the assets sold or
their appraised fair market value. Assets sold by C&A Products to JPS Automotive
are generally sold for a purchase price equal to the lesser of their book value
or fair market value, as determined by an independent appraisal in the case of
assets having book values in excess of $100,000 at the time of the sale. Where
manufacturing responsibility for a program is transferred, the manufacturer
receives a fee equal to its costs of production plus a 10% margin, provided
that, where C&A Products manufactures products for JPS Automotive, JPS
Automotive is not required to pay to C&A Products amounts greater than JPS
Automotive's current costs that are eliminated by the transfer of manufacturing
responsibility for the transferred program. In addition, a party for whom carpet
roll goods are manufactured pays for the goods at the manufacturer's standard
cost, subject to certain exceptions, including that in no event will JPS
Automotive pay to C&A Products an amount greater than JPS Automotive's standard
cost to produce carpet roll goods.
During the first quarter of 1998, pursuant to the rationalization
process, JPS Automotive transferred to Collins & Aikman Canada Inc. ("C&A
Canada") and C&A Products two programs for the production of automotive carpet
products for aggregate consideration of $4.3 million. One of these contracts was
manufactured by C&A Canada for JPS Automotive during a portion of 1997 on a
royalty basis. Due to the related party nature of the transfer, the $4.3 million
received by JPS Automotive, and the related tax provision of $1.6 million, was
treated as a capital contribution from C&A Products in the accompanying
financial statements. During 1998, C&A Products transferred to JPS Automotive as
an equity contribution all but one of the automotive soft trim programs formerly
produced by C&A Products at its Salisbury, North Carolina, facility.
Twenty-seven programs relating to the closure of the Salisbury facility were
transferred to JPS Automotive during the second quarter of 1998 in accordance
with the arrangements between JPS Automotive and C&A Products. JPS Automotive
did not pay any amounts to C&A Products for these contracts. No programs
relating to the closure of the Salisbury facility were transferred to JPS
Automotive during the third and fourth quarters of 1998. C&A Products also
agreed to make additional cash equity contributions to JPS Automotive if JPS
Automotive was unable to earn a specified level of operating profit on the
contracts transferred from the Salisbury plant. JPS Automotive did not earn the
specified level of operating profit and C&A Products made an additional equity
F-19
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
contribution of $1.4 million to JPS Automotive in the fourth quarter of 1998. At
December 26, 1998, uncollected capital contributions are included in the balance
of receivables from related parties.
JPS Automotive paid or accrued the following amounts in connection with
the transactions described above and related transactions for the years ended
December 26, 1998 and December 27, 1997, respectively: (i) $7.8 million and $5.5
million for administrative and other services, (ii) $62.5 million and $7.3
million for contract manufacturing services, (including the purchase of roll
goods) provided to JPS Automotive by C&A Products and its subsidiaries, and
(iii) $0.6 million and $0.2 million for the purchase of machinery and equipment
from C&A Products. In addition, during 1998 and 1997, respectively, JPS
Automotive recorded sales of $33.2 million and $7.9 million relating to contract
manufacturing services (including the sale of roll goods) provided to C&A
Products and its subsidiaries. In 1997, JPS Automotive recorded $81 thousand in
royalty payments from C&A Canada.
During 1998, machinery and equipment was sold to C&A Products for an
aggregate sales price of $0.9 million with the resulting gain of $244 thousand,
net of income taxes of $145 thousand, recorded as a capital contribution from
C&A Products due to the related-party nature of the transactions. At December
26, 1998, uncollected capital contributions are included in the balance of
receivables from related parties. Finally, during 1997, machinery and equipment
was sold to C&A Products for an aggregate sales price of $6.0 million with the
resulting gain of $3.8 million and the related income taxes recorded as a
capital contribution from C&A Products due to the related-party nature of the
transactions.
C&A Products and JPS Automotive entered into several additional
arrangements during 1997 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 year ended December 26, 1998 C&A Products was
charged $0.3 million in net interest, and during the year ended December 27,
1997, JPS Automotive was charged $0.1 million in net interest, related to these
revolving credit arrangements, reflecting an average interest rate of 7.5% and
7.4% in 1998 and 1997, respectively. At December 26, 1998, there was an
outstanding balance of $1.5 million owed to JPS Automotive under this
arrangement.
In connection with certain manufacturing activities conducted by C&A
Products for Cramerton during 1998, Cramerton resold to C&A Products at cost
approximately $1.4 million in yarn that had been purchased by Cramerton for use
in the manufacturing activities conducted for Cramerton. During 1998, Cramerton
incurred costs of approximately $8.0 million related to the construction of
additional space at a C&A Products facility for the production of bodycloth,
where C&A Products is manufacturing bodycloth for JPS Automotive on a
subcontract basis. 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 December 26, 1998, no amounts were
payable under the Tax Sharing Agreement. In addition, because JPS Automotive is
part of
F-20
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
C&A's consolidated tax return, C&A effectively utilizes the tax benefits
generated by JPS Automotive in its consolidated tax return resulting in benefits
totaling $0.3 million for 1998 and $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 in
Industrias Enjema S.A. de C.V. ("Enjema") to C&A Products. C&A Products acquired
from a third party the other 50% interest in Enjema in August 1998 for
approximately $1.0 million. No book value was assigned to JPS Automotive's 50%
interest.
In addition, in September 1998, JPS Automotive received payment from
Enjema for receivables generated when Enjema was managed by third parties. JPS
Automotive had previously fully reserved these receivables. As a result of the
payment, JPS Automotive reversed this reserve, resulting in a reduction of
selling, general and administrative expenses of $4.2 million.
13. ENVIRONMENTAL:
JPS Automotive is subject to various federal, state and local
environmental laws and regulations that (i) affect ongoing operations and may
increase capital costs and operating expenses and (ii) impose liability for the
costs of investigation and remediation and certain other damages related to
on-site and off-site contamination. JPS Automotive believes it has obtained or
applied for the material permits necessary to conduct its business. To date,
compliance with applicable environmental laws has not had and, in the opinion of
management, based on the facts presently known to it, is not expected to have a
material adverse effect on JPS Automotive's consolidated financial condition or
results of operations.
In December 1997, another subsidiary of C&A Products assumed
substantially all of the environmental liabilities of JPS Automotive and its
subsidiaries existing as of October 1, 1997 in exchange for a payment of
approximately $4.1 million. As a result, environmental liabilities totaling $4.6
million have been excluded from the accompanying balance sheets and a gain of
$0.5 million was recorded as a 1997 capital contribution from C&A Products due
to the related party nature of this transaction. JPS Automotive will remain
contingently liable for these environmental liabilities.
Although it is possible that new information or future events could
require JPS Automotive to reassess its potential exposure relating to its
exposure for environmental matters, management believes that, based on the facts
presently known to it, the resolution of such environmental matters will not
have a material adverse effect on JPS Automotive's consolidated financial
position or results of operations. The possibility exists, however, that new
environmental legislation may be passed or environmental regulations may be
adopted, or other environmental conditions may be found to exist, that may
require expenditures not currently anticipated which may be material, and there
can be no assurance that JPS Automotive has identified or properly assessed all
potential environmental liability arising from its activities or properties.
14. LITIGATION:
From time to time, JPS Automotive has been involved in various legal
proceedings. Management believes that such litigation is routine in nature and
incidental to the conduct of its business, and that none of such litigation, if
determined adversely to JPS Automotive, would have a material adverse effect on
the consolidated financial position or results of operations of JPS Automotive.
F-21
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. FINANCIAL INSTRUMENTS:
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - The following
disclosures of the estimated fair value amounts have been determined based on
JPS Automotive's assessment of available market information and appropriate
valuation methodologies.
The estimated fair values of JPS Automotive's financial instruments are
as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 26, 1998 DECEMBER 27, 1997
--------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT OF VALUE OF AMOUNT OF VALUE OF
LIABILITIES LIABILITIES LIABILITIES LIABILITIES
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Liabilities - Long-term debt $88,247 $91,584 $91,843 $100,976
======= ======= ======= ========
</TABLE>
Carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable, accounts payable and accrued
liabilities approximate fair value due to the short-term nature of these
instruments.
The fair value of long-term debt is estimated using quoted market
prices.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instruments. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
16. INFORMATION ABOUT THE COMPANY'S OPERATIONS:
JPS Automotive's customers operate primarily in the automotive industry.
JPS Automotive performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Receivables generally are
due within 45 days, and credit losses have consistently been within management's
expectations and are provided for in the consolidated financial statements.
Direct and indirect sales to significant customers in excess of ten
percent of consolidated net sales from continuing operations are as follows:
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY
-------
PERIOD FROM PERIOD FROM
DECEMBER 12, JANUARY 1,
YEAR ENDED YEAR ENDED 1996 TO 1996 TO
DECEMBER 26, DECEMBER 27, DECEMBER 28, DECEMBER 11,
1998 1997 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
General Motors 42% 46% 37% 34%
DaimlerChrysler 11% 10% 11% 17%
Toyota Tsusho 11% 16% 29% 14%
</TABLE>
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 131 requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. Generally, financial information is required to
be reported on the basis that is used internally for evaluating segment
performance. SFAS No. 131 also requires that a public business enterprise report
descriptive information about the way that the operating segments were
determined and the products and services provided by the operating segments.
SFAS No. 131 is effective for financial statements beginning after December 15,
1997.
F-22
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JPS Automotive's reportable segments are strategic business units. They
are managed separately because each business requires different technology and
focuses on specific vehicle interior systems. JPS Automotive has two reportable
segments: Automotive Carpet and Automotive Fabric. The Automotive Carpet segment
produces molded floor carpet and luggage compartment trim. The Automotive Fabric
segment produces seating upholstery fabric ("bodycloth") and headliner fabric.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. JPS Automotive evaluates
performance based on profit or loss from operations before interest expense,
other income and expense, income taxes and before adjustments made pursuant to
the transactions and arrangements made between C&A Products and JPS Automotive.
(See Note 12).
Information about JPS Automotive's reportable segments is presented below (in
thousands).
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 26, 1998
-----------------------------------
AUTOMOTIVE
CARPET AUTOMOTIVE FABRIC OTHER (1) TOTAL
-------- ------------------ ---------- ------
<S> <C> <C> <C> <C>
External revenues............... $ 168,945 $ 67,801 $18,881 $ 255,627
Depreciation and amortization... 5,148 4,073 - 9,221
Operating income (loss)......... 9,531 (1,714) 8,434 16,251
Total assets.................... 156,475 76,826 4,630 237,931
Capital expenditures, net....... 2,550 9,457 - 12,007
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 27, 1997
-----------------------------------
AUTOMOTIVE
CARPET AUTOMOTIVE FABRIC OTHER (1) TOTAL
-------- ------------------ --------- ------
<S> <C> <C> <C> <C>
External revenues................. $ 158,312 $ 87,356 $ 1,603 $ 247,271
Depreciation and amortization..... 4,460 3,408 - 7,868
Operating income.................. 15,880 4,296 1,336 21,512
Total assets...................... 168,456 77,747 4,404 250,607
Capital expenditures, net......... (14) 3,706 - 3,692
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM DECEMBER 12, 1996 TO DECEMBER 28, 1996
--------------------------------------------------
AUTOMOTIVE
CARPET AUTOMOTIVE FABRIC OTHER(1) TOTAL
-------- ------------------- ----------- -------
<S> <C> <C> <C> <C>
External revenues................. $ 4,175 $ 2,195 $ - $ 6,370
Depreciation and amortization..... 170 203 - 373
Operating income (loss)........... (537) 14 - (523)
Total assets...................... 228,832 57,516 - 286,348
Capital expenditures, net......... 262 173 - 435
</TABLE>
(1) Other includes adjustments made pursuant to the transactions and
arrangements between JPS Automotive and C&A Products. See Note 12.
Information pertaining to the Predecessor Company for the period from
January 1, 1996 to December 11, 1996 has not been provided due to lack of
availability and meaningfulness.
F-23
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. QUARTERLY FINANCIAL DATA (UNAUDITED):
The quarterly financial data of JPS Automotive is as follows (in thousands):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fiscal 1998-
Net sales $71,309 $64,396 $51,103 $68,819
Gross profit 9,755 5,752 2,969 9,897
Income (loss) from continuing
operations 2,115 (461) 573 2,855
Income (loss) before
extraordinary item (1) 2,115 (461) 573 2,855
Net income (loss) 2,115 (547) 573 2,809
Fiscal 1997-
Net sales $58,024 $62,119 $59,430 $67,698
Gross profit (2) 7,518 10,252 7,679 11,541
Income (loss) from continuing
operations (117) 2,121 1,119 3,973
Income before extraordinary
item (3) 554 3,034 1,197 3,973
Net income 554 2,313 1,197 3,973
</TABLE>
(1) The repurchase of $2.6 million principal amount of Senior Notes at prices in
excess of carrying value during 1998 resulted in an extraordinary loss of
$132 thousand, net of income taxes of $90 thousand for the year ended
December 26, 1998.
(2) Certain 1997 items have been reclassified to conform with the 1998
presentation.
(3) The repurchase of $19.4 million principal amount of Senior Notes at prices
in excess of carrying value during 1997 resulted in an extraordinary loss of
$0.7 million, net of income taxes of $0.4 million for the year ended
December 27, 1997.
F-24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of
JPS Automotive Products Corp.:
We have audited the accompanying balance sheets of JPS Automotive Products Corp.
(a Delaware corporation and subsidiary of JPS Automotive L.P.) as of December
26, 1998, and December 27, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these balance sheets based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the balance sheets referred to above present fairly, in all
material respects, the financial position of JPS Automotive Products Corp. as of
December 26, 1998, and December 27, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
February 22, 1999.
F-25
<PAGE>
JPS AUTOMOTIVE PRODUCTS CORP.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 26, DECEMBER 27,
ASSETS 1998 1997
------ ---- ----
<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>
The accompanying Notes to Financial Statements are
an integral part of these balance sheets.
F-26
<PAGE>
JPS AUTOMOTIVE PRODUCTS CORP.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
JPS Automotive Products Corp. ("Products Corp.") operates in the
industrial fabrics and products segment, including the design, manufacture and
sale of carpet components and interior fabrics for passenger cars and light
trucks and other specialty industrial fabrics.
Products Corp., a newly formed entity, was acquired by JPS Automotive
L.P. ("JPS Automotive"), a partnership in which Foamex-JPS Automotive L.P.
("FJPS") owned a 99% limited partnership interest and JPSGP Inc. owned a 1%
general partnership, for nominal consideration on May 25, 1994. FJPS and JPSGP
Inc. were wholly owned subsidiaries of Foamex International Inc. ("Foamex"). On
June 28, 1994, FJPS and JPSGP Inc. invested $90.0 million in JPS Automotive
which, in turn, invested a like amount in Products Corp.
On June 28, 1994, Products Corp. acquired the assets of the automotive
products and industrial fabrics divisions of JPS Textile Group, Inc. Effective
October 3, 1994, Products Corp. transferred and assigned substantially all of
its assets, subject to substantially all of its liabilities, to JPS Automotive,
which agreed to assume such liabilities. Subsequently, Products Corp. did not
have any operations and, accordingly, no statement of operations or cash flows
has been presented for 1998, 1997 or 1996.
Prior to October 3, 1994, Products Corp. was the beneficial owner of an
80% interest in Cramerton Automotive Products, L.P. Products Corp. owned a 79.5%
limited partnership interest and, through Cramerton Management Corporation,
beneficially owned a 0.5% general partnership interest. These interests were
transferred to JPS Automotive on October 3, 1994.
On December 11, 1996, Collins & Aikman Corporation ("C&A"), through its
subsidiaries, acquired JPS Automotive, including its ownership interest in
Products Corp., from Foamex pursuant to an Equity Purchase Agreement dated
August 28, 1996, as amended December 11, 1996 (the "1996 Acquisition"). The
purchase price for the 1996 Acquisition was an aggregate of approximately $220
million, consisting of approximately $195 million of indebtedness of JPS
Automotive and approximately $25 million in cash paid to Foamex. During 1997,
C&A finalized the purchase price and received approximately $11.2 million from
the seller as a reduction of the purchase price. The 1996 Acquisition has been
accounted for as a purchase; however, adjustment was not required because the
historical value of the assets and liabilities of Products Corp. reflected fair
value at the time of the 1996 Acquisition.
As a result of the 1996 Acquisition, Products Corp.'s fiscal year ends
on the last Saturday of December. Prior to that time, Products Corp.'s fiscal
year ended on the Sunday closest to the thirty-first day of December.
2. COMMITMENTS AND CONTINGENCIES:
CO-OBLIGOR
Products Corp. is the co-obligor (and co-registrant) for the 11-1/8%
Senior Notes due 2007 (the "Senior Notes") and borrowings under the JPS
Automotive credit agreement. As a result of the 1996 Acquisition, the JPS
Automotive credit agreement was repaid andterminated.
11-1/8% SENIOR NOTES DUE 2001 (SENIOR NOTES)
The Senior Notes were issued on June 28, 1994. Interest on the Senior
Notes is payable semiannually on June 15 and December 15 of each year,
commencing on December 15, 1994. The Senior Notes mature on June 15, 2001.
F-27
<PAGE>
At the time of the 1996 Acquisition, $180 million principal amount of
the Senior Notes were outstanding. Of this amount, $68 million had been
purchased by C&A prior to the 1996 Acquisition on the open market and were
subsequently retired. JPS Automotive is not required to make mandatory
redemption or sinking fund payments except in the case of certain asset sales or
a change of control (as defined in the indenture for the Senior Notes). In
addition, the Senior Notes are not subject to optional redemption, except in
connection with certain public offerings of common stock or following a change
of control (as so defined). The 1996 Acquisition resulted in a change of control
which, under the terms of the indenture for the Senior Notes, gave holders of
the Senior Notes the right to put their notes to JPS Automotive at a price of
101% of their principal amount plus accrued interest. Approximately $3.9 million
principal amount of Senior Notes were so put to JPS Automotive and then
repurchased on March 10, 1997. In conjunction with an offer to purchase as a
result of the 1997 sale of Airbag, JPS Automotive repurchased $23 thousand
principal amount of Senior Notes. Additionally, for the twelve months ended
December 27, 1997, and the twelve months ended December 26, 1998, JPS Automotive
repurchased, in the open market, $19.4 million principal amount of Senior Notes
and $2.6 million principal amount of Senior Notes, respectively. At December 26,
1998, approximately $88.2 million of Senior Notes (including a premium of $2.2
million) were outstanding.
The indenture governing restricted the Senior Notes generally
prohibits JPS Automotive from making certain restricted payments and investments
(generally, dividends and distributions on its equity interests, purchases or
redemptions of its equity interests, purchases of any indebtedness subordinated
to the Senior Notes and investments other than as permitted) (the "Restricted
Payments") unless (i) there is no default under the Senior Notes indenture; (ii)
after giving pro forma effect to the Restricted Payment, JPS Automotive would be
permitted to incur at least $1.00 of additional indebtedness under the
indenture's general test for the incurrence of indebtedness which is a specified
ratio (currently 2.5 to 1.0) of cashflow to interest expense, and (iii) the
aggregate of all Restricted Payments from the issue date is less than a
specified threshold (based, generally, on 50% of JPS Automotive's cumulative
consolidated net income, since the issue date plus 100% of the aggregate net
cash proceeds of the issuance by JPS Automotive of certain equity and
convertible debt securities and cash contributions to JPS Automotive) (the
"Restricted Payments Tests"). These conditions were satisfied as of December 26,
1998. The Restricted Payments Tests are subject to a number of significant
exceptions. The indenture governing the Senior Notes also contains other
restrictive covenants (including, among others, limitations on the incurrence of
indebtedness and preferred stock, asset dispositions and transactions with
affiliates including C&A and C&A Products Co.) which are customary for such
securities. These covenants are also subject to a number of significant
exceptions.
The Senior Notes rank senior in right of payment to all existing or
future subordinated indebtedness of JPS Automotive and on an equal basis in
right of payment with all existing or future senior indebtedness of JPS
Automotive.
F-28
<PAGE>
JPS AUTOMOTIVE L.P.
JPS AUTOMOTIVE PRODUCTS CORP.
INDEX TO FINANCIAL STATEMENT SCHEDULE
PAGE
Index to Financial Statement Schedule S-1
Schedule II - Valuation and Qualifying Accounts and Reserves -
JPS Automotive L.P. S-2
All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements and notes thereto.
S-1
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS (3) PERIOD
FISCAL YEAR ENDED DECEMBER 26, 1998
<S> <C> <C> <C> <C> <C>
Allowances for doubtful accounts..... $ 6,018 $ (3,559) ($) - $ (205) $ 2,254
Reserve for facility closing costs... $ 7,182 $ - $ - $ (5,242) $ 1,940
FISCAL YEAR ENDED DECEMBER 27, 1997
Allowances for doubtful accounts..... $ 5,896 $ 156 $ - $ (34) $ 6,018
Reserve for facility closing costs... $ 9,200 $ - $ 1,201 $ (3,219) $ 7,182
PERIOD FROM DECEMBER 12, 1996 TO
DECEMBER 28, 1996
Allowances for doubtful accounts..... $ 5,749 $ 147 $ - $ - $ 5,896
Reserve for facility closing costs... $ - $ - $ 9,200 $ - $ 9,200
PERIOD FROM JANUARY 1, 1996, TO
DECEMBER 11, 1996
Allowances for doubtful accounts..... $ 5,971 $ (205) $ 0 $ (17) $ 5,749
</TABLE>
(1) Amounts for all periods have been restated to exclude amounts related to the
discontinued operations.
(2) Includes elimination of amounts included in the allowance for doubtful
accounts for receivable from Enjema which was repaid during the third
quarter of 1998.
(3) Uncollected receivables written off, net of recoveries, reclassifications to
other accounts, and usage of restructuring reserves.
S-2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary finacial information extracted from the Company's
consolidated balance sheet and consolidated statements of operations for the
year ended December 26, 1998, and such qualified in its entirety by reference to
such finacial statements.
</LEGEND>
<CIK> 0000924902
<NAME> JPS AUTOMOTIVE L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-START> DEC-27-1997
<PERIOD-END> DEC-26-1998
<CASH> 171
<SECURITIES> 0
<RECEIVABLES> 38,393
<ALLOWANCES> 2,254
<INVENTORY> 11,308
<CURRENT-ASSETS> 64,068
<PP&E> 72,035
<DEPRECIATION> 10,903
<TOTAL-ASSETS> 237,931
<CURRENT-LIABILITIES> 17,178
<BONDS> 88,247
0
0
<COMMON> 0
<OTHER-SE> 122,282
<TOTAL-LIABILITY-AND-EQUITY> 237,931
<SALES> 255,627
<TOTAL-REVENUES> 255,627
<CGS> 227,254
<TOTAL-COSTS> 12,122
<OTHER-EXPENSES> 616
<LOSS-PROVISION> (3,559)
<INTEREST-EXPENSE> 8,159
<INCOME-PRETAX> 8,708
<INCOME-TAX> 3,626
<INCOME-CONTINUING> 5,082
<DISCONTINUED> 0
<EXTRAORDINARY> 132
<CHANGES> 0
<NET-INCOME> 4,950
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial inforation extracted from JPS
AutomotiveProducts Corp. balance seet at December 26, 1998, and such is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000919233
<NAME> JPS AUTOMOTIVE PRODUCTS CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-START> DEC-27-1997
<PERIOD-END> DEC-26-1998
<CASH> 1
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1
<TOTAL-LIABILITY-AND-EQUITY> 1
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
