UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 25, 1999
or
__Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ______ to____
Commission File Numbers 33-75510-01; 1-12944
JPS AUTOMOTIVE L.P.
JPS AUTOMOTIVE PRODUCTS CORP.
(Exact name of registrants as specified in their charters)
Delaware No. 57-1060375
Delaware 57-0993690
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
701 McCullough Drive
Charlotte, NC 28262
(Address of principal executive offices,
including zip code)
(704) 547-8500
(Registrant's telephone number,
including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
JPS Automotive L.P. and JPS Automotive Products Corp. meet the conditions
set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are
therefore filing this form with the reduced disclosure format.
As of November 8, 1999, the number of outstanding shares of JPS Automotive
Products Corp. common stock was 100.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
---------------------------------- ---------------------------------
SEPTEMBER 25, SEPTEMBER 26, SEPTEMBER 25, SEPTEMBER 26,
1999 1998 1999 1998
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales................................................. $60,066 $51,103 $195,967 $186,808
Cost of goods sold........................................ 55,153 48,134 176,426 168,332
------- ------- -------- --------
Gross profit............................................. 4,913 2,969 19,541 18,476
Selling, general and administrative expenses............. 2,744 (302) 8,855 8,045
Restructuring charge...................................... 6,637 - 6,637 -
------- ------- -------- --------
Operating income (loss).................................. (4,468) 3,271 4,049 10,431
Interest expense, net...................................... 2,046 2,182 6,326 6,393
Other expense (income), net............................ - 28 - (3)
------- ------- -------- --------
Income (loss) before income taxes.................... (6,514) 1,061 (2,277) 4,041
Income tax expense (benefit)........................... (2,316) 488 (514) 1,814
------- ------- -------- --------
Income (loss) before extraordinary charge and cumulative
effect of a change in accounting principle........... (4,198) 573 (1,763) 2,227
Extraordinary charge, net of income taxes of $58 - - - (86)
Cumulative effect of a change in accounting
principle, net of income taxes of $528.............. - - (791) -
------- ------- -------- --------
Net income (loss)......................................... $(4,198) $ 573 $ (2,554) $ 2,141
======== ======= ========= ========
</TABLE>
See accompanying notes.
I-1
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 25, DECEMBER 26,
ASSETS 1999 1998
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ 7,972 $ 171
Accounts receivable, net of allowance of
$2,401 and $2,254........................................... 39,912 36,139
Inventories................................................... 10,719 11,308
Receivables from related parties.............................. 1,251 10,403
Revolving loan due from C&A Products.......................... 4,500 1,500
Deferred tax assets........................................... 2,893 3,203
Other current assets.......................................... 1,338 1,344
---------- ----------
Total current assets........................................ 68,585 64,068
Property, plant and equipment, net............................... 50,285 61,132
Goodwill, net.................................................... 98,706 100,688
Demand receivable due from C&A for income taxes.................. 8,034 6,887
Debt issuance costs, net......................................... 1,367 1,934
Other assets..................................................... 2,281 3,222
--------- ---------
$ 229,258 $ 237,931
========= =========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable.............................................. $ 6,171 $ 10,795
Accrued expenses.............................................. 10,513 6,383
--------- ---------
Total current liabilities................................... 16,684 17,178
Long-term debt................................................... 87,589 88,247
Other liabilities................................................ 8,235 10,224
Commitments and contingencies....................................
Owners' equity:
General partner............................................... 48,073 48,073
Limited partner............................................... 68,677 74,209
--------- ---------
Total owners' equity...................................... 116,750 122,282
--------- ---------
$ 229,258 $ 237,931
========= =========
</TABLE>
See accompanying notes.
I-2
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------------
SEPTEMBER 25, SEPTEMBER 26,
1999 1998
--------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Income (loss) from continuing operations..................................... $(1,763) $ 2,227
Adjustments to derive cash flow from continuing
operating activities:
Impairment of long-lived assets......................................... 4,862 -
Deferred income tax expense............................................. 635 3,950
Depreciation and amortization........................................... 7,214 6,933
Interest accretion and debt issuance cost
amortization......................................................... (91) (164)
Changes in operating assets and liabilities............................. (6,320) (5,579)
------- -------
Net cash provided by operating activities............................. 4,537 7,367
------- -------
INVESTING ACTIVITIES:
Additions to property, plant, and equipment.................................. (7,198) (2,074)
Sales of property, plant, and equipment...................................... 5,548 575
Other, net................................................................... 387 (4)
------- -------
Net cash used in investing activities................................. (1,263) (1,503)
------- -------
FINANCING ACTIVITIES:
Distributions to C&A Products................................................ (3,000) (10,000)
Capital contributions from partners.......................................... 22 2,930
Changes in amounts due C&A Products, net..................................... 10,505 (4,053)
Repayments of long-term debt................................................. - (2,066)
Net repayments and advances on revolving loans............................... (3,000) -
Other, net................................................................... - (145)
------- -------
Net cash provided by (used in) financing activities................... 4,527 (13,334)
------- -------
Net increase (decrease) in cash and cash equivalents......................... 7,801 (7,470)
Cash and cash equivalents at beginning of period............................. 171 9,271
------- -------
Cash and cash equivalents at end of period................................... $ 7,972 $ 1,801
======= =======
</TABLE>
See accompanying notes.
I-3
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
The condensed consolidated financial statements include the accounts of
JPS Automotive L.P. and its subsidiaries ("JPS Automotive"). In the opinion of
management of JPS Automotive, the accompanying condensed consolidated financial
statements reflect all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of the consolidated financial
position, results of operations and cash flows. Certain prior year items have
been reclassified to conform with the fiscal 1999 presentation. Results of
operations for interim periods are not necessarily indicative of results for the
full year. For further information, refer to the consolidated financial
statements and notes thereto included in JPS Automotive's Report on Form 10-K
for the fiscal year ended December 26, 1998 (the "1998 10-K").
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.
2. GOODWILL:
Goodwill, representing the excess of purchase price over the fair value
of net assets acquired in the 1996 Acquisition, is being amortized on a
straight-line basis over a period of forty years. Amortization of goodwill was
$0.7 million and $2.0 million in the quarters and nine months ended September
25, 1999, and September 26, 1998, respectively. Accumulated amortization at
September 25, 1999 was $7.3 million. The carrying value of goodwill is reviewed
periodically based on the predicted undiscounted cash flows and pre-tax income
over the remaining amortization periods. Should this review indicate that the
goodwill balance will not be recoverable, JPS Automotive's carrying value of the
goodwill will be reduced. At September 25, 1999, JPS Automotive believes the
recorded value of its goodwill of $98.7 million is fully recoverable.
3. INVENTORIES:
The components of inventories consist of (in thousands):
SEPTEMBER 25, DECEMBER 26,
1999 1998
------------- ------------
Raw materials and supplies................ $ 4,116 $ 4,359
Work in process........................... 4,583 5,183
Finished goods............................ 2,020 1,766
--------- ---------
$ 10,719 $ 11,308
========= =========
I-4
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. RESTRUCTURING:
On September 22, 1999, JPS Automotive sold its 400,000 square foot
Automotive Fabric facility located in Cramerton, North Carolina for $6.0
million, resulting in a loss on the sale of $4.8 million. In addition, JPS
Automotive established a reserve of $1.6 million for severance costs to be paid
to the approximately 180 employees affected by the sale. As of September 25,
1999, approximately $0.1 million had been spent in severance and related costs.
JPS Automotive and C&A Products are in the process of relocating the headliner
business from the Cramerton, North Carolina facility to a C&A Products facility
where C&A Products will produce headliner for JPS Automotive on a subcontract
basis.
On February 10, 1999, C&A Products announced a comprehensive plan (the
"Reorganization") to reorganize its global automotive carpet, acoustics,
plastics and accessory floormats businesses. During the third quarter of 1999,
JPS Automotive recognized a restructuring charge related to the Reorganization
of $0.2 million. The restructuring charge of $0.2 million represents severance
costs associated with the reduction of administrative personnel at JPS
Automotive's Automotive Carpet facility. As of September 25, 1999, approximately
$0.1 million had been spent in severance and related 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. In June 1999, JPS Automotive completed the process of
relocating bodycloth production from a JPS Automotive facility to an existing
C&A Products facility. The remaining reserve of $0.5 million previously
established for the costs of these consolidations will be used primarily for
severance benefits.
5. RELATED-PARTY TRANSACTIONS AND ALLOCATIONS:
At September 25, 1999, C&A Products has pledged the ownership interests
in its significant subsidiaries, including its partnership interests in JPS
Automotive, as security for debt of C&A Products totaling $450.9 million.
Following the 1996 Acquisition, C&A Products began to develop plans to
rationalize certain manufacturing locations as well as marketing and
administrative functions. This rationalization involved transactions and
arrangements between JPS Automotive and C&A Products, which were approved by the
Board of Directors of PACJ, Inc., the general partner of JPS Automotive, and
were reviewed by an investment banking firm of national standing, which rendered
an opinion that they were fair to JPS Automotive from a financial point of view.
The transactions and arrangements and proposed transactions and
arrangements include the following: (i) the provision by C&A Products of
additional administrative, management, marketing and program management services
pursuant to a pre-existing services agreement assigned to C&A Products by Foamex
(the "Existing Services Agreement"), (ii) the purchase from and sale to C&A
Products and its subsidiaries of certain manufacturing assets, (iii) the
transfer of manufacturing responsibility for certain automotive programs, and
for the manufacturing of automotive carpet roll goods, to C&A Products and its
subsidiaries and from C&A Products to JPS Automotive, and (iv) the transfer of
certain automotive programs from JPS Automotive to C&A Products and its
subsidiaries and from C&A Products to JPS Automotive. For a description of the
compensation to be paid by JPS Automotive to C&A Products and by C&A Products to
JPS Automotive pursuant to the transactions and arrangements described above,
see Note 12 to JPS Automotive's consolidated financial statements included in
the 1998 10-K.
During the first quarter of 1998, pursuant to the rationalization
process, JPS Automotive transferred to Collins & Aikman Canada Inc. ("C&A
Canada") and C&A Products two programs for the production of automotive carpet
products for aggregate consideration of $4.3 million. One of these 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. 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 contribution of $1.4 million to JPS Automotive in the fourth
quarter of 1998.
I-5
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
JPS Automotive paid or accrued the following amounts in connection with
the transactions and arrangements described above and related transactions for
the quarters ended September 25, 1999 and September 26, 1998: (i) $1.9 million
and $1.9 million, respectively, for administrative and other services, and (ii)
$26.8 million and $13.3 million, respectively, for contract manufacturing
services (including the purchase of roll goods) provided to JPS Automotive by
C&A Products and its subsidiaries. In addition, for the quarters ended September
25, 1999 and September 26, 1998, JPS Automotive recorded sales of $5.6 million
and $5.9 million, respectively, relating to contract manufacturing services
(including the sale of roll goods during 1998) provided to C&A Products and its
subsidiaries.
JPS Automotive paid or accrued the following amounts in connection with
the transactions and arrangements described above and related transactions for
the nine months ended September 25, 1999 and September 26, 1998: (i) $5.5
million and $5.7 million, respectively, for administrative and other services,
and (ii) $74.7 million and $41.9 million, respectively, for contract
manufacturing services (including the purchase of roll goods) provided to JPS
Automotive by C&A Products and its subsidiaries. In addition, for the nine
months ended September 25, 1999 and September 26, 1998, JPS Automotive recorded
sales of $14.7 million and $26.7 million, respectively, relating to contract
manufacturing services (including the sale of roll goods during 1998) provided
to C&A Products and its subsidiaries.
C&A Products and JPS Automotive entered into several additional
arrangements including, among others, those described below.
During the year ended December 27, 1997, C&A Products and JPS
Automotive entered into reciprocal revolving credit arrangements whereby JPS
Automotive may borrow up to $5 million from C&A Products and C&A Products may
borrow up to $5 million from JPS Automotive. The borrower is charged interest on
any outstanding balance at a rate equal to the rate charged to C&A Products
under its revolving credit agreement. During the nine months ended September 25,
1999, C&A Products was charged $12 thousand in net interest related to these
revolving credit arrangements. During the quarter and nine months ended
September 26, 1998, C&A Products was charged $83 thousand and $0.3 million,
respectively, in net interest related to these revolving credit arrangements. On
September 24, 1999, C&A Products borrowed $4.5 million under these revolving
credit arrangements.
In connection with certain manufacturing activities conducted by C&A
Products for Cramerton during the quarter and nine months ended September 25,
1999, Cramerton resold to C&A Products at cost approximately $0.5 million and
$2.9 million, respectively, of yarn. During the quarter and nine months ended
September 26, 1998, Cramerton resold to C&A Products at cost approximately $0.3
million and $0.9 million, respectively, of yarn. In addition, in accordance with
C&A Products' normal practice, C&A Products designed and produced 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 nine months ended September 25, 1999, and September 26,
1998, Cramerton incurred costs of approximately $1.1 million and $6.1 million
respectively, related to the construction of additional space at a C&A Products
facility and the purchase of additional machinery and equipment for the
production of bodycloth. C&A Products is manufacturing bodycloth for JPS
Automotive on a subcontract basis at that location.
On September 22, 1999, JPS Automotive completed the sale of its
facility in Cramerton, North Carolina (See Note 4). JPS Automotive and C&A
Products are relocating Cramerton's headliner business to a C&A Products
facility where C&A Products will produce headliner for JPS Automotive on a
subcontract basis. In connection with this move, during the nine months ended
September 25, 1999, Cramerton incurred costs of $1.1 million related to the
purchase of additional machinery and equipment for the production of headliner.
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. For the nine months ended September 25, 1999,
JPS Automotive recorded $1.1 million as an estimated amount due from C&A
Products under the terms of the Tax Sharing Agreement. For the
I-6
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
nine months ended September 26, 1998 JPS Automotive recorded $0.4 million
as an estimated amount due from C&A Products under the terms of the Tax
Sharing Agreement.
In September 1998, JPS Automotive distributed its 50% ownership
interest 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 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
6. INFORMATION ABOUT THE COMPANY'S OPERATIONS:
JPS Automotive's customers primarily produce automobiles and light
trucks in North America. 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:
NINE MONTHS ENDED
--------------------------------
SEPTEMBER 25, SEPTEMBER 26,
1999 1998
------------- -------------
General Motors................................ 45.1% 38.7%
DaimlerChrysler A.G........................... 14.8% 11.7%
Toyota........................................ 12.6% 14.9%
Nissan........................................ 8.1% 11.0%
JPS Automotive's two reportable segments are Automotive Carpet and
Automotive Fabric. JPS Automotive's reportable segments are considered to be
strategic business units by management. Each business segment utilizes different
technology and focuses on specific vehicle interior systems. 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 in the 1998 10-K. 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 5.)
I-7
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Information about JPS Automotive's reportable segments is presented
below (in thousands).
QUARTER ENDED SEPTEMBER 25, 1999
--------------------------------------------
AUTOMOTIVE AUTOMOTIVE
CARPET FABRIC OTHER (1) TOTAL
--------- --------- --------- ---------
External revenues ........... $ 42,263 $ 8,051 $ 9,752 $ 60,066
Depreciation and amortization 1,321 1,065 -- 2,386
Operating income (loss) ..... 515 (7,616) 2,633 (4,468)
Total assets ................ 151,255 75,126 2,877 229,258
Capital expenditures ........ 3,181 498 -- 3,679
QUARTER ENDED SEPTEMBER 26, 1998
-------------------------------------------
AUTOMOTIVE AUTOMOTIVE
CARPET FABRIC OTHER (1) FABRIC
--------- --------- --------- ---------
External revenues ........... $ 34,189 $ 13,165 $ 3,749 $ 51,103
Depreciation and amortization 1,300 1,018 -- 2,318
Operating income (loss) ..... 2,825 (985) 1,431 3,271
Total assets ................ 156,289 80,006 1,844 238,139
Capital expenditures ........ 928 64 -- 992
NINE MONTHS ENDED SEPTEMBER 25, 1999
-------------------------------------------
AUTOMOTIVE AUTOMOTIVE
CARPET FABRIC OTHER (1) TOTAL
--------- --------- --------- ---------
External revenues ........... $134,495 $ 31,864 $ 29,608 $195,967
Depreciation and amortization 3,996 3,218 -- 7,214
Operating income (loss) ..... 2,613 (7,283) 8,719 4,049
Total assets ................ 151,255 75,126 2,877 229,258
Capital expenditures ........ 4,575 2,623 -- 7,198
NINE MONTHS ENDED SEPTEMBER 26, 1998
-------------------------------------------
AUTOMOTIVE AUTOMOTIVE
CARPET FABRIC OTHER (1) TOTAL
--------- --------- --------- ---------
External revenues ........... $122,265 $ 53,812 $ 10,731 $186,808
Depreciation and amortization 3,885 3,048 -- 6,933
Operating income ............ 5,122 5 5,304 10,431
Total assets ................ 156,289 80,006 1,844 238,139
Capital expenditures ........ 1,756 318 -- 2,074
(1) Other includes adjustments made pursuant to the transactions and
arrangements between JPS Automotive and C&A Products. See Note 5.
7. COMMITMENTS AND CONTINGENCIES
See "PART II - OTHER INFORMATION, Item 1. Legal Proceedings." The
ultimate outcome of the legal proceedings to which JPS Automotive is a party
will not, in the opinion of JPS Automotive's management based on the facts
presently known to it, have a material adverse effect on the consolidated
financial condition or results of operations of JPS Automotive.
JPS Automotive is subject to various federal, state and local
environmental laws and regulations that (i) affect ongoing operations and may
increase capital costs and operating expenses and (ii) impose liability for the
costs of investigation and remediation and certain other damages or costs
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
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<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
(UNAUDITED)
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 in exchange for a payment from JPS Automotive of approximately $4.1
million. JPS Automotive remains contingently liable for these environmental
liabilities. In connection with the sale of the Cramerton, North Carolina
facility, approximately $3.0 million of environmental liabilities were removed
from C&A Products. As a result, JPS Automotive is no longer contingently liable
for these environmental liabilities.
In the opinion of management, based on the facts presently known to it,
the environmental costs and contingencies will not have a material adverse
effect on JPS Automotive's consolidated financial condition or results of
operations. However, there can be no assurance that JPS Automotive has
identified or properly assessed all potential environmental liabilities arising
from the activities or properties of JPS Automotive, its present and former
subsidiaries and their corporate predecessors.
8. RECENTLY ISSUED ACCOUNTING STANDARDS:
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position No. ("SOP") No. 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.
In September 1999, the FASB's Emerging Issue Task Force ("EITF")
reached a consensus regarding EITF Issue No. 99-5, "Accounting for
Pre-Production Costs Related to Long-Term Supply Arrangements" ("EITF No.
99-5"). EITF No. 99-5 requires that design and development costs for products to
be sold under long-term supply arrangements be expensed as incurred, and costs
incurred for molds, dies and other tools that will be used in producing the
products under long-term supply agreements be capitalized and amortized over the
shorter of the expected useful life of the assets or the term of the supply
arrangement. The consensus can be applied prospectively to costs incurred after
December 31, 1999 or as a cumulative effect of a change in accounting principle
as of the beginning of a company's fiscal year. The accounting treatment
proposed by EITF No. 99-5 is consistent with the JPS Automotive's current
accounting policy regarding design and tooling costs and JPS Automotive does not
anticipate the adoption of EITF No. 99-5 to have a material impact on its
consolidated financial position or results of operations.
I-9
<PAGE>
JPS AUTOMOTIVE PRODUCTS CORP.
(A WHOLLY-OWNED SUBSIDIARY OF JPS AUTOMOTIVE L.P.)
BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 25, DECEMBER 26,
1999 1998
------------------ -----------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets - Cash....................................... $ 1 $ 1
================== =================
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities ................................................ $ - $ -
------------------ -----------------
Shareholder's equity:
Common stock, par value $0.01 per share;
10,000,000 shares authorized,
100 shares issued and outstanding.................. - -
Additional paid-in capital............................. 1 1
------------------ -----------------
Total shareholder's equity......................... 1 1
------------------ -----------------
$ 1 $ 1
================== =================
</TABLE>
See accompanying note.
I-10
<PAGE>
JPS AUTOMOTIVE PRODUCTS CORP.
(A WHOLLY-OWNED SUBSIDIARY OF JPS AUTOMOTIVE L.P.)
NOTE TO BALANCE SHEETS
(UNAUDITED)
1. COMMITMENTS AND CONTINGENCIES
JPS Automotive Products Corp. ("Products Corp.") is a joint obligor
(and co-registrant) with JPS Automotive L.P. of the 11-1/8% Senior Notes due
2001 (the "Senior Notes"), which had an outstanding balance of $87.6 million
(including a premium of $1.5 million) as of September 25, 1999.
I-11
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Pursuant to General Instruction H(2)(a) to Form 10-Q, the following
discussion is management's narrative analysis of the results of operations
explaining the reasons for material changes in the amount of revenue and expense
items between the most recent fiscal year-to-date period presented and the
corresponding year-to-date period in the preceding fiscal year.
JPS Automotive produces and supplies a complete line of automotive
textiles and specialty textile products to North American automobile and light
truck manufacturers. On December 11, 1996, C&A, through its subsidiaries,
acquired JPS Automotive from Foamex in the 1996 Acquisition. The following
discussion should be read in conjunction with the condensed consolidated
financial statements and related notes thereto of JPS Automotive and Products
Corp. included in this report.
NINE MONTHS ENDED SEPTEMBER 25, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 26,
1998.
NET SALES: Net sales for the nine months ended September 25, 1999 were $196.0
million, compared to $186.8 million for the comparable 1998 period. A strike at
General Motors during June and July 1998 negatively impacted sales during 1998
by approximately $12 million. The sales increase is partially offset by a
decrease in bodycloth sales resulting from a increased demand for leather
seating applications.
GROSS PROFIT: Gross profit as a percentage of sales for the nine months ended
September 25, 1999 remained relatively unchanged at 10.0%, compared to 9.9% for
the nine months ended September 26, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses increased 10% to $8.9 million, up $0.8 million from the
comparable 1998 period. Selling, general and administrative expenses for the
nine months ended September 26, 1998 were reduced by $4.2 million of income
recognized by JPS Automotive related to the collection of a fully reserved
receivable balance due from Enjema. Excluding the impact of the Enjema
receivable collection, selling, general and administrative expenses have
decreased 27.7% from the comparable 1998 period. This decrease is related to the
elimination of certain redundant sales and administrative functions in
connection with the 1996 Acquisition as well as cost-cutting efforts at its
fabrics operations. This decrease is partially offset by an allocation from C&A
Products for administrative services. See Note 5 to JPS Automotive's Condensed
Consolidated Financial Statements.
RESTRUCTURING CHARGE: During the nine months ended September 25, 1999, JPS
Automotive recognized a restructuring charge of $6.6 million. Approximately $4.8
million of the charge represents the loss on the sale of the Cramerton, North
Carolina fabrics facility. The remaining $1.6 million relates to severance
benefits for the approximately 180 employees affected by the sale. In addition,
JPS Automotive recognized $0.2 million of severance expense related to employee
reductions occurring at JPS Automotive's Automotive Carpet facility in
conjunction with a reorganization at C&A Products.
INTEREST EXPENSE: Interest expense, net of interest income, was $6.3 million
during the nine months ended September 25, 1999, compared to $6.4 million during
the comparable 1998 period. During the nine months ended September 25, 1999,
$0.2 million of interest, related to the construction of additional space for
the production of bodycloth at a C&A Products facility, was capitalized. No
amounts were capitalized in the comparable period of 1998. See Note 5 to JPS
Automotive's Condensed Consolidated Financial Statements.
INCOME TAXES: JPS Automotive recognized an income tax benefit of $0.5 million
during the nine months ended September 25, 1999, compared to an income tax
provision of $1.8 million in the comparable 1998 period. JPS Automotive's
effective tax rates for the nine months ended September 25, 1999 and September
26, 1998 were 22.6% and 44.9%, respectively. The percentage decrease is due to
the impact of certain state taxes and nondeductible goodwill, which do not
fluctuate with income.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE: JPS Automotive adopted the
provisions of Statement of Position No. 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5") at the beginning of the first quarter of 1999.
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
I-12
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
capitalized and amortized. The initial impact of adopting SOP 98-5 resulted in a
charge of $0.8 million, net of income taxes of $0.5 million.
NET INCOME (LOSS): The combined effect of the foregoing resulted in a net loss
of $2.6 million during the nine months ended September 25, 1999, compared to net
income of $2.1 million during the comparable 1998 period.
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 5 to JPS Automotive's Condensed Consolidated Financial Statements.
IMPACT OF YEAR 2000 READINESS
As previously discussed in Note 5 to JPS Automotive's Condensed
Consolidated Financial Statements, in accordance with arrangements between JPS
Automotive and C&A Products, C&A Products provides administrative and management
services to JPS Automotive. These services include business planning and
management information systems services for JPS Automotive. Accordingly, JPS
Automotive is part of C&A Products' comprehensive plan intended to address Year
2000 issues. C&A Products 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 readiness 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 and safety
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 ready
Currently, JPS Automotive estimates that it is presently in or has
completed the Testing phase for most areas of Year 2000 risk and expects its
systems to become Year 2000 ready during 1999.
JPS Automotive has formalized contingency plans for its operations and
for critical support services. 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) formulating enhanced information technology
disaster recovery plans; (iii) maintaining offline documentation of production
schedules, releases and inventory levels; (iv) carrying additional inventory
where appropriate and (v) establishing alternative communications links. JPS
Automotive has not yet quantified the entire costs associated with these
contingency plans.
JPS Automotive has coordinated its Year 2000 readiness 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 readiness work for JPS
I-13
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 5 to JPS Automotive's Condensed
Consolidated Financial Statements. Total costs for its efforts to address the
Year 2000 issue, including certain costs incurred by other C&A Products
divisions on behalf of JPS Automotive, are anticipated to be approximately $0.8
million. Included in this estimate are $0.5 million of salaries and other
payroll costs of employees to the extent that they have devoted a majority of
their time to the project. Approximately $0.7 million of these costs have been
incurred through September 25, 1999, including $0.5 million 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 Year 2000 ready. To mitigate this risk, JPS Automotive
has issued questionnaires to its suppliers and has visited or had discussions
with certain of these suppliers to assess their Year 2000 readiness. The
majority of JPS Automotive's suppliers have represented that they will be Year
2000 ready by the end of 1999. 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 ready 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 Report on Form 10-Q contains statements which 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 Report on Form 10-Q are intended to be
subject to the safe harbor protection provided by the Safe Harbor Acts.
Risks and uncertainties that could cause actual results to vary
materially from those anticipated in the forward-looking statements included in
this Report on Form 10-Q include general economic conditions in the markets in
which JPS Automotive operates and 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 readiness issues, as well as
factors more specific to JPS Automotive, such as the substantial leverage of JPS
Automotive and limitations imposed by the Senior Notes. For a discussion of
certain of these and other important factors which may affect the operations,
products and markets of JPS Automotive, see "Business" in the 1998 10-K and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the 1998 10-K, the Company's Reports on Form 10-Q for the fiscal
quarters ended March 27, 1999 and June 26, 1999, and above in this Form 10-Q and
also see JPS Automotive's other filings with the Securities and Exchange
Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Omitted pursuant to General Instruction H(2)(c) to Form 10-Q.
I-14
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There have been no material developments in legal proceedings
involving JPS Automotive or its subsidiaries since those reported, if any, in
JPS Automotive's Annual Report on Form 10-K for the fiscal year ended December
26, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit
Number Description
- ------ -----------
3.1 Certificate of Incorporation of Products Corp. is hereby
incorporated by reference to Exhibit 3.1 of Products Corp.'s
Registration Statement on Form S-1, Registration No. 33-75510.
3.2 By-laws of Products Corp. are hereby incorporated by reference
to Exhibit 3.2 of Products Corp.'s Registration Statement on
Form S-1, Registration No. 33-75510.
3.3 Certificate of Limited Partnership of JPS Automotive is hereby
incorporated by reference to Exhibit 3.3 of Products Corp.'s
Registration Statement on Form S-1, Registration No. 33-75510.
3.4 First Amended and Restated Agreement of Limited Partnership of
JPS Automotive, dated as of June 27, 1994, is hereby
incorporated by reference to Exhibit 3.4 of the Form 10-K of JPS
Automotive and Products Corp. for fiscal 1994.
3.5 Certificate of Amendment of Certificate of Limited Partnership
of JPS Automotive dated December 11, 1996 is hereby incorporated
by reference to Exhibit 3.5 of the Form 10-K of JPS Automotive
and Products Corp. for the transition period from January 1,
1996 to December 28, 1996.
3.6 First Amendment to First Amended and Restated Agreement of
Limited Partnership of JPS Automotive dated as of December 11,
1996 is hereby incorporated by reference to Exhibit 3.6 of the
Form 10-K of JPS Automotive and Products Corp. for the
transition period from January 1, 1996 to December 28, 1996.
3.7 Second Amendment to First Amended and Restated Agreement of
Limited Partnership of JPS Automotive dated as of December 11,
1996, is hereby incorporated by reference to Exhibit 3.7 of the
Form 10-K of JPS Automotive and Products Corp. for the
transition period from January 1, 1996 to December 28, 1996.
27 Financial Data Schedules
(b) Reports on Form 8-K
During the quarter for which this Report on Form 10-Q is filed,
JPS Automotive and Products Corp. did not file any reports on
Form 8-K.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements 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 8th day of November, 1999.
JPS AUTOMOTIVE L.P.
By: PACJ, Inc.
General Partner
By: /s/ Rajesh K. Shah
-------------------------
Rajesh K. Shah
Executive Vice President and
Chief Financial Officer
(On behalf of the Registrant and as Principal
Financial and Accounting Officer)
JPS AUTOMOTIVE PRODUCTS CORP.
By: /s/ Rajesh K. Shah
-------------------------
Rajesh K. Shah
Executive Vice President and
Chief Financial Officer
(On behalf of the Registrant and as Principal
Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 25, 1999 AND SUCH IS QUALIFIED IN
ITS ENTIRETY BY REFERENCETO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000924902
<NAME> JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-25-1999
<CASH> 7,972
<SECURITIES> 0
<RECEIVABLES> 42,313
<ALLOWANCES> 2,401
<INVENTORY> 10,719
<CURRENT-ASSETS> 68,585
<PP&E> 62,407
<DEPRECIATION> (12,122)
<TOTAL-ASSETS> 229,258
<CURRENT-LIABILITIES> 16,684
<BONDS> 87,589
0
0
<COMMON> 0
<OTHER-SE> 116,750
<TOTAL-LIABILITY-AND-EQUITY> 229,258
<SALES> 195,967
<TOTAL-REVENUES> 195,967
<CGS> 176,426
<TOTAL-COSTS> 8,855
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<INTEREST-EXPENSE> 6,326
<INCOME-PRETAX> (2,277)
<INCOME-TAX> (514)
<INCOME-CONTINUING> (1,763)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 791
<NET-INCOME> (2,554)
<EPS-BASIC> 0
<EPS-DILUTED> 0
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JPS
AUTOMOTIVE PRODUCTS CORP. BALANCE SHEET AT SEPTEMBER 25, 1999, AND SUCH IS
QUALIFIED IN ITS ENTIRETY BY REFERENCETO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000919233
<NAME> JPS AUTOMOTIVE PRODUCTS CORP.
<MULTIPLIER> 1,000
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<PERIOD-END> SEP-25-1999
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