SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended June 26, 1999
__Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ___to____
Commission File Number 33-75510-01; 1-12944
JPS AUTOMOTIVE L.P.
JPS AUTOMOTIVE PRODUCTS CORP.
(State or other Jurisdiction of (IRS Employer Identification
incorporation or Organization) No. 57-1060375
Delaware No. 57-0993690)
Delaware
701 McCullough Drive
Charlotte, NC 28262
Telephone (704) 547-8500
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
JPS Automotive L.P. and JPS Automotive Products Corp. meet the conditions set
forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore
filing this form with the reduced disclosure format.
As of August 10, 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 Six Months Ended
-------------------- --------------------
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales.................................. $ 70,336 $ 64,396 $ 135,901 $ 135,705
Cost of goods sold......................... 62,569 58,644 121,273 120,198
--------- --------- --------- ---------
Gross profit............................... 7,767 5,752 14,628 15,507
Selling, general and administrative
expenses................................. 3,229 4,247 6,111 8,347
--------- --------- --------- ---------
Operating income........................... 4,538 1,505 8,517 7,160
Interest expense, net...................... 2,026 2,097 4,280 4,211
Other income, net.......................... - (22) - (31)
--------- --------- --------- ---------
Income (loss) before income taxes.......... 2,512 (570) 4,237 2,980
Income tax expense (benefit)............... 1,065 (109) 1,802 1,326
--------- --------- --------- ---------
Income (loss) before extraordinary charge
and cumulative effect of a change in
accounting principle...................... 1,447 (461) 2,435 1,654
Extraordinary charge, net of income taxes
of $58.................................... - (86) - (86)
Cumulative effect of a change in accounting
principle, net of income taxes of $528... - - (791) -
--------- --------- --------- ---------
Net income (loss)....................... $ 1,447 $ (547) $ 1,644 $ 1,568
========= ========== ========= =========
</TABLE>
See accompanying notes.
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<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
June 26, December 26,
1999 1998
ASSETS ---------- -----------
Current assets:
Cash and cash equivalents.................. $ 17,738 $ 171
Accounts receivable, net of allowance of
$2,095 and $2,254......................... 42,075 36,139
Inventories................................ 9,778 11,308
Receivables from related parties........... - 10,403
Revolving loan due from C&A Products....... - 1,500
Deferred tax assets........................ 2,769 3,203
Other current assets....................... 732 1,344
--------- ---------
Total current assets...................... 73,092 64,068
Property, plant and equipment, net........... 61,471 61,132
Goodwill, net................................ 99,369 100,688
Demand receivable due from C&A for income
taxes..................................... 6,495 6,887
Debt issuance costs, net..................... 1,567 1,934
Other assets................................. 2,085 3,222
--------- ---------
$ 244,079 $ 237,931
========= =========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable........................... $ 6,841 $ 10,795
Accrued expenses........................... 7,556 6,383
Payables to related parties................ 8,883 -
--------- ---------
Total current liabilities................. 23,280 17,178
Long-term debt............................... 87,809 88,247
Other liabilities............................ 9,042 10,224
Commitments and contingencies................
Owners' equity:
General partner............................ 48,073 48,073
Limited partner............................ 75,875 74,209
--------- ---------
Total owners' equity.................... 123,948 122,282
--------- ---------
$ 244,079 $ 237,931
========= ==========
See accompanying notes.
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<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
------------------------
June 26, June 27,
1999 1998
------- ---------
OPERATING ACTIVITIES:
Income from continuing operations.............. $ 2,435 $ 1,654
Adjustments to derive cash flow from
continuing operating activities:
Deferred income tax expense................ 1,411 2,890
Depreciation and amortization.............. 4,828 4,615
Interest accretion and debt issuance cost
amortization............................ (71) (112)
Changes in operating assets and
liabilities............................. (8,717) (1,774)
----------- -----------
Net cash provided by (used in) operating
activities............................ (114) 7,273
----------- -----------
INVESTING ACTIVITIES:
Additions to property, plant, and
equipment................................ (3,519) (1,082)
Sales of property, plant, and equipment...... - 213
Other, net................................... - (144)
----------- -----------
Net cash used in investing activities... (3,519) (1,013)
----------- -----------
FINANCING ACTIVITIES:
Distributions to C&A Products................ - (10,000)
Capital contributions from partners.......... 22 2,703
Changes in amounts due C&A Products, net..... 19,678 (4,775)
Repayments of long-term debt................. - (2,066)
Net proceeds from revolving loans............ 1,500 -
----------- -----------
Net cash provided by (used in) financing
activities......................... 21,200 (14,138)
----------- -----------
Net increase (decrease) in cash and cash
equivalents................................ 17,567 (7,878)
Cash and cash equivalents at beginning of
period..................................... 171 9,271
----------- -----------
Cash and cash equivalents at end of
period..................................... $ 17,738 $ 1,393
========== ===========
See accompanying notes.
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<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
$0.6 million and $1.3 million for the quarter and six months ended June 26,
1999, respectively, and $0.7 million and $1.3 million for the quarter and six
months ended June 27, 1998, respectively. Accumulated amortization at June 26,
1999 was $6.6 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 June 26, 1999, JPS Automotive believes the recorded value of
its goodwill of $99.4 million is fully recoverable.
3. Inventories:
The components of inventories consist of (in thousands):
June 26, December 26,
1999 1998
-------- -----------
Raw materials and supplies............ $ 2,961 $ 4,359
Work in process....................... 4,281 5,183
Finished goods........................ 2,536 1,766
---------- ----------
$ 9,778 $ 11,308
========== ==========
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<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
4. 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. 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 $0.8 million will be used primarily for
severance benefits.
5. Related-party Transactions and Allocations:
At June 26, 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 $446.3 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.
JPS Automotive paid or accrued the following amounts in connection with
the transactions and arrangements described above and related transactions for
the quarters ended June 26, 1999 and June 27, 1998: (i) $1.8 million and $1.9
million, respectively, for administrative and other services, and (ii) $27.7
million and $15.3 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 June 26, 1999
and June 27, 1998, JPS Automotive recorded sales of $4.4 million and $10.2
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 six months ended June 26, 1999 and June 27, 1998: (i) $3.6 million and $3.8
million, respectively, for administrative and other services, and (ii) $47.9
I-5
<PAGE>
million and $28.6 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 six months ended June 26,
1999 and June 27, 1998, JPS Automotive recorded sales of $9.1 million and $20.8
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 first quarter of 1999, C&A Products was charged $12
thousand in net interest related to these revolving credit arrangements. No
interest was charged during the quarter ended June 26, 1999 as there was no
outstanding balance under this arrangement during the second quarter of 1999.
During the quarter and six months ended June 27, 1998, C&A Products was charged
$85 thousand and $180 thousand, respectively, in net interest related to these
revolving credit arrangements.
In connection with certain manufacturing activities conducted by C&A
Products for Cramerton during the quarter and six months ended June 26, 1999,
Cramerton resold to C&A Products at cost approximately $0.9 million and $2.4
million, respectively, of yarn. During the quarter and six months ended June 27,
1998, Cramerton resold to C&A Products at cost approximately $0.3 million and
$0.6 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 six months ended June 26, 1999 and June 27, 1998, Cramerton
incurred costs of approximately $1.0 million and $3.8 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 this location.
In April 1999, Cramerton entered into an agreement to sell its 400,000
square foot facility located in Cramerton, North Carolina to a subsidiary of
Joan Fabrics Corporation. The agreement is subject to certain significant
conditions and there can be no assurance that the transaction will be completed
or as to the timing thereof. In conjunction with this agreement, JPS Automotive
and C&A Products formulated plans to relocate Cramerton's headliner business to
a C&A Products facility where C&A Products will produce headliner for JPS
Automotive on a subcontract basis.
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 six months ended June 26, 1999, JPS
Automotive recorded $0.4 million as an estimated amount due to C&A Products
under the terms of the Tax Sharing Agreement. For the six months ended June 27,
1998, no amounts were due to C&A Products under the terms of the Tax Sharing
Agreement.
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.
I-6
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Direct and indirect sales to significant customers in excess of ten
percent of consolidated net sales from continuing operations are as follows:
Six Months Ended
---------------------------
June 26, June 27,
1999 1998
---------- ------------
General Motors................ 46.3% 39.4%
Toyota........................ 13.1% 14.5%
DaimlerChrysler A.G........... 12.9% 9.4%
Nissan........................ 8.7% 11.3%
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.)
Information about JPS Automotive's reportable segments is presented below
(in thousands).
Quarter Ended June 26, 1999
------------------------------------------------
Automotive Automotive
Carpet Fabric Other(1) Total
------------- ------------ -------- ------
External revenues.......... $ 48,395 $ 11,726 $10,215 $ 70,336
Depreciation and
amortization............. 1,357 1,103 - 2,460
Operating income .......... 1,366 171 3,001 4,538
Total assets............... 159,444 81,104 3,531 244,079
Capital expenditures ...... 872 1,711 - 2,583
Quarter Ended June 27, 1998
------------------------------------------------
Automotive Automotive
Carpet Fabric Other(1) Total
------------- ------------ -------- --------
External revenues.......... $ 42,138 $ 18,328 $ 3,930 $ 64,396
Depreciation and
amortization............ 1,398 1,019 - 2,417
Operating income (loss).... (329) (149) 1,983 1,505
Total assets............... 154,976 79,841 1,951 236,768
Capital expenditures ...... 444 95 - 539
I-7
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (concluded)
(Unaudited)
Six Months Ended June 26, 1999
------------------------------------------------
Automotive Automotive
Carpet Fabric Other(1) Total
------------- ------------ -------- ------
External revenues.......... $ 92,232 $ 23,813 $19,856 $ 135,901
Depreciation and
amortization............... 2,675 2,153 - 4,828
Operating income .......... 2,098 333 6,086 8,517
Total assets............... 159,444 81,104 3,531 244,079
Capital expenditures ...... 1,394 2,125 - 3,519
Six Months Ended June 27, 1998
------------------------------------------------
Automotive Automotive
Carpet Fabric Other(1) Total
------------- ------------ --------- --------
External revenues.......... $ 88,076 $ 40,647 $ 6,982 $135,705
Depreciation and
amortization............... 2,585 2,030 - 4,615
Operating income .......... 2,297 990 3,873 7,160
Total assets................ 154,976 79,841 1,951 236,768
Capital expenditures ...... 828 254 - 1,082
(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 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 in
exchange for a payment from JPS Automotive of approximately $4.1 million. JPS
Automotive remains 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 Adopted Accounting Standard
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position No. ("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.
I-8
<PAGE>
JPS AUTOMOTIVE PRODUCTS CORP.
(A Wholly-Owned Subsidiary of JPS Automotive L.P.)
BALANCE SHEETS
(Unaudited)
June 26, December 26,
1999 1998
---------- -----------
(in thousands)
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
========= =========
See accompanying note.
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<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 $87.8 million
(including a premium of $1.8 million) as of June 26, 1999.
I-10
<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.
Six Months Ended June 26, 1999 Compared to Six Months Ended June 27, 1998.
Net Sales: Net sales for JPS Automotive for the six months ended June 26, 1999
remained relatively unchanged at $135.9 million compared to $135.7 million for
the six months ended June 27, 1998. This is due in part to new carpet business
on the Dodge Durango. This increase is partially offset by reduced bodycloth
sales on the Toyota Camry related to the increased demand for leather seating
applications.
Gross Profit: Gross profit as a percentage of sales decreased to 10.7% for the
six months ended June 26, 1999 from 11.4% in the comparable period in 1998. The
decrease in gross profit is due to a decline in business with higher margins
as well as inefficiencies associated with the relocation to JPS Automotive of
certain automotive programs formerly produced by C&A Products at its Salisbury,
North Carolina facility. This decrease is partially offset by manufacturing
improvements in fabrics operations.
Selling, General, and Administrative Expenses: Selling, general, and
administrative expenses decreased 26.8% to $6.1 million for the six months ended
June 26, 1999, down $2.2 million from the comparable 1998 period. The 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.
Interest Expense: Interest expense, net of interest income, was $4.3 million for
the six months ended June 26, 1999, compared to $4.2 million for the six months
ended June 27, 1998. The increase is due to lower interest income earned on the
reciprocal revolving credit arrangement between JPS Automotive and C&A Products,
partially offset by lower interest expense on the Senior Notes due to the
repurchase of $2.6 million principal amount of Senior Notes on the open market
during 1998. During the six months ended June 26, 1999, $0.1 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: The income tax provision for the six months ended June 26, 1999
increased to $1.8 from $1.3 million in the comparable 1998 period. JPS
Automotive's effective tax rate for the six months of 1999 was 42.5% compared to
44.5% for the six months ended June 27, 1998.
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
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: Net income was $1.6 million for the six months ended June 26, 1999
and for the six months ended June 27, 1998 primarily due to the reasons cited
above.
I-11
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 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 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 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 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
ready 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 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 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 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
I-12
<PAGE>
JPS AUTOMOTIVE L.P. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
majority of their time to the project. Approximately $0.7 million of these costs
have been incurred through June 26, 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. As discussed above, JPS Automotive is incorporating the
responses received from its suppliers in formulating contingency 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 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, 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 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 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 Report on Form 10-Q for the fiscal
quarter ended March 27, 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-13
<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.
I-2
<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 10th day of August, 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)
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