ITEM 1. BUSINESS.
HISTORICAL BACKGROUND
JPS Textile Group, Inc. ("JPS" or the "Company") is a Delaware corporation, incorporated in December 1986, with its principal executive offices located at 555 North Pleasantburg Drive, Suite 202, Greenville, South Carolina 29607; telephone number (803) 239-3900.
On March 14, 1988, the Company executed a merger agreement providing for the acquisition of J.P. Stevens & Co., Inc. ("J.P. Stevens"). On March 15, 1988, the Company commenced a tender offer pursuant to such merger agreement for all of the outstanding stock of J.P. Stevens. Subsequently, the Company terminated its tender offer and J.P. Stevens agreed to be acquired by another entity. Simultaneously therewith, J.P. Stevens agreed to sell to the Company the business and substantially all of the assets of five J.P. Stevens divisions: the Converter and Yarn division; the Automotive Products division; the Elastomerics division; the Carpet division; and the Industrial Fabrics division (the "Predecessor Stevens Divisions"), for approximately $527.0 million (the "Acquisition").
Subsequent to the Acquisition, due to certain financial concerns, the Company engaged certain financial advisors in March 1990 to advise the Company concerning a possible restructuring of its debt and equity capitalization. In furtherance thereof, the Company, together with its legal and financial advisors, met with representatives of the Company's senior lenders and with the respective legal and financial representatives of certain large institutional holders of the Company's (i) Senior Variable Rate notes due June 1, 1996, (ii) Senior Subordinated Discount Notes due June 1, 1999, (iii) 15.25% Senior Subordinated Notes due June 1, 1999, and (iv) 14.25% Subordinated Debentures due May 15, 2000 (collectively, the "Old Debt Securities"), to discuss the Company's general business and financial status, and to explore various financial restructuring alternatives.
In November 1990, the Company and representatives of the holders of the Old Debt Securities determined that a transaction involving the exchange of the Old Debt Securities for a significant percentage of "new" common stock and "new" debt securities with a fixed lower per annum interest rate, together with the issuance to the holders of the Company's Series A Exchangeable Adjustable Rate Preferred Stock and Series B Junior Preferred Stock (together, the "Old Securities") of a significant percentage of the Company's "new" preferred equity securities, would improve the Company's financial condition and overall creditworthiness and simplify its capital structure, and that such transaction would best be accomplished pursuant to a pre-petition solicitation of votes to accept or reject a voluntary plan of reorganization (the "Plan of Reorganization") under chapter 11 of title 11 ("Chapter 11") of the United States Code (the "Bankruptcy Code").
The Company's solicitation was successfully completed and the Chapter 11 case was commenced in early February 1991 before the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). The Plan of Reorganization was confirmed by the Bankruptcy Court pursuant to a court order signed on March 21, 1991 and the Plan of Reorganization became effective on April 2, 1991. As part of the Plan of Reorganization, the Company, together with its senior bank lenders, agreed to restructure the then-existing bank debt of the Company.
On June 28, 1994, pursuant to the terms of an Asset Purchase Agreement dated May 25, 1994 (the "Asset Purchase Agreement"), by and among the Company, JPS Auto Inc., a wholly-owned subsidiary of the Company ("Auto"), JPS Converter and Industrial Corp., a wholly-owned subsidiary of the Company ("C&I"), Foamex International Inc. ("Foamex") and JPS Automotive Products Corp., an indirect, wholly-owned subsidiary of Foamex ("Purchaser"), the Company consummated the disposition of its Automotive Assets (as described below) to the Purchaser.
The Automotive Assets consisted of the businesses and assets of Auto and the synthetic industrial fabrics division of C&I, and the Company's investment in common stock of the managing general partner of Cramerton Automotive Products, L.P. (an 80% owned joint venture). Pursuant to the Asset Purchase Agreement, the Purchaser agreed to assume substantially all of the liabilities and obligations associated with the Automotive Assets. In addition, the Company and its affiliates agreed, for a four year period, not to directly or indirectly compete with the sold businesses in North, Central and South America.
The purchase price for the Automotive Assets was approximately $279 million, consisting of $264 million of cash paid at closing and $15 million of assumed debt as of June 28, 1994, subject to certain post-closing adjustments which may result in a gain to be recognized in a future period. The sale of the Automotive Assets resulted in an approximate gain of $133 million, net of income taxes of $2.8 million.
The net cash proceeds from the disposition of the Automotive Assets (after deductions for fees, other expenses and amounts designated by management to satisfy possible contingent tax liabilities) were approximately $213 million, and such proceeds were used by the Company to reduce its outstanding indebtedness. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources".
GENERAL
The Company is one of the largest diversified domestic manufacturers of textile and textile related products, principally for the apparel fabric, industrial and home fashion markets. JPS conducts its operations from 15 manufacturing plants in five states and employs approximately 5,900 people. The Company competes in three industry segments: apparel fabrics and products, industrial fabrics and products and home fashion textiles. Certain financial information about the Company's industry segments is included in Note 11 of the Notes to Consolidated Financial Statements included in Item 8 herein.
APPAREL FABRICS AND PRODUCTS
The Company is a leading manufacturer of greige goods, fabrics, yarn and elastic products. The Company's products are used in the manufacture of a broad range of consumer apparel products including blouses, dresses, sportswear, undergarments and disposable diapers.
Greige Goods. The Company produces print cloth and filament fabrics that are used ultimately in the manufacture of apparel such as blouses, dresses and sportswear. Greige goods are produced from cotton, polyester, rayon and acetate yarns, and are primarily sold to other textile manufacturers for use in producing printed and dyed fabrics.
Yarn. The Company produces a variety of rayon and polyester spun yarns for its own use and for sale to manufacturers of knitted apparel.
Elastic Products. The Company manufactures a number of elastic products from natural and synthetic rubber compounds. Elastic thread is sold to manufacturers of undergarments for use in waistbands and similar applications, while other elastic products are used in the manufacture of disposable infant diapers.
INDUSTRIAL FABRICS AND PRODUCTS
Commercial Roofing Products. The Company is a well-established manufacturer of single-ply membrane roofs that are made from woven synthetic fabrics and rubber-based or polypropylene specialty polymer compounds which are sold principally to roofing distributors for use both in the new and replacement commercial markets.
Other Building Construction Products. The Company is a producer of fabrics made from glass and synthetic fibers that are used in a number of applications in the building construction industry. Products include various scrims used for wallboard tapes and certain roofing applications, and reinforcement substrates used for the installation of internal and external tiles and synthetic wall surfaces. The Company produces and sells membrane products (similar to commercial roofing products) for use in environmental containment applications such as reservoir liners and covers.
Other Industrial Products. The Company produces a wide variety of other industrial textile products, including specialty fabrics, that are used in many industries for many different end uses. These products generally have characteristics that provide insulation or filtration properties. Other products are used in the manufacture of a wide variety of end products, including flame retardant cloth, tarpaulins, awnings, luggage, athletic tapes, printed circuit boards and military and commercial aircraft.
HOME FASHION TEXTILES
Carpets. The Company manufactures both residential and commercial carpet products. The Company's tufted carpet for home use is sold under the name Gulistan(TM) and competes in the moderate price range. The Company is also a supplier of private label carpets to major retail department stores, to cooperative retail buying groups and to independent retailers. Residential carpet products are sold to retailers and distributors on a nationwide basis. The Company's commercial carpet is sold primarily to builders, contractors and designers for use in offices, institutions, airports and hotels. In addition, the Company purchases and resells woven rugs to its carpet customers.
Fabrics. The Company produces a variety of unfinished woven fabrics for use in the manufacture of draperies, curtains and lampshades and is a major producer of solution-dyed drapery fabrics.
OPERATIONS
Each operating unit of the Company has individual administrative, manufacturing and marketing capabilities and all material aspects of operations, including product design, customer service, purchasing, credit and collection are coordinated by each operating unit. Corporate support services include finance, strategic planning, legal, tax and regulatory affairs.
Following the Acquisition and through the date hereof, management's business plans have included many cost reduction activities aimed at improving return on assets. These activities included consolidating manufacturing operations, exiting unprofitable product lines, more aggressive capital spending programs to improve quality and productivity and reorganizing certain manufacturing operations. The Company plans to continue its manufacturing modernization program to improve efficiency and productivity and further reduce its cost structure.
The Company's corporate headquarters is located in Greenville, South Carolina. The Company maintains a sales office in New York City for certain of its operations. Seven additional regional sales offices and two distribution centers are maintained by the Company, principally for its carpet and building construction products. See Item 2, "PROPERTIES."
MANUFACTURING
The Company's experienced work force and wide variety of yarn making, fabric forming and other manufacturing equipment allow the Company to rapidly and efficiently change its product mix to meet style and seasonal requirements. The Company's activities generally encompass all phases of manufacturing its products.
In the manufacture of woven textile products, the Company purchases synthetic and natural fibers and spins them into yarn or purchases filament yarn for processing. In addition, the Company purchases certain spun yarn. Yarns are then coated, sized or directly woven into unfinished fabric. Upon completion of the weaving process, fabric is generally shipped to customers who dye, finish, coat and cut those fabrics for resale.
In the manufacture of tufted carpet, the Company purchases various face fibers and then spins these fibers into yarn or purchases filement yarn for processing. Yarn is then shipped to the Company's tufting facility where it is tufted into primary carpet backing, finished and dyed at a dyeing facility, and completed with an application of secondary carpet backing.
The Company's elastic products are manufactured from natural and synthetic rubber compounds that are purchased from outside suppliers and are processed through a variety of production operations including slitting and calendering. Single-ply membrane roofing is made by processing a Company-manufactured woven substrate with specialty polymers. Other industrial fabric products are produced from either woven fiberglass or synthetic fibers, which fibers are processed into yarn, woven and finished into fabrics by the Company. Other specialty industrial products are produced by extrusion of urethane resins.
The Company believes that its manufacturing facilities are sufficient for its present and reasonably foreseeable future production requirements.
RAW MATERIALS
The Company generally has good relationships with its suppliers and has, where possible, diversified its supplier base so as to avoid a disruption of supply. In most cases, the Company's raw materials are staple goods that are readily available from numerous domestic fiber and chemical manufacturers. For several products, however, branded goods or other circumstances prevent such a diversification, and an interruption of the supply of these raw materials could have a significant negative impact on the Company's ability to produce certain products. The Company believes that its practice of purchasing such items from large, stable companies minimizes the risk of such an interruption in supply.
MARKETING AND COMPETITION
The textile industry is highly competitive and includes a number of participants with aggregate sales and financial resources greater than the Company's. The Company generally competes on the basis of price, quality, design and customer service. Many companies compete in limited segments of the textile market and the Company's operations are relatively broad-based. The Company is well-positioned due to its ability
to respond quickly to changing styling and fashion trends. This ability generally provides advantages for domestic textile manufacturers. Although no single company dominates the industry, most market segments are dominated by a small number of competitors. The Company believes it has a significant market share in the market for rayon and acetate apparel fabrics, rayon yarn, solution-dyed satin fabrics and quartz fabrics.
The Company's marketing efforts include the development of new product designs and styles which meet customer needs. Each of the Company's operating units has been an established supplier to each of its markets for many years and is taking advantage of well-established customer relationships to increase product development with its customers. The "J.P. Stevens" trade name, which the Company has a royalty-free license to use (see "--Patents, Licenses and Trademarks" below), is widely recognized throughout the textile industry. The Company believes that its relatively broad base of manufacturing operations provides it with a competitive advantage in developing new textile products. In addition to its direct marketing capabilities, the Company markets certain of its products through distributors.
The following is a discussion of marketing and competitive factors as they relate to each of the Company's segments.
Apparel Fabrics and Products
Greige Goods. The Company markets its spun and filament fabrics to converters who finish and/or dye these products prior to shipping to finished apparel manufacturers. The Company has sought to maintain a relatively high proportion of such sales in product areas where its manufacturing flexibility can provide a competitive advantage.
Yarn. The Company competes with a large number of companies which sell yarn to woven and knit goods manufacturers. Yarns are generally sold on a direct basis, and the Company believes that quality and price are the primary competitive factors.
Elastic Products. The Company's elastic products are sold on a direct basis primarily to diaper and undergarment manufacturers as well as to outerwear manufacturers. The Company believes that price is the primary competitive factor in this market. For certain of its elastic products, the Company believes it has a significant market share.
Industrial Fabrics and Products
Construction Products. The Company markets its single-ply roofing products on a direct basis to roofing distributors. The Company competes with manufacturers of this and other types of roofing products. The Company believes that its product's ease of installation and manufacturer warranty are important competitive factors.
Other Products. Other industrial fabrics and products are marketed directly to other manufacturers and distributors. The Company believes that price and its ability to meet customer technical specifications are important competitive factors.
Home Fashion Textiles
The Company's home fashion textile operations compete with a large number of manufacturers of similar carpet and woven fabric products. In general, product markets are differentiated on the basis of price and quality. The Company believes that design and style features are important competitive factors.
CUSTOMERS
No customer accounts for more than 7% of the Company's sales. There are customers the loss of which could have a material adverse effect on sales. PRODUCT DEVELOPMENT
In general, the textile industry expends its efforts on design innovation and capital expenditures for process enhancements rather than on basic research, relying on fiber suppliers or machinery manufacturers for basic research.
The Company's research and development activities are directed toward the development of new fabrics and styles which meet specific styling requirements (in the case of apparel and home furnishing fabrics and products) or other specific properties such as insulation, weight, strength, filtration or laminate adherence (in the case of industrial fabrics and products). Significant time is spent by employees in activities such as meeting with stylists, designers, customers, suppliers and machinery manufacturers, as well as producing samples and running trials in order to develop new products and markets. These activities are performed at various levels and at various locations, and their specifically identifiable incremental costs are not material in relation to the Company's total operating costs.
BACKLOG
Unfilled open orders, which the Company believes are firm, were $89.0 million at October 29, 1994 and $73.9 million at October 30, 1993 (1993 amounts are adjusted to exclude the discontinued operations of the Automotive Assets sold in June 1994). The Company generally fills its open orders in the following fiscal year and the Company expects that all of the open orders as of October 29, 1994 will be filled in the 52 week period ending October 28, 1995 ("Fiscal 1995"). The increase in open orders at October 29, 1994 is due to a general increase in customer demands across most business lines compared to October 30, 1993. Unfilled open orders, which the Company believes are firm, were $88.9 million at December 31, 1994 compared to $99.4 million at December 25, 1993. The decrease in open orders at December 31, 1994 as compared to December 25, 1993 is representative of a change in the timing of the acceptance of certain orders by the Company. The Company believes that the amount of backlog provides some indication of the sales volume that can be expected in coming months, although changes in economic conditions may result in deferral or acceleration of orders which may affect sales volume for a period
No significant portion of the Company's business is subject to renegotiation of profits, or termination of contracts or subcontracts at the election of the government.
PATENTS, LICENSES AND TRADEMARKS
Certain of the Company's products are sold under registered trademarks which have been licensed royalty-free to the Company from J.P. Stevens until May 2013, including trademarks for certain products using the "J.P. Stevens" name. Patented processes used in the manufacturing process are not a significant part of the Company's business. The Company does not license its name or products to others.
EMPLOYEES
The Company currently has approximately 5,900 employees of which approximately 5,000 are hourly and approximately 900 are salaried. The Company's employees are not represented by unions. The Company believes its relations with its employees to be good and has not had any work stoppages or strikes.
ENVIRONMENTAL AND REGULATORY MATTERS
The Company is subject to various federal, state and local environmental laws and regulations concerning, among other things, wastewater discharges, air emissions and solid waste disposal. The Company's plants generate small quantities of hazardous waste that are either recycled or disposed of off-site. Substantially all of the plants are required to possess one or more discharge permits.
The Company believes that it is substantially in compliance with all environmental laws and regulations to which it is subject, and that in those instances in which it is not in compliance, the costs associated with correcting any deficiencies are not material. The Company believes that its monitoring program and its plans for addressing environmental problems are adequate. No representation can be made, however, that changes in federal, state or local regulations or the discovery of unknown problems or conditions will not require substantial additional expenditures.
SEASONALITY
Certain portions of the business of the Company are seasonal (principally construction products and carpet) and sales of these products tend to decline during winter months in correlation with construction activity. These declines, however, do not significantly impact consolidated reported results of operations.
ITEM 2.
ITEM 2. PROPERTIES.
The following table sets forth certain information relating to the Company's principal facilities (segment information relates to principal use). All of the facilities owned or leased by the Company are used for manufacturing, except for the facility in New York, New York, which is used for sales offices. Except as noted, all of the Company's facilities are owned:
(1) The Company occupies a portion of the Wagram, North Carolina facility pursuant to a sharing agreement with J.P. Stevens. (2) The New York, New York facility is leased by the Company under a lease agreement which was extended for two years on June 1, 1993 and expires on May 30, 1995.
The Company also leases certain other warehouse facilities, various regional sales offices and its corporate headquarters. The Company believes that all of its facilities are suitable and adequate for the current and anticipated conduct of its operations.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various legal proceedings which are routine litigations incidental to the conduct of its business. Management believes that none of this litigation, if determined adversely to the Company, would have a material adverse effect on the financial condition or results of operations of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matters were submitted to a vote of security-holders during the fourth quarter of Fiscal 1994.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is currently no established public trading market for the Company's Class A Common Stock, $.01 par value per share (the "Class A Common Stock"), or the Company's Class B Common Stock, $.01 par value per share (the "Class B Common Stock" and together with the Class A Common Stock, the "Common Stock").
As of January 20, 1995, there were 12 holders of record of Class A Common Stock and 2 holders of record of Class B Common Stock.
As a holding company, the Company's ability to pay cash dividends is dependent on the earnings and cash flows of its subsidiaries and the ability of its subsidiaries to make funds available to the Company for such purpose. Under the terms of its outstanding indebtedness, the Company is currently prohibited from paying cash dividends on the Common Stock.
The Company presently intends to retain earnings to fund working capital and for general corporate purposes, and, therefore, does not intend to pay cash dividends on shares of the Common Stock in the foreseeable future. The payment of future cash dividends, if any, would be made only from assets legally available therefor, and would also depend on the Company's financial condition, results of operations, current and anticipated capital requirements, restrictions under then existing indebtedness and other factors deemed relevant by the Company's Board of Directors.
ITEM 6.
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA (Dollars in Thousands Except Per Share Data)
The following table presents selected consolidated historical financial data for the Company as of the dates and for the fiscal years indicated. The presentation of certain previously reported amounts have been classified to conform to the current presentation and to reflect discontinued operations of the Automotive Assets
(1) The following non-cash charges have been included in the determination of loss before reorganization items, income taxes, discontinued operations, extraordinary items and cumulative effects of accounting changes for the periods shown above.
(2) Earnings (loss) per share:
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the Consolidated Financial Statements of the Company and the Notes thereto included in Item 8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
JPS Textile Group, Inc.:
We have audited the accompanying consolidated balance sheets of JPS Textile Group, Inc. and subsidiaries (the "Company") as of October 29, 1994 and October 30, 1993, and the related consolidated statements of operations, senior redeemable preferred stock and shareholders' equity (deficit), and cash flows for each of the three years in the period ended October 29, 1994. Our audits also included the financial statement schedule listed in the index at page S-1. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at October 29, 1994 and October 30, 1993, and the results of its operations and its cash flows for each of the three years in the period ended October 29, 1994 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 9 to the consolidated financial statements, the Company changed its method of accounting for other postretirement benefits, effective November 1, 1992, to conform with Statement of Financial Accounting Standards ("SFAS") No. 106 and also changed its method of accounting for other postemployment benefits, effective October 31, 1993, to conform with SFAS No. 112.
DELOITTE & TOUCHE LLP
Greenville, South Carolina January 4, 1995
JPS TEXTILE GROUP, INC.
CONSOLIDATED BALANCE SHEETS (In Thousands Except Share Data)
See notes to consolidated financial statements.
JPS TEXTILE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands Except Per Share Data)
See notes to consolidated financial statements.
JPS TEXTILE GROUP, INC.
CONSOLIDATED STATEMENTS OF SENIOR REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (DEFICIT) (In Thousands)
See notes to consolidated financial statements.
JPS TEXTILE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)
(Continued)
JPS TEXTILE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (In Thousands)
See notes to consolidated financial statements.
JPS TEXTILE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
1. BUSINESS AND BASIS OF PRESENTATION
JPS Textile Group, Inc. (the "Company") purchased from J.P. Stevens & Co., Inc. ("J.P. Stevens") substantially all of the property, plant and equipment, inventories, certain other assets and the business of five former divisions of J.P. Stevens (the "Predecessor Stevens Divisions") on May 9, 1988 (the "Acquisition"). The purchase was financed through long-term borrowings and the sale of preferred and common stock. The Company operates principally as a manufacturer of apparel fabrics and products, industrial fabrics and products and home fashion textiles.
A Plan of Reorganization (the "Plan") which was distributed to the Company's bondholders and preferred stockholders (the "Securityholders") on December 21, 1990, was approved by the securityholders in early February 1991 and in accordance with the Plan, the Company filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code. Subsequently, in March 1991, the bankruptcy court confirmed the Plan and it became effective April 2, 1991. The Plan provided for, among other things, the cancellation of certain existing debt and preferred stock securities in exchange for 490,000 shares of new Class A common stock along with new debt instruments and new preferred stock with lower interest and dividend rates. Since the Company's reorganization did not meet the criteria for "fresh-start" accounting, the primary adjustment to historical carrying values as a result of the reorganization was to state the new long-term debt and senior redeemable preferred stock at present values of amounts to be paid determined at appropriate current interest rates as of April 2, 1991, the effective date of the Plan. The resulting present value discount is amortized as interest expense or dividends over the life of the related debt or senior redeemable preferred stock instrument using the interest method.
As described in Note 3, on June 28, 1994, the Company sold the businesses and assets of its wholly-owned subsidiary, JPS Auto Inc., and its 80% owned joint venture and the synthetic industrial fabrics division of JPS Converter & Industrial Corp. (another of the Company's wholly-owned subsidiaries).
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include JPS Textile Group, Inc. and its subsidiaries, all of which are wholly owned. Significant intercompany transactions and accounts have been eliminated.
Inventories - Inventories are stated at the lower of cost or market. Cost, which includes labor, material and factory overhead, is determined on the first-in, first-out basis.
Property, Plant and Equipment - Property, plant and equipment is recorded at cost and depreciation is recorded using the straight-line method for financial reporting purposes. The estimated useful lives used in the computation of depreciation are as follows:
Land improvements 10 to 45 years Buildings and improvements 25 to 45 years Machinery and equipment 3 to 15 years Furniture, fixtures and other 5 to 10 years
For tax reporting purposes, the Company uses the Modified Accelerated Cost Recovery System to compute depreciation.
Excess of Cost Over Fair Value of Net Assets Acquired - Excess of cost over fair value of net assets acquired is being amortized on a straight-line basis over a period of forty years. Periodically, the Company evaluates the realizability of the excess of cost over fair value of net assets acquired based upon expectations of nondiscounted cash flows.
Debt Issuance Costs - Costs incurred in securing and issuing long-term debt are deferred and amortized over the terms of the related debt in amounts which approximate the interest method of amortization.
Product Warranties - On certain of its products, the Company provides a warranty against defects in materials and workmanship under separately priced extended warranty contracts generally for a period of ten years. Revenue from such extended warranty contracts is deferred and recognized as income on a straight-line basis over the contract period. The cost of servicing such product warranties is charged to expense as incurred.
Postretirement Benefits - Effective November 1, 1992, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". SFAS No. 106 requires that the projected future cost of providing postretirement benefits, such as health care and life insurance, be recognized as an expense as employees render service instead of when claims are incurred, as had been the Company's practice. See Note 9 for a further description of the accounting for postretirement benefits.
Postemployment Benefits - Effective October 31, 1993, the Company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits". SFAS No. 112 requires that the cost of benefits provided to former or inactive employees after employment but before retirement be recognized on the accrual basis of accounting instead of when paid, as had been the Company's practice. See Note 9 for a further description of the accounting for postemployment benefits.
Revenue Recognition - The Company recognizes revenue from product sales when it has shipped the goods or ownership has been transferred to the customer for goods to be held for future shipment at the customer's request.
Income Taxes - The Company accounts for income taxes using the principles of SFAS No. 109, "Accounting for Income Taxes". Under SFAS No. 109, deferred taxes represent the future income tax effect of temporary differences between the book and tax bases of the Company's assets and liabilities, assuming they will be realized and settled at the amount reported in the Company's financial statements.
Earnings Per Share - Earnings per share is computed by dividing earnings applicable to common stock (net income or loss adjusted by senior redeemable preferred stock dividends) by the weighted average number of shares of common stock outstanding during the period.
Cash Flows - For purposes of reporting cash flows, cash includes cash on hand and in banks. The Company has no investments that are deemed to be cash equivalents.
Fiscal Year - The Company's operations are based on a fifty-two or fifty-three week fiscal year ending on the Saturday closest to October 31. The 1992, 1993 and 1994 fiscal years each consisted of 52 weeks.
Reclassifications - Certain 1992 and 1993 amounts have been reclassified to conform to the 1994 presentation. In addition, see Note 3 regarding reclassifications of 1992 and 1993 amounts for discontinued operations.
3. SALE OF DISCONTINUED OPERATIONS
On June 28, 1994, pursuant to the terms of an Asset Purchase Agreement dated May 25, 1994 (the "Asset Purchase Agreement"), by and among the Company, JPS Auto Inc., a wholly-owned subsidiary of the Company ("Auto"), JPS Converter and Industrial Corp., a wholly-owned subsidiary of the Company ("C&I"), Foamex International Inc. ("Foamex") and JPS Automotive Products Corp., an indirect, wholly-owned subsidiary of Foamex ("Purchaser"), the Company consummated the disposition of its Automotive Assets (as described below) to the Purchaser. The Consolidated Balance Sheet and Statements of Operations and Cash Flows for 1992 and 1993 have been reclassified to reflect the Automotive Assets as discontinued operations.
The Automotive Assets consisted of the businesses and assets of Auto and the synthetic industrial fabrics division of C&I, and the Company's investment in common stock of the managing general partner of Cramerton Automotive Products, L.P. (an 80% owned joint venture). Net sales from discontinued operations were $241.3 million and $287.9 million in fiscal years 1992 and 1993, respectively and $224.9 million for the eight months ended June 28, 1994. Pursuant to the terms of the Asset Purchase Agreement, the Purchaser agreed to assume substantially all of the liabilities and obligations associated with the Automotive Assets. In addition, the Company and its affiliates agreed, for a period of four years, not to directly or indirectly compete with the sold businesses in North, Central and South America.
The purchase price for the Automotive Assets was approximately $279 million, consisting of $264 million of cash paid at closing and $15 million of assumed debt as of June 28, 1994, subject to certain post-closing adjustments which may result in a gain to be recognized in a future period. The sale of the Automotive Assets resulted in an approximate gain of $133 million, net of income taxes of $2.8 million.
The net cash proceeds from the disposition of the Automotive Assets (after deductions for fees, other expenses and amounts designated by management to satisfy possible contingent tax liabilities) were approximately $213 million and such proceeds were used by the Company to reduce its outstanding indebtedness. See Note 5 herein.
The Company has allocated to the discontinued operations a pro-rata portion of the interest expense of its senior credit facility, which pro-rata portions were approximately $2.5 million, $2.5 million and $1.8 million for the years 1992, 1993 and 1994, respectively.
4. BALANCE SHEET COMPONENTS
The components of certain balance sheets accounts are (in thousands):
5. LONG-TERM DEBT
Long-term debt consists of (in thousands):
Senior Credit Facilities - In connection with the sale of the Automotive Assets (see Note 3) in June 1994, the Company repaid the $17.7 million term loan and amended its senior credit facility to provide for a $135 million revolving line of credit and modify existing restrictive covenants. The senior credit facility, as amended, is scheduled to terminate on December 1, 1996. The Company pays a fee of 1/2 of 1% per annum of the average unused line of credit. All senior borrowings bear interest at a Base Rate (as defined) plus 1-1/2% per annum (9.25% at October 29, 1994) or at the Eurodollar Rate (as defined) plus 3.0% per annum (approximately 8.3% at October 29, 1994). Borrowings under the revolving line of credit are limited to specified percentages of eligible accounts receivable and inventories, as defined, plus an additional amount of $25,000,000. As of October 29, 1994, unused letters of credit issued and outstanding totalled $2,311,000. The outstanding unused letters of credit reduce the funds available under the revolving line of credit. At October 29, 1994, the Company had $82,771,000 available for borrowing under the revolving credit agreement.
The credit agreement also provides that net cash proceeds from the sale of assets (as defined and excluding the sale of the Automotive Assets) will be used to permanently repay obligations thereunder to the extent such proceeds from March 1993 forward cumulatively exceed $35 million. No such asset sales occurred during fiscal 1994.
Senior Secured Notes - The senior secured notes (the "Notes") bore interest at 11.75% and were issued in the 1991 reorganization. Notes totalling $6,530,000 matured on June 1, 1994 and were redeemed on that date. In connection with the sale of the Automotive Assets, the Company redeemed the remaining $93,470,000 outstanding balance of the Notes on July 15, 1994.
Senior Subordinated Discount Notes - The Company issued the discount notes in the 1991 reorganization. The $151,107,000 of discount notes began accruing interest on June 1, 1992 at 10.85% with 9.85% paid semi-annually and 1% payable at maturity. Interest payable at maturity compounds semi-annually at the annual rate of 10.85%. In connection with the 1991
reorganization, the carrying value of the discount notes was reduced by $15,182,000 to its estimated net present value using an effective interest rate of 13%.
Mandatory redemption payments equal to $37,777,000, plus accrued interest, are due on each of June 1, 1997 and June 1, 1998 prior to maturity on June 1, 1999 with optional early redemption available on or after June 1, 1994. On September 15, 1994, the Company redeemed $24,938,000 of principal and interest due at maturity with a portion of the proceeds received from the Automotive Assets sale.
Senior Subordinated Notes - The senior subordinated notes bear interest at 10-1/4% with 9-1/4% paid semi-annually and 1% payable at maturity and were issued in the 1991 reorganization. Interest payable at maturity compounds semi-annually at the annual rate of 10.25%. In connection with the 1991 reorganization, the notes were adjusted to their estimated net present value by recording a discount of $16,596,000 resulting in an effective interest rate of 13%. Mandatory redemption payments equal to $31,250,000, plus accrued interest, are due on each of June 1, 1997 and June 1, 1998 with optional early redemption available on or after June 1, 1994. On September 15, 1994, the Company redeemed $20,932,000 of principal and interest due at maturity with a portion of the proceeds received from the Automotive Assets sale.
Subordinated Debentures - The subordinated debentures bear interest at 7%, payable semi-annually, with a mandatory redemption payment of principal of $37,500,000 due May 15, 1999, prior to maturity on May 15, 2000, with optional early redemption available after May 15, 1993. The subordinated debentures were issued in the 1991 reorganization. In connection with the 1991 reorganization, the debentures were adjusted to an estimated net present value by recording a discount of $24,390,000 resulting in an effective interest rate of 13.5%.
Equipment Financing - The Company has financed a portion of its equipment purchases with loans from a finance company and certain equipment vendors at fixed interest rates ranging from 7.6% to 9.7%. Monthly principal payments are due in various amounts as determined by the terms of the loans which have final maturity dates ranging from July 1995 through December 1998.
Restrictive Covenants - Provisions of the senior credit agreement and the Company's other debt indentures place significant restrictions on certain corporate acts such as mergers, consolidations, acquisitions, repurchases of stock, the making of certain other restricted payments, transactions with affiliates and the sale of assets and prohibit the payment of cash dividends. The Company must maintain minimum levels of "net worth", defined to be total assets (excluding investments designated by management to satisfy possible contingent tax liabilities) minus total liabilities plus the subordinated notes and debentures and other adjustments, which vary quarterly from $268 million at October 29, 1994 to $205 million in the fourth quarter of 1996. In addition, the senior credit agreement contains requirements to meet certain financial ratios which vary quarterly or annually and place limitations on the Company's ability to incur additional debt or grant a security interest in its assets. Other customary covenants, conditions and default provisions are also present in the agreement and indentures. The Company was in compliance with the restrictions and financial covenants of its senior credit agreement and its long-term debt indentures at October 29, 1994.
Fair Value - The fair value of the Company's long-term debt based on estimated quoted prices, compared to the carrying values (at discounted amounts), is as follows (in thousands):
Other - Substantially all of the Company's assets are pledged as collateral for the senior credit facilities or the equipment financing.
Interest expense includes $18,805,000 in 1992, $12,208,000 in 1993, and $11,450,000 in 1994 representing amortization of debt issuance expenses and accretion of interest on the discounted notes and accrued product liability costs (see Note 8).
The Company recorded a $7,410,000 loss on early extinguishment of debt in connection with the retirement of certain debt with a portion of the proceeds of the Automotive Assets sale as discussed above. The loss represents deferred financing fees and reorganization discounts associated with the retired debt along with expenses of the transactions.
Subsequent Events - Subsequent to October 29, 1994, the Company's bank credit agreement was amended to permit expenditures of up to $45 million for purchases of the Company's notes and debentures in the open market. Through January 4, 1995, $31 million had been expended by the Company to purchase and retire its notes and debentures at market prices, which were less than the carrying value of the indebtedness. The effect of such transactions on the debt maturities is to increase the bank debt which matures in December 1996 and reduce note and debenture indebtedness due in 1999 and thereafter.
Maturities - Aggregate principal maturities of all long-term debt are as follows (in thousands):
6. SENIOR REDEEMABLE PREFERRED STOCK AND EQUITY SECURITIES
Certain information on senior redeemable preferred stock and equity securities at October 29, 1994 is as follows:
(1) The aggregate number of authorized shares of preferred stock is 700,000, including both the senior redeemable preferred stock and the junior preferred stock.
The senior redeemable preferred stock must be redeemed on May 15, 2003. Its holders vote with the junior preferred stockholders as a single class to elect two directors, otherwise, except in the event of default, the senior redeemable preferred stock is non-voting. The senior redeemable preferred stock is redeemable at the option of the Company prior to maturity at 103% of the liquidation preference of $100 per share. Dividends are cumulative and are calculated based on an annual rate of 6% of the liquidation preference and are paid quarterly. Under the terms of various credit agreements, dividends must be in the form of additional shares until 1998. In connection with the 1991 reorganization, the senior redeemable preferred stock was discounted to its estimated net present value with the net discount of $23,351,000 reflected as an adjustment of additional paid-in capital. The difference between the net carrying value of the senior redeemable preferred stock and its mandatory redemption value is being amortized using the interest method of amortization over the life of the shares by charges to additional paid-in capital or, if available, by charges to retained earnings. The effective dividend rate on the senior redeemable preferred stock is 15.0%. The unamortized discount was approximately $24,560,000 at October 30, 1993 and $24,034,000 at October 29, 1994. The estimated fair value of senior redeemable preferred stock was $42.50 per share, or approximately $19,126,000, at October 30, 1993 based on trading information available as of that date. Because of the lack of recent trading activity and disparities in potential valuation methodologies, determination of the fair value of the Company's senior redeemable preferred stock is impractical at October 29, 1994.
The junior preferred stock has a liquidation preference of $25 per share. Its holders vote with the senior redeemable preferred stockholders as a single class to elect two directors, otherwise, except in the event of default, the junior preferred stock is non-voting. The liquidation preference increases $15 per share for each year that the Company attains certain specified earnings levels for each of the first five fiscal years ending after April 2, 1991. No increase in the liquidation preference has yet occurred because actual earnings have been less than the specified earnings levels in each of the years. Dividends are non-cumulative and are payable at the same rate as is paid on the common stock, if any. As of October 29, 1994, no dividends had been paid. The Company's senior credit agreement prohibits the payment of cash dividends.
The Class A and Class B common stocks have substantially the same voting rights except in the election of directors. The Class A common stockholders, voting separately as a class, have the right to elect three out of the seven Company directors.
7. INCOME TAXES
The 1992, 1993 and 1994 provision for income taxes on continuing operations included in the consolidated statements of operations consists of the following (in thousands):
The 1992 and 1993 current Federal income tax provisions relate to alternative minimum taxes and these amounts can be carried forward indefinitely and be claimed as credits against Federal income taxes in subsequent years.
A reconciliation between income taxes at the statutory Federal income tax rate (34% for 1992, 34.83% for 1993 and 35% for 1994) and the provision for income taxes for the years ended 1992, 1993 and 1994 is as follows (in thousands):
Presented below are the elements which comprise deferred tax assets and liabilities (in thousands):
The net deferred tax liability is included in the accompanying consolidated balance sheet as a non-current liability.
At October 29, 1994, the Company had net operating loss carryforwards for tax purposes of approximately $62,000,000. The net operating losses expire $27,000,000 in 2006, $25,400,000 in 2007 and $9,600,000 in 2008. The Company also has alternative minimum tax net operating losses of approximately $10,500,000 which expire in 2006. During the year, the Company utilized approximately $141,000,000 and $95,500,000 of regular tax and alternative minimum tax net operating loss carryovers, respectively, to offset income from the disposition of discontinued operations. The Company incurred approximately $2,800,000 in Federal alternative minimum and state taxes on the sale. As previously noted, alternative minimum taxes can be carried forward indefinitely and used as a credit against regular federal taxes. Due to the Company's operating history, it is uncertain that it will be able to utilize all deferred tax benefits. Therefore, a valuation allowance has been provided.
The Company's ability to utilize its net operating losses may be significantly limited under the income tax laws should there be future changes in the ownership of the Company's stock which constitute an ownership change for tax purposes. Transactions in the Company's stock have significantly increased the possibility that there could be an ownership change for tax purposes if certain future transactions in the Company's stock occur. The effect of such an ownership change would be to significantly limit the annual utilization of the net operating loss carryforwards to an amount equal to the value of the Company immediately prior to the time of the change (subject to certain adjustments) multiplied by the Federal long-term tax exempt rate. Despite this potential restriction on utilization of the net operating loss carryforwards, the Company believes that it is more likely than not that the net operating loss carryforwards, net of the related valuation allowance, recorded at October 29, 1994 will be fully realized.
8. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities, machinery and computer equipment under noncancellable operating leases. Rent expense was approximately $3,961,000 in 1992, $3,593,000 in 1993 and $4,040,000 in 1994.
Future minimum payments, by year and in the aggregate, under the noncancellable operating leases with terms of one year or more consist of the following at October 29, 1994 (in thousands):
The Company has planned expenditures of approximately $26 million for property, plant and equipment additions in fiscal 1995.
The Company has established incentive compensation plans for certain of its key executives. One plan provides for payments to participants at retirement or termination based on the increase of the fair value, as defined, of the common stock of the Company over certain established levels, as determined by the Company's Board of Directors. No amounts have been earned under the provisions of this plan, except for termination and death benefits accrued and paid of $99,000 and $203,000 in fiscal 1993 and 1994, respectively. A second plan provides for payments to participants, who are not covered by the previously described plan, based on the achievement of specified levels of cumulative operating earnings for the three years ending in 1994. The Company's policy is to accrue the cost of the plans as the fair value of the common stock increases over the established levels or as actual earnings occur if the earnings for the three year period are expected to reach the specified levels. At October 30, 1993, approximately $1,556,000 was accrued for this plan. No amount has been earned or accrued under this plan for employees of the Company's continuing operations as of October 29, 1994 .
The Company has provided for all estimated future costs associated with certain defective roofing products sold by the Predecessor Stevens Division operations. The liability for such defective products was $11,743,000 at October 30, 1993 and $8,207,000 at October 29, 1994, which represents the estimated future costs. The estimated future costs include providing services and materials over a period extending into 1997. The Company records the costs of meeting these obligations as a reduction of the balance of the recorded liability and, accordingly, such costs are not reflected in results of operations. Payments on accrued product liability claims were $4,429,000, $5,240,000 and $3,870,000 in the fiscal years 1992, 1993 and 1994, respectively. The Company periodically reevaluates the estimates used to determine the liability based on recent experience. Variances from the current estimates, which may occur, will be considered in determining if an adjustment of the liability is necessary in the future.
In connection with the sale of the Automotive Assets in June 1994, the Company invested $39.5 million of the sale proceeds in long-term securities (principally United States Treasury Securities maturing in 1997) designated by management to be available to satisfy possible contingent tax liabilities. The investments are classified as "held-to-maturity" and recorded at amortized cost. As of October 29, 1994, their aggregate fair value was approximately $39,600,000 and gross unrealized holding losses were approximately $600,000.
The Company is exposed to a number of asserted and unasserted potential claims encountered in the normal course of business. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company's financial position or future results of operations.
9. RETIREMENT PLANS
Defined Benefit Pension Plan - Substantially all of the Company's employees are covered by a company-sponsored defined benefit pension plan. The plan also provides benefits to individuals employed by the Automotive businesses which were sold by the Company on June 28, 1994. The benefits of these former employees were "frozen" at the date of sale. Accordingly, these former employees will retain benefits earned through June 28, 1994; however, they will not accrue additional benefits. The plan provides pension benefits that are based on the employees' compensation during the last ten years of employment. The Company's policy is to fund the annual contribution required by applicable regulations.
Assets of the pension plan are invested in common and preferred stocks, government and corporate bonds, real estate and various short-term investments.
A reconciliation as of the most recent measurement date (November 1, 1993) of the funded status of the plan with amounts reported in the Company's consolidated balance sheets follows (in thousands):
The weighted-average discount rate used in determining the actuarial present value of the projected benefit obligation at October 30, 1993 was 7.8% and at October 29, 1994 was 8.4%. The expected long-term rate of return on assets was 9% at October 30, 1993 and October 29, 1994. The assumed rate of increase in compensation levels was based on an age-related table at October 30, 1993 and October 29, 1994. Effective November 1, 1993, the Company amended the benefit formula for salaried employees to provide for an additional benefit on compensation in excess of the average social security wage base.
401(k) Savings Plan - The Company also has a savings, investment and profit-sharing plan available to employees meeting eligibility requirements. Effective January 1, 1994, the Company amended the plan to include coverage of hourly wage employees (previously the plan covered substantially only salaried employees). The plan is a tax qualified plan under Section 401(k) of the Internal Revenue Code. The Company makes a matching contribution of 25% of each participant's contribution with a maximum matching contribution of 1-1/2% of the participant's base compensation. Company contributions were approximately $329,000 in 1992, $332,000 in 1993 and $705,000 in 1994.
Postretirement Benefits - Effective November 1, 1992, the Company adopted SFAS No. 106, which requires that the projected future cost of providing postretirement benefits, such as health care and life insurance, be recognized as an expense as employees render service instead of when claims are incurred, as had been the Company's practice. The cumulative effects as of November 1, 1992 of adopting SFAS No. 106 were to increase accrued postretirement benefit costs by approximately $5,936,000 and charge income in 1993 for approximately $5,716,000 after income taxes. The effect of adopting SFAS No. 106 on income from operations in 1993 was not significant.
The Company has several unfunded defined benefit postretirement plans that provide certain health care and life insurance benefits to eligible retirees. The plans are contributory, with retiree contributions adjusted periodically, and contain cost-sharing features such as deductibles and coinsurance. The Company's life insurance plan provides benefits to both active employees and retirees. Active employee contributions in excess of the cost of providing active employee benefits are applied to reduce the cost of retirees' life insurance benefits. The following table sets forth the status of the company's postretirement plans as recorded in the accompanying financial statements (in thousands):
Accumulated postretirement benefit obligation (APBO):
Net periodic postretirement benefit expense included the following components (in thousands):
Since the Company has capped its annual liability per person and all future cost increases will be passed on to retirees, the annual rate of increase in health care costs does not affect the postretirement benefit obligation.
The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.2% and 8.0% as of October 30, 1993 and October 29, 1994, respectively.
Prior to November 1, 1992, the net cost of providing health care and life insurance benefits to retired employees was recognized as costs were paid. These costs totalled approximately $550,000 in 1992.
Postemployment Benefits - Effective October 31, 1993, the Company adopted SFAS No. 112, which requires that the cost of benefits provided to former or inactive employees after employment but before retirement be recognized on the accrual basis of accounting instead of when paid, as had been the Company's practice.
The cumulative effects as of October 31, 1993 of adopting SFAS No. 112 were to increase accrued postemployment benefit costs by approximately $1,000,000 and charge income for approximately $1,000,000 after income taxes. The effect of adopting SFAS No. 112 on income from operations in 1994 was not significant.
10. RELATED PARTIES
The Company incurred fees of $1,500,000 in 1992 and $1,250,000 each year in 1993 and 1994 for management services provided by certain shareholders pursuant to a management services agreement. The balance sheets as of October 30, 1993 and October 29, 1994 include accrued fees of $1,250,000 in other accrued expenses. The agreement provides for payments of fees to a shareholder of $1,000,000 in 1995 and annually thereafter through the year 2001.
An investment banking company that owns common stock of the Company charged the Company approximately $361,000 in 1993 for various services.
11. BUSINESS SEGMENTS
The Company competes in three industry segments: Apparel Fabrics and Products, Industrial Fabrics and Products and Home Fashion Textiles. The apparel fabrics and products segment manufactures a broad range of apparel fabrics and apparel related products, including unfinished woven apparel fabrics (greige goods) for men's, women's and children's wear, and spun yarns for use in apparel and elastic products for use in undergarments and diapers. The industrial fabrics and products segment manufactures commercial roofing products made from woven synthetic fabrics and rubber-based specialty polymer compounds, other building construction products made from glass and synthetic fibers, various industrial products which generally have insulation or filtration characteristics, and other rubber products and various extruded polyurethane products. The home fashion textiles segment manufactures both residential and commercial carpet products and a variety of unfinished woven fabrics for use in the manufacturing of draperies, curtains and lampshades and is a major producer of solution-dyed drapery fabrics.
Export sales are an immaterial percentage of net sales and the Company has no significant foreign operations. Earnings by business segment represent operating profit, excluding net unallocated corporate operating expenses. Identifiable segment assets are those assets used in the operations of the segment. Corporate assets are cash and other assets.
Industry segment information (in thousands):
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information with respect to the persons who are members of the Board of Directors or executive officers of the Company. Each director serves until a successor is elected and qualified. Directors receive no compensation for their services.
The business experience of each of the directors and executive officers during the past five years is as follows:
Steven M. Friedman was elected as the Chairman of the Board and Chief Executive Officer of the Company in April 1991. He has been a director of the Company since May 1988. Mr. Friedman became a general partner of EOS Partners, L.P. ("EOS Partners") (a private investment firm) on January 1, 1994. Prior thereto, he was a general partner of Odyssey Partners, a private investment partnership with substantial capital invested in marketable securities and closely-held businesses, since April 1988. He is also a director of Forstmann & Company, Inc., a manufacturer of textiles and textile-related products, Micom Communications, Corp., a supplier of data communications and networking products, Gundle Environmental Systems, Inc., Eagle Food Centers, Inc., a chain of grocery stores, The Leslie Fay Companies, Inc., a women's wear designer and manufacturer, Black Box Corp., a supplier of data communications products, and The Caldor Corporation, a chain of discount retail stores.
Jerry E. Hunter was appointed as a director of the Company on April 6, 1993. Mr. Hunter has served as President of the Company since September 1988. Prior to that time, from May 1988 to September 1988, he was Executive Vice-President - - Operations. In addition, on January 18, 1994, Mr. Hunter was appointed as Chief Operating Officer of JPS Converter and Industrial Corp., a wholly owned subsidiary of the Company,
and he also serves as a Vice-President of each of the Company's subsidiaries. From April 1986 to May 1988 he was Vice-President - Technical Services at J.P. Stevens. From March 1983 to March 1986, he was Senior Vice-President at Cannon Mills, Inc., a textile manufacturer. Prior to March 1983, he was employed by Springs Industries, a textile manufacturer, for twenty-one years.
David H. Taylor was appointed as a director of the Company on April 15, 1993. Mr. Taylor has served as Executive Vice-President - Finance and Secretary of the Company since June 1991, and prior thereto he was Controller and Assistant Secretary of the Company since May 1988. Prior to that time, he was a Senior Manager at Deloitte Haskins & Sells, a public accounting firm, by which he was employed from June 1977 through May 1988. In addition, Mr. Taylor serves as a Vice-President and Assistant Secretary of each of the Company's subsidiaries.
Michael E. Barker was elected as a director and the Treasurer of the Company in April 1991. He has been a principal of Odyssey Partners since July 1989. Prior thereto, he served as Executive Vice President of Avon-Brazil, S.A. from 1988 to 1989, and as President of Interlan, Inc., a manufacturer of data communications products, from 1986 to 1988. Mr. Barker is currently a director and the Chairman of the Board, Chief Executive Officer and President of Black Box Corp. and Micom Communications Corp. He is also a director of Forstmann & Company, Inc., The Caldor Corporation and Gundle Environmental Systems, Inc.
Alain M. Oberrotman was appointed as a director of the Company on January 25, 1994. He has been a principal of Odyssey Partners since October 1992. From September 1990 to October 1992, he was a principal of Hambro International Equity Partners, a venture capital firm. Prior thereto, Mr. Oberrotman was the President of TVI Group, Inc., an interim management and consulting firm.
Muzzafar Mirza was appointed as a director of the Company on October 25, 1993. He has been a principal of Odyssey Partners since July 1993. From May 1988 to June 1993, he was employed by General Electric Capital Corporation, as head of Merchant Banking for the GE Capital Corporate Finance Group. From 1983 to 1988, he was a Vice President of Marine Midland Bank, N.A. Mr. Mirza is also a director of The Scotsman Group, Inc., a lessor of mobile office units.
Marc C. Particelli was appointed as a director of the Company on November 29, 1994. He has been a principal of Odyssey Partners since October 1, 1994. Prior thereto, he was worldwide Practice Leader for the Consumer Products group at Booz, Allen & Hamilton, an international management consulting firm by which he was employed from 1974 to 1994.
The Company's directors are elected annually to serve until the next annual meeting of stockholders and until their successors have been elected and qualified.
None of the directors or executive officers listed herein is related to any other such director or executive officer.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The following summary compensation table sets forth information concerning compensation for the last three years for services in all capacities awarded to, earned by or paid to (i) the Company's Chief Executive Officer, (ii) the four other most highly compensated executive officers of the Company during Fiscal 1994 and (iii) two additional executive officers who departed during 1994 but whose compensation would place them in the group of four highest paid executive officers.
SUMMARY COMPENSATION TABLE
- ---------------------
(1) Steven M. Friedman resigned as Chief Executive Officer on November 29, 1994. He does not receive, and has no arrangement with respect to, compensation from the Company for services rendered by him for or on behalf of the Company. (2) Payouts under the Company's long-term incentive plan (see below). (3) Employer matching 401(k) plan contribution and employer provided life insurance premiums. (4) Jerry A. Burns and Robert B. Sparks terminated their employment with the Company on June 28, 1994 in connection with the Company's sale of the Automotive Assets.
LONG-TERM INCENTIVE PLAN AWARDS GRANTED IN FISCAL 1994
In 1994, the Company made payouts to Jerry A. Burns and Robert B. Sparks under its Long-Term Incentive Plan. No other employees earned an award under the plan which expired in 1994. Payouts of awards were tied to the Company's subsidiaries achieving specified aggregate earnings levels during the period from Fiscal 1992 through its fiscal year ending in 1994.
RETIREMENT PENSION PLAN
The Company maintains a Retirement Pension Plan for all employees (the "Pension Plan"), including its salaried employees. The Pension Plan is a defined benefit pension plan providing a formula benefit with contributions determined on an actuarial basis. The Pension Plan generally covers all employees 21 years of age or older who have completed one year of service with the Company. The Pension Plan generally takes into account annual compensation earned under certain predecessor plans of J.P. Stevens.
The following table indicates the approximate amounts of annual retirement income that would be payable to a salaried employee under the Pension Plan based on the compensation levels and years of credited service shown. There would be no social security or other offset deducted from the amounts shown.
PENSION PLAN TABLE*
- ----------- * Assumes individual retires at age 65 in 1994 with the indicated years of service and compensation. The social security integration level of such individuals would be $24,312. The social security integration level is adjusted annually.
Credited years of service for benefit accrual under the Pension Plan, as of October 29, 1994, for the following executive officers are:
Annual retirement benefits for salaried employees are generally computed as the sum of 0.6% of a participant's average compensation (the annual average of five consecutive, complete plan years of highest
compensation during the last 10 plan years of service) multiplied by the years of benefit service plus 0.6% of a participant's compensation which exceeds the Participant's Social Security Integration Level (equal to $24,312 in 1994) multiplied by the participant's years of benefit service. The Pension Plan provides that participants' benefits fully vest after five years of service or the attainment of age 65.
This table may understate the benefits available to certain participants because salaried employees who were covered by the Pension Plan before July 1, 1989 are entitled to the greater of the benefit formula noted above or the prior benefit formula, plus additional accrued benefits under the new formula since July 1, 1989. Under the prior formula, a participant's annual pension payable as of normal retirement age was equal to 1% of the portion of "final average compensation" which was equal to the "social security integration level" in effect for the year of retirement, plus 1.5% of the portion of the participant's final average compensation in excess of the social security integration level, the sum of which was multiplied by the number of years of credited service not exceeding 35.
Compensation covered by the Pension Plan consists of all payments made to a participant for personal services rendered as an employee of the Company which are subject to federal income tax withholding, excluding imputed income attributable to certain fringe benefit programs. With respect to salaried employees, plan compensation covers up to a maximum of $235,840 per individual for the plan year beginning November 1, 1993. In accordance with the Revenue Reconciliation Act of 1993, plan compensation will be limited to $150,000, as adjusted effective November 1, 1994. The amounts shown are also subject to possible maximum limitations under Section 415 of the Internal Revenue Code of 1986, as amended (the "Code") are subject to possible reduction for amounts payable under other JPS qualified plans.
COMPENSATION OF DIRECTORS
Members of the Board of Directors receive no compensation for their services.
MANAGEMENT AGREEMENT
Pursuant to a management agreement (the "Management Agreement"), dated as of April 2, 1991, between the Company and Odyssey Investors, Inc., a Delaware corporation and an affiliate of Odyssey Partners ("Odyssey Investors"), the Company agreed to pay Odyssey Investors a $1.25 million fee for Fiscal 1994 and $1.0 million annually for Fiscal 1995 and for each fiscal year thereafter through April 2, 2001, in exchange for certain management services provided by Odyssey Investors. Such services include continual financial advisory and business management services in order to maximize the efficiency of operations and enhance profitability.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a compensation committee or other board committee performing equivalent functions thereto. However, Odyssey Investors, as part of its duties under the Management Agreement, from time to time during the past fiscal year has participated in certain discussions with Jerry E. Hunter, the President, Chief Executive Officer and a Director of the Company, and David H. Taylor, Executive Vice President-Finance, Secretary and a Director of the Company in determining certain business and financial objectives and other criteria to enable the Company to set compensation awards for the Company's executive officers.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT.
The following table sets forth information as of January 20, 1995 with respect to the beneficial ownership of shares of (i) Senior Preferred Stock; (ii) Junior Preferred Stock; (iii) Class A Common Stock; and (iv) Class B Common Stock by (a) each person or group that is known to the Company to be the beneficial owner of more than 5% of the outstanding shares, (b) each director of the Company, and (c) all directors and executive officers of the Company as a group.
- -------------------
(1) Percentages represented hereunder are based on the combined Class A and Class B Common Stock issued and outstanding.
(2) Represents shares of Class B Common Stock and Junior Preferred Stock owned by Odyssey Partners. In addition, Odyssey Partners has voting control with respect to the 5,000 shares of Junior Preferred Stock held by Grant M. Wilson, William J. DeBrule and Yehochai Schneider. The Class B Common Stock shares are subject to a Stockholders' Agreement, which provides, among other things, for certain restrictions on the voting and transfer of such shares. Leon Levy, Jack Nash, Stephen Berger, Joshua Nash and the Nash Family Partnership, by virtue of being general partners of Odyssey Partners, share voting and dispositive power with respect to the Class B Common Stock and Junior Preferred Stock owned by Odyssey Partners and, accordingly, may each be deemed to own beneficially such stock owned by Odyssey Partners. Each of such persons has expressly disclaimed any such beneficial ownership (within the meaning of Rule 13d-3(d)(1) under the Securities and Exchange Act of 1934, as amended (the "Exchange Act")) which exceeds the proportionate interest in the Class B Common Stock and Junior Preferred Stock which he or it may be deemed to own as a general partner of Odyssey Partners. Mr. Friedman has an indirect fractional financial interest in the shares of Class B Common Stock owned by Odyssey Partners; however, he has no voting or dispositive power over any shares owned by Odyssey Partners.
(3) Such shares are subject to the Stockholders' Agreement, which provides, among other things, for certain restrictions on the voting and transfer of such shares. In addition, pursuant to the Voting Trust Agreement, dated as of April 2, 1991, between DLJ and Lincoln National, DLJ conferred the right to vote 120,000 of such shares of Class B Common Stock to Lincoln National, as voting trustee. Such shares include shares held by DLJ First ESC L.L.C. which is an "employee securities corporation" formed to hold securities in behalf of participants in certain DLJ incentive compensation plans.
(4) Shown is the nominee recordholder of such shares. It is not known if all shares are held for one beneficial owner, as the nominee has not provided ownership information.
(5) None of Jerry E. Hunter, David H. Taylor, Carl Rosen, Bruce Wilby, Jerry A. Burns or Robert B. Sparks, the executive officers listed above in Item 11, " -- Executive Compensation -- Summary Compensation Table," beneficially own, or may be deemed to own, any shares of capital stock of the Company, and therefore are not listed in this table.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K.
(a) (1) The following financial statements are included in Item 8:
(i) Independent Auditors' Report (ii) Consolidated Balance Sheets as of October 29, 1994 and October 30, 1993. (iii) Consolidated Statements of Operations for the fiscal years ended October 29, 1994, October 30, 1993 and October 31, 1992. (iv) Consolidated Statements of Senior Redeemable Preferred Stock and Shareholders' Equity (Deficit) for the fiscal years ended October 29, 1994, October 30, 1993 and October 31, 1992 . (v) Consolidated Statements of Cash Flows for the fiscal years ended October 29, 1994, October 30, 1993 and October 31, 1992. (vi) Notes to Consolidated Financial Statements.
The registrant is primarily a holding company and all subsidiaries are totally held.
(2) The financial statement schedule required by Item 8 is listed on Index to Financial Statement Schedule, starting at page S-1 of this report.
(3) The exhibits required by Item 601 of Regulation S-K are listed in the accompanying Index to Exhibits. Registrant will furnish to any securityholder, upon written request, any exhibit listed in the accompanying Index to Exhibits upon payment by such securityholder of registrant's reasonable expenses in furnishing any such exhibit.
(b) No reports on Form 8-K have been filed by registrant during the last quarter of the period covered by this report.
(c) Reference is made to Item 14(a)(3) above.
(d) Reference is made to Item 14(a)(2) above.
INDEX TO EXHIBITS
The following is a complete list of Exhibits filed as part of this report, which are incorporated herein:
--------------
* Previously filed as an exhibit to Registration Statement No. 33-58272 on Form S-1, declared effective by the SEC on July 26, 1993, and incorporated herein by reference. ** Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended October 30, 1993. *** Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended April 30, 1994. **** Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended July 30, 1994. ***** Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
JPS TEXTILE GROUP, INC.
Date: January 27, 1995 By: /s/ Jerry E. Hunter ----------------------- JERRY E. HUNTER President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
JPS TEXTILE GROUP, INC. INDEX TO SCHEDULE
INDEX TO FINANCIAL STATEMENT SCHEDULE For the Years Ended October 31, 1992, October 30, 1993 and October 29, 1994
FINANCIAL STATEMENT SCHEDULE
VIII. Valuation and Qualifying Accounts and Reserves S-2
Note: All other schedules are omitted because they are not applicable or not required, or because the required information is shown either in the consolidated financial statements or in the notes thereto.
S-1
JPS TEXTILE GROUP, INC. SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS)
(a) Change in various reserves charged to net sales.
(b) Uncollected receivables written off, net of recoveries.
S-2