SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended October 27, 2001
[ ] 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: 33-27038
JPS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 57-0868166
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
555 North Pleasantburg Drive, Suite 202, Greenville, SC 29607
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (864) 239-3900
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 per share, 22,000,000 shares authorized;
10,000,000 shares issued, 9,271,756 outstanding.
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: [X]
Indicate by check mark if disclosure of delinquent filers, pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: [ ]
As of January 22, 2002, the aggregate market value of the Registrant's
Common Stock held by non-affiliates, based upon the closing price of the Common
Stock on January 22, 2002, as reported by the Nasdaq National Market, was
approximately $45,709,757.
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court: [X]
As of the date hereof, 10,000,000 of the registrant's Common Stock $.01
par value per share were issued and 9,271,756 were outstanding.
The Registrant's Definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on February 26, 2002 is incorporated by reference in
Part III of this Form 10-K to the extent stated herein.
JPS INDUSTRIES, INC.
Table of Contents
PART I
Item 1. BUSINESS.............................................................. 3
Item 2. PROPERTIES............................................................ 9
Item 3. LEGAL PROCEEDINGS..................................................... 10
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.................... 10
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS........................................... 10
Item 6. SELECTED HISTORICAL FINANCIAL DATA.................................... 11
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................. 13
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK............. 18
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................... 20
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE................................... 42
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................... 43
Item 11. EXECUTIVE COMPENSATION................................................ 43
Item 12. SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT........... 43
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................ 43
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K........ 43
INDEX TO EXHIBITS..................................................... 44
SIGNATURES............................................................ 48
PART I
ITEM 1. BUSINESS
GENERAL
Unless the context otherwise requires, the terms "JPS" and the "Company" as used
in this Form 10-K mean JPS Industries, Inc. and JPS Industries, Inc. together
with its subsidiaries, respectively.
The Company is a major U.S. manufacturer of extruded urethanes, polypropylenes
and mechanically formed glass substrates for specialty industrial applications.
JPS specialty industrial products are used in a wide range of applications,
including: printed electronic circuit boards; advanced composite materials;
aerospace components; filtration and insulation products; surf boards;
construction substrates; high performance glass laminates for security and
transportation applications; plasma display screens; athletic shoes; commercial
and industrial roofing systems; reservoir covers; and medical, automotive and
industrial components. Headquartered in Greenville, South Carolina, the Company
operates manufacturing locations in Slater, South Carolina; Westfield, North
Carolina; and Easthampton, Massachusetts.
JPS is a Delaware corporation incorporated in 1986 and has been publicly held
since the completion of its financial restructuring in October 1997. The
Company's common stock is listed in the Nasdaq National Market System under the
stock symbol "JPST."
THE 1997 RESTRUCTURING
In 1997, JPS determined that it would be unable to meet certain debt obligations
on its public bonds that would become due commencing in June 1997. Accordingly,
on May 15, 1997, JPS, JPS Capital Corp., a wholly-owned subsidiary of JPS ("JPS
Capital") and an unofficial committee (the "Unofficial Bondholder Committee")
comprised of institutions that owned, or represented owners that beneficially
owned, approximately 60% of the 10.85% Senior Subordinated Discount Notes due
June 1, 1999 (the "10.85% Notes"), the 10.25% Senior Subordinated Notes due June
1, 1999 (the "10.25% Notes"), and the 7% Subordinated Debentures due May 15,
2000 ("the 7% Notes") (together with the 10.85% Notes and the 10.25% Notes, the
"Old Debt Securities") reached an agreement in principle on the terms of a
restructuring to be accomplished under chapter 11 of the Bankruptcy Code which
culminated in a Joint Plan of Reorganization (as amended, the "Plan of
Reorganization") proposed by JPS and JPS Capital under chapter 11 of the
Bankruptcy Code. Pursuant to a disclosure statement, dated June 25, 1997 (the
"Disclosure Statement"), on June 26, 1997, JPS and JPS Capital commenced a
prepetition solicitation of votes by the holders of Old Debt Securities and
390,719 shares of Series A Senior Preferred Stock (the "Old Senior Preferred
Stock") to accept or reject the Plan of Reorganization. Under the Plan of
Reorganization, the holders of Old Debt Securities and Old Senior Preferred
Stock were the only holders of impaired claims and impaired equity interests
entitled to receive a distribution, and therefore, pursuant to section 1126 of
the Bankruptcy Code, were the only holders entitled to vote on the Plan of
Reorganization. At the conclusion of the 32-day solicitation period, the Plan of
Reorganization had been accepted by holders of more than 99% of the Old Debt
Securities that voted on the Plan of Reorganization and by holders of 100% of
the Old Senior Preferred Stock that voted on the Plan of Reorganization.
On August 1, 1997, JPS commenced its voluntary reorganization case under chapter
11 of the Bankruptcy Code in the Bankruptcy Court for the Southern District of
New York (the "Bankruptcy Court"), and filed the Plan of Reorganization and the
Disclosure Statement. None of JPS's subsidiaries, including JPS Capital which
was a co-proponent of the Plan of Reorganization, commenced a case under the
Bankruptcy Code. Pursuant to orders of the Bankruptcy Court entered on September
9, 1997, the Bankruptcy Court (i) approved the Disclosure Statement and the
solicitation of votes on the Plan of Reorganization and (ii) confirmed the Plan
of Reorganization. The
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Plan of Reorganization became effective on October 9, 1997 (the "Effective
Date") resulting in, among other things, the cancellation of the Old Senior
Preferred Stock, 10,000 shares of Series B Junior Preferred Stock (the "Old
Junior Preferred Stock"), 490,000 shares of Class A common stock and 510,000
shares of Class B common stock (together with Class A common stock, the "Old
Common Stock"), and the issuance of 10,000,000 shares of Common Stock $.01 par
value per share (the "Common Stock").
Through the implementation of the Plan of Reorganization, as of the Effective
Date, JPS's most significant financial obligations were restructured:
$240,091,318 in face amount of outstanding Old Debt Securities were exchanged
for, among other things, $14.0 million in cash, 99.25% of the shares of Common
Stock and $34.0 million in aggregate principal amount (subject to adjustment on
the maturity date) of contingent payment notes issued by JPS Capital (the
"Contingent Notes"); the Old Senior Preferred Stock, the Old Junior Preferred
Stock and the Old Common Stock were canceled; warrants (which have expired) to
purchase up to 5% of the common stock of JPS (the "New Warrants") with an
initial purchase price of $98.76 per share were issued in respect of the Old
Senior Preferred Stock; and the obligations of JPS under its former working
capital facility were satisfied and the Revolving Credit Facility was obtained.
JPS's senior management received approximately 0.75% of the Common Stock in lieu
of payment under their contractual retention bonus agreements. As a result of
the restructuring, JPS's only significant debt obligation is its guaranty of the
obligations of its operating subsidiaries under the Revolving Credit Facility.
The equipment loan contracts, which are long-term obligations of the operating
subsidiaries, are not guaranteed by, or otherwise obligations of, JPS. In August
1998, the Company reduced its long-term debt and related investments by repaying
all of the approximately $34.0 million in principal amount of JPS Capital's
Contingent Notes.
BUSINESS SEGMENTS
The Company currently operates in two reportable business segments (each of
which constitutes a separate and distinct division)--JPS Elastomerics and JPS
Glass. Item 7 of this Form 10-K, "Management's Discussion and Analysis of
Financial Condition and Results of Operation," discloses the sales,
profitability and net assets of each segment. Each division has independent
administrative, manufacturing and marketing capabilities for all material
aspects of their operations, including product design, technical development,
customer service, purchasing, and collections. JPS's corporate group is
responsible for finance, strategic planning, legal, tax, and regulatory affairs
for its subsidiaries. Corporate costs are allocated to the divisions for segment
reporting purposes. The following discussion provides general information as it
relates to each division:
JPS Elastomerics
Through its JPS Elastomerics division, the Company is a market leader in the
manufacturing and marketing of scrim-reinforced, heat-weldable, single-ply
roofing membrane that is sold globally through a network of roofing
distributors. The Company offers a polypropylene-based material, a Hypalon(R)
(chlorosulfonated polyethylene)-based material, and a PVC-based material. These
products, marketed under Stevens(R) Roofing Systems, are sold primarily to
roofing distributors and contractors who install new and retrofitted roofs for
commercial, industrial, and institutional construction. The Company is a major
manufacturer and global marketer of polyurethane film, sheet, tubing, cord, and
profile for a myriad of applications in security, athletic, automotive, medical,
industrial, and consumer products industries.
JPS Glass
Through its JPS Glass segment, the Company manufactures and markets mechanically
formed fiberglass substrates. Fiberglass substrates exhibit dimensional
stability, moisture resistance, high strength, fire and chemical resistance, low
dielectric properties and thermal conductivity, and as a result of these many
attributes,
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they provide an excellent platform for the construction of printed circuit
boards, substrates for exterior insulation facing systems, filtration products,
surfboard substrates, composite materials for aircraft cabin interiors and cargo
liners, and other numerous technical, industrial applications.
The Company is a leading producer of AstroQuartz(R) substrates formed from
quartz filaments to produce sophisticated electronic circuit boards and
extremely high temperature thermal insulation for the defense and civilian
aerospace industries. The Company also offers its patented AcidFlex(R) and
UltraFlex(R) filtration products to industrial manufacturers.
JPS's wholly-owned operating subsidiaries include JPS Elastomerics and JPS
Converter and Industrial Corp. ("C&I"). JPS's other wholly-owned subsidiaries do
not have any significant operations: JPS Capital, International Fabrics, Inc.
("Fabrics"), JPS Auto, Inc. ("Auto") and JPS Carpet Corp. ("Carpet").
MANUFACTURING
JPS Elastomerics
The Elastomerics division operates two facilities and employs approximately 255
employees. Construction products are produced from raw materials, where they are
blended to proprietary specifications along with fire-retardant and UV
stabilizers and then calendered on state-of-the-art equipment.
Polyurethane products are extruded in highly engineered blown film and flat
sheet extrusion processes from urethane resins and additives. Depending on end
uses, some materials are manufactured in class 10,000 clean zone environments.
JPS Glass
The Glass division operates one facility and employs approximately 385
employees. The Company purchases fiberglass and other specialty materials to
mechanically form substrates which have proprietary finishes applied to meet
individual customer specifications. These proprietary finishes are designed to
act as the bonding agent between the fiberglass substrate and the customer's
value-added application. In almost every case, the customer's product would have
lower or unacceptable performance without the proprietary finish. These finishes
are customer specific and developed over years of trial and development. All
products are manufactured to customer specification and require certification to
either military or customer specification prior to shipment.
RAW MATERIALS
The Company maintains 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 domestic and international fiberglass 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 construction products group has negotiated comprehensive
supply agreements for all its polymer, chemical and accessory products, with
multiple production sites assuring an uninterrupted supply. The urethane
products group purchases under contract from all major thermoplastic
polyurethane suppliers. The Company believes that its practice of purchasing
such items from large, stable companies minimizes the risk of interrupting the
supply of raw materials.
5
MARKETING AND COMPETITION
The following is a discussion of marketing and competitive factors as they
relate to each of the Company's divisions:
JPS Elastomerics
The commercial roofing industry is highly competitive with a number of major
participants in all segments of the industry. Many of the Company's competitors
are significantly larger in terms of aggregate sales. In the specialty segment
of the single-ply market where the Company competes, there are more than 10
competitors, with the Company having the largest market share in this segment.
Due to the success of the Company's EP product line and new product
introductions in 2000 and 2001, management expects continued growth in this
sector. Industry capacity additions over the past 24 months are likely to keep
prices under pressure as the market growth rate lags the capacity expansion
rate.
The Company markets it products under the Stevens(R) brand name using a
push-pull strategy: pushing products through distribution to the roofing
contractor and pulling products through the market by creating demand on the
part of building owners, architects and specifiers.
The Company has approximately 20 field sales staff as well as a network of
independent representatives, distributors and distributor-representatives as its
sales force. In addition, the Company operates a sales office in the United
Kingdom, has an extensive distribution network in Europe, and a licensing
program in Asia. Marketing efforts in the roofing industry include (i) new
product development to meet changing market demands, (ii) providing proprietary
accessory products, (iii) implementing contractor-specific programs, and (iv)
expanded national account efforts.
Geomembrane products are sold to a select group of fabricators and installers.
The Company's marketing efforts are focused on supporting those companies in a
variety of ways.
The Company's urethane products are marketed through both direct sales personnel
and a nationwide network of independent representatives. The Company's products
are sold to specification and each application has specific end-use performance
requirements. As with the construction products, marketing efforts for urethane
are multifaceted with new product development and engineering being critical
factors to the success of these products.
JPS Glass
The glass substrate business is highly competitive and globally influenced
because of the significant capacity that exists in Europe, Asia and North
America. The Company believes itself to be the third largest North American
producer of glass substrates, where the majority of its products are sold.
Importantly, it is well-positioned because of the balance between its electrical
components, fiberglass reinforced composites, construction, and insulation
product lines. Additionally, within the electrical substrate product line (i.e.,
printed circuit boards) the Company's ability to commit substantially all of its
capacity to light weight substrates is a market strength because they are used
in a vast array of growing consumer product markets, such as cell phones,
computers, pagers, as well as the electronic infrastructure for the internet.
The Company's glass products are marketed through a combination of direct sales
and distributors, with the central focus being development of customer specific
finishes that enhance their respective value added processes.
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CUSTOMERS
No customer accounts for more than 10% of the Company's sales. However, the loss
of certain other customers could have a material adverse effect on sales.
PRODUCT DEVELOPMENT
The following is a discussion of product development as it relates to each of
the Company's divisions:
JPS Elastomerics
On-going product development and process improvement activities include a
constant evaluation of new advanced polymers and polymer compounds, as well as
the evaluation and analysis of material additives required in the manufacture of
commercial roofing products, geomembranes and thermoplastic polyurethane. As
appropriate, additives are required to ensure long-term UV stability, fire or
chemical resistance or to ensure that a specific product can be used in contact
with drinking water.
For its roofing products, the Company continues to develop advanced material
products that meet fire, wind and other building code requirements on a global
basis. Such building codes vary from country to country, and even regionally,
presenting a challenge to the manufacturer. Geomembranes must also meet
stringent code requirements of several countries, particularly when used in
potable water reservoirs.
The Company offers both aliphatic and aromatic polyurethane products. Aliphatic,
which is used in glass clad polycarbonate laminates for security-glazing
applications, is extruded in a clean zone environment to ensure maximum product
cleanliness. Aromatic materials are extruded by blown film and flat sheet
technologies. The Company spends a considerable amount of R&D effort to develop
compounds to specifically meet customer needs. In addition, the Company provides
specific surface finishes, textures, colors, etc. that may be required for
end-use applications.
JPS Glass
R&D efforts include the continued refinement of silane chemistry and substrate
processing, for high Tg resin systems, CAF (Conductive Anodic Filamentation)
improvement and HDI (High Density Interlock) for improved laser drillability in
the printed circuit board industry, development of soft moldable finishes for
the building products industry, high-flex finishes to extend the life of
filtration substrates for the power generation industry, and new low cost
materials for the mechanically needled insulation industry. The product
development effort is an ongoing customer specific process that is enhanced by
the involvement of the division's vendor partners with the division's highly
skilled research department.
BACKLOG
Unfilled open orders, which the Company believes are firm, were $20.0 million at
October 27, 2001 and $24.5 million at October 28, 2000. 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 27, 2001, will be filled in the 53-week
period ending November 2, 2002 ("Fiscal 2002"). The Company believes that the
amount of backlog provides limited indication of the sales volume that can be
expected in coming months, and changes in economic conditions may result in
deferral or acceleration of orders which may affect sales volume for a given
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.
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PATENTS, LICENSES AND TRADEMARKS
The following is a discussion of patent licenses and trademarks as they relate
to each of the Company's divisions:
JPS Elastomerics
Products, such as commercial roofing, geomembranes and polyurethane, are
marketed under the "Stevens" brand name. As such, the Company is in the process
of securing U.S. trademarks for the following names: Stevens Roofing
Systems(TM), Stevens Geomembranes(TM) and Stevens Urethane(TM). In addition, the
Company currently holds U.S. trademarks on the names Hi-Tuff(R) and Hi-Tuff
Plus(R). The Company also holds trademarks for the Hi-Tuff(TM) name in Canada,
Mexico and certain European and Asian countries.
In terms of product licensing, the Company is currently involved with two
manufacturing licensees: Tsutsunaka Plastics Industries ("TPI") of Japan and
Protan A/S of Norway. The Company has licensed roofing technology to Protan for
manufacturing and marketing TPO-based roofing products in the Scandinavian
countries. In addition, Stevens roofing and geomembrane compound and
manufacturing technologies have been licensed to TPI for the production and
marketing of membranes in Japan.
JPS Glass
A total of four patents and 36 trademarks are secured or are in the process of
being secured by the Company for its Glass business. These include, but are not
limited to: alkali resistant meshes for Exterior Insulation Facing Systems
trademarked under the names of Versaflex(R), Duraflex(R), Ultraflex(R),
Standardflex(R), and Gorilla-Mesh(TM); filtration products trademarked under the
names AcidFlex(R), AcidBond(TM), and Ultraflex(R); substrates meeting high
temperature requirements trademarked under the names, Tempratex(R) and
Industro-Quartz(TM); special laser drillable substrates under the trademark
APS(TM) (Ablative Precision Substrate); and Quartz Hybrid substrates with the
Astralar(R) and AstroCarb(R) trademarks.
EMPLOYEES
As of October 27, 2001, the Company had 650 active employees of which 465 were
hourly and 185 were salaried. None of the Company's employees are represented by
unions. The Company believes it has good relations with its employees.
ENVIRONMENTAL AND REGULATORY MATTERS
The Company is subject to various federal, state and local government laws and
regulations concerning, among other things, the discharge, storage, handling and
disposal of a variety of hazardous and non-hazardous substances and wastes. The
Company's plants generate small quantities of hazardous waste that are either
recycled or disposed of off-site by or at licensed disposal or treatment
facilities.
The Company believes that it is in substantial compliance with all existing
environmental laws and regulations to which it is subject. In addition, the
Company is subject to liability under environmental laws relating to the past
release or disposal of hazardous materials. To date, and in management's belief
for the foreseeable future, liability under and compliance with existing
environmental laws has not had and will not have a material adverse effect on
the Company's financial or competitive positions. No representation or assurance
can be made, however, that any change in federal, state or local requirements or
the discovery of unknown problems or conditions will not require substantial
expenditures by the Company.
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SEASONALITY
Certain portions of the business of the Company are seasonal (principally
construction products) and sales of these products tend to decline during winter
months in correlation with construction activity. These declines have
historically tended to result in lower sales and operating profits in the first
and second quarters than in the third and fourth quarters of the Company's
fiscal year.
WORKING CAPITAL
Information regarding the Company's working capital position and practices is
set forth in Item 7 of this Form 10-K under the caption "Liquidity and Capital
Resources."
Financial information for the JPS Elastomerics and JPS Glass segments is set
forth in Note 10 to the Consolidated Financial Statements included in Item 8
herein.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained in this Item 1 "Business" and Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
are not historical facts are forward-looking statements subject to the safe
harbor created by the Private Securities Litigation Reform Act of 1995. The
Company cautions readers of this Annual Report on Form 10-K that a number of
important factors could cause the Company's actual results in Fiscal 2002 and
beyond to differ materially from those expressed in any such forward-looking
statements. These factors include, without limitation, the general economic and
business conditions affecting the Company's industries, actions of competitors,
changes in demand in certain markets, the Company's ability to meet its debt
service obligations, the seasonality of the Company's sales, the volatility of
the Company's raw material costs, claims and energy, and the Company's
dependence on key personnel and certain large customers.
Shareholders, potential investors and other readers are urged to consider these
factors carefully in evaluating the forward-looking statements and are cautioned
not to place undue reliance on such forward-looking statements. The
forward-looking statements made herein are only made as of the date of this
report and the Company undertakes no obligation to publicly update such
forward-looking statements to reflect subsequent events or circumstances.
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 are owned and are used for manufacturing.
Square Square
Location Footage Location Footage
-------- ------- -------- -------
JPS Elastomerics JPS Glass
---------------- ---------
Westfield, NC 237,000 Slater, SC 433,000
Easthampton, MA 50,000
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.
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ITEM 3. LEGAL PROCEEDINGS.
The Company is a party to lawsuits in the normal course of its business
including certain asbestos-based claims. The Company believes that it has
meritorious defenses in all lawsuits in which the Company or its subsidiaries is
a defendant. Except as discussed below, management believes that none of this
litigation, if determined unfavorable to the Company, would have a material
adverse effect on the financial condition or results of operations of the
Company.
In June 1997, Sears Roebuck and Co. ("Sears") filed a multi-count complaint, in
the Circuit Court of Cook County, Illinois (Case No. 97C8586), against
Elastomerics and two other defendants alleging an unspecified amount of damages
in connection with the alleged premature deterioration of the Company's Hypalon
roofing membrane installed during the 1980's on approximately 140 Sears stores.
The Company believes it has meritorious defenses to the claims and intends to
continue to defend the lawsuit vigorously. Management cannot determine the
outcome of the lawsuit or estimate the range of loss, if any, that may occur and
no provision for losses has been established in the Company's financial
statements. An unfavorable resolution of the actions could have a material
adverse effect on the business, results of operations and financial condition of
the Company if not covered by insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
No matters were submitted to a vote of securityholders during the fourth quarter
of Fiscal 2001.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The common stock of the Company was approved for listing and trading on the
Nasdaq National Market System under the stock symbol "JPST," effective January
30, 1998. Prior to that time, there was only sporadic trading of the common
stock in the over-the-counter market. The following table presents the high and
low sales prices for the common stock for each full quarterly period for the
past two years.
FISCAL 2000 HIGH LOW
----------- ---- ---
First Quarter $ 4.000 $2.750
Second Quarter 3.938 2.875
Third Quarter 5.688 3.125
Fourth Quarter 5.750 3.875
FISCAL 2001 HIGH LOW
----------- ---- ---
First Quarter $ 6.000 $3.250
Second Quarter 5.125 4.370
Third Quarter 7.490 4.370
Fourth Quarter 6.900 3.370
As of January 22, 2002, there were approximately 19 holders of record of the
Company's common stock.
The Company has never paid a dividend on its 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 depend on the Company's financial condition, results of operations,
current and anticipated capital requirements,
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restrictions under the existing indebtedness (including, without limitation,
indebtedness evidenced by the Revolving Credit Facility (as later defined) and
refundings and refinancings thereof) and other factors deemed relevant by JPS's
Board of Directors. The Company's subsidiaries that are borrowers under certain
credit agreements are restricted from paying cash dividends to JPS with respect
to their capital stock unless, among other things, JPS and its subsidiaries
satisfy certain specified financial tests.
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 or periods indicated. The
selected historical financial data for the period from November 3, 1996 to
October 9, 1997, the period from October 10, 1997 to November 1, 1997, and the
years ended October 31, 1998, October 30, 1999, October 28, 2000, and October
27, 2001 have been derived from the Consolidated Financial Statements of the
Company for such periods, which have been audited. The presentation of certain
previously reported amounts has been reclassified to conform to the current
presentation and to reflect discontinued operations of the yarn sales business
(sold on July 23, 1999), the cotton commercial products business (sold on August
27, 1999), and the Apparel Division (sold on November 17, 2000), as discussed in
Note 2 to the Consolidated Financial Statements of the Company at Item 8 in this
Form 10-K.
The financial statements for the period from October 10, 1997 to November 1,
1997 and for the years ended October 31, 1998, October 30, 1999, October 28,
2000, and October 27, 2001 reflect the Company's emergence from chapter 11 and
were prepared utilizing the principles of fresh start accounting contained in
the American Institute of Certified Public Accountants' Statement of Position
90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code." As a result of the implementation of fresh start accounting, certain of
the selected financial data for the period from October 10, 1997 to November 1,
1997 and for the years ended October 31, 1998, October 30, 1999, October 28,
2000, and October 27, 2001 are not comparable to the selected financial data of
prior periods. Therefore, selected financial data for the "Reorganized Company"
has been separately identified from that of the "Predecessor Company." The
following information should be read in conjunction with the Consolidated
Financial Statements of the Company and Notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
presented elsewhere herein.
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Predecessor |
Company | Reorganized Company
----------- | ------------------------------------------------------------------------------
Period from | Period from Fiscal Year Fiscal Year Fiscal Year Fiscal Year
November 3, | October 10, Ended Ended Ended Ended
1996 to | 1997 to October 31, October 30, October 28, October 27,
October 9, | November 1, 1998 1999 2000 2001
INCOME STATEMENT DATA: 1997 | 1997 (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
----------- | ------------ ------------ ------------ ----------- -----------
|
Net sales $ 146,926 | $ 14,724 $ 155,944 $ 156,867 $ 167,978 $ 147,626
Cost of sales 109,760 | 10,602 119,727 121,579 126,380 116,888
----------- | ------------ ------------ ------------ ----------- -----------
Gross profit 37,166 | 4,122 36,217 35,288 41,598 30,738
Selling, general and |
administrative expenses 23,094 | 1,744 25,134 26,978 27,368 21,162
Other expense (income), net 302 | (1) (67) 1,663 (18) (1)
----------- | ------------ ------------ ------------ ----------- -----------
Operating profit 13,770 | 2,379 11,150 6,647 14,248 9,577
Valuation allowance on |
Gulistan securities (5,070) | -- -- -- -- --
Interest income 2,744 | 94 1,038 -- -- --
Interest expense (29,425) | (507) (4,013) (3,511) (3,442) (2,333)
----------- | ------------ ------------ ------------ ----------- -----------
Income (loss) before |
reorganization items, income |
taxes, discontinued operations |
and extraordinary items (17,981) | 1,966 8,175 3,136 10,806 7,244
Reorganization items: |
Fair-value adjustments (4,651) | -- -- -- -- --
Professional fees and |
expenses (8,420) | -- -- -- -- --
----------- | ------------ ------------ ------------ ----------- -----------
Income (loss) before income taxes, |
discontinued operations and |
extraordinary items (31,052) | 1,966 8,175 3,136 10,806 7,244
Income taxes (benefit) (8,821) | 1,177 3,462 1,997 4,517 2,818
----------- | ------------ ------------ ------------ ----------- -----------
Income (loss) from continuing |
operations (22,231) | 789 4,713 1,139 6,289 4,426
Discontinued operations (net of |
taxes): |
Income (loss) from |
discontinued operations (1,726) | 1,928 (15,377) (4,485) (104) --
Loss on disposal of |
discontinued operations -- | -- -- (18,096) (47,415) --
----------- | ------------ ------------ ------------ ----------- -----------
Income (loss) before |
extraordinary items (23,957) | 2,717 (10,664) (21,442) (41,230) 4,426
Extraordinary gain on early |
extinguishment of debt 100,235 | -- -- -- -- --
----------- | ------------ ------------ ------------ ----------- -----------
Net income (loss) $ 76,278 | $ 2,717 $ (10,664) $ (21,442) $ (41,230) $ 4,426
=========== | ============ ============ ============ =========== ===========
|
Income (loss) applicable to |
common stock $ 72,451 | $ 2,717 $ (10,664) $ (21,442) $ (41,230) $ 4,426
=========== | ============ ============ ============ =========== ===========
|
Weighted average number |
of shares outstanding 1,000,000 | 10,000,000 10,000,000 10,000,000 9,940,000 9,340,466
=========== | ============ ============ ============ =========== ===========
12
Predecessor |
Company | Reorganized Company
----------- | ------------------------------------------------------------------------------
Period from | Period from Fiscal Year Fiscal Year Fiscal Year Fiscal Year
November 3, | October 10, Ended Ended Ended Ended
1996 to | 1997 to October 31, October 30, October 28, October 27,
October 9, | November 1, 1998 1999 2000 2001
INCOME STATEMENT DATA: 1997 | 1997 (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
----------- | ------------ ------------ ------------ ----------- -----------
|
|
Basic income (loss) per common |
share: |
Income (loss) from continuing |
operations $ (26.06) | $ 0.08 $ 0.47 $ 0.11 $ 0.63 $ 0.47
Discontinued operations (net of |
taxes): |
Income (loss) from |
discontinued operations (1.73) | 0.19 (1.54) (0.44) (0.01) --
Loss on disposal of |
discontinued operations -- | -- -- (1.81) (4.77) --
Extraordinary gain 100.24 | -- -- -- -- --
---------- | -------- -------- -------- -------- --------
Net income (loss) $ 72.45 | $ 0.27 $ (1.07) $ (2.14) $ (4.15) $ 0.47
========== | ======== ======== ======== ======== ========
BALANCE SHEET DATA: November 1, October 31, October 30, October 28, October 27,
1997 1998 1999 2000 2001
----------- ----------- ----------- ----------- -----------
Working capital, excluding net assets
held for sale $ 27,281 $ 29,606 $ 29,148 $ 28,734 $ 26,801
Total assets 300,051 255,284 216,316 148,242 109,905
Total long-term debt, less current portion 94,891 98,693 79,806 51,529 19,287
Shareholders' equity 126,047 109,528 94,653 52,408 55,247
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
herein. The presentation of certain previously reported amounts has been
reclassified to conform to the current presentation and to reflect discontinued
operations of the yarn sales business (sold on July 23, 1999), the cotton
commercial products business (sold on August 27, 1999), and the Apparel Division
(sold on November 17, 2000).
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
October 30, October 28, October 27,
1999 2000 2001
----------- ----------- -----------
NET SALES
Elastomerics $ 80,035 $ 86,595 $ 82,409
Glass 83,453 87,319 65,217
--------- --------- --------
163,488 173,914 147,626
Less intersegment sales(1) (6,621) (5,936) --
--------- --------- --------
Net sales $ 156,867 $ 167,978 $147,626
========= ========= ========
(Table continued on next page)
13
(Table continued from previous page)
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
October 30, October 28, October 27,
1999 2000 2001
------------- -------------- -------------
OPERATING PROFIT(2)
Elastomerics $ 4,889 $ 7,458 $ 3,922
Glass 1,758 6,790 5,655
------------ ------------- -------------
Operating profit 6,647 14,248 9,577
Interest expense, net (3,511) (3,442) (2,333)
------------ ------------- -------------
Income before income taxes and
discontinued operations $ 3,136 $ 10,806 $ 7,244
============ ============= =============
OTHER DATA
EBITDA(3)
Elastomerics $ 8,786 $ 10,369 $ 6,567
Glass 5,934 10,036 8,807
------------ ------------- -------------
Total EBITDA $ 14,720 $ 20,405 $ 15,374
============ ============= =============
(1) Intersegment sales consist primarily of the transfer of certain scrim
products manufactured by the Glass segment to the Elastomerics segment.
All intersegment revenues and profits are eliminated in the consolidated
financial statements.
(2) The operating profit of each business segment includes a proportionate
share of indirect corporate expenses. The Company's corporate group is
responsible for finance, strategic planning, legal, tax and regulatory
affairs for the business segments. Such expense consists primarily of
salaries and employee benefits, professional fees and amortization of
reorganization costs in excess of amounts allocable to identifiable
assets.
(3) EBITDA represents operating income plus depreciation and amortization and
certain other charges. EBITDA as determined by the Company may not be
comparable to the EBITDA measure as reported by other companies. This
presentation of EBITDA is not intended to represent cash flow from
operations as defined by GAAP and should not be considered as an
indicator of operating performance or an alternative to cash flow or
operating income (as measured by GAAP) or as a measure of liquidity. In
addition, this measure does not represent funds available for
discretionary use. It is included herein to provide additional
information with respect to ability of the Company to meet its future
debt service, capital expenditures and working capital requirements. The
other charges added back to operating income represent severance and
restructuring charges of $1.7 million in Fiscal 1999.
RESULTS OF OPERATIONS
INTRODUCTION
The Company has repositioned itself from being largely textile oriented to a
diversified manufacturing and marketing company that is focused on a broad array
of industrial applications. This has been accomplished by successfully exiting
the apparel fabric business and two other textile businesses, while intensifying
its focus on the two businesses with growth potential, JPS Glass and JPS
Elastomerics. On November 17, 2000, the Company sold its Apparel Division,
thereby exiting the apparel fabrics business. On March 2, 1999, the Company sold
its Boger City manufacturing plant, thereby exiting the home fashions woven
fabrics business. The
14
Company closed its Angle manufacturing facility in the third quarter of 1999 and
sold the remaining plant on September 3, 1999, thereby streamlining the apparel
business. On July 23, 1999, the Company sold its Stanley manufacturing plant,
thereby exiting its yarn sales segment. On August 27, 1999, the Company sold its
Borden manufacturing plant, thereby exiting its cotton commercial products
segment. The apparel, yarn sales and cotton commercial products segments are
reported in the accompanying consolidated financial statements as discontinued
operations. Additionally, Company-wide cost reduction measures were implemented
at the beginning of Fiscal 1999, which included the elimination of certain jobs
at estimated annualized savings of approximately $1.3 million. The Company is
now focusing solely on improving the performance and profitability of its
remaining core businesses: JPS Elastomerics and JPS Glass.
FISCAL 2001 COMPARED WITH FISCAL 2000
Consolidated net sales decreased $20.4 million, or 12.1%, from $168.0 million in
Fiscal 2000 to $147.6 million in Fiscal 2001. Consolidated operating profit
decreased $4.6 million from $14.2 million in Fiscal 2000 to $9.6 million in
Fiscal 2001. Total selling, general and administrative expenses decreased from
16.3% of sales in Fiscal 2000 to 14.3% of sales in Fiscal 2001. Fiscal 2000
included $2.5 million of incentive payments. This percentage decrease results
primarily from additional cost reduction efforts in Fiscal 2001.
JPS Elastomerics
Net sales in Fiscal 2001 in the Elastomerics segment, which includes single-ply
roofing and extruded urethane products, decreased $4.2 million, or 4.8%, from
$86.6 million in Fiscal 2000 to $82.4 million in Fiscal 2001. The domestic
roofing market continues to be characterized by intense competition driven by
aggressive entrants into this market. The Company has addressed this challenge
by instituting aggressive pricing strategies, development of new products,
strengthening sales management in key territories, and taking actions to reduce
operating costs. Sales of urethane products decreased due to lower overall
demand for certain of the Company's extruded sheet products as a result of the
general economic downturn experienced in the second half of Fiscal 2001.
Operating profit in Fiscal 2001 for the Elastomerics segment decreased $3.6
million from $7.5 million in Fiscal 2000 to $3.9 million in Fiscal 2001. The
decrease resulted principally from lower sales and margins on roofing products
partially offset with cost reduction measures and improved inventory management.
JPS Glass
Net sales in the Glass segment, which includes substrates constructed of
synthetics and fiberglass for lamination, insulation and filtration
applications, decreased $16.2 million, or 19.9%, from $81.4 million in Fiscal
2000 to $65.2 million in Fiscal 2001 primarily as a result of the significant
decline in demand for electronics-related substrates. The electronics industry
represents the largest customer base for the Company's fiberglass products.
Operating profit in Fiscal 2001 for the Glass segment decreased $1.1 million
from $6.8 million in Fiscal 2000 to $5.7 million in Fiscal 2001 resulting from
improved manufacturing productivity and improved quality of its products and
services which have partially offset higher insurance costs as well as declining
prices and volume.
Other
Interest expense decreased $1.1 million to $2.3 million in Fiscal 2001 from $3.4
million in Fiscal 2000. Total long-term debt was reduced by approximately $32.6
million in Fiscal 2001 as a result of cash flow from operations and payment
received on the sale of the Company's Apparel Division. The Company has also
benefited from interest rate reductions.
15
On November 17, 2000 the Company sold the assets of its greige apparel fabric
business which included three manufacturing facilities in South Boston,
Virginia; Greenville, South Carolina; and Laurens, South Carolina; and
administrative offices in Greenville, South Carolina, New York and Los Angeles,
thereby exiting its apparel business. The business accounted for sales of $125.4
million in Fiscal 2000. The consideration for the sale consisted of
approximately $27.1 million in cash and future consideration in the form of an
earn-out based on earnings before interest, depreciation and amortization, as
defined, for the 24-month period following the transaction plus certain assumed
liabilities. The Company has accounted for the results of the apparel fabric
business as a discontinued operation and a charge for loss on disposal of
discontinued operations of $47.4 million was recorded in Fiscal 2000 related
primarily to the writedown of disposed plant assets and related reorganization
value in excess of amounts allocable to identifiable assets, and other exit
costs. The net proceeds from the sale of $26.2 million were used to reduce the
Company's outstanding indebtedness on its Revolving Credit Facility (as defined
below) which was amended in connection with the transaction to reflect the
Company's lower borrowing requirements.
FISCAL 2000 COMPARED WITH FISCAL 1999
Consolidated net sales increased $11.1 million, or 7.1%, from $156.9 million in
Fiscal 1999 to $168.0 million in Fiscal 2000. Consolidated operating profit
increased $7.6 million from $6.6 million in Fiscal 1999 to $14.2 million in
Fiscal 2000. Total selling, general and administrative expenses decreased from
17.2% of sales in Fiscal 1999 to 16.3% of sales in Fiscal 2000. Fiscal 2000
included $2.5 million of incentive payments while Fiscal 1999 included $1.7
million of severance and restructuring costs. The percentage decrease results
primarily from cost reduction efforts and a higher revenue base.
JPS Elastomerics
Net sales in Fiscal 2000 in the Elastomerics segment, which includes single-ply
roofing and extruded urethane products, increased $6.6 million, or 8.3%, from
$80.0 million in Fiscal 1999 to $86.6 million in Fiscal 2000. The domestic
roofing market continues to be characterized by intense competition driven by
aggressive entrants into this market. The Company has addressed this challenge
by instituting aggressive pricing strategies, development of new products,
strengthening sales management in key territories, and taking actions to reduce
operating costs. Sales of urethane products increased due to higher demand for
certain of the Company's extruded sheet products used in security glass and
athletic footwear.
Operating profit in Fiscal 2000 for the Elastomerics segment increased $2.6
million from $4.9 million in Fiscal 1999 to $7.5 million in Fiscal 2000. The
increase resulted principally from increased sales and improved margins on
urethane products, implementation of cost reduction measures, and improved
inventory management.
JPS Glass
Net sales in the Glass segment, which includes substrates constructed of
synthetics and fiberglass for lamination, insulation and filtration
applications, increased $4.5 million, or 5.9%, from $76.9 million in Fiscal 1999
to $81.4 million in Fiscal 2000. The electronics industry represents the largest
customer base for the Company's fiberglass products. Strong worldwide demand
resulted in favorable market conditions for the Company's electronic substrates.
Further, strong demand for the Company's patented filtration products boosted
sales along with increased orders for high quality quartz fabrics and certain
other products. The Company has also taken actions to reduce costs, improve
manufacturing productivity and improve the quality of its products and services
which have offset raw material price increases.
Operating profit in Fiscal 2000 for the Glass segment increased $5.0 million
from $1.8 million in Fiscal 1999 to $6.8 million in Fiscal 2000 resulting from
improved margins, higher manufacturing efficiencies and cost reduction efforts.
16
Other
Interest expense in Fiscal 2000 is consistent with the Fiscal 1999 amounts.
Long-term debt was reduced by approximately $28.3 million in Fiscal 2000 as a
result of operating performance and significant working capital improvements.
On November 17, 2000 the Company sold the assets of its greige apparel fabric
business which included three manufacturing facilities in South Boston,
Virginia; Greenville, South Carolina; and Laurens, South Carolina; and
administrative offices in Greenville, South Carolina, New York and Los Angeles,
thereby exiting its apparel business. The business accounted for sales of $137.6
million and $125.4 million in Fiscal 1999 and 2000, respectively. The
consideration for the sale consisted of approximately $27.1 million in cash and
future consideration in the form of an earn-out based on earnings before
interest, depreciation and amortization, as defined, for the 24-month period
following the transaction plus certain assumed liabilities. The Company has
accounted for the results of the apparel fabric business as a discontinued
operation and a charge for loss on disposal of discontinued operations of $47.4
million was recorded in Fiscal 2000 related primarily to the writedown of
disposed plant assets and related reorganization value in excess of amounts
allocable to identifiable assets, and other exit costs. The net proceeds from
the sale of $26.2 million were used to reduce the Company's outstanding
indebtedness on its Revolving Credit Facility (as defined below) which was
amended in connection with the transaction to reflect the Company's lower
borrowing requirements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity for operations and expansion are
funds generated internally and borrowings under its Revolving Credit Facility.
On May 9, 2001, the Company replaced the existing syndicated senior revolving
credit facility with a new Revolving Credit and Security Agreement with First
Union National Bank. The new facility provides for a revolving credit loan
facility and letters of credit ("the Revolving Credit Facility") in a maximum
principal amount equal to the lesser of (a) $35 million or (b) a specified
borrowing base (the "Borrowing Base"), which is based upon eligible receivables,
eligible inventory, and a specified dollar amount (currently $9.9 million
subject to reduction). The Revolving Credit Facility restricts investments,
acquisitions, and dividends. The Revolving Credit Facility contains financial
covenants relating to minimum levels of net worth, as defined, and a minimum
debt to EBITDA ratio, as defined. The Company is currently in compliance with
all of the restrictions and covenants of its new Revolving Credit Facility. All
loans outstanding under the Revolving Credit Facility bear interest at the
30-day LIBOR rate plus an applicable margin (the "Applicable Margin") based upon
the Company's debt to EBITDA ratio. As of October 27, 2001, the Company's
effective interest rate was 3.6%, and it had approximately $17.3 million
available for borrowing under the Revolving Credit Facility.
Year to date for 2001, cash provided by operating activities was $11.1 million.
Working capital, excluding assets held for sale, at October 28, 2000 was $28.7
million compared with $26.8 million at October 27, 2001. Accounts receivable
decreased by $6.0 million from October 28, 2000 to October 27, 2001 due to
timing and sales levels. Inventories decreased $0.1 million from October 28,
2000 to October 27, 2001. Accounts payable and accrued expenses decreased by
$9.2 million from October 28, 2000 to October 27, 2001 as a result of payment of
Fiscal 2000 Incentive Compensation and lower general payables.
The principal uses of cash in 2001 were for capital expenditures of $5.8 million
to upgrade the Company's manufacturing operations and the repayment of long-term
debt of approximately $32.6 million. The Company also used $2.3 million to
repurchase outstanding shares of its common stock. The Company received
approximately $27.5 million in proceeds from the sale of its Apparel division as
discussed under the caption "Fiscal 2001 Compared With Fiscal 2000" in the
Company's Annual Report on Form 10-K for the fiscal year ended October 27, 2001.
Such funds were used to reduce the Company's outstanding indebtedness under its
Revolving Credit Facility and certain equipment loans.
17
Based upon the ability to generate working capital through its operations and
its new Revolving Credit Facility the Company believes that it has the financial
resources necessary to pay its capital obligations and implement its business
plan.
INFLATION AND TAX MATTERS
The Company is subject to the effects of changing prices. It has generally been
able to pass along inflationary increases in its costs by increasing the prices
for its products or by increasing manufacturing efficiencies; however, market
conditions have precluded raising prices in 2001 and, in some cases, the Company
experienced selling price decreases for its products.
For Fiscal 2001, the Company recorded a tax expense from continuing operations
of $2.8 million, a 39% effective rate. The Company also reduced the valuation
allowance applicable to net operating losses arising prior to the Plan of
Reorganization by $2.8 million and, under applicable accounting guidelines,
reduced excess reorganization value by its remaining amount. The Company had net
operating loss carryovers of approximately $89 million as of October 27, 2001. A
portion of these losses were subject to annual limitations on usage as a result
of the ownership change that occurred on the effective date. The Company
incurred another ownership change in December 2000, as determined under the
Internal Revenue Code of 1996, as amended, resulting in additional limitations
on usage. See Note 7 to the consolidated financial statements for additional
information. The effective tax rates for Fiscal 2000 and 1999 were, 42% and 64%,
respectively. The effective rates for all years are higher than the combined
federal and state statutory rate due primarily to the impact of nondeductible
excess reorganization costs.
RECENT ACCOUNTING PRONOUNCEMENTS
On October 29, 2000, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. The Company did not have any derivatives which were
required to be recorded on the balance sheet.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk. The Company has exposure to interest rate changes primarily
relating to interest rate changes under its Revolving Credit Facility. The
Company's Revolving Credit Facility bears interest at rates which vary with
changes in the London Interbank Offered Rate (LIBOR). The Company does not
speculate on the future direction of interest rates. Currently, all of the
Company's debt bears interest at the 30-day LIBOR rate plus an applicable margin
based upon the Company's debt to EBITDA ratio. The Company believes that the
effect, if any, of reasonably possible near-term changes in interest rates on
the Company's consolidated financial position, results of operations, or cash
flows would not be material.
Raw material price risk. A portion of the Company's raw materials are
commodities and are, therefore, subject to price volatility caused by weather,
production problems, delivery difficulties, and other factors which are outside
the control of the Company. In most cases, essential raw materials are available
from several sources. For several raw materials, however, branded goods or other
circumstances may prevent such diversification and an interruption of the supply
of these raw materials could have a significant impact on the Company's ability
to produce certain products. The Company has established long-term relationships
with key suppliers and may enter into purchase contracts or commitments of one
year or less for certain raw materials. Such agreements generally include a
pricing schedule for the period covered by the contract or commitment. The
Company believes that any changes in raw material pricing, which cannot be
adjusted for by changes in its product pricing or other strategies, would not be
significant.
18
General Economic Conditions. Demand for the Company's products is affected by a
variety of economic factors including, but not limited to, the cyclical nature
of the construction industry, demand for electronic and aerospace products which
ultimately utilize components manufactured by the Company, and general consumer
demand. Adverse economic developments could affect the financial performance of
the Company.
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
JPS Industries, Inc.
We have audited the accompanying consolidated balance sheets of JPS Industries,
Inc. (a Delaware Corporation) and subsidiaries as of October 27, 2001, and the
related statements of operations, shareholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of JPS Industries, Inc. and
subsidiaries as of October 27, 2001, and the results of its operations and its
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index of financial
statements is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina
December 6, 2001
20
INDEPENDENT AUDITORS' REPORT
JPS Industries, Inc.
We have audited the accompanying consolidated balance sheets of JPS Industries,
Inc. and subsidiaries (the "Company") as of October 28, 2000, and the related
statements of operations, shareholders' equity, and cash flows for each of the
two years in the period ended October 28, 2000. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 28, 2000,
and the results of its operations and its cash flows for each of the two years
in the period ended October 28, 2000 in conformity with accounting principles
generally accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedule listed
in the index at page S-1 is presented for the purpose of additional analysis and
is not a required part of the basic financial statements. This financial
statement schedule is the responsibility of the Company's management. Such
financial statement schedule, for each of the two years in the period ended
October 28, 2000, has been subjected to the auditing procedures applied in our
audits of the basic financial statements and, in our opinion, is fairly stated
in all material respects when considered in relation to the basic financial
statements taken as a whole.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
November 29, 2000
21
JPS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
October 28, October 27,
2000 2001
---------- ----------
ASSETS
CURRENT ASSETS:
Cash $ 2,216 $ 544
Accounts receivable, less allowance of $1,024
in 2000 and $684 in 2001 27,640 21,656
Inventories 18,583 18,439
Prepaid expenses and other 6,993 3,291
Net assets of discontinued operations 27,539 --
---------- ----------
Total current assets 82,971 43,930
PROPERTY, PLANT AND EQUIPMENT, net 43,439 43,707
REORGANIZATION VALUE IN EXCESS OF AMOUNTS
ALLOCABLE TO IDENTIFIABLE
ASSETS, less accumulated amortization of $5,286 in 2000 2,971 --
OTHER ASSETS 18,861 22,268
---------- ----------
Total assets $ 148,242 $ 109,905
========== ==========
See notes to consolidated financial statements.
22
October 28, October 27,
2000 2001
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 13,303 $ 10,506
Accrued interest 759 57
Accrued salaries, benefits and withholdings 6,776 2,303
Other accrued expenses 4,924 3,643
Current portion of long-term debt 936 620
---------- ----------
Total current liabilities 26,698 17,129
LONG-TERM DEBT 51,529 19,287
OTHER LONG-TERM LIABILITIES 17,607 18,242
---------- ----------
Total liabilities 95,834 54,658
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; authorized -
22,000,000 shares; issued - 10,000,000 shares;
outstanding - 9,271,756 shares in 2001 and
9,732,500 shares in 2000 100 100
Additional paid-in capital 124,190 124,175
Treasury stock (at cost) - 728,244 shares in 2001
and 267,500 shares in 2000 (1,263) (2,835)
Accumulated deficit (70,619) (66,193)
---------- ----------
Total shareholders' equity 52,408 55,247
---------- ----------
Total liabilities and shareholders' equity $ 148,242 $ 109,905
========== ==========
See notes to consolidated financial statements.
23
JPS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands Except Share and Per Share Data)
Fiscal Fiscal Fiscal
Year Year Year
Ended Ended Ended
October 30, October 28, October 27,
1999 2000 2001
------------- ------------- -------------
Net sales $ 156,867 $ 167,978 $ 147,626
Cost of sales 121,579 126,380 116,888
------------- ------------- -------------
Gross profit 35,288 41,598 30,738
Selling, general and administrative expenses 26,978 27,368 21,162
Other expense (income), net 1,663 (18) (1)
------------- ------------- -------------
Operating profit 6,647 14,248 9,577
Interest expense, net (3,511) (3,442) (2,333)
------------- ------------- -------------
Income before income taxes and
discontinued operations 3,136 10,806 7,244
Provision for income taxes 1,997 4,517 2,818
------------- ------------- -------------
Income from continuing operations 1,139 6,289 4,426
Discontinued operations (net of taxes):
Loss from discontinued operations (4,485) (104) --
Loss on disposal of discontinued operations (18,096) (47,415) --
------------- ------------- -------------
Net income (loss) (21,442) (41,230) 4,426
Other comprehensive income (net of taxes):
Minimum pension liability adjustments 5,855 -- --
------------- ------------- -------------
Comprehensive income (loss) $ (15,587) $ (41,230) $ 4,426
============= ============= =============
Weighted average number of common
shares outstanding:
Basic 10,000,000 9,940,000 9,340,466
============= ============= =============
Diluted 10,000,000 10,045,698 9,610,263
============= ============= =============
Basic earnings (loss) per common share:
Income from continuing operations $ 0.11 $ 0.63 $ 0.47
Discontinued operations (net of taxes):
Loss from discontinued operations (0.44) (0.01) --
Loss on disposal of discontinued operations (1.81) (4.77) --
------------- ------------- -------------
Net income (loss) $ (2.14) $ (4.15) $ 0.47
============= ============= =============
Diluted earnings (loss) per common share:
Income from continuing operations $ 0.11 $ 0.63 $ 0.46
Discontinued operations (net of taxes):
Loss from discontinued operations (0.44) (0.01) --
Loss on disposal of discontinued operations (1.81) (4.72) --
------------- ------------- -------------
Net income (loss) $ (2.14) $ (4.10) $ 0.46
============= ============= =============
See notes to consolidated financial statements.
24
JPS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars In Thousands)
Accumulated
Additional Other
Common Paid-In Treasury Comprehensive Accumulated
Stock Capital Stock Loss Deficit
--------- ---------- --------- ------------- -----------
Balance - October 31, 1998 $ 100 $ 123,230 $ -- $ (5,855) $ (7,947)
Stock compensation expense 712
Additional minimum pension liability
adjustment 5,855
Net loss (21,442)
--------- --------- --------- --------- ---------
Balance - October 30, 1999 100 123,942 -- -- (29,389)
Stock compensation expense 248
Shares reacquired and held in treasury (1,263)
Net loss (41,230)
--------- --------- --------- --------- ---------
Balance - October 28, 2000 100 124,190 (1,263) -- (70,619)
Stock compensation expense 102
Shares reacquired and held in treasury (2,309)
Exercise of stock options (117) 737
Net income 4,426
--------- --------- --------- --------- ---------
Balance - October 27, 2001 $ 100 $ 124,175 $ (2,835) $ -- $ (66,193)
========= ========= ========= ========= =========
See notes to consolidated financial statements.
25
JPS INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
Fiscal Fiscal Fiscal
Year Year Year
Ended Ended Ended
October 30, October 28, October 27,
1999 2000 2001
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (21,442) $ (41,230) $ 4,426
------------- ------------- -------------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Loss from discontinued operations 4,485 104 --
Loss on disposal of discontinued operations 18,096 47,415 --
Depreciation and amortization 6,382 6,157 5,797
Amortization of deferred financing costs 414 272 320
Deferred income tax provision (benefit) (1,753) 2,532 2,715
Other, net (1,793) (3,918) 420
Changes in assets and liabilities:
Accounts receivable 752 (689) 5,984
Inventories 3,571 1,869 144
Prepaid expenses and other assets (156) (269) 502
Accounts payable (1,872) 1,758 (2,797)
Accrued expenses and other liabilities (2,062) 2,264 (6,456)
------------- ------------- -------------
Total adjustments 26,064 57,495 6,629
------------- ------------- -------------
Net cash provided by continuing
operating activities 4,622 16,265 11,055
Net cash from discontinued operations 5,694 17,712 --
------------- ------------- -------------
Net cash provided by operating activities 10,316 33,977 11,055
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment additions (4,071) (2,609) (5,822)
Proceeds from disposal of discontinued operations, net 4,658 -- --
Proceeds from disposal of certain other operations 8,491 -- --
Proceeds from assets held for sale -- -- 27,539
------------- ------------- -------------
Net cash provided by (used in) investing activities $ 9,078 $ (2,609) $ 21,717
------------- ------------- -------------
(Table continued on next page)
26
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued from previous page)
(Dollars In Thousands)
Fiscal Fiscal Fiscal
Year Year Year
Ended Ended Ended
October 30, October 28, October 27,
1999 2000 2001
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Financing costs incurred $ (732) $ -- $ (197)
Purchase of treasury stock -- (1,263) (2,309)
Net proceeds from exercise of stock options -- -- 620
Revolving credit facility borrowings (repayments), net (18,628) (27,394) (31,248)
Repayment of other long-term debt (332) (922) (1,310)
------------- ------------- -------------
Net cash used in financing activities (19,692) (29,579) (34,444)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH (298) 1,789 (1,672)
CASH AT BEGINNING OF YEAR 725 427 2,216
------------- ------------- -------------
CASH AT END OF YEAR $ 427 $ 2,216 $ 544
============= ============= =============
SUPPLEMENTAL INFORMATION ON CASH
FLOWS FROM CONTINUING OPERATIONS:
Interest paid $ 7,323 $ 6,361 $ 2,715
Income taxes paid, net 570 402 448
Non-cash financing activities:
Capital lease obligation 1,307 -- --
See notes to consolidated financial statements.
27
JPS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include JPS Industries, Inc. and its direct subsidiaries, all of which
are wholly owned. Significant intercompany transactions and accounts
have been eliminated. Unless the context otherwise requires, the terms
"JPS" and the "Company" as used in these Consolidated Financial
Statements mean JPS Industries, Inc. and JPS Industries, Inc. together
with its subsidiaries, respectively.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
The Company's most significant financial statement estimates include
the estimate of the allowance for doubtful accounts, reserve for
self-insurance liabilities, and the reserve for roofing products sold
under warranties. Management determines its estimate of the allowance
for doubtful accounts considering a number of factors, including
historical experience, aging of the accounts and the current
creditworthiness of its customers. Management determines its estimate
of the reserve for self-insurance considering a number of factors,
including historical experience, third party claims administrator and
actuarial assessments and insurance coverages. Management determines
its estimate of the reserve for roofing products sold under warranties
by reviewing factors such as expected future claims and roofing
compound applied; and the expected costs to repair and replace such
roofing products. Management believes that its estimates provided in
the financial statements are reasonable and adequate. However, actual
results could differ from those estimates.
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
The Company assesses its long-lived assets for impairment whenever
facts and circumstances indicate that the carrying amount may not be
fully recoverable. If required, an impairment loss is measured based
upon the difference between the carrying amount and the fair value of
the assets. Assets under capital leases are amortized in accordance
with the Company's normal depreciation policy and the charge to
earnings is included in depreciation expense in the accompanying
consolidated financial statements. Depreciation expense totaled $4.8
million for Fiscal 1999, $5.1 million for Fiscal 2000, and $5.5 million
for Fiscal 2001.
Reorganization Value in Excess of Amounts Allocable to Identifiable
Assets - ("Reorganization Value") in excess of amounts allocable to
identifiable assets resulted from the application of "fresh start"
reporting in 1997 and is being amortized over a 20-year period. In
Fiscal 1999 and 2000, the Reorganization Value was decreased by
approximately $3.7 million and $15.0 million, respectively, in relation
to the discontinued operations, plant sales and plant closure discussed
in Notes 2 and 3. As discussed in Note 7, the remaining amount was
retired in connection with the year-end adjustment of the Company's
deferred tax asset valuation allowance and $0 remains at October 27,
2001.
28
Distribution Costs - A portion of the Company's distribution and
shipping and handling costs are included in cost of sales and selling,
general and administrative costs. The portion of these costs, which
were included in selling, general and administrative costs, totaled
$2.1 million in Fiscal 1999, $2.4 million in Fiscal 2000, and $2.0
million in Fiscal 2001.
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 10 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
when claims become estimable.
Fair Value of Financial Instruments - The carrying amounts of all
financial instruments approximate their estimated fair values in the
accompanying Balance Sheets. The carrying amounts of cash, accounts
receivable, accounts payable, and accrued expenses approximate fair
value because of the short maturity of these items. The carrying value
of financial instruments such as debt and notes receivable approximates
fair value because interest rates on these instruments change with
market rates.
Revenue Recognition - The Company recognizes revenue from product sales
when it has shipped the goods.
Advertising Costs - The Company defers advertising related costs until
the advertising is first run in magazines or other publications or in
the case of brochures, until the brochures are printed and available
for distribution. Advertising costs expensed were approximately $1.9
million in Fiscal 1999, $1.5 million in Fiscal 2000, and $1.3 million
in Fiscal 2001.
Income Taxes - Deferred tax assets and liabilities are determined based
on the difference between the financial statement bases and tax bases
of assets and liabilities using enacted tax rates. A valuation
allowance is recorded to reduce a deferred tax asset to that portion
that is expected to more likely than not be realized.
Earnings Per Share - Potentially dilutive common shares consist
primarily of stock options. For the year ended October 30, 1999, the
inclusion of additional shares assuming the exercise of stock options
and warrants are antidilutive. Therefore, basic and diluted earnings
per share are the same for that period.
Fiscal Year - The Company's operations are based on a 52 or 53-week
fiscal year ending on the Saturday closest to October 31. Each of
fiscal years 1999, 2000, and 2001 had 52 weeks.
Effects of Recent Accounting Pronouncements - On October 29, 2000, the
Company adopted Statement Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities."
This statement requires companies to record derivatives on the balance
sheet as assets or liabilities, measured at fair value. As of October
28, 2000 and October 27, 2001, the Company did not have any derivatives
which were required to be recorded on the balance sheet.
2. SALE OF DISCONTINUED OPERATIONS
Yarn Sales Business - On July 23, 1999, the Company sold its Stanley
manufacturing plant, thereby exiting its yarn sales business. This
business accounted for sales of $11.0 million in Fiscal 1999. The
consideration for the Stanley sale consisted of approximately $2.0
million in cash. A charge for loss on disposal of discontinued
operations of approximately $9.2 million was recorded in Fiscal 1999
related primarily to the
29
writedown of disposed plant assets and related Reorganization Value to
net realizable value, employee severance costs, and other exit costs.
The net proceeds from the sale were used to reduce the Company's
outstanding indebtedness on its Revolving Credit Facility and an
equipment loan.
Cotton Commercial Products Business - On August 27, 1999, the Company
sold its Borden manufacturing plant, thereby exiting its cotton
commercial products business. This business generated sales of $18.4
million in Fiscal 1999. The consideration for the Borden sale consisted
of approximately $3.2 million in cash and a $2.0 million subordinated
promissory note which was recorded at its estimated fair value. A
charge for loss on disposal of discontinued operations of approximately
$8.9 million was recorded in Fiscal 1999 related primarily to the
writedown of disposed plant assets and related Reorganization Value to
net realizable value, employee severance costs, and other exit costs.
The net proceeds from the sale were used to reduce the Company's
outstanding indebtedness on its Revolving Credit Facility.
Apparel Fabric Business - On November 17, 2000 the Company sold the
assets of its greige apparel fabric business which included three
manufacturing facilities in South Boston, Virginia; Greenville, South
Carolina; and Laurens, South Carolina; and administrative offices in
Greenville, South Carolina, New York and Los Angeles, thereby exiting
its apparel business. The business accounted for sales of $137.6
million, and $125.4 million in Fiscal 1999 and 2000, respectively. The
consideration for the sale consisted of approximately $27.1 million in
cash and future consideration in the form of an earn-out based on
earnings before interest, depreciation and amortization, as defined,
for the 24-month period following the transaction plus certain assumed
liabilities. The Company has accounted for the results of the Apparel
Fabric Business as a discontinued operation and a charge for loss on
disposal of discontinued operations of $47.4 million was recorded in
Fiscal 2000 related primarily to the writedown of disposed plant assets
and related Reorganization Value to realizable value and other exit
costs. The net proceeds from the sale of $26.2 million were used to
reduce the Company's outstanding indebtedness on its Revolving Credit
Facility which was amended in connection with the transaction to
reflect the Company's lower borrowing requirements.
3. SALE OF CERTAIN OPERATIONS, PLANT CLOSING, WRITEDOWN OF CERTAIN
LONG-LIVED ASSETS AND RESTRUCTURING COSTS
On March 2, 1999, the Company completed the sale of its Boger City
manufacturing plant, thereby exiting the home fashions woven fabrics
business. This business accounted for sales of $7.3 million in Fiscal
1999. The consideration for the sale consisted of approximately $7.9
million in cash. The net proceeds from the sale were used to reduce the
Company's outstanding indebtedness on its Revolving Credit Facility and
an equipment loan.
The Company closed its Angle manufacturing facility in the Fiscal 1999
third quarter and sold the plant on September 3, 1999, thereby
streamlining the apparel business. The plant closing also resulted in a
charge in Fiscal 1999 of approximately $0.9 million related principally
to employee severance costs, all of which is now included in the loss
from discontinued operations in Fiscal 1999. The proceeds from the sale
of the plant facility of approximately $0.2 million were used to reduce
the Company's outstanding indebtedness under its Revolving Credit
Facility.
Additionally, in Fiscal 1999, the Company implemented cost reduction
measures which included, among other things, personnel reductions and
the idling of certain manufacturing equipment. The results of
operations for Fiscal 1999 include a "charge for writedown of certain
long-lived assets" of approximately $1.5 million for the impairment of
idled equipment and a "charge for restructuring costs" of approximately
$1.7 million related primarily to employee severance costs. Except for
the $1.7 million of restructuring costs incurred in Fiscal 1999, all
such costs have been reflected in discontinued operations.
30
4. BALANCE SHEET COMPONENTS
The components of certain balance sheet accounts are (in thousands):
October 28, October 27,
2000 2001
----------- -----------
Inventories:
Raw materials and supplies $ 5,796 $ 3,415
Work-in-process 5,135 4,662
Finished goods 7,652 10,362
---------- ----------
$ 18,583 $ 18,439
========== ==========
Prepaid expenses and other:
Deferred current tax $ 4,200 $ 1,000
Prepaid insurance 324 427
Other 2,469 1,864
---------- ----------
$ 6,993 $ 3,291
========== ==========
Property, plant and equipment, net:
Land and improvements $ 972 $ 972
Buildings and improvements 5,396 5,517
Machinery and equipment 48,836 54,957
Furniture, fixtures and other 890 923
---------- ----------
56,094 62,369
Less accumulated depreciation (13,455) (18,736)
---------- ----------
42,639 43,633
Construction in progress 800 74
---------- ----------
$ 43,439 $ 43,707
========== ==========
Other noncurrent assets:
Deferred financing fees $ 237 $ 114
Prepaid pension costs 10,848 11,350
Deferred income tax 7,756 10,804
Other 20 --
---------- ----------
$ 18,861 $ 22,268
========== ==========
Other accrued expenses:
Roofing warranty costs $ 1,750 $ 1,754
Taxes payable other than income taxes 477 485
Income taxes 575 --
Other 2,122 1,404
---------- ----------
$ 4,924 $ 3,643
========== ==========
Other long-term liabilities:
Roofing and deferred warranty income $ 14,415 $ 15,033
Accrued postretirement and postemployment benefit plan liability 3,192 3,209
---------- ----------
$ 17,607 $ 18,242
========== ==========
31
5. LONG-TERM DEBT
Long-term debt consists of (in thousands):
October 28, October 27,
2000 2001
----------- -----------
Senior credit facility, revolving line of credit $ 48,000 $ 16,752
Equipment financing 736 --
Capital lease obligation 3,729 3,155
---------- ----------
Total 52,465 19,907
Less current portion (936) (620)
---------- ----------
Long-term portion $ 51,529 $ 19,287
========== ==========
Senior Credit Facility - On May 9, 2001, the Company replaced the
existing syndicated senior revolving credit facility with a new
Revolving Credit and Security Agreement with First Union National Bank.
The new facility provides for a revolving credit loan facility and
letters of credit ("the Revolving Credit Facility") in a maximum
principal amount equal to the lesser of (a) $35 million or (b) a
specified borrowing base (the "Borrowing Base"), which is based upon
eligible receivables, eligible inventory, and a specified dollar amount
(currently $9.9 million subject to reduction). The Revolving Credit
Facility restricts investments, acquisitions, and dividends. The
Revolving Credit Facility contains financial covenants relating to
minimum levels of net worth, as defined, and a minimum debt to EBITDA
ratio, as defined. As of October 27, 2001, the Company was in
compliance with all of the restrictions and covenants of its new
Revolving Credit Facility. All loans outstanding under the Revolving
Credit Facility bear interest at the 30-day LIBOR rate plus an
applicable margin (the "Applicable Margin") based upon the Company's
debt to EBITDA ratio. As of October 27, 2001, the Company's effective
interest rate was 3.6%.
As of October 27, 2001, unused and outstanding letters of credit
totaled $0.6 million. The outstanding letters of credit reduce the
funds available under the Revolving Credit Facility. At October 27,
2001, the Company had approximately $17.3 million available for
borrowing under the Revolving Credit Facility. All borrowings under the
Revolving Credit Facility mature in Fiscal 2004.
Capital Lease Obligation - In Fiscal 1998, the Company entered into a
seven-year lease agreement (classified as a capital lease) for certain
machinery and equipment. The total costs of assets under lease at
October 28, 2000 and October 27, 2001 was approximately $4.8 million.
The lease provides for an early buyout option at the end of six years
and includes purchase and renewal options at the end of the lease term.
The lease has an implied interest rate of approximately 7.4%. See Note
8 for obligations under capital leases.
Other - The loans and extensions of credit to the Company under the
Revolving Credit Facility are guaranteed by JPS Elastomerics Corp. and
JPS Converter and Industrial Corp. Substantially all of the Company's
assets, excluding real property, are pledged as collateral for the
Revolving Credit Facility or the capital lease obligation.
Interest expense includes $414,000 in Fiscal 1999, $272,000 in Fiscal
2000, and $320,000 in Fiscal 2001 representing amortization of debt
issuance expenses. Interest expense allocated to discontinued
operations was $3.9 million in Fiscal 1999 and $2.9 million in Fiscal
2000 based upon the ratio of identifiable net assets.
32
6. EQUITY SECURITIES
The Company has one class of stock issued and outstanding.
Share Repurchase Program
In 2000, the Board of Directors authorized the expenditure of up to $8
million for the repurchase of the Company's common stock. In November,
2000, this authorization was increased to $10 million. As of October
27, 2001, the Company had repurchased 886,005 shares at a cost of $3.6
million. This includes Fiscal 2000 repurchases of 267,500 shares at an
aggregate cost of $1.3 million and Fiscal 2001 repurchases of 618,505
shares at a cost of $2.3 million. Management intends to make purchases
of its common stock from time to time in the open market or in
negotiated transactions, but there is no assurance that future
repurchases will be made and the repurchase program may be discontinued
at any time. There is no time limit on stock repurchases. The Company
may use the stock to meet its obligations under its employee stock
option program. The Company reissued 158,166 shares in 2001 in
connection with its stock option program.
1997 Incentive and Capital Accumulation Plan
The 1997 Incentive and Capital Accumulation Plan (the "Incentive Plan")
provides certain key employees and non-employee directors of the
Company the right to acquire shares of Common Stock or monetary
payments based on the value of such shares. Pursuant to the Incentive
Plan, approximately 853,000 shares of Common Stock were initially
reserved for issuance to the participants. On April 7, 1999, the
Shareholders increased the number of shares reserved for issuance from
853,485 to 1,353,485. These options included a combination of time
vesting options which vest solely on the lapse of time and performance
options which vest upon achievement of specified corporate performance
goals and the lapse of time.
On May 12, 1999 the Compensation Committee of the Board of Directors
approved a plan to reprice stock options held by certain employees and
Directors. Effective on that date, 349,150 options with an exercise
price of $12.33 per share were reissued at an exercise price of $4.375
per share, the fair market value per share on the date of repricing.
All repriced options were changed from a combination of performance and
time vested options to solely time-vested options. The repriced options
are shown as a separate cancellation and reissuance in the chart below.
Under the provisions of Financial Accounting Standards Board
Interpretation 44 (FIN 44) which was effective July 1, 2000, the
Company is required to record non-cash compensation expense on the
repriced options if the stock price exceeds certain threshold amounts.
The provisions of FIN 44 will continue to apply until the repriced
options are exercised, expire or are cancelled. Although there was no
material compensation expense in Fiscal Year 2001 and 2000 as a result
of applying FIN 44, FIN 44 could result in significant future non-cash
compensation expense. Any expense will be added back to operating
income to determine the Company's EBITDA, as previously defined.
No options grants were made in Fiscal 2001. There were exercises of
158,166 options. There were cancellations of 79,664 options during
Fiscal 2001 as a result of employees voluntarily terminating employment
with the Company or lapses in options following terminations where an
exercise period was allowed. As of October 27, 2001 option prices
ranged from $2.94 to $4.38 per share.
A summary of the activity in the Company's stock options for the years
ended October 30, 1999, October 28, 2000, and October 27, 2001 is
presented below:
33
Weighted Average
Number of Shares Exercise Price
---------------- ----------------
Outstanding at October 31, 1998 574,981 $ 12.33
Options granted 595,000 3.29
Options canceled (171,665) 12.33
Options canceled - repriced (349,150) 12.33
Options granted - repriced 349,150 4.38
---------- ----------
Outstanding at October 30, 1999 998,316 4.16
Options granted 206,500 3.16
Options cancelled (160,831) 6.80
---------- ----------
Outstanding at October 28, 2000 1,043,985 3.56
Options granted -0- --
Options cancelled (79,664) 4.20
Options exercised (158,166) 3.96
---------- ----------
Outstanding at October 27, 2001 806,155 $ 3.41
========== ==========
Exercisable at October 27, 2001 704,828
==========
Exercisable at October 28, 2000 644,320
==========
Exercisable at October 30, 1999 436,996
==========
Weighted average remaining contractual life (years)
at October 27, 2001 7.26
==========
The Company applies the principles of APB Opinion 25 in accounting for
employee stock option plans. The time vesting options are fixed as to
the number of shares that may be acquired and the amount to be paid by
the employee. Under APB Opinion 25, the Company generally recognizes no
compensation expense with respect to such awards because the quoted
market price and the amount to be paid by the employee are the same on
the date of grant. The Company's Chief Executive Officer was granted
500,000 options on February 28, 1999; however, the measurement date was
April 7, 1999, the date the shareholders approved an amendment to the
Incentive Plan increasing the number of shares that could be offered.
As such, compensation expense was measured as the difference in the
market value of the Company's stock between the grant date and the
measurement date and the expense is being recognized over the two-year
vesting period. The Company recognized compensation expense of
approximately $0.7 million in Fiscal 1999, $0.2 million in Fiscal 2000,
and $0.1 million in Fiscal 2001 relating to these options.
The fair value of options granted has been estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted average assumptions:
Stock Option Plan
-----------------------
Fiscal Fiscal
2000 2001
------ ------
Option life (in years) 3.0 No
Risk-free interest rate 6.3% Grants
Stock price volatility .66 2001
Dividend yield --
Proforma weighted average value using formula $1.53
Actual weighted average exercise price $3.16
34
Had the Company determined compensation expense based on the fair value
at the grant date for its options under SFAS No. 123, for Fiscal 1999
and Fiscal 2000 the Company's net loss and net loss per share would
have been increased as a result of cancellation of options which were
expensed in previous years. For Fiscal 2001, the Company's net income
and net income per share would have been increased. The proforma impact
of determining compensation expense under SFAS No. 123 is indicated
below (in thousands):
Fiscal Fiscal Fiscal
2001 1999 2000
----------- ----------- -----------
Net (loss) income
As reported $ (21,442) $ (41,230) $ 4,426
Pro forma $ (22,626) $ (41,330) $ 4,681
Net (loss) income per share
As reported $ (2.14) $ (4.15) $ 0.47
Pro forma $ (2.26) $ (4.16) $ 0.50
7. INCOME TAXES
The provision for income taxes on continuing operations included in the
consolidated statements of operations consists of the following (in
thousands):
Fiscal Fiscal Fiscal
2001 1999 2000
----------- ----------- -----------
Current federal provision $ -- $ 10 $ --
Current state provision 285 303 103
Deferred federal provision 1,503 4,150 2,664
Deferred state provision 209 54 51
----------- ----------- -----------
Provision for income taxes $ 1,997 $ 4,517 $ 2,818
=========== =========== ===========
A reconciliation between income taxes at the 35% statutory Federal
income tax rate and the provision (benefit) for income taxes for Fiscal
1999, Fiscal 2000 and Fiscal 2001 is as follows (in thousands):
Fiscal Fiscal Fiscal
2001 1999 2000
----------- ----------- -----------
Income tax provision
at Federal statutory rate $ 1,098 $ 3,782 $ 2,535
Increase in income taxes arising from
effect of:
State and local income taxes 494 357 154
Amortization of excess reorganization
value 329 295 61
Other 76 83 68
----------- ----------- -----------
Provision for income taxes $ 1,997 $ 4,517 $ 2,818
=========== =========== ===========
Presented below are the elements which comprise deferred tax assets and
liabilities (in thousands):
35
October 28, October 27,
2000 2001
----------- -----------
Gross deferred assets:
Estimated allowance for doubtful accounts $ 959 $ 837
Excess of tax over financial statement basis of inventory 549 527
Accruals deductible for tax purposes when paid 278 320
Deferred stock option expense deductible for tax purposes
when paid 477 412
Postretirement benefits deductible for tax purposes when paid 1,587 1,514
Alternative minimum tax credit carryforward available 1,783 1,809
Deferred warranty income recognized for tax purposes
when received 6,143 6,383
Excess of tax over financial statement carrying value of
investment in discontinued operation 13,915 --
Excess of tax basis of intangibles over financial statement basis 3,798 3,483
Miscellaneous -- 128
Net operating loss carryforwards 22,399 33,874
Less valuation allowance (29,180) (26,397)
---------- ----------
Gross deferred assets $ 22,708 $ 22,890
---------- ----------
Gross deferred liabilities:
Pension asset recognized for book purposes $ (4,123) $ (4,313)
Excess of financial statement over tax basis of property, plant,
and equipment (6,629) (6,773)
---------- ----------
Gross deferred liabilities (10,752) (11,086)
---------- ----------
Net deferred tax asset $ 11,956 $ 11,804
========== ==========
Recognized in the accompanying consolidated balance sheets as follows:
Prepaid expenses and other $ 4,200 $ 1,000
Other non-current assets 7,756 10,804
---------- ----------
$ 11,956 $ 11,804
========== ==========
For Fiscal 2001, the Company recorded a tax expense of $2.8 million.
The Company evaluated its valuation allowance on its deferred tax
asset. Based on historical and expected income of the continuing
operations, a determination was made that the valuation allowance
established in fresh start accounting should be decreased by $2.8
million. Under applicable accounting guidelines such reduction is first
applied to reduce Reorganization Value. Accordingly, Reorganization
Value was eliminated (see Note 1).
For Fiscal 2000, the Company recorded a tax expense on continuing
operations of $4.5 million. In conjunction with the sale of the Apparel
Division, the Company evaluated the valuation allowance on its deferred
tax asset. Based on historical and expected income of the continuing
operations, a determination was made that the valuation allowances
established in fresh start accounting should be reversed. Accordingly,
the Company reduced Reorganization Value by $11.4 million. The Company
also recorded a tax benefit of $4.2 million on the loss on sale of
discontinued operations. A valuation allowance was recorded on the
remainder of this loss.
At October 27, 2001, the Company had regular federal net operating loss
carryforwards for tax purposes of approximately $89 million. The net
operating loss carryforwards expire in years 2003 through 2020. The
36
Company also has federal alternative minimum tax net operating loss
carryforwards of approximately $105 million which expire in 2004
through 2020. Alternative minimum tax credits of $1.8 million can be
carried forward indefinitely and used as a credit against regular
federal taxes, subject to limitation.
The Company's future ability to utilize a portion of its net operating
loss carryforwards is limited under the income tax laws as a result of
being treated as having a change in the ownership of the Company's
stock as of December 2000 under Federal income tax laws. The effect of
such an ownership change is to limit the annual utilization of the net
operating loss carryforwards to an amount equal to the value of the
Company immediately after the time of the change (subject to certain
adjustments) multiplied by the Federal long-term tax exempt rate. Based
on the expiration dates for the loss carryforwards and fair market
value at the time of ownership change, the Company does not believe
that the limitations imposed as a result of prior ownership changes
will result in any Federal loss carryforward expiring unutilized.
Uncertainties surrounding income tax law changes, shifts in operations
between state taxing jurisdictions and future operating income levels
may, however, affect the ultimate realization of all or some portion of
these deferred income tax assets. In addition, a future change in
ownership could result in additional limitations on the ability of the
Company to utilize its net operating loss carryforwards. Under
applicable accounting guidelines, these future uncertainties, combined
with factors giving rise to losses, requires a valuation allowance be
recognized.
8. COMMITMENTS AND CONTINGENCIES
Leases - The Company leases office facilities, machinery and computer
equipment under noncancellable operating leases and capital leases.
Rent expense from continuing operations was approximately $2.1 million
in Fiscal 1999, $2.1 million in Fiscal 2000, and $0.9 million in Fiscal
2001.
Future minimum payments, by year and in the aggregate, under the
noncancellable capital and operating leases with terms of one year or
more consist of the following at October 27, 2001 (in thousands):
Capital Operating
Fiscal Year Ending Lease Leases
------------------ ---------- ----------
2002 $ 840 $ 442
2003 840 124
2004 1,587 10
2005 380 5
---------- ----------
Total future minimum lease payments 3,647 $ 581
Less: amount representing interest (492) ==========
----------
Present value of net minimum lease payments
(included in long-term debt - see Note 5) $ 3,155
==========
Litigation - The Company is exposed to a number of asserted and
unasserted potential claims encountered in the normal course of
business including certain asbestos based claims. Except as discussed
below, management believes that none of this litigation, if determined
unfavorable to the Company, would have a material adverse effect on the
financial condition or results of operations of the Company.
In June 1997, Sears Roebuck and Co. ("Sears") filed a multi-count
complaint against Elastomerics and two other defendants alleging an
unspecified amount of damages in connection with the alleged premature
deterioration of the Company's Hypalon roofing membrane installed
during the 1980's on approximately 140 Sears stores. No trial date has
been established. The Company believes it has meritorious defenses to
the claims and intends to defend the lawsuit vigorously. Management,
however, cannot determine the outcome of the lawsuit or estimate the
range of loss, if any, that may occur. Accordingly, no provision has
been made for any loss which may result. An unfavorable resolution of
the actions could have a material adverse effect on the business,
results of operations or financial condition of the Company if not
covered by insurance.
37
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
businesses which were sold or plants which were closed by the Company.
The benefits of these former employees were "frozen" at the respective
dates of sale of the businesses or closure of the plants. Accordingly,
these former employees will retain benefits earned through the
respective disposal dates; however, they will not accrue additional
benefits. The plan provides pension benefits that are based on the
employees' compensation during the last 10 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 a bond portfolio covering
specific liabilities and in common and preferred stocks, government
and corporate bonds, and various short-term investments. During Fiscal
1999, the pension plan also purchased approximately 1.9 million shares
of the Company's common stock in open market and negotiated
transactions. This common stock accounted for less than 10% of the
pension plan's total assets at the time of purchase.
Components of net periodic pension cost include the following (in
thousands):
Fiscal Fiscal Fiscal
1999 2000 2001
------- ------- -------
Components of net periodic pension cost:
Service cost-benefits earned
during the period $ 2,268 $ 1,678 $ 900
Interest cost on projected
benefit obligation 7,321 7,455 7,532
Expected return on plan assets (9,198) (9,264) (9,378)
Recognized actuarial loss 195 -- --
------- ------- -------
Net periodic pension cost (income) $ 586 $ (131) $ (946)
======= ======= =======
The weighted-average rates used in determining pension cost for the
plan are as follows:
Discount rate 7.50% 7.75% 7.25%
Expected long-term rate of return
on plan assets 9.00% 9.00% 9.00%
Rate of compensation increase Age-related Age-related Age-related
A reconciliation of the plan's projected benefit obligation, fair
value of plan assets, funding status, and other applicable information
is as follows (in thousands):
October 28, October 27,
2000 2001
----------- -----------
Change in benefit obligation:
Benefit obligation at beginning of year $ 106,115 $ 101,195
Service cost 1,678 900
Interest cost 7,455 7,532
Benefits paid (8,953) (8,043)
Actuarial (gain) loss (5,100) 2,677
--------- ---------
Benefit obligation at end of year $ 101,195 $ 104,261
--------- ---------
(Table continued on next page)
38
(Table continued from previous page)
October 28, October 27,
2000 2001
----------- -----------
Change in plan assets:
Fair value of plan assets at beginning of year $ 104,788 $ 106,164
Actual return on plan assets 8,096 6,707
Employer contributions 2,233 --
Benefits paid (8,953) (8,043)
--------- ---------
Fair value of plan assets at end of year $ 106,164 $ 104,828
--------- ---------
Reconciliation of funded status:
Funded status $ 4,969 $ 567
Unrecognized actuarial loss 5,879 10,783
--------- ---------
Prepaid benefit cost, included in Other Assets $ 10,848 $ 11,350
========= =========
401(k) Savings Plan - The Company also has a savings, investment and
profit sharing plan available to employees meeting eligibility
requirements. 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 $188,000 in Fiscal 1999, $199,000 in
Fiscal 2000, and $187,000 in Fiscal 2001.
Postretirement Benefits - The Company has several unfunded
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 consolidated financial statements:
Net periodic postretirement benefit expense included the following
components (in thousands):
Fiscal Fiscal Fiscal
1999 2000 2001
------ ------ ------
Service cost for benefits earned $143 $ 34 $ 10
Interest cost on APBO 294 207 229
Recognized actuarial loss (gain) 124 286 (4)
---- ---- -----
Net periodic postretirement cost $561 $527 $ 235
==== ==== =====
The weighted-average rates used in determining postretirement medical
and life insurance costs are as follows:
Fiscal 1999 Fiscal 2000 Fiscal 2001
----------- ----------- -----------
Discount rate 7.50% 7.75% 7.25%
39
A reconciliation of the postretirement medical and life insurance
plan's projected benefit obligation and funding status is as follows
(in thousands):
October 28, October 27,
2000 2001
----------- -----------
Change in benefit obligation:
Benefit obligation at beginning of year $ 3,262 $ 3,574
Service cost 34 10
Interest cost 207 229
Net benefits paid (426) (240)
Actuarial (gain) or loss 497 (4)
------- -------
Benefit obligation at end of year $ 3,574 $ 3,569
======= =======
Reconciliation of funded status:
Funded status $(3,574) $(3,569)
Unrecognized actuarial (gain) or loss 0 0
------- -------
Net amount recognized at year-end $(3,574) $(3,569)
======= =======
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.
Postemployment Benefits - The Company provides certain benefits to
former or inactive employees after employment but before retirement.
In accordance with SFAS No. 112, these benefits are recognized on the
accrual basis of accounting. The liability for postemployment benefits
at October 28, 2000 of $0.3 million and October 27, 2001 of $0.4
million is included in other long-term liabilities in the accompanying
consolidated financial statements.
10. BUSINESS SEGMENTS
The Company's reportable segments are JPS Elastomerics and JPS Glass.
The reportable segments were determined using the Company's method of
internal reporting, which divides and analyzes the business by the
nature of the products manufactured and sold, the customer base,
manufacturing process, and method of distribution. The Elastomerics
segment principally manufactures and markets extruded products
including high performance roofing products, environmental
geomembranes, and various polyurethane products. The Glass segment
produces and markets specialty substrates mechanically formed from
fiberglass and other specialty materials for a variety of applications
such as printed circuit boards, filtration, advanced composites,
building products, defense, and aerospace.
The Company previously identified three other segments which met its
criteria as reportable segments (the cotton commercial products, yarn
sales and apparel segments), all of which have been exited.
The Company evaluates the performance of its reportable segments and
allocates resources principally based on the segment's operating
profit, defined as earnings before interest and taxes. Indirect
corporate expenses allocated to each business segment are based on
management's analysis of the costs attributable to each segment. The
following table presents certain information regarding the business
segments:
40
Industry segment information (in thousands):
Fiscal Fiscal Fiscal
Year Year Year
Ended Ended Ended
October 30, October 28, October 27,
1999 2000 2001
----------- ----------- -----------
Net sales:
Elastomerics $ 80,035 $ 86,595 $ 82,409
Glass 83,453 87,319 65,217
--------- --------- ---------
163,488 173,914 147,626
Less intersegment sales(1) (6,621) (5,936) --
--------- --------- ---------
Net sales $ 156,867 $ 167,978 $ 147,626
========= ========= =========
Operating profit(2)
Elastomerics $ 4,889 $ 7,458 $ 3,922
Glass 1,758 6,790 5,655
--------- --------- ---------
Operating profit 6,647 14,248 9,577
Interest expense, net (3,511) (3,442) (2,333)
--------- --------- ---------
Income before income taxes and
discontinued operations $ 3,136 $ 10,806 $ 7,244
========= ========= =========
Depreciation and amortization expense:
Elastomerics $ 3,007 $ 2,911 $ 2,645
Glass 3,375 3,246 3,152
--------- --------- ---------
$ 6,382 $ 6,157 $ 5,797
========= ========= =========
Capital expenditures:
Elastomerics $ 2,281 $ 1,593 $ 1,644
Glass 1,790 1,016 4,178
--------- --------- ---------
$ 4,071 $ 2,609 $ 5,822
========= ========= =========
Identifiable assets:
Elastomerics $ 108,365 $ 74,801 $ 54,684
Glass 108,823 74,569 55,221
Eliminations (872) (1,128) --
--------- --------- ---------
$ 216,316 $ 148,242 $ 109,905
========= ========= =========
(1) Intersegment sales consist primarily of the transfer of certain scrim
products manufactured by the Glass segment to the Elastomerics segment
which was discontinued in Fiscal 2000. All intersegment revenues and
profits are eliminated in the accompanying consolidated financial
statements.
(2) The operating profit of each business segment includes a proportionate
share of indirect corporate expenses. The Company's corporate group is
responsible for finance, strategic planning, legal, tax, and
regulatory affairs for the business segments. Such expense consists
primarily of salaries and employee benefits, professional fees, and
amortization of Reorganization Value.
11. UNAUDITED INTERIM FINANCIAL DATA (in thousands except per share
amounts)
The results for each quarter include all adjustments which are, in the
opinion of management, necessary for a fair presentation of the
results for interim periods. The consolidated financial results on an
interim basis are not necessarily indicative of future financial
results on either an interim or annual basis. Selected consolidated
financial data for each quarter within Fiscal 2000 and Fiscal 2001 are
as follows:
41
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Year Ended October 28, 2000:
Net sales $ 35,137 $ 41,039 $ 43,825 $ 47,977
Cost of sales 26,767 30,288 32,988 36,337
-------- -------- -------- --------
Gross profit 8,370 10,751 10,837 11,640
Selling, general and administrative expenses 6,167 6,889 7,090 7,222
Other income, net (3) (3) (6) (6)
-------- -------- -------- --------
Operating profit 2,206 3,865 3,753 4,424
Interest expense (853) (845) (836) (908)
-------- -------- -------- --------
Income before income taxes
and discontinued operations 1,353 3,020 2,917 3,516
Provision for income taxes 498 1,524 953 1,542
-------- -------- -------- --------
Income from continuing operations 855 1,496 1,964 1,974
Discontinued operations (143) 87 (548) (46,915)
-------- -------- -------- --------
Net income (loss) $ 712 $ 1,583 $ 1,416 $(44,941)
======== ======== ======== ========
Diluted net income (loss) per common share $ 0.07 $ 0.15 $ 0.14 $ (4.46)
======== ======== ======== ========
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Year Ended October 27, 2001:
Net sales $ 38,633 $ 39,537 $ 34,925 $ 34,531
Cost of sales 29,852 30,686 28,005 28,345
-------- -------- -------- --------
Gross profit 8,781 8,851 6,920 6,186
Selling, general and administrative expenses 5,804 5,654 4,830 4,874
Other income, net (2) 2 (1) --
-------- -------- -------- --------
Operating profit 2,979 3,195 2,091 1,312
Interest expense (851) (634) (463) (385)
-------- -------- -------- --------
Income before income taxes 2,128 2,561 1,628 927
Provision for income taxes 829 997 634 358
-------- -------- -------- --------
Net income $ 1,299 $ 1,564 $ 994 $ 569
======== ======== ======== ========
Diluted net income per common share $ 0.13 $ 0.17 $ 0.10 $ 0.06
======== ======== ======== ========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
42
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 of Form 10-K with respect to identification
of directors and executive officers is incorporated by reference from the
information contained in the Company's definitive Proxy Statement for the
Annual Meeting of Stockholders to be held February 26, 2002 (the "Proxy
Statement").
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 of Form 10-K is incorporated by reference
from the information contained in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT.
The information required by Item 12 of Form 10-K is incorporated by reference
from the information contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
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 27, 2001
and October 28, 2000.
(iii) Consolidated Statements of Operations for the fiscal
years ended October 27, 2001, October 28, 2000, and
October 30, 1999.
(iv) Consolidated Statements of Shareholders' Equity for
the fiscal years ended October 27, 2001 and October
28, 2000, and October 30, 1999.
(v) Consolidated Statements of Cash Flows for the fiscal
years ended October 27, 2001, October 28, 2000, and
October 30, 1999.
(vi) Notes to Consolidated Financial Statements.
The registrant is primarily a holding company and all direct subsidiaries are
wholly owned.
(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 were filed during the quarter ended October 27,
2001.
(c) Reference is made to Item 14(a)(3) above.
(d) Reference is made to Item 14(a)(2) above.
43
INDEX TO EXHIBITS
The following is a complete list of Exhibits filed as part of this report,
which are incorporated herein:
Exhibit
Number Description
------- -----------
2.1(i) Joint Plan of Reorganization for JPS Textile Group, Inc., a Delaware corporation ("JPS"), proposed by JPS and JPS
Capital Corp., a Delaware corporation, pursuant to chapter 11 of title 11 United States Code (the "Bankruptcy Code"),
dated August 1, 1997 (as amended, the "Plan").(K)
2.1(ii) Revised Technical and Conforming Amendment to the Plan, dated September 4, 1997.(L)
3.1 Amended and Restated By-laws of JPS.(P)
3.2 Certificate of Incorporation of JPS Industries, Inc.(T)
10.4 Agreement of Lease, dated as of June 1, 1988, by and between 1185 Avenue of the Americas Associates ("1185 Associates")
and JCIC.(A)
10.5 Lease Modification and Extension Agreement, dated as of April 2, 1991, by and between 1185 Associates and JCIC.(A)
10.7 Trademark License Agreement, dated as of May 9, 1988, by and between J.P. Stevens and JPS Acquisition Corp.
(predecessor to the Company.)(B)
10.8 Omnibus Real Estate Closing Agreement, dated as of May 9, 1988, by and among J.P. Stevens, JPS Acquisition Corp., JPS
Acquisition Automotive Products Corp., JPS Acquisition Carpet Corp., JPS Acquisition Industrial Fabrics Corp., JPS
Acquisition Converter and Yarn Corp. and JPS Acquisition Elastomerics Corp.(B)
10.9 Purchase Agreement, dated as of April 24, 1988, by and among JPS Holding Corp., the Company, Odyssey Partners,
West Point-Pepperell, Inc., STN Holdings Inc., Magnolia Partners, L.P. and J.P. Stevens.(B)
10.10 Asset Purchase Agreement, dated as of May 25, 1994, by and among the Company, JAPC, JCIC, JPS Auto Inc., a Delaware
corporation, and Foamex International Inc., a Delaware corporation.(C)
10.15 Lease Modification and Extension Agreement, dated as of April 30, 1993, by and between 1185 Associates and JCIC.(E)
10.18 Lease Modification and Extension Agreement, dated as of November 17, 1994, by and between 1185 Associates and JCIC.(G)
10.19 Asset Transfer Agreement, dated as of November 16, 1995, by and among the Company, JPS Carpet Corp., a Delaware
corporation, Gulistan Holdings Inc. ("GHI"), a Delaware corporation and Gulistan Carpet
Inc., a Delaware Corporation and wholly-owned subsidiary of GHI.(H)
44
Exhibit
Number Description
------- -----------
10.25 Employment Agreement dated October 9, 1997, between the Company and David H. Taylor.(P)
10.26 Employment Agreement dated October 9, 1997, between the Company and Monnie L. Broome.(P)
10.27 Employment Agreement, dated May 1, 1993 and amended September 11, 1995 between the Company and Carl Rosen.(J)
10.28 Employment Agreement, dated December 23, 1991 and amended August 20, 1996 and December 23, 1996 between the
Company and Bruce Wilby.(G)
10.29 Asset Purchase Agreement, dated as of September 30, 1996 between Elastomer Technologies Group, Inc. a Delaware
Corporation, and JPS Elastomerics Corp., a Delaware Corporation and wholly-owned subsidiary of the Company.(G)
10.30 Receivables Purchase Agreement dated as of September 30, 1996 between The Bank of New York Commercial Corporation, a
New York Corporation and JPS Elastomerics Corp., a Delaware Corporation and wholly-owned subsidiary of the Company.(G)
10.31 Registration Rights Agreement, dated as of October 9, 1997, by and among JPS and the holders of JPS's Common Stock.(P)
10.35 Credit Facility Agreement, dated as of October 9, 1997, by and among JPS, C&I, Elastomerics, the financial
institutions listed on the signature pages thereto, and the agent and co-agent party thereto.(M)
10.36 1997 Incentive and Capital Accumulation Plan dated as of October 9, 1997.(P)
10.37 Warrant Agreement dated as of October 9, 1997.(P)
10.38 First Amendment to the Credit Facility Agreement, dated as of October 30, 1998, by and among JPS, C&I, Elastomerics,
the financial institutions listed on the signature pages thereto, and the agent and co-agent party thereto.(Q)
10.39 Asset Purchase Agreement, dated as of January 11, 1999, by and between C&I and Belding Hausman, Incorporated.(Q)
10.40 Amendment No. 1 to Asset Purchase Agreement, dated as of February 8, 1999, by and between C&I and Belding Hausman,
Incorporated.(Q)
10.41 JPS Guaranty Letter, dated as of January 11, 1999, by and between JPS and Belding Hausman, Incorporated.(Q)
10.42 Employment Agreement dated November 11, 1998, between the Company and John W. Sanders, Jr.(Q)
10.43 Separation Agreement, dated February 27, 1999, between the Company and Jerry E. Hunter.(R)
10.44 Employment Agreement, dated February 29, 1999, between the Company and Michael L. Fulbright.(R)
45
Exhibit
Number Description
------- -----------
10.45 Stock Option Agreement, dated February 28, 1999, between the Company and Michael L. Fulbright.(R)
10.46 Amendment to the JPS Textile Group, Inc. 1997 Incentive and First Capital Accumulation Plan.(R)
10.47 Second Amendment to the Credit Facility Agreement, dated as of April 30, 1999, by and among JPS, C&I, Elastomerics,
the financial institutions listed on the signature pages thereto, and the agent and co-agent thereto.(S)
10.48 Third Amendment to the Credit Facility Agreement, dated as of July 12, 1999, by and among JPS, C&I, Elastomerics,
the financial institutions listed on the signature pages thereto, and the agent and co-agent thereto.(T)
10.49 Asset Purchase Agreement, dated as of July 2, 1999, by and between C&I and Belding Hausman, Incorporated.(T)
10.50 Asset Purchase Agreement, dated as of June 24, 1999, by and between C&I and Chiquola Fabrics, LLC.(T)
10.51 Special Warranty Deed, dated as of August 30, 1999, by and between C&I and Richard N. Hodges and Jimmy Law.(U)
10.52 Separation Agreement dated September 29, 1999, between the Company and John W. Sanders, Jr.(U)
10.53 Employment Agreement dated March 17, 1998, between the Company and Reid A. McCarter.(U)
10.54 Fourth Amendment to the Credit Facility Agreement, dated as of February 29, 2000, by and among JPS, C&I, Elastomerics,
the financial institutions listed on the signature pages thereto, and the agent and co-agent thereto.(U)
10.55 Asset Purchase Agreement dated as of November 16, 2000, by and among JPS Industries, Inc., JPS Converter and
Industrial Corp. and JPSA Acquisition Corp.(V)
10.56 Employment Agreement dated May 31, 2000, between the Company and Charles R. Tutterow.(W)
10.57 Fifth Amendment to the Credit Facility Agreement, dated as of November 9, 2000, by and among JPS, C&I, Elastomerics,
the financial institutions listed on the signature pages thereto, and the agent and co-agent thereto.(W)
10.58 Revolving Credit and Security Agreement dated May 9, 2001, by and among JPS, C&I, Elastomerics and First Union
National Bank.(X)
10.59 Employment Agreement Amendment dated July 31, 2001 between the Company and Michael L. Fulbright.
46
Exhibit
Number Description
------- -----------
11.1 Statement re: Computation of Per Share Earnings - not required since such computation can be clearly determined from the
material contained herein.
12.1 Computation of Ratio of Earnings to Fixed Charges - not required for Form 10-K per Item 503(d) of Regulation S-K.
12.2 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends--not required for Form 10-K
per Item 503(d) of Regulation S-K.
21.1 List of Subsidiaries of the Company.(E)
23.1 Consent of Arthur Andersen LLP, independent auditors.
23.2 Consent of Deloitte & Touche LLP.
24.1 Power of Attorney relating to JPS (included as part of the signature page hereof).(M)
(A) 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.
(B) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended October 30, 1993.
(C) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended April 30, 1994.
(D) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 30, 1994.
(E) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended October 29, 1994.
(F) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended April 29, 1995.
(G) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended November 2, 1996.
(H) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated December 1, 1995.
(I) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended April 27, 1996.
(J) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 27, 1996.
(K) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated July 2, 1997.
(L) Previously filed as an exhibit to the Company's Registration Statement
on Form 8-A filed on September 8, 1997
(M) Previously filed.
(N) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended February 1, 1997.
(O) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 3, 1997.
(P) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended November 1, 1997.
(Q) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended October 31, 1998.
(R) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated March 4, 1999.
47
(S) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 1, 1999.
(T) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 31, 1999.
(U) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended January 29, 2000.
(V) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated December 4, 2000.
(W) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended October 28, 2000.
(X) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended April 28, 2001.
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 INDUSTRIES, INC.
Date: January 25, 2002 By: /s/ Charles R. Tutterow
----------------------------------------
CHARLES R. TUTTEROW
Executive Vice President, Chief Financial
Officer and Secretary
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.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Michael L. Fulbright Director, Chairman of the Board, January 25, 2002
--------------------------- President and Chief Executive Officer
MICHAEL L. FULBRIGHT
/s/ Robert J. Capozzi Director January 25, 2002
---------------------------
ROBERT J. CAPOZZI
/s/ Nicholas P. DiPaolo Director January 25, 2002
---------------------------
NICHOLAS P. DIPAOLO
/s/ John M. Sullivan, Jr. Director January 25, 2002
---------------------------
JOHN M. SULLIVAN, JR.
/s/ Charles R. Tutterow Director, Executive Vice President, January 25, 2002
--------------------------- Chief Financial Officer and Secretary
CHARLES R. TUTTEROW
48
JPS INDUSTRIES, INC. INDEX TO SCHEDULE
INDEX TO FINANCIAL STATEMENT SCHEDULE
For the fiscal years ended October 30, 1999, October 28, 2000 and October 27,
2001.
FINANCIAL STATEMENT SCHEDULE
II. 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 INDUSTRIES, INC. SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
Column A Column B Column C Column D Column E
--------------------------------------------------- ---------- -------------------------- ---------- ----------
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts Deductions End of
Classification of Period Expenses Describe Describe Period
--------------------------------------------------- ---------- ---------- ---------- ---------- ----------
(a) (b)
Allowances Deducted from Asset to Which They Apply:
Fiscal Year Ended October 30, 1999 (52 Weeks)
Allowance for doubtful accounts $ 792 $ 125 $(511) $ 1 $ 405
Claims, returns and other allowances 155 38 333 272 254
------ ----- ----- ------ ------
$ 947 $ 163 $(178) $ 273 $ 659
====== ===== ===== ====== ======
Fiscal Year Ended October 28, 2000 (52 Weeks)
Allowance for doubtful accounts $ 405 $ 843 $ -- $ 548 $ 700
Claims, returns and other allowances 254 -- 331 261 324
------ ----- ----- ------ ------
$ 659 $ 843 $ 331 $ 809 $1,024
====== ===== ===== ====== ======
Fiscal Year Ended October 27, 2001 (52 Weeks)
Allowance for doubtful accounts $ 700 $ 2 $ -- $ 449 $ 253
Claims, returns and other allowances 324 214 77 184 431
------ ----- ----- ------ ------
$1,024 $ 216 $ 77 $ 633 $ 684
====== ===== ===== ====== ======
(a) Change in various reserves charged to net sales.
(b) Uncollected receivables written off, net of recoveries.
S-2