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Supply Chain Management of Jacob Leinenkugel Brewing Company

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Supply Chain Management of Jacob Leinenkugel Brewing Company
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Netra Shetty
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Supply Chain Management of Jacob Leinenkugel Brewing Company - January 12th, 2011

JPS Textile Group, Inc. manufactures textile products for a diverse range of applications. Its yarn is used principally in the manufacture of apparel, while its woven materials and specialty extruded materials can be found in commercial and institutional roofing, reservoir and landfill liners and covers, printed circuit boards, advanced composite materials, tarpaulins, awnings, athletic tapes, wallboard tapes and tile backings, security glazing, athletic shoes, as well as medical, automotive, and industrial components. The company was formed from some of the assets of the venerable J.P. Stevens & Co., which were acquired in a leveraged buyout in 1989. Since that time, JPS has reportedly met with difficulty in keeping up payments to holders of high interest bonds and has filed for bankruptcy protection twice. According to some industry analysts, the company's main business seems not to focus on spinning textiles so much as on navigating a web of debt.

Origins: Bidding War

JPS was formed from some of the assets of J.P. Stevens & Co., one of the giants of the textile industry with a history dating back to 1813. In the mid-1980s Stevens ran 59 textile plants employing 27,800, 10,000 of whom were in South Carolina, where it based its operations center, making it the state's third largest employer. Stevens had also become renowned for its opposition to unions, and its intractability in labor negotiations was met with a well-publicized consumer boycott. Struggles at one Stevens plant were dramatized in the 1979 Academy Award-winning movie Norma Rae.

The textile business was booming in 1988, and a takeover quest begun by Stevens's own management in the twilight of the acquisitive 1980s cost them control of the company. Specifically, a group of J.P. Stevens managers led by Whitney Stevens, a descendant of the founder, offered $696 million for the company, or $43 per share, when stock was trading at $33. However, the company's shareholders rebuffed the offer, as Odyssey Partners Group, a diversified New York investment partnership, as well as textile rival West Point-Pepperell, both made higher offers. Odyssey's bid of $953 million was soon countered by West Point. After more rounds of feverish bidding, the attorneys general of New York and the Carolinas and the Federal Trade Commission voiced their concerns about job losses and antitrust implications.

Following their reassurance that there would be no plant closings, West Point finally bought the company in May 1988 for $1.2 billion, or $68.50 a share. West Point sold Stevens's aviation and towel businesses to the NTC Group, while Odyssey Partners Group bought the remaining businesses for $615 million, renaming the collective operations JPS Textile Group, Inc.

Soon thereafter, the attorneys general investigated possible collusion in the takeover. Some industry observers characterized the Odyssey Group as corporate raiders who had no interest in textile operations. Odyssey had been formed in 1982 by former Oppenheimer & Co. partners; two of that company's directors had in fact pioneered the practice of leveraged buyouts. However, JPS was not the group's only holding in that industry, and some analysts praised Odyssey's ability to compete during difficult times.

Odyssey Partners owned 37.5 percent of the new company. William J. DeBrule, Grant Wilson, and Joe Schneider together owned an equivalent share, while Drexel Burnham Lambert Group Inc. owned the rest. The buyout cost $579 million, financed with high interest (16-19 percent) junk bonds. The new company's total liabilities were $650 million. Textile executive DeBrule served as the first chief executive officer at JPS.

The operations Odyssey acquired accounted for $796 million of Stevens's $1.6 billion in sales for 1987. Employees numbered 9,584. Although operating income held steady at about $35 million per year between 1988 and 1989, the previously profitable divisions' net losses mounted from $10 million to $57 million.

The new JPS Textile Group, ranked in the Fortune 500, produced a wide array of fabrics: rayons for apparel, cotton fabrics for book binding, carpet and headliners for automobiles, elastics for apparel, golf balls, and roofing. JPS also held the license to use the J.P. Stevens brand name until the year 2013.

In 1989, to offset some of its debt, JPS sold some plants, raising $20 million in the process. The company lost $10 million, however, on the sale of a fiberglass fabrics plant in Walterboro, North Carolina. Overall, the company lost $57 million in 1989, when its debt payments were $93 million. In 1990, when JPS employed 9,000, annual sales were $822 million. Still, its net worth had only risen to $46.8 million by July, putting it in threat of default on its loans with Citibank N.A. of New York, which required that JPS reach a minimum net worth of $55 million. (This requirement was subsequently amended.) Still the company had some evidence that its situation might be improving during the course of the year, though it had not yet attained profitability.

1991 Bankruptcy

During this time, slackening demand in the company's key markets limited its potential for recovery. A U.S. economic recession slowed auto sales to the point of stopping some production lines, while dismal housing starts paralyzed the home furnishings market.

Bondholders rejected several restructuring offers in 1990, but when JPS filed for bankruptcy in February 1991 they had agreed to lower payments in exchange for 49 percent of the company's stock (up from the $80 million and 30 percent of shares offered before). The novel "prepackaged" reorganization was approved by the court in only a couple of months. The company's debt was reduced from $531 million to $481 million and it would save $180 million in payments through 1995.

In 1991 the firm successfully lobbied South Carolina for a break on property taxes worth $950,000. At this time, JPS employed 3,900 of its 8,000 workers in that state. After DeBrule departed, Jerry Hunter, who had been an executive with the original J.P. Stevens, became president and chief operating officer at JPS, while Odyssey investor Steve Friedman became CEO.

JPS's sales fell seven percent in 1991, but the company expected to recover as the U.S. economy lifted out of its recession. Still, although sales did improve, particularly in the auto division, interest payments obliterated any profit.

JPS's automotive divisions employed 2,267 and produced carpet and other fabrics, with a turnover of about $300 million per year. In 1994 JPS sold this subsidiary to Rhode Island-based Foamex International Inc., a Fortune 500 producer of automotive polyurethane foam, for $283 million. JPS spent $213 million of the proceeds to reduce debt to about $290 million and focused its attention on the remaining apparel fabrics and home fashions businesses. Also during this time, JPS sold its JPS Carpet Corp. subsidiary, owners of the Gulistan brand, for $27 million to a group of existing managers, who formed Gulistan Holdings Inc. to buy the operation.

Increasing competition from cheaper imported fabrics hurt U.S. demand in the women's apparel market, the company's primary business. At the same time, however, demand for fiberglass fabrics rose. JPS sold its elastics apparel business for $5 million during this time, and spent $14 million closing its Dunean apparel fabrics plant in Greenville, South Carolina.

The Greenville (South Carolina) News reported the company paid an average of $66 million a year from 1988 to 1996 simply on interest for its public bonds. In 1996, JPS lost $67 million on sales of $449 million.

1997 Bankruptcy

JPS defaulted on its bonds in December 1996. The company sought the advice of a New York investment bank, the Blackstone Group, when it realized it would be unable to make the huge principal payments coming due. With total liabilities of $464 million, JPS filed for Chapter 11 bankruptcy on August 1, 1997.

The bankruptcy plan was to reduce bond debt from $278 million to $186 million. The company still owed $85 million to lenders such as Citibank and General Electric Capital Corp. In return for the lowered obligations, bondholders' equity in the company increased to 99 percent. The deal brought five new members to JPS's seven-member board, and the reorganization allowed the company to make $23 million a year in capital expenditures with the hopes of attaining higher margins. Investments in automation were critical to compete with cheaper labor abroad, and many of JPS's mills were built before World War I. Some analysts suggested that management problems would also need to be addressed as well.

Hunter voiced relief in the debt reduction that would allow more focus on normal operations. Even though JPS had managed to eke out an operating profit in all of its units in 1997, its debt servicing resulted in yet another net loss. WestPoint Stevens, which had acquired other parts of the J.P. Stevens empire, refinanced its own $1 billion debt in 1998 by selling new bonds.

The Asian economic crisis of the late 1990s portended a strong start to 1998 for JPS, which manufactured fiberglass fabrics used in circuit boards and had even founded a Technical Services Center at its Slater fiberglass products facility to research new technologies. Still, JPS lost $10.7 million on sales of $389.2 million for the year. The company sold its home furnishing business to Virginia-based Belding Hausman Incorporated for $11.4 million, a purchase that included the Boger City plant in Lincolnton, North Carolina, which had produced most of its home fashion textiles. In February 1999 the company announced plans to close the Angle apparel fabrics plant in Rocky Mount, Virginia.

After Jerry Hunter retired in February 1999, Michael L. Fulbright replaced him as JPS chairman, president, and CEO. Fulbright had lead The Bibb Co. before it had merged with the Dan River Co. in October 1998. At JPS, he hoped to expand the company's industrial product segment, which accounted for half its sales. Fiberglass fabric sales were up in the first quarter of 1999. However, flat sales in other segments gave JPS a net loss, albeit a relatively small one ($288,000). Perhaps the company's narrowing of focus would lead it to that most desirable of products: profit.

Principal Subsidiaries: JPS Elastomerics; JPS Converter and Industrial Corporation.

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