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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended November 1, 2003.

For the transition period from              to             .

Commission File Number: 33-27038

JPS INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

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, 9,494,259 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:    Yes  x    No  ¨

Indicate by check mark whether the registration: is an accelerated filer (as defined in Rule 12b-2 of The Exchange Act):    Yes  ¨     No  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 16, 2004, 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 16, 2004, as reported by the NASDAQ National Market, was approximately $24,610,362.

As of the date hereof, 10,000,000 of the registrant’s Common Stock $.01 par value per share were issued and 9,494,259 were outstanding.

The Registrant’s Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on March 11, 2004 is incorporated by reference in Part III of this Form 10-K to the extent stated herein.

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JPS INDUSTRIES, INC.

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PART I

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; 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 under chapter 11 of the U.S. Bankruptcy Code in October 1997. The Company’s common stock is listed in the NASDAQ National Market System under the stock symbol “JPST.”

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^® (chlorosulfonated polyethylene)-based material and a PVC-based material. These products, marketed under Stevens^® 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, 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 aerospace applications, and numerous other technical, industrial applications.

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The Company is a leading producer of AstroQuartz^® 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^® and UltraFlex^® filtration products to industrial manufacturers.

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.

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 315 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 in order 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.

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, with many of the Company’s competitors 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. Industry capacity additions in 2000 and 2001 are likely to keep prices under pressure as commercial construction has declined in 2002 and 2003.

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The Company markets it products under the Stevens^® Roofing Systems 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 33 field sales staff as well as a network of independent representatives, distributors and distributor-representatives as its sales force. In addition, the Company has a distribution and marketing agreement with Trelleborg Building Systems, AB covering most of Europe and a licensing program in Asia. Marketing efforts in the roofing industry include (i) developing new products to meet changing market demands, (ii) providing proprietary accessory products, (iii) implementing contractor-specific programs and (iv) expanding 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 under the Stevens^® brand and 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.

Customers

No customer accounts for more than 10% of the Company’s sales. However, the loss of certain of our more significant customers could have a material adverse effect on our results of operations.

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.

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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 materials, which are used in glass clad polycarbonate laminates for security-glazing applications, are 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 $8.7 million at November 1, 2003 and $9.2 million at November 2, 2002. The Company generally fills its open orders in the following fiscal year and the Company expects that all of the open orders as of November 1, 2003, will be filled in the 52-week period ending October 30, 2004 (“Fiscal 2004”). 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 customer ordering behavior or 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.

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^™, Stevens Geomembranes^™ and Stevens Urethane^™. In addition, the Company currently holds U.S. trademarks on the names Hi-Tuff^® and Hi-Tuff Plus^®. The Company also holds trademarks for the Hi-Tuff ^™ name in Canada, Mexico and certain European and Asian countries.

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In terms of product licensing, Stevens roofing and geomembrane compound and manufacturing technologies have been licensed to TPI for the production and marketing of membranes in Japan, and the Company has entered into an agreement with Trelleborg Building Systems AB for marketing of the Company’s roofing products in Europe.

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^®, Duraflex^®, Ultraflex^®, Standardflex^® and Gorilla-Mesh^™; filtration products trademarked under the names AcidFlex^®, AcidBond^™ and Ultraflex^®; substrates meeting high temperature requirements trademarked under the names, Tempratex^® and Industro-Quartz^™; special laser drillable substrates under the trademark APS^™ (Ablative Precision Substrate); and Quartz Hybrid substrates with the Astralar^® and AstroCarb^® trademarks.

Employees

As of November 1, 2003, the Company had 578 active employees of which 418 were hourly and 160 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.

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.

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Cautionary Statement Concerning Forward Looking Statements

Certain statements contained in this Annual Report on Form 10-K 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 2003 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 and pension plan obligations (including its ability to meet the financial covenant obligations in its credit agreement and negotiate a new credit facility upon maturity of its existing credit facility), the Company’s ability to realize its deferred tax asset, the seasonality of the Company’s sales, the volatility of the Company’s raw material, claims and energy costs, the Company’s dependence on key personnel and certain large customers and other risk factors described from time to time in the Company’s filings with the Securities and Exchange Commission.

Stockholders, 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.

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.

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.

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.

As previously reported, 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. Also as previously reported, in July, 2002, the Company’s insurance carrier, Liberty Mutual Insurance Company (“Liberty”), informed the Company that it no longer believed it had an obligation to contribute to settlement or defense of this matter. The Company subsequently filed a lawsuit for declaratory, injunctive, and monetary relief against Liberty Mutual. In January, 2003, the court found that Liberty does have a duty to defend the Company based on the counts remaining in the case. Further, in January, 2003, the court granted JPS’ summary judgment motion on Sears’ breach of contract claim. These orders are not final and may be subject to reconsideration

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or appeal. To the extent these rulings remain in effect, the number of roofs involved in the case will be substantially reduced, and the Company believes that an unfavorable resolution of the remaining actions would not have a material adverse effect on the business, results of operations or financial condition of the Company.

No matters were submitted to a vote of securityholders during the fourth quarter of Fiscal 2003.

PART II

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.

As of January 16, 2004, there were approximately 34 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, restrictions under the existing indebtedness (including, without limitation, indebtedness evidenced by the revolving credit facility 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.

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EQUITY COMPENSATION PLAN INFORMATION

(Dollars in Thousands Except Per Share Data)

The following table presents selected consolidated historical financial data for the Company for the fiscal years indicated. The selected historical financial data for the years ended October 30, 1999, October 28, 2000, October 27, 2001, November 2, 2002 and November 1, 2003 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 3 to the Consolidated Financial Statements of the Company at Item 8 in this Form 10-K.

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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.

RESULTS OF OPERATIONS

Introduction

The Company has repositioned itself from one that was largely textile oriented to a diversified manufacturing and marketing company that is focused on a broad array of industrial applications.

Fiscal 2003 Compared with Fiscal 2002

Consolidated net sales increased $2.3 million, or 1.8%, from $126.4 million in Fiscal 2002 to $128.7 million in Fiscal 2003. Consolidated operating profit increased $0.3 million from $0.3 million in Fiscal 2002 to $0.6 million in Fiscal 2003. Total selling, general and administrative expenses decreased $0.5 million from Fiscal 2002 to Fiscal 2003 while remaining at 13.6% of sales. The decrease is primarily attributed to lower variable selling costs and cost savings initiatives.

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JPS Elastomerics

Net sales in Fiscal 2003 in the Elastomerics segment, which includes single-ply roofing and extruded urethane products, increased $4.1 million, or 5.4%, from $75.5 million in Fiscal 2002 to $79.6 million in Fiscal 2003. The increase is attributed to a 9.7% increase in roofing and geomembrane products, partially offset by a 1.5% decrease in extruded urethane product sales. While commercial construction continued to slow in Fiscal 2003, market growth in TPO membranes and the introduction of PVC membranes manufactured by the Company allowed us to increase roofing product sales. Urethane product sales were generally stable, with revenue decreases driven by sales mix and pricing competition.

Operating profit in Fiscal 2003 for the Elastomerics segment increased $0.8 million from a loss of $0.3 million in Fiscal 2002 to operating profit of $0.5 million in Fiscal 2003. The increase resulted principally from higher volumes and improved manufacturing efficiencies for roofing products, partially offset by lower prices and a less favorable mix for urethane products. Further, increases in insurance and energy costs, combined with lower allocated pension income, were offset by lower selling, general, administrative and warranty costs.

JPS Glass

Net sales in the Glass segment, which includes substrates constructed of synthetics and fiberglass for lamination, insulation and filtration applications, decreased $1.8 million, or 3.5%, from $50.9 million in Fiscal 2002 to $49.1 million in Fiscal 2003 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 and continued demand decreases and pricing pressures were only partly offset by higher sales of filtration, Quartz and other industrial substrates.

Operating profit in Fiscal 2003 for the Glass segment decreased $0.4 million from $0.5 million in Fiscal 2002 to $0.1 million in Fiscal 2003. Lower unit sales and prices of electronic substrates combined with higher insurance and manufacturing costs to account for the majority of the operation profit reduction, more than offsetting the contribution from higher sales of filtration, Quartz and industrial substrates. Lower selling general and administrative costs, attributed to cost savings initiatives, partially offset lower allocated pension income.

Other

Interest expense decreased $20,000 to $715,000 in Fiscal 2003 from $735,000 in Fiscal 2002. Debt net of cash on hand increased by approximately $950,000 in Fiscal 2003 primarily as a result of funding $6.9 million of pension contributions from cash flow from operations.

Fiscal 2002 Compared With Fiscal 2001

Consolidated net sales decreased $21.3 million, or 14.0%, from $147.6 million in Fiscal 2001 to $126.4 million in Fiscal 2002. Consolidated operating profit decreased $9.3 million from $9.6 million in Fiscal 2001 to $0.3 million in Fiscal 2002. Total selling, general and administrative expenses decreased $3.1 million from Fiscal 2001 to Fiscal 2002 while remaining at 14.3% of sales. The decrease is primarily attributed to lower variable selling costs, higher pension income and cost savings initiatives.

JPS Elastomerics

Net sales in Fiscal 2002 in the Elastomerics segment, which includes single-ply roofing and extruded urethane products, decreased $6.9 million, or 8.4%, from $82.4 million in Fiscal 2001 to $75.5 million in Fiscal 2002. Sales of the Company’s roofing products were adversely affected by the dramatic decrease in domestic commercial construction. In addition, the domestic roofing market continues to be characterized by intense competition driven by aggressive entrants into this segment of the market. The Company has addressed this challenge by instituting aggressive pricing strategies, developing new products including the introduction of PVC and 80 mil TPO single-ply membranes, strengthening sales management in key territories, and taking actions to reduce operating costs. Sales of urethane products were up slightly year over year.

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Operating profit in Fiscal 2002 for the Elastomerics segment decreased $4.2 million from $3.9 million in Fiscal 2001 to a loss of $0.3 million in Fiscal 2002. The decrease resulted principally from lower sales volumes, prices and margins on roofing products. Cost of goods sold increased as a result of higher insurance, energy, claims, and efficiency losses which were partially offset with cost reduction measures and improved inventory management. Selling, general and administrative costs decreased as a result of cost savings initiatives and higher allocated pension income.

JPS Glass

Net sales in the Glass segment, which includes substrates constructed of synthetics and fiberglass for lamination, insulation and filtration applications, decreased $14.3 million, or 21.9%, from $65.2 million in Fiscal 2001 to $50.9 million in Fiscal 2002 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 and dramatic demand decreases were only partly offset by higher sales of filtration, Quartz and other industrial substrates.

Operating profit in Fiscal 2002 for the Glass segment decreased $5.2 million from $5.7 million in Fiscal 2001 to $0.5 million in Fiscal 2002. Lower unit sales and prices of electronic substrates combined with higher insurance and manufacturing costs to account for the majority of the operation profit reduction, more than offsetting the contribution from higher sales of filtration, Quartz and industrial substrates. Selling general and administrative costs decreased as a result of cost savings initiatives and higher allocated pension income.

Other

Interest expense decreased $1.6 million to $0.7 million in Fiscal 2002 from $2.3 million in Fiscal 2001. Total long-term debt was reduced by approximately $6.5 million in Fiscal 2002 as a result of cash flow from operations.

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. The facility, as amended, provides for a revolving credit loan facility and letters of credit in a maximum amount equal to the lesser of (a) $25 million or (b) a specified borrowing base, which is based upon eligible receivables, eligible inventory, and a specified dollar amount (currently $6.9 million subject to amortization). See Note 5 to the Consolidated Financial Statements for additional discussion of the revolving credit facility.

In conjunction with the recognition of additional pension liability and the resulting reduction to tangible net worth (as defined in our credit agreement), the Company violated the minimum net worth covenant in the credit agreement as of November 2, 2002. This covenant has been waived through November 1, 2004. As of November 1, 2003, the Company was also out of compliance with the total debt to EBITDA covenant in the credit agreement. This covenant has been waived through January 31, 2004. Management believes the Company will meet this covenant in the future, but there can be no assurance that we will be in compliance. Failure to obtain a waiver for any future violation of this covenant could result in acceleration of amounts due under the revolving credit facility.

As extended, the credit agreement expires on November 1, 2004. The ability of the Company to continue to meet its obligations and implement its business plan is contingent on obtaining refinancing when borrowings under its current revolving credit facility are due. There can be no assurance that we will be able to obtain such refinancing.

Year to date for 2003, cash used in operating activities was $0.7 million. Working capital at November 2, 2002 was $23.6 million compared with $14.6 million at November 1, 2003. From November 2, 2002 to November 1, 2003,

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accounts receivable decreased by $0.1 million due to timing and sales levels, inventories decreased $1.4 million due to higher sales volumes and management emphasis, and accounts payable and accrued expenses increased by $1.1 million as a result of volumes and timing.

The principal uses of cash in 2003 were for capital expenditures of $246,775 to upgrade the Company’s manufacturing operations and funding of $6.9 million of pension contributions and we expect contributions of $7.4 million in 2004 absent legislative changes to funding rules. In 2001, the Company received approximately $27.5 million in proceeds from the sale of its Apparel division. Such funds were used to reduce the Company’s outstanding indebtedness under its revolving credit facility and certain equipment loans.

At January 27, 2004, the Company had approximately $11.1 million of additional availability for borrowing under the revolving credit facility.

Based upon the ability to generate working capital through its operations, its current credit agreement and, assuming the Company is successful in securing refinancing on the terms and timetable currently contemplated, the Company believes that it will have 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 historically 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 2002 and 2003 and, in some cases, the Company experienced selling price decreases for its products.

For Fiscal 2003, the Company recorded no tax expense or benefit from continuing operations. A decrease in the valuation allowance offset the small tax that would have otherwise been accrued. The Company had net operating loss carryforwards of approximately $100.0 million as of November 1, 2003. A portion of these losses are subject to annual limitations on usage as a result of the ownership change that occurred as determined under the Internal Revenue Code of 1986. See Note 7 to the Consolidated Financial Statements for additional information. The effective tax rates for Fiscal 2002 and 2001 were 25% (benefit) and 39%, respectively. The effective rates for all years are higher or the benefit is lower than the combined Federal and state statutory rate due to the impact of nondeductible costs. For Fiscal 2003 and 2002, these costs are primarily travel costs, for Fiscal 2001, the nondeductible costs were primarily excess reorganization costs.

The ultimate realization of the Company’s deferred tax asset is dependent upon the generation of sufficient amounts of future taxable income during the years in which the related net operating loss carryforwards may be utilized prior to their expiration. Such realization would require that the Company generate on average approximately $1.0 million of taxable income increasing at approximately 5% per year. The Company’s ability to generate sufficient taxable income in future periods is contingent upon a number of factors, including, 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 and pension plan obligations (including its ability to meet its financial covenant obligations and negotiate replacement credit facilities on maturity), the seasonality of the Company’s sales, the volatility of the Company’s raw material, claims and energy costs, and the Company’s dependence on key personnel and certain large customers. Although the Company did not generate taxable income during Fiscal 2003 at a level necessary to utilize the deferred tax asset, the Company believes that, given the long-term nature of its net operating loss carryforwards and after considering the aforementioned factors, certain cost reductions as well as improvements in profitability resulting from increased sales will result in taxable income from future operations that will more likely than not be sufficient to utilize the deferred tax asset, net of any valuation allowance. Further, the Company has developed certain tax planning strategies, including the possibility of the sale of assets that could be employed, if necessary, to generate taxable income. Although the Company has developed plans and strategies that

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would enable the Company to achieve sufficient income levels in the future, there can be no assurance that these plans will be successful in enabling the Company to generate sufficient taxable income from operations prior to the expiration of the net operating loss carryforwards. The Company will continue to review the recoverability of its deferred tax assets, and based on such periodic reviews, the Company could record a tax charge to record a deferred tax valuation allowance in the future. The establishment of an additional valuation allowance could have a material effect on our future results of operations and financial position. See Note 7 to the Consolidated Financial Statements for additional discussion.

CRITICAL ACCOUNTING POLICIES AND OTHER MATTERS

The Company’s analysis and discussion of its financial condition and results of operations are based upon its consolidated financial statements that have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. The Company evaluates these estimates and assumptions on an ongoing basis, including but not limited to those related to inventories, the allowance for doubtful accounts, reserve for self-insurance liabilities, the reserve for roofing products sold under warranties, income taxes, pension and other post retirement benefits and contingencies. Estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. The results of these estimates may form the basis of the carrying value of certain assets and liabilities. Actual results, under conditions and circumstances different from those assumed, may differ from estimates. The impact and any associated risks related to estimates, assumptions, and accounting policies are discussed within Management’s Discussion and Analysis of Operations and Financial Condition, as well as in the Notes to the Financial Statements, if applicable, where such estimates, assumptions, and accounting policies affect the Company’s reported and expected results.

The Company believes the following accounting policies are critical to its business operations and the understanding of results of operations and affect the more significant judgments and estimates used in the preparation of its consolidated financial statements:

Revenue Recognition: Revenue from product sales is recognized at the time ownership of goods transfers to the customer and the earnings process is complete in accordance with Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB 101”). SAB 101 specifies how existing rules should be applied to transactions in the absence of authoritative literature. Based on the guidelines of current accounting rules and SAB 101, revenue should not be recognized until it is realized or realizable and earned.

Impairment of Long-Lived Assets: For all periods through November 2, 2002, the Company reviewed the recoverability of the carrying value of long-lived assets in accordance with Statement of Financial Standard No. 121, “Accounting for the Impairment of Long-Lived Assets and for Assets to be Disposed Of” (“FAS 121”). The Company also reviewed long-lived assets for impairment whenever events or changes in circumstances indicated that the carrying amount of such assets might not be recoverable. When the future undiscounted cash flows of the operations to which the assets relate did not exceed the carrying value of the asset, the intangible assets were written down, followed by the other long-lived assets, to fair value. In October 2001, the Financial Accounting Standards Board issued Statement No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“FAS 144”). FAS 144 provides accounting guidance for financial accounting and reporting for the impairment or disposal of long-lived assets. The statement supersedes Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of” (“FAS 121”). It also supersedes the accounting and reporting provisions of APB Opinion No. 30 “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” related to the disposal of a segment of a business.

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Accounts Receivable and Concentration of Credit Risks: Accounts receivable potentially expose the Company to concentration of credit risk, as defined by Statement of Financial Accounting Standards No. 105, “Disclosure of Information about Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit Risk.” The Company provides credit in the normal course of business and performs ongoing credit evaluations on certain of its customers’ financial condition, but generally does not require collateral to support such receivables. The Company also establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.

Income Taxes: The Company records an income tax valuation allowance when the realization of certain deferred tax assets and net operating losses is not likely. These deferred tax items represent expenses recognized for financial reporting purposes, which will result in tax deductions over varying future periods. Certain judgments, assumptions and estimates may affect the carrying value of the valuation allowance and deferred income tax expense in the Company’s consolidated financial statements.

Off Balance Sheet Arrangements: The Company does not have transactions, arrangements or relationships with “special purpose” entities, and the Company does not have any off balance sheet debt.

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.

Pension Plan Obligations: The Company sponsors a defined benefit pension plan that covers substantially all of its employees. The accounting for pensions is determined by standardized accounting and actuarial methods that include critical assumptions, including, without limitation, discount rates, expected return on plan assets, and future compensation increases. The Company considers these assumptions to be critical as they can impact periodic pension expense as well as the minimum pension liability. As of November 1, 2003, the Company’s accrued pension cost totaled $29.1 million.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2002, the FASB issued FAS 148 “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FAS 123.” Accounting for Stock-Based Compensation was issued to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The amendments to Statement 123 in paragraphs 2(a)-2(e) of this Statement shall be effective for financial statements for fiscal years ending after December 15, 2002.

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities – an interpretation of ARB No. 51.” FIN No. 46 provides criteria for determining whether the financial statement issuer must consolidate other entities in its financial statements. FIN No. 46 expands the guidance on consolidation in ARB No. 51, which was based on controlling financial interest, to include other factors. The provisions of FIN No. 46 are effective for entities created before February 1, 2003 and for the Company’s interim financial statements for the quarter ended January 31, 2004. For entities created after February 1, 2003, the provisions of FIN No. 46 will be effective as of the date they first become involved with the certain entity. The Company does not expect a material impact on its financial position, results of operations, or cash flows upon the adoption of FIN No. 46.

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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.

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 that ultimately utilize components manufactured by the Company, and general consumer demand. Adverse economic developments could affect the financial performance of the Company, and these factors include, but are not limited to, 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 and pension plan obligations (including its ability to meet the financial covenant obligations in the credit agreement and negotiate a new credit facility upon maturity of its existing credit facility), the Company’s ability to realize its deferred tax asset, 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.

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Report of Independent Auditors

To the Board of Directors and Shareholders

of JPS Industries, Inc.:

In our opinion, the consolidated financial statements as of and for the years ended November 1, 2003 and November 2, 2002 listed in the index appearing under Item 15(a)(1) on page 43, present fairly, in all material respects, the financial position of JPS Industries, Inc. and its subsidiaries (the “Company”) at November 1, 2003 and November 2, 2002 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule as of and for the year ended November 1, 2003 listed in the index appearing under Item 15(a)(2) on page 44, presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audits 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As more fully discussed in Note 5 to the consolidated financial statements, the Company’s revolving credit facility expires on November 1, 2004.

PricewaterhouseCoopers LLP

Spartanburg, SC

January 27, 2004

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INDEPENDENT AUDITORS’ REPORT

JPS Industries, Inc.

We have audited the accompanying consolidated balance sheet 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 audit 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 scheduled has been subjected to the auditing procedures applied in our 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

The report is a copy of the previously issued report. Arthur Andersen LLP has not reissued the report.

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JPS INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars In Thousands)

See notes to consolidated financial statements.

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See notes to consolidated financial statements.

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JPS INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in Thousands Except Share and Per Share Data)

See notes to consolidated financial statements.

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JPS INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Dollars In Thousands)

See notes to consolidated financial statements.

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JPS INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars In Thousands)