<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1995
........................................................
Commission file number 1-6687
....................................................
JOHNSTON INDUSTRIES, INC.
...........................................................................
(Exact name of registrant as specified in its charter)
Delaware 11-1749980
...........................................................................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
105 Thirteenth Street, Columbus, Georgia 31901
...........................................................................
(Address of principal executive offices) (Zip Code)
(706) 641-3140
...........................................................................
(Registrant's telephone number, including area code)
...........................................................................
(Former name, former address and former fiscal year if changed since last
report.)
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 XX No
...... ......
At September 30, 1995, the number of outstanding shares of $.10 par value
common stock was 10,564,979.
<PAGE> 2
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
INDEX
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
2
<PAGE> 3
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 JUNE 30, 1995
------------------ -------------
(Unaudited)
<S> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents $ 6,927 $ 9,456
Marketable Securities, at Fair Value 9,811 9,741
Accounts and Notes Receivable
(Less Allowance for Doubtful Accounts
of $1,300 and $1,113) 42,863 43,333
Inventories 51,981 46,389
Prepaid Expenses and Other 2,535 1,892
Income Taxes Receivable 474
-------- --------
Total Current Assets 114,591 110,811
Investments at Market or Fair Value as Determined
by Jupiter's Directors 20,473 19,892
Investments - At Equity 4,174
Property, Plant, and Equipment - Net 118,563 114,309
Intangible Asset - Pension 2,675 2,675
Other Assets 5,479 3,240
-------- --------
Total Assets $ 261,781 $ 255,101
======== ========
Liabilities and Stockholders' Equity
Current Liabilities
Short-Term Borrowings $ 9,650 $ 6,800
Current Maturities of Long-Term Debt 6,395 5,894
Accounts Payable 23,224 19,692
Accrued Expenses 14,451 13,084
Deferred Income Taxes 3,524 2,947
Income Taxes Payable 1,219
-------- --------
Total Current Liabilities 57,244 49,636
Long-Term Debt 102,973 98,834
Other Liabilities 21,276 23,035
Commitments and Contingencies
Minority Interest in Consolidated Subsidiary 19,745 20,169
Stockholders' Equity:
Preferred Stock, par value $.01 per share;
Authorized 3,000,000 shares; none issued
Common Stock, par value $.10 per share;
Authorized 20,000,000 shares; issued
12,426,891 shares 1,243 1,243
Additional Paid-In Capital 17,293 17,258
Retained Earnings 51,889 54,808
-------- --------
Total 70,425 73,309
Less Treasury Stock; 1,861,912 shares, at cost (8,108) (8,108)
Less Minimum Pension Liability Adjustment, Net
of Tax Benefit (1,774) (1,774)
-------- --------
Stockholders' Equity 60,543 63,427
-------- --------
Total Liabilities and Stockholders' Equity $ 261,781 $ 255,101
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands of Dollars, Except Per Share Amounts)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
SEPTEMBER 30
------------
1995 1994
---- ----
<S> <C> <C>
Net Sales $ 73,524 $ 40,773
------- -------
Costs and Expenses:
Cost of Sales, excluding
Depreciation and Amortization 62,363 30,958
Selling, General, and Administrative 7,235 3,380
Depreciation and Amortization 4,627 2,819
------- -------
Total Costs and Expenses 74,225 37,157
------- -------
Income (Loss) from Operations (701) 3,616
Other Expenses:
Interest Expense - Net 2,078 845
Other - Net 1,094 160
------- -------
Total Other Expenses 3,172 1,005
Equity in Earnings of Equity Investments 39
Realized and Unrealized Investment
Portfolio Gain 70
------- -------
Income (Loss) Before Provision
for Income Taxes and Minority Interest (3,803) 2,650
Provision (Benefit) for Income Taxes (1,517) 968
------- -------
Income (Loss) Before Minority Interest (2,286) 1,682
Minority Interest in Loss of
Consolidated Subsidiary (424)
------- -------
Net Income (Loss) $ (1,862) $ 1,682
======= =======
Earnings (Loss) Per Share $ (.18) $ .16
======= =======
Dividends Per Share $ .10 $ .095
======= =======
Weighted Average Number of Common
and Common Equivalent Shares
Outstanding 10,565 10,766
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands of Dollars)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
SEPTEMBER 30
------------
1995 1994
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ (1,862) $ 1,682
------- -------
Adjustment to Reconcile Net Income (Loss) to
Net Cash Provided by (Used In) Operating Activities:
Depreciation and Amortization 4,627 2,819
Provision for Bad Debts 142 41
Net Realized and Unrealized Gain on Portfolio Investment (70)
Undistributed Income in Investments (39)
Minority Interest in Loss of Consolidated Subsidiary (424)
Changes in Assets and Liabilities:
Accounts and Notes Receivable 1,563 186
Inventories (4,370) (1,450)
Deferred Income Taxes 577 (47)
Prepaid Expenses and Other Assets (1,323) 203
Accounts Payable 1,223 (762)
Accrued Expenses 1,268 67
Income Taxes Payable (1,658) 362
Other Liabilities (1,724) 254
Other - Net 57 57
------- -------
Total Adjustments (112) 1,691
------- -------
Net Cash Provided by (Used In) Operating Activities (1,974) 3,373
------- -------
Cash Flows From Investing Activities:
Additions to Property, Plant, and Equipment (7,750) (2,396)
Unpaid (Paid) Capital Expenditures 2,157 (475)
Acquisition Costs for Minority Interest in
Consolidated Subsidiary (970)
Increase in Investments (425) (525)
------- -------
Net Cash Used in Investing Activities (6,988) (3,396)
------- -------
Cash Flows From Financing Activities:
Principal Payments of Debt (562) (521)
Proceeds From Issuance of Long-Term Debt 5,202
Borrowings Under Line-of-Credit Agreements 8,100 5,000
Repayments Under Line-of-Credit Agreements (5,250) (2,000)
Purchase of Treasury Stock (1,042)
Dividends Paid (1,057) (1,013)
------- -------
Net Cash Provided by Financing Activities 6,433 424
------- -------
Net Increase (Decrease) in Cash and Cash Equivalents (2,529) 401
Cash and Cash Equivalents, Beginning of Period 9,456 3,914
------- -------
Cash and Cash Equivalents, End of Period $ 6,927 $ 4,315
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period For:
Interest $ 2,041 $ 879
Income Taxes $ 1,315 $ 469
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements for the
three months ended September 30, 1995 and 1994 are unaudited. These
statements include the accounts of Johnston Industries, Inc.
("Johnston"), its wholly-owned subsidiaries, Southern Phenix Textiles,
Inc., Opp and Micolas Mills, Inc., and Tech Textiles, USA, and its
majority-owned subsidiary, Jupiter National, Inc. ("Jupiter") and
Jupiter's wholly-owned subsidiaries, Wellington Sears Company
("Wellington"), Pay Telephone America, Ltd., and Greater Washington
Investments, Inc. (collectively, the "Company"). In the opinion of
management, the information reflects all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation of the
results for the periods presented. Operating results for the three
months ended September 30, 1995 are not necessarily indicative of the
results that may be expected for the entire year. The condensed
consolidated financial statements included herein should be read in
conjunction with the financial statements and notes thereto included in
the Company's annual report on Form 10-K for the year ended June 30,
1995. Reference is made to the accounting policies of the Company
described in the notes to consolidated financial statements included in
the Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1995. The Company has consistently followed those policies in
preparing this report.
On September 22, 1995, the Board of Directors of Johnston authorized a
change in the fiscal year from a period beginning July 1 and ending June
30 to a variable period ending on the Saturday nearest to December 31.
Therefore, Johnston's fiscal period 1995 will end on December 30,
1995. Such change will make Johnston's year-end consistent with its
quarterly accounting periods which, in the case of 52-week years, consist
of two four week and one five week period per quarter ending on a
Saturday. The Form 10-Q will include information for the three months
ended September 30, 1995. However, beginning on December 31, 1995 (the
first day of the new fiscal year 1996), Johnston will commence filing
quarterly reports for the quarters of the new fiscal year 1996.
2. JUPITER NATIONAL
In August 1995, Johnston entered into an agreement and plan of merger
with Jupiter under which the public shareholders of Jupiter would receive
$32.875 per share in cash from Johnston in exchange for their shares.
The per share price is subject to adjustment based on the market value of
certain investments held by Jupiter on a date near the mailing of the
merger proxy statement to the Jupiter shareholders. The merger is
expected to be concluded in January 1996.
3. INVENTORIES
Inventories consist of the following at September 30, 1995 and June 30,
1995:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 JUNE 30, 1995
------------------ -------------
<S> <C> <C>
Finished Goods $ 21,515,000 $ 18,191,000
Work-In Process 17,063,000 15,288,000
Raw Materials and Supplies 13,403,000 12,910,000
----------- -----------
Total $ 51,981,000 $ 46,389,000
=========== ===========
</TABLE>
6
<PAGE> 7
4. LONG-TERM FINANCING AND SHORT-TERM BORROWINGS
Long-term debt and short-term borrowings consist of the following at
September 30, 1995 and June 30, 1995:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 JUNE 30, 1995
------------------ -------------
<S> <C> <C>
Johnston Industries, Inc.
Short-Term Borrowings $ 9,650,000 $ 6,800,000
=========== ===========
Revolving Credit Loans $ 45,000,000 $ 45,000,000
Purchase Money Mortgage Debt 1,195,000 1,217,000
----------- -----------
46,195,000 46,217,000
Jupiter National, Inc.
Subordinated Debentures 14,500,000 14,500,000
Securities Loans 1,500,000 1,191,000
Other Debt 911,000 933,000
----------- -----------
16,911,000 16,624,000
Wellington Sears Company
Revolving Credit Loan 20,802,000 17,361,000
Term Loan 19,250,000 19,687,000
Equipment Loans 4,131,000 2,768,000
Amounts Due Former Affiliates
of Polylok 1,464,000 1,434,000
Other Debt 615,000 637,000
----------- -----------
46,262,000 41,887,000
----------- -----------
Total 109,638,000 104,278,000
Less Current Maturities (6,395,000) (5,894,000)
----------- -----------
$102,973,000 $ 98,834,000
=========== ===========
</TABLE>
Johnston Industries, Inc.
Amended Credit Agreement
The January 31, 1995 credit and security agreement (the "CSA")
provides for revolving credit loans up to $45,000,000 and $10,000,000
in annually renewable lines of credit. Borrowings under the
$45,000,000 line mature January 14, 1997, bear interest at a variable
rate of the higher of the federal funds rate plus 1/2 of 1% or the
prime rate. Under the agreement, the interest rate for Eurodollar
loans is based on the LIBOR rate plus a margin. The average interest
rate at September 30, 1995 was 5.88% plus a margin of 1 1/2%.
Borrowings under the $10,000,000 line of credit bear interest at the
higher of the federal funds rate plus 1/2 of 1% or the prime rate. At
September 30, 1995, there were borrowings of $9,650,000 under the
$10,000,000 line of credit at an average interest rate of 8 3/4%.
Purchase Money Mortgage Agreement
Johnston has a purchase money mortgage agreement with a bank for a
maximum loan of $1,325,000 for an office building. The loan is
payable ratably to December 31, 2008. At September 30, 1995,
Johnston had borrowings of $1,195,000 outstanding under this agreement
and currently pays interest at a rate of 8 3/4%.
7
<PAGE> 8
Covenants and Restrictions
The CSA requires Johnston, among other things, to maintain certain
financial ratios, specified levels of working capital and tangible net
worth, as defined. The CSA also restricts Johnston's ability to
incur debt, buy or sell assets, pay dividends, and issue or repurchase
capital stock.
At certain times during the three months ended September 30, 1995,
Johnston was not in compliance with its adjusted tangible net worth
covenant, leverage ratio covenant, current ratio covenant or interest
coverage ratio covenant under the CSA. These events of noncompliance,
as of September 30, 1995, were waived by the lending institutions in
waivers dated November 14, 1995, which amend the covenants through
December 31, 1995. Johnston is in compliance with the CSA covenants
as amended. Although no assurances can be given, Johnston believes
it will be in compliance with the CSA covenants, as amended, for
future periods.
Jupiter National, Inc.
Subordinated Debentures
The subordinated debentures are payable to the Small Business
Administration (SBA) and bear an effective weighted averaged interest
rate of 7.8% at September 30, 1995. Principal payments are due as
follows:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
1998 $ 2,500,000
2001 7,000,000
2003 5,000,000
----------
$14,500,000
==========
</TABLE>
The subordinated debentures contain restrictions on prepayment,
distributions to shareholders and the operations of Jupiter.
Securities Loans
At September 30, 1995, Jupiter had borrowed $1,500,000 under a
brokerage margin account with average interest rates of 9 3/4%. The
loan is collateralized for 50% of the value of 210,000 shares of Zoll
Medical Corporation and 127,889 shares of Viasoft, Inc., of which the
value was approximately $3,631,000 at September 30, 1995. The loan
bears interest at the broker call money rate of 7 1/2% plus a margin
of 2 1/4%.
Wellington Sears Company
Revolving Credit and Term Loan
In January 1995, Wellington amended its revolving credit and term loan
agreement (the "RCTLA") with a bank. The RCTLA provides that
Wellington may obtain revolving credit loans up to an aggregate amount
of the lessor of $24,000,000 or certain percentages of accounts
receivable and inventories. Repayment is made daily from cash receipts
(as defined). The revolving credit loan is due November 20, 1998,
however, it contains a provision for an automatic renewal for one
year, absent notice of the contrary by the parties.
The unused available line of credit at September 30, 1995 was
approximately $872,000. Interest is payable at the current prime rate
plus 1% and the interest rate at September 30, 1995 was 9 3/4%.
8
<PAGE> 9
The RCTLA also provides for a term loan of $21,000,000 payable in
monthly installments of $218,735 through November 20, 1998, at which
time the remaining unpaid balance is due. At September 30, 1995,
there were borrowings of $19,250,000 under the term loan. The term
loan bears interest at the current prime rate plus 1% and the interest
rate at September 30, 1995 was 9 3/4%.
Equipment Loans
In addition to the RCTLA, Wellington has an equipment loan facility
(the "ELF") with the same lender. The ELF provides that through
November 18, 1998, Wellington may borrow up to $5,000,000 to finance
the purchase of equipment. The principal amount is payable in monthly
installments of 1/96th of the loan balance through November 18, 1998,
when the remaining balance is due. At September 30, 1995, there were
borrowings of $4,131,000 under the ELF.
Amounts Due Former Affiliates of Polylok
Amounts due former affiliates is primarily comprised of $1,464,000 due
under a note payable agreement and deferred compensation agreement
with the former owner of Polylok Corporation. Amounts are payable in
equal quarterly installments of $269,108 plus interest, accruing at
the prime interest rate (8.75% at September 30, 1995), with the final
payment due March 31, 1996. On October 18, 1995, litigation
concerning this matter was settled. The former owner of Polylok
received approximately $541,000 on October 25, 1995 to settle this
matter.
Covenants and Restrictions
The RCTLA and ELF require Wellington, among other things, to maintain
certain financial ratios and specified levels of working capital and
profitability, as defined. These also restrict Wellington's ability
to incur debt, buy or sell assets, pay dividends, and issue or
repurchase capital stock.
At certain times during the three months ended September 30,
1995, Wellington was not in compliance with its cash flow coverage
ratio covenant, operating cash flow coverage ratio covenant, adjusted
earnings from operations covenant and capital expenditure covenant
under the RCTLA and the ELF. These events of noncompliance, as of
September 30, 1995, were waived by the lending institutions in waivers
dated November 10, 1995 which amended the loan agreements through
July 6, 1996. Wellington is in compliance with the RCTLA and ELF
covenants as amended. Although no assurances can be given, Wellington
believes it will be in compliance with the RCTLA and ELF covenants,
as amended, for future periods.
5. EARNINGS (LOSS) PER SHARE
Earnings per share for the three month period ended September 30, 1994
was calculated based on the weighted average number of shares of
common and common equivalent shares outstanding during the period.
Loss per share for the three month period ended September 30, 1995
excluded the stock options from the weighted average number of shares
outstanding due to the fact they would be anti-dilutive.
9
<PAGE> 10
6. INCOME TAX
The provision for income taxes as computed under Financial Accounting
Standards Board Standard No. 109, "Accounting for Income Taxes", is
comprised of the following for the three months ended September 30,
1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Federal:
Current $ (451,000) $ 636,000
Deferred (993,000) 246,000
----------- -----------
(1,444,000) 882,000
State:
Current (25,000) 192,000
Deferred (48,000) (106,000)
----------- -----------
(73,000) 86,000
Provision (benefit) for
income taxes $ (1,517,000) $ 968,000
=========== ===========
</TABLE>
The reconciliation of the Company's effective income tax rate to the
Federal statutory rate of 34% for the three months ended September 30,
1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Federal income taxes
at statutory rate $ (1,293,000) $ 901,000
State income taxes,
net of Federal tax 57,000
Equity in Income of
Majority-Owned Subsidiary (175,000)
Other - Net 10,000
----------- -----------
$ (1,517,000) $ 968,000
----------- -----------
Effective rate (39.9%) 36.5%
=========== ===========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
In February 1994, the operators of a steel fabricating facility filed
a complaint against a previous operator of the facility and a former
subsidiary of Johnston which had operated the facility earlier before
its close in 1981. The complaint, Bethlehem Iron Works, Inc., and
Steel Structures Corp., Plaintiffs, vs. Lewis Industries, Inc.,
Charles P. Lewis and Johnston Industries, Inc., Defendants, filed in
the United States District Court for the Eastern District of
Pennsylvania, No. 94-CV-0752, seeks to have the earlier operators bear
the response costs incurred in remediation of contamination at the
plant site. Such costs are alleged to be approximately $3,900,000;
however, Johnston disputes such costs. The trial of the case began
on July 20, 1995 and was concluded August 25, 1995. Briefs by all of
the parties are to be filed before a decision is rendered, which is
not expected until 1996. In June 1995, Johnston established a
reserve of $1,000,000 for costs which it may incur in connection with
the final resolution of the dispute. In addition, Johnston has
established a reserve in the amount of $200,000 as an estimate of
potential legal and other costs to be incurred in connection with
defending this matter. Although management believes that the accruals
described above are sufficient to cover the
10
<PAGE> 11
estimated costs of such matters, the ultimate outcome of the
litigation cannot presently be determined.
Jupiter and Wellington at June 30, 1995 were involved in a legal
dispute with Polylok Corporation and its former majority shareholder,
Daniel Duhl ("Duhl"). The former majority shareholder had filed
motions for summary judgment on his claims for installment payments.
On October 18, 1995, the legal dispute was resolved except for legal
action by the shareholder and Polylok concerning the use of funds in
an environmental escrow account. The reserves recorded in connection
with such legal proceedings is adequate. (See Item 1. Legal
Proceedings).
In September 1995, Johnston signed a "Limited Guaranty Agreement" in
favor of the lender under the RCTLA to guarantee an "Overadvance"
position for Wellington under the RCTLA. The amount of the
"Overadvance" is $1,250,000, and Wellington is to repay the lender
the "Overadvance" by January 31, 1996. The "Overadvance" will be
governed by the provisions of the RCTLA. Management of Johnston does
not expect any liability to arise from this guarantee.
The Company is periodically involved in legal proceedings arising out
of the ordinary conduct of its business. Management does not expect
that any of these legal proceedings or the legal proceedings involving
Jupiter, Polylok and Duhl discussed above, to have a material adverse
effect on the Company's consolidated financial statements or results
of operations.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
In January 1995, Johnston Industries, Inc. ("Johnston")
increased its ownership interest in Jupiter National, Inc. ("Jupiter") to 54%,
resulting in the consolidation of Jupiter operations with Johnston effective
January 1, 1995. Subsequently, in May 1995, Johnston purchased additional
shares of Jupiter bringing its ownership interest to 54.8%. As a result, 1996
data, except net income (loss) and net income (loss) per share, is not directly
comparable to prior period data. Additionally, in August 1995, Johnston
entered into an agreement and plan of merger with Jupiter under which the
public shareholders of Jupiter would receive $32.875 per share in cash, subject
to adjustment based on the market value of certain investments held by Jupiter,
from Johnston in exchange for their shares. The merger is expected to be
concluded in January 1996.
Also, subsequent to June 30, 1995, Johnston purchased the
remaining 50% interest in Tech Textiles, USA ("Tech Textiles"), a former
50%/50% partnership with an English company, resulting in the consolidation of
results of operations for the three months ended September 30, 1995.
RESULTS OF OPERATIONS
Net sales for the first quarter of fiscal 1996 were $73,524,000
compared to $40,773,000 for the same period in the prior year. The increase of
$32,751,000, of which $36,835,000 were attributable to Jupiter and Tech
Textiles, represents an increase of 80% from the same period in fiscal 1995.
However, excluding the sales attributable to Jupiter and Tech Textiles, net
sales decreased by 10% or $4,084,000 from the same period in the prior year.
Sales in the automotive, industrial, upholstery and apparel markets decreased
approximately $4,970,000 or 12% from the quarter a year ago, while sales in the
bedding and specialty markets increased approximately 2% or $886,000. At
September 30, 1995, the sales backlog for Johnston and Jupiter operations on a
combined basis was $60,483,000 as compared to $66,609,000 for the same period a
year ago. The decline in order backlog is due to customer resistance to high
raw material costs and a slow down in the economy in
12
<PAGE> 13
general.
Cost of sales increased $31,405,000 for the quarter, $30,647,000
of which is attributable to the operations of Jupiter and Tech Textiles,
compared to the same period in the prior year. The remaining increased costs
of $758,000 were due to increased raw material prices that generally could not
be passed along to customers. Gross margin for the three months ended
September 30, 1995 was approximately fifteen percent of net sales. Margins
were significantly effected by decreased sales volumes and productivity
resulting in decreased utilization of plant and equipment.
Selling, general, and administrative expenses increased
$3,855,000, of which $3,681,000 resulted from the operations of Jupiter and
Tech Textiles, for the quarter compared to the same period in the prior year.
The remaining increases of $174,000 are primarily the result of increases in
professional services, travel expense, contributions and miscellaneous
expenses.
Depreciation and amortization expense for the quarter increased
$1,808,000, of which $1,591,000 resulted from the operations of Jupiter and
Tech Textiles, compared to the same period in the prior year. The remaining
increase of $217,000 reflects depreciation based on capital expenditures placed
in service during the quarter.
The decrease in income from operations of $4,317,000, of which
$913,000 is from the operations of Jupiter and Tech Textiles, for the quarter
compared to the same period of the prior year, reflects the lower level of
sales experienced by the company.
Net interest expense increased $1,233,000, of which $1,075,000
represents the operations of Jupiter and Tech Textiles, for the quarter
compared to the same period in the prior year. The remaining increase of
$158,000 represents increased borrowings for the quarter.
Other expense - net increased $934,000, of which $885,000 resulted
from the operations of Jupiter and Tech Textiles, compared to the same period
in the prior year. The remaining increase of $49,000 resulted from the
operations of other subsidiaries of Johnston.
The previous reporting of equity in earnings/loss of equity
investments is no longer required since the results of operations of Jupiter
and Tech Textiles are
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<PAGE> 14
consolidated with Johnston.
For comparison purposes, the equity in earnings/loss of equity
investments and realized and unrealized investment portfolio gain are combined
reflecting an increase of $31,000 for the quarter compared to the same period
in the prior year. The increase represents an increase of $224,000 in earnings
from Tech Textiles reporting on the equity basis from the same period in the
prior year. The remaining decrease of $154,000 is the result of Jupiter's
investment in Viasoft and Zoll Medical prior to adjusting for minority
interest. Jupiter carries its portfolio investments at market or fair value.
Securities with readily available market quotations (Viasoft, Inc. and Zoll
Medical Corporation) were valued at the current market price. All other
securities were valued at fair value as determined in good faith by Jupiter's
Board of Directors using a formal portfolio valuation procedure. In
determining "fair value", the Jupiter Board adhered to the standard recommended
for investment companies by the American Institute of Certified Public
Accountants and the Securities and Exchange Commission. That standard defines
"fair value" as the expected realization if the securities were to be disposed
of in an orderly distribution over a reasonable period of time. Minority
interest is recorded for the minority shareholders' proportionate share of the
equity and earnings of Jupiter.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at September 30, 1995 was $57,347,000 representing
a current ratio of 2 to 1.
Johnston Industries, Inc.
Johnston's credit and security agreement (the "CSA") provides for
revolving credit loans up to $45,000,000 and $10,000,000 in annually renewable
lines of credit. At September 30, 1995, the current borrowings aggregated
$54,650,000, $45,000,000 of which were attributable to revolving credit loans
and $9,650,000 to the lines of credit. Subsequent to September 30, 1995,
Johnston utilized the remaining borrowing line and has received additional
lines of credit totaling $10,000,000, effective October 27, 1995. Borrowings
under the revolving credit loans bear interest at a variable rate equal to (i)
the federal funds rate, plus 1/2 of 1% or (ii) the prime rate, whichever is
higher, or (iii) the interest rate for Eurodollar loans based on the LIBOR rate
plus margin. The
14
<PAGE> 15
interest rate for the line of credit is the higher of the federal funds
rate plus 1/2 of 1% or the prime rate. At September 30, 1995, the interest
rate on the revolving credit loans was 5.88% plus a margin of 1 1/2% and the
interest rate on the lines of credit was the prime rate of 8 3/4%.
At certain times during the three months ended September 30, 1995,
Johnston was not in compliance with its adjusted tangible net worth covenant,
leverage ratio covenant, current ratio covenant or interest coverage ratio
covenant under the CSA. These events of noncompliance were waived by the
lending institutions in waivers dated November 14, 1995 which amend the CSA
covenants through December 31, 1995. Johnston is in compliance with the CSA
covenants as amended. Although no assurances can be given, Johnston believes
it will be in compliance with the CSA covenants, as amended, for future periods.
Jupiter National, Inc.
Subordinated Debentures
As of September 30, 1995, $14,500,000 of subordinated debentures
are payable to the Small Business Administration (SBA) through the year 2003.
The subordinated debentures contain restrictions on prepayment, distributions
to shareholders and the operations of Jupiter. The effective weighted interest
rate of the subordinated debentures at September 30, 1995 was 7.8%.
Securities Loans
At September 30, 1995, Jupiter had borrowings of $1,500,000 under
a margin agreement with a brokerage firm. The loan is collateralized for 50%
of the value of 210,000 shares of Zoll Medical Corporation and 127,889 shares
of Viasoft, Inc., of which the value was approximately $3,631,000 at September
30, 1995. The loan bears interest at the broker call money rate of 7 1/2% plus
a margin of 2 1/4%.
Wellington Sears Company
Revolving Credit and Term Loan
Wellington Sears has a revolving credit and term loan agreement
(the "RCTLA") which provides for up to an aggregate amount of the lessor of
$24,000,000 or certain percentages of accounts receivables and inventories.
15
<PAGE> 16
Borrowings under the revolving credit loans at September 30, 1995 were
$20,802,000 bearing an interest rate of prime plus 1% (9 3/4%). The unused
available line of credit for the revolving credit loans at September 30, 1995
was $872,000.
Also, the RCTLA agreement provides for a $21,000,000 term loan
with monthly installments of $218,735 payable through November 20, 1998, at
which time the remaining unpaid balance is due. At September 30, 1995, there
were borrowings of $19,250,000 under the term loan, which bears interest at the
prime rate plus 1% (9 3/4%).
Equipment Loans
In addition to the RCTLA, Wellington has an equipment loan
facility (the "ELF") which provides borrowings, through November 18, 1998, up
to $5,000,000 to finance the purchase of equipment. At September 30, 1995,
there were borrowings of $4,131,000 under the ELF.
The RCTLA and ELF require Wellington Sears, among other things, to
maintain certain financial ratios and specified levels of working capital and
profitability, as defined. At certain times during the three months ended
September 30, 1995, Wellington Sears was not in compliance with its cash flow
coverage ratio covenant, operating cash flow coverage ratio covenant, adjusted
earnings from operations covenant and capital expenditure covenant under the
RCTLA and the ELF. On November 10, 1995, Wellington Sears received requested
waivers from the lending institutions amending its loan agreements through
July 6, 1996. Wellington Sears is in compliance with the RCTLA and ELF
covenants as amended. Although no assurances can be given, Wellington Sears
believes it will be in compliance with the RCTLA and ELF covenants, as amended,
for future periods.
Management believes that funds generated from operations and funds
available under the various borrowing agreements of Johnston and its
subsidiaries are sufficient for the current operations of the company on a
consolidated basis.
OTHER MATTERS
In September 1995, Johnston signed a "Limited Guaranty Agreement"
in favor of the lender under the RCTLA to guarantee an "Overadvance" position
for Wellington
16
<PAGE> 17
Sears. The amount of the "Overadvance" is $1,250,000, and Wellington Sears is
to repay the lender the "Overadvance" by January 31, 1996. The "Overadvance"
will be governed by the provisions of the RCTLA. Management of Johnston does
not expect any liability to arise from this guarantee.
The Company is involved in certain litigation. (See Item 1. Legal
Proceedings). Although no assurances can be given, the Company does not
believe the resolution of these matters will have a material adverse effect on
its liquidity or capital resources.
17
<PAGE> 18
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Johnston Industries, Inc.
In 1981, a subsidiary of the Company closed a steel fabricating
facility in Pennsylvania which it had operated before its closing. The
facility was purchased from the Company and again operated as a steel
fabricating facility by the new owner for approximately two years and
thereafter was purchased by the present owner who also operated it as a steel
fabricating facility for about three years. Since that time, it has been
closed.
In February 1994, the present owners of the property filed a complaint
in the United States District Court, Eastern District of Pennsylvania,
Bethlehem Iron Works, Inc., and Steel Structures Corp., Plaintiffs, vs. Lewis
Industries, Inc., Charles P. Lewis and Johnston Industries, Inc., Defendants,
No. 94-CV-0752, against the Company and the previous owner alleging
responsibility of those parties for the cost of remediation of the plant site.
The original complaint alleged that such costs were in excess of $1,500,000.
In July 1995, the plaintiff amended its compliant alleging estimated costs to
be $3,900,000. The Company is not in agreement concerning these estimated
costs, but assuming the estimate is found to be accurate, it is believed that
the court will apportion the liability among each of the parties including the
plaintiff for the cost of remediation of the plant site.
The trial of the case began on July 20, 1995 and was concluded August
25, 1995. Briefs by all of the parties are to be filed before a decision is
rendered, which is not expected until sometime in 1996. In June 1995, the
Company established a $1,000,000 reserve for costs in which it may incur in
connection with the final resolution of the dispute. In addition, the Company
has established a reserve in the amount of $200,000 as an estimate of potential
legal and other costs to be incurred in connection with defending this matter.
Although management believes the accrual described above is sufficient to cover
the estimated costs of such matter,
18
<PAGE> 19
the ultimate outcome of the litigation cannot be presently determined.
The Company is periodically involved in legal proceedings arising out
of the ordinary conduct of its business. Management does not expect that any
of these legal proceeding or the legal proceedings involving Jupiter, Polylok
and Duhl discussed below, to have a material adverse effect on the Company's
consolidated financial position or results of operations.
Jupiter Litigation
The purchase of the assets of Polylok Corporation ("Polylok") which
comprises Wellington Sears' Tarboro facility ("Tarboro") produced significant
litigation among Jupiter National, Wellington Sears, Polylok, and Daniel Duhl
("Duhl"), Polylok's principal shareholder. The first action, which was settled
in August 1994, involved assertions against Polylok and Duhl of
misrepresentations made in connection with the purchase of Polylok's assets.
Subsequently, in March 1995, Polylok and Duhl commenced an action against
Jupiter National and Wellington Sears, which action asserted a breach of
contract relating to installment payments due Duhl pursuant to a $1,600,000
purchase money note. Jupiter National and Wellington Sears filed counterclaims
against Polylok and Duhl for breach of Duhl's consultancy agreement and breach
of the prior August 1994 settlement. On October 18, 1995, the breach of
contract claim asserted by Polylok and Duhl and the counter claim by Jupiter
and Wellington Sears for breach of consultancy agreement and August 1994
settlement were resolved. On October 25, 1995, approximately $541,000 was
placed in an escrow account to settle all obligations for Mr. Duhl's
consultancy agreement. In further litigation in the United States District
Court, Eastern District of North Carolina, Polylok Corporation and Polylok
Finishing Corporation vs. Jupiter National, Inc. and Wellington Sears Company,
No. 4:95-CV-105-H(2), Polylok and Duhl have taken legal action against Jupiter
and Wellington Sears regarding withdrawal of monies set aside in an escrow
account, from the August 1994 settlement, providing for remediation of
environmental contamination at the Tarboro plant. Subsequent to the
settlement, Jupiter paid environmental expenses, later reimbursed from the
escrow account, incurred before the settlement. Polylok and Duhl have taken
the position these
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<PAGE> 20
expenses were for a non-environmental nature. However, Jupiter's position is
that these expenses related directly to environmental concerns and in light of
the 1994 settlement the reimbursement of monies from the escrow account was
proper.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11. Statements of Computation of Per Share Earnings.
27. Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
(i) An 8-K was filed August 21, 1995 updating the
status of the action against the Company and the
subsequent court case in the United States
District Court, Eastern District of Pennsylvania,
No. 94-CV- 0752, Bethlehem Iron Works, Inc., and
Steel Structures Corp., Plaintiffs, vs. Lewis
Industries, Inc., Charles P. Lewis and Johnston
Industries, Inc., Defendants. (See Item 1.
Legal Proceedings).
(ii) The other topic reported was the August 16, 1995
announced merger agreement between Jupiter
National, Inc. and Johnston Industries, Inc.
20
<PAGE> 21
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the undersigned has duly caused this report to be filed on its
behalf by the undersigned hereto duly authorized.
JOHNSTON INDUSTRIES, INC.
DATED: November 15, 1995 BY /s/ John W. Johnson
----------------------
John W. Johnson
Vice President
Chief Financial Officer
21
<PAGE> 22
ITEM 6(a) EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C>
11 -- Statement of Computation of Per Share Earnings
27 -- Financial Data Schedule (for SEC use only)
</TABLE>
22
<PAGE> 1
JOHNSTON INDUSTRIES, INC.
EXHIBIT 11 - Statement of Computation of Per Share Earnings
<TABLE>
<CAPTION>
For the Three
Months Ended
September 30
------------
1995 1994
---- ----
<S> <C> <C>
The weighted average number of common and common
share equivalents are as follows:
Weighted average common shares outstanding 10,564,979 10,678,179
Shares issued from assumed exercise of non-
qualified stock options (1) -0- 87,852
---------- ----------
Weighted average number of shares outstanding,
as adjusted 10,564,979 10,766,031
========== ==========
</TABLE>
Note:
(1) Shares issued from assumed exercise of options included the number of
incremental shares which result from applying the "treasury stock
method" for options. Due to the fact the Company had a loss for the
three months ended September 30, 1995, the options were excluded from
the weighted average number of shares outstanding in accordance with
generally accepted accounting priniciples.
23
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 6,927
<SECURITIES> 9,811
<RECEIVABLES> 42,863
<ALLOWANCES> 0
<INVENTORY> 51,981
<CURRENT-ASSETS> 114,591
<PP&E> 203,037
<DEPRECIATION> 84,474
<TOTAL-ASSETS> 261,781
<CURRENT-LIABILITIES> 57,244
<BONDS> 0
<COMMON> 1,243
0
0
<OTHER-SE> 59,300
<TOTAL-LIABILITY-AND-EQUITY> 261,781
<SALES> 73,524
<TOTAL-REVENUES> 0
<CGS> 62,363
<TOTAL-COSTS> 74,225
<OTHER-EXPENSES> 1,094
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,078
<INCOME-PRETAX> (3,803)
<INCOME-TAX> (1,517)
<INCOME-CONTINUING> (2,286)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,862)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
