<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 the Quarter Ended September 28, 1996
- ----------------------------------------
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)
N/A
(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 [X] No [ ]
The number of shares outstanding of the Registrant's Common Stock as of
September 28, 1996 was 10,362,874 shares.
<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, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
SEPTEMBER 28, 1996 DECEMBER 30, 1995
------------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents $ 3,510 $ 1,471
Accounts and Notes Receivable
(Less Allowance for Doubtful Accounts
of $1,823 and $1,772) 41,549 42,218
Income Taxes Receivable 1,416 1,310
Inventories 58,087 52,951
Prepaid Expenses and Other 3,482 763
Deferred Income Taxes 981 919
Assets Held for Sale 4,651 5,462
Net Assets of Discontinued Operations 9,405 17,793
-------------- --------------
Total Current Assets 123,081 122,887
Property, Plant, and Equipment - Net 127,231 109,572
Intangible Asset - Pension 2,464 2,464
Goodwill 14,258
Other Assets 4,970 5,616
-------------- --------------
Total Assets $ 272,004 $ 240,539
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current Maturities of Long-Term Debt $ 4,388 $ 206
Accounts Payable 22,846 26,901
Accrued Expenses 15,885 12,422
-------------- --------------
Total Current Liabilities 43,119 39,529
Long-Term Debt 147,275 110,758
Other Liabilities 14,678 13,791
Deferred Income Taxes 7,894 3,314
Commitments and Contingencies
Minority Interest in Consolidated Subsidiary 17,968
Stockholders' Equity:
Preferred Stock, par value $.01 per share;
Authorized 3,000,000 shares; Issued
325,000 shares and 0 shares 3
Common Stock, par value $.10 per share;
Authorized 20,000,000 shares; Issued
12,449,391 and 12,426,891 shares 1,250 1,243
Additional Paid-In Capital 23,655 17,293
Retained Earnings 46,233 46,505
-------------- --------------
Total 71,141 65,041
Less Treasury Stock, 2,086,517 and 1,861,912
shares at cost (10,349) (8,108)
Less Minimum Pension Liability Adjustment, Net
of Tax Benefit (1,754) (1,754)
-------------- --------------
Stockholders' Equity 59,038 55,179
-------------- --------------
Total Liabilities and Stockholders' Equity $ 272,004 $ 240,539
============== ==============
</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 FOR THE THREE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 28, SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 30,
------------- ------------- ------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 77,071 $ 72,893 $ 242,844 $ 250,202
---------- ---------- --------- ----------
Costs and Expenses:
Cost of Sales, excluding Depreciation
and Amortization 62,514 62,034 198,781 205,947
Selling, General, and Administrative 6,013 6,668 19,143 20,205
Restructuring Charges 433 2,685
Depreciation and Amortization 5,063 4,497 14,849 12,618
---------- ---------- --------- ----------
Total Costs and Expenses 74,023 73,199 235,458 238,770
---------- ---------- --------- ----------
Income (Loss) from Operations 3,048 (306) 7,386 11,432
Other Expenses (Income):
Interest Expense 2,986 1,998 8,173 6,158
Interest Income (51) (27) (190) (128)
Other - Net 407 (216) 115 1,407
---------- ---------- --------- ----------
Total Other Expenses 3,342 1,755 8,098 7,437
Equity in Earnings (Loss) of Equity Investments (40)
---------- ---------- --------- ----------
Income (Loss) from Continuing Operations Before
Tax Provision, Minority Interest in Consolidated
Subsidiary, and Extraordinary Item (294) (2,061) (712) 3,955
Provision (Benefit) for Income Taxes (21) (632) (424) 1,961
(Loss) Income of Minority Interest in Consolidated
Subsidiary from Continuing Operations (65) 1,200 (600)
---------- ---------- --------- ----------
Income (Loss) from Continuing Operations (273) (1,494) 912 1,394
DISCONTINUED OPERATIONS:
Income (Loss) from Discontinued Operations of Jupiter
National (less applicable income tax provision
(benefit) of ($70) and (433) for the three months
and $5,037 and $1,348 for the nine months,
respectively) net of minority interest in income
(loss) of $0 and and (489) for the three months and
$1,083 and $676 for the nine months, respectively (711) (368) 4,722 423
Loss on Disposal of Jupiter National, including
provision of $328 for the three months (less
applicable income tax benefit of $377) and $628
for the nine months (less applicable income tax
benefit of $3,178) $ 3,178) (167) (2,190)
---------- ---------- --------- ----------
Income (Loss) from Discontinued Operations (878) (368) 2,532 423
---------- ---------- --------- ----------
EXTRAORDINARY ITEM, (less applicable income taxes of
$323), - Loss on Early Extinguishment of Debt 527
---------- ---------- --------- ----------
Net Income (Loss) (1,151) (1,862) 2,917 1,817
Preferred Dividends 41 84 -
========== ========== ========= ==========
Earnings (Loss) Applicable to Common Stock
$ (1,192) $ (1,862) $ 2,833 $ 1,817
========== ========== ========= ==========
</TABLE>
4
<PAGE> 5
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)- CONTINUED
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 28, SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 30,
1996 1995 1996 1995
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Earnings (Loss) Per Common Share:
Continuing Operations $ (.03) $ (.14) $ .08 $ .13
Discontinued Operations (.09) (.04) .23 .04
Extraordinary Item (.05)
------------ ------------ ------------ -----------
Total $ (.12) $ (.18) $ .26 $ .17
============ ============ ============ ===========
Dividends Per Share $ .10 $ .10 $ .30 $ .30
============ ============ ============ ===========
Weighted Average Number of Common
and Common Equivalent Shares Outstanding 10,363 10,565 10,704 10,659
============ ============ ============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands of Dollars)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
------------
SEPTEMBER 28, SEPTEMBER 30,
------------- -------------
1996 1995
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income from Continuing Operations $ 912 $ 1,394
------------ ------------
Adjustments to Reconcile Net Income from Continuing
Operations to Net Cash from Operating Activities:
Depreciation and Amortization 14,849 12,618
Provision for Doubtful Accounts 235 150
Undistributed Loss in Unconsolidated Affiliates 40
Gain on Sales of Assets 91 8
(Increase) Decrease - Assets:
Accounts and Notes Receivable (1,861) (8,421)
Inventories 3,370 5,925
Deferred Income Taxes (462) -
Other Assets (1,341) (2,476)
Increase (Decrease) - Liabilities:
Accounts Payable 2,267 (49)
Accrued Expenses 2,051 259
Income Taxes Payable 1,461 (1,997)
Deferred Income Taxes 140
Other Liabilities 949 1,605
(Loss) Income in Minority Interest of Consolidated Subsidiary (1,200) 600
Other - Net 101
------------ ------------
Total Adjustments 20,409 8,503
------------ ------------
Net Cash Provided by Continuing Operations 21,321 9,897
------------ ------------
Discontinued Operations:
Income from Discontinued Operations 4,722 423
Loss on Disposal of Discontinued Operations (2,190)
Cash Provided by Discontinued Operations 16,577 1,295
Items Not Affecting Cash, Net (9,619) (4,958)
------------ ------------
Net Cash Provided by Discontinued Operations 9,490 (3,240)
------------ ------------
Net Cash Provided by Operating Activities 30,811 6,657
------------ ------------
Cash Flows From Investing Activities:
Additions to Property, Plant, and Equipment (14,893) (23,226)
Increase (Decrease) in Non-Operating Accounts Payable (6,873) 7,941
Purchase of Minority Interest in Jupiter National (37,693)
Purchase of T.J. Beall, Net of Cash Acquired 333
Purchases of Investments (3,909)
------------ ------------
Net Cash Used In Investing Activities (59,126) (19,194)
------------ ------------
</TABLE>
6
<PAGE> 7
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - CONTINUED
(In Thousands of Dollars)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
------------
SEPTEMBER 28, 1996 SEPTEMBER 30, 1995
------------------- ------------------
<S> <C> <C>
Cash Flows From Financing Activities:
Principal Payments of Long-Term Debt (109,812) (4,627)
Proceeds From Issuance of Long-Term Debt 159,532 18,053
Payments Under Line-of-Credit Agreements (18,000) (23,300)
Borrowings Under Line-of-Credit Agreements 4,750 25,200
Purchase of Treasury Stock, at Cost (2,241) (180)
Proceeds from Issuance of Common Stock 164 48
Extraordinary Item, Loss on Extinguishment of Debt (850)
Dividends Paid (3,189) (3,170)
------------- -------------
Net Cash Provided by Financing Activities 30,354 12,024
------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents 2,039 (513)
Cash and Cash Equivalents, Beginning of Period 1,471 3,323
------------- -------------
Cash and Cash Equivalents, End of Period $ 3,510 $ 2810
============= =============
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 10,171 $ 6,952
Income Taxes Paid $ 4,120 $ 3,418
</TABLE>
Supplemental Disclosures of Non Cash Investing Information:
On March 25, 1996, the Company acquired T.J. Beall in exchange for 325,000
shares of preferred stock at a stated value of $10 per share.
In connection with the March 28, 1996 acquisition of the Jupiter National,
Inc. minority interest, the Company issued 410,514 incentive stock options
and 99,816 non-qualified stock options with an aggregate value of $2,958,439
in exchange for certain Jupiter options having a similar value.
See notes to condensed consolidated financial statements
7
<PAGE> 8
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements for the
nine months ended September 28, 1996 and September 30, 1995 are
unaudited. The September 30, 1995 statements included the accounts of
Johnston Industries, Inc. ("Johnston"), its wholly owned subsidiaries,
Southern Phenix Textiles, Inc. ("Southern Phenix") and Opp and Micolas
Mills, Inc. ("Opp and Micolas"), and its majority-owned subsidiary,
Jupiter National, Inc. ("Jupiter") and Jupiter's wholly-owned
subsidiaries, Wellington Sears Company ("Wellington") and Greater
Washington Investments, Inc. ("GWI").
On April 3, 1996, after the acquisition by Johnston of the minority
interest in Jupiter (see note 2), Jupiter was merged into Opp and
Micolas. At the close of business on June 29, 1996, the name of Opp
and Micolas was changed to Johnston Industries Alabama, Inc. ("JI
Alabama"). Southern Phenix and Wellington were merged into JI Alabama
and Johnston Industries Composite Reinforcements, Inc. ("JICR"
formerly Tech Tech Textiles, USA), T.J. Beall Company ("TJB") and
GWI became subsidiaries of JI Alabama.
The September 28, 1996 statements include the accounts of Johnston,
its direct wholly owned subsidiary, JI Alabama and its indirect wholly
owned subsidiaries, JICR, TJB, and GWI (collectively, the "Company").
In the opinion of management, the unaudited condensed consolidated
financial statements reflect 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 and nine months ended September 28, 1996 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 Transition Report on Form 10-K for the
period July 1, 1995 to December 30, 1995 and in the Company's
Quarterly Reports on Form 10-Q for the quarters ended June 29, 1996
and March 30, 1996. Reference is made to the accounting policies of
the Company described in the notes to consolidated financial
statements included in the Company's Transition Report on Form 10-K
for the period July 1, 1995 to December 30, 1995.
2. JUPITER NATIONAL
Acquisition of Minority Interest
On March 28, 1996, the Company consummated the acquisition of the
remaining outstanding shares of Jupiter at a purchase price of $33.97
per share. Total purchase consideration was approximately $45,950,000
which included payments of $39,000,000 to stockholders, and certain
holders of options to purchase common stock and the assumption of
certain Jupiter options by Johnston. Other acquisition costs included
approximately $5,488,000 of merger related expenses paid by Jupiter
less a reduction for Johnston equity-related deferred taxes of
8
<PAGE> 9
$1,432,000. The acquisition was accounted for under the purchase
method of accounting as a "step acquisition" resulting in a partial
step-up in Jupiter's tangible assets. At September 28, 1996 the
Company had recorded goodwill of $12,196,000 which will be amortized
over 20 years.
The following represents the results of operations on a pro forma
basis assuming Johnston had owned 100% of Jupiter as of January 1,
1995. This pro forma information is provided for information purposes
only. Such pro forma information is based on historical information
and is not necessarily indicative of the actual results that would
have been achieved had Johnston purchased the additional shares of
Jupiter on January 1, 1995, nor is it indicative of future results of
operations:
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 28, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Net Sales $242,844,000 $250,202,000
Earnings (Loss) from Continuing Operations (735,000) 1,102,000
Earnings (Loss) from Discontinued Operations 3,769,000 (1,900,000)
Loss from Extraordinary Item (527,000) (527,000)
------------ ------------
Earnings Applicable to Common Stock $ 2,507,000 $ 1,325,000
============ ============
Earnings (Loss) Per Share
Continuing Operations $ (.07) $ .10
Discontinued Operations .35 (.18)
Extraordinary Item (.05) (.05)
------------ ------------
Total $ .23 $ (.13)
============ ============
</TABLE>
Discontinuance of the Venture Capital Segment
The Company's management has made the decision to discontinue the
venture capital investment segment of Jupiter's operations and plans
to sell all portfolio investments within one year. The Company's
consolidated financial statements have been modified to separate the
discontinued operations from those operations which will continue. The
net assets of the discontinued segment are reflected as a current
asset on the condensed consolidated balance sheet. The financial
statements for the prior periods have been restated in order to be on
a comparable basis.
Income before taxes from discontinued operations includes net realized
and unrealized gains from investments of approximately $13,818,000
less interest expense and operating expenses. The gains from
investments are mainly due to gains realized on the sale of the
Company's investment in EMC Corporation, Viasoft, Fuisz and Zoll
Medical during the nine months ended September 28, 1996.
For the nine months ended September 28, 1996, the loss after income
taxes for the disposal of the discontinued operations include a
$2,122,000 write down for the carrying value after considering
liquidiation plans on disposal of the remaining portfolio investments
and related debt as well as a $319,000 provision for future operating
costs.
9
<PAGE> 10
3. RESTRUCTURING CHARGES
In February 1996, the Company announced that it was closing
Wellington's Tarboro facility ("Tarboro") in an effort to realign and
consolidate certain operations, concentrate capital resources on more
profitable operations and better position itself to achieve its
strategic corporate objectives. All activities related to the closing
are expected to be completed within one year of the announcement. In
December 1995, the Company recorded a write down of $6,532,000 for an
impairment in the value of Tarboro's property, plant and equipment.
During the nine months ended September 28, 1996, the Company recorded
restructuring charges totaling $4,551,000 which includes $1,619,000
related to write-downs of accounts receivable and inventory, $834,000
for severance costs, $433,000 for relocating production equipment
$964,000 for actual operating losses and $910,000 for other costs
related to the operation. Of these restructuring costs, $1,866,000,
representing the minority interest (the portion of Wellington not
owned by Johnston), has been recorded as part of the cost of acquiring
Jupiter, with the remaining $2,685,000 recorded as an expense on the
consolidated statement of income.
The plan for the closing of the Tarboro facility called for
termination of 168 employees with various job descriptions at the
facility. As of September 28, 1996, 162 employees had been terminated.
Through September 28, 1996 approximately $1,331,000 have been charged
to the reserves established for the closing. These costs included
$367,000 related to severance costs.
4. INVENTORIES
Inventories consisted of the following at September 28, 1996 and
December 30, 1995:
<TABLE>
<CAPTION>
SEPTEMBER 28, 1996 DECEMBER 30, 1995
------------------ -----------------
<S> <C> <C>
Finished Goods $ 28,962,000 $ 22,982,000
Work-In Process 8,876,000 15,595,000
Raw Materials and Supplies 20,249,000 14,374,000
------------ ------------
Total $ 58,087,000 $ 52,951,000
============ ============
</TABLE>
10
<PAGE> 11
5. LONG-TERM FINANCING AND SHORT-TERM BORROWINGS
Long-term debt and short-term borrowings consisted of the following at
September 28, 1996 and December 30, 1995:
<TABLE>
<CAPTION>
SEPTEMBER 28, 1996 DECEMBER 30, 1995
------------------ -----------------
<S> <C> <C>
Johnston Industries, Inc.
Lines of Credit Borrowings $ 0 $ 13,250,000
Term Loans 74,500,000 0
Revolving Credit Loans 75,399,000 45,000,000
Purchase Money Mortgage Debt 1,130,000 1,174,000
------------ -------------
151,029,000 59,424,000
Wellington Sears Company
Revolving Credit Loan 0 27,471,000
Term Loan 0 18,594,000
Equipment Loans 0 4,806,000
Amounts Due Former Affiliates
of Polylok 8,000 13,000
Other Debt 626,000 656,000
------------ -------------
634,000 51,540,000
------------ -------------
Total 151,663,000 110,964,000
Less Current Maturities (4,388,000) (206,000)
----------- ------------
$147,275,000 $ 110,758,000
============ =============
</TABLE>
Johnston Industries, Inc.
Credit Agreement
On March 28, 1996, the Company signed a new credit agreement with a
syndicate of banks (the "Credit Agreement") to provide aggregate loans
of up to $160,000,000 to repay existing indebtedness, to provide funds
used to acquire the remaining outstanding shares of the common stock
of Jupiter and to finance working capital needs. The Credit Agreement
provides for revolving credit loans (the "Revolver") of up to
$80,000,000, a term loan for $40,000,000 ("Term Loan A") and a term
loan for an additional $40,000,000 ("Term Loan B"). Borrowings under
the Revolver and the Term Loan A mature on March 28, 2001, and Term
Loan B matures on March 28, 2003. The term loans are repayable in
quarterly installments starting in 1997.
Covenants and Restrictions
Under the terms of the Credit Agreement, substantially all assets are
pledged as collateral for the borrowings under the Credit Agreement.
The Credit Agreement requires the Company to maintain certain
financial ratios and specified levels of tangible net worth. The
Credit Agreement places a limit on the Company's level of capital
expenditures and its ability to effect certain type of mergers or
acquisitions. The Credit Agreement permits the Company to pay
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<PAGE> 12
dividends on its Common Stock provided it is in compliance with
various covenants and provisions contained therein, which among other
things limit dividends and restrict investments to the lesser of (x)
20% of total assets of the Company, on a fully consolidated basis, as
of the date of determination thereof, or (y) $5,000,000 for the period
commencing on January 1, 1996 and ending on December 31, 1996 or (z)
$5,000,000 plus 50% of cumulative consolidated net income for the
period commencing January 1, 1997, minus 100% of cumulative
consolidated net loss for the consolidated entities for such period,
as calculated on a cumulative basis as of the end of each fiscal
quarter of the consolidated entities with reference to the financial
statements for such quarter.
The Credit Agreement includes covenants which requires the Company to
maintain certain financial ratios and specified levels of tangible net
worth. As of September 28, 1996, the Company is in compliance with
such covenants.
6. FINANCIAL INSTRUMENTS
Interest Rate Swaps
In order to minimize the Company's exposure to the uncertainty of
floating interest rates, the Credit Agreement requires the Company to
maintain interest rate protection agreements covering a minimum of 50%
of the principal amount outstanding under the term loans, as long as
these loans exceed an aggregate of $40 million. Under the Credit
Agreement, the Company may elect to pay interest based on either the
prime rate plus various margins or the LIBOR rate plus various
margins. Effective June 7, 1996, the Company entered into interest
rate swap agreements with several lenders whereby it exchanged its
floating rate obligations under the Credit Agreement on $38 million
notional principal amount for a fixed rate payment obligation of
6.705% for a term of three years, with an option to renew for an
additional two years. Prior to the interest rate swap agreements, the
Company was paying interest based on a floating rate of 5.535%, based
on a three month LIBOR rate.
Cotton Put Contracts
Depending on the conditions within the cotton market, the Company may
from time to time purchase cotton puts to reduce or eliminate the risk
of price fluctuation for its operations using cotton as a raw
material. At September 28, 1996, the Company owned 900 cotton put
contracts with a cost of approximately $270,000, a fair value of
$32,000, and maturity dates of December 6, 1996. During the quarter
ended September 28, 1996, the Company recorded an unrealized loss on
valuation of $238,000 related to the 900 put contracts held at
September 28. Additionally, during the nine months ended September 28,
1996, the Company executed two transactions in which it bought and
sold cotton puts realizing a net pre-tax profit of $626,000. The gains
and losses are included in Other-Net Income on the condensed
consolidated statements of income. As sales contracts are completed,
puts covering an analogous amount of raw cotton are to be sold. The
value of puts owned will be adjusted to market value during the period
such puts are outstanding.
12
<PAGE> 13
7. EARNINGS PER SHARE
Earnings per share for the nine months ended September 28, 1996 and
September 30, 1995 were calculated based on the weighted average
number of shares of common and common equivalent shares outstanding
during the periods. Earnings per share for the three months ended
September 28, 1996 and September 30, 1995 were calculated based on the
weighted average number of shares outstanding only due to the
antidilutive effect of including common equivalent shares in periods
reporting a loss. Preferred dividends were deducted from net income to
compute earnings applicable to common stock. Additionally, earnings
(loss) per share were computed for continuing operations, discontinued
operations, and extraordinary item.
8. INCOME TAXES
The provision for income taxes from continuing operations as computed
under Financial Accounting Standards Board Standard No. 109,
"Accounting for Income Taxes", is comprised of the following for the
nine months ended September 28, 1996 and September 30, 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Federal:
Current $ (528,000) $ 915,000
Deferred (50,000) 705,000
------------ -----------
(578,000) 1,620,000
State:
Current 77,000 161,000
Deferred 77,000 180,000
------------ ----------
154,000 341,000
Provision (benefit) for income taxes $ (424,000) $1,961,000
============ ==========
</TABLE>
The reconciliation of the Company's effective income tax rate to the
Federal statutory rate from continuing operations of 34% for the nine
months ended September 28, 1996 and September 30, 1995 follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Federal income taxes at statutory rate $ (242,000) $ 1,345,000
State income taxes, net of Federal tax benefit 102,000 328,000
Equity in Income of Majority-Owned Subsidiary (508,000) 204,000
Amortization of Goodwill 155,000
Other - Net 69,000 84,000
----------- -----------
$ (424,000) $ 1,961,000
----------- -----------
Effective rate 59.6% 49.6%
=========== ===========
</TABLE>
The significant equity loss from continuing operations has distorted
the 1996 effective rate which is usually comparable with the effective
rate for the same period of the prior year.
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<PAGE> 14
9. COMMITMENTS AND CONTINGENCIES
Former Steel Fabrication Operations
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,
the facility has been closed for several years but in 1995 the
facility was being prepared by the present owner to be reopened as a
rebar steel manufacturing facility.
In February 1994, the operators of the facility filed a complaint in
the United States District Court, Eastern District of Pennsylvania,
Bethlehem Iron Works, Inc. and Steel Structures Corp. vs. Lewis
Industries, Inc., Charles P. Lewis and Johnston Industries, Inc. No.
94-CV-0752, against previous owners and operators of the facility,
including the Company, claiming contamination by a former Johnston
subsidiary which had operated at the facility before its close in
1981. The complaint sought to hold predecessors in title and former
operators at the site responsible for costs alleged to have been
incurred to remediate the plant site by the present owners. A non-jury
trial began in the United States District Court for the Eastern
District of Pennsylvania on July 20, 1995 and was concluded on August
25, 1995. The plaintiffs' claim, which was revised during the course
of the trial, alleged environmental cleanup costs and damages of $3.5
million, including interest through August 22, 1995. The Company
disputed that the expenditures by the plaintiffs were incurred for
response to contamination at the site and presented meritorious
defenses against the imposition of such costs.
An opinion and order of the Court was entered September 27, 1996. The
Court found that under the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA"), a Federal environmental
statute, the plaintiffs failed to establish a threat to public health
or welfare or the environment and therefore could only recover the
response costs for initial monitoring and assessment in the amount of
$65,778. The Court in considering the contribution claim filed by the
Company apportioned the response costs based upon the following
percentages: the Company 35%, the plaintiffs 65% and the other
defendants 0%. Pursuant to CERCLA, judgment was entered against the
Company in the net amount of $23,022 plus prejudgment interest in the
amount of $3,660.
The Court also allowed the plaintiffs to recover additional
expenditures under the Pennsylvania Hazardous Sites Cleanup Act
("HSCA"), a Pennsylvania environmental statute. The Court inferred
that the Pennsylvania General Assembly intended to establish a
presumption under HSCA that the disposal of hazardous substances
necessarily poses a threat to public health and natural resources and
that liability under HSCA is not contingent upon a demonstrated threat
to public health or the environment. The Court found that under HSCA,
the plaintiffs could recover response costs in the amount of
$1,992,705 after deducting the $65,778 already recoverable under
CERCLA. The Court rejected the plaintiffs' claims that they were
entitled to an additional $933,135 finding such expenditures to have
been unnecessary and unreasonable or inappropriate for recovery under
HSCA. Liability for the recovery under HSCA was apportioned in the
same percentages as the liability under CERCLA. Accordingly, a
judgment was entered against the Company for claims under HSCA in the
net amount of $697,446 plus pre judgment interest in the amount of
$90,088. The total judgment against the Company for both the CERCLA
claims and the HSCA claims was $814,216, including prejudgment
interest.
14
<PAGE> 15
A declaratory judgment was also entered for future response
costs in accordance with the Court's allocation of liability for the
contribution claims discussed above. The Company's management does not
believe it prudent to reduce the $2,000,000 reserve established for
claims asserted in this matter to the total judgment amount of
$814,216 because of the declaratory judgment and the associated claim
for additional as yet unspecified damages.
On October 23, 1996, the Company filed an appeal to the United States
Court of Appeals for the Third Circuit from the September 27, 1996
final judgment. The Company secured a stipulated order staying
execution on the judgment until all rights of appeal have been
exhausted. On November 7, 1996, the plaintiffs filed a cross-appeal
with the Court of Appeals for the Third Circuit. Although management
believes, based upon the currently available facts, that the reserve
established for this matter is reasonable, the ultimate outcome of the
Company's appeal and/or the plaintiffs' cross appeal or the range of
the Company's future potential liability for response costs pursuant
to the declaratory judgment cannot presently be determined.
General
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 discussed
above, will have a material adverse effect on the Company's
consolidated financial statements or consolidated results of
operations.
10. RELATED PARTY TRANSACTIONS
Redlaw Industries, Inc. ("Redlaw"), a stockholder, is the
commissioned sales agent for the Company for sales of the Company's
products into Canada. For the nine months ended September 28, 1996,
sales to Redlaw were $662,000 and as of September 28, 1996, accounts
receivable from Redlaw was $470,000 and consignment inventory placed
with Redlaw in Canada was $555,000.
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Johnston Industries, Inc. ("Johnston") is a consolidated entity which includes
its direct wholly owned operating subsidiary, Johnston Industries Alabama,
Inc., and its indirect wholly own subsidiaries, Johnston Industries Composite
Reinforcements, Inc. ("JICR") (formerly Tech Textiles, USA), T.J. Beall Company
("TJB"), and Greater Washington Investments, Inc. ("GWI") (collectively, the
"Company").
The September 30, 1995 consolidated financial statements included the accounts
of Johnston, its wholly owned subsidiaries, Southern Phenix Textiles, Inc.
("Southern Phenix") and Opp and Micolas Mills, Inc. ("Opp and Micolas"), and
its majority-owned subsidiary, Jupiter National, Inc. ("Jupiter") and Jupiter's
wholly-owned subsidiaries, Wellington Sears Company ("Wellington") and Greater
Washington Investments, Inc. ("GWI"), (collectively, the "Company").
On March 28, 1996, the Company acquired the outstanding minority interest in
Jupiter for a total purchase consideration of $45,950,000 which included
payments of $39,000,000 to security holders. Thereafter, on April 3, 1996,
Jupiter was merged into Opp and Micolas. At the close of business on June 29,
1996, the name of Opp and Micolas was changed to Johnston Industries Alabama,
Inc. ("JI Alabama"), Southern Phenix and Wellington were merged into JI
Alabama, and JICR, TJB and GWI became subsidiaries of JI Alabama.
Management's operating strategy calls for the divestiture of all non-textile
investments, consisting primarily of the investment portfolio acquired in the
merger, in order to allow management to focus its attention on the Company's
core textile operations. Accordingly, all non-textile investments and
operations are now held for disposition and the portfolio investment business
is in the process of being marketed and sold. Through September 28, 1996, the
Company had sold $35,000,000 of publicly traded portfolio investments. Such
investment portfolio business has been classified as discontinued operations
because such business formerly represented an operating segment of the Company.
All prior period financial information has been restated in order to reflect
Jupiter and GWI as discontinued operations.
While no assurances can be given, management believes the acquisition of the
minority interest in Jupiter, tactical acquisitions (such as TJB acquisition),
the shutdown of Wellington's unprofitable Tarboro facility (discussed below),
and the disposition of all non-textile operations, combined with continued
implementation of the Company's core operating strategy of product innovation,
capital investment, and aggressive marketing, will result in operational
synergies and will enhance the Company's growth and performance potential. The
effect of such operational synergies will, however, be realized over time.
RESULTS OF OPERATIONS
Results for the three months and nine months ended September 28, 1996 show
marked improvement in comparison to the same periods ended September 30, 1995.
While the quarter ended September 30, 1995 experienced record levels in
pricing of the Company's raw materials, prices have subsided and, although
still high, have resulted in improved margins for the third quarter of 1996.
Markets for the Company's products have strengthened; however, certain segments
of the economy remain weak as reflected in the market for the Company's
upholstery and home furnishings fabrics. Results for the quarter ended
16
<PAGE> 17
September 28, 1996 were adversely affected by restructuring charges in
connection with relocation of selected manufacturing equipment from
Wellington's Tarboro facility which has been closed. Restructuring charges
related to the plant closing which were recorded in the quarter ended March 30,
1996 also adversely affected the nine months ended September 28, 1996.
Net sales for the three months ended September 28, 1996 were $77,071,000
compared to $72,893,000 for the same period in the prior year. Sales in the
Automotive fabric market increased by $1,377,000, almost double the same period
in 1995. Sales of Industrial fabrics increased marginally by $981,000 for the
quarter compared to the prior year. Sales in the Specialty Products market
grew by $3,345,000 reflecting the Company's acquisition of TJB in March of
1996. Sales of Upholstery/Furniture fabrics grew by $2,405,000 for the quarter
despite a weak market, although sales of Home Products fabrics declined by
$1,611,000 due to a continued weak market for such fabrics. Apparel fabric
sales dropped by $1,243,000 reflecting the Company's de-emphasis of these low
margin fabrics. Net sales for the nine months ended September 28, 1996 were
$242,844,000 compared to $250,202,000 for the nine months ended September 30,
1995. Most prominent in the sales decline for such nine months compared same
period in 1995 are Industrial and Apparel which dropped by $7,969,000 and
$2,997,000, respectively. The decline in sales of Industrial fabrics for the
nine months resulted from weakness in demand for abrasives and the Company's
decision to exit markets for duck and certain filtration fabrics which were
produced at JI Alabama's Langdale Plant. The duck and these particular
filtration fabrics were low margin products manufactured on looms with old fly
shuttle technology. Exiting these markets is in keeping with management's core
operating strategy of product innovation, and capital investment in
state-of-the-art technology, and focus on higher margin markets. Discontinued
production of these particular fabrics is not expected to have a material
impact on the Company's operations at the Langdale facility. Consistent with
the foregoing, sales of low margin Apparel fabrics continue to decline and now
represent less than 2% of the Company's sales. The Company's management
continues to de-emphasize fabrics and markets with low margins, such as duck
and apparel while focusing on expanding sales of the high margin products and
designs in the decorative fabrics sector of the home furnishings markets. The
decline in sales of Industrial and Apparel fabrics for the nine months was
partially offset by a $4,273,000 increase in sales of Upholstery/Furniture
fabrics. Such increase was attributable to increased sales to existing
customers. Although, this increase reflects the net effect of sales volume to
a large customer which was lost when they discontinued operations which used
the Company's fabrics.
At September 28, 1996, the sales backlog of the Company was approximately
$75,163,000 compared to sales backlog of approximately $64,399,000 at December
30, 1995 and $66,883,000 at September 30, 1995. The backlog at September 28,
1996 includes approximately $11,282,000 for TJB which would not be reflected in
the September and December 1995 amounts since these periods preceded the
acquisition of TJB. Management believes the comparable decrease in sales
backlog (after excluding the TJB backlog) is representative of continued
softness in certain markets served by the Company.
Cost of sales increased slightly in the three months ended September 28, 1996 to
$62,514,000 from $62,034,000 for the comparable 1995 period, reflective of much
improved operating margins, while sales increased by $4,178,000. Gross margin
was approximately 18.9% for the three months ended September 28, 1996 compared
to approximately 14.9% for the three months ended September 30, 1995 and was
approximately 18.1% for the nine months ended September 28, 1996 compared to
approximately 17.7% for the nine months ended September 30, 1995. This increase
resulted largely from improvement in the price of raw materials and also from
the Company's efforts to move away from certain low margin products while
pursuing niche markets offering a higher return. Costs of raw materials have
improved; although they have not returned entirely to the levels experienced
prior to the inflationary period which began early in 1995. The Company has
generally been unable to pass such increased costs on to its customers, and it
is important
17
<PAGE> 18
to note that the improvement in cost of raw materials are expected to be
realized in improved margins over a period of time as the Company turns its
inventory of goods manufactured during the periods of inflated cost. However,
management continues to be encouraged by the improvement in gross margin during
the three months and nine months ended September 28, 1996 (18.9% and 18.1%
respectively) versus the transition period ended December 30, 1995 gross margin
of 14%.
Selling, general, and administrative expenses of $6,013,000 for the three
months and $19,143,000 for the nine months ended September 28, 1996 decreased by
$655,000 and $1,062,000, respectively, compared to the same periods in the
prior year. While no assurances can be given, management believes that
synergies expected to be achieved upon integration of Johnston and Jupiter
operations will result in further reductions in selling, general, and
administrative expenses. The full impact of the synergies and operational
integration on selling, general, and administrative expenses are expected to be
completely realized during 1997.
In February 1996, the Company announced that it was closing Wellington's Tarboro
plant in an effort to realign and consolidate certain operations, concentrate
capital resources on more profitable operations, and better position itself to
achieve its strategic corporate objectives. As a result of closing this
facility, the Company recorded a $6,532,000 non-recurring impairment charge
during the transition period ended December 30, 1995 and a further $2,685,000
non-recurring restructuring charge to operations during the nine months ended
September 28, 1996. Through September 28, 1996, approximately $1,331,000 of
costs have been charged to reserves established for closing of the Tarboro
facility. (See Note 3 of the condensed consolidated financial statements for
further discussion.)
Depreciation and amortization expense for the three months ended September 28,
1996 increased $566,000 compared to the three months ended September 30, 1995
and depreciation and amortization expense increased $2,231,000 for the nine
months ended September 28, 1996 as compared to the nine months ended September
30, 1995. The increased depreciation resulted from additional depreciation
based on the Company's capital investment program to upgrade machinery and
equipment to state-of-the-art levels, and to move into new, more profitable,
markets and additional depreciation related to the Company's step-up in basis
of property, plant, and equipment in connection with the Jupiter acquisition.
Interest expense for the three months and nine months ended September 28, 1996
was $2,986,000 and $8,173,000 reflecting increases of $988,000 and $2,015,000,
respectively, as compared to the three months and nine months ended September
30, 1995. Such increases were reflective of higher average borrowings and
higher average rates through the Company's credit facilities during the three
months and nine months ended September 28, 1996. The majority of the increased
borrowings were deployed to complete the acquisition of the minority interest in
Jupiter.
There was a provision for income tax benefit of $21,000 for the three months
ended September 28, 1996. The benefit for income taxes of $424,000 for the
nine months ended September 28, 1996 largely reflects a tax benefit related to
the indirect majority owned subsidiary, Wellington, which was recorded during
the first quarter of 1996. Additionally, for the three and nine months ended
September 30, 1995, the Company recorded income tax benefit of $632,000 and
provision of $1,961,000 respectively.
The income/loss on the minority interest in consolidated subsidiary from
continuing operations reflects the minority shareholders' proportionate share
in the earnings (losses) for the applicable periods of Wellington through March
28, 1996, the merger date.
As discussed above, the portfolio investment business of Jupiter and GWI is in
the process of being marketed and sold. Since this business formerly was
treated as an operating segment, such operation has
18
<PAGE> 19
now been classified as a discontinued operation. Accordingly, the three months
ended September 30, 1995 have been restated reflecting a loss from such
discontinued operations of $368,000 net of tax benefit of $433,000 and minority
interest in loss of $489,000. Additionally, the nine months ended September
30, 1995 have been restated reflecting income from such discontinued operations
of $423,000 net of taxes of $1,348,000 and minority interest in income of
$676,000. For the three months ended September 28, 1996, loss from the
discontinued operations was $711,000 net of applicable tax benefit of $70,000
and for the nine months ended September 28, 1996, income from discontinued
operations was $4,722,000 net of income taxes of $5,037,000 and minority
interest in income of $1,083,000. Income from discontinued operations for the
nine months ended September 28, 1996 is mainly reflective of gains on the sale
of the Company's investment in EMC Corporation and Viasoft during the quarter
ended March 30, 1996 and gains on the sale of Fuisz and Zoll Medical during the
quarter ended June 29, 1996. During the nine months ended September 28, 1996,
and in connection with the classification of the investment portfolio business
as discontinued operations, the Company recorded a loss on disposal of Jupiter
of $2,190,000 net of the applicable income tax benefit of $3,178,000. Such
write-down was recorded to reduce the investments to their estimated fair value
at acquisition date versus the value of these investments held on a long-term
basis.
MATERIAL CHANGES IN FINANCIAL CONDITION
As a result of the merger of Jupiter into a subsidiary of Johnston, the Company
has revalued certain Jupiter assets, mainly inventories and property, plant,
and equipment. Due to Johnston's previous ownership interest in Jupiter, the
acquisition of the remaining outstanding interest is accounted for a "step
acquisition" resulting in a partial step-up in Jupiter assets. The Company
recorded such partial step-up in basis on such assets and has recorded
goodwill of $12,196,000 which is to be amortized over 20 years.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at September 28, 1996 was $79,962,000 representing a ratio of
current assets to current liabilities of 2.85 to 1.
On March 28, 1996, the Company signed a new credit agreement with a syndicate
of banks (the "Credit Agreement") to provide aggregate loans of up to
$160,000,000 to repay existing indebtedness, to provide funds used to acquire
the remaining outstanding shares of the common stock of Jupiter and to finance
working capital needs. The Credit Agreement provides for revolving credit
loans (the "Revolver") of up to $80,000,000, a term loan for $40,000,000 ("Term
Loan A") and a term loan for an additional $40,000,000 ("Term Loan B").
Borrowings under the Revolver and the Term Loan A mature on March 28, 2001 and
Term Loan B matures on March 28, 2003. The term loans are repayable in
quarterly installments starting in 1997.
Under the terms of the Credit Agreement, substantially all assets are pledged
as collateral for the borrowings under the Credit Agreement. The Credit
Agreement requires the Company to maintain certain financial ratios and
specified levels of tangible net worth. The Credit Agreement places a limit on
the Company's level of capital expenditures and its ability to effect certain
type of mergers or acquisitions. The Credit Agreement permits the Company to
pay dividends on its Common Stock provided it is in compliance with various
covenants and provisions contained therein, which among other things limit
dividends and restrict investments to the lesser of (x) 20% of total assets of
the Company, on a fully consolidated basis, as of the date of determination
thereof, or (y) $5,000,000 for the period commencing on January 1, 1996 and
ending on December 31, 1996 or (z) $5,000,000 plus 50% of cumulative
consolidated net income for the period commencing January 1, 1997, minus 100%
of cumulative consolidated net loss for the consolidated entities
19
<PAGE> 20
for such period, as calculated on a cumulative basis as of the end of each
fiscal quarter of the consolidated entities with reference to the financial
statements for such quarter.
As of September 28, 1996, the Company had outstanding borrowings under the
Credit Agreement of $151,663,000.
Management believes that funds generated from operations and borrowings under
the Credit Agreement (as described above) will be sufficient to meet the needs
of the Company's current operations for at least the next 12 months.
OTHER MATTERS
The Company is involved in litigation. (See Item I - Legal Proceedings and
Note 9 to condensed consolidated financial statements).
The Company is periodically involved in legal proceedings arising out of the
ordinary conduct of business. Management does not expect that they will have a
material adverse effect on the Company's consolidated financial position or
results of operations.
RISKS AND UNCERTAINTIES
Except for historical information contained herein, the matters set forth in
this report are forward looking statements which are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those in, or which could be expected based on, such forward looking statements.
The Company's expectations regarding future sales and profits assume, among
other things, reasonable continued growth in the general economy which affects
demand for the Company's products, and reasonable stability in raw materials
pricing, changes in which affect customer purchasing decisions as well as the
Company's prices and margins. The costs and benefits of the Company's
discontinuance of Jupiter and GWI portfolio investments and the Tarboro
disposition may vary from the Company's expectations due to various factors
such as: higher or lower than anticipated proceeds from the sale of assets;
the extent of management's ability to control duplications of costs,
inefficiencies and overhead during the period of phasing out operations; and
the difficulties inherent in forecasting the operating results of an operating
mode different from that which exists at the time the forecast is made. For a
further discussion of risks and uncertainties associated with the Company's
business, readers are referred to the cautionary statement set forth in Item 1
of the Company's annual report on Form 10-K for the transition period ended
December 30, 1995, which cautionary statement is incorporated by reference
herein.
20
<PAGE> 21
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No reportable legal proceedings arose in the quarter ended September
28, 1996.
Former Steel Fabrication Operations
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,
the facility has been closed for several years but in 1995 the
facility was being prepared by the present owner to be reopened as a
rebar steel manufacturing facility.
In February 1994, the operators of the facility filed a complaint in
the United States District Court, Eastern District of Pennsylvania,
Bethlehem Iron Works, Inc. and Steel Structures Corp. vs. Lewis
Industries, Inc., Charles P. Lewis and Johnston Industries, Inc. No.
94-CV-0752, against previous owners and operators of the facility,
including the Company, claiming contamination by a former Johnston
subsidiary which had operated at the facility before its close in
1981. The complaint sought to hold predecessors in title and former
operators at the site responsible for costs alleged to have been
incurred to remediate the plant site by the present owners. A non-jury
trial began in the United States District Court for the Eastern
District of Pennsylvania on July 20, 1995 and was concluded on August
25, 1995. The plaintiffs' claim, which was revised during the course
of the trial, alleged environmental cleanup costs and damages of $3.5
million, including interest through August 22, 1995. The Company
disputed that the expenditures by the plaintiffs were incurred for
response to contamination at the site and presented meritorious
defenses against the imposition of such costs.
An opinion and order of the Court was entered September 27, 1996. The
Court found that under the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA"), a Federal environmental
statute, the plaintiffs failed to establish a threat to public health
or welfare or the environment and therefore could only recover the
response costs for initial monitoring and assessment in the amount of
$65,778. The Court in considering the contribution claim filed by the
Company apportioned the response costs based upon the following
percentages: the Company 35%, the plaintiffs 65% and the other
defendants 0%. Pursuant to CERCLA, judgment was entered against the
Company in the net amount of $23,022 plus prejudgment interest in the
amount of $3,660.
The Court also allowed the plaintiffs to recover additional
expenditures under the Pennsylvania Hazardous Sites Cleanup Act
("HSCA"), a Pennsylvania environmental statute. The Court inferred
that the Pennsylvania General Assembly intended to establish a
presumption under HSCA that the disposal of hazardous substances
necessarily poses a threat to public health and natural resources and
that liability under HSCA is not contingent upon a demonstrated threat
to public health or the environment. The Court found that
21
<PAGE> 22
under HSCA, the plaintiffs could recover response costs in the amount
of $1,992,705 after deducting the $65,778 already recoverable under
CERCLA. The Court rejected the plaintiffs' claims that they were
entitled to an additional $933,135 finding such expenditures to have
been unnecessary and unreasonable or inappropriate for recovery under
HSCA. Liability for the recovery under HSCA was apportioned in the
same percentages as the liability under CERCLA. Accordingly, a
judgment was entered against the Company for claims under HSCA in the
net amount of $697,446 plus pre judgment interest in the amount of
$90,088. The total judgment against the Company for both the CERCLA
claims and the HSCA claims was $814,216, including prejudgment
interest.
A declaratory judgment was also entered for future response costs in
accordance with the Court's allocation of liability for the
contribution claims discussed above. The Company's management does not
believe it prudent to reduce the $2,000,000 reserve established for
claims asserted in this matter to the total judgment amount of
$814,216 because of the declaratory judgment and the associated claim
for additional as yet unspecified damages.
On October 23, 1996, the Company filed an appeal to the United States
Court of Appeals for the Third Circuit from the September 27, 1996
final judgment. The Company secured a stipulated order staying
execution on the judgment until all rights of appeal have been
exhausted. On November 7, 1996, the plaintiffs filed a cross-appeal
with the Court of Appeals for the Third Circuit. Although management
believes, based upon the currently available facts, that the reserve
established for this matter is reasonable, the ultimate outcome of the
Company's appeal and/or the plaintiffs' cross appeal or the range of
the Company's future potential liability for response costs pursuant
to the declaratory judgment cannot presently be determined. (See Note
9 of the condensed consolidated financial statements.)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Statements of Computation of Per Share Earnings
27.1 Financial Data Schedule (Filed Electronically)
27.2 Financial Data Schedule (Filed Electronically)
(b) Reports on Form 8-K
(I) None.
22
<PAGE> 23
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and 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 12, 1996 By: /s/ John W. Johnson
-----------------------
John W. Johnson
Vice President
Chief Financial Officer
By: /s/ John W. Johnson
-----------------------------
John W. Johnson
(Principal Accounting Officer)
23
<PAGE> 1
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 11 - STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
The weighted average number of common and common share equivalents on a primary
basis is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 28, September 30, September 28, September 30,
------------- ------------- ------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 10,362,874 10,564,979 10,429,998 10,564,588
Shares issued from assumed exercise of
incentive stock options(2) 185,718
Shares issued from assumed exercise of
nonqualified stock options(1)(2) 88,676 94,340
------------- ------------- ------------- ------------
Weighted average number of shares
outstanding, as adjusted 10,362,874 10,564,979 10,704,392 10,658,928
============= ============= ============= ============
Income (Loss) from Continuing Operations $ (273,000) $ (1,494,000) $ 912,000 $ 1,394,000
------------- ------------- ------------- ------------
Income (Loss) from Discontinued Operations (878,000) (368,000) 2,532,000 423,000
------------- ------------- ------------- ------------
Extraordinary Loss 527,000
------------- ------------- ------------- ------------
Net Income (Loss) (1,151,000) (1,862,000) 2,917,000 1,817,000
Preferred Dividends 41,000 84,000
------------- ------------- ------------- ------------
Earnings (Loss) Applicable to Common Stock $ (1,192,000) $ (1,862,000) 2,833,000 1,817,000
============= ============= ============= ============
Earnings (Loss) per share
Continuing Operations $ (.03) $ (.14) $ .08 $ .13
Discontinued Operations ( .09) (.04) .23 .04
Extraordinary Item (.05)
------------- ------------- ------------- ------------
Total $ (.12) $ (.18) $ .26 $ .17
============= ============= ============= ============
</TABLE>
(1) Shares issued from assumed exercise of options included the number of
incremental shares which result from applying the "treasury stock
method" for options.
(2) For the three months ended September 28, 1996 and September 30, 1995,
common shares from assumed exercise of stock options are not presented
as they are antidilutive in periods for which a loss is reported.
Note: Fully diluted earnings per share are not presented because the
difference from primary earnings per share is insignificant for all
periods presented.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHNSTON
INDUSTRIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS AS OF SEPTEMBER 28, 1996
AND FOR THE NINE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-28-1996
<CASH> 3,510,000
<SECURITIES> 0
<RECEIVABLES> 43,372,000
<ALLOWANCES> 1,823,000
<INVENTORY> 58,087,000
<CURRENT-ASSETS> 123,081,000
<PP&E> 227,588,000
<DEPRECIATION> 100,357,000
<TOTAL-ASSETS> 272,004,000
<CURRENT-LIABILITIES> 43,119,000
<BONDS> 147,275,000
0
3,000
<COMMON> 1,250,000
<OTHER-SE> 57,785,000
<TOTAL-LIABILITY-AND-EQUITY> 272,004,000
<SALES> 242,844,000
<TOTAL-REVENUES> 242,844,000
<CGS> 198,781,000
<TOTAL-COSTS> 198,781,000
<OTHER-EXPENSES> 17,534,000
<LOSS-PROVISION> 235,000
<INTEREST-EXPENSE> 8,173,000
<INCOME-PRETAX> (712,000)
<INCOME-TAX> (424,000)
<INCOME-CONTINUING> 912,000
<DISCONTINUED> 2,532,000
<EXTRAORDINARY> 527,000
<CHANGES> 0
<NET-INCOME> 2,917,000
<EPS-PRIMARY> .26
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHNSTON
INDUSTRIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1995
AND FOR THE NINE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1995
<CASH> 2,810,000
<SECURITIES> 0
<RECEIVABLES> 44,073,000
<ALLOWANCES> 1,300,000
<INVENTORY> 51,816,000
<CURRENT-ASSETS> 116,105,000
<PP&E> 198,977,000
<DEPRECIATION> 82,944,000
<TOTAL-ASSETS> 240,108,000
<CURRENT-LIABILITIES> 51,076,000
<BONDS> 87,758,000
0
0
<COMMON> 1,243,000
<OTHER-SE> 59,300,000
<TOTAL-LIABILITY-AND-EQUITY> 240,108,000
<SALES> 250,202,000
<TOTAL-REVENUES> 250,202,000
<CGS> 205,947,000
<TOTAL-COSTS> 205,947,000
<OTHER-EXPENSES> 12,618,000
<LOSS-PROVISION> 150,000
<INTEREST-EXPENSE> 6,158,000
<INCOME-PRETAX> 3,955,000
<INCOME-TAX> 1,961,000
<INCOME-CONTINUING> 1,394,000
<DISCONTINUED> 423,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,817,000
<EPS-PRIMARY> .17
<EPS-DILUTED> 0
</TABLE>
