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FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
|X| Annual Report for the period from December 31, 1995 to December 28, 1996
------------------------------------------------------------------------
Commission file number 1-6687
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JOHNSTON INDUSTRIES, INC.
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(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
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.10 Par Value New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K |_|.
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates of the Registrant on March 14, 1997 was $41,615,807. The
aggregate market value was computed by reference to the closing price of the
stock on the New York Stock Exchange on such date.
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For purposes of this response, executive officers, directors and Redlaw
Industries, Inc. are deemed to be affiliates of the Registrant and the holdings
by non-affiliates was computed as 5,840,815 shares.
The number of shares outstanding of the Registrant's Common Stock as of March
14, 1997 was 10,381,174 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
The Registrant's Proxy Statement for its 1997 Annual Meeting of Stockholders,
which will be filed pursuant to Regulation 14A within 120 days of the close of
the Registrant's fiscal year is incorporated by reference in answer to Part III
but only to the extent indicated in Part III herein.
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PART I.
ITEM 1. BUSINESS
GENERAL
Johnston Industries, Inc. ("Johnston") is a consolidated entity which
includes its direct wholly owned operating subsidiary, Johnston Industries
Alabama, Inc. ("JI Alabama"), and its indirect wholly owned subsidiaries,
Johnston Industries Composite Reinforcements, Inc. ("JICR") (formerly Tech
Textiles, USA and JI International, Inc.), T.J. Beall Company ("TJB"), and
Greater Washington Investments, Inc. ("GWI") (collectively, the "Company").
Prior to April 3, 1996, 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"),
Johnston Industries Composite Reinforcements, Inc. (formerly Tech Textiles, USA
and JI International, Inc.), and its then majority-owned subsidiary, Jupiter
National, Inc. ("Jupiter") and Jupiter's wholly-owned subsidiaries, Wellington
Sears Company ("Wellington") and Greater Washington Investments, Inc. ("GWI"),
(for such periods, collectively, the "Company").
Management's operating plans call for the judicious divestiture of all
non-textile investments, consisting primarily of the investment portfolio
acquired in the acquisition of the outstanding minority interest in Jupiter (the
"Jupiter Acquisition"), 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. From January 1, 1996
through December 28, 1996, the Company had sold $36,645,000 of publicly traded
portfolio investments, including $20,468,000 which was sold prior to completion
of the Jupiter Acquisition. (See "Business - Corporate Organization and
History") All prior period financial information has been restated in order to
reflect non-textile investments and operations as discontinued operations.
On September 22, 1995, the Board of Directors of the Company authorized
a change in the Company's fiscal year from a period beginning on July 1 and
ending on June 30 to a variable period ending on the Saturday nearest to
December 31.
The Company engages in textile manufacturing through its wholly owned
direct and indirect subsidiaries: JI Alabama, TJB and JICR, which in the
aggregate utilize 4,029,000 square feet of manufacturing, warehouse and
administrative facilities. For the year ended December 28, 1996, approximately
72% of the Company's fabric was manufactured for the home furnishings and
industrial segments of the textile market; the balance was for the automotive
segment, basic apparel, including commercial uniform manufacturers (ducks,
twills and bull denims), and specialty markets, which in 1996 primarily involved
sales of yarn, recycled textile fibers and multi-axial composite reinforcement
fabrics. The following table sets forth the percentage of sales by product type:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 28, DECEMBER 30,
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Automotive 3% 2% 6% 10%
Industrial 24% 22% 25% 24%
Home Furnishing 53% 57% 55% 57%
Apparel 2% 3% 4% 7%
Specialty Markets 17% 15% 9% -
Miscellaneous 1% 1% 1% 2%
--- --- --- ---
100% 100% 100% 100%
=== === === ===
</TABLE>
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In addition to sales in the United States, the Company also markets its
products in Europe, Canada, Mexico, and other countries. For the year ended
December 28, 1996, the international direct sales volume constituted
approximately 4% of sales. Although no assurances can be given that its
international expansion will be successful, the Company's goal is to eventually
have international sales account for approximately 10% of its total sales
revenue.
The Company was selected as Textile World's 22nd Annual Model Mill in
1994 and its operating divisions have been selected as "Supplier of the Year"
for various customers on numerous occasions including occasions during 1995 and
1996. On February 15, 1996, the Company was awarded ATI's ("America's Textiles
International") first annual Award for Innovation.
THE FOLLOWING DISCUSSION OF ASPECTS OF THE COMPANY'S BUSINESS AND
PROPERTIES ALSO CONSTITUTES A CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE
HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
The Company wishes to caution readers that the following important
factors, among others, in some cases have affected, and in the future could
affect, the Company's actual results and could cause the Company's actual
consolidated results for the first quarter of 1997, and beyond, to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, the Company:
CUSTOMERS AND BACKLOG
The Company sells its products to approximately 3,000 customers with
net sales to the single largest customer accounting for 5%, 6%, 6%, and 11% of
total sales for the fiscal year ended December 28, 1996, the six months ended
December 30, 1995, and the fiscal years ended June 30, 1995, and 1994,
respectively. Note that total sales for the purpose of the foregoing percentage
calculation for the fiscal year ended June 30, 1994 did not include sales by
Wellington as this period preceded the Company's majority ownership of Jupiter.
The Company traditionally manufactures approximately 75% of its
production against firm orders with finishing, packaging and other
specifications generally determined by its customers. At December 28, 1996, the
Company's backlog of orders was approximately $88,462,000 compared to
$69,559,000 at December 30, 1995, $63,320,000 at June 30, 1995, and $45,136,000
at June 30, 1994. The Company's backlog of orders at December 28, 1996, December
30, 1995 and June 30, 1995 include orders of Wellington while June 30, 1994
preceded the Company's majority ownership of Jupiter and appropriately does not
include Wellington.
The increase in the backlog of orders at year end reflects a moderately
strengthened market for some of the Company's products from December 30, 1995 to
December 28, 1996, and also reflects backorders of $16,287,000 for TJB which are
not included in periods other than the year ended December 28, 1996. All backlog
at year-end is expected to be delivered in the current fiscal year. For the year
ended December 28, 1996 the Company's production facilities operated at
approximately 72% of normal aggregate capacity. Management believes the
Company's production capability is sufficient to accommodate existing and new
production orders.
PRODUCTS
The Company's sales efforts are organized around major sales and
marketing groups comprised of Home Furnishings, Industrial Fabrics, Fiber
Products and Composite Reinforcements.
The Company's Home Furnishings and Industrial Fabrics products include
a variety of proprietary and non-proprietary woven and non-woven fabrics. Such
products include all cotton fabrics, cotton/polyester blended fabrics, all
polyester fabrics and other fabrics manufactured from blends of various
synthetic and natural fibers. Home Furnishings fabrics are used in residential
upholstered furniture, contract furniture, outdoor furniture, window coverings,
mattress ticking, bed linens, and napery.
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The Company's Industrial Fabrics are used in a broad range of
applications including abrasives, filtration, automotive seating, wall covering
substrate, coating and laminating, marine coated products, rubber coated
products (e.g., automotive v-belts) and for manufacture of other items such as
tote bags, hand bags and shoes. The Industrial Fabrics group also sells a
variety of greige, dyed and finished fabrics for specialty markets. Such
products are typified by short customized production runs, small lot sizes and
quick delivery requirements. Such products often are manufactured to customer
furnished proprietary specifications.
The Company's Fiber Products Group markets waste textile fiber and
fabric reclamation products comprised of sales yarn, wiper cloths, mattress
pads, cleaned and reprocessed fiber. Cleaned and reprocessed fibers provide a
cost advantage for use in certain products and can be sold as raw fiber or in a
variety of manufactured states from yarn through woven and bonded non-woven
fabrics.
Composite reinforcement fabrics are produced by the Company's JICR
operation. Such fabrics, which are sold in specialty markets and used in
engineered composite materials, consist of a variety of non-crimp multi-axial
fabrics manufactured from fiberglass, carbon and aramid fibers. Composite
reinforcement fabrics produced by the Company also include its proprietary
VECTORPLY(R) fabrics. The Company's composite reinforcement fabrics are used in
a variety of industrial, transportation, marine and sporting goods applications,
from sea walls and roof panels to motor campers and heavy trucks to large yachts
and off-shore racing boats to water skis and hockey sticks.
MANUFACTURING
The Company spins its own yarn primarily using Rieter(R) and
Schlafhorst(R) open-end automatic rotor spinning machines, Murata(R) air jet
spinning machines and some ring spinning equipment. Open-end and air jet are
fully automated spinning processes which yield an excellent quality yarn which
is produced using highly efficient processes. Fabric is manufactured on a
variety of shuttleless looms using rapier, projectile and air jet technologies,
as well as a few shuttle looms. Additionally, the Company manufactures non-woven
(stitchbond, chima, and weft insertion warp knitted) fabrics using a variety of
malimo and maliwatt machines. The Company's mills have an annual capacity of
approximately 242 million linear yards of woven fabric (approximately 106
million pounds), approximately 39 million linear yards of value-added finishing,
approximately 22 million pounds of sales yarn, approximately 23 million pounds
of non-woven fabric and multi-axial composite reinforcements fabrics
manufactured from man-made synthetic fibers, approximately 78 million pounds of
waste textile fiber and fabric reclamation, approximately 51 million pounds of
bonded non-woven fabric (manufactured through reclamation of textile waste
products), and approximately 47 million pounds of clean fiber (reprocessed from
cotton gin waste).
In recent years, the Company has engaged in an extensive capital
expenditure program which has converted substantially all of its mills to
open-end spinning and shuttleless weaving.
The Company's manufacturing capabilities are flexible because many of
its current fabrics, other than stitchbond and composite fabrics, may be
produced at multiple manufacturing facilities. The Company evaluates which
facility will manufacture a product based upon technical requirements of
manufacturing equipment necessary to meet product specifications and available
capacity. Certain products periodically are partially manufactured at one
facility and completed at another facility in order to efficiently balance
production activities.
The Company's manufacturing capabilities permit it to produce many
products in either a "greige" state (i.e., unbleached and undyed as taken from
the loom), a "finished" or converted state (e.g., dyed, printed, treated and/or
coated) or both. Greige fabrics are sold directly to manufacturers which have
their own converting departments or finishing facilities and to fabric
converters who dye and print unfinished fabrics.
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CAPITAL IMPROVEMENTS AND EXPANSION
In an effort to gain a technological advantage, the Company has
maintained an aggressive capital improvement program across all of its
divisions. Capital investment in operations for the year ended December 28, 1996
was $20,527,000 compared to $17,781,000 for the six months ended December 30,
1995, $21,448,000 for the year ended June 30, 1995 and $12,701,000 for the year
ended June 30, 1994. Capital investment for the fiscal year ended June 30, 1994
does not include expenditures by Wellington Sears as such periods preceded the
Company's majority ownership of Jupiter.
DISTRIBUTION AND MARKETING
The Company uses in-house sales personnel, commissioned sales agents
and independent brokers in the sale of its products. Due to the specialized
characteristics of the products produced by JICR, TJB and JI Alabama's Fiber
Products Division, each of these units maintain separate sales and marketing
staffs dedicated to their respective product lines. In the aggregate, the
Company employs a 37 person in-house sales force and utilizes approximately 28
commissioned sales agents and brokers. Except as noted above, the sales force is
organized geographically by product line. For the year ended December 28, 1996,
approximately 86% of revenues were generated by in-house sales personnel, with
14% generated by commissioned sales agents and independent brokers. Fabrics sold
through in-house personnel include home furnishings, abrasive, napery, rubber
products, filtration, duck, wipe cloth, reprocessed waste products and various
industrial fabrics. Mattress pads, certain of the Company's upholstery fabrics,
and a siginificant portion of composite reinforcement fabrics are sold through
commissioned sales agents.
In addition to its various employed and independent sales people,
approximately 48 Company personnel provide support services such as design,
technical support, customer services, and coordination of production with the
mill.
COMPETITION
The Company's competition consists principally of about 50 companies,
although only approximately 20 companies compete with the Company in a
substantial portion (more than fifty percent) of the product groups serviced by
the Company. The competing companies in each of its product groups include a
number of companies which are larger and have significantly greater resources
than the Company. While the Company believes that there are several competitors
with greater sales than it in each product group, market shares vary
substantially from product to product within a group and there are individual
products for which the Company is the market leader as well as others for which
it does not have a significant market share. Areas of competition include
quality of product and of service -- chiefly the ability to respond and meet
customer product requirements expeditiously and reliably -- design, as well as
price. Management believes that service is an important positive competitive
factor for the Company's operations. Management also believes that competition
from domestic manufacturers has intensified over the last several years and will
continue to increase in the future.
Although management believes that the Company is not, in general,
directly affected by foreign competition; there is an indirect effect. When
total domestic textile sales volume is reduced as a result of increased imports,
the companies that are directly affected (generally fashion and apparel
manufacturers) search for sales volume in other product groups to replace their
lost volume. Historically, this has resulted in increased competition and price
pressures with respect to certain fabrics, most notably in lower margin
commodity fabrics which may be produced by a number of the Company's
competitors. While such heightened competition had a negative effect on margins
for particular orders or products during 1996, management does not believe that,
over time, such competition will have a material adverse effect on the Company's
results of operations.
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RAW MATERIALS
The Company utilizes cotton, polyester and other natural and synthetic
fibers in its manufacturing operations. Currently, the supplier for most of its
polyester fiber is Wellman, Inc., formerly Fiber Industries, Inc. ("Wellman").
The Company does not have a long-term agreement with Wellman and does not
maintain long-term supply contracts with Wellman or any other synthetic fiber
suppliers. Other potential suppliers of polyester include DuPont and
Hoechst-Celanese, as well as a number of other domestic and foreign sources.
Although the Company has some cotton fiber supply contracts, the Company buys
most of its cotton in the open market from approximately ten established
domestic cotton merchants with whom it has long time relationships. From time to
time, the Company may enter various provisional pricing arrangements with its
cotton suppliers in connection with cotton purchase contracts. Under such
provisional pricing arrangements, the Company accepts delivery of certain
quantities of raw cotton and pays an agreed upon "provisional" price for such
purchases. The Company may fix the final price at a later date. The Company
utilizes such pricing arrangements to mitigate its exposure to changes in raw
materials cost. Any gain or loss related to such arrangements is recorded as a
component of cost of goods sold. Management believes that adequate supplies of
cotton, polyester and its other fiber needs are available in the open market and
should supplies of cotton, polyester or other fibers cease to be available from
any of the Company's principal suppliers, management does not expect any
significant difficulty in obtaining fibers from one or more other suppliers.
EMPLOYEES
As of February 22, 1996, the Company had approximately 3,000 full-time
employees, none of whom is covered by collective bargaining agreements. The
Company believes its relations with its employees are good.
CORPORATE ORGANIZATION AND HISTORY
Originally founded in 1948, Johnston Industries, Inc. is a Delaware
corporation which became the successor to a New York corporation of the same
name on December 31, 1987 through a reincorporation merger. The Company
consolidates certain functions of its subsidiaries through Company-wide
operations and by entering into a number of joint arrangements and transactions.
In 1992, the Company entered into a partnership with an English company
to establish Tech Textiles, USA for the joint manufacture and sale of certain
specialized composite reinforced textile products. In 1995, the Company
completed the purchase of the English company's ownership interest and became
the sole owner of Tech Textiles, USA. In November 1992, Jupiter purchased the
custom fabrics division of West Point Pepperell and in September 1993 acquired
certain assets of Polylok Finishing Corporation.
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 $39,000,000 to security holders. Thereafter, on April 3,
1996, Jupiter was merged into Opp and Micolas. At the close of business on June
29, 1996, the name of Opp and Micolas was changed to Johnston Industries
Alabama, Inc., Southern Phenix and Wellington were merged into JI Alabama, and
JICR, TJB and GWI became subsidiaries of JI Alabama. Following the name change
and associated merger, the operations which previously constituted Wellington
were split into two divisions representing woven products and fiber products
respectively. The manufacturing operations of JI Alabama are now organized in
four divisions which are the Fiber Products Division, the Opp & Micolas
Division, the Southern Phenix Division, and the Wellington Sears Division, plus
two subsidiaries, JICR and TJB.
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On March 25, 1996, Johnston acquired all of the outstanding common
shares of T.J. Beall Company (the "TJB Acquisition"). TJB, located in West
Point, Georgia, is a textile company whose primary business is the recycling of
"gin motes" (non-perishable shorter fibers separated from cotton during the
ginning process). This acquisition was financed through the issuance of 325,000
shares of one cent ($.01) par value, nonvoting preferred stock of the Company,
which had an estimated value of $3,250,000. Dividends shall accrue and be
payable quarterly at a rate of $.125 per share per quarter. The preferred stock
issued was designated as Johnston Industries, Inc. preferred stock, Series 1996
and is convertible into shares of ten cent ($.10) par value voting common stock.
Each share of preferred stock may be converted into one share of voting common
stock with the shareholder having the right (but not the obligation) to convert
up to one-third of preferred stock twelve months after closing, one-third
twenty-four months after closing, and the final one-third thirty-six months
after closing.
INVESTMENT ACTIVITIES
The investment activities of the Company were acquired in connection
with its acquisition of Jupiter on March 28, 1996 and are principally conducted
through Johnston's indirect wholly-owned subsidiary, GWI. The Company's business
strategy is to effect the divestiture, either singularly or as a portfolio
group, of its non-textile industry investments. No additional funding or
investment of any significant amount is contemplated while such investments are
held for sale. GWI is a "small business development company" under the United
States Small Business Investment Act of 1958 ("1958 Act"), which restricted its
investments to qualifying small business concerns as defined in the 1958 Act.
GWI previously invested in companies which were believed by the GWI management
to have the potential of above-average capital appreciation as well as a current
return on investment. Because of the speculative nature of GWI's investments,
and the lack of any ready market for most of its investment when purchased,
there is minimal liquidity and a significantly greater risk of loss on each
investment than is the case with traditional investment companies. The value of
the securities, recorded in the components of net assets of discontinued
operations on the balance sheet at December 28, 1996 at $6,332,000, was based on
the following: (i) securities with readily available market quotations were
valued at the current market price; (ii) all other securities were valued at
fair value as determined in good faith by Johnston's Board of Directors using a
formal portfolio valuation procedure. The "fair value" reflects the value
expected to be realized by the Company upon sale of the securities after
consideration of the Company's plans to liquidate the venture capital segment.
On September 26, 1996, the Company repaid $14,500,000 of subordinated
debentures issued by GWI and guaranteed by the Small Business Administration,
plus accrued interest thereon.
RELIANCE ON SENIOR MANAGEMENT
The Company believes it has benefited and continues to benefit
substantially from the skills, experience and efforts of its senior management.
The loss of the services of members of the Company's senior management could
have a material adverse effect on the Company's business and prospects. See
Directors and Executive Officers of Johnston Industries, Inc.
ADDITIONAL RISK FACTORS AND INVESTMENT CONSIDERATIONS
Additional or related factors which could affect the Company's actual
results and could cause the Company's actual consolidated results for the first
quarter of 1996, and beyond, to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company include:
Continued or increased pressure to change the selling prices for
the Company's products, and the resulting effects on margins, the Company's
actions in connection with continued and increasing competition in many
product areas, including, but not limited to, price competition and
fluctuating demand for certain textile products by one or more textile
customers;
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Difficulties or delays in the development, production, testing
and marketing of products, including, but not limited to, a failure to ship
new products, the failure of customers to accept these products or
technologies when planned, any defects in products and a failure of
manufacturing economies to develop when planned;
Occurrences affecting the Company's ability to reduce product and
other cost, and to increase productivity;
Inability to offset pricing competition with production
efficiencies and economies of scale; under-utilization of the Company's
plants and factories resulting in production inefficiencies and higher
costs; start-up expenses and inefficiencies and delays and increased
depreciation costs in connection with the start of production in new plants
and expansions;
The amount, and rate of growth in, the Company's selling, general
and administrative expenses, and the impact of unusual items resulting from
the Company's ongoing evaluation of its business strategies, asset
valuations and organizational structures;
The adverse effect of continued high raw material costs or the
significant upward fluctuation of raw material costs as specifically
experienced in 1995 and difficulties in obtaining raw materials, supplies,
power and natural resources and any other items needed for the production
of products;
The acquisition of fixed assets and other assets, including
inventories and receivables, and the making or incurring of any
expenditures and expenses, including, but not limited to, depreciation and
research and development expenses, any revaluation of assets or related
expenses and the amount of, and any changes to, tax rates;
Unexpected losses in connection with the disposition of
investments formerly made by Jupiter and GWI, unanticipated write down of
the value of such investments due to among other things their limited
liquidity, and/or an inability to dispose of one or more of such
investments due to the nature or character of such investments involving,
without limitation, the liquidity of such investment, the lack of a market
for such investment, and whether the Company's investment represents a
minority interest in such enterprise;
The effects of, and changes in, trade, monetary and fiscal
policies, laws and regulations, other activities of governments, agencies
and similar organizations, and social and economic conditions, such as
trade restrictions or prohibitions, inflation and monetary fluctuations,
import and other changes or taxes, the ability or inability of the Company
to obtain, or hedge against, foreign currency, foreign exchange rates and
fluctuations in those rates, loss of international contracts or lower
international revenue resulting from increased expenses associated with
overseas operations, the impact of foreign labor laws and disputes, adverse
effects arising out of political unrest, terrorist activity,
nationalizations and unstable governments and legal systems, and
intergovernmental disputes;
The costs and other effects of legal and administrative cases and
proceedings (whether civil, such as environmental and product-related, or
criminal), settlements and investigations, claims, and changes in those
items, developments or assertions by or against the Company relating to
intellectual property rights and intellectual property licenses, adoptions
of new, or changes in, accounting policies and practices and the
application of such policies and practices;
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The effects of changes within the Company's organization or in
compensation and benefit plans, any activities of parties with which the
Company has an agreement or understanding, including any issues affecting
any investment or joint venture in which the Company has an investment, the
amount, type and cost of the financing which the Company has, and any
changes to that financing; and
The ability to integrate acquisitions into the Company's existing
operations and unexpected difficulties or problems with such acquired
entities including inadequate production equipment, inadequate production
capacity or quality, outdated or incompatible technologies or an inability
to realize anticipated synergies and efficiencies, whether within
anticipated time frames or at all.
Certain Executive Officers of Johnston Industries, Inc. are as follows:
ROBERT C. CHRISTIAN, age 50, has served as Vice President of Human
Resources since March 24, 1996. Prior to that time, he served as Vice President
of Human Resources at Forstmann and Company for a period of over 10 years.
LARRY L. GALBRAITH, age 58, has served as Vice President of Special
Projects since April 1, 1996. From November 1, 1992 until March 31, 1996, he had
served as Executive Vice President of the Company and had concurrently served as
President and Chief Executive Officer of Southern Phenix from July 1989 until
March 31, 1996. Prior to that time he had served as Vice President for
engineering, purchasing and finishing at Southern Phenix for more than five
years. Effective February 1, 1997, Mr. Galbraith resigned from the Company and
his position as an officer of the Company.
WILLIAM I. HENRY, age 57, has served as Vice President of Operations
since April 1, 1996. Prior to that, he had served as Vice President of Product
and Operations Planning since January 1, 1993, and for more than five years
prior had served as Vice President, Operations of Southern Phenix.
L. ALLEN HINKLE, age 53, has been Vice President of the Company and
President-Industrial Fabrics-Sales and Marketing of Johnston Industries Alabama,
Inc. since April 1, 1996. Mr. Hinkle had been President and Chief Operating
Officer of Wellington Sears since its formation in November 1992. Prior to that
he was the Vice President of Manufacturing of the Custom Fabrics Division of
West Point Pepperell and was promoted to the Position of President of that same
Division.
JOHN W. JOHNSON, age 60, has served as Vice President and Chief
Financial Officer since September 1, 1994. Mr. Johnson had been Secretary and
Treasurer of the Company from January 1, 1992 until September 1, 1994. From July
1991 to December 1991 he was Assistant Secretary-Treasurer of the Company and
for more than five years prior was Vice President, Finance of Southern Phenix.
DONALD L. MASSEY, age 52, has been Vice President of the Company and
President-Home Furnishings-Sales and Marketing of Johnston Industries Alabama,
Inc. since April 1, 1996. Mr. Massey had been President and CEO of Johnston
Industries Composite Reinforcements, Inc. from March 31, 1992 until March 31,
1996. From December 1, 1990 until March 30, 1992, Mr. Massey was President and
CEO of Fiber and Fabrics Marketing, and for more than 5 years prior to that, he
was Senior Vice President for world sales of denim for Dominion Textiles.
F. FERRELL WALTON, age 52, has served as Secretary and Treasurer since
September 1, 1994. Mr. Walton had been Director of Financial Operations for the
Company from April 1, 1993 to September 1, 1994 and for more than five years
prior to that time was Vice President, Finance of Opp and Micolas.
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ITEM 2. PROPERTIES
The executive offices of the Company are located at 105 13th Street,
Columbus, Georgia 31901 in a 20,000 square foot, two story, brick office
building, which was purchased August 20, 1993. Its telephone number is (706)
641-3140. The Company maintains its Sales and Marketing Center and a Design/Data
Processing Center, in two brick buildings totaling 23,000 square feet, in
Valley, Alabama closely adjacent to I-85 and its telephone number is (334)
768-1000. The Company also maintains a sales and marketing office (7,000 square
feet) at 111 West 40th Street in New York City, New York and the telephone
number at this location is (212) 398-9850. The Company owns twelve manufacturing
facilities, leases one additional manufacturing facility and leases warehouse
space in a variety of locations. Such facilities are described below.
JOHNSTON INDUSTRIES ALABAMA
The Company's Fiber Products Division generally utilizes three
manufacturing facilities. These facilities are located in Valley, Alabama,
DeWitt, Iowa, and Lanett, Alabama respectively. Two of these facilities,
totaling 287,000 square feet and including 259 acres of land, are owned by the
Company and the third, a 47,000 square foot facility is leased. The Fiber
Products Division also leases a 100,000 square foot warehouse in Lanett,
Alabama. The annualized operating capacity of these facilities is approximately
17 million pounds of sales yarn and approximately 129 million pounds of
non-woven material. The Fiber Products facilities, in the aggregate, operated at
64 % of capacity for the year ended December 28, 1996.
The Company's Opp and Micolas operations generally utilize two
manufacturing facilities totaling 770,000 square feet, each of which are located
in Opp, Alabama. The Opp facility encompasses 13 acres and has approximately
340,000 square feet of plant facility located on a major U.S. highway. The
Micolas facility, which is located very close to the Opp plant, is situated on
19 acres with approximately 430,000 square feet of plant facility. The Opp and
Micolas Division leases approximately 92,000 square feet of warehouse space and
a nearby Company-owned tract of 140 acres is available for future expansion. The
plants, which share some basic facilities and services but are equipped to
operate independently, are single level facilities which were built in 1922, and
have undergone extensive modernization programs from the late 1980's on into the
1990's. The annualized operating capacity of the facilities is approximately 105
million linear yards of fabric (47 million pounds) and approximately 2 million
pounds of sales yarn. During the year ended December 28, 1996, the Opp and
Micolas facilities, in the aggregate, operated at approximately 92% capacity.
The Company's Southern Phenix Division generally utilizes three
manufacturing facilities totaling 834,000 square feet; two of these facilities
are located in Phenix City, Alabama while the third is located in Columbus,
Georgia. The Southern Phenix Division also leases a 83,000 square foot warehouse
in Phenix City, Alabama. The primary plant, a 708,000 square foot facility,
houses the Southern Phenix Division's administrative offices, weaving mill and
finishing operations on 13 acres of a 124 acre tract accessible both by road and
rail. The plant, which was one of the first in the United States to make woven
goods from 100% polyester, was built in 1968, but its equipment and machinery
continue to be extensively modernized. The second facility with 76,000 square
feet on 11 acres contains the stitchbond operation and the third facility
contains a 50,000 square foot finishing and coating operation located on 5
acres. The annualized operating capacity of these facilities is approximately 48
million linear yards of fabric (31 million pounds), 11 million pounds of
non-woven (stitchbond, chima and weft insertion warp knitted) goods, and 16
million yards of finishing capacity. During the year ended December 28, 1996,
these facilities, in the aggregate, operated at approximately 69% capacity.
The Company's Wellington Sears Division operations generally utilize
three manufacturing facilities which includes two weaving facilities and a
finishing operation. One facility is located in Columbus, Georgia and two are
located in Valley, Alabama. Together the three manufacturing facilities plus two
non-manufacturing facilities total approximately 1,542,000 square feet of
building space on approximately 75 acres of land. The Wellington Sears Division
also operates a U.L. (Underwriters Laboratories) certified testing laboratory in
Valley, Alabama, and a retail outlet in West Point, Georgia. The annualized
operating capacity
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<PAGE> 12
of the facilities is approximately 89 million linear yards of fabric (28 million
pounds), approximately 3 million pounds of sales yarn and 23 million yards of
finishing capacity. The Wellington Division's' facilities, in the aggregate,
operated at approximately 73% capacity for the year ended December 28, 1996.
JOHNSTON INDUSTRIES COMPOSITE REINFORCEMENTS
The Company's JICR operations are located in Phenix City, Alabama in a
facility leased from JI Alabama's Southern Phenix Division and occupies
approximately 25,000 square feet of the 76,000 square foot facility which houses
the Southern Phenix Division's stitchbond operation. JICR also leases 26,000
square feet of warehouse space in an adjacent facility not owned by the Company.
The operating capacity of JICR was approximately 12 million pounds and JICR
operated at approximately 43% of capacity during the year ended December 28,
1996.
T.J. BEALL COMPANY
The Company's TJB operations are headquartered in West Point, Georgia
with a warehouse operation in Flora, Mississippi. An 87,000 square foot complex,
including an office and two warehouses, is located in West Point, Georgia on
approximately 6 acres of land, and a 111,000 square foot complex, including an
office and two warehouses, is located on approximately 5 acres of land in Flora,
Mississippi. The annualized handling capacity of its total operations is 47
million pounds of reprocessed cotton motes. The TJB facilities overall operated
at approximately 68% of capacity for the year ended December 28, 1996.
ENVIRONMENTAL
The Company is subject to regulation under federal, state, and local
laws and regulations governing pollution and protection of human health and the
environment, including air emissions, water discharges, management and cleanup
of solid and hazardous substances and wastes. The Company believes that its
facilities and operations are in material compliance with all existing
applicable laws and regulations. The Company cannot, at this time, estimate the
impact of any future laws or regulations on its future operations or future
capital expenditure requirements. The Company is not aware of any pending
federal or state legislation that would have a material impact on the Company's
financial position, results of operations or capital expenditure requirements.
PROPERTIES HELD FOR DISPOSITION
In connection with the Jupiter Acquisition in March 1996, the Company
decided to close its Tarboro Facility (the "Tarboro Facility") 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. This decision was reached after sales during the six
months ended December 30, 1995 from the Tarboro Facility were lower than
expected which caused continued operating losses and negative cash flows.
Operations at the Tarboro Facility have ceased and selected equipment and
product lines have been relocated to other of the Company's facilities. Some
equipment was sold and the remainder is currently held for sale by a textile
equipment broker. The Company is currently pursuing the sale of the 479,000
square foot Tarboro Facility. Management believes the shutdown of the Tarboro
Facility will not have a material adverse impact on the Company's production
capacity. For further discussion of the disposition of the Tarboro Facility and
of the impact of such shutdown on the Company's results of operations, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 7 of the Financial Statements set forth elsewhere in this
Report.
An office building, located at 39 W. Montgomery Street, Rockville,
Maryland, which formerly housed the Jupiter operation is a 3,400 square foot
building on approximately three-quarters of an acre of land. This property,
located approximately two blocks from the central business district, is listed
for sale with a broker.
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<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS
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 have a material adverse effect on the Company's
consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders
during the quarter ended December 28, 1996.
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<PAGE> 14
27
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS
The Company's Common Stock has traded on the New York Stock Exchange
under the symbol "JII" since December 1987. The following table indicates the
high and low closing sales prices for the Common Stock as quoted on the New York
Stock Exchange composite tape for the periods indicated below.
<TABLE>
<CAPTION>
PRICE RANGE
HIGH LOW
Quarter Ended:
<S> <C> <C>
December 28, 1996 $8 3/8 $7 1/8
September 28, 1996 8 7/8 7 1/2
June 29, 1996 9 3/8 8
March 30, 1996 8 7/8 7 7/8
December 30, 1995 9 1/8 7 3/8
September 30, 1995 9 5/8 7 7/8
June 30, 1995 10 3/8 7 7/8
March 31, 1995 12 10
December 31, 1994 11 8 1/4
September 30, 1994 9 7/8 8 1/4
</TABLE>
Holders of Common Stock are entitled to such dividends as may be declared and
paid out of funds legally available for payment of dividends. The Company's bank
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 limits dividends and restricts 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 on
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. Future determination as to the
payment of dividends is subject to the discretion of the Board of Directors and
will depend upon a number of factors, including future earnings, capital
requirements, financial condition, and the existence or absence of any
contractual limitation on the payment of dividends. Regular quarterly dividends
have been paid since September 28, 1990. The current quarterly dividend is $.10
a share. This rate has been in effect since February 1995. From April 1994 to
January 1995, the rate was $.095 a share. From October 1992 to March 1994, the
rate was $.083 a share. The number of shareholders of record at December 28,
1996 was approximately 700.
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<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for
the year ended December 28, 1996, the six month period ended December 30, 1995
and for each of the full fiscal years in the four year period ended June 30,
1995. The income statement data for the year ended December 28, 1996, the six
month period and for the fiscal years ended June 30, 1995, 1994 and 1993 and the
balance sheet data as of December 28, 1996, December 30, 1995 and June 30, 1995,
1994 and 1993 have been derived from the Company's consolidated financial
statements included elsewhere in this report. This data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the consolidated financial statements and the notes
thereto.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED FISCAL YEAR ENDED JUNE 30,
DEC. 28, DEC. 30,
1996 1995 (1) 1995 (2) 1994 1993 1992
---- -------- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net Sales $ 321,883 $ 148,773 $ 269,279 $ 159,904 $ 154,074 $ 138,272
Income (Loss) from Continuing Operations 15 (6,348) 6,889 7,409 4,703 5,238
Income (Loss) from Discontinued Operations 3,384 158 986 (914) 3,711 1,451
Extraordinary Loss (527) -- -- -- -- --
Net Income (Loss) 2,872 (6,190) 7,875 6,495 8,414 6,689
Dividends on Preferred Stock (125) -- -- -- -- --
Net Earnings (Loss) available to Common Stockholders $ 2,747 $ (6,190) $ 7,875 $ 6,495 $ 8,414 $ 6,689
Earnings (Loss) per Common Share:
Income (Loss) from Continuing Operations .00 (.60) .65 .68 .43 .48
Income (Loss) from Discontinued Operations .31 .01 .09 (.08) .34 .14
Extraordinary Loss (.05) -- -- -- -- --
Earnings (Loss) per Common Share .26 (.59) .74 .60 .77 .62
Income (Loss) from Continuing Operations
to Sales % .00% (4.27)% 2.63% 4.63% 3.05% 3.79%
Net Income (Loss) to Sales % .89% (4.12)% 3.01% 4.06% 5.46% 4.84%
Net Earnings (Loss) available to Common Stockholders
to Sales % .85% (4.12)% 3.01% 4.06% 5.46% 4.84%
BALANCE SHEET DATA:
Total Assets $ 271,630 $ 240,539 $ 232,402 $ 140,194 $ 136,071 $ 127,885
Long Term Debt 143,641 110,755 83,560 36,216 22,500 30,000
Stockholders' Equity 59,192 55,179 63,427 59,808 60,173 57,213
OTHER DATA:
Equity per Share $ 5.53 $ 5.22 $ 5.93 $ 5.51 $ 5.50 $ 5.26
Dividends per Share .400 .200 .390 .345 .320 .240
Depreciation and Amortization 19,715 8,874 13,766 10,202 9,761 9,304
Capital Expenditures 20,527 17,781 21,448 12,701 10,381 9,405
Return on Beginning Assets 1.19% (2.66)% 5.62% 4.77% 6.58% 6.00%
Return on Beginning Equity 5.20% (.96)% 13.17% 10.79% 14.71% 12.71%
</TABLE>
- --------------------------------------------------------------------------------
(1) Effective September 1995, Johnston's year end closing date was changed
to the Saturday closest to December 31. Therefore, Johnston's
transition period 1995 ended on December 30, 1995.
15
<PAGE> 16
(2) The operations of Jupiter, a majority-owned subsidiary, have been
included in the consolidated financial statements from January 1, 1995
forward. On March 28, 1996 Jupiter became a wholly owned subsidiary of
the Company.
Note: See Notes 2, 3, and 7 of the consolidated financial statements and
Management's Discussion and Analysis of Financial Condition and Results
of Operations for discussion of certain transactions impacting the six
months ended December 30, 1995 and the year ended December 28, 1996.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The operations of Johnston Industries, Inc. ("Johnston") include its
direct wholly owned operating subsidiary, Johnston Industries Alabama, Inc., and
its indirect wholly owned 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 December 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 then majority-owned subsidiary, Jupiter National, Inc. ("Jupiter") and
Jupiter's then wholly-owned subsidiaries, Wellington Sears Company
("Wellington") and GWI, (collectively, the "Company").
On March 28, 1996, the Company acquired the outstanding minority
interest in Jupiter (the "Jupiter Acquisition") for a total purchase
consideration of $45,950,000 which included payments of $39,000,000 to security
holders. Thereafter, on April 3, 1996, Jupiter was merged into the Company's
then Opp and Micolas subsidiary. At the close of business on June 29, 1996, the
name of Opp and Micolas was changed to Johnston Industries Alabama, Inc. ("JI
Alabama"), Southern Phenix and Wellington were merged into JI Alabama, and JICR
,TJB and GWI became subsidiaries of JI Alabama. Following the merger and
associated name change, the operations which previously constituted Wellington
were split into two divisions representing woven products and fiber products
respectively. The manufacturing operations of JI Alabama are now organized in
four divisions which are Fiber Products Division, Opp & Micolas Division,
Southern Phenix Division, and Wellington Sears Division.
On March 25, 1996, Johnston acquired all of the outstanding common
shares of T.J. Beall Company (the "TJB Acquisition"), a cotton by-products
processor located in West Point, Georgia. This acquisition was financed through
the issuance of 325,000 shares of one cent ($.01) par value, nonvoting preferred
stock of the Company, which has an estimated value of $3,250,000. Dividends
shall accrue and be payable quarterly at a rate of $.125 per share per quarter.
The preferred stock issued was designated as Johnston Industries, Inc. preferred
stock, Series 1996 and is convertible into shares of ten cent ($.10) par value
voting common stock. Each share of preferred stock may be converted into one
share of voting common stock with the shareholder having the right (but not the
obligation) to convert up to one-third of preferred stock twelve months after
closing, one-third twenty-four months after closing, and the final one-third
thirty-six months after closing.
During 1992, the Company entered into a 50%/50% partnership with an
English company to establish Tech Textiles, USA, the predecessor to JICR, for
the joint manufacture and sale of certain specialized textile products. During
September 1995, the Company began consolidating the financial statements of Tech
Textiles, USA, as the Company purchased the remaining 50% interest for a total
cost of $655,000.
Johnston is a diversified manufacturer of woven and non-woven fabrics
primarily for the home furnishings, industrial and to a lesser extent automotive
and basic apparel markets. The Company also is a waste fiber and fabric
processor, converting textile waste products into a variety of fiber, yarn and
fabric products for specialty markets. The Company's GWI subsidiary is a small
business development company under the Small Business Investment Act of 1958
whose remaining portfolio investments currently are recorded as a discontinued
operation which is currently held for sale. At December 28, 1996, the Company's
total assets attributable to textile operations were approximately $262,972,000
and net assets attributable to the discontinued portfolio investment activities
were approximately $6,011,000.
Management's business strategy calls for the achievement of synergies,
enhanced growth and performance through a strategy of innovation, capital
investment, aggressive marketing and strict cost
17
<PAGE> 18
containment provisions at all operating levels. In order to facilitate such
strategy, the Company's operational policy recently has been focused on the
development of operational synergies through tactical and strategic acquisitions
and currently is focused on the integration of recent acquisitions into the
Company's ongoing operations. Management believes its business strategy has the
potential to enhance the Company's growth and performance over time.
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 ended on December 30, 1995 and its 1996 year ended
on December 28, 1996. Such change made 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.
Additionally, the change in the Company's fiscal year conforms to an annual
reporting period more closely associated with the calendar year and, to the
fiscal years utilized by a majority of the public companies in the textile
industry.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 28, 1996 COMPARED WITH THE TWELVE MONTHS ENDED DECEMBER 30,
1995
Continuing Operations
Net sales for the year ended December 28, 1996 were $321,883,000
compared to $326,082,000 for the twelve months ended December 30, 1995
reflecting a decrease of $4,199,000 or approximately 1.3%. Net sales in the
automotive market were relatively unchanged while sales in the home furnishings
sector held steady despite the closing by the Company if its former Tarboro,
North Carolina facility, which primarily produced home furnishings fabrics, and
the loss in 1996 of the Company's largest customer due to a massive fire which
destroyed the customer's manufacturing facility. The impact of the loss of sales
to this customer has been substantially mitigated by increased sales of other
home furnishings fabrics to new and existing customers, as well as by the
development of alternative customers for a portion of the particular fabrics
previously sold to such customer. Sales of industrial fabrics decreased by
approximately $11,778,000 as a result of several factors including: (a) the
Company's decision to cease production of certain fabrics (primarily number
ducks and to a lesser extent certain rubber products and filtration fabrics)
which were constructed from certain multi-ply yarns (3 ply and higher), which
were manufactured on old and outdated equipment, (b) a decrease in commission
finishing business, (c) a downward fluctuation in wiper cloth business, due to
low margins, and, (d) a decrease in sales of coated and laminated fabrics. The
Company's management believes that weakness in sales of certain industrial
fabrics, other than the decreases related to the Tarboro closure and
discontinued products, is only temporary. Apparel fabrics sales decreased by
approximately $4,661,000 reflecting the Company's continuing effort to
de-emphasize sales of these historically low margin products in order to
concentrate on the Company's more profitable fashion oriented home furnishings
fabrics and value added finishing capabilities. Sales to specialty markets
increased in 1996 by approximately $15,478,000. Such increase included
$12,151,000 resulting from the acquisition of TJB. Increased sales to specialty
markets were partially offset by sales declines in the Company's miscellaneous
fabric market (such market accounted for 1% of the company's total sales in
1996) which declined by $2,252,000 from the prior year.
The Company's sales backlog was $88,581,000 and $64,399,000 at December
28, 1996 and December 30, 1995, respectively. The increase reflects the addition
of TJB during 1996 and in general reflects a moderately strengthened market for
some of the Company's products.
Cost of sales decreased in 1996 to $265,682,000 from $272,202,000 for
the twelve months ended December 30, 1995, largely due to the decrease in sales
discussed above. The gross margin improved to approximately 17.5% for the 1996
year compared to approximately 16.5% for the twelve months ended December 30,
1995. Raw material costs, which reached unprecedented levels by mid-year 1995,
remained at very high levels well into 1996. Although prices have now receded,
inventories purchased at the higher levels
18
<PAGE> 19
continued to clear the manufacturing cycle through the third quarter, and the
majority of the resulting improvement in cost of sales was not realized until
late in the fourth quarter.
Selling, general and administrative expenses of $24,913,000 in 1996
declined by $3,769,000 from $28,682,000 for the twelve months ended December 30,
1995. Included in this reduction of selling, general and administrative expenses
are costs of approximately $624,000 which were eliminated with closure of
Wellington's Tarboro facility (see discussion below). The twelve months ended
December 30, 1995 included significant operating expenses which were incurred in
connection with and during the period leading up to the Jupiter Acquisition. The
remaining decrease is largely the result of synergies associated with
reorganization of the Company following completion of the Jupiter acquisition.
Such synergies yielded cost savings through reductions in salaries, associated
benefits, office operating costs and certain professional services.
Additionally, brokerage fees associated with lower sales, were $202,000 less in
1996 than in 1995.
Depreciation and amortization was $19,715,000 for fiscal year 1996
versus $16,995,000 for the twelve months ended December 30, 1995. This increase
includes approximately $547,000 amortization of goodwill resulting from the
Jupiter Acquisition and the TJB Acquisition, both of which were completed in
1996. The increase reflects additional depreciation related to the Company's
step-up in basis of property, plant and equipment in connection with the Jupiter
Acquisition and additionally, the Company's continued efforts to maintain
competitive manufacturing capabilities through investment in state-of-the-art
manufacturing equipment. Such commitment to manufacturing capabilities resulted
in capital investments totaling $73,198,000 over the last three and one half
years.
In connection with the Jupiter Acquisition, the Company decided to
close the manufacturing facility located in Tarboro, North Carolina, which had
been operated by Jupiter's Wellington Sears subsidiary (the "Tarboro Facility")
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 of the
Tarboro Facility were substantially completed in January 1997. The Tarboro
Facility, which is currently vacant, is held for sale and is recorded at its
estimated net realizable value. During the year ended December 28, 1996, the
Company recorded restructuring charges totaling $4,743,000 which includes
$1,619,000 related to write-downs of accounts receivable and inventory, $705,000
for severance costs, $625,000 for relocating production equipment, $915,000 for
actual operating losses and $879,000 for other costs related to the operation.
Of these restructuring costs, $1,852,000 was recorded in the purchase accounting
for the Jupiter Acquisition, with the remaining $2,891,000 recorded as an
expense on the consolidated statement of income.
Net Interest expense was up $2,616,000 for fiscal year 1996 to
$10,885,000 from $8,269,000 for the twelve months ended December 30, 1995. The
increase was due to the higher average borrowings and higher average rates
during 1996 as compared to the twelve months ended December 30, 1995. The
majority of increased borrowings were deployed to complete the acquisition of
the Jupiter Acquisition.
On March 28, 1996, the Company signed an agreement with a syndicate of
banks (the "Credit Agreement") to provide financing required to consummate the
merger with Jupiter, to refinance certain existing indebtedness, to pay related
fees and expenses, and to finance the ongoing working capital requirements of
the Company. Such refinancing of existing indebtedness included existing credit
agreements of Wellington, which when paid, were subject to prepayment penalties
of approximately $850,000, and which resulted in an extraordinary loss on early
extinguishment of debt of $527,000 net of income tax of $323,000.
The provision for income taxes was at an effective rate of 35% in 1996
versus a benefit related to income tax at an effective rate of 46% for the
twelve months ended December 30, 1995. The higher rate for the 1995 period was
mainly due to taxes related to equity in income of Jupiter as of December 30,
1995.
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<PAGE> 20
Discontinued Operations
Concurrent with the Jupiter Acquisition, the Company's management made
the decision to discontinue the venture capital investment segment of Jupiter's
operation. The segment has been accounted for as discontinued operations, and in
accordance with Generally Accepted Accounting Principles, the net assets of the
discontinued segment are recorded as a current asset on the consolidated balance
sheet and are expected to be disposed of by June 30, 1997. The results of
operations for Jupiter's venture capital investment ("venture capital")
activities have been recorded as discontinued operations for 1996, and prior
periods have been restated accordingly. For fiscal year 1996, income from
discontinued operations included net realized investment portfolio gains of
$30,918,000, net unrealized investment portfolio losses of $17,097,000, equity
in losses of Pay Telephone America ("PTA", a wholly owned subsidiary of Jupiter)
of $201,000, operating costs of $2,117,000 and interest expense of $321,000.
These aggregate components of income from discontinued operations are presented
net of income taxes of $5,178,000 and minority interest of $1,083,000. For the
year ended December 28, 1996, net realized investment portfolio gain was
primarily due to gains realized on the sale of the Company's investment in EMC
Corporation, Viasoft, Fuisz Technologies and Zoll Medical during the year ended
December 28, 1996. (See Note 2 of the consolidated financial statements for
further discussion.)
In connection with the 1996 Jupiter Acquisition and after considering
the Company's plans to liquidate the Jupiter investment portfolio, the Company
recorded a loss on disposal of the Jupiter investment portfolio of $1,537,000,
net of income tax benefit of $2,847,000, which included a write down of the
carrying value of the investment portfolio in the amount of $5,140,000, a
provision of $200,000 for loss on the expected sale of Jupiter's Rockville,
Maryland office, a gain of $1,584,000 on sale of PTA, and a reserve of $628,000
for phase out of Jupiter's operations. (See Note 2 of the consolidated financial
statements for further discussion.)
SIX MONTHS ENDED DECEMBER 30, 1995 COMPARED WITH SIX MONTHS ENDED DECEMBER 31,
1994
Continuing Operations
Net sales for the six months ended December 30, 1995 were $148,773,000
compared to $84,970,000 for the prior comparable period, an increase of
$63,803,000 or 75%. This increase was primarily due to sales of $68,386,000 from
Wellington for the six months ended December 30, 1995 reflecting the
consolidation of Jupiter with Johnston effective January 1, 1995. Additionally,
net sales of $4,493,000 for JICR were recorded during the six months ended
December 30, 1995 reflecting the consolidation of JICR into Johnston during this
period. These increases were partially offset by decreases in two product types
(automotive and apparel) during the six months ended December 30, 1995. Net
sales to the automotive sector, which is cyclical in nature, decreased in the
six months ended December 30, 1995 to $2,395,000 from $6,727,000 in the
comparable 1994 period. This 65% decrease was due to lower demand in the six
months ended December 30, 1995. Home furnishings represented 57% or
approximately $85,513,000 of net sales during the six months ended December 30,
1995.
Sales backlog of the Company was $64,399,000 and $63,320,000 at
December 30, 1995 and June 30, 1995, respectively. The marginal increase in
backlog at December 30, 1995 from June 30, 1995, as compared with the increase
in sales, was the result of continued resistance to higher raw material costs
and general weakness in the marketplace.
Cost of sales increased in the six months ended December 30, 1995 to
$128,289,000 versus $65,118,000 for the comparable 1994 period primarily as a
result of cost of $62,417,000 related to Wellington for the six months ended
December 30, 1995. The gross margin was approximately 14% for the six months
ended December 30, 1995 compared to approximately 23% for the six months ended
December 31, 1994. This decrease was mainly the result of three factors. First,
raw material costs increased significantly during the six months ended December
30, 1995 compared to the 1994 period, generally without the ability to pass on
such price increases to customers. Second, although Wellington added net sales
of $68,386,000 for the six
20
<PAGE> 21
months ended December 30, 1995, the Wellington margin for the period was only
9%. Historically, Wellington's margins have been lower than Southern Phenix and
Opp and Micolas margins. Third, margins were negatively impacted by the
decreased sales volume in certain products types (principally automotive) which
did not allow the Company increased productivity through higher utilization of
plant and equipment.
Selling, general and administrative expenses increased from $6,766,000
for the six months ended December 31, 1994 to $15,145,000 for the six months
ended December 30, 1995, a 123% increase. This increase was mainly due to the
Wellington selling, general and administrative expenses of $5,702,000 for the
six months ended December 30, 1995. The remainder of the increase primarily
relates to significant operating expenses incurred as a direct or indirect
result of the anticipated merger of Johnston and Jupiter which was consummated
during March 1996. As a result, selling, general and administrative expenses as
a percentage of sales was 10% in the six months ended December 30, 1995 and 8%
in the comparable 1994 period.
Wellington recorded a $6,532,000 non-recurring charge to operations in
December 1995 resulting from the write-down of property, plant, and equipment at
the Tarboro Facility due to impairment. (See Note 7 of the consolidated
financial statements for further discussion.)
Depreciation and amortization was $8,874,000 for the six months ended
December 30, 1995 versus $5,645,000 for the comparable 1994 period. This 57%
increase includes depreciation and amortization expense of $2,711,000 for
Wellington for the six months ended December 30, 1995. In addition, the increase
reflects the continued investments in capital expenditures.
Net interest expense was up $2,432,000 for the six months ended
December 30, 1995 to $4,210,000 from the comparable 1994 period of $1,778,000.
This increase was mainly due to the consolidation of Jupiter with Johnston which
entailed recording substantial Wellington debt levels, thus resulting in
$2,133,000 of additional net interest expense for the six months ended December
30, 1995.
Other expenses - net includes a negative effect on the six months ended
December 30, 1995 net income caused by an additional charge of $1,000,000 for
estimated environmental cleanup costs related to a property sold by Johnston in
1982. (See Note 3 of the consolidated financial statements for further
discussion.)
The benefit related to income taxes was at an effective rate of 43% for
the six months ended December 30, 1995 versus a provision for income taxes with
an effective rate of 38% in the comparable 1994 period. The increased rate is
mainly due to taxes related to equity in income of Johnston's majority owned
subsidiary, Jupiter, as of December 30, 1995.
Equity Investments
The consolidation of Jupiter also resulted in the separate reporting of
income or loss activity of the investment portfolio. (See Note 2 to the
consolidated financial statements for further explanation.) From January 1, 1995
through June 30, 1995, the Company's equity in earnings/loss of equity
investments included only the Company's then 50% interest in JICR, whereas prior
to January 1, 1995, the equity in earnings/loss included Johnston's
proportionate interest in its equity investment in Jupiter and JICR. Therefore,
for the six months ended December 30, 1995, the equity in earnings of equity
investments was not applicable.
Discontinued Operations
The realized and unrealized investment portfolio gain of Jupiter for
the six months ended December 30, 1995 was $3,767,000. In connection with the
acquisition of McDATA Corporation by EMC on December 6, 1995, the Company's
investment in McDATA was converted into 564,216 shares of common stock of EMC,
of which 56,421 shares are to be held in escrow for one year as security for
potential indemnification obligations of McDATA. As a result, Jupiter recorded
an unrealized gain of $3,863,000 in the quarter ended December 30, 1995. On
December 14, 1995, Fuisz completed an underwritten public offering of its common
stock at a price of $12.00 per share. Therefore, the Company's investment in
Fuisz was converted into 215,080 shares of Fuisz common stock and Jupiter
recorded an unrealized gain of $593,000 in the quarter
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<PAGE> 22
ended December 30, 1995. An additional unrealized gain of $45,000 was recorded
during the six months ended December 30, 1995 related to Jupiter's investment in
Viasoft, Inc. These unrealized gains were offset by unrealized depreciation of
$734,000 related to Jupiter's investment in Zoll Medical Corporation. (See Note
2 to the consolidated financial statements and see Liquidity and Capital
Resources for further discussion).
Jupiter carries its portfolio investments at market or fair value.
Minority interest was recorded for the minority shareholders' proportionate
share of the equity and earnings of Jupiter.
FISCAL 1995 COMPARED WITH FISCAL 1994
Continuing Operations
Net sales for fiscal 1995 were $262,279,000 compared to $159,904,000
for the prior year, an increase of $102,375,000 or 64%. The majority of this
increase was primarily due to sales of $84,299,000 from Wellington for the
period January 1, 1995 to June 30, 1995 reflecting the consolidation of Jupiter
with Johnston effective January 1, 1995. The remaining increase was primarily
the result of higher unit sales and changes in product mix. Sales in the
upholstery and furniture markets were up approximately $14,235,000 in fiscal
1995, an increase of 20% over fiscal 1994. Additionally, improved sales in the
home products markets have increased fiscal 1995 sales. Management has continued
to place greater emphasis on these high margin products and designs in the
decorative fabrics sector of the home furnishings market. These increases were
partially offset by a 3% reduction in the apparel market sales at Opp and
Micolas. The reduction in sales of apparel fabrics was the result of
management's decreased emphasis in this low margin business. Additionally, net
sales to the automotive sector, which is cyclical in nature, decreased in fiscal
1995 to $15,015,000 from $16,950,000 in fiscal 1994, an 11% decrease, due to
lower demand especially in the quarter ended June 30, 1995.
Sales backlog of Johnston and Wellington on a consolidated basis was
$61,847,000 and $67,508,000 at June 30, 1995 and 1994, respectively. The
decrease in backlog at June 30, 1995 from June 30, 1994 was the result of
decrease in orders due to resistance to higher raw material costs and weaknesses
in the marketplace in general.
Cost of sales increased in fiscal 1995 to $209,031,000 compared to
fiscal 1994 of $121,261,000 primarily as a result of $71,812,000 in costs
related to Wellington from January 1, 1995 to June 30, 1995. Sharply escalating
raw material costs -- especially cotton and polyester -- took a considerable
toll on margins. These steep raw material increases generally could not be
passed on to customers which was a major reason for lower margins in fiscal 1995
compared to fiscal 1994. Significant LIFO adjustments of $2,724,000, or 12 cents
a share, for the quarter ended June 30, 1995 and $4,349,000, or 20 cents a
share, for fiscal 1995 substantially reduced the Company's margins.
Margins were positively impacted by the increased sales volume which
continued to allow the Company to maintain an increased level of productivity
through higher utilization of plant and equipment. The increased volume, coupled
with certain price increases, has enabled the Company to partially offset
increases in raw material costs.
Selling, general and administrative expenses increased from $13,306,000
for fiscal 1994 to $20,303,000 for fiscal 1995, a 53% increase. This increase
was mainly due to the Wellington selling, general and administrative expenses of
$6,713,000 for the period January 1, 1995 to June 30, 1995. Selling, general and
administrative expenses as a percentage of sales was 8% in fiscal 1995 and
fiscal 1994.
Depreciation and amortization was up $3,564,000 in fiscal 1995 to
$13,766,000 compared to fiscal 1994 of $10,202,000. This 35% increase included
depreciation and amortization expense of $2,416,000 for Wellington for the
period January 1, 1995 to June 30, 1995. In addition, the increase represents
the continued investments in capital expenditures.
22
<PAGE> 23
Net interest expense was up $2,992,000 in fiscal 1995 to $5,837,000
from fiscal 1994 of $2,845,000. This increase was mainly due to two factors.
First, the consolidation of Jupiter with Johnston entailed recording substantial
Wellington debt levels, thus resulting in $2,136,000 of additional net interest
expense for the period January 1, 1995 to June 30, 1995. Second, effective
January 1995, Johnston restructured its revolving debt agreements and increased
its borrowings under the revolving credit loan from $35,000,000 to $45,000,000.
Other expenses - net includes a negative effect on both the quarter
ended June 30, 1995 and fiscal 1995 net income caused by a charge of $1,000,000
to establish a reserve for estimated environmental cleanup costs related to a
property sold by Johnston in 1982. This steel fabrication operation, sold by
Johnston 13 years ago, has no relationship to today's operations. (See Note 3 of
the consolidated financial statements for further discussion.)
The provision for income taxes was at an effective rate of 43% in
fiscal 1995 versus an effective rate of 38% in fiscal 1994. The increased rate
was mainly due to taxes related to equity in income of the Company's then
majority owned subsidiary, Jupiter.
Equity Investments
The consolidation of Jupiter also resulted in the separate reporting of
income or loss activity of the investment portfolio. (See Note 2 to the
consolidated financial statements for further explanation.) Hence, beginning
January 1, 1995, the Company's equity in earnings/loss of equity investments
included only the Company's then 50% interest in Tech Textiles, whereas prior to
January 1, 1995, the equity in earnings/loss also included Johnston's
proportionate interest in its equity investment in Jupiter. The equity loss in
Tech Textiles was $308,000 for fiscal 1995 compared to $980,000 in the prior
year period. The Company estimated Tech Textiles to have a three-year start-up
phase and at June 30, 1995 it was performing to the Company's expectations.
During September 1995, Johnston purchased the remaining 50% interest in Tech
Textiles for a total cost of $655,000. Tech Textiles became a consolidated
wholly owned subsidiary of Johnston effective September 1995.
Discontinued Operations
The realized and unrealized investment portfolio gain of Jupiter for
the period January 1, 1995 to June 30, 1995 was $5,191,000. (See Note 2 to the
consolidated financial statements for further explanation.) This gain reflects
increases in the market value of Jupiter's investment in Viasoft, Inc. of
$2,602,000 and McDATA Corporation of $2,300,000 for the period January 1, 1995
to June 30, 1995. For the quarter ended June 30, 1995, the increase in the
market value of Jupiter's investment in Viasoft, Inc. and McDATA Corporation was
$2,452,000 and $2,300,000, respectively. Viasoft, Inc. is a company with
publicly traded stock, thus the market value increase is determined in the
public marketplace. McDATA Corporation's increase in market value was estimated
by Jupiter's Board of Directors in the absence of readily available market
values. For the six months ended December 31, 1994, the market price of
Jupiter's investment in Zoll Medical increased $588,000. In fiscal 1994,
Jupiter's investment in Zoll Medical had a substantial decrease in value, which
exceeded total increases in Jupiter's remaining investments.
Jupiter carries its portfolio investments at market or fair value.
Minority interest is recorded for the minority shareholders' proportionate share
of the equity and earnings of Jupiter.
EFFECTS OF INFLATION
Management does not believe that inflation has had a material impact on
the results of operations for the periods presented, except as related to
sharply escalating raw material costs in fiscal 1995 and, the six months ended
December 30, 1995, and the year ended December 28, 1996. These increases in raw
material costs had a significant impact on the Company and the industry. Raw
material prices have now receded and to
23
<PAGE> 24
the extent that general inflation affects its costs in the future, management
believes that the Company can generally offset such inflation by increasing
prices if competitive conditions permit.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary needs for capital resources have been funded by
borrowings under its bank credit agreement, which was entered into on March 28,
1996 and thereafter amended on June 28, 1996 and February 28, 1997 (the "Bank
Credit Agreement"). These borrowings under the Bank Credit Agreement have been
used to finance the purchase of the outstanding public shares of Jupiter (as
discussed above), to refinance certain indebtedness, and to pay related fees and
expenses related to the forgoing, and available borrowings will be used as
needed to finance working capital and capital expenditures in the future.
The Bank Credit Agreement is comprised of two term loan facilities ("A"
and "B") and a revolving credit facility. Term loan facility A is a $40 million
facility with a final maturity date of March 2001. Principal is repayable for
the Company's year ending as follows: 1996 - $0, 1997 - $6 million, 1998 - $9.5
million, 1999 - $10 million, 2000 - $11.5 million, and 2001 - $871,000. The
interest rate on these borrowings is 8% at December 28, 1996 which is based on a
Base Rate, defined as the greater of the Federal Funds Rate plus 1/2 of 1%, or
the prime commercial lending rate, plus 1 1/4% and is subject to change at the
Company's option to a rate based on the London Interbank Offered Rate ("LIBOR")
plus 2 1/2%. As of December 28, 1996, the outstanding borrowings under term loan
facility A were $37,871,000.
Term Loan facility B is a $40 million facility with a final maturity
date of March 2003. Principal is repayable for the Company's year ending as
follows: 1996 - $0, 1997 - $375,000, 1998-2000 - $500,000 each year, 2001 -
$14,375,000, 2002 - $19 million, and 2003 - $1,379,000. The interest rate on
these borrowings was 8.5% at December 28, 1996 based on a Base Rate, as
defined, plus 1 3/4% and is subject to change at the Company's option to a rate
based on LIBOR, plus 3%. As of December 28, 1996, the outstanding borrowings
under term loan facility B were $36,629,000.
The revolving credit facility provides up to $80 million in borrowings,
with a final maturity date of March 2001. Principal amounts outstanding are due
and payable at final maturity. The interest rate on these borrowings ranges from
8% to 9.5% at December 28, 1996 which is based on a Base Rate, as defined, plus
1 1/4%, and is subject to change at the Company's option to a rate based on
LIBOR plus 2 1/2%. Commitment fees are payable at 1/2%, based on the unused
portion of the facility.
The initial Bank Credit Agreement was amended on June 28, 1996 and
February 28, 1997 to modify certain covenants. Prior to the execution of these
amendments, the Company was in technical noncompliance with certain of the
financial covenants contained therein.
Substantially all of the Company's assets are pledged as collateral for
the borrowings under these facilities. The Bank Credit Agreement requires the
Company to maintain certain financial ratios and specified levels of tangible
net worth, and places a limit on the Company's level of capital expenditures and
type of mergers or acquisitions. Additionally, the Bank 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 limits dividends and restricts 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 on 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.
In March 1996, the Company borrowed $144,028,000 under these facilities
and liquidated the Johnston line-of credit and revolving credit loans, and the
Wellington revolving credit loans, term loans, and equipment loans. Under the
Bank Credit Agreement, proceeds generated from liquidated portfolio investments
have been used to pay down outstanding borrowings under the Bank Credit
Agreement. As the
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<PAGE> 25
remaining portfolio investments are liquidated, management will apply such
proceeds in like manner to principal on outstanding debt. (See Note 2 to the
consolidated financial statements for further explanation.)
Prior to the Company entering into the Bank Credit Agreement, Johnston
was a party to a revolving credit agreement that provided for line-of-credit
borrowings and revolving credit loans and Wellington was a party to a revolving
credit, term loan, and equipment loan agreement each of which required the
maintenance of certain financial ratios, specified levels of certain balances,
and certain other restrictions. As noted above, credit agreements for Johnston
and for Wellington which preceded the Bank Credit Agreement were refinanced in
connection with the Bank Credit Agreement. At certain times during the year
ended December 28, 1996 and the six months ended December 30, 1995, Johnston and
Wellington were in technical noncompliance with certain of their covenants under
these agreements. At certain times during the years ended June 30, 1995 and
1994, Wellington also was in technical noncompliance with certain of the
covenants under its agreements. All of these events of noncompliance were waived
by the lending institutions. As of December 30, 1995, Johnston and Wellington
were in technical noncompliance with certain of their covenants. However, all of
these covenants were replaced in conjunction with the Company's refinancing and
the Company was in compliance with its covenants under the Bank Credit Agreement
as of December 28, 1996.
(See Notes 11 and 12 of the consolidated financial statements for an
expanded discussion of financing agreements.)
The net cash provided by operating activities for the year ended
December 28, 1996 was $14,694,000 including $22,539,000 provided by continuing
operations and $7,845,000 used by discontinued operations. With net income from
continuing operations of $15,000, the largest portion of cash provided from
continuing operations results from depreciation and amortization of $19,715,000,
and an increase in deferred tax liabilities of $3,893,000 which were recorded in
1996. Additionally, an increase in inventories recorded for textile operations
in excess of increases attributable to the TJB Acquisition used approximately
$4,063,000 but was offset by cash provided by an increase in accounts payable of
$4,856,000. Cash used by discontinued operations includes the results of
Jupiter's investment portfolio operations which were comprised of administrative
costs of Jupiter through March 28, 1996, costs associated with shutdown of
Jupiter's administrative functions following the Jupiter Acquisition, and the
net of gains and losses (both realized and unrealized) related to the investment
portfolio.
Capital expenditures in continuing operations for the year ended
December 28, 1996 were $20,527,000 compared to $17,781,000 for the six months
ended December 30, 1995 and $21,448,000 for the year ended June 30, 1995. The
Company's capital expenditure program is a reflection of the Company's ongoing
efforts to gain a technological advantage. The Jupiter Acquisition required an
investment of approximately $37,693,000. The tactical acquisitions of Wellington
(through the Jupiter Acquisition) and TJB are part of Management's core
operating strategy designed to enhance future growth and performance potential.
Investment activities in discontinued operations include $38,113,000 provided by
sale of certain of Jupiter's portfolio investments.
Financing activities in continuing operations include proceeds from
issuance of long term debt and borrowings under line of credit agreements plus
repayment of certain pre-existing debt in connection with the new Bank Credit
Agreement. Net of borrowing and repayments, financing activities in continuing
operations provided cash of $27,760,000. Financing activities in discontinued
operations include $16,241,000 principal repayments of debt associated with the
investment portfolio operations.
Markets for the Company's products were softer in 1996 than expected
early in the year. These soft market conditions, which continued into the fourth
quarter, resulted in less cash provided from operations than projected. Although
operating cash generation was adequate to meet immediate needs, cash used to
complete the Jupiter Acquisition, cash used for debt service and debt reduction
under the Company's new credit agreement, plus cash used in the Company's
capital expenditure plan, have prevented the Company from improving its
liquidity position. Management's strategy provides for reduction in its
outstanding debt with
25
<PAGE> 26
cash provided from operations and proceeds from disposal of certain assets as
discussed below. Management expects improvements in cash generation from further
achievement of synergies, strict cost containment, reduction in inventories and
judicious review of its short term capital expenditure plans. Additionally,
while raw material prices began declining in mid-1996, these prices must flow
through work in process and finished goods inventories (generally a six month
cycle) before being realized in improved margins. The full impact on operating
profit is expected to be realized in 1997 and is expected to contribute to
operating cash generation. Excluding the impact of the TJB Acquisition,
inventories grew by $4,063,000 during 1996 and Management is currently
implementing an aggressive plan designed to reduce inventory levels by
approximately $6 million by June 1997. At December 28, 1996, TJB had inventories
of approximately $12 million. The nature of TJB's business requires a seasonal
build up of inventories beginning as the growing season for cotton concludes in
the fall. This normal seasonal high for TJB's inventory is included in inventory
on the Company's balance sheet at December 28, 1996. The selling season, January
through late summer, is expected to contribute both to operating profit and cash
generated through reduced inventory, however, the buying season for gin motes,
TJB's raw material, will again require inventory investment during the fourth
quarter. Upon liquidation of the remaining investment portfolio, sale of the
former Jupiter office in Rockville, Maryland, and sale of the Company's former
Tarboro Facility and remaining equipment, additional cash should be generated.
Net assets of the discontinued Jupiter operations and the Tarboro assets held
for sale of $6,011,000 and $2,293,000 respectively, were recorded at December
28, 1996.
Although discretionary cash expenditures will require judicious review,
Management believes that funds generated from operations and funds available
under the new financing agreements will be sufficient to satisfy the Company's
liquidity requirements for at least the next year.
OTHER MATTERS
In February 1994, the current operators of a Pennsylvania facility
filed a complaint against previous owners and operators of the facility,
including the Company, claiming contamination by a former Johnston subsidiary
which had operated the facility before its close in 1981. Based upon discovery
that certain co-defendenants had no assets or had been through bankruptcy
proceedings, the Company's management accrued $2,000,000 in the six months ended
December 30, 1995. The loss provision is included in Other - net in the
Statement of Operations. In addition, the Company established a reserve in the
amount of $200,000 as an estimate of potential additional legal costs and other
costs to be incurred in connection with the defense of this matter.
The case was settled in December 1996. The total judgment against the
Company was $904,000 including prejudgment interest. there is an associated
unasserted claim for additional, as yet unspecified, damages. At December 28,
1996, the reserve balance was $800,000, net of amounts due under the settlement
which were paid in 1997. Although management believes, based upon the currently
available facts, that the reserve established for this matter is reasonable, the
Company's future potential liability for response costs cannot presently be
determined.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated balance sheets as of December 28, 1996, and
December 30, 1995, the related consolidated statements of operations,
stockholders' equity and cash flows for the year ended December 28, 1996, the
six months ended December 30, 1995 and each of the two years in the period ended
June 30, 1995, unaudited consolidated statements of operations and cash flows
for the six months ended December 30, 1994, notes thereto and Independent
Auditors' Report are reproduced in Exhibit 13(a). Supplementary Data under the
caption "Quarterly Information" is reproduced in Exhibit 13(b).
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<PAGE> 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
27
<PAGE> 28
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF JOHNSTON INDUSTRIES, INC.
The information required by Item 10 is incorporated by reference from
the information in the Registrant's Proxy Statement (to be filed pursuant to
Regulation 14A) for its 1997 annual meeting of stockholders, except as to
biographical information on certain Executive Officers which is contained in
Item 1 of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from
the information in the Registrant's Proxy Statement (to be filed pursuant to
Regulation 14A) for its 1997 annual meeting of stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference from
the information in the Registrant's Proxy Statement (to be filed pursuant to
Regulation 14A) for its 1997 annual meeting of stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference from
the information in the Registrant's Proxy Statement (to be filed pursuant to
Regulation 14A) for its 1997 annual meeting of stockholders.
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<PAGE> 29
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Consolidated Financial Statements
The consolidated financial statements are filed herewith within Exhibit
13(a), as provided in Item 8 hereof:
- Consolidated Balance Sheets as of December 28, 1996 and
December 30, 1995.
- Consolidated Statements of Operations for the year ended
December 28, 1996, the six months ended December 30, 1995 and
the fiscal years ended June 30, 1995, and 1994.
- Consolidated Statements of Stockholders' Equity for the year
ended December 28, 1996, the six months ended December 30,
1995 and the fiscal years ended June 30, 1995, and 1994.
- Consolidated Statements of Cash Flows for the year ended
December 28, 1996, the six months ended December 30, 1995 and
for the fiscal years ended June 30, 1995, and 1994.
- Notes to Consolidated Financial Statements.
(a)(2) Financial Statement Schedules
The following report and consolidated financial statement schedules are
filed herewith as Exhibit 13(a).
- Independent Auditors' Report
- Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission have
been omitted because such schedules are not required under the related
instructions or are inapplicable or because the information required is
included in the Consolidated Financial Statements or notes thereto.
(a)(3) Reports on Form 8-K
There were no reports on Form 8-K during the last quarter of the year
ended December 28, 1996.
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<PAGE> 30
(a)(4) Listing of Exhibits
The exhibits listed below are filed with or incorporated by reference
into this annual report on Form 10-K.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
3.1(a) Certificate of Incorporation of Registrant(7).
(b) Certificate of Amendment of Registrant's
Certificate of Incorporation dated December 20, 1993(7).
3.2 By-Laws of Registrant(7).
10.2 Third Amended and Restated Credit and Security
Agreement dated as of January 31, 1995 among
Johnston Industries, Inc., Southern Phenix
Textiles, Inc., Opp and Micolas Mills, Inc.,
The Chase Manhattan Bank, N.A., NationsBank of
North Carolina, N.A. and Comerica Bank [Exhibit 10](6)
+10.3 Registrant's Executive Insurance Plan, as amended
and restated effective May 21, 1984(7).
+10.4 Letter to Participants dated March 1, 1989 in Registrant's
Executive Insurance Plan setting forth revisions thereto
[Exhibit 10.3(b)](7).
+10.5 Registrant's Salaried Employees, Pension Plan,
as amended and restated effective July 1, 1989
[Exhibit 10.4](2).
+10.6 Amended and Restated Stock Incentive Plan for
Key Employees of the Registrant and its
Subsidiaries(7).
+10.7 Employee Stock Purchase Plan effective October 15, 1990
(with 1991 and 1992 amendments) [Exhibit 10.5(b)(i)](3).
+10.8 Amendment dated October 29, 1992 to Employee
Stock Purchase Plan [Exhibit 10.5(b)(ii)](4).
+10.9 Amendment dated December 17, 1993 to Employee
Stock Purchase Plan [Exhibit 10.9(b)(iii)](7).
+10.10 Amendment dated January 24, 1995 to Employee
Stock Purchase Plan [Exhibit 10.9(b)(iii)](7).
+10.11 Employment Agreement with Gerald B. Andrews dated
as of October 17, 1992 [Exhibit 10.6(b)](4).
+10.12 Employment Agreement with David L. Chandler
effective as of January 1, 1990 [Exhibit 10.6(d)(1)](3).
+10.13 Trust Agreement dated as of February 12, 1991,
with Chemical Bank & Trust Company and David L.
Chandler [Exhibit 10.6(d)(2)](3).
+10.14 Employment Agreement with Roger J. Gilmartin
dated April 22, 1993 [Exhibit 10.6(d)](4)
+10.16 Employment Agreement with W. I. Henry dated as
of January 1, 1993 [Exhibit 10.6(f)](4).
+10.17 Employment Agreement with John W. Johnson dated
January 27, 1993 [Exhibit 10.6(g)](4).
+10.18 Johnston Industries, Inc. Deferred Payment Plan
Trust Agreement dated as of October 17, 1992
with First Alabama Bank & Trust Company [Exhibit 10.7](4)
</TABLE>
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<PAGE> 31
<TABLE>
<S> <C>
+10.19 Employment Agreement with Larry L. Galbraith
dated May 31, 1995.(9)
+10.20 Employment Agreement with L. Allen Hinkle dated
May 26, 1995.(9)
10.21 Agreement and Plan of Merger, dated August 16,
1995, among and between Johnston Industries,
Inc., JI Acquisition Corp., and Jupiter
National, Inc. [Exhibit 99.3](8).
10.22 Bank Credit Agreement dated as of March 28, 1996
among Johnston Industries, Inc.,
Wellington Sears Company, Southern Phenix
Textiles, Inc., Opp and Micolas Mills, Inc.,
Johnston Industries Composite Reinforcements,
Inc., T.J. Beall Company and the banks named
therein, The Chase Manhattan Bank, N.A as
Administrative Agent, Chase Securities, Inc. as
Arranger, and Nationsbank, N.A. as Syndication Agent.(9)
10.23 Amendment # 1 dated June 28, 1996 to Bank Credit Agreement.
10.24 Amendment # 2 dated February 28, 1997 to Bank Credit Agreement.
11 Statement of Computation of Per Share Earnings for the year
ended December 28, 1996, the six months ended December 30,
1995 and the years ended June 30, 1995 and 1994.
13(a) Consolidated balance sheets as of December 28,
1996 and December 30, 1995, the related
consolidated statements of operations,
stockholders' equity and cash flows for the year
ended December 28, 1996, the six months ended
December 30, 1995 and each of the
two years in the period ended June 30, 1995,
notes thereto and Independent Auditors'
Report and related financial statement schedule.
(b) Supplementary Data captioned "Quarterly Information"
21 List of Subsidiaries of Registrant.
23 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule as of December 28, 1996 (for SEC use only)
27.2 Restated Financial Data Schedule as of December 30, 1995 (for SEC use only)
</TABLE>
- --------------------------------------------------------------------------------
(1) Previously filed with the Company's Annual Report on Form 10-K for the
year ended June 30, 1990.
(2) Previously filed with the Company's Annual Report on Form 10-K for the
year ended June 30, 1991.
(3) Previously filed with the Company's Annual Report on Form 10-K for the
year ended June 30, 1992.
(4) Previously filed with the Company's Annual Report on Form 10-K for the
year ended June 30, 1993.
(5) Previously filed with the Company's Annual Report on Form 10-K for the
year ended June 30, 1994.
(6) Previously filed with the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995.
(7) Previously filed with the Company's Annual Report on Form 10-K for the
year ended June 30, 1995.
(8) Previously filed with the Company's Form 8-K on August 21, 1995.
(9) Previously filed with the Company's Annual Report on Form 10-K for the
transition period ended December 30, 1995.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit to Form 10-K pursuant to Item 14(c).
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<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
JOHNSTON INDUSTRIES, INC.
Date: April 11, 1997 By: /s/ David L. Chandler
---------------------
David L. Chandler
Chairman
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ David L. Chandler Chairman of the Board and April 11, 1997
- ----------------------
David L. Chandler Director
/s/ Gerald B. Andrews President and April 11, 1997
- ----------------------
Gerald B. Andrews Chief Executive Officer and
Chief Operating Officer and
Director
(Principle Executive Officer)
/s/ J. Reid Bingham Director April 11, 1997
- ----------------------
J. Reid Bingham
/s/ John A. Friedman Director April 11, 1997
- ----------------------
John A. Friedman
/s/ William J. Hart Director April 11, 1997
- ----------------------
William J. Hart
/s/ Gaines R. Jeffcoat Director April 11, 1997
- ----------------------
Gaines R. Jeffcoat
/s/ John W. Johnson Chief Financial Officer April 11, 1997
- ---------------------- (Principle Accounting Officer)
John W. Johnson
Director April 11, 1997
- ----------------------
C.J. Kjorlien
</TABLE>
- --------------------------------------------------------------------------------
32
<PAGE> 1
EXHIBIT 10.23
AMENDMENT NO. 1
TO
CREDIT AGREEMENT
AMENDMENT NO. 1 dated as of June 28, 1996 to the Credit Agreement dated as
of March 28, 1996 among Johnston Industries, Inc., Wellington Sears Company,
Southern Phenix Textiles, Inc., Opp and Micolas Mills, Inc., Johnston
Industries Composite Reinforcements, Inc. and T.J. Beall Company (each, a
"Borrower" and collectively, the "Borrowers"), the banks named therein (each, a
"Bank" and collectively, the "Banks"), The Chase Manhattan Bank, N.A., as
Administrative Agent, Chase Securities, Inc., as Arranger and Nationsbank,
N.A., as Syndication Agent (the "Credit Agreement"). All capitalized terms
used but not otherwise defined herein shall have the meanings given them in the
Credit Agreement.
WITNESSETH:
WHEREAS, the Banks, each Borrower, the Administrative Agent, the Arranger
and the Syndication Agent entered into the Credit Agreement, pursuant to which
certain Banks made Revolving Credit Loans, Term Loans A and Term Loans B to the
Borrowers in the aggregate principal amounts of $80,000,000, $40,000,000 and
$40,000,000, respectively; and
WHEREAS, the Borrowers have requested, and the Banks have agreed, subject
to the terms and conditions hereinafter set forth, to amend certain provisions
of the Credit Agreement to better reflect the operation of the Loans extended
thereunder and to modify the Borrowers' covenant regarding the permitted
minimum amounts of Consolidated Tangible Net Worth, and the Borrowers further
wish to confirm and reaffirm their joint and several obligations under the
Credit Agreement as amended hereby.
NOW, THEREFORE, each Bank, the Administrative Agent, the Syndication
Agent, the Arranger and each Borrower, on a joint and several basis, hereby
agree as follows:
1. Amendment to Definitions. Section 1.01 of the Credit Agreement is
amended hereby as follows:
a. The definition of "SBA Sale" is deleted in its entirety.
b. The following defined terms are added to Section 1.01 in alphabetical
order therein:
"Net Sales Proceeds" shall have the meaning assigned to that
term in Section 2.07(a).
"Sale" shall have the meaning assigned to that term in
Section 2.07(a).
2. Amendment to Section 2.01(b) - Repayment of Term Loans. Section
2.01(b) of the Credit Agreement is amended hereby to delete the second sentence
of said clause in its entirety and to substitute it with the following:
"The Term Loans shall be repaid in equal quarterly installments
of the annual aggregate amounts set forth below until and including the
Term Loan A Termination Date and Term Loan B Termination Date,
respectively, such that on the last Business day of each calendar
quarter, each Bank shall be paid an amount equal to such Bank's pro
rata share of the quarterly installment of the annual amounts set forth
below for Term Loan A or Term Loan B, as the case may be (calculated
based on its Term Loan Percentage):".
3. Amendment to Section 2.07 - Mandatory Prepayments.
1
<PAGE> 2
a. Section 2.07 of the Credit Agreement is amended hereby to delete
paragraph (a) thereof in its entirety and to substitute said paragraph with the
following:
"(a) Within six months after the Closing Date (the "Sale Period"),
the Borrowers will cause to be discharged in full (by repayment,
assumption or otherwise) all obligations of the Consolidated
Entities in respect of the SBA Loans. If, at any time, any
Consolidated Entity sells or otherwise disposes of all or any
substantial part of its assets (other than in the ordinary course
of business) (a "Sale"), then the cash proceeds (net of taxes and
transaction expenses, including commissions) of such Sale (the "Net
Sales Proceeds") shall be applied to discharge the SBA Loans, the
Term Loans and the Revolving Credit Loans as follows:
(1) 100% of Net Sales Proceeds received on or before the first
anniversary of the Closing Date shall be applied:
First, to the SBA Loans (to the extent not discharged by
assumption or otherwise) or the principal installments on the
Term Loans in inverse order of their maturities, at the
Borrowers' option, until (i) the obligations of the
Consolidated Entities in respect of the SBA Loans have been
discharged in full and (ii) $5,500,000 shall have been
applied to the principal installments of the Term Loans; and
Second, at the Borrowers' option (provided that Borrowers
shall have no option if a Default has occurred and is
continuing), to the principal installments of the Term Loans
in inverse order of their maturities or to the Revolving
Credit Loans.
(2) 100% of Net Sales Proceeds received after the first
anniversary of the Closing Date shall be applied:
First, to the principal installments of the Term Loans in
inverse order of their maturities until the Term Loans shall
have been paid in full; and
Second, to the Revolving Credit Loans until the Revolving
Credit Loans shall be paid in full."
b. Section 2.07 of the Credit Agreement is hereby further
amended to add to paragraph (d) thereof the following:
"; provided, however, that any mandatory prepayments under Section
2.07(a)(1) in respect of Net Sales Proceeds received during the
Sale Period need not be applied until the end of such Sale Period."
4. Amendment to Section 7.01 - Affirmative Covenants. Section
7.01 of the Credit Agreement is hereby amended as follows:
a. Section 7.01(o). Section 7.01(o) is amended by substituting
"150 days" for "45 days" where it appears therein. Time shall
be of the essence with respect to the time period for Borrowers to
comply with their joint and several obligations regarding delivery
of surveys, which is hereby extended to 150 days from the Closing
Date in lieu of 45 days.
b. Section 7.01(p). Section 7.01(p) is amended by substituting
"90 days" for "60 days" where it appears therein as an
extension of the time period for Borrowers to procure Interest Rate
Protection Agreements.
c. Section 7.01(s). Section 7.01(s) is amended by substituting
"150 days" for "45 days" where it appears therein. Time shall
be of the essence with respect to the time period for
2
<PAGE> 3
Borrowers to comply with their joint and several obligations
regarding delivery of mortgages with respect to Real Property owned
by TJB, which is hereby extended to 150 days from the Closing Date
in lieu of 45 days.
5. Amendment to Section 7.03 - Financial Covenants.
a. Section 7.03 of the Credit Agreement is hereby amended to delete
paragraph (b) thereof in its entirety and to substitute said paragraph with the
following:
"(b) Capital Expenditures. Permit Consolidated Capital Expenditures to
exceed (i) $24,000,000 for the fiscal year ending December 31, 1996 and
(ii) the lesser of (x) $25,000,000 for the fiscal year ending December 31,
1997 and for all fiscal years thereafter, or (y) 110% of the depreciation
amount set forth in the Consolidated Entities' Financial Statements for
the previous fiscal year, provided that, amounts of Consolidated Capital
Expenditures permitted hereunder but not utilized in any fiscal year may
be carried forward and utilized in the following fiscal year, so long as,
after giving effect to such carry-forward, the Borrowers remain in
compliance with all covenants contained in ARTICLE VII."
b. Section 7.03 of the Credit Agreement is hereby amended to delete
paragraph (d) thereof in its entirety and to substitute said paragraph with the
following:
"(d) Consolidated Tangible Net Worth. Permit its Consolidated Tangible
Net Worth, at all times during the periods set forth below, to be less
than the amount set forth opposite such period:
<TABLE>
<CAPTION>
Period: Amount:
------ ------
<S> <C>
Closing Date - 3/31/97 $44,000,000
4/l/97- 9/30/97 $49,000,000
10/l/97 - 12/31/97 $54,000,000
1/l/98- 9/30/98 $69,000,000
10/l/98 and at all
times thereafter $75,000,000
</TABLE>
6. Representations, Warranties and Covenants of the Borrowers. Each
Borrower hereby represents and warrants to each Bank that on and as of the date
hereof (i) the representations and warranties of the Borrowers contained in the
Credit Agreement and any other Loan Document delivered in connection therewith
to which it is a party are true and correct with the same force and effect as
though made on and as of the date hereof, (ii) the Borrowers are in compliance
with all covenants contained in the Credit Agreement (as amended hereby), and
(iii) no Default or Event of Default has occurred and is continuing under the
Credit Agreement (as amended hereby) or any other Loan Document delivered in
connection therewith to which it is a party, after giving effect to this
Amendment. To the extent any claim or offset may exist as of the date hereof,
each Borrower, on behalf of itself and its successors and assigns, hereby
forever and irrevocably (a) releases each Bank, the Agent, the Arranger and the
Syndication Agent and their respective officers, representatives, agents,
attorneys, employees, successors and assigns (collectively, the "Released
Parties"), from any and all claims, demands, damages, suits, cross-complaints
and causes of action of any kind and nature whatsoever, whether known or
unknown and wherever and howsoever arising, and (b) waives any right of off-set
such Borrower may have against any of the Released Parties.
7. Credit Agreement in Full Force and Effect. Except as expressly
modified hereby, the Credit Agreement shall remain unchanged and in full force
and effect as executed and each Borrower hereby confirms and reaffirms all of
the terms and conditions of the Credit Agreement.
8. Entire Understanding. The Credit Agreement and this Amendment
contain the entire understanding of and supersede all prior agreements,
written and verbal, among the Banks, the Administrative
3
<PAGE> 4
Agent, the Syndication Agent, the Arranger and the Borrowers with respect to
the subject matter hereof and shall not be modified except in writing executed
by the parties hereto.
9. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to its
conflict of laws principles.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
THE BORROWERS:
JOHNSTON INDUSTRIES, INC. WELLINGTON SEARS COMPANY
By: /s/John W. Johnson By: /s/John W. Johnson
------------------------------- -----------------------------
Name:John W. Johnson Name:John W. Johnson
Title:Vice President and C.F.O. Vice President
OPP AND MICOLAS MILLS, INC. T.J. BEALL COMPANY
By: /s/John W. Johnson By: /s/John W. Johnson
------------------------------- -----------------------------
Name:John W. Johnson Name:John W. Johnson
Title:Vice President Vice President
SOUTHERNPHENIX TEXTILES, INC. JOHNSTON INDUSTRIES COMPOSITE
REINFORCEMENTS, INC.
By: /s/John W. Johnson By: /s/John W. Johnson
------------------------------- -----------------------------
Name:John W. Johnson Name:John W. Johnson
Title:Vice President Vice President
THE ADMINISTRATIVE AGENT: THE ARRANGER:
THE CHASE MANHATTAN BANK, N.A. CHASE SECURITIES, INC.
By: By:
---------------------------- --------------------------
Name: Name:
---------------------------- ------------------------
Title: Title:
---------------------------- -----------------------
THE SYNDICATION AGENT:
NATIONSBANK, N.A.
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
4
<PAGE> 5
THE BANKS:
THE CHASE MANHATTAN BANK, N.A. NATIONS BANK, N.A.
<TABLE>
<S> <C>
By: By:
------------------------------ ---------------------------
Name: Name:
---------------------------- -------------------------
Title: Title:
--------------------------- ------------------------
FIRST ALABAMA BANK COMERICA BANK
By: By:
------------------------------ ---------------------------
Name: Name:
---------------------------- -------------------------
Title: Title:
--------------------------- ------------------------
VAN KAMPEN AMERICAN CAPITAL CORESTATES FINANCIAL CORP.
By: By:
------------------------------ ---------------------------
Name: Name:
---------------------------- -------------------------
Title: Title:
--------------------------- ------------------------
WACHOVIA BANK OF GEORGIA, N.A. THE SUMITOMO BANK, LTD.
By: By:
------------------------------ ---------------------------
Name: Name:
---------------------------- -------------------------
Title: Title:
--------------------------- ------------------------
By:
---------------------------
Name:
-------------------------
Title:
------------------------
</TABLE>
5
<PAGE> 1
EXHIBIT 10.24
AMENDMENT NO. 2
TO
CREDIT AGREEMENT
AMENDMENT NO. 2 dated as of February 28, 1997 by and among Johnston
Industries, Inc., a Delaware Corporation ("Johnston"), Johnston Industries
Alabama, Inc., an Alabama corporation formerly known as Opp and Micolas Mills,
Inc. ("Johnston Alabama"), T.J. Beall Company, a Georgia corporation ("TJB")
and Johnston Industries Composite Reinforcements, Inc., an Alabama corporation
("JICR", and collectively with Johnston, Johnston Alabama and TJB, the
"Borrowers" and each individually, a "Borrower"), Nationsbank, N.A., as
Syndication Agent, The Chase Manhattan Bank, the successor by merger to The
Chase Manhattan Bank, N.A., as Agent for the banks ("Banks") named in the
Credit Agreement dated as of March 28, 1996 among Johnston, Wellington Sears
Company ("Wellington"), Southern Phenix Textiles, Inc. ("Phenix"), Opp and
Micolas Mills, Inc. ("Opp"), TJB and JICR, the banks named therein, The Chase
Manhattan Bank, N.A., as Administrative Agent, Chase Securities, Inc., as
Arranger and Nationsbank, N.A., as Syndication Agent, as amended by Amendment
No. 1 to the Credit Agreement dated as of June 28, 1996 (the "Credit
Agreement"). All capitalized terms used but not otherwise defined herein shall
have the meanings given them in the Credit Agreement.
WITNESSETH:
WHEREAS, pursuant to the Credit Agreement, the Banks named therein made
Revolving Credit Loans, Term Loans A and Term Loans B to Johnston, Wellington,
Phenix, Opp, TJB and JICR, jointly and severally, in the aggregate principal
amounts of $80,000,000, $40,000,000 and $40,000,000, respectively; and
WHEREAS, effective June 29, 1996, Phenix and Wellington each merged into
Opp pursuant to respective Articles of Merger and Agreement and Plan of Merger
as filed with the Secretary of State of Alabama, the surviving corporation of
each such merger being Opp; and
WHEREAS, Opp changed its name to Johnston Alabama effective as of June
29,1996; and
WHEREAS, the Borrowers have requested, and the Banks have agreed, subject
to the terms and conditions hereinafter set forth, to amend certain provisions
of the Credit Agreement and to modify certain of the Borrowers' covenants, and
the Borrowers further wish to confirm and reaffirm their joint and several
obligations under the Credit Agreement as amended hereby.
NOW, THEREFORE, each Bank, the Agent, the Syndication Agent and each
Borrower, on a joint and several basis, hereby agree as follows:
1 . Amendment to Definitions. Section 1.01 of the Credit Agreement is
amended hereby as follows:
a. The definition of "Fixed Charge Coverage Ratio" is deleted in its
entirety and substituted by the following:
"Fixed Charge Coverage Ratio' means, at any date of determination thereof,
the ratio of (a) the result of (i) Consolidated EBITDA for the Relevant
Quarter or Relevant Period (as said terms are defined below) minus (ii) the
aggregate amount of Consolidated Capital Expenditures during such Relevant
Quarter or Relevant Period to (b) the sum of (i) all scheduled payments of
principal due during such Relevant Quarter or Relevant Period (excluding any
mandatory payments pursuant to SECTION 2.07) on, or with respect to,
Consolidated Debt (including, without limitation, imputed principal on
Capital Leases), plus (ii) Consolidated Interest Expense during such
Relevant Quarter or Relevant Period, plus (iii) all dividend payments. For
purposes hereof, "Relevant Quarter means (1) for the period from the Closing
Date to the fiscal quarter ending March 31, 1997, the most recent fiscal
quarter then ended, (2) for the period ending June 30, 1997, the two most
recent fiscal
1
<PAGE> 2
quarters then ended, (3) for the period ending September 30, 1997, the three
most recent fiscal quarters then ended, (4) for the period ending December
31, 1997, the four most recent fiscal quarters then ended, and (5) for all
times thereafter, the Relevant Period, which for the purposes hereof, shall
mean the four most recently ended fiscal quarters of the Consolidated
Entities."
b. The definition of "Interest Coverage Ratio" is deleted in its entirety
and substituted by the following:
"Interest Coverage Ratio' shall mean the ratio of (a) Consolidated EBIT for
the Relevant Quarter or Relevant Period (as said terms are defined below) to
(b) Consolidated Interest Expense during such Relevant Quarter or Relevant
Period. For purposes hereof, "Relevant Quarter means (1) for the period
from the Closing Date to the fiscal quarter ending March 31, 1997, the most
recent fiscal quarter then ended, (2) for the period ending June 30, 1997,
the two most recent fiscal quarters then ended, (3) for the period ending
September 30, 1997, the three most recent fiscal quarters then ended, (4)
for the period ending December 31, 1997, the four most recent fiscal
quarters then ended, and (5) for all times thereafter, the Relevant Period,
which for the purposes hereof, shall mean the four most recently ended
fiscal quarters of the Consolidated Entities."
2. Amendment to Section 2.01 (b) - Repayment of Term Loans. Section
2.01(b) of the Credit Agreement is amended hereby to delete the second sentence
of said clause in its entirety and to substitute it with the following:
"The Term Loans shall be repaid in equal quarterly installments of the
annual aggregate amounts set forth below commencing on June 28, 1997 until
and including the Term Loan A Termination Date and Term Loan B Termination
Date, respectively, such that on the last Business day of each calendar
quarter, each Bank shall be paid an amount equal to such Bank's pro rata
share of the quarterly installment of the annual amounts set forth below
for Term Loan A or Term Loan B, as the case may be (calculated based on
its Term Loan Percentage):".
3. Amendment to Section 7.03 - Financial Covenants. Section 7.03 of the
Credit Agreement is hereby amended to delete the paragraphs set forth below in
their entirety and to substitute said paragraphs with the following:
"(a) Total Loan Commitment. Permit the Total Loan Commitment under this
credit facility to exceed $160,000,000 at any one time outstanding until
September 30, 1997; $148,500,000 from October 1, 1997 through September 30,
1998; $139,000,000 from October 1, 1998 through September 30 1999; and
$129,000,000 from October 1, 1999 and all times thereafter."
"(b) Capital Expenditures. Permit Consolidated Capital Expenditures to
exceed (i) $24,000,000 for the fiscal year ending December 31, 1996, (ii)
$15,000,000 for the fiscal year ending December 31, 1997, (iii) $18,000,000
for the fiscal year ending December 31, 1998, and (iv) $20,000,000 for the
fiscal year ending December 31, 1999 and for all fiscal years thereafter."
"(c) Consolidated Funded Debt. Incur or permit Consolidated Funded Debt to
exceed $177,140,000 at any time until September 30, 1997; $155,000,000 from
October 1, 1997 through September 30, 1998; $145,500,000 from October 1,
1998 through September 30, 1999; and $135,500,000 from October 1, 1999 and
ail times thereafter."
2
<PAGE> 3
"(d) Consolidated Tangible Net Worth. Permit its Consolidated Tangible Net
Worth, as determined at the end of each fiscal quarter, to be less than the
amount set forth opposite such period:
<TABLE>
<CAPTION>
Period: Amount:
------- -------
<S> <C> <C>
Closing Date - 12/31/96 $43,500,000
1/l/97 - 3/31/97 $44,000,000
4/l/97 - 6/30/97 $45,500,000
7/l/97 - 9/30/97 $46,000,000
10/l/97 - 12/31/97 $48,500,000
1/1/98 - 3/31/98 $50,000,000
4/l/98 - 6/30/98 $53,000,000
7/l/98 - 9/30/98 $56,000,000
10/l/98 - 9/30/99 $59,000,000
As of 12/31/99 - and at all
times thereafter $70,000,000"
</TABLE>
"(g) Interest Coverage Ratio. Permit the Interest Coverage Ratio, as
determined at the end of each fiscal quarter, to be less than the ratio set
forth opposite the following periods:
<TABLE>
<CAPTION>
Period: Ratio:
------- ------
<S> <C> <C>
1/1/97 - 3/31/97 1.50:1.00
4/l/97 - 6/30/97 1.65:1.00
7/l/97 - 9/30/97 1.65:1.00
10/l/97 - 12/31/97 1.80:1.00
1/l/98 - 3/31/98 2.00:1.00
4/l/98 - 6/30/98 2.25:1.00
7/l/98 - 9/30/98 2.50:1.00
10/l/98 - 12/31/98 2.50:1.00
1/1/99 - 9/30/99 2.50:1.00
As of 12/31/99 - and all times
thereafter 3.00:1.00
</TABLE>
"(h) Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage Ratio,
as determined at the end of each fiscal quarter, to be less than the ratio
set forth opposite the following periods:
<TABLE>
<CAPTION>
Period: Ratio:
------------------- ---------
<S> <C> <C>
1/l/97 - 3/31/97 1.25:1.00
4/1/97 - 6/30/97 1.25:1.00
7/l/97 - 9/30/97 1.25:1.00
10/1/97 - 12/31/97 1.30:1.00
1/1/98 - 3/31/98 1.35:1.00
4/l/98 - 6/30/98 1.35:1.00
7/1/98 - 9/30/98 1.35:1.00
10/l/98 - 12/31/98 1.40:1.00
1/l/99 - 9/30/99 1.40:1.00
As of 12/31/99 - and all times
thereafter 1.50:1.00
</TABLE>
3
<PAGE> 4
"(i) Debt Ratio. Permit the Debt Ratio, as determined at the end of each
fiscal quarter, to be less than the ratio set forth opposite the following
periods:
<TABLE>
<CAPTION>
Period: Ratio:
------------------- ---------
<S> <C> <C>
10/1/96 -12/31/96 4.25:1.00
1/1/97 - 3/31/97 4.25:1.00
4/l/97 - 6/30/97 4.00:1.00
7/1/97 - 9/30/97 3.50:1.00
10/l/97 - 12/31/97 3.25:1.00
1/l/98 - and all times
thereafter 3.00:1.00
</TABLE>
4. Representations, Warranties and Covenants of the Borrowers. Each
Borrower hereby represents and warrants to each Bank that on and as of the date
hereof (i) the representations and warranties of the Borrowers contained in the
Credit Agreement and any other Loan Document delivered in connection therewith
to which it is a party (or to which its predecessor by merger or name change is
a party) are true and correct and apply to the Borrowers hereto with the same
force and effect as though made on and as of the date hereof and regardless of
the mergers and name change described in the recitals above, (ii) the Borrowers
are in compliance with all covenants contained in the Credit Agreement (as
amended hereby), and (iii) no Default or Event of Default has occurred and is
continuing under the Credit Agreement (as amended hereby) or any other Loan
Document delivered in connection therewith to which it is a party (or to which
its predecessor by merger or name change is a party), after giving effect to
this Amendment. To the extent any claim or off-set may exist as of the date
hereof, each Borrower, on behalf of itself and its successors and assigns,
hereby forever and irrevocably (a) releases each Bank, the Agent and the
Syndication Agent and their respective officers, representatives, agents,
attorneys, employees, successors and assigns (collectively, the "Released
Parties"), from any and all claims, demands, damages, suits, cross-complaints
and causes of action of any kind and nature whatsoever, whether known or
unknown and wherever and howsoever arising, and (b) waives any right of off-set
such Borrower may have against any of the Released Parties.
5. Credit Agreement in Full Force and Effect. Except as expressly
modified hereby and notwithstanding the mergers and name change described in
the recitals above, the Credit Agreement shall remain unchanged and in full
force and effect as executed and each Borrower hereby confirms and reaffirms
all of the terms and conditions of the Credit Agreement. The term "Borrower'
shall, effective as of June 29, 1996, refer to each of Johnston, Johnston
Alabama, TJB and JICR, on a joint and several basis, and the term "Borrowers"
shall refer to Johnston, Johnston Alabama, TJB and JICR collectively on a joint
and several basis.
6. Change in Bank Name. The parties hereto agree and acknowledge that (i)
the name Corestates Financial Corp. shall hereinafter refer to "Corestates
Bank, N.A.", and each reference in any Loan Document to said name shall be
deemed to be a reference to "Corestates Bank, N.A." from and after the date
hereof; and (ii) the name First Alabama Bank shall hereinafter refer to
"Regions Bank", and each reference in any Loan Document to said name shall be
deemed to be a reference to "Regions Bank" from and after the date hereof.
7. Entire Understanding. The Credit Agreement and this Amendment contain
the entire understanding of and supersede all prior agreements, written and
verbal, among the Banks, the Administrative Agent, the Syndication Agent and
the Borrowers with respect to the subject matter hereof and shall not be
modified except in writing executed by the parties hereto.
8. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to its
conflict of laws principles.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
THE BORROWERS:
JOHNSTON INDUSTRIES, INC. JOHNSTON INDUSTRIES
ALABAMA, INC.
By: /s/John W. Johnson By: /s/John W. Johnson
----------------------------- ----------------------
Name: John W. Johnson Name:John W. Johnson
Title: Vice President and C.F.O. Vice President
-------------------------- --------------------------------
T.J. BEALL COMPANY JOHNSTON INDUSTRIES COMPOSITE
REINFORCEMENTS, INC.
By: /s/John W. Johnson By: /s/John W. Johnson
- -------------------------------- -----------------------------
Name: John W. Johnson Name: John W. Johnson
Title: Vice President Vice President
THE ADMINISTRATIVE AGENT:
THE CHASE MANHATTAN BANK
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
THE SYNDICATION AGENT:
NATIONSBANK, N.A.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
5
<PAGE> 6
<TABLE>
<S> <C>
THE BANKS:
THE CHASE MANHATTAN BANK NATIONS BANK, N.A.
By: By:
---------------------------- -----------------------------
Name: Name:
-------------------------- ---------------------------
Title: Title:
------------------------- --------------------------
REGIONS BANK COMERICA BANK
By: By:
---------------------------- -----------------------------
Name: Name:
-------------------------- ---------------------------
Title: Title:
------------------------- --------------------------
VAN KAMPEN AMERICAN CAPITAL CORESTATES BANK, N.A.
By: By:
---------------------------- -----------------------------
Name: Name:
-------------------------- ---------------------------
Title: Title:
------------------------- --------------------------
WACHOVIA BANK OF GEORGIA, N.A. THE SUMITOMO BANK, LTD.
By: By:
---------------------------- -----------------------------
Name: Name:
-------------------------- ---------------------------
Title: Title:
------------------------- --------------------------
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
</TABLE>
6
<PAGE> 1
EXHIBIT 11
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
and fully diluted basis are as follows:
Primary
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE
YEAR SIX MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 28, DECEMBER 30, JUNE 30, JUNE 30,
1996 1995 1995 1994
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 10,413,171 10,564,979 10,599,242 10,714,651
Shares issued from assumed exercise of
incentive stock options 201,246 -- -- 1,174
Shares issued from assumed exercise of
nonqualified stock options (1) 88,126 -- 98,097 134,316
------------ ------------ ----------- ------------
Weighted average number of shares outstanding,
as adjusted 10,702,543 10,564,979 10,697,339 10,850,141
============ ============ =========== ============
Income (Loss ) from continuing operations $ 15,000 $ (6,348,000) $ 6,889,000 $ 7,409,000
Income (Loss) from discontinued operations 3,384,000 158,000 986,000 (914,000)
Extraordinary loss (527,000) -- -- --
------------ ------------ ----------- ------------
Net Income (Loss) 2,872,000 (6,190,000) 7,875,000 6,495,000
Dividends on Preferred Stock (125,000) -- -- --
------------ ------------ ----------- ------------
Net Income (Loss) available to common
stockholders $ 2,747,000 $ (6,190,000) $ 7,875,000 $ 6,495,000
============ ============ =========== ============
Earnings (Loss) per common share:
Income from continuing operations $ .00 $ (.60) $ .65 $ .68
Discontinued operations .31 .01 .09 (.08)
Extraordinary loss (.05) .-- .-- .--
------------ ------------ ----------- ------------
Earnings (Loss) per common share $ .26 $ (.59) $ .74 $ .60
============ ============ =========== ============
</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.
Note: Fully diluted earnings per share are not presented because the
difference from primary earnings per share is insignificant for all
periods presented.
<PAGE> 1
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT F - 1
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets, December 28, 1996 and December 30, 1995 F - 3
Consolidated Statements of Operations for the Year Ended December 28, 1996, Six Months
Ended December 30, 1995, and Fiscal Years Ended June 30, 1995 and 1994 F - 4
Consolidated Statements of Stockholders' Equity for the Year Ended December 28, 1996,
Six Months Ended December 30, 1995, and Fiscal Years Ended June 30, 1995 and 1994 F - 6
Consolidated Statements of Cash Flows for the Year Ended December 28, 1996, Six Months
Ended December 30, 1995, and Fiscal Years Ended June 30, 1995 and 1994 F - 7
Notes to Consolidated Financial Statements F - 9
FINANCIAL STATEMENT SCHEDULE:
Schedule II - Valuation and Qualifying Accounts S - 1
</TABLE>
<PAGE> 2
EXHIBIT 13A
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Johnston Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Johnston
Industries, Inc. and subsidiaries (the "Company") at December 28, 1996 and
December 30, 1995 and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year ended December 28, 1996, the
six months ended December 30, 1995, and for the two years ended June 30, 1995
and 1994. Our audits also included the financial statement schedule listed in
the Index at Item 14. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 28, 1996
and December 30, 1995 and the results of its operations and its cash flows for
the year ended December 28, 1996, the six months ended December 30, 1995, and
for the two years ended June 30, 1995 and 1994 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the consolidated financial statements, through
December 31, 1994, the consolidated financial statements include the Company's
investment in and equity in earnings of its affiliate, Jupiter National, Inc.
("Jupiter"). In January 1995, the Company increased its ownership interest in
Jupiter from 49.6% at December 31, 1994 to 54.2%. As a result, Jupiter became a
consolidated, majority owned subsidiary of the Company in January 1995. As
discussed in Note 2 to the financial statements, on March 28, 1996, the Company
consummated its purchase of the remaining outstanding shares of Jupiter.
F-1
<PAGE> 3
As of December 28, 1996, net assets of discontinued operations - Jupiter
included $6,140,000 of the Company's investments recorded at their estimated
fair market values based on estimates by the Company's Board of Directors. As of
December 30, 1995, $14,145,000 of the Company's investments are recorded at
their estimated fair market value based on estimates by Jupiter's Board of
Directors. The 1996 and 1995 estimates were established in the absence of
readily ascertainable market values. Earnings (losses) related to Board-valued
investments for the year ended December 28, 1996, the six months ended December
30, 1995, and the year ended June 30, 1995 were $(7,084,000), $0, and
$2,455,000, respectively. For the year ended June 30, 1994, $1,091,000 of the
Company's equity in Jupiter's changes in net assets was derived from net
unrealized appreciation of investments whose values have been estimated by
Jupiter's Board of Directors.
We have reviewed the procedures used in arriving at the estimates of value of
such securities and have inspected underlying documentation and, in the
circumstances, we believe the procedures are reasonable and the documentation
appropriate. However, because of the inherent uncertainty of valuation, those
estimated values may differ significantly from the values that would have been
used had a ready market for these investments existed, and the difference could
be material to the Company's consolidated financial statements.
As discussed in Note 1 to the consolidated financial statements, effective July
1, 1995, the Company changed its method of accounting for the impairment of
long-lived assets and long-lived assets to be disposed of to conform with
Statement of Financial Accounting Standards 121.
/s/DELOITTE & TOUCHE LLP
- ------------------------
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 14, 1997
F-2
<PAGE> 4
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 28, 1996 AND DECEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30,
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,720,000 $ 1,471,000
Inventories 65,520,000 52,951,000
Accounts and notes receivable, net of allowance of
$1,379,000 and $1,772,000 37,128,000 42,218,000
Net assets of discontinued operations - Jupiter 6,011,000 17,793,000
Income taxes receivable 5,755,000 1,310,000
Assets held for sale - Tarboro facility 2,293,000 5,462,000
Prepaid expenses and other 2,254,000 763,000
Deferred income taxes 919,000
------------ ------------
Total current assets 120,681,000 122,887,000
PROPERTY, PLANT, AND EQUIPMENT - Net 130,047,000 109,572,000
GOODWILL 14,046,000
INTANGIBLE ASSET - Pension 2,042,000 2,464,000
OTHER ASSETS 4,814,000 5,616,000
------------ ------------
$271,630,000 $240,539,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 26,409,000 $ 26,901,000
Accrued expenses 12,395,000 12,435,000
Current maturities of long-term debt 6,505,000 196,000
Deferred income taxes 727,000
------------ ------------
Total current liabilities 46,036,000 39,532,000
LONG-TERM DEBT 143,641,000 110,755,000
OTHER LIABILITIES 11,744,000 13,791,000
DEFERRED INCOME TAXES 11,017,000 3,314,000
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 17,968,000
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share; authorized,
3,000,000 shares; 325,000 and 0 issued 3,000
Common stock, par value $.10 per share; authorized,
20,000,000 shares; issued 12,449,391 and 12,426,891 1,250,000 1,243,000
Additional paid-in capital 23,568,000 17,293,000
Retained earnings 45,111,000 46,505,000
------------ ------------
Total 69,932,000 65,041,000
Less treasury stock: 2,086,517 and 1,861,912 shares (10,262,000) (8,108,000)
Less minimum pension liability adjustment, net of tax
benefit (478,000) (1,754,000)
------------ ------------
Total stockholders' equity 59,192,000 55,179,000
------------ ------------
$271,630,000 $240,539,000
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 5
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 28, 1996, SIX MONTHS ENDED DECEMBER 30, 1995,
AND FISCAL YEARS ENDED JUNE 30, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED JUNE 30,
DECEMBER 28, DECEMBER 30, -----------------------------
1996 1995 1995 1994
<S> <C> <C> <C> <C>
NET SALES $ 321,883,000 $ 148,773,000 $ 262,279,000 $ 159,904,000
COSTS AND EXPENSES:
Cost of sales, excluding depreciation and amortization 265,682,000 128,289,000 209,031,000 121,261,000
Selling, general, and administrative 24,913,000 15,145,000 20,303,000 13,306,000
Depreciation and amortization 19,715,000 8,874,000 13,766,000 10,202,000
Restructuring charges 2,891,000
Loss on impairment of assets 6,532,000
------------- ------------- ------------- -------------
Total costs and expenses 313,201,000 158,840,000 243,100,000 144,769,000
------------- ------------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS 8,682,000 (10,067,000) 19,179,000 15,135,000
OTHER EXPENSE (INCOME):
Interest expense 11,157,000 4,270,000 5,938,000 2,948,000
Interest income (272,000) (60,000) (101,000) (103,000)
Other - net (558,000) 1,405,000 1,565,000 590,000
------------- ------------- ------------- -------------
Total other expense - net 10,327,000 5,615,000 7,402,000 3,435,000
EQUITY IN EARNINGS (LOSSES) OF EQUITY
INVESTMENTS 610,000 333,000
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES AND MINORITY INTEREST (1,645,000) (15,682,000) 12,387,000 12,033,000
(BENEFIT) PROVISION FOR INCOME TAXES (460,000) (6,824,000) 4,963,000 4,624,000
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE MINORITY INTEREST (1,185,000) (8,858,000) 7,424,000 7,409,000
MINORITY INTEREST IN (INCOME) LOSS OF
CONSOLIDATED SUBSIDIARY 1,200,000 2,510,000 (535,000)
------------- ------------- ------------- -------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 15,000 (6,348,000) 6,889,000 7,409,000
(Continued)
</TABLE>
F-4
<PAGE> 6
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 28, 1996, SIX MONTHS ENDED DECEMBER 30, 1995,
AND FISCAL YEARS ENDED JUNE 30, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 28, DECEMBER 30, YEAR ENDED JUNE 30,
----------------------------
1996 1995 1995 1994
<S> <C> <C> <C> <C>
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations
of Jupiter (in thousands) {(less applicable taxes
of $5,178, $478, $2,120, and $(560)} net of minority
interest in income of $1,083, $214, and $1,165, and $0 $ 4,921,000 $ 158,000 $ 986,000 $ (914,000)
Loss on disposal of Jupiter, including
provision of $628 for operating losses during
phase-out period (less applicable tax benefit
of $2,847) (1,537,000)
------------ ------------ ----------- ------------
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS 3,384,000 158,000 986,000 (914,000)
EXTRAORDINARY ITEMS (LESS APPLICABLE
TAXES OF $323) - Loss on early extinguishment
of debt 527,000
------------ ------------ ----------- ------------
NET INCOME (LOSS) 2,872,000 (6,190,000) 7,875,000 6,495,000
DIVIDENDS ON PREFERRED STOCK (125,000)
------------ ------------ ----------- ------------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $ 2,747,000 $ (6,190,000) $ 7,875,000 $ 6,495,000
============ ============ =========== ============
EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) from continuing operations $ .00 $ (0.60) $ 0.65 $ 0.68
Discontinued operations 0.31 0.01 0.09 (0.08)
Extraordinary loss (0.05) 0.00 0.00 0.00
------------ ------------ ----------- ------------
NET EARNINGS (LOSS) PER COMMON
SHARE $ 0.26 $ (0.59) $ 0.74 $ 0.60
============ ============ =========== ============
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 10,702,543 10,564,979 10,697,339 10,850,141
============ ============ =========== ============
(Concluded)
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 7
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 28, 1996, SIX MONTHS ENDED DECEMBER 30, 1995,
AND FISCAL YEARS ENDED JUNE 30, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
--------------- ----------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
<S> <C> <C> <C> <C> <C>
BALANCE - June 30, 1993 12,338,245 $1,235,000 $ 16,733,000
Exercise of stock options 73,742 6,000 376,000
Purchase of fractional shares (96) (2,000)
Purchase of treasury stock
Net income
Dividends paid ($.35 per share)
Minimum pension liability adjustment,
net of tax benefit of $1,957,000
------- ------ ---------- ---------- ------------
BALANCE - June 30, 1994 12,411,891 1,241,000 17,107,000
Exercise of stock options 15,000 2,000 151,000
Purchase of treasury stock
Net income
Dividends paid ($.39 per share)
Minimum pension liability adjustment,
net of taxes of $871,000
------- ------ ---------- ---------- ------------
BALANCE - June 30, 1995 12,426,891 1,243,000 17,258,000
Windfall tax credit 35,000
Net loss
Dividends paid ($.20 per share)
Minimum pension liability adjustment,
net of taxes of $12,000
------- ------ ---------- ---------- ------------
BALANCE - December 30, 1995 12,426,891 1,243,000 17,293,000
Exercise of options 22,500 7,000 70,000
Conversion of Jupiter options 2,958,000
Purchase of treasury stock
Issuance of treasury stock
Issuance of preferred shares 325,000 $3,000 3,247,000
Net income
Minimum pension liability adjustment,
net of taxes of $485,000
Dividends paid - common stock
($0.40 per share)
Dividends paid - preferred stock
($0.50 per share)
------- ------ ---------- ---------- ------------
BALANCE - December 28, 1996 325,000 $3,000 12,449,391 $1,250,000 $ 23,568,000
======= ====== ========== ========== ============
<CAPTION>
TREASURY STOCK MINIMUM
RETAINED ---------------------- PENSION LIABILITY
EARNINGS SHARES AMOUNT ADJUSTMENT TOTAL
<S> <C> <C> <C> <C> <C>
BALANCE - June 30, 1993 $ 48,264,000 1,650,412 $ (6,059,000) $ 60,173,000
Exercise of stock options 382,000
Purchase of fractional shares (2,000)
Purchase of treasury stock 31,700 (348,000) (348,000)
Net income 6,495,000 6,495,000
Dividends paid ($.35 per share) (3,694,000) (3,694,000)
Minimum pension liability adjustment,
net of tax benefit of $1,957,000 $(3,198,000) (3,198,000)
------------ --------- ------------ ----------- ------------
BALANCE - June 30, 1994 51,065,000 1,682,112 (6,407,000) (3,198,000) 59,808,000
Exercise of stock options 153,000
Purchase of treasury stock 179,800 (1,701,000) (1,701,000)
Net income 7,875,000 7,875,000
Dividends paid ($.39 per share) (4,132,000) (4,132,000)
Minimum pension liability adjustment,
net of taxes of $871,000 1,424,000 1,424,000
------------ --------- ------------ ----------- ------------
BALANCE - June 30, 1995 54,808,000 1,861,912 (8,108,000) (1,774,000) 63,427,000
Windfall tax credit 35,000
Net loss (6,190,000) (6,190,000)
Dividends paid ($.20 per share) (2,113,000) (2,113,000)
Minimum pension liability adjustment,
net of taxes of $12,000 20,000 20,000
------------ --------- ------------ ----------- ------------
BALANCE - December 30, 1995 46,505,000 1,861,912 (8,108,000) (1,754,000) 55,179,000
Exercise of options 77,000
Conversion of Jupiter options 2,958,000
Purchase of treasury stock 270,605 (2,241,000) (2,241,000)
Issuance of treasury stock (46,000) 87,000 87,000
Issuance of preferred shares 3,250,000
Net income 2,872,000 2,872,000
Minimum pension liability adjustment,
net of taxes of $485,000 1,276,000 1,276,000
Dividends paid - common stock
($0.40 per share) (4,141,000) (4,141,000)
Dividends paid - preferred stock
($0.50 per share) (125,000) (125,000)
------------ --------- ------------ ----------- ------------
BALANCE - December 28, 1996 $ 45,111,000 2,086,517 $(10,262,000) $ (478,000) $ 59,192,000
============ ========= ============ =========== ============
</TABLE>
F-6
<PAGE> 8
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 28, 1996, SIX MONTHS ENDED DECEMBER 30, 1995,
AND FISCAL YEARS ENDED JUNE 30,1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED JUNE 30,
DECEMBER 28, DECEMBER 30, -----------------------------
1996 1995 1995 1994
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Continuing operations:
Net income (loss) from continuing operations $ 15,000 $(6,348,000) $ 6,889,000 $ 7,409,000
Adjustments to reconcile net income (loss) from
continuing operations to net cash provided
by (used in) operating activities:
Depreciation and amortization 19,715,000 8,874,000 13,766,000 10,202,000
Loss on impairment of assets 6,532,000
Provision for bad debts 245,000 791,000 89,000 151,000
(Gain) loss on disposal of fixed assets 90,000 284,000 (1,000) 4,000
Undistributed income in investments (610,000) (333,000)
Minority interest in income (loss) of consolidated
subsidiary (1,200,000) (2,510,000) 535,000
Changes in assets and liabilities, net of effect
of acquisitions:
Accounts and notes receivable 2,550,000 1,465,000 (8,928,000) (2,563,000)
Inventories (4,063,000) (5,505,000) 7,432,000 (2,244,000)
Deferred income taxes 3,893,000 (1,090,000) (777,000) (50,000)
Prepaid expenses and other assets 565,000 (1,695,000) 73,000 (566,000)
Accounts payable 4,856,000 2,896,000 (828,000) (2,157,000)
Accrued expenses (1,439,000) 104,000 (586,000) 794,000
Income taxes receivable (2,878,000) (1,593,000) (1,286,000) 168,000
Other liabilities 190,000 (4,129,000) 2,559,000 2,243,000
Other, net 96,000 127,000 27,000
------------ ----------- ------------ ------------
Total adjustments 22,524,000 4,520,000 11,565,000 5,676,000
------------ ----------- ------------ ------------
Net cash provided by (used in)
continuing operations 22,539,000 (1,828,000) 18,454,000 13,085,000
Discontinued operations:
Income (loss) from discontinued operations 4,921,000 158,000 986,000 (914,000)
Loss on disposal of discontinued operations (1,537,000)
Cash provided by discontinued operations (705,000) 3,140,000 3,106,000
Items not affecting cash, net (10,524,000) (3,420,000) (5,213,000) 914,000
------------ ----------- ------------ ------------
Net cash used in discontinued operations (7,845,000) (122,000) (1,121,000) --
------------ ----------- ------------ ------------
Net cash provided by (used in) operating
activities 14,694,000 (1,950,000) 17,333,000 13,085,000
</TABLE>
(Continued)
F-7
<PAGE> 9
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 28, 1996, SIX MONTHS ENDED DECEMBER 30, 1995,
AND FISCAL YEARS ENDED JUNE 30,1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED JUNE 30,
DECEMBER 28, DECEMBER 30, ------------------------------
1996 1995 1995 1994
<S> <C> <C> <C> <C>
INVESTING ACTIVITIES:
Continuing operations:
Additions to property, plant, and equipment $ (20,527,000) $(17,781,000) $(21,448,000) $(12,701,000)
(Decrease) increase in nonoperating accounts payable (5,899,000) 4,254,000 5,784,000 482,000
Investments:
Purchases (5,237,000) (4,578,000)
Sales 155,000
Repayments of loans by stockholders 5,383,000
Purchase of majority interest in Jupiter (37,693,000)
Purchase of T.J. Beall Company, net of cash acquired 333,000
------------- ------------ ------------ ------------
Net cash used in continuing operations (63,786,000) (13,372,000) (20,901,000) (11,414,000)
Discontinued operations:
Additions to property, plant, and equipment (291,000) (206,000) (535,000)
Proceeds from sale of investment 38,113,000
Purchase of investments (1,337,000) (307,000)
------------- ------------ ------------ ------------
Net cash provided by (used in) discontinued
operations 37,822,000 (1,543,000) (842,000)
------------- ------------ ------------ ------------
Net cash used in investing activities (25,964,000) (14,915,000) (21,743,000) (11,414,000)
FINANCING ACTIVITIES:
Continuing operations:
Principal payments of debt (112,341,000) (2,827,000) (5,086,000) (4,022,000)
Proceeds from issuance of long-term debt 160,544,000 12,437,000 13,138,000 13,325,000
Borrowings under line-of-credit agreements 4,750,000 12,450,000 (14,975,000) 11,750,000
Repayments under line-of-credit agreements (18,000,000) (6,000,000) 17,275,000 (19,250,000)
Purchase of treasury stock (2,241,000) (1,701,000) (348,000)
Proceeds from issuance of common stock 164,000 48,000 380,000
Dividends paid (4,266,000) (2,113,000) (4,132,000) (3,694,000)
Extraordinary item, loss on early
extinguishment of debt (850,000)
------------- ------------ ------------ ------------
Net cash provided by (used in) continuing
operations 27,760,000 13,947,000 4,567,000 (1,859,000)
------------- ------------ ------------ ------------
</TABLE>
(Continued)
F-8
<PAGE> 10
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 28, 1996, SIX MONTHS ENDED DECEMBER 30, 1995,
AND FISCAL YEARS ENDED JUNE 30,1995 AND 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED JUNE 30,
DECEMBER 28, DECEMBER 30, -----------------------------
1996 1995 1995 1994
<S> <C> <C> <C> <C>
Discontinued operations:
Principal payments of debt $(16,379,000)
Proceeds from issuance of long-term debt 138,000 $ 295,000 23,000
------------ ------------ ----------
Net cash provided by (used in) discontinued
operations (16,241,000) 295,000 23,000
------------ ------------ ----------
Net cash provided by (used in) financing
activities 11,519,000 14,242,000 4,590,000 $(1,859,000)
------------ ------------ ---------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 249,000 (2,623,000) 180,000 (188,000)
CASH AND CASH EQUIVALENTS:
Beginning of period 1,471,000 4,094,000 3,914,000 4,102,000
------------ ------------ ---------- -------------
End of period $ 1,720,000 $ 1,471,000 $4,094,000 $ 3,914,000
============ ============ ========== =============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $ 13,291,000 $ 4,571,000 $6,720,000 $ 2,962,000
============ ============ ========== =============
Income taxes $ 4,374,000 $ 1,315,000 $3,932,000 $ 2,908,000
============ ============ ========== =============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING INFORMATION:
The Company acquired T.J. Beall Company in exchange for preferred stock (see
Note 5) in 1996.
See notes to consolidated financial statements.
(Concluded)
F-9
<PAGE> 11
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 28, 1996, SIX MONTHS ENDED DECEMBER 30, 1995,
AND FISCAL YEARS ENDED JUNE 30, 1995 AND 1994
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Organization - The December 28, 1996 statements include the accounts of
Johnston Industries, Inc. ("Johnston" or the "Company"), its direct wholly
owned subsidiary, Johnston Industries Alabama, ("JI Alabama") and its
indirect wholly owned subsidiaries, Johnston Industries Composite
Reinforcements, Inc. ("JICR") (formerly, Tech Textiles, USA and JI
International, Inc.), T.J. Beall Company ("TJB"), and Greater Washington
Investments ("GWI"), a small business development company under the United
States Small Business Investment Act of 1958. All significant intercompany
accounts and transactions have been eliminated.
Prior to April 3, 1996, the consolidated financial statements included the
accounts of Johnston, its wholly owned subsidiaries, Southern Phenix
Textiles, Inc. ("Southern Phenix"), Opp and Micolas Mills, Inc. ("Opp and
Micolas"), and JICR, its majority owned subsidiary, Jupiter National, Inc.
("Jupiter") and Jupiter's wholly owned subsidiaries, Wellington Sears
Company ("Wellington"), Pay Telephone America, Ltd., and 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.
In June 1996, the name of Opp and Micolas was changed to JI Alabama.
Southern Phenix and Wellington were merged into JI Alabama and JICR; TJB
and GWI became subsidiaries of JI Alabama.
Operations - Johnston and its wholly owned subsidiaries are diversified
manufacturers of woven and nonwoven fabrics used principally for home
furnishings, industrial, and to a lesser extent, basic apparel,
automotive, and other textile markets. The markets for these products are
located principally throughout the continental United States.
Fiscal Year-End - Prior to December 30, 1995, Johnston had a fiscal
year-end of June 30.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Cash Equivalents - The Company classifies all highly liquid investments
with a maturity of three months or less as cash equivalents.
Inventories - The Company's inventories of finished goods,
work-in-process, and raw materials are generally stated at the lower of
cost (using the last-in, first-out cost flow assumption) ("LIFO") or
market. However, JICR's inventories and all of the Company's parts and
supplies are stated at cost determined on the first-in, first-out basis.
F-10
<PAGE> 12
Property, Plant, and Equipment - Property, plant, and equipment is stated
at cost. Depreciation and amortization are computed principally by the use
of the straight-line method over the estimated useful service lives of
20-40 years for buildings, 20 years for improvements, and 3-20 years for
machinery and equipment.
Revenue Recognition - Revenue is generally recognized as products are
shipped to customers. When customers, under the terms of specific orders,
request that the Company manufacture and invoice goods on a bill-and-hold
basis, the Company recognizes revenue based on the completion date
required in the order and actual completion of the manufacturing process,
because at that time, the customer is invoiced and title and risks of
ownership are transferred to the customer pursuant to the terms of the
sales contract. Those terms provide that merchandise invoiced and held at
any location by the Company, for whatever reason, shall be at the buyer's
risk, and the Company may charge for insurance and storage at prevailing
rates. Accounts receivable included bill-and-hold receivables of
$5,243,000 and $9,984,000 at December 28, 1996 and December 30, 1995,
respectively.
Valuation of Investments - Portfolio investments in publicly traded
entities are stated at fair value as determined by quoted market prices.
Other investments are recorded at estimated net realizable values as
determined in good faith by Jupiter's Board of Directors in 1995 and the
Company's Board of Directors in 1996. These investments are reflected as a
component of net assets of discontinued operations - Jupiter. Such
marketable securities and portfolio investments are expected to be sold by
June 30, 1997 (see Note 2). Because of the inherent uncertainty of
valuation, values for Board-valued portfolio investments may differ
significantly from the values that would have been used had a ready market
for the investments existed, and the difference could be material to the
Company's consolidated financial statements. Unrealized appreciation
(depreciation) is included as a component of income from discontinued
operations.
Gains or Losses on Securities Sold - Sales of securities are recorded on
the trade date (date the order to sell is executed). The cost of
securities sold is reported on the average cost basis for financial
statement purposes. Realized losses are recorded for securities considered
permanently impaired.
Earnings (Loss) Per Share - Earnings per share are calculated based on the
weighted average number of common and common equivalent shares outstanding
during each respective fiscal year. Loss per share for the six months
ended December 30, 1995 excluded stock options from the weighted average
number of shares outstanding due to the fact that they would be
anti-dilutive. Fully diluted earnings per share are not presented because
the difference from primary earnings per share is insignificant for all
periods presented.
Impairment of Long-Lived Assets - On July 1, 1995, the Company adopted the
provisions of Statement of Financial Accounting Standards ("SFAS") 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of." Under this method, the Company is required to
review long-lived assets and certain identifiable intangibles to be held
and used for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
December 1995, the Company recorded a write-down of $6,532,000 for an
impairment in the value of property, plant, and equipment comprised of a
Wellington manufacturing facility located in Tarboro, North Carolina
("Tarboro"). All long-lived assets to be disposed of are reported at the
lower of carrying amount or fair value less cost to sell. There was no
cumulative effect on the Company's results of operations as a result of
the adoption of SFAS 121.
F-11
<PAGE> 13
Stock-Based Compensation - SFAS 123, "Accounting for Stock-Based
Compensation," establishes financial accounting and reporting standards
for stock-based compensation plans. SFAS 123 is effective for the
Company's fiscal year ended December 28, 1996 and includes fair value
recognition provisions for stock-based compensation which are elective for
employee arrangements and required for nonemployee transactions. For the
employee arrangements, management has elected to continue with the
accounting prescribed by APB 25 and, accordingly, has disclosed net income
and earnings per share as if the fair value method of accounting defined
in SFAS 123 had been applied. There are no nonemployee arrangements.
Reclassifications - Certain prior year and prior period amounts have been
reclassified to conform to the current year presentation.
2. JUPITER NATIONAL, INC.
Historical Presentation - Prior to January 1995, the Company owned a
minority interest in Jupiter. In January 1995, the Company purchased an
additional 89,300 shares of Jupiter for approximately $2,300,000 which
increased the Company's ownership interest in the outstanding shares of
Jupiter from 49.6% at December 31, 1994 to 54.2%. As a result, Jupiter
became a consolidated, majority owned subsidiary of the Company in January
1995. Minority interest was recorded for the minority shareholders'
proportionate share of the equity and earnings (losses) of Jupiter.
The Company accounted for its investment in Jupiter using the equity
method through December 31, 1994. For the years ended June 30, 1995 and
1994, Johnston recorded equity in the changes in net assets of Jupiter of
$1,308,000 and $(161,000), respectively, which includes $513,000 and
$(1,474,000), respectively, related to the discontinued venture capital
segment.
Summarized financial information of Jupiter for year ended June 30, 1994,
which is not adjusted for discontinued operations, is as follows:
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
<S> <C>
Net sales $ 130,688,000
Operating income 5,210,000
Net income 233,000
</TABLE>
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. 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. The Company recorded goodwill of $12,447,000
which will be amortized over 20 years.
F-12
<PAGE> 14
The following represents the results of operations on a continuing and
discontinued operations basis assuming Johnston had acquired the minority
interest as of July 1, 1995:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 28, DECEMBER 30,
1996 1995
<S> <C> <C>
Net sales $ 321,883,000 $ 148,773,000
Loss from continuing operations (2,207,000) (12,950,000)
Income from discontinued operations 4,467,000 372,000
Extraordinary loss 527,000
Net income (loss) 1,733,000 (12,578,000)
Earnings per common share:
Income before extraordinary loss and
discontinued operations $ (0.21) $ (1.22)
Extraordinary loss (0.05)
Discontinued operations 0.42 0.04
------------- -------------
$ 0.16 $ (1.18)
============= =============
</TABLE>
Discontinuance of the Venture Capital Segment - In connection with the
March 28, 1996 acquisition of minority interest, the Company's management
made the decision to discontinue the venture capital investment segment of
Jupiter's operation. The segment has been accounted for as discontinued
operations in accordance with APB 30. Accordingly, the net assets of the
discontinued segment are recorded as a current asset on the consolidated
balance sheet and are expected to be disposed of by June 30, 1997.
F-13
<PAGE> 15
The components of net assets of discontinued operations at December 28,
1996 and December 30, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash and cash equivalents $ 28,000 $ 3,441,000
Marketable securities 192,000 20,592,000
Investments - at estimated fair value as
determined by Johnston's directors in
1996 and Jupiter's directors in 1995 6,140,000 14,145,000
Accounts receivable 103,000 108,000
Accrued interest receivable 501,000 719,000
Prepaid expenses and other 489,000 596,000
Deferred income taxes 2,995,000 905,000
Net property, plant, and equipment held for sale 1,143,000 2,596,000
------------ ------------
Total assets 11,591,000 43,102,000
Current maturities of long-term debt 5,000 1,736,000
Accounts payable 3,000 1,911,000
Accrued expenses 695,000 907,000
Income taxes payable 4,124,000 475,000
Other liabilities 80,000 292,000
Deferred income taxes 4,805,000
Long-term debt:
Subordinated debentures 14,500,000
Securities loans 1,540,000
Other debt 678,000 879,000
------------ ------------
678,000 16,919,000
Less current maturities (5,000) (1,736,000)
------------ ------------
Total long-term debt 673,000 15,183,000
------------ ------------
Total liabilities 5,580,000 25,309,000
------------ ------------
Net assets of discontinued operations $ 6,011,000 $ 17,793,000
============ ============
</TABLE>
The subordinated debentures outstanding at December 30, 1995 were payable
to the Small Business Administration ("SBA") and bore interest at an
effective weighted rate of 7.80%. These debentures were repaid in 1996.
At December 30, 1995, Jupiter had borrowed $1,540,000 under a brokerage
margin account with average rates of 10%. These loans were repaid in 1996.
F-14
<PAGE> 16
Income from discontinued operations of Jupiter includes the following
components:
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 28, DECEMBER 30, -------------------------
1996 1995 1995 1994
<S> <C> <C> <C> <C>
Net realized investment
portfolio gain $ 30,918,000 -- $ 777,000 --
Change in unrealized investment
portfolio gain (loss) (17,097,000) $ 3,767,000 4,431,000 --
Equity in losses (income) 201,000 156,000 567,000 $(1,474,000)
Operating costs 2,117,000 2,567,000 533,000 --
Interest expense 321,000 194,000 655,000 --
Income tax expense (benefit) 5,178,000 478,000 1,302,000 (560,000)
Minority interest (1,083,000) (214,000) (1,165,000) --
------------ ----------- ----------- -----------
Total $ 4,921,000 $ 158,000 $ 986,000 $ (914,000)
============ =========== =========== ===========
</TABLE>
For the year ended December 28, 1996, net realized investment portfolio
gain is primarily due to gains realized on the sale of the Company's
investment in EMC Corporation ("EMC"), Viasoft, Fuisz Technologies, Inc.
("Fuisz"), and Zoll Medical during the year ended December 28, 1996.
After considering the Company's plans to liquidate the Jupiter investments
and subsequent to the acquisition of minority interest, the Company wrote
down the carrying value of the investments by $5,140,000.
Investments and Valuation - At December 28, 1996, $6,140,000 of Jupiter's
investments are recorded at their estimated fair value based on estimates
by Johnston's Board of Directors after consideration of liquidation plans
and at December 30, 1995, $14,145,000 of Jupiter's investments are
recorded at their estimated fair market value based on estimates by
Jupiter's Board of Directors. Earnings (losses) related to these
investments for the year ended December 28, 1996, the six months ended
December 30, 1995, and the year ended June 30, 1995 were $(6,064,000), $0,
and $2,455,000, respectively. For the year ended June 30, 1994, $1,091,000
of the Company's equity in Jupiter's changes in net assets was derived
from net unrealized appreciation (depreciation) of investments whose
values were estimated by Jupiter's Board of Directors.
Two significant portfolio investment transactions occurred during the six
months ended December 30, 1995. First, as a result of the acquisition of
McDATA Corporation ("McDATA") by EMC on December 6, 1995, Jupiter's
investment in McDATA was converted into 564,216 shares of common stock of
EMC, of which 56,421 shares were required to be held in escrow for one
year as security for potential indemnification obligations of McDATA. As a
result, Jupiter recorded an unrealized gain of $3,863,000 in the six
months ended December 30, 1995. Second, on December 14, 1995, Fuisz
completed an underwritten public offering of its common stock at a price
of $12.00 per share. As a result of the offering, Jupiter's investment in
Fuisz was converted into 215,080 shares of Fuisz common stock, and Jupiter
recorded an unrealized gain of $593,000 in the six months ended December
30, 1995. In connection with the Fuisz offering, the Company agreed not to
dispose of its shares of Fuisz for a period of 180 days. Jupiter's
investments in EMC and Fuisz were transferred from the investments
determined by Jupiter's Board of Directors to marketable securities.
F-15
<PAGE> 17
The following summarizes the aggregate cost and market or fair value of
the portfolio investments:
<TABLE>
<CAPTION>
DECEMBER 28, 1996 DECEMBER 30, 1995
------------------------- ----------------------------
MARKET OR MARKET OR
COST FAIR VALUE COST FAIR VALUE
<S> <C> <C> <C> <C>
Marketable securities $ 113,000 $ 192,000 $ 4,059,000 $20,592,000
========== ========== =========== ===========
Portfolio investments $6,140,000 $6,140,000 $14,279,000 $14,145,000
========== ========== =========== ===========
</TABLE>
These investments are principally comprised of subordinated notes,
preferred stock, and common stock of new and developing companies.
3. STEEL FABRICATION OPERATIONS
The accompanying balance sheets at December 28, 1996 and December 30, 1995
include accruals of $8,552,000 and $9,380,000, respectively, for the
remaining costs expected to be incurred in phasing out the Company's steel
fabrication operations. These costs are principally related to health
insurance and death benefits for former employees and are stated at the
actuarially determined discounted present value. These operations were
discontinued in 1981.
In February 1994, the current operators of the facility filed a complaint
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. Based upon the
discovery that certain co-defendants had no assets or had been through
bankruptcy proceedings, the Company's management accrued $2,000,000 in the
six months ended December 30, 1995. The loss provision is included in
Other - net in the statement of operations. In addition, the Company
established a reserve in the amount of $200,000 as an estimate of
potential additional legal costs and other costs to be incurred in
connection with the defense of this matter.
This case was settled in December 1996. The total judgment against the
Company was $904,000, including prejudgment interest. There is an
associated unasserted claim for additional, as yet unspecified, damages.
At December 28, 1996, the reserve balance was $800,000, net of amounts due
under the settlement which were paid in January 1997. Although management
believes, based upon the currently available facts, that the reserve
established for this matter is reasonable, the Company's future potential
liability for response costs pursuant to the unasserted claim cannot
presently be determined.
4. RELATED PARTY TRANSACTIONS
In May 1994, Redlaw Industries, Inc. ("Redlaw"), a stockholder, became the
commissioned sales agent in Canada for sales of textile products
manufactured by the Company. The Company paid Redlaw approximately
$172,000, $76,000, and $152,000 related to Redlaw's commissioned sales
business for the year ended December 28, 1996, the six months ended
December 30, 1995, and the fiscal year ended June 30, 1995, respectively.
At December 28, 1996 and December 30, 1995, accounts receivable from
Redlaw were $318,000 and $13,000 and consigned inventory placed with
Redlaw in Canada was $426,000 and $0, respectively.
F-16
<PAGE> 18
5. ACQUISITION OF T.J. BEALL COMPANY
On March 25, 1996, the Company acquired all of the outstanding common
stock of T.J. Beall Company ("TJB"), a cotton by-products processor
located in West Point, Georgia. The TJB stock was acquired in exchange for
325,000 shares of nonvoting convertible preferred stock ("Series 1996
Preferred Stock") of the Company, which has a par value of $.01 per share
and an estimated value of $3,250,000. The Company incurred costs of
approximately $115,000 connected with the acquisition. Dividends on the
Series 1996 Preferred Stock are payable quarterly at the rate of $.125 per
share. Goodwill of $2,116,000 was recorded in connection with the
acquisition and will be amortized over 20 years. Each share of Series 1996
Preferred Stock may, at the shareholder's option, be converted into the
Company's voting common stock, par value $.10 per share (the "Common
Stock"), on a one-for-one basis on a specified time frame. One-third of
the Preferred Stock is convertible into Common Stock 12 months after
closing, an additional one-third is convertible 24 months after closing,
and the final one-third is convertible 36 months after closing. The
acquisition has been accounted for under the purchase method of
accounting. Pro forma presentation of the effects of the acquisition is
not made due to the size of the transaction.
In September 1995, Wellington entered into a financing agreement with TJB
whereby Wellington purchased and resold to TJB cotton gin by-products for
an amount not exceeding $4,000,000. Wellington's selling price, as defined
by the agreement, was cost plus 1 1/2% above Wellington's revolving debt
interest rate which was 11% at December 30, 1995. The inventory was
pledged as collateral for the receivable. At December 30, 1995, the note
receivable was $3,346,000.
6. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30,
1996 1995
<S> <C> <C>
Finished goods $30,051,000 $22,982,000
Work-in-process 9,012,000 15,595,000
Raw materials and supplies 26,457,000 14,374,000
----------- -----------
$65,520,000 $52,951,000
=========== ===========
</TABLE>
Inventories are stated at the lower of last-in, first-out cost or market.
Such inventories would have been higher by approximately $5,640,000 and
$5,674,000 at December 28, 1996 and December 30, 1995, respectively, if
the first-in, first-out cost flow assumption had been used for valuation
purposes.
7. TARBORO RESTRUCTURING
In connection with the acquisition of minority interest (Note 2), the
Company closed 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 of
the plant were completed in January 1997. The facility is currently
held-for-sale and is recorded at its estimated net realizable value.
During 1996, the Company recorded restructuring charges totaling
$4,743,000 which includes $1,619,000 related to write-downs of accounts
receivable and inventory, $705,000 for severance costs, $625,000 for
relocating production equipment, $915,000 for actual operating losses, and
$879,000 for other costs
F-17
<PAGE> 19
related to the operation. Of these restructuring costs, $1,852,000 was
recorded in the purchase accounting for Jupiter.
The plan for the closing of the Tarboro facility called for termination of
168 employees with various job descriptions at the facility. As of
December 28, 1996, 167 employees had been terminated. Through December 28,
1996, approximately $3,636,000 had been charged to the reserves for the
closing. These costs included $429,000 related to severance costs.
8. JOHNSTON INDUSTRIES COMPOSITE REINFORCEMENTS, INC.
The Company entered into a 50%/50% partnership with an English company to
establish JICR for the joint manufacture and sale of certain specialized
textile products in 1992. During September 1995, the Company began
consolidating the financial statements of JICR, as the Company purchased
the remaining 50% interest for a total cost of $655,000.
9. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30,
1996 1995
<S> <C> <C>
Land $ 1,010,000 $ 905,000
Buildings and improvements 35,940,000 27,128,000
Machinery and equipment 197,644,000 167,369,000
------------- -------------
234,594,000 195,402,000
Less accumulated depreciation and amortization (104,547,000) (85,830,000)
------------- -------------
Property, plant, and equipment - net $ 130,047,000 $ 109,572,000
============= =============
</TABLE>
10. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30,
1996 1995
<S> <C> <C>
Salaries, wages, and employee benefits $ 5,192,000 4,486,000
Pension costs 475,000 2,319,000
Taxes, other than income taxes 931,000 743,000
Interest expense 1,166,000 841,000
Current portion of estimated phase-out costs
of steel fabrication operations 2,500,000 3,000,000
Other 2,131,000 1,046,000
----------- ---------
$12,395,000 $12,435,000
=========== ===========
</TABLE>
F-18
<PAGE> 20
11. LONG-TERM FINANCING AND SHORT-TERM BORROWINGS
Long-term debt and short-term borrowings consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30,
1996 1995
<S> <C> <C>
JOHNSTON
Term loans $ 74,500,000
Line-of-credit borrowings $ 13,250,000
Revolving credit loans 73,899,000 45,000,000
Purchase money mortgage loan 1,108,000 1,174,000
------------- -------------
149,507,000 59,424,000
WELLINGTON SEARS
Revolving credit loans 27,471,000
Term loan 18,594,000
Equipment loans 4,806,000
Industrial Development Note
(net of unamortized discount) 639,000 590,000
Installment and other loans 66,000
------------- -------------
639,000 51,527,000
------------- -------------
Total 150,146,000 110,951,000
Less current maturities (6,505,000) (196,000)
------------- -------------
$ 143,641,000 $ 110,755,000
============= =============
</TABLE>
The estimated fair value of long-term debt (including current maturities)
approximates book value at December 28, 1996 and December 30, 1995.
Interest rates that are currently available to the Company for issuance of
debt with similar terms, credit characteristics, and remaining maturities
were used to estimate fair value of long-term debt.
REFINANCING
On March 28, 1996, the Company signed an agreement with a syndicate of
banks (the "Credit Agreement") to provide financing required to consummate
the merger with Jupiter to refinance certain existing indebtedness, to pay
related fees and expenses, and to finance the ongoing working capital
requirements of the Company. This agreement also provides for the
consolidation of the Company's outstanding debt.
The Credit Agreement is comprised of two term loan facilities ("A" and
"B") and a revolving credit facility. Term loan facility A is a $40
million facility with a final maturity date of March 2001. Principal is
repayable for the Company's years ending as follows: 1996 - $0, 1997 - $6
million, 1998 - $9.5 million, 1999 - $10 million, 2000 - $11.5 million,
and 2001 - $871,000. The interest rate on these borrowings is 8% at
December 28, 1996 which is based on a Base Rate, the prime commercial
lending rate, plus 1 1/4% and is subject to change at the Company's option
to a rate based on the London Interbank Offered Rate ("LIBOR") plus 2
1/2%. As of December 28, 1996, the borrowings outstanding under this
agreement were $37,871,000.
F-19
<PAGE> 21
Term loan facility B is a $40 million facility with a final maturity date
of March 2003. Principal is repayable for the Company's years ending as
follows: 1996 - $0, 1997 - $375,000, 1998-2000 - $500,000 each year, 2001
- $14,375,000, 2002 - $19,000,000, and 2003- $1,379,000. The interest rate
on these borrowings is 8.5% at December 28, 1996 based on a Base Rate, as
defined, plus 1 3/4% and is subject to change at the Company's option to a
rate based on LIBOR, plus 3%. As of December 28, 1996, the borrowings
outstanding under this agreement were $36,629,000.
The revolving credit facility provides up to $80 million in borrowings,
with a final maturity date of March 2001. Principal amounts outstanding
are due and payable at final maturity. The interest rate on these
borrowings ranges from 8% to 9.5% at December 28, 1996 which is based on a
Base Rate, as defined, plus 1 1/4%, and is subject to change at the
Company's option to a rate based on LIBOR plus 2 1/2%. Commitment fees are
payable at 1/2 of 1%, based on the unused portion of the facility until
the date of the receipt of the audited financial statements by the bank.
The Credit Agreement was amended on June 28, 1996 and February 28, 1997 to
modify certain covenants. Prior to the execution of these amendments, the
Company was in technical noncompliance with certain of its financial
covenants.
Substantially all assets are pledged as collateral for the borrowings
under these facilities. The amended Credit Agreement requires the Company
to maintain certain financial ratios and specified levels of tangible net
worth and places a limit on the Company's level of capital expenditures
and type of mergers or acquisitions. The amended 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, limits dividends and restricts investments to the
lesser of: (x) 20% of total assets of the consolidated entities, on a
fully consolidated basis, as of the date of determination thereof; (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 on 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.
In March 1996, the Company borrowed $144,028,000 under these facilities
and used a portion of such borrowings to liquidate the Johnston line of
credit borrowings and revolving credit loans, and the Wellington revolving
credit loans, term loans, and equipment loans. The interest rate as of
December 30, 1995 on the Johnston line of credit borrowings and revolving
credit loans was 8.5%. The interest rate as of December 30, 1995 on the
Wellington revolving credit loans, term loans, and equipment loans was 9
1/2%.
The following discussion relates to the Johnston, Jupiter, and Wellington
debt outstanding as of December 30, 1995 that was not refinanced by
borrowings under the Credit Agreement.
JOHNSTON
Purchase Money Mortgage Loan - In connection with the purchase of an
office building during 1994, Johnston obtained a Purchase Money Mortgage
Loan of $1,325,000. Borrowings under this loan accrue interest at the
lesser of: (1) 30-day adjustable, 60-day adjustable, or 90-day adjustable
LIBOR rate plus 2.70% or (2) the prime rate. The interest rate on this
loan was 8 1/4% at December 28, 1996. Beginning on March 31, 1994,
Johnston was obligated to make 58 consecutive quarterly payments of
principal of $21,667 plus interest, with all remaining principal and
interest due on December 31, 2007.
F-20
<PAGE> 22
The Company's office building in Columbus, Georgia is pledged as
collateral under this loan agreement.
WELLINGTON
Industrial Development Note - In October 1995, Wellington entered into an
Industrial Development Note with the County of Chambers, Alabama, the
proceeds of which were used to purchase a building. The original principal
amount is repayable in equal annual installments of $100,000 beginning
December 31, 1996 through December 31, 2004. At December 28, 1996 and
December 30, 1995, the unamortized discount on the note was $262,000 and
$310,000 (discount based on an imputed interest rate of 10%),
respectively.
Installment and Other Loans - At December 30, 1995, installment and other
loans were comprised of $66,000 borrowed to finance the construction of a
new roof on one of the Company's facilities. The principal under the roof
loan was payable in installments of $7,340 through September 1996. As of
December 28, 1996, there were no installment or other loans outstanding.
Debt Maturities - Aggregate scheduled repayments of long-term debt as of
December 28, 1996 are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
<S> <C>
1997 $ 6,505,000
1998 10,134,000
1999 10,639,000
2000 12,144,000
2001 89,294,000
Thereafter 21,430,000
------------
$150,146,000
============
</TABLE>
12. FINANCIAL INSTRUMENTS
The Company utilizes interest rate swaps to reduce the impact of changes
in interest rates on its floating rate debt. The Company does not utilize
financial instruments for trading or other speculative purposes. The
counterparties to these contractual arrangements are a group of major
financial institutions with which the Company also has other financial
relationships. The Company is exposed to credit loss in the event of
nonperformance by these counterparties. However, the Company does not
anticipate nonperformance by the other parties, and no material loss would
be expected from nonperformance by any one of such counterparties.
The swap agreements are contracts to exchange floating rate for fixed
interest payments periodically over the lives of the agreements without
the exchange of the underlying notional amounts. The notional amounts of
interest rate agreements are used to measure interest to be paid or
received and do not represent the amount of exposure to credit loss. The
differential paid or received on interest rate agreements is recognized as
an adjustment to interest expense.
F-21
<PAGE> 23
The Company has entered into swap transactions pursuant to which it has
exchanged its floating rate interest obligations on $38 million notional
principal amount for a fixed rate payment obligation of 6.705% per annum
for the three-year period beginning June 1996. The fixing of the interest
rates for these periods minimizes, in part, the Company's exposure to the
uncertainty of floating interest rates during this three-year period.
The fair values of interest rate instruments are the estimated amounts
that the Company would receive or pay to terminate the agreements at the
reporting date, taking into account current interest rates and the current
creditworthiness of the counterparties. At December 28, 1996, the Company
estimates it would have paid $114,000 to terminate the agreements.
It is estimated that the carrying value of the Company's other financial
instruments (see Note 11) approximated fair value at December 28, 1996 and
December 30, 1995.
13. OTHER LIABILITIES
Other liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30,
1996 1995
<S> <C> <C>
Long-term portion of estimated phase-out costs
of steel fabrication operations $ 6,052,000 $ 6,380,000
Additional pension liability (see Note 19) 3,121,000 5,484,000
Other 2,571,000 1,927,000
----------- -----------
$11,744,000 $13,791,000
=========== ===========
</TABLE>
14. SHAREHOLDERS' EQUITY
On November 1, 1993, the Board of Directors approved a three-for-two stock
split, whereby shareholders of record on January 4, 1994 were entitled to
one additional share of common stock for every two shares held, payable on
January 24, 1994. Stock options, treasury stock, outstanding common stock,
and per share data have been retroactively adjusted to reflect the split.
The Company issued preferred stock in 1996 in connection with the
acquisition of TJB (see Note 5).
15. STOCK OPTION PLANS
Employees' Stock Incentive Plan - Johnston has a stock incentive plan for
key employees under which Johnston may grant incentive stock options,
nonqualified stock options, stock appreciation rights, and restricted
stock. Stock appreciation rights may only be granted in conjunction with
nonqualified stock options. The maximum number of common shares which
could be issued upon exercise of options or through awards granted under
this plan is 2,358,450. Incentive stock options granted under the plan are
exercisable, on a cumulative basis, at a rate of 25% each year, beginning
one year after the date of grant. Nonqualified stock options are
exercisable beginning six months after the date of grant.
F-22
<PAGE> 24
A summary of employee stock option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED
INCENTIVE RANGE OF AVERAGE
NONQUALIFIED STOCK EXERCISE EXERCISE
OPTIONS OPTIONS TOTAL PRICES PRICE
<S> <C> <C> <C> <C> <C>
Options outstanding at June 30, 1993 477,674 4,818 482,492 $3.22 - 10.17 $6.07
Options exercised (68,924) (4,818) (73,742) 2.37 - 3.22 2.80
------- ------- ---------
Options outstanding at June 30, 1994 408,750 -- 408,750 3.22 - 10.17 6.69
Options exercised (15,000) -- (15,000) 3.22 3.22
------- ------- ---------
Options outstanding at June 30, 1995
and December 30, 1995 393,750 -- 393,750 5.55 - 10.17 6.82
Options granted 383,816 410,514 794,330 1.98 - 8.25 4.40
Options exercised -- (46,000) (46,000) 1.98 1.98
Options cancelled (63,750) (63,750) 10.17 10.17
------- ------- ---------
Options outstanding at December 28, 1996 713,816 364,514 1,078,330 1.98-8.25 4.84
======= ======= =========
Options exerciseable at December 28, 1996 567,816 364,514 932,330 1.98-8.25 4.42
======= ======= =========
Options available for grant
at December 28, 1996 534,934
=========
</TABLE>
The following table summarizes information about stock options outstanding
at December 28, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACT EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE OUTSTANDING PRICE
<S> <C> <C> <C> <C> <C>
$1.98 to $2.50 387,176 7.40 $2.11 387,176 $2.11
$3.62 123,154 7.10 3.62 123,154 3.62
$5.55 to $8.25 568,000 7.80 6.96 422,000 6.77
--------- ---- ----- ------- -----
1,078,330 7.60 $4.84 932,330 $4.42
========= ==== ===== ======= =====
</TABLE>
At December 30, 1995, 378,750 of the outstanding options were exercisable.
During 1996, the expiration date was modified on 180,000 options
previously granted to an officer of the Company.
F-23
<PAGE> 25
Jupiter Stock Option Plans - Jupiter maintained an employee stock option
plan and a director stock option plan under which options were granted to
purchase 428,220 shares of Jupiter common stock at prices ranging from
$3.62 to $28.75. At December 30, 1995, 424,109 of the options were
exercisable. In connection with Johnston's acquisition of the remaining
outstanding shares of Jupiter, these options were purchased by Johnston or
exchanged for Johnston options. An additional 510,330 Johnston options
were issued under this arrangement.
Other Stock Option Agreement - During 1991, Johnston entered into a
nonqualified stock option agreement with a director under which the
director was granted options to purchase a maximum of 22,500 shares of
Johnston's common stock, exercisable at $3.22 per share. In 1996, the
director exercised all of these options.
The estimated weighted average fair value of options granted during 1996
was $3.89 per share. The Company applies APB 25 and related
interpretations in accounting for its stock incentive plan. Accordingly,
no compensation cost has been recognized for its stock incentive plan. Had
compensation cost for the Company's stock incentive plan been determined
based on the fair value at the grant dates for awards under this plan
consistent with the method of SFAS 123, additional compensation expense of
approximately $734,000 would have been recorded. Accordingly, the
Company's net income and earnings per share for the year ended December
28, 1996 would have been reduced to the pro forma amounts indicated below:
<TABLE>
<S> <C>
Net income available to common shareholders:
As reported $ 2,747,000
Pro forma 2,013,000
Net income per common and common equivalent share:
As reported $ 0.26
Pro forma 0.19
</TABLE>
Options which are modified during the year are considered to be re-issued
options. Such modified options result in pro forma compensation expense to
the extent that the fair value of the option exceeds its intrinsic value
at the date of modification.
The fair value of options granted under the Company's stock incentive plan
during 1996 was estimated on the date of grant or modification using the
Black-Scholes option pricing model with the following weighted average
assumptions used: expected volatility of 34.45%, risk-free interest rate
of 6.24%, dividend yield of 4%, and expected lives of 5.77 years.
16. EMPLOYEE STOCK PURCHASE PLAN
On October 15, 1990, the Company adopted an employee stock purchase plan
under which eligible key employees and directors of the Company may
purchase shares of the Company's common stock through loans guaranteed by
the Company. Under the plan, as of December 28, 1996, 30 key employees and
directors currently have outstanding loans of $6,392,000 related to the
purchase of 723,000 shares of the Company's common stock. To purchase
stock, participants generally execute five-year full recourse demand
promissory notes with a third-party lender. The notes generally bear
interest only during the term of the loan, at prime plus 1/4%.
F-24
<PAGE> 26
The third-party lender has the right to recover the loan proceeds from the
participant's personal assets, including the purchased stock in the event
of default. The participants may not sell their shares until they have
made arrangements to pay off their loans with the proceeds from the sale
of the stock or by settling the loans with other personal assets. In the
event of default, the Company's exposure is limited to the amount by which
a participant's loan balance exceeds the market value of the underlying
stock less any proceeds recovered by the lender from the participant's
personal assets. As of December 28, 1996 and December 30, 1995, the market
value of the purchased stock was $5,242,000 and $7,932,000, respectively.
The Company has no obligation to repurchase the stock from the
participant.
At December 28, 1996 and December 30, 1995, the Company had guaranteed
plan participants' borrowings totaling approximately $6,392,204 and
$7,657,000, respectively. Prior to December 30, 1995, the Company had
never made any payments under the guarantee. Subsequent to December 30,
1995, the Company made a payment of approximately $198,000 to a third
party lender in connection with a default on a participant's loan. The
Company believes it will be successful in collecting the full amount from
the participant's assets including the stock.
The Company has the discretion to reimburse the participants for their
payments of interest under the plan in excess of dividends paid on the
Company's common stock in any given year. The Company treats these
payments as compensation expense and income to the participants.
Compensation expense relating to interest payments under the plan was
$276,000, $154,000, $226,000, and $70,000 for the year ended December 28,
1996, the six months ended December 30, 1995, and the two years ended June
30, 1995 and 1994, respectively.
17. INCOME TAXES
The provision (benefit) for income taxes is comprised of the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 28, DECEMBER 30, --------------------------
1996 1995 1995 1994
<S> <C> <C> <C> <C>
Federal:
Current $ 5,799,000 $ 56,000 2,834,000 2,604,000
Deferred (4,514,000) (5,837,000) 3,276,000 810,000
----------- ----------- --------- ---------
1,285,000 (5,781,000) 6,110,000 3,414,000
State:
Current 173,000 (85,000) 552,000 689,000
Deferred 90,000 (480,000) 421,000 (39,000)
----------- ----------- --------- ---------
263,000 (565,000) 973,000 650,000
----------- ----------- --------- ---------
Provision (benefit) for
income taxes $ 1,548,000 $(6,346,000) 7,083,000 4,064,000
Components of provision (benefit)
for income taxes:
Continuing operations $ (460,000) $(6,824,000) 4,963,000 4,624,000
Discontinued operations 2,331,000 478,000 2,120,000 (560,000)
Extraordinary loss (323,000)
----------- ----------- --------- ---------
$ 1,548,000 $(6,346,000) 7,083,000 4,064,000
=========== =========== ========= =========
</TABLE>
F-25
<PAGE> 27
The significant components of deferred income tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
DECEMBER 28, 1996 DECEMBER 30, 1995
<S> <C> <C>
Deferred tax assets:
Estimated phase-out
costs of steel fabrication
operations $ 3,134,000 $ 3,561,000
Unrealized depreciation -
investments 2,153,000
Alternative minimum tax 1,418,000 4,406,000
Additional pension
liabilities 547,000 1,073,000
Other - net 1,416,000 3,254,000
------------ -----------
8,668,000 12,294,000
Deferred tax liabilities:
Property, plant, and
equipment (14,192,000) (8,416,000)
Inventories (3,225,000) (2,114,000)
Unrealized appreciation -
investments (6,232,000)
Investments - at equity (in
consolidated affiliates) (1,827,000)
------------ -----------
(17,417,000) (18,589,000)
------------ -----------
Net deferred tax
liability $ (8,749,000) $(6,295,000)
============ ===========
</TABLE>
<TABLE>
<CAPTION>
DISCONTINUED CONTINUING DISCONTINUED CONTINUING
OPERATIONS OPERATIONS OPERATIONS OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Components of net deferred
tax asset (liability):
Net current deferred tax
asset (liability) $2,268,000 $2,995,000 $ (727,000) $(4,320,000) $(5,239,000) $ 919,000
Net long-term deferred
tax liability (11,017,000) (11,017,000) (1,975,000) 1,339,000 (3,314,000)
----------- ---------- ------------ ----------- ----------- -----------
$(8,749,000) $2,995,000 $(11,744,000) $(6,295,000) $(3,900,000) $(2,395,000)
=========== ========== ============ =========== =========== ===========
</TABLE>
Net deferred tax liabilities are classified in the financial statements as
current or long-term depending upon the classification of the temporary
difference to which they relate. Management believes it is more likely
than not that future taxable income will be sufficient to realize fully
the benefits of deferred tax assets.
The reconciliation of the Company's effective income tax rate to the
federal statutory rate of 34% follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 28, DECEMBER 30 -----------------------
1996 1995 1995 1994
<S> <C> <C> <C> <C>
Federal income taxes at statutory rate $ 1,146,000 $(5,042,000) $5,664,000 $3,590,000
State income taxes, net of federal tax benefit 173,000 (359,000) 746,000 429,000
Equity in income of majority owned subsidiary (942,000) 607,000
Other, net 229,000 (3,000) 66,000 45,000
----------- ----------- ---------- ----------
$ 1,548,000 $(6,346,000) $7,083,000 $4,064,000
=========== =========== ========== ==========
</TABLE>
F-26
<PAGE> 28
At December 28, 1996 and December 30, 1995, the Company has alternative
minimum tax credit carryforwards of approximately $1,418,000 and
$4,406,000, respectively, which have been used as a basis for recording
tax assets and are included in the long-term deferred taxes payable
account.
18. COMMITMENTS AND CONTINGENCIES
Litigation - Jupiter's purchase of the assets of Polylok which represents
Tarboro resulted in significant litigation among Jupiter, Wellington,
Polylok, and Daniel Duhl ("Duhl"), Polylok's principal shareholder. On
October 25, 1995, approximately $541,000 was placed in an escrow account
to settle these claims. On January 5, 1996, the parties reached a
settlement for this case whereby Duhl received $296,000 from an escrow
account.
Lease Commitments - Rent expense under operating leases covering
production equipment and office facilities was approximately $1,228,046
for the year ended December 28, 1996, $542,000 for the six months ended
December 30, 1995, and $791,000 and $785,000 for the years ended June 30,
1995 and 1994, respectively.
At December 28, 1996, the Company is committed to pay the following
minimum rental payments on noncancellable operating leases:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 30, AMOUNT
<S> <C>
1997 $ 825,000
1998 464,000
1999 214,000
2000 199,000
2001 81,000
Thereafter 28,000
----------
$1,811,000
==========
</TABLE>
Other Commitments - The Company has employment contracts with certain of
its employees extending through 1998 aggregating approximately $1,699,000.
As of December 28, 1996, the Company has purchased commitments with terms
in excess of one year with several vendors to buy inventory totaling
approximately $7,895,000.
The Company also has capital commitments with terms extending over one
year as of December 28, 1996 with several vendors for the purchase of
machinery and equipment aggregating approximately $4,912,000.
General - The Company is periodically involved in legal proceedings
arising out of the ordinary conduct of its business. Management does not
expect that they will have a material adverse effect on the Company's
consolidated financial position or results of operations.
F-27
<PAGE> 29
19. EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plans - Johnston has two noncontributory qualified
defined benefit pension plans covering substantially all hourly and
salaried employees. The plan covering salaried employees provides benefit
payments based on years of service and the employees' final average ten
years' earnings. The plan covering hourly employees generally provides
benefits of stated amounts for each year of service. Johnston's current
policy is to fund retirement plans in an amount that falls between the
minimum contribution required by ERISA and the maximum tax deductible
contribution. Plan assets consist primarily of government and agency
obligations, corporate bonds, common stocks, mutual funds, cash
equivalents, and unallocated insurance contracts.
Effective July 1, 1995, Johnston adopted a noncontributory, nonqualified
defined benefit plan covering the five senior executives of Johnston
("SRP") designed to provide supplemental retirement benefits.
The provisions of SFAS 87, "Employers' Accounting for Pensions," require
recognition in the balance sheet of an additional minimum liability and
related intangible asset for pension plans with accumulated benefits in
excess of plan assets. At December 28, 1996 and December 30, 1995, an
additional liability of $2,549,000 and $5,429,000, respectively, is
recorded in the consolidated balance sheets. At December 28, 1996 and
December 30, 1995, the liability exceeded the unrecognized prior service
cost resulting in a minimum pension liability, net of taxes, of $478,000
and $1,754,000, respectively, recorded as a reduction of the Company's
equity.
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 28, DECEMBER 30, --------------------------
1996 1995 1995 1994
<S> <C> <C> <C> <C>
Service cost $ 1,234,150 $ 564,000 $ 953,000 $ 1,010,000
Interest cost 2,255,119 1,056,000 1,999,000 1,829,000
Actual (return) loss on assets (2,695,923) (1,731,000) (2,460,000) 395,000
Net amortization and deferral 1,655,572 1,347,000 1,850,000 (1,029,000)
----------- ----------- ----------- -----------
Net periodic pension cost $ 2,448,918 $ 1,236,000 $ 2,342,000 $ 2,205,000
=========== =========== =========== ===========
</TABLE>
F-28
<PAGE> 30
The following sets forth the funded status of the plans:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30,
1996 1995
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 28,723,000 $ 27,460,000
Nonvested benefit obligation 206,000 629,000
------------ ------------
Accumulated benefit obligation $ 28,929,000 $ 28,089,000
============ ============
Projected benefit obligation $ 30,833,000 $ 30,273,000
Plan assets at fair value 26,044,000 21,062,000
------------ ------------
Projected benefit obligation in
excess of plan assets $ 4,789,000 $ 9,211,000
============ ============
Unrecognized prior service cost $ 691,000 $ 902,000
Unrecognized net loss 2,507,000 4,794,000
Unrecognized net liability at date
of initial adoption 1,638,000 1,935,000
Pension liability recognized (47,000) 1,580,000
------------ ------------
Total $ 4,789,000 $ 9,211,000
============ ============
</TABLE>
For the salaried and hourly plans, the weighted average discount rate used
in determining the projected benefit obligation was 8.0% for the year
ended December 28, 1996, 7.5% for the six months ended December 30, 1995,
and the rate of increase in future compensation levels was graded by age
from 7.50% to an ultimate rate of 4.0% for the year ended December 28,
1996 and for six months ended December 30, 1995. The expected long-term
rate of return on plan assets was 8.0% for the year ended December 28,
1996 and 8% for the six months ended December 30, 1995 and both plans.
For the year ended December 28, 1996 and the six months ended December 30,
1995, the weighted average discount rate used in determining the projected
benefit obligation for the SRP was 8.0% and 7.50%, respectively, and the
rate of increase in future compensation levels was graded by age from
7.50% to 4.0% for the year ended December 28, 1996 and for the six months
ended December 30, 1995. This plan has no assets; therefore, there is no
applicable long-term rate of return.
Defined Contribution Plans - Through December 31, 1994, Jupiter maintained
a defined contribution employee pension plan for substantially all
employees to which it made annual contributions of 10% of compensation,
subject to a $30,000 individual annual limitation. A portion of the plan's
assets was invested in Jupiter's common stock. At June 30, 1995, 7,554
Jupiter shares were owned by the plan. During August 1995, Jupiter
received a favorable determination letter from the Internal Revenue
Service to terminate the plan effective December 31, 1994. Accordingly,
the plan assets were distributed to the participants during August 1995.
F-29
<PAGE> 31
Wellington has a defined contribution savings plan that covers
substantially all full-time Wellington employees who qualify as to age and
length of service. Wellington may make discretionary contributions to the
plan. Wellington made contributions of $274,000, $154,000, and $286,000
for year ended December 28, 1996, the six months ended December 30, 1995,
and for the year ended June 30, 1995, respectively.
20. MAJOR CUSTOMERS
Net sales to a major customer of the Company comprised 11% of net sales
for the year ended June 30, 1994. There were no net sales to a major
customer which exceeded 10% of net sales for the year ended December 28,
1996, the six months ended December 30, 1995 and the year ended June 30,
1995.
21. TRUST AGREEMENTS
During 1991 and 1993, the Company entered into trust agreements with
officers to transfer assets to trusts in lieu of paying annual bonuses and
consulting fees. These trust assets, which are included in "Other Assets"
on the consolidated balance sheets and are recorded at the fair market
value of the underlying assets, include corporate stocks including equity
securities of affiliated companies, corporate bonds including debt
securities of affiliated companies, and short-term investments. The
compensation to the officers is determined in accordance with the
employment agreements. Upon termination of the officers' employment with
the Company, the trust assets will be distributed to the officers. If the
Company becomes insolvent at any time before the assets of the trust are
distributed to the officers, the trust assets may be used to satisfy the
claims of the Company's creditors. As of December 28, 1996 and December
30, 1995, the trust assets and corresponding liabilities, which are
included in "Other Liabilities" on the consolidated balance sheets, each
totaled $1,609,000 and $1,269,000, respectively.
22. COMPARATIVE FINANCIAL INFORMATION
As discussed in Note 1, on September 22, 1995, the Company elected to
change its year-end from June 30 to a variable period ending on the
Saturday nearest to December 31, resulting in a six-month transitional
period which ended December 30, 1995.
F-30
<PAGE> 32
The following information is presented for comparative purposes against
the transitional period and the new calendar year reporting period:
<TABLE>
<CAPTION>
SIX MONTHS
TWELVE MONTHS ENDED
DECEMBER 30, 1995 DECEMBER 31, 1994
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales $ 326,082,000 $ 84,970,000
Cost of sales 272,202,000 65,118,000
Selling, general, and administrative expenses 28,682,000 6,766,000
Depreciation and amortization 16,995,000 5,645,000
Loss on impairment of assets 6,532,000
Income from continuing operations 1,671,000 7,441,000
(Loss) income before provision (benefit) for
income taxes and minority interest (9,543,000) 6,248,000
Benefit (provision) for income taxes 4,231,000 (2,370,000)
Minority interest in loss of subsidiary 1,975,000
Income from discontinued operations 826,000 318,000
Net (loss) income applicable to common stock (2,511,000) 4,196,000
</TABLE>
F-31
<PAGE> 33
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING CHARGED TO OTHER BALANCE AT
DESCRIPTION OF PERIOD OPERATIONS ACCOUNTS DEDUCTIONS END OF YEAR
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year ended December 28, 1996 $1,772,000 $ 245,000 $ -- $ (638,000) $1,379,000
========== ========== ========== ========== ==========
Six months ended December 30, 1995 $1,113,000 $ 791,000 $ 45,000 (3) $ (177,000)(1) $1,772,000
========== ========== ========== ========== ==========
Fiscal year ended June 30, 1995 $ 368,000 $ 89,000 $ 838,000 (2) $ (182,000)(1) $1,113,000
========== ========== ========== ========== ==========
Fiscal year ended June 30, 1994 $ 314,000 $ 151,000 $ -- $ (97,000)(1) $ 368,000
========== ========== ========== ========== ==========
</TABLE>
(1) Amounts written off, net of recoveries.
(2) Additional amount added during the year is from the consolidation of Jupiter
in January 1995 representing the balance at the date of consolidation.
(3) Additional amount added during the year is from the purchase of the 50%
partnership interest from Tech Textiles Limited in September.
S-1
<PAGE> 1
EXHIBIT 13(b)
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 13(B) - QUARTERLY INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summarizes the unaudited quarterly results of operations for the
year ended December 28, 1996, the six months ended December 30, 1995 and the
year ended June 30, 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
FISCAL YEAR 1996 MARCH 30 JUNE 29 SEPT. 28 DEC. 28
- ---------------- -------- --------- --------- -------
<S> <C> <C> <C> <C>
Net Sales 84,030 81,743 77,071 79,039
Gross Margin 15,273 14,233 14,557 12,138
Income (Loss) from Continuing Operations 1,279 (94) (273) (897)
Income (Loss) from Discontinued Operations 969 2,441 (878) 852
Extraordinary Loss 527 -- -- --
Net Income (Loss) 1,721 2,347 (1,151) (45)
Dividends on Preferred Stock (2) (41) (41) (41)
Net Earnings (Loss) available to Common Stockholders 1,719 2,306 (1,192) (86)
Earnings per Common Share:
Income (Loss) from Continuing Operations .12 (.01) (.03) (.09)
Discontinued Operations .09 .22 (.09) .08
Extraordinary Loss (.05) -- -- .--
Net Earnings (Loss) per Common Share .16 .21 (.12) (.01)
Weighted Average Shares Outstanding 10,642 10,731 10,363 10,363
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
TRANSITION PERIOD 1995 (1) SEPT. 30 DEC. 30
- -------------------------- -------- -------
<S> <C> <C>
Net Sales 72,893 75,880
Gross Margin 10,859 9,625
Income (Loss) from Continuing Operations (1,494) (4,854)
Income (Loss) from Discontinued Operations (368) 526
Extraordinary Loss -- --
Net Income (Loss) (1,862) (4,328)
Dividends on Preferred Stock -- --
Net Earnings (Loss) available to Common Stockholders -- --
Earnings per Common Share:
Income (Loss) from Continuing Operations (.14) (.46)
Discontinued Operations (.04) .05
Extraordinary Loss -- --
Net Earnings (Loss) per Common Share (.18) (.41)
Weighted Average Shares Outstanding 10,565 10,565
</TABLE>
<PAGE> 2
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 13(B) - QUARTERLY INFORMATION (UNAUDITED) CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
FISCAL YEAR 1995 SEPT. 30 DEC. 30 MARCH 31 JUNE 30
- ---------------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
Net Sales 40,773 44,197 90,536 86,773
Gross Margin 9,815 10,037 17,991 15,405
Income (Loss) from Continuing Operations 1,715 2,163 2,591 420
Income (Loss) from Discontinued Operations (33) 351 42 626
Extraordinary Loss -- -- -- --
Net Income (Loss) 1,682 2,514 2,633 1,046
Dividends on Preferred Stock -- -- -- --
Net Earnings (Loss) available to Common Stockholders -- -- -- --
Earnings per Common Share
Income (Loss) from Continuing Operations .16 .21 .24 .04
Discontinued Operations -- .03 .01 .06
Extraordinary Loss -- -- -- --
Net Earnings (Loss) per Common Share .16 .24 .25 .10
Weighted Average Shares Outstanding 10,766 10,687 10,682 10,654
</TABLE>
- --------------------------------------------------------------------------------
(1) Effective September 1995, Johnston's year end closing date was changed to
the Saturday closest to December 31. Therefore, Johnston's transition
period 1995 ended on December 30, 1995.
(2) Restated to reflect the equity in earnings of Jupiter National, Inc. on
an operating company basis effective December 1994.
Note: See Notes 2, 3 and 7 of the consolidated financial statements and
Management's Discussion and Analysis of Financial Condition and Results
of Operations for discussion of certain transactions impacting the six
months ended December 30, 1995 and the year ended December 28, 1996.
<PAGE> 1
EXHIBIT 21
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 21 - LIST OF SUBSIDIARIES OF JOHNSTON INDUSTRIES, INC.
1. Johnston Industries Alabama, Inc.
State of Incorporation: Alabama
2. Johnston Industries Composite Reinforcements, Inc.
State of Incorporation: Alabama
3. T.J. Beall Company
State of Incorporation: Georgia
4. Greater Washington Investments, Inc.
State of Incorporation: Delaware
- --------------------------------------------------------------------------------
<PAGE> 1
- --------------------------------------------------------------------------------
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
Johnston Industries, Inc.:
We consent to the incorporation by reference in Registration Statements No.
33-86414, No. 33-38359, No. 33-44669, No. 33-50100, and No. 33-73268 of
Johnston Industries, Inc. (the "Company") on Form S-8 of our report dated March
14, 1997 appearing in the Annual Report on Form 10-K of the Company for the
year ended December 28, 1996.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Atlanta, Georgia
April 9, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.1
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHNSTON
INDUSTRIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS AS OF DECEMBER 28, 1996
AND FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 1,720,000
<SECURITIES> 0
<RECEIVABLES> 38,507,000
<ALLOWANCES> 1,379,000
<INVENTORY> 65,520,000
<CURRENT-ASSETS> 120,681,000
<PP&E> 234,594,000
<DEPRECIATION> 104,547,000
<TOTAL-ASSETS> 271,630,000
<CURRENT-LIABILITIES> 46,036,000
<BONDS> 143,641,000
0
3,000
<COMMON> 1,250,000
<OTHER-SE> 57,939,000
<TOTAL-LIABILITY-AND-EQUITY> 271,630,000
<SALES> 321,883,000
<TOTAL-REVENUES> 321,883,000
<CGS> 265,682,000
<TOTAL-COSTS> 313,201,000
<OTHER-EXPENSES> 22,606,000
<LOSS-PROVISION> 245,000
<INTEREST-EXPENSE> 11,157,000
<INCOME-PRETAX> (1,645,000)
<INCOME-TAX> (460,000)
<INCOME-CONTINUING> 15,000
<DISCONTINUED> 3,384,000
<EXTRAORDINARY> 527,000
<CHANGES> 0
<NET-INCOME> 2,872,000
<EPS-PRIMARY> .26
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.2
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHNSTON
INDUSTRIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS AS OF DECEMBER 30, 1995
AND FOR THE SIX MONTHS THEN ENDED IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> DEC-30-1995
<CASH> 1,471,000
<SECURITIES> 0
<RECEIVABLES> 43,990,000
<ALLOWANCES> 1,772,000
<INVENTORY> 52,951,000
<CURRENT-ASSETS> 122,887,000
<PP&E> 195,402,000
<DEPRECIATION> 85,830,000
<TOTAL-ASSETS> 240,539,000
<CURRENT-LIABILITIES> 39,532,000
<BONDS> 110,755,000
0
0
<COMMON> 1,243,000
<OTHER-SE> 53,936,000
<TOTAL-LIABILITY-AND-EQUITY> 240,539,000
<SALES> 148,773,000
<TOTAL-REVENUES> 148,773,000
<CGS> 128,289,000
<TOTAL-COSTS> 158,840,000
<OTHER-EXPENSES> 15,406,000
<LOSS-PROVISION> 799,000
<INTEREST-EXPENSE> 1,405,000
<INCOME-PRETAX> (15,682,000)
<INCOME-TAX> (6,824,000)
<INCOME-CONTINUING> (6,348,000)
<DISCONTINUED> 158,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,190,000)
<EPS-PRIMARY> (.59)
<EPS-DILUTED> 0
</TABLE>
