<PAGE> 1
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 29, 1996 to January 3, 1998
----------------------------------------------------------------------
Commission file number 1-6687
------
JOHNSTON INDUSTRIES, INC.
-------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 11-1749980
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
105 Thirteenth Street, Columbus, Georgia 31901
(Address of principal executive offices) (Zip Code)
(706) 641-3140
--------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, $.10 Par Value New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
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 20, 1998 was $33,267,690. The
aggregate market value was computed by reference to the closing price of the
stock on the New York Stock Exchange on such date.
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 5,487,454 shares at March 20, 1998.
<PAGE> 2
The number of shares outstanding of the Registrant's Common Stock as of March
20, 1998 was 10,742,772 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
The Registrant's Proxy Statement for its 1998 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.
2
<PAGE> 3
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.), J. I. Georgia, Inc. (formerly 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").
The Company is a leading designer, manufacturer and marketer of
finished and unfinished (greige) cotton, synthetic and blended fabrics used in a
broad range of industrial and consumer applications. The Company's fabric
products are sold to a number of "niche" markets, including segments of the home
furnishings, hospitality, industrial, automotive and specialty markets.
Management believes that it is one of the largest domestic manufacturers of
fabrics used for upholstery backing, automotive belts and hoses, and abrasive
applications. In addition, the Company reprocesses and markets waste textile
fiber and off-quality fabrics for sale to a broad range of specialty markets.
The Company also manufactures fabrics used in engineered composite materials
serving primarily the recreation and construction markets.
The Company conducts its operations through four business units: (i)
the Greige Fabrics Division, (ii) the Finished Fabrics Division, (iii) the Fiber
Products Division, and (iv) Johnston Industries Composite Reinforcements
("JICR") as follows:
Greige Fabrics Division. The Greige Fabrics Division manufactures
cotton, synthetic and poly-cotton (blended) unfinished (unbleached, undyed)
fabric. The Greige Fabrics product line includes upholstery backing manufactured
for the home furnishings market, decorative and print base unfinished goods
(upholstery, window treatment and bedding) for the home furnishings and
hospitality markets and fabric used in a variety of products manufactured for
such automotive and industrial applications as belts, hosing and abrasives. This
division's diversified product line and range of markets to which it sells
enables it to mitigate the effects of a downturn in any single market. This
division's competitive strengths include its (i) long standing relationships
with key customers, (ii) proven product quality as evidenced by numerous
"Supplier of the Year" and "Preferred Supplier" designations awarded by its
customers, (iii) high level of operating efficiency and flexibility resulting
from significant capital investment which enables this unit to foster innovative
new products and to respond quickly to changing market demands while minimizing
manufacturing overheads and (iv) ability to target traditionally more stable
markets which have been served by domestic fabric manufacturers such as the
industrial and home furnishings markets.
Finished Fabrics Division. The Finished Fabrics Division is a
vertically integrated manufacturer of finished producing primarily
synthetic finished fabrics (dyed, treated or coated) fabrics through the
application of value-added dyeing and finishing processes to greige fabrics
manufactured by this division. The vertically integrated nature of this division
offers the potential for significant cost savings, allowing the spinning,
weaving, dyeing, and finishing of fabric in one facility. The Finished Fabrics
product line includes finished upholstery fabrics manufactured for the
mid-priced home furnishings market, the contract seating (i.e., stadium and
theater) market and the outdoor decorative (lawn and patio furniture) upholstery
market, premium napery (table linen products) for the home and hospitality
markets, print cloth for the home and hospitality (top of the bed) markets and
coated industrial (filtration and
3
<PAGE> 4
bagging) markets and automotive (seating components, speaker covers, and lining)
products. This unit's competitive strengths include its (i) state-of-the-art air
jet spinning, yarn dyeing, cloth dyeing and finishing applications and
wide-width weaving capability on its dobby looms, (ii) vertically integrated
structure which enables the Company to provide a diverse product offering with
shorter lead times, allowing the Company to adapt rapidly to changes in customer
preferences and (iii) focus on traditionally more stable markets which have been
served by domestic textile manufacturers such as the industrial and home
furnishings segments.
Fiber Products Division. The Fiber Products Division reprocesses and
markets waste textile fiber and off-quality fabrics converting millions of
pounds of waste, which might otherwise be sent to landfills, into raw materials
that can be recycled in the textile manufacturing process or used as a low cost
substitute in a wide range of consumer and industrial applications. The
applications include padding (used in a variety of applications from mattresses
to sound proofing in automobiles), clean and reprocessed fiber reintroduced into
the textile yarn manufacturing process, wiper cloth and reworked off-quality
textile products, such as towels and sheets. This unit's competitive strengths
include its (i) position as the only captive fiber reprocessing facility of its
size of a domestic textile product manufacturer and (ii) focus on the higher
margin bedding and absorbent cotton market segments.
JI Composite Reinforcements. JICR produces a variety of non-crimp
multi-axial fabrics from fiberglass, carbon and aramid fibers, which are sold to
specialty markets. JICR's products are used in engineered composite materials to
replace traditional fiberglass and metal components when superior performance or
specific weight characteristics are required. JICR serves the recreation market
with materials used in skis, snowboards, hockey sticks and sailing and power
yachts and the construction markets with materials used in utility and lighting
poles, bridges, oil well platforms and infrastructure rehabilitation projects,
such as structural bridge column repair, utility pole repair and pipe
rehabilitation.
In order to maintain its leadership position in the evolving textile
industry and to continually improve customer service, the Company has invested
from fiscal 1991 to fiscal 1997 approximately $121 million to upgrade, modernize
and expand plant operations and reduce production bottlenecks, establishing
state-of-the-art vertically integrated, flexible manufacturing capabilities with
low cost structures. The Company's Greige Fabrics operations are highly flexible
as many of its current fabrics may be produced at any of its three manufacturing
facilities. This division allocates such production to its facilities based on
the technological features of the equipment needed, available capacity and to
maximize throughput efficiency. In addition to producing fabric in a greige
state or a variety of finished states, the Company can produce fabrics in a
broad range of widths, including 125 inch width jacquard fabric which the
Company believes only one other manufacturer can provide.
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.
RECENT HISTORY AND DEVELOPMENTS
The Company was incorporated in 1987 as a successor to a New York
corporation of the same name formed in 1948. The Company's principal offices are
located at 105 Thirteenth Street, Columbus, Georgia 31901, telephone number
(706) 641-3140.
Prior to March 1996, the Company conducted its operations through its
wholly owned subsidiaries, Opp and Micolas, Southern Phenix, Johnston Industries
Composite Reinforcements, Inc., and one majority-owned subsidiary, Jupiter. Each
of the four business units operated with a great deal of autonomy. During this
time, Southern Phenix, and, to a lesser degree, Opp and Micolas, enjoyed
long-standing reputations as innovative textile manufacturers serving niche
markets.
In 1987, the Company acquired a 28.4% interest in Jupiter, a publicly
traded company engaged in venture capital investments. Over time, and as Jupiter
invested in textile operations, the Company gradually increased its ownership
until it reached 54.2% in January, 1995. On March 28, 1996, the
4
<PAGE> 5
Company acquired the outstanding minority interest of Jupiter for a total
purchase consideration of $45.9 million dollars, funded substantially from new
bank borrowings. Also in March 1996, the Company acquired the T.J. Beall Company
("T.J. Beall"), a specialized textile waste broker, for a combination of
preferred stock and the conversion of certain outstanding indebtedness from T.J.
Beall into intercompany obligations. In connection with these acquisitions, the
Company's organizational structure was altered centralizing the sales and
marketing functions for all units at the corporate level and removing much of
the control over operations from unit level managers. However, the Company did
not consolidate the basic administrative functions, such as accounting and
management information services of the acquired operations.
Subsequently, the Company determined that the organizational changes
introduced upon the acquisition of Jupiter, together with the failure to take
appropriate measures to consolidate overlapping administrative functions,
contributed to disappointing operating performance from certain of the Company's
textile operations including T.J. Beall. These factors, along with delays and
shortfalls in liquidating the venture capital portfolio of Jupiter, adversely
restricted the Company's liquidity and its ability to successfully capitalize on
the opportunities created by the acquisitions.
In order to reinvigorate entrepreneurial spirit and bottom line
accountability among the Company's employees, the Company realigned its
operations into its four current business units during 1997 (the "1997
Realignment") and established measures to achieve substantial cost reductions,
principally through the elimination of redundant administrative functions and
the divestiture of unprofitable operations. The new structure aligns sales,
marketing, production and administration by product-oriented operating
divisions, with the Company's corporate headquarters coordinating strategies,
finance and capital allocations and identifying and capitalizing on synergistic
opportunities among the units. Significant elements of the 1997 Realignment,
many components of which are substantially complete include:
- - Reinstitute Divisional Accountability. The new management team
determined that the 1996 centralization of the sales and marketing
forces of the Company and the transfer of key operational management
from the Company's business units to corporate headquarters blurred
profit and managerial responsibility at the divisional level.
Operational and sales management have now been reassigned to the
business units, with each unit having a president responsible for
delivering business unit profits.
- - Reduce Operating Costs. In Fiscal 1997, the Company consolidated or
sold unprofitable, non-core operations and assets acquired in the
Jupiter and T.J. Beall acquisitions. In addition, management decreased
the Company's number of business units from five to four and reduced
divisional general and administrative staffs; redistributed products at
each facility; centralized certain support functions such as management
information services; and simplified the manufacturing process by
redesigning certain Finished Fabrics product lines. To date, this
program has eliminated 325 jobs (primarily in the third and fourth
quarters of fiscal 1997) without impairing the quality of the Company's
products or sacrificing profitable sales. This reduction in headcount
is anticipated to result in approximately $15 million in annual
personnel expense savings commencing in the second quarter of fiscal
1998.
- - Improve Management Information Systems. The Company is currently
installing an integrated procurement, inventory, manufacturing
management and customer order system at the Finished Fabrics Division
and is re-engineering many of the associated business processes around
this system. When this project is completed, management believes its
access to divisional information and key decision-making tools will be
significantly enhanced and many computer processes will be streamlined.
The system is expected to be fully operational by the third quarter of
fiscal 1998.
- - Improve Product Line Management. During 1997, management focused
considerable attention and resources on improving product line
profitability and identifying opportunities to strengthen its market
position in its key niche markets. As a result, the Company is
strategically exiting certain product lines or elements of product
lines, and has successfully obtained price increases for other lines.
Product line profitability has also been enhanced by significant cost
savings,
5
<PAGE> 6
including negotiating lower brokerage commissions and better management
of sample production and product design parameters.
On September 29, 1997 and in conjunction with the 1997 Realignment, the
Company's management reached an agreement to sell the assets of T.J. Beall to a
member of the Beall family. The sale was executed for consideration including
surrender of the Series 1996 Preferred Stock, which had been issued as part of
the purchase consideration of the T.J. Beall Acquisition, and execution of a
promissory note in the amount of $1,500,000 payable in annual installments over
5 years. This divestiture eliminated an operation which had been unprofitable
during the Company's brief ownership and also eliminated large cyclical cash
requirements inherent in the gin mote business.
THIS REPORT CONTAINS CERTAIN FORWARD LOOKING INFORMATION AND
DISCUSSION HEREIN OF ASPECTS OF THE COMPANY'S BUSINESS AND PROPERTIES AND 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 1998, 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 3,500 customers with
net sales to the single largest customer accounting for 6%, 5%, 6%, and 11% of
total sales for the fiscal years ended January 3, 1998 and December 28, 1996,
the six months ended December 30, 1995, and the fiscal year ended June 30, 1995.
The Company traditionally manufactures approximately 75% of its
production against firm orders with finishing, packaging and other
specifications generally determined by its customers. At January 3, 1998, the
Company's backlog of orders was approximately $69,447,000 compared to
$88,462,000 at December 28, 1996, $69,559,000 at December 30, 1995, and
$63,320,000 at June 30, 1995. Historically, the Company's backlog of orders is
completed and realized as sales in approximately 2 1/2 months.
The decrease in backlog of orders at year end resulted largely from the
sale of T.J. Beall in September 1997. T.J. Beall, which had been purchased in
March 1996, had open orders totaling $16,287,000 at December 28, 1996. To a
lesser degree, open orders at year end also declined as a result of the
Company's discontinuing certain unprofitable window covering products late in
1997 plus the Company's exit of its sales yarn business at the Langdale facility
where manufacturing activities ceased in the fourth quarter of 1997. Although no
assurances can be given, management believes that based on current order
activity, backlogs will strengthen moderately during the first quarter of 1998.
For the year ended January 3, 1998, the Company's production facilities operated
at approximately 71% of normal aggregate capacity. Management believes the
Company's production capability is sufficient to accommodate existing and new
production orders.
PRODUCTS
The Company's Finished Fabrics and Greige Fabrics Divisions provide
products for the home and hospitality, automotive and industrial segments of the
textile industry, as well as a variety of miscellaneous products. The home,
hospitality and industrial products manufactured by the Finished Fabrics and
Greige Fabrics Divisions include a variety of woven and non-woven fabrics,
including some proprietary applications. Such products include all cotton
fabrics, cotton/polyester blended fabrics, all polyester fabrics and other
products manufactured from blends and various synthetic and natural fibers. The
finished fabrics manufactured for these market segments include woven and
printed upholstery fabrics for indoor and outdoor use, ticking and filler cloth
for mattresses, finished premium napery (table linens) and coated, rubber goods,
filtration, scrim, bagging and footwear fabrics. The Greige Fabrics Division
manufactures upholstery backing, top of the bed fabrics, decorative and print
base unfinished goods, window and napery
6
<PAGE> 7
unfinished goods and, for the industrial segment, abrasives, filtration media,
wipecloth and certain footwear fabrics.
The Company's Fiber Products Division markets a variety of waste
textile fiber and fabric reclamation products comprised of, for example, padding
used in a variety of applications, cleaned and reprocessed fiber and off-quality
towels and sheets (sold primarily in Africa). 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.
JICR manufactures fabrics, which are sold in specialty markets and used
in engineered composite materials, consisting 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.
For the year ended January 3, 1998, approximately 74% 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 1997 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
JANUARY 3, DECEMBER 28, DECEMBER 30, JUNE 30,
1998 1996 1995 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Automotive 3% 3% 2% 6%
Industrial 25% 24% 22% 25%
Home Furnishing 49% 53% 57% 55%
Apparel 4% 2% 3% 4%
Specialty Markets 19% 17% 15% 9%
Miscellaneous 0% 1% 1% 1%
--- --- --- ---
100% 100% 100% 100%
=== === === ===
</TABLE>
Outside of the United States, the Company principally markets its
products in Europe, Canada, and Mexico primarily through its direct sales force.
For the year ended January 3, 1998, 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.
MANUFACTURING
Since its establishment in 1948, the Company has positioned itself as a
leader in the textile industry as evidenced by numerous awards it has received.
For example, the Company was selected by Textile World Magazine as its 22nd
Annual Model Mill in 1994, recognizing the Company's (i) outstanding
performance, (ii) aggressive management approach to product and market
innovation and (iii) strategic commitment to capital spending and high-tech
operations. In 1995, the Company's Opp Mill was selected as "Outstanding Greige
Mill" by a leading international independent consulting firm. In addition, the
Company has been selected "Supplier of the Year" or preferred supplier by
various customers on numerous occasions over the years and received America's
Textile International's first annual Award for Innovation in 1996.
In order to improve customer service and maintain its leadership
position in the constantly evolving textile industry, the Company has maintained
an aggressive capital improvement program across all of its units for the past
few years. For fiscal 1991 through 1997, the Company invested approximately $121
million to upgrade and modernize plant operations and to reduce bottlenecks,
establishing state-of-the-art, vertically integrated, flexible manufacturing
capabilities with low cost structures. Of these expenditures, capital
7
<PAGE> 8
improvement for the year ended January 3, 1998 was $10,363,000 compared to
$20,527,000 for the year ended December 28, 1996, $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 extensive capital expenditure program over this period has resulted in
the conversion of substantially all of its mills to open-end spinning and
suttleless weaving.
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 that 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. As of January 3, 1998, the Company's mills have an
annual capacity of approximately 190 million linear yards of woven fabric
(approximately 108 million pounds), 10 million pounds of non-woven (stitchbond,
chima and weft insertion warp knitted) fabric, approximately 120 million linear
yards of value-added finishing, approximately 3 million pounds of sales yarn,
approximately 12 million pounds of non-woven fabric and multi-axial composite
reinforcements fabrics manufactured from man-made synthetic fibers,
approximately 68 million pounds of waste textile fiber and fabric reclamation,
and approximately 54 million pounds of bonded non-woven fabric (manufactured
through reclamation of textile waste products).
The Company's ideal mix of a variety of types of equipment, each with
distinct capabilities, permits 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, 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 and, in some instances, are finished internally on a contract basis by
the Finished Fabrics Division.
DISTRIBUTION AND MARKETING
The Company's marketing activities, which are organized by operating
division and by product, utilize in-house sales personnel, commissioned sales
agents and independent brokers in the sale of their respective products. In the
aggregate, the Company employs a 35 person in-house sales force and utilizes
approximately 39 commissioned sales agents and brokers. For the year ended
January 3, 1998, approximately 81% of revenues were generated by in-house sales
personnel, with 19% 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 significant portion of composite
reinforcement fabrics are sold through commissioned sales agents.
In addition to its various employed and independent sales people,
approximately 30 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 of numerous companies, a limited
number of which 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. Although
market shares vary substantially from product to product within a group, the
Company believes that there are several competitors with greater sales than it
in each product group. 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. Competitive factors include product quality, service, design and
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.
8
<PAGE> 9
Although management believes that, in general, the Company is not
directly affected by foreign competition; from time to time, there is an
indirect effect. Periodically, 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
generally has a negative effect on margins for particular orders or products,
management does not believe that, over time, such competition will have a
material adverse effect on the Company's results of operations.
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 settle 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 28, 1998, the Company had approximately 2,700 full-time
employees, none of whom is covered by collective bargaining agreements. The
Company believes its relations with its employees are good.
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 plan is
to effect the divestiture of its non-textile industry investments. Since the
March 28, 1996 acquisition, twelve investments have been sold with six
remaining as of January 3, 1998. No additional funding or investment of any
significant amount is contemplated while such investments are held for sale. GWI
was 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. On April 25,
1997, in consideration of the Company's exit of venture capital investment
activities, the Board of Directors of GWI voted to return the SBIC license held
by GWI to the United States Small Business Administration. 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 carrying value of the
securities, recorded as assets held for sale on the balance sheet at January 3,
1998 at $4,510,000. 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.
9
<PAGE> 10
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. For
Biographies of Executive Officers, See Executive Officers of Johnston
Industries, Inc. below and for Biographies of Directors, See the Registrant's
Definitive Proxy Statement for the 1998 Annual Meeting of Shareholders.
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 1998, 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;
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 1996 plus 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;
10
<PAGE> 11
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;
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;
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; and
The costs and other effects of any changes in environmental laws
or OSHA regulations (or the interpretation of existing regulations) that are
more stringent than laws, regulations or interpretation currently in effect
or of any discovery of currently unknown environmental or other compliance
problems or conditions.
EXECUTIVE OFFICERS OF JOHNSTON INDUSTRIES, INC.
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.
WILLIAM I. HENRY, age 57, has served as President of the Finished
Fabrics Division since February 5, 1998. Prior to that time, he served as
Executive Vice President from May 12, 1997 to February 5, 1998, Vice President
of Operations from April 1996 to May 12, 1997, and Vice President of Product and
Operations Planning from January 1993 to April 1996. For more than five years
prior he had served as Vice President, Operations of Southern Phenix.
OWEN J. HODGES, III, age 43, has served as President of the Fiber
Products Division since February 5, 1998. Prior to that time, he served as Vice
President - Manufacturing of the Company from April 1996 to February 1998 and
Vice President - Operations of Wellington Sears since its formation in November
1992. For more than 3 years prior, Mr. Hodges was Vice President of
Manufacturing for the Custom Fabrics Division of West Point Pepperell.
JOHN W. JOHNSON, age 60, has served as Vice President - Financial
Administration since September 22, 1997. Prior to that time, he served as Vice
President and Chief Financial Officer since September 1994 and was Secretary and
Treasurer of the Company from January 1992 until September 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 served as President of Johnston
Industries Composite Reinforcements, Inc. since February 5, 1998. Prior to that
time, he served as Executive Vice President from May 12, 1997 to February 5,
1998 and as Vice President of the Company and President-Home Furnishings-Sales
and Marketing of Johnston Industries Alabama, Inc. from April 1996 to May 12,
1997. Mr. Massey was 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
11
<PAGE> 12
Fabrics Marketing, and for more than 5 years prior to that, he served as Senior
Vice President for world sales of denim for Dominion Textiles.
JAMES J. MURRAY, age 37, has served as Executive Vice President and
Chief Financial Officer since September 22, 1997. Prior to that time, he was
Managing Director of Corporate Transaction Services for KPMG Peat Marwick since
March 1996 and had served in a variety of capacities with KPMG Peat Marwick from
January 1984 to March 1996. Prior to that time, Mr. Murray was a tax accountant
in private industry.
D. CLARK OGLE, age 51, has served as President and Chief Executive
Officer since March 20, 1998. Prior to that time, Mr. Ogle served as Managing
Director of National Strategic and Operational Improvement Consulting for KPMG
Peat Marwick, LLP. From April 1987 to October 1996, he served as CEO for a
number of companies including Victory Markets, Inc., Teamsports, Inc., WSR
Corporation, Consumer Markets, Inc., and Peter J. Schmitt Co., Inc. Mr. Ogle was
Executive Vice President and Chief Operating Officer, then President and Chief
Executive Officer, of Scrivner, Inc. for more than five years prior to that
time.
C. PHILIP STANLEY, age 66, has served as President of the Greige
Fabrics Division since February 5, 1998. Mr. Stanley, who had retired in
December 1996, returned from retirement to serve as Vice Chairman of JI Alabama
from May 12, 1997 through February 5, 1998. Prior to that time, he served as
President and Chief Operating Officer of Opp & Micolas from January 1988 to
December 1996 and for more than five years prior to that, had served as Vice
President and General Manager of Opp and Micolas.
F. FERRELL WALTON, age 52, has served as Vice President, Secretary and
Treasurer of the Company since November 14, 1997 and prior to that time, had
served as Secretary and Treasurer from September, 1994 to November 14, 1997. Mr.
Walton served as Director of Financial Operations for the Company from April 1,
1993 to September, 1994 and for more than five years prior to that time was Vice
President, Finance of Opp and Micolas.
12
<PAGE> 13
ITEM 2. PROPERTIES
Set forth below is a listing of facilities owned and leased by the
Company for each division describing the principal use and approximate size, in
square feet, of each facility.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
FACILITY LOCATION PRINCIPAL USE FLOOR OWNED/
SPACE IN LEASED
SQ FT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Johnston Industries, Inc.
Executive Offices Columbus, Georgia Admin. Offices 20,000 Owned
- --------------------------------------------------------------------------------------------------------
Greige Fabrics Division
NY Sales Office New York, New York Sales/Marketing 10,000 Leased
Opp Plant Opp, Alabama Manufacturing/ 339,000 Owned
Warehousing
Micolas Plant Opp, Alabama Manufacturing/ 430,000 Owned
Warehousing
Columbus Plant Columbus, Georgia Manufacturing/ 572,000 Owned
Warehousing
Warehouse Opp, Alabama Warehousing 92,000 Leased
- --------------------------------------------------------------------------------------------------------
Finished Fabrics Division
Marketing & Sales Ctr. Valley, Alabama Sales/Marketing 23,000 Owned
(2 Buildings)
Southern Phenix Plant Phenix City, Alabama Manufacturing/ 629,000 Owned
Warehousing
Stitchbond Plant Phenix City, Alabama Manufacturing 76,000 Owned
Shawmut Plant Valley, Alabama Manufacturing/ 493,000 Owned
Warehousing
Cusseta Plant Columbus, Georgia Warehousing 54,000 Owned
Textest Valley, Alabama UL Testing Lab 5,000 Owned
State Docks Warehouse Phenix City, Alabama Warehousing 83,000 Leased
- --------------------------------------------------------------------------------------------------------
Fiber Products Division
Utilization Plant Valley, Alabama Manufacturing 175,000 Owned
Lantuck Plant Lanett, Alabama Manufacturing 42,000 Leased
Langdale Plant Valley, Alabama Warehousing/ 441,000 Owned
Light Mfg.
DeWitt Plant DeWitt, Iowa Manufacturing 115,000 Owned
Warehouse Lanett, Alabama Warehousing 100,000 Leased
- --------------------------------------------------------------------------------------------------------
JICR
Stitchbond Plant (1) Phenix City, Alabama Manufacturing
Warehouse Phenix City, Alabama Warehousing 26,000 Leased
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) JICR leases approximately 26,000 of the 76,000 square foot Stitchbond
Plant which is shared with the Finished Fabrics Division.
13
<PAGE> 14
Set forth below is the manufacturing capacity of each operating
division by product line and the average percent of capacity operated for the
year ended January 3, 1998 for each division and the Company as a whole.
(Units Presented in Millions)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PRODUCT GREIGE FINISHED FIBER JICR TOTAL
UNIT FABRICS FABRICS PRODUCTS
DIVISION DIVISION DIVISION
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Weaving Capacity
Linear Yards 142 48 190
Pounds 75 33 108
Sales Yarn Capacity
Pounds 3 3
Non-Woven Capacity
Pounds 10 54 12 76
Waste Textile and Fiber Reclamation
Pounds 68 68
Value Added Finishing Capacity
Linear Yards 120 120
Percent Capacity Utilization - 1997 89% 70% 53% 38% 71%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
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
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, was listed
for sale with a broker at January 3, 1998 and was subsequently sold on February
27, 1998.
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 any of these
legal proceedings to 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 January 3, 1998.
14
<PAGE> 15
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>
INCLUDES NYSE TRADING ONLY PRICE RANGE
-------------------------- -----------
HIGH LOW
---- ---
<S> <C> <C>
Quarter Ended:
January 3, 1998 $6 3/4 $4 1/4
September 27, 1997 6 13/16 5 1/2
June 28, 1997 8 1/8 6 1/8
March 29, 1997 8 3/8 7
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
</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
were paid from September 28, 1990 to June 28, 1997. In August, 1997, the Company
suspended dividend payments, subject to a re-evaluation by the Board of
Directors on a quarterly basis. A quarterly dividend rate of $.10 per share was
effective from February 1995 to June 28, 1997. 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 January 3, 1998 was
approximately 700.
15
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for
the years ended January 3, 1998 and December 28, 1996, the six month period
ended December 30, 1995 and for each of the full fiscal years in the three year
period ended June 30, 1995. The income statement data for the years ended
January 3, 1998 and 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
January 3, 1998, 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 YEAR SIX MONTHS
ENDED ENDED ENDED FISCAL YEAR ENDED JUNE 30,
JAN. 3, DEC. 28, DEC. 30
1998 (1) 1996 1995 (2) 1995 (3) 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net Sales $332,537 $321,883 $148,773 $262,279 $159,904 $154,074
Income (Loss) from Continuing Operations (8,622) (2,183) (6,348) 6,889 7,409 4,703
Income (Loss) from Discontinued Operations 126 5,582 158 986 (914) 3,711
Extraordinary Loss -- (527) -- -- -- --
Net Income (Loss) (8,496) 2,872 (6,190) 7,875 6,495 8,414
Dividends on Preferred Stock (82) (125) -- -- -- --
Net Earnings (Loss) available to Common Stockholders (8,578) $ 2,747 $ (6,190) $ 7,875 $ 6,495 $ 8,414
Earnings (Loss) per Common Share-Basic:
Income (Loss) from Continuing Operations (.82) (.22) (.60) .65 .68 .43
Income (Loss) from Discontinued Operations .01 .53 .01 .09 (.08) .34
Extraordinary Loss .-- (.05) .-- .-- .-- .--
Earnings (Loss) per Common Share (.81) .26 (.59) .74 .60 .77
Income (Loss) from Continuing Operations
to Sales % (2.59)% .68% (4.27)% 2.63% 4.63% 3.05%
Net Income (Loss) to Sales % (2.55)% .89% (4.16)% 3.00% 4.06% 5.46%
Net Earnings (Loss) available to Common Stockholders
to Sales % (2.58)% .85% (4.12)% 3.01% 4.06% 5.46%
BALANCE SHEET DATA:
Total Assets $234,788 $269,264 $240,539 $232,402 $140,194 $136,071
Long Term Debt 61,688 144,191 110,755 83,560 36,216 22,500
Stockholders' Equity 49,124 59,192 55,179 63,427 59,808 60,173
OTHER DATA:
Equity per Share $ 4.54 $ 5.53 $ 5.22 $ 5.93 $ 5.51 $ 5.50
Dividends per Share .200 .400 .200 .390 .345 .320
Depreciation and Amortization 21,370 19,715 8,874 13,766 10,202 9,761
Capital Expenditures 10,363 20,527 17,781 21,448 12,701 10,381
Return on Beginning Assets (3.13)% 1.19% (2.66)% 5.62% 4.77% 6.58%
Return on Beginning Equity (14.35)% 5.20% (.96)% 13.17% 10.79% 14.71%
</TABLE>
- --------------------------------------------------------------------------------
(1) Earnings per Common Share-Diluted are not presented as they are
antidilutive in periods for which a loss is presented.
16
<PAGE> 17
(2) 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.
(3) 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 5 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
years ended January 3, 1998 and December 28, 1996 and the six months
ended December 30, 1995.
17
<PAGE> 18
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), and Greater
Washington Investments, Inc. ("GWI") (collectively, the "Company").
In addition to the above, the December 28, 1996 consolidated financial
statements included the accounts of the T.J. Beall Company ("T.J. Beall") which
was acquired in March 1996 and sold in September 1997. During that time, T.J.
Beall was a subsidiary of Johnston Industries Alabama, Inc. 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.
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 $39,000,000 to security
holders. Thereafter, on April 3, 1996, Jupiter was merged into the Company's
then Opp and Micolas subsidiary. At the close of business on June 29, 1996, the
name of Opp and Micolas was changed to Johnston Industries Alabama, Inc. ("JI
Alabama"), Southern Phenix and Wellington were merged into JI Alabama, and JICR
,TJB and GWI became subsidiaries of JI Alabama. Following the merger and
associated name change, the operations which previously constituted Wellington
were split into two divisions representing woven products and fiber products
respectively. The manufacturing operations of JI Alabama were then organized in
four divisions which were Fiber Products Division, Opp & Micolas Division,
Southern Phenix Division, and Wellington Sears Division.
On March 25, 1996, Johnston acquired all of the outstanding common
shares of T.J. Beall Company (the "TJB Acquisition"), a cotton by-products
broker located in West Point, Georgia. This acquisition was financed through the
issuance of 325,000 shares of one cent ($.01) par value, nonvoting preferred
stock of the Company, which had an estimated value of $3,250,000. Dividends
accrued and were payable quarterly at a rate of $.125 per share per quarter.
During the second quarter of 1997, the Company's management embarked on
a restructuring (the "1997 Realignment") which further integrated operations of
the former Wellington Sears Division into the Company's operations and
eliminated the administrative infrastructure of the Wellington Sears Division.
The 1997 Realignment included the Company's decision to cease weaving operations
at Wellington's historic Langdale Plant, which included buildings dating back to
1866. The 1997 Realignment also included the alignment of manufacturing
operations of Wellington's Columbus Plant with the former Opp and Micolas
Division to form the Greige Fabrics Division and alignment of Wellington's
Shawmut Finishing and Textest plants with the former Southern Phenix Division to
form the Finished Fabrics Division. The resulting structure of JI Alabama
includes three divisions which are the Greige Fabrics Division, the Finished
Fabrics Division, and the Fiber Products Division plus one operating subsidiary,
JICR. The 1997 Realignment returned the organization of the Company to a
structure similar to the pre-1996 structure, vesting greater operating autonomy
at division level and returning sales and marketing functions to the division
level.
On September 29, 1997 and in conjunction with the 1997 Realignment, the
Company's management reached an agreement to sell the assets of T.J. Beall to a
member of the Beall family. The sale was executed for consideration including
surrender of the Series 1996 Preferred Stock and issuance, by the buyer, of a
promissory note in the amount of $1,500,000 payable in annual installments over
5 years. This divestiture eliminated an operation which had been unprofitable
during the Company's brief ownership and also eliminated large cyclical cash
requirements inherent in the gin mote business.
18
<PAGE> 19
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, its 1996 year ended on
December 28, 1996 and its 1997 year ended on January 3, 1998.
The Company's GWI subsidiary was a "small business development company"
under the Small Business Investment Act of 1958 ("1958 Act") whose remaining
portfolio investments currently are recorded as assets held for sale. On
September 26, 1996, the Company repaid $14,500,000 of subordinated debentures
issued by GWI and guaranteed by the United States Small Business Administration
(the "SBA"), plus accrued interest thereon. On April 25, 1997, in consideration
of the Company's exit of venture capital investment activities, the Board of
Directors of GWI voted to return the SBIC license held by GWI to the SBA. At
January 3, 1998, the Company's total assets attributable to its textile
operations were approximately $230,278,000 and net assets attributable to the
discontinued portfolio investment activities were approximately $4,510,000.
The Company has developed and is implementing a business strategy
designed to build upon its 1997 Realignment initiatives and to grow revenues and
EBITDA. The key elements for implementing these strategies include (i) continued
improvement in operating efficiencies, (ii) focus on niche market opportunities,
(iii) rationalize product offerings, and (iv) leverage customer relationships.
RESULTS OF OPERATIONS
YEAR ENDED JANUARY 3, 1998 COMPARED WITH THE YEAR ENDED DECEMBER 28, 1996
Continuing Operations
Net sales for the year ended January 3, 1998 were $332,537,000 compared
to $321,883,000 for the year ended December 28, 1996 reflecting an increase of
$10,654,000 or approximately 3.3%. Net sales in the automotive market declined
by $1,367,000 reflecting weaker demand for the Company's automotive products
resulting in part from changing manufacturing process of automotive
manufacturers. Sales of industrial fabrics remained at the reduced level
exhibited in 1996, growing by only $988,000 for the year while sales of home
furnishing fabrics grew by $8,484,000. Apparel fabrics sales increased by
$6,844,000 as the Company capitalized on certain profitable opportunities
resulting from changes in apparel styling which played to strengths in the
Company's manufacturing capabilities. While such styling changes and the related
increased demand are not expected to be permanent, apparel sales for 1997 grew
by approximately 126% over 1996. Sales to specialty markets declined by
$3,793,000 including declines of $2,300,000 in woven goods, $1,100,000 in fiber
goods and $400,000 in composite reinforcement goods. These changes reflect the
Company's woven operations emphasis on core industrial and home furnishings
markets plus soft markets for cleaned fiber and garnet grades experienced by the
Fiber Products Division coupled with a shortage of certain raw materials and
loss of a customer. Sales to miscellaneous markets, which for 1997 represent
0.3% of the total sales, declined by $502,000 from the prior year.
The Company's sales backlog was $69,447,000 and $88,462,000 at January
3, 1998 and December 28, 1996, respectively. The decrease primarily reflects the
sale of T.J. Beall on September 29, 1997 which represented $16,287,000 of the
total backlog at December 28, 1996. To a lesser degree, open orders at year end
also declined as a result of the Company's discontinuing of certain unprofitable
window covering products late in 1997 plus the Company's exit of sales yarn
business at the Langdale facility where manufacturing activities ceased in the
fourth quarter of 1997.
Cost of sales increased in 1997 to $274,648,000 from $265,682,000 for
the year ended December 28, 1996, largely due to the increase in sales discussed
above. The gross margin declined slightly to approximately 17.4% for the 1997
fiscal year compared to approximately 17.5% for the 1996 fiscal year. Raw
material costs, which remained at very high levels well into 1996, had
significant negative impact on the gross margin for 1996. Fiscal year 1997
included operational inefficiencies associated with closure of the Langdale
facility and relocation of selected equipment and products to other of the
Company's facilities which reduced gross margin for 1997. Offsetting in part the
negative effect of these factors was the reclasssification of certain product
development and sample costs which for some divisions were included in
19
<PAGE> 20
cost of sales for 1996, but which for all divisions were charged to selling
costs during 1997. This reclassification of expense causes a minor disparity
when comparing gross margin between 1997 and 1996.
Selling, general and administrative expenses of $27,923,000 for 1997
increased $3,010,000 from $24,913,000 in 1996. The increase is comprised of an
increase of $1,593,000 in selling expenses and an increase of $1,417,000 in
general and administrative expenses. The increased selling expenses reflects
inclusion of sample costs and product development costs which had previously
been classified as cost of sales for some but not all divisions. Increased
general and administrative expenses primarily resulted from significant
consulting fees incurred in 1997 in connection with the 1997 Realignment.
Depreciation and amortization was $21,370,000 for fiscal year 1997
compared to $19,715,000 for fiscal year 1996. The increase reflects additional
depreciation related to 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 $70,119,000 from July, 1994 to December, 1997.
Management's decision to end manufacturing operations at the Company's
historic Langdale facility and dispose of T.J. Beall was a significant part of
the 1997 Realignment. This decision resulted in the transfer of selected
equipment and products from the Langdale facility to newer and more efficient
facilities within the Company and also resulted in recording of restructuring
and impairment charges totaling $6,273,000 during 1997. Charges directly related
to the Langdale facility included write-downs in valuation of property assets of
$2,631,000, employee severance accruals of $140,000 and $249,000 for costs to
relocate production equipment. The 1997 restructuring charges also included
impairment losses of $179,000 and $11,000 for a retail store and for the Tarboro
facility, respectively, both of which were ultimately sold during 1997 plus a
$253,000 impairment loss for Jupiter's former office building in Rockville,
Maryland which was held for sale at January 3, 1998 and subsequently sold on
February 27, 1998. Other 1997 restructuring charges included the write off of
$1,983,000 in goodwill associated with the T.J. Beall acquisition, $551,000 in
costs associated with an abandoned software implementation and $276,000 in
severance accruals resulting from realignment of divisions of JI Alabama.
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 was sold in December 1997, was recorded at its estimated net
realizable value at December 28, 1996. During the year ended December 28, 1996,
the Company recorded restructuring charges totaling $4,743,000 which included
$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. Also, in 1996, the Company
recorded a $200,000 impairment charge on Jupiter's former office building in
Rockville, Maryland.
Net Interest expense increased $2,019,000 for fiscal year 1997 to
$12,904,000 from $10,885,000 for the fiscal year 1996. The increase was due to
higher average borrowings during fiscal 1997 as compared to the 1996 fiscal
year.
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.
20
<PAGE> 21
The 1997 income tax benefit was at an effective rate of 26% versus a
1996 income tax provision at an effective rate of 36%. The reduced rate for the
1997 income tax benefit was mainly due to the write-off of goodwill related to
the T.J. Beall acquisition.
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 was accounted for as a discontinued operation from April
1996 through June 1997 when the remaining investment portfolio was reclassified
as a part of continuing operations. All prior periods have been restated
accordingly. In accordance with Generally Accepted Accounting Principles, the
net assets remaining from the discontinued venture capital investment segment
were recorded as net assets of discontinued operations within current assets at
December 28, 1996 and as assets held for sale, at January 3, 1998. For fiscal
year 1997, a loss from discontinued operations of $11,000 was recorded net of
income taxes benefit of $5,000 compared to 1996 when income from discontinued
operations was $6,562,000 net of taxes of $6,190,000 and minority interest of
$1,455,000. For the year ended December 28, 1996, net realized investment
portfolio gain of $30,918,000 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 $980,000, net
of income tax benefit of $2,504,000, which included a write down of the carrying
value of the investment portfolio in the amount of $4,380,000, a gain of
$1,584,000 on sale of Pay Telephone America, Ltd., and a reserve of $628,000 for
phase out of Jupiter's operations. During 1997, a gain on disposal of $137,000
was recorded, net of taxes of $60,000, in settlement of actual charges against
reserves included in the 1996 loss on disposal. (See Note 2 of the consolidated
financial statements for further discussion.)
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) and 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.
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 T.J. Beall.
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.
21
<PAGE> 22
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 T.J. Beall 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
fiscal 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 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 T.J. Beall 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 from July, 1996 to December, 1996.
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 was vacant and was held for sale at December 28, 1996. At
December 28, 1996, the Tarboro Facility was recorded at its estimated net
realizable value and was sold during 1997. During the year ended December 28,
1996, the Company recorded restructuring charges totaling $4,743,000 which
included $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. Also, in 1996, the
Company recorded a $200,000 impairment charge on Jupiter's former office
building in Rockville, Maryland.
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
Jupiter.
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
22
<PAGE> 23
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.
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 was accounted for as a discontinued operation, and in
accordance with Generally Accepted Accounting Principles, the net assets of the
discontinued segment were recorded as a current asset on the consolidated
balance sheet and were expected to be disposed of by June 30, 1997. The results
of operations for Jupiter's venture capital investment ("venture capital")
activities were recorded as discontinued operations for 1996. For fiscal year
1996, income from discontinued operations included net realized investment
portfolio gains of $30,918,000, net unrealized investment portfolio losses of
$14,072,000, 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 $6,190,000 and minority interest
of $1,455,000. 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 $980,000, net
of income tax benefit of $2,504,000, which included a write down of the carrying
value of the investment portfolio in the amount of $4,380,000, 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
23
<PAGE> 24
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 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 3 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.
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
24
<PAGE> 25
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 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.
Jupiter carried 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.
YEAR 2000 INITIATIVES
As a result of computer programs being written using two digits rather
than four to define the applicable year a concern commonly known as the Year
2000 ("Year 2000") issue has arisen globally. Any of the Company's computer
programs and equipment that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
The Company has systematically replaced older software applications,
both purchased and developed in-house, with purchased software as to which the
vendor has represented to be Year 2000 compliant or the vendor has indicated
that subsequent releases will be Year 2000 compliant. This replacement program
is ongoing and is an adjunct to the Company's normal systems improved efforts.
Two major software replacement projects remain for the Company. Both
projects involve replacing current systems with purchased systems that are Year
2000 compliant. The major software replacement project underway at the Company's
Finished Fabrics Division will replace many of the major systems within that
Division. After completion of the Finished Fabrics Division software replacement
project, the Company intends to replace the major systems at its Fiber Products
Division, which are considerably less sophisticated than the Finished Fabrics
Systems.
During the first quarter of 1998, management intends to adopt a formal
review procedure of its systems and operations to determine what systems
imbedded in the sophisticated production equipment or support equipment may be
vulnerable to Year 2000 issues. This review will be followed with a formal
communication program with equipment vendors to certify that the systems are
year 2000 compliant. Remediation steps, if any, will be implemented. In
addition, the Company screens all new equipment acquisitions to determine Year
2000 compliance.
The Company also intends to adopt a formal communication program with
significant suppliers and large customers and critical service providers to
determine the extent to which the Company's interface systems are vulnerable to
those third parties' failure to remediate their own Year 2000 issues. There can
be no guarantee that the systems of other companies on which the Company's
systems rely will be timely converted and that any failure to timely convert
would not have a material adverse effect on the Company's systems.
As a result of the upgrades described above and assuming the remaining
projects are completed in satisfactory manner, management currently believes
that the Year 2000 issue will not pose significant operational problems for the
Company's computer systems. The Company anticipates completing the Year 2000
project no later than August, 1999. The cost of addressing the Year 2000 issues
will be substantially absorbed in the normal budget for improvement in
management information systems and by normal costs for administrative and
technical employees. The Company does not anticipate incurring significant third
party costs to test or reprogram systems, however the Company has from time to
time retained contract programmers to work on discrete projects and will
continue this practice into the foreseeable future. Management believes that the
cost of Year 2000 modifications will not have a material effect on results of
operations.
25
<PAGE> 26
There can be no guarantee that the software replacement projects will
be successful or that the vendors supplying software to the Company will provide
new software releases that are Year 2000 compliant. In addition, there can be no
assurances that there will not be problems identified when screening production
and support equipment and ancillary systems and that such problems will not have
a material effect on the operating results.
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 the extent that general inflation
affects its costs in the future, management believes that while no assurances
can be given, 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, February 28, 1997, December 18,
1987 and March 30, 1998 (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 January 3, 1998 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 January 3, 1998, the outstanding borrowings under term loan
facility A were $29,398,000.
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 January 3, 1998 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 January 3, 1998, the outstanding borrowings under term
loan facility B were $33,642,000.
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 Credit Agreement was amended on June 28, 1996, February 27, 1997,
December 18, 1997 and March 30, 1998 to modify certain covenants. Prior to
execution of amendments on June 28, 1996 and February 27, 1997, the Company was
in technical non-compliance with certain of its financial covenants. The
December 18, 1997 and March 30, 1998 amendments were executed in anticipation of
potential non-compliance. In addition to covenant modification, the March 30,
1998 amendment restated the amortization schedule for Term Loan A and Term Loan
B, increased the interest rate by an additional .25% to 1%, and accelerated the
maturity of the revolving credit facility and term loans to July 1, 2000.
Scheduled Maturities under the facilities were reduced by $7,500,000 and
$1,000,000 for 1998 and 1999,
26
<PAGE> 27
respectively. All past events of non-compliance, as described above, have been
waived by the syndicate of lenders who are parties to the Credit Agreement.
The March 30, 1998 amendment requires the Company to adopt new cash
management procedures during the second quarter of 1998, which include
establishing a lock-box and instructing customers to remit payments directly to
the lock-box. It is anticipated that deposits into the lock-box will be applied
daily against the Revolving Credit Facility, which management believes will
generally enhance the Company's availability under the Revolving Credit
Facility. As a result of this anticipated lock-box arrangement, Generally
Accepted Accounting Principles require the Company to reclassify the Revolving
Credit Facility, which has a maturity date of July 1, 2000, as a current
liability.
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 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.)
(See Notes 10 and 11 of the consolidated financial statements for an
expanded discussion of financing agreements.)
The net cash provided by operating activities for the year ended
January 3, 1998 was $23,917,000 including $21,862,000 provided by continuing
operations and $2,055,000 provided by discontinued operations. The cash provided
by operating activities for fiscal 1997 reflects a net loss from continuing
operations of $8,622,000 and cash used for reduction in current liabilities of
$8,250,000 plus provision of cash by a $13,063,000 reduction in inventory and
non-cash charges of $21,370,000, $1,490,000 and $5,748,000 for depreciation and
amortization, provision for bad debts, and restructuring charges, respectively.
Capital expenditures in continuing operations for the years ended
January 3, 1996 and December 28, 1998 were $10,363,000 and $20,527,000,
respectively. The decreased capital investment during 1998 is in response to the
Company's scheduled repayments of outstanding debt during a year marked by
restructuring activities which negatively impacted operating cash generation.
During 1998, the Company repaid outstanding long-term debt of
$17,173,000 while drawing $5,500,000 on its revolving credit line for a net
decrease in long-term debt of $11,673,000. Dividends totaling $2,157,000 were
paid through the second quarter of 1997 when the Company suspended dividends,
subject to re-evaluation by the Board of Directors on a quarterly basis, in
consideration of operating results and constrained liquidity.
The operational inefficiencies and disappointing results which occurred
prior to implementation of the 1997 Realignment and disruption from
restructuring activities constrained cash generation during 1997. Cash provided
by operating activities was used disproportionately for debt service, diluting
the Company's ability to maintain its normal high level of capital spending.
Initiatives to strengthen margins through improved operating
27
<PAGE> 28
efficiencies and product rationalization are expected by management to improve
operating results which, when coupled with management's continued efforts to
reduce debt service requirements, should offer improved liquidity. Management
continues to pursue operational improvements and to evaluate alternative
financing arrangements which would enhance liquidity while enabling growth
through the Company's ability to generate cashflow.
Although compliance with covenants under the March 30, 1998 amendment
to the Credit Agreement must be monitored closely, and operational improvements
must be achieved, management believes that funds generated from operations and
funds available under the Credit Agreement will be sufficient to satisfy the
Company's liquidity requirements for at least the next year. Management is
actively pursuing leasing and other financing arrangements in order to enhance
the Company's liquidity.
OTHER MATTERS
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 January 3, 1998 and
December 28, 1996, the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended January 3, 1998 and
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 are reproduced in Exhibit 13(a). Supplementary Data under the caption
"Quarterly Information" is reproduced in Exhibit 13(b).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
28
<PAGE> 29
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 1998 annual meeting of stockholders, except as to
biographical information on 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 1998 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 1998 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 1998 annual meeting of stockholders.
27
<PAGE> 30
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 January 3, 1998 and December 28,
1996.
-Consolidated Statements of Operations for the years ended January 3,
1998 and December 28, 1996, the six months ended December 30, 1995 and
the fiscal year ended June 30, 1995.
-Consolidated Statements of Stockholders' Equity for the years ended
January 3, 1998 and December 28, 1996, the six months ended December
30, 1995 and the fiscal year ended June 30, 1995.
-Consolidated Statements of Cash Flows for the years ended January 3,
1998 and December 28, 1996, the six months ended December 30, 1995 and
for the fiscal years ended June 30, 1995.
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 January 3, 1998.
28
<PAGE> 31
(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)
+10.19 Employment Agreement with Larry L. Galbraith
</TABLE>
29
<PAGE> 32
<TABLE>
<S> <C>
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)
10.24 Amendment # 2 dated February 28, 1997 to Bank Credit Agreement.(10)
+10.25 Employment Agreement with James J. Murray dated September 15, 1997.(11)
10.26 Amendment # 3 dated December 18, 1997 to Bank Credit Agreement.
+10.27 Employment Agreement with D. Clark Ogle dated March 20, 1998.
10.28 Amendment # 4 dated April 2, 1998 to Bank Credit Agreement.
(To be filed by amendment)
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 Financial Data Schedule as of January 3, 1998 (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.
<PAGE> 33
(10) Previously filed with the Company's Annual Report on Form 10-K for the
year ended December 28, 1996.
(11) Previously filed with the Company's Quarterly Report on Form 10-Q for
the quarter ended September 27, 1997.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit to Form 10-K pursuant to Item 14(c).
31
<PAGE> 34
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 3, 1998 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 3, 1998
- -------------------------------- Director
David L. Chandler
/s/ D. Clark Ogle President and April 3, 1998
- -------------------------------- Chief Executive Officer
D. Clark Ogle (Principal Executive Officer)
/s/ J. Reid Bingham Director April 3, 1998
- --------------------------------
J. Reid Bingham
/s/ John A. Friedman Director April 3, 1998
- --------------------------------
John A. Friedman
/s/ William J. Hart Director April 3, 1998
- --------------------------------
William J. Hart
/s/ Gaines R. Jeffcoat Director April 3, 1998
- --------------------------------
Gaines R. Jeffcoat
/s/ James J. Murray Chief Financial Officer April 3, 1998
- -------------------------------- (Principal Financial and
James J. Murray Accounting Officer)
</TABLE>
- --------------------------------------------------------------------------------
32
<PAGE> 1
EXHIBIT 10.26
THE CHASE MANHATTAN BANK
As of December 18, 1997
TO: JOHNSTON INDUSTRIES, INC.
JOHNSTON INDUSTRIES ALABAMA, INC.
JOHNSTON INDUSTRIES COMPOSITE REINFORCEMENTS, INC.
J.I. GEORGIA, INC.
Re: $160 MILLION CREDIT AGREEMENT DATED AS OF MARCH 28, 1996, AS
AMENDED BY AMENDMENT NO. 1 TO THE CREDIT AGREEMENT DATED AS OF
JUNE 28, 1996 AND AMENDMENT NO. 2 TO THE CREDIT AGREEMENT
DATED AS OF FEBRUARY 28, 1997 (THE "AGREEMENT")
Ladies and Gentlemen:
Reference is made to the request made by Johnston Industries,
Inc., on behalf of the Borrowers, to The Chase Manhattan Bank as Agent for the
Banks, for an amendment of certain financial covenants and obligations of the
Borrowers set forth in the Agreement. All capitalized terms used herein shall
have the meanings given to them in the Agreement, unless otherwise defined
herein.
Further to your request, we hereby confirm, as Agent on behalf
of the Banks, that the Banks are prepared to amend and otherwise modify the
Agreement on the terms and subject to the conditions set forth below:
1 . Amendment to Section 7.03 - Financial Covenants: Section
7.03 of the Agreement hereby amended to delete the financial covenants set forth
for said period and to substitute said covenants with the following:
"(a) Total Loan Commitment. Permit the Total Loan Commitment under this
credit facility to exceed $144,100,000 from January 4, 1998 through
October 3, 1998; $137,225,000 from October 4, 1998 through October 2,
1999; $126,725,000 from October 3, 1999 and all times thereafter."
"(b) Capital Expenditures. Permit Consolidated Capital Expenditures to
exceed (i) $10,500,000 for the fiscal year ending January 3, 1998, (ii)
$18,000,000 for the fiscal year ending January 2, 1999 of which no more
than $6,300,000 may be expended during the period from January 4, 1998
through March 31, 1998 and no more than $4,100,000 may be committed for
expenditure, but not expended, during the same period, and (iii)
$20,000,000 for the fiscal year ending January 1, 2000 and for all
fiscal years thereafter."
"(c) Consolidated Funded Debt. Incur or permit Consolidated Funded Debt
to exceed $149,000,000 from January 4, 1998 through October 3, 1998;
$139,000,000 from October 4, 1998 through October 2, 1999; and
$129,000,000 from October 3, 1999 and all times thereafter."
-1-
<PAGE> 2
"(d) Consolidated Tangible Net Worth. Permit its Consolidated Tangible
Net Worth, at any time, to be less than the amount set forth opposite
such period:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
10/l/97 - 4/3/98 $36,500,000
4/4/98 $50,000,000
4/5/98 - 7/4/98 $53,000,000
7/5/98 - 10/3/98 $56,000,000
10/4/98 - 10/2/99 $59,000,000
As of 1/l/00 - and at all
times thereafter $70,000,000"
</TABLE>
"(e) Leverage Ratio. Permit the Leverage Ratio, as determined at the
end of each fiscal quarter, to be greater than the ratio set forth
opposite the following periods:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
10/l/97 - 1/3/98 4.25:1.00
1/4/98 - 4/4/98 3.25:1.00
4/5/98 - 10/3/98 3.00:1.00
10/4/98 - 10/2/99 2.50:1.00
As of 1/1/00 - and at all times
thereafter 2.00:1.00"
</TABLE>
"(f) 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>
10/l/97 - 1/3/98 0.65:1.00
1/4/98 - 4/4/98 2.00:1.00
4/5/98 - 7/4/98 2.25:1.00
7/5/98 - 10/3/98 2.50:1.00
10/4/98 - 1/2/99 2.50:1.00
1/3/99 - 10/2/99 2.50:1.00
As of 1/1/00 - and all times
thereafter 3.00:1.00"
</TABLE>
"(g) 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>
10/1/97 - 1/3/98 0.85:1.00
1/4/98 - 4/4/98 1.35:1.00
4/5/98 - 7/4/98 1.35:1.00
7/5/98 - 10/3/98 1.35:1.00
10/4/98 - 1/2/99 1.40:1.00
1/3/99 - 10/2/99 1.40:1.00
As of 1/l/00 - and all times
thereafter 1.50:1.00"
</TABLE>
-2-
<PAGE> 3
"(h) Debt Ratio. Permit the Debt Ratio, as determined at the end of
each fiscal quarter, to be greater than the ratio set forth opposite
the following periods:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
10/l/97 - 1/3/98 4.75:1.00
1/4/98 - and all times
thereafter 3.00:1.00"
</TABLE>
2. Amendment to Section 7.01 (b) - Reporting Requirements.
Section 7.01 (b)(iii) is hereby amended to add a new clause (iv) thereto as
follows:
" and (iv) a calculation of the Consolidated Funded Debt, Consolidated
Tangible Net Worth, Fixed Charge Coverage Ratio, Current Ratio,
Leverage Ratio, Interest Coverage Ratio, Debt Ratio and Consolidated
Capital Expenditures for the fiscal month then ended, together with a
statement as to whether or not Borrowers are in compliance with such
financial covenants."
3. Additional Reporting Obligation. In addition to the
reporting obligations of the Borrowers as set forth in Section 7.01 (b) and
elsewhere in the Agreement, the Borrowers agree to provide to the Agent, by no
later than February 13, 1998, a certificate of the chief financial officer of
Johnston setting forth a calculation of each financial covenant of the Borrowers
under Section 7.03 of the Agreement as of Borrowers' fiscal year ending January
3, 1998 and whether or not Borrowers are in compliance with each such financial
covenant, as amended hereby, the calculations in such certificate to be prepared
in accordance with GAAP.
4. FEE. Borrowers agree to pay to the Agent on or prior to the
date hereof a fee (for the benefit of each Bank) equal to 1/8 of 1% of the
Commitment as of the date hereof in connection with this Amendment.
-3-
<PAGE> 4
Except as amended or modified hereunder, the Agreement and the
other Loan Documents shall remain in full force and effect as executed.
Please indicate your agreement to and acceptance of the
foregoing amendments on the terms and conditions herein set forth by executing
the signature line below on the enclosed copy hereof and returning same to the
undersigned via fax and courier.
Very truly yours,
THE CHASE MANHATTAN BANK
AS BANK AND AGENT
By:
----------------------------------
Name:
Title:
THE ADMINISTRATIVE AGENT: THE SYNDICATION AGENT:
THE CHASE MANHATTAN BANK NATIONSBANK, N.A.
By: By:
------------------------------ ----------------------------
Name: Name:
Title: Title:
THE BANKS:
NATIONSBANK, N.A.
By:
------------------------------
Name:
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:
-4-
<PAGE> 5
WACHOVIA BANK, N.A. THE SUMITOMO BANK, LIMITED
By: By:
------------------------------ ----------------------------
Name: Name:
Title: Title:
By:
----------------------------
Name:
Title:
AGREED TO AND ACCEPTED:
THE BORROWERS:
JOHNSTON INDUSTRIES, INC. JOHNSTON INDUSTRIES ALABAMA, INC.
By: /s/James J. Murray By: /s/James J. Murray
------------------------------ ----------------------------
Name: James J. Murray Name: James J. Murray
Title: Executive Vice President & Title: Vice President
Chief Financial Officer
JOHNSTON INDUSTRIES COMPOSITE J.I. GEORGIA, INC.
REINFORCEMENTS, INC.
By: /s/James J. Murray By: /s/James J. Murray
------------------------------ ----------------------------
Name: James J. Murray Name: James J. Murray
Title: Vice President Title: Vice President
-5-
<PAGE> 1
EXHIBIT 10.27
EMPLOYMENT AGREEMENT
This Agreement is made and entered into as of the 20th day of
March, 1998, by and between Johnston Industries, Inc., a Delaware corporation
(hereinafter called the "Company") and D. Clark Ogle (hereinafter called
"Officer").
WITNESSETH:
WHEREAS, the Company is engaged in various aspects of the textile
industry, including the manufacture, marketing and sale of fabrics for use in
the automotive, industrial, home, hospitality and certain specialty markets (the
"Business"); and
WHEREAS, Officer desires to become employed by the Company as President
and Chief Executive Officer for the Company and the Company desires to employ
Officer in such capacity pursuant to the terms hereof.
NOW THEREFORE, FOR AND IN CONSIDERATION of the mutual representations
and promises herein contained, and other good and valuable consideration, the
receipt, sufficiency and adequacy of which are hereby acknowledged, the parties
mutually agree as follows:
1. EMPLOYMENT; TERM. Commencing March 19, 1998 (the "Effective Date"), the
Company employs Officer and Officer accepts employment with the Company in the
position of President and Chief Executive Officer for the Company upon the terms
and conditions hereinafter set forth. The initial term of this Agreement shall
be for three (3) years from and including the Effective Date (the "Initial
Term"), unless sooner terminated pursuant to Section 4 below; provided, however,
that this Agreement shall automatically extend for subsequent terms of one year
in length on the third anniversary of the Agreement and each subsequent
anniversary date unless the Company or Officer shall give notice to the other
party of their decision not to extend the term of this Agreement by giving at
least ninety (90) days written notice prior to the end of such Initial Term or a
successive term.
2. DUTIES AND EXTENT OF SERVICES. Officer will, during the continuance of
his employment hereunder, perform the duties of President and Chief Executive
Officer as such duties are defined in the By-laws of the Company, which duties
shall include responsibility for (i) the day to day general management,
administration and operation of all present and future business of the Company
and its subsidiaries and (ii) the supervision of the present and future
manufacturing operations of the Company and its subsidiaries. On all matters not
delegated to Officer, Officer shall report to the Board. Officer's office and
principal place of employment will be located in Columbus, Georgia. Officer
acknowledges that his duties and services will involve usual and customary
travel required of the Company's employees currently located in Columbus,
Georgia. Excluding periods
Johnston By:
--------------
DCO
----------------------
<PAGE> 2
of vacation and sick leave to which the Officer is entitled, the Officer agrees
to devote the whole of his business attention, working time and energy to the
business and affairs of the Company and to use his best efforts to perform the
responsibilities assigned to him hereunder faithfully and efficiently. Without
the prior written consent of the Company, the Officer shall not serve as an
employee, officer, director, consultant or advisor to any other business, and
shall not engage in any other business activities other than the Permitted
Activities, as herein defined. The Officer may (i) make and manage personal
business investments of his choice, provided that the Officer shall hold no
investment in any entity which competes in any way with the Company, other than
an investment representing less than a 5% interest in any publicly held entity;
and (ii) serve in any capacity with any civic, educational or charitable
organization without seeking or obtaining approval by the Board (collectively,
the "Permitted Activities"), provided that the Permitted Activities do not
materially interfere or conflict with the performance of Officer's duties
hereunder or create any conflict of interest with such duties.
3. COMPENSATION.
(a) Base Salary. For all services to be rendered by
Officer in any capacity during the period of his employment under this
Agreement, including, without limitation, services as an officer and/or director
of any subsidiary of the Company, Officer shall be paid as compensation a base
salary ("Base Salary") at the rate of not less than $450,000 per annum for each
year during which Officer is employed under this Agreement, or at such higher
rate as may from time to time be fixed by the Compensation Committee of the
Board of the Company, payable in accordance with the customary payroll practices
of the Company, but in no event less frequently than monthly. Under no
circumstance shall any increase in Base Salary limit or reduce any other
obligation to Officer under this Agreement.
(b) Bonuses. Upon execution of this Agreement, Officer
shall be entitled to a signing bonus of $100,000, payable in a lump sum. For the
first completed year of the Initial Term hereunder, Officer shall be entitled to
an annual bonus in an amount equal to $225,000. In addition, the Officer shall
be eligible, for each subsequent year of the term of this Agreement, to an
annual bonus to such extent and in such amount as shall be determined by the
Compensation Committee of the Board of Directors in its sole discretion. Bonuses
are not prorated and shall only be paid for completed years.
(c) Relocation Expenses. Officer shall relocate to
Columbus, Georgia within six months of the Effective Date. For a period not to
exceed six months, the Company shall pay reasonable temporary living expenses
for Officer in Columbus, Georgia. The Company shall pay, or reimburse Officer
for, reasonable relocation expenses incurred by him in connection with moving to
Columbus, Georgia.
(d) Reimbursement of Expenses. The Company shall pay, or
reimburse Officer, in accordance with the Company's prevailing corporate policy,
for reasonable
Johnston By:
--------------
DCO
----------------------
2
<PAGE> 3
travel, continuing education and other expenses incurred by Officer in
performing his duties under this Agreement.
(e) Participation in Employee Benefit Plans. In addition
to the other compensation provided for herein, Officer shall be entitled to
participate in those perquisites and benefits generally available to senior
level employees of the Company in accordance with the Company's regular
policies. In addition, Officer shall be entitled to participate in various
benefit plans which the Board may establish for executive management. The
foregoing notwithstanding, the Company may change or discontinue any such
benefits; provided, however, that so long as any benefit is made available to
executive officers or employees generally, such benefit will be extended to
Officer on the same terms as such benefit is made available to other executive
officers or employees.
(f) Vacation. During the term of this Agreement and any
renewal term, Officer shall be entitled to paid vacation in accordance with the
policies and practices of the Company; provided, that such vacation shall be
taken in a manner so as not to interfere with the performance of Officer's
duties hereunder.
(g) Stock Options. Officer shall, upon execution of this
Agreement, be granted options to purchase an aggregate of 300,000 shares of the
Company's common stock, pursuant to the Company's Amended and Restated Stock
Incentive Plan (the "Plan"), as amended, which options shall be exercisable at a
price of $5.875 per share. Such options shall be incentive stock options to the
extent permitted by law. Such options shall vest, subject to the terms of the
Plan, in equal amounts upon the first, second and third anniversaries of the
Effective Date, subject to continued employment by the Company; provided that
such vesting shall accelerate upon a change of control of the Company, as
defined by the Plan, or upon termination of Officer's employment by the Company
without cause. Such options shall be represented by a stock option agreement and
shall otherwise be subject to all applicable provisions of the Plan.
4. TERMINATION OF AGREEMENT.
(a) Termination of Employment by Company For Cause;
Resignation by Employee. The Company may terminate Officer's employment at any
time for "Cause" but only after written notice of termination to Officer as
approved by the Board (excluding Officer) as set forth below specifying the
cause of such action. Cause shall mean: (a) misappropriating any funds or any
material property of the Company; (b) obtaining or attempting to obtain any
material personal profit from any transaction, other than is contemplated by
this Agreement, in which Officer has an interest which is adverse to the
interest of the Company unless the Company shall first give its written consent
to such transaction; (c) neglecting or refusing to perform the duties
contemplated by this Agreement, the willful taking of actions which directly
impair the Officer's ability to perform his duties contemplated by this
Agreement, material breach of any term of this Agreement or taking any action
detrimental to the Company's good will or damaging the Company's relationship
with its customers, suppliers or employees, provided that such
Johnston By:
--------------
DCO
----------------------
3
<PAGE> 4
neglect or refusal, action or breach shall have continued for a period of 20
days following written notice thereof; (d) being convicted of or pleading guilty
or nolo contendere to any crime or offense constituting a felony under
applicable law or any crime or offense involving fraud or moral turpitude or (e)
any material intentional failure to comply with laws or governmental regulations
applicable to the Company or the conduct of the Company's business. Any
termination by the Company pursuant to this Section 4(a) above shall be
communicated by written notice of termination. In the event Officer shall be
terminated for Cause or shall resign from the Company prior to the expiration of
the term hereof, Officer shall be entitled to all salary actually earned prior
to termination, vested stock options and other vested benefits. Officer shall
not be entitled to any severance pay or prorated bonus in the event of
termination pursuant to this Section 4(a) for Cause or resignation.
(b) Termination of Employment in the Event of Officer's
Disability. If, in the reasonable, good faith opinion of the Board, as a result
of Officer's incapacity due to physical or mental illness, Officer shall have
been absent from his duties with the Company on a substantially continuous basis
for a period of six months, Officer's employment shall be terminated for
Disability. In the event Officer shall be terminated for "Disability," Officer
shall be entitled to all salary actually earned prior to termination, vested
stock options and other vested benefits, and to any benefits to which Officer
may be entitled under any Company-sponsored disability plan providing benefits
to Officer. Officer's employment shall not be terminable under this Section 4(b)
if Officer is absent from his duties upon an unexpired bona fide leave of
absence granted by the Company other than pursuant to physical or mental
illness.
(c) Termination of Employment in the Event of Death
During Employment. If Officer dies during the term of this Agreement, the
Agreement shall immediately terminate and the Company shall pay to Officer's
estate compensation which would otherwise be payable to Officer pursuant to this
Agreement up to the end of the month in which his death occurs. The Officer's
estate shall also be entitled to any vested stock options and other vested
benefits.
(d) Termination of Employment Without Cause; Constructive
Termination. If, during the term of this Agreement, the Company shall terminate
the Officer's employment with the Company (other than as a result of Disability)
without Cause, or the Officer shall terminate his employment with the Company as
a result of a material breach by the Company of the terms hereof, which breach
is not cured within thirty (30) days following receipt of notice in writing from
the Officer to the Company specifying the nature of such breach:
(i) In addition to such amounts as have accrued
prior to the date of termination and have not previously been paid, the Company
shall pay to the Officer, payable at the Company's discretion either in a lump
sum or at the time such payments would otherwise be payable hereunder, an amount
equal to one times Officer's then Base Salary.
Johnston By:
--------------
DCO
----------------------
4
<PAGE> 5
(ii) The Company shall, promptly upon submission by the
Officer of supporting documentation, pay or reimburse, or cause to be paid or
reimbursed, to the Officer any business related costs and expenses paid or
incurred by the Officer on or before the date of termination which would have
been payable under Section 3(c) if the Officer's employment had not been
terminated.
(iii) During the term payments are made pursuant to clause
(a) above, the Company shall continue to provide health and welfare benefits (or
equivalent coverage) to the Officer and/or the Officer's family at least equal
to those which would have been provided to them in accordance with the plans,
programs and policies of the Company from time to time in effect if the
Officer's employment had not been terminated.
(iv) Notwithstanding the above, all sums payable and
benefits provided to the Officer pursuant to Sections 4(d)(i) and (iii) above
shall promptly cease at such time as Officer becomes employed on a full time
basis with another company.
5. OFFICER'S OBLIGATIONS UPON TERMINATION OF EMPLOYMENT.
Upon the termination of his employment hereunder for whatever reason
Officer shall:
(a) Forthwith tender his resignation from any directorship or
office he may hold in the Company;
(b) Not at any time represent himself still to be connected or to
have any connection with the Company; and
(c) Refrain from taking any action or making any statement
intended to damage the reputation of or disparage the Company in any manner.
6. EFFECT OF TERMINATION. The provisions of this Agreement shall survive
the termination of this Agreement and the termination of Officer's employment
with the Company to the extent required to give full effect to the covenants and
agreements contained herein.
7. CONFIDENTIALITY.
(a) Officer agrees that, both during the term of this Agreement
and after the termination of this Agreement, Officer will hold in a fiduciary
capacity for the benefit of the Company, and shall not, directly or indirectly,
use or disclose, except as authorized by the Company in connection with the
performance of Officer's duties, any Confidential Information, as defined
hereinafter, that Officer may have or acquire (whether or not developed or
compiled by Officer and whether or not Officer has been authorized to have
access to such Confidential Information) during the term of this Agreement. The
term
Johnston By:
--------------
DCO
----------------------
5
<PAGE> 6
"Confidential Information" as used in this Agreement shall mean and include any
material information, data and know-how relating to the business of the Company
that is disclosed to Officer by the Company or known by him as a result of his
relationship with the Company and not generally within the public domain
(whether constituting a trade secret or not), including without limitation, the
following: financial information, supply and service information, marketing
information, personnel information, customer information and information with
respect to any corporate affairs that the Company treats as confidential. The
term "Confidential Information" does not include information that has become
generally available to the public by the act of one who has the right to
disclose such information without violating any right of the Company or the
client to which such information pertains.
(b) The covenant contained in this Section 7 shall survive the
termination of Officer's employment with the Company for any reason for a period
of two (2) years; provided, however, that with respect to those items of
Confidential Information which constitute trade secrets under applicable law,
Officer's obligations of confidentiality and non-disclosure as set forth in this
Section 7 shall continue to survive after said two (2) year period to the
greatest extent permitted by applicable law. These rights of the Company are in
addition to those rights the Company has under the common law or applicable
statutes for the protection of trade secrets. Officer agrees that the promises
of confidentiality made in this Section 7 are necessary to protect the Company's
legitimate business interests.
8. COVENANT NOT TO COMPETE. During the term of this Agreement and for a
period of one year following the termination of Officer's employment hereunder
for any reason (the "Non-competition Period"), Officer shall not, except as
authorized in writing by the Company, directly or indirectly, be employed by,
render services to, assist or participate in, as an executive or senior officer
or in an executive capacity, the affairs of, invest in, or otherwise serve in
any executive capacity with, any person or enterprise which person or enterprise
is engaged in, or is planning to engage in, any business that is in any respect
competitive with the Business, with respect to any product of the Business,
within the continental United States; provided that Officer may hold investments
representing a less than 5% interest in any publically held company competing
with the Company. In furtherance of such covenant not to compete, Officer hereby
acknowledges that the Company currently does business and will continue to do
business throughout the term of this Agreement throughout the United States and
that in his capacity as President and Chief Executive Officer of the Company his
responsibilities will involve all aspects of the Company's Business and the
conduct of business throughout the United States.
9. NON-SOLICITATION OF OFFICERS, KEY EMPLOYEES AND CUSTOMERS. Officer
agrees that he will, for so long as he is employed hereunder and for the
Non-competition Period after termination of his employment for any reason,
within the continental United States, (a) refrain from actively soliciting,
recruiting or hiring, or attempting to recruit or hire, directly or by assisting
others, any other officer or key employee of the Company who is employed by the
Company or any successor or affiliate
Johnston By:
--------------
DCO
----------------------
6
<PAGE> 7
of the Company and/or (b) refrain from calling on or soliciting, directly or
indirectly, any of the customers or suppliers of the Company or any successor or
affiliate of the Company who he served or contacted during his employment with
the Company to provide goods or services related to the Business of the Company,
nor during such period shall the Officer make known to any other person the
names or addresses of such customers or suppliers or any information relating in
any manner to the Company's trade or business relationships with such customers
or suppliers.
10. ACKNOWLEDGMENTS. Officer hereby acknowledges and agrees that the
restrictions contained in Sections 7, 8 and 9 are fair and reasonable and
necessary for the protection of the legitimate business interests of the
Company. Officer acknowledges that in the event Officer's employment with the
Company terminates for any reason, Officer will be able to earn a livelihood
without violating the restrictions contained in Sections 7, 8 and 9.
11. RIGHTS TO MATERIALS. All records, files, memoranda, reports, price
lists, customer lists, drawings, plans, sketches, documents and the like
(together with all copies thereof) relating to the business of the Company,
which Officer shall use or prepare or come in contact with in the course of, or
as a result of, his employment shall, as between the parties hereto, remain the
sole property of the Company. Upon the termination of his employment or upon the
demand of the Company, he shall immediately return all such materials and shall
not thereafter cause removal thereof from the premises of the Company.
12. INJUNCTIVE RELIEF. Officer understands, acknowledges and agrees that in
the event of a breach or threatened breach of any of the covenants and promises
contained in Sections 7, 8 and 9, the Company will suffer irreparable injury for
which there is no adequate remedy at law and the Company will therefore be
entitled to injunctive relief enjoining said breach or threatened breach.
Officer further acknowledges, however, that the Company shall have the right to
seek a remedy at law as well as or in lieu of equitable relief in the event of
any such breach.
13. ENTIRE AGREEMENT; GOVERNING LAW; AMENDMENTS AND WAIVERS. This Agreement
sets forth the entire understanding of the parties and supersedes all prior
agreements or understandings, whether written or oral, with respect to the
subject matter hereof. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Georgia and any applicable federal laws of the
United States of America. No terms, conditions, warranties, other than those
contained herein, and no amendments or modifications hereto shall be binding
unless made in writing and signed by the parties hereto. No provisions of this
Agreement may be modified, waived, or discharged unless such waiver,
modification or discharge is agreed to in writing signed by Officer and the
Company acting through a duly authorized officer. No waiver by either party
hereto at any time of any
Johnston By:
--------------
DCO
----------------------
7
<PAGE> 8
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.
14. BINDING EFFECT. This Agreement shall inure to the benefit of and shall
be binding upon the Company, its successors and assigns. The obligations and
duties of the Officer hereunder are personal and otherwise not assignable. This
Agreement shall inure to the benefit of and be enforceable by the Officer's
legal representatives. Both Officer and the Company represent that he and it
have consulted with whomsoever he or it wished before executing this Agreement,
including but not limited to counsel of their respective choice.
15. NOTICE. For the purposes of this Agreement, notices, and all other
communication provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or mailed by United
States certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Company:
Johnston Industries, Inc.
105 Thirteenth Street
Columbus, Georgia 31901
Attention:
If to Officer:
or, in either case, to such other address as either party may have furnished to
the other in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
16. TITLES. Titles of the headings herein are used solely for convenience
and shall not be used for interpretation or construing any work, section clause,
paragraph, or provision of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
18. ENFORCEMENT. The provisions of this Agreement may be enforced by all
legal and equitable remedies available to the parties including specific
performance and injunction. Nothing herein shall be construed as prohibiting
either party from pursuing any other remedies available to it, including
recovery of damages.
Johnston By:
--------------
DCO
----------------------
8
<PAGE> 9
19. VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not effect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect. If any provision
of this Agreement is held to be illegal, invalid, or unenforceable under present
or future laws effective, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable
provision, there shall be added automatically as a part of this Agreement a
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and still be legal, valid or enforceable. It is
acknowledged that any payment which may be made by the Company to Officer under
this Agreement is in the nature of employment and/or severance and not a penalty
payment. Should the obligation to make any payment hereunder be held to be void
or voidable as a penalty by a final non-appealable judgment, this Agreement
shall be deemed to provide an obligation on the part of the Officer to render
such consulting services as the Company may reasonably request during the period
of and in exchange for such payments as would otherwise have been made by the
Company as severance benefits and the parties agree such payments shall
constitute reasonable compensation for the value of Officer's services during
such period.
20. ARBITRATION. Except as otherwise provided in this Agreement, the
Company and Officer hereby consent to the resolution by arbitration of all
claims or controversies for which a court otherwise would be authorized by law
to grant relief, in any way arising out of, relating to or associated with
Officer's employment with the Company or its termination, that the Company may
have against Officer or that Officer may have against the Company or against its
officers, directors, employees or agents in their capacity as such or otherwise,
whether or not such dispute concerns the formation or terms of this Agreement.
Any such arbitration shall be in accordance with the procedures of the American
Arbitration Association ("AAA"). The arbitration hearing will be held before an
experienced employment arbitrator or panel of arbitrators licensed to practice
law in the state of Georgia and selected by and in accordance with the rules of
the AAA, as the exclusive remedy for such claim or dispute. The forum for such
arbitration shall be Columbus, Georgia. The party seeking arbitration of a
dispute, claim or controversy as required by this Section 20 must give specific
written notice of any claim to the other party within six (6) months of the date
the party seeking arbitration first has knowledge of the event giving rise to a
claim or dispute; otherwise, the claim shall be void and deemed waived, even if
there is a federal or state statute of limitations which would have given more
time to pursue the claim. Notwithstanding the foregoing, the Company shall have
the right to seek temporary and/or preliminary injunctive relief in a court of
competent jurisdiction to enforce the terms of Sections 7, 8 and 9 hereof.
Moreover, this agreement to arbitrate does not apply to or cover other claims by
the Company or any non-party to the Agreement for injunctive and/or other
equitable relief for unfair competition and/or the use and/or unauthorized
disclosure of trade secrets or confidential information. The
Johnston By:
--------------
DCO
----------------------
9
<PAGE> 10
ultimate resolution of the underlying issues in such litigation, shall, however,
be subject to this Agreement by the parties to resolve any disputes by
arbitration as set forth herein.
IN WITNESS WHEREOF, the parties hereto have freely and voluntarily
executed this Agreement as of the date and year first written above.
JOHNSTON INDUSTRIES, INC.
BY: /s/ David L. Chandler
-------------------------
Name: David Chandler
Title: Chairman
Accepted and Agreed as of the
date first above written: Attest
/s/ D. Clark Ogle BY: /s/ James J. Murray
- -------------------------------- -------------------------
D. Clark Ogle Name: James J. Murray
Title: Chief Financial Officer
Johnston By:
--------------
DCO
----------------------
10
<PAGE> 1
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 11 - STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
The weighted average number of common and common share equivalents on a basic
and diluted basis are as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE
YEAR YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
JANUARY 3, DECEMBER 28, DECEMBER 30, JUNE 30,
1998 1996 1995 1995
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 10,562,294 10,413,171 10,564,979 10,599,242
Shares issued from assumed exercise of
incentive stock options 210,596 201,246 -- --
Shares issued from assumed exercise of
nonqualified stock options (1) 58,530 88,126 -- 98,097
------------ ------------ ------------ -----------
Weighted average number of shares outstanding,
as adjusted 10,831,420 10,702,543 10,564,979 10,697,339
============ ============ ============ ===========
Income (Loss) from continuing operations $ (8,622,000) $ (2,183,000) $ (6,348,000) $ 6,889,000
Income (Loss) from discontinued operations 126,000 5,582,000 158,000 986,000
Extraordinary loss -- (527,000) -- --
------------ ------------ ------------ -----------
Net Income (Loss) (8,496,000) 2,872,000 (6,190,000) 7,875,000
Dividends on Preferred Stock (81,000) (125,000) -- --
------------ ------------ ------------ -----------
Net Income (Loss) available to common
stockholders $ (8,577,000) $ 2,747,00 $ (6,190,000) $ 7,875,000
============ ============ ============ ===========
Earnings (Loss) per common share-Basic:
Income from continuing operations $ (.82) $ (.22) $ (.60) $ .65
Discontinued operations .01 .53 .01 .09
Extraordinary loss .-- (.05) .-- .--
------------ ------------ ------------ -----------
Earnings (Loss) per common share $ (.81) $ (.26) $ (.59) $ .74
============ ============ ============ ===========
</TABLE>
- --------------------------------------------------------------------------------
(1) Earnings per Common Share-Diluted are not presented as they are
antidilutive in periods for which a loss is presented or immaterial.
<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, January 3, 1998 and December 28, 1996 F - 3
Consolidated Statements of Operations for the Years Ended January 3, 1998 and
December 28, 1996, Six Months Ended December 30, 1995, and Fiscal Year
Ended June 30, 1995 F - 4
Consolidated Statements of Stockholders' Equity for the Years Ended January
3, 1998 and December 28, 1996, Six Months Ended December 30, 1995, and
Fiscal Year Ended June 30, 1995 F - 6
Consolidated Statements of Cash Flows for the Years Ended January 3, 1998 and
December 28, 1996, Six Months Ended December 30, 1995, and Fiscal Year
Ended June 30, 1995 F - 7
Notes to Consolidated Financial Statements F - 10
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 January 3, 1998 and
December 28, 1996 and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years ended January 3, 1998 and
December 28, 1996, the six months ended December 30, 1995, and for the year
ended June 30, 1995. 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 January 3, 1998 and
December 28, 1996 and the results of its operations and its cash flows for the
years ended January 3, 1998 and December 28, 1996, the six months ended December
30, 1995, and for the year ended June 30, 1995 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 of December 28, 1996, net assets of discontinued operations - Jupiter and
assets held for sale - 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. The 1996 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.
<PAGE> 3
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.
/s/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 6, 1998
March 30, 1998 (As to Note 11)
<PAGE> 4
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 3, 1998 AND DECEMBER 28, 1996
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
ASSETS 1998 1996
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,284,000 $ 1,720,000
Inventories 51,083,000 65,520,000
Accounts and notes receivable, net of allowance of
$2,016,000 and $1,379,000 34,283,000 37,128,000
Assets held for sale 5,010,000 7,275,000
Income taxes receivable 4,838,000 2,105,000
Deferred income taxes 406,000
Prepaid expenses and other 5,200,000 2,254,000
Net assets of discontinued operations 2,313,000
------------ ------------
Total current assets 103,104,000 118,315,000
PROPERTY, PLANT, AND EQUIPMENT - Net 113,783,000 130,047,000
GOODWILL 11,477,000 14,046,000
INTANGIBLE ASSET - Pension 1,882,000 2,042,000
OTHER ASSETS 4,542,000 4,814,000
------------ ------------
$234,788,000 $269,264,000
============ ============
<CAPTION>
JANUARY 3, DECEMBER 28,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1996
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 17,088,000 $ 26,409,000
Accrued expenses 10,264,000 12,395,000
Revolving credit loan 73,995,000
Current maturities of long-term debt 3,393,000 6,505,000
Deferred income taxes 757,000
------------ ------------
Total current liabilities 104,740,000 46,066,000
LONG-TERM DEBT 61,688,000 144,191,000
OTHER LIABILITIES 9,022,000 11,824,000
DEFERRED INCOME TAXES 10,214,000 7,991,000
COMMITMENT AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share; authorized,
3,000,000 shares; 325,000 issues in 1996 3,000
Common stock, par value $.10 per share; authorized
20,000 shares; issued 12,467,691 and 12,449,391 1,246,000 1,245,000
Additional paid-in capital 21,445,000 23,568,000
Retained earnings 34,458,000 45,111,000
------------ ------------
Total 57,149,000 69,927,000
Less treasury stock; 1,724,919 and 2,086,517 shares (8,025,000) (10,257,700)
Less minimum pension liability adjustment, net of tax
benefit (478,000)
------------ ------------
Total stockholders' equity 49,124,000 59,192,000
------------ ------------
$234,788,000 $269,264,000
============ ============
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE> 5
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JANUARY 3, 1998 AND DECEMBER 28, 1996, SIX MONTHS ENDED
DECEMBER 30, 1995, AND FISCAL YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
------------------------------- ENDED YEAR ENDED
JANUARY 3, DECEMBER 28, DECEMBER 30, JUNE 30,
1998 1996 1995 1995
<S> <C> <C> <C> <C>
NET SALES $ 332,537,000 $ 321,883,000 $ 148,773,000 $ 262,279,000
COSTS AND EXPENSES:
Cost of sales, excluding depreciation and
amortization 274,648,000 265,682,000 128,289,000 209,031,000
Selling, general, and administrative 27,923,000 24,913,000 15,145,000 20,303,000
Depreciation and amortization 21,370,000 19,715,000 8,874,000 13,766,000
Restructuring and impairment charges 6,273,000 3,091,000 6,532,000
------------- ------------- ------------- -------------
Total costs and expenses 330,214,000 313,401,000 158,840,000 243,100,000
------------- ------------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS 2,323,000 8,482,000 (10,067,000) 19,179,000
OTHER EXPENSE (INCOME):
Interest expense 13,699,000 11,157,000 4,270,000 5,938,000
Interest income (795,000) (272,000) (60,000) (101,000)
Other - net 1,681,000 (558,000) 1,405,000 1,565,000
------------- ------------- ------------- -------------
Total other expense - net 14,585,000 10,327,000 5,615,000 7,402,000
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 561,000 (3,725,000)
------------- ------------- ------------- -------------
EQUITY IN EARNINGS OF EQUITY
INVESTMENTS 610,000
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES AND MINORITY INTEREST (11,701,000) (5,570,000) (15,682,000) 12,387,000
PROVISION (BENEFIT) FOR INCOME TAXES (3,079,000) (1,815,000) (6,824,000) 4,963,000
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE MINORITY INTEREST (8,622,000) (3,755,000) (8,858,000) 7,424,000
MINORITY INTEREST IN (INCOME) LOSS OF
CONSOLIDATED SUBSIDIARY 1,572,000 2,510,000 (535,000)
------------- ------------- ------------- -------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS (8,622,000) (2,183,000) (6,348,000) 6,889,000
</TABLE>
(Continued)
-4-
<PAGE> 6
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JANUARY 3, 1998 AND DECEMBER 28, 1996, SIX MONTHS ENDED
DECEMBER 30, 1995, AND FISCAL YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
----------------------------- ENDED YEAR ENDED
JANUARY 3, DECEMBER 28, DECEMBER 30, JUNE 30,
1998 1996 1995 1995
<S> <C> <C> <C> <C>
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations
of Jupiter (in thousands) [less applicable
taxes (benefit) of $(5), $6,190, $478, and
$2,120] net of minority interest in income
of $0, $1,455, $214, and $1,165 $ (11,000) $ 6,562,000 $ 158,000 $ 986,000
Income (loss) on disposal of Jupiter (in
thousands), including provision of $628 in
1996 for operating losses during phase-out
period (less applicable taxes (benefit) of $60
and $2,504) 137,000 (980,000)
------------ ------------ ----------- ------------
INCOME FROM DISCONTINUED
OPERATIONS 126,000 5,582,000 158,000 986,000
EXTRAORDINARY ITEMS (LESS APPLICABLE
TAX BENEFIT OF $323,000) - Loss on early
extinguishment of debt 527,000
------------ ------------ ----------- ------------
NET INCOME (LOSS) (8,496,000) 2,872,000 (6,190,000) 7,875,000
DIVIDENDS ON PREFERRED STOCK (82,000) (125,000)
------------ ------------ ----------- ------------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDERS $ (8,578,000) $ 2,747,000 $(6,190,000) $ 7,875,000
============ ============ =========== ============
EARNINGS (LOSS) PER COMMON SHARE - BASIC:
Income (loss) from continuing operations $ (0.82) $ (0.22) $ (0.60) $ 0.65
Discontinued operations 0.01 0.53 0.01 0.09
Extraordinary loss (0.05)
------------ ------------ ----------- ------------
NET EARNINGS (LOSS) APPLICABLE TO COMMON
SHAREHOLDERS PER SHARE - BASIC AND DILUTED $ (0.81) $ 0.26 $ (0.59) $ 0.74
============ ============ =========== ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 10,562,294 10,413,171 10,564,979 10,559,242
============ ============ =========== ============
</TABLE>
See notes to consolidated financial statements.
(Concluded)
-5-
<PAGE> 7
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 3, 1998 AND DECEMBER 28, 1996, SIX MONTHS ENDED
DECEMBER 30, 1995, AND FISCAL YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------- ----------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
-------- ------ ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - June 30, 1994 12,411,891 $1,241,000 $17,107,000 $51,065,000
Exercise of stock options 15,000 2,000 151,000
Purchase of treasury stock
Net income 7,875,000
Dividends paid ($.39 per share) (4,132,000)
Minimum pension liability adjustment,
net of taxes of $871,000
---------- ---------- ----------- -----------
BALANCE - June 30, 1995 12,426,891 1,243,000 17,258,000 54,808,000
Windfall tax credit 35,000
Net loss (6,190,000)
Dividends paid ($.20 per share) (2,113,000)
Minimum pension liability adjustment,
net of taxes of $12,000
---------- ---------- ----------- -----------
BALANCE - December 30, 1995 12,426,891 1,243,000 17,293,000 46,505,000
Exercise of options 22,500 2,000 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 2,872,000
Minimum pension liability adjustment,
net of taxes of $485,000
Dividends paid - common stock
($0.40 per share) (4,141,000)
Dividends paid - preferred stock
($0.50 per share) (125,000)
-------- ------ ---------- ---------- ----------- -----------
BALANCE - December 28, 1996 325,000 3,000 12,449,391 1,245,000 23,568,000 45,111,000
Exercise of options 18,300 1,000 74,000
Issuance of treasury stock
Cancellation of preferred shares (325,000) (3,000) (2,197,000)
Net loss (8,496,000)
Minimum pension liability adjustment,
net of tax of $182,000
Dividends paid - common stock
($0.20 per share) (2,075,000)
Dividends paid - preferred stock
($0.25 per share) (82,000)
-------- ------ ---------- ---------- ----------- -----------
BALANCE - January 3, 1998 NIL NIL 12,467,691 $1,246,000 $21,445,000 $34,458,000
======== ====== ========== ========== =========== ===========
<CAPTION>
MINIMUM
TREASURY STOCK PENSION
----------------------- LIABILITY
SHARES AMOUNT ADJUSTMENT TOTAL
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE - June 30, 1994 1,682,112 $(6,407,000) $(3,198,000) $59,808,000
Exercise of stock options 153,000
Purchase of treasury stock 179,800 (1,701,000) (1,701,000)
Net income 7,875,000
Dividends paid ($.39 per share) (4,132,000)
Minimum pension liability adjustment,
net of taxes of $871,000 1,424,000 1,424,000
--------- ----------- ----------- -----------
BALANCE - June 30, 1995 1,861,912 (8,108,000) (1,774,000) 63,427,000
Windfall tax credit 35,000
Net loss (6,190,000)
Dividends paid ($.20 per share) (2,113,000)
Minimum pension liability adjustment,
net of taxes of $12,000 20,000 20,000
--------- ----------- ----------- -----------
BALANCE - December 30, 1995 1,861,912 (8,108,000) (1,754,000) 55,179,000
Exercise of options 72,000
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) 92,000 92,000
Issuance of preferred shares 3,250,000
Net income 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)
Dividends paid - preferred stock
($0.50 per share) (125,000)
--------- ----------- ----------- -----------
BALANCE - December 28, 1996 2,086,517 (10,257,000) (478,000) 59,192,000
Exercise of options (16,500) 32,000 107,000
Issuance of treasury stock (345,098) 2,200,000 2,200,000
Cancellation of preferred shares (2,200,000)
Net loss (8,496,000)
Minimum pension liability adjustment,
net of tax of $182,000 478,000 478,000
Dividends paid - common stock
($0.20 per share) (2,075,000)
Dividends paid - preferred stock
($0.25 per share) (82,000)
--------- ----------- ----------- -----------
BALANCE - January 3, 1998 1,724,919 $(8,025,000) $ NIL $49,124,000
========= =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
-6-
<PAGE> 8
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 3, 1998 AND DECEMBER 28, 1996, SIX MONTHS ENDED
DECEMBER 30, 1995, AND FISCAL YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
----------------------------- ENDED YEAR ENDED
JANUARY 3, DECEMBER 28, DECEMBER 30, JUNE 30,
1998 1996 1995 1995
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Continuing operations:
Net income (loss) from continuing operations $ (8,622,000) $ (2,183,000) $ (6,348,000) $ 6,889,000
Adjustments to reconcile net income (loss) from
continuing operations to net cash provided
by (used in) operating activities:
Depreciation and amortization 21,370,000 19,715,000 8,874,000 13,766,000
Restructuring and impairment charges 5,609,000 200,000 6,532,000
Provision for bad debts 1,490,000 245,000 791,000 89,000
Loss (gain) on disposal of fixed assets 292,000 90,000 284,000 (1,000)
Net realized and unrealized (gain) loss on portfolio
investments (478,000) 3,725,000
Undistributed income in investments (610,000)
Minority interest in income (loss) of consolidated
subsidiary (1,572,000) (2,510,000) 535,000
Changes in assets and liabilities, net of effect
of acquisitions:
Accounts and notes receivable (47,000) 2,550,000 1,465,000 (8,928,000)
Inventories 13,063,000 (4,063,000) (5,505,000) 7,432,000
Deferred income taxes 783,000 2,538,000 (1,090,000) (777,000)
Prepaid expenses and other assets (1,265,000) 565,000 (1,695,000) 73,000
Accounts payable (6,363,000) 4,856,000 2,896,000 (828,000)
Accrued expenses 303,000 (1,439,000) 104,000 (586,000)
Income taxes receivable (3,176,000) (2,878,000) (1,593,000) (1,286,000)
Other liabilities (1,887,000) 190,000 (4,129,000) 2,559,000
Other, net 790,000 96,000 127,000
------------ ------------ ------------ ------------
Total adjustments 30,484,000 24,722,000 4,520,000 11,565,000
------------ ------------ ------------ ------------
Net cash provided by (used in)
continuing operations 21,862,000 22,539,000 (1,828,000) 18,454,000
Discontinued operations:
Income (loss) from discontinued operations (11,000) 6,562,000 158,000 986,000
Income (loss) on disposal of discontinued operations 137,000 (980,000)
Cash provided by (used in) discontinued operations 1,929,000 (705,000) 3,140,000 3,106,000
Items not affecting cash, net (12,722,000) (3,420,000) (5,213,000)
------------ ------------ ------------ ------------
Net cash provided by (used) in discontinued operations 2,055,000 (7,845,000) (122,000) (1,121,000)
------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities 23,917,000 14,694,000 (1,950,000) 17,333,000
</TABLE>
(Continued)
-7-
<PAGE> 9
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 3, 1998 AND DECEMBER 28, 1996, SIX MONTHS ENDED
DECEMBER 30, 1995, AND FISCAL YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
------------------------------- ENDED YEAR ENDED
JANUARY 3, DECEMBER 28, DECEMBER 30, JUNE 30,
1998 1996 1995 1995
<S> <C> <C> <C> <C>
INVESTING ACTIVITIES:
Continuing operations:
Additions to property, plant, and equipment $ (10,363,000) $ (20,527,000) $ (17,781,000) $ (21,448,000)
Increase (decrease) in nonoperating accounts payable (2,458,000) (5,899,000) 4,254,000 5,784,000
Investments:
Purchases (5,237,000)
Sales 932,000 155,000
Sale of Tarboro assets 2,330,000
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 (9,559,000) (63,786,000) (13,372,000) (20,901,000)
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 (9,559,000) (25,964,000) (14,915,000) (21,743,000)
FINANCING ACTIVITIES:
Continuing operations:
Principal payments of debt (17,173,000) (112,341,000) (2,827,000) (5,086,000)
Proceeds from issuance of long-term debt 160,544,000 12,437,000 13,138,000
Borrowings under line-of-credit agreements 5,500,000 4,750,000 12,450,000 (14,975,000)
Repayments under line-of-credit agreements (18,000,000) (6,000,000) 17,275,000
Purchase of treasury stock (2,241,000) (1,701,000)
Proceeds from issuance of common stock 36,000 164,000 48,000
Dividends paid (2,157,000) (4,266,000) (2,113,000) (4,132,000)
Extraordinary item, loss on early
extinguishment of debt (850,000)
------------- ------------- ------------- -------------
Net cash provided by (used in) continuing
operations (13,794,000) 27,760,000 13,947,000 4,567,000
------------- ------------- ------------- -------------
</TABLE>
(Continued)
-8-
<PAGE> 10
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 3, 1998 AND DECEMBER 28, 1996, SIX MONTHS ENDED
DECEMBER 30, 1995, AND FISCAL YEARS ENDED JUNE 30,1995
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
----------------------------- ENDED YEAR ENDED
JANUARY 3, DECEMBER 28, DECEMBER 30, JUNE 30,
1998 1996 1995 1995
------------ ------------ ------------ ------------
<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 (13,794,000) 11,519,000 14,242,000 4,590,000
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 564,000 249,000 (2,623,000) 180,000
CASH AND CASH EQUIVALENTS:
Beginning of period 1,720,000 1,471,000 4,094,000 3,914,000
------------ ------------ ------------ ------------
End of period $ 2,284,000 $ 1,720,000 $ 1,471,000 $ 4,094,000
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid (received) during the period for:
Interest $ 13,582,000 $ 13,291,000 $ 4,571,000 $ 6,720,000
============ ============ ============ ============
Income taxes $ (654,000) $ 4,374,000 $ 1,315,000 $ 3,932,000
============ ============ ============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES - The Company acquired
T.J. Beall Company in exchange for preferred stock (see Note 5) in 1996.
During 1997, the Company sold TJ Beall back to the original owner in exchange
for the preferred stock and a note receivable in the amount of $1,500,000.
In June 1997, the Company contributed 345,098 shares of treasury stock,
totaling $2,200,000 to the Company's defined benefit pension plans.
See notes to consolidated financial statements.
(Concluded)
-9-
<PAGE> 11
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED
JANUARY 3, 1998 AND DECEMBER 28, 1996, SIX MONTHS ENDED DECEMBER 30, 1995, AND
FISCAL YEAR ENDED JUNE 30, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Organization - The January 3, 1998 financial 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.), J.I. Georgia, Inc., formerly T.J. Beall Company
("TJB"), and Greater Washington Investments ("GWI"). 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. On September 29,
1997, the Company sold substantially all of the assets of TJB (see Note
5).
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) or market.
- 10 -
<PAGE> 12
However, JICR's inventories and all of the Company's parts and supplies
are stated at the lower of cost determined on the first-in, first-out
basis or market.
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
$4,795,000 and $5,243,000 at January 3, 1998 and December 28, 1996,
respectively.
Earnings (Loss) Per Share - In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards
("SFAS") 128, "Earnings per Share." This statement establishes new
standards for computing and presenting earnings per share ("EPS")
information. SFAS 128 simplifies the computation of earnings per share
formerly required by APB Opinion 15 and its related interpretations. The
new statement replaces the presentation of "primary" (and when required
"fully diluted") earnings per share with "basic" and "diluted" earnings
per share. Net income per share basic is computed based on net income
divided by the weighted average common shares outstanding. If required,
on a diluted basis, net income per share - diluted is computed by
dividing net income by the weighted average common and common equivalent
shares outstanding during the year. The Company adopted SFAS 128 during
1997 in the fourth quarter of 1997 and retroactively restated all prior
periods' EPS calculations in conformity with SFAS 128.
Earnings per share is not presented on a diluted basis as the effect of
potentially dilutive securities was either anti-dilutive due to net
losses or immaterial for the periods presented.
Impairment of Long-Lived Assets - On July 1, 1995, the Company adopted
the provisions of 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. During the years ended January 3, 1998
and December 28, 1996, the Company recorded impairment changes of
$3,625,000 and $200,000, respectively in connection with restructurings
(see Note 3) and the revision of prior estimates of the net realizable
value of assets held for sale. 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
held for sale are reported at the lower of cost 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.
- 11 -
<PAGE> 13
Stock-Based Compensation - SFAS 123, "Accounting for Stock-Based
Compensation," establishes financial accounting and reporting standards
for stock-based compensation plans and includes fair value recognition
provisions for stock-based compensation which are elective for employee
arrangements and required for nonemployee transactions. The Company
adopted SFAS 123 during the fiscal year ended December 28, 1996. 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.
Reclassifications - Certain prior year and prior period amounts have been
reclassified to conform to the current year presentation and to reflect
reclassifications from discontinued operations to continuing operations
for venture capital segment operations which were not sold during 1997.
(See Note 2.)
2. JUPITER NATIONAL, INC.
Historical Presentation - Prior to January 1995, the Company owned a
minority interest in Jupiter and accounted for its investment using the
equity method. For the year ended June 30, 1995, Johnston recorded equity
in the changes in net assets of Jupiter of $1,308,000 which includes
$513,000 related to the venture capital segment. In January 1995, the
Company purchased additional 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.
Acquisition of Remaining Third-Party Owned 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 was assigned a life of 20 years.
- 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 (4,405,000) (12,950,000)
Income from discontinued operations 6,665,000 372,000
Extraordinary loss (527,000)
Net income (loss) 1,733,000 (12,578,000)
Earnings per common share - basic and diluted:
Income before extraordinary loss and
discontinued operations $ (0.41) $ (1.22)
Extraordinary loss (0.05)
Discontinued operations 0.62 0.04
------------- -------------
$ 0.16 $ 1.18
============= =============
</TABLE>
Discontinuance of the Venture Capital Segment - Concurrent with the
Jupiter Acquisition, the Company's management made the decision to
discontinue the venture capital investment segment of Jupiter's
operation. Accordingly, the Company wrote down the carrying value of the
investments by $4,380,000. Through June 28, 1997, the segment was
accounted for as discontinued operations, and the net assets of the
discontinued segment were recorded as an asset on the consolidated
balance sheet and were expected to be disposed of by June 1997. During
that period, the results of operations for Jupiter's venture capital
investment activities were recorded as discontinued operations.
At June 29, 1997, the remaining undisposed portfolio investments were
reclassified from net assets of discontinued operations to assets held
for sale on the consolidated balance sheet, and the results of continuing
operations for these remaining portfolio investments have been reported
as income from continuing operations on the consolidated statements of
income. All prior periods have been reclassified to reflect the venture
segment as a component of continuing operations.
- 13 -
<PAGE> 15
The components of net assets of discontinued operations at December 28,
1996 are as follows (in thousands):
<TABLE>
<S> <C>
Cash and cash equivalents $ 28,000
Investments - at estimated fair value as
determined by Johnston's directors 2,145,000
Accounts receivable 40,000
Accrued interest receivable 501,000
Prepaid expenses and other 550,000
Net property, plant, and equipment held for sale 148,000
-----------
Total assets 3,412,000
Accounts payable and accrued expenses 497,000
Income taxes payable 474,000
Long-term debt 128,000
------------
Total liabilities 1,099,000
-----------
Net assets of discontinued operations $ 2,313,000
===========
</TABLE>
Income (loss) from discontinued operations of Jupiter includes the
following components:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------- SIX MONTHS ENDED YEAR ENDED
JANUARY 3, DECEMBER 28, DECEMBER 30, JUNE 30,
1998 1996 1995 1995
<S> <C> <C> <C> <C>
Net realized investment
portfolio gain $ 30,918,000 $ 777,000
Change in unrealized investment
portfolio gain (loss) (14,072,000) $ 3,767,000 4,431,000
Equity in losses (income) 201,000 156,000 567,000
Operating costs $ 16,000 2,117,000 2,567,000 533,000
Interest expense 321,000 194,000 655,000
Income tax expense (benefit) (5,000) 6,190,000 478,000 1,302,000
Minority interest (1,455,000) (214,000) (1,165,000)
--------- ------------ ----------- ------------
Total $ (11,000) $ 6,562,000 $ 158,000 $ 986,000
========= ============ =========== ============
</TABLE>
For the year ended January 3, 1998, net realized investment portfolio
gain primarily arose from gains realized on the Company's investment in
Metropolitan Personnel Services, Inc., Centennial Media, and Thermo
Electron.
Investments and Valuation (1996 and Prior) - Jupiter's wholly owned
subsidiary, Greater Washington Investments ("GWI"), was a small business
development company organized pursuant to the United States Small
Business Investment Act of 1958. GWI surrendered its special status
during 1997. Prior to surrender of the special status, GWI used
specialized accounting policies required for investment companies to
determine the value of its portfolio of investments. Under these
policies, securities with
- 14 -
<PAGE> 16
readily available market quotations were valued at the current market
price; investments in non-publicly traded entities were valued and
recorded at estimated net realizable values as determined in good faith
by the Company's Board of Directors. Accordingly, at December 28, 1996,
$6,140,000 of Jupiter's investments were recorded at their estimated fair
value based on estimates by Johnston's Board of Directors after
consideration of liquidation plans. Earnings (losses) related to these
investments for the years 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 December 28, 1996, net realized investment portfolio
gains primarily arose from gains realized on the sale of the Company's
investment in EMC Corporation , Viasoft, Fuisz Technologies, Inc., and
Zoll Medical.
The following summarizes the aggregate carrying value of the portfolio
investments held for sale at January 3, 1998:
<TABLE>
<S> <C>
Debt securities $3,965,000
Equity securities 545,000
----------
$4,510,000
==========
</TABLE>
Subsequent to the surrender of GWI's investment company status, the
Company classified its investments as available for sale and reports
these investments at estimated fair value as determined by collateral
values for debt instruments and amortized costs. The fair value of
investments in equity securities are not readily determinable and are
carried at the lower of cost or estimated net realizable value.
3. RESTRUCTURING AND IMPAIRMENT CHARGES
The Company recorded the following restructuring and impairment charges:
<TABLE>
<CAPTION>
SIX
MONTHS
YEAR ENDED ENDED
---------------------------------------------------------------- DECEMBER 30,
JANUARY 3, 1998 DECEMBER 28, 1996 1995
------------------------------ -------------------------------- --------------
RESTRUCTURING IMPAIRMENT RESTRUCTURING IMPAIRMENT IMPAIRMENT
<S> <C> <C> <C> <C> <C>
Langdale facility $ 389,000 $ 2,630,000
TJ Beall 1,984,000
Tarboro facility 11,000 $ 2,891,000 $ 6,532,000
Other restructuring and
impairment charges 275,000 984,000 $ 200,000
--------- ----------- ----------- --------- -----------
$ 664,000 $ 5,609,000 $ 2,891,000 $ 200,000 $ 6,532,000
========= =========== =========== ========= ===========
</TABLE>
Langdale Facility - In August 1997, the Company finalized its plans to
cease manufacturing operations at its Langdale Facility in an effort to
further consolidate certain manufacturing activities and concentrate on
efficient and profitable operations. The Langdale Facility contained both
weaving operations and yarn manufacturing operations. The yarn
manufacturing operations were eliminated and selected equipment
- 15 -
<PAGE> 17
and associated product offerings of the weaving operations were relocated
to other facilities. The remaining weaving operations at the Langdale
Facility were closed. The Langdale Facility was retained for light
manufacturing, warehousing, distribution, and potential future
manufacturing space of JI Alabama's Fiber Products Division. During 1997,
the Company recorded charges totaling $3,019,000 related to closure of
the Langdale Facility and the Outlet Store including write-downs on
machinery and equipment of $2,057,000, a write-down of $573,000 on the
Langdale building and restructuring charges of $389,000.
T.J. Beall Impairment - In recognition of the disappointing operating
results realized at TJB since its acquisition in March of 1996 and risks
inherent in future operations, the Company recorded restructuring charges
of $1,984,000 in June of 1997 for the write-off of goodwill related to
the acquisition of TJB.
Tarboro Facility - In 1995, the Company decided to close the
manufacturing facility in Tarboro, North Carolina, which had been
operated by Jupiter's Wellington 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. In 1997 and 1996, the Company recorded
restructuring charges totaling $11,000 and $4,743,000, respectively. Of
the charges recorded in 1996, $1,852,000, representing the minority
interest (the portion of Wellington not owned by Johnston prior to the
Jupiter Acquisition), 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 operations. During 1995, the Company
recorded a write-down of $6,532,000 for an impairment in the carrying
value of the Tarboro Facility's property, plant, and equipment.
The plan for the closing of the Tarboro Facility called for termination
of 168 employees with various job descriptions at the facility. As of
January 3, 1998, 168 employees had been terminated. Through January 3,
1998, approximately $712,000 has been charged to the reserves established
for the closing. These costs included $262,000 related to severance
costs. In December 1997, the Tarboro Facility was sold resulting in net
proceeds of $2,330,000.
Other Restructuring and Impairment Charges - In 1996, the Company
recorded a $200,000 write-down of the Jupiter building. In 1997, the
Company recorded $275,000 of restructuring charges related to the
realignment of divisions. Also, in 1997, the Company recorded impairment
losses totaling $984,000 which includes a $552,000 write-down of the
Company's investment in software for which the original implementation
attempt has been abandoned, an additional $253,000 write-down of the
Jupiter building, and a $179,000 write-down of the outlet store in West
Point, Georgia.
4. STEEL FABRICATION OPERATIONS
The accompanying balance sheets at January 3, 1998 and December 28, 1996
include liabilities of $7,154,000 and $8,552,000, 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
- 16 -
<PAGE> 18
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. The Company
re-evaluated the contingency during 1997 and determined that a reserve
balance of $150,000 was adequate at January 3, 1998. Accordingly,
approximately $446,000 was released from the reserve account and is
included in other-net in the statement of operations. 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 with certainty.
5. T.J. BEALL COMPANY
On March 25, 1996, the Company acquired all of the outstanding common
stock of TJB, a broker in cotton by-products 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 with 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 were payable quarterly at the rate of
$.125 per share. Goodwill of $2,116,000 was recorded in connection with
the acquisition and was originally assigned a useful life of 20 years.
Each share of Series 1996 Preferred Stock was convertible 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. The
acquisition was accounted for under the purchase method of accounting.
In June 1997, the Company recognized an impairment charge of $1,984,000
to write off the unamortized goodwill and, in September 1997, an
agreement was reached culminating in the sale of substantially all of the
assets and current liabilities of TJB back to the Beall family (See Note
3). The sale of TJB resulted in a loss of $546,000 which is recorded in
other - net expenses in the statement of operations.
6. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
<S> <C> <C>
Inventories - FIFO Cost Flow Assumption
Finished goods $ 30,367,000 $ 32,674,000
Work-in-process 10,581,000 9,866,000
Raw materials and supplies 13,607,000 27,784,000
------------ ------------
54,555,000 70,324,000
Less LIFO reserve 3,472,000 4,804,000
------------ ------------
Inventories - LIFO Cost Flow Assumption $ 51,083,000 $ 65,520,000
============ ============
</TABLE>
- 17 -
<PAGE> 19
7. ASSETS HELD FOR SALE
Assets held for sale consisted of the following:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
<S> <C> <C>
Jupiter portfolio investments (Note 2) $ 4,510,000 $ 4,187,000
Tarboro facility (Note 3) 2,293,000
Jupiter building 500,000 795,000
----------- -----------
$ 5,010,000 $ 7,275,000
=========== ===========
</TABLE>
8. JOHNSTON INDUSTRIES COMPOSITE REINFORCEMENTS, INC.
The Company entered into a 50/50 partnership with a British 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>
JANUARY 3, DECEMBER 28,
1998 1996
<S> <C> <C>
Land $ 961,000 $ 1,010,000
Buildings and improvements 35,573,000 35,940,000
Machinery and equipment 200,089,000 197,794,000
------------ ------------
236,623,000 234,744,000
Less accumulated depreciation 122,840,000 104,697,000
------------ ------------
Property, plant, and equipment - net $113,783,000 $130,047,000
============ ============
</TABLE>
-18-
<PAGE> 20
10. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
<S> <C> <C>
Salaries, wages, and employee benefits $ 5,445,000 $ 5,192,000
Pension costs 475,000
Taxes, other than income taxes 995,000 931,000
Interest expense 742,000 1,166,000
Current portion of estimated phase-out costs
of steel fabrication operations 1,150,000 2,500,000
Other 1,932,000 2,131,000
----------- -----------
$10,264,000 $12,395,000
=========== ===========
</TABLE>
11. LONG-TERM DEBT AND REVOLVING CREDIT LOAN
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
<S> <C> <C>
Term loans $ 63,040,000 $ 74,500,000
Revolving credit loan -- 73,899,000
Purchase money mortgage loan 1,000,000 1,108,000
Industrial Development Note
(net of unamortized discount) 491,000 639,000
Mortgage 550,000 550,000
------------ ------------
Total 65,081,000 150,696,000
Less current maturities 3,393,000 6,505,000
------------ ------------
$ 61,688,000 $144,191,000
============ ============
</TABLE>
In compliance with the Emerging Issues Task Force Issue No. 95-22,
"Balance Sheet Classification of Borrowings Outstanding under Revolving
Credit Agreements that Include Both a Subject Acceleration Clause and a
Lock-Box Arrangement," the revolving credit loan in the amount of
$73,995,000 was classified as short-term debt in the financial statements
at January 3, 1998.
The estimated fair value of long-term debt (including current maturities)
approximates book value at January 3, 1998 and December 28, 1996. 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
lenders (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 provided
for the consolidation of the Company's outstanding debt.
-19-
<PAGE> 21
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 an original maturity date of March 2001. At January
3, 1998 and December 28, 1996, the interest rate on these borrowings was
8.4% and 8.0%, respectively, 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 January 3, 1998 and December 28, 1996 the
borrowings outstanding under this agreement were $29,398,000 and
$37,871,000, respectively.
Term loan facility B is a $40 million facility with an original maturity
date of March 2003. At January 3, 1998 and December 28, 1996, the interest
rate on these borrowings was 8.9% and 8.5%, respectively, and is 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 January 3, 1998
and December 28, 1996, the borrowings outstanding under this agreement
were $33,642,000 and $36,629,000, respectively.
Proceeds from certain asset sales are applied against the term loans in
inverse order of the loan maturities.
The revolving credit facility provides up to $80 million in borrowings,
with an original maturity date of March 2001. Principal amounts
outstanding are due and payable at final maturity. The interest rate on
these borrowings ranges from 8.25% to 9.75% and 8% to 9.5% at January 3,
1998 and December 28, 1996, respectively, 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.
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.
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: (a) 20% of total assets of the consolidated entities, on a
fully consolidated basis, as of the date of determination thereof; (b)
$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.
Accordingly, at January 3, 1998, the Company is not permitted to declare
and pay dividends.
AMENDMENTS TO CREDIT AGREEMENT
The Credit Agreement was amended on June 28, 1996, February 28, 1997,
December 18, 1997, and March 30, 1998 to modify certain covenants. Prior
to the execution of these amendments, the Company was in technical
noncompliance with certain of its financial covenants or noncompliance was
considered to be imminent. In addition to covenant modifications, the 1998
amendment also included an increase in interest rates ranging from 0.25 to
1.0% to take effect April 5, 1998, revision of the final maturity date for
Term Loan A, Term Loan B, and the Revolving Credit Facility to July 1,
2000 and modifications to the scheduled
-20-
<PAGE> 22
repayment of term loans which decreased quarterly payments for 1998 and
1999. All past events of noncompliance, as described above, have been
waived by the syndicate of lenders who are parties to the Credit
Agreement.
The interest rates increase is geared to maintenance of certain ratios. If
the Company's financial position, and the related ratios improve, the
amended agreement provides for a decrease in interest rates.
Also pursuant to the 1998 amendment, the Company has agreed that a
collateral monitoring arrangement should be put into effect whereby the
Company will be required, through an independent collateral monitoring
agent, to report certain financial data on a periodic basis to the
lenders. This arrangement also requires the Company to adopt new cash
management procedures during the second quarter of 1998, which include
establishing a lock-box account instructing customers to remit payment
directly to the lock-box.
The Company is required to pay amendment fees as a result of the 1998
amendment in an amount equal to 1/4 of 1% of the Term Loan A, Term Loan B,
and Revolving Credit commitment. The payments are due in two equal
installments on upon execution and on July 31, 1998. An additional fee of
$100,000 is due on October 31, 1998.
OTHER DEBT INSTRUMENTS
The following discussion relates to debt outstanding that was not
refinanced by borrowings under the Credit Agreement.
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 8.42% at January 3, 1998. 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.
The Company's office building in Columbus, Georgia is pledged as
collateral under this loan agreement.
Industrial Development Note - In October 1995, the Company 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 January 3, 1998 and
December 28, 1996, the unamortized discount on the note was $209,000 and
$262,000 (discount based on an imputed interest rate of 10%),
respectively.
Mortgage - In connection with the purchase of the Jupiter office building,
the Company obtained a mortgage of $550,000. The interest rate on this
loan is 7%. The entire principal is due September 22, 1998.
-21-
<PAGE> 23
Debt Maturities - Aggregate scheduled repayments, resulting from the
amended credit agreement, of long-term debt excluding the revolving credit
line which is classified as a short-term debt as of January 3, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
<S> <C>
1998 $ 3,393,000
1999 9,644,000
2000 50,986,000
2001 155,000
2002 162,000
Thereafter 741,000
-----------
$65,081,000
===========
</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 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.
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 January 3, 1998 and December
28, 1996, the Company estimates it would have paid $500,000 and $114,000,
respectively, 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 January 3, 1998 and
December 28, 1996.
-22-
<PAGE> 24
13. OTHER LIABILITIES
Other liabilities consisted of the following:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
<S> <C> <C>
Long-term portion of estimated phase-out costs
of steel fabrication operations $ 6,004,000 $ 6,052,000
Additional pension liability (see Note 18) 954,000 3,121,000
Other 2,064,000 2,651,000
----------- -----------
$ 9,022,000 $11,824,000
=========== ===========
</TABLE>
14. 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.
-23-
<PAGE> 25
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, 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
Total options granted in 1997 20,000 20,000 7.50 7.50
Total options exercised in 1997 (34,800) (34,800) 1.98 1.98
Total options cancelled in 1997 (16,000) (16,000) 7.50 - 8.25 8.11
------- ------- --------- ------
Total options outstanding at January 3, 1998 717,816 329,714 1,047,530 1.98 - 8.25 5.15
======= ======= =========
Total options excercisable at January 3, 1998 697,816 329,714 1,027,530 1.98 - 8.25 5.11
======= ======= =========
Options available for grant
at January 3, 1998 1,030,934
=========
</TABLE>
The following table summarizes information about stock options outstanding
at January 3, 1998:
<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 - 2.50 306,376 6.0 $ 2.15 306,376 $ 2.15
$3.62 123,154 5.3 3.62 123,154 3.62
$5.55 - 8.25 618,000 5.9 6.94 598,000 6.93
--------- ------ --------- ------
Total 1,047,530 $ 5.15 1,027,530 $ 5.11
========= ====== ========= ======
</TABLE>
At December 28, 1996, 932,330 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.
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
-24-
<PAGE> 26
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 1997, the
director exercised all of these options.
The estimated weighted average fair value of options granted during 1997
and 1996 was $4.03 and $3.89 per share, respectively. 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 $71,000 and $734,000 for the years
ended January 3, 1998 and December 28, 1996, respectively, would have been
recorded. Accordingly, the Company's net income and earnings per share for
the year ended January 3, 1998 would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net income (loss) available to
common shareholders:
As reported $(8,578,000) $2,747,000
Pro forma (8,649,000) 2,013,000
Net income per common and common
equivalent share:
As reported $ (0.79) $ 0.26
Pro forma (0.80) 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 1997 and 1996 was estimated on the date of grant or modification
using the Black-Scholes option pricing model with the following weighted
average assumptions used:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Expected volatility 33.65% 34.45%
Risk-free interest rate 6.24% 6.68%
Dividend yield -- 0.40%
Expected lives in years 8.00 5.77
</TABLE>
- 25 -
<PAGE> 27
15. 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 January 3, 1998, 27 key employees and
directors currently have outstanding loans of $5,830,000 related to the
purchase of 637,432 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%.
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 January 3, 1998, the market value of the purchased
stock was $2,908,000. The Company has no obligation to repurchase the
stock from the participant.
At January 3, 1998 and December 28, 1996, the Company had guaranteed plan
participants' borrowings totaling approximately $5,830,000 and $6,392,000,
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 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
$385,000, $276,000, $154,000, and $226,000 for the years ended January 3,
1998 and December 28, 1996, the six months ended December 30, 1995, and
the year ended June 30, 1995, respectively.
-26-
<PAGE> 28
16. INCOME TAXES
The provision (benefit) for income taxes is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
---------------------------- ENDED JUNE 30,
JANUARY 3, DECEMBER 28, DECEMBER 30, ------------
1998 1996 1995 1995
<S> <C> <C> <C> <C>
Federal:
Current $ (3,128,000) $ 5,799,000 $ 56,000 $ 2,834,000
Deferred 295,000 (4,514,000) (5,837,000) 3,276,000
------------ ----------- ------------ -----------
(2,833,000) 1,285,000 (5,781,000) 6,110,000
State:
Current (292,000) 173,000 (85,000) 552,000
Deferred 101,000 90,000 (480,000) 421,000
------------ ----------- ------------ -----------
(191,000) 263,000 (565,000) 973,000
------------ ----------- ------------ -----------
Provision (benefit) for income taxes $ (3,024,000) $ 1,548,000 $ (6,346,000) $ 7,083,000
============ =========== ============ ===========
Components of provision (benefit) for income taxes:
Continuing operations $ (3,079,000) $(1,815,000) $ (6,824,000) $ 4,963,000
Discontinued operations 55,000 3,686,000 478,000 2,120,000
Extraordinary loss (323,000)
------------ ----------- ------------ -----------
$ (3,024,000) $ 1,548,000 $ (6,346,000) $ 7,083,000
============ =========== ============ ===========
</TABLE>
-27-
<PAGE> 29
The significant components of deferred income tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
JANUARY 3, 1998 DECEMBER 28, 1996
<S> <C> <C>
Deferred tax assets:
Estimated phase-out costs of steel fabrication operations $ 2,621,000 $ 3,134,000
Unrealized depreciation - investments 358,000 2,153,000
Alternative minimum tax 4,264,000 1,418,000
Additional pension liabilities 547,000
Other - net (863,000) 1,416,000
------------ ------------
6,380,000 8,668,000
Deferred tax liabilities:
Property, plant, and equipment (14,053,000) (14,191,000)
Inventories (2,135,000) (3,225,000)
------------ ------------
(16,188,000) (17,416,000)
------------ ------------
Net deferred tax liability $ (9,808,000) $ (8,748,000)
============ ============
Components of net deferred tax asset (liability):
Net current deferred tax asset (liability) $ 406,000 $ (757,000)(1)
Net long-term deferred tax liability (10,214,000) (7,991,000)(2)
------------ ------------
$ (9,808,000) $ (8,748,000)
============ ============
</TABLE>
(1) Composed of $(727,000) from continuing operations and $(30,000) from
discontinued operations.
(2) Composed of $(11,017,000) from continuing operations and $(3,026,000)
from discontinued operations.
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.
-28-
<PAGE> 30
The reconciliation of the Company's effective income tax rate to the
federal statutory rate of 34% follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
--------------------------- ENDED YEAR ENDED
JANUARY 3, DECEMBER 28, DECEMBER 30, JUNE 30,
1998 1996 1995 1995
<S> <C> <C> <C> <C>
Federal income taxes at statutory rate $ (3,917,000) $ 960,000 $ (5,042,000) $ 5,664,000
State income taxes, net of federal tax benefit (193,000) 173,000 (359,000) 746,000
Equity in income of majority owned subsidiary (942,000) 607,000
Amortization of goodwill 906,000 186,000 - -
Other, net 180,000 229,000 (3,000) 66,000
------------ ----------- ------------ -----------
$ (3,024,000) $ 1,548,000 $ (6,346,000) $ 7,083,000
============ =========== ============ ===========
</TABLE>
At January 3, 1998 and December 28, 1996, the Company has alternative
minimum tax credit carryforwards of approximately $4,264,000 and
$1,418,000, respectively, which have been used as a basis for recording
tax assets and are included in the long-term deferred taxes payable
account. At January 3, 1998, the Company also has $13,250,000 of state net
operating loss carryforwards. These net operating loss carryforwards
expire from 2009 to 2012. The deferred tax asset arising from these state
net operating loss carryforwards of $530,000 is not considered to be fully
realizable and is offset by a valuation allowance.
17. COMMITMENTS AND CONTINGENCIES
Lease Commitments - Rent expense under operating leases covering
production equipment and office facilities was approximately $1,158,047
for the year ended January 3, 1998, $1,228,046 for the year ended December
28, 1996, $542,000 for the six months ended December 30, 1995, and
$791,000 for the year ended June 30, 1995, respectively.
At January 3, 1998, the Company is committed to pay the following minimum
rental payments on noncancelable operating leases:
<TABLE>
<CAPTION>
YEAR ENDING AMOUNT
<S> <C>
1998 $ 1,231,625
1999 980,509
2000 770,564
2001 556,130
Thereafter 1,679,645
-----------
$ 5,218,473
===========
</TABLE>
Other Commitments - The Company has employment contracts with certain of
its employees extending through 1998 aggregating approximately $925,000.
As of January 3, 1998, the Company has purchase commitments with several
vendors to buy inventory totaling approximately $54,995,000.
-29-
<PAGE> 31
The Company also has capital commitments with terms extending over one
year as of January 3, 1998 with several vendors for the purchase of
machinery and equipment aggregating approximately $3,749,000.
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.
18. 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 January 3, 1998 and December 28, 1996, an
additional liability of $954,000 and $2,549,000, respectively, is recorded
in the consolidated balance sheets. At December 28, 1996, the liability
exceeded the unrecognized prior service cost resulting in a minimum
pension liability, net of taxes, of $478,000 recorded as a reduction of
the Company's equity.
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
---------------------------- ENDED YEAR ENDED
JANUARY 3, DECEMBER 28, DECEMBER 30, JUNE 30,
1998 1996 1995 1995
<S> <C> <C> <C> <C>
Service cost $ 1,728,000 $ 1,234,150 $ 564,000 $ 953,000
Interest cost 2,464,000 2,255,119 1,056,000 1,999,000
Actual return on assets (4,109,000) (2,695,923) (1,731,000) (2,460,000)
Net amortization and deferral 2,402,000 1,655,572 1,347,000 1,850,000
----------- ----------- ----------- -----------
Net periodic pension cost $ 2,485,000 $ 2,448,918 $ 1,236,000 $ 2,342,000
=========== =========== =========== ===========
</TABLE>
-30-
<PAGE> 32
The following sets forth the funded status of the plans:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 34,478,000 $ 28,723,000
Nonvested benefit obligation 298,000 206,000
------------ ------------
Accumulated benefit obligation $ 34,776,000 $ 28,929,000
============ ============
Projected benefit obligation $ 37,133,000 $ 30,833,000
Plan assets at fair value 34,076,000 26,044,000
------------ ------------
Projected benefit obligation in
excess of plan assets $ 3,057,000 $ 4,789,000
============ ============
Unrecognized prior service cost $ 1,775,000 $ 691,000
Unrecognized net loss 2,582,000 2,507,000
Unrecognized net liability at date
of initial adoption 1,340,000 1,638,000
Pension liability recognized (2,640,000) (47,000)
------------ ------------
Total $ 3,057,000 $ 4,789,000
============ ============
</TABLE>
For the years ended January 3, 1998 and December 28, 1996 and for the six
months ended December 30, 1995, the weighted average discount rate used in
determining the projected benefit obligation for the salaried and hourly
plans was 7.25%, 8.0%, and 7.50%, respectively, 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 years ended January 3, 1998 and December 28, 1996 and
for the six months ended December 30, 1995. The expected long-term rate of
return on plan assets was 8.0% for the years ended January 3, 1998 and
December 28, 1996 and for the six months ended December 30, 1995.
For the years ended January 3, 1998 and December 28, 1996 and for the six
months ended December 30, 1995, the weighted average discount rate used in
determining the projected benefit obligation for the SRP was 7.25%, 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 years ended January 3,
1998 and 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
-31-
<PAGE> 33
to terminate the plan effective December 31, 1994. Accordingly, the plan
assets were distributed to the participants during August 1995.
The Company has a defined contribution savings plan, formerly the
Wellington plan, that covers substantially all full-time employees who
qualify as to age and length of service. The Company expanded this plan in
1997 and may make discretionary contributions to the plan. The Company
made contributions of $0, $274,000, $154,000, and $286,000 for years ended
January 3, 1998 and December 28, 1996, the six months ended December 30,
1995, and for the year ended June 30, 1995, respectively.
19. TRUST AGREEMENTS
During 1991, 1993, and 1997, the Company entered into trust agreements
with officers to transfer assets to trusts in lieu of paying annual
compensation, 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, 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 January 3, 1998
and December 28, 1996, the trust assets and corresponding liabilities,
which are included in "Other Liabilities" on the consolidated balance
sheets, each totaled $729,000 and $1,609,000, respectively.
20. 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
$295,000, $172,000, $76,000, and $152,000 related to Redlaw's commissioned
sales business for the years ended January 3, 1998 and December 28, 1996,
the six months ended December 30, 1995, and the fiscal year ended June 30,
1995, respectively. At January 3, 1998 and December 28, 1996, accounts
receivable from Redlaw were $0 and $318,000, and consigned inventory
placed with Redlaw in Canada was $245,000 and $426,000, respectively.
21. 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. The following unaudited information
is presented for comparative purposes against the transitional period and
the new calendar year reporting period:
-32-
<PAGE> 34
<TABLE>
<CAPTION>
TWELVE SIX
MONTHS ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
(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
Income before provision for income taxes
and minority interest (9,543,000) 6,248,000
Benefit 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 applicable to common stock (2,511,000) 4,196,000
</TABLE>
-33-
<PAGE> 35
SUPPLEMENTAL CONSOLIDATING SCHEDULES
(See Independent Auditors' Report)
-34-
<PAGE> 36
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 January 3, 1998 $ 1,379,000 $1,604,000 $ - $ (967,000)(1) $ 2,016,000
=========== ========== ======== ========== ===========
Year ended December 28, 1996 $ 1,772,000 $ 245,000 $ - $ (638,000)(1) $ 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
=========== ========== ======== ========== ===========
</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
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
years ended January 3, 1998 and December 28, 1996, the six months ended December
30, 1995 and the year ended June 30, 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
FISCAL YEAR 1997 MARCH 29 JUNE 28 SEPT. 28 JAN. 3
- ---------------- -------- ------- -------- ------
<S> <C> <C> <C> <C>
Net Sales 86,778 87,724 78,488 79,547
Gross Margin 16,999 14,404 10,791 15,695
Income (Loss) from Continuing Operations 1,550 (6,635) (3,289) (248)
Income (Loss) from Discontinued Operations (26) 152 -- --
Extraordinary Loss -- -- -- --
Net Income (Loss) 1,524 (6,483) (3,289) (248)
Dividends on Preferred Stock (41) (41) -- --
Net Earnings (Loss) available to Common Stockholders 1,483 (6,522) (3,289) (248)
Earnings per Common Share-Basic:
Income (Loss) from Continuing Operations .14 (.64) (.31) (.02)
Discontinued Operations .-- .01 .-- .--
Extraordinary Loss .-- .-- .-- .--
Net Earnings (Loss) per Common Share .14 (.63) (.31) (.02)
Weighted Average Shares Outstanding 10,710 10,404 10,726 10,727
</TABLE>
<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 (284) 123 (1,117) (905)
Income (Loss) from Discontinued Operations 2,532 2,224 (34) 860
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-Basic:
Income (Loss) from Continuing Operations (.03) .01 (.11) (.08)
Discontinued Operations .24 .20 (.01) .07
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>
<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
------------------
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-Basic:
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>
- --------------------------------------------------------------------------------
(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) Earnings per Common Share-Diluted are not presented as they are
antidilutive in periods for which a loss is presented.
Note: See Notes 2, 3 and 5 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
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. J.I. Georgia, Inc.
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 6, 1998
(and March 30, 1998 with respect to Note 11 to the consolidated financial
statements) appearing in the Annual Report on Form 10-K of the Company for the
year ended January 3, 1998.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Atlanta, Georgia
April 3, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHNSTON
INDUSTRIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS AS OF JANUARY 3, 1998 AND
FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> JAN-03-1998
<CASH> 2,284,000
<SECURITIES> 0
<RECEIVABLES> 36,299,000
<ALLOWANCES> 2,016,000
<INVENTORY> 51,083,000
<CURRENT-ASSETS> 103,104,000
<PP&E> 236,623,000
<DEPRECIATION> 122,840,000
<TOTAL-ASSETS> 234,788,000
<CURRENT-LIABILITIES> 104,740,000
<BONDS> 61,688,000
0
0
<COMMON> 1,246,000
<OTHER-SE> 47,878,000
<TOTAL-LIABILITY-AND-EQUITY> 234,788,000
<SALES> 332,537,000
<TOTAL-REVENUES> 332,537,000
<CGS> 274,648,000
<TOTAL-COSTS> 330,214,000
<OTHER-EXPENSES> 27,643,000
<LOSS-PROVISION> 1,490,000
<INTEREST-EXPENSE> 13,699,000
<INCOME-PRETAX> (11,701,000)
<INCOME-TAX> (3,079,000)
<INCOME-CONTINUING> (8,622,000)
<DISCONTINUED> 126,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,496,000)
<EPS-PRIMARY> (.81)
<EPS-DILUTED> 0
</TABLE>
