<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
[X] For the quarterly period ended October 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)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the Registrant's Common Stock as of October
3, 1998 was 10,742,772 shares.
<PAGE> 2
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE(S)
<S> <C> <C>
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets
October 3, 1998 and January 3, 1998 3
Condensed Consolidated Statements of Operations
Three Months and Nine Months ended October 3, 1998 and
September 27, 1997 4
Condensed Consolidated Statements of Cash Flows
Nine Months ended October 3, 1998 and September 27, 1997 5-6
Notes to Condensed Consolidated Financial Statements 7-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12-18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURE PAGE 20
EXHIBIT 10.29 - AMENDMENT # 5 DATED JULY 10, 1998
TO BANK CREDIT AGREEMENT 21-29
EXHIBIT 11 - STATEMENTS OF COMPUTATION OF
PER SHARE EARNINGS 30
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
(For SEC Use Only) 31
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 3, JANUARY 3,
1998 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,236 $ 2,284
Accounts and Notes Receivable Net of Allowance for
Doubtful Accounts of $1,738 and $2,016 39,819 34,283
Inventories (Note 6) 55,936 51,083
Income Taxes Receivable 2,572 4,838
Deferred Income Taxes 379 406
Assets Held for Sale 3,468 5,010
Prepaid Expenses and Other 4,909 5,200
--------- ---------
Total Current Assets 108,319 103,104
Property, Plant and Equipment-Net 105,015 113,783
Goodwill - Net 11,006 11,477
Intangible Asset-Pension 1,882 1,882
Other Assets 3,469 4,542
--------- ---------
Total Assets $ 229,691 $ 234,788
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 17,053 $ 17,088
Accrued Expenses 12,360 10,264
Revolving Credit Loan (Note 7) 69,619 73,995
Current Maturities of Long-Term Debt (Note 7) 5,406 3,393
--------- ---------
Total Current Liabilities 104,438 104,740
Long-Term Debt - Less Current Maturities (Note 7) 58,667 61,688
Other Liabilities 9,396 9,022
Deferred Income Taxes 9,473 10,214
STOCKHOLDERS' EQUITY:
Common Stock, Par Value $.10 per share; Authorized,
20,000,000 Shares; Issued 12,467,691 1,246 1,246
Additional Paid-In Capital 21,445 21,445
Retained Earnings 33,095 34,458
--------- ---------
Total 55,786 57,149
Less Treasury Stock; 1,724,919 shares (8,069) (8,025)
--------- ---------
Total Stockholders' Equity 47,717 49,124
--------- ---------
Total Liabilities and Stockholders' Equity $ 229,691 $ 234,788
========= =========
</TABLE>
See notes to Condensed Consolidated Financial Statements
3
<PAGE> 4
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
--------------------------- ---------------------------
OCTOBER 3, SEPTEMBER 27, OCTOBER 3, SEPTEMBER 27,
1998 1997 1998 1997
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Net Sales $ 69,572 $ 78,488 218,474 $ 252,990
-------- -------- -------- ---------
Costs and Expenses:
Cost of Sales, excluding Depreciation and Amortization 55,200 67,697 175,639 209,856
Selling, General and Administrative 6,826 7,264 20,753 20,852
Depreciation and Amortization 5,117 5,202 15,404 15,878
Restructuring and Impairment Charges (4) 83 96 8,104
-------- -------- -------- ---------
Total Costs and Expenses 67,139 80,246 211,892 254,690
-------- -------- -------- ---------
Income (Loss) from Operations 2,433 (1,758) 6,582 (1,700)
Other Expenses (Income):
Interest Expense 3,477 3,410 10,141 10,131
Interest Income (290) (213) (786) (669)
Other-Net 201 771 641 1,109
-------- -------- -------- ---------
Total Other Expenses - Net 3,388 3,968 9,996 10,571
Realized and Unrealized Investment Gain (Loss) (19) 379 (19) 572
-------- -------- -------- ---------
Equity in Earnings of Equity Investments 114 -- 177 --
-------- -------- -------- ---------
Loss from Continuing Operations before Tax Benefit (860) (5,347) (3,256) (11,699)
Benefit for Income Taxes (1,000) (2,058) (1,893) (3,325)
-------- -------- -------- ---------
Income (Loss) from Continuing Operations 140 (3,289) (1,363) (8,374)
DISCONTINUED OPERATIONS:
Loss from Discontinued Operations of Jupiter National net of
applicable income tax benefit $5 -- -- -- (11)
Gain on Disposal of Jupiter National net of applicable income tax
of $60 -- -- -- 137
-------- -------- -------- ---------
Income from Discontinued Operations -- -- -- 126
-------- -------- -------- ---------
Net Income (Loss) 140 (3,289) (1,363) (8,248)
Dividends on Preferred Stock -- -- -- 81
-------- -------- -------- ---------
Net Income (Loss) Available to Common Stockholders $ 140 $ (3,289) (1,363) $ (8,329)
======== ======== ======== =========
Earnings (Loss) Per Common Share-Basic and Diluted:
Income (Loss) from Continuing Operations $ 0.01 $ (0.31) (0.13) $ (0.80)
Discontinued Operations -- -- -- 0.01
-------- -------- -------- ---------
Net Income (Loss) Per Common Share-Basic and Diluted $ 0.01 $ (0.31) (0.13) $ (0.79)
======== ======== ======== =========
Dividends Per Share $ -- $ -- -- $ 0.20
======== ======== ======== =========
Weighted Average Number of Common Shares Outstanding 10,743 10,726 10,743 10,503
======== ======== ======== =========
</TABLE>
See notes to Condensed Consolidated Financial Statements
4
<PAGE> 5
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
---------------------------
OCTOBER 3, SEPTEMBER 27,
1998 1997
---------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
CONTINUING OPERATIONS:
Net Loss from Continuing Operations $ (1,363) $ (8,374)
Adjustments to Reconcile Net Loss from Continuing Operations
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 15,404 15,878
Restructuring and Impairment Charges -- 8,104
Provision for Bad Debts 627 512
Loss on Disposal of Fixed Assets 543 9
Net Unrealized (Gain) Loss on Portfolio Investments 19 (572)
Undistributed Income in Equity Investments (177) --
Changes in Operating Assets and Liabilities:
Accounts and Notes Receivables (4,663) (5,164)
Inventories (4,853) 9,639
Deferred Income Taxes (714) (2,649)
Prepaid Expenses and Other Assets 890 1,874
Accounts Payable 1,379 (4,603)
Accrued Expenses 2,162 1,557
Income Taxes Receivable 2,266 223
Other Liabilities 381 (727)
Other-Net 35 (200)
-------- --------
Total Adjustments 13,299 23,881
-------- --------
Net Cash Provided by Continuing Operations 11,936 15,507
DISCONTINUED OPERATIONS:
Loss from Discontinued Operations -- (11)
Gain on Disposal of Discontinued Operations -- 137
Cash Provided by Discontinued Operations -- 1,901
-------- --------
Net Cash Provided by Discontinued Operations -- 2,027
-------- --------
Net Cash Provided by Operating Activities 11,936 17,534
INVESTING ACTIVITIES:
Additions to Property, Plant and Equipment (7,578) (8,065)
Decrease in Non-Operating Accounts Payable (1,414) (1,698)
Proceeds from Sale and Leaseback 870
Sale of Jupiter Assets 630 --
-------- --------
Net Cash Used in Investing Activities (7,492) (9,763)
-------- --------
</TABLE>
Continued
5
<PAGE> 6
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
--------------------------
OCTOBER 3, SEPTEMBER 27,
1998 1997
---------- -------------
<S> <C> <C>
FINANCING ACTIVITIES:
Principal Payments of Long-Term Debt (75,876) (7,100)
Proceeds from Issuance of Long-Term Debt 70,384 5,500
Proceeds from Issuance of Common Stock -- 36
Dividends Paid -- (2,157)
-------- ------
Net Cash Used in Financing Activities (5,492) (3,721)
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,048) 4,050
CASH AND CASH EQUIVALENTS
Beginning of Period 2,284 1,748
-------- ------
End of Period $ 1,236 5,798
======== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid (Received) During the Nine Months for:
Interest $ 9,302 8,182
======== ======
Income Taxes $ (3,444) (771)
======== ======
</TABLE>
See notes to Condensed Consolidated Financial Statements Concluded
6
<PAGE> 7
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements as of and
for the three months and nine months ended October 3, 1998 and
September 27, 1997 are unaudited. The October 3, 1998 statements
include the accounts of Johnston Industries, Inc. ("Johnston"), its
direct wholly owned subsidiary, Johnston Industries Alabama, Inc. ("JI
Alabama") and its indirect wholly owned subsidiaries, Johnston
Industries Composite Reinforcements, Inc. ("JICR") and Greater
Washington Investments, Inc. ("GWI") (collectively, the "Company"). All
significant intercompany balances have been eliminated in
consolidation.
The September 27, 1997 statements include the accounts of Johnston, JI
Alabama, JICR, GWI and JI Alabama's former wholly owned subsidiary,
T.J. Beall Company ("TJ Beall").
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and
do not include all of the information in footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, the unaudited condensed
consolidated financial statements reflect all adjustments which are
necessary for a fair presentation. All such adjustments, other than
those relating to restructuring and loss on impairment, are of a normal
recurring nature. Operating results for the three months and nine
months ended October 3, 1998 are not necessarily indicative of the
results that may be expected for the entire year. The condensed
consolidated financial statements included herein should be read in
conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the year ended January 3,
1998.
2. ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS
130 "Reporting Comprehensive Income." This statement establishes
standards for reporting and display of comprehensive income and its
components (revenues, gains, expenses, and losses) in a full set of
general-purpose financial statements and is effective for financial
statements for periods beginning after December 15, 1997. The Company
has adopted this statement effective for the first quarter of 1998. For
the three and nine month periods ended October 3, 1998 and September
27, 1997 there are no differences between comprehensive income and net
income.
In June 1997, the Financial Accounting Standards Board issued SFAS 131
"Disclosure about Segments of an Enterprise and Related Information."
This statement establishes standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports issued to shareholders. The Company is required to present the
segment disclosures in the current fiscal year; however, disclosure in
interim financial reports issued to shareholders is not required during
the year of adoption. This statement is effective for financial
statements for periods beginning after December 15, 1997.
In March 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position ("SOP") 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." This statement, which provides
guidance on accounting for the costs of computer software developed or
obtained for internal use, defines "internal use," provides guidance
for determination of capital and expense costs, and is effective for
fiscal years
7
<PAGE> 8
beginning after December 15, 1998, but earlier adoption is encouraged.
The Company has adopted this statement effective for the first quarter
of 1998.
In February 1998, the Financial Accounting Standards Board issued SFAS
No. 132, Employers' Disclosures about Pensions and Other Postretirement
Benefits. This Statement revises employers' disclosures about pensions
and other postretirement benefit plans. It does not change the
measurement or recognition of those plans. This statement is effective
for fiscal years beginning after December 31, 1997.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities."
This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
imbedded in other contracts, and for hedging activities. It requires
that, at adoption, hedging relationships should be designated anew and
that entities recognize all derivatives as either assets or liabilities
in the statement of financial position and to measure those instruments
at fair value. The accounting for changes in the fair value of a
derivative depends on the intended use of the derivative and the
resulting designation. This statement is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999.
3. DISCONTINUANCE OF THE VENTURE CAPITAL SEGMENT
Concurrent with the acquisition of Jupiter National, Inc. (the "Jupiter
Acquisition") in March 1996, the Company's management made the decision
to discontinue the venture capital investment segment of Jupiter's
operation. Through June 28, 1997, the segment was accounted for as
discontinued operations, and accordingly, 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 have been recorded as discontinued operations.
At June 28, 1997, the remaining portfolio investments were reclassified
from net assets of discontinued operations to assets held for sale on
the consolidated balance sheet. Beginning with the quarter ended June
28, 1997, the results of operations for these remaining portfolio
investments have been reported as income from continuing operations in
the consolidated statements of operations and prior periods presented
have been restated accordingly.
4. T.J. BEALL COMPANY
On March 25, 1996, the Company acquired all of the outstanding common
stock of TJ Beall, a broker in cotton by-products located in West
Point, Georgia, for shares of nonvoting convertible preferred stock
with an estimated value of $3,250,000. In September 1997, an agreement
was reached culminating in the sale of substantially all of the assets
and current liabilities of TJ Beall to a member of the Beall family. In
conjunction with the sale, the Company recorded a note receivable in
the amount of $1,500,000 payable in annual installments of $300,000
plus interest at 10% per annum over a five year period.
5. RESTRUCTURING CHARGES AND LOSSES ON IMPAIRMENT
During the Second Quarter of 1997, the Company announced its plan to
cease manufacturing operations at its Langdale facility, close its
outlet store in West Point, Georgia and realign its divisions. The
Langdale facility had contained both weaving operations and yarn
manufacturing operations. The yarn manufacturing operations were
substantially eliminated while selected equipment and associated
product offerings of the weaving operations were relocated to other
Company facilities. The remainder of the weaving operation at the
Langdale facility was closed. The Langdale facility has been retained
as warehouse, distribution and potential future manufacturing space for
JI Alabama's Fiber Products Division. The sale of the outlet store
building closed during December 1997. Beginning in the third quarter of
1997 and continuing through the first quarter of 1998, severance
reserves were accrued to restructuring costs as employees were notified
of the elimination of their jobs. During the nine months ended October
3, 1998, the Company recorded restructuring charges totaling $96,000
which included $171,000 in severance costs
8
<PAGE> 9
related to closure of the Langdale facility and the 1997 realignment of
divisions less a favorable adjustment of $75,000 to the impairment
reserve for Jupiter's former office building in Rockville, Maryland,
which was sold in February 1998.
6. INVENTORIES
Inventories consisted of the following at October 3, 1998 and January
3, 1998:
<TABLE>
<CAPTION>
OCTOBER 3, 1998 JANUARY 3, 1998
--------------- ---------------
<S> <C> <C>
Inventories-FIFO Cost Flow Assumption
Finished Goods $ 33,747,000 $ 30,367,000
Work-In Process 9,267,000 10,581,000
Raw Materials and Supplies 16,497,000 13,607,000
------------ ------------
59,511,000 54,555,000
Less LIFO Reserve (3,575,000) (3,472,000)
------------ ------------
Inventories - LIFO Cost Flow Assumption $ 55,936,000 $ 51,083,000
============ ============
</TABLE>
7. LONG-TERM FINANCING AND SHORT-TERM BORROWINGS
Long-term debt and short-term borrowings consisted of the following at
October 3, 1998 and January 3, 1998:
<TABLE>
<CAPTION>
OCTOBER 3, 1998 JANUARY 3, 1998
--------------- ---------------
<S> <C> <C>
Term Loans $ 60,052,000 $ 63,040,000
Revolving Credit Loan 69,619,000 73,995,000
Purchase Money Mortgage Debt 935,000 1,000,000
Industrial Development Note
(net of unamortized discount) 526,000 491,000
Other Loans (mortgage) -- 550,000
Capital Lease Obligations 2,560,000 --
------------- -------------
Total 133,692,000 139,076,000
Less Current Maturities (5,406,000) (3,393,000)
Less Revolving Credit Loan
Classified as Current (69,619,000) (73,995,000)
------------- -------------
$ 58,667,000 $ 61,688,000
============= =============
</TABLE>
The Company has a credit agreement with a syndicate of lenders (the
"Bank Credit Agreement"), which was entered into on March 28, 1996. The
Bank Credit Agreement, as amended to date, provides aggregate loans of
up to $160,000,000 including a revolving credit loan (the "Revolving
Credit Facility") of up to $80,000,000, a term loan for $40,000,000
("Term Loan A") and a term loan for an additional $40,000,000 ("Term
Loan B"). The maturity date for all borrowings under the Bank Credit
Agreement is July 1, 2000.
As of October 3, 1998, the Company had outstanding borrowings under the
Bank Credit Agreement of $129,671,000, and $9,739,000 unused under the
Revolving Credit Facility net of $642,000 of standby letters of credit.
Upon the sale in February 1998 of Jupiter's former office in Rockville,
Maryland, the $550,000 mortgage associated with that property was
discharged.
Covenants and Restrictions
Under the terms of the Bank Credit Agreement, substantially all assets
are pledged as collateral for the borrowings under the Bank Credit
Agreement. The Bank Credit Agreement requires the Company to
9
<PAGE> 10
maintain certain financial ratios and specified levels of tangible net
worth, places a limit on the Company's level of capital expenditures
and its ability to effect certain types of mergers or acquisitions, and
permits the Company to pay dividends on its Common Stock provided
certain financial tests are met. Under these financial tests, at
October 3, 1998, the Company was not permitted to declare or pay
dividends.
The Bank Credit Agreement has been amended several times to modify
certain covenants, the latest amendments of which were executed on
March 30, 1998 (the "March 1998 Amendment") and on July 10, 1998 (the
"July 1998 Amendment"). The March 1998 Amendment modified certain
covenants and required the Company to enter into certain cash
management arrangements which were further defined in the July 1998
Amendment. Prior to the execution of the March 1998 Amendment,
technical noncompliance with certain financial covenants was considered
to be imminent. In addition to covenant modifications, the March 1998
Amendment also included increases in interest rates, effective April 5,
1998, ranging from 1/4% to 1% over the rates in effect prior to that
date, revision of the final maturity date for all obligations under the
Bank Credit Agreement and modifications to the scheduled repayment of
term loans which decreased required 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 Bank Credit Agreement. As
of October 3, 1998, the Company was in compliance with the covenants
under the Bank Credit Agreement. The Company continues to explore
alternatives which would reduce the likelihood of future non-compliance
with the covenants of the Bank Credit Agreement, including
restructuring the long-term debt. Management believes that it will be
successful in these efforts. However, no assurance can be given that an
acceptable alternative can be agreed upon or that any amendment or
restructuring can be achieved on terms acceptable to the Company.
In connection with the March 1998 Amendment, approximately $480,000 of
deferred costs were charged to Other - net during the first quarter of
1998. This amount represents the unamortized balance of the original
loan costs, which were to be amortized over the term of the Bank Credit
Agreement, while the new deferred loan costs of approximately $647,000
were capitalized in connection with the March 1998 Amendment and will
be amortized over the remaining term of the Bank Credit Agreement.
The March 1998 Amendment required the Company to adopt new cash
management procedures which were defined by the July 1998 Amendment and
adopted in the third quarter of 1998. The new procedures include the
daily application of customer remittances received by Johnston's
lockbox 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 lockbox arrangement and
in compliance with the consensus opinion of the Emerging Issues Task
Force Issue No. 95-22, "Balance Sheet Classification of Borrowings
Outstanding under Revolving Credit Agreements that Include both a
Subjective Acceleration Clause and a Lock-Box Arrangement," the
revolving credit loan, which has a maturity date of July 1, 2000, has
been classified as a current liability.
The Bank Credit Agreement requires the Company to prepay the principal
installments on Term Loan A and Term Loan B, in inverse order of the
scheduled maturities, from the net cash proceeds from the sale or
liquidation of significant assets.
8. EARNINGS PER SHARE
Earnings per share is not presented on a diluted basis, as the effect
of dilutive securities was either anti-dilutive due to net losses or
immaterial for all periods presented.
10
<PAGE> 11
9.INCOME TAXES
The benefit for income taxes from continuing operations as computed
under SFAS No. 109, "Accounting for Income Taxes", is comprised of the
following for the nine months ended October 3, 1998 and September 27,
1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Federal:
Current $(1,184,000) $(1,501,000)
Deferred (647,000) (1,532,000)
----------- -----------
(1,831,000) (3,033,000)
State:
Current 1,000 (38,000)
Deferred (63,000) (254,000)
----------- -----------
(62,000) (292,000)
Benefit for income taxes $(1,893,000) $(3,325,000)
=========== ===========
</TABLE>
The reconciliation of the Company's effective income tax benefit rate
to the Federal statutory rate from continuing operations of 34% for the
nine months ended October 3, 1998 and September 27, 1997 follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Federal income tax benefit at statutory rate $(1,107,000) $(3,978,000)
State income taxes, net of Federal tax benefit (41,000) (193,000)
Amortization of Goodwill 159,000 851,000
Net Operating Loss Refund (10 year carryback) (920,000) --
Other - Net 16,000 (5,000)
----------- -----------
$(1,893,000) $(3,325,000)
----------- -----------
Effective rate 58.14% 28.4%
=========== ===========
</TABLE>
The effective tax rates in 1998 and 1997 were affected by the
amortization of goodwill, which is not tax deductible. The 1998 tax
rate also reflects recognition of a special tax refund as a result of a
10 year net operating loss carryback.
10. RELATED PARTY TRANSACTIONS
Redlaw Industries, Inc. ("Redlaw"), a stockholder, is the commissioned
sales agent for the Company for substantially all sales of the
Company's products into Canada under the terms of a non-exclusive sales
agency agreement. For the nine months ended October 3, 1998, there were
no sales to Redlaw. As of October 3, 1998 commissions payable to Redlaw
were $30,628. Johnston maintains inventory at a customer's warehouse in
Ontario, Canada which is supervised by Redlaw. At October 3, 1998,
there was approximately $77,434 of inventory located at the warehouse
in Canada.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The accompanying condensed consolidated financial statements for the three
months and nine months ended October 3, 1998 and September 27, 1997 are
unaudited. The October 3, 1998 statements include the accounts of Johnston
Industries, Inc. ("Johnston"), its direct wholly owned subsidiary, Johnston
Industries Alabama, Inc. ("JI Alabama") and its indirect wholly owned
subsidiaries, Johnston Industries Composite Reinforcements, Inc. ("JICR") and
Greater Washington Investments, Inc. ("GWI") (collectively, the "Company").
The September 27, 1997 statements include the accounts of Johnston, JI Alabama,
JICR, GWI and JI Alabama's former indirect wholly owned subsidiary, T.J. Beall
Company ("TJ Beall").
RESULTS OF CONTINUING OPERATIONS
The results of operations for the three months ended October 3, 1998 marks the
first quarterly period reporting net income since the three months ended March
27, 1997, and notwithstanding a decline in revenue, reflects continuing
improvements resulting from a substantial realignment initiated in 1997. Revenue
decline from the third quarter of 1997 is attributed to the elimination of
unprofitable operations and product lines during the second half of 1997, and
weakness in indirect exports resulting from the currency and financial
instability in Russia and Eastern Europe. The third quarter also marked the
first time that each operating division had a profitable quarter since prior to
the March 1996 acquisitions of Jupiter National, Inc. and T.J. Beall.
Consolidated gross margin has improved by one percentage point over the second
quarter of 1998 and by six percentage points over the third quarter of 1997. In
addition, the Company received a special federal income tax refund during the
quarter, resulting in a one-time tax benefit of approximately $700,000. The
Finished Fabrics Division has shown marked improvement as evidenced by
profitable operating results in the quarter ended October 3, 1998, while JICR,
the Company's fastest growing division, continued a trend of increasing sales in
the first nine months of 1998.
Net sales for third quarter 1998 decreased $8,916,000 (11.4%) from the third
quarter 1997, but increased $508,000 (.7%) over the second quarter 1998. Net
sales for the nine months ended October 3, 1998 decreased by $34,516,000 (13.6%)
compared with the nine months ended September 27, 1997. Several factors
contributed to the change from 1997 periods. Economic difficulties in Eastern
Europe as noted above resulted in an approximately $3 to $4 million decrease in
sales at the Greige Fabrics Division for the third quarter. Further, TJ Beall,
which was sold in September of 1997, recorded sales of $4,949,000 and
$13,910,000 for the three and nine months ended September 27, 1997. These
declines in sales were partially offset by increases resulting from the fact
that the normal plant shutdown for the week of July 4 fell in the second fiscal
quarter for 1998 resulting in the third quarter 1998 having 13 weeks of sales
and production as opposed to 12 weeks for the third quarter of 1997.
An analysis of changes in net sales by market is as follows:
<TABLE>
<CAPTION>
3rd Qtr 1998 YTD 1998
Incr/(Decr) from Incr/(Decr) from
3rd Qtr 1997 YTD 1997
---------------- ----------------
<S> <C> <C>
Automotive 681,000 1,571,000
Industrial (1,361,000) (5,625,000)
Home Furnishings (544,000) (10,694,000)
Apparel (2,295,000) (2,913,000)
Specialty Markets (5,286,000) (15,663,000)
Miscellaneous (111,000) (1,192,000)
---------- -----------
Net Sales (8,916,000) (34,516,000)
========== ===========
</TABLE>
12
<PAGE> 13
- - - Sales of automotive fabrics for the quarter and for the nine months reflect
an increase in demand for a long-standing product of the Company, which has
been on the decline for several years. Additionally, sales of a relatively
new automotive seat support fabric increased significantly during the
quarter.
- - - Sales of industrial fabrics for the three and nine months ended October 3,
1998 decreased 7.9% and 10.5% respectively as compared to the same periods
in 1997. Sales of fabrics for footwear, filtration, rubber products and
abrasives declined reflecting a softening of demand.
- - - Sales of home furnishing fabrics declined by 1.5% and 8.2% from the levels
reported for the three months and nine months ended September 27, 1997.
Reduced indirect export sales, as noted above, contributed significantly to
the decline in home furnishing sales during both the second and third
quarters of 1998. Sales of certain discontinued window covering fabrics for
1998 are sharply reduced from the prior year. Decline in sales,
particularly third quarter sales, of home furnishing fabrics has been
mitigated in part by increased sales of greige (unfinished - for further
processing) upholstery fabrics and top of the bed fabrics by the Greige
Fabrics Division plus increased sales of napery by the Finished Fabrics
Division.
- - - The Greige Fabrics Division capitalized on certain short-term opportunities
to sell apparel fabrics at attractive margins during 1997 and early 1998.
Demand from these orders has now been filled and apparel activity has
returned to a normal level.
- - - Reduced sales to specialty markets reflect the disposition of TJ Beall in
September 1997 as noted above, but also reflects discontinued sales yarn
business formerly located at the Langdale facility, which was closed in
1997. Sales of $1,445,000 and $5,227,000 for yarn produced at Langdale were
recorded for the three months and nine months ended September 27, 1997.
Sales of composite reinforcement fabrics for the three and nine months
ended October 3, 1998 grew by 40.1% and 35.6%, respectively, over levels
recorded for the three and nine months ended September 27, 1997.
- - - Sales of miscellaneous fabrics, which now represent less than 1% of total
sales, showed declines from 1997 levels reflecting the Company's
discontinuance of certain unprofitable products characterized by short runs
and low margins.
The Company's backlog of customer orders was $61,261,000 at October 3, 1998
compared to $69,447,000 at January 3, 1998 and $66,672,000 at September 27,
1997. The decline in order backlog compared to January 3, 1998 and September 27,
1997 reflects the weakness in demand resulting from the currency and economic
conditions in Russia and Eastern Europe. The September 1998 backlog, as compared
to September 1997, additionally reflects the absence of products discontinued by
the Company in connection with the 1997 realignment.
Gross margin, excluding depreciation, as a percentage of net sales for the three
and nine months ended October 3, 1998 was 20.7% and 19.6%, respectively,
compared to 13.7% and 17.0% for the same periods in 1997. The increases in gross
margin reflect elimination of unprofitable products, increased manufacturing
efficiencies and reductions in raw material prices mitigated somewhat by lower
volumes due to weakness in the indirect export business. The 1997 realignment
included closure of the Langdale facility, elimination of certain unprofitable
product lines, and relocation of selected manufacturing equipment and products
to the Southern Phenix Facility and to the Micolas Facility. During the first
quarter of 1998, the Finished Fabrics Division incurred the negative impact of
costs for administering the phase out of the discontinued products plus
inefficiencies associated with absorption of the relocated production. The third
quarter of 1998 reflects continued improvement as these transitional activities
were substantially completed during the first quarter of 1998. Contributing in
part to the improvement in margins was the reclassification of costs for
corporate human resources functions, which were included in costs of sales for
1997, but have been included in general and administrative costs for 1998.
For the three and nine months ended October 3, 1998, selling, general and
administrative expenses decreased by $438,000 and $99,000, respectively, from
the same periods in 1997. Beginning in April 1997 and continuing through April
1998, the Company incurred professional fees associated with the 1997
realignment. Although associated professional services were substantially
concluded in the second quarter of 1998, the nine month periods ending October
3, 1998 and September 27, 1997 include comparable amounts for such professional
services. Additionally, for the nine months ended October 3, 1998, approximately
$700,000 was included in general and administrative expenses for corporate human
resource functions which had been included in cost of sales for 1997.
13
<PAGE> 14
During the Second Quarter of 1997, the Company announced its plan to cease
manufacturing operations at its Langdale facility, close its outlet store in
West Point, Georgia and realign its divisions. The Langdale facility had
contained both weaving operations and yarn manufacturing operations. The yarn
manufacturing operations were eliminated while selected equipment and associated
product offerings of the weaving operations were relocated to other Company
facilities. The remainder of the weaving operation at the Langdale facility was
closed. The Langdale facility has been retained as a warehouse, distribution and
potential future manufacturing space for JI Alabama's Fiber Products Division.
The sale of the outlet store building closed during December 1997. Beginning in
the third quarter of 1997 and continuing through the first quarter of 1998,
severance reserves were accrued as restructuring costs as employees were
notified of the elimination of their jobs. During the first nine months of 1998,
the Company recorded restructuring charges totaling $96,000 which included
$171,000 in severance costs related to closure of the Langdale facility and the
1997 realignment of divisions less a favorable adjustment of $75,000 to the
impairment reserve for Jupiter's former office building in Rockville, Maryland
which was sold in February 1998.
For the three months and nine months ended October 3, 1998, depreciation and
amortization expense was $5,117,000 and $15,404,000, respectively, representing
decreases of $85,000 and $474,000 from the same periods in 1997. These declines
are principally due to the reduction in depreciable assets, from the sale of the
assets of TJ Beall in September 1997 and also from the closure of the Langdale
facility, which was completed in the fourth quarter of 1997. The decline was
partially offset by the impact of additional depreciation resulting from the
1997 and 1998 capital investment plans. Capital investment for the nine months
ended October 3, 1998 was $7,578,000 compared to $8,065,000 million for the nine
months ended September 27, 1997.
Interest expense was $3,477,000 for the three months and $10,141,000 for the
nine months ended October 3, 1998. Interest expense for the first nine months of
1998 represents only a minimal decrease of $10,000 from the level recorded for
the same period in 1997. Changes in interest expense include both reduced
average borrowings and increased average rates associated with the March 30,
1998 amendment to the Bank Credit Agreement, as discussed below. Obligations
under the Company's Bank Credit Agreement at October 3, 1998 were $17,254,000
and $7,364,000 less than obligations at September 27, 1997 and January 3, 1998
respectively. Additionally, the $550,000 mortgage associated with Jupiter's
former office in Rockville, Maryland, was discharged upon its sale in February
1998.
In connection with the March 1998 amendment to the Company's Bank Credit
Agreement, approximately $480,000 of deferred loan costs were charged to
Other-net during the first quarter of 1998. This amount represents the
unamortized balance of the original loan costs, which were to be amortized over
the term of the Bank Credit Agreement, while the new deferred loan costs of
approximately $647,000 were capitalized in connection with the March 1998
Amendment and are being amortized over the remaining term of the Bank Credit
Agreement which now matures on July 1, 2000. A net amount of approximately
$250,000 was recorded in Other-net during the second quarter of 1998 for
insurance proceeds receivable as a result of storm damage at the Greige Fabrics
Division's Opp Mill (see discussion below at Legal and Other Matters).
DISCONTINUED OPERATIONS
Concurrent with the acquisition of Jupiter National, Inc. (the "Jupiter
Acquisition") in March 1996, the Company's management made the decision to
discontinue the venture capital investment segment of Jupiter's operation.
Through June 28, 1997, the segment was accounted for as discontinued operations,
and accordingly, 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 28, 1997, the remaining portfolio investments were reclassified from net
assets of discontinued operations to assets held for sale on the consolidated
balance sheet. Beginning with the quarter ended June 28, 1997, the results of
operations for these remaining portfolio investments have been reported as
income from continuing operations on the consolidated statements of operations
and prior periods presented have been restated accordingly.
14
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
The Company's needs for capital resources have been filled through cash
generated from operating activities and have been supported by availability of
borrowings under its Bank Credit Agreement, which was entered into on March 28,
1996. The Bank Credit Agreement, as amended to date, provides aggregate loans of
up to $160,000,000 including a revolving credit loan (the "Revolving Credit
Facility") of up to $80,000,000, a term loan for $40,000,000 ("Term Loan A") and
a term loan for an additional $40,000,000 ("Term Loan B"). The maturity date for
all borrowings under the Bank Credit Agreement is July 1, 2000.
As of October 3, 1998, the Company had outstanding borrowings under the Bank
Credit Agreement of $129,671,000, and $10,039,000 unused under the Revolver net
of $642,000 of standby letters of credit. Principal payments since January 3,
1998 have reduced the outstanding amount of the Revolver by $4,376,000. Upon the
sale in February 1998, of Jupiter's former office in Rockville, Maryland, the
$550,000 mortgage associated with that property was discharged.
Under the terms of the Bank Credit Agreement, substantially all assets are
pledged as collateral for the borrowings under the Bank Credit Agreement. The
Bank Credit Agreement requires the Company to maintain certain financial ratios
and specified levels of tangible net worth, places a limit on the Company's
level of capital expenditures and its ability to effect certain types of mergers
or acquisitions, and permits the Company to pay dividends on its Common Stock
provided certain financial tests are met. Under these financial tests, at
October 3, 1998, the Company was not permitted to declare and pay dividends.
The Bank Credit Agreement has been amended several times to modify certain
covenants, the latest amendments of which were executed on March 30, 1998 (the
"March 1998 Amendment") and on July 10, 1998 (the "July 1998 Amendment"). The
March 1998 Amendment modified certain covenants and required the Company to
enter into certain cash management arrangements which were further defined in
the July 1998 Amendment. Prior to the execution of the March 1998 Amendment,
technical noncompliance with certain financial covenants was considered to be
imminent. In addition to covenant modifications, the March 1998 Amendment also
included increases in interest rates, effective April 5, 1998, ranging from 1/4%
to 1% over the rates in effect prior to that date, revision of the final
maturity date for all obligations under the Bank Credit Agreement and
modifications to the scheduled repayment of term loans which decreased required
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 Bank Credit
Agreement. As of October 3, 1998, the Company was in compliance with the
covenants under the Bank Credit Agreement. The Company continues to explore
alternatives which would reduce the likelihood of future non-compliance with the
covenants of the Bank Credit Agreement, including restructuring the long-term
debt. Management believes that it will be successful in these efforts. However,
no assurance can be given that an acceptable alternative can be agreed upon or
that any amendment or restructuring can be achieved on terms acceptable to the
Company.
In connection with the March 1998 Amendment, approximately $480,000 of deferred
costs were charged to Other - net during the first quarter of 1998. This amount
represents the unamortized balance of the original loan costs, which were to be
amortized over the term of the Bank Credit Agreement, while the new deferred
loan costs of approximately $647,000 were capitalized in connection with the
March 1998 Amendment and will be amortized over the remaining term of the Bank
Credit Agreement.
The March 1998 Amendment required the Company to adopt new cash management
procedures which were defined by the July 1998 Amendment and adopted in the
third quarter of 1998. The new procedures include the daily application of
customer remittances received by Johnston's lockbox 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 lockbox
arrangement and in compliance with the consensus opinion of the Emerging Issues
Task Force Issue No. 95-22, "Balance Sheet Classification of Borrowings
Outstanding under Revolving Credit Agreements that Include both a Subjective
Acceleration Clause and a Lock-Box Arrangement," the revolving credit loan,
which has a maturity date of July 1, 2000, has been classified as a current
liability.
15
<PAGE> 16
The Bank Credit Agreement requires the Company to prepay the principal
installments on Term Loan A and Term Loan B, in inverse order of the scheduled
maturities, from the net cash proceeds from the sale or liquidation of
significant assets.
During the quarter ended October 3, 1998, the Company entered into an agreement
with Boeing Capital Corporation, a subsidiary of The Boeing Company, which
provides for leasing of manufacturing equipment up to $10,000,000, which was
subsequently expanded to $15,000,000. As of October 3, 1998, approximately
$3,027,000 of equipment had been placed under the leasing program.
Cash flow provided by operating activities plus proceeds from sale and leaseback
under the Company's leasing program with Boeing Capital Corporation, as
described above, have provided for capital reinvestment of approximately
$7,500,000 plus reduction in obligations under the Bank Credit Agreement of
$7,364,000. While total long-term financing and short-term borrowings have been
reduced by approximately 10% over the last twelve months, the Company continues
to be highly leveraged in comparison to periods preceding March of 1996. In
consideration of the high levels of indebtedness, management has focused efforts
on reduction of debt and associated debt service costs. Although available cash
has been adequate to sustain the Company's operations, cash used for debt
service and debt reduction under the Bank Credit Agreement and cash used in the
Company's capital expenditure plan have strained the Company's available liquid
assets. Management expects improvements in cash generation from improved
operating results, from continued discipline in cost containment, reduction in
inventories, judicious review of its short term capital expenditure plans, and
use of leasing programs in lieu of cash purchases for portions of its capital
investment plan. Although no assurance can be given that cash provided by
operating and financing activities will be sufficient, Management believes that
through careful planning and constraint of discretionary cash expenditures, cash
generated by operations and cash available under the Bank Credit Agreement will
be sufficient to satisfy the Company's liquidity requirements for at least the
next year.
ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS 130
"Reporting Comprehensive Income." This statement establishes standards for
reporting and display of comprehensive income and its components (revenues,
gains, expenses, and losses) in a full set of general-purpose financial
statements and is effective for financial statements for periods beginning after
December 15, 1997. The Company has adopted this statement effective for the
first quarter of 1998. For the three and nine months ended October 3, 1998 and
September 27, 1997, there are no differences between comprehensive income and
net income.
In June 1997, the Financial Accounting Standards Board issued SFAS 131
"Disclosure about Segments of an Enterprise and Related Information." This
statement establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. The Company is
required to present the segment disclosures in the current fiscal year; however,
disclosure in interim financial reports issued to shareholders is not required
during the year of adoption. This statement is effective for financial
statements for periods beginning after December 15, 1997.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
98-1 "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This statement, which provides guidance on accounting for the
costs of computer software developed or obtained for internal use, defines
"internal use," provides guidance for determination of capital and expensed
costs, and is effective for fiscal years beginning after December 15, 1998, but
earlier adoption is encouraged. The Company has adopted this statement effective
for the first quarter of 1998.
In February 1998, the Financial Accounting Standards Board issued SFAS No. 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits. This
Statement revises employers' disclosures about pensions and other postreitrement
benefit plans. It does not change the measurement or recognition of those plans.
This statement is effective for fiscal years beginning after December 31, 1997.
16
<PAGE> 17
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments imbedded in other contracts, and for
hedging activities. It requires that, at adoption, hedging relationships should
be designated anew and that entities recognize all derivatives as either assets
or liabilities in the statement of financial position and to measure those
instruments at fair value. The accounting for changes in the fair value of a
derivative depends on the intended use of the derivative and the resulting
designation. This statement is effective for all fiscal quarters of all fiscal
years beginning after June 15, 1999.
LEGAL AND OTHER MATTERS
The Company is periodically involved in legal proceedings arising in the
ordinary conduct of business. Management does not expect that such proceedings
will have a material adverse effect on the Company's consolidated financial
position or results of operations. During 1997, management became aware of
certain industrial espionage activities that targeted the Company and several
other textile manufacturers, allegedly carried out by agents of a large
competitor. On October 8, 1998, the Company filed suit in Alabama seeking
recourse for damages and losses resulting from these alleged activities.
On Friday, April 17, 1998, a tornado struck the Company's Opp Mill in Opp,
Alabama, damaging the structure's roof and outside walls as well as damaging
certain inventory, electronic controls and production equipment contained within
the facility. On October 2, 1998, a settlement was reached with the Company's
insurance provider for property damage and business interruption. Payment was
subsequently received during October.
From time to time the Company receives unsolicited indications of interest
relating to the acquisition of the Company or certain assets of the Company by
others. While management and the Board of Directors reviews each offer in
accordance with the appropriate discharge of their fiduciary duties to the
shareholders of the Company, neither the Company or any of its operations are
for sale as management does not believe that an appropriate value is likely to
be received given current market conditions.
YEAR 2000 INITIATIVES
As a result of computer programs which historically were written using a two
rather than four digit convention to define the year component of dates, a
concern commonly known as the Year 2000 ("Year 2000") issue has arisen globally.
Computer programs and equipment that use a two digit convention may not be able
to differentiate between the 20th and 21st centuries (e.g. "00" could be either
1900 or 2000). This could result in system failures 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 reviewed significant systems which are not presently Year 2000
compliant. Two major software replacement projects remain for the Company, both
of which involve replacing current systems with purchased systems that are Year
2000 compliant. A major software replacement project at the Company's Finished
Fabrics Division is well underway and the initial phase of work to replace the
major systems at its Fiber Products Division, which are considerably less
sophisticated than the Finished Fabrics Systems, is presently underway.
The Company screens all new equipment purchases and presently is reviewing its
systems and operations to determine what systems imbedded in sophisticated
production equipment or support equipment may be vulnerable to Year 2000 issues.
This review is accompanied by a formal communication program with equipment
vendors to certify that the systems are year 2000 compliant. Remediation steps,
if any, will be implemented, though there can be no guarantee that vendors will
successfully remediate the equipment systems and that any failure to timely
remediate would not have a material adverse effect on the Company's systems.
17
<PAGE> 18
As a result of the upgrades described above and assuming the remaining projects
are completed in a 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. Management believes that the cost of Year 2000
modifications will not have a material effect on results of operations.
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.
RISKS AND UNCERTAINTIES
Except for historical information contained herein, the matters set forth in
this report are forward looking statements which are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those in, or which could be expected based on, such forward looking statements.
The Company's expectations regarding future sales and profits assume, among
other things, reasonable continued growth in the general economy which affects
demand for the Company's products, and reasonable stability in raw materials
pricing, changes in which affect customer purchasing decisions as well as the
Company's prices and margins. The costs and benefits of the Company's
discontinuance of Jupiter venture capital investments may vary from the
Company's expectations with respect to anticipated proceeds from the sale of
assets. For a further discussion of risks and uncertainties associated with the
Company's business, readers are referred to the cautionary statement set forth
in Item 1 of the Company's annual report on Form 10-K for the year ended January
3, 1998, which cautionary statement is incorporated by reference herein.
18
<PAGE> 19
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No reportable legal proceedings arose in the quarter ended October 3, 1998.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted for a vote of Security Holders during the
quarter ended October 3, 1998.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.29 Amendment # 5 dated July 10, 1998 to Bank Credit Agreement
11 Statements of Computation of Per Share Earnings
27 Financial Data Schedule (For SEC use only)
19
<PAGE> 20
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
undersigned has duly caused this report to be filed on its behalf by the
undersigned hereto duly authorized.
JOHNSTON INDUSTRIES, INC.
Dated: November 17, 1998 By: /s/James J. Murray
-------------------------------
James J. Murray
Executive Vice President and
Chief Financial Officer
By: /s/James J. Murray
-------------------------------
James J. Murray
(Principal Accounting Officer)
20
<PAGE> 1
EXHIBIT 10.29
AMENDMENT NO. 5
TO
CREDIT AGREEMENT
AMENDMENT NO. 5 dated as of July 10, 1998 by and among Johnston
Industries, Inc., a Delaware Corporation ("Johnston"), Johnston Industries
Alabama, Inc., an Alabama corporation formerly known as Opp and Micolas Mills,
Inc. ("Johnston Alabama"), J.I. Georgia, Inc., a Georgia corporation formerly
known as T.J. Beall Company ("JIG") and Johnston Industries Composite
Reinforcements, Inc., an Alabama corporation ("JICR", and collectively with
Johnston, Johnston Alabama and JIG, the "Borrowers" and each individually, a
"Borrower"), Nationsbank, N.A., as Syndication Agent, The Chase Manhattan Bank,
the successor by merger to The Chase Manhattan Bank, N.A., as Agent for the
banks party hereto ("Banks") and as Collateral Monitoring Agent ("Agent"), to
the Credit Agreement dated as of March 28, 1996 among Johnston, Wellington Sears
Company ("Wellington"), Southern Phenix Textiles, Inc. ("Phenix"), Opp and
Micolas Mills, Inc. ("Opp"), T.J. Beall Company ("TJB") and JICR, the banks
named therein, The Chase Manhattan Bank, N.A., as Administrative Agent, Chase
Securities, Inc., as Arranger and Nationsbank, N.A., as Syndication Agent, as
amended by Amendment No. 1 dated as of June 28, 1996, Amendment No. 2 dated as
of February 28, 1997, Amendment No. 3 dated as of December 18, 1997 and
Amendment No. 4 dated as of March 28, 1998 (collectively, the "Credit
Agreement"). All capitalized terms used herein but not otherwise defined herein
shall have the meanings given them in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Banks named therein made
Revolving Credit Loans, Term Loans A and Term Loans B to Johnston, Wellington,
Phenix, Opp, TJB and JICR, jointly and severally, in the aggregate principal
amounts of $80,000,000, $40,000,000 and $40,000,000, respectively; and
WHEREAS, pursuant to a letter agreement dated as of November 7, 1997
and further to Amendment No. 4 to the Credit Agreement referred to above, the
Borrowers agreed to enter into a collateral monitoring arrangement for the
benefit of the Banks; and
WHEREAS, the Borrowers have agreed to enter into certain cash
management arrangements with the Agent and to amend or otherwise modify certain
provisions of the Credit Agreement for the purpose of facilitating and
implementing the collateral monitoring arrangements, subject to the terms and
conditions hereinafter set forth, and the Borrowers further wish to confirm and
reaffirm their joint and several obligations under the Credit Agreement as
amended hereby.
NOW, THEREFORE, each Bank, the Agent, the Syndication Agent and each
Borrower, on a joint and several basis, hereby agree as follows:
1. Amendment to Definitions. Section 1.01 of the Credit
Agreement is amended hereby as follows:
a. The definition of "Agent" is hereby amended in its
entirety as follows:
"`Agent shall mean Chase, as administrative agent and collateral
monitoring agent for the Banks, appointed pursuant to ARTICLE X, and
its successors, if any, in such capacity."
b. The definition of "Collateral Security Documents"
is hereby amended in its entirety as follows:
21
<PAGE> 2
"`Collateral Security Documents' shall mean, collectively, the
Security Agreement, the Intellectual Property Security
Agreement, the Collateral Assignment, the Mortgages, the
Environmental Indemnity, the Pledge Agreement, the Blocked
Account Agreement and the Lockbox Account Agreement, as each
have been or may from time to time be amended, restated,
supplemented or modified, together with all documents executed
and delivered in connection with any of the foregoing."
c. The definition of "Interest Period" is hereby amended to
delete clause (1) therefrom in its entirety and to substitute the following
therefor:
"(1) initially, the period commencing on the borrowing or
conversion date with respect to a Eurodollar Loan, as the case
may be, and ending 30, 60 or 90 days thereafter, as selected
by the Borrowers; and".
d. The definition of "Term Loan A" is hereby amended to delete
the words "five year" in the first sentence thereof.
e. The definition of "Term Loan B" is hereby amended to delete
the words "seven year" in the first sentence thereof.
f. The following defined terms are hereby added to Section
1.01 of the Credit Agreement:
"Additional Reports" shall have the meaning given to such term
in Section 5.02(h).
"Amendment No. 5" shall mean Amendment No. 5 to the Credit
Agreement dated as of July 10, 1998 and executed by the
Borrowers, the Banks, the Agent and the Syndication Agent.
"Blocked Account" shall mean the restricted depository
accounts of the Borrowers set forth on Exhibit M and
established and maintained at the bank identified on Exhibit M
(or such other bank to which the Agent shall give its prior
written consent), and subject to the terms and conditions of
the Blocked Account Agreement.
"Blocked Account Agreement" means the Blocked Account
Agreement among the Borrowers, the bank identified on Exhibit
M (or such other bank to which the Agent shall give its prior
written consent) and the Agent, substantially in the form of
Exhibit N attached hereto.
"Collateral Account" shall mean restricted Account No.
__________ of the Borrowers established and maintained at the
Agent entitled "The Chase Manhattan Bank Funds Held as
Collateral Account for the benefit of Johnston Industries" (i)
into which all proceeds from the Blocked Accounts and the
Lockbox Accounts shall be transferred on a daily basis in
accordance with the terms of the Blocked Account Agreement and
the Lockbox Account Agreement, respectively, and (ii) from
which the proceeds therein shall be applied against the
outstanding Revolving Credit Loans on a daily basis.
"Collateral Activity Report" shall mean the collateral
activity report provided by the Borrowers to the Agent on a
daily basis pursuant to the terms hereof consisting of
accounts receivable and inventory rollfoward and other
information in the form of, and containing the detailed
information requested in, Schedules 1 and 3 to Exhibit J
annexed hereto.
"Lockbox Accounts" shall mean the lockbox accounts of the
Borrowers set forth on Exhibit M and maintained at the bank
identified on Exhibit M (or such other bank to which the Agent
shall give prior written consent), and subject to the terms
and conditions of the Lockbox Account
22
<PAGE> 3
Agreement.
"Exempt Accounts" shall have the meaning given to such term in
Section 7.01(v).
"Lockbox Account Agreement" shall mean the Lockbox Account
Agreement among the Borrowers, the Agent and the bank
identified on Exhibit M (or such other bank to which the Agent
shall give prior written consent), substantially in the form
annexed hereto as Exhibit O.
"Operating Account" shall mean Account No. ____________ of
Johnston Industries, Inc. maintained at the Agent.
"Pledged Account Letters" shall mean the Pledged Account
Letter Agreement substantially in the form annexed hereto as
Exhibit Q, issued by the Borrowers to each bank or other
financial institution listed on Exhibit P at which an Exempt
Account is maintained, and held by the Agent pursuant to the
terms hereof.
2. Amendments to Section 2.02(a) and (b) - Making the Loans. a.
Section 2.02(a) and (b) of the Credit Agreement are hereby amended by deleting
said paragraphs in their entirety and substituting the following:
"(a) Each Borrower agrees to give to the Agent by no later
than 1:00 p.m. EST for all times prior to and including August
15, 1998 and 12:00 noon EST for all times thereafter, on each
Business Day, an irrevocable written notice duly completed
substantially in the form of Schedule 2 to Exhibit J annexed
hereto (a "Notice of Borrowing") of its request, if any, for a
Base Rate Loan. With respect to any requests for a Eurodollar
Loan, the Borrowers shall deliver the Notice of Borrowing to
the Agent by 10:00 a.m. three Working Days prior to the date
of borrowing. The Notice of Borrowing shall specify (i) the
proposed revolving credit borrowing date ("Revolving Credit
Borrowing Date"), (ii) the principal amount of the Revolving
Credit Loan requested, which shall be in an amount not less
than $50,000.00 or an integral multiple of $10,000.00 in
excess thereof for Base Rate Loans and not less than
$3,000,000 or an integral multiple of $250,000.00 in excess
thereof for Eurodollar Loans, and (iii) whether the Revolving
Credit Loan is to be a Base Rate Loan or a Eurodollar Loan,
and if a Eurodollar Loan, the Interest Period therefor. The
proceeds in the Collateral Account shall be applied against
due and outstanding Revolving Credit Loans on a daily basis by
the Agent in the following order: first to the payment in full
of the amounts due under the Base Rate Loans and second to the
payment in full of the amounts due under the Eurodollar Loans.
The Agent shall notify each Bank with a Revolving Credit
Commitment by telefax of the amount of Revolving Credit Loans
so repaid. The Agent shall additionally notify each such Bank
by telefax of any request made by the Borrowers for a
Revolving Credit Loan pursuant to any Notice of Borrowing
timely received from a Borrower by 2:30 p.m. EST on the same
Business Day as such Notice was received, together with such
Bank's pro rata portion of the Revolving Credit Loan to be
funded. Each Bank shall remit to the Agent its pro rata share
of the requested Revolving Credit Loan in immediately
available funds by no later than 4:00p.m. EST on such Business
Day. No Revolving Credit Loan shall be made unless (i) the
Notice of Borrowing has been received by the Agent from the
Borrowers by 1:00 p.m. EST for all times prior to and
including August 15, 1998 and 12:00 noon EST for all times
thereafter on the day required, as specified above, (ii) the
Collateral Activity Report as required by Section 5.02(f) and
the Borrowing Base Certificate (as and when required by
Section 5.02(g) and (h)) have been received by the Agent from
the Borrowers by 11:00 a.m. EST, and (iii) the amount
requested, when added to the then outstanding amount of the
Loans, will not result in the Banks' Revolving Credit Loans
exceeding the lesser of the Banks' aggregate Revolving Credit
Commitment and the Borrowing Base in effect at such time. Each
Notice of Borrowing, together with all supporting documents to
be delivered in connection therewith, shall be made in
writing, and signed by the person(s) authorized by the
Borrowers to execute and deliver such Notice of Borrowing
("Authorized Signatory"), each such Authorized Signatory to be
notified as such to the
23
<PAGE> 4
Agent."
"(b) Subject to the terms and conditions of this Agreement,
any Revolving Credit Loans made available to the Borrowers
pursuant to the terms hereof shall be made by crediting the
Operating Account."
b. Notwithstanding anything in this Paragraph 2 to the
contrary, in no event shall the inclusion or exclusion of a specific category or
type of Inventory, Receivable or other Collateral set forth in the forms of
Borrowing Base Certificate, Collateral Activity Report or Additional Report
annexed as an exhibit or schedule to this Amendment No. 5 or otherwise agreed to
by the parties hereto be construed or interpreted as modifying the manner in
which the Borrowing Base is to calculated, and the parties hereto acknowledge
and agree that the Borrowing Base shall be calculated in accordance with the
Credit Agreement as amended by this Amendment No. 5 or as hereinafter amended.
3. Amendment to Section 5.02 - Conditions Precedent to Each
Revolving Credit Loan or Letter of Credit. Section 5.02 of the Credit Agreement
is hereby amended by replacing the words "The Agent shall have timely received"
with "The Agent shall have received by no later than 12:00 a.m. noon" in the
first sentence of paragraph (a) thereof, by deleting the word "and" at the end
of paragraph (d) thereof, and by adding to said Section the following new
conditions:
"(f) The Agent shall have received by no later than 11:00
a.m. EST on each Business Day a Collateral Activity Report,
completed to the satisfaction of the Agent, and certified as
complete and correct on behalf of the Borrowers by the Chief
Financial Officer, Comptroller, Treasurer or Assistant
Treasurer of Johnston."
"(g) The Agent shall have received by no later than 11:00
a.m. EST on Tuesday of each week a Borrowing Base Certificate
showing the Borrowing Base as of the close of business on the
Friday of the immediately preceding week, each such Borrowing
Base Certificate to be certified as complete and correct on
behalf of the Borrowers by the Chief Financial Officer,
Comptroller, Treasurer or Assistant Treasurer of Johnston,
together with the information as is required to be delivered
pursuant to Schedule 3 to Exhibit J and such other supporting
documentation and additional reports with respect to the
calculation of the Borrowing Base as the Agent shall
reasonably request."
"(h) The Agent shall have received by no later than 11:00
a.m. EST on the 15th day of each fiscal month a Borrowing Base
Certificate showing the Borrowing Base as of the close of
business on the last day of the immediately preceding fiscal
month of the Borrowers, certified as complete and correct on
behalf of the Borrowers by the Chief Financial Officer of
Johnston, together with the information as is required to be
delivered pursuant to Schedule 3 to Exhibit J and such other
supporting documentation and additional reports with respect
to the calculation of the Borrowing Base as the Agent shall
reasonably request."
"(i) The Agent shall have received by no later than 11:00
a.m. EST on Tuesday of each week a copy of the additional
weekly reports as outlined in Schedule 3 to Exhibit J,
together with such other supporting documentation and other
reports as the Agent shall reasonably request ("Additional
Reports"), such Additional Reports to be certified as complete
and correct on behalf of the Borrowers by the Chief Financial
Officer of Johnston."
4. Amendment to Section 7.01 - Affirmative Covenants. Section
7.01(b)(iv) is hereby amended deleting said paragraph and substituting it with
the following:
"(iv) weekly, by 11:00a.m. EST on Tuesday of each week, and
monthly, by 11:00 a.m. EST on the 15th day of each fiscal
month, a Borrowing Base Certificate, for the last day of the
immediately preceding week and as of the close of business on
the last day of the preceding fiscal month,
24
<PAGE> 5
respectively, such Borrowing Base Certificate to reflect the
most recent Receivables, Inventory and ineligibles balance of
the Borrowers and certified as complete and correct on behalf
of the Borrowers by the Chief Financial Officer, Comptroller,
Treasurer or Assistant Treasurer of Johnston with respect to
daily and weekly reports, and the Chief Financial Officer of
Johnston with respect to monthly reports, together with the
information as is required to be delivered pursuant to
Schedule 3 to Exhibit J, and such other supporting
documentation and additional reports with respect to the
calculation of the Borrowing Base as the Agent shall
reasonably request;".
Section 7.01(b) is hereby further amended by deleting the word "and"
from paragraph (xiv) thereof and adding the following additional reporting
requirements:
"(xvi) by 11:00 a.m. EST on each Business Day, copies of the
completed Collateral Activity Report certified as complete and
correct on behalf of the Borrowers by the Chief Financial
Officer, Comptroller, Treasurer or Assistant Treasurer of
Johnston; and"
"(xvii) by 11:00 a.m. EST on Tuesday of each week, copies of
the completed Additional Reports certified as complete and
correct on behalf of the Borrowers by the Chief Financial
Officer, Comptroller, Treasurer or Assistant Treasurer of
Johnston and such other supporting documentation and
additional reports with respect to the information required to
be submitted in connection with the preparation of the
Additional Report as the Agent shall reasonably request."
Section 7.01 is hereby further amended to add thereto the following
additional covenants: "(t) Blocked Account. Borrowers shall
maintain at all times hereafter the Blocked Accounts identified
on Exhibit M, to which the Borrowers shall have restricted or
no access in accordance with the Blocked Account Agreement.
Borrowers shall deliver to the Agent a duly executed Blocked
Account Agreement prior to or simultaneously with the execution
and delivery of Amendment No. 5."
"(u) Lockbox Accounts. Borrowers shall maintain at all times
hereafter the Lockbox Accounts identified on Exhibit M, to
which the Borrowers shall have restricted or no access in
accordance with the Lockbox Account Agreement, which agreement
Borrowers shall cause to be executed and delivered to the
Agent prior to or simultaneously with the execution and
delivery of Amendment No. 5.
"(v) Maintenance of Accounts; Exempt Accounts. Borrowers
shall, at all times hereafter, maintain only the Lockbox
Accounts and Blocked Accounts identified on Exhibit M as their
lockbox and depository accounts, respectively, and only at the
bank identified on Exhibit M (or such other bank to which the
Agent shall give prior written consent). Borrowers shall cause
such bank to (i) remit all payments and items in such Lockbox
Accounts and Blocked Accounts to the Collateral Account on a
daily basis by no later than 10:00 a.m. EST in accordance with
the Lockbox Account Agreement and Blocked Account Agreement,
respectively; provided that, so long as no Event of Default
has occurred, the accounts set forth on Exhibit P, and the
balances contained therein, shall be exempt from the Lockbox
Account Agreement and Blocked Account Agreement, respectively,
and from the obligations of Borrowers regarding Lockbox
Accounts and Blocked Accounts (the "Exempt Accounts"), up to
an aggregate amount not to exceed $400,000 at any one time on
a cumulative basis, for, and provided further that such exempt
amount shall be utilized only for, the payment of taxes,
payroll, petty cash and similar expenses, and (ii) acknowledge
and agree, as set forth in the Lockbox Account Agreement and
the Blocked Account Agreement, that all payments and deposits
made and items submitted to the Collateral Account are the
sole and exclusive property of the Agent for the benefit of
the Banks and that the bank identified on Exhibit M (or such
other bank to which the Agent shall give prior written
consent) has no right to setoff against the Blocked Accounts
or Lockbox Accounts. The Borrowers shall cause any bank at
which Lockbox Accounts and/or Blocked Accounts are from time
to time
25
<PAGE> 6
maintained pursuant to the terms hereof to execute and
deliver, and agree to be bound by the terms and conditions set
forth in, the Lockbox Account Agreement and the Blocked
Account Agreement. Borrowers hereby acknowledge and agree that
all payments and deposits made and items submitted to the
Collateral Account will be the sole and exclusive property of
the Agent for the benefit of the Banks."
"(w) Books and Records; Inspection; Collateral Monitoring. (i)
Without limiting the generality of any provision herein
relating to the subject matter of this clause (i), each
Borrower will keep proper books and records and accounts in
which full, true and accurate entries in conformity with GAAP
and all requirements of law shall be made of all transactions
and activities in relation to its businesses, and will permit
the Agent or any authorized representatives of the Agent or
professionals (including consultants, accountants, lawyers,
appraisers and investment bankers) retained by the Agent (for
the purposes hereof, any such Person hereinafter referred to
as an "Authorized Agent"), at any time, whether at the Agent's
request or upon the request of the Required Banks, to conduct
evaluations and appraisals of the Borrowers' practices in the
computation of the Borrowing Base and the assets included in
the Borrowing Base (including the schedules thereto), the
Collateral Activity Report and the Additional Reports, and pay
the reasonable fees and expenses associated therewith
(including, without limitation, the reasonable fees and
expenses associated with the services performed by the Agent's
Collateral Agent Services Group or an outside auditor
acceptable to the Agent or the Required Banks); provided,
however, that such Persons shall not be entitled to conduct
such evaluations and appraisals of assets more frequently than
twice per year, unless (x) a Default or an Event of Default
has occurred and is continuing, or (y) the Agent or the
Required Banks determines that any Material Adverse Effect or
material adverse change in the condition, affairs or
operations (financial or otherwise) has occurred with respect
to any of the Borrowers, the Inventory or Receivables
practices or the performance of such Collateral, and that as a
result of such Event of Default, Material Adverse Effect or
material adverse change, more frequent evaluations or
appraisals are required to effectively monitor the Borrowing
Base, in which case the Borrowers shall permit such Persons to
conduct such evaluations and appraisals at such reasonable
times and as often as may reasonably be requested, in each
case so long as any Loans shall remain outstanding; (ii) in
connection with any evaluation or appraisal relating to the
computation of the Borrowing Base, the Borrowers agree to
maintain such additional reserves for the purposes of
computing the Borrowing Base in respect of Eligible
Receivables and Eligible Inventory and make such other
adjustments to its Borrowing Base (i.e., including Eligible
Receivables and Eligible Inventory in the Borrowing Base) as
the Agent or the Required Banks shall reasonably require based
upon the results of such evaluation or appraisal; and (iii)
the Borrowers shall provide the Agent with such other
information, reports and data, and furnish the Agent with such
assistance, as may be reasonably required from time to time by
the Agent, or as requested by the Required Banks, concerning
the Borrower's Receivables, Inventory and other assets, in
such manner and detail as shall be satisfactory to the Agent.
5. Amendment to Section 7.02 - Negative Covenants. Section
7.02 is hereby amended by adding the following negative covenant:
"(r) Lockbox and Blocked Accounts. Create, establish or
otherwise maintain any lockbox, depository or other accounts
at any bank or other financial institution other than the
Lockbox Accounts and Blocked Accounts set forth on Exhibit M
and the Exempt Accounts set forth on Exhibit P, at the bank(s)
identified on Exhibit M and Exhibit P respectively (or such
other bank(s) to which the Agent shall give prior written
consent), or allow, permit or otherwise cause the aggregate
amount in the Exempt Accounts to exceed $400,000 at any one
time, on a cumulative basis."
6. Representations, Warranties and Covenants of the Borrowers.
Each Borrower hereby represents and warrants to each Bank that on and as of the
date hereof (i) the representations and warranties of the Borrowers
26
<PAGE> 7
contained in the Credit Agreement and any other Loan Document delivered in
connection therewith to which it is a party are true and correct and apply to
the Borrowers hereto with the same force and effect as though made on and as of
the date hereof, (ii) the Borrowers are in compliance with all covenants
contained in the Credit Agreement (as amended hereby), and (iii) no Default or
Event of Default has occurred and is continuing under the Credit Agreement (as
amended hereby) or any other Loan Document delivered in connection therewith to
which it is a party, after giving effect to this Amendment. To the extent any
claim or off-set may exist as of the date hereof, each Borrower, on behalf of
itself and its successors and assigns, hereby forever and irrevocably (a)
releases each Bank, the Agent and the Syndication Agent and their respective
officers, representatives, agents, attorneys, employees, successors and assigns
(collectively, the "Released Parties"), from any and all claims, demands,
damages, suits, cross-complaints and causes of action of any kind and nature
whatsoever, whether known or unknown and wherever and howsoever arising, and (b)
waives any right of off-set such Borrower may have against any of the Released
Parties.
7. Conditions Precedent to Amendment No. 5. The obligation of the
Banks and the Agent to enter into this Amendment shall be subject to the Agent
having received from the Borrowers, prior to or simultaneously with the
execution and delivery of this Amendment, the following:
(a) Lockbox Account Agreement, duly executed by the
Borrowers and the bank identified on Exhibit M (or
such other bank to which the Agent shall give prior
written consent);
(b) Blocked Account Agreement, duly executed by the
Borrowers and the bank identified on Exhibit M (or
such other bank to which the Agent shall give its
prior written consent); and
(c) Pledged Account Letters, duly executed by the
Borrowers.
8. Pledged Account Letters. The Borrowers agree that the Pledged
Account Letters, to be executed and delivered to the Agent simultaneously with
this Amendment, shall be held by the Agent until (i) a Default or an Event of
Default has occurred and is continuing, or (ii) the occurrence of a Material
Adverse Change, as determined by the Required Banks. In either case, upon such
event or occurrence, the Agent may, and upon the request of the Required Banks
shall, release the Pledged Account Letters to the banks or other financial
institutions to which each such Letter has been addressed, and the Borrowers
each hereby expressly authorize such release by the Agent.
9. Credit Agreement in Full Force and Effect. Except as expressly
modified hereby, the Credit Agreement shall remain unchanged and in full force
and effect as executed and each Borrower hereby confirms and reaffirms all of
the terms and conditions of the Credit Agreement.
10. Entire Understanding. The Credit Agreement and this Amendment
contain the entire understanding of and supersede all prior agreements, written
and verbal, among the Banks, the Agent, the Syndication Agent and the Borrowers
with respect to the subject matter hereof and shall not be modified except in
writing executed by the parties hereto.
11. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to its conflict of laws principles.
12. Exhibits. The Exhibits listed on the Exhibit List attached to
this Amendment No. 5, including the forms thereof annexed hereto, are hereby
added to and incorporated into the Credit Agreement.
27
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
THE BORROWERS:
JOHNSTON INDUSTRIES, INC. JOHNSTON INDUSTRIES
ALABAMA, INC.
By: By:
------------------------------ ------------------------------
Name: Name:
Title: Title:
J.I. GEORGIA, INC. JOHNSTON INDUSTRIES
COMPOSITE REINFORCEMENTS,
INC.
By: By:
------------------------------ ------------------------------
Name: Name:
Title: Title:
THE AGENT:
THE CHASE MANHATTAN BANK
By:
------------------------------
Name
Title:
THE SYNDICATION AGENT:
NATIONSBANK, N.A.
By:
------------------------------
Name:
Title:
THE BANKS:
THE CHASE MANHATTAN BANK NATIONSBANK, N.A.
By: By:
------------------------------ ------------------------------
Name: Name:
Title: Title:
REGIONS BANK COMERICA BANK
By: By:
------------------------------ ------------------------------
Name: Name:
Title: Title:
28
<PAGE> 9
VAN KAMPEN AMERICAN CAPITAL THE SUMITOMO BANK, LIMITED
PRIME RATE INCOME TRUST
By: By:
------------------------------ ------------------------------
Name: Name:
Title: Title:
By:
------------------------------
Name:
Title:
MERRILL, LYNCH, PIERCE,
FENNER & SMITH INCORPORATE DDK ACQUISITION PARTNERS, L.P
By: By:
------------------------------ ------------------------------
Name: Name:
Title: Title:
CORESTATES BANK, N.A.
By:
------------------------------
Name:
Title:
29
<PAGE> 1
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 11 - STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
The weighted average number of common and common share equivalents on a primary
basis are as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
OCTOBER 3, SEPTEMBER 27, OCTOBER 3, SEPTEMBER 27,
1998 1997 1998 1997
------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 10,742,772 10,726,272 10,742,772 10,503,139
Shares issued from assumed exercise of
incentive stock options (1) (2) -- -- -- --
Shares issued from assumed exercise of
nonqualified stock options (1) (2) -- -- -- --
----------- ------------ ------------ ------------
Weighted average number of common and common
equivalent shares outstanding as adjusted 10,742,772 10,726,272 10,742,772 10,503,139
=========== ============ ============ ============
Income (Loss) from continuing operations $ 140,000 $ (3,289,000) $ (1,363,000) $ (8,374,000)
Income from discontinued operations -- -- -- 126,000
----------- ------------ ------------ ------------
Net Income (Loss) 140,000 (3,289,000) (1,363,000) (8,248,000)
Dividends on Preferred Stock -- -- -- 81,000
----------- ------------ ------------ ------------
Net Income available to (Loss) attributable to
common stockholders $ 140,000 $ (3,289,000) $ (1,363,000) $ (8,329,000)
=========== ============ ============ ============
Earnings (Loss) per common share-basic:
Income (Loss) from continuing operations $ .01 $ (.31) $ (.13) $ (.80)
Discontinued operations .-- .-- .-- .01
----------- ------------ ------------ ------------
Net Income (Loss) per common share-basic $ .01 $ (.31) $ (.13) $ ( .79)
=========== ============ ============ ============
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Shares issued from assumed exercise of options included the number of
incremental shares which result from applying the "treasury stock
method" for options.
(2) For the three months and nine months ended October 3, 1998 and
September 27, 1997, common shares from assumed exercise of stock
options are not presented as they are antidilutive due to net losses or
immaterial for all periods presented.
30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS AS OF
OCTOBER 3, 1998 AND FOR THE NINE MONTHS THEN ENDED AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> OCT-03-1998
<CASH> 1,236,000
<SECURITIES> 0
<RECEIVABLES> 41,557,000
<ALLOWANCES> 1,738,000
<INVENTORY> 55,936,000
<CURRENT-ASSETS> 108,319,000
<PP&E> 241,314,000
<DEPRECIATION> 136,299,000
<TOTAL-ASSETS> 229,691,000
<CURRENT-LIABILITIES> 104,438,000
<BONDS> 128,286,000
0
0
<COMMON> 1,246,000
<OTHER-SE> 46,471,000
<TOTAL-LIABILITY-AND-EQUITY> 229,691,000
<SALES> 218,474,000
<TOTAL-REVENUES> 218,474,000
<CGS> 175,639,000
<TOTAL-COSTS> 175,639,000
<OTHER-EXPENSES> 15,500,000
<LOSS-PROVISION> 627,000
<INTEREST-EXPENSE> 10,141,000
<INCOME-PRETAX> (3,256,000)
<INCOME-TAX> (1,893,000)
<INCOME-CONTINUING> (1,363,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,363,000)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
