<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 July 3, 1999
-------------------------------------------
Commission file number 1-6687
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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 July 3,
1999 was 10,721,872 shares.
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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:
Consolidated Balance Sheets
July 3, 1999 and January 2, 1999 4
Consolidated Statements of Operations
Three Months and Six Months ended
July 3, 1999 and July 4, 1998 5
Consolidated Statements of Cash Flows
Six Months ended
July 3, 1999 and July 4, 1998 6-7
Notes to Condensed Consolidated Financial Statements 8-12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 13-19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
SIGNATURE PAGE 22
EXHIBIT 3.1(d) - CERTIFICATE OF DESIGNATION BY
THE BOARD OF DIRECTORS 23-27
EXHIBIT 11 - STATEMENTS OF COMPUTATION OF
PER SHARE EARNINGS 28
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
(For SEC Use Only) 29
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 4
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JULY 3, 1999 AND JANUARY 2, 1999
(in thousands, except per share amounts)
(unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 3, January 2,
1999 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,280 $ 1,231
Accounts and notes receivable, net of allowance for
doubtful accounts of $1,440 and $1,442 37,605 34,768
Inventories 51,734 58,079
Assets held for sale 4,093 3,788
Deferred income taxes 1,867 1,249
Prepaid expenses and other 5,146 3,111
------------ ------------
Total current assets 101,725 102,226
Property, plant and equipment-net 92,690 99,486
Goodwill - net of accumulated amortization of $2,043 and $1,728 10,530 10,845
Intangible asset-pension 1,651 1,651
Other assets 4,248 5,331
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Total assets $ 210,844 $ 219,539
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 12,336 $ 13,867
Accrued expenses 12,417 9,859
Revolving credit facility 67,147 66,954
Current maturities of long-term debt 55,811 9,989
Income taxes payable -- 479
------------ ------------
Total current liabilities 147,711 101,148
Long-term debt - less current maturities 1,262 51,109
Other liabilities 7,855 8,878
Deferred income taxes 9,394 10,130
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Total liabilities 166,222 171,265
STOCKHOLDERS' EQUITY:
Common stock, par value $.10 per share; authorized,
20,000 shares; issued 12,468 1,246 1,246
Additional paid-in capital 21,445 21,445
Retained earnings 30,198 33,850
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Total 52,889 56,541
Less treasury stock; 1,746 shares (8,267) (8,267)
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Total stockholders' equity 44,622 48,274
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Total liabilities and stockholders' equity $ 210,844 $ 219,539
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE> 5
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 3, 1999 AND JULY 4, 1998
(in thousands, except per share amounts)
(unaudited)
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<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- -------------------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 67,762 $ 69,063 $ 132,794 $ 148,902
-------- -------- --------- ---------
Costs and expenses:
Cost of sales 61,575 60,353 119,305 130,413
Selling, general and administrative 6,492 6,874 13,051 13,927
Amortization of goodwill 158 156 315 313
Restructuring and impairment charges -- -- -- 100
-------- -------- --------- ---------
Total costs and expenses 68,225 67,383 132,671 144,753
-------- -------- --------- ---------
Income (loss) from operations (463) 1,680 123 4,149
Other expenses (income):
Interest expense 3,062 3,451 6,180 6,664
Interest income (142) (417) (370) (496)
Other-net (321) (228) 135 440
-------- -------- --------- ---------
Total other expenses - net 2,599 2,806 5,945 6,608
Equity in earnings of equity investee 150 63 308 63
-------- -------- --------- ---------
Loss before benefit for income taxes (2,912) (1,063) (5,514) (2,396)
Benefit for income taxes (1,007) (495) (1,862) (893)
-------- -------- --------- ---------
Net loss $ (1,905) $ (568) $ (3,652) $ (1,503)
======== ======== ========= =========
Net loss per common share:
Basic and diluted $ (0.18) $ (0.05) $ (0.34) $ (0.14)
======== ======== ========= =========
Weighted average number of common shares outstanding 10,722 10,743 10,722 10,743
======== ======== ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE> 6
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 3, 1999 AND JULY 4, 1998
(in thousands)
(unaudited)
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<TABLE>
<CAPTION>
Six Months Ended
--------------------------
July 3, July 4,
1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (3,652) $ (1,503)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 9,586 9,974
Amortization of goodwill 315 313
Amortization of deferred financing costs 1,015 1,042
Provision for bad debts 170 363
Loss / (Gain) on disposal of fixed assets 33 (43)
Undistributed earnings of equity investee (308) (63)
Changes in operating assets and liabilities:
Accounts and notes receivable (3,007) 842
Inventories 6,345 (43)
Deferred income taxes (1,354) (353)
Prepaid expenses and other assets (1,943) (1,431)
Accounts payable (1,508) (3,736)
Accrued expenses 2,558 210
Income taxes payable (479) 2,185
Other liabilities (1,023) 540
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Total adjustments 10,400 9,800
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Net cash provided by operating activities 6,748 8,297
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INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,977) (5,512)
Decrease in non-operating accounts payable (23) (816)
Proceeds from sale of fixed assets 154 305
Proceeds from sale of Jupiter assets -- 630
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Net cash used in investing activities (2,846) (5,393)
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</TABLE>
Continued
6
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JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 3, 1999 AND JULY 4, 1998
(in thousands)
(unaudited)
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<TABLE>
<CAPTION>
Six Months Ended
-------------------------
July 3, July 4,
1999 1998
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<S> <C> <C>
FINANCING ACTIVITIES:
Principal payments of long-term debt (136,937) (13,104)
Proceeds from issuance of long-term debt 133,084 8,200
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Net cash used in financing activities (3,853) (4,904)
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NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 49 (2,000)
CASH AND CASH EQUIVALENTS:
Beginning of Period 1,231 2,284
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End of Period $ 1,280 $ 284
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid (received) during the period for:
Interest $ 5,777 $ 6,106
========= =========
Income taxes $ (30) $ (2,525)
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements Concluded
7
<PAGE> 8
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JULY 3, 1999 AND JANUARY 2, 1999, AND FOR THE SIX MONTHS ENDED JULY 3,
1999 AND JULY 4, 1998
(in thousands except share and per share amounts)
(unaudited)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial 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 accompanying interim condensed consolidated financial statements have been
prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. 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 six
months ended July 3, 1999 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 2, 1999.
2. ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("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. As issued,
this statement is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133." This statement defers the effective date for SFAS No. 133,
which will now be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The adoption of SFAS No. 133 is not expected to
have a material impact on the Company.
8
<PAGE> 9
INVENTORIES
3. Inventories consisted of the following:
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<TABLE>
<CAPTION>
July 3, 1999 January 2, 1999
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<S> <C> <C>
Inventories-FIFO cost flow assumption
Finished goods.......................................................... $ 30,195 $ 33,136
Work-in process......................................................... 7,390 8,793
Raw materials........................................................... 10,542 12,317
Direct materials and supplies........................................... 4,461 4,687
--------------- ----------------
52,588 58,933
Less LIFO reserve....................................................... (854) (854)
--------------- ----------------
Inventories - LIFO cost flow assumption............................. $ 51,734 $ 58,079
=============== ================
</TABLE>
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4. ASSETS HELD FOR SALE
Assets held for sale consisted of the following:
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<TABLE>
<CAPTION>
July 3, 1999 January 2, 1999
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<S> <C> <C>
Jupiter investments.......................................................... $ 3,577 $ 3,272
Other real estate............................................................ 516 516
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$ 4,093 $ 3,788
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</TABLE>
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Concurrent with the acquisition of Jupiter National, Inc. in March 1996, the
Company's management made the decision to discontinue the venture capital
investment segment of Jupiter's operation. The remaining portfolio investments,
which have not been disposed of, are included in assets held for sale.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
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<TABLE>
<CAPTION>
July 3, 1999 January 2, 1999
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<S> <C> <C>
Land ........................................................................ $ 933 $ 935
Buildings.................................................................... 36,899 36,105
Machinery and equipment...................................................... 204,575 202,680
--------------- ----------------
242,407 239,720
Less accumulated depreciation................................................ (149,717) (140,234)
--------------- ----------------
Property, plant, and equipment - net.................................... $ 92,690 $ 99,486
=============== ================
</TABLE>
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9
<PAGE> 10
6. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY
Long-term debt consisted of the following:
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<TABLE>
<CAPTION>
July 3, 1999 January 2, 1999
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<S> <C> <C>
Term loans................................................................... $ 55,448 $ 59,402
Revolving credit facility.................................................... 67,147 66,954
Purchase money mortgage debt ............................................... 870 913
Industrial development note (net of unamortized discount).................... 460 439
Capital lease obligations.................................................... 295 344
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Total........................................................................ 124,220 128,052
Less current maturities and revolving credit facility........................ (122,958) (76,943)
--------------- ----------------
$ 1,262 $ 51,109
=============== ================
</TABLE>
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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,
including a revolving credit loan (the "Revolving Credit Facility") of up to
$80,000, a term loan for $40,000 ("Term Loan A") and a term loan for an
additional $40,000 ("Term Loan B"). The maturity date for all borrowings under
the Bank Credit Agreement is July 1, 2000.
As of July 3, 1999, the Company had outstanding borrowings under the Bank Credit
Agreement of $122,595 and $7,415 unused under the Revolving Credit Facility net
of $125 of standby letters of credit.
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
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
cash dividends on its Common Stock provided certain financial tests are met.
Under these financial tests, at July 3, 1999, the Company was not permitted to
declare or pay cash dividends.
Proceeds from the sale of certain defined assets are generally applied against
the term loans in inverse order of the loan maturities.
Amendments to the Bank Credit Agreement - The Bank Credit Agreement has been
amended several times, the latest amendment of which was executed on April 1,
1999 (the "1999 Amendment") to modify certain covenants. Although the Company
was in compliance with existing covenants at January 2, 1999, it had anticipated
the need for amendments to cover periods beyond January 2, 1999, without which,
technical noncompliance with certain financial covenants was considered to be
imminent. In addition to covenant modifications, the 1999 Amendment also
included an increase in interest rates of 1/2 of 1% which took effect on April
4, 1999. As of July 3, 1999, the Company was in compliance with the covenants
under the Bank Credit Agreement.
The increase in interest rates 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 for Term Loan A and the
Revolving Credit Facility.
In addition to limited covenant modifications, which were effective through
January 2, 1999, and increased interest rates, a March 30, 1998 amendment (the
"March 1998 Amendment") required the Company to adopt new cash management
procedures during the second quarter of 1998, which included establishment of a
lock-box with instruction for customers to remit payments directly to the
lock-box. As a result of this lock-box arrangement, generally accepted
accounting principles required the Company to classify the Revolving Credit
Facility, which has
10
<PAGE> 11
a maturity date of July 1, 2000, as a current liability. Pursuant to the March
1998 Amendment, the Company agreed that a collateral monitoring arrangement
should be put into effect whereby the Company is required, through an
independent collateral monitoring agent, to report certain financial data on a
periodic basis to the lenders.
The Company paid amendment fees as a result of both the 1999 Amendment and the
March 1998 Amendment in an amounts equal to 1/4 of 1% of Term Loan A, Term Loan
B, and the Revolving Credit Facility, respectively.
As of July 1, 1999, all borrowings under the Bank Credit Agreement have a
maturity date of July 1, 2000 and have been classified as a current liability.
7. EARNINGS PER SHARE
Earnings per share is not presented on a diluted basis, as the effect of
dilutive securities is anti-dilutive due to net losses for all periods
presented.
8. INCOME TAXES
The benefit for income taxes as computed under SFAS No. 109, "Accounting for
Income Taxes", is comprised of the following:
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<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------
July 3, 1999 July 4, 1998
--------------- ----------------
<S> <C> <C>
Federal:
Current................................................................. $ (951) $ (829)
Deferred................................................................ (708) (27)
--------------- ----------------
(1,659) (856)
State:
Current................................................................. (108) (15)
Deferred................................................................ (95) (22)
--------------- ----------------
(203) (37)
Benefit for income taxes..................................................... $ (1,862) $ (893)
=============== ================
</TABLE>
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The reconciliation of the Company's effective income tax benefit rate to the
Federal statutory rate of 34% follows:
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<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------
July 3, 1999 July 4, 1998
--------------- ----------------
<S> <C> <C>
Federal income tax benefit at statutory rate................................. $ (1,875) $ (815)
State income tax benefit, net of Federal tax benefit......................... (134) (24)
Amortization of goodwill..................................................... 107 106
Other - net.................................................................. 40 (160)
--------------- ----------------
$ (1,862) $ (893)
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Effective rate............................................................... 33.77% 37.27%
=============== ================
</TABLE>
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The effective tax rates in 1999 and 1998 were affected by the amortization of
goodwill and other operating expenses, which are not tax deductible.
11
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9. SEGMENT AND RELATED INFORMATION
The Company's principal operations include manufacturing and marketing of
finished and unfinished (greige) fabrics plus processing and marketing of
textile waste fibers and fabrics. The Company's operations are organized around
manufacturing processes and its reportable business segments include the Greige
Fabrics Division, the Finished Fabrics Division and the Fiber Products Division.
All remaining operations have been aggregated as "All Other". Segments are
evaluated on the basis of income (loss) on continuing operations before income
taxes. Intersegment transactions are generally recorded at cost.
Financial and related information for business segments is as follows:
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<TABLE>
<CAPTION>
Greige Finished Fiber All Reconciling
Period Fabrics Fabrics Products Other Eliminations Consolidated
- ------------------------------------------------ ------- ------- -------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
As of and for the six months ended July 3, 1999
Trade revenues $ 59,867 $ 50,131 $16,810 $ 5,986 $ -- $ 132,794
Intersegment revenues 2,943 2,452 368 -- (5,763) --
Income (loss) before income taxes 74 1,247 1,017 (7,852) -- (5,514)
Total assets 100,764 69,722 21,686 333,924 (315,252) 210,844
As of and for the six months ended July 4, 1998
Trade revenues $ 75,731 $ 50,449 $17,384 $ 5,338 $ -- $ 148,902
Intersegment revenues 3,652 1,902 538 -- (6,092) --
Income (loss) before income taxes 8,224 (2,218) 1,227 (9,629) -- (2,396)
Total assets 111,207 72,094 19,238 408,846 (387,237) 224,148
</TABLE>
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10. RELATED PARTY TRANSACTIONS
Redlaw Industries, Inc. ("Redlaw"), a stockholder, was 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 from May 1994
until December 1998. As of July 4, 1998 there was approximately $186 of
inventory located at a warehouse in Canada, which was supervised by Redlaw, and
there were accrued commissions payable to Redlaw of $21. Commissions of
approximately $93 and $175, respectively, were paid to Redlaw for the three
months and the six months ended July 4, 1998.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The accompanying unaudited condensed consolidated financial 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").
Results of Operations
During the past twelve months, world demand for U.S. textile products has
lessened. This is a result of a combination of factors, including the strong
U.S. Dollar and financial instability in many regions of the world. In addition,
textile imports into the U.S., particularly apparel, have increased sharply as
foreign producers seek U.S. dollars to offset weakness in their domestic
economies. These factors have led to deflationary price pressures on textile
products and increased competition from both foreign producers, as described
above, and U.S. producers seeking to offset lost demand by entering the
Company's markets. Management believes that though there may have been certain
fundamental shifts in world textile markets, such as apparel, the recent trend
of opportunistic, price driven purchasing in many of the Company's markets is
not sustainable. By necessity, these markets will gravitate back to high
quality, service-oriented manufacturers that can best satisfy the customer's
long-term needs.
Although net sales for the second quarter of 1999 increased by $2.7 million from
the first quarter of 1999, net sales for the three months and six months ended
July 3, 1999 decreased $1.3 million and $16.1 million, respectively, from the
three months and six months ended July 4, 1998. An analysis of changes in net
sales by market is as follows (in thousands)
<TABLE>
<CAPTION>
2nd Qtr 1999 YTD 1999
Incr/(Decr) from Incr/(Decr) from
2nd Qtr 1998 YTD 1998
--------------- ----------------
<S> <C> <C>
Industrial/Automotive........................................................... $ 550 $ (892)
Home Furnishings/Hospitality.................................................... (4,410) (16,785)
Apparel......................................................................... 2,376 1,959
Specialty Markets/Miscellaneous................................................. 183 (390)
--------------- ----------------
Net Trade Sales............................................................ $ (1,301) $ (16,108)
=============== ================
</TABLE>
- - Sales of industrial and automotive fabrics for the quarter increased
slightly compared to the second quarter of 1998. Sales for the second
quarter reflect increased volume in non-automotive coated fabrics plus
addition of a new industrial fabric customer. Reduced sales of these
fabrics for the first six months of 1999 were largely the result of
inventory management programs initiated by two separate customers.
- - Overall sales of home furnishing and hospitality fabrics for the quarter
and the first six months of 1999 declined heavily from the levels recorded
for the three months and six months ended July 4, 1998. Reduced sales of
upholstery substrate fabrics of the type produced by the Greige Fabrics
Division account for the majority of this reduction. Currency and economic
difficulties in Eastern Europe arising during the second quarter of 1998
sharply impacted demand for fabrics produced by customers of the Greige
Fabrics Division. Economic conditions in this region of the world have
precluded a recovery of this demand to date. To a lesser degree, decreased
sales of residential furniture fabrics, casual furniture fabrics and
top-of-the-bed fabrics contribute to the overall decline. Sales of napery
fabrics by the Finished Fabrics Division continued to grow, partially
offsetting the declines as discussed above.
- - The Greige Fabrics Division capitalized on certain short-term opportunities
to sell apparel fabrics at attractive margins during early 1998. During the
second quarter of 1999, the Greige Fabrics Division booked an increased
level of apparel orders at lower margins, but this trend is not expected to
extend beyond a short period of time.
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<PAGE> 14
- - Sales to specialty markets reflect declines in sales of yarn by the Greige
Fabrics Division and sales of remnants by the Fiber Products Division.
Additionally, a fire at the Fiber Products Division's DeWitt Plant in March
1999 (see discussion below at Legal and Other Matters) necessitated
shipments from the Lantuck Plant, in Lanett, Alabama, to service
mid-western customers. Despite this short-term action, post-fire inventory
was not sufficient to fully meet demand, and the DeWitt Plant has operated
near capacity, while rebuilding its available for sale stock, since
production resumed in April 1999. Competitive conditions have driven prices
for sales yarn very low, making it difficult to move yarn profitably. The
Company's Composite Reinforcement operation, however, recorded double digit
growth compared to the same periods in 1998, mitigating, in part, the
effect of the declines described above.
The Company's backlog of customer orders was $57.6 million at July 3, 1999,
$49.4 at January 2, 1999 and $69.4 million at July 4, 1998. Compared to the
order backlog at July 4, 1998, the July 3, 1999 order backlog reflects the
impact of currency and economic difficulties in Eastern Europe and South America
on the Company's customers. Although order backlog had reached an unusually low
level at January 2, 1999, it had risen to $64.4 million by the end of January
1999, and has stabilized since that time. Management expects softness in demand
for most of the markets in which the Company sells its products and import
pressure on greige decorative programs to continue through at least the third
quarter of 1999. However, while no assurances can be given, management expects
some moderate strengthening in markets for certain greige decorative fabrics
during the latter half of 1999.
Gross margin as a percentage of net sales for the three months and six months
ended July 3, 1999 was 9.1% and 10.2% compared to 12.5% and 12.4% for the same
periods in 1998, respectively. Lower capacity utilization associated with
decreased revenues has contributed to reduced gross margin for both the second
quarter and the first six months of 1999. Depressed virgin cotton prices have
driven prices for recycled textile waste products to new lows, negatively
affecting margins for the Fiber Products Division. Additionally, these margins
have been further weakened by increased shipping costs during the quarter when
mid-western customers were serviced from the Lantuck Plant in Lanett, Alabama
following the DeWitt Plant fire (see discussion below at Legal and Other
Matters).
For the three months and six months ended July 3, 1999, selling, general and
administrative expenses decreased by $382 thousand (5.6%) and $873 thousand
(6.3%), respectively, from the same periods in 1998. Decreased sales of certain
upholstery fabrics have resulted in reduced selling costs. Additionally,
professional services associated with a 1997 realignment were substantially
concluded in April 1998.
Interest expense was $3.1 million and $6.2 million, respectively, for the three
months and six months ended July 3, 1999 compared to $3.5 million and $6.7
million for the three months and six months ended July 4, 1998. Changes in
interest expense reflect the effects of both reduced average borrowings and
increased average rates associated with the March 30, 1998 and April 1, 1999
amendments to the Company's bank credit agreement (the "Bank Credit Agreement"),
as discussed below. Obligations under the Bank Credit Agreement at July 3, 1999
were $3.8 million less than obligations at January 2, 1999 and $10.1 million
less than obligations at July 4, 1998.
During the first six months of 1999 and 1998, respectively, approximately $419
thousand and $480 thousand of deferred loan costs were charged to Other-net.
These amounts represent the unamortized balance of original loan costs and prior
amendment costs which are related to provisions of the Bank Credit Agreement
which were amended on March 30, 1998 and April 1, 1999, respectively. In March
1999, approximately $346 thousand of deferred loan costs were capitalized in
connection with the 1999 amendment and are being amortized over the remaining
term of the 1999 amendment, which is effective through January 1, 2000. A net
amount of approximately $223 thousand has been recorded in Other-net in 1999 for
insurance proceeds receivable as a result of fire damage at the Fiber Products
Division's DeWitt Plant (see discussion below at Legal and Other Matters).
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 million
14
<PAGE> 15
including a revolving credit loan (the "Revolving Credit Facility") of up to $80
million, a term loan for $40 million ("Term Loan A") and a term loan for an
additional $40 million ("Term Loan B"). The maturity date for all borrowings
under the Bank Credit Agreement is July 1, 2000.
As of July 3, 1999, the Company had outstanding borrowings under the Bank Credit
Agreement of $122.6 million, and $7.4 million unused under the Revolver net of
$125 thousand in standby letters of credit. Principal payments since January 2,
1999 have reduced outstanding borrowings under the Bank Credit Agreement by $3.8
million.
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 cash dividends on its Common
Stock provided certain financial tests are met. Under these financial tests, at
July 3, 1999, the Company was not permitted to declare and pay cash dividends.
Proceeds from the sale of certain defined assets are generally applied against
the term loans in inverse order of the loan maturities.
The Bank Credit Agreement has been amended several times, the latest amendment
of which was executed on April 1, 1999 (the "1999 Amendment") to modify certain
covenants. Although the Company was in compliance with existing covenants at
January 2, 1999, it had anticipated the need for amendments to cover periods
beyond January 2, 1999, without which, technical noncompliance with certain
financial covenants was considered to be imminent. In addition to covenant
modifications, the 1999 Amendment also included an increase in interest rates of
1/2 of 1% which took effect on April 4, 1999. As of July 3, 1999, the Company
was in compliance with the covenants under the Bank Credit Agreement.
The increase in interest rates 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 for Term Loan A and the
Revolving Credit Facility.
In addition to limited covenant modifications, which were effective through
January 2, 1999, and increased interest rates, a March 30, 1998 amendment (the
"March 1998 Amendment") required the Company to adopt new cash management
procedures during the second quarter of 1998, which included establishment of a
lock-box with instruction for customers to remit payments directly to the
lock-box. As a result of this lock-box arrangement, generally accepted
accounting principles required the Company to classify the Revolving Credit
Facility, which has a maturity date of July 1, 2000, as a current liability.
Pursuant to the March 1998 Amendment, the Company agreed that a collateral
monitoring arrangement should be put into effect whereby the Company is
required, through an independent collateral monitoring agent, to report certain
financial data on a periodic basis to the lenders.
The Company paid amendment fees as a result of both the 1999 Amendment and the
March 1998 Amendment in amounts equal to 1/4 of 1% of Term Loan A, Term Loan B,
and the Revolving Credit Facility, respectively.
As of July 1, 1999, all borrowings under the Bank Credit Agreement have a
maturity date of July 1, 2000 and have been classified as a current liability.
On September 28, 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 million. As of July 3, 1999, approximately
$7.3 million of equipment had been placed on lease schedules and cumulative
spending on projects in progress under the leasing program was approximately
$2.7 million.
Cash flow provided by operating activities provided for capital reinvestment of
approximately $3.0 million, plus a reduction in obligations under the Bank
Credit Agreement of $3.8 million during the six months ended July 3, 1999. While
total long-term financing and short-term borrowings have been reduced by
approximately 7.4% over the last
15
<PAGE> 16
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 continues to focus its 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 or that a replacement financial agreement will be
in place before the maturity of the existing Bank Credit Agreement, 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 June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("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. As issued,
this statement is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133." This statement defers the effective date for SFAS No. 133,
which will now be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The adoption of SFAS No. 133 is not expected to
have a material impact on the Company.
Year 2000
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.
Year 2000 Plan - In 1997, the Company began systematic replacement of legacy
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 prior
to July 1999. During 1998, the Company appointed a Year 2000 Coordinator,
assembled a Year 2000 Team, and prepared a Year 2000 Plan. The Company's Year
2000 Plan is subject to modification and is revised periodically as additional
information is developed.
The Company's plan to resolve potential Year 2000 problems involved the
following four phases: assessment, remediation, testing, and implementation.
Contingency plans, including data back-up, disaster recovery, and possible
modifications to procurement and production scheduling, will be developed during
the second half of 1999. Assessment of significant computer application systems
was completed in 1998. All systems were considered to be vulnerable until
objective data could be obtained and in the case of packaged software, until
vendor certification was obtained, to support our assessment. Several of the
Company's computer application systems were determined to be Year 2000 compliant
and the remainder were identified for replacement or remediation.
16
<PAGE> 17
The majority of the Company's application systems are being completely replaced
by packaged systems represented as being Year 2000 compliant. The largest
replacement project began in August 1997 for the Company's Finished Fabrics
Division. Replacement for the Fiber Products Division, which is considerably
less sophisticated than the Finished Fabrics systems, began in November 1998.
Once software is replaced or reprogrammed, a working model is prepared and work
proceeds to testing and implementation. These phases run concurrently for
different systems. The replacements, as identified above, are expected to be
completed by September 1999. For the remaining computer application systems
which will not be replaced, remediation is underway and subsequent testing is
expected to be completed by October 1999. Management believes that lines of code
for systems requiring remediation, as opposed to replacement, represent only a
small percentage of the total lines of computer code in service.
For personal computers which are critical to operations or which are part of
decision support systems, the hardware, operating systems, and application
software are being reviewed for compliance. The Company is upgrading or
replacing all such systems once they are identified as out of compliance.
Management believes that better than 90 percent of personal computers, which
will be identified as critical, have been upgraded or replaced to date.
Year 2000 Exposure for Products - Based on a review of its product line, the
Company has determined that all of the products it has sold and will continue to
sell contain no electronic or computerized components which would require
remediation to be Year 2000 compliant. Accordingly, the Company believes that it
does not have material exposure as it relates to the Company's products.
Third Party Readiness - The Company has material relationships with third
parties whose failure to be Year 2000 compliant could have material adverse
impacts on the Company's business, operations or financial condition. Third
parties considered by the Company's Year 2000 Team to be in this category ("Key
Business Partners") include critical suppliers, significant customers, financial
institutions, and utility providers. In conjunction with identification of Key
Business Partners, the Company's assessment of Year 2000 risk included
evaluation of production equipment, building systems, and critical services
provided by Key Business Partners.
Production (manufacturing) and building (telephone, alarm, fire control, climate
control, etc.) equipment is being investigated for compliance. Additionally, the
Company screens all purchases to insure that all new equipment acquisitions are
compliant. The Key Business Partner representing each model of equipment in use
is being contacted to determine (a) if the equipment contains any hardware or
software with Year 2000 exposure, (b) if any equipment with Year 2000 exposure
is non-compliant, and (c) if upgrades or enhancements will be provided for all
non-compliant equipment. To date, the majority of Key Business Partners
representing production and building equipment have been contacted and most have
responded. The Company is not presently aware of any equipment at risk for which
remedial upgrades or enhancements will not be available. Contingency plans will
be prepared for any vulnerable equipment for which remediation is not available
on a timely basis, practical, or possible.
Vendors and suppliers of raw materials, operating supplies, utilities, plus
financial and other critical services are being surveyed for Year 2000
readiness, and the Company's Year 2000 Team is meeting with those who are
identified as Key Business Partners. Responses from vendors and suppliers of
less critical importance to our business are being evaluated and follow-up
action is being taken by the Company as it deems appropriate. All of the vendors
which have been identified as Key Business Partners for these goods and services
have been contacted and substantially all have responded.
Significant customers identified by the Company's Year 2000 Team as Key Business
Partners are being contacted for the purpose of assessing Year 2000
preparedness. A majority of customers, which have been identified as Key
Business Partners, have now responded. The Company is not presently aware of any
customer identified as a Key Business Partner who has been determined to be at
risk and whose failure as a result of Year 2000 exposure would materially impact
the Company's business, operations or financial condition.
To date, the Company is not aware of any Key Business Partner who has been
identified as vulnerable and whose failure would materially impact the Company's
business, operations or financial condition. The Company's Year 2000 Team is
presently engaged in follow up with Key Business Partners who had earlier
indicated they would complete preparations during the third quarter of 1999.
Although no assurance can be given that acceptable alternatives can be developed
to mitigate a failure of business partners to achieve Year 2000 compliance, the
Company will monitor business partners for exposure and to the extent
practicable, contingency plans will be evaluated for any critical business
partner who may be vulnerable.
17
<PAGE> 18
Year 2000 Risks and Costs - As a result of the upgrades described above and
assuming the projects in progress are completed in a satisfactory manner, the
Company believes that the Year 2000 issue will not pose significant operational
problems for the Company's computer systems and that it will be prepared in time
to minimize any material impact to the Company's business, operations or
financial condition. Failure to achieve a timely state of readiness or failure
of a Key Business Partner or other third party to effectively remediate their
affected systems could have a materially adverse impact on the Company's
business operations, or financial condition. The Company anticipates completing
the Year 2000 project no later than October 1999.
The cost of addressing the Year 2000 issues has been and will continue to be
substantially absorbed in the 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 and consultants to work on discrete projects or review aspects of
the Company's information systems, 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 its business, operations or financial
condition.
The Company has a high level of dependence on computer application systems,
which are used to drive the business, and manufacturing equipment, which may
include advanced computerized controls. The Company believes that a number of
Key Business Partners also rely on such systems and equipment. 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 Company's business, operations or financial condition. Additionally, as the
Company relies on representations given by its Key Business Partners and other
third parties, there can be no assurances that all such representations are
accurate and effective in identifying Key Business Partners and other third
parties potentially at risk and that unidentifiable risk will not have a
material adverse impact on the Company's business, operations or financial
condition.
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, results of operations or liquidity. 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. The
case is currently in the discovery process.
On Thursday March 11, 1999, a fire damaged the Company's DeWitt Plant in DeWitt,
Iowa. The fire is believed to have started in an electrical junction box in the
warehouse. The warehouse incurred substantial damage and other portions of the
facility received lesser damage caused by smoke, heat and water. The DeWitt
Plant, which produces insulator pads for the Fiber Products Division, resumed
operations on April 12, 1999. Management believes that substantially all losses
associated with this fire will be recovered through property and business
interruption insurance, however, no assurances can be given as to when or
whether acceptable settlements will be reached with the Company's insurance
provider.
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
currently considered "for sale" as management believes that current market
conditions are not advantageous for a premium sales opportunity.
18
<PAGE> 19
Risks and Uncertainties
Except for historical information contained herein, the matters set forth in
this report are forward looking statements which are intended to be covered by
the "Safe Harbor" provisions of the "Private Securities Litigation Reform Act of
1995" and 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 2, 1999, which cautionary statement is incorporated by reference
herein.
19
<PAGE> 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates and changes
in commodity prices. Exposure to interest rate risk relates to variable rate
obligations under the Company's Bank Credit Agreement which permits the Company
to allocate its total obligations between prime and LIBOR rate basis. Interest
rate swap agreements are utilized to manage overall borrowing costs and reduce
exposure to adverse fluctuations in interest rates. An interest rate swap
agreement is currently in place under which the Company pays an average of
certain LIBOR based variable rates on $26.5 million notional principal. This
agreement, which was entered into on June 3, 1999, expires on July 1, 2000, also
contains interest rate caps which further limit interest rate exposures. If
interest rates related to the Company's LIBOR obligations increased by 100 basis
points over the rates in effect at January 2, 1999, interest expense, after
considering the effects of interest rate swap agreements, would increase by
approximately $1 million in 1999. These amounts were determined by considering
the impact of hypothetical interest rates on the Company's borrowing cost and
interest rate swap agreements. The analyses do not consider the effects of the
overall reduced debt levels anticipated in 1999. Further, in the event of a
change of such magnitude, management would likely take actions to further
mitigate its interest rate exposures. An April 1, 1999 amendment to the
Company's bank credit agreement included an increase in interest rates of 1/2%
which took effect on April 4, 1999.
The Company purchases cotton through approximately ten established merchants
with whom it has long standing relationships. The majority of the Company's
purchases are executed using "on-call" contracts. These on-call arrangements are
used to insure that an adequate supply of cotton is available for the Company's
requirements. Under on-call contracts, the Company agrees to purchase specific
quantities for delivery on specific dates, with pricing to be determined at a
later time. Prices are set according to prevailing prices, as reported by the
New York Cotton Exchange, at the time of the Company's election to fix specific
contracts.
Cotton contracts with a fixed price at July 3, 1999 was valued at $6.4 million
compared to $7.4 million at January 2, 1999, and is scheduled for delivery from
July through October of 1999. At July 3, 1999, the Company had unpriced on-call
contracts for deliveries between October 1, 1999 and November 1, 2000. Based on
the prevailing price at July 3, 1999, the value of these commitments is
approximately $2.5 million for deliveries between October and December of 1999
and approximately $7.8 million for deliveries between January and November of
2000. As commodity price aberrations are generally short-term in nature, and
have not historically had a significant long-term impact on operating
performance, financial instruments are not used to hedge commodity price risk.
The Company does not utilize financial instruments for trading or other
speculative purposes.
20
<PAGE> 21
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No reportable legal proceedings arose in the quarter ended July 3, 1999.
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
On May 26, 1999, the Annual Meeting of Stockholders was held at the Company's
offices located at 105 Thirteenth Street, Columbus, Georgia 31901. There were
present in person or by proxy 10,037,426 shares of Common Stock entitled to
vote. The only matter submitted to a vote of security holders was the election
of directors. The following shares were voted for election of nominees for
Director:
<TABLE>
<CAPTION>
Nominee No. of Shares in Favor Withheld
------- ---------------------- --------
<S> <C> <C>
J. Reid Bingham 9,900,672 136,754
Allyn P. Chandler 9,898,954 138,472
John A. Friedman 9,898,672 138,754
William J. Hart 9,900,672 136,754
Gaines R. Jeffcoat 9,902,084 135,342
D. Clark Ogle 9,900,672 136,754
C. Philip Stanley 9,902,084 135,342
</TABLE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1(d) Certificate of Designation by the Board of Directors
11 Statements of Computation of Per Share Earnings
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None.
21
<PAGE> 22
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: August 17, 1999 By: /s/James J. Murray
---------------------------- ---------------------------------
James J. Murray
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
22
<PAGE> 1
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 3.1(D)
CERTIFICATE OF DESIGNATION BY THE BOARD OF DIRECTORS
- -------------------------------------------------------------------------------
CERTIFICATE OF
DESIGNATION, PREFERENCES AND RIGHTS OF
SERIES X JUNIOR PARTICIPATING PREFERRED STOCK
OF
JOHNSTON INDUSTRIES, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
We, D. Clark Ogle, President and Chief Executive Officer, and F.
Ferrell Walton, Secretary of JOHNSTON INDUSTRIES, INC., a corporation organized
and existing under the General Corporation Law of the State of Delaware, in
accordance with provisions of Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation, as amended, of the said Corporation, the
said Board of Directors on April 19, 1999, adopted the following resolution
creating a series of 200,000 shares of Preferred Stock designated as Series X
Junior Participating Preferred Stock:
RESOLVED, that a series of the Corporation's
Preferred Stock consisting of 200,000 shares of Preferred
Stock, par value $.01 per share, be and hereby is, designated
as "Series X Junior Participating Preferred Stock" (the
"Series X Preferred Stock"), and that the Series X Preferred
Stock shall have the designations, powers, preferences,
rights and qualifications, limitations and restrictions
substantially as set forth in the Certificate of Designation,
Preferences and Rights of Series X Junior Participating
Preferred Stock (the "Certificate") attached as Exhibit A.
This Certificate states that the Board of Directors does hereby fix
and herein state and express such designations, powers, preferences and
relative and other special rights and qualifications, limitations and
restrictions thereof as follows (all terms used herein which are defined in the
Certificate of Incorporation shall be deemed to have the meanings provided
therein).
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series X Junior Participating Preferred Stock" (the "Series X
Preferred Stock") and the number of shares constituting such series shall be
200,000. Such number of shares of Series X Preferred Stock may be increased or
decreased by resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of Series X Preferred Stock to a number less
than the number of shares of Series X Preferred Stock then outstanding plus the
number of shares of Series X Preferred Stock reserved for issuance upon the
exercise of outstanding options, rights or warrants exercisable for, or upon
the conversion of any outstanding securities issued by the Corporation
convertible into, Series X Preferred Stock.
23
<PAGE> 2
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior rights of the holders of
any shares of any series of preferred stock ranking prior and superior to the
shares of Series X Preferred Stock with respect to dividends, the holders of
shares of Series X Preferred Stock shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally available for the
purpose, dividends payable in cash in an amount per share (rounded to the
nearest cent), subject to the provision for adjustment hereinafter set forth,
equal to 100 (the "Dividend Factor") times the aggregate per share amount of
all cash dividends, and the Dividend Factor times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions
(other than a dividend payable in shares of the Common Stock, par value $.01
per share, of the Corporation (the "Common Stock") or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise)),
declared on the Common Stock since the first issuance of any share or fraction
of a share of Series X Preferred Stock. In the event the Corporation shall at
any time after April 19, 1999 (the "Rights Declaration Date") (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the Dividend Factor in the
immediately preceding sentence shall be adjusted by multiplying the Dividend
Factor by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) The Corporation shall declare a dividend or distribution on
the Series X Preferred Stock as provided in paragraph (A) above immediately
after it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock).
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series X Preferred Stock from the date of declaration of
dividends on the Common Stock (other than a dividend payable in shares of
Common Stock). Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series X Preferred Stock in an amount less than the total
amount of such accrued dividends shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board
of Directors may fix a record date for the determination of holders of shares
of Series X Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than 30 days
prior to the date fixed for the payment thereof.
SECTION 3. VOTING RIGHTS. The holders of shares of Series X Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series X Preferred Stock shall entitle the holder thereof
to 100 votes on all matters submitted to a vote of the stockholders of the
Corporation for each matter with respect to which the holders of Common Stock
are entitled to vote. In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each case the number of votes per share to which holders of shares of Series X
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series X Preferred Stock and the holders of shares of Common Stock
shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation.
24
<PAGE> 3
(C) Except as otherwise provided herein or provided by law, the
holders of shares of Series X Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for taking
any corporate action.
SECTION 4. CERTAIN RESTRICTIONS.
(A) Whenever dividends or distributions payable on the Series X
Preferred Stock as provided in Section 2 are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether or not declared, on
shares of Series X Preferred Stock outstanding shall have been paid in full,
the Corporation shall not:
(i) declare or pay dividends on, make any other
distribution on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series
X Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series X Preferred Stock, except dividends paid or distributions made
ratably on the Series X Preferred Stock and all such stock ranking on
a parity with respect to the particular dividend or distribution in
proportion to the total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series X Preferred Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any stock of the Corporation ranking
junior (both as to dividends and upon dissolution, liquidation or
winding up) to the Series X Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Series X Preferred Stock, or any shares of stock ranking on
a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series X Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined
by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
SECTION 5. REACQUIRED SHARES. Any shares of Series X Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject
to the conditions and restrictions on issuance set forth herein.
SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP.
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series X Preferred Stock unless, prior
thereto, the holders of shares of Series X Preferred Stock shall have received
$100 per share, plus an amount equal to accrued and
25
<PAGE> 4
unpaid dividends and distributions thereon, whether or not declared, to the
date of such payment (the "Series X Liquidation Preference"). Following the
payment of the full amount of the Series X Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series X
Preferred Stock unless, prior thereto, the holders of shares of Common Stock
shall have received an amount per share (the "Common Stock Liquidation Amount")
equal to the quotient obtained by dividing (i) the Series X Liquidation
Preference by (ii) 100 (as appropriately adjusted as set forth in subparagraph
(C) below to reflect such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock) (such number in clause
(ii), the "Adjustment Number"). Following the payment of the full amount of the
Series X Liquidation Preference and the Common Stock Liquidation Amount in
respect of all outstanding shares of Series X Preferred Stock and Common Stock,
respectively, holders of Series X Preferred Stock and holders of shares of
Common Stock shall receive their ratable and proportionate share of remaining
assets to be distributed in the ratio of the Adjustment Number to 1 with
respect to such Preferred Stock and Common Stock, on a per share basis,
respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series X Liquidation Preference and
the liquidation preferences of all other series of preferred stock, if any,
which rank on a parity with the Series X Preferred Stock, then such remaining
assets shall be distributed ratably to the holders of the Series X Preferred
Stock and the holders of such parity shares in proportion to their respective
liquidation preferences.
(C) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, (iii)
combine the outstanding Common Stock into a smaller number of shares, (iv)
reclassify the Common Stock or (v) effect a recapitalization of the Common
Stock, then in each such case the Adjustment Number in effect immediately prior
to such event shall be adjusted by multiplying such Adjustment Number by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
SECTION 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series X Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time after the Rights Declaration
Date (i) declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series X Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
SECTION 8. NO REDEMPTION. The shares of Series X Preferred Stock
shall not be redeemable.
SECTION 9. RANKING. The Series X Preferred Stock shall rank junior to
all other series of the Corporation's preferred stock, if any, as to the
payment of dividends and the distribution of assets, unless the terms of any
such series shall provide otherwise. Nothing in this Certificate shall limit
the power of the Board of Directors to create a new series of preferred stock
ranking senior to the Series X Preferred Stock in any respect.
26
<PAGE> 5
SECTION 10. AMENDMENT. The Certificate of Incorporation of the
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series X
Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of two-thirds or more of the outstanding shares of Series X
Preferred Stock, voting separately as a class.
SECTION 11. FRACTIONAL SHARES. Series X Preferred Stock may be issued
in fractions of a share, which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series X Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under the penalties of perjury this 26th
day of May, 1999.
/s/D. Clark Ogle
----------------------------
D. Clark Ogle, President
Attest:
/s/F. Ferrell Walton
- ----------------------------
F. Ferrell Walton, Secretary
27
<PAGE> 1
EXHIBIT 11
JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(in thousands except per share amounts)
- -------------------------------------------------------------------------------
The weighted average number of common and common share equivalents on a primary
basis are as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
------------------------------- ------------------------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 10,722 10,743 10,722 10,743
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 10,722 10,743 10,722 10,743
============== ============= ============= =============
Net loss $ (1,905) $ (568) $ (3,652) $ (1,503)
============== ============= ============= =============
Net loss per common share:
Basic and diluted $ (.18) $ (.05) $ (.34) $ (.14)
============== ============= ============= =============
</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 six months ended July 3, 1999 and July 4,
1998, common shares from assumed exercise of stock options are not
presented as they are antidilutive due to net losses.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHNSTON
INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX
MONTHS ENDED JULY 3, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-END> JUL-03-1999
<CASH> 1,280,000
<SECURITIES> 0
<RECEIVABLES> 39,045,000
<ALLOWANCES> 1,440,000
<INVENTORY> 51,734,000
<CURRENT-ASSETS> 101,725,000
<PP&E> 242,407,000
<DEPRECIATION> 149,717,000
<TOTAL-ASSETS> 210,844,000
<CURRENT-LIABILITIES> 147,711,000
<BONDS> 124,220,000
0
0
<COMMON> 1,246,000
<OTHER-SE> 43,376,000
<TOTAL-LIABILITY-AND-EQUITY> 210,844,000
<SALES> 132,794,000
<TOTAL-REVENUES> 132,794,000
<CGS> 119,305,000
<TOTAL-COSTS> 119,305,000
<OTHER-EXPENSES> 13,366,000
<LOSS-PROVISION> 170,000
<INTEREST-EXPENSE> 6,180,000
<INCOME-PRETAX> (5,514,000)
<INCOME-TAX> (1,862,000)
<INCOME-CONTINUING> (3,652,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,652,000)
<EPS-BASIC> (.34)
<EPS-DILUTED> (.34)
</TABLE>
