- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
---------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission File No. 0-21830
---------------------
Johnstown America Industries, Inc.
(Exact name of registrant as specified in its charter)
Incorporated pursuant to the Laws of Delaware State
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Internal Revenue Service - Employer Identification No. 25-1672791
980 N. Michigan Avenue
Suite 1000
Chicago, IL 60611
(Address of principal executive offices)
(312) 280-8844
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 total number of shares of the registrant's Common Stock, $.01 par value,
outstanding on November 1, 1996 was 9,742,062.
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<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION.................................... 2
Item 1 Condensed Consolidated Balance Sheets as
of September 30, 1996, and December 31, 1995............. 3-4
Condensed Consolidated Statements of Income for
the Three and Nine Months Ended September 30, 1996
and 1995................................................. 5
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1996 and 1995.... 6-7
Notes to Condensed Consolidated Financial Statements..... 8-17
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 18-23
PART II OTHER INFORMATION ..................................... 24
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
In the opinion of the registrant's management, the unaudited consolidated
financial statements included in this filing on Form 10-Q reflect all
adjustments (which consist of normal recurring adjustments) which are considered
necessary for a fair presentation of financial information for the periods
presented.
2
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
September 30, December 31,
(In thousands) 1996 1995
-------------- -------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents.................. $ 8,579 $ 11,639
Accounts receivable, net................... 53,433 59,959
Inventories................................ 44,691 43,900
Prepaid expenses and other................. 21,438 22,935
-------- --------
Total current assets..................... 128,141 138,433
Property, plant and equipment, net......... 125,066 128,770
Leasing business assets, net............... 39,946 35,655
Restricted cash............................ 661 1,364
Deferred financing costs, net.............. 14,107 15,110
Intangible assets, net..................... 55,731 60,023
Excess cost over net assets acquired, net.. 199,122 199,470
-------- --------
Total assets............................. $ 562,774 $ 578,825
======== ========
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
September 30, December 31,
(In thousands) 1996 1995
-------------- ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................... $ 37,280 $ 39,647
Accrued expenses and other payables........ 54,147 57,276
Current maturities of long-term debt
and capital lease......................... 16,826 16,813
-------- --------
Total current liabilities................ 108,253 113,736
Long-term debt and capital lease, less
current maturities........................ 205,434 212,973
Other long-term liabilities................. 54,412 55,106
Senior subordinated notes................... 100,000 100,000
Deferred income taxes....................... 29,302 28,136
Shareholders' Equity:
Preferred stock, par $.01, 20,000 shares
authorized, none outstanding.............. -- --
Common stock, par $.01, 201,000 shares
authorized, 9,736 and 9,731 issued and
outstanding as of September 30, 1996 and
December 31, 1995, respectively............ 98 98
Paid-in capital............................ 55,030 55,015
Retained earnings.......................... 10,275 13,791
Employee receivables for stock purchases... (30) ( 30)
-------- --------
Total shareholders' equity............... 65,373 68,874
Total liabilities and shareholders' equity $ 562,774 $ 578,825
======== ========
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30 September 30,
--------------------------------------------
1996 1995 1996 1995
-------- -------- -------- --------
Net manufacturing sales........... $ 139,794 $ 166,175 $ 423,420 $ 510,303
Leasing revenue................... 1,051 706 3,054 1,746
-------- -------- -------- --------
Total revenue.................... 140,845 166,881 426,474 512,049
Cost of sales - manufacturing..... 119,977 152,607 360,157 472,226
Cost of leasing................... 335 197 1,014 453
-------- -------- -------- --------
Gross profit..................... 20,533 14,077 65,303 39,370
Selling, general and administrative
expenses......................... 10,774 7,461 34,583 18,326
Amortization expense.............. 2,635 1,644 7,768 3,854
-------- -------- -------- --------
Operating income................. 7,124 4,972 22,952 17,190
Interest and other financing costs,
net 8,381 3,845 24,703 5,506
Interest expense - leasing 632 386 1,895 539
-------- -------- -------- --------
Income (loss) before income
taxes.......................... (1,889) 741 (3,646) 11,145
Provision (benefit)for income taxes (326) 480 (131) 4,569
-------- -------- -------- --------
Net income (loss)................ $ (1,563) $ 261 $ (3,515) $ 6,576
======== ======== ======== ========
Net income (loss) per common
and common equivalent
shares outstanding............... $ (0.16) $ 0 .03 $ (0.36) $ 0.67
======== ======== ======== ========
Weighted average common and
common equivalent shares 9,741 9,808 9,757 9,810
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
(In thousands) Nine Months Ended
September 30,
------------------
1996 1995
--------- --------
OPERATING ACTIVITIES:
Net income (loss).......................... $ (3,515) $ 6,576
Adjustments for items not affecting cash
from operating activities:
Depreciation.............................. 11,240 4,117
Amortization.............................. 10,745 4,017
Deferred tax expense...................... 1,166 697
Changes in postretirement benefits........ 1,419 1,420
-------- --------
21,055 16,827
Changes in operating assets and liabilities,
net of effect of acquired business:
Accounts receivable, net................... 6,526 15,532
Inventories................................ (791) 20,380
Accounts payable........................... (2,368) (11,564)
Other assets and liabilities............... (8,171) 2,279
-------- --------
Net cash provided by operating activities.. 16,251 43,454
-------- --------
INVESTING ACTIVITIES:
Capital expenditures...................... (6,554) (8,585)
Leased assets additions................... (5,077) (19,322)
Decrease in restricted cash............... 703 --
Acquisition of Bostrom, less cash acquired -- (32,444)
Acquisition of TCI, less cash acquired.... -- (264,669)
-------- --------
Net cash used for investing activities..... (10,928) (325,020)
-------- --------
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
(In thousands) Nine Months Ended
September 30,
-----------------
1996 1995
--------- ---------
FINANCING ACTIVITIES:
Net (payments) borrowings under revolving
loans $ -- $ (7,600)
Net (payments) borrowings under term loans (12,609) 300,000
Net borrowings under JAIX Leasing loans 5,083 16,747
Payment of deferred financing costs... (872) (18,505)
Other................................. 15 42
-------- --------
Net cash (used for) provided by financing
activities (8,383) 290,684
-------- --------
Net (decrease) increase in cash and cash
equivalents (3,060) 9,118
CASH AND CASH EQUIVALENTS,
beginning of period.................. 11,639 1,754
-------- --------
CASH AND CASH EQUIVALENTS,
end of period........................ $ 8,579 $ 10,872
======== ========
SUPPLEMENTAL CASH FLOWS DISCLOSURE
(In thousands)
Cash paid for interest................. $ 26,773 $ 1,909
Cash paid for income taxes............. 889 3,180
Business acquisitions:
Cash paid............................. $ -- $ 299,212
Assets acquired....................... -- (407,202)
-------- --------
Liabilities assumed................... $ -- $(107,990)
======== ========
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended September 30, 1996
(Unaudited)
1. BASIS OF PRESENTATION
The financial statements presented herein and these notes are unaudited.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. Although the registrant believes that all
adjustments (which include only normal recurring adjustments) necessary for a
fair presentation have been made, interim periods are not necessarily indicative
of the results of operations for a full year. As such, these financial
statements should be read in conjunction with the financial statements and notes
thereto incorporated by reference in the registrant's Form 10-K for the year
ended December 31, 1995.
The consolidated financial statements include the accounts of Johnstown
America Industries, Inc. and its wholly owned subsidiaries (the "Company"). All
significant intercompany transactions and accounts have been eliminated in the
accompanying consolidated financial statements.
2. ACQUISITIONS
Bostrom Seating, Inc.
On January 13, 1995, the Company acquired Bostrom Seating, Inc.
("Bostrom"). Bostrom is primarily engaged in the manufacture and sale of air
suspension and static seating for the heavy- duty truck market. The total
purchase price was approximately $32.6 million and was funded by the Company's
previous borrowing facility.
Freight Car Services, Inc. - Danville Facility
On January 27, 1995, the Company purchased a freight car rebuilding and
repair facility in Danville, Illinois for $2.5 million and spent additional
capital in 1995 of $1.9 million for refurbishment. The Company started
operations at this facility in October 1995.
Truck Components, Inc.
On August 23, 1995, the Company completed the acquisition of Truck
Components Inc. ("TCI"), whereby the Company acquired all outstanding shares of
common stock of TCI (including shares subject to options) for a cash purchase
price of approximately $166 million.
8
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Quarter Ended September 30, 1996
(Unaudited)
ACQUISITIONS (cont.)
The Company also made a tender offer for the $82 million of TCI's
outstanding senior notes and purchased such notes for $94 million. The
acquisition and tender offer, as well as the repayment of the Company's and
TCI's existing bank debt (excluding the JAIX Leasing facility) and the payment
of various transaction fees and expenses were financed by borrowings under the
Senior Bank Facilities and the proceeds of the issuance of the Notes (see notes
4 and 5 for a description of the Company's debt).
The operating results of the acquired companies have been included in the
Company's reported results of operations from their respective acquisition
dates.
The Bostrom and TCI acquisitions were accounted for as purchases for
financial reporting purposes.
Accordingly, certain assets and liabilities of the acquired companies were
recorded at estimated fair values as of the acquisition date. Up to the one year
anniversary of the respective acquisitions, the Company adjusts those estimated
fair values based on the latest available information. In the third quarter of
1996 the Company finalized the purchase price allocation relating to its
acquisition of TCI. Amortization of excess cost over net asset acquired is being
amortized over forty years.
The Company's unaudited pro forma results of operations for the nine months
ended September 30, 1995 as though the acquisitions of Bostrom and TCI and the
related financing transactions occurred on January 1, 1995 are as follows (in
thousands, except per share data):
1995
---------
Total revenue $ 744,372
Gross profit 88,728
Net income 10,822
Net income per share $ 1.10
This pro forma information does not purport to be indicative of what would
have occurred had the acquisitions and related transactions occurred at an
earlier date or of results which may occur in the future.
9
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Quarter Ended September 30, 1996
(Unaudited)
3. INVENTORIES
Inventories of the Company consist of the following (in thousands):
September 30, December 31,
1996 1995
------------ -----------
Raw materials and purchased
components $ 8,719 $ 14,287
Work-in-progress and finished goods 35,972 29,613
-------- --------
$ 44,691 $ 43,900
======== ========
4. DEBT
Long-term debt of the Company consisted of the following (in thousands):
September 30, December 31,
1996 1995
----------- -----------
Revolving Loans $ -- $ --
Tranche A Term Loans 90,002 100,000
Tranche B Term Loans 97,503 100,000
-------- --------
Total Senior Bank Facilities 187,505 200,000
Industrial Revenue Bonds 5,300 5,300
Capital leases 1,991 2,105
JAIX Leasing loans 27,464 22,381
-------- --------
Total debt 222,260 229,786
Current maturities (16,826) (16,813)
-------- --------
Long-term debt $ 205,434 $ 212,973
======== ========
10
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Quarter Ended September 30, 1996
(Unaudited)
Senior Bank Facilities
The Company entered into a credit facility ("Senior Bank Facilities") on
August 23, 1995, in conjunction with the acquisition of TCI and the related
transactions described in Note 2. The Revolving Loans portion of the Senior Bank
Facilities provides for up to $100 million of outstanding borrowings and letters
of credit, limited by the level of eligible accounts receivable and inventories.
As of September 30, 1996, availability under the Revolving Loans, after
consideration of outstanding letters of credit of $18.7 million, was $31.1
million. Borrowings under the Senior Bank Facilities are guaranteed by each of
the Company's subsidiaries other than JAIX Leasing Company (the "Guarantor
Subsidiaries") and are secured by the assets of the Company and the Guarantor
Subsidiaries, including the stock of the Guarantor Subsidiaries.
At the Company's election, interest rates per annum applicable to the
Revolving Loans and Tranche A Term Loans will be a fluctuating rate of interest
measured by reference to either (a) an adjusted London inter-bank offered rate
("LIBOR") plus a borrowing margin or (b) an alternate base rate ("ABR") plus a
borrowing margin. Such borrowing margins range between 1.50% and 2.50% for LIBOR
loans and between .50% and 1.50% for ABR loans, fluctuating within each range in
0.25% increments based on the Company achieving certain financial results.
Interest rates per annum applicable to Tranche B Term Loans are either (a) LIBOR
plus a margin of 3.00% or (b) ABR plus 2.00%. Additionally, various fees related
to unused commitments, letters of credit and administration of the facility are
incurred by the Company.
The term loans under the Senior Bank Facilities are payable in quarterly
installments, which commenced on March 31, 1996. The Tranche A Term Loans and
the Revolving Loans mature on March 31, 2002 and the Tranche B Term Loans mature
on March 31, 2003.
The Senior Bank Facilities contain various financial covenants including
capital expenditure limitations, leverage and interest coverage ratios and
minimum net worth, and also restrict the Company from paying dividends,
repurchasing common stock and making other distributions in certain
circumstances. At September 30, 1996, the Company was in compliance with these
and all other debt covenants.
11
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Quarter Ended September 30, 1996
(Unaudited)
JAIX Term Loan
On June 14, 1996, JAIX Leasing Company ("JAIX Leasing") refinanced its
existing three year term loan facility with a 10 year term loan ("JAIX Term
Loan"). Borrowings under the JAIX Term Loan bear interest at the fixed rate of
9.35% and are payable in monthly installments which commenced in July 1996. This
Facility is secured by JAIX Leasing's leases and underlying freight car assets.
Industrial Revenue Bonds
The Company, through its wholly owned subsidiary, Freight Car Services,
Inc., issued the Industrial Revenue Bonds for $5.3 million which bear interest
at a variable rate (4.0% as of September 30, 1996) and can be redeemed by the
Company at any time. The bonds are secured by a letter of credit issued by
Johnstown America Industries, Inc. The bonds have no amortization and mature on
December 1, 2010. The bonds are also subject to a weekly "put" provision by the
holders of the bonds. In the event that any or all of the bonds are put to the
Company under this provision, the Company would effectively refinance such bonds
with additional borrowings under the Revolving Loans portion of the Senior Bank
Facilities.
In connection with the Industrial Revenue Bonds, the Company has restricted
cash at September 30, 1996 of $0.7 million from the initial proceeds of $5.3
million. The restricted cash is held in trust and will be used for additional
improvements and expansion of the Freight Car Services' Danville facility.
Interest Rate Contracts
The Company has entered into various interest rate contracts to fix the
cost of its variable rate Senior Bank Facilities. These contracts limit the
effect of market fluctuations on the interest cost of floating rate debt. The
notional principal amounts outstanding on the interest rate contracts covering
the current period is $140 million and the fixed rates of interest on these
contracts range from 5.98% to 6.32% plus the applicable borrowing margin. The
maturities on all contracts range from October 1996, through August 2000.
12
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Quarter Ended September 30, 1996
(Unaudited)
5. SENIOR SUBORDINATED DEBT
In conjunction with the acquisition of TCI, the Company issued $100 million
of Senior Subordinated Notes (the "Notes") which are due August 15, 2005 and
have an interest rate of 11.75% per annum and are guaranteed on a unsecured,
senior subordinated joint and several basis by the Guarantor Subsidiaries. The
Notes have customary restrictive covenants including restrictions on incurrence
of additional indebtedness, payment of dividends and redemption of capital
stock. The Notes are subordinated to all indebtedness under the Senior Bank
Facilities and cross-default provisions do exist. Except in certain limited
circumstances, the Notes are not subject to optional redemption by the Company
prior to August 15, 2000, and thereafter are subject to optional redemption by
the Company at declining redemption premiums. Upon the occurrence of a change in
control (as defined), the Company is required to offer to repurchase the Notes
at a price equal to 101% of the principal amount thereof plus accrued interest.
6. ENVIRONMENTAL MATTERS
The Company's subsidiaries are currently involved in several matters
relating to the investigation and/or remediation of locations where the
subsidiaries have arranged for the disposal of foundry and other wastes. As of
September 30, 1996, based on all of the information currently available to the
Company, the Company has an environmental reserve which management believes is
adequate to cover future expenditures. This reserve is based on current cost
estimates and does not reduce estimated expenditures to net present value,
although the Company's subsidiaries are not likely to incur costs for most of
the reserved matters until several years in the future. Any cash expenditures
required by the Company or its subsidiaries to comply with applicable
environmental laws and/or to pay for any remediation efforts will not be reduced
or otherwise affected by the existence of the environmental reserve. Due to the
early stage of investigation of many of the sites and potential remediations
referred to above, there are significant uncertainties as to waste quantities
involved, the extent and timing of the remediation which will be required, the
range of acceptable solutions, costs of remediation and the number of
potentially responsible parties contributing to such costs. Based on all of the
information presently available to it, the Company believes that the
environmental reserve will be adequate to cover its future costs related to the
sites associated with the environmental reserve, and that any additional costs
will not have a material adverse effect on the financial condition or results of
operations of the Company. However, the discovery of additional sites, the
modification of existing laws or regulations, the imposition of joint and
several liability or the uncertainties referred to above could result in such a
material adverse effect.
13
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Quarter Ended September 30, 1996
(Unaudited)
7. GUARANTOR SUBSIDIARIES
The Notes are fully and unconditionally guaranteed on an unsecured, senior
subordinated, joint and several basis by each of the Guarantor Subsidiaries. The
following condensed consolidating financial data illustrates the composition of
the Parent Company, the Guarantor Subsidiaries, and JAIX Leasing as of September
30, 1996. Separate complete financial statements of the respective Guarantor
Subsidiaries would not provide additional information which would be useful in
assessing the financial composition of the Guarantor Subsidiaries and thus, are
not presented.
Investments in subsidiaries are accounted for by the Parent Company on the
equity method for purposes of the supplemental consolidating presentation.
Earnings of subsidiaries are therefore reflected in the Parent Company's
investment accounts and earnings. The principle elimination entries eliminate
the Parent Company's investment in subsidiaries and intercompany balances and
transactions.
14
<PAGE>
Condensed Consolidating Balance Sheet
as of September 30, 1996
(In thousands)
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Parent Guarantor
Company Subsidiaries JAIX Leasing Eliminations Consolidated
Cash and cash equivalents.............. $ 7,802 $ (994) $ 1,771 $ -- $ 8,579
Accounts receivable, net............... -- 53,432 1 -- 53,433
Inventories............................ -- 44,691 -- -- 44,691
Prepaid expenses and other............. 9,390 9,597 2,451 -- 21,438
-------- -------- --------- -------- --------
Total current assets.............. 17,192 106,726 4,223 -- 128,141
Property, plant and equipment, net..... 5,743 124,342 33,308 (381) 163,012
Other assets........................... 114,722 253,109 423 (96,633) 271,621
Total assets...................... $ 137,657 $ 484,177 $ 37,954 $ (97,014) $ 562,774
======== ======== ======== ======== ========
Accounts payable....................... $ -- $ 37,279 $ 1 $ -- $ 37,280
Other current liabilities.............. 20,825 50,179 113 (144) 70,973
-------- -------- -------- -------- --------
Total current liabilities......... 20,825 87,458 114 (144) 108,253
Noncurrent liabilities................. -- 80,696 3,018 -- 83,714
Long-term debt and intercompany
advances, less current maturities.... 51,459 226,511 27,464 -- 305,434
Total shareholders' equity............. 65,373 89,512 7,358 (96,870) 65,373
-------- -------- -------- -------- --------
Total liabilities and shareholders'
equity........................ $ 137,657 $ 484,177 $ 37,954 $ (97,014) $ 562,774
======== ======== ======== ======== ========
15
<PAGE>
Condensed Consolidating Statement of Income
For the Nine Months Ended September 30, 1996
(In thousands)
(Unaudited)
Parent Guarantor
Company Subsidiaries JAIX Leasing Eliminations Consolidated
Total revenue............ $ 71 $ 423,421 $ 2,982 $ -- $ 426,474
Cost of sales............ (11) 360,157 1,025 -- 361,171
-------- -------- -------- -------- --------
Gross profit........... 82 63,264 1,957 -- 65,303
Selling, general, administrative
and amortization expenses 550 41,801 -- -- 42,351
-------- -------- -------- -------- --------
Operating income...... (468) 21,463 1,957 -- 22,952
Interest expense, net.... 8,980 15,806 1,812 -- 26,598
Equity (earnings) of subsidiaries (2,448) -- -- 2,448 --
Provision (benefit) for income taxes (3,485) 3,298 56 -- (131)
-------- -------- -------- -------- --------
Net income (loss)..... $ (3,515) $ 2,359 $ 89 $ (2,448) $ (3,515)
======== ======== ======== ======== ========
16
<PAGE>
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 1996
(In thousands)
(Unaudited)
Parent Guarantor
Company Subsidiaries JAIX Leasing Eliminations Consolidated
CASH FLOWS FROM
OPERATING ACTIVITIES.... $ (11,506) $ 26,452 $ 1,306 $ -- $ 16,252
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures.. (278) (6,277) -- -- (6,555)
Leased assets and investments (5,034) -- (43) -- (5,077)
Changes in restricted cash -- 703 -- -- 703
-------- -------- -------- -------- --------
Cash (used for)
investing activities.. (5,312) (5,574) (43) -- (10,929)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net payments under term loans (12,495) (114) -- -- (12,609)
Loan facility of leasing business -- -- 5,083 -- 5,083
Change in intercompany advances 19,025 (15,588) (3,437) -- --
Dividends received/ (paid) 1,600 -- (1,600) -- --
Deferred financing costs paid (421) (14) (437) -- (872)
Other.................. 15 -- -- -- 15
-------- -------- -------- -------- --------
Cash provided by (used for)
financing activities. 7,724 (15,716) (391) -- (8,383)
Net increase (decrease) in cash
and cash equivalents.... (9,094) 5,162 872 -- (3,060)
CASH AND CASH
EQUIVALENTS,
beginning of period.... 16,896 (6,156) 899 -- 11,639
-------- -------- --------- --------- --------
CASH AND CASH
EQUIVALENTS,
end of period.......... $ 7,802 $ (994) $ 1,771 $ -- $ 8,579
========= ======== ========= ========= ========
</TABLE>
17
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
For the Three and Nine Months Ended September 30, 1996
Item 2.
General
The Company completed the acquisitions of Truck Components Inc. ("TCI") on
August 23, 1995, and Bostrom Seating, Inc. ("Bostrom") on January 13, 1995. Both
the acquisitions were accounted for under the purchase method of accounting, and
accordingly, the operating results were included in the Company's reported
results from their respective acquisition dates. The results of TCI have a
significant impact on the comparative discussions below. Additionally, the
Company, through its wholly owned subsidiary Freight Car Services, Inc.,
completed the purchase of the Danville, Illinois facility which began operations
in October 1995.
The Company's sales are affected to a significant degree by the freight car
and Class 8 truck markets. Both the freight car and the Class 8 truck markets
are subject to significant fluctuations due to economic conditions in these
particular markets, changes in the alternative methods of transportation and
other factors. There can be no assurance that fluctuations in such markets will
not have a material adverse effect on the results of operations or financial
condition of the Company.
The Company's freight car manufacturing and rebuild sales are driven
principally by the number and type of freight cars delivered in any given
period. Due to the large size of customer orders, the specific time frame for
delivery of freight cars ordered and variations in the mix of cars ordered, the
number and type of cars produced in any given quarter may fluctuate greatly. As
a result, the Company's revenues and results of operations and cash flows from
operations may fluctuate as well.
Results of Operations
Three Months Ended September 30, 1996 and 1995
Total Revenue
Total revenue for the three months ended September 30, 1996 decreased 15.6%
to $140.8 million from $166.9 million in 1995. The total revenue decrease of
$26.1 million was due to the decrease in revenues from freight car operations of
$57.9 million, offset by a $35.1 million increase for the inclusion of TCI for a
full quarter in 1996 versus a partial quarter in 1995 increase and other
decreases of $3.3 million. The drop in freight car revenues resulted from 1996
shipments of new and rebuilt cars decreasing to 1,084 from 2,039 in the same
period of 1995.
18
<PAGE>
Cost of Sales - Manufacturing and Gross Profits
Cost of Sales - Manufacturing for the three months ended September 30, 1996
as a percent of manufacturing sales was 85.8%, compared to 91.8% in 1995.
Related gross profits were 14.2% and 8.2%, respectively. The improvement in
gross profits resulted primarily from the inclusion of TCI which has
historically generated higher gross profit margins than the freight car
business, for a full quarter in 1996 versus a partial quarter in 1995, and in
part due to improved margins in the freight car business and at Bostrom Seating
versus last years third quarter.
Selling, General, Administrative and Amortization
Selling, general, and administrative expenses as a percentage of total
revenue were 7.6% and 4.5% for the three months ended September 30, 1996 and
1995, respectively. The increase in selling, general, and administrative expense
is related to the inclusion of TCI which has higher selling, general and
administrative levels as a percent of revenue compared to the freight car
business, and to increased MIS and product development costs in the freight car
business. Amortization expense as a percentage of total revenue was 1.9% and
1.0% for the three months ended September 30, 1996 and 1995, respectively. The
increase in amortization expense is related to certain intangible assets of TCI
and the excess cost over net assets acquired in the TCI acquisition.
Operating Income
Operating income was $7.1 million in the third quarter of 1996, compared to
$5.0 million in the third quarter of 1995. The increase was primarily due to
including a full quarter of operating income of TCI versus a partial quarter in
1995 and due to the inclusion of Freight Car Services which was not operating in
the third quarter of 1995.
Other
Interest expense, net, was $9.0 million in the third quarter of 1996
compared to $4.2 in the third quarter of 1995. Interest expense in 1996 resulted
from increased borrowings under the Senior Bank Facilities and the issuance of
the Notes to finance the acquisition of TCI and the refinancing of its debt in
August 1995, as well as from the JAIX Leasing loans which were used to finance
the addition of freight cars for the lease fleet.
Net loss and loss per share for the third quarter of 1996 were $1.6 million
and $0.16, respectively, compared to net income and earnings per share of $.3
million and $0.03, respectively, for the third quarter of 1995.
19
<PAGE>
Results of Operations
Nine Months Ended September 30, 1996 and 1995
Total Revenue
Total revenue for the nine months ended September 30, 1996 decreased 16.7%
to $426.5 million from $512.0 million in 1995. The total revenue decrease of
$85.5 million was due to the decrease in freight car sales of $274.7 million
(2,716 new and rebuilt cars in 1996 vs 7,841 new and rebuilt cars in 1995) and a
$9.8 million decrease in truck related sales volume at Bostrom. The decreases
were offset in part by the inclusion of TCI for the full three quarters ended
September 30, 1996 versus inclusion for the partial third quarter of 1995, an
increase of $199.0 million. As of September 30, 1996, the Company's backlog of
new freight cars was 1,044 and 330 rebuilds as compared to 1,167 new freight
cars and 245 rebuilds on September 30, 1995.
Cost of Sales - Manufacturing and Gross Profits
Cost of Sales - Manufacturing for the nine months ended September 30, 1996
as a percent of manufacturing sales was 85.1%, compared to 92.5% in 1995.
Related gross profits were 14.9% and 7.5%, respectively. The improvement in
gross profits resulted primarily from the acquisition of TCI in August 1995,
which has historically generated higher gross profit margins than the freight
car business.
Selling, General, Administrative and Amortization
Selling, general, and administrative expenses as a percentage of total
revenue was 8.1% and 3.6% for the nine months ended 1996 and 1995, respectively.
The increase in selling, general, and administrative expense is related to the
acquisition and the integration of TCI which has higher selling, general and
administrative levels as a percent of revenue compared to the freight car
business, and to increased MIS and product development costs at the freight car
operations. Amortization expense as a percentage of total revenue was 1.8% and
.8% for the nine months ended 1996 and 1995, respectively. The increase in
amortization expense is related to certain intangible assets of TCI and the
excess cost over net assets acquired in the acquisition.
Operating Income
Operating income was $23.0 million for the first nine months of 1996,
compared to $17.2 million in the same period of 1995. The increase was primarily
due to including the operating income for the full nine months versus inclusion
for the partial third quarter of 1995 from the TCI acquisition, more than
offsetting the drop in operating income in the freight car business.
20
<PAGE>
Other
Interest expense, net was $26.6 million for the first nine months of 1996
compared to $6.0 in the same period of 1995. Interest expense in 1996 resulted
from increased borrowings under the Senior Bank Facilities and the issuance of
the Notes to finance the acquisition of TCI and the refinancing of its debt in
August 1995, as well as from the JAIX Leasing loans which were used to finance
the addition of freight cars for the lease fleet.
Net loss and loss per share for the first nine months of 1996 were $3.5
million and $0.36, respectively, compared to net income and earnings per share
of $6.6 million and $0.67, respectively for the same period of 1995.
Liquidity and Capital Resources
For the nine months ended September 30, 1996, the Company provided cash
from operations of $16.3 million compared with $43.5 million for the first nine
months of 1995. The Company used $10.9 million of cash in investing activities
during the first nine months of 1996, $5.8 million for capital expenditures and
$5.1 million for leased asset additions. Cash used for financing activities was
$8.4 million for the first nine months of 1996 due to payments on term debt
($12.6 million) partially offset by an increase in the JAIX Leasing loans of
$5.1 million.
The Company's freight car sales are characterized by large order sizes,
specific customer delivery schedules and related vendor receipts and payment
schedules, all of which can combine to create significant fluctuations in
working capital accounts when comparing end of period balances. Such
fluctuations tend to be of short duration, and the Company considers this to be
a normal part of its operating cycle which does not significantly impact its
financial flexibility and liquidity.
On August 23, 1995, in conjunction with the acquisition of TCI and the
refinancing of the existing debt of the Company, the Company and the Guarantor
Subsidiaries entered into the $300 million Senior Bank Facilities and issued
$100 million of Notes. See footnotes 4 and 5 of the Condensed Consolidated
Financial Statements for the nine months ended September 30, 1996, for a
description of the Senior Bank Facilities and the Notes.
As of September 30, 1996, there was $187.5 million of term loans
outstanding under the Senior Bank Facilities, of Notes outstanding, and no
borrowings under the revolving credit line under the Senior Bank Facilities.
Availability under the revolving credit line, after consideration of outstanding
letters of credit of $18.7 million, was $31.1 million.
21
<PAGE>
Interest payments on the Notes and interest and principal payments under
the Senior Bank Facilities represent significant liquidity requirements for the
Company. The Notes require semiannual interest payments of approximately $5.9
million. Borrowings under the Senior Bank Facilities bear interest at floating
rates and require interest payments on varying dates depending upon the interest
rate option selected by the Company. The term loans under the Senior Bank
Facilities require periodic principal payments through their maturities.
The Company formed a leasing business in 1994 to lease freight cars. This
leasing division was formed into a wholly owned subsidiary, JAIX Leasing, in
January 1995 and currently has 600 freight cars on lease with another 217 cars
currently on lease at the parent company. In June 1996, JAIX Leasing Company
entered into a term loan facility to finance its freight car leasing activities
and repay its existing credit facility. See footnote 4 of the Condensed
Consolidated Financial Statements for the nine months ended September 30, 1996,
for a description of this loan. As of September 30, 1996, there was $27.5
million outstanding under this loan.
The Company believes that the cash flow generated from its operations,
together with amounts available under the Revolving Loans, should be sufficient
to fund its debt service requirements, working capital needs, anticipated
capital expenditures and other operating expenses (including expenditures
required by applicable environmental laws and regulations). The Company's future
operating performance and ability to service or refinance the Notes and to
extend or refinance the Senior Bank Facilities will be subject to future
economic conditions and to financial, business and other factors, many of which
are beyond the Company's control.
As of September 30, 1996, the Company's balance sheet included cash of $8.6
million.
Environmental Matters
The Company's subsidiaries are currently involved in several matters
relating to the investigation and/or remediation of locations where the
subsidiaries have arranged for the disposal of foundry and other wastes. As of
September 30, 1996, based on all of the information currently available to the
Company, the Company has an environmental reserve which management believes is
adequate to cover future expenditures. This reserve is based on current cost
estimates and does not reduce estimated expenditures to net present value,
although the Company's subsidiaries are not likely to incur costs for most of
the reserved matters until several years in the future. Any cash expenditures
required by the Company or its subsidiaries to comply with applicable
environmental laws and/or to pay for any remediation efforts will not be reduced
or otherwise affected by the existence of the environmental reserve. Due to the
early stage of investigation of many of the sites and potential remediations
referred to above, there are significant uncertainties as to waste quantities
involved, the extent and timing of the remediation which will be required, the
range of acceptable solutions, costs of remediation and the number of
potentially responsible parties contributing to such costs. Based on all of the
information presently available to it, the Company believes that the
environmental reserve will be adequate to cover its future costs related to the
sites associated with the environmental reserve, and that any additional costs
will not have a material adverse effect on the financial condition or results of
operations of the Company. However, the discovery of additional sites, the
modification of existing laws or regulations, the imposition of joint and
several
22
<PAGE>
liability or the uncertainties referred to above could result in such a material
adverse effect.
Effects of Inflation
General price inflation has not had a material impact on the Company's
results of operations.
23
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The patent infringement lawsuit commenced by Johnstown America Corporation
("JAC") in December 1992 against Trinity Industries, Inc. ("Trinity") alleging
infringement of JAC's patent for its BethGon Coalporter (R) freight car was
tried in July-August 1996 with the trial court entering an order upholding a
jury verdict that the patent, though valid, was not infringed by Trinity's
Aluminator II freight car. In addition, JAC was not held to be liable for any of
the counterclaims alleged by Trinity. JAC thereafter made motions to the trial
court to set aside the verdict as not being consistent with the facts or the law
and enter judgment in favor of JAC or, alternatively, to order a new trial,
which motions were denied. JAC has appealed the case to the United States Court
of Appeals for the Federal Circuit. Although the chances of success of the
appeal cannot be predicted, the Company continues to believe that the order
entered by the trial court upholding the jury's verdict and several prior orders
are not consistent with the facts or the law and that the trial court erred in
applying the law in this case. In any event, although neither the outcome of the
action nor the effect of such outcome can be predicted with certainty, in the
opinion of management of the Company, the outcome of the action will not have a
material adverse effect on the financial condition or results of operations of
the Company.
The Company is involved in various lawsuits and warranty claims in the
normal course of business. In the opinion of management of the Company, the
outcome of these lawsuits and claims will not have a material adverse effect on
the financial condition or results of operations of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports
The Company filed the following reports on Form 8-K during the three months
ended September 30, 1996:
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHNSTOWN AMERICA INDUSTRIES, INC.
By \s\ Andrew M. Weller
--------------------------------
Andrew M. Weller
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: November 8, 1996
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