<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1997
REGISTRATION NO. 333-35277
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
JOHNSTOWN AMERICA INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 25-1672791
(State or other (I.R.S. Employer
jurisdiction of
incorporation or AND ITS GUARANTOR SUBSIDIARIES Identification No.)
organization)
DELAWARE JOHNSTOWN AMERICA CORPORATION 36-3769515
DELAWARE BOSTROM SEATING, INC. 39-1507179
DELAWARE BOSTROM HOLDINGS, INC. 36-4129282
DELAWARE FREIGHT CAR SERVICES, INC. 36-3990959
DELAWARE JAC PATENT CORPORATION 51-0345050
DELAWARE TRUCK COMPONENTS INC. 36-3535407
DELAWARE GUNITE CORPORATION 13-3369803
DELAWARE BRILLION IRON WORKS, INC. 39-1506942
DELAWARE FABCO AUTOMOTIVE CORPORATION 13-3369802
DELAWARE JAII MANAGEMENT COMPANY APPLIED FOR
(State or other (Exact name of Registrant as specified in its (I.R.S. Employer
jurisdiction of charter)
incorporation or Identification No.)
organization)
</TABLE>
------------------------
3743
3710
(Primary Standard Industrial Classification Code Number)
------------------------
980 NORTH MICHIGAN AVENUE
SUITE 1000
CHICAGO, ILLINOIS 60611
(312) 280-8844
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive office)
ANDREW M. WELLER
980 NORTH MICHIGAN AVENUE
SUITE 1000
CHICAGO, ILLINOIS 60611
(312) 280-8844
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPY TO:
R. CABELL MORRIS, JR.
WINSTON & STRAWN
35 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60601
(312) 558-5600
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 30, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO THE REGISTRATION OR
QUALIFICATION UNDER THE
SECURITIES LAWS OF SUCH STATE. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS
TO BUY BE ACCEPTED BEFORE THE PROSPECTUS IS DELIVERED IN FINAL FORM.
<PAGE>
PROSPECTUS
[LOGO]
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF ITS 11 3/4% SERIES C SENIOR
SUBORDINATED NOTES DUE 2005
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR EACH $1,000
IN PRINCIPAL AMOUNT OF ITS OUTSTANDING 11 3/4% SERIES B SENIOR SUBORDINATED
NOTES DUE 2005
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON DECEMBER , 1997 UNLESS EXTENDED.
--------------------------
Johnstown America Industries, Inc., a Delaware Corporation (the "Company"),
hereby offers to exchange (the "Exchange Offer") up to $80 million in aggregate
principal amount of its new 11 3/4% Series C Senior Subordinated Notes due 2005
(the "Exchange Notes") for up to $80 million in aggregate principal amount of
its outstanding 11 3/4% Series B Senior Subordinated Notes due 2005 (the "Old
Notes" and, together with the Exchange Notes, the "Notes") that were issued and
sold in a transaction exempt from registration under the Securities Act of 1933,
as amended (the "Securities Act").
The terms of the Exchange Notes are substantially identical (including
principal amount, interest rate, maturity, security and ranking) to the terms of
the Old Notes for which they may be exchanged pursuant to the Exchange Offer,
except that the Exchange Notes (i) are freely transferable by holders thereof
(except as provided below) and (ii) are not entitled to certain registration
rights and certain liquidated damages provisions which are applicable to the Old
Notes under the Registration Rights Agreement (as defined herein). The Exchange
Notes will be, and the Old Notes are, unsecured and subordinated to all existing
and future Senior Indebtedness (as defined herein) of the Company. The Exchange
Notes will, and the Old Notes do, rank PARI PASSU in right of payment with any
future Senior Subordinated Indebtedness (as defined herein) of the Company and
with the $100 million of 11 3/4% Senior Subordinated Notes due 2005 issued by
the Company in August 1995 (the "Original Notes"). The Exchange Notes will, and
the Old Notes do, rank senior to all subordinated indebtedness of the Company.
The Exchange Notes will be, and the Old Notes are, fully and unconditionally,
jointly and severally, guaranteed (collectively, the "Subsidiary Guaranty") on
an unsecured, senior subordinated basis, by each subsidiary of the Company on
the issue date of the Exchange Notes or the Old Notes, as the case may be (other
than JAIX Leasing Company), and each Restricted Subsidiary (as defined herein)
acquired thereafter (collectively, the "Guarantor Subsidiaries"). The Company is
a holding company that derives all of its operating income and cash flow from
its subsidiaries, the capital stock of each of which constitute the Company's
only material assets and are pledged to collateralize the obligations under the
Senior Bank Facilities (as defined herein). In addition, the obligations of the
Company under the Senior Bank Facilities are unconditionally and irrevocably
guaranteed on a senior basis by the Guarantor Subsidiaries and such guarantees
are secured by security interests in, pledges of, or liens on all capital stock
of and all tangible and intangible assets of the Guarantor Subsidiaries. See
"Description of Exchange Notes" and "Description of Certain Indebtedness--Senior
Bank Facilities." As of June 30, 1997, on a pro forma basis after giving effect
to the offering of the Old Notes (the "Old Notes Offering"), the aggregate
amount of the Company's (excluding its consolidated subsidiaries) outstanding
Senior Indebtedness would have been approximately $95.0 million (excluding
unused commitments and $17.1 million of outstanding letters of credit), the
Company would have had $100 million of Senior Subordinated Indebtedness other
than the Notes and no indebtedness that is subordinated or junior in right of
payment to the indebtedness represented by the Notes, the Guarantor Subsidiaries
would have had outstanding no Senior Indebtedness (excluding the Subsidiary
Guaranty and subsidiary guarantees of the Senior Bank Facilities), and all
liabilities of the Guarantor Subsidiaries (including trade payables and deferred
taxes, but excluding the Subsidiary Guaranty and subsidiary guarantees of the
Senior Bank Facilities) would have totaled approximately $198.7 million and
would rank PARI PASSU with the Notes. See "Description of Exchange
Notes--Ranking." Adjusted to give effect to the Old Notes Offering and the
application of the estimated net proceeds therefrom, the Company's total debt to
total capitalization ratio as of June 30, 1997 would have been 84%. The
indenture under which the Exchange Notes will be, and the Old Notes were, issued
(the "Indenture," and together with the indenture governing the Original Notes,
the "Indentures") will permit the Company and the Guarantor Subsidiaries to
incur additional indebtedness, including Senior Indebtedness and indebtedness
that will rank PARI PASSU with the Notes. The ability of the Company to incur
any such additional indebtedness is limited by the Company's covenants under the
Senior Bank Facilities and the Indentures. There will be no cash proceeds to the
Company from the Exchange Offer.
(CONTINUED ON NEXT PAGE)
------------------------------
HOLDERS OF OLD NOTES SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH IN
"RISK FACTORS" COMMENCING ON PAGE 18 OF THIS PROSPECTUS PRIOR TO MAKING A
DECISION WITH RESPECT TO THE EXCHANGE OFFER.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAVE THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is November , 1997.
<PAGE>
(COVER PAGE CONTINUED)
The Exchange Notes will bear interest from August 11, 1997. Holders of Old
Notes whose Old Notes are accepted for exchange will be deemed to have waived
the right to receive any payment in respect of interest on the Old Notes accrued
from August 11, 1997 to the date of the issuance of the Exchange Notes. The
Exchange Notes will bear interest at the rate of 11 3/4% per annum, payable
semi-annually on February 15 and August 15 of each year, commencing February 15,
1998. Except as described below, the Company may not redeem the Notes prior to
August 15, 2000. On or after such date, the Company may redeem the Notes, in
whole or in part, at the redemption prices set forth herein, together with
accrued and unpaid interest, if any, to the date of redemption. In addition, at
any time and from time to time on or prior to August 15, 1998, the Company may,
subject to certain requirements, redeem up to 33 1/3% of the original aggregate
principal amount of the Notes with the net cash proceeds of one or more Public
Equity Offerings (as defined herein) at a redemption price equal to 111.75% of
the principal amount to be redeemed, together with accrued and unpaid interest,
if any, to the date of redemption, provided that at least 66 2/3% of the
original aggregate principal amount of the Notes remains outstanding after each
such redemption. The Notes will not be subject to any sinking fund requirement.
Upon the occurrence of a Change of Control (as defined herein), the Company will
be required to make an offer to repurchase the Notes at a price equal to 101% of
the principal amount thereof, together with accrued and unpaid interest, if any,
to the date of purchase. The Senior Bank Facilities, however, prohibit the
purchase of the Exchange Notes by the Company in the event of a Change of
Control, unless and until such time as the indebtedness under the Senior Bank
Facilities is repaid in full. In the event of a Change of Control, there can be
no assurance that the Company would have sufficient assets to satisfy all of its
obligations under the Senior Bank Facilities, the Notes and the Original Notes.
See "Description of Exchange Notes--Optional Redemption," "--Change of Control"
and "Description of Certain Indebtedness--Senior Bank Facilities."
The Old Notes were originally issued and sold on August 11, 1997 in a
transaction not registered under the Securities Act, in reliance upon the
exemption provided in Section 4(2) of the Securities Act and Rule 144A
promulgated under the Securities Act. Accordingly, the Old Notes may not be
reoffered, resold or otherwise pledged, hypothecated or transferred in the
United States unless so registered or unless an applicable exemption from the
registration requirements of the Securities Act is available. Based upon its
view of interpretations provided to third parties by the Staff (the "Staff") of
the Securities and Exchange Commission (the "Commission"), the Company believes
that the Exchange Notes issued pursuant to the Exchange Offer in exchange for
the Old Notes may be offered for resale, resold and otherwise transferred by
holders thereof (other than any holder which is (i) an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act (an
"Affiliate"), (ii) a broker-dealer who acquired Old Notes directly from the
Company or (iii) a broker-dealer who acquired Old Notes as a result of market
making or other trading activities) without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that such Exchange
Notes are acquired in the ordinary course of such holders' business and such
holders are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a distribution
of such Exchange Notes. However, the Company does not intend to request the
Commission to consider, and the Commission has not considered, the Exchange
Offer in the context of a no-action letter and there can be no assurance that
the Staff would make a similar determination with respect to the Exchange Offer
as in other circumstances. Each broker-dealer that receives Exchange Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. The
Letter of Transmittal that is filed as an exhibit to the Registration Statement
of which this Prospectus is a part (the "Letter of Transmittal") states that by
so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of Exchange Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date (as defined herein), it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution." Any holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes and any other holder that
cannot rely upon such interpretations must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. Any broker-dealer that resells Exchange Notes that
were received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such Exchange Notes may
be deemed to be an "underwriter" within the meaning of the Securities Act and
2
<PAGE>
(COVER PAGE CONTINUED)
ANY PROFIT ON ANY SUCH RESALE OF EXCHANGE NOTES AND ANY COMMISSIONS OR
CONCESSIONS RECEIVED BY ANY SUCH PERSONS MAY BE DEEMED TO BE UNDERWRITING
COMPENSATION UNDER THE SECURITIES ACT.
Old Notes initially purchased by qualified institutional buyers were
initially represented by two global Notes in registered form, registered in the
name of a nominee of The Depository Trust Company ("DTC"), as depository. The
Exchange Notes exchanged for Old Notes represented by the global Notes will be
represented by one or more global Exchange Notes in registered form, registered
in the name of the nominee of DTC. See "Description of Exchange Notes--Book
Entry, Delivery and Form." Exchange Notes issued to non-qualified institutional
buyers in exchange for Old Notes held by such investors will be issued only in
certificated, fully registered, definitive form. Except as described herein,
Exchange Notes in definitive certificated form will not be issued in exchange
for the global Exchange Note(s) or interests therein.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding. To the extent that Old Notes are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered, and tendered but
unaccepted, Old Notes could be adversely affected. Following consummation of the
Exchange Offer, the holders of any remaining Old Notes will continue to be
subject to the existing restrictions on transfer thereof and the Company will
have no further obligation to such holders to provide for the registration under
the Securities Act of the Old Notes except under certain limited circumstances.
See "Old Notes Registration Rights; Liquidated Damages." No assurance can be
given as to the liquidity of the trading market for either the Old Notes or the
Exchange Notes.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered or accepted for exchange. The Exchange Offer
will expire at 5:00 p.m., New York City time, on December , 1997, unless
extended (the "Expiration Date"). The Expiration Date will not be extended,
however, beyond December , 1997. The date of acceptance for exchange of the
Old Notes (the "Exchange Date") will be the first business day following the
Expiration Date, upon surrender of the Old Notes. Old Notes tendered pursuant to
the Exchange Offer may be withdrawn at any time prior to the Expiration Date;
otherwise such tenders are irrevocable.
3
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. The reports, proxy statements and other information filed by the
Company with the Commission can be inspected and copied at the public reference
facilities of the Commission at its principal office at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at its regional
offices at 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661, and at
Seven World Trade Center, Suite 1300, New York, New York 10048. Any interested
party may obtain copies of such material at prescribed rates from the Public
Reference Section of the Commission at its principal office at Judiciary Plaza,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. In addition, certain
documents filed with the Commission through its Electronic Data Gathering,
Analysis and Retrieval system are publicly available through the Commission's
site on the Internet's World Wide Web, located at HTTP://WWW.SEC.GOV.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K and the Company's Amendment to
Annual Report on Form 10-KA for the year ended December 31, 1996, the Company's
Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 1997
and June 30, 1997 and the Company's Current Report on Form 8-K dated July 24,
1997 are hereby incorporated by reference.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, subsequent to the date of this
Prospectus and prior to the termination of the offering made hereby shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing such documents. Any statement contained herein or
in a document incorporated or deemed to be incorporated herein by reference
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained in any subsequently filed document which
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of such person, a
copy of any or all of the documents incorporated herein by reference (other than
exhibits thereto, unless such exhibits are specifically incorporated by
reference into the information that this Prospectus incorporates). Written or
telephone requests for such copies should be directed to the Company's principal
office: Johnstown America Industries, Inc., 980 North Michigan Avenue, Suite
1000, Chicago, Illinois 60611, Attention: Secretary (telephone: (312) 280-8844).
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, AND
THE RELATED NOTES THERETO, INCLUDED ELSEWHERE IN THIS PROSPECTUS. AS USED IN
THIS PROSPECTUS, (I) THE "COMPANY" REFERS TO JOHNSTOWN AMERICA INDUSTRIES, INC.
AND ITS SUBSIDIARIES AND (II) "TCI," "GUNITE," "BRILLION," "BOSTROM," "FABCO,"
"JAC," "JAIX LEASING" AND "FCS" REFER TO TRUCK COMPONENTS INC., GUNITE
CORPORATION, BRILLION IRON WORKS, INC., BOSTROM SEATING, INC., FABCO AUTOMOTIVE
CORPORATION, JOHNSTOWN AMERICA CORPORATION, JAIX LEASING COMPANY AND FREIGHT CAR
SERVICES, INC., RESPECTIVELY, ALL WHOLLY OWNED SUBSIDIARIES OF THE COMPANY.
UNLESS OTHERWISE INDICATED, ALL TRUCK INDUSTRY DATA ARE DERIVED FROM REPORTS
PUBLISHED BY AMERICA'S COMMERCIAL TRANSPORTATION PUBLICATIONS AND ALL FREIGHT
CAR INDUSTRY DATA ARE DERIVED FROM REPORTS PUBLISHED BY AMERICAN RAILWAY CAR
INSTITUTE AND THE WEFA GROUP ("WEFA"). SEE "GLOSSARY OF CERTAIN TERMS" FOR
DEFINITIONS OF CERTAIN INDUSTRY TERMS USED IN THIS PROSPECTUS.
THE COMPANY
The Company, through its subsidiaries, designs and manufactures: components
and assemblies primarily for heavy- and medium-duty trucks; high quality,
complex iron castings for transportation-related and a variety of other markets;
and railroad freight cars. The Company's principal business operations are:
TRUCK COMPONENTS AND ASSEMBLIES. Gunite is a leading North American
supplier of wheel-end systems and components, such as brake drums, disc wheel
hubs, spoke wheels, rotors and slack adjusters to original equipment
manufacturers ("OEMs") in the heavy-duty truck industry. The Company believes
Gunite's products are offered as standard equipment on more heavy-duty truck
manufacturers' vehicles than any of its competitors' products. Management also
believes Gunite's fully integrated operations, which combine advanced product
design, casting and machining capabilities, provide it with significant
competitive advantages, particularly in the development of new, value-added
products. Gunite is a market leader in the production of wheel-end components
for anti-lock braking systems ("ABS"), which have been mandated for all new
trucks beginning in March 1997 and all new trailers beginning in March 1998.
Gunite also has developed a new lightweight brake drum ("Gunite-Lite-TM-") for
applications in the heavy-duty truck market where certain customers value
strong, lighter weight components. In addition to serving OEMs, Gunite has
significant sales to the less cyclical, higher margin aftermarket which, as a
percentage of Gunite's net sales, has increased since the acquisition of Gunite
by the Company in 1995 from approximately 26% in 1995 to approximately 35% for
the six months ended June 30, 1997. Further, Gunite's commitment to quality,
customer satisfaction and continuous improvement is evidenced by its ISO 9000
and QS 9000 certifications.
The Company's other truck components and assemblies operations include
Bostrom and Fabco. Bostrom is a leading manufacturer of air suspension and
static seating systems for the heavy- and medium-duty truck industry, supplying
almost 50% of the heavy-duty truck OEM market. Bostrom also has significant
sales to the aftermarket, which represent approximately 20% of Bostrom's net
sales. Bostrom's commitment to quality, customer satisfaction and continuous
improvement is evidenced by its ISO 9000 certification. Fabco is a leading
supplier of steerable drive axles, gear boxes and related parts for heavy on/off
highway trucks and utility vehicles.
IRON CASTINGS. Brillion operates one of the nation's largest and most
versatile iron foundries and is focused on providing high quality, complex
castings to customers in a wide range of industries, including the truck,
industrial machinery, automotive and construction equipment markets. A leader in
ductile iron technology, Brillion specializes in the production of lightweight,
intricate thin wall castings. In addition to providing an important source of
high quality castings for Gunite (12.6% of Brillion's net foundry sales in
1996), Brillion has long-standing relationships with many of its over 225
customers. Generally, once a foundry begins production of a product, it will
continue to manufacture the item for the
5
<PAGE>
product's life cycle. Brillion also manufactures and sells a line of farm
equipment products. In 1996, over 95% of Brillion's net foundry sales were from
established customers. Brillion also benefits from numerous quality
certifications, including ISO 9000 and QS 9000, and from achieving preferred
supplier status with many of its customers.
RAILROAD FREIGHT CARS. The Company, through its subsidiary, JAC, is a
leading manufacturer of railroad freight cars used principally for hauling coal.
JAC also offers aluminum covered hoppers for the grain hauling market and
intermodal freight cars, which it has manufactured in the past and has the
capability to produce in response to future market demand. JAC is recognized for
its expertise in the development and manufacture of aluminum freight cars that
increase load capacity and consequently reduce carrier costs. JAC's BethGon
Coalporter-Registered Trademark- had an estimated average market share of 81% of
the aluminum coal gondola market during the five-year period from 1992 to 1996.
In addition to manufacturing its standard BethGon
Coalporter-Registered Trademark-, in 1996 JAC introduced a new lighter weight
BethGon which weighs approximately 3,500 pounds less than a standard BethGon,
thereby enabling the car to carry significantly more coal per trip. JAC also
successfully introduced in 1996 an aluminum rapid discharge coal car, the
AutoFlood II-TM-, to compete in the aluminum bottom dump segment of the coal
freight car market. The AutoFlood II-TM- provides 18 tons more capacity per load
than conventional steel automatic discharge freight cars. These products have
been well received in the marketplace and the Company believes that JAC should
be able to further penetrate the market for aluminum coal freight cars.
As part of its full service business strategy for the freight car market,
the Company formed two new subsidiaries in 1994 and 1995, JAIX Leasing and FCS.
JAIX Leasing was formed to provide operating lease alternatives for its
customers. FCS was formed to participate in the freight car rebuilding and
repair market as well as to provide new freight car manufacturing capability for
specialty markets.
STRATEGY
The Company's strategy is to strengthen its financial position by reducing
its indebtedness, while continuing to build a diversified transportation
equipment manufacturing company with leading market positions in the markets it
serves. The acquisitions of Gunite, Brillion, Bostrom and Fabco have enabled the
Company to diversify its revenue base, with truck components and assemblies,
iron castings and freight car operations contributing approximately 42.3%, 22.3%
and 35.4% of the Company's 1996 revenues, respectively, and 51.6%, 25.2% and
23.2% of the Company's revenues for the six months ended June 30, 1997. The
primary elements of the Company's strategy are to: (i) expand its business by
capitalizing on its leading market positions; (ii) develop new products and
extend its product lines; (iii) aggressively pursue cost reductions and increase
operating efficiencies; and (iv) expand its aftermarket presence. Despite
significant softness in the freight car markets served by JAC since late 1995,
the Company believes that it has made significant progress toward implementing
its strategy.
MAINTAIN AND EXPAND LEADING MARKET POSITIONS. Management believes that the
Company has enhanced its competitive position in many of its markets. Gunite and
Bostrom have expanded their relationships with OEM customers by continuing to
provide high-quality products and reliable customer service, which should result
in additional business opportunities, as well as expanded their presence in the
aftermarket by capitalizing on the market leading positions of their products.
For example, Gunite's wheel-end products recently were selected as the standard
configuration by an additional leading North American heavy-duty truck OEM. To
expand its market position, Brillion has maintained its long-term relationships
as well as built new relationships by providing reliable customer service,
drawing on its technical expertise to reduce costs to customers and producing
highly complex castings. The Company's freight car operations enhanced its
leadership position in aluminum freight car design and manufacturing by recently
introducing two innovative coal cars: a lighter weight BethGon
Coalporter-Registered Trademark- and a new lightweight aluminum rapid discharge
hopper car, the AutoFlood II-TM-. Management of the Company believes that
customer satisfaction is the key to maintaining and expanding the Company's
6
<PAGE>
presence in the markets it serves, which requires high quality manufacturing,
timely product delivery and responsive customer service.
DEVELOP NEW PRODUCTS AND EXTEND PRODUCT LINES. The Company continually
invests in developing new products and extending its product lines, many times
at the suggestion of, or in conjunction with, an existing or a potential
customer. Gunite has successfully introduced its lightweight brake drum, Gunite-
Lite-TM-, which has generated substantial interest and orders in the
marketplace. In addition, Bostrom is working with its OEM customers to develop a
new generation of seating systems for heavy-duty trucks. The Company's freight
car operations continue to introduce new aluminum coal car products and FCS was
established to offer customers rebuilding and repair services as well as
specialty freight car manufacturing.
PURSUE COST REDUCTIONS AND INCREASE OPERATING EFFICIENCY. The Company has
improved operating efficiencies in many of its businesses. Gunite, Brillion and
Bostrom have each increased profitability and capacity with little capital
investment through improved operating efficiency. Gunite and Brillion strive to
improve their operations by continually refining their manufacturing processes.
Bostrom recently undertook a program to increase profitability by substantially
increasing productivity, reducing production costs and improving customer
service. At the same time, JAC has reduced its operating costs and increased its
operational flexibility to enhance its ability to operate profitably even at
reduced volume levels. Examples of production efficiency initiatives undertaken
at JAC in 1996 include reducing the number of freight car erection lines,
reducing change-over times and inventories and implementing cellular
manufacturing concepts. Management of the Company is committed to continuous
improvement in operating efficiency to enhance the Company's ability to achieve
significant profitability at higher volume levels and increase its ability to
operate profitably at lower volume levels.
EXPAND AFTERMARKET PRESENCE. The Company has significantly expanded its
presence in the less cyclical, higher margin aftermarket. A substantial
percentage of both Gunite's and Bostrom's revenues are attributable to
aftermarket sales. Gunite has increased its market penetration in the
aftermarket and as a result has increased the percentage of its revenues
attributable to aftermarket sales from 26% for the year ended December 31, 1995
to 35% for the six months ended June 30, 1997. The Company has also expanded its
presence in rebuilding and repairing freight cars through the start-up of FCS in
1995. At FCS, the Company successfully rehabilitated a closed facility and
brought on-line a profitable provider of repair and rebuilding services and a
manufacturer of specialty freight cars for a minimum capital investment.
Further, JAC has and will continue to expand its presence in the high margin
service parts businesses related to its products. Notwithstanding the Company's
progress to date, the Company intends to continue to increase its presence in
the aftermarket and the service parts market.
INDUSTRY OVERVIEW
HEAVY-DUTY TRUCK INDUSTRY. Demand for the products supplied by Gunite and
Bostrom closely follows the demand for North American Class 8 trucks (trucks
with a gross axle weight in excess of 33,000 pounds). The North American Class 8
truck build increased consistently from 1992 through 1995 reaching a record
truck build of 246,000 in 1995. The North American truck build decreased to
191,500 in 1996, which despite the decline, represented the third largest Class
8 truck build ever. The North American Class 8 truck build in the first two
quarters of 1997 was 103,600 and is projected to be approximately 212,500 units
in 1997, 204,000 units in 1998 and 195,000 units in 1999. Management continues
to believe that a number of factors will promote demand for new Class 8 trucks,
including (i) continued growth in the demand for trucking services due to the
continued strong United States economy, (ii) a trend toward consolidation in the
trucking industry, (iii) the truck replacement cycle, (iv) new, more fuel
efficient truck offerings and (v) increasingly stringent safety and emission
standards. Further, management of the Company believes that the aftermarket will
remain strong during the next
7
<PAGE>
few years because the record number of Class 8 trucks built in the past five
years will continue to require replacement parts.
IRON FOUNDRY INDUSTRY. Management of the Company believes, based on
industry knowledge, that in recent years the traditionally fragmented U.S. iron
foundry industry has continued to consolidate and that many smaller iron
foundries have closed due to the increasing cost of complying with environmental
and other governmental regulations and their inability to satisfy the increasing
demand for higher quality, more complex castings. At the same time, management
of the Company believes, based on industry knowledge, that major automotive,
farm equipment and construction machinery manufacturers have continued to
outsource production of components in an effort to control inventory and labor
costs and address quality concerns. Management of the Company also believes that
stable, established, independent iron foundries, including Brillion, have
benefitted and, despite increased foundry capacity brought on line by
competitors during the past several years, will continue to benefit from
consolidation and outsourcing trends.
FREIGHT CAR INDUSTRY. The freight car market is cyclical in nature. From
1993 through 1995, new car deliveries totaled 35,239, 53,281 and 60,853,
respectively. In 1996, new car deliveries remained strong at 57,877 due to the
strong backlog in orders at the end of 1995. However, industrywide orders slowed
considerably in 1996 and industrywide year end backlog declined from 32,574 at
the end of 1995 to 17,508 at the end of 1996. New car orders declined more
dramatically since the end of 1995 for the primary markets served by JAC. For
example, the industrywide backlog for coal gondolas, JAC's most significant
market, declined from 1,784 at the end of 1995 to 320 at the end of 1996.
Industrywide deliveries of coal open hoppers declined from 6,214 in 1995 to
2,298 in 1996 and industrywide deliveries of intermodal cars declined from
10,536 in 1995 to 1,549 in 1996, with no backlog for intermodal cars at the end
of 1996. Management believes that this cyclical trough in demand for the types
of cars offered by JAC has begun to improve slightly. Industrywide backlog for
coal gondolas at the end of the second quarter of 1997 improved to 2,385 cars
from 320 at the end of 1996. The Company's backlog improved from 774 new and
rebuilt cars at the end of 1996 to 1,949 at the end of the second quarter of
1997. Management believes that while projected 1997 industrywide deliveries
(approximately 44,000) will be down significantly from 1996 (57,877) and while
industrywide backlog will likely remain consistent with the 17,508 backlog at
the end of 1996, the aluminum coal car markets will likely see continued gradual
improvement through the remainder of 1997 and through 1998. According to WEFA,
industrywide deliveries for new aluminum coal gondolas are expected to gradually
increase from 3,000 in 1997 to over 5,000 by 1999. In addition, the industry
forecast anticipates gradual improvement in the aluminum coal open hopper market
with estimated annual deliveries increasing from 4,000 in 1997 to 5,000 in 2001.
The Company is also being adversely affected by intense pricing pressures
currently present in a freight car market characterized by depressed demand and
production overcapacity. Although the freight car industry does not report
freight car rebuilding activity, management believes, based on its knowledge of
the historical market for freight car rebuilding and industry data regarding the
average age of freight cars in service, that a relatively stable market for
freight car rebuilding exists.
RECENT EVENT
On September 10, 1997, the Company announced that TCI and Gunite settled two
pending environmental lawsuits. As a result of the settlement, the Company's
reserve for environmental matters of $26.1 million at June 30, 1997 will be
decreased by $14.3 million to $11.8 million. This non-cash reversal will
generate pre-tax income of $14.3 million and after tax income of $8.4 million,
or $0.86 per share, which will be reflected in the Company's results of
operations for the quarter ending September 30, 1997. See
"Business--Environmental Matters."
8
<PAGE>
COMPANY ORGANIZATION
The following flow chart reflects the Company's current organization:
[LOGO]
9
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer........................... The Company is offering to exchange (the
"Exchange Offer") up to $80 million aggregate
principal amount of its new 11 3/4% Series C
Senior Subordinated Notes due 2005 (the
"Exchange Notes") for up to $80 million
aggregate principal amount of its outstanding
11 3/4% Series B Senior Subordinated Notes
due 2005 that were issued and sold in a
transaction exempt from registration under
the Securities Act (the "Old Notes"). The Old
Notes were initially offered and sold by
Chase Securities Inc., as the initial
purchaser of the Old Notes (the "Initial
Purchaser"), to certain institutional and
accredited investors at a price of 104.5% of
the principal amount thereof. The form and
terms of the Exchange Notes are substantially
identical (including principal amount,
interest rate, maturity, security and
ranking) to the form and terms of the Old
Notes for which they may be exchanged
pursuant to the Exchange Offer, except that
the Exchange Notes are freely transferable by
holders thereof except as provided herein
(see "The Exchange Offer--Terms of the
Exchange" and "Terms and Conditions of the
Letter of Transmittal") and are not entitled
to certain registration rights and certain
liquidation damages provisions that are
applicable to the Old Notes under an exchange
and registration rights agreement dated as of
August 11, 1997 (the "Registration Rights
Agreement") between the Company, the
Guarantor Subsidiaries and the Initial
Purchaser. Exchange Notes issued pursuant to
the Exchange Offer in exchange for the Old
Notes may be offered for resale, resold and
otherwise transferred by holders thereof
(other than any holder which is (i) an
Affiliate of the Company, (ii) a
broker-dealer who acquired Old Notes directly
from the Company or (iii) a broker- dealer
who acquired Old Notes as a result of
market-making or other trading activities),
without compliance with the registration and
prospectus delivery provisions of the
Securities Act provided that such Exchange
Notes are acquired in the ordinary course of
such holders' business and such holders are
not engaged in, and do not intend to engage
in, and have no arrangement or understanding
with any person to participate in, a
distribution of such Exchange Notes.
Any broker-dealer that resells Exchange Notes
that were received by it for its own account
pursuant to the Exchange Offer and any broker
or dealer that
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
participates in a distribution of such
Exchange Notes may be deemed to be an
"underwriter" within the meaning of the
Securities Act and any profit on any such
resale of Exchange Notes and any commissions
or concessions received by any such persons
may be deemed to be underwriting compensation
under the Securities Act.
Minimum Condition............................ The Exchange Offer is not conditioned upon
any minimum aggregate principal amount of Old
Notes being tendered or accepted for
exchange.
Expiration Date.............................. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on December , 1997
unless extended (the "Expiration Date").
Exchange Date................................ The first date of acceptance for exchange for
the Old Notes will be the first business day
following the Expiration Date.
Conditions to the Exchange Offer............. The obligation of the Company to consummate
the Exchange Offer is subject to certain
conditions. See "The Exchange
Offer--Conditions to the Exchange Offer." The
Company reserves the right to terminate or
amend the Exchange Offer at any time prior to
the Expiration Date upon the occurrence of
any such condition.
Withdrawal Rights............................ Tenders of Old Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to
the Expiration Date. Any Old Notes not
accepted for any reason will be returned
without expense to the tendering holders
thereof as promptly as practicable after the
expiration or termination of the Exchange
Offer.
Procedures for Tendering Old Notes........... See "The Exchange Offer--How to Tender."
Federal Income Tax Consequences.............. The exchange of Old Notes for Exchange Notes
by tendering holders should not be a taxable
exchange for federal income tax purposes, and
such holders should not recognize any taxable
gain or loss or any interest income as a
result of such exchange.
Use of Proceeds.............................. There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange
Offer. The net proceeds from the Old Notes
Offering, of approximately $80.0 million
(after deduction of discounts to the Initial
Purchaser and other expenses of the Old Notes
Offering), was used to pay the Tranche A Term
Loans (as defined herein) under the Company's
term loan and revolving credit facility with
The Chase Manhattan Bank, as administrative
agent and collateral agent. See "Use of
Proceeds."
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Effect on Holders of Old Notes............... As a result of the making of this Exchange
Offer, and upon acceptance for exchange of
all validly tendered Old Notes pursuant to
the terms of this Exchange Offer, the Company
will have fulfilled a covenant contained in
the Registration Rights Agreement, and,
accordingly, the holders of the Old Notes
will have no further registration or other
rights under the Registration Rights
Agreement, except under certain limited
circumstances. See "Old Notes Registration
Rights; Liquidated Damages." Holders of the
Old Notes who do not tender their Old Notes
in the Exchange Offer will continue to hold
such Old Notes and will be entitled to all
the rights and limitations applicable thereto
under the Indenture. All untendered, and
tendered but unaccepted, Old Notes will
continue to be subject to the restrictions on
transfer provided for in the Old Notes and
the Indenture. To the extent that Old Notes
are tendered and accepted in the Exchange
Offer, the trading market, if any, for the
Old Notes not so tendered could be adversely
affected. See "Risk Factors-- Consequences of
Failure to Exchange Old Notes."
</TABLE>
TERMS OF THE EXCHANGE NOTES
The Exchange Offer applies to $80 million aggregate principal amount of Old
Notes. The form and terms of the Exchange Notes are substantially identical to
the form and terms of the Old Notes except that the Exchange Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof. The Exchange Notes will evidence the same debt
as the Old Notes and will be entitled to the benefits of the Indenture. See
"Description of Exchange Notes."
<TABLE>
<S> <C>
Issuer....................................... Johnstown America Industries, Inc.
Securities Offered........................... $80 million aggregate principal amount of
11 3/4% Series C Senior Subordinated Notes
due 2005.
Maturity..................................... August 15, 2005.
Interest Payment Dates....................... February 15 and August 15 of each year,
commencing on February 15, 1998.
Sinking Fund................................. None.
Optional Redemption.......................... Except as described below, the Company may
not redeem the Exchange Notes prior to August
15, 2000. On or after such date, the Company
may redeem the Exchange Notes, in whole or in
part, at any time at the redemption price set
forth herein, together with accrued and
unpaid interest, if any, to the date of
redemption. In addition, at any time and from
time to time on or prior to August 15, 1998,
the Company may, subject to certain
requirements, redeem up to 33 1/3% of the
original
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
aggregate principal amount of the Exchange
Notes with the net cash proceeds of one or
more Public Equity Offerings at a price equal
to 111.75% of the principal amount of the
Exchange Notes to be redeemed, together with
accrued and unpaid interest, if any, to the
date of redemption, provided that at least
66 2/3% of the original aggregate principal
amount of the Exchange Notes remains
outstanding after each such redemption. See
"Description of Exchange Notes--Optional
Redemption".
Change of Control............................ Upon the occurrence of a Change of Control,
the Company will be required to make an offer
to repurchase the Exchange Notes at a price
equal to 101% of the principal amount
thereof, together with accrued and unpaid
interest, if any, to the date of purchase.
The Senior Bank Facilities, however, prohibit
the purchase of the Exchange Notes by the
Company in the event of a Change of Control,
unless and until such time as the
indebtedness under the Senior Bank Facilities
is repaid in full. In the event of a Change
of Control, there can be no assurance that
the Company would have sufficient assets to
satisfy all of its obligations under the
Senior Bank Facilities, the Notes and the
Original Notes. See "Description of Exchange
Notes-- Optional Redemption," "--Change of
Control" and "Description of Certain
Indebtedness--Senior Bank Facilities."
Subsidiary Guaranty.......................... The Exchange Notes will be fully and
unconditionally guaranteed on an unsecured,
senior subordinated basis by each of the
Guarantor Subsidiaries. See "Description of
Exchange Notes--Subsidiary Guaranty."
Ranking...................................... The Exchange Notes will be unsecured and will
be subordinated to all existing and future
Senior Indebtedness of the Company. The
Exchange Notes will rank PARI PASSU with any
future Senior Subordinated Indebtedness of
the Company and with the Original Notes, and
will rank senior to all other subordinated
indebtedness of the Company. The Subsidiary
Guaranty will be an unsecured, senior
subordinated obligation of the Guarantor
Subsidiaries, subordinated in right of
payment to existing and future Senior
Indebtedness (as defined in "Description of
Exchange Notes") of the Guarantor
Subsidiaries. As of June 30, 1997, on a pro
forma basis after giving effect to the Old
Notes Offering and the application of the
proceeds
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
therefrom, the aggregate amount of the
Company's (excluding its consolidated
subsidiaries) outstanding Senior Indebtedness
would have been $95.0 million (excluding
unused commitments and $17.1 million of
outstanding letters of credit), the Company
would have had $100 million of Senior
Subordinated Indebtedness other than the
Notes and no indebtedness that is
subordinated or junior in right of payment to
the indebtedness represented by the Notes,
the Guarantor Subsidiaries would have had
outstanding no Senior Indebtedness (excluding
the Subsidiary Guaranty and subsidiary
guarantees of the Senior Bank Facilities),
and all liabilities of the Guarantor
Subsidiaries (including trade payables and
deferred taxes, but excluding the Subsidiary
Guaranty and subsidiary guarantees of the
Senior Bank Facilities) would have totaled
approximately $198.7 million and would rank
PARI PASSU with the Notes. See "Description
of Exchange Notes--Ranking."
Restrictive Covenants........................ The Indenture will limit (i) the incurrence
of additional indebtedness by the Company and
its subsidiaries, (ii) the existence of
liens, (iii) the payment of dividends on, and
redemption of, capital stock of the Company
and its subsidiaries and the redemption of
certain subordinated obligations of the
Company and its subsidiaries, (iv) restricted
payments, (v) sales of assets and subsidiary
stock, (vi) transactions with affiliates,
(vii) the lines of business in which the
Company may operate, (viii) sale and
leaseback transactions and (ix)
consolidations, mergers and transfers of all
or substantially all the Company's assets.
The Indenture will also prohibit certain
restrictions on distributions from
subsidiaries. In the event of an Asset
Disposition (as defined herein), the Company
will be required to use the proceeds to repay
certain debt, including Senior Indebtedness,
to reinvest in the Company's business, to
offer to purchase the Original Notes, or to
offer to purchase the Notes at 100% of the
principal amount thereof, plus accrued and
unpaid interest, if any, to the date of
purchase. All of these limitations and
prohibitions are subject to a number of
important qualifications and exceptions. See
"Description of Exchange Notes--Certain
Covenants."
</TABLE>
14
<PAGE>
RISK FACTORS
Holders of Old Notes should carefully consider all the information set forth
in this Prospectus and, in particular, should evaluate the specific factors set
forth under "Risk Factors" beginning on page 18 prior to making an investment
decision with respect to the Exchange Offer. See "Risk Factors."
------------------------
The Company, a Delaware corporation, is a holding company whose operations
are conducted exclusively through its wholly-owned subsidiaries including TCI,
Gunite, Brillion, Bostrom, Fabco, JAC, JAIX Leasing and FCS. The principal
executive offices of the Company are located at 980 North Michigan Avenue, Suite
1000, Chicago, Illinois 60611, and its telephone number is (312) 280-8844. The
Company's Common Stock (the "Common Stock") is listed for trading on the NASDAQ
National Market under the symbol "JAII."
15
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth summary consolidated financial data with
respect to the Company for the periods and at the dates indicated. The summary
consolidated income statement and balance sheet data of the Company for the
years ended and as of December 31, 1992, 1993, 1994, 1995 and 1996 are derived
from financial statements which have been audited by Arthur Andersen LLP,
independent public accountants. The summary consolidated financial data for the
six months ended and as of June 30, 1996 and 1997 are derived from unaudited
consolidated financial statements of the Company, but reflect, in the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such data. Operating results for the six
month period ended June 30, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997. This information
should be read in conjunction with the consolidated financial statements of the
Company and the notes thereto appearing elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- ---------
1992 1993(A) 1994 1995(B) 1996 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenue........................................... $ 204,500 $ 329,122 $ 468,525 $ 668,601 $ 559,972 $ 285,629
Cost of goods sold...................................... 187,174 301,629 442,153 608,982 474,158 240,859
--------- --------- --------- --------- --------- ---------
Gross profit.......................................... 17,326 27,493 26,372 59,619 85,814 44,770
Selling, general and administrative..................... 9,108 11,340 13,144 28,117 46,605 23,808
Amortization............................................ 3,843 3,721 3,573 6,478 10,174 5,133
Gain on sale of leased freight cars..................... -- -- -- -- (1,354) --
--------- --------- --------- --------- --------- ---------
Operating income...................................... 4,375 12,432 9,655 25,024 30,389 15,829
Interest expense, net................................... 5,360 2,968 266 14,702 35,836 17,586
Provision (credit) for income taxes..................... (254) 4,083 3,692 4,737 (76) 195
--------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary items.............. (731) 5,381 5,697 5,585 (5,371) (1,952)
Extraordinary items, net of taxes(c).................... -- (2,918) -- -- -- --
--------- --------- --------- --------- --------- ---------
Net income (loss)..................................... $ (731) $ 2,463 $ 5,697 $ 5,585 $ (5,371) $ (1,952)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary items per share...... $ (0.13) $ 0.66 $ 0.58 $ 0.57 $ (0.55) $ (0.20)
Extraordinary items per share(c)........................ -- (0.36) -- -- -- --
--------- --------- --------- --------- --------- ---------
Net income (loss) per share............................. $ (0.13) $ 0.30 $ 0.58 $ 0.57 $ (0.55) $ (0.20)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
OPERATING AND OTHER DATA (EXCLUDING JAIX LEASING, EXCEPT
WITH RESPECT TO RATIO OF EARNINGS TO FIXED CHARGES):(d)
EBITDA(e)............................................... $ 10,256 $ 18,652 $ 16,041 $ 37,779 $ 51,639 $ 27,299
Depreciation and amortization........................... 5,881 6,220 6,386 14,091 24,890 12,768
Cash interest expense(f)................................ 5,360 2,968 266 13,109 30,967 15,389
Capital expenditures.................................... 2,275 3,865 7,295 14,954 9,919 4,914
Ratio of EBITDA to cash interest expense................ 1.91x 6.28x 60.30x 2.85x 1.64x 1.77x
Ratio of earnings to fixed charges(g)................... (g) 4.19x 36.30x 1.66x (g) (g)
CASH FLOW DATA:
Net cash provided by (used for) operating activities.... $ 1,014 $ 8,376 $ (1,146) $ 52,132 $ 36,378 $ 13,664
Net cash provided by (used for) investing activities.... (2,504) (3,928) (11,936) (346,210) 3,542 (4,266)
Net cash provided by (used for) financing activities.... (2,537) 2,013 7,700 303,963 (27,024) (3,932)
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents............................... $ 675 $ 7,136 $ 1,754 $ 11,639 $ 24,535 $ 17,105
Working capital (deficit)............................... (2,313) 15,600 24,967 24,697 27,219 30,735
Property, plant, equipment and leasing business assets,
net................................................... 27,472 28,838 38,162 164,425 147,114 161,699
Total assets............................................ 95,570 107,966 143,354 578,825 555,283 575,514
Long-term debt, including current maturities............ 34,847 -- 7,600 329,786 304,175 326,709
Shareholders' equity.................................... 16,300 57,235 63,234 68,874 63,537 66,921
<CAPTION>
1997
---------
<S> <C>
INCOME STATEMENT DATA:
Total revenue........................................... $ 273,962
Cost of goods sold...................................... 232,520
---------
Gross profit.......................................... 41,442
Selling, general and administrative..................... 22,062
Amortization............................................ 4,248
Gain on sale of leased freight cars..................... (587)
---------
Operating income...................................... 15,719
Interest expense, net................................... 17,381
Provision (credit) for income taxes..................... 743
---------
Income (loss) before extraordinary items.............. (2,405)
Extraordinary items, net of taxes(c).................... --
---------
Net income (loss)..................................... $ (2,405)
---------
---------
Income (loss) before extraordinary items per share...... $ (0.25)
Extraordinary items per share(c)........................ --
---------
Net income (loss) per share............................. $ (0.25)
---------
---------
OPERATING AND OTHER DATA (EXCLUDING JAIX LEASING, EXCEPT
WITH RESPECT TO RATIO OF EARNINGS TO FIXED CHARGES):(d)
EBITDA(e)............................................... $ 26,391
Depreciation and amortization........................... 12,252
Cash interest expense(f)................................ 15,438
Capital expenditures.................................... 2,405
Ratio of EBITDA to cash interest expense................ 1.71x
Ratio of earnings to fixed charges(g)................... (g)
CASH FLOW DATA:
Net cash provided by (used for) operating activities.... $ 5,869
Net cash provided by (used for) investing activities.... (20,587)
Net cash provided by (used for) financing activities.... 7,494
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents............................... $ 17,311
Working capital (deficit)............................... 24,910
Property, plant, equipment and leasing business assets,
net................................................... 158,452
Total assets............................................ 570,640
Long-term debt, including current maturities............ 311,928
Shareholders' equity.................................... 61,132
</TABLE>
See Notes to Summary Consolidated Financial Data.
16
<PAGE>
NOTES TO SUMMARY CONSOLIDATED FINANCIAL DATA
(a) On July 23, 1993, the Company consummated an initial public offering whereby
the Company issued 3.0 million shares of its Common Stock.
(b) On January 13, 1995, the Company acquired Bostrom for a total purchase price
of approximately $32.6 million financed by borrowings under the Company's
previous borrowing facility. On August 23, 1995, the Company completed the
acquisition of TCI for a total purchase price of approximately $266.1
million financed by borrowings under the Senior Bank Facilities and the
proceeds of the issuance of the Original Notes. The acquisitions were
accounted for as a purchase, and the operating results were included in the
Company's operations from the date of acquisition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Note 3 to the Company's Consolidated Financial Statements contained
elsewhere in this Prospectus.
(c) The Company reported an extraordinary loss in connection with an early
extinguishment of its long-term debt which was retired with a portion of the
proceeds from its initial public offering in July 1993.
(d) JAIX Leasing is not a Guarantor Subsidiary and funds its operations through
bank borrowings, secured by underlying leases and assets of JAIX Leasing,
which are non-recourse to the Company. As a result, the operating and other
data of JAIX Leasing have been excluded from the data presented herein,
except with respect to Ratio of earnings to fixed charges.
(e) EBITDA is defined as earnings before interest, taxes, depreciation,
amortization and extraordinary items and is presented because it is commonly
used by certain investors and analysts to analyze and compare on the basis
of operating performance and to determine a company's ability to service and
incur debt. EBITDA should not be considered in isolation from or as a
substitute for net income, cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability or
liquidity.
(f) Cash interest expense is defined as interest expense exclusive of
amortization of deferred financing costs.
(g) The ratio of earnings to fixed charges is expressed as the ratio of fixed
charges plus pretax earnings to fixed charges. Fixed charges include
interest on borrowings, amortization of deferred financing costs and the
interest portion of rent expense. Earnings were insufficient to cover fixed
charges for the years ended December 31, 1992 and 1996 by $1.0 million and
$5.5 million, respectively, and for the six month periods ended June 30,
1996 and 1997 by $1.8 million and $1.7 million, respectively. Adjusted to
give effect to the Old Notes Offering and the application of the estimated
net proceeds therefrom, the Company's earnings would have been insufficient
to cover the fixed charges in the amount of $7.0 million and $2.5 million
for the year ended December 31, 1996 and for the six months ended June 30,
1997, respectively.
17
<PAGE>
RISK FACTORS
In addition to other information contained or incorporated by reference in
this Prospectus, before tendering their Old Notes for the Exchange Notes offered
hereby, holders of Old Notes should consider carefully the following factors,
which may be generally applicable to the Old Notes as well as to the Exchange
Notes:
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes, as set forth in the legend thereon, as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act and applicable state
securities laws, or pursuant to an exemption therefrom. Except under certain
limited circumstances, the Company does not intend to register the Old Notes
under the Securities Act. In addition, any holder of Old Notes who tenders in
the Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes may be deemed to have received restricted securities and, if so,
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction. To
the extent Old Notes are tendered and accepted in the Exchange Offer, the
trading market, if any, for the Old Notes not so tendered could be adversely
affected. See "The Exchange Offer" and "Old Notes Registration Rights;
Liquidated Damages."
SUBSTANTIAL LEVERAGE
The Company is highly leveraged and has indebtedness that is substantial in
relation to its shareholders' equity. As of June 30, 1997, after giving effect
to the Old Notes Offering and the application of the estimated net proceeds
therefrom, the Company (excluding its consolidated subsidiaries) would have had
an aggregate of $95.0 million of outstanding Senior Indebtedness (excluding
unused commitments and $17.1 million of outstanding letters of credit) and
shareholders' equity of $59.1 million. Adjusted to give effect to the Old Notes
Offering and the application of the estimated net proceeds therefrom, the
Company's total debt to total capitalization ratio as of June 30, 1997 would
have been 84%. See "Capitalization." For the year ended December 31, 1996 and
the six months ended June 30, 1997, the Company's earnings were insufficient to
cover fixed charges (consisting principally of interest on its long-term debt)
in the amount of $5.5 million and $1.7 million, respectively. Adjusted to give
effect to the Old Notes Offering and the application of the estimated net
proceeds therefrom, the Company's earnings would have been insufficient to cover
the fixed charges in the amount of $7.0 million and $2.5 million for the year
ended December 31, 1996 and for the six months ended June 30, 1997,
respectively. See "Selected Consolidated Financial Data." The Indentures permit
the Company and the Guarantor Subsidiaries to incur additional indebtedness,
including Senior Indebtedness under the Senior Bank Facilities, subject to
certain limitations. The Company has additional borrowing capacity on a
revolving credit basis under the Senior Bank Facilities. See "Capitalization"
and "Description of Certain Indebtedness--Senior Bank Facilities."
The Company's high degree of leverage could have important consequences to
the holders of the Notes, including the following: (i) the Company's ability to
obtain additional financing for working capital, capital expenditures, general
corporate purposes or other purposes may be impaired in the future; (ii) a
substantial portion of the Company's cash flow from operations must be dedicated
to the payment of principal and interest on its indebtedness, thereby reducing
the funds available to the Company for other purposes; (iii) certain of the
Company's borrowings are and will continue to be at variable rates of interest,
which exposes the Company to the risk of increased interest rates; (iv) the
indebtedness outstanding under the Senior Bank Facilities is secured and matures
prior to the maturity of the Notes;
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and (v) the Company's flexibility to adjust to changing market conditions and
ability to withstand competitive pressures could be limited and the Company may
be more vulnerable to a downturn in general economic conditions or its business.
Cash interest on the term portion of the Senior Bank Facilities, other debt and
capitalized leases, assuming scheduled pay downs are made, would be
approximately $9.1 million and cash interest on the Original Notes and the
Exchange Notes will be approximately $21.0 million annually until their
maturities. Other cash interest will be dependent on the level of outstanding
indebtedness under revolving loan facilities and applicable interest rates.
Principal payments due under the Senior Bank Facilities are $1.7 million in the
second half of 1997 and $4.5 million in 1998. The Company employs various fixed
rate contracts to fix a portion of the cost of its variable rate Senior Bank
Facilities. These contracts, primarily interest rate "swap" or "cap" agreements,
limit the market fluctuations on the interest cost of floating rate debt.
Because the financial instruments used by the Company are matched to its
borrowing facilities, they are not speculative. See "Description of Certain
Indebtedness--Senior Bank Facilities" and "Description of Exchange Notes."
INABILITY TO SERVICE DEBT
The Company's ability to make scheduled payments or to refinance its
obligations with respect to its indebtedness will depend on its financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and to certain financial, business and other factors beyond its
control. If the Company's cash flow and capital resources are insufficient to
fund its debt service obligations, the Company may be forced to reduce or delay
capital expenditures, sell assets, obtain additional equity capital or
restructure its debt. There can be no assurance that the Company's cash flow and
capital resources will be sufficient for payment of its indebtedness in the
future. In the absence of such operating results and resources, the Company
could face substantial liquidity problems and might be required to dispose of
material assets or operations to meet its debt service and other obligations,
and there can be no assurance as to the timing of such sales or the proceeds
which the Company could realize therefrom. The Company has been making scheduled
principal payments under the Senior Bank Facilities since March 1996 and such
payments will continue through March 2003. See "Description of Certain
Indebtedness--Senior Bank Facilities" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
COLLATERAL SECURED BY SENIOR BANK FACILITIES
The indebtedness under the Senior Bank Facilities is secured by the assets
of the Company and the stock of the Guarantor Subsidiaries, and, accordingly, if
the Company was unable to repay its indebtedness under the Senior Bank
Facilities, the lenders thereunder could proceed against such collateral.
RECENT LOSSES
The Company reported net losses in the year ended December 31, 1996 and the
six months ended June 30, 1997. The significant decline in demand experienced in
1996 and early 1997 by JAC produced significant operating losses that, coupled
with the Company's significant debt service requirements, more than offset
operating income generated by its truck components and assemblies and iron
castings operations. Although demand for freight cars has improved slightly, the
market remains subject to intense pricing competitiveness in a freight car
market characterized by depressed demand and production overcapacity and, as a
result, the Company expects to report a net loss for the year ended December 31,
1997. Given the cyclicality of the freight car and heavy-duty trucking
industries and other market factors, there can be no assurance that the Company
will achieve or sustain profitability in the future.
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RESTRICTIVE DEBT COVENANTS; PRIOR AMENDMENTS TO SENIOR BANK FACILITIES IN
ANTICIPATION OF FINANCIAL COVENANT NONCOMPLIANCE
The Senior Bank Facilities contain a number of significant covenants that,
among other things, restrict the ability of the Company and its subsidiaries to
dispose of assets, incur additional indebtedness, incur guarantee obligations,
repay other indebtedness or amend other debt instruments (including the
Indenture and the Subsidiary Guaranty), pay dividends, create liens on assets,
enter into sale and leaseback transactions, make investments, loans or advances,
make acquisitions, engage in mergers or consolidations, make capital
expenditures, or engage in certain transactions with affiliates and otherwise
restrict corporate activities. In addition, under the Senior Bank Facilities,
the Company is required to comply with specified financial ratios and tests,
including minimum interest coverage ratios, maximum leverage ratios, annual
capital expenditure limitations and net worth tests. See "Description of Certain
Indebtedness--Senior Bank Facilities."
On December 31, 1995, December 31, 1996 and August 4, 1997, the Company
amended the total debt ratio, interest coverage ratio and net worth financial
covenants under the credit agreement governing the Senior Bank Facilities (the
"Credit Agreement") to avoid anticipated future defaults and to address changes
in the Company's business, particularly the effect on the Company's financial
position and results of operation of losses at its freight car subsidiary, JAC.
In addition, in connection with the Old Notes Offering, the Credit Agreement was
amended to reduce the Revolving Facility (as defined herein) from $100 million
to $75 million. The banks also have consented to the issuance of the Notes.
Although the Company is currently in compliance with all covenants under the
Credit Agreement, the Company's ability to continue to comply with the covenants
and restrictions contained in the Credit Agreement, as amended in connection
with the Old Notes Offering, may be affected by events beyond its control,
including prevailing economic, financial and industry conditions. The breach of
any of such covenants or restrictions could result in a default under the Senior
Bank Facilities and/or the Indentures, which would permit the senior lenders or
the holders of the Original Notes or the Notes, as the case may be, to declare
all amounts borrowed thereunder to be due and payable, together with accrued and
unpaid interest, and the commitments of the senior lenders to make further
extensions of credit under the Senior Bank Facilities could be terminated. If
the Company were unable to repay its indebtedness to its senior lenders, such
lenders could proceed against the collateral securing such indebtedness as
described under "Description of Certain Indebtedness--Senior Bank Facilities."
HOLDING COMPANY STRUCTURE; POSSIBLE UNENFORCEABILITY OF THE SUBSIDIARY GUARANTY
The Company is a holding company which derives all of its operating income
from its subsidiaries. The holders of the Notes will have no direct claim
against such subsidiaries other than the claim created by the Subsidiary
Guaranty, which may themselves be subject to legal challenge in the event of the
bankruptcy of a subsidiary. See "--Fraudulent Conveyance." If such a challenge
were upheld, the Subsidiary Guaranty would be invalidated and unenforceable. To
the extent that the Subsidiary Guaranty is not enforceable, the rights of
holders of the Notes to participate in any distribution of assets of any
Guarantor Subsidiary upon liquidation, bankruptcy, reorganization or otherwise
may, as is the case with other unsecured creditors of the Company, be subject to
prior claims of creditors of that Guarantor Subsidiary. The Company must rely
upon dividends and other payments from its subsidiaries to generate the funds
necessary to meet its obligations, including the payment of principal of and
interest on the Notes. The Indenture contains covenants which restrict the
ability of the Company's subsidiaries to enter into any agreement limiting
distributions and transfers, including dividends. However, the ability of the
Company's subsidiaries to pay dividends and make other payments may be
restricted by, among other things, applicable state corporate laws and other
laws and regulations or by terms of agreements to which they may become party.
See "Description of Exchange Notes."
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RISKS ASSOCIATED WITH FREIGHT CAR SUBSIDIARY
RECENT LOSSES
The Company's reported net losses in the year ended December 31, 1996 and
the six months ended June 30, 1997 are in large part attributable to the
significant decline in demand experienced in 1996 and early 1997 by JAC.
Although demand for freight cars has improved slightly, the market remains
subject to intense pricing competitiveness in a freight car market characterized
by depressed demand and production overcapacity and, as a result, the Company
expects to report a net loss for the year ended December 31, 1997.
DEPENDENCE ON FREIGHT CAR MARKET AND GENERAL ECONOMIC CONDITIONS
During the year ended December 31, 1996 and the six months ended June 30,
1997, freight cars accounted for approximately 35.4% and 23.2%, respectively, of
the Company's net sales. The freight car market is subject to significant
fluctuations due to economic conditions, changes in usage of the alternative
methods of transportation and other factors which may have an effect on the
level of the Company's sales and profitability.
Since 1970, annual production of freight cars on an industrywide basis has
ranged from a high of 96,500 units in 1979 to a low of 5,900 units in 1983.
Demand in the 1980's was unusually weak due to production overcapacity, the
United States embargo on the exportation of grain to the Soviet Union and
changes in the tax laws affecting leasing of freight cars. During the 1990's,
however, the use of railroads for freight transportation increased, industry
overcapacity was greatly reduced and a large number of freight cars reached or
neared the end of their useful lives. These factors, coupled with relatively
strong general economic conditions, resulted in industrywide freight car
production peaking at 60,853 units in 1995. New car deliveries remained strong
in 1996 at 57,877 units due to the strong backlog in orders at the end of 1995.
However, industrywide orders slowed considerably in 1996 and industrywide year
end backlog declined from 32,574 at the end of 1995 to 17,508 at the end of
1996. New car orders declined more dramatically since the end of 1995 for the
primary markets served by JAC. For example, the industrywide backlog for coal
gondolas, JAC's most significant market, declined from 1,784 at the end of 1995
to 320 at the end of 1996. Industrywide deliveries of coal open hoppers declined
from 6,214 in 1995 to 2,298 in 1996 and industrywide deliveries of intermodal
cars declined from 10,536 in 1995 to 1,549 in 1996, with no backlog for
intermodal cars at the end of 1996. Although management believes that this
cyclical trough in demand for the types of cars offered by JAC has begun to
improve slightly, no assurance can be given that such increased demand will
continue. Industry analysts also are forecasting gradual improvements in the
market for aluminum coal cars. However, such forecasts have been inaccurate in
the past and no assurance can be given that the demand currently forecast by
industry analysts will occur. The Company also is being adversely affected by
intense pricing pressures currently present in a freight car market
characterized by depressed demand and production overcapacity.
Although sales of intermodal cars have historically represented a
significant percentage of JAC's total freight car shipments, this market segment
has been the most severely affected by the recent freight car industry downturn
and the Company has not produced any intermodal cars since 1995. Moreover, the
mix of intermodal freight cars expected to be delivered by the freight car
industry in the foreseeable future has predominantly shifted towards deep well
car designs that JAC does not manufacture. In response to these market factors,
JAC has increasingly focused its product development and marketing efforts on
other product categories, including aluminum gondola, covered hopper and open
hopper cars. See "Business--Railroad Freight Cars."
EXPIRATION OF COLLECTIVE BARGAINING AGREEMENT
JAC's current three-year agreement with the United Steelworkers of America
is scheduled to expire on October 31, 1997. This agreement was negotiated in a
period characterized by strong demand for
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freight cars and significant industrywide backlog. In light of current depressed
market conditions and the weak operating performance of JAC, the Company will
seek a mutually satisfactory agreement to enable JAC to improve its
competitiveness and help it return to profitability. 715 JAC employees,
representing approximately 86% of JAC's total active employees, are covered by
the agreement. Although the Company believes it will be able to reach a new
agreement upon expiration of JAC's current agreement, no assurance can be given
that the Company will be able to reach a satisfactory agreement on a timely
basis. If there is a work stoppage resulting from a failure to reach an
agreement, the impact on the Company will depend upon various factors, including
the length of the work stoppage, the Company's ability to increase production at
FCS, the Company's ability to reduce its costs at JAC during the work stoppage
and the Company's ability to maintain customer orders during the work stoppage.
There can be no assurance that the failure to reach such an agreement on a
timely basis will not have a material adverse effect on the Company's financial
condition or results of operations.
UNEVEN FREIGHT CAR ORDER FLOW
Due to the large size of customer orders for freight cars and the fact that
many such orders represent one-time purchases designed to accommodate the
customer's need for a particular type of freight car for the foreseeable future,
there is limited predictability of order flows. As a result, there can be no
assurance that the Company would not be adversely affected by a shortage of
orders relating to its freight car business. In addition, due to the large size
of freight car orders, and variations in the mix of car types ordered, the
number and type of cars produced in any given quarter (as well as the size of
the Company's freight car backlog) may fluctuate greatly and, consequently, the
Company's quarterly revenues and income from operations may vary substantially.
The Company's revenues and income from operations are also subject to the
effects of the capital budgeting patterns of its freight car customers. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS RELATED TO INDEMNIFICATION BY BETHLEHEM
In connection with the acquisition by the Company in 1991 of substantially
all of the assets of the Freight Car Division of Bethlehem Steel Corporation
("Bethlehem"), Bethlehem has agreed to make certain pension payments to, and
reimburse the Company for certain retiree health expenses related to, employees
of the Company who were employees of Bethlehem at the time of the acquisition of
the Freight Car Division. Bethlehem has also agreed to indemnify the Company
against liabilities retained by Bethlehem relating to the operation of such
business prior to such acquisition, including, without limitation, certain
environmental liabilities. There can be no assurance that the Company would not
be adversely affected if in the future Bethlehem becomes unable to satisfy these
obligations.
DEPENDENCE ON TRUCK MARKETS AND GENERAL ECONOMIC CONDITIONS
During the year ended December 31, 1996 and the six months ended June 30,
1997, components and assemblies for the heavy- and medium-duty truck market
accounted for approximately 42.3% and 51.6%, respectively, of the Company's net
sales. The truck market is subject to significant fluctuations due to economic
conditions, changes in usage of the alternative methods of transportation and
other factors which may have an effect on the level of the Company's sales and
profitability.
The heavy- and medium-duty truck market is particularly sensitive to the
industrial sector of the economy, which generates a significant portion of the
freight tonnage hauled by trucks. Truck and automotive demand also depends on
general economic conditions, interest rate levels, fuel costs and changes in
state and federal laws and regulations. A key performance indicator for the
truck industry is the North American Class 8 truck build, which at 105,000 units
in 1991 reflected a general economic recession. This market recovered commencing
in 1992, together with the general economy, to reach a record truck build of
246,000 units in 1995. The North American truck build decreased to 191,500 in
1996
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and the 1997 truck build is forecast by industry analysts to be 212,500. As
noted above, however, the market is cyclical and there can be no assurance that
the annual North American Class 8 truck build will not decline substantially in
the future. Any significant reduction in truck production, whether linked to a
general economic recession or otherwise, would significantly reduce the level of
the Company's sales to truck manufacturers, which could have a material adverse
effect on the Company's results of operations and financial condition.
RELATIONSHIP WITH EMPLOYEES
Most of the Company's employees (approximately 68% as of December 31, 1996)
are covered by collective bargaining agreements. Each of the Company's
subsidiaries has a separate agreement covering the workers at its facility or
facilities and, as a result, the Company has collective bargaining agreements
with several different unions. Such agreements expire at various times over the
next few years. While the Company considers its relations with its employees to
be good at each of the Company's subsidiaries other than JAC and fair at JAC,
there can be no assurance that the Company's subsidiaries will reach new
agreements upon expiration of their existing collective bargaining agreements or
that the failure to reach new agreements will not have a material adverse effect
on the financial condition or results of operations of the Company. JAC's
current collective bargaining agreement is scheduled to expire on October 31,
1997. See "--Risks Associated with Freight Car Subsidiary-- Expiration of
Collective Bargaining Agreement."
SUBORDINATION; UNSECURED STATUS OF THE NOTES AND THE SUBSIDIARY GUARANTY
The payment of principal of and interest on, and any premium or other
amounts owing in respect of, the Notes will be subordinated to the prior payment
in full of all existing and future Senior Indebtedness of the Company, including
all amounts owing under the Senior Bank Facilities. As of June 30, 1997, after
giving effect to the Old Notes Offering and the application of the estimated net
proceeds therefrom, the aggregate amount of such Senior Indebtedness of the
Company (excluding its consolidated subsidiaries) would have been approximately
$95.0 million (excluding unused commitments and $17.1 million of outstanding
letters of credit). Consequently, in the event of a bankruptcy, liquidation,
dissolution, reorganization or similar proceeding with respect to the Company,
assets of the Company will be available to pay obligations on the Notes only
after Senior Indebtedness has been paid in full, and there can be no assurance
that there will be sufficient assets to pay amounts due on all or any of the
Notes.
Similarly, the Subsidiary Guaranty of the Notes will be subordinated to the
prior payment in full of all existing and future Senior Indebtedness of the
Guarantor Subsidiaries, including all amounts owing pursuant to the guarantees
by the Guarantor Subsidiaries of the Senior Bank Facilities. As of June 30,
1997, after giving effect to the Old Notes Offering and the application of the
estimated net proceeds therefrom, the liabilities of the Guarantor Subsidiaries
(including trade payables and deferred taxes but excluding the Subsidiary
Guaranty and subsidiary guarantees of the Senior Bank Facilities) would have
totalled approximately $198.7 million. See "Description of Exchange
Notes--Ranking" and "--Subsidiary Guaranty."
The Notes will rank PARI PASSU with all future Senior Subordinated
Indebtedness of the Company and with the Original Notes. However, in the event
of an Asset Disposition, the Company will be required to use the proceeds to
repay certain debt, including Senior Indebtedness and the Original Notes, before
any proceeds remaining from the Asset Disposition would be available to fund a
required offer to purchase the Notes. See "Description of Exchange
Notes--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock."
As of June 30, 1997, after giving effect to the Old Notes Offering and the
application of the estimated proceeds therefrom, the aggregate amount of such
Senior Subordinated Indebtedness of the Company (other than the Notes) would
have been $100 million.
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The Indenture will permit the Company and the Guarantor Subsidiaries to
incur certain secured indebtedness, including indebtedness under the Senior Bank
Facilities, which will be secured by a lien on substantially all of the assets
of the Company and the Guarantor Subsidiaries. The Notes and the Subsidiary
Guaranty are unsecured and therefore do not have the benefit of such collateral.
Accordingly, if an event of default occurs under the Senior Bank Facilities, the
lenders will have a prior right to the assets of the Company and the Guarantor
Subsidiaries, and may foreclose upon such collateral to the exclusion of the
holders of the Notes, notwithstanding the existence of an event of default with
respect thereto. In such event, such assets would first be used to repay in full
amounts outstanding under the Senior Bank Facilities, resulting in all or a
portion of the Company's assets being unavailable to satisfy the claims of the
holders of Notes and other unsecured indebtedness.
ENVIRONMENTAL MATTERS
The Company is subject to comprehensive and frequently changing federal,
state and local environmental laws and regulations, including those governing
emissions of air pollutants, discharges of wastewaters and storm waters, and the
disposal of non-hazardous and hazardous waste. The Company anticipates that it
will incur additional capital and operating costs in the future to comply with
currently existing laws and regulations, new regulatory requirements arising
from recently enacted statutes and possible new statutory enactments. The
Company expended approximately $0.4 million in 1996 and has budgeted $0.5
million in 1997 for capital expenditures to comply with environmental laws. The
actual capital expenditures in 1997 may differ from this amount, and capital
expenditures in future years may significantly exceed the amounts budgeted for
1997. The Company's operating costs for compliance with environmental
requirements also may increase substantially in future years.
In addition to environmental laws that regulate the Company's subsidiaries'
ongoing operations, the subsidiaries also are subject to environmental
remediation liability. Under the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and analogous state laws, the
Company's subsidiaries may be liable as a result of the release or threatened
release of hazardous substances into the environment. The Company's subsidiaries
are currently involved in several matters relating to the investigation and/or
remediation of locations where the subsidiaries had arranged for the disposal of
foundry and other wastes.
Such matters include five situations in which the Company, through its TCI
subsidiaries and their predecessors, have been named or are believed to be
potentially responsible parties ("PRPs") in the contamination of the sites.
Additionally, environmental remediation may be required at two of the TCI
facilities at which soil and ground water contamination has been identified.
With respect to claims involving Gunite, TCI and Gunite in September 1997
entered into a private-party settlement (the "Settlement") of certain pending
litigation with a prior owner of Gunite, pursuant to which each of TCI and
Gunite and the prior owner withdrew their claims against the other. As a result
of the Settlement, TCI and Gunite will not be responsible for liabilities and
costs related to certain alleged contamination at Gunite's facilities and at
certain off-site properties to the extent arising out of operations of Gunite
prior to the acquisition of Gunite by TCI in September 1987. The Company
believes that it has valid claims for contractual indemnification against
Brillion's prior owners for certain of the investigatory and remedial costs at
the Brillion sites. The Company has been notified, however, by the Brillion
contractual indemnitors that they will not honor Brillion's claims for
indemnification. Accordingly, the Company is litigating indemnification claims
against Brillion's prior owners (Beatrice Company, et al.) and is appealing an
adverse lower court ruling against Brillion and TCI. There is no assurance that
even if successful in any such claims, any judgments against the indemnitors
will ultimately be recoverable. In addition, the Company believes it is likely
that it has incurred some liability at various sites for activities and disposal
following acquisition which would not in any event be covered by indemnification
by prior owners.
As of June 30, 1997, based on all of the information currently available,
the Company maintained an environmental reserve in the amount of $26.1 million.
As a result of the Settlement, the Company's
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environmental reserve was decreased in September 1997 by $14.3 million to $11.8
million. The environmental reserve is principally related to potential
remediation liability at various off-site locations. This non-cash reserve is
based on current cost estimates and does not reduce estimated expenditures to
net present value. Further, the estimated reserve takes into consideration the
number of other PRPs at each site, the alleged volume of waste contributed by
other PRPs at each site, and the identity and financial position of such parties
in light of the joint and several nature of the liability, but it does not take
into account possible insurance coverage or other similar indemnification or
reimbursement other than the Settlement. The Company currently anticipates
spending approximately $0.4 million per year for the current year and the next
two years and approximately $0.5 million per year in the years 2000 and 2001
(reduced as a result of the Settlement from $0.5 million per year for the
current year and the next two years and approximately $1 million per year in the
years 2000 and 2001) for monitoring the various environmental sites associated
with the environmental reserve, including attorney and consultant costs for
strategic planning and negotiations with regulators and other PRPs, and payment
of remedial investigation costs. The Company expects to fund such expenditures
with the cash flow generated from its operations and amounts available under its
Revolving Facility (as defined herein). These sites are generally in the early
investigatory stages of the remediation process and thus it is anticipated that
significant cash payments for remediation will not be incurred for at least
several years. After the evaluation and investigation period, the investigation
and remediation costs will likely increase because the actual remediation of the
various environmental sites associated with the environmental reserve will
likely be under way. In addition, it is possible that the timing of any
necessary expenditures could be accelerated. 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 PRPs 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 under CERCLA or the uncertainties
referred to above could result in such a material adverse effect.
RELIANCE ON MAJOR CUSTOMERS AND PRODUCTS
Sales to Navistar by Gunite, Bostrom and Fabco constituted approximately
11.4% of the Company's total net revenues during 1996. Gunite and Navistar are
parties to a multi-year supply agreement which provides for Gunite's products to
be the standard equipment for Navistar's Class 8 truck production through
December 1, 1999. While the Company anticipates that upon expiration, Gunite
will be able to extend or renew its existing supply agreement with Navistar on
terms no less favorable to Gunite, no assurance can be given that it will be
able to do so. Bostrom's supply agreement with Navistar expired on October 1,
1997 and, accordingly, Bostrom's seats are no longer offered as the standard
seat system on Navistar trucks. Although Navistar's customers may select
Bostrom's seats as an optional configuration, there can be no assurance that
such customers will make such a selection. In addition, Fabco and Navistar are
not parties to a supply agreement. Because Navistar has historically obtained
parts from Fabco through individual purchase orders, management does not believe
the absence of a supply agreement poses a material risk to Fabco's business.
However, no assurance can be given that Navistar will continue to utilize Fabco
as a supplier. See "Business--Truck Components and Assemblies."
No other customer accounted for more than 10% of the Company's total net
revenues during 1996. Although the Company has long-standing relationships with
its major customers, the loss of any
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significant portion of sales to any such customer could have a material adverse
effect on the business and financial results of the Company. See
"Business--Truck Components and Assemblies."
The number of potential purchasers of freight cars is relatively small and
such cars typically are sold pursuant to large one-time orders. Accordingly, a
few purchasers may account for a significant percentage of the cars purchased
industrywide in any given year. Similarly, a limited number of customers
typically represent a significant percentage of the cars sold by JAC in any
given year. See "Business-- Railroad Freight Cars--Customers."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
make an offer to purchase all of the outstanding Notes and the Original Notes at
a price equal to 101% of the principal amounts thereof to the date of repurchase
plus accrued and unpaid interest, if any, to the date of repurchase. The
occurrence of certain of the events which would constitute a Change of Control
would constitute a default under the Senior Bank Facilities. In addition, the
Senior Bank Facilities prohibit the purchase of the Notes and the Original Notes
by the Company in the event of a Change of Control, unless and until such time
as the indebtedness under the Senior Bank Facilities is repaid in full. The
Company's failure to purchase the Notes and the Original Notes would result in a
default under the Indentures and the Senior Bank Facilities. The inability to
repay the indebtedness under the Senior Bank Facilities, if accelerated, would
also constitute an event of default under the Indentures, which could have
adverse consequences to the Company and the holders of the Notes and the
Original Notes. In the event of a Change of Control, there can be no assurance
that the Company would have sufficient assets to satisfy all of its obligations
under the Senior Bank Facilities and the Notes and the Original Notes. Future
Senior Indebtedness of the Company may also contain prohibitions of certain
events or transactions which would constitute a Change of Control or require
such Senior Indebtedness to be repurchased upon a Change of Control. See
"Description of Exchange Notes--Change of Control" and "Description of Certain
Indebtedness--Senior Bank Facilities."
COMPETITION
The Company faces significant competition in each of its markets and has
numerous competitors, some of which are larger and have greater financial
resources than the Company. There can be no assurance that the Company will be
able to continue to compete successfully in its markets. Because the Company
competes, in part, on the technical advantages and cost of its products,
significant technical advances by competitors or the achievement by such
competitors of improved operating effectiveness that enable them to reduce
prices could reduce the Company's competitive advantage in these products and
thereby adversely affect the Company's business and financial results. See
"Business-- Competition."
FRAUDULENT CONVEYANCE
The incurrence by the Company of indebtedness such as the Notes may be
subject to review under relevant state and federal fraudulent conveyance and
similar laws if a bankruptcy or reorganization case or a lawsuit is commenced by
or on behalf of creditors of the Company. Under these laws, if a court were to
find that, after giving effect to the sale of the Notes and the application of
the net proceeds therefrom, either (a) the Company incurred such indebtedness
with the intent of hindering, delaying or defrauding then-existing or future
creditors or (b) the Company received less than a reasonably equivalent value or
fair consideration for incurring such indebtedness and at the time of the
incurrence of such indebtedness the Company (i) was insolvent or was rendered
insolvent by reason of such transactions; (ii) was engaged in a business or
transaction for which the assets remaining with the Company constituted
unreasonably small capital; or (iii) intended to incur, or believed that it
would incur, debts beyond its ability to pay as they matured, such court may
subordinate such indebtedness to presently existing and
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future indebtedness of the Company, avoid the issuance of such indebtedness and
direct the repayment of any amounts paid thereunder to the creditors of the
Company or take other action detrimental to the holders of such indebtedness.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its liabilities, including contingent
liabilities, was greater than the value of all its assets at a fair valuation,
or if the present fair saleable value of the debtor's assets was less than the
amount required to repay its probable liabilities on its debts, including
contingent liabilities, as they become absolute and matured. There can be no
assurance as to what standard a court would apply in order to determine
solvency.
The Company believes that it will receive equivalent value at the time that
indebtedness under the Notes is incurred. In addition, the Company does not,
after giving effect to the consummation of the Old Notes Offering: (i) believe
that it will be insolvent or rendered insolvent; (ii) believe that it will be
engaged in a business or transaction for which its remaining assets constitute
unreasonably small capital; or (iii) intend to incur, or believe that it will
incur, debts beyond its ability to pay as they mature. These beliefs are based
on the Company's analysis of internal cash flow projections and estimated values
of assets and liabilities of the Company and the Guarantor Subsidiaries at the
time of the Old Notes Offering. There can be no assurance, however, that a court
passing on the issues would make the same determination.
In addition, the Subsidiary Guaranty may be subject to review under relevant
federal and state fraudulent conveyance and similar statutes in a bankruptcy or
reorganization case or a lawsuit by or on behalf of creditors of any of the
Guarantor Subsidiaries. In such a case, the analysis set forth above would
generally apply, except that the Subsidiary Guaranty could also be subject to
the claim that, since the Subsidiary Guaranty was incurred for the benefit of
the Company (and only indirectly for the benefit of the Guarantor Subsidiaries),
the obligations of the Guarantor Subsidiaries thereunder were incurred for less
than reasonably equivalent value or fair consideration. A court could void a
Guarantor Subsidiary's obligation under the Subsidiary Guaranty, subordinate the
Subsidiary Guaranty to other indebtedness of a Guarantor Subsidiary or take
other action detrimental to the holders of the Notes.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements concerning the
Company's operations, economic performance and financial condition, including,
in particular, the likelihood of the Company's success in developing and
expanding its business. These statements are based upon a number of assumptions
and estimates which are inherently subject to significant uncertainties and
contingencies, many of which are beyond the control of the Company, and reflect
future business decisions which are subject to change. The foregoing description
of risk factors specifies the principal contingencies and uncertainties to which
the Company believes it is subject. In particular, reference is made to the
following risk factors: "Substantial Leverage; Ability to Service Debt; Recent
Losses;" "Dependence on Truck and Freight Car Markets and General Economic
Conditions;" "Relationship with Employees;" "Environmental Matters" and
"Reliance on Major Customers and Products; Uneven Freight Car Order Flow" and
the following other sections of this Prospectus: "Prospectus Summary-- Industry
Overview;" "Management's Discussion and Analysis of Financial Condition and
Results of Operations--General; Liquidity and Capital Resources" and
"Business--Industry Overview." Some of these assumptions inevitably will not
materialize, and unanticipated events will occur which will affect the Company's
results.
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USE OF PROCEEDS
There will be no cash proceeds to the Company resulting from the Exchange
Offer. The net proceeds from the Old Notes Offering, of approximately $80.0
million (after deduction of discounts to the Initial Purchaser and other
expenses of the Old Notes Offering), was used to pay the Tranche A Term Loans
(as defined herein) under the Company's term loan and revolving credit facility
with The Chase Manhattan Bank, as administrative agent and collateral agent (the
"Senior Bank Facilities"). The Tranche A Term Loans accrued interest at a rate
per annum equal to the adjusted London inter-bank offered rate ("Adjusted
LIBOR") plus 2.5% and was repayable in quarterly principal payments over the
next five years. The Tranche B Term Loans (as defined herein), which are the
only term loans that remain outstanding under the Senior Bank Facilities after
the Old Notes Offering, currently bear interest at a rate per annum equal to
Adjusted LIBOR plus 3.0% and is repayable in quarterly principal payments over
the next six years. As a result of the Old Notes Offering, the Company's
principal payments under the Tranche B Term Loans for the remainder of 1997 and
for 1998, 1999, 2000, 2001, 2002 and 2003 will be $1.7 million, $3.3 million,
$3.3 million, $20.0 million, $23.3 million, $26.7 million and $16.7 million,
respectively. See "Description of Certain Indebtedness--Senior Bank Facilities."
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The sole purpose of the Exchange Offer is to fulfill the obligations of the
Company and the Guarantor Subsidiaries with respect to the registration of the
Old Notes.
The Old Notes were originally issued and sold on August 11, 1997 (the "Issue
Date"). Such sales were not registered under the Securities Act in reliance upon
the exemption provided by Section 4(2) of the Securities Act and Rule 144A
promulgated under the Securities Act. In connection with the sale of the Old
Notes, the Company, the Guarantor Subsidiaries and the Initial Purchaser entered
into an exchange and registration rights agreement dated August 11, 1997 (the
"Registration Rights Agreement") pursuant to which the Company and the Guarantor
Subsidiaries agreed, for the benefit of the holders of Old Notes, that they
will, at their cost, (i) within 30 days after the date of original issue of the
Old Notes use their respective reasonable best efforts to file a registration
statement in accordance with the Securities Act (an "Exchange Offer Registration
Statement") with the Commission with respect to a registered offer to exchange
the Old Notes for the Exchange Notes, which will have terms substantially
identical in all material respects to the Old Notes and (ii) use their
reasonable best efforts to cause such Exchange Offer Registration Statement to
be declared effective under the Securities Act within 90 days after such issue
date. Upon such Exchange Offer Registration Statement being declared effective,
the Company agreed to offer to holders of Old Notes who are able to make certain
representations an opportunity to exchange properly tendered Old Notes for
Exchange Notes. The Company has agreed to keep the Exchange Offer open for not
less than 30 days (or longer if required by applicable law) after the date
notice of such Exchange Offer is mailed to the holders of Old Notes.
In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect the Exchange Offer or do not permit any
holder of the Old Notes to participate in the Exchange Offer or to receive fully
transferable securities from the Exchange Offer, the Company and the Guarantor
Subsidiaries will, at their own expense, use their reasonable best efforts to
(a) as promptly as practicable, file a shelf registration statement covering
resales of the Old Notes (a "Shelf Registration Statement"), (b) cause such
Shelf Registration Statement to be declared effective under the Securities Act
and (c) keep effective such Shelf Registration Statement until the earlier of
(i) two years following the date of original issue of the Old Notes or such
shorter period that will terminate when all the Transfer Restricted Securities
(as defined herein) covered by the Shelf Registration Statement have been sold
pursuant thereto and (ii) the date on which the Old Notes become eligible for
resale without volume restrictions pursuant to Rule 144 under the Securities
Act. The Company and the Guarantor Subsidiaries will, in the event a Shelf
Registration Statement is required to be filed by them, provide to each holder
of Old Notes copies of the prospectus which is a part of such Shelf Registration
Statement, notify each such holder of Old Notes when such Shelf Registration
Statement for the Old Notes has become effective and take certain other actions
as are required to permit unrestricted resales of the Old Notes. A holder of Old
Notes who sells such Old Notes pursuant to the Shelf Registration Statement
generally would be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the Registration Rights
Agreement which is applicable to such a holder (including certain
indemnification and contribution rights and obligations).
If (a) neither the Exchange Offer Registration Statement nor a Shelf
Registration Statement is filed with the Commission on or prior to 30 days after
the Issue Date, (b) neither the Exchange Offer Registration Statement nor a
Shelf Registration Statement is declared effective by the Commission on or prior
to 90 days after the Issue Date, (c) the Exchange Offer is not consummated on or
prior to 120 days after the Issue Date, or (d) the Shelf Registration Statement
is filed and declared effective within 90 days after the Issue Date but
thereafter ceases to be effective (at any time that the Company is obligated to
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maintain the effectiveness thereof) without being succeeded within 30 days by an
additional Registration Statement filed and declared effective (each such event
referred to in clauses (a) through (d) above a "Registration Default"), then the
Company and the Guarantor Subsidiaries will be required to pay liquidated
damages to each holder of Transfer Restricted Securities. See "Old Notes
Registration Rights; Liquidated Damages."
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, upon the terms and subject to the
conditions set forth herein and the Letter of Transmittal accompanying the
Registration Statement of which this Prospectus is a part (the "Letter of
Transmittal"), $1,000 in principal amount of Exchange Notes for each $1,000 in
principal amount of Old Notes. The Terms of the Exchange Notes are substantially
identical to the terms of the Old Notes for which they may be exchanged pursuant
to this Exchange Offer, except that the Exchange Notes will generally be freely
transferable by holders thereof, and the holders of the Exchange Notes (as well
as remaining holders of any Old Notes) are not entitled to certain registration
rights and certain liquidated damages provisions which are applicable to the Old
Notes under the Registration Rights Agreement. The Exchange Notes will evidence
the same debt as the Old Notes and will be entitled to the benefits of the
Indenture. See "Description of Exchange Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered or accepted for exchange.
Based on its view of interpretations set forth in no-action letters issued
by the Staff to Exxon Capital Holdings Corporation (avail. April 13, 1989),
Morgan Stanley & Co. Incorporated (avail. June 5, 1991) and Shearman & Sterling
(avail. July 2, 1993), respectively, the Company believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for resale, resold and otherwise transferred by holders thereof (other
than any holder which is (i) an Affiliate of the Company, (ii) a broker-dealer
who acquired Old Notes directly from the Company or (iii) a broker-dealer who
acquired Old Notes as a result of market making or other trading activities)
without compliance with the registration and prospectus delivery provisions of
the Securities Act provided that such Exchange Notes are acquired in the
ordinary course of such holders' business, and such holders are not engaged in,
and do not intend to engage in, and have no arrangement or understanding with
any person to participate in, a distribution of such Exchange Notes. However,
the Company does not intend to request the Commission to consider, and the
Commission has not considered, the Exchange Offer in the context of a no-action
letter and there can be no assurance that the Staff would make a similar
determination with respect to the Exchange Offer as in other circumstances. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution." The Letter of Transmittal
states that by so acknowledging, and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. Broker-dealers who acquired Old Notes as a result of market
making or other trading activities may use this Prospectus, as supplemented or
amended, in connection with resales of Exchange Notes. The Company has agreed
that, for a period of 180 days after consummation of the Exchange Offer, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. Any holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes or any other holder that
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cannot rely upon such interpretations must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction.
Tendering holders of Old Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Old Notes
pursuant to the Exchange Offer.
The Exchange Notes will bear interest from August 11, 1997. Holders of Old
Notes whose Old Notes are accepted for exchange will be deemed to have waived
the right to receive any payment in respect of interest on the Old Notes accrued
from August 11, 1997 to the date of the issuance of the Exchange Notes. The
Exchange Notes will bear interest at a rate of 11 3/4% per annum, payable
semi-annually on February 15 and August 15 of each year, commencing February 15,
1998.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on December , 1997 unless the
Company in its sole discretion extends the period during which the Exchange
Offer is open, in which event the term "Expiration Date" means the latest time
and date on which the Exchange Offer, as so extended by the Company, expires.
The Expiration Date will not be extended, however, beyond December , 1997. The
Company reserves the right to so extend the Exchange Offer at any time and from
time to time prior to the Expiration Date by giving written notice to The Bank
of New York (the "Exchange Agent") and by timely public announcement
communicated by no later than 5:00 p.m. on the next business day following the
Expiration Date, unless otherwise required by applicable law or regulation, by
making a release to the Dow Jones News Service. During any extension of the
Exchange Offer, all Old Notes previously tendered pursuant to the Exchange Offer
will remain subject to the Exchange Offer.
The initial exchange date will be the first business day following the
Expiration Date (the "Exchange Date"). The Company expressly reserves the right
to (i) terminate the Exchange Offer and not accept for exchange any Old Notes if
any of the events set forth below under "Conditions to the Exchange Offer" shall
have occurred and shall not have been waived by the Company and (ii) amend the
terms of the Exchange Offer in any manner, whether before or after any tender of
the Old Notes. If any such termination or amendment occurs, the Company will
notify the Exchange Agent in writing and will either issue a press release or
give written notice to the holders of the Old Notes as promptly as practicable.
Unless the Company terminates the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date, the Company will exchange the Exchange Notes
for Old Notes on the Exchange Date.
If the Company waives any material condition to the Exchange Offer, or
amends the Exchange Offer in any other material respect, and if at the time that
notice of such waiver or amendment is first published, sent or given to holders
of Old Notes in the manner specified above, the Exchange Offer is scheduled to
expire at any time earlier than the expiration of a period ending on the fifth
business day from, and including, the date that such notice is first so
published, sent or given, then the Exchange Offer will be extended until the
expiration of such period of five business days.
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Company to record holders of Old Notes and will
be furnished to brokers, banks and similar persons whose names, or the names of
whose nominees, appear on the lists of holders for subsequent transmittal to
beneficial owners of Old Notes.
HOW TO TENDER
The tender to the Company of Old Notes by a holder thereof pursuant to one
of the procedures set forth below will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
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GENERAL PROCEDURES
A holder of an Old Note may tender the same by (i) properly completing and
signing the Letter of Transmittal or a facsimile thereof (all references in this
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with the certificate or certificates
representing the Old Notes being tendered and any required signature guarantees
(or a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation")
pursuant to the procedure described below), to the Exchange Agent at its address
set forth on the back cover of this Prospectus on or prior to the Expiration
Date or (ii) complying with the guaranteed delivery procedures described below.
If tendered Old Notes are registered in the name of the signer of the Letter
of Transmittal and the Exchange Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder, the signature of such signer need not be guaranteed. In any
other case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed by
the registered holder and the signature on the endorsement or instrument of
transfer must be guaranteed by a bank, broker, dealer, credit union, savings
association, clearing agency or other institution (each an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Exchange Act. If the
Exchange Notes and/or Old Notes not exchanged are to be delivered to an address
other than that of a registered holder appearing on the note register for the
Old Notes, the signature on the Letter of Transmittal must be guaranteed by an
Eligible Institution.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
Old Notes should contact such holder promptly and instruct such holder to tender
Old Notes on such beneficial owner's behalf. If such beneficial owner wishes to
tender such Old Notes himself, such beneficial owner must, prior to completing
and executing the Letter of Transmittal and delivering such Old Notes, either
make appropriate arrangements to register ownership of the Old Notes in such
beneficial owner's name or follow the procedures described in the immediately
preceding paragraph. The transfer of record ownership may take considerable
time.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at The Depository Trust Company (the "Book-Entry Transfer
Facility") for purposes of the Exchange Offer within two business days after
receipt of this Prospectus, and any financial institution that is a participant
in the Book-Entry Transfer Facility's systems may make book-entry delivery of
Old Notes by causing the Book-Entry Transfer Facility to transfer such Old Notes
into the Exchange Agent's account at the Book-Entry Transfer Facility in
accordance with the Book-Entry Transfer Facility's procedures for transfer.
However, although delivery of Old Notes may be effected through book-entry
transfer at the Book-Entry Transfer Facility, the Letter of Transmittal, with
any required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent at the address
specified on the back cover of this Prospectus on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
The method of delivery of Old Notes and all other documents is at the
election and risk of the holder. If sent by mail, it is recommended that
registered mail, return receipt requested, be used, proper insurance be
obtained, and the mailing be made sufficiently in advance of the Expiration Date
to permit delivery to the Exchange Agent on or before the Expiration Date.
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of federal income tax, the Exchange Agent will
be required to withhold, and will withhold, 31% of the gross proceeds otherwise
payable to a holder pursuant to the Exchange Offer if the holder does
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not provide his taxpayer identification number (social security number or
employer identification number, as applicable) and certify that such number is
correct. Each tendering holder should complete and sign the main signature form
and the Substitute Form W-9 included as part of the Letter of Transmittal, so as
to provide the information and certification necessary to avoid backup
withholding, unless an applicable exemption exists and is proved in a manner
satisfactory to the Company and the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date, a tender may be effected if the Exchange Agent has received at
its office listed on the Letter of Transmittal on or prior to the Expiration
Date a letter, telegram or facsimile transmission from an Eligible Institution
setting forth the name and address of the tendering holder, the principal amount
of the Old Notes being tendered, the names in which the Old Notes are registered
and, if possible, the certificate numbers of the Old Notes to be tendered, and
stating that the tender is being made thereby and guaranteeing that within three
New York Stock Exchange trading days after the date of execution of such letter,
telegram or facsimile transmission by the Eligible Institution, the Old Notes,
in proper form for transfer, will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of Transmittal (and
any other required documents). Unless Old Notes being tendered by the
above-described method (or a timely Book-Entry Confirmation) are deposited with
the Exchange Agent within the time period set forth above (accompanied or
preceded by a properly completed Letter of Transmittal and any other required
documents), the Company may, at its option, reject the tender. Copies of a
Notice of Guaranteed Delivery which may be used by Eligible Institutions for the
purposes described in this paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a timely Book-Entry Confirmation) is received
by the Exchange Agent. Issuances of Exchange Notes in exchange for Old Notes
tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram or
facsimile transmission to similar effect (as provided above) by an Eligible
Institution will be made only against deposit of the Letter of Transmittal (and
any other required documents) and the tendered Old Notes (or a timely Book-Entry
Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders not in proper
form or the acceptances for exchange of which may, in the opinion of counsel to
the Company, be unlawful. The Company also reserves the absolute right to waive
any of the conditions of the Exchange Offer or any defect or irregularities in
tenders of any particular holder whether or not similar defects or
irregularities are waived in the case of other holders. Neither the Company, the
Exchange Agent nor any other person will be under any duty to give notification
of any defects or irregularities in tenders or shall incur any liability for
failure to give any such notification. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the Letter of Transmittal and
the instructions thereto) will be final and binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Old Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to the Company and irrevocably constitutes
and appoints the Exchange Agent as the Transferor's agent and attorney-in-fact
to cause the Old Notes to be assigned, transferred and
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exchanged. The Transferor represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the Old Notes and to acquire
Exchange Notes issuable upon the exchange of such tendered Old Notes, and that,
when the same are accepted for exchange, the Company will acquire good and
unencumbered title to the tendered Old Notes, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim. The
Transferor also warrants that it will, upon request, execute and deliver any
additional documents deemed by the Company to be necessary or desirable to
complete the exchange, assignment and transfer of tendered Old Notes. The
Transferor further agrees that acceptance of any tendered Old Notes by the
Company and the issuance of Exchange Notes in exchange therefor shall constitute
performance in full by the Company of its obligations under the Registration
Rights Agreement and that the Company shall have no further obligations or
liabilities to such Transferor thereunder, except with respect to the Company's
indemnification obligations thereunder. All authority conferred by the
Transferor will survive the death or incapacity of the Transferor and every
obligation of the Transferor shall be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of such
Transferor.
By tendering Old Notes and executing the Letter of Transmittal, the
Transferor certifies that (i) any Exchange Notes to be received by it will be
acquired in the ordinary course of its business, (ii) it has no arrangement with
any person to participate in the distribution of the Exchange Notes and (iii) it
is not an "affiliate," as defined in Rule 405 of the Securities Act, of the
Company. In addition, if the Transferor is not a broker-dealer, it will be
required to represent that it is not engaged in, and does not intend to engage
in, the distribution of the Exchange Notes. If the holder is a broker-dealer
that will receive Exchange Notes for its own account in exchange for Old Notes
that were acquired as a result of market making activities or other trading
activities, it will be required to acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Notes.
WITHDRAWAL RIGHTS
Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Exchange Agent at its address set
forth on the back cover of this Prospectus prior to the Expiration Date. Any
such notice of withdrawal must specify the person named in the Letter of
Transmittal as having tendered Old Notes to be withdrawn, the certificate
numbers of Old Notes to be withdrawn, the principal amount of Old Notes to be
withdrawn, a statement that such holder is withdrawing his election to have such
Old Notes exchanged, and the name of the registered holder of such Old Notes,
and must be signed by the holder in the same manner as the original signature on
the Letter of Transmittal (including any required signature guarantees) or be
accompanied by evidence satisfactory to the Company that the person withdrawing
the tender has succeeded to the beneficial ownership of the Old Notes being
withdrawn. The Exchange Agent will return the properly withdrawn Old Notes
promptly following receipt of notice of withdrawal. All questions as to the
validity of notices of withdrawals, including time of receipt, will be
determined by the Company, and such determination will be final and binding on
all parties.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Old Notes validly tendered and not withdrawn and the
issuance of the Exchange Notes will be made on the Exchange Date. For the
purposes of the Exchange Offer, the Company shall be deemed to have accepted for
exchange validly tendered Old Notes when, as and if the Company has given
written notice thereof to the Exchange Agent.
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The Exchange Agent will act as agent for the tendering holders of Old Notes
for the purposes of receiving Exchange Notes from the Company and causing the
Old Notes to be assigned, transferred and exchanged. Upon the terms and subject
to conditions of the Exchange Offer, delivery of Exchange Notes to be issued in
exchange for accepted Old Notes will be made by the Exchange Agent promptly
after acceptance of the tendered Old Notes. Old Notes not accepted for exchange
by the Company will be returned without expense to the tendering holders (or in
the case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the procedures described
above, such non-exchanged Old Notes will be credited to an account maintained
with such Book-Entry Transfer Facility) promptly following the Expiration Date
or, if the Company terminates the Exchange Offer prior to the Expiration Date,
promptly after the Exchange Offer is so terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to issue Exchange Notes
in respect of any properly tendered Old Notes not previously accepted and may
terminate the Exchange Offer (by oral or written notice to the Exchange Agent
and by timely public announcement communicated by no later than 5:00 p.m. on the
next business day following the Expiration Date, unless otherwise required by
applicable law or regulation, by making a release to the Dow Jones News Service)
or, at its option, modify or otherwise amend the Exchange Offer, if (a) there
shall be threatened, instituted or pending any action or proceeding before, or
any injunction, order or decree shall have been issued by, any court or
governmental agency or other governmental regulatory or administrative agency or
commission, (i) seeking to restrain or prohibit the making or consummation of
the Exchange Offer or any other transaction contemplated by the Exchange Offer,
(ii) assessing or seeking any damages as a result thereof or (iii) resulting in
a material delay in the ability of the Company to accept for exchange or
exchange some or all of the Old Notes pursuant to the Exchange Offer; (b) any
statute, rule, regulation, order or injunction shall be sought, proposed,
introduced, enacted, promulgated or deemed applicable to the Exchange Offer or
any of the transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority, agency
or court, domestic or foreign, that in the reasonable judgment of the Company
might directly or indirectly result in any of the consequences referred to in
clauses (a)(i) or (ii) above or, in the reasonable judgment of the Company,
might result in the holders of Exchange Notes having obligations with respect to
resales and transfers of Exchange Notes which are greater than those described
in the interpretations of the Staff referred to on the cover page of this
Prospectus, or would otherwise make it inadvisable to proceed with the Exchange
Offer; or (c) a material adverse change shall have occurred in the business,
condition (financial or otherwise), operations, or prospects of the Company.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by it with respect to all or any portion of the Exchange Offer
regardless of the circumstances (including any action or inaction by the
Company) giving rise to such condition or may be waived by the Company in whole
or in part at any time or from time to time in its sole discretion. The failure
by the Company at any time to exercise any of the foregoing rights will not be
deemed a waiver of any such right, and each right will be deemed an ongoing
right which may be asserted at any time or from time to time. Notwithstanding
the foregoing, the Company does not intend to terminate the Exchange Offer if
each of the foregoing conditions have been satisfied.
Any determination by the Company concerning the fulfillment or
nonfulfillment of any conditions will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Old Notes tendered
and no Exchange Notes will be issued in exchange for any such Old Notes, if at
such time any stop order shall be
35
<PAGE>
threatened or in effect with respect to the Registration Statement of which this
Prospectus constitutes a part or qualification of the Indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act").
EXCHANGE AGENT
The Bank of New York has been appointed as the Exchange Agent for the
Exchange Offer. Letters of Transmittal must be addressed to the Exchange Agent
at:
<TABLE>
<CAPTION>
BY HAND OR OVERNIGHT DELIVERY: BY REGISTERED OR CERTIFIED MAIL:
- ------------------------------------------------- -------------------------------------------------
<S> <C>
The Bank of New York The Bank of New York
101 Barclay Street, 7E 101 Barclay Street, 7E
Corporate Trust Services Window New York, New York 10286
Ground Level Attention: Reorganization Department
New York, New York 10286 Arwen Gibbons
Attention: Reorganization Department
Arwen Gibbons
</TABLE>
Confirm by Telephone
or for Information:
(212) 815-5920
Facsimile Transmissions:
(Eligible Institutions Only)
(212) 815-6339
Delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile or telex number other than the ones set forth
herein, will not constitute a valid delivery.
SOLICITATION OF TENDERS; EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Company
will, however, pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding tenders for their customers. The expenses to be
incurred in connection with the Exchange Offer, including the fees and expenses
of the Exchange Agent and printing, accounting, legal fees and miscellaneous
expenses will be paid by the Company and are estimated to be approximately
$150,000.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Old Notes in any jurisdiction in which
the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Old Notes
in such jurisdiction. In any jurisdiction the securities laws or blue sky laws
of which require the Exchange Offer to be made by a licensed broker or dealer,
the Exchange Offer is being made on
36
<PAGE>
behalf of the Company by one or more registered brokers or dealers that are
licensed under the laws of such jurisdiction.
APPRAISAL RIGHTS
HOLDERS OF OLD NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS IN
CONNECTION WITH THE EXCHANGE OFFER.
FEDERAL INCOME TAX CONSEQUENCES
The exchange of Old Notes for Exchange Notes by tendering holders will not
be a taxable exchange for federal income tax purposes, and such holders should
not recognize any taxable gain or loss or any interest income as a result of
such exchange. See "Certain United States Federal Income Tax Consequences."
OTHER
Participation in the Exchange Offer is voluntary and holders of Old Notes
should carefully consider whether to accept the terms and conditions thereof.
Holders of the Old Notes are urged to consult their financial and tax advisors
in making their own decisions on what action to take with respect to the
Exchange Offer.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of this Exchange Offer, the
Company will have fulfilled a covenant contained in the terms of the Old Notes
and the Registration Rights Agreement. Holders of the Old Notes who do not
tender their Old Notes in the Exchange Offer will continue to hold such Old
Notes and will be entitled to all the rights, and limitations applicable
thereto, under the Indenture, except for any such rights under the Registration
Rights Agreement which by their terms terminate or cease to have further effect
as a result of the making of this Exchange Offer. See "Description of Exchange
Notes." All untendered Old Notes will continue to be subject to the restriction
on transfer set forth in the Indenture. To the extent that Old Notes are
tendered and accepted in the Exchange Offer, the trading market, if any, for any
remaining Old Notes could be adversely affected. See "Risk Factors--Consequences
of Failure to Exchange Old Notes."
The Company may in the future seek to acquire untendered Old Notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. The Company has no present plan to acquire any Old Notes that are
not tendered in the Exchange Offer.
37
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited cash position and
capitalization of the Company as of June 30, 1997 on an (i) actual basis and
(ii) as adjusted basis to give pro forma effect to the Old Notes Offering as if
the Old Notes Offering had been consummated on June 30, 1997. See "Use of
Proceeds." This table should be read in conjunction with the Company's financial
statements and the related notes thereto appearing elsewhere in this Prospectus:
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------
ACTUAL AS ADJUSTED
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.............................................................. $ 17,311 $ 17,311
----------- ------------
----------- ------------
Long-term debt:
JAIX Leasing Loan Facility(a)........................................................ $ 29,750 $ 29,750
Capital lease obligations............................................................ 1,868 1,868
Industrial Revenue Bond.............................................................. 5,300 5,300
Senior Bank Facilities(b):
Revolving Facility................................................................. -- --
Term Loan Facility................................................................. 175,010 95,005
11 3/4% Senior Subordinated Notes due 2005........................................... 100,000 100,000
11 3/4% Series B and Series C Senior Subordinated Notes due 2005,
including unamortized premium of $3.6 million(c)..................................... -- 82,823(d)
----------- ------------
Total long-term debt............................................................... 311,928 314,746
Less current maturities.......................................................... (18,916) (3,330)
----------- ------------
Long-term debt, net of current maturities............................................ 293,012 311,416
Shareholders' equity:
Common stock......................................................................... 98 98
Paid-in capital...................................................................... 55,049 55,049
Retained earnings.................................................................... 6,015 3,978(e)
Employees' notes receivable related to purchase of stock............................. (30) (30)
----------- ------------
Shareholders' equity............................................................... 61,132 59,095
----------- ------------
Total capitalization............................................................. $ 354,144 $ 370,511
----------- ------------
----------- ------------
</TABLE>
- ------------------------
(a) JAIX Leasing is not a Guarantor Subsidiary. The indebtedness under the JAIX
Leasing Loan Facility is secured by underlying leases and assets of JAIX
Leasing and the creditors thereunder have no recourse against the Company.
(b) In connection with the Old Notes Offering, the maximum borrowings under the
Revolving Facility, which is subject to a borrowing base, was reduced from
$100 million to $75 million. As of June 30, 1997, $50.5 million was
available under the Revolving Facility after giving consideration of
outstanding letters of credit of $17.1 million. See "Description of Certain
Indebtedness--Senior Bank Facilities."
(c) See "Description of Exchange Notes."
(d) Reflects an approximately $0.8 million unamortized derivative option
settlement related to the issuance of the Old Notes.
(e) Reflects an approximately $3.4 million pre-tax non-cash extraordinary charge
($2.0 million net of tax) arising from the accelerated write-off of
unamortized debt issuance costs and cancellations of interest rate swap
instruments related to the Company prepaying a portion of its borrowings
under the Senior Bank Facilities. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--General."
38
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected consolidated financial data with
respect to the Company for the periods and at the dates indicated. The selected
consolidated income statement and balance sheet data of the Company for the
years ended and as of December 31, 1992, 1993, 1994, 1995 and 1996 are derived
from financial statements which have been audited by Arthur Andersen LLP,
independent public accountants. The selected consolidated financial data for the
six months ended and as of June 30, 1996 and 1997 are derived from unaudited
consolidated financial statements of the Company, but reflect, in the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such data. Operating results for the six
month period ended June 30, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997. This information
should be read in conjunction with the consolidated financial statements of the
Company and the notes thereto appearing elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1992 1993(A) 1994 1995(B) 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenue............................... $ 204,500 $ 329,122 $ 468,525 $ 668,601 $ 559,972 $ 285,629 $ 273,962
Cost of goods sold.......................... 187,174 301,629 442,153 608,982 474,158 240,859 232,520
--------- --------- --------- --------- --------- --------- ---------
Gross profit.............................. 17,326 27,493 26,372 59,619 85,814 44,770 41,442
Selling, general and administrative......... 9,108 11,340 13,144 28,117 46,605 23,808 22,062
Amortization................................ 3,843 3,721 3,573 6,478 10,174 5,133 4,248
Gain on sale of leased freight cars......... -- -- -- -- (1,354) -- (587)
--------- --------- --------- --------- --------- --------- ---------
Operating income.......................... 4,375 12,432 9,655 25,024 30,389 15,829 15,719
Interest expense, net....................... 5,360 2,968 266 14,702 35,836 17,586 17,381
Provision (credit) for income taxes......... (254) 4,083 3,692 4,737 (76) 195 743
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary
items................................... (731) 5,381 5,697 5,585 (5,371) (1,952) (2,405)
Extraordinary items, net of taxes(c)........ -- (2,918) -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)......................... $ (731) $ 2,463 $ 5,697 $ 5,585 $ (5,371) $ (1,952) $ (2,405)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary items per
share..................................... $ (0.13) $ 0.66 $ 0.58 $ 0.57 $ (0.55) $ (0.20) $ (0.25)
Extraordinary items per share(c)............ -- (0.36) -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per share................. $ (0.13) $ 0.30 $ 0.58 $ 0.57 $ (0.55) $ (0.20) $ (0.25)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OPERATING AND OTHER DATA:
EBITDA(d)................................... $ 10,256 $ 18,652 $ 16,041 $ 39,548 $ 56,306 $ 29,074 $ 28,385
EBITDA margin(e)............................ 5.02% 5.67% 3.42% 5.91% 10.0% 10.2% 10.4%
Depreciation and amortization............... $ 5,881 $ 6,220 $ 6,386 $ 15,891 $ 29,270 $ 14,820 $ 13,760
Cash interest expense(f).................... 5,243 2,932 259 7,718 31,487 14,771 16,465
Capital expenditures........................ 2,275 3,865 7,295 14,954 9,919 4,914 2,405
Ratio of EBITDA to cash interest expense.... 1.96x 6.36x 61.93x 5.30x 1.89x 2.07x 1.79x
Ratio of earnings to fixed charges(g)....... (g) 4.19x 36.30x 1.66x (g) (g) (g)
CASH FLOW DATA:
Net cash provided by (used for) operating
activities................................ $ 1,014 $ 8,376 $ (1,146) $ 52,132 $ 36,378 $ 13,664 $ 5,869
Net cash provided by (used for) investing
activities................................ (2,504) (3,928) (11,936) (346,210) 3,542 (4,266) (20,587)
Net cash provided by (used for) financing
activities................................ (2,537) 2,013 7,700 303,963 (27,024) (3,932) 7,494
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents................... $ 675 $ 7,136 $ 1,754 $ 11,639 $ 24,535 $ 17,105 $ 17,311
Working capital (deficit)................... (2,313) 15,600 24,967 24,697 27,219 30,735 24,910
Property, plant, equipment and leasing
business assets, net...................... 27,472 28,838 38,162 164,425 147,114 161,699 158,452
Total assets................................ 95,570 107,966 143,354 578,825 555,283 575,514 570,640
Long-term debt, including current
maturities................................ 34,847 -- 7,600 329,786 304,175 326,709 311,928
Shareholders' equity........................ 16,300 57,235 63,234 68,874 63,537 66,921 61,132
</TABLE>
See Notes to Selected Consolidated Financial Data.
39
<PAGE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(a) On July 23, 1993, the Company consummated an initial public offering whereby
the Company issued 3.0 million shares of its Common Stock.
(b) On January 13, 1995, the Company acquired Bostrom for a total purchase price
of approximately $32.6 million financed by borrowings under the Company's
previous borrowing facility. On August 23, 1995, the Company completed the
acquisition of TCI for a total purchase price of approximately $266.1
million financed by borrowings under the Senior Bank Facilities and the
proceeds of the issuance of the Original Notes. The acquisitions were
accounted for as a purchase, and the operating results were included in the
Company's operations from the date of acquisition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Note 3 to the Company's Consolidated Financial Statements contained
elsewhere in this Prospectus.
(c) The Company reported an extraordinary loss in connection with an early
extinguishment of its long-term debt which was retired with a portion of the
proceeds from its initial public offering in July 1993.
(d) EBITDA is defined as earnings before interest, taxes, depreciation,
amortization and extraordinary items and is presented because it is commonly
used by certain investors and analysts to analyze and compare on the basis
of operating performance and to determine a company's ability to service and
incur debt. EBITDA should not be considered in isolation from or as a
substitute for net income, cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability or
liquidity.
(e) EBITDA margin represents EBITDA as a percentage of total revenue. EBITDA
margin is presented because such data is used by certain investors and
analysts to analyze and compare on the basis of operating performance.
EBITDA margin should not be considered in isolation from or as a substitute
for net income, operating income or other consolidated income or cash flow
statement data prepared in accordance with generally accepted accounting
principles or as a measure of profitability or liquidity.
(f) Cash interest expense is defined as interest expense exclusive of
amortization of deferred financing costs.
(g) The ratio of earnings to fixed charges is expressed as the ratio of fixed
charges plus pretax earnings to fixed charges. Fixed charges include
interest on borrowings, amortization of deferred financing costs and the
interest portion of rent expense. Earnings were insufficient to cover fixed
charges for the years ended December 31, 1992 and 1996 by $1.0 million and
$5.5 million, respectively, and for the six month periods ended June 30,
1996 and 1997 by $1.8 million and $1.7 million, respectively. Adjusted to
give effect to the Old Notes Offering and the application of the estimated
net proceeds therefrom, the Company's earnings would have been insufficient
to cover the fixed charges in the amount of $7.0 million and $2.5 million
for the year ended December 31, 1996 and for the six months ended June 30,
1997, respectively.
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company conducts its business through three operating groups within the
transportation industry: truck components and assemblies operations, a leading
manufacturer of wheel-end components, seating, steerable drive axles and gear
boxes for the heavy-duty truck industry; iron castings operations, a major
producer of complex iron castings for a wide range of industries; and freight
car operations, a leading manufacturer and lessor of new and rebuilt freight
cars used for hauling coal, intermodal containers, highway trailers and
agricultural and mining products. During 1996, the Company's truck components
and assemblies, iron castings and freight car operations generated net sales of
$237.0 million, $125.1 million and $197.8 million, respectively. During the six
months ended June 30, 1997, the Company's truck components and assemblies, iron
castings and freight car operations generated net sales of $141.4 million, $69.0
million and $63.5 million, respectively. The Company reported net losses in the
year ended December 31, 1996 and the six months ended June 30, 1997. The
significant decline in demand experienced in 1996 and early 1997 by JAC produced
significant operating losses that, coupled with the Company's significant debt
service requirements, more than offset operating income generated by its truck
components and assemblies and iron castings operations. Although demand for
freight cars has improved slightly, the market remains subject to intense
pricing competitiveness in a freight car market characterized by depressed
demand and production overcapacity and, as a result, the Company expects to
report a net loss for the year ended December 31, 1997. Given the cyclicality of
the freight car and heavy-duty trucking industries and other market factors,
there can be no assurance that the Company will achieve or sustain profitability
in the future.
The Company completed the acquisition of TCI on August 23, 1995 and Bostrom
on January 13, 1995. Both acquisitions were accounted for under the purchase
method of accounting and, accordingly, their operating results were included in
the Company's reported results from their respective acquisition dates. Such
results have a significant impact on the comparative discussions below.
Additionally, the Company, through its wholly owned subsidiary, FCS, completed
the purchase of the Danville, Illinois facility which began operations in
October 1995. The Company formed its leasing subsidiary, JAIX Leasing, in
January 1995 and currently leases 1,526 freight cars to various lessees under
operating leases. Of these freight cars, 595 are owned by JAIX Leasing,
representing an investment of $37.7 million, and the remainder are leased.
The Company's sales are affected to a significant degree by the North
American Class 8 truck and freight car markets. Both the North American Class 8
truck and freight car markets are subject to significant fluctuations due to
economic conditions, 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. Sales of the freight car operations are driven
principally by the number and type of new and rebuilt 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 operation and cash
flows from operations may fluctuate as well.
The Company's net income for 1997 is expected to include the effect of a
pre-tax non-cash extraordinary charge in the amount of $3.4 million ($2.0
million net of tax or $0.21 per share) that will be incurred as a result of the
accelerated write-off of unamortized debt issuance costs related to the Company
prepaying a portion of its borrowings under the Senior Bank Facilities. The
charge will be expensed in the period in which the Old Notes Offering was
consummated, the quarter ending September 30, 1997.
41
<PAGE>
Management continually monitors the market rate exposure of its floating
rate debt which includes fixing or capping a portion of its variable rate debt
through interest rate swap or cap agreements. As of June 30, 1997, all of the
Company's variable rate debt was hedged through a corresponding interest rate
agreement. None of the financial instruments used by the Company are
speculative.
The following table sets forth for the periods indicated certain historical
financial data of the Company expressed as a percentage of total revenue.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total revenue............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Gross margin.............................................. 5.6 8.9 15.3 15.7 15.1
Selling, general and administrative....................... 2.8 4.2 8.3 8.3 8.1
Amortization.............................................. 0.8 1.0 1.8 1.8 1.6
Gain on sale of lease freight cars........................ -- -- 0.2 -- 0.2
--------- --------- --------- --------- ---------
Operating income........................................ 2.1% 3.7% 5.4% 5.5% 5.7%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
TOTAL REVENUE. Total revenue for the six months ended June 30, 1997
decreased $11.6 million (4.1%) to $274.0 million from $285.6 million in 1996.
This decrease was due to a 34.3% reduction in freight car revenues of $33.3
million (including a $1.1 million increase in leasing revenues), which has been
partially offset by increased revenues generated by the truck component
operations and iron casting operations. The Company shipped 1,575 new and
rebuilt freight cars in the first half of 1997, including 325 cars sold to JAIX
Leasing (which have been eliminated from consolidated sales), compared to 1,632
new and rebuilt cars shipped in the first half of 1996. This decrease in
shipment accounted for $18.1 million of the decrease in freight car revenues
while a shift in product mix to cars with lower selling values and weaker
overall pricing accounted for $11.9 million of the decrease. The remaining
freight car revenues decrease of $3.3 million is attributable to a net decrease
in kit and part sales and leasing revenues. The Company's operations have been
adversely affected by a cyclical trough in demand for the types of cars offered
by JAC. The Company also is being adversely affected by intense pricing
pressures currently present in a freight car market characterized by depressed
demand and production overcapacity. Industry analysts are forecasting gradual
improvements in the market for aluminum coal cars, however, such forecasts have
been inaccurate in the past and no assurance can be given that the demand
currently forecast by industry analysts will occur. Revenues for the six months
ended June 30, 1997 at truck component operations increased $17.2 million
(13.9%), while iron casting revenues increased $4.5 million (7.0%) over the same
period in 1996. As of June 30, 1997, the Company's backlog of new and rebuilt
freight cars was 1,949 as compared to 1,376 new and rebuilt freight cars on June
30, 1996.
COST OF SALES--MANUFACTURING AND GROSS PROFITS. Cost of
sales--manufacturing for the six months ended June 30, 1997 as a percentage of
manufacturing sales (excluding leasing operations) was 85.3%, compared to 84.7%
for the same period in 1996. Related gross margins were 14.7% and 15.3%,
respectively. The decrease in gross profits of $3.4 million resulted primarily
from lower gross profits in the freight car business due to reduced revenues and
lower gross margins as a percentage of sales.
SELLING, GENERAL, ADMINISTRATIVE AND AMORTIZATION. Selling, general, and
administrative expenses as a percentage of total revenue was 8.1% and 8.3% for
the six months ended 1997 and 1996, respectively. Actual selling, general and
administrative expenses declined $1.7 million from 1996 levels as a result of
42
<PAGE>
cost reduction measures undertaken at the Company's freight car operations.
Amortization expense as a percentage of total revenue was 1.6% and 1.8% for the
six months ended June 30, 1997 and 1996, respectively.
OPERATING INCOME. Operating income remained relatively constant for the six
months ended June 30, 1997 compared to the same period in 1996, even though
total revenues declined by $11.6 million and gross profit declined by $3.3
million. Operating income was $15.7 million for the first six months of 1997,
compared to $15.8 million in the same period of 1996. The Company maintained its
operating income by a reduction in selling, general and administrative expenses
by $1.7 million, a reduction in amortization expenses of $0.9 million and the
gain on sale of leased freight cars of $0.6 million.
At June 30, 1997, the Company had 1,526 freight cars on lease and the
leasing business generated $3.1 million in revenue and $1.6 million in operating
income before a $0.6 million gain on the sale of leased freight cars for the
first six months of 1997 compared with $2.0 million revenue and $1.3 million
operating income in the comparable prior period.
INTEREST EXPENSE. Interest expense, net, was $17.4 million for the first
six months of 1997 compared to $17.6 million in the same period of 1996.
Interest expense in 1997 and 1996 resulted from borrowings under the Senior Bank
Facilities and the issuance of the Original 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 to the
lease fleet.
Net loss and loss per share for the first six months of 1997 were $2.4
million and $0.25, respectively, compared to net loss and loss per share of $2.0
million and $0.20, respectively for the same period of 1996.
YEARS ENDED DECEMBER 31, 1996 AND 1995
TOTAL REVENUE. Total revenue in 1996 decreased 16.2% to $560.0 million from
$668.6 million in 1995. The total revenue decrease of $108.6 million was
primarily due to the decrease in freight car sales of $294.7 million (3,470 new
and rebuilt cars in 1996 vs 9,157 new and rebuilt cars in 1995) and a $9.6
million decrease in truck-related sales volume at Bostrom. The decreases were
offset in part by the inclusion of TCI for all of 1996 versus inclusion for the
partial year of 1995, an increase of $195.7 million. As of December 31, 1996,
the Company's backlog of new and rebuilt freight cars was 774, compared with
1,204 new and rebuilt freight cars at December 31, 1995.
COST OF SALES--MANUFACTURING AND GROSS PROFIT. Cost of sales--manufacturing
for 1996 as a percent of manufacturing sales was 85.0%, compared with 91.3% in
1995. Related gross profits were 15.0% and 8.7%, respectively. The improvement
in gross profit resulted primarily from the acquisition of TCI in August 1995.
TCI has historically generated higher gross profits than the freight car
business. Partially mitigating this increase was the decrease of gross profit at
JAC. JAC's gross profit percentage for 1996 was down from the prior year
approximately 1 percentage point, and the aggregate dollar gross profit was down
due to the significant decrease in freight car revenues mentioned above.
SELLING, GENERAL, ADMINISTRATIVE AND AMORTIZATION EXPENSES. Selling,
general and administrative expense as a percentage of total revenue was 8.3% and
4.2% in 1996 and 1995, respectively. The increase in selling, general and
administrative expense as a percent of revenues is principally attributable to
spreading such expenses over a significantly lower sales base at the Company's
freight car business and is also related to the acquisition and the integration
of TCI which, at 8% of its sales in 1996, has higher selling, general and
administrative levels as a percent of revenue compared to the historical levels
of the Company's freight car business, and to a $2.0 million increased MIS and
product development cost at the freight car operations. Amortization expense as
a percentage of total revenue was 1.8% and 1.0% for the years ended 1996 and
1995, respectively. The increase in amortization expense as a
43
<PAGE>
percentage of total revenue is related to certain intangible assets of TCI and
the excess cost over net assets acquired in the acquisition.
OPERATING INCOME. Operating income was $30.4 million in 1996, compared with
$25.0 million in 1995. The increase was primarily due to including the operating
income of TCI for all of 1996 versus inclusion for the partial year of 1995 more
than offsetting the drop in operating income at JAC.
At December 31, 1996, the Company had 1,067 freight cars on lease and the
leasing business generated $4.5 million in revenue and $2.4 million in operating
income before a $1.4 million gain on the sale of leased freight cars for the
year 1996 compared with $2.6 million revenue and $1.9 million operating income
in the prior year.
INTEREST EXPENSE. Interest expense, net was $35.8 million in 1996 compared
with $14.7 million in 1995. Higher interest expense in 1996 resulted from
borrowings under the Senior Bank Facilities and the issuance of the Original
Notes to finance the acquisition of TCI, which were outstanding for all of 1996
versus 4 months in 1995. In addition, JAIX Leasing had increased debt levels to
finance the additional freight cars for the lease fleet.
Net loss and loss per share for 1996 were $5.4 million and $0.55,
respectively, compared to net income and earnings per share of $5.6 million and
$0.57, respectively, for 1995.
YEARS ENDED DECEMBER 31, 1995 AND 1994
TOTAL REVENUE. Total revenue in 1995 increased 42.7% to $668.6 million from
$468.5 million in 1994. The total revenue increase of $200.1 million was
primarily related to the acquisition of TCI in August 1995 (58% of the
increase), and the acquisition of Bostrom in January 1995 (30% of the increase),
while revenue from JAC and FCS accounted for 12% of the increase, collectively.
This increase resulted from the start-up of operations of FCS and a change in
product mix at JAC to cars with higher selling values, offsetting lower
production (9,157 new and rebuilt freight cars in 1995 versus 10,707 new freight
cars in 1994). As of December 31, 1995, the Company's backlog of new freight
cars was 1,204 as compared with 7,180 on December 31, 1994.
At December 31, 1995 the Company had 600 freight cars on lease, and the
leasing business generated $2.6 million in revenue and $1.9 million in operating
income for the year ended 1995 compared with $0.5 million in revenue and $0.3
million in operating income in the prior year.
COST OF SALES--MANUFACTURING AND GROSS PROFIT. Cost of sales--manufacturing
for 1995 as a percent of manufacturing sales was 91.3%, compared to 94.4% in
1994. Related gross profits were 8.7% and 5.6%, respectively. The improvement in
gross profit resulted primarily from the acquisitions of Bostrom in January 1995
and TCI in August 1995, which historically have generated higher gross profits
than the freight car business. Gross profit percentages were slightly lower at
JAC in 1995 compared with 1994.
SELLING, GENERAL, ADMINISTRATIVE AND AMORTIZATION EXPENSES. Selling,
general and administrative expense as a percentage of total revenue was 4.2% and
2.8% in 1995 and 1994, respectively. The increase in selling, general, and
administrative expense is related to the acquisition and the integration of
Bostrom and TCI, which have higher selling, general and administrative levels as
a percent of revenue compared to JAC. The increase in amortization expense as a
percentage of total revenue is related to certain intangible assets of TCI and
Bostrom and the excess cost over net assets acquired in those acquisitions.
OPERATING INCOME. Operating income was $25.0 million in 1995, compared with
$9.7 million in 1994. The increase was primarily due to the acquisition of TCI
in August 1995, while operating income at JAC in 1995 remained approximately the
same as in 1994.
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INTEREST EXPENSE. Interest expense, net was $14.7 million in 1995 compared
with $0.3 million in 1994. Interest expense in 1995 resulted from increased
borrowings to finance the acquisition of Bostrom in January 1995, from increased
borrowings under the Senior Bank Facilities and the issuance of the Original
Notes to finance the acquisition of TCI and the refinancing of its debt in
August 1995, as well as from JAIX Leasing debt which was used to finance the
addition of freight cars for the lease fleet.
Net income and earnings per share for 1995 were $5.6 million and $0.57,
respectively, compared with net income and earnings per share of $5.7 million
and $0.58, respectively, for 1994.
QUARTERLY RESULTS
The following table sets forth summary unaudited quarterly financial
information for the last two quarters in 1995, each quarter in 1996 and the
first two quarters of 1997. In the opinion of management, such information has
been prepared on the same basis as the financial statements appearing elsewhere
in this Prospectus and reflects all necessary adjustments (consisting of only
normal recurring adjustments) for a fair presentation of such unaudited
quarterly results when read in conjunction with the financial statements and the
related notes thereto. The operating results for any quarter are not necessarily
indicative of results for any future period and there can be no assurance that
any trends reflected in such results will continue in the future.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
----------- --------- ----------- --------- ----------- --------- ----------- ---------
<CAPTION>
1995 1996 1997
---------------------- ---------------------------------------------- ----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue..................... $ 166,881 $ 156,551 $ 152,339 $ 133,290 $ 140,845 $ 133,498 $ 115,722 $ 158,240
Gross profit...................... 14,077 20,269 23,211 21,482 20,533 20,588 19,015 22,426
Operating income.................. 4,972 7,834 8,438 7,391 7,124 7,437 6,424 9,295
Net income (loss)................. 198 (991) (728) (1,224) (1,563) (1,856) (1,892) (514)
Net income (loss) per share....... $ 0.02 $ (0.10) $ (0.07) $ (0.13) $ (0.16) $ (0.19) $ (0.19) $ (0.05)
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1997, the Company provided net cash from
operations of $5.9 million compared with providing net cash of $13.7 million for
the first six months of 1996. Due to increased business activities, accounts
receivable and inventories increased by $12.1 million and $4.8 million,
respectively, partially offset by increases in accounts payable of $8.7 million.
The Company used $20.6 million of cash in investing activities for the six
months ended June 30, 1997, which included net investments in the leasing fleet
of $18.2 million and capital expenditures of $2.4 million. Cash provided by
financing activities was $7.5 million for the first six months of 1997, which
included an increase in the JAIX Leasing debt of $16.2 million, to fund the
leasing fleet additions, offset in part by term loan principal payments of $8.4
million. The Company currently anticipates that capital expenditures for the
balance of 1997 will be approximately $4.0 million. The Company intends to use
these expenditures to replace equipment and to purchase equipment for
productivity improvement.
For the year ended December 31, 1996, the Company provided cash from
operations of $36.4 million compared with $52.1 million for 1995. The Company
generated $3.5 million of net cash from investing activities during 1996
comprised principally of $18.1 million from the sale of leased freight cars
offset by $9.9 million used for capital expenditures, and $5.4 million used for
leasing business asset additions. Cash used for financing activities was $27.0
million for 1996 primarily related to scheduled payments on term debt of $16.8
million and net decreases on the JAIX Leasing debt of $8.8 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
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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 TCI and the Company, the Company and the
Guarantor Subsidiaries entered into the $300 million Senior Bank Facilities and
issued $100 million of the Original Notes. See Notes 6 and 7 of the Consolidated
Financial Statements for a description of the Senior Bank Facilities and the
Original Notes.
As of June 30, 1997, there was $175.0 million of term loans outstanding
under the Senior Bank Facilities, $100 million of the Original Notes
outstanding, and no borrowings under the $100 million revolving credit line
under the Senior Bank Facilities. Availability under the Revolving Loans, after
consideration of outstanding letters of credit of $17.1 million, was $50.5
million after giving effect to the applicable borrowing base.
Interest payments on the Original Notes and interest and principal payments
under the Senior Bank Facilities represent significant cash requirements for the
Company. The Original 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. Based on
current interest rates the Company expects that it will incur additional
interest expense of approximately $1.6 million annually as a result of
refinancing a portion of the outstanding term loans with the net proceeds of the
Old Notes Offering. The term loans under the Senior Bank Facilities require
periodic principal payments through their maturities. See Note 6 of the
Consolidated Financial Statements. In connection with the Old Notes Offering,
and as a result of each holder of the Tranche B Term Loans electing not to be
prepaid, the Company's principal payments for the remainder of 1997 and for
1998, 1999, 2000, 2001, 2002 and 2003 will be $1.7 million, $3.3 million, $3.3
million, $20.0 million, $23.3 million, $26.7 million and $16.7 million,
respectively.
On December 31, 1995, December 31, 1996 and August 4, 1997, the Company
amended the total debt ratio, interest coverage ratio and net worth financial
covenants under the Credit Agreement to avoid anticipated future defaults and to
address changes in the Company's business, particularly the effect on the
Company's financial position and results of operation of losses at its freight
car subsidiary, JAC. The Company is currently in compliance with all covenants
under the Credit Agreement. In addition, in connection with the Old Notes
Offering, the Credit Agreement was amended to reduce the Revolving Facility from
$100 million to $75 million. The banks also have consented to the issuance of
the Notes.
The Company formed a leasing business in 1994 to provide operating lease
financing for freight cars. This leasing division was formed into a wholly owned
subsidiary, JAIX Leasing, in January 1995 and currently leases 1,526 freight
cars to various lessees under operating leases. Of these freight cars, 595 are
owned by JAIX Leasing, representing an investment of $37.7 million, and the
remainder are leased. JAIX Leasing, which is not a Guarantor Subsidiary,
finances its freight car leasing activities through its own term loan facility.
This term loan facility was entered into in June 1996 by JAIX Leasing to finance
its freight car leasing activities and repay its existing credit facility. This
facility is secured by underlying leases and assets of JAIX Leasing and the
borrowings thereunder are non-recourse against the Company. See Note 3 of the
Condensed Consolidated Financial Statements for the six months ended June 30,
1997 for a description of this facility. As of June 30, 1997, there was $29.8
million outstanding under JAIX Leasing's term loan facility. In June 1997, JAIX
Leasing entered into an operating lease facility whereby JAIX Leasing will sell
freight cars to a lessor and then lease back the cars (on a non-recourse basis
to the Company) for periods of up to two years. JAIX Leasing will then lease the
freight cars to various sub-lessees.
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) over the next 18
months. The Company's
46
<PAGE>
future operating performance and, therefore, its long-term ability to service or
refinance the Original Notes and 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 June 30, 1997, the Company's balance sheet included cash of $17.3
million.
ENVIRONMENTAL AND LEGAL MATTERS
The Company is subject to comprehensive and frequently changing federal,
state and local environmental laws and regulations, and will incur additional
capital and operating costs in the future to comply with currently existing laws
and regulations, new regulatory requirements arising from recently enacted
statutes and possible new statutory enactments. In addition to environmental
laws that regulate the Company's subsidiaries' ongoing operations, the
subsidiaries also are subject to environmental remediation liability. Under
CERCLA and analogous state laws, the Company's subsidiaries may be liable as a
result of the release or threatened release of hazardous substances into the
environment. The Company's subsidiaries are currently involved in several
matters relating to the investigation and/or remediation of locations where the
subsidiaries had arranged for the disposal of foundry and other wastes.
Such matters include five situations in which the Company, through its TCI
subsidiaries and their predecessors, have been named or are believed to be PRPs
in the contamination of the sites. Additionally, environmental remediation may
be required at two of the TCI facilities at which soil and ground water
contamination has been identified. With respect to claims involving Gunite, TCI
and Gunite in September 1997 entered into the Settlement with a prior owner of
Gunite, pursuant to which each of TCI and Gunite and the prior owner withdrew
their claims against the other. As a result of the Settlement, TCI and Gunite
will not be responsible for liabilities and costs related to certain alleged
contamination at Gunite's facilities and at certain off-site properties to the
extent arising out of operations of Gunite prior to the acquisition of Gunite by
TCI in September 1987. The Company believes that it has valid claims for
contractual indemnification against Brillion's prior owners for certain of the
investigatory and remedial costs at the Brillion sites. The Company has been
notified, however, by the Brillion contractual indemnitors that they will not
honor Brillion's claims for indemnification. Accordingly, the Company is
litigating indemnification claims against Brillion's prior owners (Beatrice
Company et al.) and is appealing an adverse lower court ruling against Brillion
and TCI. There is no assurance that even if successful in any such claims, any
judgments against the indemnitors will ultimately be recoverable. In addition,
the Company believes it is likely that it has incurred some liability at various
sites for activities and disposal following acquisition which would not in any
event be covered by indemnification by prior owners.
As of June 30, 1997, the Company had a $26.1 million environmental reserve.
As a result of the Settlement, the Company's environmental reserve was decreased
in September 1997 by $14.3 million to $11.8 million. This non-cash reserve is
based on current cost estimates and does not reduce estimated expenditures to
net present value. The Company currently anticipates spending approximately $0.4
million per year for the current year and the next two years and approximately
$0.5 million per year in the years 2000 and 2001 (reduced as a result of the
Settlement from $0.5 million per year for the current year and the next two
years and approximately $1 million per year in the years 2000 and 2001) for
monitoring the various environmental sites associated with the environmental
reserve, including attorney and consultant costs for strategic planning and
negotiations with regulators and other PRPs, and payment of remedial
investigation costs. The Company expects to fund such expenditures with the cash
flow generated from its operations and amounts available under its Revolving
Facility. These sites are generally in the early investigatory stages of the
remediation process and thus it is anticipated that significant cash payments
for remediation will not be incurred for at least several years. After the
evaluation and investigation period, the investigation and remediation costs
will likely increase because the actual remediation of the various environmental
sites associated with the environmental reserve will
47
<PAGE>
likely be under way. In addition, it is possible that the timing of any
necessary expenditures could be accelerated. 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 PRPs 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 under CERCLA or the uncertainties
referred to above could result in such a material adverse effect.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" was issued in February 1997 and will be adopted by the Company effective
January 1, 1998. This new pronouncement establishes revised methods for
computing and reporting earnings per share. Adoption of this standard will not
materially impact previously reported earnings per share, including the per
share amount reported for the six months ended June 30, 1997.
SFAS No. 130, "Reporting Comprehensive Income" was issued in July 1997 and
will be adopted by the Company effective January 1, 1998. This new pronouncement
establishes standards for reporting and display of comprehensive income and its
components. Adoption of this standard will not impact the Company's financial
position or results of operations.
EFFECTS OF INFLATION
General price inflation has not had a material impact on the Company's
results of operations.
48
<PAGE>
BUSINESS
The Company, through its subsidiaries, designs and manufactures: components
and assemblies primarily for heavy- and medium-duty trucks; high quality,
complex iron castings for transportation-related and a variety of other markets;
and railroad freight cars. See "Glossary of Certain Terms." The Company's
principal business operations are:
TRUCK COMPONENTS AND ASSEMBLIES. Gunite is a leading North American
supplier of wheel-end systems and components, such as brake drums, disc wheel
hubs, spoke wheels, rotors and slack adjusters to OEMs in the heavy-duty truck
industry. The Company believes Gunite's products are offered as standard
equipment on more heavy-duty truck manufacturers' vehicles than any of its
competitors' products. Management also believes Gunite's fully integrated
operations, which combine advanced product design, casting and machining
capabilities, provide it with significant competitive advantages, particularly
in the development of new, value-added products. Gunite is a market leader in
the production of wheel-end components for ABS, which have been mandated for all
new trucks beginning in March 1997 and all new trailers beginning in March 1998.
Gunite also has developed its new lightweight brake drum, Gunite-Lite-TM-, for
applications in the heavy-duty truck market where certain customers value
strong, lighter weight components. In addition to serving OEMs, Gunite has
significant sales to the less cyclical, higher margin aftermarket which, as a
percentage of Gunite's net sales, has increased since the acquisition of Gunite
by the Company in 1995 from approximately 26% in 1995 to approximately 35% for
the six months ended June 30, 1997. Further, Gunite's commitment to quality,
customer satisfaction and continuous improvement is evidenced by its ISO 9000
and QS 9000 certifications.
The Company's other truck components and assemblies operations include
Bostrom and Fabco. Bostrom is a leading manufacturer of air suspension and
static seating systems for the heavy- and medium-duty truck industry, supplying
almost 50% of the heavy-duty truck OEM market. Bostrom also has significant
sales to the aftermarket, which represent approximately 20% of Bostrom's net
sales. Bostrom's commitment to quality, customer satisfaction and continuous
improvement is evidenced by its ISO 9000 certification. Fabco is a leading
supplier of steerable drive axles, gear boxes and related parts for heavy on/off
highway trucks and utility vehicles.
The Company's truck components and assemblies subsidiaries reported net
sales of $237.0 million in 1996, or 42.7% of the Company's net sales; and $124.2
million and $141.4 million in the six months ended June 30, 1996 and 1997,
respectively, or 43.8% and 52.2%, respectively, of the Company's net sales. In
1995 (including the period in 1995 prior to the acquisition of TCI), the
Company's truck components and assemblies subsidiaries reported net sales of
$275.8 million.
IRON CASTINGS. Brillion operates one of the nation's largest and most
versatile iron foundries and is focused on providing high quality, complex
castings to customers in a wide range of industries, including the truck,
industrial machinery, automotive and construction equipment markets. A leader in
ductile iron technology, Brillion specializes in the production of lightweight,
intricate thin wall castings. In addition to providing an important source of
high quality castings for Gunite (12.6% of Brillion's net foundry sales in
1996), Brillion has long-standing relationships with many of its over 225
customers. Generally, once a foundry begins production of a product, it will
continue to manufacture the item for the product's life cycle. Brillion also
manufactures and sells a line of farm equipment products. In 1996, over 95% of
Brillion's net foundry sales were from established customers. Brillion also
benefits from numerous quality certifications, including ISO 9000 and QS 9000,
and from achieving preferred supplier status with many of its customers.
Excluding intercompany sales, the Company's iron casting operations reported
net sales of $125.1 million in 1996, or 22.5% of the Company's net sales; and
$64.5 million and $69.0 million in the six months ended June 30, 1996 and 1997,
respectively, or 22.7% and 25.5%, respectively, of the Company's net sales. In
1995 (including the period in 1995 prior to the acquisition of TCI), the
Company's iron casting operations reported net sales of $132.1 million.
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<PAGE>
RAILROAD FREIGHT CARS. The Company, through its subsidiary, JAC, is a
leading manufacturer of railroad freight cars used principally for hauling coal.
JAC also offers aluminum covered hoppers for the grain hauling market and
intermodal freight cars, which it has manufactured in the past and has the
capability to produce in response to future market demand. JAC is recognized for
its expertise in the development and manufacture of aluminum freight cars that
increase load capacity and consequently reduce carrier costs. JAC's BethGon
Coalporter-Registered Trademark- had an estimated average market share of 81% of
the aluminum coal gondola market during the five-year period from 1992 to 1996.
In addition to manufacturing its standard BethGon
Coalporter-Registered Trademark-, in 1996 JAC introduced a new lighter weight
BethGon which weighs approximately 3,500 pounds less than a standard BethGon,
thereby enabling the car to carry significantly more coal per trip. JAC also
successfully introduced in 1996 an aluminum rapid discharge coal car, the
AutoFlood II-TM-, to compete in the aluminum bottom dump segment of the coal
freight car market. The AutoFlood II-TM- provides 18 tons more capacity per load
than conventional steel automatic discharge freight cars. These products have
been well received in the marketplace and the Company believes that JAC should
be able to further penetrate the market for aluminum coal freight cars.
As part of its full service business strategy for the freight car market,
the Company formed two new subsidiaries in 1994 and 1995, JAIX Leasing and FCS.
JAIX Leasing was formed to provide operating lease alternatives for its
customers. FCS was formed to participate in the freight car rebuilding and
repair market as well as to provide new freight car manufacturing capability for
specialty markets.
The Company's freight car operations reported manufacturing net sales of
$490.4 million and $193.3 million in 1995 and 1996, respectively, or 73.6% and
34.8%, respectively, of the Company's net sales; and $94.9 million and $60.6
million in the six months ended June 30, 1996 and 1997, respectively, or 33.5%
and 22.4%, respectively, of the Company's net sales. JAIX Leasing reported
leasing revenues of $2.6 million and $4.5 million in 1995 and 1996,
respectively, or 0.4% and 0.8%, respectively, of the Company's net sales; and
$2.0 million and $2.9 million in the six months ended June 30, 1996 and 1997,
respectively, or 0.7% and 1.1%, respectively, of the Company's net sales.
STRATEGY
The Company's strategy is to strengthen its financial position by reducing
its indebtedness, while continuing to build a diversified transportation
equipment manufacturing company with leading market positions in the markets it
serves. The acquisitions of Gunite, Brillion, Bostrom and Fabco have enabled the
Company to diversify its revenue base, with truck components and assemblies,
iron castings and freight car operations contributing approximately 42.3%, 22.3%
and 35.4% of the Company's 1996 revenues, respectively, and 51.6%, 25.2% and
23.2% of the Company's revenues for the six months ended June 30, 1997. The
primary elements of the Company's strategy are to: (i) expand its business by
capitalizing on its leading market positions; (ii) develop new products and
extend its product lines; (iii) aggressively pursue cost reductions and increase
operating efficiencies; and (iv) expand its aftermarket presence. Despite
significant softness in the freight car markets served by JAC since late 1995,
the Company believes that it has made significant progress toward implementing
its strategy.
MAINTAIN AND EXPAND LEADING MARKET POSITIONS. Management believes that the
Company has enhanced its competitive position in many of its markets. Gunite and
Bostrom have expanded their relationships with OEM customers by continuing to
provide high-quality products and reliable customer service, which should result
in additional business opportunities, as well as expanded their presence in the
aftermarket by capitalizing on the market leading positions of their products.
For example, Gunite's wheel-end products recently were selected as the standard
configuration by an additional leading North American heavy-duty truck OEM. To
expand its market position, Brillion has maintained its long-term relationships
as well as built new relationships by providing reliable customer service,
drawing on its technical expertise to reduce costs to customers and producing
highly complex castings. The Company's freight car operations enhanced its
leadership position in aluminum freight car design and manufacturing by recently
introducing two innovative coal cars: a lighter weight BethGon
Coalporter-Registered Trademark-
50
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and a new lightweight aluminum rapid discharge hopper car, the AutoFlood II-TM-.
Management of the Company believes that customer satisfaction is the key to
maintaining and expanding the Company's presence in the markets it serves, which
requires high quality manufacturing, timely product delivery and responsive
customer service.
DEVELOP NEW PRODUCTS AND EXTEND PRODUCT LINES. The Company continually
invests in developing new products and extending its product lines, many times
at the suggestion of, or in conjunction with, an existing or a potential
customer. Gunite has successfully introduced its lightweight brake drum, Gunite-
Lite-TM-, which has generated substantial interest and orders in the
marketplace. In addition, Bostrom is working with its OEM customers to develop a
new generation of seating systems for heavy-duty trucks. The Company's freight
car operations continue to introduce new aluminum coal car products and FCS was
established to offer customers rebuilding and repair services as well as
specialty freight car manufacturing.
PURSUE COST REDUCTIONS AND INCREASE OPERATING EFFICIENCY. The Company has
improved operating efficiencies in many of its businesses. Gunite, Brillion and
Bostrom have each increased profitability and capacity with little capital
investment through improved operating efficiency. Gunite and Brillion strive to
improve their operations by continually refining their manufacturing processes.
Bostrom recently undertook a program to increase profitability by substantially
increasing productivity, reducing production costs and improving customer
service. At the same time, JAC has reduced its operating costs and increased its
operational flexibility to enhance its ability to operate profitably even at
reduced volume levels. Examples of production efficiency initiatives undertaken
at JAC in 1996 include reducing the number of freight car erection lines,
reducing change-over times and inventories and implementing cellular
manufacturing concepts. Management of the Company is committed to continuous
improvement in operating efficiency to enhance the Company's ability to achieve
significant profitability at higher volume levels and increase its ability to
operate profitably at lower volume levels.
EXPAND AFTERMARKET PRESENCE. The Company has significantly expanded its
presence in the less cyclical, higher margin aftermarket. A substantial
percentage of both Gunite's and Bostrom's revenues are attributable to
aftermarket sales. Gunite has increased its market penetration in the
aftermarket and as a result has increased the percentage of its revenues
attributable to aftermarket sales from 26% for the year ended December 31, 1995
to 35% for the six months ended June 30, 1997. The Company has also expanded its
presence in rebuilding and repairing freight cars through the start-up of FCS in
1995. At FCS, the Company successfully rehabilitated a closed facility and
brought on-line a profitable provider of repair and rebuilding services and a
manufacturer of specialty freight cars for a minimum capital investment.
Further, JAC has and will continue to expand its presence in the high margin
service parts businesses related to its products. Notwithstanding the Company's
progress to date, the Company intends to continue to increase its presence in
the aftermarket and the service parts market.
INDUSTRY OVERVIEW
HEAVY-DUTY TRUCK INDUSTRY. Demand for the products supplied by Gunite and
Bostrom closely follows the demand for North American Class 8 trucks (trucks
with a gross axle weight in excess of 33,000 pounds). The North American Class 8
truck build increased consistently from 1992 through 1995 reaching a record
truck build of 246,000 in 1995. The North American truck build decreased to
191,500 in 1996, which despite the decline, represented the third largest Class
8 truck build ever. The North American Class 8 truck build in the first two
quarters of 1997 was 103,600 and is projected to be approximately 212,500 units
in 1997, 204,000 units in 1998 and 195,000 units in 1999. Management continues
to believe that a number of factors will promote demand for new Class 8 trucks,
including (i) continued growth in the demand for trucking services due to the
continued strong United States economy, (ii) a trend toward consolidation in the
trucking industry, (iii) the truck replacement cycle, (iv) new, more fuel
efficient truck offerings and (v) increasingly stringent safety and emission
standards. Further, management of the Company believes that the aftermarket will
remain strong during the next
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few years because the record number of Class 8 trucks built in the past five
years will continue to require replacement parts.
IRON FOUNDRY INDUSTRY. Management of the Company believes, based on
industry knowledge, that in recent years the traditionally fragmented U.S. iron
foundry industry has continued to consolidate and that many smaller iron
foundries have closed due to the increasing cost of complying with environmental
and other governmental regulations and their inability to satisfy the increasing
demand for higher quality, more complex castings. At the same time, management
of the Company believes, based on industry knowledge, that major automotive,
farm equipment and construction machinery manufacturers have continued to
outsource production of components in an effort to control inventory and labor
costs and address quality concerns. Management of the Company also believes that
stable, established, independent iron foundries, including Brillion, have
benefitted and, despite increased foundry capacity brought on line by
competitors during the past several years, will continue to benefit from
consolidation and outsourcing trends.
FREIGHT CAR INDUSTRY. The freight car market is cyclical in nature. From
1993 through 1995, new car deliveries totaled 35,239, 53,281 and 60,853,
respectively. In 1996, new car deliveries remained strong at 57,877 due to the
strong backlog in orders at the end of 1995. However, industrywide orders slowed
considerably in 1996 and industrywide year end backlog declined from 32,574 at
the end of 1995 to 17,508 at the end of 1996. New car orders declined more
dramatically since the end of 1995 for the primary markets served by JAC. For
example, the industrywide backlog for coal gondolas, JAC's most significant
market, declined from 1,784 at the end of 1995 to 320 at the end of 1996.
Industrywide deliveries of coal open hoppers declined from 6,214 in 1995 to
2,298 in 1996 and industrywide deliveries of intermodal cars declined from
10,536 in 1995 to 1,549 in 1996, with no backlog for intermodal cars at the end
of 1996. Management believes that this cyclical trough in demand for the types
of cars offered by JAC has begun to improve slightly. Industrywide backlog for
coal gondolas at the end of the second quarter of 1997 improved to 2,385 cars
from 320 at the end of 1996. The Company's backlog improved from 774 new and
rebuilt cars at the end of 1996 to 1,949 at the end of the second quarter of
1997. Management believes that while projected 1997 industrywide deliveries
(approximately 44,000) will be down significantly from 1996 (57,877) and while
industrywide backlog will likely remain consistent with the 17,508 backlog at
the end of 1996, the aluminum coal car markets will likely see continued gradual
improvement through the remainder of 1997 and through 1998. According to WEFA,
industrywide deliveries for new aluminum coal gondolas are expected to gradually
increase from 3,000 in 1997 to over 5,000 by 1999. In addition, the industry
forecast anticipates gradual improvement in the aluminum coal open hopper market
with estimated annual deliveries increasing from 4,000 in 1997 to 5,000 in 2001.
The Company is also being adversely affected by intense pricing pressures
currently present in a freight car market characterized by depressed demand and
production overcapacity. Although the freight car industry does not report
freight car rebuilding activity, management believes, based on its knowledge of
the historical market for freight car rebuilding and industry data regarding the
average age of freight cars in service, that a relatively stable market for
freight car rebuilding exists.
CORPORATE HISTORY OF THE COMPANY
The Company and JAC were formed in 1991 by an investor group led by Thomas
M. Begel, the Chairman, President and Chief Executive Officer of the Company, to
acquire substantially all of the assets of the Freight Car Division of
Bethlehem, a business started in 1901 in Johnstown, Pennsylvania. In July 1993,
the Company completed an initial public offering of its Common Stock. In January
1995, the Company acquired Bostrom for approximately $32 million. In 1995, the
Company, through FCS, acquired and refurbished a freight car rebuilding and
repair facility in Danville, Illinois for approximately $5 million, which
facility began operations in October 1995. In August 1995, the Company acquired
TCI, a holding company for Gunite, Brillion and Fabco, for approximately $266
million in cash, including the repayment of TCI's existing indebtedness.
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TRUCK COMPONENTS AND ASSEMBLIES OPERATIONS
FINANCIAL SUMMARY
The Company's truck components and assemblies subsidiaries reported net
sales of $237.0 million in 1996, or 42.7% of the Company's net sales; and $124.2
million and $141.4 million in the six months ended June 30, 1996 and 1997,
respectively, or 43.8% and 52.2%, respectively, of the Company's net sales. In
1995 (including the net sales of TCI for the period in 1995 prior to the
acquisition of TCI by the Company), the Company's truck components and
assemblies subsidiaries reported net sales of $275.8 million.
GUNITE
Gunite is the leading North American supplier of wheel-end components, such
as brake drums, disc wheel hubs, spoke wheels and rotors to OEMs in the
heavy-duty truck industry. Gunite also supplies such products to the aftermarket
as well as the medium-duty truck and trailer markets.
OEMs have increasingly stressed product quality, engineering capability and
customer service, as well as price, in awarding business to suppliers. Gunite
has distinguished itself among wheel-end component manufacturers by providing
its customers with dependable design and testing support and reliable customer
service. Gunite works closely with its customers' product design, marketing and
purchasing departments, including vendor quality certification personnel. Gunite
has received top quality awards from all of its major customers. Obtaining
quality awards is a competitive advantage because a manufacturer must first go
through the OEM's quality certification process before it can become a qualified
supplier.
MARKETS
The truck components industry in which Gunite competes is composed of two
primary markets: (i) the OEM market; and (ii) the vehicle maintenance and repair
sector, also called the replacement market or aftermarket. The OEM market served
by Gunite includes truck manufacturers such as Navistar, Freightliner, PACCAR,
Ford, Volvo GM and Mack Trucks. For the twelve months ended December 31, 1996
and the six months ended June 30, 1997, approximately 66% and 65%, respectively,
of Gunite's total net sales were to OEMs and the remainder were to the
aftermarket.
OEMs use independent suppliers for the production of most parts and
components. The use of independent suppliers, also known as outsourcing, is
largely a result of the ability of independent suppliers to design, engineer and
manufacture production parts and components at a more competitive cost than the
OEMs. Outsourcing also enables the OEMs to be more responsive to changes in the
marketplace and in technology and to reduce their capital investment. In
general, OEMs increasingly have turned to suppliers to design products, engineer
prototypes and manufacture parts and components for the life of their vehicles.
The OEMs also have sought to minimize the size of their supplier base in order
to improve quality, efficiency and their ability to manage their supplier
network. The success of suppliers in obtaining and maintaining supply
relationships has been a function of four factors: (i) consistent product
quality; (ii) competitive pricing; (iii) technical expertise; and (iv)
responsiveness to changes in the marketplace. The net effect of these changes
has been to increase the opportunities for, as well as the competitive pressures
faced by, independent suppliers to the OEM market.
Sales of Gunite's products to OEMs are affected, to a large extent, by
heavy-duty truck production volume which, in turn, is dependent on general
economic conditions. Historically, heavy-duty truck sales have been cyclical. In
general, Gunite's sales tend to follow the North American Class 8 truck build.
Gunite seeks to increase sales to the OEM market through the
"standardization" process. In this process, Gunite sales representatives call on
OEM purchasers and Gunite's engineers work with OEM engineering departments to
attempt to have Gunite products selected for the OEMs product lines as standard
equipment. Once a product is chosen as standard on a line of trucks, any order
of a truck in
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that line will come with the standard part unless the end-use customer specifies
a different type of product. If a different product is specified by an end-user,
the end-user is generally required to pay an additional fee to the OEM.
Selection of a Gunite product as standard on a line of trucks will generally
create a steady demand for that product. Because such demand is a derivative of
the sales of the particular truck line, being standard on certain lines may be
more advantageous than being standard on others. Gunite wheel-end components are
currently standard on certain Navistar, Freightliner, PACCAR, Ford and Mack
Truck lines.
Aftermarket customers include the service organizations of the OEMs, parts
manufacturers and distributors. Aftermarket sales principally consist of the
sale of brake drums. Sales of Gunite's products to the aftermarket historically
have been less adversely affected by general business conditions since vehicle
owners are more likely to repair vehicles than purchase new ones during
recessionary periods. Aftermarket sales, which are tied to the age of vehicles
in service and the need for replacement parts, have been increasing in recent
years due to Gunite's focus on the aftermarket and the fact that Gunite's
products are offered as standard on more trucks than any of its competitors'
products. Gunite's strategy is to increase sales to the aftermarket, where
margins are higher when compared to the OEM market, by capitalizing on its
reputation as a quality leader in the industry and continuing to focus on
customer service.
PRODUCTS
Gunite supplies the heavy- and medium-duty truck and trailer markets with a
full line of wheel-end components. These products are made by Gunite and
delivered to the customer either as component parts or in assemblies which have
been pre-balanced by Gunite. Gunite products are utilized in four basic systems:
(i) Disc Wheel Hub-and-Brake Drum; (ii) Spoke Wheel-and-Brake Drum; (iii) Spoke
Wheel-and-Brake Rotor; and (iv) Disc Wheel Hub-and-Brake Rotor. Generally, brake
drums and rotors are the braking devices that work with the vehicle's braking
system to stop the vehicle. Wheel hubs and spoke wheels are the connecting
pieces between the brake system and the axle and upon which the rim and tire are
mounted.
Gunite offers a full line of brake drums, rotors and slack adjusters for
Class 6, 7 and 8 trucks and trailers. The aftermarket opportunities in this
product line are substantial as all brake drums wear with use and eventually
need to be replaced. The timing of such replacement depends on the severity of
service.
Gunite manufactures a full line of spoke wheels and disc wheel hubs for
Class 6, 7 and 8 trucks and trailers. Truck builders have recently purchased a
greater percentage of disc wheel hubs in place of spoke wheels due to their
better performance characteristics and ease of maintenance. However, spoke
wheels are still popular for severe duty due to their higher strength.
Gunite's product line also includes finely-machined hubs and wheels for ABS,
which enhance vehicle safety and have been mandated for all new trucks with air
brakes, beginning in March 1997, and all new trailers with air brakes beginning
in March 1998. The production of ABS parts constitutes a value-added process,
and additional components and machining are required. As ABS becomes more
prevalent in the trucking industry, Gunite, through its production, engineering
and machining capabilities, is positioned to take advantage of increasing demand
for ABS.
In July 1994, Gunite introduced its new lightweight brake drum, the
Gunite-Lite-TM-, a product which Gunite did not previously produce. This product
has generated substantial customer interest because its reduced weight enables
carriers to increase load capacity for heavy-duty trucks where weight is a
critical issue. Commercial production of this product began in 1996.
In response to growing concerns by truck fleet operators over brake
adjustment, Gunite introduced its initial automatic slack adjuster product in
1984. Slack adjusters were mandated for all new trucks in October 1994. Gunite
believes it is presently the second largest supplier of automatic slack
adjusters to the heavy-duty trucking industry.
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CUSTOMERS
Gunite markets its wheel-end component and assembly products to more than
400 customers, including most of the major North American heavy- and medium-duty
truck and trailer manufacturers, relying on three account managers to service
OEMs and nine regional sales managers and a nationwide network of approximately
300 independent distributors to sell to the aftermarket.
Gunite has established close relationships with many of its larger
customers, many of whom have purchased wheel-end systems and components from
Gunite for more than 25 years. Gunite's top five OEM customers in 1996
represented approximately 64% of Gunite's total net sales in 1996, with sales to
Navistar accounting for approximately 29% of Gunite's total net sales in 1996.
Many truck manufacturers require quality certification of their supplies,
and Gunite undergoes periodic quality surveys by all of its major customers.
Gunite's commitment to quality, customer satisfaction and continuous improvement
is evidenced by its ISO 9000 and QS 9000 certifications. In addition, Gunite has
received numerous quality awards from its customers, including Ford Motor
Company's "Q1," Freightliner's "Master of Quality" and ISO 9000 equivalent,
PACCAR's "Supplier Quality Certification" and Volvo GM's ISO 9000 equivalent.
The primary criteria on which such quality certifications and awards are based
include quality of product, delivery performance, inventory control, operator
knowledge, condition of facility, receiving inspection of incoming materials,
record maintenance and retention and equipment gauge controls. Quality
certification requirements tend to limit the number of suppliers which can
compete in the safety intensive product lines manufactured by Gunite and to
benefit high-quality suppliers such as Gunite.
MANUFACTURING
Gunite has a fully integrated manufacturing operation that combines
high-quality castings from its Rockford, Illinois foundry and from Brillion and
machining capabilities at its Elkhart, Indiana facilities. Most of the
components produced by Gunite are high-volume products that are critical to the
safe operation of the vehicle. As a result, Gunite must combine efficient
production with comprehensive product testing. Implementation of statistical
process controls ("SPC") insures strict control of the manufacturing process and
is important in ensuring consistent quality.
The manufacturing process involves melting purchased scrap iron and steel,
adding various alloys, and pouring the molten metal into molds made of sand.
After the molten metal is poured into the molds, the castings cool, solidify and
are removed. Once the rough castings have been cleaned, they are transferred to
the Elkhart, Indiana plant for machining through a variety of automated plant
techniques. Both the casting and machining operations are subject to statistical
sampling and charting techniques. Other manufacturing processes include
painting, welding and assembly.
BOSTROM
Bostrom designs, manufactures and markets a full line of air suspension and
static seating systems primarily for the heavy-duty truck market.
MARKETS AND PRODUCTS
Bostrom is a leading manufacturer of seating systems for the heavy-duty
truck industry. Bostrom's products are sold primarily to the OEM heavy-duty
truck market as well as to the aftermarket. Bostrom also supplies its line of
seating systems to the medium-duty truck markets. Bostrom's seats are offered as
standard or as an option by all major North American heavy-duty truck
manufacturers.
CUSTOMERS
Bostrom's customers include all of the major North American heavy-duty truck
manufacturers. Bostrom's top five customers accounted for approximately 83% of
Bostrom's 1996 net sales, with
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Navistar accounting for approximately 31% of such sales, including both OEM and
aftermarket sales. Effective October 1, 1997, Bostrom's seats will no longer be
offered as the standard seat system on Navistar trucks. Navistar's customers
may, however, select Bostrom's seats as an optional configuration. Additionally,
Bostrom will continue to sell seats through Navistar to the aftermarket. The
Company believes that, while Bostrom will experience a reduction in Navistar OEM
sales, Bostrom will not experience a material adverse effect on its results of
operations due to an increase in replacement sales to other customers,
particularly to the aftermarket, at significantly greater margins. For each of
the twelve months ended December 31, 1996 and the six months ended June 30,
1997, approximately 80% of Bostrom's total net sales were to OEMs and the
remainder were to the aftermarket.
MANUFACTURING
Bostrom's manufacturing facility is located in Piedmont, Alabama. For
several of its leading OEM customers, Bostrom ships its seats to line-setting
facilities which it has established near the OEMs' plants to provide
just-in-time inventory of seats to the assembly line in the order that the seats
will be used.
FABCO
Fabco designs, manufactures and markets steerable drive axles, gear boxes
and related parts for the North American on/off-road heavy- and medium-duty
truck markets.
MARKETS
Fabco's products are sold primarily to the OEM market for use in the
construction, military, mining and municipal service markets. Fabco's axles and
gear boxes are offered as standard or as an option by all major North American
heavy-duty truck manufacturers, and Fabco is a leading supplier of these items
in the North American heavy-duty truck market.
PRODUCTS
Fabco supplies a full line of steerable drive axles for the North American
on/off-road heavy- and medium-duty truck and specialty vehicle markets. Fabco's
drive axles are rated at capacities ranging from 12,000 to 23,000 pounds to
serve Class 6, 7 and 8 trucks. End users of Fabco's axles require ease of
steering and high speed driving for on-highway use while demanding
maneuverability and functionality for off-highway use. Fabco's axles are
designed to increase durability and maintenance accessibility. Fabco believes
that the ease of operating and servicing Fabco's products are competitive
advantages that lead to ongoing demand for steerable drive axles.
Fabco also manufactures a wide range of heavy- and medium-duty gear boxes.
Gear boxes are used by vehicles that operate auxiliary equipment in the
construction, oil and gas field services and utility industries, among others.
Fabco also sells its products in the aftermarket. It supplies replacement
parts for all of its products to OEMs and, in some cases, directly to end users.
Service parts are shipped directly from Fabco's plant in Oakland, California to
any domestic or international location directed by the customer. Fabco's quick
turnaround of parts orders minimizes the need for its customers to maintain
their own parts inventory.
CUSTOMERS
Fabco's customers include most of the major North American on/off road
heavy- and medium-duty truck and specialty vehicle manufacturers. The majority
of Fabco's sales are made to OEM customers with which it enjoys relationships of
over 25 years. Sales during 1996 to Fabco's five largest customers accounted for
approximately 85% of Fabco's total net sales, with Navistar accounting for
approximately 47% of such sales.
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MANUFACTURING
Fabco has gained a positive reputation for its engineering capabilities in
designing and manufacturing its products for the on/off road heavy- and
medium-duty truck and specialty vehicle markets. The Company believes that Fabco
is the only manufacturer which has products that are standard or available as an
option on all major OEMs Class 6, 7 and 8 all-wheel drive truck models produced
for the commercial truck market, and that, as a result, Fabco's broad range of
adaptable products are considered the industry standard due to the variety of
their configurations and tolerances. Fabco believes that the technical
backgrounds of its sales and marketing employees contribute to the successful
marketing of Fabco's products to the heavy-duty vehicle manufacturers.
IRON CASTINGS OPERATIONS
FINANCIAL SUMMARY
Excluding intercompany sales, the Company's iron casting operations reported
net sales of $125.1 million in 1996, or 22.5% of the Company's net sales; and
$64.5 million and $69.0 million in the six months ended June 30, 1996 and 1997,
respectively, or 22.7% and 25.5%, respectively, of the Company's net sales. In
1995 (including the net sales of TCI for the period in 1995 prior to the
acquisition of TCI by the Company), the Company's iron casting operations
reported net sales of $132.1 million.
BRILLION
Brillion operates one of the nation's largest job casting iron foundries,
producing a wide variety of high-quality, complex iron castings for
transportation-related and a wide variety of other markets. Sales to the heavy-
and medium-duty truck and trailer industries accounted for approximately 33% of
Brillion's sales (including sales to Gunite) in 1996, while sales to the
automotive industry accounted for approximately 11% of Brillion's sales in 1996.
Brillion also designs, manufactures and markets a range of farm equipment
products for the "behind-the-tractor" market. These pulverizers, seeders,
mulchers, deep tillers and cultivators are marketed nationally under the
Brillion trade name through a nationwide network of 1,050 farm implement dealers
and distributors.
MARKETS
Brillion markets its products on a job-by-job basis to the truck, automotive
and equipment industries. Brillion is one of the leaders in ductile iron
technology, such as complex, thin wall and near net shape castings, in the
markets it serves. In addition to being easily machinable and wear-resistant,
ductile iron has greater strength (an important factor for customers who desire
a lighter finished product) and elasticity than gray iron. As a result of these
superior properties, management expects the demand for ductile iron castings to
increase. This shift towards ductile iron products may replace other products
(such as lighter weight aluminum products) that gray iron products could not
replace. Gray iron, the oldest and most widely used cast iron, is readily formed
into intricate shapes which are easily machinable and wear-resistant. For the
year 1996, ductile iron castings represented approximately 60% of Brillion's
foundry's total tons sold, while gray iron represented the balance.
PRODUCTS
As illustrated in the table below, Brillion produces a broad range of gray
and ductile iron castings used in the manufacture of components for the
trucking, automotive and a variety of light and heavy equipment industries.
Currently, Brillion utilizes over 3,700 patterns to produce castings that range
in weight from one pound to nearly 350 pounds, with the majority below 100
pounds. Castings are made to
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the specific requirements of each customer. The customer consults with Brillion
to specify such important considerations as physical properties, surface finish,
dimensional accuracy and methods of inspection for each casting.
FOUNDRY PRODUCTS
<TABLE>
<S> <C>
* Automotive and Truck Brackets * Hydraulic-Valve Bodies
* Bearing Caps * Manifolds
* Brake Calipers and Adapters * Pressure Plates
* Clutch Housings * Small Engine Camshafts and Crankshafts
* Farm Machinery Castings * Steering Housings
* Flywheel Housings * Transmission Cases
* Flywheels * Wheel Hubs
</TABLE>
Brillion markets its castings, directly and indirectly, to OEMs in various
industrial markets. The table below provides a list of representative end
products in which Brillion's castings are used.
END PRODUCTS IN WHICH BRILLION CASTINGS ARE USED
<TABLE>
<S> <C>
* Air-Cooled Engines * Industrial Lift Trucks
* Automobiles and Light Trucks * Lawn and Garden Equipment
* Construction Equipment * Locomotive Engines
* Diesel Engines * Marine Engines
* Farm Equipment * Heavy- and Medium-Duty Trucks
* Fluid Power Pumps and Motors * Oil and Gas Field Machinery and Equipment
* Hardware * Pumps and Pumping Equipment
* High-speed Drives and Gears * Small Tools
* Home Shop Tools
</TABLE>
CUSTOMERS
Over 95% of Brillion's net foundry sales in 1996 were to existing customers,
with the balance coming from new customers. Once production begins on a product,
the same foundry will generally manufacture that product for the product's life
cycle.
Brillion has over 225 foundry customers, a majority of which are located in
the Midwest, East and Southeast. Brillion's top five unaffiliated customers
accounted for approximately 20% of Brillion's 1996 total net sales. Brillion
also serves as an important source of castings for Gunite, with sales to Gunite
representing approximately 12.6% of Brillion's total net sales in 1996. Brillion
works closely with customers in order to insure that castings meet all required
specifications, including machinability, dimensional accuracy and overall
quality. Brillion's engineers work with customers from concept to market with
respect to new products. Brillion's strategy is to focus on the market for
higher margin castings, as well as for products requiring new, innovative
castings designs. Unlike Gunite, Brillion's products are primarily designed by
its customers, and thus the product designs are proprietary to the customers.
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Brillion has enjoyed long-term, stable relationships with the majority of
its customers and is certified as a preferred supplier by most of its customers.
Brillion's quality system is certified to ISO 9000 and QS 9000 quality standards
and Brillion has received General Motors' "Targets for Excellence Award in
Quality, Management and Technology Disciplines," Caterpillar's "Certified
Supplier Status" and was approved by Ford's "Technical Service Capability
Survey." The primary criteria on which such quality certifications and awards
are based include quality of product, delivery performance, inventory control,
operator knowledge, condition of facility, receiving inspection of incoming
materials, record maintenance and retention and equipment gauge controls. A
quality certification is required by most sophisticated purchasers, thereby
enhancing the competitive advantage of suppliers like Brillion that have
achieved a quality certification.
MANUFACTURING
In general, Brillion's customers specify the properties of their castings,
such as hardness, strength and dimensions, and Brillion determines how best to
meet those specifications. Brillion engineers work with its customers to develop
an efficient manufacturing process. Brillion constantly tests and monitors the
manufacturing process in order to maintain the quality and consistency of its
castings. The manufacturing process involves melting iron (which has been
internally recycled), steel scrap and pig iron, adding various alloys and
pouring the molten metal into molds made primarily of sand. Most of the castings
manufactured by Brillion must meet strict dimensional control requirements
specified by its customers. As a result, Brillion uses SPC in every phase of the
production process, and all employees are given extensive SPC training. The
Company believes that Brillion has the most advanced core capabilities in the
industry, allowing for efficient and environmentally superior core processes
that are necessary for the production of quality, complex thin-wall and lighter
weight products. Production lines are designed to accommodate a wide variety of
products and volumes. In addition, Brillion's multiple production lines provide
flexibility to move production from line to line to meet customer scheduling
changes and requirements.
FREIGHT CAR OPERATIONS
FINANCIAL SUMMARY
The Company's freight car operations reported manufacturing net sales of
$490.4 million and $193.3 million in 1995 and 1996, respectively, or 73.6% and
34.8%, respectively, of the Company's net sales; and $94.9 million and $60.6
million in the six months ended June 30, 1996 and 1997, respectively, or 33.5%
and 22.4%, respectively, of the Company's net sales. JAIX Leasing reported
leasing revenues of $2.6 million and $4.5 million in 1995 and 1996,
respectively, or 0.4% and 0.8%, respectively, of the Company's net sales; and
$2.0 million and $2.9 million in the six months ended June 30, 1996 and 1997,
respectively, or 0.7% and 1.1%, respectively, of the Company's net sales.
GENERAL
The Company, through its subsidiary JAC, is a leading manufacturer of
railroad freight cars used principally for hauling coal. JAC also offers
aluminum covered hoppers for the grain hauling market and intermodal freight
cars, which it has manufactured in the past and has the capability to produce in
response to future market demand. As part of its full-service business strategy,
the Company recently formed FCS and JAIX Leasing. FCS participates in the
freight car repair and rebuilding market and manufactures new freight cars for
specialty markets. JAIX Leasing offers its customers freight car leasing
alternatives.
The North American freight car market in the first half of the 1990's was
characterized by relatively strong demand. New car orders, however, slowed
considerably in 1996 and industrywide backlog at the end of 1996 declined
dramatically from previous year ends. New car orders declined even more
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dramatically in JAC's primary market, coal gondolas. Although management
believes that its primary aluminum coal freight car market has begun to improve
slightly, no assurance can be given that such increased demand will continue.
The Company is also being adversely affected by intense pricing pressures
currently present in a freight car market characterized by depressed demand and
production overcapacity.
PRODUCTS AND SERVICES
The Company participates in the following freight car market segments: new
car manufacturing; rebuilds, repairs and modifications; sales of freight car
kits and parts; and freight car leasing.
NEW CAR MANUFACTURING. The Company's freight car operations offer a range
of car types in an effort to take advantage of industry trends and market
opportunities, particularly in the development of aluminum freight cars used in
the shipment of bulk commodities. The Company's freight car operations
manufacture the following types of freight cars:
GONDOLAS. The BethGon Coalporter-Registered Trademark- is a patented
twin tub car designed for the coal and utility industries. The BethGon was
designed to carry more coal with greater stability and remains the dominant
type of car for hauling coal, particularly for hauling low-sulfur coal from
the western United States. Although the BethGon is made in either steel or
aluminum, most of the BethGons delivered in the last few years have been
made of aluminum. In 1994, a new smooth-sided Aeroflo Aluminum BethGon was
introduced which offers carriers both fuel savings and added cubic carrying
capacity. In 1996, a new lighter weight BethGon was introduced which weighs
approximately 3,500 pounds less than a standard BethGon, thereby enabling
the car to carry significantly more coal per trip. This new car has been
well received in the marketplace.
OPEN HOPPERS. To expand its product line to service the entire coal
market, the Company's freight car operations began manufacturing aluminum
open hoppers in 1994. The Company's freight car operations have the
capability to produce both aluminum and steel open hoppers and recently
developed and introduced an aluminum rapid discharge coal car (the AutoFlood
II-TM-) that provides 18 tons more capacity per load than conventional steel
automatic discharge freight cars. The aluminum AutoFlood II-TM- coal car,
with its patented automatic discharge system providing a more efficient
method for the rapid discharge of coal, is being well received in the
marketplace. The Company's freight car operations have been manufacturing an
increasing quantity of open hopper cars, which has resulted in such cars
representing a larger share of its product mix, and the Company believes
that demand for such cars will continue to cause such cars to represent a
greater share of its product mix in the future.
COVERED HOPPERS. Covered hopper cars are used to haul agricultural,
chemical and mineral products. In 1994, the Company's freight car operations
introduced the Grainporter 2000-TM-, the first aluminum covered hopper car
in its size range available in high volume production, that is designed
primarily for high volume transportation of grain. The Company's freight car
operations' first commercial production of the Grainporter 2000-TM- began in
1995.
INTERMODAL CARS. Intermodal cars are primarily used for moving
intermodal containers and trailers. As a result of a substantial build-up of
intermodal cars in the early 1990s, the market for intermodal cars began
declining in 1995 and continued to decline in 1996. As a result, there were
no sales by JAC of intermodal cars in 1996 and no sales are expected in
1997. Moreover, the mix of intermodal freight cars expected to be delivered
by the freight car industry in the foreseeable future has predominantly
shifted towards deep well car designs that JAC does not manufacture. JAC has
retained the capability, however, to manufacture articulated intermodal cars
to meet any customer demand that may arise in the future.
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SPECIALTY CARS. The Company's freight car operations manufacture other
cars for the special needs of a particular industry or customer, including a
mill gondola car, which is used to haul steel slabs, coils or scrap, an open
hopper or gondola wood chip car, which is used to haul wood chips, a waste
hauling car, which is used to haul municipal and industrial waste, and an
ore car, which is used by railroads to transport taconite pellets and iron
ore.
REBUILDS, MODIFICATIONS AND REPAIRS. Freight cars generally have a useful
life of 25 to 30 years and are typically rebuilt once between 15 and 20 years
after initial manufacture to extend their life. To pursue what it believes to be
growing opportunities to service the aging North American freight car fleet, and
further expand its presence in the generally fragmented market for freight car
rebuilding, maintenance and repair, FCS purchased a freight car repair and
rebuilding facility in Danville, Illinois in January 1995. Operations at this
new facility, which is strategically located in the Midwest, commenced in
October of 1995. FCS performs total rebuilds, modifications and repairs of used
freight cars and manufactures certain of the specialty cars described above.
CAR KITS AND PARTS. JAC sells kits containing the parts necessary to build
(or rebuild) a particular car to rebuilders, including FCS, and others such as
railroads with car building but not fabrication capability. JAC also markets a
variety of fabricated parts to freight car rebuilders who do not have
fabrication capabilities.
LEASING. To meet the needs of its customers, the Company entered the
freight car leasing business in 1994. Through JAIX Leasing, the Company provides
operating lease alternatives to customers on new and rebuilt cars. The leases
generally have terms ranging from three to five years, but may be shorter or
longer in certain cases, and may include various purchase and other termination
options. As of June 30, 1997, JAIX Leasing had a fleet of 1,526 leased freight
cars, substantially all of which were manufactured by JAC and FCS, which it
leases to customers of the Company. Of these leased freight cars, 595 are owned
by JAIX Leasing, representing a total investment of approximately $37.7 million,
$29.8 million of which was provided through borrowings by JAIX Leasing that are
non-recourse to the Company, and the remainder are leased by JAIX Leasing. From
time to time, JAIX Leasing purchases cars from its affiliates, JAC and FCS, at a
price estimated by management to be equivalent to that payable on an arm's
length basis. Any intercompany profits earned by such affiliates are eliminated
on consolidation and the amount paid by JAIX Leasing is recorded as a leasing
business asset addition.
MANUFACTURING
The Company's manufacturing operations are conducted primarily through two
JAC facilities located in Johnstown, Pennsylvania, and FCS's facility located in
Danville, Illinois. The Company has undertaken a number of initiatives at JAC's
facilities to reduce production costs and make production processes more
efficient. The Company has reduced the number of freight car erection lines at
JAC's facilities during 1996 as demand for freight cars declined. In addition,
the Company has focused on making its JAC manufacturing facilities and processes
more flexible while at the same time reducing change-over times and inventories
and improving product quality. Many of these improvements were developed by
involving the participation of manufacturing employees, management and
customers. JAC has implemented cellular manufacturing concepts, whereby various
manufacturing steps are accomplished in one location within the facility, to
eliminate unnecessary movement of parts within the facility, improve production
rates and reduce inventories. These improvements are intended to provide JAC
with increased flexibility in scheduling the production of orders and to
minimize down-time resulting from car type change-overs, thereby increasing the
efficiency of its manufacturing operations. JAC's facilities are configured to
manufacture aluminum coal cars, aluminum covered hoppers and intermodal cars.
FCS rebuilds and repairs a variety of freight cars, as well as manufactures
various new specialty freight cars.
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CUSTOMERS
The Company has maintained long-term relationships with major purchasers of
freight cars. Long-term customers are particularly important in the freight car
industry given the limited number of buyers and sellers of freight cars. Such
customers include railroads, utilities, grain shippers, leasing companies and
major construction and industrial companies.
The large average size of orders often results in a small number of
customers representing a significant portion of JAC's revenues in a given year.
In 1996, the top five customers accounted for approximately 52% of the Company's
revenues from its freight car operations.
GENERAL
COMPETITION
The Company operates in highly competitive markets. No single manufacturer
competes with respect to all products manufactured and sold by the Company in
the heavy-duty truck market, and the degree of competition varies with different
products. In this market the Company competes on the basis of price, its
manufacturing and distribution capabilities and product quality. Gunite's
primary competitors in the wheel-end component market for Class 6, 7 and 8
trucks and trailers are Dayton Walther Corporation and Webb Wheel Products.
Bostrom's principal competitors include National Seating, Sears Manufacturing
and Seats, Inc. as well as a number of smaller seating manufacturers. Fabco's
primary competitor in the steerable drive axle market for the on/off-road heavy-
and medium-duty truck and specialty vehicles is Rockwell Corporation.
Brillion's major competitors include 10 to 12 foundries operating in the
Midwest and Southern regions, including Waupaca Foundry, Inc., Grede Foundries,
Inc., Western Foundry, Neenah Foundry Company, Intermet Corporation and Citation
Corporation.
Competition in the freight car manufacturing business is based on type of
product, reputation for quality, price, reliability of delivery and customer
service and support. The Company's freight car operation's principal competitors
in this segment are Trinity Industries, Inc. ("Trinity"), Thrall Car
Manufacturing Co. and Gunderson Inc. Although there are presently seven freight
car manufacturers in North America, two of the seven manufacture only tank cars
and plastic pellet cars, market segments in which the Company does not currently
participate. Only Trinity competes in all of the Company's freight car market
segments. Although JAC is engaged in a lawsuit against Trinity for infringement
of its BethGon Coalporter-Registered Trademark- patent, Trinity has competed and
may continue to compete with JAC in the sale of coal gondolas. See "--Legal
Proceedings."
BACKLOG
Due to short production turnaround times from order to delivery resulting
from the just-in-time inventory systems utilized by many of its customers, the
Company's truck components and castings operations do not normally carry a
material amount of backlog orders. A number of the Company's sales contracts in
this segment are made pursuant to purchase orders and releases which are subject
to change or cancellation by the customer.
As of June 30, 1997, freight car operations had a backlog of firm orders for
1,949 new and rebuilt freight cars with an aggregate sales price of
approximately $98.5 million, as compared to a backlog of firm orders for 774 new
and rebuilt freight cars with an aggregate sales price of approximately $35
million as of December 31, 1996. Due to the large size of freight car orders and
variations in the mix of freight cars, the size of the Company's freight car
operation's backlog at the end of any given period may fluctuate significantly.
The increase in backlog from December 31, 1996 to June 30, 1997 reflects a
modest increase in industry orders for car types produced by the freight car
operations, such as coal cars. The Company had no sales of intermodal cars in
1996 and does not expect to make any sales of
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intermodal and other flat cars in 1997 and, as a result, has focused its product
development and marketing efforts on gondolas, open hopper cars and covered
hopper cars.
SUPPLIERS AND RAW MATERIALS
The major raw material for the Company's Gunite and Brillion foundry
operations is steel scrap, which is purchased from various sources. The Company
has no long-term contractual commitments with any scrap suppliers, and does not
anticipate any difficulty in obtaining scrap because of the large number of
potential suppliers and its position as a major purchaser. Increases in steel
scrap prices are passed through to customers by means of a fluctuating
surcharge, which is calculated and adjusted on a monthly or quarterly basis.
Other major raw materials, such as silicon sand, binders, sand additives and
coated sand, are purchased from multiple sources. Electricity, coke and natural
gas, the primary energy sources for melting operations, are in adequate supply
and reasonably priced.
Bostrom purchases a variety of components, including seat cushion foam,
springs, shock absorbers, air valves and recliners, and raw materials, including
steel and fabric, from a number of suppliers. Fabco purchases a variety of
components, including bearings, gears, axles and castings, from several
suppliers. Although there is a limited number of suppliers for certain of
Bostrom's and Fabco's components, the Company believes that neither Bostrom nor
Fabco is dependent on any single supplier because adequate alternative sources
exist.
Between 70% and 80% of a freight car's costs relate to purchased specialty
components such as wheels, axles and brakes and raw materials such as aluminum
and steel. Costs for specialty components and raw materials generally are fixed
at the time a freight car order is accepted.
PROPERTIES AND FACILITIES
The Company's headquarters are located in leased offices in Chicago,
Illinois. The following table provides a summary description of the Company's
other principal facilities.
<TABLE>
<CAPTION>
OWNED/ COVERED SPACE
FACILITIES BUSINESS FUNCTION LEASED SQ. FT.
- ----------------------- ------------------------------------------------------------- --------- ---------------
<S> <C> <C> <C>
GUNITE
Rockford, Illinois Administrative Offices: Specialty Foundry, Aftermarket Owned 619,000
Distribution Warehouse
Elkhart, Indiana (Plant Machining--Wheel-End Components Owned 258,000
1)
Elkhart, Indiana (Plant Machining and Assembling--Automatic Slack Adjusters Leased 115,000
2)
BOSTROM
Piedmont, Alabama Manufacturing; Administrative Offices Leased 196,000
Portland, Oregon Line-set Facility Leased 24,000
Charlotte, North Line-set Facility Leased 48,000
Carolina
Allentown, Pennsylvania Line-set Facility Leased 10,000
FABCO
Oakland, California Manufacturing; Warehouse; Administrative Offices Owned 65,000
BRILLION(1)
Plant I Melting; Molding; Administrative Offices Leased 180,000
Plant II Melting; Molding Leased 165,000
Plant III Farm Machinery Owned 150,000
Plant IV Finishing; Shipping Leased 85,000
</TABLE>
(1) All Brillion facilities are located in Brillion, Wisconsin.
<TABLE>
<S> <C> <C> <C>
JAC(2)
Shell Plant Freight car erection and fabrication Owned 153,000
Franklin Plant Freight car erection and fabrication Owned 619,000
Offices Administrative Offices Owned 87,000
</TABLE>
(2) All JAC facilities are located in Johnstown, Pennsylvania.
<TABLE>
<S> <C> <C> <C>
FCS
Danville, Illinois Freight car rebuild and repair Owned 297,000
</TABLE>
The Company believes that its facilities and equipment are in good condition
and, together with scheduled capital improvements, are adequate for its present
and immediately projected needs.
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LABOR RELATIONS AND EMPLOYEES
At December 31, 1996, the Company had approximately 3,300 employees. Of
these, approximately 650 are salaried employees and the balance are paid on an
hourly basis. Approximately 2,260 or about 68% of all employees, are members of
unions. The Company has collective bargaining agreements with several unions
including the United Steelworkers of America, the United Autoworkers, the
Brotherhood of Teamsters, the United Paperworkers International Union, the
Patternmakers League of North America and the International Association of
Machinists. Each of the Company's unionized facilities has a separate contract
with the union which represents the workers employed at such facility. Such
contracts expire at various times over the next several years. While the Company
considers its relations with its employees to be good at each of the Company's
subsidiaries other than JAC and fair at JAC, there can be no assurance that the
Company will reach new agreements upon expiration of such union contracts or
that the failure to reach new agreements will not have a material adverse effect
on the financial condition or results of operations of the Company.
JAC's current three-year agreement with the United Steelworkers of America
is scheduled to expire on October 31, 1997. This agreement was negotiated in a
period characterized by strong demand for freight cars and significant
industrywide backlog. In light of current depressed market conditions and the
weak operating performance of JAC, the Company will seek a mutually satisfactory
agreement to enable JAC to improve its competitiveness and help it return to
profitability. Although the Company believes it will be able to reach a new
agreement upon expiration of JAC's current agreement, no assurance can be given
that the Company will be able to reach a satisfactory agreement on a timely
basis. There can be no assurance that the failure to reach such an agreement on
a timely basis will not have a material adverse effect on the Company's
financial condition or results of operations.
REGULATION
The Federal Railroad Administration ("FRA") administers and enforces federal
laws and regulations relating to railroad safety. These regulations govern
equipment and safety compliance standards for freight cars and other rail
equipment used in interstate commerce. The Association of American Railroads
("AAR") also promulgates a wide variety of rules and regulations governing
safety and design of equipment, relationships among railroads with respect to
freight cars in interchange and other matters. The AAR also certifies freight
car buildings and component manufacturers that provide equipment for use on
railroads in the United States. New products generally must undergo AAR testing
and approval processes. As a result of these regulations, the Company must
maintain certain certifications with the AAR as a freight car manufacturer, and
products sold by the Company must meet AAR and FRA standards.
PATENTS AND TRADEMARKS
The Company has numerous United States and foreign patents and pending
applications, registered trademarks and trade names. While the existence of a
patent is prima facie evidence of its validity, the Company cannot assure that
any of its patents will not be challenged nor can it predict the outcome of any
such challenge. The Company is presently involved in litigation concerning its
patent on the BethGon Coalporter-Registered Trademark-. See "Legal Proceedings"
below.
LEGAL PROCEEDINGS
The Company is involved in certain threatened and pending legal proceedings
including worker's compensation claims arising out of the conduct of its
businesses. In the opinion of management, the ultimate outcome of such legal
proceedings will not have a material adverse effect on the financial condition
or results of operations of the Company.
In December 1992, JAC commenced a patent infringement lawsuit against
Trinity in the United States District Court for the Western District of
Pennsylvania alleging infringement of JAC's patent for its
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BethGon Coalporter-Registered Trademark- freight car. The suit involved
Trinity's manufacture, sale and offering for sale of its Aluminator II coal
freight car in competition with JAC's BethGon Coalporter-Registered Trademark-
freight car, the tubs of which are covered by JAC's patent. In such suit, JAC
seeks monetary damages and an injunction against Trinity to prohibit Trinity
from making, using, selling or offering for sale the Aluminator II. The lawsuit
was tried in 1996, and the United States District Court for the Western District
of Pennsylvania entered 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
appealed the case to the United States Court of Appeals for the Federal Circuit.
Following oral argument, the Court of Appeals for the Federal Circuit issued its
opinion dated May 28, 1997 in which the Court held that Trinity's Aluminator II
infringed JAC's patent, reversed the 1996 trial court judgment of
noninfringement and remanded the case back to the trial court for a
determination as to damages and for consideration of JAC's contention that
Trinity's infringement was willful. Following receipt of such opinion, JAC made
a motion to the trial court for a permanent injunction to prohibit Trinity from
making, selling or offering to sell its infringing Aluminator II until JAC's
patent expires in November 1999. Trinity thereafter petitioned the Court of
Appeals for a rehearing. The trial court temporarily denied JAC's motion for a
permanent injunction until the Court of Appeals decided Trinity's petition for
rehearing. The Court of Appeals issued its opinion dated July 30, 1997 and Order
dated August 11, 1997 denying Trinity's petition for rehearing and Trinity's
suggestion for a rehearing in banc. Trinity thereafter made a motion to the
Court of Appeals to stay the issuance of its mandate pending Trinity filing a
petition for certiorari to the United States Supreme Court, which was denied by
the Court of Appeals on September 2, 1997, at which time the Court of Appeals
issued its mandate. In October 1997, Trinity made a motion for partial summary
judgment on damages to the District Court and filed its petition for certiorari
to the United States Supreme Court. JAC will file its responses shortly. JAC
expects the trial court to consider its motion for an injunction shortly. JAC
expects the damages trial to occur in late 1997 or early 1998 and at this time
cannot predict the amount of damages that may be awarded.
The Company may be subject to liability as a result of the disposal of
hazardous substances on and off the properties owned or operated by its
subsidiaries, including Brillion, Gunite and Fabco. TCI and Brillion filed suit
on May 25, 1994 against Beatrice and the Robins Group for certain causes of
action, including indemnification under purchase agreements. TCI added
Hunt-Wesson, Inc., a corporate successor to Beatrice that may be a successor to
Beatrice's liability in these matters, as a defendant on June 10, 1994. In
September 1997, TCI and Gunite entered into the Settlement which settled its
pending litigation against a prior owner of Gunite and pursuant to which TCI and
Gunite and the prior owner withdrew their claims against the other. As a result
of the Settlement, TCI and Gunite will not be responsible (through a contractual
undertaking by the former owner) for certain environmental liabilities and costs
resulting from Gunite's waste disposals prior to the acquisition of Gunite by
TCI in September 1987, including at the IPC, M.I.G./Dewane and Southeast
Rockford sites. See "Environmental Matters" below.
ENVIRONMENTAL MATTERS
COMPLIANCE MATTERS
The Company's subsidiaries are subject to comprehensive and frequently
changing federal, state and local environmental laws and regulations, including
those governing emissions of air pollutants, discharges of wastewater and storm
waters, and the disposal of non-hazardous and hazardous waste. Many of these
laws authorize the imposition of civil and criminal sanctions upon corporations
that fail to comply with the statutory or regulatory requirements. In 1994, 1995
and 1996, TCI's capital expenditures for compliance with environmental
requirements were approximately $1.4 million, $1.0 million and $0.4 million,
respectively. These figures do not include routine operational compliance costs,
such as the
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costs for the disposal of hazardous and non-hazardous solid waste, which were
approximately $3.1 million, $4.9 million and $4.1 million in 1994, 1995 and
1996, respectively. TCI's subsidiaries have budgeted $0.5 million for
environmentally related capital expenditures in 1997. The Company acquired its
Piedmont, Alabama and Danville, Illinois facilities in January 1995 and
therefore did not incur capital expenditures for compliance with environmental
requirements and for routine operational compliance costs, such as the costs for
the disposal of hazardous and non-hazardous solid waste, prior to 1995. The
Company's investigation of the Piedmont, Alabama and Danville, Illinois
facilities' historic capital expenditures and routine operational compliance
costs concluded that such expenditures and costs were not material. JAC's
capital expenditures for compliance with environmental requirements and for
routine operational compliance costs, such as the costs for the disposal of
hazardous and non-hazardous solid waste, for the facilities located in
Johnstown, Pennsylvania are not material. Other than for certain immaterial
expenditures, the Company's subsidiaries (other than TCI) have not budgeted
funds for capital expenditures in 1997 to comply with environmental laws.
Pursuant to a National Pollutant Discharge Elimination System ("NPDES")
permit, Gunite previously discharged noncontact cooling water from its Rockford
facility to a pond (the "Rockford Pond"), formerly owned by Gunite and by a
prior owner of Gunite that is adjacent to the Gunite plant. Gunite also
periodically had accidental, unpermitted discharges of process wastewater to the
Rockford Pond, which Gunite has reported to the Illinois Environmental
Protection Agency ("IEPA"). In addition, Gunite had not received express
authorization from the current or immediately preceding owner of the Rockford
Pond for any of the discharges. In order for Gunite to eliminate all discharges,
the City of Rockford obtained an easement to allow Gunite to construct a
conveyance that directs discharges of noncontact cooling water and storm water
from the Gunite facility to the Rock River, and the IEPA has issued a modified
NPDES permit to Gunite, substituting the Rock River as the outfall for Gunite's
discharge. The conveyance was completed in February 1995. The modified NPDES
permit contains a stringent limit for the discharge of total residual chlorine.
Gunite estimates that the capital cost for installing a treatment system
allowing its discharges to comply with this limit could exceed $0.2 million,
although Gunite is exploring a less expensive treatment system. Gunite has
appealed to the Illinois Pollution Control Board to remove or modify the
chlorine limit from the permit (GUNITE CORP. V. ILLINOIS ENVIRONMENTAL
PROTECTION AGENCY, PCB 94-382, filed December 12, 1994). The cost to Gunite of
constructing the conveyance to the river (not including any environmental
remediation costs that might be incurred in connection with historical
discharges to the Rockford Pond) was approximately $0.3 million.
The Wisconsin Department of Natural Resources ("WDNR") has notified Brillion
that it is deemed to be in compliance with the Wisconsin air toxics program,
pending a review of a compliance plan submitted by Brillion in September 1993,
although Brillion is currently exceeding Wisconsin air emissions limits for
benzene and other air toxic compounds. Brillion's submittal included a plan for
compliance with the emission limitations for arsenic, barium, cadmium and
formaldehyde, and a request for a variance with respect to its emissions of
benzene. The Company believes that compliance with Wisconsin's air toxics
regulations is an industrywide problem, and WDNR is developing compliance
standards for the industry as a whole. Although a recent state inspection found
Brillion to be in compliance with all Wisconsin air regulations, it is likely
that as Brillion continues its review of its operations, it will find that
certain of its emission sources will require further air pollution controls. In
addition, further controls may be required under Federal Clean Air Act
regulations that are scheduled to be promulgated in the year 2000.
The Company's subsidiaries' manufacturing plants are large and complex
facilities. The environmental regulations to which these facilities are subject
are numerous, complicated, often ambiguous and constantly changing. It is
possible, therefore, that in addition to the instances of noncompliance
discussed above, there are other areas in which the facilities are not currently
in compliance with environmental laws and regulations. The Company does not
currently believe that any such noncompliance is likely to have a material
adverse effect on the Company's business or financial results. However,
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there can be no guarantee that the Company will not be required to make
substantial additional expenditures to remain in or achieve compliance in the
future.
REMEDIATION MATTERS
In addition to environmental laws that regulate the Company's subsidiaries'
ongoing operations, the subsidiaries also are subject to environmental
remediation liability. Under CERCLA and analogous state laws, certain persons
may be liable as a result of the release or threatened release of hazardous
substances into the environment. Such persons include the current owner or
operator of property where such release or threatened releases have occurred,
any persons who owned or operated such property during the time hazardous
substances were disposed of at such property, and persons who arranged for the
disposal of hazardous substances at such property. Liability under CERCLA is
strict and, in most cases, joint and several, meaning that any responsible party
could be held liable for all of the costs incurred or to be incurred in
investigating and remediating a release or threatened release of hazardous
substances, although liability at most CERCLA (and similar) sites is shared
among all of the solvent PRPs. The liability of PRPs is typically determined by
the cost of the investigation and remediation, the amount and toxicity of
hazardous substances contributed by each PRP and the number of solvent PRPs.
Under CERCLA, sites may be listed for priority cleanup by being placed on
the National Priorities List ("NPL"). NPL sites are sites at which the federal
government may spend monies from the "Superfund" for long-term remediation and
then seek reimbursement from liable parties. A much more extensive list compiled
pursuant to CERCLA, known as the Comprehensive Environmental Response,
Compensation, and Liability Act Information System ("CERCLIS"), includes sites
that have been, or are to be, evaluated and "scored" by the EPA for possible
future inclusion on the NPL.
GUNITE. Gunite is a PRP at three NPL sites, the Interstate Pollution
Control ("IPC") site (which is adjacent to Gunite's Rockford facility), the
M.I.G./Dewane Landfill located in Boone County, Illinois, and the Southeast
Rockford Groundwater site located in Rockford, Illinois. Gunite's connection to
the IPC, M.I.G./Dewane and Southeast Rockford sites stem from activities that
took place prior to the acquisition of Gunite by TCI in 1987. Pursuant to the
Settlement, TCI and Gunite will not be responsible for liabilities and costs
related to these sites to the extent arising from Gunite's waste disposals prior
to the acquisition of Gunite by TCI in 1987.
As to the IPC site, the Company believes that the waste disposed of at the
IPC site was disposed of prior to the acquisition of Gunite by TCI in 1987 and,
as a result of the Settlement, TCI and Gunite will not be responsible for such
liabilities and costs.
As to the M.I.G./Dewane Landfill site, the Company believes that the waste
disposed of at the M.I.G./ Dewane Landfill site was disposed of prior to the
acquisition of Gunite by TCI in 1987 and, as a result of the Settlement, TCI and
Gunite will not be responsible for such liabilities and costs.
The EPA and the City of Rockford have reportedly incurred approximately $11
million in response costs to date in connection with the Southeast Rockford
Goundwater NPL Site, which is alleged to be down-gradient of the IPC site, but
which Gunite believes, based on data collected during the investigation of the
IPC site, is cross- or up-gradient. Although no formal demand has been made that
Gunite participate in the funding of the cleanup of this site, other than the
Ekberg Park area described below, it is possible that Gunite will be found to be
responsible for a portion of these costs, or be required to participate
financially in the cleanup through an industrial tax or other mechanism. In
1996, the City of Rockford demanded that Gunite pay $1 million in response costs
which the City allegedly has incurred at the site area 7, commonly known as the
Ekberg Park area, within the Southeast Rockford Groundwater NPL Site, based on
alleged trans-shipment of Gunite's waste to the Ekberg Park area. Gunite has
denied liability to the City. The Company believes that, to the extent any of
the alleged contamination at these sites is attributable to Gunite, such alleged
contamination would be attributable to operations of Gunite
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prior to the acquisition of Gunite by TCI in 1987 and, as a result of the
Settlement, TCI and Gunite will not be responsible for such liabilities and
costs.
Gunite also may be subject to liabilities at other NPL sites or other
locations as a result of its past disposal of hazardous substances.
As a result of historical operations at the Gunite plant in Rockford, there
are areas on-site that have been affected by the disposal or spillage of raw
materials or wastes. Gunite does not know at this time whether any cleanup or
remediation of such areas will be required by any state, local or federal
agency, although it is possible that such areas may be included in the IPC
remediation. The Company believes that, to the extent on-site remediation or
cleanup is required, most of the alleged contamination would be attributable to
operations of Gunite prior to the acquisition of Gunite by TCI in 1987 and, as a
result of the Settlement, TCI and Gunite will not be responsible for such
liabilities and costs.
BRILLION. Brillion is likely to incur investigation and/or remediation
costs in connection with two landfills that it used to dispose of foundry
wastes. These landfills are the Brillion Iron Works Landfill, where Brillion was
the operator and sole generator of waste from 1980 through 1989, and the
adjacent City of Brillion Landfill, where Brillion may be a significant
generator of waste. Brillion disposed of plant trash at the City landfill from
1970 to 1975 and also disposed of foundry wastes in this landfill from 1976 to
1980. Both of these landfills are on the CERCLIS and the Wisconsin Remedial
Response Site list, and both have been scored by the WDNR and both have been
listed on the State's Hazard Ranking List as being above the threshold for
potential State remedial action. Although it is not possible to predict the
exact timing or amount of the expenditures that will be made in future years to
remediate these sites, the Company expects that investigation and/or remediation
will be required and that such expenditures could be substantial.
Brillion has also disposed of foundry wastes at many other sites in the
Brillion area, a few of which are on the CERCLIS and the Wisconsin Remedial
Response Site list. It is possible that Brillion will incur remedial response
costs at some or all of these sites, although at this date, Brillion is not
aware of any action by federal or state regulators or private parties to
investigate or remediate any of these other sites.
In 1992, Brillion excavated two underground diesel fuel storage tanks which
were discovered to have leaked diesel fuel into surrounding soil as a result of
a 1978 spill. Brillion has removed approximately 300 cubic yards of contaminated
fill in connection with this incident. Although the WDNR initially indicated
that a deed restriction would be sufficient for managing this issue, Brillion
has not at this date been able to reach a satisfactory arrangement with the
owners of the Brillion property. Accordingly, Brillion expects to undertake
additional soil and groundwater analysis in connection with this matter.
As the Brillion facility has been in operation for many years, it is
possible that there are areas at this facility, other than the underground
storage tanks, that have been adversely affected by the handling of foundry
process materials and wastes. Brillion does not know at this time whether any
remediation of any such areas will be required by any state, local or federal
agency.
Brillion was the Robins Group (consisting of the Robins Family Trust, Karl
F. Gabler and First City Securities) entity that acquired a Beatrice subsidiary
(also named Brillion) from Beatrice in 1984. That purchase and sale agreement
obligates Beatrice to indemnify Brillion for any and all claims, liabilities,
losses and expenses resulting from loss of life, bodily injury or property
damage which arise out of accidents or injury-causing incidents occurring prior
to December 31, 1984, for which Brillion may be liable, regardless of when the
claims alleging such liability may be filed, but excluding obligations arising
from the design, formulation, manufacture or sale of a product prior to December
31, 1984. The Company believes that it has valid claims for indemnification
against Beatrice with respect to most of its disposal sites to the extent that
liabilities arise from incidents occurring prior to December 31, 1984. Beatrice
has disputed this interpretation and notified Brillion that it will not honor
any claims for indemnification (apart from one claim for breach of
representation made within two years after the sale). Brillion
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has also been notified by the Robins Group (which sold Brillion to TCI) that it
will not honor any claims for indemnification. On May 25, 1994, TCI and Brillion
filed suit against Beatrice and the Robins Group for recovery of costs expended
and for declaratory and injunctive relief with respect to various environmental
matters pursuant to the indemnification provisions of the respective stock
purchase agreements and other causes of action, including CERCLA (TRUCK
COMPONENTS INC., ET AL. V. BEATRICE COMPANY, ET AL., Northern District of
Illinois). On June 10, 1994, TCI and Brillion filed a first amended complaint in
this lawsuit to add Hunt-Wesson, Inc., a corporate successor of Beatrice that
may be a successor to Beatrice's liabilities in these matters. In 1996, the
district court entered judgment against Brillion, holding that Beatrice and the
Robins Group did not owe any indemnity for Brillion's expenses at the sites, and
that Brillion owed Karl F. Gabler $0.2 million pursuant to a 1987 indemnity
contract. Brillion has appealed this adverse judgment; the appellate court is
expected to rule on Brillion's appeal in late 1997. Given the adverse judgment
and the pending appeal therefrom, there can be no assurance concerning the
amounts, if any, that Brillion will be able to recover on its indemnity or other
claims against Beatrice or the Robins Group, nor any assurances as to the timing
of any such recoveries.
JAC. Pursuant to an indemnification agreement between JAC and Bethlehem,
Bethlehem conducted investigations and remediations at several areas of JAC's
plants in Johnstown, Pennsylvania. In addition, under the purchase agreement
with Bethlehem, Bethlehem has indemnified JAC against certain environmental
liabilities relating to periods prior to the acquisition in October 1991.
BOSTROM. Subsurface investigations at Bostrom's Piedmont, Alabama facility
detected low concentrations of certain contaminants in the soil in a limited
area around a formerly used waste water underground storage tank. The Alabama
Department of Environmental Management ("ADEM") requested that Bostrom install a
monitoring well to obtain monitoring results on a semi-annual basis for a two
year period. Bostrom installed the well in March 1995 and submitted semi-annual
monitoring results to ADEM through March 1997. It is not known what remediation,
if any, ADEM will require. In addition, Bostrom is a PRP at the Muskego Landfill
site in Wisconsin and the PRPs have signed an allocation agreement pursuant to
which Bostrom's allocated share of the costs are not material.
FREIGHT CAR SERVICES. FCS has reached an agreement in principle with its
adjacent property owner for each party to share in the costs of completing an
investigation and implementing a corrective action plan to remediate diesel fuel
contamination detected in the soil and groundwater on the affected properties
located in Danville, Illinois. The investigation and corrective action plan were
implemented on a voluntary basis and not pursuant to any regulatory requirement,
and FCS' share of the costs was not material.
POTENTIAL COSTS. As of June 30, 1997, based on all the information
currently available, the Company maintained its environmental reserve in the
amount of $26.1 million for estimated future costs related to potential
environmental investigation and remediation liabilities with respect to certain
currently known matters. Management of the Company established the environmental
reserve in connection with the August 1995 acquisition of TCI in consultation
with the Company's outside environmental consultants and legal and accounting
advisors. In assessing and ultimately approving the acquisition of TCI, the
Company's Board of Directors paid particular attention to environmental matters,
including the potential environmental reserve. The Audit Committee of the
Company's Board regularly meets with the Company's principal accounting officers
and its outside auditors to discuss significant accounting policies and issues,
including the adequacy of the environmental reserve. The Audit Committee's
findings are, in turn, reported to the entire Board.
As a result of the Settlement and following review by the Company's
management and environmental consultants, the Company's environmental reserve
was decreased in September 1997 by $14.3 million to $11.8 million. The
environmental reserve is principally related to potential remediation liability
at various off-site locations and, to a lesser degree, to potential remediation
liability at Gunite's, Rockford, Illinois, and Brillion's, Brillion, Wisconsin
manufacturing facilities. This non-cash reserve is based on
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current cost estimates and does not reduce estimated expenditures to net present
value. Further, the estimated reserve takes into consideration the number of
other PRPs at each site, the alleged volume of waste contributed by other PRPs
at each site, and the identity and financial position of such parties in light
of the joint and several nature of the liability, but it does not take into
account possible insurance coverage or other similar indemnification or
reimbursement other than the Settlement. Based upon all currently available
information, no reserve has been established with respect to potential
environmental obligations of JAC or Bostrom and an immaterial reserve has been
established at FCS. Because many of the matters described above, however, are at
the early stages in their respective investigations, there can be no assurance
that the amounts ultimately expended to address all of these matters or to
address other matters not yet known to be in existence will not exceed the
amounts allocated in the environmental reserve. Accordingly, it may be necessary
to establish additional reserves for environmental liabilities in the future.
Any cash expenditures required by the Company 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. Management
believes, based on its evaluation of the various matters described above,
including its experience with such matters to date, the time period over which
it believes costs for such matters are likely to be incurred by the Company, and
the existence of the various indemnifications described above, that any costs
the Company ultimately will incur for such matters are not reasonably likely to
have a material adverse effect on the Company's business or financial results.
However, given the early stage of many of the matters, there can be no assurance
that one or more of these matters (or matters which have not yet been
identified) will not have such an effect. The Company currently anticipates
spending approximately $0.4 million per year for the current year and the next
two years and $0.5 million per year in years 2000 and 2001 (reduced as a result
of the Settlement from $0.5 million per year for the current year and the next
two years and approximately $1 million per year in the years 2000 and 2001) for
monitoring the various environmental sites associated with the environmental
reserve, including attorney and consultant costs for strategic planning and
negotiations with regulators and other PRPs, and payment of remedial
investigation costs. The Company expects to fund such expenditures with the cash
flow generated from its operations and amounts available under its revolving
credit facility. These sites are generally in the early investigatory stages of
the remediation process and thus it is anticipated that significant cash
payments for remediation will not be incurred for at least several years. After
the evaluation and investigation period, the investigation and remediation costs
will likely increase because the actual remediation of the various environmental
sites associated with the environmental reserve will likely be under way. In
addition, it is possible that the timing of any necessary expenditures could be
accelerated.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information concerning the directors and
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------------------------
<S> <C> <C>
Thomas M. Begel.................... 54 Chairman of the Board, President and Chief Executive Officer of the
Company
Andrew M. Weller................... 50 Executive Vice President and Chief Financial Officer and Director of
the Company
David W. Riesmeyer................. 40 Vice President and Treasurer of the Company
Kenneth M. Tallering............... 35 Vice President, General Counsel and Secretary of the Company
James D. Cirar..................... 50 President and Chief Executive Officer of Johnstown America Corporation
and Senior Vice President of the Company
Thomas W. Cook..................... 60 President and Chief Executive Officer of Truck Components Inc.,
President--Gunite Corporation and Senior Vice President of the Company
Timothy A. Masek................... 33 President of Bostrom Seating, Inc. and Vice President-- Corporate
Development of the Company
John D. McClain.................... 53 President--Brillion Iron Works, Inc.
Mark A. Niemela.................... 62 President--Fabco Automotive Corporation
Edward J. Whalen................... 48 President of Freight Car Services, Inc. and JAIX Leasing Company and
Vice President of the Company
Camillo Santomero.................. 39 Director
R. Philip Silver................... 54 Director
Francis A. Stroble................. 66 Director
</TABLE>
THOMAS M. BEGEL, has served as President since October 1991 and as Chairman
of the Board and Chief Executive Officer since May 1993. He is also President
of, and a partner in, TMB Industries ("TMB"), an investment firm which is a
partnership between himself and Mr. Weller. Mr. Begel has served as a director
of Silgan Holdings Inc., a packaging company, since March 1997 and was a
director of Uniroyal Chemical Corporation from 1990 to 1996.
ANDREW M. WELLER, has served as Executive Vice President, Chief Financial
Officer and a Director of the Company since September 1994 and as Secretary from
March 1995 to November 1995. From April 1988 to September 1994, he was Vice
President and Treasurer of Bethlehem Steel Corporation and prior thereto held
various other positions with Bethlehem. He has also been Executive Vice
President of, and a partner in TMB since September 1994.
DAVID W. RIESMEYER, has served as Vice President and Treasurer since
September 1995 and previously as Treasurer and Controller of the Company since
March 1995. Mr. Riesmeyer served as Director of Financial Reporting and Planning
from January 1994 through March 1995. From 1991 to 1993, Mr. Riesmeyer was Vice
President of Corporate Development at the Park Corporation, a private label food
manufacturer, and from 1988 to August 1992, he was Vice President of Finance of
the Park Corporation.
KENNETH M. TALLERING, has served as Vice President, General Counsel and
Secretary of the Company since November 1995. From September 1987 to October
1995, Mr. Tallering was an attorney with the law firm of Skadden, Arps, Slate,
Meagher & Flom.
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JAMES D. CIRAR, has served as President and Chief Executive Officer of
Johnstown America Corporation since September 1995 and Senior Vice President of
the Company since July 1997. Prior to September 1995, Mr. Cirar was the Plant
Manager of the Truck and Bus Assembly Group of General Motors Corporation in
Flint, Michigan.
THOMAS W. COOK, has been the President and Chief Executive Officer of Truck
Components Inc. since May 1994 and President of Gunite Corporation since 1991.
Mr. Cook has been Senior Vice President of the Company since July 1997. He was
President and Chief Executive Officer of Redlaw Industries, Inc., a holding
company with interests in foundries, stamping plants and textile industries,
from 1986 to 1991. From 1967 to 1986, Mr. Cook was with ITT Grinnell
Corporation, a manufacturer and distributor of valves and related piping
products, where he became President in 1983.
TIMOTHY A. MASEK, has served as President of Bostrom Seating, Inc. since
June 1996 and as Vice President--Corporate Development of the Company since
December 1995. From September 1992 to December 1995, Mr. Masek performed
marketing and corporate development functions for the Company. Prior to
September 1992, Mr. Masek was a Market Analyst for the Transportation Equipment
Group of Bombardier Corporation, a railcar and aviation manufacturer.
JOHN D. MCCLAIN, joined Brillion Iron Works, Inc. as Manager of
Manufacturing in 1988 and was appointed Vice President of Manufacturing in 1989.
Mr. McClain was promoted to his present position of President in 1994. Prior to
joining Brillion, Mr. McClain held metallurgical and foundry manager positions
at Owens-Illinois, a manufacturer of glass containers and television pictures
tubes, Emerson Electric, a diverse manufacturing company producing power
transmission and electric motor components, pumps, valves and hand tools, and
Clow Valve Company, a manufacturer of waste and water system valves, fire
hydrants and fire protection system valves.
MARK A. NIEMELA, joined Fabco Automotive Corporation in 1966 as Production
Control Manager. He held the positions of Material Manager and Plant Manager
before his appointment to the position of General Manger in 1975 and was
appointed President in 1986.
EDWARD J. WHALEN, has served as President of JAIX Leasing Company since its
inception in December 1994 and as President of Freight Car Services, Inc. since
March 1995. Mr. Whalen has served as Vice President of the Company since January
1997. Mr. Whalen also served as Secretary of the Company from October 1991 until
March 1995, as Treasurer of the Company from May 1993 until March 1995 and as
Vice President of the Company from October 1991 until October 1995. From 1989 to
1991, he was a financial and rail car industry consultant.
CAMILLO SANTOMERO, has served as a Director of the Company since October
1991. Mr. Santomero has been a private investor and a Senior Consultant to Chase
Capital Partners (formerly Chemical Venture Partners) from January 1992 to the
present. From October 1988 to January 1992, he was a General Partner of Chase
Capital Partners.
R. PHILIP SILVER, has served as a Director of the Company since December
1993. Mr. Silver is Chairman of the Board of Silgan Holdings Inc., a packaging
company, and has been either Chairman of the Board or President and a Director
since 1988.
FRANCIS A. STROBLE, has served as a Director of the Company since December
1993. Mr. Stroble is a retired Senior Vice President and Chief Financial Officer
of Monsanto Company, a diversified chemical and agricultural producer, a
position he held from 1982 to 1994. He is also a Director of Merchantile
Bancorporation, Inc.
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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
Set forth below is a summary of the material provisions of certain
indebtedness of the Company.
THE ORIGINAL NOTES
In August 1995, the Company issued $100 million of 11 3/4% Senior
Subordinated Notes due 2005 with terms and conditions substantially identical to
the Notes.
SENIOR BANK FACILITIES
On August 23, 1995, the Company entered into the Senior Bank Facilities with
The Chase Manhattan Bank, as administrative agent and collateral agent, and the
lenders named therein. The net proceeds of the Old Notes Offering was used to
repay in full the outstanding indebtedness of the Tranche A Term Loans (as
defined below). Chase Securities Inc. has acted as advisor and arranger in
connection with the Senior Bank Facilities.
STRUCTURE. Prior to the Old Notes Offering, the Senior Bank Facilities
consisted of (a) a term loan facility with an initial aggregate principal amount
of $200 million (the "Term Loan Facility"), consisting of two tranches in equal
aggregate principal amounts (the "Tranche A Term Loans" and the "Tranche B Term
Loans") of which $80.0 million and $95.0 million were outstanding under the
Tranche A Term Loans and Tranche B Term Loans, respectively, (b) a revolving
credit facility providing for revolving loans (the "Revolving Loans") to the
Company and the issuance of U.S. dollar-denominated letters of credit for the
account of the Company in an aggregate principal amount (including the aggregate
stated amount of letters of credit and the aggregate reimbursement and other
obligations in respect thereof) at any time not to exceed the lesser of (i) $100
million and (ii) a borrowing base comprised of a percentage of eligible accounts
receivable and a percentage of eligible inventory of the Company and certain of
its subsidiaries (provided that not more than $35 million may be represented by
amounts in respect of letters of credit) (the "Revolving Facility") and (c) a
swingline facility under which the Company may make short-term borrowings of up
to $10 million (such borrowings to reduce availability under the Revolving
Facility).
In connection with the Old Notes Offering, the Tranche A Term Loans were
repaid in full and the Company amended the Credit Agreement to reduce the
Revolving Facility from $100.0 million to $75.0 million.
AVAILABILITY; PREPAYMENT. The availability of the Senior Bank Facilities is
subject to various conditions precedent typical of bank loans, including, among
other things, the absence of any material adverse change on the part of the
Company. The full amount of the Term Loan Facility was drawn in a single drawing
at the closing of the offering of the Original Notes and amounts repaid or
prepaid under the Term Loan Facility may not be reborrowed.
The Revolving Loans mature on March 31, 2002. The Tranche B Term Loans
mature on March 31, 2003. The loans under the Term Loan Facility amortize
quarterly. The Company must, substantially simultaneously with the receipt of
the Net Cash Proceeds (as defined in the Senior Bank Facilities) from the
issuance of the Notes, apply 100% of such Net Cash Proceeds to prepay
outstanding loans under the Term Loan Facility in accordance with the terms of
the Senior Bank Facilities.
The Company is required to make mandatory prepayments of the loans under the
Term Loan Facility at times and subject to exceptions agreed upon, in amounts
equal to (a) 75% of consolidated excess cash flow and (b) 100% of the net
proceeds of certain dispositions of assets or issuances of debt or equity of the
Company or any of its subsidiaries. In addition, the Company is required to
prepay loans under the Revolving Facility (and/or replace or cash collateralize
letters of credit thereunder) at any time that the aggregate amount of the loans
(including swingline loans) and letters of credit (including reimbursement
obligations) outstanding thereunder exceeds the then-current borrowing base. At
the
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Company's option, loans may be prepaid, and revolving credit commitments may be
permanently reduced, in whole or in part, at any time. Any prepayment of LIBOR
loans other than at the end of an interest period is subject to reimbursement of
any costs of the lenders associated with early termination of such loans.
As a result of the Old Notes Offering, the Company's principal payments
under the Tranche B Term Loans for the remainder of 1997 and for 1998, 1999,
2000, 2001, 2002 and 2003 will be $1.7 million, $3.3 million, $3.3 million,
$20.0 million, $23.3 million, $26.7 million and $16.7 million, respectively. See
"Use of Proceeds."
SECURITY; GUARANTY. The obligations of the Company under the Senior Bank
Facilities are unconditionally and irrevocably guaranteed, jointly and
severally, by each existing and each subsequently acquired or created domestic
subsidiary of the Company (other than JAIX Leasing). In addition, the Senior
Bank Facilities and the guarantees thereunder are secured by security interests
in and pledges of or liens on substantially all the tangible and intangible
assets of the Company and the guarantors, including pledges of all the capital
stock of, or other equity interests in, each direct or indirect domestic
subsidiary of the Company and 65% of the capital stock of, or other equity
interests in, each foreign subsidiary of the Company or of any guarantor.
INTEREST. At the Company's election, the interest rates per annum
applicable to the loans under the Senior Bank Facilities are 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") (equal to the highest of The Chase Manhattan Bank's published prime
rate, a certificate of deposit rate plus 1% and the Federal Funds effective rate
plus 1/2 of 1%) plus a borrowing margin. The borrowing margins applicable to
Revolving Loans range between 0.50% and 1.50% for ABR loans and between 1.50%
and 2.50% for LIBOR loans, fluctuating within each range in 0.25% increments if
the Company achieves or fails to achieve certain financial results. Amounts
under the Senior Bank Facilities not paid when due bear interest at a default
rate equal to 2.0% above the otherwise applicable rate.
The interest rate borrowing margins applicable to the Tranche B Term Loans
are currently 3.00% for LIBOR loans and 2.00% for ABR loans and are not subject
to increase or decrease based on the financial performance of the Company
FEES. The Company has agreed to pay certain fees with respect to the Senior
Bank Facilities, including (a) a per annum letter of credit fee on the aggregate
face amount of outstanding letters of credit equal to the interest rate spread
over adjusted LIBOR applicable to Revolving Loans from time to time, (b) a
fronting bank fee for the letter of credit issuing bank, (c) annual
administration fees and (iv) agent, arrangement and other similar fees. In
addition, the Company paid a fee in connection with the amendment of the Credit
Agreement and the reduction in the Revolving Facility from $100 million to $75
million.
COVENANTS. The Senior Bank Facilities contain a number of covenants that,
among other things, restrict the ability of the Company and its subsidiaries to
dispose of assets, incur additional indebtedness, incur guarantee obligations,
prepay other indebtedness or amend other debt instruments, pay dividends, create
liens on assets, enter into sale and leaseback transactions, make investments,
loans or advances, make acquisitions, engage in mergers or consolidations,
change the business conducted by the Company, make capital expenditures, or
engage in certain transactions with affiliates and otherwise restrict certain
corporate activities. In addition, under the Senior Bank Facilities the Company
is required to comply with specified financial ratios and tests, including
minimum interest coverage ratios, maximum leverage ratios, annual capital
expenditures limitations and net worth tests.
On December 31, 1995, December 31, 1996 and August 4, 1997, the Company
amended the total debt ratio, interest coverage ratio and net worth financial
covenants under the Credit Agreement to avoid anticipated future defaults and to
address changes in the Company's business, particularly the effect on the
Company's financial position and results of operation of losses at its freight
car subsidiary, JAC. The
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<PAGE>
Company is currently in compliance with all covenants under the Credit
Agreement. The banks also have consented to the issuance of the Notes. Covenant
modifications under the Credit Agreement include reductions of the minimum
consolidated net worth requirement and the minimum interest coverage ratio and
an increase in the total debt ratio. The amended minimum consolidated net worth
covenant specifies minimum consolidated net worth for each quarter during the
remaining period of the loans of $53 million plus 50% of the cumulative amount
of positive consolidated net income of the Company (excluding JAIX Leasing). The
amended interest coverage and total debt ratio covenants specify minimum
interest coverage ratios and maximum total debt ratios as set forth below:
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
REVISED INTEREST REVISED TOTAL
PERIOD ENDED COVERAGE RATIO DEBT RATIO
- --------------------------------------- ----------------- -------------------
<S> <C> <C>
9/30/97 1.30x 5.75x
12/31/97 1.30x 5.50x
3/31/98-6/30/98 1.35x 5.25x
9/30/98 1.40x 5.00x
12/31/98 1.50x 5.00x
3/31/99-12/31/99 1.50x 5.00x
3/31/00-12/31/00 1.50x 4.75x
3/31/01-12/31/01 1.50x 4.25x
3/31/02 and thereafter 1.75x 3.75x
</TABLE>
The Company's interest coverage and total debt ratios for the six months
ended June 30, 1997 was 1.51x and 5.29x, respectively. As of June 30, 1997, on a
pro forma basis after giving effect to the Old Notes Offering, the interest
coverage and total debt ratios would have been 1.43x and 5.34x, respectively.
The Senior Bank Facilities also contain provisions that prohibit any
modification of the Indentures in any manner adverse to the lenders under the
Senior Bank Facilities and that will limit the Company's ability to refinance
the Notes or the Original Notes without the consent of such lenders.
EVENTS OF DEFAULT. The Senior Bank Facilities contain customary events of
default including nonpayment of principal, interest or fees, violation of
covenants, inaccuracy of representations or warranties in any material respect,
cross default and cross acceleration to certain other indebtedness, bankruptcy,
material judgments and liabilities and change of control.
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DESCRIPTION OF EXCHANGE NOTES
GENERAL
Set forth below is a summary of the material provisions of the Exchange
Notes and the Old Notes (collectively referred to as, the "Notes"). The Exchange
Notes will be, and the Old Notes were, issued pursuant to an indenture (the
"Indenture") dated as of August 11, 1997 among the Company, each of the
Guarantor Subsidiaries and The Bank of New York, as trustee (the "Trustee"). The
terms of the Exchange Notes are the same in all respects (including principal
amount, interest rate, maturity, security and ranking) as the terms of the Old
Notes for which they may be exchanged pursuant to the Exchange Offer, except
that the Exchange Notes (i) are freely transferable by holders thereof (except
as provided below) and (ii) are not entitled to certain registration rights and
certain liquidated damages which are applicable to the Old Notes under the
Registration Rights Agreement. The Exchange Notes will be issued under the
Indenture governing the Old Notes.
The terms of the Indenture are also governed by certain provisions contained
in the Trust Indenture Act. Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in the section "Certain Definitions."
Wherever particular provisions of the Indenture are referred to in this summary,
such provisions are incorporated by reference as a part of the statements made
and such statements are qualified in their entirety by such reference.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially shall
be the corporate trust office of the Trustee, at 101 Barclay Street, New York,
New York 10286), except that, at the option of the Company, payment of interest
may be made by check mailed to the address of the Holders as such address
appears in the Note Register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
shall be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
TERMS OF THE NOTES
The Notes are unsecured senior subordinated obligations of the Company,
limited to $80 million aggregate principal amount, and will mature on August 15,
2005. Each Note will bear interest at 11 3/4% per annum from August 11, 1997, or
from the most recent date to which interest has been paid or provided for,
payable semiannually to Holders of record at the close of business on the
February 1 or August 1 immediately preceding the interest payment date on
February 15 and August 15 of each year, commencing February 15, 1998.
RATING
The Notes are currently rated a "B" by Standard & Poor's. Generally, rating
agencies base their ratings on information furnished to them by the issuing
company and on investigations, studies and assumptions by the rating agencies.
There is no assurance that any particular rating will continue for any given
period of time or that it will not be changed or withdrawn entirely if in the
judgment of the rating agency circumstances so warrant. Such ratings are not a
recommendation to buy, sell or hold securities.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in part,
at any time on or after August 15, 2000, and prior to maturity, upon not less
than 30 nor more than 60 days prior notice mailed by first-class mail to each
Holder's registered address, at the following redemption prices (expressed in
percentages of principal amount), plus accrued interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment
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date), if redeemed during the 12-month period commencing on or after August 15
of the years set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
- -------------------------------------------------------------------------- ------------------
<S> <C>
2000...................................................................... 105.875%
2001...................................................................... 103.917%
2002...................................................................... 101.958%
2003 and thereafter....................................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to August 15, 1998, the
Company may redeem in the aggregate up to 33 1/3% of the original aggregate
principal amount of Notes with the proceeds of one or more Public Equity
Offerings following which there is a Public Market, at a redemption price
(expressed as a percentage of principal amount) of 111.75% plus accrued interest
to the redemption date; provided, however, that at least 66 2/3% of the original
aggregate principal amount of the Notes must remain outstanding after each such
redemption.
Notwithstanding the preceding two paragraphs, the Company will not be
permitted to redeem the Original Notes unless, substantially concurrently with
such redemption, the Company redeems an aggregate principal amount of Notes
(rounded to the nearest integral multiple of $1,000) equal to the product of:
(1) a fraction, the numerator of which is the aggregate principal amount of
Original Notes to be so redeemed and the denominator of which is the aggregate
principal amount of Original Notes outstanding immediately prior to such
proposed redemption and (2) the aggregate principal amount of Notes outstanding
immediately prior to such proposed redemption. Similarly, the Company will not
be permitted to redeem the Notes unless, substantially concurrently with such
redemption, the Company redeems an aggregate principal amount of Original Notes
(rounded to the nearest integral multiple of $1,000) equal to the product of:
(1) a fraction, the numerator of which is the aggregate principal amount of
Notes to be so redeemed and the denominator of which is the aggregate principal
amount of Notes outstanding immediately prior to such proposed redemption and
(2) the aggregate principal amount of Original Notes outstanding immediately
prior to such proposed redemption.
SELECTION
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a pro rata basis, by lot or by such other method
as the Trustee in its sole discretion shall deem to be fair and appropriate,
although no Note of $1,000 in original principal amount or less shall be
redeemed in part. If any Note is to be redeemed in part only, the notice of
redemption relating to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note.
RANKING
The indebtedness evidenced by the Notes is Senior Subordinated Indebtedness
of the Company, subordinated in right of payment to all existing and future
Senior Indebtedness of the Company, ranks pari passu in right of payment with
all existing and future Senior Subordinated Indebtedness of the Company
(including the Original Notes) and is senior in right of payments to all
existing future Subordinated Obligations of the Company.
As of June 30, 1997, on a pro forma basis after giving effect to the Old
Notes Offering, the aggregate amount of the Company's (excluding its
consolidated subsidiaries) outstanding Senior Indebtedness would have been $95.0
million (excluding unused commitments and $17.1 million of outstanding letters
of credit), the Company would have had $100 million of Senior Subordinated
Indebtedness other than the Notes and no indebtedness that is subordinated or
junior in right of payment to the indebtedness represented by the Notes, the
Guarantor Subsidiaries would have had outstanding no Senior Indebtedness
(excluding the Subsidiary Guaranty and subsidiary guarantees of the Senior Bank
Facilities), and all liabilities of the Guarantor Subsidiaries (including trade
payables and deferred taxes, but excluding
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the Subsidiary Guaranty and subsidiary guarantees of the Senior Bank Facilities)
would have totaled approximately $198.7 million and would rank PARI PASSU with
the Notes. Although the Indenture contains limitations on the amount of
additional Indebtedness that the Company and its Restricted Subsidiaries may
Incur, under certain circumstances the amount of such Indebtedness could be
substantial and, in any case, such Indebtedness may be Senior Indebtedness. See
"Certain Covenants--Limitation on Indebtedness" below.
All of the Company's operations are currently conducted through its
Subsidiaries. The Notes are Guaranteed by each of the Company's existing and
future Restricted Subsidiaries (which is defined to exclude JAIX Leasing) on an
unsecured, senior subordinated basis. See "Subsidiary Guaranty" and "Certain
Covenants--Future Guarantor Subsidiaries". However, the Subsidiary Guarantee of
each Guarantor Subsidiary is subordinated in right of payment to all Senior
Indebtedness of such Guarantor Subsidiary, including each Guarantor Subsidiary's
Guarantee of the Senior Bank Facilities.
"Senior Indebtedness" means all Indebtedness of the Company, including
interest and fees thereon, and including all Bank Indebtedness, whether
outstanding on the date of the Indenture or thereafter Incurred, unless in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding it is provided that such obligations are not superior in right of
payment to the Notes; provided, however, that Senior Indebtedness will not
include (1) any obligation of the Company to any Subsidiary (other than the
Leasing Support Agreement), (2) any liability for Federal, state, local or other
taxes owed or owing by the Company, (3) any accounts payable or other liability
to trade creditors arising in the ordinary course of business (including
Guarantees thereof or instruments evidencing such liabilities), (4) any
Indebtedness, Guarantee or obligation of the Company which is subordinate or
junior to any other Indebtedness, Guarantee or obligation of the Company, (5)
any obligations in respect of Capital Stock, or (6) any Indebtedness Incurred in
violation of the Indenture. If any Designated Senior Indebtedness is disallowed,
avoided or subordinated pursuant to the provisions of Section 548 of Title 11 of
the United States Code or any applicable state fraudulent conveyance law, such
Designated Senior Indebtedness nevertheless will constitute Senior Indebtedness.
"Senior Indebtedness" of any Guarantor Subsidiary has a correlative meaning.
Only Indebtedness of the Company or a Guarantor Subsidiary that is Senior
Indebtedness ranks senior to the Notes in accordance with the provisions of the
Indenture. The Notes rank PARI PASSU with all other Senior Subordinated
Indebtedness of the Company or a Guarantor Subsidiary (including the Original
Notes). However, in the event of an Asset Disposition, the Company will be
required to use the proceeds to repay certain debt, including Senior
Indebtedness and the Original Notes, before any proceeds remaining from the
Asset Disposition would be available to fund a required offer to purchase the
Notes. Although the terms of the Notes are substantially identical to the terms
of the Original Notes, the Notes and the Original Notes are governed by separate
Indentures. Like the Indenture governing the Notes, the Indenture governing the
Original Notes requires the Company to use the proceeds of an Asset Disposition
to repurchase the Original Notes before any such proceeds may be used to
repurchase indebtedness that is issued subsequent to the issuance of the
Original Notes. Because the Notes were issued by the Company subsequent to the
issuance of the Original Notes, the Indenture governing the Original Notes
requires, and the Indenture governing the Notes permits, the Original Notes to
have priority over the Notes with respect to Asset Disposition proceeds. See
"Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock." Each of
the Company and the Guarantor Subsidiaries has agreed in the Indenture that it
will not Incur, directly or indirectly, any Indebtedness which is subordinate or
junior in ranking in any respect to Senior Indebtedness unless such Indebtedness
is Senior Subordinated Indebtedness (including the Original Notes) or is
expressly subordinated in right of payment to Senior Subordinated Indebtedness.
Unsecured Indebtedness is not deemed to be subordinate or junior to Secured
Indebtedness merely because it is unsecured.
The Company may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under
"Defeasance" below and may not otherwise purchase or retire any Notes
(collectively, "pay the Notes") if (i) any Senior Indebtedness is not paid when
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due or (ii) any other default on Senior Indebtedness occurs and the maturity of
such Senior Indebtedness is accelerated in accordance with its terms unless, in
either case, the default has been cured or waived and any such acceleration has
been rescinded or such Senior Indebtedness has been paid in full. However, the
Company may pay the Notes without regard to the foregoing if the Company and the
Trustee receive written notice approving such payment from the Representative of
the Designated Senior Indebtedness with respect to which either of the events
set forth in clause (i) or (ii) of the immediately preceding sentence has
occurred and is continuing. During the continuance of any default (other than a
default described in clause (i) or (ii) of the second preceding sentence) with
respect to any Designated Senior Indebtedness pursuant to which the maturity
thereof may be accelerated immediately without further notice (except such
notice as may be required to effect such acceleration) or the expiration of any
applicable grace periods, the Company may not pay the Notes for a period (a
"Payment Blockage Period") commencing upon the receipt by the Company and the
Trustee of written notice (a "Blockage Notice") of such default from the
Representative of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days
thereafter (or earlier if such Payment Blockage Period is terminated (i) by
written notice to the Trustee and the Company from the Person or Persons who
gave such Blockage Notice, (ii) because the default giving rise to such Blockage
Notice is no longer continuing or (iii) because such Designated Senior
Indebtedness has been repaid in full). Notwithstanding the provisions described
in the immediately preceding sentence, unless the holders of such Designated
Senior Indebtedness or the Representative of such holders have accelerated the
maturity of such Designated Senior Indebtedness, the Company may resume payments
on the Notes after the end of such Payment Blockage Period. Not more than one
Blockage Notice may be given in any consecutive 360-day period, irrespective of
the number of defaults with respect to Designated Senior Indebtedness during
such period. However, if any Blockage Notice within such 360-day period is given
by or on behalf of any holders of Designated Senior Indebtedness (other than the
Senior Bank Facilities), the Representative of the Senior Bank Facilities may
give another Blockage Notice within such period. In no event, however, may the
total number of days during which any Payment Blockage Period or Periods is in
effect exceed 179 days in the aggregate during any 360 consecutive day period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property, the holders of Senior Indebtedness will
be entitled to receive payment in full of the Senior Indebtedness before the
Noteholders are entitled to receive any payment and until the Senior
Indebtedness is paid in full, any payment or distribution to which Noteholders
would be entitled but for the subordination provisions of the Indenture will be
made to holders of the Senior Indebtedness as their interest may appear. If a
payment or distribution is made to Noteholders that, due to the subordination
provisions, should not have been made to them, such Noteholders are required to
hold such payment or distribution in trust for the benefit of the holders of the
Senior Indebtedness and pay it over to them as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness or the Representative of such holders of the acceleration.
The Company may not pay the Notes until five Business Days after such holders or
the Representative of the Designated Senior Indebtedness receive notice of such
acceleration and, thereafter, may pay the Notes only if the subordination
provisions of the Indenture otherwise permit payment at that time.
By reason of such subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the Noteholders, and creditors of
the Company who are not holders of Senior Indebtedness or of Senior Subordinated
Indebtedness (including the Notes) may recover less, ratably, than holders of
Senior Indebtedness and may recover more, ratably, than the holders of Senior
Subordinated Indebtedness.
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SUBSIDIARY GUARANTY
Each of the Company's existing and future Restricted Subsidiaries (which is
defined to exclude JAIX Leasing), as primary obligor and not merely as surety,
will irrevocably and fully and unconditionally Guarantee on an unsecured, senior
subordinated basis the performance and punctual payment when due, whether at
Stated Maturity, by acceleration or otherwise, of all obligations of the Company
under the Indenture and the Notes, whether for principal of or interest on the
Notes, expenses, indemnification or otherwise (all such obligations guaranteed
by such Guarantor Subsidiaries being herein called the "Guaranteed
Obligations"). Such Guarantor Subsidiaries will agree to pay, in addition to the
amount stated above, any and all expenses (including reasonable counsel fees and
expenses) incurred by the Trustee or the Holders in enforcing any rights under
the Subsidiary Guaranty. Each Subsidiary Guaranty will be limited in amount to
an amount not to exceed the maximum amount that can be Guaranteed by the
applicable Guarantor Subsidiary without rendering the Subsidiary Guaranty, as it
relates to such Guarantor Subsidiary, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally. After the Issue Date, the Company will cause each
Restricted Subsidiary which Incurs Indebtedness, including each Restricted
Subsidiary which is a guarantor of Indebtedness Incurred pursuant to clause
(b)(1) of the covenant described under "Certain Covenants Limitation on
Indebtedness," to execute and deliver to the Trustee a Subsidiary Guaranty
pursuant to which such Restricted Subsidiary will Guarantee payment of the
Notes.
The Subsidiary Guaranty is a continuing Guarantee and shall (a) remain in
full force and effect until payment in full of all the Guaranteed Obligations,
(b) be binding upon such Guarantor Subsidiaries and (c) enure to the benefit of
and be enforceable by the Trustee, the Holders and their successors, transferees
and assigns.
JAIX Leasing, a subsidiary formed by the Company to provide lease financing
on new and rebuilt cars, is not a Guarantor Subsidiary. In order to secure the
requisite financing for its business, JAIX Leasing must remain free from the
restrictive covenants placed on the Guarantor Subsidiaries pursuant to the
Subsidiary Guaranty.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require the Company to repurchase
all or any part of such Holder's Notes at a purchase price in cash equal to 101%
of the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date):
(i) any "Person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a Person shall be deemed to have "beneficial ownership" of
all shares that any such Person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 35% of the Voting Stock of the Company; provided
that the Permitted Holders beneficially own (as defined in Rules 13d-3 and
13d-5 under the Exchange Act), directly or indirectly, in the aggregate a
lesser percentage of the Voting Stock of the Company than such other Person
and do not have the right or ability by voting power, contract or otherwise
to elect or designate for election a majority of the Board of Directors of
the Company; or
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the stockholders of the Company was
approved by a vote of a majority of the directors of the Company then still
in office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors of the Company
then in office.
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In the event that at the time of such Change of Control the terms of the
Bank Indebtedness restrict or prohibit the repurchase of Notes pursuant to this
covenant, then prior to the mailing of the notice to Holders provided for in the
immediately following paragraph but in any event within 30 days following any
Change of Control, the Company shall: (i) repay in full all Bank Indebtedness or
offer to repay in full all Bank Indebtedness and repay the Bank Indebtedness due
to each lender who has accepted such offer; or (ii) obtain the requisite consent
under the agreements governing the Bank Indebtedness to permit the repurchase of
the Notes as provided for in the immediately following paragraph.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of Holders of record on a record date to
receive interest on the relevant interest payment date); (2) the circumstances
and relevant facts and financial information regarding such Change of Control,
including information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control; (3) the repurchase
date (which shall be no earlier than 30 days nor later than 60 days from the
date such notice is mailed); and (4) the instructions determined by the Company,
consistent with this covenant, that a Holder must follow in order to have its
Notes purchased.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this paragraph (c) by virtue thereof.
The Change of Control feature of the Notes may make more difficult or
discourage a takeover of the Company, and, thus, the removal of incumbent
management. In addition, the Change of Control feature of the Notes may have the
effect of delaying or preventing change of control transactions in which the
holders of the Company's capital stock might otherwise receive a substantial
premium for their shares over then current market prices.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchaser. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings.
A Change of Control would also constitute a "Change of Control" as defined
in the Original Indenture, and would require a purchase offer to be made in
respect of the Original Notes at a purchase price in cash equal to 101% of the
principal amount thereof. In addition, the occurrence of certain of the events
which would constitute a Change of Control would constitute a default under the
Senior Bank Facilities. Future Senior Indebtedness of the Company may contain
prohibitions of certain events which would constitute a Change of Control or
require such Senior Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the Holders of their right to require the Company to
repurchase the Notes could cause a default under such Senior Indebtedness, even
if the Change of Control itself does not, due to the financial effect of such
repurchase on the Company. Finally, the Company's ability to pay cash to the
Holders upon a repurchase may be limited by the Company's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases.
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CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS. (a) The Company shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that the Company may Incur Indebtedness if on the date of the
Incurrence of such Indebtedness the Consolidated Coverage Ratio exceeds 2.25 to
1.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness: (1) Indebtedness
of the Company Incurred pursuant to the Term Loan Facility (as the same may be
amended from time to time, without increasing the committed amount outstanding,
except as otherwise permitted by this covenant) less the amount of any
repayments of principal made since the Original Issue Date, including any
repayments made with the proceeds from the offering of the Notes; (2)
Indebtedness of the Company Incurred pursuant to the Revolving Facility or under
other agreements in an amount not to exceed the greater of (A) amounts available
under the Revolving Facility (as the same may be amended from time to time,
without increasing the committed amount outstanding, except as otherwise
permitted by this covenant) and (B) amounts available under any other senior
secured facility providing for revolving loans to the Company, provided that the
maximum aggregate principal amount available under such other revolving facility
shall not exceed the Borrowing Base at the time such Indebtedness is Incurred;
(3) Indebtedness (A) of the Company owed to and held by a Wholly Owned
Subsidiary or (B) of any Restricted Subsidiary owed to and held by the Company
or any other Wholly Owned Subsidiary; provided, however, that any subsequent
issuance or transfer of any Capital Stock or other event which results in any
such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company or another
Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the issuer thereof; (4) the Original Notes
and the Notes; (5) Indebtedness outstanding on the date of the Original
Indenture (other than Indebtedness described in clause (1), (2)(A), (4) or (11)
of this paragraph) and Indebtedness Incurred under Section 4.03(a) of the
Original Indenture prior to the Issue Date; (6) Refinancing Indebtedness in
respect of Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause
(1), (2), (3), (4), (5) or this clause (6); (7) (A) Indebtedness in respect of
performance bonds, bankers' acceptances, letters of credit and surety or appeal
bonds provided by the Company and the Restricted Subsidiaries to their customers
in the ordinary course of their business, and (B) Hedging Obligations consisting
of Interest Rate Agreements with respect to Indebtedness permitted to be
Incurred pursuant to the Indenture; provided, however, that such Interest Rate
Agreements do not increase the Indebtedness outstanding at any time other than
as a result of fluctuations in interest rates or by reason of fees, indemnities
and compensation payable thereunder; (8) Purchase Money Indebtedness and Capital
Lease Obligations which do not exceed $10 million at any time outstanding; (9)
Indebtedness represented by the Subsidiary Guaranty and Guarantees of
Indebtedness Incurred pursuant to clause (1), (2) or (4) above; (10)
Indebtedness (other than Indebtedness permitted by clauses (1) through (9)
above, clause (11) below or paragraph (a)) in an aggregate principal amount
which, when added to (A) all other Indebtedness Incurred pursuant to this clause
(10) and then outstanding and (B) all other Indebtedness Incurred pursuant to
Section 4.03(b)(10) of the Original Indenture and then outstanding, does not
exceed $10 million at any time outstanding; and (11) Indebtedness pursuant to
the Leasing Support Agreement.
Generally, the Indebtedness permitted to be Incurred pursuant to the
foregoing paragraph (b) could rank: (i) senior to the Notes (clauses (1), (2),
(8) and (11)); (ii) senior or PARI PASSU to the Notes (clause (9)); (iii)
senior, PARI PASSU or subordinate to the Notes (clauses (3), (5), (6) and (10));
or (iv) PARI PASSU to the Notes (clauses (4) and (7)).
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are
used, directly or indirectly, to Refinance any Subordinated Obligations unless
such Indebtedness shall be subordinated to the Notes to at least the
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same extent as such Subordinated Obligations. The Company shall not Incur any
Indebtedness pursuant to sections (a) or (b) of the covenant described under
"--Limitation on Indebtedness" if such Indebtedness is subordinate or junior in
ranking in any respect to any Senior Indebtedness unless such Indebtedness is
Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness. In addition, the Company shall not
Incur any Secured Indebtedness which is not Senior Indebtedness unless
contemporaneously therewith effective provision is made to secure the Notes
equally and ratably with (or on a senior basis to, in the case of Indebtedness
subordinated in right of payment to the Notes) such Secured Indebtedness for so
long as such Secured Indebtedness is secured by a Lien.
LIMITATION ON RESTRICTED PAYMENTS. (a) The Company shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) the Company is not able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under
"--Limitation on Indebtedness"; or (3) the aggregate amount of such Restricted
Payment and all other Restricted Payments since the Original Issue Date would
exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the
period (treated as one accounting period) from July 1, 1995 to the end of the
most recent fiscal quarter ending at least 45 days prior to the date of such
Restricted Payment (or, in case such Consolidated Net Income shall be a deficit,
minus 100% of such deficit); (B) the aggregate Net Cash Proceeds received by the
Company from the issuance or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the Original Issue Date (other than an issuance or sale to
a Subsidiary of the Company and other than an issuance or sale to an employee
stock ownership plan or other trust established by the Company or any of its
Subsidiaries for the benefit of their employees to the extent the purchase by
such plan or trust is financed by Indebtedness of such plan or trust and for
which the Company is liable as Guarantor or otherwise); (C) the amount by which
Indebtedness of the Company is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Subsidiary of the Company) subsequent to
the Original Issue Date of any Indebtedness of the Company convertible or
exchangeable for Capital Stock (other than Disqualified Stock) of the Company
(less the amount of any cash, or other property, distributed by the Company upon
such conversion or exchange); and (D) an amount equal to the sum of (i) the net
reduction in Investments in Unrestricted Subsidiaries resulting from dividends,
repayments of loans or advances, or other transfers of assets, in each case to
the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, and
(ii) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of an Unrestricted
Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, however, that the foregoing sum shall not exceed, in the
case of any Unrestricted Subsidiary, the amount of Investments previously made
by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary,
which amount was treated as a Restricted Payment.
(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Disqualified Stock
and other than Capital Stock of the Company issued or sold to a Subsidiary of
the Company or an employee stock ownership plan or similar trust established by
the Company or any of the Subsidiaries); provided, however, that (A) such
purchase or redemption shall be excluded in the calculation of the amount of
Restricted Payments and (B) both (x) the Net Cash Proceeds from such sale and
(y) any Net Cash Proceeds (as defined in the Original Indenture) excluded from
the calculation of amounts under Section 4.04(a)(3)(B) of the Original Indenture
pursuant to clause (B) of the proviso to Section 4.04(b)(i) of the Original
Indenture prior to the Issue Date shall be excluded from the calculation of
amounts under clause (3)(B) of paragraph (a) above; (ii) any purchase or
redemption of Subordinated Obligations made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Indebtedness of the Company
which is permitted to be Incurred pursuant to the covenant described
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under "--Limitation on Indebtedness"; provided, however, that such purchase or
redemption shall be excluded in the calculation of the amount of Restricted
Payments; (iii) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under
"--Limitation on Sales of Assets and Subsidiary Stock;" provided, however, that
such purchase or redemption shall be excluded in the calculation of the amount
of Restricted Payments; (iv) the repurchase of shares of, or options to purchase
shares of, common stock of the Company or any of its Subsidiaries from
employees, former employees, directors or former directors of the Company or any
of its Subsidiaries (or permitted transferees of such employees, former
employees, directors or former directors), pursuant to the terms of the
agreements (including employment agreements) or plans (or amendments thereto)
approved by the Board of Directors under which such persons purchase or sell or
are granted the option to purchase or sell, shares of such common stock;
provided, however, that the aggregate amount of such repurchases shall not
exceed $1 million; provided further, however, that such repurchases shall be
included in the calculation of the amount of Restricted Payments; or (v)
dividends paid within 60 days after the date of declaration thereof if at such
date of declaration such dividend would have complied with paragraph (a) of this
covenant; provided, however, that at the time of payment of such dividend, no
other Default shall have occurred and be continuing (or result therefrom);
provided further, however, that such dividend shall be included in the
calculation of the amount of Restricted Payments.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary: (i) to pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness owed to the Company; (ii) to make any loans or
advances to the Company; or (iii) transfer any of its property or assets to the
Company, except: (1) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Original Issue Date; (2) any encumbrance or
restriction with respect to a Restricted Subsidiary pursuant to an agreement
relating to any Indebtedness Incurred by such Restricted Subsidiary on or prior
to the date on which such Restricted Subsidiary was acquired by the Company
(other than Indebtedness Incurred as consideration in, or to provide all or any
portion of the funds or credit support utilized to consummate, the transaction
or series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was acquired by the Company) and outstanding
on such date; (3) any encumbrance or restriction pursuant to an agreement
effecting the Incurrence of Refinancing Indebtedness pursuant to an agreement
referred to in clause (1) or (2) of this covenant or this clause (3) or
contained in any amendment to an agreement referred to in clause (1) or (2) of
this covenant or this clause (3); provided, however, that the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in any such
Refinancing Indebtedness agreement or amendment are no less favorable to the
Noteholders than encumbrances and restrictions with respect to such Restricted
Subsidiary contained in such agreements; (4) in the case of clause (iii) above,
any such encumbrance or restriction consisting of customary nonassignment
provisions in leases governing leasehold interests to the extent such provisions
restrict the transfer, subletting or assignment of the lease or the property
leased thereunder; (5) in the case of clause (iii) above, restrictions contained
in security agreements or mortgages not otherwise prohibited by the Indenture
securing Indebtedness of a Restricted Subsidiary to the extent such restrictions
restrict the transfer of the property subject to such security agreements or
mortgages; (6) in the case of clause (iii) above, any encumbrance or restriction
by virtue of any transfer of, agreement to transfer, option or right with
respect to, or Lien on, any property or assets of the Company or any Restricted
Subsidiary not otherwise prohibited by the Indenture; and (7) any restriction
with respect to a Restricted Subsidiary imposed pursuant to an agreement entered
into for the sale or disposition of all or substantially all the Capital Stock
or assets of such Restricted Subsidiary pending the closing of such sale or
disposition.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, make any Asset
Disposition unless (i) the Company or such
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Restricted Subsidiary receives consideration (including by way of relief from,
or by any other Person assuming sole responsibility for, any liabilities,
contingent or otherwise) at the time of such Asset Disposition at least equal to
the fair market value, as determined in good faith by the Board of Directors
(including as to the value of all non-cash consideration), of the shares and
assets subject to such Asset Disposition, (ii) at least 80% of the consideration
thereof received by the Company or such Restricted Subsidiary is in the form of
cash and (iii) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as the
case may be) (A) first, to the extent the Company elects (or is required by the
terms of any Senior Indebtedness or Indebtedness (other than Preferred Stock) of
a Wholly Owned Subsidiary), to prepay, repay or purchase Senior Indebtedness or
such Indebtedness (in each case other than Indebtedness owed to the Company or
an Affiliate of the Company) within 180 days after the later of the date of such
Asset Disposition or the receipt of such Net Available Cash; (B) second, to the
extent of the balance of Net Available Cash after application in accordance with
clause (A), to the extent the Company or such Restricted Subsidiary elects, to
reinvest in Additional Assets (including by means of an Investment in Additional
Assets by a Restricted Subsidiary with Net Available Cash received by the
Company or another Restricted Subsidiary) within one year from the later of such
Asset Disposition or the receipt of such Net Available Cash; (C) third, to offer
to purchase the Original Notes to the extent required by the Original Indenture,
(D) fourth, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C) exceeds $5 million, to
make an Offer to purchase the Notes pursuant to and subject to the conditions
set forth in section (b) of this covenant; and (E) fifth, to the extent of the
balance of such Net Available Cash after application in accordance with clauses
(A), (B), (C) and (D), to (x) acquire Additional Assets (other than Indebtedness
and Capital Stock) or (y) prepay, repay or purchase Indebtedness of the Company
(other than Indebtedness owed to an Affiliate of the Company and other than
Disqualified Stock of the Company) or Indebtedness of any Restricted Subsidiary
(other than Indebtedness owed to the Company or an Affiliate of the Company), in
each case described in this clause (E) within one year from the receipt of such
Net Available Cash or, if the Company has made an Offer pursuant to clause (C)
or (D), six months from the date such Offer is consummated; provided, however,
that in connection with any prepayment, repayment or purchase of Indebtedness
pursuant to clause (A), (C), (D) or (E) above, the Company or such Restricted
Subsidiary will retire such Indebtedness and will cause the related loan
commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased. The Company and the Restricted
Subsidiaries will not be required to apply any Net Available Cash in accordance
with this covenant except to the extent that the aggregate Net Available Cash
from all Asset Dispositions which are not applied in accordance with this
covenant exceed $5 million. Notwithstanding the foregoing, the Company may make
$1 million of Asset Dispositions each year which are not subject to the
provisions of this covenant.
For the purposes of this covenant, the following will be deemed to be cash:
(x) the assumption of Indebtedness of the Company (other than Disqualified Stock
of the Company) or any Restricted Subsidiary and the release of the Company or
such Restricted Subsidiary from all liability on such Indebtedness in connection
with such Asset Disposition; and (y) securities received by the Company or any
Restricted Subsidiary from the transferee that are promptly converted by the
Company or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of Notes
pursuant to Section (a)(iii)(D) of this covenant, the Company will be required
to purchase Notes tendered pursuant to an offer, commenced prior to the
expiration of the one year period referred to in Section (a)(iii)(B) of this
covenant, by the Company for the Notes (the "Offer") at a purchase price of 100%
of their principal amount plus accrued interest to the Purchase Date in
accordance with the procedures (including prorationing in the event of
oversubscription) set forth in Section (c) of this covenant. If the aggregate
purchase price of Notes tendered pursuant to the Offer is less than the Net
Available Cash allotted to the purchase of the Notes, the Company shall apply
the remaining Net Available Cash in accordance with Section (a)(iii)(E) of this
covenant. The Company shall not be required to make an Offer for Notes
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pursuant to this Section if the Net Available Cash available therefor (after
application of the proceeds as provided in clauses (A), (B) and (C) of Section
(a)(iii) of this covenant) is less than $5 million for any Asset Disposition
(which lesser amount shall be carried forward for purposes of determining
whether an Offer is required with respect to the Net Available Cash from any
subsequent Asset Disposition).
(c)(1) Promptly, and in any event within 10 days after the Company becomes
obligated to make an Offer, the Company shall be obligated to deliver to the
Trustee and send, by first-class mail to each Holder, a written notice stating
that the Holder may elect to have his Notes purchased by the Company either in
whole or in part (subject to prorationing as hereinafter described in the event
the Offer is oversubscribed) in integral multiples of $1,000 of principal
amount, at the applicable purchase price. The notice shall specify a purchase
date not less than 30 days nor more than 60 days after the date of such notice
(the "Purchase Date") and shall contain such information concerning the business
of the Company which the Company in good faith believes will enable such Holders
to make an informed decision (which at a minimum will include: (i) the most
recently filed Annual Report on Form 10-K (including audited consolidated
financial statements) of the Company, the most recent subsequently filed
Quarterly Report on Form 10-Q and any Current Report on Form 8-K of the Company
filed subsequent to such Quarterly Report, other than Current Reports describing
Asset Dispositions otherwise described in the offering materials (or
corresponding successor reports); (ii) a description of material developments in
the Company's business subsequent to the date of the latest of such Reports; and
(iii) if material, appropriate pro forma financial information) and all
instructions and materials necessary to tender the Notes pursuant to the Offer,
together with the information contained in clause (3).
(2) Not later than the date upon which written notice of an Offer is
delivered to the Trustee as provided below, the Company shall deliver to the
Trustee an Officers' Certificate as to: (i) the amount of the Offer (the "Offer
Amount"); (ii) the allocation of the Net Available Cash from the Asset
Dispositions pursuant to which such Offer is being made; and (iii) the
compliance of such allocation with the provisions of Section (a) of this
covenant. On such date, the Company shall also irrevocably deposit with the
Trustee or with a paying agent (or, if the Company is acting as its own paying
agent, segregate and hold in trust) in Temporary Cash Investments an amount
equal to the Offer Amount to be held for payment in accordance with the
provisions of this Section. Upon the expiration of the period for which the
Offer remains open (the "Offer Period"), the Company shall deliver to the
Trustee for cancellation the Notes or portions thereof which have been properly
tendered to and are to be accepted by the Company. The Trustee shall, on the
Purchase Date, mail or deliver payment to each tendering Holder in the amount of
the purchase price. In the event that the aggregate purchase price of the Notes
delivered by the Company to the Trustee is less than the Offer Amount, the
Trustee shall deliver the excess to the Company immediately after the expiration
of the Offer Period for application in accordance with this Section.
(3) Holders electing to have a Note purchased pursuant to this covenant will
be required to surrender the Note with an appropriate form duly completed, to
the Company at the address specified in the notice at least three Business Days
prior to the Purchase Date. Holders will be entitled to withdraw their election
if the Trustee or the Company receives not later than one Business Day prior to
the Purchase Date, a facsimile transmission or letter setting forth the name of
the Holder, the principal amount of the Note which was delivered for purchase by
the Holder and a statement that such Holder is withdrawing his election to have
such Note purchased. If at the expiration of the Offer Period the aggregate
principal amount of Notes surrendered by Holders exceeds the Offer Amount, the
Company shall select the Notes to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only Notes in
denominations of $1,000, or integral multiples thereof, shall be purchased).
Holders whose Notes are purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered.
(4) At the time the Company delivers Notes to the Trustee which are to be
accepted for purchase, the Company will also deliver an Officers' Certificate
stating that such Notes are to be accepted by the
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Company pursuant to and in accordance with the terms of this Section. A Note
shall be deemed to have been accepted for purchase at the time the Trustee,
directly or through an agent, mails or delivers payment therefor to the
surrendering Holder.
(d) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
Section. To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section by virtue thereof.
LIMITATION ON AFFILIATE TRANSACTIONS. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof
(1) are no less favorable to the Company or such Restricted Subsidiary, as the
case may be, than those which could be obtained at the time of such transaction
in arm's-length dealings with a Person who is not such an Affiliate and (2) if
such Affiliate Transaction involves an aggregate amount in excess of $1 million,
(i) are set forth in writing and (ii) have been approved by a majority of the
members of the Board of Directors having no personal stake in such Affiliate
Transaction. In addition, if such Affiliate Transaction involves an amount in
excess of $5 million, a fairness opinion must be provided by a nationally
recognized independent investment banking firm.
(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
any Restricted Payment permitted to be paid pursuant to the covenant described
under "--Limitation on Restricted Payments"; (ii) any issuance of securities, or
other payments, awards or grants in cash, securities or otherwise pursuant to,
or the funding of, employment arrangements or bonuses (whether or not pursuant
to an employment contract), stock options and stock ownership plans approved by
the Board of Directors; (iii) the grant of stock options or similar rights to
employees and directors of the Company pursuant to plans approved by the Board
of Directors; (iv) loans or advances to employees in the ordinary course of
business in accordance with the past practices of the Company or its Restricted
Subsidiaries, but in any event not to exceed $1 million in the aggregate
outstanding at any one time; (v) the payment of reasonable fees to directors of
the Company and its Restricted Subsidiaries who are not employees of the Company
or its Restricted Subsidiaries; (vi) any Affiliate Transaction between the
Company and a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries; and
(vii) any payment pursuant to the Tax Sharing Agreement.
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. The Company shall not sell any shares of Capital Stock of a
Restricted Subsidiary, and shall not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell any shares of its Capital Stock except: (i) to
the Company or a Wholly Owned Subsidiary; (ii) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary; or (iii) in connection with labor agreements
applicable to employees of the issuing Restricted Subsidiary. Notwithstanding
the foregoing, the Company is permitted to sell all the Capital Stock of a
Subsidiary as long as the Company is in compliance with the terms of the
covenant described under "--Limitation on Sales of Assets and Subsidiary Stock".
LIMITATION ON LIENS. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, create or permit to exist any
Lien on any of its property or assets (including Capital Stock), whether owned
on the Original Issue Date or thereafter acquired, securing any obligation other
than Permitted Liens unless contemporaneously therewith effective provision is
made to secure the Notes equally and ratably with (or on a senior basis to, in
the case of Indebtedness subordinated in right of payment to the Notes) such
obligation for so long as such obligation is so secured.
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LIMITATION ON SALE/LEASEBACK TRANSACTIONS. The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless: (i) the Company or such
Subsidiary would be entitled to (A) Incur Indebtedness in an amount equal to the
Attributable Debt with respect to such Sale/Leaseback Transaction pursuant to
the covenant described under "--Limitation on Indebtedness" and (B) create a
Lien on such property securing such Attributable Debt without securing the Notes
equally and ratably or on a senior basis, as applicable, pursuant to the
covenant described under "--Limitation on Liens"; (ii) the net proceeds received
by the Company or any Restricted Subsidiary in connection with such
Sale/Leaseback Transaction are at least equal to the fair value (as determined
by the Board of Directors) of such property; and (iii) the transfer of such
property is permitted by, and the Company applies the proceeds of such
transaction in compliance with, the covenant described under "--Limitation on
Sale of Assets and Subsidiary Stock".
LIMITATION ON LINES OF BUSINESS. The Company and its Restricted
Subsidiaries will not engage in any material respect in any business, other than
those businesses in which the Company is engaged on the date of the Original
Indenture or any Related Business. Notwithstanding the foregoing, the Company
may acquire and operate any business which is primarily engaged in a Related
Business at the time of acquisition.
FUTURE GUARANTOR SUBSIDIARIES. After the Issue Date, the Company will cause
each Restricted Subsidiary which Incurs Indebtedness, including each Restricted
Subsidiary which is a guarantor of Indebtedness Incurred pursuant to clause
(b)(i) or (b)(ii) of the covenant described under " --Limitation on
Indebtedness", to execute and deliver to the Trustee a Subsidiary Guaranty
pursuant to which such Restricted Subsidiary will Guarantee payment of the
Notes.
MERGER AND CONSOLIDATION. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease all or substantially all its assets
to, any Person, unless: (i) the resulting, surviving or transferee Person (the
"Successor Company") shall be a Person organized and existing under the laws of
the United States of America, any State thereof or the District of Columbia and
the Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the Notes
and the Indenture; (ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor Company
or any Restricted Subsidiary as a result of such transaction as having been
Incurred by such Successor Company or such Restricted Subsidiary at the time of
such transaction), no Default shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction, the Successor Company would
be able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a)
under "--Limitation on Indebtedness"; (iv) immediately after giving effect to
such transaction, the Successor Company shall have Consolidated Net Worth in an
amount which is not less than the Consolidated Net Worth of the Company
immediately prior to such transaction; and (v) the Company shall have delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger or transfer and such supplemental indenture (if
any) comply with the Indenture.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease of all or substantially all its assets shall not
be released from the obligation to pay the principal of and interest on the
Notes.
Notwithstanding the foregoing clauses (ii), (iii) and (iv), any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company or a Wholly Owned Subsidiary.
SEC REPORTS. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall file with the
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Commission and provide the Trustee and Noteholders with such annual reports and
such information, documents and other reports specified in Sections 13 and 15(d)
of the Exchange Act.
DEFAULTS
An Event of Default is defined in the Indenture as: (i) a default in the
payment of interest on the Notes when due, continued for 30 days; (ii) a default
in the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise;
(iii) the failure by the Company or any Subsidiary to comply with its
obligations under "--Certain Covenants--Merger and Consolidation" above; (iv)
the failure by the Company or any Subsidiary to comply for 30 days after notice
with any of its obligations under the covenants described above under "--Change
of Control" or under the covenants described in "--Certain Covenants" (in each
case, other than a failure to purchase Notes); (v) the failure by the Company or
any Subsidiary to comply for 60 days after notice with its other agreements
contained in the Notes or the Indenture; (vi) Indebtedness of the Company or any
Significant Subsidiary is not paid within any applicable grace period after
final maturity or is accelerated by the holders thereof because of a default and
the total amount of such Indebtedness unpaid or accelerated exceeds $10 million
and such failure continues for 10 days after notice (the "cross acceleration
provision"); (vii) certain events of bankruptcy, insolvency or reorganization of
the Company or a Significant Subsidiary (the "bankruptcy provisions"); (viii)
any judgment or decree for the payment of money in excess of $10 million is
rendered against the Company or a Significant Subsidiary, remains outstanding
for a period of 60 days following such judgment and is not discharged, waived or
stayed within 10 days after notice (the "judgment default provision"); or (ix)
any Subsidiary Guaranty shall cease to be in full force and effect (except as
contemplated by the terms thereof) or any Guarantor Subsidiary shall deny or
disaffirm its obligations under the Indenture or any Subsidiary Guaranty and
such Default continues for 10 days.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clause (iv), (v), (vi) or (viii) will not
constitute an Event of Default until the Trustee or the Holders of at least 25%
in principal amount of the outstanding Notes notify the Company of the default
and the Company does not cure such default within the time specified after
receipt of such notice.
If an Event of Default (other than an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of the Company) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the outstanding Notes may declare the principal of and accrued but unpaid
interest on all the Notes to be due and payable. Upon such a declaration, such
principal and interest shall be due and payable immediately. If an Event of
Default relating to certain events of bankruptcy, insolvency or reorganization
of the Company occurs and is continuing, the principal of and interest on all
the Notes will ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holders. Under
certain circumstances, the Holders of a majority in principal amount of the
outstanding Notes may rescind any such acceleration with respect to the Notes
and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders of the Notes unless
such Holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no Holder may
pursue any remedy with respect to the Indenture or the Notes unless: (i) such
Holder has previously given the Trustee notice that an Event of Default is
continuing; (ii) Holders of at least 25%
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in principal amount of the outstanding Notes have requested the Trustee to
pursue the remedy; (iii) such Holders have offered the Trustee reasonable
security or indemnity against any loss, liability or expense; (iv) the Trustee
has not complied with such request within 60 days after the receipt thereof and
the offer of security or indemnity; and (v) the Holders of a majority in
principal amount of the outstanding Notes have not given the Trustee a direction
inconsistent with such request within such 60-day period. Subject to certain
restrictions, the Holders of a majority in principal amount of the outstanding
Notes are given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising any trust or
power conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other Holder or that would
involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of, premium (if any) or interest on any Note, the Trustee may
withhold notice if and so long as a committee of its trust officers determines
that withholding notice is not opposed to the interest of the Holders. In
addition, the Company is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. The Company
also is required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the Holders of a majority in principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange for
the Notes) and any past default or compliance with any provisions may also be
waived with such a consent of the Holders of a majority in principal amount of
the Notes then outstanding. However, without the consent of each Holder of an
outstanding Note, no amendment may, among other things, (i) reduce the amount of
Notes whose Holders must consent to an amendment, (ii) reduce the rate of or
extend the time for payment of interest on any Note, (iii) reduce the principal
of or extend the Stated Maturity of any Note, (iv) reduce the premium payable
upon the redemption of any Note or change the time at which any Note may or
shall be redeemed as described under "--Optional Redemption" above, (v) make any
Note payable in money other than that stated in the Note, (vi) make any change
to the subordination provisions of the Indenture that adversely affects the
rights of any Holder, (vii) impair the right of any Holder to receive payment of
principal of and interest on such Holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such Holder's Notes or (viii) make any change in the amendment
provisions which require each Holder's consent or in the waiver provisions.
Without the consent of any Holder, the Company and Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the Company
under the Indenture, to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), to add further Guarantees with respect to the Notes, to secure the Notes,
to add to the covenants of the Company for the benefit of the Holders or to
surrender any right or power conferred upon the Company, to make any change that
does not adversely affect the rights of any Holder or to comply with any
requirement of the SEC in connection with the qualification of the Indenture
under the Trust Indenture Act.
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The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Holders a notice briefly describing such amendment. However,
the failure to give such notice to all Holders, or any defect therein, will not
impair or affect the validity of the amendment.
TRANSFER
A Noteholder may transfer or exchange Notes in accordance with the
Indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Noteholder, among other things, to furnish appropriate endorsements
and transfer documents and the Company may require a Noteholder to pay any taxes
required by law or permitted by the Indenture. The Company is not required to
transfer or exchange any Note selected for redemption or to transfer or exchange
any Note for a period of 15 days prior to the selection of Notes to be redeemed.
The Notes will be issued in registered form and the registered Holder of a Note
will be treated as the owner of such Note for all purposes.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under the covenants
described under "--Certain Covenants" (other than the covenants described under
"--Merger and Consolidation"), the operation of the cross acceleration
provision, the bankruptcy provisions with respect to Significant Subsidiaries
and the judgment default provision described under "--Certain Covenants
Defaults" above and the limitations contained in clauses (iii) and (iv) under
"--Merger and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "--Defaults" above or because of the
failure of the Company to comply with clause (iii) or (iv) under "--Certain
Covenants--Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amount and
in the same manner and at the same times as would have been in the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
The Company will not be permitted to exercise either defeasance option
described above with respect to the Notes unless it defeases the Original Notes
equivalently and substantially simultaneously. Similarly, the Company will not
be permitted to defease the Original Notes unless it defeases the Notes
equivalently and substantially simultaneously.
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CONCERNING THE TRUSTEE
The Bank of New York is to be the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the Notes.
It is anticipated that The Bank of New York may also be a lender under the
Senior Bank Facilities.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of case of a prudent man in the conduct of his own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder, unless
such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; provided, however, that any such Restricted
Subsidiary described in clauses (ii) or (iii) above is primarily engaged in a
Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "--Certain Covenants-- Limitation on
Affiliate Transactions" and "--Certain Covenants--Limitations on Sales of Assets
and Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
shares representing 5% or more of the total voting power of the Voting Stock (on
a fully diluted basis) of the Company or of rights or warrants to purchase such
Voting Stock (whether or not currently exercisable) and any Person who would be
an Affiliate of any such beneficial owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition of
shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares), property or other assets (each referred to for the purposes
of this definition as a "disposition") by the Company or any of its Restricted
Subsidiaries (including any disposition by means of a merger, consolidation or
similar transaction) other than (i) a disposition by a Restricted Subsidiary to
the Company or by the Company or a Restricted Subsidiary to a Wholly Owned
Subsidiary, (ii) a disposition of inventory in the ordinary course of business
and (iii) for purposes of the covenant described under "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, a
disposition that constitutes a Restricted Payment permitted by the covenant
described under "--Certain Covenants--Limitation on Restricted Payments".
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the
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total obligations of the lessee for rental payments during the remaining term of
the lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect of
the Senior Bank Facilities and the other Senior Bank Documents, as amended,
refinanced or replaced from time to time, including principal, premium (if any),
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or, unless
the context indicates otherwise, any committee thereof duly authorized to act on
behalf of such Board.
"Borrowing Base" means, as of any date, an amount equal to the sum of (i)
60% of the aggregate book value of inventory (adjusted to include any LIFO
reserves) and (ii) 85% of the aggregate book value of all accounts receivable
(net of bad debt reserves) of the Company and its Restricted Subsidiaries on a
Consolidated basis, as determined in accordance with GAAP consistently applied.
To the extent that information is not available as to the amount of inventory or
accounts receivable as of a specific date, the Company shall use the most recent
available information for purposes of calculating the Borrowing Base.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (1) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness since the beginning of such period that
remains outstanding on such date of determination or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence
of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the first day of such
period and the discharge of any other Indebtedness repaid, repurchased, defeased
or otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period, (2) if since the
beginning of such period the Company or any Restricted Subsidiary shall have
made any Asset Disposition, the EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) directly attributable to the assets
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which are the subject of such Asset Disposition for such period, or increased by
an amount equal to the EBITDA (if negative), directly attributable thereto for
such period and Consolidated Interest Expense for such period shall be reduced
by an amount equal to the Consolidated Interest Expense directly attributable to
any Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset Disposition
for such period (or, if the Capital Stock of any Restricted Subsidiary is sold,
the Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (3) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any person which becomes a Restricted Subsidiary)
or an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any Indebtedness)
as if such Investment or acquisition occurred on the first day of such period
and (4) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such period) shall have made any
Asset Disposition, any Investment or acquisition of assets that would have
required an adjustment pursuant to clause (2) or (3) above if made by the
Company or a Restricted Subsidiary during such period, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition, Investment or acquisition occurred
on the first day of such period. For purposes of this definition, whenever pro
forma effect is to be given to an acquisition of assets, the amount of income or
earnings relating thereto, and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting Officer of the Company. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the Consolidated Interest Expense
associated with any such Indebtedness shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (giving effect to any Interest Rate Agreement applicable to such
Indebtedness for a period (not in excess of 12 months) corresponding to the
remaining term of such Interest Rate Agreement as of the date of determination).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, (i) interest expense
attributable to capital leases, (ii) amortization of debt discount, (iii)
capitalized interest, (iv) non-cash interest expenses, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) net costs associated with Hedging
Obligations (including amortization of fees), (vii) the product of (a) Preferred
Stock dividends in respect of all Preferred Stock of Subsidiaries of the Company
and Disqualified Stock of the Company held by Persons other than the Company or
a Wholly Owned Subsidiary multiplied by (b) a fraction, the numerator of which
is one and the denominator of which is one minus the then current combined
Federal, state and local statutory tax rate of the Company, expressed as a
decimal, in each case determined on a Consolidated basis in accordance with
GAAP, (viii) interest accruing on any Indebtedness of any other Person to the
extent such Indebtedness is Guaranteed by the Company or any Restricted
Subsidiary and (ix) the cash contributions to any employee stock ownership plan
or similar trust to the extent such contributions are used by such plan or trust
to pay interest or fees to any Person (other than the Company) in connection
with Indebtedness Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its Consolidated Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income: (i) any net income (loss)
of any Person if such Person is not a Restricted Subsidiary, except that
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(A) subject to the limitations contained in clause (iv) below, the Company's
equity in the net income of any such Person for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution paid to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (B) the Company's equity in a
net loss of any such Person (other than an Unrestricted Subsidiary) for such
period shall be included in determining such Consolidated Net Income; (ii) any
net income (loss) of any Person acquired by the Company or a Subsidiary in a
pooling of interests transaction for any period prior to the date of such
acquisition; (iii) any net income (loss) of any Restricted Subsidiary if such
Restricted Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (A) subject to
the limitations contained in clause (iv) below, the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash that could have
been distributed by such Restricted Subsidiary during such period to the Company
or another Restricted Subsidiary as a dividend or other distribution (subject,
in the case of a dividend or other distribution that could have been made to
another Restricted Subsidiary, to the limitation contained in this clause) and
(B) the Company's equity in a net loss of any such Restricted Subsidiary for
such period shall be included in determining such Consolidated Net Income; (iv)
any gain (but not loss) realized upon the sale or other disposition of any
property, plant, equipment or other asset of the Company or its consolidated
Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which is not
sold or otherwise disposed of in the ordinary course of business and any gain
(but not loss) realized upon the sale or other disposition of any Capital Stock
of any Person; (v) extraordinary gains or losses; and (vi) the cumulative effect
of a change in accounting principles. Notwithstanding the foregoing, for the
purposes of the covenant described under "Certain Covenants--Limitation on
Restricted Payments" only, there shall be excluded from Consolidated Net Income
any dividends, repayments of loans or advances or other transfers of assets from
Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the
extent such dividends, repayments or transfers increase the amount of Restricted
Payments permitted under such covenant pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and the Restricted Subsidiaries, determined on a
Consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as (i) the par
or stated value of all outstanding Capital Stock of the Company plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
"Consolidation" means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP
consistently applied; provided, however, that "Consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of the Company or any Restricted Subsidiary in an Unrestricted Subsidiary will
be accounted for as an investment. The term "Consolidated" has a correlative
meaning.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness which, at the date of determination, has an
aggregate principal amount outstanding of, or under which, at the date of
determination, the holders thereof, are committed to lend up to, at least $10
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million and is specifically designated by the Company in the instrument
evidencing or governing such Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable or exercisable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the first anniversary of the
Stated Maturity of the Notes.
"EBITDA" for any period means the Consolidated Net Income for such period,
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) all income tax expense of the Company, (ii) Consolidated Interest
Expense, (iii) depreciation expense and (iv) amortization expense, in each case
for such period. Notwithstanding the foregoing, the provision for taxes based on
the income or profits of, and the depreciation and amortization of, a Restricted
Subsidiary of the Company shall be added to Consolidated Net Income to compute
EBITDA only to the extent (and in the same proportion) that the net income of
such Subsidiary was included in calculating Consolidated Net Income and only if
a corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Restricted Subsidiary without prior approval
(that has not been obtained), pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to such Restricted Subsidiary or its
stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Foreign Subsidiary" shall mean a Subsidiary organized under the laws of any
jurisdiction other than the United States, any State thereof or the District of
Columbia; provided that no Foreign Subsidiary shall be formed by the Company or
any of its Subsidiaries unless such Foreign Subsidiary meets the qualifications
of and is designated as an Unrestricted Subsidiary hereunder.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Original Issue Date, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession. All ratios and computations based on GAAP
contained in the Indenture shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
other Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation of such other Person
(whether arising by virtue of partnership arrangements, or by agreements to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the obligee of such Indebtedness
or other obligation of the payment thereof or to protect such obligee against
loss in respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing
any obligation.
"Guarantor Subsidiary" means any Subsidiary that has issued a Subsidiary
Guaranty.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
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"Holder" or "Noteholder" means the Person in whose name a Note is registered
on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto); (iv) all obligations
of such Person to pay the deferred and unpaid purchase price of property or
services (except Trade Payables), which purchase price is due more than six
months after the date of placing such property in service or taking delivery and
title thereto or the completion of such services; (v) all Capitalized Lease
Obligations of such Person and all Attributable Debt of such Person; (vi) the
amount of all obligations of such Person with respect to the redemption,
repayment or other repurchase of any Disqualified Stock or, with respect to any
Subsidiary of the Company, any Preferred Stock (but excluding, in each case, any
accrued dividends); (vii) all Indebtedness of other Persons secured by a Lien on
any asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided, however, that the amount of Indebtedness of such Person shall
be the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness of such other Persons;
(viii) all Indebtedness of other Persons to the extent Guaranteed by such
Person; and (ix) to the extent not otherwise included in this definition,
Hedging Obligations of such Person. The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations at
such date.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of such Person) or other extension
of credit (including by way of Guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary", the definition of "Restricted Payment" and the
covenant described under "--Certain Covenants--Limitation on Restricted
Payments", (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary equal to an amount (if positive) equal to (x) the Company's
"Investment" in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
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"Issue Date" means the date on which the Notes are originally issued.
"Leasing Subsidiary" means JAIX Leasing Company, a Delaware corporation.
"Leasing Support Agreement" means the Support and Guarantee Agreement dated
May 12, 1995 between the Company and The First National Bank of Chicago, as
Agent, or any other agreement containing substantially the same terms as such
agreement, in either case as amended, modified or replaced from time to time;
provided that the terms of such agreement, as amended, modified or replaced, are
no less favorable to the Company than the terms of the Leasing Support Agreement
as in effect on the Original Issue Date; provided further that the amount of the
Company's obligations thereunder, including any amounts paid or Investments made
thereunder on or subsequent to the Original Issue Date, may not exceed $4
million.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
incurred, and all Federal, state, provincial, foreign and local taxes required
to be accrued as a liability under GAAP, as a consequence of such Asset
Disposition, (ii) all payments made on any Indebtedness which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of any
Lien upon or other security agreement of any kind with respect to such assets,
or which must by its terms, or in order to obtain a necessary consent to such
Asset Disposition, or by applicable law be repaid out of the proceeds from such
Asset Disposition, (iii) all distributions and other payments required to be
made to minority interest holders in Subsidiaries or joint ventures as a result
of such Asset Disposition and (iv) appropriate amounts to be provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the assets disposed of in such Asset Disposition and retained by the
Company or any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Officer" means the Chairman of the Board, the President, the Chief
Financial Officer, any Vice President, the Treasurer or the Secretary of the
Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Original Indenture" means the Indenture dated August 23, 1995, among the
Company, the Guarantor Subsidiaries and the Bank of New York, as trustee.
"Original Issue Date" means August 23, 1995.
"Original Notes" means the Company's 11 3/4% Senior Subordinated Notes due
2005 issued under the Original Indenture.
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"Permitted Holders" means members, as of the Original Issue Date, of
executive management of the Company and their respective Affiliates.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) a Restricted Subsidiary or a Person which will, upon the
making of such Investment, become a Restricted Subsidiary; provided, however,
that the primary business of such Restricted Subsidiary is a Related Business;
(ii) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vi) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary;
(vii) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; (viii) the Leasing Subsidiary,
provided that (except as permitted by clause (ix)) the aggregate amount of
Investments in the Leasing Subsidiary shall not exceed $3.5 million in any 12
month period; (ix) the Leasing Subsidiary pursuant to the Leasing Support
Agreement; and (x) Capital Stock of a joint venture or similar entity primarily
engaged in a Related Business, provided that such Investments shall not exceed
$10 million at any time.
"Permitted Liens" means, with respect to any Person, (a) pledges or deposits
by such Person under workmen's compensation laws, unemployment insurance laws or
similar legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Indebtedness) or leases to which such
Person is a party, or deposits to secure public or statutory obligations of such
Person or deposits of cash or United States government bonds to secure surety or
appeal bonds to which such Person is a party, or deposits as security for
contested taxes or import duties or for the payment of rent, in each case
Incurred in the ordinary course of business; (b) Liens imposed by law, such as
carriers', warehousemen's and mechanics' Liens, in each case for sums not yet
due or being contested in good faith by appropriate proceedings or other Liens
arising out of judgments or awards against such Person with respect to which
such Person shall then be proceeding with an appeal or other proceedings for
review; (c) Liens for property taxes not yet due or payable or subject to
penalties for non-payment or which are being contested in good faith and by
appropriate proceedings; (d) Liens in favor of issuers of surety bonds or
letters of credit issued pursuant to the request of and for the account of such
Person in the ordinary course of its business; provided, however, that such
letters of credit do not constitute Indebtedness; (e) minor survey exceptions,
minor encumbrances, easements or reservations of, or rights of others for,
licenses, rights of way, sewers, electric lines, telegraph and telephone lines
and other similar purposes, or zoning or other restrictions as to the use of
real properties or Liens incidental to the conduct of the business of such
Person or to the ownership of its properties which were not Incurred in
connection with Indebtedness and which do not in the aggregate materially
adversely affect the value of said properties or materially impair their use in
the operation of the business of such Person; (f) Liens securing Indebtedness
Incurred to finance the construction, purchase or lease of, or repairs,
improvements or additions to, property of such Person; provided, however, that
(i) such Liens only cover such property and do not extend to any other property
owned by such Person or any of its Subsidiaries, (ii) the Indebtedness secured
by such Liens is not Incurred more than 180 days after the later of the
acquisition, completion of construction, repair, improvement, addition or
commencement of full operation of the property subject to such Liens, (iii) the
Indebtedness secured by such Liens is otherwise permitted to be Incurred under
the Indenture, (iv) the principal amount of any Indebtedness secured by any such
Lien does not exceed the cost of assets or property so acquired or constructed
and (v) the
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amount of Indebtedness secured by any such Lien is not subsequently increased;
(g) Liens to secure Indebtedness permitted under the provisions described in
clause (b)(1), (2) or (10) under " --Certain Covenants--Limitation on
Indebtedness" or Refinancing Indebtedness in respect thereof; (h) Liens existing
on the date of the Indenture; (i) Liens on property or shares of stock of
another Person at the time such other Person becomes a Subsidiary of such
Person; provided, however, that such Liens are not created, incurred or assumed
in connection with, or in contemplation of, such other Person becoming such a
Subsidiary; provided further, however, that such Lien may not extend to any
other property owned by such Person or any of its Subsidiaries; (j) Liens on
property at the time such Person or any of its Subsidiaries acquires the
property, including any acquisition by means of a merger or consolidation with
or into such Person or a Subsidiary of such Person; provided, however, that such
Liens are not created, incurred or assumed in connection with, or in
contemplation of, such acquisition; provided further, however, that the Liens
may not extend to any other property owned by such Person or any of its
Subsidiaries; (k) Liens securing Indebtedness or other obligations of a
Subsidiary of such Person owing to such Person or a wholly owned Subsidiary of
such Person; (l) Liens securing Hedging Obligations so long as the related
Indebtedness is, and is permitted to be under the Original Indenture and the
Indenture, secured by a Lien on the same property securing such Hedging
Obligations; and (m) Liens to secure any Refinancing (or successive
Refinancings) as a whole, or in part, of any Indebtedness secured by any Lien
referred to in the foregoing clauses (f), (h), (i) and (j); provided, however,
that (x) such new Lien shall be limited to all or part of the same property that
secured the original Lien (plus improvements on such property) and (y) the
Indebtedness secured by such Lien at such time is not increased to any amount
greater than the sum of (A) the outstanding principal amount or, if greater,
committed amount of the Indebtedness described under clauses (f), (h), (i) or
(j) at the time the original Lien became a Permitted Lien and (B) an amount
necessary to pay any fees and expenses, including premiums, related to such
refinancing, refunding, extension, renewal or replacement. Notwithstanding the
foregoing, "Permitted Liens" will not include any Lien described in clauses (f),
(i) or (j) above if such Lien applies to any Additional Assets acquired directly
or indirectly from Net Available Cash pursuant to the covenant described under
"--Certain Covenants--Limitation on Sale of Assets and Subsidiary Stock".
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Public Market" means a public trading market existing at any time after (x)
a Public Equity Offering has been consummated and (y) at least 15% of the total
issued and outstanding common stock of the Company has been distributed by means
of an effective registration statement under the Securities Act.
"Purchase Money Indebtedness" means Indebtedness (i) consisting of the
deferred purchase price of property, conditional sale obligations, obligation
under any title retention agreement and other purchase money obligations, in
each case where the maturity of such Indebtedness does not exceed the
anticipated useful life of the asset being financed, and (ii) incurred to
finance the acquisition by the Company or a Restricted Subsidiary of such asset,
including additions and improvements; provided, however, that any Lien arising
in connection with any such Indebtedness shall be limited to the specified asset
being financed or, in the case of real property or fixtures, including additions
and improvements,
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the real property on which such asset is attached; and provided further, that
such Indebtedness is Incurred within 180 days after such acquisition by the
Company or Restricted Subsidiary of such asset.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the date of
the Original Indenture or Incurred in compliance with the Original Indenture and
the Indenture including Indebtedness that Refinances Refinancing Indebtedness;
provided, however, that (i) such Refinancing Indebtedness has a Stated Maturity
no earlier than the Stated Maturity of the Indebtedness being Refinanced, (ii)
such Refinancing Indebtedness has an Average Life at the time such Refinancing
Indebtedness is Incurred that is equal to or greater than the Average Life of
the Indebtedness being Refinanced and (iii) such Refinancing Indebtedness has an
aggregate principal amount (or if Incurred with original issue discount, an
aggregate issue price) that is equal to or less than the aggregate principal
amount (or if Incurred with original issue discount, the aggregate accreted
value) then outstanding or committed under the Indebtedness being Refinanced,
plus any accrued interest thereon, any premium required to be paid thereon and
the amount of reasonable and customary transaction expenses incurred in
connection therewith; provided further, however, that Refinancing Indebtedness
shall not include (x) Indebtedness of a Restricted Subsidiary that Refinances
Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted
Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary to
the businesses of the Company and the Restricted Subsidiaries on the date of the
Original Indenture.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
"Restricted Payment" with respect to any Person means (i) the declaration or
payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) or rights to
acquire its Capital Stock (other than Disqualified Stock) and dividends or
distributions payable solely to the Company or a Restricted Subsidiary, and
other than pro rata dividends or other distributions made by a Subsidiary that
is not a Wholly Owned Subsidiary to minority stockholders (or owners of an
equivalent interest in the case of a Subsidiary that is an entity other than a
corporation)), (ii) the purchase, redemption or other acquisition or retirement
for value of any Capital Stock of the Company or of any Restricted Subsidiary
held by any Person (other than the Company or a Wholly Owned Subsidiary),
including the exercise of any option to exchange any Capital Stock (other than
into Capital Stock of the Company that is not Disqualified Stock), (iii) the
purchase, repurchase, redemption, defeasance or other acquisition or retirement
for value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment of any Subordinated Obligations (other than the purchase,
repurchase or other acquisition of Subordinated Obligations purchased in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition) or
(iv) the making of any Investment, other than a Permitted Investment, in any
Unrestricted Subsidiary or any other Person other than a Wholly Owned Subsidiary
or a Person that will become a Wholly Owned Subsidiary as a result of any such
Investment.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Revolving Facility" means the revolving credit facility provided to the
Company as a portion of the Senior Bank Facilities.
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"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person, other than leases between the Company and a Wholly
Owned Subsidiary or between Wholly Owned Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Senior Bank Documents" means the collective reference to the Senior Bank
Facilities, the notes (if any) issued pursuant thereto and the Guarantees
thereof, the Security Documents and the other Loan Documents (each as defined in
the Senior Bank Facilities and as in effect on the Issue Date).
"Senior Bank Facilities" means the senior secured credit facilities dated as
of the Original Issue Date, as amended as of the Issue Date, among the Company,
the financial institutions party thereto and The Chase Manhattan Bank, as agent
for such financial institutions.
"Senior Subordinated Indebtedness" means the Notes, the Original Notes and
any other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank pari passu with the Notes and is not subordinated by its
terms to any Indebtedness or other obligation of the Company which is not Senior
Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Original Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Notes pursuant to a written
agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person.
"Subsidiary Guaranty" means, individually, any Guarantee of payment of the
Notes which may from time to time be executed and delivered by a Subsidiary of
the Company pursuant to the terms of the Indenture, and, collectively, all such
Guaranties. Each such Subsidiary Guaranty will be in the form prescribed in the
Indenture.
"Tax Sharing Agreement" means the Tax Sharing Agreement dated as of May 12,
1995 by and among the Company and the Leasing Subsidiary or any other agreement
containing substantially the same terms as such agreement.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, bankers' acceptances, certificates of
deposit and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States of America, any state thereof or any foreign
country recognized by the United States, and which bank or trust
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company has capital, surplus and undivided profits aggregating in excess of
$250,000,000 (or the foreign currency equivalent thereof) and has outstanding
debt which is rated "A" (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as defined in
Rule 436 under the Securities Act), (iii) repurchase obligations with a term of
not more than 30 days for underlying securities of the types described in clause
(i) above entered into with a bank meeting the qualifications described in
clause (ii) above, (iv) investments in commercial paper, maturing not more than
270 days after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United States
of America with a rating at the time as of which any investment therein is made
of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or
higher) according to Standard and Poor's Corporation, and (v) investments in
securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof,
and rated at least "A" by Standard & Poor's Corporation or "A" by Moody's
Investors Service, Inc.
"Term Loan Facility" means the Tranche A Term Loans and the Tranche B Term
Loans under the Senior Bank Facilities.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
SectionSection77aaa-77bbbb) as in effect on the date of the Indenture.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below, (ii) any Subsidiary of an
Unrestricted Subsidiary and (iii) the Leasing Subsidiary. The Board of Directors
may designate any Subsidiary of the Company (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary
or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or holds
any Lien on any property of, the Company or any other Subsidiary of the Company
that is not a Subsidiary of the Subsidiary to be so designated; provided,
however, that either (A) the Subsidiary to be so designated has total
consolidated assets of $1,000 or less or (B) if such Subsidiary has consolidated
assets greater than $1,000, such designation would be permitted under the
covenant entitled "--Certain Covenants--Limitation on Restricted Payments". The
Board of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that immediately after giving effect to such
designation (x) the Company could Incur $1.00 of additional Indebtedness under
paragraph (a) of the covenant described under "--Limitation on Indebtedness" and
(y) no Default shall have occurred and be continuing. Any such designation by
the Board of Directors shall be evidenced to the Trustee by promptly filing with
the Trustee a copy of the board resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all
the Capital Stock of which (other than directors' qualifying shares) is owned by
the Company or one or more Wholly Owned Subsidiaries.
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OLD NOTES REGISTRATION RIGHTS; LIQUIDATED DAMAGES
In connection with the sale of the Old Notes, the Company, the Guarantor
Subsidiaries and the Initial Purchaser entered into an exchange and registration
rights agreement dated August 11, 1997 (the "Registration Rights Agreement").
Pursuant to the Registration Rights Agreement, the Company and the Guarantor
Subsidiaries agreed to (i) file with the Commission on or prior to 30 days after
the date on which the Old Notes were issued (the "Issue Date") a registration
statement (the "Exchange Offer Registration Statement") relating to the Exchange
Offer for the Notes under the Securities Act and (ii) use their best efforts to
cause the Exchange Offer Registration Statement to be declared effective under
the Securities Act within 90 days after the Issue Date. As soon as practicable
after the effectiveness of the Exchange Offer Registration Statement, the
Company will offer to the holders of Transfer Restricted Securities (as defined
herein) who are not prohibited by any law or policy of the Commission from
participating in the Exchange Offer the opportunity to exchange their Transfer
Restricted Securities for the Exchange Notes. The Company and the Guarantor
Subsidiaries have agreed to keep the Exchange Offer open for not less than 30
days (or longer, if required by applicable law) after the date notice of the
Exchange Offer is mailed to the holders of the Notes. For each Old Note
surrendered to the Company, pursuant to such Exchange Offer, the holder of such
Old Notes will receive Exchange Notes having a principal amount at maturity
equal to that of the surrendered Old Note.
In the event that applicable interpretations of the Staff do not permit the
Company to effect the Exchange Offer or do not permit any holder of the Notes to
participate in the Exchange Offer or to receive fully transferable securities
from the Exchange Offer, the Company will file with the Commission a shelf
registration statement (the "Shelf Registration Statement") to cover resales of
Transfer Restricted Securities by such holders who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. For purposes of the foregoing, "Transfer Restricted
Securities" means each Note until (i) the date on which such Note has been
exchanged for a freely transferable Exchange Note in the Exchange Offer, (ii)
the date on which such Note has been effectively registered under the Securities
Act and disposed of in accordance with the Shelf Registration Statement, or
(iii) the date on which such Note is distributed to the public pursuant to Rule
144 under the Securities Act or is saleable pursuant to Rule 144(k) under the
Securities Act.
The Company and the Guarantor Subsidiaries have agreed to use their best
efforts to have the Exchange Offer Registration Statement or, if applicable, the
Shelf Registration Statement (each, a "Registration Statement") declared
effective by the Commission as promptly as practicable after the filing thereof.
Unless the Exchange Offer would not be permitted by a policy of the Commission,
the Company and the Guarantor Subsidiaries have agreed to commence the Exchange
Offer and use their best efforts to consummate the Exchange Offer as promptly as
practicable, but in any event prior to 120 days after the Issue Date. The
Company and the Guarantor Subsidiaries have agreed, if applicable, to use their
best efforts to keep the Shelf Registration Statement effective for a period of
two years after the Issue Date. If (i) the applicable Registration Statement is
not filed with the Commission on or prior to 30 days after the Issue Date; (ii)
the Exchange Offer Registration Statement or, as the case may be, the Shelf
Registration Statement, is not declared effective within 90 days after the Issue
Date; (iii) the Exchange Offer is not consummated on or prior to 120 days after
the Issue Date; or (iv) the Shelf Registration Statement is filed and declared
effective within 90 days after the Issue Date but shall thereafter cease to be
effective (at any time that the Company is obligated to maintain the
effectiveness thereof) without being succeeded within 30 days by an additional
Registration Statement filed and declared effective (each such event referred to
in clauses (i) through (iv), a "Registration Default"), the Company and the
Guarantor Subsidiaries will pay liquidated damages to each holder of Transfer
Restricted Securities, during the period of Registration Default, in an amount
equal to $0.192 per week per $1,000 principal amount of the Notes constituting
Transfer Restricted Securities held by such holder until the applicable
Registration Statement is filed or declared effective, the Exchange Offer is
consummated or the Shelf Registration Statement again becomes effective, as the
case may be. All accrued liquidated damages
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shall be paid to holders in the same manner as interest payments on the Notes on
semi-annual payment dates which correspond to interest payment dates for the
Notes. Following the cure of all Registration Defaults, the accrual of
liquidated damages will cease.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary of material federal income tax consequences has been
prepared by Winston & Strawn. The summary is based on current law and certain
proposed regulations and is for general information only. Forthcoming
legislative, regulatory, judicial or administrative changes or interpretations
could affect the federal income tax consequences to holders of Exchange Notes.
The tax treatment of a holder may vary depending upon whether the holder is a
cash-method or accrual-method taxpayer and upon the holder's particular status.
For example, certain holders, including insurance companies, tax-exempt
organizations, financial institutions, broker-dealers and foreign persons may be
subject to special rules not discussed below.
EXCHANGE OFFER
The exchange of Exchange Notes for Old Notes pursuant to the Exchange Offer
should not be treated as an "exchange" for federal income tax purposes because
the Exchange Notes should not be considered to differ materially in kind or
extent from the Old Notes. Rather, the Exchange Notes received by a holder will
be treated as a continuation of the Old Notes in the hands of such holder. As a
result, there should be no federal income tax consequences to holders exchanging
the Old Notes for the Exchange Notes pursuant to the Exchange Offer. The holder
should continue to include stated interest in income as if the exchange (and
waiver of accrued interest on the Old Notes from August 11, 1997 to the date of
issuance of the Exchange Notes) had not occurred. If, however, the exchange of
the Old Notes for the Exchange Notes were treated as an "exchange" for federal
income tax purposes, such exchange would constitute a recapitalization for
federal income tax purposes. Holders exchanging the Old Notes pursuant to such
recapitalization should not recognize any gain or loss upon the exchange.
DEBT CHARACTERIZATION AND INTEREST INCOME
The Company will agree to treat the Notes as indebtedness for federal income
tax purposes, and the following discussion assumes that such treatment is
correct. If the Notes were not respected as debt, they likely would be treated
as equity ownership interests in the Company. In such event, the Company would
not be entitled to claim a deduction for interest payable on the Notes. As a
result, the Company's after-tax cash flow and, consequently, its ability to make
payments with respect to the Notes could be reduced.
STATED INTEREST/ORIGINAL ISSUE DISCOUNT
The Company intends to take the position (which generally will be binding on
holders) that the Old Notes were not issued with original issue discount.
Accordingly, holders of Old Notes and New Notes should include stated interest
(subject to the amortization of any amortizable bond premium, as discussed
below) in gross income in accordance with their methods of accounting for
federal income tax purposes. The Company's position is based on the assumptions
made by the Company that an optional redemption of the Old Notes or New Notes
will not occur and that no liquidated damages will be paid pursuant to the
Registration Rights Agreement. The Internal Revenue Service may take a different
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position, which could affect the timing and character of income by holders.
Holders should consult their tax advisors as to the possible treatment of
liquidated damages.
AMORTIZABLE BOND PREMIUM
If a holder's purchase price for an Old Note (excluding amounts paid that
are attributable to accrued interest) was greater than the Old Note's face
amount, such holder will be considered to have purchased the New Note exchanged
for such Old Note with "amortizable bond premium" equal in amount to such
excess. A holder of an Old Note that has elected to amortize such amortizable
bond premium (to reduce the amount of stated interest income on the Old Note)
will continue to amortize such premium on the New Note (to reduce the amount of
stated interest income on the New Note) using the same constant yield method and
term as that determined for the Old Note. A holder of a New Note with
amortizable bond premium that did not elect to amortize such premium on the Old
Note may elect to amortize such premium (to reduce the amount of stated interest
income on the New Note), using a constant yield method, over the remaining term
of the New Note (beginning from the first taxable year of the holder for which
the holder makes such election, as described below) with reference to either the
amount payable on maturity or, if it results in a smaller premium attributable
to the period through an earlier call date, with reference to the amount payable
on such earlier call date. An election to amortize bond premium on the New Note
will apply to the New Note, as well as all taxable debt obligations owned by
such holder at the beginning of the holder's taxable year for which the holder
makes the election and thereafter acquired by the holder and may be revoked only
with the consent of the Internal Revenue Service.
The Internal Revenue Service has published proposed regulations concerning
amortizable bond premium, which if made final in their present form could affect
the timing and amount of amortizable bond premium accrued by holders of Old
Notes and New Notes. Although such proposed regulations, by their terms, will
not be effective until at least 60 days after they are made final, in their
present form, if a holder of an Old Note or New Note elects to amortize bond
premium for the taxable year containing such effective date, the proposed
regulations would apply to all the holder's debt instruments held on or after
the first day of that taxable year. It cannot be predicted at this time whether
the proposed regulations will become effective or what, if any, modifications
will be made to them prior to their becoming effective. Holders of Old Notes and
New Notes should consult their tax advisors concerning the making of an election
to amortize bond premium.
SALE OR OTHER DISPOSITION OF NEW NOTES
A holder of a New Note will have a tax basis in the New Note equal to the
holder's purchase price for the Old Note, increased by the amount of interest,
determined in accordance with the rules concerning amortizable bond premium
described above, and market discount that is included in the holder's gross
income and decreased by payments of such interest and market discount received
(in cash) by the holder.
A holder of a New Note will generally recognize gain or loss on the sale,
exchange, redemption or retirement of the New Note equal to the difference (if
any) between the amount realized from such sale, exchange, redemption or
retirement and the holder's basis in the New Note. Such gain or loss will
generally be long-term capital gain (except to the extent attributable to market
discount) or loss if the New Note has been held more than one year (including
the period that such holder held the Old Note prior to exchange).
TAX CONSEQUENCES TO FOREIGN HOLDERS
For purposes of this discussion, a "Foreign Holder" is a Holder who or which
is not for U.S. federal income tax purposes either (i) a citizen or resident of
the United States, (ii) a former U.S. citizen, whose income and gain on the
Notes will be subject to U.S. taxation, (iii) a corporation, partnership or
other
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entity created or organized in or under the laws of the United States or of any
political subdivision thereof, (iv) an estate, the income of which is subject to
U.S. federal income taxable regardless of its source, or (v) generally a trust
for which (a) a court within the United States is able to exercise primary
supervision over the administration of the trust and (b) one or more U.S.
trustees have the authority to control all substantial decisions of the trust.
On October 6, 1997, final regulations (the "1997 Final Regulations") were
issued which could affect the information reporting and backup withholding
obligations of Foreign Holders. The 1997 Final Regulations are effective for
payments after December 31, 1998, regardless of the issue date of the Note with
respect to which such payments are made, subject to certain transition rules.
The discussion under this heading and under "Information Reporting and Backup
Withholding" below, is not intended to be a complete discussion of the
provisions of the 1997 Final Regulations, and prospective Foreign Holders of
Notes are urged to consult their tax advisors with respect to the effect of the
1997 Final Regulations to them after December 31, 1998.
A Foreign Holder generally will not be subject to United States federal
withholding tax on interest paid on the Notes so long as the Foreign Holder (i)
is not actually or constructively a "10 percent shareholder" of the Company or a
"controlled foreign corporation" with respect to which the Company is a "related
person" within the meaning of the Code, and (ii) provides an appropriate
statement, signed under penalties of perjury, certifying that the beneficial
owner of the Note is a foreign person and providing that foreign person's name
and address. If the information provided in this statement changes, the foreign
person must so inform the Company within 30 days of such change. The statement
generally must be provided in the year a payment occurs or in either of the two
preceding years. If the foregoing conditions are not satisfied, then interest
paid on the Notes will be subject to United States withholding tax at a rate of
30 percent, unless such rate is reduced or eliminated pursuant to an applicable
tax treaty.
Any capital gain a Foreign Holder realizes on the sale, redemption,
retirement or other taxable disposition of a Note will be exempt from United
States federal income and withholding tax, provided that (i) the gain is not
effectively connected with the Foreign Holder's conduct of a trade or business
in the United States, and (ii) in the case of a Foreign Holder that is an
individual, the Foreign Holder is not present in the United States for 183 days
or more in the taxable year.
If the interest, gain or other income a Foreign Holder recognizes on a Note
is effectively connected with the Foreign Holder's conduct of a trade or
business in the United States, the Foreign Holder (although exempt from the
withholding tax previously discussed if an appropriate statement is furnished)
generally will be subject to United States federal income tax on the interest,
gain or other income at regular federal income tax rates. In addition, if the
Foreign Holder is a foreign corporation, it may be subject to a branch profits
tax equal to 30 percent of its "effectively connected earnings and profits," as
adjusted for certain items, unless it qualifies for a lower rate under an
applicable tax treaty.
The Notes will not be includible in the estate of a Foreign Holder unless
the decedent was a direct or indirect 10% or greater shareholder of the Company
or, at the time of such decedent's death, payments in respect of the Notes would
have been effectively connected with the conduct by such decedent of a trade or
business in the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
BACKUP WITHHOLDING
A noncorporate holder of New Notes that either (a) is (i) a citizen or
resident of the United States, (ii) a partnership, corporation or generally
another entity created or organized in or under the laws of the United States or
of any political subdivision thereof, (iii) an estate, the income of which is
subject to United States federal income taxation regardless of its source, or
(iv) generally a trust if (x) a court within the United States is able to
exercise primary supervision over the administration of the trust and (y) one
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or more fiduciaries, which are United States persons, have the authority to
control all substantial decisions of the trust or (b) is not described in the
preceding clause (a), but whose income from interest (including amortizable bond
premium) with respect to the New Notes or proceeds from the disposition of the
New Notes is effectively connected with such holder's conduct of the United
States trade or business, and that receives interest with respect to the New
Notes or proceeds from the disposition of the New Notes will generally not be
subject to backup withholding on such payments or distributions if it certifies,
under penalty of perjury, that it has furnished a correct Taxpayer
Identification Number ("TIN") and it is not subject to backup withholding either
because it has not been notified by the Internal Revenue Service that it is
subject to backup withholding or because the Internal Revenue Service has
notified it that it is no longer subject to backup withholding. Such
certification may be made on an Internal Revenue Service Form W-9 or
substantially similar form. However, backup withholding will apply to such a
holder if the holder (i) fails to furnish its TIN, (ii) furnishes an incorrect
TIN, (iii) is notified by the Internal Revenue Service that it has failed to
properly report such payments of interest or dividends or (iv) under certain
circumstances, fails to make such certification.
The Company will withhold (at a rate of 31%) all amounts required by law to
be withheld from reportable payments made with respect to the New Notes. Any
amounts withheld from a payment to a holder under the backup withholding rules
will be allowed as a credit against such holder's United States federal income
tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the Internal Revenue Service.
Holders of the New Notes should consult their tax advisors regarding the
application of backup withholding in their particular situations, the
availability of an exemption therefrom, and the procedure for obtaining such an
exemption, if available.
THE FOREGOING DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES SHOULD NOT BE
CONSTRUED AS TAX ADVICE. ACCORDINGLY, EACH HOLDER OF NEW NOTES SHOULD CONSULT
ITS OWN TAX ADVISOR AS TO PARTICULAR TAX CONSEQUENCES OF HOLDING, EXCHANGING OR
SELLING THE NEW NOTES INCLUDING THE APPLICATION AND EFFECT OF ANY FEDERAL,
STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY CHANGES IN APPLICABLE TAX LAWS.
108
<PAGE>
OLD NOTES TRANSFER RESTRICTIONS
Each holder of Old Notes has been deemed to have acknowledged, represented
to and agreed with the Company and the Initial Purchaser as follows:
1. It understands and acknowledges that the Old Notes have not been
registered under the Securities Act or any other applicable securities law, and
that the Old Notes are being offered for resale in transactions not requiring
registration under the Securities Act or any other securities laws, including
sales pursuant to Rule 144A, and, unless so registered, may not be offered, sold
or otherwise transferred except in compliance with the registration requirements
of the Securities Act or any other applicable securities laws, pursuant to an
exemption therefrom or in a transaction not subject thereto and in each case in
compliance with the conditions for transfer set forth in paragraph (4) below.
2. It is a "Qualified Institutional Buyer", as defined in Rule 144A (a
"QIB"), and is aware that any sale of the Old Notes to it will be made in
reliance on Rule 144A and such acquisition will be for its own account or for
the account of another QIB.
3. It acknowledges that neither the Company, the Guarantor Subsidiaries, the
Initial Purchaser nor any person representing the Company or the Initial
Purchaser has made any representation to it with respect to the Company, the
Guarantor Subsidiaries or the Old Notes Offering, other than the information
contained in the Offering Memorandum relating thereto, which has been delivered
to it and upon which it is relying in making its investment decision with
respect to the Old Notes. It has had access to such financial and other
information concerning the Company and the Old Notes as it has deemed necessary
in connection with its decision to purchase the Old Notes, including an
opportunity to ask questions of and request information from the Company, the
Guarantor Subsidiaries and the Initial Purchaser.
4. It is purchasing the Old Notes for its own account, or for one or more
investor accounts for which it is acting as a fiduciary or agent, in each case
not with a view to, or for offer or sale in connection with, any distribution
thereof in violation of the Securities Act, subject to any requirement of law
that the disposition of its property or the property of such investor account or
accounts be at all times within its or their control and subject to its or their
ability to resell such Old Notes pursuant to Rule 144A or any exemption from
registration available under the Securities Act. It agrees on its own behalf and
on behalf of any investor account for which it is purchasing the Old Notes, and
each subsequent holder of the Old Notes by its acceptance thereof will agree, to
offer, sell or otherwise transfer such Old Notes prior to the date which is two
years after the later of the date of original issue and the last date that the
Company or any affiliate of the Company was the owner of such Old Notes (or any
predecessor thereto) (the "Resale Restriction Termination Date") only (a) to the
Company, (b) pursuant to a registration statement that has been declared
effective under the Securities Act, (c) for so long as the Old Notes are
eligible for resale pursuant to Rule 144A, to a person it reasonably believes is
a QIB that purchases for its own account or for the account of a QIB to whom
notice is given that the transfer is being made in reliance on Rule 144A, (d)
pursuant to offers and sales that occur outside the United States within the
meaning of Regulation S under the Securities Act, (e) to an "Institutional
Accredited Investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under
the Securities Act (an "Institutional Accredited Investor") that is purchasing
for its own account or for the account of such an Institutional Accredited
Investor, in each case in a minimum principal amount of the Old Notes of
$250,000 or (f) pursuant to any other available exemption from the registration
requirements of the Securities Act, subject in each of the foregoing cases to
any requirement of law that the disposition of its property or the property of
such investor account or accounts be at all times within its or their control.
The foregoing restrictions on resale will not apply subsequent to the Resale
Restriction Termination Date. If any resale or other transfer of the Old Notes
is proposed to be made pursuant to clause (e) above prior to the Resale
Restriction Termination Date, the transferor shall deliver a letter from the
transferee substantially in the form of Annex A hereto the Company and the
Trustee, which shall provide, among other things, that the transferee is an
Institutional
109
<PAGE>
Accredited Investor that is acquiring such Old Notes not for distribution in
violation of the Securities Act. Each purchaser acknowledges that the Company
and the Trustee reserve the right prior to any offer, sale or other transfer
prior to the Resale Restriction Termination Date of the Old Notes pursuant to
clause (d), (e) or (f) above to require the delivery of an opinion of counsel,
certifications and/or each information satisfactory to the Company and the
Trustee. Each purchaser acknowledges that each Old Note will contain a legend
substantially to the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION
TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY
WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A)
TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON
IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE
UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E)
TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a)(1),
(2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS
OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN
EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION
WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER,
SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF
AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO
EACH OF THEM, AND IN THE CASE OF THE FOREGOING CLAUSE (E), A CERTIFICATE OF
TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED
AND DELIVERED BY THE TRANSFEROR TO THE COMPANY AND THE TRUSTEE. THIS LEGEND WILL
BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
5. Each purchaser, by its purchase of the Old Notes, shall be deemed to have
represented that (i) if it is an insurance company, the funds to be used to
purchase the Old Notes by it constitute (x) assets of an insurance company
general account maintained by it and the acquisition of each such Old Note by
such account satisfies the requirements of United States Department of Labor
Prohibited Transaction Class Exemption ("PTCE") 95-60 or (y) assets of an
insurance company pooled separate account satisfying the conditions of PTCE
90-1, and (ii) if it is not an insurance company, either (x) no part of the
funds to be used to purchase the Old Notes to be purchased by it constitute
assets allocated to any trust which contains the assets of any employee benefit
plan such that the use of such assets constitutes a non-exempt prohibited
transaction under ERISA or the Code or (y) such purchase is made on behalf of a
plan by (A) an investment advisor registered under the Investment Advisers Act
of 1940 that had as of the
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<PAGE>
last day of its most recent fiscal year total assets under its management and
control in excess of $50 million and had stockholders' or partners' equity in
excess of $0.75 million, as shown in its most recent balance sheet prepared in
accordance with generally accepted accounting principles, or (B) a bank as
defined in Section 202(a)(2) of the Investment Advisors Act of 1940 with equity
capital in excess of $1 million as of the last day of its most recent fiscal
year, or (C) an insurance company which is qualified under the laws of more than
one state to manage, acquire or dispose of any assets of a plan, which insurance
company had, as of its most recent fiscal year, net worth in excess of $1
million and which is subject to supervision and examination by state authorities
having supervision over insurance companies and, in any case, such investment
advisor, bank or insurance company is otherwise a qualified professional asset
manager, as such term is used in PTCE 84-14, and the assets of such plan when
combined with the assets of other plans established or maintained by the same
employer (or affiliate thereof) or employee organization and managed by such
investment advisor, bank or insurance company do not represent more than 20% of
the total client assets managed by such investment advisor, bank or insurance
company, and the conditions of Section 1 of such exemption are otherwise
satisfied. The representation is made in reliance upon the list furnished to the
purchaser by the Company and the Guarantor Subsidiaries of the employee benefit
plans with respect to which the Company or a Guarantor Subsidiary is a party in
interest or a disqualified person and is based upon the purchaser's
determination that a statutory or administrative exemption is applicable or that
the Company and its Affiliates are not parties in interest with respect to such
employee benefit plan. As used in this paragraph, the terms "employee benefit
plan" and "party in interest" shall have the meaning assigned to such term in
Section 3 of ERISA, the term "Affiliate" shall have the meaning assigned to such
terms in Section 407(d)(7) of ERISA and the term "disqualified person" shall
have the meaning assigned to such term in Section 4975 of the Code.
6. It acknowledges that the Company, the Guarantor Subsidiaries, the Initial
Purchaser and others will rely upon the truth and accuracy of the foregoing
acknowledgments, representations and agreements and agrees that, if any of the
acknowledgments, representations or warranties deemed to have been made by it by
its purchase of Old Notes are no longer accurate, it shall promptly notify the
Company, the Guarantor Subsidiaries and the Initial Purchaser. If it is
acquiring any Old Notes as a fiduciary or agent for one or more investor
accounts, it represents that it has sole investment discretion with respect to
each such account and that is has full power to make the foregoing
acknowledgments, representations and agreements on behalf of each such account.
BOOK ENTRY; DELIVERY AND FORM
Except as set forth below, the Exchange Notes will initially be issued in
the form of one or more registered Notes in global form without coupons (each a
"Global Note"). Each Global Note will be deposited on the date of the acceptance
for exchange of the Old Notes and the issuance of the Exchange Notes (the
"Closing Date") with, or on behalf of, DTC and registered in the name of Cede &
Co., as nominee of DTC, or will remain in the custody of the Trustee pursuant to
the FAST Balance Certificate Agreement between DTC and the Trustee.
DTC has advised the Company that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a member of the Federal
Reserve system, (iii) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (iv) a "Clearing Agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants (collectively, the "Participants") and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
Participants include securities brokers and dealers (including the Initial
Purchaser), banks and trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies (collectively, the "Indirect
Participants")
111
<PAGE>
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly. Holders who are not Participants may beneficially
own securities held by or on behalf of the Depository only through Participants
or Indirect Participants.
The Company expects that pursuant to procedures established by DTC (i) upon
deposit of the Global Notes, DTC will credit the accounts of Participants
designated by the Initial Purchaser with an interest in the Global Notes and
(ii) ownership of the Exchange Notes will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by DTC (with
respect to the interest of Participants), the Participants and the Indirect
Participants. The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own and that security
interests in negotiable instruments can only be perfected by delivery of
certificates representing the instruments. Consequently, the ability to transfer
Exchange Notes or to pledge the Exchange Notes as collateral will be limited to
such extent.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the Exchange Notes represented by such Global Note for all purposes under the
Indenture. Except as provided below, owners of beneficial interests in a Global
Note will not be entitled to have Exchange Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of certificated securities (the "Certificated Securities"), and will
not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to the giving of any direction, instruction or
approval to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in Exchange Notes represented by a Global Note to pledge
or transfer such interest to persons or entities that do not participate in
DTC's system or to otherwise take action with respect to such interest, may be
effected by the lack of a physical certificate evidencing such interest.
Accordingly, each holder owning a beneficial interest in a Global Note must
rely on the procedures of DTC and, if such holder is not a Participant or an
Indirect Participant, on the procedures of the Participant through which such
holder owns its interest, to exercise any rights of a holder of Exchange Notes
under the Indenture or such Global Note. The Company understands that under
existing industry practice, in the event the Company requests any action of
holders of Exchange Notes or a holder that is an owner of a beneficial interest
in a Global Note desires to take any action that DTC, as the holder of such
Global Note, is entitled to take, DTC would authorize the Participants to take
such action and the Participants would authorize holders owning through such
Participants to take such action or would otherwise act upon the instruction of
such holders. Neither the Company nor the Trustee will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of Exchange Notes by DTC, or for maintaining, supervision or reviewing
any records of DTC relating to such Exchange Notes.
Payments with respect to the principal of, premium, if any, and interest on,
any Exchange Notes represented by a Global Note registered in the name of DTC or
its nominee on the applicable record date will be payable by the Trustee to or
at the direction of DTC or its nominee in its capacity as the registered holder
of the Global Note representing such notes under the Indenture. Under the terms
of the Indenture, the Company and the Trustee may treat the persons in whose
names the Exchange Notes, including the Global Notes, are registered as the
owners thereof for the purpose of receiving such payment and for any and all
other purposes whatsoever. Consequently, neither the Company nor the Trustee has
or will have any responsibility or liability for the payment of such amounts to
beneficial owner of interest in a Global Note (including principal, premium, if
any, and interest), or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their respective
holdings in principal amount of beneficial interest in such Global Note as shown
on the records of DTC. Payments by the Participants and the Indirect
Participants to the beneficial owners of interest in a Global Note will be
governed by standing instruction and customary practice and will be the
responsibility of the Participants or the Indirect Participants and DTC.
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CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depository or DTC ceases to be a registrant as a
clearing agency under the Exchange Act and the Company is unable to locate a
qualified successor within 90 days (ii) the issuer, at its option, notifies the
Trustee in writing that it elects to cause the issuance of Exchange Notes in
definitive form under the indenture or (iii) upon the occurrence of certain
other events, then, upon surrender by DTC of the Global Notes, Certificated
Securities will be issued to each person that DTC identifies as the beneficial
owner of the Exchange Notes represented by the Global Notes. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of such person or persons (or the nominees of any thereof), and cause
the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related Exchange Notes and each such person may conclusively rely on, and
shall be protected in relying on, instructions from DTC for all purposes
(including with respect to the registration and delivery, and the respective
principal amounts, of the Exchange Notes to be issued).
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. The Company has agreed that, for a period of 180 days
after the Expiration Date, it will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, for a period of 180 days after the Expiration Date, all
dealers effecting transactions in the Exchange Notes may be required to deliver
a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
Holders of the Old Notes) other than commissions or concessions of any
broker-dealers and will indemnify the Holders of the Old Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
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LEGAL MATTERS
Certain legal matters with respect to the validity of the Notes will be
passed upon for the Company by Winston & Strawn, Chicago, Illinois.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1995
and 1996 and for the years ended December 31, 1994, 1995 and 1996, included in
or incorporated by reference into this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included or incorporated herein in reliance upon the authority of said firm as
experts in giving said reports.
The consolidated financial statements of Truck Components Inc. as of
December 31, 1993 and 1994 and for each of the two years in the period ended
December 31, 1993, the period from January 1, 1994 to May 9, 1994 and the period
from May 10, 1994 to December 31, 1994 included in this Prospectus and the
Registration Statement of which this Prospectus forms a part have been audited
by Ernst and Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere in this Prospectus and Registration Statement, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
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GLOSSARY OF CERTAIN TERMS
The following industry terms have the meanings set forth below for purposes
of this Prospectus.
<TABLE>
<S> <C>
ABS: Anti-lock brake system.
AUTO-FLOOD-TM-: The Company's product name for an aluminum, rapid discharge
open hopper car that offers more capacity than conventional
steel automatic discharge cars.
AUTOMATIC SLACK ADJUSTER: A mechanism that reacts to, and adjusts for, variations in
brake shoe-to-drum clearance, maintains the proper amount of
space between the shoe and drum and thereby eliminates the need
for manual adjustment.
BRAKE DRUM: A metal cylinder to which pressure is applied by a braking
mechanism in order to arrest rotation of the wheel to which the
cylinder is attached.
BRAKE ROTOR: Device which works with a vehicle's braking system to stop the
vehicle.
COVERED HOPPER CAR: A totally contained freight car used to haul agricultural,
chemical and mineral products.
GONDOLA CAR: Open-top freight car principally used for hauling coal which
discharges through a rotary dump mechanism. Gondolas are also
used to haul products such as ore, scrap metal and other items.
INTERMODAL CAR: Freight car used primarily for moving containers and trailers
that can be placed on trucks and ships as well as freight cars.
OEM: Original equipment manufacturer.
OPEN HOPPER CAR: Freight car which discharges its load from the bottom of the
car.
QUAD HOPPER CAR: A type of open hopper car which discharges through four doors
on the bottom of the freight car.
SPOKE WHEELS: Along with the wheel hub, it is the connecting piece between
the brake system and the axle upon which the rim and tire are
mounted.
WHEEL HUBS: Along with the spoke wheel, it is the connecting piece between
the brake system and the axle upon which the rim and tire are
mounted.
</TABLE>
115
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
JOHNSTOWN AMERICA INDUSTRIES, INC. CONSOLIDATED FINANCIAL STATEMENTS
Audited Consolidated Financial Statements
Report of Independent Public Accountants................................................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996............................................. F-3
Consolidated Statements of Income for the years ended December 31, 1994,
1995 and 1996.......................................................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1994,
1995 and 1996.......................................................................................... F-5
Notes to Consolidated Financial Statements............................................................... F-6
Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1996 and June 30, 1997.......................... F-32
Condensed Consolidated Statements of Income for the six months ended June 30,
1996 and 1997.......................................................................................... F-33
Condensed Consolidated Statements of Cash Flows for the six months ended June 30,
1996 and 1997.......................................................................................... F-34
Notes to Condensed Consolidated Financial Statements..................................................... F-35
TRUCK COMPONENTS INC. CONSOLIDATED FINANCIAL STATEMENTS
Audited Consolidated Financial Statements
Report of Independent Auditors........................................................................... F-44
Consolidated Balance Sheets as of December 31, 1993 and 1994............................................. F-45
Consolidated Statements of Income for the years ended December 31, 1992, 1993 and 1994................... F-46
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1992, 1993
and 1994............................................................................................... F-47
Consolidated Statements of Cash Flows for the years ended December 31, 1992, 1993 and 1994............... F-48
Notes to Consolidated Financial Statements............................................................... F-49
Unaudited Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1994 and June 30, 1995 (unaudited).............. F-62
Condensed Consolidated Statements of Income for the six months ended June 30, 1994 and 1995
(unaudited)............................................................................................ F-63
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1994 and 1995
(unaudited)............................................................................................ F-64
Notes to Condensed Consolidated Financial Statements (unaudited)......................................... F-65
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Johnstown America Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Johnstown
America Industries, Inc. (a Delaware corporation) and Subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of income
and cash flows for each of the three years in the period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Johnstown
America Industries, Inc. and Subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 27, 1997
F-2
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS:
Cash and cash equivalents............................................................. $ 11,639 $ 24,535
Accounts receivable, net.............................................................. 59,959 49,346
Inventories........................................................................... 43,900 49,589
Deferred income tax assets............................................................ 14,157 16,143
Prepaid expenses and other current assets............................................. 8,778 3,217
----------- -----------
Total current assets.................................................................... 138,433 142,830
Property, plant and equipment, net.................................................... 128,770 123,859
Leasing business assets, net.......................................................... 35,655 23,255
Restricted cash....................................................................... 1,364 578
Deferred financing costs, net......................................................... 15,110 13,099
Intangible assets, net................................................................ 259,493 251,662
----------- -----------
Total assets............................................................................ $ 578,825 $ 555,283
----------- -----------
----------- -----------
LIABILITIES:
Accounts payable...................................................................... $ 39,647 $ 43,325
Accrued payroll and employee benefits................................................. 26,101 20,220
Other current liabilities............................................................. 31,175 34,830
Current maturities of long-term debt and capital lease................................ 16,813 17,236
----------- -----------
Total current liabilities............................................................... 113,736 115,611
Long-term debt and capital lease, less current maturities............................. 212,973 186,939
Senior subordinated notes............................................................. 100,000 100,000
Deferred income tax liabilities....................................................... 28,136 29,214
Other long-term liabilities........................................................... 55,106 59,982
----------- -----------
Total liabilities....................................................................... 509,951 491,746
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par, 20,000 shares authorized, none
outstanding......................................................................... -- --
Common stock, $.01 par, 201,000 shares authorized, 9,731
and 9,754 issued and outstanding as of December 31, 1995 and
1996, respectively.................................................................. 98 98
Paid-in capital....................................................................... 55,015 55,049
Retained earnings..................................................................... 13,791 8,420
Employee receivables for stock purchase............................................... (30) (30)
----------- -----------
Total shareholders' equity.............................................................. 68,874 63,537
----------- -----------
Total liabilities and shareholders' equity.............................................. $ 578,825 $ 555,283
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net manufacturing sales.................................................... $ 468,070 $ 666,028 $ 555,510
Leasing revenue............................................................ 455 2,573 4,462
----------- ----------- -----------
Total revenue.......................................................... 468,525 668,601 559,972
Cost of sales--manufacturing............................................... 442,020 608,328 472,054
Cost of leasing............................................................ 133 654 2,104
----------- ----------- -----------
Gross profit........................................................... 26,372 59,619 85,814
Selling, general and administrative expenses............................... 13,144 28,117 46,605
Amortization expense....................................................... 3,573 6,478 10,174
Gain on sale of leased freight cars........................................ -- -- (1,354)
----------- ----------- -----------
Operating income....................................................... 9,655 25,024 30,389
Interest expense, net...................................................... 266 13,782 33,015
Interest expense--leasing.................................................. -- 920 2,821
----------- ----------- -----------
Income (loss) before income taxes...................................... 9,389 10,322 (5,447)
Provision (benefit) for income taxes....................................... 3,692 4,737 (76)
----------- ----------- -----------
Net income (loss)...................................................... $ 5,697 $ 5,585 $ (5,371)
----------- ----------- -----------
----------- ----------- -----------
Income (loss) per common share............................................. $ .58 $ .57 $ (.55)
----------- ----------- -----------
----------- ----------- -----------
Weighted average common and common equivalent shares outstanding........... 9,844 9,799 9,794
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-4
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
---------- ------------ ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).......................................................... $ 5,697 $ 5,585 $ (5,371)
Adjustments to reconcile net income (loss) to net cash provided by (used
for) operating activities:
Depreciation........................................................... 2,813 7,656 14,772
Amortization........................................................... 3,532 8,235 14,498
Deferred income tax expense (benefit).................................. (40) 2,563 58
Provision for postretirement benefits.................................. 1,580 1,987 1,671
Gain on sale of leased freight cars.................................... -- -- (1,354)
Change in operating assets and liabilities, net of effect of
acquired businesses:
Accounts receivable.................................................... (5,612) 26,689 10,613
Inventories............................................................ (30,112) 34,101 (5,689)
Prepaid expenses and other current assets.............................. 787 4,481 14,091
Accounts payable....................................................... 15,872 (29,447) 3,677
Accrued payroll and employee benefits.................................. 333 18,066 (5,177)
Other assets and liabilities........................................... 4,004 (27,784) (5,411)
---------- ------------ ----------
Net cash provided by (used for) operating activities....................... (1,146) 52,132 36,378
INVESTING ACTIVITIES:
Capital expenditures................................................... (7,295) (14,954) (9,919)
Leasing business asset additions....................................... (4,842) (31,377) (5,438)
Proceeds from sale of leased freight cars.............................. -- -- 18,113
Acquisition of TCI, less cash acquired................................. -- (266,081) --
Acquisition of Bostrom, less cash acquired............................. -- (32,444) --
Change in restricted cash/other........................................ 201 (1,354) 786
---------- ------------ ----------
Net cash provided by (used for) investing activities....................... (11,936) (346,210) 3,542
FINANCING ACTIVITIES:
Payments of term loans and capital lease............................... -- (46) (16,812)
Net (payments) borrowings of JAIX Leasing debt......................... -- 22,381 (8,799)
Net (payments) borrowings under revolving loans........................ 7,600 (7,600) --
Issuance of long-term debt............................................. -- 305,300 --
Proceeds from the issuance of common stock, net........................ 100 45 35
Payment of deferred financing costs.................................... -- (16,117) (1,448)
---------- ------------ ----------
Net cash provided by (used for) financing activities....................... 7,700 303,963 (27,024)
---------- ------------ ----------
Net increase (decrease) in cash and cash equivalents....................... (5,382) 9,885 12,896
Cash and cash equivalents, beginning of year............................... 7,136 1,754 11,639
---------- ------------ ----------
Cash and cash equivalents, end of year..................................... $ 1,754 $ 11,639 $ 24,535
---------- ------------ ----------
---------- ------------ ----------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
Johnstown America Industries, Inc. (JAII) has three operating groups within
the transportation industry: truck components and assemblies operations, a
leading manufacturer of wheel end components, seating, steerable drive axles and
gear boxes for the heavy-duty truck industry; iron castings operations, a major
producer of complex iron castings for a wide range of industries; and freight
car operations, a leading manufacturer and lessor of new and rebuilt freight
cars used for hauling coal, intermodal containers, highway trailers,
agricultural and mining products.
On October 28, 1991, Johnstown America Corporation (JAC), wholly owned by
Johnstown America Industries, Inc., a Delaware corporation, consummated the
purchase of the former Freight Car Division of Bethlehem Steel Corporation.
JAII completed the acquisition of Truck Components Inc. (TCI) and its
subsidiaries (Gunite Corporation, Brillion Iron Works, Inc. and Fabco Automotive
Corporation) on August 23, 1995, and Bostrom Seating, Inc. (Bostrom) on January
13, 1995. Both acquisitions were accounted for under the purchase method of
accounting and accordingly, the operating results of these acquired businesses
are included herein from their respective acquisition dates. Operations
commenced on October 2, 1995, at the Freight Car Services, Inc. facility.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application
of the following significant accounting policies:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of JAII and its
wholly owned subsidiaries. All significant intercompany transactions and
accounts have been eliminated in the accompanying consolidated financial
statements.
CASH EQUIVALENTS
The Company considers all short-term investments with original maturities of
three months or less when acquired to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. The cost of 47% and
53% of the Company's inventories as of December 31, 1995 and 1996, respectively,
was determined on the first-in, first-out (FIFO) method, with the cost of the
remaining inventories, representing certain inventories at TCI and Bostrom,
determined on the last-in, last-out method. Had all inventories been determined
on the FIFO method at December 31, 1995 and 1996, the reported value of such
inventories would have been increased by $.1 million and $1.0 million,
respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated
depreciation. The cost of property, plant and equipment acquired as part of a
business acquisition represents the fair market value of such
F-6
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
assets at the acquisition date typically as determined by independent appraisal.
Depreciation is provided using the straight-line method by making periodic
charges to income over the estimated useful lives of the assets, which are as
follows:
<TABLE>
<S> <C>
Buildings and improvements..................................... 10-40 years
Machinery and equipment........................................ 3-12 years
</TABLE>
Property, plant and equipment under capital leases are amortized over the
shorter of the estimated useful life of the asset or the term of the lease.
Maintenance and repairs are charged to expense as incurred, while major
replacements and improvements are capitalized. The cost and accumulated
depreciation of items sold or retired are removed from the property accounts and
any gain or loss is recorded currently in the consolidated statements of income.
RESEARCH AND DEVELOPMENT
Costs associated with research and development are expensed as incurred.
LEASING BUSINESS ASSETS
Leasing business assets, which primarily consist of freight cars, are stated
at cost, which is the fully absorbed cost for those assets self-constructed by
the Company, less accumulated depreciation. Freight cars are being depreciated
using the straight-line method over the estimated useful life of 20-30 years.
INTANGIBLE ASSETS
The excess of purchase costs over amounts allocated to identifiable assets
and liabilities of businesses acquired (goodwill) is amortized on the
straight-line method over 40 years. Should events or circumstances occur
subsequent to the acquisition of a business which bring into question the
realizable value or impairment of the related goodwill, the Company will
evaluate the remaining useful life and balance of goodwill and make appropriate
adjustments. The Company's principle considerations in determining impairment
include the strategic benefit to the Company of the particular business as
measured by undiscounted current and expected future operating cash flows of
that particular business. Should an impairment be identified, a loss would be
reported to the extent that the carrying value exceeds the fair value of that
goodwill as determined by valuation techniques available in the circumstances.
Other intangible assets are amortized on the straight-line method over their
estimated useful lives, which are as follows:
<TABLE>
<S> <C>
Trademarks..................................................... 40 years
Technologies................................................... 13-40 years
Patents........................................................ 8 years
Noncompete agreement........................................... 5 years
Organization costs............................................. 5 years
</TABLE>
F-7
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The significant majority of the Company's intangible assets relates to TCI
and, to a much lesser extent, to Bostrom. Both TCI and Bostrom had positive
earnings contributions to the consolidated results of the Company in 1996. There
have been no events or circumstances subsequent to the acquisition of TCI which
bring into question the realizable value, impairment or life of the related
goodwill or other intangible assets. In the case of Bostrom, while operating
results have not been as positive as pre-acquisition results, its level of
operating results do not indicate that an impairment has occurred.
WARRANTY COSTS
The Company provides, by a current charge to income, an amount it estimates
will be needed to cover future warranty obligations for products sold during the
period of sale.
ENVIRONMENTAL RESERVES
The Company is subject to comprehensive and frequently changing federal,
state and local environmental laws and regulations, and will incur additional
capital and operating costs in the future to comply with currently existing laws
and regulations, new regulatory requirements arising from recently enacted
statutes and possible new statutory enactments. In addition to environmental
laws that regulate the Company's ongoing operations, the Company is also subject
to environmental remediation liability. It is the Company's policy to provide
and accrue for the estimated cost of environmental matters, on a non-discounted
basis, when it is probable that a liability has been incurred and the amount of
the liability can be reasonably estimated. Such provisions and accruals exclude
claims for recoveries from insurance carriers or other third parties.
Statement of Position (SOP) 96-1, "Environmental Remediation Liabilities"
was issued in October 1996 and will be adopted by the Company in 1997. This new
SOP provides authoritative guidance on specific accounting issues that are
present in the recognition, measurement and disclosure of environmental
remediation liabilities. Management does not believe that the impact, if any, of
adopting this SOP will have a material effect on the Company's financial
position or results of operations.
INCOME TAXES
The Company provides for deferred income taxes on differences that arise
when items are reported for financial statement purposes in years different from
those for income tax reporting purposes in conformance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
REVENUE RECOGNITION
Revenues on new and rebuilt freight cars are recognized when individual cars
are completed and accepted by the customer's inspector. Revenue from leasing is
recognized ratably during the lease term. All other revenue is recognized when
the products are shipped.
PER SHARE INFORMATION
Earnings (loss) per common share have been computed based on the weighted
average common and common equivalent shares outstanding. Common equivalent
shares result from the assumed
F-8
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
exercise of outstanding stock options that have a dilutive effect when applying
the treasury stock method. Primary and fully diluted earnings (loss) per share
are the same.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," was issued in March 1995 and was adopted
by the Company in 1996. This new pronouncement establishes standards on when to
review long-lived assets and certain identifiable intangible assets for
impairment and how to measure that impairment. The adoption of this standard had
an immaterial effect on the Company's financial position and results of
operations. SFAS No. 123, "Accounting for Stock-Based Compensation," was issued
in October 1995. This new pronouncement establishes financial accounting and
reporting standards for stock-based employee compensation plans and requires a
fair value based method to determine the compensation cost of such plans. As
allowed by the standard, the Company has provided supplemental pro forma
disclosure of the effect of such adoption in Note 10.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts to conform to
the current year presentation.
NOTE 3. ACQUISITIONS
BOSTROM SEATING INC.
On January 13, 1995, the Company acquired Bostrom. The total purchase price
was approximately $32.4 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 of $2.6 million through 1996 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 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. The Company also made a tender offer for $82 million of TCI's
outstanding senior notes and purchased such notes for $94 million. The
acquisition and tender
F-9
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. ACQUISITIONS (CONTINUED)
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 6 and 7). Certain
transactions related to the acquisition resulted in significant income tax
refunds for TCI which were reflected as prepaid expenses and other assets in the
accompanying balance sheet as of December 31, 1995 and were collected in 1996.
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, based on management's best judgment and available information at the time.
Changes to the original estimates, some of which were made in 1996, were not
material.
The operating results of the acquired companies have been included in the
Company's reported results of operations from their respective acquisition
dates.
The Company's pro forma unaudited consolidated results of operations for the
years ended December 31, 1994 and 1995 were prepared as though the acquisitions
of Bostrom and TCI and the related financing transactions occurred on January 1,
of the applicable year. Pro forma data is as follows:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Total revenues...................................................... $ 837,983 $ 900,924
Gross profit........................................................ 102,138 108,976
Net income.......................................................... 7,617 10,068
Net income per share................................................ $ 0.77 $ 1.03
----------- -----------
----------- -----------
</TABLE>
The pro forma operating results include each acquiree's pre-acquisition
results of operations for the indicated years with adjustments to reflect
amortization of excess cost over net assets acquired and other identified
intangible assets, additional depreciation on the increase to fair market value
of fixed assets, interest expense on the acquisition borrowings and the effect
of income taxes thereon. The pro forma information given above does not purport
to be indicative of the results that actually would have been obtained if the
operations were combined during the periods presented and is not intended to be
a projection of future results or trends.
NOTE 4. DETAIL OF CERTAIN ASSETS AND LIABILITIES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Balance at beginning of year............................................. $ -- $ 1,690
Provision for doubtful accounts........................................ 60 538
Net write-offs......................................................... -- (345)
Allowances for doubtful accounts from acquired businesses.............. 1,630 --
--------- ---------
Balance at end of year................................................... $ 1,690 $ 1,883
--------- ---------
--------- ---------
</TABLE>
F-10
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. DETAIL OF CERTAIN ASSETS AND LIABILITIES (CONTINUED)
INVENTORIES
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Raw materials and purchased components............................... $ 14,287 $ 10,289
Work in progress and finished goods.................................. 29,613 39,300
--------- ---------
Inventories............................................................ $ 43,900 $ 49,589
--------- ---------
--------- ---------
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
Land.............................................................. $ 4,144 $ 4,466
Buildings and improvements........................................ 24,665 26,310
Machinery and equipment........................................... 108,953 114,820
Construction in progress.......................................... 4,176 4,722
----------- -----------
141,938 150,318
Accumulated depreciation.......................................... 13,168 26,459
----------- -----------
Property, plant and equipment, net.................................. $ 128,770 $ 123,859
----------- -----------
----------- -----------
</TABLE>
LEASING BUSINESS ASSETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Leasing business assets.............................................. $ 36,080 $ 23,884
Accumulated depreciation............................................. 425 629
--------- ---------
Leasing business assets, net........................................... $ 35,655 $ 23,255
--------- ---------
--------- ---------
</TABLE>
F-11
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. DETAIL OF CERTAIN ASSETS AND LIABILITIES (CONTINUED)
INTANGIBLE ASSETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------
NET BALANCE
ACCUMULATED ------------------------
ORIGINAL COST AMORTIZATION 1995 1996
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Excess cost over net assets acquired................... $ 204,520 $ 7,955 $ 199,470 $ 196,565
Trademarks............................................. 26,988 931 26,755 26,057
Technologies........................................... 20,722 1,094 20,448 19,628
Patents................................................ 17,278 8,217 10,891 9,061
Noncompete agreement................................... 8,625 8,625 1,437 --
Organization costs..................................... 742 391 492 351
------------- ------------- ----------- -----------
Intangible assets........................................ $ 278,875 $ 27,213 $ 259,493 $ 251,662
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
</TABLE>
OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Accrued interest..................................................... $ 6,212 $ 7,039
Accrued workers' compensation........................................ 5,875 5,456
Current portion of postretirement and pension benefit reserves....... 4,576 3,536
Accrued warranty..................................................... 3,810 4,090
Other................................................................ 10,702 14,709
--------- ---------
Other current liabilities.............................................. $ 31,175 $ 34,830
--------- ---------
--------- ---------
</TABLE>
OTHER LONG-TERM LIABILITIES
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Postretirement and pension benefit reserves.......................... $ 28,676 $ 29,414
Environmental reserves............................................... 24,290 25,568
Other................................................................ 2,140 5,000
--------- ---------
Other long-term liabilities............................................ $ 55,106 $ 59,982
--------- ---------
--------- ---------
</TABLE>
F-12
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON PAID-IN WARRANTS RETAINED EMPLOYEE
STOCK CAPITAL OUTSTANDING EARNINGS RECEIVABLES TOTAL
------------- --------- ------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Balance-December 31, 1993...................... $ 93 $ 53,986 $ 938 $ 2,509 $ (291) $ 57,235
Collection of employee receivables........... -- -- -- -- 201 201
Options exercised............................ 1 97 -- -- -- 98
Warrants exercised........................... 4 937 (938) -- -- 3
Net income for year.......................... -- -- -- 5,697 -- 5,697
--- --------- ------ ----------- ------ ---------
Balance-December 31, 1994...................... 98 55,020 -- 8,206 (90) 63,234
Collection of employee receivables........... -- -- -- -- 10 10
Options exercised............................ -- 45 -- -- -- 45
Stock subscription cancellation.............. -- (50) -- -- 50 --
Net income for year.......................... -- -- -- 5,585 -- 5,585
--- --------- ------ ----------- ------ ---------
Balance-December 31, 1995...................... 98 55,015 -- 13,791 (30) 68,874
Options exercised............................ -- 34 -- -- -- 34
Net loss for year............................ -- -- -- (5,371) -- (5,371)
--- --------- ------ ----------- ------ ---------
Balance-December 31, 1996...................... $ 98 $ 55,049 $ -- $ 8,420 $ (30) $ 63,537
--- --------- ------ ----------- ------ ---------
--- --------- ------ ----------- ------ ---------
</TABLE>
COMMON AND PREFERRED STOCK
The Company has authorized 200,000,000 shares of Common Stock (voting),
1,000,000 shares of Class B Common Stock (non-voting) and 20,000,000 shares of
preferred stock. No Class B Common Stock or preferred stock has been issued.
In October 1995, the Board of Directors of the Company adopted a Shareholder
Rights Plan and declared a dividend of one right ("Right") for each outstanding
share of the Company's common stock held by shareholders of record on October
16, 1995. When exercisable, each Right entitles shareholders of record to
purchase from the Company one one-thousandth of a share of Series A Junior
Participating Preferred Stock at an exercise price of $32.00, subject to certain
adjustments. The Company authorized 20,000 shares of such stock pursuant to this
plan. The Rights will become exercisable, and will trade separately from the
common stock, only if a person or group acquires 15% or more of the Company's
outstanding common stock or commences a tender or exchange offer that would
result in that person or group owning 15% or more of the Company's outstanding
common stock. Subsequently, upon the occurrence of certain events, holders of
Rights will be entitled to purchase common stock of the Company or a third-party
acquiror at an amount equal to twice the Right's exercise price. Until the
Rights become exercisable, they may be redeemed at the Company's option at a
price of one cent per Right. The Rights expire on October 4, 2005.
F-13
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1995 1996
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
Revolving Loan...................................................... $ -- $ --
Tranche A Term Loan................................................. 100,000 86,670
Tranche B Term Loan................................................. 100,000 96,670
----------- -----------
Total Senior Bank Facilities........................................ 200,000 183,340
Industrial Revenue Bond........................................... 5,300 5,300
Capital lease..................................................... 2,105 1,953
JAIX Leasing debt................................................. 22,381 13,582
----------- -----------
Total debt.......................................................... 229,786 204,175
Current maturities................................................ (16,813) (17,236)
----------- -----------
Long-Term debt...................................................... $ 212,973 $ 186,939
----------- -----------
----------- -----------
</TABLE>
Maturities of long-term debt as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1997.......................................................................... $ 17,236
1998.......................................................................... 20,623
1999.......................................................................... 27,347
2000.......................................................................... 34,087
2001.......................................................................... 34,012
Thereafter.................................................................... $ 70,870
</TABLE>
SENIOR BANK FACILITIES
The Company entered into a credit facility (the Senior Bank Facilities) on
August 23, 1995, in conjunction with the acquisition of TCI and the related
transactions described in Note 3. 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 December 31, 1996, availability under the Revolving Loans, after
consideration of outstanding letters of credit of $17.6 million, was $44.9
million. At the Company's election, interest rates per annum for the Revolving
Loans and Tranche A Term Loan are fluctuating rates 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 shall 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 the 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. As of December 31, 1995 and 1996, the weighted average
interest rate of all outstanding loans under the Senior Bank Facilities was
9.40% and 9.21%, respectively. Borrowings under the Senior Bank Facilities are
guaranteed by each of the Company's subsidiaries other than JAIX Leasing (the
Guarantor Subsidiaries) and are secured by the assets and stock of the Company
and its Guarantor Subsidiaries.
F-14
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. LONG-TERM DEBT (CONTINUED)
The term loans under the Senior Bank Facilities began amortizing quarterly
on March 31, 1996. The Tranche A Term Loan and the Revolving Loans mature on
March 31, 2002 and the Tranche B Term Loan matures on March 31, 2003.
The Senior Bank Facilities contain various financial covenants including
capital expenditure limitations, minimum 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.
INDUSTRIAL REVENUE BOND
The Company, through its wholly owned subsidiary, Freight Car Services,
Inc., issued an Industrial Revenue Bond for $5.3 million which bears interest at
a variable rate (4.5% as of December 31, 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 the 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 Bond, the Company has restricted
cash at December 31, 1996 of $.6 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 Inc., Danville facility.
JAIX LEASING DEBT
On May 12, 1995, JAIX Leasing entered into a three-year term loan agreement.
On June 14, 1996, JAIX Leasing refinanced this debt with a $27.7 million (as
amended) ten-year term loan which bears interest at an average interest rate of
9.32%. At December 31, 1996, the balance of this debt after scheduled and other
prepayments was $13.6 million. This debt is secured by the JAIX Leasing
underlying leases and assets and contains various covenants.
OTHER
During 1995 and 1996, the Company entered into various interest rate
contracts to fix a portion of 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
covering the current period on the interest rate contracts was $165 million and
$140 million as of December 31, 1995 and 1996, respectively. The fixed rates of
interest on these contracts ranged from 5.98% to 6.32% (plus the applicable
borrowing margin) as of December 31, 1995 and 1996, respectively. The maturities
on these contracts range from May 1997, through August 1998. The impact of fixed
versus variable interest rates is recorded as incurred, as a component of
interest expense. Costs associated with obtaining the Senior Bank Facilities,
the Senior Subordinated Notes described in Note 7 and other indebtedness
aggregate to $17.2 million. Such costs are amortized over the term of the
related debt. Previously deferred financing costs, which were not material, were
written off when proceeds from the Senior Bank Facilities were used to retire
the related debt. Amortization of deferred financing costs amounted to $.9
million and $3.2 million for the years ended December 31, 1995 and 1996,
respectively. Such amortization was not
F-15
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. LONG-TERM DEBT (CONTINUED)
material in 1994. As of December 31, 1995 and 1996, accumulated amortization of
such costs was $.9 million and $4.1 million, respectively.
NOTE 7. SENIOR SUBORDINATED NOTES
In conjunction with the acquisition of TCI, the Company issued $100 million
of Senior Subordinated Notes (the Notes) which are due August 15, 2005. These
Notes have an interest rate of 11.75% per annum and are guaranteed on an
unsecured, senior subordinated joint and several basis by each of the Guarantor
Subsidiaries. Pursuant to the settlement of an interest rate contract in effect
when the Notes were issued, the Company realized a $2.6 million gain upon such
issuance. The gain is being amortized as an offset to interest expense over the
term of the Notes. 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.
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.
NOTE 8. EMPLOYEE BENEFIT PLANS
PENSION BENEFITS
Certain of the Company's subsidiaries have qualified, defined benefit plans
covering substantially all of their employees. Company contributions to the
plans were made based upon the minimum amounts required under the Employee
Retirement Income Security Act (ERISA). The plans' assets are held by
independent trustees and consist primarily of equity and fixed income
securities.
In conjunction with the purchase of the freight car business, the accrued
pension benefits for employees of the freight car business for service up to the
acquisition date remain the responsibility of Bethlehem Steel. The Company
initiated new pension plans for service subsequent to the acquisition date which
essentially provide benefits similar to the former plans. Following the
acquisition of TCI, certain TCI plans were frozen and were replaced with a
defined contribution plan.
F-16
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table summarizes total pension expense:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Current service cost......................................... $ 1,487 $ 1,681 $ 2,189
Interest cost on projected benefit obligation................ 789 1,714 2,173
Expected return on assets.................................... (375) (1,896) (2,143)
Amortization of unrecognized gains and losses................ 140 1,571 1,208
--------- --------- ---------
Net pension cost............................................... $ 2,041 $ 3,070 $ 3,427
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table sets forth the plans' funded status:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
Vested benefits................................................... $ 17,658 $ 20,508
Nonvested benefits................................................ 5,006 3,380
----------- -----------
Accumulated benefits obligation..................................... 22,664 23,888
Effect of projected future compensation levels.................... 11,071 8,256
----------- -----------
Projected benefits obligation....................................... 33,735 32,144
Plan assets at fair value......................................... 14,177 20,311
----------- -----------
Projected benefits obligation in excess of plan assets.............. 19,558 11,833
Unrecognized net (loss) gain...................................... (3,739) 2,569
Unrecognized prior service cost................................... (5,673) (5,298)
----------- -----------
Net pension reserves recorded in the accompanying balance
sheets.......................................................... $ 10,146 $ 9,104
----------- -----------
----------- -----------
Actuarial assumptions used in developing the above data were:
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Discount rate..................................................... 7.50% 7.75%
Rate of expected return on plan assets............................ 9.00% 9.00%
Rate of increased in compensation................................. 4.00-6.00% 3.00-4.00%
</TABLE>
DEFINED CONTRIBUTION PLANS
Certain of the Company's subsidiaries also maintain qualified, defined
contribution plans which provide benefits to their employees based on employee
contributions, years of service, employee earnings or certain subsidiary
earnings, with discretionary contributions allowed. Expenses relating to these
plans were $1.6 million, $2.4 million and $3.1 million for the years ended
December 31, 1994, 1995 and 1996, respectively.
F-17
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. EMPLOYEE BENEFIT PLANS (CONTINUED)
POSTRETIREMENT BENEFITS
The Company provides health care benefits for certain salaried and hourly
retired employees. Employees may become eligible for health care benefits if
they retire after attaining specified age and service requirements. These
benefits are subject to deductibles, co-payment provisions and other
limitations.
In connection with the purchase of the freight car business, the expected
cost of postretirement benefits of employees over age 43 at the purchase date
remained the responsibility of Bethlehem Steel. Costs of benefits relating to
current service are expensed currently.
The following table summarizes postretirement benefits expense:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Current service cost............................................................. $ 998 $ 1,043 $ 854
Interest cost on accumulated benefit obligation.................................. 582 1,001 1,340
Amortization of unrecognized gains............................................... -- (57) (183)
--------- --------- ---------
Net postretirement benefits costs.................................................. $ 1,580 $ 1,987 $ 2,011
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following table sets forth the plans funded status:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Retirees................................................................................. $ 6,329 $ 6,308
Other fully eligible plan participants................................................... 3,208 4,828
Other active plan participants........................................................... 11,650 7,712
--------- ---------
Accumulated benefits obligation............................................................ 21,187 18,848
Unrecognized net gain.................................................................... 1,919 4,998
--------- ---------
Net postretirement benefits reserve recorded in the accompanying balance sheets............ $ 23,106 $ 23,846
--------- ---------
--------- ---------
</TABLE>
The discount rates used in developing the above data was 9.00% in 1994, and
ranged from 7.25% to 7.75% in 1995 and from 7.50% to 8.00% in 1996.
Medical trend rate assumptions were 10.25% in 1994, 8.00% to 9.50% for 1995
and 5.25% to 9.00% for 1996, incrementally decreasing to and remaining at 5.00%
for 2001 and later. Were the assumed medical trend rates to be increased by 1%
for each future year, the effect of this change would be to increase the
accumulated postretirement benefit by $4.4 million and $4.0 million at December
31, 1995 and 1996, respectively, and the aggregate service and interest cost
components by $.6 million, $.7 million and $.6 million for the years ended
December 31, 1994, 1995 and 1996, respectively.
The Company does not offer any other significant post-employment benefits.
F-18
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INCOME TAXES
The provision (benefit) for income taxes includes current and deferred
components as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Current taxes:
Federal....................................................... $ 2,929 $ 1,853 $ --
State......................................................... 803 321 (134)
--------- --------- ---------
3,732 2,174 (134)
--------- --------- ---------
Deferred taxes:
Federal....................................................... (54) 2,227 (444)
State......................................................... 14 336 502
--------- --------- ---------
(40) 2,563 58
--------- --------- ---------
Provision (benefit) for income taxes............................ $ 3,692 $ 4,737 $ (76)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The provision (benefit) for income taxes differs from the amounts computed
by applying the federal statutory rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Income taxes at federal statutory rate................................ 34.0% 34.0% (34.0%)
State income taxes, net of federal benefit............................ 4.3 4.2 (0.1)
Nondeductible amortization expense.................................... 0.7 7.2 32.7
Other, net............................................................ 0.3 0.5 --
--- --- ---------
Effective income tax rate............................................. 39.3% 45.9% (1.4)%
--- --- ---------
--- --- ---------
</TABLE>
Components of deferred tax benefits (obligations) consist of the following:
<TABLE>
<CAPTION>
1995 1996
---------------------- ----------------------
DESCRIPTION BENEFITS OBLIGATIONS BENEFITS OBLIGATIONS
- --------------------------------------------------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Postretirement and pension benefit reserves.................... $ 13,495 $ -- $ 13,257 $ --
Environmental reserve.......................................... 9,801 -- 10,299 --
Deferred employee compensation................................. 5,684 -- 3,787 --
Accrued workers' compensation reserve.......................... 2,201 -- 2,128 --
Warranty reserve............................................... 1,486 -- 1,595 --
Alternative minimum tax credit carry forward................... 1,116 -- 4,042 --
Property, plant and equipment.................................. -- (28,297) -- (28,104)
Trademarks and technologies.................................... -- (20,526) -- (19,776)
Inventories.................................................... -- (3,381) -- (2,973)
Other.......................................................... 5,325 (883) 4,182 (1,508)
--------- ----------- --------- -----------
Deferred tax benefits (obligations).......................... $ 39,108 $ (53,087) $ 39,290 $ (52,361)
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>
F-19
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INCOME TAXES (CONTINUED)
In the consolidated balance sheets, these deferred benefits and deferred
obligations are classified as deferred income tax assets or deferred income tax
liabilities, based on the classification of the related asset or liability for
financial reporting. A deferred tax liability or asset that is not related to an
asset or liability for financial reporting, including deferred tax assets
related to carry forwards, are classified according to the expected reversal
date of the temporary difference as of the end of the year. Credit carry
forwards primarily consist of alternative minimum taxes, which can be carried
forward indefinitely, and certain state tax net operating losses subject to
various limitations which expire, if unused, primarily in 1998 and 1999 under
the current tax laws.
A valuation allowance of $.3 million and $2.1 million as of December 31,
1995 and 1996, has been recorded to offset these state tax credit carry
forwards. As of December 31, 1995 and 1996, no other valuation allowances are
deemed necessary as management expects to realize all other deferred benefits as
future tax deductions.
NOTE 10. STOCK OPTION PLANS
The Company maintains a Stock Option Plan (the Option Plan) for management
and non-affiliated directors of the Company and has reserved 989,000 shares of
common stock for issuance under such plan. Options are granted to management at
the discretion of the Company's directors and pursuant to an option program for
non-affiliated Company directors. Options granted under the Option Plan
generally have an exercise price equal to the closing market value of the
Company's common stock as of the date of grant, and become exercisable under
various vesting periods of up to three years.
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
---------------------------- ----------------------------
WTD. AVG. EXER. WTD. AVG. EXER.
SHARES PRICE SHARES PRICE
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT WEIGHTED AVERAGE PRICES)
December 31, 1993....................... 178 $ 3.72 178 $ 3.72
Issued.............................. 109 20.07
Exercised........................... (60) 2.50
--- ------- --- -------
December 31, 1994....................... 227 11.89 210 4.31
Issued.............................. 399 10.88
Exercised........................... (18) 2.50
Cancelled........................... (25) 4.90
--- ------- --- -------
December 31, 1995....................... 583 11.79 277 11.18
Issued.............................. 178 4.82
Exercised........................... (14) 2.50
Cancelled........................... (74) 12.17
--- ------- --- -------
December 31, 1996....................... 673 $ 10.10 472 $ 10.82
--- ------- --- -------
--- ------- --- -------
</TABLE>
F-20
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. STOCK OPTION PLANS (CONTINUED)
<TABLE>
<CAPTION>
RANGE OF EXERCISE WTD. AVG. WTD. AVG. EXER. WTD. AVG. EXER.
PRICES SHARES REMAINING YRS. PRICE SHARES PRICE
- ----------------------- ----------- ----------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
EXERCISABLE--
OUTSTANDING--DECEMBER 31, 1996 DECEMBER 31, 1996
----------------------------------------------- ----------------------------
<CAPTION>
(IN THOUSANDS, EXCEPT LIVES AND PRICES)
<S> <C> <C> <C> <C> <C>
$2.50 - $12.00......... 434 8.67 $ 6.08 301 $ 6.42
$12.00 - $25.63........ 239 7.80 17.42 171 18.57
--- --- ------- --- -------
--- --- ------- --- -------
</TABLE>
The Company measures compensation cost under the intrinsic value-based
method. Had compensation cost been determined on the fair market value-based
accounting method for options granted in 1995 and 1996, pro forma net income and
earnings per share for 1995 would have been $5.1 million and $.52, respectively,
and pro forma net loss and loss per share for 1996 would have been $6.1 million
and $.62, respectively. The weighted average fair value of options granted in
1995 and 1996 was $8.44 and $2.34 for December 31, 1995 and 1996, respectively.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: weighted
average risk-free interest rate of 6.9% and 7.1%; weighted average volatility of
60.6% and 56.6%; expected lives of 10 years and zero dividend yield for 1995 and
1996, respectively.
NOTE 11. ENVIRONMENTAL MATTERS
The Company is subject to comprehensive and frequently changing federal,
state and local environmental laws and regulations, and will incur additional
capital and operating costs in the future to comply with currently existing laws
and regulations, new regulatory requirements arising from recently enacted
statutes and possible new statutory enactments. In addition to environmental
laws that regulate the Company's subsidiaries' ongoing operations, the
subsidiaries also are subject to environmental remediation liability. Under the
federal Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) and analogous state laws, the Company's subsidiaries may be liable as a
result of the release or threatened release of hazardous substances into the
environment. The Company's subsidiaries are currently involved in several
matters relating to the investigation and/or remediation of locations where the
subsidiaries had arranged for the disposal of foundry and other wastes.
Such matters include five situations in which the Company, through its TCI
subsidiaries and their predecessors, have been named or are believed to be
potentially responsible parties (PRPs) in the contamination of the sites.
Additionally, environmental remediation may be required at two of the TCI
facilities at which soil and ground water contamination has been identified.
The Company believes that it has valid claims for contractual
indemnification against prior owners for certain of the investigatory and
remedial costs at each of the above mentioned sites. The Company has been
notified, however, by all contractual indemnitors that they will not honor
future claims for indemnification. Accordingly, the Company is litigating
indemnification claims and there is no assurance that even if successful in any
such claims, any judgments against the indemnitors will ultimately be
recoverable. In addition, the Company believes it is likely that it has incurred
some liability at various sites for activities and disposal following
acquisition which would not in any event be covered by indemnification by prior
owners.
As of December 31, 1996, the Company has a $26.4 million environmental
reserve. This reserve is based on current cost estimates and does not reduce
estimated expenditures to net present value. The Company currently anticipates
spending approximately $500,000 per year for the next three years and
F-21
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. ENVIRONMENTAL MATTERS (CONTINUED)
approximately $1 million per year in years 2000 and 2001 for monitoring the
various environmental sites associated with the environmental reserve, including
attorney and consultant costs for strategic planning and negotiations with
regulators and other PRPs, and payment of remedial investigation costs. The
Company expects to fund such expenditures with the cash flow generated from its
operations and amounts available under its Revolving Loans. These sites are
generally in the early investigatory stages of the remediation process and thus
it is anticipated that significant cash payments for remediation will not be
incurred for at least several years. After the evaluation and investigation
period, the investigation and remediation costs will likely increase because the
actual remediation of the various environmental sites associated with the
environmental reserve will likely be under way. 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 PRPs 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 under CERCLA or the uncertainties
referred to above could result in such a material adverse effect.
NOTE 12. CONTINGENCIES
The Company is involved in certain threatened and pending legal proceedings
including workers' compensation claims arising out of the conduct of its
businesses. In the opinion of management, the ultimate outcome of such legal
proceedings will not have a material adverse effect on the financial position or
results of operations of the Company.
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-Registered Trademark-
freight car was tried in 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. JAC expects the appeal to be decided in mid
to late 1997. 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.
F-22
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. CONTINGENCIES (CONTINUED)
Additionally, the Company is involved in various warranty and repair claims
with its customers as a normal course of business. In the opinion of management,
accrued warranty costs relating to these obligations are adequate.
NOTE 13. COMMITMENTS
The Company leases certain real property and equipment under long-term
leases expiring at various dates through 2032. The leases generally contain
specific renewal or purchase options at the then fair market value.
Future minimum lease payments at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASE OPERATING LEASE
-------------- ----------------
<S> <C> <C>
(IN THOUSANDS)
1997........................................................ $ 395 $ 3,484
1998........................................................ 395 3,135
1999........................................................ 395 2,850
2000........................................................ 395 2,653
2001........................................................ 395 2,130
Thereafter.................................................. 2,408 25,384
------- --------
------- --------
Total minimum lease payments............................ $ 4,383 $ 39,636
Less: Amount representing interest.......................... 2,430
-------
Present value of minimum lease payments................. 1,953
Less: Current portion of obligation under capital lease..... 170
-------
Noncurrent obligation under capital lease................... $ 1,783
-------
-------
</TABLE>
While the Company is liable for maintenance, insurance and similar costs
under most of its leases, such costs are not included in the future minimum
lease payments.
The Company assumed the capital lease in its acquisition of TCI. The related
asset balance of $1.9 million is included as a component of buildings and
improvements. Accumulated depreciation of this asset was $.1 million and $.2
million as of December 31, 1995 and 1996, respectively.
Total rental expense for the years ended December 31, 1995 and 1996 amounted
to $2.0 million and $3.7 million, respectively. Rental expense for the year
ended December 31, 1994 was not material.
NOTE 14. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT
In each of 1994, 1995 and 1996, a different customer accounted for 31%, 17%
and 13% of the Company's total revenue.
A small number of customers often represent a significant portion of JAC's
revenues, in a given year, due to the large average size of orders from the
freight car business. With the acquisition of TCI and Bostrom, the Company's
revenue base is less concentrated.
F-23
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. UNAUDITED QUARTERLY INFORMATION
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1995
- ----------------------------
Total revenue............... $ 178,438 $ 166,731 $ 166,881 $ 156,551
Gross profit................ 11,327 13,946 14,077 20,269
Net income (loss)........... 3,022 3,356 198 (991)
------------- ---------------- ------------- ---------------
Net income (loss) per
share................. $ 0.31 $ 0.34 $ 0.02 $ (0.10)
------------- ---------------- ------------- ---------------
------------- ---------------- ------------- ---------------
1996
- ----------------------------
Total revenue............... $ 152,339 $ 133,290 $ 140,845 $ 133,498
Gross profit................ 23,211 21,482 20,533 20,588
Net income (loss)........... (728) (1,224) (1,563) (1,856)
------------- ---------------- ------------- ---------------
Net income (loss) per
share................. $ (0.07) $ (0.13) $ (0.16) $ (0.19)
------------- ---------------- ------------- ---------------
------------- ---------------- ------------- ---------------
</TABLE>
F-24
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. GUARANTOR SUBSIDIARIES
The Notes and the obligations under the Senior Bank Facilities 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,
Guarantor Subsidiaries and JAIX Leasing as of and for the years ended December
31, 1995 and 1996. Separate complete financial statements of the respective
Guarantors 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.
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PARENT GUARANTOR JAIX
COMPANY SUBSIDIARIES LEASING ELIMINATIONS CONSOLIDATED
---------- ------------ --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Total revenue................................. $ 80 $ 666,695 $ 1,826 $ -- $ 668,601
Cost of sales................................. (7) 608,491 498 -- 608,982
---------- ------------ --------- ------------ -------------
Gross profit................................ 87 58,204 1,328 -- 59,619
Selling, general, administrative and
amortization expenses....................... 4,181 30,414 -- -- 34,595
---------- ------------ --------- ------------ -------------
Operating income (loss)..................... (4,094) 27,790 1,328 -- 25,024
Interest expense, net......................... 2,186 11,615 901 -- 14,702
Equity (earnings) of subsidiaries............. (10,062) -- -- 10,062 --
Provision (benefit) for income taxes.......... (1,803) 6,376 164 -- 4,737
---------- ------------ --------- ------------ -------------
Net income (loss)............................. $ 5,585 $ 9,799 $ 263 $ (10,062) $ 5,585
---------- ------------ --------- ------------ -------------
---------- ------------ --------- ------------ -------------
</TABLE>
F-25
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
PARENT GUARANTOR JAIX
COMPANY SUBSIDIARIES LEASING ELIMINATIONS CONSOLIDATED
----------- ------------ --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Cash and cash equivalents................... $ 16,896 $ (6,156) $ 899 $ -- $ 11,639
Accounts receivable, net.................... -- 59,814 145 -- 59,959
Inventories................................. -- 43,900 -- -- 43,900
Prepaid expenses and other.................. 5,320 17,218 437 (40) 22,935
----------- ------------ --------- ------------ -------------
Total current assets...................... 22,216 114,776 1,481 (40) 138,433
Property, plant and equipment, net.......... 2,446 128,275 33,993 (289) 164,425
Other assets................................ 112,988 257,538 226 (94,785) 275,967
----------- ------------ --------- ------------ -------------
Total assets................................ $ 137,650 $ 500,589 $ 35,700 $ (95,114) $ 578,825
----------- ------------ --------- ------------ -------------
----------- ------------ --------- ------------ -------------
Accounts payable............................ $ 1,836 $ 37,807 $ 4 $ -- $ 39,647
Other current liabilities................... 22,973 51,169 92 (145) 74,089
----------- ------------ --------- ------------ -------------
Total current liabilities................... 24,809 88,976 96 (145) 113,736
Noncurrent liabilities...................... -- 82,326 916 -- 83,242
Long-term debt, less current maturities and
intercompany advances (receivables)....... 43,967 242,042 26,964 -- 312,973
Total shareholders equity................... 68,874 87,245 7,724 (94,969) 68,874
----------- ------------ --------- ------------ -------------
Total liabilities and shareholders'
equity.................................... $ 137,650 $ 500,589 $ 35,700 $ (95,114) $ 578,825
----------- ------------ --------- ------------ -------------
----------- ------------ --------- ------------ -------------
</TABLE>
F-26
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PARENT GUARANTOR JAIX
COMPANY SUBSIDIARIES LEASING ELIMINATIONS CONSOLIDATED
---------- ------------ --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Cash Flows provided by Operating
Activities................................. $ 1,571 $ 49,372 $ 1,189 $ -- $ 52,132
---------- ------------ --------- ------------ -------------
Cash Flows from Investing Activities:
Capital expenditures......................... (42) (14,912) -- -- (14,954)
Leased assets................................ (1,951) (4,573) (33,999) -- (31,377)
Acquisition of TCI, less cash acquired....... -- (266,081) -- -- (266,081)
Acquisition of Bostrom, less cash acquired... -- (32,444) -- -- (32,444)
Increase in restricted cash/other............ 10 (1,364) -- -- (1,354)
---------- ------------ --------- ------------ -------------
Cash (used for) investing activities......... (1,983) (310,228) (33,999) (346,210)
---------- ------------ --------- ------------ -------------
Cash Flows from Financing Activities:
Revolving loan, net.......................... (7,600) -- -- -- (7,600)
Issuance of long-term debt................... 300,000 5,300 -- -- 305,300
Issuance of JAIX Leasing debt................ -- -- 22,381 -- 22,381
Intercompany advances........................ (259,393) 247,773 11,620 -- --
Deferred financing costs paid/other.......... (15,658) (168) (292) -- (16,118)
---------- ------------ --------- ------------ -------------
Cash provided by financing activities........ 17,349 252,905 33,709 -- 303,963
Net increase (decrease) in cash and cash
equivalents................................ 16,937 (7,951) 899 -- 9,885
---------- ------------ --------- ------------ -------------
Cash and Cash Equivalents, beginning of
year....................................... (41) 1,795 -- -- 1,754
---------- ------------ --------- ------------ -------------
Cash and Cash Equivalents, end of year....... $ 16,896 $ (6,156) $ 899 $ -- $ 11,639
---------- ------------ --------- ------------ -------------
---------- ------------ --------- ------------ -------------
</TABLE>
F-27
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GUARANTOR
PARENT COMPANY SUBSIDIARIES JAIX LEASING ELIMINATIONS CONSOLIDATED
---------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Total revenue...................... $ 114 $ 555,509 $ 4,349 $ -- $ 559,972
Cost of sales...................... 42 472,053 2,063 -- 474,158
------- ------------ ------------- ------------ -------------
Gross profit....................... 72 83,456 2,286 -- 85,814
Selling, general, administrative
and amortization expenses........ 1,202 55,577 -- -- 56,779
Gain on sale of leased freight
cars............................. -- -- (1,354) -- (1,354)
------- ------------ ------------- ------------ -------------
Operating income (loss)............ (1,030) 27,879 3,640 -- 30,389
Interest expense, net.............. 11,421 21,697 2,718 -- 35,836
Equity (earnings) of
subsidiaries..................... (1,947) -- -- 1,947 --
Provision (benefit) for income
taxes............................ (5,233) 4,789 368 -- (76)
------- ------------ ------------- ------------ -------------
Net income (loss).................. $ (5,371) $ 1,393 $ 554 $ (1,947) $ (5,371)
------- ------------ ------------- ------------ -------------
------- ------------ ------------- ------------ -------------
</TABLE>
F-28
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
GUARANTOR
PARENT COMPANY SUBSIDIARIES JAIX LEASING ELIMINATIONS CONSOLIDATED
---------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Cash and cash equivalents.......... $ 18,060 $ 1,483 $ 4,992 $ -- $ 24,535
Accounts receivable, net........... 28 49,162 156 -- 49,346
Inventories........................ -- 49,589 -- -- 49,589
Prepaid expenses and other......... 2,979 16,008 373 -- 19,360
---------------- ------------ ------------- ------------ -------------
Total current assets............... 21,067 116,242 5,521 -- 142,830
Property, plant and equipment,
net.............................. 7,577 123,128 16,960 (551) 147,114
Other assets....................... 108,822 255,913 401 (99,797) 265,339
---------------- ------------ ------------- ------------ -------------
Total assets....................... $ 137,466 $ 495,283 $ 22,882 $ (100,348) $ 555,283
---------------- ------------ ------------- ------------ -------------
---------------- ------------ ------------- ------------ -------------
Accounts payable................... $ 201 $ 42,993 $ 131 $ -- $ 43,325
Other current liabilities.......... 18,390 55,835 (1,728) (211) 72,286
---------------- ------------ ------------- ------------ -------------
Total current liabilities.......... 18,591 98,828 (1,597) (211) 115,611
Noncurrent liabilities............. -- 85,716 3,480 -- 89,196
Long-term debt, less current
maturities and intercompany
advances (receivables)........... 55,338 218,425 13,176 -- 286,939
Total shareholders' equity......... 63,537 92,314 7,823 (100,137) 63,537
---------------- ------------ ------------- ------------ -------------
Total liabilities and shareholders
equity........................... $ 137,466 $ 495,283 $ 22,882 $ (100,348) $ 555,283
---------------- ------------ ------------- ------------ -------------
---------------- ------------ ------------- ------------ -------------
</TABLE>
F-29
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GUARANTOR
PARENT COMPANY SUBSIDIARIES JAIX LEASING ELIMINATIONS CONSOLIDATED
---------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Cash Flows provided by Operating
Activities....................... $ (4,989) $ 40,087 $ 1,280 $ -- $ 36,378
-------- ------------ ------------- ------------ -------------
Cash Flows from Investing
Activities:
Capital expenditures............... (206) (9,713) -- -- (9,919)
Leased assets...................... (4,905) 279 (812) -- (5,438)
Cash from sale of leased assets.... -- -- 18,113 -- 18,113
Changes in restricted cash......... -- 786 -- -- 786
-------- ------------ ------------- ------------ -------------
Cash provided by (used for)
investing activities............. (5,111) (8,648) 17,301 -- 3,542
-------- ------------ ------------- ------------ -------------
Cash Flows from Financing
Activities:
Net payments under term loans...... (16,660) (152) -- -- (16,812)
Issuance (payment) JAIX Leasing
debt, net........................ -- -- (8,799) -- (8,799)
Change in intercompany advances.... 27,071 (23,634) (3,437) -- --
Dividends received (paid).......... 1,600 -- (1,600) -- --
Deferred financing costs paid...... (782) (14) (652) -- (1,448)
Other.............................. 35 -- -- -- 35
-------- ------------ ------------- ------------ -------------
Cash provided by (used for)
financing activities............. 11,264 (23,800) (14,488) -- (27,024)
Net increase (decrease) in cash and
cash equivalents................. 1,164 7,639 4,093 -- 12,896
-------- ------------ ------------- ------------ -------------
Cash and Cash Equivalents,
beginning of year................ 16,896 (6,156) 899 -- 11,639
-------- ------------ ------------- ------------ -------------
Cash and Cash Equivalents, end of
year............................. $ 18,060 $ 1,483 $ 4,992 $ -- $ 24,535
-------- ------------ ------------- ------------ -------------
-------- ------------ ------------- ------------ -------------
</TABLE>
F-30
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS
Based on borrowing rates currently available to the Company for borrowings
with similar terms and maturities, the fair value of the Company's debt was
approximately $320 million and $297 million as of December 31, 1995 and 1996,
respectively. No quoted market value is available except for the $100 million
Notes which had a market value of approximately $90 million and $97.5 million as
of December 31, 1995 and 1996. Outstanding interest rate contracts, based on
current market pricing models, have an estimated discounted fair market value of
negative $3.4 million and negative $.6 million as of December 31, 1995 and 1996,
respectively. All other financial instruments of the Company have fair market
values which approximate carrying value as of December 31, 1995 and 1996.
NOTE 18. SUPPLEMENTAL CASH FLOWS AND NON-CASH TRANSACTIONS DISCLOSURE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
--------- ----------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Cash paid for:
Interest............................................... $ 259 $ 7,718 $ 31,487
Income taxes........................................... 2,380 6,011 1,382
--------- ----------- ---------
Business acquisitions:
Cash paid.............................................. $ -- $ 300,624 $ --
Assets received........................................ -- 412,634 --
--------- ----------- ---------
Liabilities assumed.................................... $ -- $ 112,010 $ --
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
NOTE 19. SUBSEQUENT EVENT (UNAUDITED)
In September 1997, TCI and Gunite Corporation ("Gunite") settled two pending
environmental lawsuits. As a result of the settlement, the Company's reserve for
environmental matters was decreased by $14.3 million.
F-31
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
-------------- -----------
<S> <C> <C>
ASSETS:
Cash and cash equivalents.......................................................... $ 24,535 $ 17,311
Accounts receivable, net........................................................... 49,346 61,444
Inventories........................................................................ 49,589 54,435
Prepaid expenses and other......................................................... 19,360 18,730
-------------- -----------
Total current assets............................................................. 142,830 151,920
Property, plant and equipment, net................................................. 123,859 118,922
Leasing business assets, net....................................................... 23,255 39,530
Restricted cash.................................................................... 578 578
Deferred financing costs, net...................................................... 13,450 12,268
Intangible assets, net............................................................. 251,311 247,422
-------------- -----------
Total assets..................................................................... $ 555,283 $ 570,640
-------------- -----------
-------------- -----------
LIABILITIES:
Accounts payable................................................................... $ 43,325 $ 52,028
Accrued expenses and other payables................................................ 55,050 56,066
Current maturities of long-term debt, capital lease and JAIX Leasing debt.......... 17,236 18,916
-------------- -----------
Total current liabilities........................................................ 115,611 127,010
Long-term debt and capital lease, less current maturities............................ 173,763 163,668
JAIX Leasing debt, less current maturities........................................... 13,176 29,344
Other long-term liabilities.......................................................... 59,982 60,895
Senior subordinated notes............................................................ 100,000 100,000
Deferred income taxes................................................................ 29,214 28,591
SHAREHOLDERS' EQUITY:
Preferred stock, par $.01, 20,000 shares authorized, none outstanding.............. -- --
Common stock, par $.01, 201,000 shares authorized, 9,754 and 9,755 issued and
outstanding as of December 31, 1996 and June 30, 1997, respectively.............. 98 98
Paid-in capital.................................................................... 55,049 55,049
Retained earnings.................................................................. 8,420 6,015
Employee receivables for stock purchases........................................... (30) (30)
-------------- -----------
Total shareholders' equity....................................................... 63,537 61,132
-------------- -----------
Total liabilities and shareholders' equity....................................... $ 555,283 $ 570,640
-------------- -----------
-------------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-32
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
------------------------
<S> <C> <C>
1996 1997
----------- -----------
Net manufacturing sales............................................................ $ 283,626 $ 270,860
Leasing revenue.................................................................... 2,003 3,102
----------- -----------
Total revenue.................................................................. 285,629 273,962
Cost of sales--manufacturing....................................................... 240,180 231,031
Cost of leasing.................................................................... 679 1,489
----------- -----------
Gross profit................................................................... 44,770 41,442
Selling, general and administrative expenses....................................... 23,808 22,062
Amortization expense............................................................... 5,133 4,248
Gain on sale of leased freight cars................................................ -- (587)
----------- -----------
Operating income............................................................... 15,829 15,719
Interest expense, net.............................................................. 16,323 16,335
Interest expense--leasing.......................................................... 1,263 1,046
----------- -----------
Income (loss) before income taxes.............................................. (1,757) (1,662)
Provision (benefit)for income taxes................................................ 195 743
----------- -----------
Net income (loss).............................................................. $ (1,952) $ (2,405)
----------- -----------
----------- -----------
Net income (loss) per common and common equivalent shares
outstanding...................................................................... $ (0.20) $ (0.25)
----------- -----------
----------- -----------
Weighted average common and common equivalent shares............................... 9,757 9,805
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-33
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................................................. $ (1,952) $ (2,405)
Adjustments for items not affecting cash from operating activities:
Depreciation.................................................................. 7,655 7,807
Amortization--other........................................................... 5,590 4,859
Amortization--deferred financing costs........................................ 1,575 1,094
Gain on sale of leased freight cars........................................... -- (587)
Deferred tax expense (benefit)................................................ 786 (623)
Postretirement benefits....................................................... 1,273 1,080
Changes in operating assets and liabilities:
Accounts receivable, net...................................................... (2,927) (12,098)
Inventories................................................................... (710) (4,846)
Accounts payable.............................................................. 386 8,702
Other assets and liabilities.................................................. 1,988 2,886
--------- ---------
Net cash provided by operating activities..................................... 13,664 5,869
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures.......................................................... (4,914) (2,405)
Leasing business asset additions.............................................. (15) (25,682)
Proceeds from sales of leased freight cars.................................... -- 7,487
Other......................................................................... 663 13
--------- ---------
Net cash used for investing activities........................................ (4,266) (20,587)
--------- ---------
FINANCING ACTIVITIES:
Payments of term loans and capital lease...................................... (8,406) (8,415)
Net borrowings under JAIX Leasing loans....................................... 5,329 16,168
Payment of deferred financing costs........................................... (855) (259)
--------- ---------
Net cash provided by (used for) financing activities.......................... (3,932) 7,494
--------- ---------
Net increase (decrease) in cash and cash equivalents.......................... 5,466 (7,224)
Cash and cash equivalents, beginning of period................................ 11,639 24,535
--------- ---------
Cash and cash equivalents, end of period...................................... $ 17,105 $ 17,311
--------- ---------
--------- ---------
SUPPLEMENTAL CASH FLOWS DISCLOSURE
Cash paid for interest--other................................................. $ 14,733 $ 15,219
Cash paid for interest--JAIX Leasing.......................................... 1,263 1,037
Cash paid for income taxes.................................................... 587 508
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-34
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 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, 1996.
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.
NOTE 2. INVENTORIES
Inventories of the Company consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
-------------- ---------
<S> <C> <C>
Raw materials and purchased components...................................... $ 10,289 $ 7,408
Work-in-progress and finished goods......................................... 39,300 47,027
-------------- ---------
$ 49,589 $ 54,435
-------------- ---------
-------------- ---------
</TABLE>
NOTE 3. DEBT
Long-term debt of the Company (excluding JAIX Leasing) consisted of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
-------------- -----------
<S> <C> <C>
(IN THOUSANDS)
Revolving Loans............................................................ $ -- $ --
Tranche A Term Loans....................................................... 86,670 80,005
Tranche B Term Loans....................................................... 96,670 95,005
-------------- -----------
Total Senior Bank Facilities........................................... 183,340 175,010
Industrial Revenue Bonds................................................... 5,300 5,300
Capital lease.............................................................. 1,953 1,868
-------------- -----------
Total debt............................................................. 190,593 182,178
Less: Current maturities............................................. (16,830) (18,510)
-------------- -----------
Long-term debt......................................................... $ 173,763 $ 163,668
-------------- -----------
-------------- -----------
Long term debt of JAIX Leasing:
JAIX Leasing debt...................................................... $ 13,582 $ 29,750
Less: Current maturities............................................. (406) (406)
-------------- -----------
Long-term debt......................................................... $ 13,176 $ 29,344
-------------- -----------
-------------- -----------
</TABLE>
F-35
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. DEBT (CONTINUED)
SENIOR BANK FACILITIES
The Company entered into a credit facility ("Senior Bank Facilities") on
August 23, 1995, in conjunction with the acquisition of Truck Components Inc.
("TCI") and the related transactions. 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 June 30, 1997, availability under the Revolving Loans, after
consideration of outstanding letters of credit of $17.1 million, was $50.5
million.
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 amortize quarterly, 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 June 30, 1997, the Company was in compliance with these and
all other debt covenants.
JAIX LEASING DEBT
On June 14, 1996, JAIX Leasing entered into a ten-year term loan facility
which bears interest at an average interest rate of 8.78%. At June 30, 1997 the
facility had debt outstanding of $29.8 million. The facility, which is non
recourse to the Company, is secured by the underlying leases and assets and
contains various covenants.
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 (4.25% as of June 30, 1997) 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 June 30, 1997 of $0.6 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.
F-36
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. DEBT (CONTINUED)
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 $125 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 August 1997 through August 1998.
NOTE 4. 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, and 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.
The Company anticipates issuing $80 million of additional 11.75% senior
subordinated debt at a premium in August 1997 (the "New Notes"). The New Notes
will have the same terms and conditions as the original senior subordinated
debt. The proceeds will be used to pay down debt outstanding under the Senior
Bank Facilities. At the time of the issuance the Company expects to write off
about $3.4 million (pretax) $2.0 million (after tax) of deferred financing
costs. Based on current interest rates the Company expects that it will incur
additional interest expense of approximately $1.6 million, annually. Pursuant to
the terms of the Senior Bank Facilities, the Tranche B holders have elected not
to be prepaid. The annual future term loan payments after the prepayment of the
Senior Bank Facilities will be as follows: 1997 $1.7 million, 1998 $3.3 million,
1999 $3.3 million, 2000 $20.0 million, 2001 $23.3 million, 2002 $26.7 million
and 2003 $16.7 million.
Effective December 31, 1995 and 1996, the Company entered agreements with
the banks participating in the Senior Bank Facilities to reset certain of the
financial covenants for the following year. As a result of the most recent
agreement, the Company is in compliance with the covenants and restrictions
contained in the Senior Bank Facilities. In connection with the offering of the
New Notes, the Company amended the credit agreement to reset the financial
covenants for the remaining term of the agreement and to reduce the Revolving
Facility from $100 million to $75 million. The banks also have consented to the
issuance of the New Notes.
NOTE 5. 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
June 30, 1997, based on all of the information currently available to the
Company, the
F-37
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. ENVIRONMENTAL MATTERS (CONTINUED)
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.
NOTE 6. NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings Per
Share" was issued in February, 1997 and will be adopted by the Company effective
January 1, 1998. This new pronouncement establishes revised methods for
computing and reporting earnings per share. Adoption of this standard will not
materially impact previously reported earnings per share, including the per
share amount reported for the six months ended June 30, 1997.
SFAS No. 130, "Reporting Comprehensive Income" was issued in July 1997 and
will be adopted by the Company effective January 1, 1998. This new pronouncement
establishes standards for reporting and display of comprehensive income and its
components. Adoption of this standard will not impact the Company's financial
position or results of operations.
SFAS #131, "Disclosures About Segments of an Enterprise and Related
Information" introduces a new model for segment reporting, called the
"management approach." The management approach is based on the way that the
chief operating decision maker organizes segments within the company for making
operating decisions and assessing performance. Management of the Company is
evaluating this new pronouncement to determine its impact upon current
reporting. Adoption of this new standard is scheduled for early 1998.
NOTE 7. GUARANTOR SUBSIDIARIES
The Notes and the obligations under the Senior Bank Facilities 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 and for certain dates and
periods. 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.
F-38
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. GUARANTOR SUBSIDIARIES (CONTINUED)
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.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
PARENT GUARANTOR
COMPANY SUBSIDIARIES JAIX LEASING ELIMINATIONS CONSOLIDATED
----------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Cash and cash equivalents................ $ 18,060 $ 1,484 $ 4,991 $ -- $ 24,535
Accounts receivable, net................. 28 49,161 157 -- 49,346
Inventories.............................. -- 49,589 -- -- 49,589
Prepaid expenses and other............... 2,979 16,008 373 -- 19,360
----------- ------------ ------------- ------------ -------------
Total current assets................. 21,067 116,242 5,521 -- 142,830
Property, plant and equipment, net....... 7,577 123,128 16,960 (551) 147,114
Other assets............................. 108,822 255,913 401 (99,797) 265,339
----------- ------------ ------------- ------------ -------------
Total assets......................... $ 137,466 $ 495,283 $ 22,882 $ (100,348) $ 555,283
----------- ------------ ------------- ------------ -------------
----------- ------------ ------------- ------------ -------------
Accounts payable......................... $ 201 $ 42,993 $ 131 $ -- $ 43,325
Other current liabilities................ 18,390 55,835 (1,728) (211) 72,286
----------- ------------ ------------- ------------ -------------
Total current liabilities............ 18,591 98,828 (1,597) (211) 115,611
Noncurrent liabilities................... -- 85,716 3,480 -- 89,196
Long-term debt, less current maturities
and intercompany advances
(receivables).......................... 55,338 218,425 13,176 -- 286,939
Total shareholders' equity........... 63,537 92,314 7,823 (100,137) 63,537
----------- ------------ ------------- ------------ -------------
Total liabilities and shareholders'
equity............................. $ 137,466 $ 495,283 $ 22,882 $ (100,348) $ 555,283
----------- ------------ ------------- ------------ -------------
----------- ------------ ------------- ------------ -------------
</TABLE>
F-39
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PARENT GUARANTOR
COMPANY SUBSIDIARIES JAIX LEASING ELIMINATIONS CONSOLIDATED
----------- ------------ --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Total revenue........................... $ 20 $ 283,626 $ 1,983 $ -- $ 285,629
Cost of sales........................... (5) 240,180 684 -- 240,859
----------- ------------ ------- ------------ -------------
Gross profit........................ 25 43,446 1,299 -- 44,770
Selling, general, administrative and
amortization expenses................. (3) 28,944 -- -- 28,941
----------- ------------ ------- ------------ -------------
Operating income.................... 28 14,502 1,299 -- 15,829
Interest expense, net................... 5,550 10,816 1,220 17,586
Equity (earnings) of subsidiaries....... (2,343) -- -- 2,343 --
Provision (benefit) for income taxes.... (1,227) 1,389 33 -- 195
----------- ------------ ------- ------------ -------------
Net income (loss)................... $ (1,952) $ 2,297 $ 46 $ (2,343) $ (1,952)
----------- ------------ ------- ------------ -------------
----------- ------------ ------- ------------ -------------
</TABLE>
F-40
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PARENT GUARANTOR
COMPANY SUBSIDIARIES JAIX LEASING ELIMINATIONS CONSOLIDATED
----------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES...... $ (6,902) $ 19,643 $ 923 $ -- $ 13,664
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................. (204) (4,710) -- -- (4,914)
Leased assets and investments......... -- -- (15) -- (15)
Changes in restricted cash............ -- 663 -- -- 663
----------- ------------ ------------- ------------ -------------
Cash provided by (used for) investing
activities.............................. (204) (4,047) (15) -- (4,266)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under term loans......... (8,330) (76) -- -- (8,406)
Loan facility of leasing business..... -- -- 5,329 -- 5,329
Change in intercompany advances....... 14,038 (10,601) (3,437) -- --
Dividends received/ (paid)............ 500 -- (500) -- --
Deferred financing costs paid......... (421) (14) (420) -- (855)
----------- ------------ ------------- ------------ -------------
Cash provided by (used for) financing
activities.............................. 5,787 (10,691) 972 -- (3,932)
Net increase (decrease) in cash and cash
equivalents............................. (1,319) 4,905 1,880 -- 5,466
CASH AND CASH EQUIVALENTS, beginning of
period.................................. 16,896 (6,156) 899 -- 11,639
----------- ------------ ------------- ------------ -------------
CASH AND CASH EQUIVALENTS, end of
period.................................. $ 15,577 $ (1,251) $ 2,779 $ -- $ 17,105
----------- ------------ ------------- ------------ -------------
----------- ------------ ------------- ------------ -------------
</TABLE>
F-41
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
PARENT GUARANTOR
COMPANY SUBSIDIARIES JAIX LEASING ELIMINATIONS CONSOLIDATED
----------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Cash and cash equivalents................ $ 16,371 $ (1,645) $ 2,585 $ -- $ 17,311
Accounts receivable, net................. 33 61,281 130 -- 61,444
Inventories.............................. -- 54,435 -- -- 54,435
Prepaid expenses and other............... 2,465 17,756 (1,491) -- 18,730
----------- ------------ ------------- ------------ -------------
Total current assets................. 18,869 131,827 1,224 -- 151,920
Property, plant and equipment, net....... 2,641 118,139 38,014 (342) 158,452
Other assets............................. 108,826 248,088 625 (97,271) 260,268
----------- ------------ ------------- ------------ -------------
Total assets......................... $ 130,336 $ 498,054 $ 39,863 $ (97,613) $ 570,640
----------- ------------ ------------- ------------ -------------
----------- ------------ ------------- ------------ -------------
Accounts payable......................... $ -- $ 52,028 $ -- $ -- $ 52,028
Other current liabilities................ 17,942 58,231 (1,162) (29) 74,982
----------- ------------ ------------- ------------ -------------
Total current liabilities............ 17,942 110,259 (1,162) (29) 127,010
Noncurrent liabilities................... -- 86,006 3,480 -- 89,486
Long-term debt and intercompany advances,
less current maturities................ 51,262 212,406 29,344 -- 293,012
Total shareholders' equity............... 61,132 89,383 8,201 (97,584) 61,132
----------- ------------ ------------- ------------ -------------
Total liabilities and shareholders'
equity............................. $ 130,336 $ 498,054 $ 39,863 $ (97,613) $ 570,640
----------- ------------ ------------- ------------ -------------
----------- ------------ ------------- ------------ -------------
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PARENT GUARANTOR
COMPANY SUBSIDIARIES JAIX LEASING ELIMINATIONS CONSOLIDATED
----------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Total revenue............................. $ 220 $ 270,860 $ 2,882 $ -- $ 273,962
Cost of sales............................. 40 231,032 1,448 -- 232,520
----------- ------------ ------------- ------------ -------------
Gross profit.............................. 180 39,828 1,434 -- 41,442
Selling, general, administrative and
amortization expenses................... (193) 26,062 (146) -- 25,723
Operating income...................... 373 13,766 1,580 -- 15,719
Interest expense, net..................... 6,001 10,429 951 -- 17,381
Equity (earnings) of subsidiaries......... (1,047) -- -- 1,047 --
Provision (benefit) for income taxes...... (2,176) 2,668 251 -- 743
----------- ------------ ------------- ------------ -------------
Net income (loss)......................... $ (2,405) $ 669 $ 378 $ (1,047) $ (2,405)
----------- ------------ ------------- ------------ -------------
----------- ------------ ------------- ------------ -------------
</TABLE>
F-42
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PARENT GUARANTOR
COMPANY SUBSIDIARIES JAIX LEASING ELIMINATIONS CONSOLIDATED
----------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES...... $ (2,210) $ 5,187 $ 2,892 $ -- $ 5,869
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................. (98) (2,307) -- -- (2,405)
Leasing business assets and
investments......................... 13 -- (25,682) -- (25,669)
Proceeds from sale of leased freight
cars................................ 3,024 -- 4,463 -- 7,487
----------- ------------ ------------- ------------- -------------
Cash provided by (used for) investing
activities.......................... 2,939 (2,307) (21,219) -- (20,587)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of term loans and capital
lease............................... (8,330) (85) -- -- (8,415)
Loan facility of leasing business..... -- -- 16,168 -- 16,168
Intercompany advances................. 5,923 (5,923) -- -- --
Deferred financing costs paid......... (11) -- (248) -- (259)
----------- ------------ ------------- ------------- -------------
Cash provided by (used for) financing
activities.............................. (2,418) (6,008) 15,920 -- 7,494
Net increase (decrease) in cash and cash
equivalents............................. (1,689) (3,128) (2,407) -- (7,224)
CASH AND CASH EQUIVALENTS, beginning of
period.................................. 18,060 1,483 4,992 -- 24,535
----------- ------------ ------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of
period.................................. $ 16,371 $ (1,645) $ 2,585 $ -- $ 17,311
----------- ------------ ------------- ------------- -------------
----------- ------------ ------------- ------------- -------------
</TABLE>
NOTE 8. SUBSEQUENT EVENT
In September 1997, TCI and Gunite Corporation ("Gunite") settled two pending
environmental lawsuits. As a result of the settlement, the Company's reserve for
environmental matters was decreased by $14.3 million.
F-43
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE SHAREHOLDERS AND
THE BOARD OF DIRECTORS
OF TRUCK COMPONENTS INC.
We have audited the accompanying consolidated balance sheets of Truck
Components Inc. and subsidiaries as of December 31, 1993 (pre-acquisition) and
December 31, 1994 (post-acquisition), and the related consolidated statements of
income, changes in shareholders' equity and cash flows for each of the two years
in the period ended December 31, 1993, for the period from January 1, 1994 to
May 9, 1994 (pre-acquisition), and May 10, 1994 to December 31, 1994
(post-acquisition). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Truck
Components Inc. and subsidiaries at December 31, 1993 and 1994, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1993 and for the period from January
1, 1994 to May 9, 1994, and May 10, 1994 to December 31, 1994, in conformity
with generally accepted accounting principles.
As discussed in Notes to the Consolidated Financial Statements, in 1993 the
Company changed its method of accounting for income taxes and postretirement
benefits other than pensions.
ERNST & YOUNG LLP
Chicago, Illinois
February 8, 1995
F-44
<PAGE>
TRUCK COMPONENTS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1994
----------------- ------------------
<S> <C> <C>
(PRE-ACQUISITION) (POST-ACQUISITION)
Current assets:
Cash $ 567 $ 703
Receivables, less allowance of $409 and $1,148, respectively................... 33,817 43,246
Inventories.................................................................... 21,376 23,877
Deferred income taxes.......................................................... 4,248 3,523
Other current assets........................................................... 3,127 3,900
----------------- ----------
Total current assets............................................................. 63,135 75,249
Property, plant and equipment.................................................... 87,916 86,580
Accumulated depreciation......................................................... (37,849) (4,960)
----------------- ----------
Net property, plant and equipment................................................ 50,067 81,620
Deferred income taxes............................................................ 7,981 11,864
Goodwill, net of accumulated amortization of $4,434 and $746..................... 23,886 48,669
Debt issuance cost, net of accumulated amortization of $3,521 and $172........... 1,642 1,185
Trademarks, net of accumulated amortization of $450.............................. -- 27,450
Technology, net of accumulated amortization of $528.............................. -- 21,270
----------------- ----------
$ 146,711 $ 267,307
----------------- ----------
----------------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings.......................................................... $ 14,000 $ --
Accounts payable............................................................... 14,918 19,736
Accrued expenses............................................................... 16,784 26,676
Deferred income taxes.......................................................... 2,978 2,745
Income tax payable............................................................. -- 955
Current portion of old senior debt and capital lease obligations............... 8,123 137
----------------- ----------
Total current liabilities........................................................ 56,803 50,249
Bank debt........................................................................ -- 6,524
New senior debt.................................................................. -- 80,008
Old senior debt.................................................................. 4,000 --
Subordinated note due to shareholder............................................. 36,553 --
Capital lease obligation......................................................... 2,242 2,106
Deferred income taxes............................................................ 9,574 39,696
Accrued retiree health care costs................................................ 4,340 11,019
Accrued environmental costs...................................................... 16,000 16,000
Preferred stock, at redemption value............................................. 14,000 --
Commitments and contingencies (NOTES 14 AND 16)
COMMON SHAREHOLDERS' EQUITY
Common stock, $.01 par value; 30,000,000 shares authorized; 10,494,500 shares
issued and outstanding.......................................................... -- 105
Common stock, $.01 par value; 250,000 shares authorized; 200,000 shares issued
and outstanding................................................................. 2 --
Additional paid-in capital....................................................... 1,998 55,379
Note receivable from officers.................................................... -- (395)
Retained earnings................................................................ 1,199 6,616
----------------- ----------
Total common shareholders' equity................................................ 3,199 61,705
----------------- ----------
$ 146,711 $ 267,307
----------------- ----------
----------------- ----------
</TABLE>
See notes to consolidated financial statements.
F-45
<PAGE>
TRUCK COMPONENTS INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRE-ACQUISITION
---------------------------------------- POST-ACQUISITION
---------------
YEAR ENDED DECEMBER 31 JANUARY 1, MAY 10, 1994 TO
------------------------ 1994 TO MAY 9, DECEMBER 31,
1992 1993 1994 1994
----------- ----------- -------------- ---------------
Net Sales....................... $ 220,136 $ 265,609 $ 112,092 $ 200,708
<S> <C> <C> <C> <C>
Cost of goods sold.............. 182,723 232,067 87,817 160,573
----------- ----------- -------------- ---------------
Gross profit.................... 37,413 33,542 24,275 40,135
Operating expenses:
Selling and administrative...... 16,346 20,208 8,021 12,510
Engineering and development..... 1,547 1,481 529 973
Other........................... 1,374 465 487 2,057
----------- ----------- -------------- ---------------
19,267 22,154 9,037 15,540
----------- ----------- -------------- ---------------
Operating income................ 18,146 11,388 15,238 24,595
Interest expense................ 7,231 6,134 2,023 9,354
----------- ----------- -------------- ---------------
Income before income tax
provision and extraordinary
item and cumulative effect of
accounting change.............. 10,915 5,254 13,215 15,241
Income tax provision............ 4,228 2,294 5,453 6,263
----------- ----------- -------------- ---------------
Income before extraordinary item
and cumulative effect of
accounting change.............. 6,687 2,960 7,762 8,978
Extraordinary items, net of tax -- -- -- (2,293)
Cumulative effect of accounting
change......................... -- (2,549) -- --
----------- ----------- -------------- ---------------
Net income...................... $ 6,687 $ 411 $ 7,762 $ 6,685
----------- ----------- -------------- ---------------
----------- ----------- -------------- ---------------
Pro forma income (loss) before
cumulative effect of accounting
change and extraordinary
item........................... $ 3,236 $ (1,040) $ 6,574 $ 9,589
----------- ----------- -------------- ---------------
----------- ----------- -------------- ---------------
Pro forma income (loss) per
share of common stock
(unaudited):
Income (loss) before cumulative
effect of accounting change and
extraordinary item............. $ (.10) $ .63 $ .91
Cumulative effect of accounting
change......................... (.24) -- --
Extraordinary item.............. -- -- (.22)
----------- -------------- ---------------
Net income (loss)............... $ (.34) $ .63 $ .69
----------- -------------- ---------------
----------- -------------- ---------------
Pro forma common shares
outstanding.................... 10,494,500 10,494,500 10,494,500
</TABLE>
See notes to consolidated financial statements.
F-46
<PAGE>
TRUCK COMPONENTS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL NOTE EARNINGS
COMMON PAID-IN RECEIVABLE (ACCUMULATED
STOCK CAPITAL FROM OFFICERS DEFICIT)
----------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
Balance, December 31, 1991................................... $ 2 $ 1,998 $ -- $ (3,019)
Net income................................................. -- -- -- 6,687
Preferred Stock dividends.................................. -- -- -- (1,440)
----- ----------- ------ -------
Balance, December 31, 1992................................... 2 1,998 -- 2,228
Net income................................................. -- -- -- 411
Preferred Stock dividends.................................. -- -- -- (1,440)
----- ----------- ------ -------
Balance, December 31, 1993................................... 2 1,998 -- 1,199
Net income January 1, 1994 to May 9, 1994.................. -- -- -- 7,762
Preferred Stock dividend................................... -- -- -- (515)
Acquisition of company..................................... (2) (1,998) -- (8,446)
Capital contribution from Holding.......................... -- 20,000 -- --
Initial public offering.................................... 105 34,381 -- --
Issuance of Common Stock to employees...................... -- 998 -- --
Loan to officers for purchase of Common Stock.............. -- -- (395) --
Net income May 10, 1994 to December 31, 1994............... -- -- -- 6,685
Preferred Stock dividends.................................. -- -- -- (69)
----- ----------- ------ -------
Balance, December 31, 1994................................... $ 105 $ 55,379 $ (395) $ 6,616
----- ----------- ------ -------
----- ----------- ------ -------
</TABLE>
See notes to consolidated financial statements.
F-47
<PAGE>
TRUCK COMPONENTS INC.
CONSOLIDATED STATMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRE-ACQUISITION
--------------------------------------
YEAR ENDED DECEMBER POST-ACQUISITION
31 -------------------
-------------------- JANUARY 1, 1994 MAY 10, 1994 TO
1992 1993 TO MAY 9, 1994 DECEMBER 31, 1994
--------- --------- ---------------- -------------------
Cash flow from operating activities:
<S> <C> <C> <C> <C>
Net Income $ 6,687 $ 411 $ 7,762 $ 6,685
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting change............... -- 2,549 -- --
Provision for environmental costs.................... -- 16,000 -- --
Depreciation......................................... 7,631 7,263 2,515 4,978
Amortization......................................... 1,983 1,839 641 2,523
Extraordinary loss................................... -- -- -- 2,293
Provision for fixed asset writedown.................. -- 467 -- --
Loss on sale of property and equipment............... 54 32 (44) 36
Retiree health care costs............................ -- 229 209 317
Deferred income taxes................................ (821) (7,017) (936) (588)
Changes in working capital:
Accounts receivable.................................. (7,616) (2,600) (11,257) 1,038
Inventories.......................................... (127) (1,839) (647) (272)
Other current assets................................. (923) (249) (104) (235)
Income tax receivable................................ 685 (29) 29 --
Accounts payable..................................... 1,756 2,359 4,478 340
Accrued expenses..................................... 2,835 2,287 1,180 10,586
Income tax payable................................... 1,689 (1,689) 2,964 (980)
--------- --------- -------- ----------
Net cash provided by operating activities.............. 13,833 20,013 6,790 26,721
Cash flow from investing activities:
Capital expenditures................................. (4,983) (6,947) (2,956) (5,326)
Tooling expenditures................................. (217) (487) (429) (472)
Proceeds from sale of property and equipment......... 120 22 6 18
Acquisition of the Company excluding cash balance of
$1,419............................................. -- -- -- (92,064)
--------- --------- -------- ----------
Net cash used in investing activities.................. (5,080) (7,412) (3,379) (97,844)
Cash flow from financing activities:
Net repayments of short-term borrowings.............. (500) (4,000) -- (14,000)
Proceeds from issuance of new senior debt............ -- -- -- 111,550
Capital contribution from Holding.................... -- -- -- 16,700
Payment made for early redemption of new senior
debt............................................... -- -- -- (32,750)
Payment of old senior debt........................... (8,000) (8,000) (2,000) (10,000)
Payments under capital lease obligations............. (99) (110) (44) (78)
Payment of subordinated note to shareholder.......... -- -- -- (36,900)
Premium paid on early redemption of debt............. -- -- -- (2,255)
Note receivable from officers........................ -- -- -- (395)
Borrowings under revolving line of credit............ -- -- -- 6,524
Proceeds from initial public offering................ -- -- -- 34,486
Proceeds from issuance of common shares.............. -- -- -- 998
Preferred stock dividends paid....................... (1,440) (1,440) (515) (69)
Debt issuance costs paid............................. (20) -- -- (1,985)
--------- --------- -------- ----------
Net cash provided by (used in) financing
activities......................................... (10,059) (13,550) (2,559) 71,826
--------- --------- -------- ----------
Net increase (decrease) in cash...................... (1,306) (949) 852 703
Cash at beginning of year............................ 2,822 1,516 567 --
--------- --------- -------- ----------
Cash at end of year.................................. $ 1,516 $ 567 $ 1,419 $ 703
--------- --------- -------- ----------
--------- --------- -------- ----------
</TABLE>
See notes to consolidated financial statements.
F-48
<PAGE>
TRUCK COMPONENTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND BUSINESS
On May 9, 1994, the former shareholders of Truck Components Inc. ("Company")
entered into a contract to sell all outstanding common stock to Castle Harlan
Partners II, L.P. ("Castle Harlan") and to exchange $10,000,000 of outstanding
redeemable Series A, B and C preferred stock for an equal amount of redeemable
Series A and B new preferred stock with 12% annual cumulative dividend rights
pursuant to the contract of sale.
The Acquisition was effected through a stock purchase agreement, pursuant to
which (i) TCI Holding, Inc. ("Holding"), a wholly owned subsidiary of Castle
Harlan (a) exchanged $16.7 million in cash in addition to shares of preferred
stock of Holding (the "Holding New Preferred Stock") having an aggregate
liquidation preference of $5.0 million for certain of the outstanding shares of
common stock of the Company (the "Company Old Common Stock"), (b) exchanged
shares of Holding New Preferred Stock having an aggregate liquidation preference
of $5.0 million for shares of preferred stock of the Company (the "Company Old
Preferred Stock") having an aggregate liquidation preference of $5.0 million,
and acquired certain of the outstanding equity equivalent rights in the Company
(the "Equity Equivalent Rights") for $3.3 million in Holding New Preferred Stock
and common stock of Holding, (ii) TCI acquired (a) all outstanding shares of
Company Old Common Stock not purchased by Holding for $58.1 million in cash, (b)
shares of Company Old Preferred Stock having an aggregate liquidation preference
of $1.0 million for $1.0 million in cash, and all outstanding Equity Equivalent
Rights not purchased by Holding for approximately $4.1 million in cash, and
(iii) the Company redeemed the remaining shares of Company Old Preferred Stock
having an aggregate liquidation preference of $8.0 million for $8.0 million in
cash.
All shares of Company Old Preferred Stock, shares of Company Old Common
Stock and all Equity Equivalent Rights acquired by Holding were contributed to
TCI and, in connection with the Merger, all outstanding shares of capital stock
of the Company and all outstanding Equity Equivalent Rights were cancelled.
The Acquisition was accounted for by the purchase method of accounting.
Assets and liabilities were written-up in excess of their historical costs
consisting principally of property, plant and equipment ($31,000,000),
trademarks ($27,900,000), other intangible assets ($21,800,000), net deferred
income tax liabilities ($28,300,000) with the excess purchase price allocated to
goodwill. Accordingly, the accompanying Post-Acquisition Consolidated Financial
Statements at December 31, 1994, and for the period from May 10, 1994 to
December 31, 1994, are not comparable with the Company's Pre-Acquisition
Consolidated Financial Statements. A vertical black line has been used to
separate the Pre-Acquisition and Post-Acquisition Consolidated Financial
Statements. The Company's principal business is manufacturing and selling
components to the transportation industry. All other businesses constitute less
than 10% of combined revenue, operating profit and identifiable assets.
Following is a summary of unaudited pro forma financial data for the years
ended December 31, 1992, 1993 and 1994 as if the acquisition had been
consummated at the beginning of the periods presented. This pro forma
information does not purport to be indicative of what would have occurred
F-49
<PAGE>
TRUCK COMPONENTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION AND BUSINESS (CONTINUED)
had the acquisition been made as of those dates or of results which may occur in
the future. (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
1992 1993 1994
--------- -------------- --------------
<S> <C> <C> <C>
Operating income.......................................................... $ 18,147 $ 11,021 $ 39,677
Interest expense.......................................................... 12,020 12,020 12,056
Income tax expense........................................................ 2,891 41 11,458
Income (loss) available to common shareholders before extraordinary item
and cumulative effect of accounting change............................... 3,236 (1,040) 16,163
Net income (loss) per common share before extraordinary item and
cumulative effect of accounting change................................... $ (.10) $ 1.54
Weighted average common shares used in computing pro forma earnings per
share.................................................................... 10,494,500 10,494,500
</TABLE>
For the pro forma earnings per common share data presented on the
accompanying summary statements of income, historical earnings have been
adjusted assuming that the acquisition of the Company by an investor group,
related financing, the initial public offering and the repurchase of a portion
of Senior Notes had occurred as of the beginning of the periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, after eliminating significant intercompany
accounts and transactions.
INVENTORIES
Inventories are stated at the lower of cost or market. The cost of 69% of
inventories at December 31, 1994 (71% at December 31, 1993), is determined on
the last-in, first-out (LIFO) method, with the cost of the remaining inventory
determined on the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment were restated at estimated fair values as of
the Acquisition on May 9, 1994 (See Note 1). Subsequent capital expenditures are
stated at cost. Depreciation is based on the straight-line method over their
estimated useful lives, which range from 12 to 20 years for buildings and
improvements and from 3 to 12 years for machinery and equipment.
INTANGIBLE ASSETS
The excess of purchase costs over amounts allocated to identifiable assets
and liabilities of businesses acquired (goodwill) is amortized on the
straight-line method over 40 years. The Company periodically, in response to
certain events, evaluates whether a change in the estimated useful life of
goodwill is warranted or whether the remaining goodwill balance may be impaired.
The Company currently believes that no impairment of goodwill has been incurred.
However, if operations did not perform as expected, or if the Company's
strategic plans for its businesses were to change and
F-50
<PAGE>
TRUCK COMPONENTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
independent measures of value reflecting such changed plans indicated an
impairment of goodwill, a reduction for impairment would be required.
Trademarks and Technology intangible assets are recorded at estimated fair
values and are amortized on the straight-line method. Trademarks are being
amortized over 40 years. Technology intangible assets are being amortized over
their estimated useful lives which range from 13 to 30 years.
3. SUPPLEMENTAL DISCLOSURE TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 1, 1994 MAY 10, 1994 TO
1992 1993 TO MAY 9, 1994 DECEMBER 31, 1994
--------- --------- ---------------- -------------------
<S> <C> <C> <C> <C>
Interest paid........................... $ 6,926 $ 5,844 $ 1,616 $ 4,109
Income tax paid......................... 2,675 11,029 271 7,688
</TABLE>
4. INVENTORIES
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Raw materials and component parts.............................................. $ 5,829 $ 9,809
Work in process and finished goods............................................. 16,865 14,107
--------- ---------
22,694 23,916
LIFO reserve................................................................... (1,318) (39)
--------- ---------
$ 21,376 $ 23,877
--------- ---------
--------- ---------
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Land and improvements.......................................................... $ 1,636 $ 2,313
Buildings and improvements..................................................... 15,929 15,563
Machinery and equipment........................................................ 67,390 65,534
Construction in progress....................................................... 2,961 3,170
--------- ---------
$ 87,916 $ 86,580
--------- ---------
--------- ---------
</TABLE>
6. SHORT-TERM BORROWINGS
On May 9, 1994, the Company entered into a new Revolving Line-of-Credit
Agreement. Under this New Credit Agreement, the Company is able to borrow up to
$40 million on a revolving basis for an initial term of five years, secured by
the Company's accounts receivable and inventories, subject to a borrowing base
limitation. As of December 31, 1994, (i) cash borrowings outstanding under the
New Credit Agreement were $6.5 million, (ii) outstanding letters of credit were
$2.8 million and (iii) additional availability under the New Credit Agreement
was $30.7 million. The New Credit Agreement contains certain financial
covenants, including a restriction on the ability of the Company to pay
dividends. At December 31, 1994, the Company was in compliance with these
requirements. Interest (9.5% at December 31, 1994) is due at a rate of 1% above
prime or 2.5% above LIBOR.
F-51
<PAGE>
TRUCK COMPONENTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. ACCRUED EXPENSES
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Salaries, wages and bonuses...................................................... $ 10,221 $ 9,401
Pension and profit-sharing....................................................... 2,292 4,058
Taxes other than income taxes.................................................... 1,415 1,482
Sales promotions and incentives.................................................. 1,354 1,571
Interest......................................................................... 16 5,123
Other............................................................................ 1,486 5,041
--------- ---------
$ 16,784 $ 26,676
--------- ---------
--------- ---------
</TABLE>
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Old Senior Notes................................................................. $ 12,000 $ --
New Senior Notes, net of unamortized issue discount of $2,242.................... -- 80,008
Subordinated Note, net of unamortized issue discount of $347..................... 36,553 --
--------- ---------
48,553 80,008
Less: Current maturities......................................................... 8,000 --
--------- ---------
$ 40,553 $ 80,008
--------- ---------
--------- ---------
</TABLE>
The New Senior Notes are due June 30, 2001, and bear interest at a stated
rate of 12 1/4%, payable June 30 and December 31.
The New Senior Notes are general unsecured senior obligations of the
Company, ranking PARI PASSU in right of payment with all existing and future
unsecured indebtedness that is not, by its terms, expressly subordinated in
right of payment to the Senior Notes.
The New Senior Notes contain certain covenants that, among other things,
limit the incurrence of additional indebtedness by the Company, restrict the
payment of dividends by the Company, restrict the repurchase of capital stock or
subordinated indebtedness by the Company. At December 31, 1994, the Company was
in compliance with these requirements.
9. EXTRAORDINARY ITEM
During August 1994, the Company completed an initial public offering of
3,844,500 shares of Common Stock at $10 per share which provided gross proceeds
of $38.4 million (net proceeds were $34.5 million).
The Company used the net proceeds to purchase and retire $32.8 million of
the New Senior Notes and repay a portion of the line of credit. The retirement
of the Senior Notes resulted in an extraordinary loss of $2.3 million net of
income tax benefits of $1.5 million.
10. INCOME TAXES
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," effective the first quarter of
1993. The adoption of this standard changed
F-52
<PAGE>
TRUCK COMPONENTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
the Company's method of accounting for income taxes from the deferred method to
the liability method. The cumulative effect of this change at January 1, 1993,
was not material. Financial statements for years prior to 1993 were not
restated. Information shown below for the prior year was determined under the
deferred method.
The income tax provision (benefit) for the periods consists of:
<TABLE>
<CAPTION>
JANUARY 1, 1994 MAY 10, 1994 TO
1992 1993 TO MAY 9, 1994 DECEMBER 31, 1994
--------- --------- ---------------- -------------------
<S> <C> <C> <C> <C>
FEDERAL:
Current.................................. $ 4,432 $ 8,190 $ 5,449 $ 5,765
Deferred................................. (675) (6,306) (792) (440)
STATE:
Current.................................. 617 1,121 940 1,086
Deferred................................. (146) (711) (144) (148)
--------- --------- ------- -------
$ 4,228 $ 2,294 $ 5,453 $ 6,263
--------- --------- ------- -------
--------- --------- ------- -------
</TABLE>
Total income tax provision for each year varied from the amount computed by
applying the statutory U.S. federal income tax rate to income before income tax
for the reasons set forth in the following reconciliation:
<TABLE>
<CAPTION>
JANUARY 1, 1994 MAY 10, 1994 TO
1992 1993 TO MAY 9, 1994 DECEMBER 31, 1994
--------- --------- ---------------- -------------------
<S> <C> <C> <C> <C>
Income tax provision at the statutory
rate...................................... $ 3,711 $ 1,839 $ 4,625 $ 5,334
Increases (reductions) in taxes resulting
from:
State taxes based on income, net of
federal income taxes................... 311 266 543 610
Nondeductible goodwill................... 238 245 86 261
Miscellaneous other items................ (32) (56) 199 58
--------- --------- ------- -------
Actual income tax provision................ $ 4,228 $ 2,294 $ 5,453 $ 6,263
--------- --------- ------- -------
--------- --------- ------- -------
Effective tax rate......................... 38.7% 43.7% 41.3% 41.1%
--------- --------- ------- -------
--------- --------- ------- -------
</TABLE>
F-53
<PAGE>
TRUCK COMPONENTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES (CONTINUED)
Significant components of the net deferred tax liabilities at December 31, 1993
and 1994, were as follows:
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
DEFERRED TAX ASSETS ARISING FROM:
Environmental costs............................................................ $ 6,240 $ 6,291
Retiree health care costs...................................................... 1,692 4,309
Compensation................................................................... 2,498 2,222
Pension........................................................................ 594 904
Other.......................................................................... 1,205 1,661
--------- ---------
TOTAL DEFERRED TAX ASSETS........................................................ $ 12,229 $ 15,387
--------- ---------
--------- ---------
DEFERRED TAX LIABILITIES ARISING FROM:
Property, plant and equipment.................................................. $ 9,574 $ 20,174
Trademark and Technology....................................................... -- 19,055
Inventory...................................................................... 2,483 2,610
Other.......................................................................... 495 602
--------- ---------
TOTAL DEFERRED TAX LIABILITIES................................................... $ 12,552 $ 42,441
--------- ---------
--------- ---------
NET DEFERRED TAX LIABILITIES..................................................... $ 323 $ 27,054
--------- ---------
--------- ---------
</TABLE>
11. EMPLOYEE BENEFIT PLANS
The Company has several noncontributory, defined-benefit pension plans
covering substantially all Gunite (salaried and hourly) and Fabco (salaried)
employees. Salaried retirement benefits are based on average compensation,
frozen as of December 1991. Hourly retirement benefits are based on years of
F-54
<PAGE>
TRUCK COMPONENTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
service, depending on the employee group. The Company's funding policy is to
meet ERISA minimum requirements:
The net pension cost for the periods is as follows:
<TABLE>
<CAPTION>
JANUARY 1, 1994 MAY 10, 1994 TO
1992 1993 TO MAY 9, 1994 DECEMBER 31, 1994
----------- ----------- ----------------- ---------------------
<S> <C> <C> <C> <C>
COMPONENTS:
Service cost.................. $ 478 $ 472 $ 180 $ 416
Interest cost on projected
benefit obligation.......... 254 310 134 315
Actual return on plan
assets...................... (139) (263) 82 (82)
Net amortization (deferral)... (82) (12) (189) (113)
----------- ----------- ------ ------
Net pension cost.............. $ 511 $ 507 $ 207 $ 536
----------- ----------- ------ ------
----------- ----------- ------ ------
ASSUMPTIONS:
Discount rate................. 8% 7.5 % 7.5 % 8 %
Expected long-term rate of
return on assets............ 9 % 9 % 9 % 9 %
</TABLE>
Assets of the plans are composed of investment funds consisting primarily of
commercial paper, corporate stocks, and bonds. The plans' funding status and
pension liability recorded in the consolidated balance sheet at December 31,
1993 and 1994, are as follows:
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
ACTUARIAL PRESENT VALUE OF ACCUMULATED BENEFIT OBLIGATIONS:
Vested................................................................. $ 4,027 $ 5,555
Nonvested.............................................................. 945 1,175
--------- ---------
$ 4,972 $ 6,730
--------- ---------
--------- ---------
Projected benefit obligations.......................................... $ 4,972 $ 6,730
Net plan assets at fair value.......................................... 3,616 3,864
--------- ---------
Projected benefit obligations in excess of plan assets................. 1,356 2,866
ITEMS NOT YET RECOGNIZED IN EARNINGS:
Prior service costs.................................................... (209) (615)
Unrecognized net (loss) gain........................................... (267) 335
--------- ---------
Net pension obligations included in accrued expenses................... $ 880 $ 2,586
--------- ---------
--------- ---------
</TABLE>
In addition, the Company has a profit-sharing plan covering substantially
all full-time Brillion employees. Annual contributions are determined by formula
based on earnings, with discretionary contributions allowed. Amounts contributed
are fully and immediately vested with participating employees. Profit-sharing
expense for the years ended December 31, 1992 and 1993, the period January 1,
F-55
<PAGE>
TRUCK COMPONENTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
1994 to May 9, 1994 and May 10, 1994 to December 31, 1994, approximated
$1,001,000, $1,229,000, $786,000 and $1,228,000.
12. POSTRETIREMENT HEALTH CARE BENEFITS
The Company provides health care benefits for certain salaried and hourly
retired employees. Employees may become eligible for health care benefits, if
they retire after attaining specified age and service requirements while they
worked for the Company. Health care benefits are paid directly by the Company,
however, salaried employees contribute 50% of the premiums.
The Company adopted Statement of Financial Accounting Standards No. 106,
"Postretirement Benefits other than Pension Benefits" effective the first
quarter of 1993. This statement requires that the cost of these benefits be
accrued during the employees' working careers. The Company elected to
immediately recognize the transition obligation rather than amortize it over
future periods. The cost of providing these benefits was previously recognized
in the period in which the benefits were paid.
The components of the cost of these postretirement benefits were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER JANUARY 1, 1994 MAY 10, 1994 TO
31, 1993 TO MAY 9, 1994 DECEMBER 31, 1994
--------------------- ----------------- ---------------------
<S> <C> <C> <C>
Service Cost..................... $ 51 $ 19 $ 147
Interest Cost.................... 323 121 509
----- ----- -----
$ 374 $ 140 $ 656
----- ----- -----
----- ----- -----
</TABLE>
The present value of the Company's unfunded postretirement benefits
obligation at December 31, 1994 and 1993, was:
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees............................................................. $ 2,405 $ 4,535
Active employees..................................................... 2,133 6,116
--------- ---------
4,538 10,651
Unrecognized net gain (loss)........................................... (198) 368
--------- ---------
Accrued postretirement benefit obligation.............................. $ 4,340 $ 11,019
--------- ---------
--------- ---------
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation at December 31, 1993 and 1994, was 7.5% and 8%, respectively.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation (APBO) at December 31, 1993, was 11%,
gradually declining to 5% in 1996 and thereafter. The assumed health care cost
trend rate used in measuring the APBO at December 31, 1994, was 10%, gradually
declining to 5.0% in 2004 and thereafter. For retirees, the Company must
re-negotiate any active participant increases after 1995. A one percentage point
increase in the health care cost trend rate would increase the APBO as of
December 31, 1994, by $1,813,000 and the aggregate service and interest cost by
$130,000. The 1992 cost to the Company of such health care benefits on a
pay-as-you-go basis amounted to $148,000.
F-56
<PAGE>
TRUCK COMPONENTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SIGNIFICANT CUSTOMER AND EXPORT SALES
During the years ended December 31, 1992, 1993 and 1994, approximately 21%,
21% and 20%, respectively, of the Company's net sales were to the same customer.
In 1992 and 1994 export sales were less than 10% of consolidated sales. In
1993 export sales were 11.6% of consolidated sales, principally to Canada.
14. COMMITMENTS
The Company leases certain real property and equipment under long-term
leases expiring at various dates through 2032. The leases generally contain
specific renewal or purchase options at the then fair market value.
Future minimum lease payments at December 31, 1994, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASES
--------- -----------
<S> <C> <C>
1995.................................................................... $ 395 $ 1,272
1996.................................................................... 395 839
1997.................................................................... 395 622
1998.................................................................... 395 243
1999.................................................................... 395 120
Thereafter.......................................................... 3,197 58
--------- -----------
Total minimum lease payments............................................ $ 5,172 $ 3,154
-----------
-----------
Less: Amount representing interest...................................... 2,929
---------
---------
Present value of minimum lease payments................................. 2,243
Less: Current portion of obligation under capital lease................. 137
---------
---------
Noncurrent obligation under capital lease............................... $ 2,106
---------
---------
</TABLE>
The leased property under the capitalized lease is recorded on the balance
sheet with property, plant and equipment as follows at December 31, 1993 and
1994:
<TABLE>
<CAPTION>
1993 1994
--------- ---------
<S> <C> <C>
Land and buildings....................................................... $ 2,659 $ 2,659
Less: Accumulated depreciation........................................... (608) (716)
--------- ---------
$ 2,051 $ 1,943
--------- ---------
--------- ---------
</TABLE>
While the Company is liable for maintenance, insurance and similar costs
under most of its leases, such costs are not included in the future minimum
lease payments.
Total rental expense, including mileage surcharges for the years ended
December 31, 1992 and 1993, and for the period January 1, 1994 to May 9, 1994
and May 10, 1994 to December 31, 1994, amounted to $2,425,000, $2,524,000,
$907,000 and $1,590,000.
At December 31, 1994, the Company has noncancelable purchase commitments for
inventory of approximately $1,316,000 ($1,196,000 in 1993).
F-57
<PAGE>
TRUCK COMPONENTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. RELATED PARTY TRANSACTIONS
The Company has a management agreement with Castle Harlan to render
investment banking, advisory and strategic planning services to the Company for
a quarterly fee of $250,000.
The Company had a management agreement which expired on May 9, 1994, with
LMG II, Inc. (a common shareholder prior to the sale on May 9, 1994), whereby
LMG II, Inc. provided management, consulting and financial services to the
Company and its subsidiaries for $870,000 per year.
The Company incurred interest expense of $1,203,000, $3,367,999 and
$3,470,000 during the period January 1, 1994 to May 9, 1994, and for the years
ended December 31, 1993 and 1992, from the subordinated note payable to Merrill
Lynch Interfunding, Inc. (a common shareholder prior to the sale on May 9,
1994).
16. ENVIRONMENTAL MATTERS
The Company is subject to demanding environmental standards imposed by
federal, state and local laws and regulations. In 1992, 1993 and 1994, the
Company spent approximately $2,079,000, $2,534,000 and $3,072,000, respectively,
on environmental compliance and remediation matters. In addition, capital
expenditures for compliance with environmental requirements were approximately
$157,000, $692,000 and $1,428,000, respectively.
Under the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended (Superfund and analogous state laws), the Company or its
subsidiaries have been named or notified that they are potentially responsible
parties (PRP) at several sites where environmental damage is alleged.
At the Interstate Pollution Control ("IPC") site, adjacent to Gunite's
facility, the K-H Corporation ("K-H"), which is the former owner of Gunite,
entered into a partial consent decree, on behalf of Gunite, with the Illinois
Environmental Protection Agency with respect to an ongoing remedial
investigation/ feasibility study ("RI/FS") for the site. K-H has entered into an
agreement with other PRPs at the site to share the RI/FS costs and the costs
incurred in connection with an emergency removal order. Neither the consent
decree nor the cost sharing agreement pertain to the not-yet commenced
remediation at the site. K-H entered into this partial consent decree pursuant
to an indemnification contained in the purchase and sale agreement between K-H
and the Company, dated September 4, 1987. K-H has not agreed to indemnify Gunite
for remediation costs to be incurred at this site, and, as discussed below, is
currently litigating whether it has any future indemnity obligations to the
Company and Gunite.
Gunite disposed of foundry process wastewater containing pollutants in a
pond adjacent to Gunite's property and the IPC site in Rockford, IL. Title to
this pond, as well as a previous Gunite landfill, was transferred from Gunite to
K-H in September 1987. The pond property was sold by K-H in November 1993.
Gunite has no authorization from the new owner for its continuing discharges to
the pond. Due to their proximity to the IPC site, the Gunite plant property, the
pond and the former on-site landfill are subject to the remedial investigation
in connection with the IPC site. Gunite has signed a site access agreement to
allow testing on its property. The results of the pending remedial investigation
may lead to the inclusion of these areas within the IPC site boundaries for the
purpose of remediation.
At the M.I.G./Dewane Landfill site, Gunite was added in 1994 as a third
party defendant in a private cost recovery action filed by the companies
comprising the MIG/Dewane Landfill Task Force, the steering committee of PRPs
for this site. The plaintiffs have alleged that the Gunite division of K-H
F-58
<PAGE>
TRUCK COMPONENTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. ENVIRONMENTAL MATTERS (CONTINUED)
arranged for the disposal of waste at this site from approximately 1972 to 1987.
Approximately $8,000,000 has been expended to conduct an RI/FS for this site,
but no remedy has been proposed to date. Gunite has filed a motion to dismiss
this matter with the district court. K-H has denied a claim for indemnification
with respect to this matter.
The Southeast Rockford Groundwater Superfund site is reportedly downgradient
from the IPC site. The United States Environmental Protection Agency ("EPA") has
reportedly incurred approximately $8,900,000 in response costs to date in
connection with this site. Gunite believes that the EPA will seek to recover
some or all of such costs from the PRPs associated with the IPC site, although
Gunite has not to date received a written request for reimbursement from the EPA
for this matter.
Gunite has disposed of various foundry wastes at the Peoples Ave. site in
Rockford, IL and has been advised of its potential liability for investigation
and remedial costs at this site.
There are several areas at Gunite's Rockford facility where regulated
substances have been disposed. Soil contamination and groundwater contamination
have been documented at certain of these sites.
The Brillion Iron Works Inc. Landfill site ceased operations in 1990. The
groundwater at and around this site is subject to continued testing by the EPA
and Brillion by means of monitoring wells. This monitoring periodically
demonstrates contamination of the groundwater. In addition, the site has been
scored by the Wisconsin Department of Natural Resources ("WDNR") for listing on
the state's Hazard Ranking List as being above the threshold of potential State
remedial action.
The City of Brillion Landfill site is adjacent to the Brillion Iron Works,
Inc. Landfill site. Brillion, another manufacturer, and the City of Brillion are
believed to be the principal PRPs at this site. This site, which will also be
evaluated by the EPA, has also been listed on the Wisconsin Hazard Ranking List.
Brillion has also disposed of foundry waste at the Raphael Geiger site and the
Robert Diny & Brothers site. Until 1976, Brillion also disposed foundry wastes
at the Horn Street Landfill site in Brillion, WI. None of these sites have been
scored by EPA.
In 1992, Brillion excavated two diesel fuel tanks which were discovered to
have leaked regulated substances into surrounding soil and groundwater. Brillion
expects to undertake additional soil and groundwater analysis in connection with
this matter.
Brillion is in violation of Wisconsin air emissions limits for benzene and
other air toxic compounds. The WDNR has stated that Brillion is deemed to be in
conformance with their limits while the WDNR reexamines its regulation of
emissions from foundries. Costs ultimately incurred by Brillion to comply with
these limits will not be subject to indemnification claims.
The Company believes that it has valid claims for contractual
indemnification against prior owners for certain of the investigatory and
remedial costs at each of the above mentioned sites. Two such prior owners have
thus far paid directly, or reimbursed the Company for, costs aggregating
approximately $350,000. The Company has been notified, however, by all
contractual indemnitors that they will not honor future claims for
indemnification. Accordingly, the Company is litigating indemnification claims
and there is no assurance that, even if successful in any such claims, any
judgments against the indemnitors will ultimately be recoverable. In addition,
the Company believes it is likely that it has incurred some liability at various
sites for activities and disposals following acquisition which would not in any
event be covered by indemnification by prior owners.
F-59
<PAGE>
TRUCK COMPONENTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. ENVIRONMENTAL MATTERS (CONTINUED)
At December 31, 1994, based on all information currently available to it,
the Company has a reserve of $16,000,000 for estimated future environmental
costs. The Company has elected not to recognize any asset for potential
indemnification recoveries.
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 remediation which will be
required, the range of acceptable solutions, costs of remediation and the number
of PRPs contributing to such costs. Based on all of the information presently
available to it, the Company believes that the reserve will be adequate to cover
its future costs of litigation and required remediation, and that any additional
such costs are not likely to have a material adverse effect on the Company's
financial condition, results of operation or liquidity. However, the
modification of existing laws or regulations, the imposition of joint and
several liability under the Comprehensive Environmental, Response, Compensation
and Liability Act or the uncertainties referred to above could result in such a
material adverse effect.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in its fair
value disclosures for financial instruments:
SHORT-TERM BORROWINGS: The carrying amounts of the Company's variable rate
short-term borrowings approximate fair value.
LONG-TERM DEBT: The fair value of the Company's new debt, based on quoted
market price at December 31, 1994, was approximately $84,718,000.
18. STOCK PLANS
During 1994, the Company established the 1994 Award and Incentive Plan (the
Plan). The Plan permits up to a maximum of 524,725 shares of common stock to be
granted as non-qualified stock options to employees. The options are granted at
fair market value and employees generally vest in such options over a three-year
period.
During 1994, the Company granted an officer 135,714 options to purchase
common stock at the fair market value at the date of the grant. These stock
options vest over a two-year period.
Transactions involving stock options for the plans are summarized as
follows:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS PRICE RANGE
----------- ------------------
<S> <C> <C>
Outstanding, January 1, 1994........................................... -- --
Granted................................................................ 140,714 $3.16 to $12.13
Exercised.............................................................. -- --
Canceled............................................................... -- --
----------- ------------------
Outstanding, December 31, 1994......................................... 140,714 $3.16 to $12.13
----------- ------------------
----------- ------------------
</TABLE>
No options were exercisable at December 31, 1994.
F-60
<PAGE>
TRUCK COMPONENTS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. STOCK PLANS (CONTINUED)
In connection with the acquisition, certain officers of the Company were
allowed to convert equity equivalent rights to common stock. The common stock
issued is restricted and cannot be sold until May 1997. As of December 31, 1994,
supplemental cash payment rights were outstanding with respect to approximately
1,036,232 shares of the Company's common stock held by employees, payable upon
the expiration of the restriction. The amount of the supplemental cash payment
will compensate the employee for the difference between the ordinary income tax
and the capital gains tax on the employee's taxable income once the restrictions
lapse. The supplemental cash payment that would be required on December 31,
1994, is approximately $1,300,000. This amount is amortized ratably over the
restricted period.
F-61
<PAGE>
TRUCK COMPONENTS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, JUNE 30,
1994 1995
-------------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................................. $ 703 $ 912
Accounts receivable, net.......................................................... 43,246 48,645
Inventories....................................................................... 23,877 23,192
Other current assets.............................................................. 7,423 9,026
-------------- ------------
Total current assets............................................................ 75,249 81,775
Noncurrent assets:
Property, plant and equipment, net................................................ 81,620 82,149
Goodwill, net..................................................................... 48,669 47,977
Trademarks, net................................................................... 27,450 27,104
Technology, net................................................................... 21,270 20,859
Other assets...................................................................... 13,049 12,975
-------------- ------------
Total assets.................................................................... $ 267,307 $ 272,839
-------------- ------------
-------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable............................................................ $ 19,736 $ 21,444
Accrued expenses and other current payables....................................... 30,376 28,567
Current portion of capital lease obligation....................................... 137 145
-------------- ------------
Total current liabilities....................................................... 50,249 50,156
Noncurrent liabilities:
Bank debt......................................................................... 6,524 --
Senior debt....................................................................... 80,008 80,187
Capital lease obligation.......................................................... 2,106 2,029
Accrued retiree health care costs................................................. 11,019 11,448
Accrued environmental costs....................................................... 16,000 16,000
Deferred income taxes............................................................. 39,696 39,202
-------------- ------------
Total noncurrent liabilities.................................................... 155,353 148,866
Common shareholders' equity......................................................... 61,705 73,817
-------------- ------------
Total liabilities and common shareholders' equity............................... $ 267,307 $ 272,839
-------------- ------------
-------------- ------------
</TABLE>
See notes to condensed consolidated financial statements
F-62
<PAGE>
TRUCK COMPONENTS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
PRE-ACQUISITION POST-ACQUISITION
------------------ ------------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, 1994 TO MAY 10, 1994 TO SIX MONTHS ENDED
MAY 9, 1994 JUNE 30, 1994 JUNE 30, 1995
------------------ ---------------- ------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales.............................................. $ 112,092 $ 46,884 $ 187,315
Cost of goods sold..................................... 87,817 36,812 146,437
---------- -------- ----------
Gross Profit....................................... 24,275 10,072 40,878
Operating expenses:
Selling, general and administrative expenses......... 8,550 2,740 12,538
Other expenses....................................... 487 700 1,880
---------- -------- ----------
Operating income....................................... 15,238 6,632 26,460
Interest expense....................................... 2,023 2,452 5,769
---------- -------- ----------
Income before income taxes............................. 13,215 4,180 20,691
Income tax provision................................... 5,453 1,670 8,573
---------- -------- ----------
Net income............................................. $ 7,762 $ 2,510 $ 12,118
Preferred stock dividends.............................. 515 -- --
---------- -------- ----------
Available for common stockholders.................... $ 7,247 $ 2,510 $ 12,118
---------- -------- ----------
---------- -------- ----------
Earnings per share:
Net income........................................... $ 0.93 $ 1.16
Pro forma adjustments................................ (0.05)(1) 0.00
-------- ----------
Pro forma net income............................... $ 0.88 $ 1.16
-------- ----------
-------- ----------
Weighted average common shares outstanding used in
computing earnings per share (See Note F)............. 10,494,500 10,489,222
</TABLE>
- ------------------------
(1) Adjustments made are to reflect the May 9, 1994 acquisition, related
financing, the initial public offering and the related repurchase of a
portion of the senior notes, as if they had occurred as of January 1, 1994.
See notes to condensed consolidated financial statements
F-63
<PAGE>
TRUCK COMPONENTS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
PRE-ACQUISITION POST-ACQUISITION
------------------ ------------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, 1994 TO MAY 10, 1994 TO SIX MONTHS ENDED
MAY 9, 1994 JUNE 30, 1994 JUNE 30, 1995
------------------ ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash provided by (used in) operating activities:
Net income........................................... $ 7,762 $ 2,510 $ 12,118
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 3,156 1,683 6,436
Changes in working capital:
Accounts receivable.............................. (11,257) 127 (5,399)
Inventories...................................... (647) 2,236 685
Accounts payable................................. 4,478 (2,766) 1,708
Other working capital -- net..................... 3,979 (356) (918)
Other -- net....................................... (681) 18 (2,397)
-------- -------- --------
Net cash provided by operating activities.......... 6,790 3,452 12,233
-------- -------- --------
Cash used in investing activities:
Capital and tooling expenditures, net................ (3,379) (1,432) (5,372)
-------- -------- --------
Net cash used in investing activities.............. (3,379) (1,432) (5,372)
-------- -------- --------
Cash used in financing activities:
Net borrowings (repayments) under line of credit
agreements......................................... -- (4,722) (6,524)
Payments of long term debt and capital lease
obligations........................................ (2,044) (18) (69)
Proceeds from Acquisition financing net of paydown of
Pre-Acquisition debt............................... -- 948 --
Purchase of common stock............................. -- -- (59)
Preferred stock dividends paid....................... (515) -- --
-------- -------- --------
Net cash used in financing activities.............. (2,559) (3,792) (6,652)
-------- -------- --------
Net increase (decrease) in cash........................ 852 (1,772) 209
Cash at beginning of period............................ 567 1,419 703
-------- -------- --------
Cash (cash overdraft) at end of period................. $ 1,419 $ (353) $ 912
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to condensed consolidated financial statements
F-64
<PAGE>
TRUCK COMPONENTS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and Rule 10-01 of Regulation S-X, and should be
read in conjunction with the Truck Components Inc. (the "Company") consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1994. Accordingly, the accompanying statements do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included.
On May 9, 1994, TCI Holding, Inc. (Holding) and a wholly owned subsidiary
thereof acquired (the "Acquisition") all outstanding common stock of the Company
and all outstanding Series B and Series C preferred stock of the Company in
exchange for cash consideration and $5 million stated value of Series A and $5
million stated value Series B preferred stock of TCI Holding, Inc., each with
12% annual cumulative dividend rights. As part of such transaction, the Company
redeemed all of its outstanding Series A preferred stock. Accordingly, the
accompanying post-Acquisition condensed consolidated financial statements for
the periods from January 1, 1995 to June 30, 1995 and May 10, 1994 to June 30,
1994 are not comparable with the Company's pre-Acquisition condensed
consolidated financial statements. The Acquisition was accounted for by the
purchase method of accounting. Net assets including property, plant and
equipment, trademarks, and other intangible assets were recorded at their
respective estimated fair values with the excess purchase price allocated to
goodwill. A vertical black line has been used to separate the post-Acquisition
condensed consolidated financial statements from the pre-Acquisition condensed
consolidated financial statements.
NOTE B. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1994 1995
--------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and component parts............................................... $ 9,809 $ 9,158
Work-in-process and finished goods.............................................. 14,068 14,034
--------------- ---------------
$ 23,877 $ 23,192
--------------- ---------------
--------------- ---------------
</TABLE>
NOTE C. ENVIRONMENTAL MATTERS
See Note 16 of Notes to Consolidated Financial Statements for the year ended
December 31, 1994.
NOTE D. INCOME TAXES
For the six months ended June 30, 1995 and 1994, the effective tax rate
differs from the U.S. statutory tax rate due principally to state income taxes
and nondeductible goodwill.
NOTE E. LONG TERM DEBT
The Senior Debt is due June 30, 2001, and bears interest at a stated rate of
12 1/4%, payable June 30 and December 31.
F-65
<PAGE>
TRUCK COMPONENTS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE E. LONG TERM DEBT (CONTINUED)
The Senior Debt is general unsecured senior obligations of the Company,
ranking PARI PASSU in right of payment with all existing and future unsecured
indebtedness that is not, by its terms, expressly subordinated in right of
payment to the Senior Debt.
The Senior Debt contains certain covenants that, among other things, limit
the incurrence of additional indebtedness by the Company, restrict the payment
of dividends by the Company, restrict the repurchase of capital stock or
subordinated indebtedness by the Company. At June 30, 1995, the Company was in
compliance with these requirements.
NOTE F. PRO FORMA EARNINGS PER COMMON SHARE (UNAUDITED)
For the unaudited pro forma earnings per common share data presented on the
accompanying summary statements of income, historical earnings have been
adjusted assuming that the acquisition of the Company by an investor group,
related financing, the initial public offering, and the repurchase of a portion
of Senior Notes had occurred as of January 1, 1994.
Included in the 10,494,500 average shares outstanding used in the
calculation of pro forma earnings per share are shares issued in connection with
the 4.7 to 1 stock split, exchange of common stock for certain preferred stock
and an initial public offering of 3,844,500 shares of the Company's common
stock, all of which occurred during the third quarter 1994 but were assumed to
have occurred on January 1, 1994.
Following is a summary pro forma statement of income for the six month
period ended June 30, 1994 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1994
---------------
<S> <C>
Operating income (1)............................................................................. $ 21,714
Interest and related expense (2)................................................................. 6,010
Income tax expense............................................................................... 6,502
---------------
Income available to common shareholders.......................................................... $ 9,202
---------------
---------------
Pro forma net income per common share............................................................ $ .88
---------------
---------------
Weighted average common shares used in computing pro forma earnings per share.................... 10,494,500
</TABLE>
- ------------------------
(1) Reflects reduced depreciation expense arising from the impact of the
property, plant and equipment write-up to fair market value, more than
offset by an increase in the asset service lives, adjustments in management
fees to reflect the terms of the management agreement with Castle Harlan,
Inc., and a reduction in amortization of previous debt issuance costs,
goodwill and intangibles offset by new amortization of trademarks,
intangibles and goodwill.
(2) The pro forma interest reflects interest on the 12 1/4% Senior Notes of
$82,250,000, new credit agreement estimated average borrowings of
$15,486,000 at 8.75%, and amortization of debt issuance costs and discounts
over seven years.
F-66
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER MADE BY
THIS PROSPECTUS TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR GUARANTOR SUBSIDIARIES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR THE SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY CIRCUMSTANCES
IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR
THE GUARANTOR SUBSIDIARIES SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 4
Incorporation of Certain Documents by Reference........................... 4
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 18
Use of Proceeds........................................................... 28
The Exchange Offer........................................................ 29
Capitalization............................................................ 38
Selected Consolidated Financial Data...................................... 39
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 41
Business.................................................................. 49
Management................................................................ 71
Description of Certain Indebtedness....................................... 73
Description of Exchange Notes............................................. 76
Old Notes Registration Rights; Liquidated Damages......................... 104
United States Federal Income Tax Consequences............................. 105
Old Notes Transfer Restrictions........................................... 109
Book Entry; Delivery and Form............................................. 111
Plan of Distribution...................................................... 113
Legal Matters............................................................. 114
Experts................................................................... 114
Glossary of Certain Terms................................................. 115
Index to Financial Statements............................................. F-1
</TABLE>
[LOGO]
OFFER TO EXCHANGE $1,000
PRINCIPAL AMOUNT OF ITS
11 3/4% SERIES C SENIOR SUBORDINATED NOTES DUE 2005
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT
FOR EACH $1,000 PRINCIPAL AMOUNT
OF ITS OUTSTANDING
11 3/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2005
---------------------
PROSPECTUS
---------------------
THE EXCHANGE AGENT
FOR THE EXCHANGE OFFER IS:
THE BANK OF NEW YORK
BY FACSIMILE:
(ELIGIBLE INSTITUTIONS ONLY)
(212) 815-6339
CONFIRMATION BY TELEPHONE
OR FOR INFORMATION:
(212) 815-5920
BY HAND OR OVERNIGHT DELIVERY:
THE BANK OF NEW YORK
101 BARCLAY STREET, 7E
CORPORATE TRUST SERVICES WINDOW
GROUND LEVEL
NEW YORK, NEW YORK 10286
ATTENTION: REORGANIZATION DEPARTMENT
ARWEN GIBBONS
BY REGISTERED OR CERTIFIED MAIL:
THE BANK OF NEW YORK
101 BARCLAY STREET, 7E
NEW YORK, NEW YORK 10286
ATTENTION: REORGANIZATION DEPARTMENT
ARWEN GIBBONS
NOVEMBER , 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each Registrant is a Delaware corporation. Reference is made to Section 145
of the Delaware General Corporation Law, as amended (the "GCL"), which provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), by reason of the fact that
such person is or was a director, officer, employee or agent of the corporation,
or is or was serving at its request in such capacity of another corporation or
business organization against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interest of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that such
person's conduct was unlawful. A Delaware corporation may indemnify officers and
directors in an action by or in the right of a corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses that such officer or director actually and reasonably
incurred.
Reference is also made to Section 102(b)(7) of the GCL, which permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the GCL or (iv) for any transaction from which the director
derived an improper personal benefit.
The certificates of incorporation of the Registrants provide for the
elimination of personal liability of a director for breach of fiduciary duty as
permitted by Section 102(b)(7) of the GCL and the By-laws of the Registrants
provide that the Registrants shall indemnify their directors and officers to the
full extent permitted by Section 145 of the GCL.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) A list of exhibits included as part of this Registration Statement
is set forth in the Exhibit Index which immediately precedes such exhibits
and is incorporated herein by reference.
(b) Financial Statement Schedules
None.
All other schedules are omitted because the required information is not
present or is not present in amounts sufficient to require submission of the
schedule or because the information required is included in the financial
statements or notes thereto.
ITEM 22. UNDERTAKINGS
1. The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
II-1
<PAGE>
2. The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involving therein, that was not the subject of and
included in the Registration Statement when it became effective.
3. The undersigned Registrants hereby undertake:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to the Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) of the Securities Act if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement; or
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of this offering.
4. The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act, each filing of any of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offering therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
5. (a) The undersigned Registrants hereby undertake as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by and person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(b) The Registrants undertake that every prospectus (i) that is filed
pursuant to paragraph (a) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415 of the Securities
Act, will be filed as a part of an amendment to the Registration Statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
II-2
<PAGE>
securities offering therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
6. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by them is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
7. The undersigned Registrants hereby undertake that:
(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrants pursuant to Rules 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein and this offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on the 30th day of October, 1997.
JOHNSTOWN AMERICA INDUSTRIES, INC.
BY: *
-----------------------------------------
Andrew M. Weller
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL
OFFICER
AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chairman of the Board,
* President and Chief
- ------------------------------ Executive Officer October 30, 1997
Thomas M. Begel (Principal Executive
Officer)
Executive Vice President,
Chief Financial Officer
* and Director (Principal
- ------------------------------ Financial Officer and October 30, 1997
Andrew M. Weller Principal Accounting
Officer)
*
- ------------------------------ Director October 30, 1997
Camillo Santomero
*
- ------------------------------ Director October 30, 1997
R. Philip Silver
*
- ------------------------------ Director October 30, 1997
Francis S. Stroble
*By: /s/ KENNETH M.
TALLERING
- ------------------------------
Kenneth M. Tallering
ATTORNEY-IN-FACT
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on the 30th day of October, 1997.
JOHNSTOWN AMERICA CORPORATION
BY: *
-----------------------------------------
James D. Cirar
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
President, Chief Executive
* Officer and Director
- ------------------------------ (Principal Executive October 30, 1997
James D. Cirar Officer)
Vice President--Finance,
Treasurer and Assistant
* Secretary (Principal
- ------------------------------ Financial Officer and October 30, 1997
W. John Plunkard Principal Accounting
Officer)
*
- ------------------------------ Chairman of the Board October 30, 1997
Thomas M. Begel
*
- ------------------------------ Director October 30, 1997
Ed Ghearing
*By: /s/ KENNETH
M. TALLERING
- ------------------------------
Kenneth M. Tallering
ATTORNEY-IN-FACT
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on the 30th day of October, 1997.
BOSTROM SEATING, INC.
BY: *
-----------------------------------------
Timothy A. Masek
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
* President and Director
- ------------------------------ (Principal Executive October 30, 1997
Timothy A. Masek Officer)
Treasurer and Assistant
* Secretary (Principal
- ------------------------------ Financial Officer and October 30, 1997
David W. Riesmeyer Principal Accounting
Officer)
*
- ------------------------------ Chairman of the Board October 30, 1997
Thomas M. Begel
*
- ------------------------------ Director October 30, 1997
Andrew M. Weller
*By: /s/ KENNETH M.
TALLERING
- ------------------------------
Kenneth M. Tallering
ATTORNEY-IN-FACT
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on the 30th day of October, 1997.
BOSTROM HOLDINGS, INC.
BY: *
-----------------------------------------
Thomas M. Begel
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
*
- ------------------------------ President (Principal October 30, 1997
Thomas M. Begel Executive Officer)
Vice President, Treasurer
* and Assistant Secretary
- ------------------------------ (Principal Financial October 30, 1997
David W. Riesmeyer Officer and Principal
Accounting Officer)
*
- ------------------------------ Director October 30, 1997
Andrew M. Weller
*By: /s/ KENNETH M.
TALLERING
- ------------------------------
Kenneth M. Tallering
Attorney-in-Fact
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on the 30th day of October, 1997.
FREIGHT CAR SERVICES, INC.
BY: *
-----------------------------------------
Edward J. Whalen
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
*
- ------------------------------ President (Principal October 30, 1997
Edward J. Whalen Executive Officer)
Treasurer and Assistant
* Secretary (Principal
- ------------------------------ Financial Officer and October 30, 1997
David W. Riesmeyer Principal Accounting
Officer)
*
- ------------------------------ Chairman of the Board October 30, 1997
Thomas M. Begel
*
- ------------------------------ Director October 30, 1997
Andrew M. Weller
*
- ------------------------------ Director October 30, 1997
James D. Cirar
*By: /s/ KENNETH M.
TALLERING
-------------------------
Kenneth M. Tallering
ATTORNEY-IN-FACT
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on the 30th day of October, 1997.
JAC PATENT CORPORATION
BY: *
-----------------------------------------
Andrew M. Weller
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
* President and Director
- ------------------------------ (Principal Executive October 30, 1997
Andrew M. Weller Officer)
Treasurer and Assistant
* Secretary (Principal
- ------------------------------ Financial Officer and October 30, 1997
David W. Riesmeyer Principal Accounting
Officer)
*
- ------------------------------ Director October 30, 1997
Thomas M. Begel
*By: /s/ KENNETH M.
TALLERING
-------------------------
Kenneth M. Tallering
ATTORNEY-IN-FACT
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on the 30th day of October, 1997.
TRUCK COMPONENTS INC.
BY: *
-----------------------------------------
Thomas W. Cook
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
President, Chief Executive
* Officer and Director
- ------------------------------ (Principal Executive October 30, 1997
Thomas W. Cook Officer)
Vice President-Finance,
Chief Financial Officer
* and Director (Principal
- ------------------------------ Financial Officer and October 30, 1997
Andrew M. Weller Principal Accounting
Officer)
*
- ------------------------------ Director October 30, 1997
Thomas M. Begel
*By: /s/ KENNETH M.
TALLERING
-------------------------
Kenneth M. Tallering
ATTORNEY-IN-FACT
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on the 30th day of October, 1997.
BRILLION IRON WORKS, INC.
BY: *
-----------------------------------------
John D. McClain
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
* President (Principal
- ------------------------------ Executive Officer) October 30, 1997
John D. McClain
Vice President--Finance and
* Treasurer (Principal
- ------------------------------ Financial Officer and October 30, 1997
Dennis Graven Principal Accounting
Officer)
* Director
- ------------------------------ October 30, 1997
Thomas M. Begel
* Director
- ------------------------------ October 30, 1997
Andrew M. Weller
* Director
- ------------------------------ October 30, 1997
Thomas W. Cook
*By: /s/ KENNETH M.
TALLERING
-------------------------
Kenneth M. Tallering
ATTORNEY-IN-FACT
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on the 30th day of October, 1997.
FABCO AUTOMOTIVE CORPORATION
BY: *
-----------------------------------------
Mark A. Niemela
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
*
- ------------------------------ President (Principal October 30, 1997
Mark A. Niemela Executive Officer)
Vice President--Finance and
* Treasurer (Principal
- ------------------------------ Financial Officer and October 30, 1997
Lou Keane Principal Accounting
Officer)
*
- ------------------------------ Director October 30, 1997
Thomas M. Begel
*
- ------------------------------ Director October 30, 1997
Andrew M. Weller
*
- ------------------------------ Director October 30, 1997
Thomas W. Cook
/s/ KENNETH M. TALLERING
---------------------------------------
Kenneth M. Tallering
* ATTORNEY-IN-FACT
By:
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on the 30th day of October, 1997.
GUNITE CORPORATION
BY: *
-----------------------------------------
Thomas W. Cook
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
* President and Director
- ------------------------------ (Principal Executive October 30, 1997
Thomas W. Cook Officer)
Vice President--Finance and
* Treasurer (Principal
- ------------------------------ Financial Officer and October 30, 1997
Dwight M. Morrow Principal Accounting
Officer)
*
- ------------------------------ Director October 30, 1997
Thomas M. Begel
*
- ------------------------------ Director October 30, 1997
Andrew M. Weller
/s/ KENNETH M. TALLERING
---------------------------------------
Kenneth M. Tallering
* ATTORNEY-IN-FACT
By:
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on the 30th day of October, 1997.
JAII MANAGEMENT COMPANY
BY: *
-----------------------------------------
Andrew M. Weller
PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
* President and Director
- ------------------------------ (Principal Executive October 30, 1997
Andrew M. Weller Officer)
Vice President and
* Treasurer (Principal
- ------------------------------ Financial Officer and October 30, 1997
David W. Riesmeyer Principal Accounting
Officer)
*
- ------------------------------ Director October 30, 1997
Thomas M. Begel
/s/ KENNETH M. TALLERING
---------------------------------------
Kenneth M. Tallering
* ATTORNEY-IN-FACT
By:
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
*3.1 Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.3 to the
Company's Registration Statement on Form S-1, File No. 33-63132)
*3.2 Certificate of Incorporation of Johnstown America Corporation (incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-3, File No. 33-04152)
*3.3 Certificate of Incorporation of Bostrom Seating, Inc. (incorporated by reference to Exhibit 3.4 to
the Company's Registration Statement on Form S-3, File No. 33-04152)
*3.4 Certificate of Incorporation of Bostrom Holdings, Inc.
*3.5 Certificate of Incorporation of Freight Car Services, Inc. (incorporated by reference to Exhibit 3.6
to the Company's Registration Statement on Form S-3, File No. 33-04152)
*3.6 Certificate of Incorporation of JAC Patent Corporation (incorporated by reference to Exhibit 3.7 to
the Company's Registration Statement on Form S-3, File No. 33-04152)
*3.7 Certificate of Incorporation of Truck Components Inc. (incorporated by reference to Exhibit 3.8 to
the Company's Registration Statement on Form S-3, File No. 33-04152)
*3.8 Certificate of Incorporation of Brillion Iron Works, Inc. (incorporated by reference to Exhibit 3.9
to the Company's Registration Statement on Form S-3, File No. 33-04152)
*3.9 Certificate of Incorporation of Fabco Automotive Corporation (incorporated by reference to Exhibit
3.10 to the Company's Registration Statement on Form S-3, File No. 33-04152)
*3.10 Certificate of Incorporation of Gunite Corporation (incorporated by reference to Exhibit 3.11 to the
Company's Registration Statement on Form S-3, File No. 33-04152)
*3.11 Certificate of Incorporation of JAII Management Company
*3.12 Bylaws of the Company (incorporated by reference to Exhibit 3.4 to the Company's Registration
Statement on Form S-1, File No. 33-63132)
*3.13 Bylaws of Johnstown America Corporation (incorporated by reference to Exhibit 3.13 to the Company's
Registration Statement on Form S-3, File No. 33-04152)
*3.14 Bylaws of Bostrom Seating Inc. (incorporated by reference to Exhibit 3.15 to the Company's
Registration Statement on Form S-3, File No. 33-04152)
*3.15 Bylaws of Bostrom Holdings, Inc.
*3.16 Bylaws of Freight Car Services, Inc. (incorporated by reference to Exhibit 3.17 to the Company's
Registration Statement on Form S-3, File No. 33-04152)
*3.17 Bylaws of JAC Patent Corporation (incorporated by reference to Exhibit 3.18 to the Company's
Registration Statement on Form S-3, File No. 33-04152)
*3.18 Bylaws of Truck Components Inc. (incorporated by reference to Exhibit 3.19 to the Company's
Registration Statement on Form S-3, File No. 33-04152)
*3.19 Bylaws of Brillion Iron Works, Inc. (incorporated by reference to Exhibit 3.20 to the Company's
Registration Statement on Form S-3, File No. 33-04152)
*3.20 Bylaws of Fabco Automotive Corporation (incorporated by reference to Exhibit 3.21 to the Company's
Registration Statement on Form S-3, File No. 33-04152)
*3.21 Bylaws of Gunite Corporation (incorporated by reference to Exhibit 3.22 to the Company's Registration
Statement on Form S-3, File No. 33-04152)
*3.22 Bylaws of JAII Management Company
*4.1 Form of the Company's Series B 11 3/4% Senior Subordinated Note due 2005 issued on August 11, 1997 in
the aggregate principal amount of $80,000,000
*4.2 Indenture dated as of August 11, 1997 among the Company, the Guarantor Subsidiaries and The Bank of
New York, as Trustee governing $80,000,000 aggregate principal amount of the Company's 11 3/4%
Senior Subordinated Notes due 2005
*4.3 Exchange and Registration Rights Agreement dated August 11, 1997 among the Company, the Guarantor
Subsidiaries and Chase Securities Inc., as Initial Purchaser
5.1 Opinion of Winston & Strawn
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
*10.1 Agreement of Purchase and Sale, dated as of May 3, 1991, as amended, between Bethlehem Steel
Corporation and the Company (incorporated by reference to Exhibit 2.1 to the Company's Registration
Statement on Form S-1, File No. 33-63132)
*10.2 Agreement and Plan of Merger, dated as of June 13, 1995, among the Company, JTN Acquisition Corp. and
Truck Components Inc. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on
Form 8-K dated June 13, 1995)
*10.3 Stockholders Agreement, dated as of June 13, 1995, among the Company, JTN Acquisition Corp. and the
stockholders party thereto (incorporated by reference to Exhibit 2.2 to the Company's Current
Report on Form 8-K dated June 13, 1995), and Amendment No. 1 to Stockholders Agreement, dated as of
June 23, 1995, among Johnstown America Industries, Inc., JTN Acquisition Corp., and the
stockholders party thereto (incorporated by reference to Exhibit 2.3 to Amendment No. 1 to the
Company's Current Report on Form 8-K dated June 13, 1995)
*10.4 Stock Purchase Agreement, dated as of December 21, 1994, and the First Amendment thereto, dated as of
January 13, 1995, each among the sellers, Bostrom Seating, Inc. and the Company (incorporated by
reference to Exhibit 2 to the Company's Current Report on Form 8-K dated January 24, 1995)
*10.5 1993 Stock Option Plan (incorporated by reference to Exhibit 10.8 to the Company's Registration
Statement on Form S-1, File No. 33-63132)
*10.6 Johnstown America Corporation Salaried Pension Plan (incorporated by reference to Exhibit 10.11 to
the Company's Registration Statement on Form S-1, File No. 33-63132)
*10.7 Amended and Restated Stockholder and Warrantholder Agreement (incorporated by reference to Exhibit
10.14 to the Company's Registration Statement on Form S-1, File No. 33-63132)
*10.8 Employment Agreement of Thomas M. Begel (incorporated by reference to Exhibit 10.11 to the Company's
Form 10-K for the fiscal year ended December 31, 1995)
*10.9 Employment Agreement of Andrew M. Weller (incorporated by reference to Exhibit 10.12 to the Company's
Form 10-K for the fiscal year ended December 31, 1995)
*10.10 Employment Agreement of Thomas W. Cook (incorporated by reference to Exhibit 10.13 to the Company's
Form 10-K for the fiscal year ended December 31, 1995)
*10.11 Emplyment Agreement of James D. Cirar (incorporated by reference to Exhibit 10.14 to the Company's
Form 10-K for the fiscal year ended December 31, 1995)
*10.12 Form of Employment Agreement (incorporated by reference to Exhibit 10.17 to the Company's Form 10-K
for the fiscal year ended December 31, 1996)
*10.13 Form of Severance Agreement (incorporated by reference to Exhibit 10.15 to the Company's Form 10-K
for the fiscal year ended December 31, 1995)
*10.14 Form of Stay Bonus Agreement (incorporated by reference to Exhibit 10.16 to the Company's Form 10-K
for the fiscal year ended December 31, 1995)
*10.15 Form of Stock Option Agreement (incorporated by reference to Exhibit 10.17 to the Company's Form 10-K
for the fiscal year ended December 31, 1995)
*10.16 Form of Supplemental Life Insurance Agreement (incorporated by reference to Exhibit 10.21 to the
Company's Form 10-K for the fiscal year ended December 31, 1996)
*10.17 Gunite Corporation Salaried Employees Retirement Plan (incorporated by reference to Exhibit 10.18 to
the Company's Form 10-K for the fiscal year ended December 31, 1995)
*10.18 Gunite Corporation Profit Sharing Plan (incorporated by reference to Exhibit 10.19 to the Company's
Form 10-K for the fiscal year ended December 31, 1995)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
*10.19 Credit Agreement, dated as of August 23, 1995, among the Company, the financial institutions named
therein, Chemical Bank, as Administrative Agent, Collateral Agent and Swingline Lender, Chemical
Bank Delaware, as Issuing Bank, and The First National Bank of Boston and The First National Bank
of Chicago, as Co-Agents (incorporated by reference to Exhibit 99.1 to the Company's Current Report
on Form 8-K dated August 30, 1995)
*10.20 Amendment to Credit Agreement, dated as of December 31, 1995, among the Company, the financial
institutions named therein, Chemical Bank, as Administrative Agent, Collateral Agent and Swingline
Lender, Chemical Bank Delaware, as Issuing Bank, and The First National Bank of Boston and The
First National Bank of Chicago, as Co-Agents (incorporated by reference to Exhibit 10.6 to the
Company's Form 10-K for the fiscal year ended December 31, 1995)
*10.21 Second Amendment to Credit Agreement, dated as of December 31, 1996 among the Company, the financial
institutions named therein, Chemical Bank, as Administrative Agent, Collateral Agent and Swingline
Lender, Chemical Bank Delaware, as Issuing Bank, and The First National Bank of Boston and The
First National Bank of Chicago, as Co-Agents (incorporated by reference to Exhibit 10.7 to the
Company's Form 10-K for the fiscal year ended December 31, 1996)
*10.22 Amendment No. 3, Consent and Waiver dated as of August 4, 1997 to Credit Agreement, among the
Company, The Chase Manhattan Bank, as Administrative Agent, Collateral Agent and Swingline Lender,
The First National Bank of Boston and The First National Bank of Chicago, as co-agents, and The
Chase Manhattan Bank Delaware, as Issuing Bank.
*10.23 Term Loan Agreement, dated as of June 14, 1996, between JAIX Leasing Company and NationsBanc Leasing
Corporation of North Carolina (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q
for the Quarter ended June 30, 1996)
*10.24 Loan Agreement, dated as of December 1, 1995, between Freight Car Services, Inc. and the City of
Danville, Vermillion County, Illinois relating to $5.3 million of City of Danville, Illinois
Variable Rate Demand Industrial Revenue Bonds (Freight Car Services, Inc. Project), Series 1995
(incorporated by reference to Exhibit 10.7 to the Company's Form 10-K for the fiscal year ended
December 31, 1995)
*12.1 Statement regarding computation of ratios
*21.1 List of Subsidiaries
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Winston & Strawn (included in its opinion filed as Exhibit 5.1)
*24.1 Powers of Attorney (included on signature pages hereto)
*25.1 Statement of Eligibility and Qualification of Trustee on Form T-1
*99.1 Form of Letter of Transmittal
*99.2 Form of Notice of Guaranteed Delivery
*99.3 Form of Letter to Securities Dealers, Commercial Banks, Trust Companies and Other Nominees
*99.4 Form of Letter to Clients
*99.5 Guidelines for Certification of Taxpayer Identification Number on Form W-9
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
[Letterhead of Winston & Strawn]
October 30, 1997
Johnstown America Industries, Inc.
980 North Michigan Avenue
Suite 1000
Chicago, Illinois 60611
Re: Registration Statement on Form S-4
of Johnstown America Industries, Inc. and the
Guarantors (as defined below)
Ladies and Gentlemen:
We have acted as special counsel to Johnstown America Industries,
Inc., a Delaware corporation (the "Company"), and certain of its subsidiaries
(the "Guarantors") in connection with the preparation of the Registration
Statement on Form S-4 (the "Registration Statement") filed on behalf of the
Company and the Guarantors with the Securities and Exchange Commission (the
"Commission") relating to the registration of $80,000,000 aggregate principal
amount of the Company's 11-3/4% Series C Senior Subordinated Notes due 2005
(the "New Notes") and the Guarantees (as hereinafter defined) thereof by the
Guarantors, which are to be offered in exchange for an equivalent principal
amount of the Company's currently outstanding 11-3/4% Series B Senior
Subordinated Notes due 2005 (the "Old Notes"), all as more fully described in
the Registration Statement. The New Notes will be issued under the Company's
Indenture dated as of August 11, 1997 (the "Indenture") between the Company,
the Guarantors and The Bank of New York, as trustee. Capitalized terms used
herein and not otherwise defined shall have the meanings assigned to such
terms in the prospectus (the "Prospectus") contained in the Registration
Statement.
<PAGE>
October 30, 1997
Page 2
This opinion letter is delivered in accordance with the requirements
of Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as
amended (the "Securities Act").
In connection with this opinion, we have examined and are familiar
with originals or copies, certified or otherwise identified to our
satisfaction, of (i) the Registration Statement, in the form filed with the
Commission and as amended through the date hereof; (ii) the Certificates of
Incorporation of the Company and each of the Guarantors, as currently in
effect; (iii) the By-laws of the Company and each of the Guarantors, as
currently in effect; (iv) the Indenture; (v) the form of the New Notes; and
(vi) resolutions of the Boards of Directors of the Company and each of the
Guarantors relating to, among other things, the issuance and exchange of the
New Notes for the Old Notes, the issuance of the Guarantees and the filing of
the Registration Statement. We also have examined such other documents as we
have deemed necessary or appropriate as a basis for the opinions set forth
below.
In our examination, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents
of all documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents. As to certain facts
material to this opinion, we have relied without independent verification
upon oral or written statements and representations of officers and other
representatives of the Company, the Guarantors and others.
Based upon and subject to the foregoing, we are of the opinion that:
1. The issuance and exchange of the New Notes for the Old Notes
and the issuance of the Guarantees have been duly authorized by requisite
corporate action on the part of the Company and the Guarantors, respectively.
2. The New Notes and the Guarantees will be valid and binding
obligations of the Company and the Guarantors, respectively, entitled to the
benefits of the Indenture and enforceable against the Company and the
Guarantors, respectively, in accordance with their terms, except to the
extent that the enforceability thereof may be limited by (x) bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
generally and (y) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity) when (i)
the Registration Statement, as finally amended (including all necessary
post-effective amendments), shall have become effective under the
<PAGE>
October 30, 1997
Page 3
Securities Act; (ii) the New Notes are duly executed and authenticated in
accordance with the provisions of the Indenture; and (iii) the New Notes
shall have been issued and delivered in exchange for the Old Notes pursuant
to the terms set forth in the Prospectus.
The foregoing opinions are limited to the laws of the United States,
the State of New York and the General Corporation Law of the State of
Delaware. We express no opinion as to the application of the securities or
blue sky laws of the various states to the issuance or exchange of the New
Notes.
We hereby consent to the reference to our firm under the headings
"Legal Matters" and "United States Federal Income Tax Consequences" in the
Prospectus and to the filing of this opinion with the Commission as an
exhibit to the Registration Statement. In giving such consent, we do not
concede that we are experts within the meaning of the Securities Act or the
rules and regulations thereunder or that this consent is required by
Section 7 of the Securities Act.
Very truly yours,
/s/ WINSTON & STRAWN
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports included in or made a part of this registration statement and to the
incorporation by reference in this registration statement of our report
dated January 27, 1997 included in Johnstown America Industries, Inc.'s Annual
Report on Form 10-KA for the year ended December 31, 1996 and to all
references to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Chicago, Illinois
October 29, 1997
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our reports dated February 8, 1995, with respect to the
financial statements of Truck Components Inc. included in the Registration
Statement (Form S-4 No. 333-35277) and related Prospectus of Johnstown
America Industries, Inc. for the registration of the 11-3/4% Series C
Senior Subordinated Notes due 2005.
ERNST & YOUNG LLP
Chicago, Illinois
October 29, 1997
