SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
Commission File No. 0-21830
Johnstown America Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware 25-1672791
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
980 North Michigan Avenue
Suite 1000
Chicago, Illinois 60611
(Address of principal executive offices)
(312) 280-8844
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.01 par value NASDAQ National Market System
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No________
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K.
___________
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. (See
definition of affiliate in Rule 405.)
$38,576,291 as of March 12, 1997.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 12, 1997
Common Stock, $.01 par value 9,755,062
Portions of the following documents are incorporated by reference in Parts II
and III of this Report: (1) Registrant's Annual Report to Shareholders for the
fiscal year ended December 31, 1996 (Part II); and (2) Registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held on May 1, 1997 (Part
III).
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PART I
Item 1. Business
The Company
Johnstown America Industries, Inc. (the "Company"), through its
subsidiaries, designs and manufactures railroad freight cars, components and
assemblies primarily for medium and heavy-duty trucks and high quality, complex
iron castings for transportation-related and a variety of other markets.
The Company's principal business operations are:
Railroad Freight Cars. Johnstown America Corporation ("JAC") is a
leading manufacturer of railroad freight cars used principally for hauling coal,
agricultural and mining products, intermodal containers (which are used on
trucks and ships as well as on freight cars) and highway trailers. JAC is the
largest North American manufacturer of coal freight cars. JAC is recognized for
its expertise in the development and manufacture of aluminum freight cars that
increase load capacity and consequently reduce carrier costs. In addition to
manufacturing aluminum coal cars, the Company has introduced an aluminum covered
hopper car designed for high volume grain transport. As part of its full-service
business strategy, the Company through Freight Car Services, Inc. ("FCS") has
established a presence in the growing market for freight car repair and
rebuilding services and through JAIX Leasing Company ("JAIX") offers its
customers freight car leasing and fleet management alternatives.
Truck Components and Assemblies. Gunite Corporation ("Gunite") is the
leading North American supplier of wheel-end systems and components, such as
brake drums, disc wheel hubs, spoke wheels and rotors to original equipment
manufacturers ("OEMs") in the heavy-duty truck industry. Gunite is a market
leader in the production of automatic slack adjusters (braking devices mandated
for all new trucks produced with air brakes since October 1994) and 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. In addition to serving OEMs, Gunite has significant sales to the less
cyclical aftermarket. Bostrom Seating, Inc. ("Bostrom") is a leading
manufacturer of air suspension and static seating systems for the medium and
heavy-duty truck industry. Fabco Automotive Corporation ("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 Iron Works, Inc. ("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,
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.
Corporate History of the Company
An investor group led by Thomas M. Begel, the Chairman, President and
Chief Executive Officer of the Company and the former Chairman, President and
Chief Executive Officer of The Pullman Company, formed the Company in 1991 as
the holding company for JAC to acquire substantially all of the assets of the
freight car manufacturing business of Bethlehem Steel Corporation ("Bethlehem"),
a business started in 1901 in Johnstown, Pennsylvania and acquired by Bethlehem
in 1923. JAC acquired the freight car manufacturing business from Bethlehem in
October 1991 for approximately $53.3 million.
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In July 1993, the Company completed an initial public offering of its
common stock and in February 1994 the Company completed a secondary offering of
its common stock.
In January 1995, the Company purchased Bostrom, a leading manufacturer
of heavy-duty truck seating systems located in Piedmont, Alabama, for
approximately $32.4 million. Bostrom was founded in 1935 in Milwaukee,
Wisconsin.
In January 1995, the Company through FCS acquired a freight car
rebuilding and repair facility in Danville, Illinois for $2.5 million and
through 1996 has spent capital of $2.6 million for refurbishment.
FCS started operations in October 1995.
In August 1995, the Company acquired Truck Components, Inc. ("TCI"), a
holding company for Gunite, Brillion and Fabco, for approximately $266.1 million
in cash, including the repayment of TCI's existing indebtedness. TCI was formed
in 1987 in order to acquire Gunite and Fabco from Fruehauf Corporation now known
as K-H Corporation ("K-H"). In 1988, TCI acquired Brillion from a group of
investors led by the Robins Group. Gunite was founded in Rockford, Illinois in
1854 as a custom manufacturer of cast iron products. Fabco was founded in 1918
in Oakland, California as a manufacturer of truck components and specialty
vehicles. Brillion was founded in 1890 as a farm equipment manufacturer and
constructed its first iron foundry in 1933.
Freight Car Operations
The Company is a leading manufacturer of railroad freight cars used
principally for hauling coal, agricultural and mining products, intermodal
containers (which are used on trucks and ships as well as on freight cars) and
highway trailers. As part of its full-service business strategy, the Company has
expanded its presence in the growing market for freight car repair and
rebuilding services and offers its customers freight car leasing and fleet
management alternatives.
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 and fleet management.
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(R) 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 received by the marketplace with significant
interest.
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
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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 and believes that demand for such cars will result in open
hopper cars representing a larger 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 of intermodal cars in 1996 and none are expected in 1997.
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 industrial sludge, and an ore car, which is
used by railroads to transport taconite pellets and iron ore.
Rebuilds, Modifications and Repairs. Freight cars are typically rebuilt
once between 15 and 20 years 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 advantageously located in the Midwest, commenced in
October of 1995. FCS performs total rebuilds, modifications and repairs of used
freight cars and manufactures certain new cars.
Car Kits and Parts. JAC sells kits containing the parts necessary to
build (or rebuild) a particular car to rebuilders and others including FCS, 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 car as well as
fleet management services. As of December 31, 1996, the Company owned or had
under management 1,067 railcars in its operating lease fleet, representing a
total investment of approximately $22.6 million, $13.6 million of which was
provided through limited-recourse borrowings.
Manufacturing
JAC's manufacturing operations are conducted primarily through two
facilities located in Johnstown, Pennsylvania. JAC has reduced the number of
freight car erection lines at its facilities during 1996 as demand for freight
cars declined. This has resulted in significant cost reductions. In addition,
JAC has focused on making its 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
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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.
FCS' rebuilding and repair operations are conducted at its Danville,
Illinois facility.
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.
Truck Components and Assemblies Operations
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, approximately 66% of Gunite's total net sales were to OEMs and the
remainder was 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
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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 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
wheelend 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 medium- and heavy-duty truck and trailer markets
with a full line of wheelend 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-andBrake 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 and rotors 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
perceived better performance characteristics and ease of maintenance. However,
spoke wheels are still popular for severe duty due to their higher strength.
In response to growing concerns by truck fleet operators over brake
adjustment, Gunite introduced its initial automatic slack adjuster product in
1984. Brake adjustment is vital to the operation of a truck for
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several reasons. During use, the brake shoe and drum wear down, causing changes
in the gap between the brake shoe and drum. These changes lessen the
effectiveness and therefore the safety of the brakes. Gunite's approach to
"clearance-sensing" technology allows its slack adjuster to react to and adjust
for variations in shoe-to-drum clearance automatically, as compared to manual
slack adjusters. The use of Gunite's automatic slack adjusters reduces
maintenance costs, improves braking performance and minimizes side-to-pull and
stopping distance. 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.
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 a new lightweight brake drum, 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. Commercial production of this product began in 1996.
Customers
Gunite markets its wheel-end component and assembly products to more
than 400 customers, including most of the major North American medium- and
heavy-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 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. Quality certification requirements tend to limit the number of
suppliers which can compete in the safety intensive product lines manufactured
by Gunite and benefits 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.
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Bostrom
Bostrom designs, manufactures and markets a full line of air suspension
and static seating systems primarily for the heavy-duty truck market.
Markets
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
85% of Bostrom's 1996 net sales, with Navistar accounting for approximately 31%
of such sales.
Manufacturing
Bostrom's manufacturing facility is located in Piedmont, Alabama. For a
number of its OEM customers, Bostrom ships its seats to a line-setting facility
which it has established near the OEM's plant 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 medium- and
heavy-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 medium and heavy-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 medium- and heavy-duty gear
boxes, including transfer cases, split shaft power take-offs and drop 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.
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Customers
Fabco's customers include most of the major North American on/off road
medium- and heavy-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.
Manufacturing
Fabco has gained a positive reputation for its engineering capabilities
in designing and manufacturing its products for the on/off road medium- and
heavy-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
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 medium-
and heavy-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, and is not expected to adversely impact Brillion's business. 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
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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 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
* 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
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
* Air-Cooled Engines * Industrial Lift Trucks
* Automobiles and Light Trucks * Lawn and Garden Equipment
* Construction Equipment * Locomotive Engines
* Diesel Engines * Marine Engines
* Farm Equipment * Medium- and Heavy-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
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 26% of Brillion's 1996 total net sales. Brillion
also serves as an important source of castings for Gunite, with sales to Gunite
representing approximately 11% 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." 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.
General
Competition
The Company operates in highly competitive markets. 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 has filed suit against Trinity for infringement of its BethGon Coalporter(R)
patent, Trinity has competed, and JAC expects that it will continue to compete,
with JAC in the sale of coal gondolas.
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 medium- and heavy-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.
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Backlog
As of December 31, 1996, freight car operations had a backlog of firm
orders for 774 new and rebuilt freight cars with an aggregate sales price of
approximately $35 million, as compared to a backlog of firm orders for 1,204 new
and rebuilt freight cars with an aggregate sales price of approximately $63
million as of December 31, 1995. 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 decline in backlog reflects a decrease in industry orders generally and a
sharper decrease in industry orders for car types produced by the freight car
operations, such as coal cars. The Company expects sales of intermodal and other
flat cars to continue to represent a relatively small percentage of its freight
car shipments as the Company's freight car operations continue to focus its
product development and marketing efforts on gondolas, open hopper cars and
covered hopper cars. 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.
Suppliers and Raw Materials
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.
The major raw material for the Company's 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.
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 few years, with JAC's current
three-year union contract scheduled to expire in October 1997. 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
(including the JAC union contract scheduled to expire in October 1997) 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.
Regulation
The Federal Railroad Administration ("FRA") administers and enforces
federal laws and
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regulations relating to railroad safety. These regulations govern equipment and
safety appliance 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(R). See " Legal Proceedings" in Item 3.
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 1996, 1995
and 1994, TCI's capital expenditures for compliance with environmental
requirements were approximately $371,000, $1,037,000 and $1,428,000
respectively. These figures do not include routine operational compliance costs,
such as the costs for the disposal of hazardous and non-hazardous solid waste,
which were approximately $4.1 million, $4.9 million and $3.1 million in 1996,
1995 and 1994, respectively. TCI's subsidiaries have budgeted $0.5 million for
environmentally related capital expenditures in 1996. 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 1996 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
Gunite's prior owner, K-H Corporation ("K-H"), a subsidiary of Varity Corp.,
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
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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 $200,000, 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 $300,000.
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 apparently is an industry-wide 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.
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, 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 the Comprehensive Environmental
Response, Compensation and Liability Act ("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 potentially responsible parties ("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.
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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 primarily from
activities that took place during the period that Gunite was a division of K-H.
As to the IPC site, K-H, on behalf of Gunite, entered into a partial
consent decree with the IEPA in 1991 (State of Illinois v. Interstate Pollution
Control, Inc., et al., Northern District of Illinois, filed in 1991). K-H
entered into this partial consent decree pursuant to an indemnification
agreement contained in the purchase and sale agreement between K-H and TCI,
dated September 4, 1987 (the "K-H Sale"). The consent decree covers an ongoing
remedial investigation/feasibility study ("RI/FS") for the site. In connection
with the consent decree and an emergency removal order, K-H agreed to pay
approximately 14% of such RI/FS and removal costs, which is expected to total
approximately $1.0 million. K-H has not agreed to indemnify Gunite for
remediation costs to be incurred at this site and, as discussed below,
remediation costs that would be payable by K-H or Gunite with respect to the IPC
site have not yet been determined.
The RI/FS for the IPC site includes the Rockford Pond, which is adjacent
to the Gunite Property, was transferred to K-H at the time of the K-H Sale, and
was used by Gunite both before and after the K-H Sale for the disposal of
foundry process wastewater and possibly other wastes; a landfill (the "Rockford
Landfill") transferred to K-H at the time of the K-H Sale, which was used as a
landfill by K-H prior to the K-H Sale, and certain portions of the Gunite
property itself. The results of the RI/FS may lead to the inclusion of some or
all of these areas within the IPC site boundaries for the purpose of
remediation. Any such redefinition of the boundaries of the IPC site could
result in a reallocation of responsibility for remediation costs among the
entities that are PRP's with respect to the larger site and could also result in
an increase in K-H's and/or Gunite's share of any such costs. Although it is not
possible to predict the exact timing or amount of the expenditures that will be
made in future years to remediate the IPC site, it is possible that Gunite will
be required to contribute substantial funds to remediate the IPC site.
As to 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 (Browning-Ferris Industries of Illinois, Inc., et al. v. Richard
Ter Maat, et al, Northern District of Illinois). The plaintiffs have alleged
that the Gunite division of K-H arranged for the disposal of waste at this site
from approximately 1972 to 1987. Approximately $10 million has been expended to
conduct an RI/FS at this site. A remedy has not yet been proposed for the site.
Gunite filed a motion to dismiss this matter, which was granted, in part, by the
district court; the remainder of the action is still pending against Gunite,
however. Although it is not possible to predict the exact timing or amount of
expenditures that will be made in future years to remediate the M.I.G./Dewane
Landfill site, it is possible that Gunite will be required to contribute
substantial funds towards the investigation and remediation of this site if
Gunite is judged to have disposed of materials at this site. K-H has denied a
claim for indemnification with respect to this site.
The Southeast Rockford Groundwater NPL Site is reportedly down gradient
from the IPC site. The EPA and the City of Rockford have reportedly incurred
approximately $11 million in response costs to date in connection with this
site. 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. Gunite has denied that it is liable to the City for these costs of $1
million. K-H has also denied a claim for indemnification with respect to this
site. Gunite believes that the EPA will also seek to recover some or all of its
costs at the site from Gunite, although Gunite has not to date received a formal
request for reimbursement from the EPA for this matter.
Gunite also may be subject to liabilities at other NPL sites or other
locations as a result of its past disposal of hazardous substances.
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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 Gunite has valid claims for contractual
indemnification against K-H with respect to most of the matters described above,
subject to an aggregate deductible for certain matters which, under various
theories, could range from $300,000 to $1.8 million, and other limitations. As
of October 28, 1993, however, K-H has formally denied all claims for
indemnification for environmental matters on, appurtenant to, or emanating from
the Gunite foundry plant site in Rockford, Illinois. The specific scope of K-H's
denial is ambiguous, but it might be interpreted to include all pending and
future claims from Gunite for indemnity. In 1994, K-H filed a declaratory
judgment action against TCI and Gunite for certain specific matters in dispute,
including any costs related to the construction of the conveyance structure to
the Rock River, reducing particulate emissions from the cupola charge doors, and
remediating conditions related to certain underground storage tanks on the
Gunite property (K-H Corp. v. Truck Components, Inc., et al. Circuit Court for
the County of Wayne, Michigan). K-H's complaint also included a claim for
trespass (for unspecified damages) related to Gunite's post-December 31, 1990
discharges to the Rockford Pond. On August 5, 1994, TCI and Gunite filed suit
against K-H and certain of its affiliates for the recovery of costs and for
declaratory and injunctive relief with respect to various environmental matters
pursuant to the indemnification provisions of the K-H Sale purchase agreement
and other causes of action, including CERCLA (Truck Components, Inc., et al. v.
K-H Corp., et al., Northern District of Illinois). No trial dates have been set
in either of the actions. There can be no assurance concerning the amounts, if
any, that Gunite will be able to recover on its indemnity claims against K-H nor
any assurance as to the timing of any such recoveries. It is also probable that
Gunite has incurred some liability for activities following the K-H Sale for
which it would not be covered by the K-H indemnity.
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, TCI 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.
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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. TCI 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 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 HuntWesson, 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 will submit
semi-annual monitoring results to ADEM until March 1997. It is not known what
remediation, if any, ADEM will require after March 1997. 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 December 31, 1996, based on all the information
currently available, the Company maintained its environmental reserve in the
amount of $26.4 million for estimated future costs related to potential
environmental investigation and remediation liabilities with respect to certain
currently known matters. 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 reserve is based
on current cost estimates and does not reduce estimated expenditures to net
present value. Further, the estimated reserve
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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. 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. See Note 11 to the Consolidated
Financial Statements of the Company. The Company currently anticipates spending
approximately $500,000 per year for the next three years and $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 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.
Executive Officers of the Registrant
Set forth below is certain information concerning the executive
officers of the Company:
Name Age Position
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 39 Vice President and Treasurer of the Company
Kenneth M. Tallering 35 Vice President, General Counsel and
Secretary of the Company
Timothy A. Masek 31 Vice President - Corporate Development of
the Company and President of
Bostrom Seating, Inc.
18
<PAGE>
Edward J. Whalen 48 Vice President of the Company and President
of Freight Car Services, Inc. and
JAIX Leasing Company
James D. Cirar 50 President and Chief Executive Officer of
Johnstown America Corporation
Thomas W. Cook 59 President and Chief Executive Officer of
Truck Components, Inc. and
President - Gunite Corporation
John D. McClain 52 President - Brillion Iron Works, Inc.
Mark A. Niemela 61 President - Fabco Automotive Corporation
Thomas M. Begel, Chairman of the Board, President and Chief Executive
Officer of the Company, 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 was also 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 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 Skadden, Arps, Slate, Meagher & Flom.
Timothy A. Masek, has served as Vice President - Corporate Development
of the Company since December 1995 and President of Bostrom Seating, Inc. since
June 1996. 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.
Edward J. Whalen, has served as Vice President of the Company since
January 1997. He has also served as President of JAIX Leasing since its
inception in December 1994 and as President of Freight Car Services, Inc. since
March 1995. Mr. Whalen 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.
James D. Cirar, has served as President and Chief Executive Officer of
Johnstown America Corporation since September 1995. Prior to September 1995, Mr.
Cirar was the Plant Manager of the Truck and Bus Assembly Group of General
Motors Corporation in Flint, Michigan.
19
<PAGE>
Thomas W. Cook, has been the President and Chief Executive Officer of
TCI since May 1994. Mr. Cook has been President of Gunite Corporation since
1991. He was President and Chief Executive Officer of Redlaw Industries, Inc.
from 1986 to 1991. From 1967 to 1986, Mr. Cook was with ITT Grinnell Corporation
where he became President in 1983.
John D. McClain, joined Brillion 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,
Emerson Electric and Clow Valve Company.
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.
Item 2. 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>
<S> <C> <C> <C> <C>
Owned/ Covered Space
Facilities Business Function Leased sq. ft.
JAC (1)
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
(1) All JAC facilities are located in Johnstown, Pennsylvania.
FCS
Danville, Illinois Freight car rebuild and repair Owned 297,000
Gunite
Rockford, Illinois Administrative Offices: Specialty Owned 619,000
Foundry, Aftermarket Distribution Warehouse
Elkhart, Indiana Machining- Wheel End Components Owned 258,000
(Plant 1)
Elkhart, Indiana Machining and Assembling- Automatic Leased 115,000
(Plant 2) Slack Adjusters
Brillion (2)
Plant I Melting; Molding; Administrative Leased 180,000
Offices
Plant II Melting; Molding Leased 165,000
Plant III Farm Machinery Owned 150,000
Plant IV Finishing; Shipping Leased 85,000
(2) All Brillion facilities are located in Brillion, Wisconsin.
Fabco
Oakland, California Manufacturing; Warehouse; Owned 65,000
Administrative Offices
Bostrom
Piedmont, Alabama Manufacturing; Administrative Leased 196,000
Offices
</TABLE>
20
<PAGE>
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.
Item 3. 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 position
or results of operations of the Company.
The patent infringement lawsuit commenced by JAC in December 1992 against
Trinity Industries, Inc. ("Trinity") alleging infringements of JAC's patent for
its BethGon Coalporter(R) 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 judgement 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.
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. See "Business-Environmental
Matters." 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. See "Business-Environmental Matters." TCI added
Hunt-Wesson, Inc., a corporate successor to Beatrice that may be a successor to
Beatrice's liability in theses matters, as a defendant on June 10, 1994. TCI
and Gunite filed suit on August 5, 1994 against K-H and certain of its
affiliates for certain causes of action, including claims related to the
indemnification provisions of the K-H sale stock purchase agreement. See
"Business-Environmental Matters." K-H filed a separate declaratory judgement
action against TCI and Gunite asserting that it had no indemnification
obligation for certain disputed environmental matters. See
"Business-Environmental Matters" in Item 1.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
21
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and related Stockhlder Matters
Price range of Common Stock
The Company's common stock is listed and traded on the NASDAQ National
Market System under the symbol "JAII." The following table sets forth the high
and low sales prices of the common stock as reported by the NASDAQ National
Market System.
Sales Prices
1995 High Low
First Quarter $16.75 $11.25
Second Quarter 13.75 10.13
Third Quarter 11.00 7.38
Fourth Quarter 8.13 4.25
1996
First Quarter $5.63 $3.25
Second Quarter 5.25 3.25
Third Quarter 3.75 2.44
First Quarter 4.50 3.13
The number of record holders of the Company's common stock on December
31, 1996 was 207
Dividend Policy
The Company has never paid any dividends on its common stock and expects
for the foreseeable future to retain all of its earnings from operations for use
in expanding and developings its business. Any future decision as to the payment
of dividends will be at the discretion of the Company's Board of Directors and
will depend upon the company's earnings, financial position, capital
requirements and such other factors as the Board of Directors deems relevant. In
addition, the Credit Facility (as defined herein) contains covenants limiting
dividends that may be paid to holders of shares of common stock
Item 6. Selected Financial Data
The following table sets forth selected financial data with respect to the
Company for the periods and at the dates indicated. All selected financial data
is derived from financial statements which habe been audited by Arthur Anderson
LLP, independent public accountants. This information should be read in
conjunction with the fiancial statements of the Company and the notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations," both of which are incorporated by reference herein.
22
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA
Year Ended December 31,
(in thousands, except per share amounts)
1992 1993 1994 1995(1) 1996
---- ---- ---- ------ ----
INCOME STATEMENT DATA:
Total revenues $204,500 $329,122 $468,525 $668,601 $559,972
Cost of goods 187,174 301,629 442,153 608,982 474,158
------- ------- ------- ------- -------
Gross Profit 17,326 27,493 26,372 59,619 85,814
Selling, general & administrative 9,108 11,340 13,144 28,117 46,605
Amortization expense 3,843 3,721 3,573 6,478 10,174
Gain on sale of leased freight cars -- -- -- -- (1,354)
------- ------- ------- ------- -------
Operating income 4,375 12,432 9,655 25,024 30,389
Interest expense, net 5,360 2,968 266 14,702 35,836
Provision (benefit) for
income taxes (254) 4,083 3,692 4,737 (76)
------- ------- ------- ------- -------
extraordinary items (731) 5,381 5,697 5,585 (5,371)
Extraordinary items, net of taxes -- 2,918 -- -- --
------- ------- ------- ------- -------
Net income (loss) $ (731) $ 2,463 $ 5,697 $ 5,585 $ (5,371)
======= ======= ======= ======= =======
Income (loss) per share before
extraordinary items $ (.13) $ .66 $ .58 $ .57 $ (.55)
Extraordinary items per share -- (0.36) -- -- --
------- ------- ------- ------- -------
Net income (loss) per share $ (.13) $ .30 $ .58 $ .57 $ (.55)
======= ======= ======= ======= =======
As of December 31,
BALANCE SHEET DATA: (in thousands)
------------------
1992 1993 1994 1995(1) 1996
---- ---- ---- ------ ----
Total assets $ 95,570 $107,966 $143,354 $578,825 $555,283
Long-term debt, including
current maturities 34,847 -- 7,600 329,786 304,175
Total shareholders' equity 16,300 57,235 63,234 68,874 63,537
(1) Acquired bostrom in January, 1995 and TCI in August, 1995. See Note 3 to
the Consolidated Financial Statements of the Company and the notes thereto
for the year ended December 31, 1996.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The information required by this Item is incorporated by reference to
pages 8-11 of the Company's Annual Report to Shareholders for the fiscal year
ended December 31, 1996.
Item 8. Consolidated Financial Statements and Supplemental Data
The information required by this Item is incorporated by reference to
pages 12-35 of the Company's Annual Report to Shareholders for the fiscal year
ended December 31, 1996.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
23
<PAGE>
PART III
Item 10.Directors and Executive Officers of the Registrant
The information required by this Item is incorporated by reference to
pages 2-3 of the Company's Proxy Statement for the Annual Meeting of
Shareholders of the Company to be held on May 1, 1997, except for the
information regarding the Company's executive officers which is set forth in
"Business" in Item 1 under the heading "Executive Officers of the Registrant."
Section 16 (A) Beneficial Ownership Reporting Compliance
The information required by this Item is incorporated by reference to
page 12 of the Company's Proxy Statement for the Annual Meeting of Shareholders
of the Company to be held on May 1, 1997.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference to
pages 4-10 of the Company's Proxy Statement for the Annual Meeting of
Shareholders of the Company to be held on May 1, 1997.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference to
pages 11-12 of the Company's Proxy Statement for the Annual Meeting of
Shareholders of the Company to be held on May 1, 1997.
Item 13. Certain Transactions and Related Transactions
The information required by this Item is incorporated by reference to
pages 4-10 of the Company's Proxy Statement for the Annual Meeting of
Shareholders of the Company to be held on May 1, 1997.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a)(1) and (a)(2) List of Financial Statements and Financial Statement
Schedules.
The following documents are included in the Company's Annual report to
Shareholders for the fiscal year ended December 31, 1996, pages 12 through 35,
and are incorporated herein by reference:
Report of Independent Public Accountants.
Consolidated Balance Sheets as of December 31, 1996 and 1995.
Consolidated Statements of Income for the Years Ended December 31, 1996, 1995
and 1994. Consolidated Statements of Cash Flows for the Years Ended December
31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
(a)(3) List of Exhibits:
3.1 Form of Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.3 to Form S-1,
Registration Statement 33-63132 (the "Initial S- 1")).
24
<PAGE>
3.2 Form of Restated By-laws of the Company (incorporated by reference
to Exhibit 3.4 to the Initial S-1).
4.1 Form of certificate for the Company's common stock, par value $.01
per share (incorporated by reference to Exhibit 4.1 to the Initial
S-1).
4.2 Form of certificate for the Company's Class B common stock, par
value $.01 per share (incorporated by reference to Exhibit 4.2 to
the Initial S-1).
4.3 Indenture relating to the 11.75% Senior Subordinated Notes of the
Company due 2005, dated as of August 23, 1995, including form of
note (incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K dated August 30, 1995).
4.4 Rights Agreement, dated as of October 4, 1995, between the Company
and BancBoston State Street Investor Services, L.P. (incorporated
by reference to Exhibit 1 to the Company's Registration Statement
on Form 8-A dated October 5, 1995).
10.1 Agreement of Purchase and Sale, dated as of May 3, 1991, as
amended, between Bethlehem Steel Corporation and Johnstown America
Industries, Inc. (incorporated by reference to Exhibit 2.1 to the
Initial S-1).
10.2 Agreement and Plan of Merger, dated as of June 13, 1995, among
Johnstown America Industries, Inc., 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 Johnstown
America Industries, Inc., 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 Johnstown America
Industries, Inc. (incorporated by reference to Exhibit 2 to the
Company's Current Report on Form 8-K dated January 24, 1995).
10.5 Credit Agreement, dated as of August 23, 1995, among Johnstown
America Industries, Inc., 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).
10.6 Amendment to Credit Agreement, dated as of December 31, 1995, among
Johnstown America Industries, Inc., 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 (the "1995 Form 10-K")).
10.7 Second Amendment to Credit Agreement, dated as of December 31, 1996
among Johnstown America Industries, Inc., 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.
10.8 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).
10.9 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 1995 Form 10-K).
10.10 1993 Stock Option Plan (incorporated by reference to Exhibit 10.8
to the Initial S-1).
25
<PAGE>
10.11 Johnstown America Corporation Salaried Pension Plan (incorporated
by reference to Exhibit 10.11 to the Initial S-1).
10.12 Amended and Restated Stockholder and Warrantholder Agreement
(incorporated by reference to Exhibit 10.14 to the Initial S-1).
10.13 Employment Agreement of Thomas M. Begel (incorporated by reference
to Exhibit 10.11 to the 1995 Form 10-K).
10.14 Employment Agreement of Andrew M. Weller (incorporated by reference
to Exhibit 10.12 to the 1995 Form 10-K).
10.15 Employment Agreement of Thomas W. Cook (incorporated by reference
to Exhibit 10.13 to the 1995 Form 10-K).
10.16 Employment Agreement of James D. Cirar (incorporated by reference
to Exhibit 10.14 to the 1995 Form 10-K).
10.17 Form of Employment Agreement.
10.18 Form of Severance Agreement (incorporated by reference to Exhibit
10.15 to the 1995 Form 10-K).
10.19 Form of Stay Bonus Agreement (incorporated by reference to Exhibit
10.16 to the 1995 Form 10-K).
10.20 Form of Stock Option Agreement (incorporated by reference to
Exhibit 10.17 to the 1995 Form 10-K).
10.21 Form of Supplemental Life Insurance Agreement.
10.22 Gunite Corporation Salaried Employees Retirement Plan (incorporated
by reference to Exhibit 10.18 to the 1995 Form 10-K).
10.23 Gunite Corporation Profit Sharing Plan (incorporated by reference
to Exhibit 10.19 to the 1995 Form 10-K).
13.1 Selected portions of the Registrant's Annual Report to Shareholders
for the fiscal year ended December 31, 1996 which are incorporated
by reference herein.
21.1 Subsidiaries of the Company
23.1 Consent of Arthur Andersen LLP
(b) Financial Statement Schedules:
All schedules have been omitted since the required information is either
not significant, included in the consolidated financial statements of the
Company or the notes thereto or not applicable.
(c) Reports on Form 8-K
The Company filed the following current report on Form 8-K:
None
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1994, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
JOHNSTOWN AMERICA INDUSTRIES, INC.
By:/s/Thomas M. Begel
--------------------------
Thomas M. Begel
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/Thomas M. Begel Chairman of the Board, President March 13, 1997
-------------------- and Chief Executive Officer
Thomas M. Begel (Principal Executive Officer)
/s/Andrew M. Weller Executive Vice President, Chief March 13, 1997
- --------------------- Financial Officer and Director
Andrew M. Weller (Principal Financial Officer and
Principal Accounting Officer)
/s/Camillo Santomero Director March 13, 1997
- ---------------------
Camillo Santomero
/s/R. Philip Silver Director March 13, 1997
- ---------------------
R. Philip Silver
/s/Francis S. Stroble Director March 13, 1997
- ---------------------
Francis S. Stroble
27
AMENDMENT No. 2, dated as of
December 31, 1996 (this "Amendment"), to the
Credit Agreement dated as of August 23, 1995
(the "Credit Agreement"), as amended by
Amendment No. 1 thereto dated as of December
31, 1995, among Johnstown America
Industries, Inc., a Delaware corporation
(the "Borrower"), the Lenders (as defined in
the Credit Agreement), The Chase Manhattan
Bank, a New York banking corporation
formerly known as Chemical Bank, as
swingline lender (in such capacity, the
"Swingline Lender"), as administrative agent
(in such capacity, the "Adfminmistrative
Agent") and as collateral agent (in such
capacity, the "Collateral Agent") for the
Lenders, The First National Bank of Boston
and The First National Bank of Chicago, as
co0agents (in such capacity, the
"Co-Agents"), and The Chase Manhattan Bank
Delaware, a Delaware banking corporation
formerly known as Chemical Bank Delaware, as
Issuing Bank (as defined in the Credit
Agreement).
A. Pursuant to the Credit Agreement, the Lenders, the Swingline
Lender and the Issuing Bank have extended credit to the Borrower, and have
agreed to extend credit to the Borrower, in each case pursuant to the terms and
subject to the conditions set forth therein.
B. The Borrower has requested that certain provisions of the
Credit Agreement be amended as set forth herein.
C. The Required Lenders are willing to amend the Credit
Agreement, pursuant to the terms and subject to the conditions set forth herein.
D. Capitalized terms used and not otherwise defined herein shall
have the meanings assigned to them in the Credit Agreement.
Accordingly, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the sufficiency and receipt
of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Amendment to Section 6.10 of the Credit Agreement.
Section 6.10 of the Credit Agreement is hereby amended and restated in its
entirety as follows:
"SECTION 6.10. Total Debt Ratio. Permit the ratio of (i)
Total Debt as of any date set forth below, to (ii) Consolidated
EBITDA for the period of four consecutive fiscal quarters ending
on such date, to be in excess of the ratio set forth below
opposite such date:
<PAGE>
Date Ratio
December 31, 1996 5.75 to 1
March 31, 1997 5.75 to 1
June 30, 1997 5.75 to 1
September 30, 1997 5.75 to 1
December 31, 1997 5.00 to 1
March 31, 1998 5.00 to 1
June 30, 1998 3.00 to 1
September 30, 1998 3.00 to 1
December 31, 1998 3.00 to 1
March 31, 1999 and thereafter 2.50 to 1"
SECTION 2. Amendment to Section 6.11 of the Credit Agreement.
Section 6.11 of the Credit Agreement is hereby amended and restated in its
entirety as follows:
SECTION 6.11. Interest Coverage Ratio. Permit the ratio of
(i) Consolidated EBITDA minus Consolidated Capital Expenditures
to (ii) Consolidated Interest Expense for any period of four
consecutive fiscal quarters ending on any date set forth below to
be less than the ratio set forth below opposite such date:
Date Ratio
December 31, 1996 1.30 to 1
March 31, 1997 1.30 to 1
June 30, 1997 1.30 to 1
September 30, 1997 1.30 to 1
December 31, 1997 1.50 to 1
March 31, 1998 2.50 to 1
June 30, 1998 2.50 to 1
September 30, 1998 2.50 to 1
December 31, 1998 2.50 to 1
March 31, 1999 and thereafter 3.00 to 1"
<PAGE>
SECTION 3. Amendment to Section 6.12 of the Credit Agreement.
Section 6.12 of the Credit Agreement is hereby amended and restated in its
entirely as follows:
"SECTION 6.12. Net Worth. Permit Consolidated Net Worth on
(a) December 31, 1996, to be less than $57,500,000, or (b) on the
last day of any fiscal quarter ending after December 31, 1996, to
be less than the sum of (i) $57,500,000 plus (ii) 50% of the
cumulative amount of positive Consolidated Net Income for each
fiscal quarter after December 31, 1996."
SECTION 4. Representations and Warranties. The Borrower
represents and warrants to each other party hereto that, after giving effect to
this Amendment, (a) the representations and warranties set forth in Atrticle
III of the Credit Agreement are true and correct in all material respects on and
as of the date hereof with the same effect as though made on and as of the date
hereof, except to the extent such representations and warranties expressly
relate to an earlier date and (b) no Default or Event of Default has occurred
and is continuing.
SECTION 5. Conditions to Effectiveness. This Amendment shall
become effective as of the date hereof on the date that the Administrative
Agent shall have received counterparts of this Amendment which, when taken
together, bear the signatures of the Borrower and the Required Lenders.
SECTION 6. Effect of Amendment. Except as expressly set forth
herein, this Amendment shall not be implication or otherwise limit, impair,
constitute a waiver of, or otherwise affect the rights and remedies of the
Lenders, the Swingline Lender, the Issuing Bank, the Collateral Agent or the
Administrative Agent under the Credit Agreement or any other Loan Document, and
shall not alter, modify, amend or in any way affect any of the terms,
conditions, obligations, covenants or agreements contained in the Credit
Agreement or any other Loan Document, all of which are ratified and affirmed in
all respects and shall cintinue in full force and effect. Nothing herein shall
be deemed to entitle the Borrower to a consent to, or a waiver, amendment,
modification or other change of, any of the terms, conditions, obligations,
covenants or agreements contained in the Credit Agreement or any other Loan
Document in similar or different circumstances. The Amendment shall apply and be
effective only with respect to the provsions fo the Credit Agreement
specifically referred to herein.
SECTION 7. Counterparts. This Amendment may be executed in any
number of counterparts and by different parties hereto in separte counterparts,
each of which when so executed and delivered shall be deemed an origianl, but
all such counterparts together shall constitute but one and the same instrument.
Delivery of any executed counterpart of a signature page of this Amendment by
facsimile transmission shall be as effective as delivery of a manually executed
counterpart hereof.
<PAGE>
SECTION 8. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
SECTION 9. Headings. The headings of this Amendment are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day and
year first above written.
JOHNSTOWN AMERICA INDUSTRIES, INC.,
by /s/ David W.Riesmeyer
-------------------------------
Name: David W. Riesmeyer
Title: Vice President, Treasurer
THE CHASE MANHATTAN BANK,
individually and as Administrative Agent, Collateral
Agent and Swingline Lender,
by /s/ Julie S. Long
-------------------------------
Name: Julie S. Long
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON,
individually and as Co-Agent,
by /s/ Lindsay W. McSwenney
-------------------------------
Name: Lindsay W. McSwenney
Title: Vice President
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Co-Agent,
by /s/ Karen F. Kizer
-------------------------------
Name: Karen F. Kizer
Title: Senior Vice President
THE BANK OF NEW YORK,
by /s/ John C. Lambert
-------------------------------
Name: John C. Lambert
Title: Vice President
THE BANK OF NOVA SCOTIA,
by /s/ F.C.H. Ashby
-------------------------------
Name: F.C.H. Ashby
Title: Senior Manager Bank Operations
CANADIAN IMPERIAL BANK OF
COMMERCE, ATLANTA AGENCY,
by /s/ Brian E. O'Callahan
-------------------------------
Name: Brian E. O'Callahan
Title: Authorized Signatory
CAISSE NATIONALE DE CREDIT AGRICOLE,
by /s/ Joan R. Goodman
-------------------------------
Name: Joan R. Goodman
Title: Vice President
<PAGE>
CREDIT LYONNAIS CHICAGO BRANCH,
by /s/ Mary Ann Klemm
-------------------------------
Name: Mary Ann Klemm
Title: Vice President & Group Head
CREDIT ANSTALT CORPORATE FINANCE,
INC.
by /s/ Catherine MacDonald
-------------------------------
Name: Catherine MacDonald
Title: Senior Associate
FIRST SOURCE FINANCIAL LLP,
by FIRST SOURCE FINANCIAL, INC.,
by /s/ Gary L. Francis
-------------------------------
Name: Gary L. Francis
Title: Senior Vice President
THE FUJI BANK, LIMITED, CHICAGO
BRANCH,
by /s/ Peter L. Chinnici
-------------------------------
Name: Peter L. Chinnici
Title: Joint General Manager
JOHNSTOWN BANK & TRUST COMPANY,
by /s/ Roger D. Landers
-------------------------------
Name: Roger D. Landers
Title: Vice President
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.,
by /s/ R. Douglas Henderson
-------------------------------
Name: R. Douglas Henderson
Title: Authorized Signatory
THE MITSUBISHI TRUST AND BANKING
CORPORATION,
by
Name:
Title:
NATIONAL BANK OF CANADA,
by /s/ C.F. Martin Jr.
-------------------------------
Name: C.F. Martin Jr.
Title: Vice President REgional Manager
NBD BANK,
by /s/ Jenny A. Gilpin
-------------------------------
Name: Jenny A. Gilpin
Title: Vice President
THE NIPPON CREDIT BANK, LTD., NEW
YORK BRANCH,
by /s/ Cliffort Abramsky
-------------------------------
Name: Clifford Abramsky
Title: Senior Manager
<PAGE>
THE NORTHERN TRUST COMPANY,
by /s/ G. Anthony Coletta
-------------------------------
Name: G. Anthony Coletta
Title: Vice President
PRIME INCOME TRUST,
by /s/ Raphael Scolari
-------------------------------
Name: Raphael Scolari
Title: Vice President
THE SUMITOMO TRUST AND BANKING CO.,
LTD.,
by /s/ Suraj P. Bhatia
-------------------------------
Name: Suraj P. Bhatia
Title: Senior Vice President
UNION BANK,
by /s/ Richard P. DeGrey
-------------------------------
Name: Richard P. DeGrey
Title: Vice President
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
by /s/ Brian W. Good
-------------------------------
Name: Brian W. Good
Title: Vice President
<PAGE>
THE YASUDA TRUST & BANKING
COMPANY, LTD., CHICAGO BRANCH,
by /s/ Joseph Meek
-------------------------------
Name: Joseph Meek
Title: Deputy General Manager
STRATA FUNDING LTD.,
by /s/ Darren P. Riley
-------------------------------
Name: Darren P. Riley
Title: Director
RESTRUCTURED OBLIGATIONS BACKED BY
SENIOR ASSETS B.V.,
by ABN TRUSTCOMPANY
(NEDERLAND) B.V., its Managing Director
by /s/ Gregory L. Smith
-------------------------------
Name: Gregory L. Smith
Title: Vice President
MERRILL LYNCH PRIME RATE PORTFOLIO,
by MERRILL LYNCH ASSET
MANAGEMENT, L.P., as Investment Advisor
by /s/ R. Douglas Henderson
-------------------------------
Name: R. Douglas Henderson
Title: Authorized Signatory
<PAGE>
CERES FINANCE LTD.,
by /s/ Darren P. Riley
-------------------------------
Name: Darren P. Riley
Title: Director
KEYPORT LIFE INSURANCE COMPANY,
by /s/ Gregory L. Smith
-------------------------------
Name: Gregory L. Smith
Title: Vice President
AERIES FINANCE LTD.,
by /s/ Andrew Ian Wignall
-------------------------------
Name: Andrew Ian Wignall
Title: Director
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of January, 1997, between
Johnstown America Industries, Inc., a Delaware corporation (the "Company"), and
(the "Executive").
WHEREAS, the Company, through its wholly owned subsidiaries, is
engaged in the business of manufacturing equipment for the transportation
industry including rail road freight cars, wheel-end components and air suspen
sion and static seating for medium and heavy-duty trucks, and complex iron
castings for a variety of industries including trucking, automotive,
agricultural, construc tion and industrial machinery (such business hereinafter
referred to as the "Business"); and
WHEREAS, the Executive, as a result of train ing, expertise and
personal application over the years, has acquired and will continue to acquire
considerable and unique expertise and knowledge which are of substan tial value
to the Company in the conduct, management and operation of its Business; and
WHEREAS, the Executive currently serves as
, and the Company desires to contin
ue the employment and service of the Executive in such capacities and is willing
to provide the Executive with certain benefits in the event of the termination
of the Executive's employment with the Company; and
WHEREAS, the Company considers it essential to the best interests
of its shareholders to foster the continuous employment of key management
personnel; and
WHEREAS, the Board of Directors of the Company (the "Board")
recognizes that, as is the case with many publicly-held corporations, the
possibility of a Change in Control (as defined below) exists and that such possi
bility, and the uncertainty and questions which it may raise among management,
may result in the departure or distraction of management personnel to the
detriment of the Company and its shareholders; and
WHEREAS, the Board has determined that appro-
priate steps should be taken to reinforce and encourage
1
<PAGE>
the continued attention and dedication of members of the Company's management,
including the Executive, to their assigned duties without distraction in the
face of poten tially disturbing circumstances arising from the possi bility of a
Change in Control; and
WHEREAS, the parties hereto desire to terminate the prior
severance agreement between the parties hereto dated January 1, 1996 (the
"Severance Agreement");
NOW THEREFORE, in consideration of the contin ued employment of
the Executive by the Company and the benefits to be derived by the Executive
hereunder, and of the Executive's agreement to continued employment by the
Company as provided herein, the parties mutually agree as follows:
1. Employment; Prior Severance Agreement.
(a) The Company hereby agrees to continue
to employ the Executive, and the Executive hereby agrees to continue to serve
the Company, on the terms and condi tions set forth herein.
(b) The parties hereto agree, effective
as of the date hereof, to terminate the Severance Agree
ment.
2. Term. The employment of the Executive by the Company pursuant
to this Agreement will continue as of the date hereof (the "Effective Date") and
shall expire on the second anniversary of the Effective Date (the "Term"),
unless extended, as set forth below, or otherwise terminated pursuant to the
provisions of this Agreement; provided, however, that commencing on the first
anniversary from the Effective Date and on each anniversary thereafter, the Term
of this Agreement shall automatically be extended for one additional year
unless, not later than 90 days prior to such anniversary, the Executive or the
Company shall have given notice in writing that he or it does not wish to extend
this Agree ment; and provided further, if a Change in Control shall have
occurred during the Term, this Agreement shall continue in effect and the Term
shall be extended until at least the later of the second anniversary of such
Change in Control or, if such Change in Control shall be caused by the
shareholder approval of a merger or consol-
2
<PAGE>
idation described in Section 6(d)(iii)(C) hereof, the second anniversary of the
consummation of such merger or consolidation.
3. Position and Duties. The Executive shall serve as of the
Company and as an officer of such of the Company's subsidiaries as shall be
reason ably requested by the Company and shall have such respon sibilities,
duties and authority as are customarily associated with such offices, including
but not limited to, those he may have as of the date hereof. The Execu tive
shall devote such time to the performance of his duties as is necessary to
satisfactorily perform his responsibilities and duties.
4. Place of Performance. In connection with the Executive's
employment by the Company, the Executive shall be based at the offices of the
Company in Chicago, Illinois, except for required travel on the Company's
business to the extent consistent with Company practices prior to the date
hereof. The Company shall pay all expenses related to such office facilities (or
comparable office facilities selected by the Executive), including, without
limitation, rent, salaries, equipment, utilities and other operating costs and
expenses.
5. Compensation and Related Matters. As com pensation and
consideration for the performance by the Executive of the Executive's duties,
responsibilities and covenants pursuant to this Agreement, the Company will pay
the Executive and the Executive agrees to accept in full payment for such
performance the amounts and bene fits set forth below.
(a) Salary. During the period of the
Executive's employment hereunder, the Company shall pay to the Executive an
annual base salary at a rate of $ commencing on the date hereof or such higher
rate as may from time to time be determined by the Board, such salary to be paid
in substantially equal install ments no less frequently than monthly. This
salary may be increased from time to time by the Company in its sole discretion.
Compensation of the Executive by salary pay ments shall not be deemed exclusive
and shall not prevent the Executive from participating in any other compensa
tion or benefit plan of the Company or any of the Com pany's subsidiaries or
affiliates. The salary payments
3
<PAGE>
(including any increased salary payments) hereunder shall not in any way limit
or reduce any other obligation of the Company hereunder or under any other
compensation or benefit plan or agreement under which the Executive is entitled
to receive payments or other benefits from the Company or any of the Company's
subsidiaries or affili ates, and no other compensation, benefit or payment
hereunder or under any other compensation or benefit plan or agreement under
which the Executive is entitled to receive payments or other benefits from the
Company shall in any way limit or reduce the obligation of the Company to pay
the Executive's salary hereunder.
(b) Bonus. During the term of the Execu-
tive's employment hereunder, the Executive shall participate in all management
incentive plans made generally available to executives of the Company in
comparable positions (the "Bonus Plans"). Subject to this Agreement and to the
rules and regulations governing the Bonus Plans which are communicated in
writing to the Executive from time to time, the Executive agrees that the actual
award of any cash bonus pursuant to a Bonus Plan may, pursuant to the terms of
such plan, be subject to the achievement of certain financial goals by the
Company and/or certain personal performance goals established for the Executive
with respect to any period for which a cash bonus may be paid pursuant to a
Bonus Plan (in each case such goals having been established by the Board or a
com mittee thereof).
(c) Expenses. The Executive shall be
entitled to receive prompt reimbursement for all reasonable travel and
entertainment expenses or other out-of-pocket business expenses incurred by the
Executive during the Term in fulfilling the Executive's duties and respon-
sibilities hereunder, including all expenses of travel and living expenses while
away from home on business or at the request of and in the service of the
Company, provided that such expenses are incurred and accounted for in
accordance with the policies and procedures established by the Company.
(d) Other Benefits. The Executive shall
be entitled to participate in or receive benefits under any employee benefit
plan, arrangement or perquisite made available by the Company at any time during
his employment hereunder to its executive employees (collectively
4
<PAGE>
the "Benefit Plans"), including without limitation each retirement, thrift and
profit sharing plan, group life insurance and accident plan, medical and dental
insurance plans, and disability plan, subject to and on a basis consistent with
the terms, conditions and overall administration of such plans, arrangements
and perquisites; provided, however, that such a change may be made to a plan in
which executives of the Company participate, including termination of any such
plan, arrangement or perquisite, if it does not result in a proportionately
greater reduction in the rights of or benefits to the Executive as compared with
any other executive of the Company or is required by law or a technical change.
Nothing paid to the Executive under any plan, arrangement or perquisite
presently in effect or made available in the future shall be deemed to be in
lieu of the salary payable to the Executive pursuant to paragraph (a) of this
Section 5. Any payments or benefits payable to the Executive under this Section
5 in respect of any year during which the Executive is employed by the Company
for less than the entire such year shall, unless otherwise provided in the
applicable plan or arrangement, be prorated in accordance with the number of
days in such year during which he is so employed.
(e) Vacations. During his employment
hereunder, the Executive shall be entitled to paid vacation in each calendar
year, determined in accordance with the Company's vacation policy. The Executive
shall also be entitled to all paid holidays and personal days given by the
Company to its executive employees.
6. Termination. The Executive's employment
hereunder may be terminated under the following circumstances:
(a) Death. The Executive's employment
hereunder shall terminate upon his death.
(b) Disability. If, in the written opinion of a
qualified physician selected by the Company, the Executive shall become unable
to perform his duties hereunder due to physical or mental illness which contin
ues for one year, the Company may terminate the Executive's employment
hereunder.
5
<PAGE>
(c) Cause. The Company may terminate the
Executive's employment hereunder for Cause. For purposes of this Agreement, the
Company shall have "Cause" to terminate the Executive's employment hereunder
upon:
(i) the willful and continuous neglect
or refusal to perform the Executive's duties or responsibilities, or the
willful taking of actions (or willful failures to take actions) which materially
impair the Executive's ability to perform his duties or responsibilities which
in each case continues after being brought to the attention of the Executive
(other than any such failure resulting from the Executive's incapacity due to
physical or mental illness or any such actual or anticipated failure after the
issuance of a Notice of Termination (as defined in subsection (e) hereof); or
(ii) any act by the Executive which
constitutes gross negligence or willful misconduct in the performance of his
duties hereunder, or the conviction of the Executive for any felony, in each
case which is materially and manifestly injurious to the Company and which is
brought to the attention of the Executive in writing not more than thirty days
from the date of its discovery by the Company or the Board.
For purposes of this subsection
(c), no act, or failure to act, on the Executive's part shall be considered
"willful" unless done, or omitted to be done, by him not in good faith or
without reasonable belief that his action or omission was in the best interest
of the Company. Notwithstanding the foregoing, the Executive shall not be deemed
to have been terminated for Cause without (1) reasonable written notice to the
Executive specifying in detail the specific reasons for the Company's intention
to terminate for Cause, (2) an opportunity for the Executive, together with his
counsel, to be heard before the Board, and (3) delivery to the Executive of a
Notice of Termination, as defined in subsection (e) hereof
(d) Good Reason.
(i) The Executive may terminate his employment
hereunder for Good Reason.
6
<PAGE>
(ii) For purposes of this Agreement,
"Good Reason" shall mean, without the Executive's express written consent, the
occurrence of any of the following circumstances unless such circumstances are
fully corrected prior to the Date of Termination (as defined in subsection (f)
of this Section 6) specified in the Notice of Termination (as defined in
subsection (e) of this Section 6) given in respect thereof: (A) a material
diminution in the Executive's position, duties, responsibilities (including
reporting responsibilities) or authority (except during periods when the
Executive is unable to perform all or substantially all of the Executive's
duties and/or responsibilities on account of the Executive's illness (either
physical or mental) or other incapacity), (B) a reduction in either the
Executive's annual rate of base salary or level of participation in any Bonus
Plans for which he is eligible under Section 5(b) hereof, (C) an elimination or
reduction of the Executive's participation in any Benefit Plans generally
available to employees at the Executive's level, except as otherwise permitted
herein, (D) failure to provide facilities or services which are suitable as
determined by the Board of the Company to the Executive's position and adequate
for the performance of the Executive's duties and responsibilities, including
the failure to maintain the Chicago office without the prior written consent of
the Executive or (E) any purported termination by the Company of the Executive's
employment which is not effected pursuant to a Notice of Termination satisfying
the requirements of subsection (e) of this Section 6 (and for purposes of this
Agreement no such purported termination shall be effective). The Executive's
right to terminate employment pursuant to this subsection shall not be affected
by the Executive's incapacity due to physical or mental illness.
(iii) A "Change in Control" shall be
deemed to have occurred if the conditions set forth in any one of the following
paragraphs shall have been satisfied:
(A) any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its affiliates)
representing 20% or
7
<PAGE>
more of the combined voting power of the Com pany's then
outstanding securities; or
(B) during any period of two consecutive years
(not including any period prior to the execution of this
Agreement), individuals who at the beginning of such period
constitute the Board and any new director (other than a director
designated by a Person who has entered into an agreement with
the Company to effect a transaction described in clause (A), (B)
or (C) of this paragraph) whose election by the Board or
nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning
of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a
majority thereof; or
(C) the shareholders of the Company approve a
merger or consolidation of the Company with any other
corporation, other than (i) a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity), in combination with the
ownership of any trustee or other fiduciary holding securities
under an employee benefit plan of the Company, at least 75% of
the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after
such merger or consolidation, or (ii) a merger or consolidation
effected to implement a recapitalization of the Company (or
similar transaction) in which no Person acquires more than 50%
of the combined voting power of the Company's then outstanding
securities; or
(D) the shareholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the
sale or dispo-
8
<PAGE>
sition by the Company of all or substantially all
the Company's assets.
Notwithstanding the foregoing, a Change in Control shall not include any
transaction with any entity or group which is wholly or partly controlled by the
Chief Execu tive Officer and one or more of the other executive officers of the
Company in office immediately prior to such transaction.
(iv) For purposes of this Agreement,
"Beneficial Owner" shall have the meaning defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
(v) For purposes of this Agreement, "Person"
shall have the meaning given in Section 3(a)(9) of the Exchange Act, as
modified and used herein; however, a Person shall not include (i) the Company or
any of its subsidiaries, (ii) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any of its subsidiaries, (iii)
an underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
(e) Notice of Termination. Any termination of the Executive's
employment by the Company or by the Executive (other than a termination pursuant
to subsection (a) hereof) shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 12. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
(f) "Date of Termination" shall mean (i) if the Executive's
employment is terminated pursuant to subsection (a) above, the date of his
death, (ii) if the Executive's employment is terminated pursuant to subsection
(b) above, thirty days after Notice of Termination is given (provided that the
Executive shall not have
9
<PAGE>
returned to the full-time performance of the Executive's duties during such
thirty day period), (iii) if the Executive's employment is terminated pursuant
to subsection (c) or (d) above, the date specified in the Notice of Termination
which, in the case of a termination for Cause shall be the date such Notice of
Termination is given (or such later date as provided therein), and in the case
of a termination for Good Reason shall not be less than five (5) nor more than
thirty (30) days from the date such Notice of Termination is given, or (iv) if
the Executive terminates his employment and fails to provide written notice to
the Company of such termination, the date of such termination; provided,
however, that if within fifteen (15) days after any Notice of Termination is
given or, if later, prior to the Date of Termination (as determined without
regard to this provison), the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the termination, then
the Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, by a binding
arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected); and
provided, further, that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the forego ing, if the dispute is resolved in favor of the
Company, the Date of Termination shall not be deemed to have been extended for
purposes of this Agreement. If the Date of Termination is extended by a notice
of dispute, the rights and the obligations of the parties upon a final
determination shall be governed by the terms of this Agreement, regardless of
whether the Agreement otherwise remains in effect on the date of such final
determination. Notwithstanding the pendency of any such dispute, the Company
will continue to pay to the Executive his full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to, base
salary) and continue the Executive as a participant in all compensation, benefit
and insurance plans in which the Executive was participating when the notice
giving rise to the dispute was given and the Executive shall, at the Company's
request, continue to perform his obliga-
10
<PAGE>
tions hereunder, in each case, until the dispute is finally resolved in
accordance with this subsection.
If the Company elects not to have the Executive continue to
perform his obligations hereunder during the pendency of such dispute, and the
Company prevails in such dispute, then the Executive shall promptly return to
the Company any monies (or the value of any benefits) received with respect to
service performed by him after the originally stated Date of Termination to
which the Executive would not have been otherwise entitled.
7. Compensation Upon Termination, Death or
During Disability.
(a) During any period that the Executive
fails to perform his duties hereunder as a result of incapacity due to physical
or mental illness, the Executive shall continue to receive his full base salary
and other benefits at the rate then in effect for such period (offset by any
payments to the Executive received pursuant to disability benefit plans
maintained by the Company) until his employment is terminated pursuant to Sec-
tion 6(b) hereof, and upon such termination, the Company shall pay all other
unpaid amounts, if any, to which the Executive is entitled as of such Date of
Termination, including any expenses owed pursuant to Section 5(c) (which
amounts shall be paid in a lump sum within 10 days of such Date of Termination)
and amounts under any compensation plan or program of the Company, at the time,
if any, such payments are payable to the Executive under the terms of such plan
in light of the circumstances in which such termination occurred, and the
Company shall, there-after, have no further obligations to the Executive under
this Agreement.
(b) If the Executive's employment is
terminated by his death, the Company shall within ten days following the date of
the Executive's death, (i) pay any amounts due to the Executive under Section 5
through the date of his death and (ii) pay to the Executive's legal
representative (A) any death benefits provided under any Benefit Plan in
accordance with their terms and (B) all other unpaid amounts, if any, to which
the Executive is entitled as of the Date of Termination, including any expenses
owed pursuant to Section 5(c) (which amounts shall be paid in a lump sum within
10 days of such Date
11
<PAGE>
of Termination) and amounts under any compensation plan or program of the
Company, at the time, if any, such payments are payable to the Executive under
the terms of such plan in light of the circumstances in which such termination
occurred, and the Company shall, thereafter, have no further obligations to the
Executive under this Agreement.
(c) If the Executive's employment is
terminated by the Company for Cause or by the Executive for other than Good
Reason, the Company shall pay the Executive his full base salary through the
Date of Termination at the rate in effect at the time Notice of Termination is
given and all other unpaid amounts, if any, to which the Executive is entitled
as of the Date of Termination, including any expenses owed pursuant to Section
5(c) and amounts under any compensation plan or program of the Company, at the
time, if any, such payments are payable to the Executive under the terms of such
plan in light of the circumstances in which such termination occurred, and the
Company shall, thereafter, have no further obligations to the Executive under
this Agreement.
(d) Subject to Section 8 hereof, if (A)
in breach of this Agreement, the Company shall terminate the Executive's
employment (it being understood that a purported termination pursuant to Section
6(b) hereof or Section 6(c) hereof which is disputed and finally determined not
to have been proper shall be a termination by the Company in breach of this
Agreement) or (B) the Executive shall terminate his employment for Good Reason,
then the Company shall provide the following payments and benefits
(collectively, the "Severance Payments"):
(i) the Company shall pay the Executive
his full base salary through the Date of Termination at the rate in effect
at the time Notice of Termination is given and all other unpaid amounts, if any,
to which the Executive is entitled as of the Date of Termination including any
amounts owed pursuant to Section 5(c) and amounts under any compensation plan or
program of the Company, at the time such payments are payable to the Executive
under the terms of such plan in light of the circumstances in which such
termination occurred; and
(ii) in lieu of any further salary
payments to the Executive for periods subsequent to the
12
<PAGE>
Date of Termination, the Company shall pay as liquidated damages to the
Executive within ten days of the Date of Termination, a lump sum amount equal to
the product of (1) the sum of (a) the Executive's annual base salary rate in
effect as of the date Notice of Termination is given and (b) the greatest of (i)
the Executive's guaranteed annual bonus (if any) with respect to the fiscal
year in which the Date of Termination occurs, (ii) the target annual bonus which
may become payable to the Executive with respect to the fiscal year in which the
Date of Termination occurs, (iii) the annual bonus payments made to the
Executive with respect to the fiscal year immediately prior to the fiscal year
in which the Date of Termination occurs and (iv) the average of the annual bonus
payments made to the Executive with respect to the three fiscal years
immediately prior to the fiscal year in which the Date of Termination occurs (or
such shorter period as the Executive has been employed by the Company)
multiplied by (2) the number two; and
(iii) notwithstanding any provision
of the Company's annual incentive plans, the Company shall pay to the Executive
a lump sum amount, in cash, equal to the sum of (a) any annual incentive
compensation which has been allocated or awarded to the Executive for the
completed fiscal year preceding the Date of Termination but has not yet been
paid (pursuant to clause (i) above or otherwise), and (b) a pro rata portion to
the Date of Termination of the value of any annual contingent incentive
compensation award to the Executive for an uncompleted fiscal year calculated
by multiplying the applicable target bonus thereunder by a fraction the
numerator of which shall be the number of days the Executive was employed
during such fiscal year and the denominator of which shall be 365; and
(iv) the Company shall at its own
cost continue the participation of the Executive for a period of two years, in
all medical, life and other employee "welfare" benefit plans and programs in
which the Executive was entitled to participate immediately prior to the Date of
Termination provided that the Executive's continued participation is provided
under the general terms and provisions of such plans and programs as in effect
on the date of such Termination. In the event that the Executive's participation
in any such plan or program is barred, the Company shall arrange to provide
13
<PAGE>
the Executive with benefits substantially similar to those which the Executive
would otherwise have been entitled to receive under such plans and programs from
which his continued participation is barred; and
(v) if the Company shall fulfill its
obligations to the Executive pursuant to this Section 7(d) then the Company
shall, thereafter, have no further obligations to the Executive under this
Agreement.
(e) The Executive shall not be required
to mitigate the amount of any payment provided for in this Section 7 by seeking
other employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Section 7 be reduced by any compensation earned by the
Executive as the result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by the Executive to
the Company, or otherwise.
(f) The obligations of the Company to
make payments and provide benefits under this Section 7 shall survive the
termination of this Agreement.
8. Treatment of Parachute Payments.
(a) Notwithstanding any other provisions
of this Agreement, in the event that any payment or benefit received or to be
received by the Executive in connection with a Change in Control or the
termination of the Executive's employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company, any
Person whose actions result in a Change in Control or any Person affiliated with
the Company or such Person) (all such payments and benefits, including the
Severance Payments, being herein-after called "Total Payments") would not be
deductible (in whole or part), by the Company, an affiliate or Person making
such payment or providing such benefit as a result of section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), then, to the extent
necessary to make such portion of the Total Payments deductible (and after
taking into account any reduction in the Total Payments provided by reason of
section 280G of the Code in such other plan, arrangement or agreement), (A) the
cash Severance Payments shall first be reduced (if necessary, to zero), and (B)
all other non-cash Severance
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Payments shall next be reduced (if necessary, to zero). For purposes of this
limitation (i) no portion of the Total Payments the receipt or enjoyment of
which the Executive shall have effectively waived in writing prior to the Date
of Termination shall be taken into account, (ii) no portion of the Total
Payments shall be taken into account which in the opinion of tax counsel
selected by the Company's independent auditors does not constitute a "parachute
payment" within the meaning of section 280G(b)(2) of the Code, including by
reason of section 280G(b)(4)(A) of the Code, (iii) the Severance Payments shall
be reduced only to the extent necessary so that the Total Payments (other than
those referred to in clauses (i) or (ii)) in their entirety constitute
reasonable compensation for services actually rendered within the meaning of
section 280G(b)(4)(B) of the Code or are otherwise not subject to disallowance
as deductions, in the opinion of the tax counsel referred to in clause (ii); and
(iv) the value of any non-cash benefit or any deferred payment or benefit
included in the Total Payments shall be determined by the Company's independent
auditors in accordance with the principles of sections 280G(d)(3) and (4) of the
Code.
(b) If it is established pursuant to a
final determination of a court or an Internal Revenue Service proceeding that,
notwithstanding the good faith of the Executive and the Company in applying the
terms of this Section 8, the aggregate "parachute payments" paid to or for the
Executive's benefit are in an amount that would result in any portion of such
"parachute payments" not being deductible by reason of section 280G of the Code,
then the Executive shall have an obligation to pay the Company upon demand an
amount equal to the sum of (i) the excess of the aggregate "parachute payments"
paid to or for the Executive's benefit over the aggregate "parachute payments"
that could have been paid to or for the Executive's benefit without any portion
of such "parachute payments" not being deductible by reason of section 280G of
the Code; and (ii) interest on the amount set forth in clause (i) of this
sentence at the rate provided in section 1274(b)(2)(B) of the Code from the date
of the Executive's receipt of such excess until the date of such payment.
. Covenant Not to Compete. The Executive
acknowledges that, as a key management employee, the
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Executive will be involved, on a high level, in the development, implementation
and management of the Company's strategies and plans, including those which in
volve the Company's finances, research, marketing, planning, operations,
industrial relations and acquisitions. By virtue of the Executive's unique and
sensitive position and special background, employment of the Executive by a
competitor of the Company represents a serious competitive danger to the
Company, and the use of the Executive's talent and knowledge and information
about the Company's business, strategies and plans can and would constitute a
valuable competitive advantage over the Company. In view of the foregoing, the
Executive covenants and agrees that, if the Executive's employment is terminated
(i) by the Company in breach of this Agreement, (ii) pursuant to an event
constituting Good Reason or (iii) under any other circumstances, then, for a
period of one year in the case of clauses (i) and (ii) of this sentence, and for
a period of two years in the case of clause (iii) of this sentence, after the
Date of Termination, the Executive will not engage or be engaged, in any
capacity, directly or indirectly, including but not limited to as an employee,
agent, consultant, manager, executive, owner or stockholder (except as a
passive investor holding less than a 5% equity interest in any enterprise) in
any business entity engaged in competition with any material business conducted
by the Company on the Date of Termination anywhere in North America.
The covenant not to compete contained in this Section 9 shall
survive the termination of this Agreement.
If any court determines that the covenant not to compete
contained in this Section 9, or any part hereof, is unenforceable because of
the duration or geographic scope of such provision, such court shall have the
power to reduce the duration or scope of such provision, as the case may be, to
as close to the terms hereof as shall be enforceable and, in its reduced form,
such provision shall then be enforceable.
10. Confidentiality. The Executive recognizes that he will have
access to confidential information, trade secrets, proprietary methods and other
data which are the property of and integral to the operations and success of
company and therefore agrees to be bound by
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the provisions of this Section 10, which both Company and Executive agree and
acknowledge to be reasonable and to be necessary to the Company. In recognition
of this fact, the Executive agrees that the Executive will not disclose any such
trade secrets or confidential or proprietary information (except (i)
information which becomes publicly available without violation of this Agree
ment, (ii) information which the Executive did not know and should not have
known was disclosed to the Executive in violation of any other person's
confidentiality obligation and (iii) disclosure required in connection with any
legal process (after giving the Company the opportunity to dispute such
requirement)) to any person, firm, corporation, association or other entity, for
any reason or purpose whatsoever, nor shall the Executive make use of any such
information for the benefit of any person, firm, corporation or other entity
except the Company. The Executive's obligation to keep all of such information
confidential shall be in effect during and for a period of four years after the
Date of Termination; provided, however, that the Executive will keep
confidential and will not disclose any trade secret or similar infor mation
protected under law as intangible property (subject to the same exceptions set
forth in the parenthetical clause above) for so long as such protection under
law is extended.
11. Binding Agreement. This Agreement and all rights of the
Executive hereunder shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts would still be payable to him hereunder if he had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the Executive's
estate.
12. Notice. Notices, demands and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered, if delivered personally, or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, and when received if delivered otherwise, addressed
as follows:
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If to the Executive:
_______________________
c/o Johnstown America Industries, Inc.
980 North Michigan Avenue
Suite 1000
Chicago, Illinois 60611
If to the Company:
Johnstown America Industries, Inc.
980 North Michigan Avenue
Suite 1000
Chicago, Illinois 60611
Attn: President
With a copy to:
Johnstown America Industries, Inc.
980 North Michigan Avenue
Suite 1000
Chicago, Illinois 60611
Attn: General Counsel
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
13. General Provisions. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and such officer of the Company as
may be specifically designated by the Board. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not set forth expressly in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Delaware without regard
to its conflicts of law principles.
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14. Validity. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
16. Entire Agreement. This Agreement sets forth the entire
agreement of the parties hereto in respect of the subject matter contained
herein and supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior agree-
ment of the parties hereto in respect of the subject matter contained herein is
hereby terminated and cancelled.
17. Injunctive Relief. The Executive agrees that in addition to
any other remedy provided at law or in equity or in this Agreement, the Company
shall be entitled to a temporary restraining order and both preliminary and
permanent injunctions restraining Executive from violating any provision of
Sections 9 and 10 of this Agreement.
18. Consent to Jurisdiction and Forum; Legal Fees and Costs. The
Company and the Executive hereby expressly and irrevocably agree that any
action, whether at law or in equity, arising out of or based upon this Agreement
or the Executive's employment by the Company shall only be brought in a federal
or state court located in Chicago, Illinois. The Executive hereby irrevocably
consents to personal jurisdiction in such court and to accept service of process
in accordance with the provisions of such court. In connection with any dispute
arising out of or based upon this Agreement or the Executive's employment by the
Company, each party shall be responsible for its or his own legal fees and
expenses and all court costs shall be shared equally by the Company and the
Executive unless the court apportions such legal fees or court costs in a
different manner.
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19. Withholding. All payments made to the Executive pursuant to
this Agreement shall be subject to applicable withholding taxes, if any, and any
amount so withheld shall be deemed to have been paid to the Executive for
purposes of amounts due to the Executive under this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the date and year first above written.
JOHNSTOWN AMERICA INDUSTRIES, INC.
By: /s/ Andrew M. Weller
------------------------------
Name: Andrew M. Weller
Title: Executive Vice President & CFO
20
SUPPLEMENTAL LIFE INSURANCE AGREEMENT
THIS SUPPLEMENTAL LIFE INSURANCE AGREEMENT is made in Chicago, Illinois; as of
the ____ day of _______, 199_, by and between JOHNSTOWN AMERICA INDUSTRIES, INC.
(the "Corporation"), a Delaware corporation, and ___________________________
(the "Employee").
WHEREAS, the Corporation wishes to reward the Employee with supplemental life
insurance compensation for faithful and productive service with the Corporation;
and
WHEREAS, the parties hereto desire to have the specifics of the supplemental
life insurance compensation and the criteria pursuant to which such supplemental
life insurance compensation will be paid reduced to a written agreement;
NOW, THEREFORE, in consideration of the mutual covenants and promises herein
made, the Corporation and the Employee agree as follows:
1. Compensation
In addition to any and all other compensation paid by the Corporation to
the Employee for services rendered to the Corporation, the Corporation
agrees, subject to Section 2 below, to: (1) pay the annual premium on a
$__________ policy (the "Policy") of life insurance on the life of the
Employee; and (2) "gross-up" the Employee in cash for the approximate
amount of federal, state and local income taxes the Employee must pay on
the imputed income therefrom; and (3) reimburse the Employee additional
cash so that the Employee will have no "out-of-pocket" outlay by virtue of
this reimbursement to pay the tax.
2. Payment Conditions
a. The Policy premiums will be paid directly to the insurer subject to
the following conditions precedent:
i) Subject to Section 4(b) below, the Policy shall be purchased and
wholly owned by the Employee and, without exception, all incidents
of ownership shall vest in the Employee. The Employee shall have
sole discretion in naming the beneficiary of the Policy; provided
that, in no event will the Employee name the Corporation or any
affiliate or subsidiary of the Corporation as a beneficiary
thereof. Subject to Section 4(c), the Employee shall have the
ability to surrender, borrow or to obtain dividends from the
Policy.
ii) The Corporation agrees to pay the premiums on the Policy when due.
The duration and amount of the Policy may be changed at the
Corporation's discretion. Except as otherwise provided in Section
4(a) or in the last sentence of Section 4(b) below, the
Corporation's obligation to continue to pay premiums on the Policy
shall cease upon the earlier of the Employee's death, termination
from service for any reason, or 65th birthday.
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b.Income Tax Reimbursement Provision
i) The Corporation also agrees to pay the Employee a reimbursement
approximately equal to the amount of personal federal, state and
local income taxes that the Employee is obligated to pay on gross
income imputed to the Employee by virtue of each premium paid on
the policy by the Corporation.
3. Term
The term of the Agreement shall commence with the effective date of the
Policy and terminate as provided in Section 4 below.
4. Termination Rights; Surrender of Policy
a.Subject to the last sentence of Section 4(b) below, either party to
this Agreement may terminate the Corporation's continued obligation to
pay premiums on the Policy upon the giving of sixty (60) days written
notice of termination to the other party.
b.Prior to the third anniversary of the date hereof, upon the
termination of the Employee's employment with the Corporation for any
reason, the Employee agrees to assign to the Corporation without
consideration therefor all rights of the Employee to the Policy and
all benefits thereunder effective as of the date of termination of the
Employee's employment with the Corporation. The foregoing shall be
inapplicable to a termination of employment due to the Employee's
death or a termination of employment pursuant to which the Employee is
entitled to any benefits under any severance or employment agreement
then in effect between the Corporation and the Employee. In addition,
the Corporation acknowledges that in the event of a termination of
employment pursuant to which the Employee is entitled to any benefits
under any severance or employment agreement then in effect between the
Corporation and the Employee and notwithstanding any provision in this
Agreement to the contrary, the Corporation shall continue to make
premium payments on the Policy as provided herein for the period
specified in such severance or employment agreement.
On and after the third anniversary of the date hereof, upon the
termination of the Employee's employment with the Corporation for
Cause (as defined below), the Employee agrees to assign to the
Corporation without consideration therefor all rights of the Employee
to the policy and all benefits thereunder effective as of the date of
termination of the Employee's employment with the Corporation. For
purposes of this Agreement, "Cause" shall mean (i) the willful and
continued failure by the Employee to substantially perform the
Employee's duties with the Corporation (other than any such failure
resulting from the Employee's incapacity due to physical or mental
illness) after a written demand for substantial performance is
delivered to the Employee by the Corporation's Board of Directors,
which demand specifically identifies the manner in which the
Corporation's Board of Directors believes that the Employee has not
substantially performed the
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<PAGE>
Employee's duties, or (ii) the willful engaging by the Employee in
conduct which is demonstrably and materially injurious to the
Corporation or its subsidiaries, monetarily or otherwise. For purposes
of clauses (i) and (ii) of this definition, no act, or failure to act,
on the Employee's part shall be deemed "willful" unless done, or
omitted to be done, by the Employee not in good faith and without
reasonable belief that the Employee's act, or failure to act, was in
the best interest of the Corporation.
c.So long as the Employee continues to be employed by the Corporation,
the Corporation's consent will be required in order for the Employee
to surrender, borrow, or to obtain dividends from the Policy, provided
that consent will be given to obtain Policy values for college
education of the Employee's children or for medical needs of the
Employee and family.
5. Named Fiduciary and Plan Administrator
The Chief Financial Officer of the Corporation is hereby designated
the "named fiduciary". As named fiduciary, the Chief Financial Officer
shall be responsible for the management, control and administration of
the Policy as established herein. The Chief Financial Officer may
allocate to others certain aspects of the management and operation
responsibilities of the plan including the employment of advisors and
the delegation of any ministerial duties to qualified individuals.
6. Claims Procedure for Life Insurance
Due proof of death must be submitted to the insurer at its home office
on forms furnished by it. These forms can be obtained from any local
office of the insurer or from its home office.
IN WITNESS WHEREOF, the parties hereto have executed this AGREEMENT on the date
first above written.
JOHNSTOWN AMERICA INDUSTRIES, INC.
By: /s/ Andrew M. Weller
---------------------------------
Andrew M. Weller
Executive Vice President & CFO
3
Management's Discussion and Analysis of
Financial condition and Results of Operations
GENERAL
The Company completed the acquisition of Truck Components Inc. ("TCI") 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, 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
it's wholly owned subsidiary Freight Car Services, Inc. ("FCS") completed the
purchase of the Danville, Illinois facility and began operations in October
1995.
The Company's sales are affected to a significant degree by the freight car and
Class 8 truck markets. Both the freight car and the Class 8 truck markets are
subject to significant fluctuations due to economic conditions, 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.
RESULTS OF OPERATIONS
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 to 1,204
new and rebuilt freight cars at December 31, 1995.
At December 31, 1996 the Company had 1,067 freight cars on lease and 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 ended
1996 as compared to $2.6 million revenue and $1.9 million operating income in
the prior year.
COST OF SALES-MANUFACTURING AND GROSS PROFIT
Cost of sales-manufacturing for 1996 as a percent of manufacturing sales was
85.0%, compared to 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 is related to the acquisition and the integration of
TCI which has higher selling, general and administrative levels as a percent of
revenue compared to the freight car business, and to increased MIS and product
development costs at the freight car operations. Amortization expense as a
percentage of total revenue was 1.8% and 1.0% for the years ended 1996 and 1995,
respectively. The increase in amortization expense as a 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 to $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.
OTHER
Interest expense, net was $35.8 million in 1996 compared to $14.7 million in
1995. Higher interest expense in 1996 resulted from borrowings under the Senior
Bank Facilities and the issuance of Notes to finance the acquisition of TCI,
1995. In addition, JAIX Leasing had increased debt levels to finance the
additional freight cars for the lease fleet.
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Net loss and loss per share for 1996 were $5.4 million and $.55, respectively,
compared to net income and earnings per share of $5.6 million and $.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
account 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 $.5 million revenue and $.3 million in
operating income in the prior year.
COST OF SALES-MANUFACTURING AND GROSS PROFT
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 profits percentages were slightly lower at JAC in 1995 compared to 1994.
SELLING, GENERAL, ADMINISTRATIVE AND
AMORTIZATION EXPENSES
Selling, general and administrative expense as a percentage of total revenue
were 4.2% and 2.8% in 1995 and 1994, respectively. The increase in selling,
general and administrative expenses 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 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.
OTHER
Interest expense, net was $14.7 million in 1995 compared with $.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 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 $.57,
respectively, compared with net income and earnings per share of $5.7 million
and $.58, respectively for 1994.
LIQUIDITY AND CAPITAL RESOURCES
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; $18.1 million
from the sale of leased freight cars offset by $9.2 million used for capital
expenditures and other, $5.4 million used for leased asset additions. Cash used
for financing activities was $27.0 million for 1996 primarily related to
payments on term debt of $16.8 million and net decreases on in 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
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working capital accounts when comparing end of period balances. Such
fluctuations tend to be of short duration, and the Company considers this to be
a normal part of its operating cycle which does not significantly impact its
financial flexibility and liquidity.
On August 23, 1995, in conjunction with the acquisition of TCI and the
refinancing of the existing debt of the Company, the Company and the Guarantor
Subsidiaries entered into the $300 million Senior Bank Facilities and issued
$100 million of Notes. See Notes 6 and 7 of the Consolidated Financial
Statements for a description of the Senior Bank Facilities and the Notes.
As of December 31, 1996, there was $183.3 million of term loans outstanding
under the Senior Bank Facilities, $100 million of Notes outstanding and no
borrowings under the $100 million revolving credit line under the Senior Bank
Facilities. Availability under the Revolving Loan after consideration of
outstanding letters of credit of $17.6 million was $44.9 million.
Interest payments on the Notes and interest and principal payments under the
Senior Bank Facilities represent significant cash requirements for the Company.
The Notes will require semiannual interest payments of approximately $6 million.
Borrowings under the Senior Bank Facilities bear interest at floating rates and
require interest payments on varying dates depending upon the interest rate
option selected by the Company. The $183.3 million of outstanding term loans
will require periodic principal payments through their maturities. See Note 6 of
the Consolidated Financial Statements.
The Company formed a leasing business in 1994 to lease freight cars. This
leasing division was formed into a wholly owned subsidiary JAIX Leasing in
January 1995 and currently owns and has under management 1,067 freight cars. In
May 1995, JAIX Leasing entered into a loan facility to finance its freight car
leasing activities. In June 1996, this debt was refinanced with a $27.7 million
ten-year term loan. See Note 6 of the Consolidated Financial Statements for a
description of this facility. As of December 31, 1996, there was $13.6 million
outstanding under this facility. In January 1997, JAIX Leasing sold 85 freight
cars generating $4.5 million in cash and further reducing JAIX Leasing debt by
$3.6 million.
The Company believes that the cash flow generated from its operations, together
with amounts available under the Revolving Loans, should be sufficient to fund
its debt service requirements, working capital needs, anticipated capital
expenditures and other operating expenses (including expenditures required by
applicable environmental laws and regulations). The Company's future operating
performance and ability to service or refinance the Notes and to extend or
refinance the Senior Bank Facilities will be subject to future economic
conditions and to financial, business and other factors, many of which are
beyond the Company's control.
As of December 31, 1996, the Company's balance sheet included cash of $24.5
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 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 have 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.
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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 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.
FORWARD-LOOKING STATEMENTS
The foregoing outlook contains forward-looking statements that are based on
current expectations and are subject to a number of risks and uncertainties.
Actual results could differ materially from current expectations due to a number
of factors, including general economic conditions; competitive factors and
pricing pressures; shifts in market demand, the performance and needs of
industries served by the Company's businesses; and the risks described from time
to time in the Company's Securities & Exchange Commission reports.
EFFECTS OF INFLATION
General price inflation has not had a material impact on the Company's results
of operations.
11
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<S> <C> <C> <C>
(In thousands, except per share data)
Years Ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
Net manufacturing sales $ 555,510 $ 666,028 $ 468,070
Leasing revenue 4,462 2,573 455
Total revenue 559,972 668,601 468,525
Cost of sales - manufacturing 472,054 608,328 442,020
Cost of leasing 2,104 654 133
Gross profit 85,814 59,619 26,372
Selling, general and administrative expenses 46,605 28,117 13,144
Amortization expense 10,074 6,478 3,573
Gain on sale of leased freight cars (1,354) -- --
Operating income 30,389 25,024 9,655
Interest expense, net 33,015 13,782 266
Interest expense - leasing 2,821 920 --
Income (loss) before income taxes (5,447) 10,322 9,389
Provision (benefit) for income taxes (76) 4,737 3,692
Net income (loss) $ (5,371) $ 5,585 $ 5,697
- ---------------------------------------------------------------------------------------------------------
Income (loss) per common share: $ (.55) $ .57 $ .58
- ---------------------------------------------------------------------------------------------------------
Weighted average common and common
equivalent shares outstanding 9,794 9,799 9,844
- ---------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
(In thousands, except per share data)
As of December 31, 1996 1995
- ---------------------------------------------------------------------------------------------------------
ASSETS:
Cash and cash equivalents $ 24,535 $ 11,639
Accounts receivable, net 49,346 59,959
Inventories 49,589 43,900
Deferred income tax assets 16,143 14,157
Prepaid expenses and other current assets 3,217 8,778
Total current assets 142,830 138,433
Property, plant and equipment, net 123,859 128,770
Leasing business assets, net 23,255 35,655
Restricted cash 578 1,364
Deferred financing costs, net 13,099 15,110
Intangible assets, net 251,662 259,493
Total assets $ 555,283 $ 578,825
========================================================================================================
LIABILITIES:
Accounts payable $ 43,325 $ 39,647
Accrued payroll and employee benefits 20,220 26,101
Other current liabilities 34,830 31,175
Current maturities of long-term debt and capital lease 17,236 16,813
Total current liabilities 115,611 113,736
Long-term debt and capital lease, less current maturities 186,939 212,973
Senior subordinated notes 100,000 100,000
Deferred income tax liabilities 29,214 28,136
Other long-term liabilities 59,982 55,106
Total liabilities 491,746 509,951
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par, 20,000 shares authorized, none outstanding -- --
Common stock, $.01 par, 201,000 shares authorized, 9,754 and 9,731
issued and outstanding as of December 31, 1996 and 1995, respectively 98 98
Paid-in capital 55,049 55,015
Retained earnings 8,420 13,791
Employee receivables for stock purchase (30) (30)
Total shareholders' equity 63,537 68,874
Total liabilities and shareholders' equity $ 555,283 $ 578,825
========================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
13
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
(In thousands)
Years Ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income (loss) $ (5,371) $ 5,585 $ 5,697
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities -
Depreciation 14,772 7,656 2,813
Amortization 14,498 8,235 3,532
Deferred income tax expense (benefit) 58 2,563 (40)
Provision for postretirement benefits 1,671 1,987 1,580
Gain on sale of leased freight cars (1,354) -- --
24,274 26,026 13,582
Change in operating assets and liabilities,
net of effect of acquired businesses:
Accounts receivable 10,613 26,689 (5,612)
Inventories (5,689) 34,101 (30,112)
Prepaid expenses and other current assets 14,091 4,481 787
Accounts payable 3,677 (29,447) 15,872
Accrued payroll and employee benefits (5,177) 18,066 333
Other assets and liabilities (5,411) (27,784) 4,004
Net cash provided by (used for) operating activities 36,378 52,132 (1,146)
INVESTING ACTIVITIES:
Capital expenditures (9,919) (14,954) (7,295)
Leasing business asset additions (5,438) (31,377) (4,842)
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 786 (1,364) 201
Net cash provided by (used for) investing activities 3,542 (346,210) (11,936)
FINANCING ACTIVITIES:
Payments of term loans and capital lease (16,812) (46) --
Net (payments) borrowings of JAIX Leasing debt (8,799) 22,381 --
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 35 45 100
Payment of deferred financing costs (1,448) (16,117) --
Net cash provided by (used for) financing activities (27,024) 303,963 7,700
Net increase (decrease) in cash and cash equivalents 12,896 9,885 (5,382)
Cash and cash equivalents, beginning of year 11,639 1,754 7,136
Cash and cash equivalents, end of year $ 24,535 $ 11,639 $ 1,754
</TABLE>
See accompanying notes to the consolidated financial statements.
14
<PAGE>
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 53 % and 47 %
of the Company's inventories as of December 31, 1996 and 1995, 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, 1996 and 1995, the reported value of such
inventories would have been increased by $1.0 million and $.1 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 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:
- -------------------------------------------------------------------------------
Buildings and improvements 10-40 years
Machinery and equipment 3-12 years
- -------------------------------------------------------------------------------
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.
15
<PAGE>
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.
Other intangible assets are amortized on the straight-line method over their
estimated useful lives, which are as follows:
- -------------------------------------------------------------------------------
Trademarks 40 years
Technologies 13-40 years
Patents 8 years
Noncompete agreement 5 years
Organization costs 5 years
- -------------------------------------------------------------------------------
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.
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 LongLived 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 stockbased 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.
16
<PAGE>
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 the $82 million of TCI's outstanding senior
notes and purchased such notes for $94 million. The acquisition and tender
offer, as well as the repayment of the Company's and TCI's existing bank debt
(excluding the JAIX Leasing facility) and the payment of various transaction
fees and expenses were financed by borrowings under the Senior Bank Facilities
and the proceeds of the issuance of the Notes (see Notes 6 & 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 judgement 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, 1995 and 1994 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 are as follows:
(In thousands, except per share data)
- --------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------
Total revenues $ 900,924 $ 837,983
Gross profit 108,976 102.138
Net income 10,068 7,617
Net income per share $ 1.03 $ 0.77
- --------------------------------------------------------------------------------
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
(In thousands)
<TABLE>
<S> <C> <C>
Years Ended December 31, 1996 1995
- --------------------------------------------------------------------------------------------------------
Balance at beginning of year $ 1,690 $ --
Provision for doubtful accounts 538 60
Net write-offs (345) --
Allowances for doubtful accounts from acquired businesses -- 1,630
Balance at end of year $ 1,883 $ 1,690
- --------------------------------------------------------------------------------------------------------
17
<PAGE>
INVENTORIES
(In thousands)
As of December 31, 1996 1995
- --------------------------------------------------------------------------------------------------------
Raw materials and purchased components $ 10,289 $ 14,287
Work in progress and finished goods 39,300 29,613
Inventories $ 49,589 $ 43,900
- --------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
(In thousands)
As of December 31, 1996 1995
- --------------------------------------------------------------------------------------------------------
Land $ 4,466 $ 4,144
Buildings and improvements 26,310 24,665
Machinery and equipment 114,820 108,953
Construction in progress 4,722 4,176
150,318 141,938
Accumulated depreciation 26,459 13,168
Property, plant and equipment, net $ 123,859 $ 128,770
- --------------------------------------------------------------------------------------------------------
LEASING BUSINESS ASSETS
(In thousands)
As of December 31, 1996 1995
- --------------------------------------------------------------------------------------------------------
Leasing business assets $ 23,884 $ 36,080
Accumulated depreciation 629 425
Leasing business assets, net $ 23,255 $ 35,655
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
INTANGIBLE ASSETS
(In thousands)
- --------------------------------------------------------------------------------------------------------
Original Accumulated Net Balance
As of December 31, 1996 Cost Amortization 1996 1995
- --------------------------------------------------------------------------------------------------------
Excess cost over net assets acquired $ 204,520 $ 7,955 $ 196,565 $ 199,470
Trademarks 26,988 931 26,057 26,755
Technologies 20,722 1,094 19,628 20,448
Patents 17,278 8,217 9,061 10,891
Noncompete agreement 8,625 8,625 -- 1,437
Organization costs 742 391 351 492
Intangible assets $ 278,875 $ 27,213 $ 251,662 $ 259,493
- --------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C>
OTHER CURRENT LIABILITIES
(In thousands)
As of December 31, 1996 1995
- --------------------------------------------------------------------------------------------------------
Accrued interest $ 7,039 $ 6,212
Accrued workers' compensation 5,456 5,875
Current portion of postretirement
and pension benefit reserves 3,536 4,576
Accrued warranty 4,090 3,810
Other 14,709 10,702
Other current liabilities $ 34,830 $ 31,175
- --------------------------------------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES
(In thousands)
As of December 31, 1996 1995
- --------------------------------------------------------------------------------------------------------
Postretirement and pension benefit reserves $ 29,414 $ 28,676
Environmental reserves 25,568 24,290
Other 5,000 2,140
Other long-term liabilities $ 59,982 $ 55,106
- --------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 5. SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
Common Paid-in Warrants Retained Employee
Stock Capital Outstanding Earnings Receivables Total
- ------------------------------------------------------ ----------------------------------------------------------------------
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>
19
<PAGE>
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.
NOTE 6. LONG-TERM DEBT
- --------------------------------------------------------------------------------
Long-term debt consisted of the following:
(In thousands)
As of December 31 1996 1995
- --------------------------------------------------------------------------------
Revolving Loan $ -- $ --
Tranche A Term Loan 86,670 100,000
Tranche B Term Loan 96,670 100,000
Total Senior Bank Facilities 183,340 200,000
Industrial Revenue Bond 5,300 5,300
Capital lease 1,953 2,105
JAIX Leasing debt 13,582 22,381
- --------------------------------------------------------------------------------
Total debt 204,175 229,786
Current maturities (17,236) (16,813)
- --------------------------------------------------------------------------------
Long-term debt $ 186,939 $ 212,973
- --------------------------------------------------------------------------------
Maturities of long-term debt as of December 31, 1996 are as follows:
(In thousands)
- --------------------------------------------------------------------------------
1997 $ 17,236
1998 20,623
1999 27,347
2000 34,087
2001 34,012
Thereafter $ 70,870
- --------------------------------------------------------------------------------
SENIOR BANK FACILITIES
The Company entered into a credit facility ( Senior Bank Facilities) on August
23, 1995, in conjunction with the acquisition of TCI and the related
transactions described in Note 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.
20
<PAGE>
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 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, 1996, and 1995, the weighted average
interest rate of all outstanding loans under the Senior Bank Facilities was
9.21% and 9.40%, 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.
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 the by JAIX Leasing
underlying lease and assets and contains various covenants.
OTHER
During 1996 and 1995, 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 $140 million and $165 million
as of December 31, 1996 and 1995, 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, 1996 and 1995, 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
expenses. 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 $3.2 million and $.9
million for the years ended December 31, 1996 and 1995, respectively. Such
amortization was not material in 1994. As of December 31, 1996 and 1995,
accumulated amortization of such costs was $4.1 million and $.9 million,
respectively.
21
<PAGE>
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 a 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
- --------------------------------------------------------------------------------
PENSIONS 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.
The following table summarizes total pension expense:
<TABLE>
<S> <C> <C> <C>
(In thousands)
Years Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
Current service cost $ 2,189 $ 1,68 $ 1,487
Interest cost on projected benefit obligation 2,173 1,714 789
Expected return on assets (2,143) (1,896) (375)
Amortization of unrecognized gains and losses 1,208 1,571 140
Net pension cost $ 3,427 $ 3,070 $ 2,041
- --------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
The following table sets forth the plans' funded status:
<TABLE>
<S> <C> <C>
(In thousands)
As of December 31, 1996 1995
- ---------------------------------------------------------------------------------------------------------
Vested benefits $ 20,508 $ 17,658
Nonvested benefits 3,380 5,006
Accumulated benefits obligation 23,888 22,664
Effect of projected future compensation levels 8,256 11,071
- ---------------------------------------------------------------------------------------------------------
Projected benefits obligation 32,144 33,735
Plan assets at fair value 20,311 14,177
- ---------------------------------------------------------------------------------------------------------
Projected benefits obligation in excess of plan assets 11,833 19,558
Unrecognized net (loss) gain 2,569 (3,739)
Unrecognized prior service cost (5,298) (5,673)
- ---------------------------------------------------------------------------------------------------------
Net pension reserves recorded in the accompanying $ 9,104 $ 10,146
balance sheets
- ---------------------------------------------------------------------------------------------------------
Actuarial assumptions used in developing the above data were: 1996 1995
- ---------------------------------------------------------------------------------------------------------
Discount rate 7.75% 7.50%
Rate of expected return on plan assets 9.00% 9.00%
Rate of increases in compensation 3.00-4.00% 4.00-6.00%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
DEFINDED CONTRIBUTION PLANS
Certain of the Company's subsidiaries also maintain qualified, defined
contribution plans which provide benefits to its salaried employees based on
employee contributions, years of service, employee earnings or certain
subsidiary earnings, with discretionary contributions allowed. Expenses relating
to these plans were $3.1 million, $2.4 million and $1.6 million for the years
ended December 31, 1996, 1995 and 1994, respectively.
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>
<S> <C> <C> <C>
(in thousands)
Years Ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
Current service cost $ 85 $ 1,043 $ 998
Interest cost on accumulated benefit obligation 1,340 1,001 582
Amortization of unrecognized gains (183) (57) --
Net postretirement benefit costs $ 2 ,011 $ 1,987 $ 1,580
- ---------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
The following table sets forth the plans funded status:
(in thousands)
As of December 31, 1996 1995
- --------------------------------------------------------------------------------
Retirees $ 6,308 $ 6,329
Other fully eligible plan participants 4,828 3,208
Other active plan participants 7,712 11,650
Accumulated benefits obligation $ 18,848 21,187
Unrecognized net gain 4,998 1,919
- --------------------------------------------------------------------------------
Net postretirement benefits reserve recorded in the
accompanying balance sheets $ 23,846 $ 23,106
- --------------------------------------------------------------------------------
The discount rates used in developing the above data ranged from 7.50% to 8.00%
in 1996, from 7.25% to 7.75% in 1995 and was 9.00% in 1994.
Medical trend rate assumptions were 5.25% to 9.00% for 1996, 8.00% to 9.50% for
1995 and 10.25% in 1994, 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 $4.0 million and $4.4 million at December 31, 1996 and
1995, respectively, and the aggregate service and interest cost components by
$.6 million, $.7 million and $.6 million for the years ended December 31, 1996,
1995 and 1994, respectively.
The Company does not offer any other significant post employment benefits.
NOTE 9. INCOME TAXES
- --------------------------------------------------------------------------------
The provision (benefit) for income taxes includes current and deferred
components as follows:
(In thousands)
Years Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Current taxes:
Federal $ -- $ 1,853 $ 2,929
State (134) 321 803
(134) 2,174 3,732
- --------------------------------------------------------------------------------
Deferred taxes:
Federal (444) 2,227 (54)
State 502 336 14
58 2,563 (40)
Provision (benefit) for income taxes $ (76) $ 4,737 $ 3,692
- --------------------------------------------------------------------------------
24
<PAGE>
The provision (benefit) for income taxes differs from the amounts computed by
applying the federal statutory rate as follows:
Years Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Income taxes at federal statutory rate (34.0)% 34.0% 34.0%
State income taxes, net of federal benefit (0.1) 4.2 4.3
Nondeductible amortization expense 32.7 7.2 0.7
Other, net -- 0.5 0.3
- --------------------------------------------------------------------------------
Effective income tax rate (1.4)% 45.9% 39.3%
- --------------------------------------------------------------------------------
Components of deferred tax benefits (obligations) consist of the follows:
<TABLE>
<S> <C> <C> <C> <C>
(In thousands)
1996 1995
- ---------------------------------------------------------------------------------------- ----------------------
Description Benefits Obligations Benefits Obligations
Postretirement and pension benefit reserves $ 13,257 $ -- $ 13,495 $ --
Environmental reserve 10,299 -- 9,801 --
Deferred employee compensation 3,787 -- 5,684 --
Accrued workers' compensation reserve 2,128 -- 2,201 --
Warranty reserve 1,595 -- 1,486 --
Alternative minimum tax credit carryforward 4,042 -- 1,116 --
Property, plant and equipment -- (28,104) -- (28,297)
Trademarks and technologies -- (19,776) -- (20,526)
Inventories -- (2,973) -- (3,381)
Other 4,182 (1,508) 5,325 (883)
- ---------------------------------------------------------------------------------------- ----------------------
Deferred tax benefits (obligations) $ 39,290 $ (52,361) $ 39,108 $ (53,087)
- ---------------------------------------------------------------------------------------- ----------------------
</TABLE>
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 carryforwards, are classified according to the expected reversal date
of the temporary difference as of the end of the year. Credit carryforwards
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 $2.1 million and $.3 million as of December 31, 1996
and 1995, has been recorded to offset these state tax credit carryforwards. As
of December 31, 1996 and 1995, no other valuation allowances are deemed
necessary as management expects to realize all other deferred benefits as future
tax deductions.
25
<PAGE>
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>
<S> <C> <C> <C> <C> <C>
(In thousands, except weighted average prices)
Outstanding Exercisable
Wtd. Avg. Wtd. Avg.
Shares Exer. Price Shares Exer. Price
- ----------------------------------------------------------------------------------------------------------
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
Canceled (25) 4.90
December 31, 1995 583 11.79 277 11.18
Issued 178 4.82
Exercised (14) 2.50
Canceled (74) 12.17
- ----------------------------------------------------------------------------------------------------------
December 31, 1996 673 $ 10.10 472 $ 10.82
==========================================================================================================
(In thousands, except lives and prices)
Outstanding - December 31, 1996 Exercisable - December 31,1996
------------------------------- ------------------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Range of Exercise Prices Shares Remaining Yrs Exer. Price Shares Exer. Price
- -----------------------------------------------------------------------------------------------------------
$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 1996 and 1995, pro forma net loss and loss per
share for 1996 would have been $6.1 million and $.62, respectively, and pro
forma net income and earnings per share for 1995 would have been $5.1 million
and $.52, respectively. The weighted average fair value of options granted in
1996 and 1995 was $2.34 and $8.44 for December 31, 1996 and 1995, 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 7.1% and 6.9%; weighted average volatility of
56.6% and 60.0%; expected lives of 10 years and zero dividend yield for 1996 and
1995, respectively.
26
<PAGE>
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 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.
27
<PAGE>
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(R) 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.
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>
<S> <C> <C>
(In thousands)
Capital Operating
Lease Leases
- ------------------------------------------------------------------------------------------------
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 1,953
Less: Current portion of obligation under capital lease 170
Noncurrent obligation under capital lease $ 1,783
- ------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
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 $.2 million and $.1
million as of December 31, 1996 and 1995, respectively.
Total rental expense for the years ended December 31, 1996 and 1995 amounted to
$3.7 million and $2.0 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 1996, 1995 and 1994, a different customer accounted for 13%, 17% 31%
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.
NOTE 15. UNAUDITED QUARTERLY INFORMATION
- --------------------------------------------------------------------------------
(In thousands, except per share data)
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
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, 1996 and 1995. 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.
29
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF INCOME
for the year ended December 31, 1996
<TABLE>
<S> <C> <C> <C> <C> <C>
(In thousands) Parent Guarantor
Company Subsidiaries JAIX Leasing Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------------------
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 lease 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)
- -------------------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATING BALANCE SHEET
as of December 31, 1996
(In thousands) Parent Guarantor
Company Subsidiaries JAIX Leasing Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------------
30
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
for the year ended December 31, 1996
(In thousands) Parent Guarantor
Company Subsidiaries JAIX Leasing Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------------
31
<PAGE>
CONDENSED CONSOLIDATING STATE OF INCOME
for the year ended December 31, 1995
(In thousands) Parent Guarantor
Company Subsidiaries JAIX Leasing Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------------
CONDENSED CONSOLIDATING BALANCE SHEET
as of December 31, 1995
(In thousands) Parent Guarantor
Company Subsidiaries JAIX Leasing Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 16,896 $ (6,156) $ 899 $ -- $ 11,639
Accounts receivable, net -- 59,814 145 -- 59,959
Inventories -- 43,900 -- -- 48,900
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
- -------------------------------------------------------------------------------------------------------------------------
32
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
for the year ended December 31, 1995
(In thousands) Parent Guarantor
Company Subsidiaries JAIX Leasing Eliminations Consolidated
- -------------------------------------------------------------------------------------------------------------------------
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) -- -- (1,364)
- -------------------------------------------------------------------------------------------------------------------------
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>
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 $297 million and $320 million as of December 31, 1996 and 1995,
respectively. No quoted market value is available except for the $100 million
Notes which had a market value of approximately $97.5 million and $90 million as
of December 31, 1996 and 1995. Outstanding interest rate contracts, based on
current market pricing models, have an estimated discounted fair market value of
negative $.6 million and negative $3.4 million as of December 31, 1996 and 1995,
respectively. All other financial instruments of the Company have fair market
values which approximate carrying value as of December 31, 1996 and 1995.
33
<PAGE>
NOTE 18. SUPPLEMENTAL CASH FLOWS AND NON-CASH TRANSACTIONS DISCLOSURES
- --------------------------------------------------------------------------------
(In thousands)
Years Ended December 31, 1996 1995 1994
Cash paid for:
Interest $ 31,487$ $ 7,718 $ 259
Income taxes 1,382 6,011 2,380
Business acquisitions:
Cash paid $ -- $ 300,624 $ --
Assets received -- 412,634 --
- --------------------------------------------------------------------------------
Liabilities assumed $ -- $ 112,010 $ --
- --------------------------------------------------------------------------------
34
<PAGE>
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.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 27, 1997
35
Exhibit 21.1
Subsidiaries of the Company*
Name of Subsidiary State of Incorporation
------------------ ----------------------
Johnstown America Corporation Delaware
JAC Patent Corporation Delaware
JAIX Leasing Company Delaware
Freight Car Services, Inc. Delaware
Bostrom Holdings, Inc. Delaware
Bostrom Seating, Inc. Delaware
Truck Components, Inc. Delaware
Gunite Corporation Delaware
Brillion Iron Works, Inc. Delaware
Fabco Automotive Corporation Delaware
JAII Management Company Delaware
* All subsidiaries are 100% owned by the specified entity.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report incorporated by reference in this Form 10-K into the Company's
previously filed Form S-8 Registration Statements, File Nos. 333-12677 and
333-12679.
/S/ Athur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 19, 1997
