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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission File No. 0-21830
---------------------
JOHNSTOWN AMERICA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Incorporated pursuant to the Laws of the State of Delaware
---------------------
Internal Revenue Service - Employer Identification No. 25-1672791
980 N. Michigan Avenue
Suite 1000
Chicago, IL 60611
(Address of principal executive offices)
(312) 280-8844
Registrant's telephone number, including area code
---------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The total number of shares of the registrant's Common Stock, $.01 par value,
outstanding on March 18, 1998 was 9,774,094.
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<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
PART I FINANCIAL INFORMATION....................................... 3
Item 1 Condensed Consolidated Balance Sheets as
of March 31, 1998, and December 31, 1997.................... 4-5
Condensed Consolidated Statements of Income for
the Three Months Ended March 31, 1998 and 1997.............. 6
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1998 and 1997.......... 7-8
Notes to Condensed Consolidated Financial Statements........ 9-20
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations...............21-25
PART II OTHER INFORMATION ........................................ 26
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
In the opinion of the registrant's management, the unaudited condensed
consolidated financial statements included in this filing on Form 10-Q reflect
all adjustments (which consist of normal recurring adjustments) which are
considered necessary for a fair presentation of financial information for the
periods presented.
3
<PAGE>
<TABLE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(Unaudited)
<S> <C> <C>
March 31, December 31,
(In thousands) 1998 1997
---------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents............................ $ 19,739 $ 30,875
Accounts receivable, net............................. 98,988 60,484
Inventories.......................................... 56,581 58,674
Prepaid expenses and other........................... 38,822 17,568
---------- ----------
Total current assets............................... 214,130 167,601
Property, plant and equipment, net................... 116,196 118,063
Leasing business assets, net......................... 17,391 38,430
Deferred financing costs, net........................ 10,816 11,594
Intangible assets, net............................... 241,029 243,150
---------- ----------
Total assets....................................... $ 599,562 $ 578,838
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
(Unaudited)
<S> <C> <C>
March 31, December 31,
(In thousands) 1998 1997
----------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable..................................... $ 70,771 $ 55,246
Accrued expenses and other payables.................. 69,543 58,633
Current maturities of long-term debt and capital lease 3,965 4,783
---------- ----------
Total current liabilities.......................... 144,279 118,662
Long-term debt and capital lease, less current maturities 96,018 96,903
JAIX Leasing debt, less current maturities............ 9,069 27,896
Senior subordinated notes............................. 182,603 182,691
Deferred income taxes................................. 36,100 36,373
Other long-term liabilities........................... 46,410 45,293
Shareholders' Equity:
Preferred stock, par $.01, 20,000 shares
authorized, none outstanding........................ -- --
Common stock, par $.01, 201,000 shares
authorized, 9,755 and 9,768 issued and outstanding
as of March 31, 1998 and December 31, 1997,
respectively........................................ 98 98
Paid-in capital...................................... 55,086 55,066
Retained earnings.................................... 29,929 15,886
Employee receivables for stock purchases............. (30) ( 30)
---------- ----------
Total shareholders' equity ..................... 85,083 71,020
Total liabilities and shareholders' equity $ 599,562 $ 578,838
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
(In thousands, except per share data)
Three Months Ended
MARCH 31,
1998 1997
---- ----
Net manufacturing sales............................ $ 228,814 $ 114,344
Leasing revenue.................................... 2,379 1,378
---------- ----------
Total revenue..................................... 231,193 115,722
Cost of sales - manufacturing...................... 199,161 95,878
Cost of leasing.................................... 1,488 829
---------- ----------
Gross profit...................................... 30,544 19,015
Selling, general and administrative
expenses.......................................... 13,161 10,752
Amortization expense............................... 2,139 2,101
Gain on sale of leased freight cars................ (1,223) (262)
Patent litigation settlement....................... (16,750) --
---------- ----------
Operating income.................................. 33,217 6,424
Interest expense, net 8,053 8,270
Interest expense - leasing ....................... 569 379
---------- ----------
Earnings (loss) before income taxes................ 24,595 (2,225)
Provision (benefit) for income taxes............... 10,552 (333)
---------- ----------
Net income (loss).................................. $ 14,043 $ (1,892)
========== ==========
Weighted average common shares outstanding......... 9,767 9,754
Basic earnings (loss) per common share.............$ 1.44 $ (0.19)
========== ==========
Weighted average equivalent
common shares outstanding......................... 10,072 9,754
Diluted earnings (loss) per common share........... $ 1.40 $ (0.19)
========== ==========
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
(In thousands)
Three Months Ended
MARCH 31,
1998 1997
---- ----
OPERATING ACTIVITIES:
Net income (loss)..................................$ 14,043 $ (1,892)
Adjustments to reconcile net income (loss) to
net cash used for operating activities:
Depreciation..................................... 3,864 3,817
Amortization..................................... 3,130 2,951
Gain on sale of leased freight cars.............. (1,223) (262)
Deferred tax (benefit) expense................... (273) (311)
Patent litigation settlement..................... (16,750) --
Postretirement benefits.......................... 696 299
Changes in operating assets and liabilities:
Accounts receivable, net......................... (38,504) (15,528)
Inventories...................................... 2,093 9,918
Accounts payable................................. 15,525 (6,840)
Other assets and liabilities..................... 6,482 (3,747)
---------- ----------
Net cash used for operating activities............. (10,917) (11,595)
---------- ----------
INVESTING ACTIVITIES:
Capital expenditures............................... (1,797) (1,172)
Leasing business asset additions................... (2,232) (23,412)
Proceeds from sale of leased freight cars ......... 24,320 4,463
---------- ----------
Net cash provided by (used for) investing activities 20,291 (20,121)
---------- ----------
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
(In thousands)
Three Months Ended
MARCH 31,
1998 1997
---- ----
FINANCING ACTIVITIES:
Payments of term loans and capital lease...........$ (881) $ (4,208)
Net borrowings (payments) under
JAIX Leasing loans............................... (19,649) 16,454
Payment of deferred financing costs................ -- (242)
Other.............................................. 20 --
---------- ----------
Net cash provided by (used for) financing activities (20,510) 12,004
---------- ----------
Net decrease in cash and cash equivalents........... (11,136) (19,712)
CASH AND CASH EQUIVALENTS,
beginning of period............................... 30,875 24,535
---------- ----------
CASH AND CASH EQUIVALENTS,
end of period.....................................$ 19,739 $ 4,823
========== ==========
SUPPLEMENTAL CASH FLOWS DISCLOSURE
Cash paid for interest..............................$ 13,451 $ 10,996
Cash paid for income taxes..........................$ 1,075 $ 92
See accompanying notes to condensed consolidated financial statements.
8
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 1998
(Unaudited)
1. BASIS OF PRESENTATION
The financial statements presented herein and these notes are unaudited. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. Although the registrant believes that all
adjustments (which include only normal recurring adjustments) necessary for a
fair presentation have been made, interim periods are not necessarily indicative
of the results of operations for a full year. As such, these financial
statements should be read in conjunction with the financial statements and notes
thereto included by reference in the registrant's Form 10-K for the year ended
December 31, 1997.
The condensed consolidated financial statements include the accounts of
Johnstown America Industries, Inc. and its wholly owned subsidiaries (the
"Company"). All significant intercompany transactions and accounts have been
eliminated.
2. INVENTORIES
Inventories of the Company consist of the following (in thousands):
March 31, December 31,
1998 1997
---- ----
Raw materials and purchased
components $ 9,368 $ 10,894
Work-in-progress and finished goods 47,213 47,780
--------- ----------
$ 56,581 $ 58,674
========= ==========
9
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the Three Months Ended March 31, 1998
(Unaudited)
3. DEBT
Long-term debt of the Company consists of the following (in thousands):
March 31, December 31,
1998 1997
---- ----
Revolving loan $ -- $ --
Tranche B term loan 92,508 93,340
--------- ----------
Total senior bank facilities 92,508 93,340
Industrial revenue bond 5,300 5,300
Capital lease 1,735 1,783
JAIX Leasing debt 9,509 29,159
--------- ----------
Total debt 109,052 129,582
Less:
Current maturities (3,965) (4,783)
Long-term portion of JAIX Leasing debt (9,069) (27,896)
--------- ----------
Long-term debt $ 96,018 $ 96,903
========= ==========
10
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the Three Months Ended March 31, 1998
(Unaudited)
SENIOR BANK FACILITIES
The Company entered into a credit facility (Senior Bank Facilities) on August
23, 1995, in conjunction with the acquisition of TCI and the related
transactions. The revolving credit line portion of the Senior Bank Facilities
provides for up to $75 million of outstanding borrowings and letters of credit,
limited by the level of eligible accounts receivable and inventories. As of
March 31, 1998, availability under the revolving credit line, after
consideration of outstanding letters of credit of $17.0 million, was $58.0
million.
At the Company's election, interest rates per annum for the revolving credit
line 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
range between 0.50% and 1.50% for ABR loans, fluctuating within each range in
0.25% increments based on the Company achieving certain financial results.
Interest rates per annum applicable to the Tranche B term loan are either (a)
LIBOR plus 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 March 31, 1998 and 1996, the
weighted average interest rate of all outstanding loans under the Senior Bank
Facilities was 9.01% and 9.21%, respectively. Borrowings under the Senior Bank
Facilities are guaranteed by each of the Company's subsidiaries other than JAIX
Leasing (the Guarantor Subsidiaries) and are secured by the assets and stock of
the Company and its Guarantor Subsidiaries. The Tranche A term loan was repaid
in full during 1997 in conjunction with the issuance of debt described in Note
4. The revolving credit line matures on March 31, 2002 and the Tranche B Term
Loan matures on March 31, 2003.
On April 1, 1998, the Company received $16.8 million from the settlement of its
patent infringement lawsuit. The after-tax proceeds of $10.0 million were used
to prepay obligations on the Tranche B term loan.
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.
11
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the Three Months Ended March 31, 1998
(Unaudited)
JAIX LEASING DEBT
On June 14, 1997, JAIX Leasing entered into a ten-year term loan which bears
interest at an average interest rate of 8.78%. At March 31, 1998, debt
outstanding under the facility was $9.5 million. The facility is secured by the
underlying leases and assets and contains various covenants.
INDUSTRIAL REVENUE BONDS
The Company, through its wholly owned subsidiary, Freight Car Services, Inc.,
issued the Industrial Revenue Bonds for $5.3 million which bear interest at a
variable rate (3.85% as of March 31, 1998) and can be redeemed by the Company at
any time. The bonds are secured by a letter of credit issued by Johnstown
America Industries, Inc. The bonds have no amortization and mature on December
1, 2010. The bonds are also subject to a weekly "put" provision by the holders
of the bonds. In the event that any or all of the bonds are put to the Company
under this provision, the Company would effectively refinance such bonds with
additional borrowings under the Revolving Loans portion of the Senior Bank
Facilities.
INTEREST RATE CONTRACTS
The Company has 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 on the interest rate contracts covering
the current period is $75 million and the fixed rates of interest on these
contracts range from 5.98% to 6.32% plus the applicable borrowing margin. The
maturities on all contracts range through August 1998.
12
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the Three Months Ended March 31, 1998
(Unaudited)
4. SENIOR SUBORDINATED NOTES
In conjunction with the acquisition of TCI, the Company issued $100 million of
Senior Subordinated Notes which are due August 15, 2005. In 1997, the Company
issued $80 million of additional notes due August 15, 2005 (collectively, the
Notes) with substantially identical terms to the already outstanding notes at a
$3.6 million premium, for an effective rate of 10.8%. These Notes have an
interest rate of 11.75% per annum and are guaranteed on an unsecured, senior
subordinated joint and several basis by each of the Guarantor Subsidiaries.
Pursuant to the settlement of separate interest rate contracts in effect when
each portion of the Notes was issued, the Company realized a $0.8 million loss
and a $2.6 million gain upon the 1997 and 1995 issuances, respectively. The gain
and the loss are 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.
5. ENVIRONMENTAL MATTERS
The Company's subsidiaries are currently involved in several matters relating to
the investigation and/or remediation of locations where the subsidiaries have
arranged for the disposal of foundry and other wastes. 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 ("PRP") in the contamination of the sites. With respect to claims
involving Gunite Corporation ("Gunite"), TCI and Gunite in September 1997
entered into a private-party settlement (the "Settlement") of certain pending
litigation with a prior owner of Gunite, pursuant to which each of TCI and
Gunite and the prior owner withdrew their claims against the other. As a result
of the Settlement, TCI and Gunite will not be responsible for liabilities and
costs related to certain alleged contamination of Gunite's facilities and at
certain off-site properties to the extent arising out of operations of Gunite
prior to the acquisition of Gunite by TCI in September 1987. As of March 31,
1998, based on all of the information currently available to the Company, the
Company
13
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the Three Months Ended March 31, 1998
(Unaudited)
has an environmental reserve of $11.2 million which management believes its
adequate to cover future expenditures. This reserve is based on current cost
estimates and does not reduce estimated expenditures to net present value,
although the Company's subsidiaries are not likely to incur costs for most of
the reserved matters until several years in the future. Any cash expenditures
required by the Company or its subsidiaries to comply with applicable
environmental laws and/or to pay for any remediation efforts will not be reduced
or otherwise affected by the existence of the environmental reserve. Due to the
early stage of investigation of many of the sites and potential remediations
referred to above, there are significant uncertainties as to waste quantities
involved, the extent and timing of the remediation which will be required, the
range of acceptable solutions, costs of remediation and the number of
potentially responsible parties contributing to such costs. Based on all of the
information presently available, the Company believes that the environmental
reserve will be adequate to cover its future costs related to the sites
associated with the environmental reserve, and that any additional costs will
not have a material adverse effect on the financial condition or results of
operations of the Company. However, the discovery of additional sites, the
modification of existing laws or regulations, the imposition of joint and
several liability or the uncertainties referred to above could result in such a
material adverse effect.
6. GUARANTOR SUBSIDIARIES
The Notes and the obligations under the Senior Bank Facilities are fully and
unconditionally guaranteed on an unsecured, senior subordinated, joint and
several basis by each of the Guarantor Subsidiaries. The following condensed
consolidating financial data illustrates the composition of the Parent Company,
the Guarantor Subsidiaries, and JAIX Leasing as of and for certain dates and
periods. Separate complete financial statements of the respective Guarantor
Subsidiaries would not provide additional information which would be useful in
assessing the financial composition of the Guarantor Subsidiaries and thus, are
not presented.
Investments in subsidiaries are accounted for by the Parent Company on the
equity method for purposes of the supplemental consolidating presentation.
Earnings of subsidiaries are therefore reflected in the Parent Company's
investment accounts and earnings. The principle elimination entries eliminate
the Parent Company's investment in subsidiaries and intercompany balances and
transactions.
14
<PAGE>
<TABLE>
Condensed Consolidating Balance Sheet
as of March 31, 1998
(In millions)
(Unaudited)
<S> <C> <C> <C> <C> <C>
PARENT GUARANTOR
COMPANY SUBSIDIARIES JAIX LEASING ELIMINATIONS CONSOLIDATED
Cash and cash equivalents..........$ 13.4 $ 2.0 $ 4.3 $ -- $ 19.7
Accounts receivable, net........... -- 98.9 0.1 -- 99.0
Inventories........................ -- 56.6 -- -- 56.6
Prepaid expenses and other......... 2.7 34.9 1.2 -- 38.8
-------- -------- --------- -------- --------
Total current assets.......... 16.1 192.4 5.6 -- 214.1
Property, plant and equipment, net. 2.5 115.5 15.9 (0.3) 133.6
Other assets....................... 147.4 234.0 0.6 (130.1) 251.9
-------- -------- --------- -------- --------
Total assets..................$ 166.0 $ 541.9 $ 22.1 $ (130.4) $ 599.6
======== ======== ========= ======== ========
Accounts payable...................$ 0.2 $ 70.6 $ -- $ -- $ 70.8
Other current liabilities.......... 2.8 70.9 (0.2) -- 73.5
-------- -------- --------- -------- --------
Total current liabilities..... 3.0 141.5 (0.2) -- 144.3
Noncurrent liabilities............. -- 79.0 3.5 -- 82.5
Long-term debt, less current
maturities and intercompany
advances (receivables) .......... 77.9 200.7 9.1 -- 287.7
Total shareholders' equity......... 85.1 120.7 9.7 (130.4) 85.1
-------- -------- --------- -------- --------
Total liabilities and shareholders'
equity....................$ 166.0 $ 541.9 $ 22.1 $ (130.4) $ 599.6
======== ======== ========= ======== ========
15
<PAGE>
Condensed Consolidating Statement of Income
For the Three Months Ended March 31, 1998
(In millions)
(Unaudited)
PARENT GUARANTOR
COMPANY SUBSIDIARIES JAIX LEASING ELIMINATIONS CONSOLIDATED
Total revenue......................$ -- $ 228.8 $ 2.4 $ -- $ 231.2
Cost of sales...................... -- 199.2 1.5 -- 200.7
-------- -------- --------- -------- --------
Gross profit..................... -- 29.6 0.9 -- 30.5
Selling, general, administrative...
and amortization expenses......... 0.7 14.6 -- -- 15.3
Gain on sale of leased freight cars -- -- (1.2) -- (1.2)
Patent litigation settlement....... -- (16.8) -- -- (16.8)
-------- -------- --------- -------- --------
Operating income ............... (0.7) 31.8 2.1 -- 33.2
Interest expense, net.............. 3.4 4.7 0.5 -- 8.6
Equity (earnings) of subsidiaries.. (16.6) -- -- 16.6 --
Provision (benefit) for income taxes (1.5) 11.5 0.6 -- 10.6
-------- -------- --------- -------- --------
Net income (loss)...............$ 14.0 $ 15.6 $ 1.0 $ (16.6) $ 14.0
======== ======== ========= ======== ========
16
<PAGE>
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 1998
(In millions)
(Unaudited)
PARENT GUARANTOR
COMPANY SUBSIDIARIES JAIX LEASING ELIMINATIONS CONSOLIDATED
CASH FLOWS FROM
OPERATING ACTIVITIES..............$ (8.9) $ (1.9) $ (0.1) $ -- $ (10.9)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures............ -- (1.8) -- -- (1.8)
Leasing business assets and
investments..................... -- -- (2.2) -- (2.2)
Proceeds from sale of leased
freight cars.................... -- -- 24.3 -- 24.3
-------- -------- --------- -------- --------
Cash provided by (used for)
investing activities............ -- (1.8) 22.1 -- 20.3
CASH FLOWS FROM
FINANCING ACTIVITIES:
Payments of term loans
and capital lease............... (0.8) (0.1) -- -- (0.9)
Net borrowings under
JAIX Leasing debt............... -- -- (19.7) -- (19.7)
Intercompany advances............ (2.0) 2.0 -- -- --
-------- -------- --------- -------- --------
Cash provided by (used for)
financing activities........... (2.8) 1.9 (19.7) -- (20.6)
Net increase (decrease) in cash
and cash equivalents.............. (11.7) (1.8) 2.3 -- (11.2)
CASH AND CASH
EQUIVALENTS,
beginning of period.............. 25.1 3.8 2.0 -- 30.9
-------- -------- --------- -------- --------
CASH AND CASH
EQUIVALENTS,
end of period....................$ 13.4 $ 2.0 $ 4.3 $ -- $ 19.7
======== ======== ========= ======== ========
17
<PAGE>
Condensed Consolidating Balance Sheet
as of December 31, 1997
(In millions)
PARENT GUARANTOR
COMPANY SUBSIDIARIES JAIX LEASING ELIMINATIONS CONSOLIDATED
Cash and cash equivalents..........$ 25.1 $ 3.8 $ 2.0 $ -- $ 30.9
Accounts receivable, net........... -- 60.5 -- -- 60.5
Inventories........................ -- 58.7 -- -- 58.7
Prepaid expenses and other......... 2.6 13.9 1.0 -- 17.5
-------- -------- --------- -------- --------
Total current assets.......... 27.7 136.9 3.0 -- 167.6
Property, plant and equipment, net 2.6 117.3 36.9 (0.3) 156.5
Other assets....................... 124.7 242.8 0.8 (113.6) 254.7
-------- -------- --------- -------- --------
Total assets..................$ 155.0 $ 497.0 $ 40.7 $ (113.9) $ 578.8
======== ======== ========= ======== ========
Accounts payable...................$ 0.5 $ 54.7 $ -- $ -- $ 55.2
Other current liabilities.......... 2.7 60.2 0.5 -- 63.4
-------- -------- --------- -------- --------
Total current liabilities..... 3.2 114.9 0.5 -- 118.6
Noncurrent liabilities............. -- 78.2 3.5 -- 81.7
Long-term debt, less current
maturities and intercompany
advances (receivables)........... 80.8 198.8 27.9 -- 307.5
Total shareholders' equity......... 71.0 105.1 8.8 (113.9) 71.0
-------- -------- --------- -------- --------
Total liabilities and shareholders'
equity...................$ 155.0 $ 497.0 $ 40.7 $ (113.9) $ 578.8
======== ======== ========= ======== ========
18
<PAGE>
Condensed Consolidating Statement of Income
For the Three Months Ended March 31, 1997
(In millions)
(Unaudited)
PARENT GUARANTOR
COMPANY SUBSIDIARIES JAIX LEASING ELIMINATIONS CONSOLIDATED
Total revenue......................$ 0.1 $ 114.4 $ 1.2 $ -- $ 115.7
Cost of sales...................... -- 95.9 0.8 -- 96.7
-------- -------- --------- ------- --------
Gross profit .................... 0.1 18.5 0.4 -- 19.0
Selling, general, administrative
and amortization expenses......... -- 12.9 (0.3) -- 12.6
-------- -------- --------- ------- --------
Operating income (loss).......... 0.1 5.6 0.7 -- 6.4
Interest expense, net.............. 3.1 5.2 0.3 -- 8.6
Equity (earnings) of subsidiaries.. 0.1 -- -- (0.1) --
Provision (benefit) for income
taxes............................ (1.2) 0.7 0.2 -- (0.3)
-------- -------- --------- ------- --------
Net income (loss)................$ (1.9) $ (0.3) $ 0.2 $ 0.1 $ (1.9)
======== ======== ========= ======= ========
19
<PAGE>
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 1997
(millions)
(Unaudited)
PARNET GUARANTOR
COMPANY SUBSIDIARIES JAIX LEASING ELIMINATIONS CONSOLIDATED
CASH FLOWS FROM
OPERATING ACTIVITIES..............$ (3.1) $ (8.5) $ -- $ -- $ (11.6)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures ............ (0.1) (1.1) -- -- (1.2)
Leasing business assets
and investments................. -- 0.1 (23.4) -- (23.3)
Changes in restricted cash....... -- -- 4.4 -- 4.4
-------- -------- ------- --------- ---------
Cash used for investing activities. (0.1) (1.0) (19.0) -- (20.1)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Payments of term loans and
capital leases.................. (4.2) -- -- -- (4.2)
Net Borrowings under
JAIX Leasing debt............... -- -- 16.5 -- 16.5
Intercompany advances............ (8.2) 8.2 -- -- --
Deferred financing costs paid.... -- -- (0.3) -- (0.3)
-------- -------- ------- --------- ---------
Cash provided by (used for)
financing activities.......... (12.4) 8.2 16.2 -- 12.0
Net increase (decrease) in cash
and cash equivalents.............. (15.6) (1.3) (2.8) -- (19.7)
CASH AND CASH
EQUIVALENTS,
beginning of period.............. 18.0 1.5 5.0 -- 24.5
-------- -------- ------- --------- ---------
CASH AND CASH
EQUIVALENTS,
end of period....................$ 2.4 $ 0.2 $ 2.2 $ -- $ 4.8
======== ======== ======= ========= =========
</TABLE>
20
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
GENERAL
The Company's sales are affected to a significant degree by the freight car and
Class 8 truck markets. Both the freight car and the Class 8 truck markets are
subject to significant fluctuations due to economic conditions in these
particular markets, changes in the alternative methods of transportation and
other factors. There can be no assurance that fluctuations in such markets will
not have a material adverse effect on the results of operations or financial
condition of the Company.
Johnstown America Corporation (JAC) and Freight Car Services (FCS), the
Company's freight car manufacturing subsidiaries sales are driven principally by
the number and type of new and rebuilt freight cars delivered in any given
period. Due to the large size of customer orders, the specific time frame for
delivery of freight cars ordered and variations in the mix of cars ordered, the
number and type of cars produced in any given quarter may fluctuate greatly. As
a result, the Company's revenues and results of operations and cash flows from
operations may fluctuate as well.
Following the rejection by the union members of a tentative agreement reached
with Gunite Corporation (Gunite) on April 22, 1998, employees of Gunite went on
strike on April 27, 1998. The Company cannot predict when negotiations may
resume or when a new collective bargaining agreement may be reached. Nor can the
Company offer assurance that a prolonged work stoppage at Gunite would not have
a material adverse effect on the financial condition or results of operations of
the Company.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
TOTAL REVENUE
Total revenue for the three months ended March 31, 1998 increased 99.8% to
$231.2 million from $115.7 million in the first quarter of 1997. The revenue
increase of $115.5 million was due primarily to the increase in freight car
operations (2,087 new and rebuilt cars sold in 1998 vs 532 new and rebuilt cars
in 1997 which included 380 cars sold to the lease fleet) of $102.9 million.
Truck components and assemblies operations increased $8.7 million and iron
casting operations
21
<PAGE>
increased $3.9 million over first quarter revenues of 1997. As of March 31, 1998
the Company's backlog of new and rebuilt freight cars was 4,625 as compared to
1,523 new and rebuilt freight cars on March 31, 1997.
COST OF SALES - MANUFACTURING AND GROSS PROFITS
Cost of Sales - Manufacturing for the three months ended March 31, 1998 as a
percent of manufacturing sales was 87.0%, compared to 83.9% in 1997. Related
gross profits were 13.0% and 16.1%, respectively. The decline in gross profits
resulted primarily from increased sales from the freight car business in the
current quarter which have historically generated lower gross profit margins
than the truck components and iron castings operations. The aggregate gross
profit increased $11.5 million and was a result of increased sales primarily
from the freight car business.
SELLING, GENERAL, ADMINISTRATIVE AND AMORTIZATION
Selling, general, and administrative expenses as a percentage of total revenue
were 5.7% and 9.3% for the three months of 1998 and 1997, respectively. The
decrease in selling, general, and administrative expense as a percentage of
total revenue is related to the significant increase in total revenues of $115.5
million. Amortization expense as a percentage of total revenue was 0.9% and 1.8%
for the three months of 1998 and 1997, respectively. Although actual
amortization expense remained constant period to period, the increase in total
revenue reduced the relative percentages.
OPERATING INCOME
Operating income was $33.2 million in the first quarter of 1998, compared to
$6.4 million in the first quarter of 1997. Increased sales and margins accounted
for $11.5 million of the increase. In addition, during the first quarter of 1998
the Company settled a patent infringement lawsuit for $16.8 million dollars. The
Company also recognized $1.2 million gain in the first quarter of 1998 versus a
$0.3 million gain in the first quarter of 1997 for the sale of leased freight
cars. The increases to operating income were offset by an increase in selling,
general and administrative expense of $2.4 million.
OTHER
Interest expense, net, was $8.6 million in the first quarter of 1998 which was
comparable to the prior year. Interest expense in 1998 included interest on the
additional $80 million "add on" Senior Subordinated Notes which were issued in
August 1997, at an effective rate of 10.8%. The proceeds from the issuance of
the additional senior notes were used to repay the Term A Tranche loan which had
an effective rate of about 8.5%. The increase in interest expense on the Senior
Notes (due to a higher effective interest rate) over the Term A Tranche loan was
offset by reduced levels of outstanding Senior Bank Facilities in the first
quarter of 1998 versus 1997. In addition,
22
<PAGE>
leasing business interest expense was $0.2 million higher in the first quarter
of 1998, primarily as a result of the write off of deferred financing costs, due
to the substantial pay down of debt.
Net income and diluted earnings per share for the first quarter of 1998 were
$14.0 million and $1.40, respectively, compared to a net loss and loss per
diluted share of $(1.9) million and $(0.19), respectively, for the first quarter
of 1997.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1998, the Company used cash from operations
of $10.9 million resulting from higher working capital requirements compared
with a similar use of cash of $11.6 million for the first three months of 1997.
The Company provided $20.3 million of net cash in investing activities, which
was generated by the sale of leased freight cars of $24.3 million, offset by
$1.8 million used for capital expenditures and $2.2 million leased business
asset additions. Cash used by financing activities was $20.5 million for the
first three months of 1998, due to the pay down of $19.6 million related to the
sale of 380 cars from the lease fleet in the first quarter of 1998 and term loan
principal payments of $0.9 million.
On April 1, 1998, the Company received $16.8 million from the settlement of its
patent infringement lawsuit. The after-tax proceeds of $10.0 million were used
to prepay obligations on the Tranche B term loan in April.
The Company's freight car sales are characterized by large order sizes, specific
customer delivery schedules and related vendor receipts and payment schedules,
all of which can combine to create significant fluctuations in working capital
accounts when comparing end of period balances. Such fluctuations tend to be of
short duration, and the Company considers this to be a normal part of its
operating cycle which does not significantly impact its financial flexibility
and liquidity.
As of March 31, 1998, there was $92.5 million of term loans outstanding under
the Senior Bank Facilities, $182.6 million of Notes outstanding, and no
borrowings under the $75 million revolving credit line under the Senior Bank
Facilities. Availability under the revolving credit line, after consideration of
outstanding letters of credit of $17.0 million, was $58.0 million.
Interest payments on the Notes and interest and principal payments under the
Senior Bank Facilities represent significant liquidity requirements for the
Company. The Notes require semiannual interest payments of approximately $10.6
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 term loans under the Senior Bank
Facilities require periodic principal payments through their maturities.
23
<PAGE>
In June 1997, JAIX Leasing Company entered into a term loan facility to finance
its freight car leasing activities. See footnote 3 of the Condensed Consolidated
Financial Statements for the three months ended March 31, 1998, for a
description of this loan. As of March 31, 1998, there was $9.5 million
outstanding under this facility.
The Company believes that the cash flow generated from its operations, together
with amounts available under its revolving credit line, 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 March 31, 1998, the Company's balance sheet included cash of $19.7
million.
ENVIRONMENTAL MATTERS
The Company's subsidiaries are currently involved in several matters relating to
the investigation and/or remediation of locations where the subsidiaries have
arranged for the disposal of foundry and other wastes. 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 ("PRP") in the contamination of the sites. With respect to claims
involving Gunite Corporation ("Gunite"), TCI and Gunite in September 1997
entered into a private-party settlement (the "Settlement") of certain pending
litigation with a prior owner of Gunite, pursuant to which each of TCI and
Gunite and the prior owner withdrew their claims against the other. As of result
of the Settlement, TCI and Gunite will not be responsible for liabilities and
costs related to certain alleged contamination of Gunite's facilities and at
certain off-site properties to the extent arising out of operations of Gunite
prior to the acquisition of Gunite by TCI in September 1987. As of March 31,
1998, based on all of the information currently available to the Company, the
Company has an environmental reserve of $11.2 million which management believes
its adequate to cover future expenditures. This reserve is based on current cost
estimates and does not reduce estimated expenditures to net present value,
although the Company's subsidiaries are not likely to incur costs for most of
the reserved matters until several years in the future. Any cash expenditures
required by the Company or its subsidiaries to comply with applicable
environmental laws and/or to pay for any remediation efforts will not be reduced
or otherwise affected by the existence of the environmental reserve. Due to the
early stage of investigation of many of the sites and potential remediations
referred to above, there are significant uncertainties as to waste quantities
involved, the extent and timing of the remediation which will be required, the
range of acceptable solutions, costs of remediation and the number of
potentially responsible parties contributing to such costs. Based on all of the
information presently available, 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
24
<PAGE>
financial condition or results of operations of the Company. However, the
discovery of additional sites, the modification of existing laws or regulations,
the imposition of joint and several liability or the uncertainties referred to
above could result in such a material adverse effect.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" introduces a new model for segment reporting, called the
"management approach." The management approach is based on the way that the
chief operating decision maker organizes segments within the company for making
operating decisions and assessing performance. Management of the Company is
evaluating this new pronouncement to determine its impact upon current
reporting. Adoption of this new standard is scheduled for late 1998.
SFAS No. 130, "Reporting Comprehensive Income" was issued in July 1997 and was
adopted by the Company effective January 1, 1998. This new pronouncement
establishes standards for reporting and display of comprehensive income and its
components. During the first quarter of 1998 there were no comprehensive items
to report.
SOP 98-5, "Reporting on Costs of Start-Up Activities" was issued in April 1998
and is required to be adopted by the Company no later than 1999. The new
pronouncement requires that companies expense the costs of start-up activities
as those costs are incurred. Previously, such costs could have been capitalized
and amortized and any such unamortized capitalized costs must be expensed upon
adoption of the new standard. Management does not expect that adoption of this
standard will have a material impact on the Company's financial position or
results of operations.
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 and Exchange Commission reports.
EFFECTS OF INFLATION
General price inflation has not had a material impact on the Company's results
of operations.
25
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The patent infringement lawsuit commenced by JAC in December 1992 against
Trinity Industries, Inc. ("Trinity") alleging infringement of JAC's patent for
its BethGon Coalporter(R) freight car was settled on April 1, 1998. Pursuant to
the settlement agreement, Trinity paid to the Company $16.75 million in cash as
damages for Trinity's infringement. In addition, the settlement agreement
provides that Trinity will not market, manufacture, use, sell or lease its
infringing Aluminator II freight car through the expiration of the patent in
November 1999. The settlement agreement further provides that the Company will
covenant not to sue Trinity in connection with Trinity's's marketing,
manufacturing, using, selling or leasing its single tub coal gondola freight car
as presently designed and manufactured.
The Company is involved in various lawsuits and warranty claims in the normal
course of business. In the opinion of management of the Company, the outcome of
these lawsuits and claims will not have a material adverse effect on the
financial condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
None
(B) REPORTS
The Company filed the following reports on Form 8-K during the three months
ended March 31, 1998:
None
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHNSTOWN AMERICA INDUSTRIES, INC.
By /S/ ANDREW M. WELLER
- ----------------------------------------------
Andrew M. Weller
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: May 12, 1998
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