- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 September 30, 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 State of Delaware
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Internal Revenue Service - Employer Identification No. 25-1672791
980 N. Michigan Avenue
Suite 1000
Chicago, IL 60611
(Address of principal executive offices)
(312) 280-8844
Registrant's telephone number, including area code
---------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The total number of shares of the registrant's Common Stock, $.01 par value,
outstanding on November 9, 1998 was 9,896,104.
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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 September 30, 1998, and December 31, 1997................ 4-5
Condensed Consolidated Statements of Income for
the Three and Nine Months Ended September 30, 1998 and 1997. 6
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 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............... 21-28
PART II OTHER INFORMATION ........................................ 29-30
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>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(In thousands)
September 30, December 31,
1998 1997
---- ----
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents..................... $ 38,047 $ 30,875
Accounts receivable, net...................... 90,364 60,484
Inventories................................... 59,066 58,674
Prepaid expenses and other.................... 17,841 17,568
--------- ---------
Total current assets........................ 205,318 167,601
Property, plant and equipment, net............ 115,967 118,063
Leasing business assets, net.................. 17,294 38,430
Deferred financing costs, net................. 7,948 11,594
Intangible assets, net........................ 236,786 243,150
--------- ---------
Total assets................................ $ 583,313 $ 578,838
========= =========
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(In thousands)
September 30, December 31,
1998 1997
---- ----
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................$ 72,611 $ 55,246
Accrued expenses and other payables.............. 67,325 58,633
Current maturities of long-term debt, capital
lease and JAIX Leasing debt..................... 667 4,783
--------- ---------
Total current liabilities...................... 140,603 118,662
Long-term debt and capital lease, less current
maturities...................................... 73,366 96,903
JAIX Leasing debt, less current maturities........ 8,833 27,896
Senior subordinated notes......................... 182,426 182,691
Deferred income taxes............................. 35,476 36,373
Other long-term liabilities....................... 42,272 45,293
Shareholders' Equity:
Preferred stock, par $.01, 20,000 shares
authorized, none outstanding.................... - -
Common stock, par $.01, 201,000 shares
authorized, 9,896 and 9,768 issued and outstanding
as of September 30, 1998 and December 31, 1997,
respectively.................................... 99 98
Paid-in capital................................... 56,198 55,066
Retained earnings................................. 44,065 15,886
Employee receivables for stock purchases.......... (25) (30)
--------- ---------
Total shareholders' equity ................. 100,337 71,020
--------- ---------
Total liabilities and shareholders' equity.....$ 583,313 $ 578,838
========= =========
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
Net manufacturing sales......... $ 240,710 $ 184,674 $ 705,966 $ 455,534
Leasing revenue................. 2,047 2,122 6,198 5,224
-------- -------- -------- --------
Total revenue.................. 242,757 186,796 712,164 460,758
Cost of sales - manufacturing... 204,566 160,922 607,576 391,954
Cost of leasing................. 1,007 1,157 3,827 2,646
-------- -------- -------- --------
Gross profit................... 37,184 24,717 100,761 66,158
Selling, general and administrative
expenses....................... 12,941 11,140 39,061 33,203
Amortization expense............ 2,158 2,169 6,434 6,416
Gain on sale of leased freight cars - (239) (1,223) (826)
Pension termination gain........ - - (1,688) -
Patent litigation settlement.... - - (16,750) -
Reduction of environmental reserves - (14,300) - (14,300)
-------- -------- -------- --------
Operating income............... 22,085 25,947 74,927 41,665
Interest income................. (421) (343) (1,023) (532)
Interest expense................ 7,676 8,386 23,783 24,903
Interest expense - leasing .... 223 664 1,005 1,716
-------- -------- -------- --------
Income before income
taxes and extraordinary item 14,607 17,240 51,162 15,578
Provision for income taxes...... 6,223 7,142 22,000 7,885
-------- -------- -------- --------
Net income before
extraordinary item............ 8,384 10,098 29,162 7,693
Extraordinary item, net of
income taxes.................. (399) (2,009) (984) (2,009)
-------- -------- -------- --------
Net income..................... $ 7,985 $ 8,089 $ 28,178 $ 5,684
========= ========= ========= =========
Weighted average common
shares outstanding............. 9,873 9,800 9,818 9,795
Basic earnings per common share
before extraordinary item...... $ 0.85 $ 1.03 $ 2.97 $ 0.79
Extraordinary item, net of
income tax.................... (0.04) (0.20) (0.10) (0.21)
-------- -------- -------- --------
Basic earnings per common share $ 0.81 $ 0.83 $ 2.87 $ 0.58
========= ======== ======== ========
Diluted weighted average
common and equivalent shares
outstanding.................. 10,187 9,800 10,138 9,795
Diluted earnings per common share
before extraordinary item.... $ 0.82 $ 1.03 $ 2.88 $ 0.79
Extraordinary item, net of
income tax................... (0.04) (0.20) (0.10) (0.21)
-------- -------- -------- --------
Diluted earnings per common
share........................ $ 0.78 $ 0.83 $ 2.78 $ 0.58
======= ========= ======== ========
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
-------------
1998 1997
---- ----
OPERATING ACTIVITIES:
Net income ................................. $ 28,178 $ 5,684
Adjustments for items not affecting cash
from operating activities:
Depreciation............................... 11,425 11,590
Amortization - other....................... 7,591 7,317
Amortization - deferred financing costs.... 1,358 1,631
Gain on sale of leased freight cars........ (1,223) (826)
Deferred income tax expense (benefit) ..... (897) 4,641
Reduction in environmental reserves........ - (14,300)
Postretirement benefits.................... 2,089 1,379
Extraordinary item net of income taxes..... 984 2,009
Pension termination gain................... (1,688) -
Changes in operating assets and liabilities:
Accounts receivable, net.................... (29,880) (20,252)
Inventories................................. (392) (4,939)
Accounts payable............................ 17,364 10,370
Other assets and liabilities................ 4,823 277
-------- -------
Net cash provided by operating activities... 39,732 4,581
-------- -------
INVESTING ACTIVITIES:
Capital expenditures....................... (8,949) (4,230)
Leasing business asset additions........... (2,476) (25,622)
Proceeds from sales of leased freight cars 24,320 9,932
Other...................................... 130 578
-------- -------
Net cash provided by (used for) investing
activities................................. 13,025 (19,342)
-------- -------
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 NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
-------------
1998 1997
---- ----
FINANCING ACTIVITIES:
Issuance of senior subordinated notes....... $ - $ 82,823
Payments of term loans and capital lease.... (26,852) (89,296)
Net borrowings (payments) under
JAIX Leasing debt......................... (19,864) 15,876
Payment of deferred financing costs......... - (3,476)
Other....................................... 1,131 -
-------- --------
Net cash provided by (used for) financing
activities................................. (45,585) 5,927
Net increase (decrease)in cash and cash
equivalents................................ 7,172 (8,834)
CASH AND CASH EQUIVALENTS,
beginning of period........................ 30,875 24,535
-------- --------
CASH AND CASH EQUIVALENTS,
end of period.............................. $ 38,047 $ 15,701
======== ========
SUPPLEMENTAL CASH FLOWS DISCLOSURE
Cash paid for interest....................... $ 29,120 $ 26,917
Cash paid for income taxes................... $ 19,626 $ 718
See accompanying notes to condensed consolidated financial statements.
8
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 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):
September 30, December 31,
1998 1997
---- ----
Raw materials and purchased
components $ 10,183 $ 10,894
Work-in-progress and finished goods 48,883 47,780
--------- ---------
$ 59,066 $ 58,674
========= =========
9
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Nine Months Ended September 30, 1998
(Unaudited)
3. DEBT
Long-term debt of the Company consists of the following (in thousands):
September 30, December 31,
1998 1997
---- ----
Revolving loan $ - $ -
Tranche B term loan 66,632 93,340
------- --------
Total senior bank facilities 66,632 93,340
Industrial revenue bond 5,300 5,300
Capital lease 1,640 1,783
JAIX Leasing debt 9,294 29,159
------- --------
Total debt 82,866 129,582
Less:
Current maturities (667) (4,783)
Long-term portion of JAIX Leasing debt (8,833) (27,896)
------- --------
Long-term debt $ 73,366 $ 96,903
======= ========
10
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Nine Months Ended September 30, 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 Truck Components Inc. (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 September 30, 1998, availability under the revolving credit line, after
consideration of outstanding letters of credit of $16.8 million, was $58.2
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 1.50% and 2.50% for LIBOR loans and 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 a borrowing 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 September 30, 1998, the weighted average interest rate of all
outstanding loans under the Senior Bank Facilities was 8.65%. 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 in the third quarter of 1997 in conjunction with
the issuance of debt described in Note 4. Upon the early retirement of this
loan, the Company recorded a $3.3 million ($2.0 million after-tax) extraordinary
charge primarily representing the writeoff of unamortized deferred financing
costs related to the retired debt. 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 and an
additional $15.0 million from operating activities were used to prepay
obligations on the Tranche B term loan in the second and third quarters of 1998.
The prepayments on this loan resulted in a $1.6 million ($1.0 million after tax)
extraordinary charge for the nine months ended September 30, 1998 ($0.4 million
after tax for the three months then ended) representing the noncash writeoff of
unamortized deferred financing costs related to this retired debt.
11
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Nine Months Ended September 30, 1998
(Unaudited)
The Senior Bank Facilities contain various financial covenants including capital
expenditure limitations, maximum leverage and minimum 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 Bonds
- ------------------------
The Company, through its wholly owned subsidiary, Freight Car Services, Inc.,
issued the Industrial Revenue Bonds for $5.3 million which bear interest at a
variable rate (4.05% as of September 30, 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 credit line portion of the Senior
Bank Facilities.
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 9.32%. At September 30, 1998, debt
outstanding under the facility was $9.3 million. The facility is secured by the
underlying leases and assets and contains various covenants. On February 2,
1998, JAIX Leasing sold 380 of its owned freight cars and used the proceeds to
repay $19.5 million of the outstanding term loan.
Interest Rate Contracts
- -----------------------
The Company has entered into an interest rate contract to fix a portion of the
cost of its variable rate Senior Bank Facilities. This contract limits the
effect of market fluctuations on the interest cost of floating rate debt. The
notional principal amount outstanding on the interest rate contract covering the
current period is $25 million at a 6.14% fixed rate of interest plus the
applicable borrowing margin. The contract matures in August 2000.
12
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Nine Months Ended September 30, 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
13
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
For the Nine Months Ended September 30, 1998
(Unaudited)
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. Accordingly, the Company reduced its
environmental reserves by $14.3 million in the third quarter of 1997. As of
September 30, 1998, based on all of the information currently available to the
Company, the Company has an environmental reserve of $10.7 million which
management believes is adequate to cover future expenditures. This reserve is
based on current cost estimates and does not reduce estimated expenditures to
net present value, although the Company's subsidiaries are not likely to incur
costs for most of the reserved matters until several years in the future. Any
cash expenditures required by the Company or its subsidiaries to comply with
applicable environmental laws and/or to pay for any remediation efforts will not
be reduced or otherwise affected by the existence of the environmental reserve.
Due to the early stage of investigation of many of the sites and potential
remediations referred to above, there are significant uncertainties as to waste
quantities involved, the extent and timing of the remediation which will be
required, the range of acceptable solutions, costs of remediation and the number
of potentially responsible parties contributing to such costs. Based on all of
the information presently available, 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>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Balance Sheet
as of September 30, 1998
(In millions)
(Unaudited)
<S> <C> <C> <C> <C> <C>
Parent Guarantor
Company Subsidiaries JAIX Leasing Eliminations Consolidated
------- ------------ ------------ ------------ ------------
Cash and cash equivalents................. $ 33.0 $ (0.2) $ 5.2 $ - $ 38.0
Accounts receivable, net.................. - 89.2 1.2 - 90.4
Inventories............................... - 59.1 - - 59.1
Prepaid expenses and other................ 2.1 14.4 1.3 - 17.8
--------- --------- ---------- ---------- ----------
Total current assets................. 35.1 162.5 7.7 - 205.3
Property, plant and equipment, net........ 2.4 115.3 15.9 (0.3) 133.3
Other assets.............................. 147.7 236.6 0.2 (139.8) 244.7
--------- --------- ---------- ---------- ----------
..........................................
Total assets......................... $ 185.2 $ 514.4 $ 23.8 $ (140.1) $ 583.3
========= ========= ========== ========== ==========
Accounts payable.......................... $ - $ 72.3 $ 0.3 $ - $ 72.6
Other current liabilities................. (13.6) 80.4 1.2 - 68.0
--------- --------- ---------- ---------- ----------
Total current liabilities............ (13.6) 152.7 1.5 - 140.6
Noncurrent liabilities.................... - 74.3 3.5 - 77.8
Long-term debt, less current
maturities and intercompany
advances (receivables).................. 98.5 157.3 8.8 - 264.6
Total shareholders' equity................ 100.3 130.1 10.0 (140.1) 100.3
--------- --------- ---------- ---------- ----------
Total liabilities and shareholders'
equity........................... $ 185.2 $ 514.4 $ 23.8 $ (140.1) $ 583.3
========= ========= ========== ========== ==========
15
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Income
For the Nine Months Ended September 30, 1998
(In millions)
(Unaudited)
Parent Guarantor
Company Subsidiaries JAIX Leasing Eliminations Consolidated
------- ------------ ------------ ------------ ------------
Total revenue............................. $ - $ 706.0 $ 6.2 $ - $ 712.2
Cost of sales............................. - 607.6 3.8 - 611.4
--------- --------- ---------- ----------- ----------
Gross profit............................. - 98.4 2.4 - 100.8
Selling, general, administrative
and amortization expenses................ 2.1 42.8 0.7 - 45.6
Gain on sale of lease freight cars........ - - (1.2) - (1.2)
Pension termination gain.................. - (1.7) - - (1.7)
Patent litigation settlement.............. - (16.8) - - (16.8)
--------- --------- ---------- ----------- ----------
Operating income........................ (2.1) 74.1 2.9 - 74.9
Interest expense, net..................... 9.6 13.3 0.8 - 23.7
Equity (earnings) of subsidiaries......... (36.2) - - 36.2 -
Provision (benefit) for income taxes...... (4.7) 25.9 0.8 - 22.0
--------- --------- ---------- ----------- ----------
Net income (loss) before
extraordinary item..................... 29.2 34.9 1.3 (36.2) 29.2
Extraordinary item, net of tax............ 1.0 - - - 1.0
--------- --------- ---------- ----------- ----------
Net income (loss)....................... $ 28.2 $ 34.9 $ 1.3 $ (36.2) $ 28.2
========= ========= ========== =========== ==========
16
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 1998
(In millions)
(Unaudited)
Parent Guarantor
Company Subsidiaries JAIX Leasing Eliminations Consolidated
------- ------------ ------------ ------------ ------------
CASH FLOWS FROM
OPERATING ACTIVITIES..................... $ (7.9) $ 46.4 $ 1.2 $ - $ 39.7
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures................... (0.1) (8.9) - - (9.0)
Leasing business assets
and investments........................ 0.1 - (2.4) - (2.3)
Proceeds from sale of leased
freight cars........................... - - 24.3 - 24.3
--------- -------- ---------- -------- ----------
Cash provided by (used for)
investing activities................... - (8.9) 21.9 - 13.0
CASH FLOWS FROM
FINANCING ACTIVITIES:
Payments of 0term loans and
capital lease......................... (26.7) (0.1) - - (26.8)
Net borrowings under JAIX
Leasing debt.......................... - - (19.9) - (19.9)
Intercompany advances.................. 41.4 (41.4) - - -
Other ................................. 1.1 - - - 1.1
--------- -------- ---------- -------- ----------
Cash provided by (used for)
financing activities.................. 15.8 (41.5) (19.9) - (45.6)
--------- -------- ---------- -------- ----------
Net increase (decrease) in cash
and cash equivalents.................... 7.9 (4.0) 3.2 - 7.1
CASH AND CASH
EQUIVALENTS,
beginning of period..................... 25.1 3.8 2.0 - 30.9
--------- -------- ---------- -------- ----------
CASH AND CASH
EQUIVALENTS,
end of period........................... $ 33.0 $ (0.2) $ 5.2 $ - $ 38.0
========= ======== ========== ======== ==========
17
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
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>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Income
For the Nine Months Ended September 30, 1997
(In millions)
(Unaudited)
Parent Guarantor
Company Subsidiaries JAIX Leasing Eliminations Consolidated
------- ------------ ------------ ------------ ------------
Total revenue............................. $ 0.2 $ 455.6 $ 5.0 $ $ 460.8
Cost of sales............................. - 392.0 2.6 - 394.6
----------- ------------ ----------- ----------- ----------
Gross profit ........................... 0.2 63.6 2.4 - 66.2
Selling, general, administrative
and amortization expenses................ (0.1) 39.3 (0.4) - 38.8
Reduction of environmental
reserves................................. - (14.3) - - (14.3)
----------- ------------ ----------- ----------- ----------
Operating income ....................... 0.3 38.6 2.8 - 41.7
Interest expense, net..................... 9.0 15.5 1.6 - 26.1
Equity (earnings) of subsidiaries......... (12.8) - - 12.8 -
Provision (benefit) for income
taxes................................... (3.6) 11.0 0.5 - 7.9
----------- ------------ ----------- ----------- ----------
Net income (loss) before
extraordinary item...................... 7.7 12.1 0.7 (12.8) 7.7
Extraordinary item, net of tax............ 2.0 - - - 2.0
----------- ------------ ----------- ----------- ----------
Net income (loss)....................... $ 5.7 $ 12.1 $ 0.7 $ (12.8) $ 5.7
=========== ============ =========== =========== ==========
19
<PAGE>
JOHNSTOWN AMERICA INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 1997
(In millions)
(Unaudited)
Parent Guarantor
Company Subsidiaries JAIX Leasing Eliminations Consolidated
------- ------------ ------------ ------------ ------------
CASH FLOWS FROM
OPERATING ACTIVITIES.................... $ (6.9) $ 11.1 $ 0.4 $ - $ 4.6
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures ................... (0.1) (4.1) - - (4.2)
Leasing business assets
and investments........................ - - (25.6) - (25.6)
Proceeds from sale of leased
freight cars........................... 3.0 - 6.9 - 9.9
Other................................... - 0.6 - - 0.6
---------- -------- ---------- --------- --------
Cash provided by (used for)
investing activities.................... 2.9 (3.5) (18.7) - (19.3)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Senior Subordinated Note
issuance.............................. 82.8 - - - 82.8
Payments of term loans and
capital lease......................... (89.2) (0.1) - - (89.3)
Net borrowings under JAIX
Leasing loans......................... - - 15.9 - 15.9
Intercompany advances................... 10.1 (10.1) - - -
Deferred financing costs................ (3.1) - (0.4) - (3.5)
---------- -------- ---------- --------- --------
Cash provided by (used for)
financing activities................... 0.6 (10.2) 15.5 - 5.9
---------- --------- ---------- --------- --------
Net decrease in cash and
cash equivalents........................ (3.4) (2.6) (2.8) - (8.8)
CASH AND CASH
EQUIVALENTS,
beginning of period..................... 18.1 1.5 4.9 - 24.5
---------- -------- ----------- --------- --------
CASH AND CASH
EQUIVALENTS,
end of period........................... $ 14.7 $ (1.1) $ 2.1 $ - $ 15.7
========== ======== =========== ========= ========
</TABLE>
20
<PAGE>
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
For the Nine Months Ended September 30, 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.
The operating results of Johnstown America Corporation (JAC) and Freight Car
Services (FCS), the Company's freight car manufacturing subsidiaries, 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.
During the first nine months of 1998, net income of $23.2 million included three
non-recurring items: an extraordinary charge of $1.6 million ($1.0 million after
tax) related to early debt retirement, a gain resulting from a patent lawsuit
settlement of $16.8 million ($10.0 million after tax) and a pension termination
gain of $1.7 million ($1.0 million after tax). Net income for the first nine
months of 1998 excluding the three non-recurring items was $13.2 million.
Results of Operations
- ---------------------
Three Months Ended September 30, 1998 and 1997
Total Revenue
- -------------
Total revenue for the three months ended September 30, 1998 increased by 30.0%
to $242.8 million from $186.8 million in the third quarter of 1997. The revenue
increase of $56.0 million was due primarily to the increase in freight car sales
of $53.0 million (2,311 new and rebuilt cars sold in 1998 versus 1,504 new and
rebuilt cars sold in 1997). Iron castings operations revenues increased $2.0
million, and revenue from truck components operations increased $1.0 million in
the third quarter of 1998 compared to the same period of 1997.
21
<PAGE>
Cost of Sales - Manufacturing and Gross Profits
- -----------------------------------------------
Cost of Sales - Manufacturing for the nine months ended September 30, 1998 as a
percent of manufacturing sales was 85.0%, compared to 87.1% in 1997. Related
gross profit margins were 15.0% and 12.9%, respectively. Freight car operations
gross profit margins as a percentage of sales substantially improved versus the
third quarter of 1997, offsetting the impact of a higher mix of freight car
business relative to the truck component and iron casting operations which
historically generate higher gross profit margins as a percentage of sales. The
aggregate gross profits increased $12.5 million and are a result of increased
sales and margins, primarily from the freight car business.
Selling, General, Administrative and Amortization
- -------------------------------------------------
Selling, general and administrative expenses as a percentage of total revenue
were 5.3% and 6.0% for the three months ended September 30, 1998 and 1997,
respectively. The decrease in selling, general and administrative expense as a
percent of total revenue was primarily caused by the significant increase in
total revenue without a similar increase in costs needed to achieve such
revenues. Amortization expense as a percentage of total revenue was 0.9% and
1.2% for the three months ended September 30, 1998 and 1997, respectively,
although actual amortization expense remained consistent period to period.
Operating Income
- ----------------
Operating income was $22.1 million in the third quarter of 1998, compared to
$11.6 million excluding the $14.3 million reduction of environmental reserves in
the third quarter of 1997. Increased sales and margins accounted for $12.5
million of the increase. The increase to operating income was offset by an
increase in selling, general, and administrative expenses of $1.8 million in the
current quarter of 1998, and a $0.2 million gain in the second quarter of 1997
from the sale of leased freight cars.
Other
- -----
Interest expense, net, was $7.5 million in the third quarter of 1998 compared to
$8.7 in the third quarter of 1997. A decrease of $1.1 million in leasing
business and term debt interest expense, as a result of reduced levels of
related debt, and a $0.1 million increase in interest income in the third
quarter of 1998 resulted in a decrease in net interest expense of $1.2 from 1997
levels.
During the third quarter of 1998 the Company recorded a $0.7 million ($0.4
million after income tax) extraordinary charge representing the writeoff of
unamortized deferred financing costs related to the early retirement of $10.0
million of senior bank debt.
22
<PAGE>
Net income and diluted earnings per share before the extraordinary item for the
third quarter of 1998 were $8.4 million and $0.82, respectively, compared to
$10.1 million and $1.03, respectively, for the third quarter of 1997.
Net income and diluted earnings per share for the third quarter of 1998 were
$8.0 million and $0.78, respectively compared to net income and diluted earnings
per share of $8.1 million and $0.83, respectively, for the third quarter of
1997.
Results of Operations
- ---------------------
Nine Months Ended September 30, 1998 and 1997
Total Revenue
- -------------
Total revenue for the nine months ended September 30, 1998 increased by 54.6% to
$712.2 million from $460.8 million in the first nine months of 1997. The revenue
increase of $251.4 million was due primarily to the increase in freight car
sales of $236.0 million (6,561 new and rebuilt cars sold in 1998 versus 3,079
new and rebuilt cars in 1997). Truck components and assemblies operations
revenues, which were negatively effected by the Gunite labor strike in May 1998,
increased $8.3 million and iron casting operations revenues increased $7.1
million over the first nine months of 1997. As of September 30, 1998 the
Company's backlog of new and rebuilt freight cars was 8,095 as compared to 2,297
new and rebuilt freight cars on September 30, 1997.
Cost of Sales - Manufacturing and Gross Profits
- -----------------------------------------------
Cost of Sales - Manufacturing for the nine months ended September 30, 1998 as a
percent of manufacturing sales was 86.1%, compared to 86.0% in 1997. Related
gross profit percentages were 13.9% and 14.0%, respectively. The aggregate gross
profit increased $34.5 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 5.5% and 7.2% for the nine months of 1998 and 1997, respectively. The
decrease in selling, general and administrative expense as a percentage of total
revenue is primarily due to the significant increase in total revenues without a
similar increase in costs needed to achieve such revenues. Amortization expense
as a percentage of total revenue was 0.9% and 1.4% for the nine months of 1998
and 1997, respectively, although actual amortization expense remained constant
period to period.
23
<PAGE>
Operating Income
- ----------------
Operating income was $74.9 million in the first nine months of 1998, compared to
$41.6 million in the first nine months of 1997. Increased sales and margins
accounted for $34.6 million of the increase. In addition, during the first nine
months of 1998 the Company settled a patent infringement lawsuit for $16.8
million and recognized a gain of $1.7 on the settlement of a former pension plan
at Gunite, the latter of which was generally offset by the impact of the three
week strike at Gunite in the second quarter of 1998. The Company also recognized
a $1.2 million gain in the first nine months of 1998 versus a $0.8 million gain
in the nine months of 1997 from the sale of leased freight cars. These increases
to operating income were offset by an increase in selling, general and
administrative expense of $5.9 million and the reduction of environmental
reserves of $14.3 million which occurred in the third quarter of 1997.
Other
- -----
Interest expense, net, was $23.8 million in the first nine months of 1998
compared to $26.1 million in the first nine months of 1997. A decrease of $2.0
million on leasing business and term debt interest expense, as a result of
reduced levels of related debt and a $0.5 million increase in interest income
was offset by the one time writeoff of $0.2 million of non-cash deferred
financing costs in connection with reductions in leasing business debt in the
nine months of 1998.
Net income and diluted earnings per share before the extraordinary item for the
first nine months of 1998 were $29.2 million and $2.88, respectively, compared
to $7.7 million and $0.79, respectively, for the first nine months of 1997.
Net income and diluted earnings per share for the first nine months of 1998 were
$28.2 million and $2.78, respectively, compared to net income and income per
diluted share of $5.7 million and $0.58, respectively, for the first nine months
of 1997.
Liquidity and Capital Resources
- -------------------------------
For the nine months ended September 30, 1998, the Company provided net cash from
operations of $39.7 million compared with providing net cash of $4.6 million for
the first nine months of 1997. The Company provided $13.0 million of net cash
from investing activities for the nine months of 1998, which was generated by
proceeds from the sale of leased freight cars of $24.3 million, offset by $8.9
million used for capital expenditures and $2.5 million for leased business asset
additions. Cash used for financing activities was $45.6 million for the first
nine months of 1998 and represents senior debt and leasing business debt pay
downs offset by $1.1 million provided by the issuances of company stock as a
result of stock options exercised. JAIX Leasing loans were paid down by $19.9
million with the proceeds from the sale of 380 cars from the lease fleet in the
first quarter of 1998. The Company also made $1.9 million in scheduled term debt
and capital lease payments and $25.0 in term loan prepayments in the second and
third quarters.
24
<PAGE>
The prepayments were funded by proceeds from the patent lawsuit settlement and
cash provided by operating activities.
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 September 30, 1998, there was $66.6 million of term loans outstanding
under the Senior Bank Facilities, $182.4 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 $16.8 million, was $58.2 million.
Interest payments on the Notes and 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 requires interest payments
on varying dates depending upon the interest rate option selected by the
Company. The term loan under the Senior Bank Facilities does not require any
material periodic principal payments until March, 2000. However, the Company is
required to prepay 75% of its annual excess cash flow (as defined under the
Senior Credit Agreement) within 100 days of each fiscal year end.
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 nine months ended September 30, 1998, for a
description of this loan. As of September 30, 1998, there was $9.4 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 September 30, 1998, the Company's balance sheet included cash of $38.0
million.
Year 2000
- ---------
The Year 2000 issue is the result of date-sensitive devices, systems and
computer programs that were deployed using two digits rather than four to define
the applicable year. Any such technology may recognize a year containing "00" as
the year 1900 rather than the year 2000. This issue could result in a system
failure or miscalculations causing disruptions of operations including, among
other things, a temporary inability to process transactions or engage in similar
normal business activities.
In 1996, the Company initiated a comprehensive program to ensure that its
various business systems continue to function properly in the year 2000. By the
end of 1998, all critical business systems at each operating unit will have been
reviewed, modified if necessary, and tested. Many non-critical business systems
have also been reviewed, modified and tested. All non-critical systems are
expected to be fully tested by mid 1999. Assessment of manufacturing processes
and facility management systems is underway and is expected to be substantially
completed by mid 1999. Additionally, the Company is currently assessing
readiness for year 2000 by key suppliers and other third parties with whom it
has significant business relationships. Information requests
25
<PAGE>
have been distributed and replies have been received. If the risk is deemed
material, the Company is performing onsite visits to verify the adequacy of the
information received.
Based upon the accomplishments to date, no contingency plans are expected to be
needed and therefore none have been developed. However, because of the
substantial progress to date, we believe adequate time will be available to
insure alternatives can be developed, assessed and implemented if necessary,
prior to the Year 2000 issue having a material impact on the Company's
operations. If however, systems of the Company or its key suppliers or other
third parties with whom it has significant business relationships are not Year
2000 compliant on a timely basis and a contingency plan is not developed on a
timely basis, the Year 2000 issue could have a material adverse effect on the
Company's operations and financial condition.
Beginning in 1996, as part of the Company's ongoing information system
improvement process, its enterprise systems were upgraded which partially
mitigated the impact of the Year 2000 problem. Excluding the cost of upgrading
the enterprise systems, the pretax cost incurred to date of becoming "Year 2000"
compliant has been approximately $0.5 million and is not expected to be more
than $0.7 million for the total project. Such costs are being funded through
operating cash flows.
The cost of the project and expected completion are based on management's best
estimates, which were derived using numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
Additionally, there can be no guarantee that the systems of other companies on
which the Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.
Readers are cautioned that forward looking statements contained in this Year
2000 section should be read in conjunction with the Company's disclosure under
the heading "Forward Looking Statements" on page 28.
26
<PAGE>
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 September 30,
1998, based on all of the information currently available to the Company, the
Company has an environmental reserve of $10.7 million which management believes
is adequate to cover future expenditures. This reserve is based on current cost
estimates and does not reduce estimated expenditures to net present value,
although the Company's subsidiaries are not likely to incur costs for most of
the reserved matters until several years in the future. Any cash expenditures
required by the Company or its subsidiaries to comply with applicable
environmental laws and/or to pay for any remediation efforts will not be reduced
or otherwise affected by the existence of the environmental reserve. Due to the
early stage of investigation of many of the sites and potential remediations
referred to above, there are significant uncertainties as to waste quantities
involved, the extent and timing of the remediation which will be required, the
range of acceptable solutions, costs of remediation and the number of
potentially responsible parties contributing to such costs. Based on all of the
information presently available, 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.
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
27
<PAGE>
reporting and display of comprehensive income and its components. During the
first nine months of 1998 and 1997 there were no other comprehensive income
items to report other than net income.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was
issued in June 1998 and must be adopted by the Company in year 2000. This new
pronouncement will require the Company to record derivatives on the balance
sheet as assets or liabilities, measured at fair value and gains or losses
resulting from the changes in the values of those derivatives would be accounted
for depending on the use of the derivative and whether it qualifies for hedge
accounting. The Company is evaluating the standard and does not expect it to
have a material impact on the financial results or condition of the Company
because the use of derivatives at the Company is not significant.
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.
28
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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
29
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports
The Company filed the following reports on Form 8-K during the three months
ended September 30, 1998:
None
30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHNSTOWN AMERICA INDUSTRIES, INC.
By /s/ Andrew M. Weller
- --------------------------------------
Andrew M. Weller
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: November 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000906114
<NAME> JOHNSTOWN AMERICA INDUSTRIES INC
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 38,047
<SECURITIES> 0
<RECEIVABLES> 92,504
<ALLOWANCES> 2,140
<INVENTORY> 59,066
<CURRENT-ASSETS> 205,318
<PP&E> 167,012
<DEPRECIATION> 51,045
<TOTAL-ASSETS> 583,313
<CURRENT-LIABILITIES> 140,603
<BONDS> 264,625
0
0
<COMMON> 99
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 583,313
<SALES> 705,966
<TOTAL-REVENUES> 712,164
<CGS> 607,576
<TOTAL-COSTS> 611,403
<OTHER-EXPENSES> 25,834
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,765
<INCOME-PRETAX> 51,162
<INCOME-TAX> 22,000
<INCOME-CONTINUING> 29,162
<DISCONTINUED> 0
<EXTRAORDINARY> 984
<CHANGES> 0
<NET-INCOME> 28,178
<EPS-PRIMARY> 2.87
<EPS-DILUTED> 2.78
</TABLE>
