-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VVEulG3u1UCwPok15OOZvRJKrRXFiwTzGXxpRRmAsioUHU0L7RM+DgDs5rikZhfM l3UL2dp+XyKiGFsluFtdpw== 0000950144-98-006597.txt : 19980519 0000950144-98-006597.hdr.sgml : 19980519 ACCESSION NUMBER: 0000950144-98-006597 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980404 FILED AS OF DATE: 19980518 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: JOHNSTON INDUSTRIES INC CENTRAL INDEX KEY: 0000041017 STANDARD INDUSTRIAL CLASSIFICATION: BROADWOVEN FABRIC MILS, MAN MADE FIBER & SILK [2221] IRS NUMBER: 111749980 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06687 FILM NUMBER: 98627208 BUSINESS ADDRESS: STREET 1: 105 THIRTEENTH ST CITY: COLUMBUS STATE: GA ZIP: 31901 BUSINESS PHONE: 7066413140 MAIL ADDRESS: STREET 2: 105 THIRTEENTH ST CITY: COLUMBUS STATE: GA ZIP: 31901 FORMER COMPANY: FORMER CONFORMED NAME: GI EXPORT CORP DATE OF NAME CHANGE: 19850403 FORMER COMPANY: FORMER CONFORMED NAME: GEON INDUSTRIES INC DATE OF NAME CHANGE: 19770921 FORMER COMPANY: FORMER CONFORMED NAME: GEON TRADING CORP DATE OF NAME CHANGE: 19700915 10-Q 1 JOHNSTON INDUSTRIES, INC. 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] For the quarterly period ended April 4, 1998 -------------------------------------------- Commission file number 1-6687 ------ JOHNSTON INDUSTRIES, INC. ------------------------------------------------------ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 11-1749980 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 105 Thirteenth Street, Columbus, Georgia 31901 (Address of principal executive offices) (Zip Code) (706) 641-3140 -------------- (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 number of shares outstanding of the Registrant's Common Stock as of April 4, 1998 was 10,742,772 shares. 2 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES INDEX TO FORM 10-Q PART I - FINANCIAL INFORMATION
PAGE(S) ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Operations 4 Condensed Consolidated Statements of Cash Flows 5-6 Notes to Condensed Consolidated Financial Statements 7-11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12-17 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 18 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18 SIGNATURE PAGE 19 EXHIBIT 11 - STATEMENT OF COMPUTATION OF EARNINGS PER SHARE 20 EXHIBIT 27 - FINANCIAL DATA SCHEDULE (For SEC Use Only) 21
2 3 PART I - FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
APRIL 4, JANUARY 3, 1998 1998 -------- ---------- ASSETS (UNAUDITED) CURRENT ASSETS: Cash and Cash Equivalents $ 372 $ 2,284 Accounts and Notes Receivable net of Allowance for Doubtful Accounts of $2,027 and $2,016 39,449 34,283 Inventories 50,002 51,083 Income Taxes Receivable 5,036 4,838 Deferred Income Taxes 507 406 Assets Held for Sale 4,510 5,010 Prepaid Expenses and Other 4,728 5,200 --------- --------- Total Current Assets 104,604 103,104 Property, Plant and Equipment-Net 112,283 113,783 Goodwill 11,320 11,477 Intangible Asset-Pension 1,882 1,882 Other Assets 4,300 4,542 --------- --------- Total Assets $ 234,389 $ 234,788 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts Payable $ 16,817 $ 17,088 Accrued Expenses 12,346 10,264 Revolving Credit Loan 73,750 73,995 Current Maturities of Long-Term Debt 4,264 3,393 --------- --------- Total Current Liabilities 107,177 104,740 Long-Term Debt - Less Current Maturities 59,553 61,688 Other Liabilities 9,404 9,022 Deferred Income Taxes 10,066 10,214 STOCKHOLDERS' EQUITY: Common Stock, Par Value $.10 per share; Authorized, 20,000,000 Shares; Issued 12,467,691 1,246 1,246 Additional Paid-In Capital 21,445 21,445 Retained Earnings 33,523 34,458 --------- --------- Total 56,214 57,149 Less Treasury Stock; 1,724,919 shares (8,025) (8,025) --------- --------- Total Stockholders' Equity 48,189 49,124 --------- --------- Total Liabilities and Stockholders' Equity $ 234,389 $ 234,788 ========= =========
See notes to Condensed Consolidated Financial Statements 3 4 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
FOR THE THREE MONTHS ENDED -------------------------- APRIL 4, MARCH 29, 1998 1997 -------- --------- Net Sales $ 79,839 $ 86,778 -------- -------- Costs and Expenses: Cost of Sales, excluding Depreciation and Amortization 64,967 69,779 Selling, General and Administrative 7,053 6,164 Depreciation and Amortization 5,250 5,340 Restructuring and Impairment Charges 100 -- -------- -------- Total Costs and Expenses 77,370 81,283 -------- -------- Income from Operations 2,469 5,495 Other Expenses (Income): Interest Expense 3,213 3,409 Interest Income (79) (356) Other-Net 668 (130) -------- -------- Total Other Expenses - Net 3,802 2,923 Realized and Unrealized Investment Loss -- (26) -------- -------- Income (Loss) from Continuing Operations before Tax Provision (1,333) 2,546 Provision (Benefit) for Income Taxes (398) 996 -------- -------- Income (Loss) from Continuing Operations (935) 1,550 DISCONTINUED OPERATIONS: Loss from Discontinued Operations of Jupiter National net of applicable income tax benefit of $8 -- (17) Loss on Disposal of Jupiter National net of applicable income tax benefit of $5 -- (9) -------- -------- Loss from Discontinued Operations -- (26) -------- -------- Net Income (Loss) (935) 1,524 Dividends on Preferred Stock -- 41 -------- -------- Net Income (Loss) Available to Common Stockholders $ (935) $ 1,483 ======== ======== Earnings (Loss) Per Common Share-Basic: Earnings (Loss) from Continuing Operations $ (0.09) $ 0.14 Discontinued Operations -- -- -------- -------- Net Earnings (Loss) Per Common Share-Basic $ (0.09) $ 0.14 ======== ======== Dividends Per Share $ -- $ 0.10 ======== ======== Weighted Average Number of Common and Common Equivalent Shares Outstanding (in thousands) 10,743 10,710 ======== ========
See notes to Condensed Consolidated Financial Statements 4 5 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS OF DOLLARS)
FOR THE THREE MONTHS ENDED -------------------------- APRIL 4, MARCH 29, 1998 1997 --------- --------- OPERATING ACTIVITIES: CONTINUING OPERATIONS: Net Income (Loss) from Continuing Operations $ (935) $ 1,550 Adjustments to Reconcile Net Income from Continuing Operations to Net Cash Provided by (Used in) Operating Activities: Depreciation and Amortization 5,250 5,340 Provision for Bad Debts 143 104 Loss on Disposal of Fixed Assets 39 -- Net Unrealized Loss on Portfolio Investments -- 26 Changes in Assets and Liabilities: Accounts and Notes Receivables (5,309) (6,741) Inventories 1,081 (2,213) Deferred Income Taxes (249) 332 Prepaid Expenses and Other Assets 584 154 Accounts Payable (588) (742) Accrued Expenses 2,082 761 Income Taxes Receivable (198) 376 Other Liabilities 382 (62) Other-Net 301 -- ------- ------- Total Adjustments 3,518 (2,665) ------- ------- Net Cash Provided by (Used in) Continuing Operations 2,583 (1,115) DISCONTINUED OPERATIONS: Loss from Discontinued Operations -- (17) Loss on Disposal of Discontinued Operations -- (9) Cash Used in Discontinued Operations -- (189) Items not Affecting Cash - Net -- 26 ------- ------- Net Cash Used in Discontinued Operations -- (189) ------- ------- Net Cash Provided by (Used in) Operating Activities 2,583 (1,304) INVESTING ACTIVITIES: CONTINUING OPERATIONS: Additions to Property, Plant and Equipment (3,922) (2,270) Decrease in Non-Operating Accounts Payable 317 (1,207) Sale of Assets Held for Sale 630 -- ------- ------- Net Cash Used in Investing Activities (2,975) (3,477)
Continued 5 6 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ----------------------------------------------------------- (IN THOUSANDS OF DOLLARS)
FOR THE THREE MONTHS ENDED -------------------------- APRIL 4, MARCH 29, 1998 1997 -------- --------- FINANCING ACTIVITIES: CONTINUING OPERATIONS: Principal Payments of Debt (5,220) (130) Borrowings under Revolving Line of Credit Arrangement 3,700 3,500 Proceeds from Issuance of Common Stock -- 36 Dividends Paid -- (41) ------- ------- Net Cash Provided by (Used in) Financing Activities (1,520) 3,365 NET DECREASE IN CASH AND CASH EQUIVALENTS (1,912) (1,416) CASH AND CASH EQUIVALENTS Beginning of Period 2,284 1,720 ------- ------- End of Period $ 372 304 ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash Paid During the Three Months for: Interest $ 2,632 3,287 ======= ======= Income Taxes $ 51 94 ======= =======
See notes to Condensed Consolidated Financial Statements Concluded 6 7 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements for the three months ended April 4, 1998 and March 29, 1997 are unaudited. The April 4, 1998 statements include the accounts of Johnston Industries, Inc. ("Johnston"), its direct wholly owned subsidiary, Johnston Industries Alabama, Inc. ("JI Alabama") and its indirect wholly owned subsidiaries, Johnston Industries Composite Reinforcements, Inc. ("JICR") and Greater Washington Investments, Inc. ("GWI") (collectively, the "Company"). The March 27, 1997 statements include the accounts of Johnston, JI Alabama, JICR, GWI and JI Alabama's former wholly owned subsidiary, T.J. Beall Company ("TJ Beall"). In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments and disclosures which are necessary for a fair presentation. All such adjustments, other than those relating to restructuring and loss on impairment, are of a normal recurring nature. Operating results for the three months ended April 4, 1998 are not necessarily indicative of the results that may be expected for the entire year. The condensed consolidated financial statements included herein should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended January 3, 1998. Reference is made to the accounting policies of the Company described in the notes to consolidated financial statements included in the Company's Annual Report on Form 10-K for year ended January 3, 1998. 2. ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") 129, "Disclosure of Information about Capital Structure." This statement establishes standards for disclosing information about an entity's capital structure and is effective for periods ending after December 15, 1997. The Company has adopted this statement effective for the first quarter of 1998. In February 1997, the Financial Accounting Standards Board issued SFAS 130 "Reporting Comprehensive Income." This statement establishes standards for reporting and display of comprehensive income and its components (revenues, gains, expenses, losses) in a full set of general purpose financial statements and is effective for financial statements for periods beginning after December 15, 1997. The Company has adopted this statement effective for the first quarter of 1998. For the three months ended April 4, 1998 and March 29, 1997, there are no differences between comprehensive income and net income. In June 1997, the Financial Accounting Standards Board issued SFAS 131 "Disclosure about Segments of an Enterprise and Related Information." This statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. The Company is required to present the segment disclosures in the current fiscal year, however, disclosure in interim financial reports issued to shareholders is not required during the year of adoption. This statement is effective for financial statements for periods beginning after December 15, 1997. 7 8 In March 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This statement, which provides guidance on accounting for the costs of computer software developed or obtained for internal use, defines "internal-use," provides guidance for determination of capital and expense costs, and is effective for fiscal years beginning after December 15, 1998, but earlier adoption is encouraged. The Company has adopted this statement effective for the first quarter of 1998. 3. DISCONTINUANCE OF THE VENTURE CAPITAL SEGMENT Concurrent with the acquisition of Jupiter National, Inc. (the "Jupiter Acquisition") in March 1996, the Company's management made the decision to discontinue the venture capital investment segment of Jupiter's operation. Through June 28, 1997, the segment was accounted for as discontinued operations, and in accordance with Generally Accepted Accounting Principles, the net assets of the discontinued segment were recorded as an asset on the consolidated balance sheet and were expected to be disposed of by June 1997. During that period, the results of operations for Jupiter's venture capital investment activities have been recorded as discontinued operations. At June 28, 1997, the remaining portfolio investments were reclassified from net assets of discontinued operations to assets held for sale on the consolidated balance sheet. Beginning with the quarter ended June 28, 1997, the results of continuing operations for these remaining portfolio investments have been reported as income from continuing operations on the consolidated statements of operations and prior periods presented have been restated accordingly. For the three months ended March 29, 1997, the loss from discontinued operations was $17,000 net of income tax benefit of $8,000. Also for the three months ended March 29, 1997, the loss on disposal of Jupiter was $9,000 net of income tax benefit of $5,000. 4. T.J. BEALL COMPANY On March 25, 1996, the Company acquired all of the outstanding common stock of TJ Beall, a broker in cotton by-products located in West Point, Georgia for shares of nonvoting convertible preferred stock with an estimated value of $3,250,000. In September 1997, an agreement was reached culminating in the sale of substantially all of the assets and current liabilities of TJ Beall back to the Beall family. 5. RESTRUCTURING CHARGES AND LOSSES ON IMPAIRMENT During the Second Quarter of 1997, the Company announced its plan to cease manufacturing operations at its Langdale Facility, close its Outlet Store in West Point, Georgia and realign its divisions. The Langdale Facility had contained both weaving operations and yarn manufacturing operations. The yarn manufacturing operations were eliminated while selected equipment and associated product offerings of the weaving operations were relocated to other of the Company's facilities. The remainder of the weaving operation at the Langdale Facility was closed. The Langdale Facility will be retained as warehouse, distribution and potential future manufacturing space for JI Alabama's Fiber Products Division. The sale of the Outlet Store building closed during December 1997. Beginning in the third quarter of 1997 and continuing through the first quarter of 1998, severance reserves were accrued to restructuring costs as employees were notified of the elimination of their jobs. During the First Quarter of 1998, the Company recorded restructuring charges totaling $100,000 which included $175,000 in severance costs related to closure of the Langdale Facility and the 1997 realignment of divisions plus a favorable adjustment of $75,000 to the impairment reserve for Jupiter's former office building in Rockville, Maryland, which was sold in February 1998. 8 9 6. INVENTORIES Inventories consisted of the following at April 4, 1998 and January 3, 1998:
APRIL 4, 1998 JANUARY 3, 1998 ------------- --------------- Inventories-FIFO Cost Flow Assumption Finished Goods $ 28,354,000 $ 30,367,000 Work-In Process 11,375,000 10,581,000 Raw Materials and Supplies 13,677,000 13,607,000 ------------ ------------ 53,406,000 54,555,000 Less LIFO Reserve (3,404,000) (3,472,000) ------------ ------------ Inventories - LIFO Cost Flow Assumption $ 50,002,000 $ 51,083,000 ============ ============
7. LONG-TERM FINANCING AND SHORT-TERM BORROWINGS Long-term debt and short-term borrowings consisted of the following at April 4, 1998 and January 3, 1998:
APRIL 4, 1998 JANUARY 3, 1998 ------------- --------------- Term Loans $ 62,336,000 $ 63,040,000 Revolving Credit Loan 73,750,000 73,995,000 Purchase Money Mortgage Debt 979,000 1,000,000 Industrial Development Note (net of unamortized discount) 502,000 491,000 Other Loans (mortgage) 0 550,000 ------------- ------------- Total 137,567,000 139,076,000 Less Current Maturities (4,264,000) (3,393,000) Less Revolving Credit Loan classified as Current (73,750,000) (73,995,000) ------------- ------------- $ 59,553,000 $ 61,688,000 ============= =============
Bank Credit Agreement The Company's has a credit agreement with a syndicate of lenders (the "Bank Credit Agreement"), which was entered into on March 28, 1996. The Bank Credit Agreement, as amended to date, provides aggregate loans of up to $160,000,000 including a revolving credit loan (the "Revolving Credit Facility") of up to $80,000,000, a term loan for $40,000,000 ("Term Loan A") and a term loan for an additional $40,000,000 ("Term Loan B"). The maturity date for all borrowings under the Bank Credit Agreement is July 1, 2000. As of April 4, 1998, the Company had outstanding borrowings under the Bank Credit Agreement of $136,086,000 and availability under the Revolver of $4,168,000. Upon the sale in February 1998, of Jupiter's former office in Rockville, Maryland, the $550,000 mortgage associated with that property was discharged. Covenants and Restrictions Under the terms of the Bank Credit Agreement, substantially all assets are pledged as collateral for the borrowings under the Bank Credit Agreement. The Bank Credit Agreement requires the Company to maintain certain financial ratios and specified levels of tangible net worth, places a limit on the Company's level of capital expenditures and its ability to effect certain types of mergers or acquisitions, and permits the Company to pay dividends on its Common Stock provided certain financial tests are met. Accordingly, at April 4, 1998, the Company was not permitted to declare and pay dividends. 9 10 The Bank Credit Agreement has been amended several times to modify certain covenants, the latest amendment of which was executed on March 30, 1998 (the "1998 Amendment") to modify certain covenants. Prior to the execution of these amendments, the Company was in technical noncompliance with certain of the financial covenants contained therein or noncompliance was considered to be imminent. In addition to covenant modifications, the 1998 amendment also included increases in interest rates ranging from 1/4% to 1% over the existing rates to take effect April 5, 1998, revision of the final maturity date for all obligations under the Bank Credit Agreement and modifications to the scheduled repayment of term loans which decreased quarterly payments for 1998 and 1999. All past events of noncompliance as described above have been waived by the syndicate of lenders who are parties to the Bank Credit Agreement. The Company continues to explore alternatives which would reduce the likelihood of future non-compliance with the covenants of the Bank Credit Agreement, including restructuring the long-term debt. Management believes that it will be successful in these efforts. However, no assurance can be given that an acceptable alternative can be agreed upon or that any amendment or restructuring can be achieved on terms acceptable to the Company. In connection with the 1998 Amendment, approximately $480,000 of deferred costs were charged to Other net during the first quarter of 1998. This amount represents the net of original costs, which were to be amortized over the term of the Bank Credit Agreement, and the amortization to date at March 30, 1998. New deferred costs of approximately $647,000 were recorded in connection with the 1998 Amendment and will be amortized over the remaining term of the Bank Credit Agreement which now matures on July 1, 2000. The 1998 Amendment requires the Company to adopt new cash management procedures during the second quarter of 1998. The new procedures include establishing a lock-box for customers remittance of payments which will be applied daily against the Revolving Credit Facility, and which management believes will generally enhance the Company's availability under the Revolving Credit Facility. As a result of this anticipated lock-box arrangement and in compliance with the Emerging Issues Task Force Issue No. 95-22, "Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements that Include both a Subject Acceleration Clause and a Lock-Box Arrangement," the revolving credit loan, which has a maturity date of July 1, 2000, has been classified as a current liability. The Bank Credit Agreement requires the Company to prepay the principal installments on Term Loan A and Term Loan B, in inverse order of the scheduled maturities, from the net cash proceeds from the sale or liquidation of the remaining venture capital portfolio investments. 8. EARNINGS PER SHARE Earnings per share is not presented on a diluted basis as the effect of dilutive securities was either anti-dilutive due to net losses or was immaterial for the periods presented. 10 11 9. INCOME TAXES The benefit for income taxes from continuing operations as computed under SFAS No. 109, "Accounting for Income Taxes", is comprised of the following for the three months ended April 4, 1998 and March 29, 1997:
1998 1997 ---- ---- Federal: Current $(207,000) $ 270,000 Deferred (178,000) 617,000 --------- --------- (385,000) 887,000 State: Current 4,000 35,000 Deferred (17,000) 74,000 --------- --------- (13,000) 109,000 Provision (benefit) for income taxes $(398,000) $ 996,000 ========= =========
The reconciliation of the Company's effective income tax rate to the Federal statutory rate from continuing operations of 34% for the three months ended April 4, 1998 and March 29, 1997 follows:
1998 1997 ---- ---- Federal income taxes at statutory rate $(453,000) $ 866,000 State income taxes, net of Federal tax benefit (10,000) 72,000 Amortization of Goodwill 53,000 62,000 Other - Net 12,000 (4,000) --------- --------- $(398,000) $ 996,000 --------- --------- Effective rate 29.9% 39.1% ========= =========
The effective tax rates in 1998 and 1997 were distorted by the amortization of goodwill, which is not tax deductible. 10. SUBSEQUENT EVENT On Friday, April 17, 1998, a tornado struck the Company's Opp Mill in Opp, Alabama, damaging the structure's roof and outside walls as well as damaging certain inventory, electronic controls and production equipment contained within the facility. The Opp Mill, which runs a seven day, 24 hour production schedule, resumed partial production by the close of business on Monday, April 20, 1998 and had all major equipment, including 182 air-jet looms, back in service by Friday, April 24, 1998. Management believes that substantially all losses associated with this storm will be recovered through property and business interruption insurance, however, no assurances can be given as to when or whether acceptable settlements will be reached with the Company's insurance provider. 11. RELATED PARTY TRANSACTIONS Redlaw Industries, Inc. ("Redlaw"), a stockholder, is the commissioned sales agent for the Company for substantially all sales of the Company's products into Canada under the terms of a non-exclusive sales agency agreement. For the three months ended April 4, 1998, there were no sales to Redlaw. As of April 4, 1998 commissions payable to Redlaw were $34,282. Johnston maintains inventory at a public warehouse in Ontario, Canada which is supervised by Redlaw. At April 4, 1998, there was approximately $245,493 of inventory located at the warehouse in Canada. 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The accompanying condensed consolidated financial statements for the three months ended April 4, 1998 and March 29, 1997 are unaudited. The April 4, 1998 statements included the accounts of Johnston Industries, Inc. ("Johnston"), its direct wholly owned subsidiary, Johnston Industries Alabama, Inc. ("JI Alabama") and its indirect wholly owned subsidiaries, Johnston Industries Composite Reinforcements, Inc. ("JICR") and Greater Washington Investments, Inc. ("GWI") (collectively, the "Company"). The March 27, 1997 statements include the accounts of Johnston, JI Alabama, JICR, GWI and JI Alabama's former indirect wholly owned subsidiary, T.J. Beall Company ("TJ Beall"). Concurrent with the acquisition of Jupiter National, Inc. (the "Jupiter Acquisition") in March 1996, the Company's management made the decision to discontinue the venture capital investment segment of Jupiter's operation. Through June 28, 1997, the segment was accounted for as discontinued operations, and in accordance with Generally Accepted Accounting Principles, the net assets of the discontinued segment were recorded as an asset on the consolidated balance sheet and were expected to be disposed of by June 1997. During that period, the results of operations for Jupiter's venture capital investment activities were recorded as discontinued operations. At June 28, 1997, the remaining portfolio investments were reclassified from net assets of discontinued operations to assets held for sale on the consolidated balance sheet. Beginning with the quarter ended June 28, 1997, the results of continuing operations for these remaining portfolio investments have been reported as income from continuing operations on the consolidated statements of income and prior periods presented have been restated accordingly. RESULTS OF OPERATIONS The integration of the Company's former Wellington Sears operations into its Greige Fabrics and Finished Fabrics Divisions was substantially completed by April 4, 1998. Net sales for this quarter declined from the levels reported for the quarter ended March 29, 1997 reflecting the Company's elimination of unprofitable operations and product lines during the second half of 1997 as well as weakness in certain bedding and upholstery markets serviced by the Finished Fabrics Division. Events occurring during the second half of 1997 which are reflected in the lower sales for the first quarter of 1998 as compared to such period in 1997 include closure of the Langdale facility formerly operated by Wellington Sears, the sale of TJ Beall, and discontinuance of certain window covering products. Selected equipment and certain of the products from the Langdale facility were transferred to other of the Company's manufacturing facilities. Some weakness in sales of upholstery fabrics for the first quarter of 1998 is attributed to customer reaction to shipping delays during the relocation of production from the closed Langdale facility to other of the Company's facilities during the second half of 1997. Management believes customer reaction to the relocation of Langdale production to be temporary. Further, in response to changing consumer preferences away from the Company's rayon upholstery, the Finished Fabrics Division has developed new cotton and poly/cotton programs, and a "quick response" delivery program, but their full impact has not yet been realized. The Company has continued to focus on elimination of low volume upholstery styles and redesign of existing styles to achieve greater manufacturing efficiencies. Net sales for the three months ended April 4, 1998 were $79,839,000 compared to $86,778,000 for the quarter ended March 29, 1997 reflecting a 8% decrease of $6,939,000. Sales of automotive fabrics increased by $474,000 (19.5%) while sales of industrial fabrics decreased approximately $1,493,000 (8.2%) compared to the first quarter of 1997. Reduced sales to a major industrial fabrics customer for the first quarter of 1998 reflects discontinuance by the customer of a non-woven product plus a temporary decline in demand during the customer's upgrade of their production facility. Sales of home furnishing fabrics declined by $2,221,000 (4.4%) resulting largely from factors described above plus, to a lesser degree, weakness in demand for flocking substrate. Growth in sales of napery products offset in part some of the declines recorded for upholstery and flocking substrate. Sales of apparel fabrics increased by $1,055,000 over the first quarter of 1997, but had declined by $961,000 from the fourth quarter of 1997, as a result of the conclusion of certain short term opportunities during the latter half of 1997 for higher margin apparel 12 13 fabrics. Sales to specialty markets during the first quarter of 1997 included $3,750,000 for TJ Beall which was sold at the end of September 1997. Aside from the impact of the TJ Beall sale, sales to specialty markets, which largely include the Company's Fiber Products and Composite Reinforcements divisions, remained even with the prior period. Fiber Products experienced an increase in sales of reprocessed waste products which partially offset declines due to its exit of sales yarn operations in conjunction with closure of the Langdale facility. During the first quarter of 1998 JICR recorded 32.1% sales growth over the first quarter of 1997, principally in sales for recreation products and for marine applications. Sales to miscellaneous markets declined by $982,000 (68.3%) as a result of the Finished Fabrics Division's planned exit of certain marine fabrics and the commission drapery coating business. The sales backlog of the Company was $74,352,000 at April 4, 1998 compared to $69,447,000 at January 3, 1998 and $92,636,000 at March 29, 1997. After excluding the TJ Beall backlog of $17,671,000, the comparable sales backlog for remaining operations at March 29, 1997 was $74,965,000. Order backlog for the Fiber Products Division has improved from the levels at the end of the first quarter of 1997 and strengthened considerably from the level at January 3, 1998. January 3, 1998 coincided with the conclusion of a period, for Fiber Products, under a long term contract for procurement of a raw materials and the April 4, 1998 level of backlog reflects the impact of the new period under the contract and associated raw material supply. Orders for Composite Reinforcement fabrics also have strengthened as reflected in sales growth noted above. Order backlog for home furnishings fabrics fell from the first quarter of 1997 due to transitional activities in upholstery production and programs, as described above, and also due to the Company's planned exit of certain window coverings products. Cost of sales for the quarter ended April 4, 1998 was $64,967,000, declining $4,812,000 from $69,779,000 for the quarter ended March 29, 1997. The reduction in cost of sales is principally attributable to the decline in sales resulting from certain reduced demand as described above. Gross margin declined from 19.6% for the first quarter of 1997 to 18.6% for the first quarter of 1998. The principal causes of the decline in gross margin were reduced net sales at the Finished Fabrics Division and high levels of returns and customer deductions associated with product lines which are being discontinued. Offsetting in part the decline in margins was the reclassification of costs for corporate human resources functions which were included in costs of sales for 1997, but have been included in general and administrative costs for 1998. Selling, general and administrative expenses increased from $6,164,000 for the quarter ended March 29, 1997 to $7,053,000 for the quarter ended April 4, 1998. Significant components of this increase include approximately $220,000 in cost of corporate human resources functions which were charged to cost of sales during 1997 and $300,000 in professional fees incurred in the first quarter of 1998 for services which had not been utilized in the first quarter of 1997. During the Second Quarter of 1997, the Company announced its plan to cease manufacturing operations at its Langdale Facility, close its Outlet Store in West Point, Georgia and realign its divisions. The Langdale Facility had contained both weaving operations and yarn manufacturing operations. The yarn manufacturing operations were eliminated while selected equipment and associated product offerings of the weaving operations were relocated to other of the Company's facilities. The remainder of the weaving operation at the Langdale Facility was closed. The Langdale Facility will be retained as warehouse, distribution and potential future manufacturing space for JI Alabama's Fiber Products Division. The sale of the Outlet Store building closed during December 1997. Beginning in the third quarter of 1997 and continuing through the first quarter of 1998, severance reserves were accrued to restructuring costs as employees were notified of the elimination of their jobs. During the First Quarter of 1998, the Company recorded restructuring charges totaling $100,000 which included $175,000 in severance costs related to closure of the Langdale Facility and the 1997 realignment of divisions plus a favorable adjustment of $75,000 to the impairment reserve for Jupiter's former office building in Rockville, Maryland which was sold in February 1998. Depreciation and amortization expense for the three months ended April 4, 1998 was $5,250,000 compared to $5,340,000 for the three months ended March 29, 1997. The decline of $90,000 is principally due to the reduction in depreciable assets from the sale of the assets of TJ Beall in September 1997 and also from the closure of the Langdale facility which was completed in the fourth quarter of 1997. The decline was partially offset by the impact of additional depreciation resulting from the 1997 and 1998 capital investment plans. Capital investment in the quarter ended April 4, 1998 was $3,922,000 compared to $2,270,000 for the quarter ended March 29, 1997. 13 14 Interest expense for the three months ended April 4, 1998 was $3,213,000 reflecting a decrease of $196,000 compared to $3,409,000 for the three months ended March 29, 1997. The decrease reflects both reduced average borrowings and reduced rates for the first quarter of 1998. Obligations under the Company's Bank Credit Agreement at April 4, 1998 were $15,813,000 and $949,000 less than obligations at March 29, 1997 and January 3, 1998 respectively. Additionally, upon the sale in February 1998, of Jupiter's former office in Rockville, Maryland, the $550,000 mortgage associated with that property was discharged. As the Bank Credit Agreement was amended on March 30, 1998, approximately $480,000 of prepaid costs were charged to Other - net during the first quarter of 1998. This amount represents the net of original costs, which were amortized over the term of the Bank Credit Agreement, and the amortization to date at April 4, 1998. New prepaid costs of approximately $647,000 were recorded in connection with the 1998 amendment and will be amortized over the remaining term of the Bank Credit Agreement which now matures on July 1, 2000. Discontinued Operations Concurrent with the acquisition of Jupiter National, Inc. (the "Jupiter Acquisition") in March 1996, the Company's management made the decision to discontinue the venture capital investment segment of Jupiter's operation. Through June 28, 1997, the segment was accounted for as discontinued operations, and in accordance with Generally Accepted Accounting Principles, the net assets of the discontinued segment were recorded as an asset on the consolidated balance sheet and were expected to be disposed of by June 1997. During that period, the results of operations for Jupiter's venture capital investment activities have been recorded as discontinued operations. At June 28, 1997, the remaining portfolio investments were reclassified from net assets of discontinued operations to assets held for sale on the consolidated balance sheet. Beginning with the quarter ended June 28, 1997, the results of continuing operations for these remaining portfolio investments have been reported as income from continuing operations on the consolidated statements of income and prior periods presented have been restated accordingly. For the three months ended March 29, 1997, the loss from discontinued operations was $17,000 net of income tax benefit of $8,000. Also for the three months ended March 29, 1997, the loss on disposal of Jupiter was $9,000 net of income tax benefit of $5,000. LIQUIDITY AND CAPITAL RESOURCES The Company's needs for capital resources beyond cash generated from operating activities have been funded by borrowings under its Bank Credit Agreement, which was entered into on March 28, 1996. The Bank Credit Agreement, as amended to date, provides aggregate loans of up to $160,000,000 including a revolving credit loan (the "Revolving Credit Facility") of up to $80,000,000, a term loan for $40,000,000 ("Term Loan A") and a term loan for an additional $40,000,000 ("Term Loan B"). The maturity date for all borrowings under the Bank Credit Agreement is July 1, 2000. As of April 4, 1998, the Company had outstanding borrowings under the Bank Credit Agreement of $136,086,000 and availability under the Revolver of $4,168,000. Under the terms of the Bank Credit Agreement, substantially all assets are pledged as collateral for the borrowings under the Bank Credit Agreement. The Bank Credit Agreement requires the Company to maintain certain financial ratios and specified levels of tangible net worth, places a limit on the Company's level of capital expenditures and its ability to effect certain types of mergers or acquisitions, and permits the Company to pay dividends on its Common Stock provided certain financial tests are met. Accordingly, at April 4, 1998, the Company was not permitted to declare and pay dividends. The Bank Credit Agreement has been amended several times to modify certain covenants, the latest of which was executed on March 30, 1998 (the "1998 Amendment") to modify certain covenants. Prior to the execution of these amendments, the Company was in technical noncompliance with certain of the financial covenants contained therein or noncompliance was considered to be imminent. In addition to covenant modifications, the 1998 amendment also included increases in interest rates ranging from 1/4% to 1% over the existing rates to take effect April 5, 1998, revision 14 15 of the final maturity date for all obligations under the Bank Credit Agreement and modifications to the scheduled repayment of term loans which decreased quarterly payments for 1998 and 1999. All past events of noncompliance as described above have been waived by the syndicate of lenders who are parties to the Bank Credit Agreement. The Company continues to explore alternatives which would reduce the likelihood of future non-compliance with the covenants of the Bank Credit Agreement, including restructuring the long-term debt. Management believes that it will be successful in these efforts. However, no assurance can be given that an acceptable alternative can be agreed upon or that any amendment or restructuring can be achieved on terms acceptable to the Company. In connection with the 1998 Amendment, approximately $480,000 of deferred costs were charged to Other - net during the first quarter of 1998. This amount represents the net of original costs, which were to be amortized over the term of the Bank Credit Agreement, and the amortization to date at March 30, 1998. New deferred costs of approximately $647,000 were recorded in connection with the 1998 Amendment and will be amortized over the remaining term of the Bank Credit Agreement which now matures on July 1, 2000. The 1998 Amendment requires the Company to adopt new cash management procedures during the second quarter of 1998. The new procedures include establishing a lock-box for customers remittance of payments which will be applied daily against the Revolving Credit Facility, and which management believes will generally enhance the Company's availability under the Revolving Credit Facility. As a result of this anticipated lock-box arrangement and in compliance with the Emerging Issues Task Force Issue No. 95-22, "Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements that Include both a Subject Acceleration Clause and a Lock-Box Arrangement," the revolving credit loan, which has a maturity date of July 1, 2000, has been classified as a current liability. The Bank Credit Agreement requires the Company to prepay the principal installments on Term Loan A and Term Loan B, in inverse order of the scheduled maturities, from the net cash proceeds from the sale or liquidation of the remaining venture capital portfolio investments. Cash flow provided by operating activities increased by $3,887,000 over the first quarter of 1997, however, the Company continues to be highly leveraged in comparison to periods preceding March of 1996. In consideration of the high levels of indebtedness, management has focused efforts on reduction of debt and associated debt service costs. Although available cash has been adequate to sustain the Company's operations, cash used for debt service and debt reduction under the Bank Credit Agreement and cash used in the Company's capital expenditure plan have strained the Company's available liquid assets. Management expects improvements in cash generation from improved operating results, strict cost containment, reduction in inventories, judicious review of its short term capital expenditure plans, and potential use of leasing programs in lieu of cash purchases for portions of its capital investment plan. While discretionary cash expenditures will require constraint and careful planning, management believes that funds generated from operations and funds available under the Bank Credit Agreement will be sufficient to satisfy the Company's liquidity requirements for at least the next year. ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") 129, "Disclosure of Information about Capital Structure." This statement establishes standards for disclosing information about an entity's capital structure and is effective for periods ending after December 15, 1997. The Company has adopted this statement effective for the first quarter of 1998. In February 1997, the Financial Accounting Standards Board issued SFAS 130 "Reporting Comprehensive Income." This statement establishes standards for reporting and display of comprehensive income and its components (revenues, gains, expenses, losses) in a full set of general purpose financial statements and is effective for financial statements for periods beginning after December 15, 1997. The Company has adopted this statement effective for the first quarter of 1998. For the three months ended April 4, 1998 and March 29, 1997, there are no differences between comprehensive income and net income. In June 1997, the Financial Accounting Standards Board issued SFAS 131 "Disclosure about Segments of an Enterprise and Related Information." This statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected 15 16 information about operating segments in interim financial reports issued to shareholders. The Company is required to present the segment disclosures in the current fiscal year, however, disclosure in interim financial reports issued to shareholders is not required during the year of adoption. This statement is effective for financial statements for periods beginning after December 15, 1997. In March 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This statement, which provides guidance on accounting for the costs of computer software developed or obtained for internal use, defines "internal-use," provides guidance for determination of capital and expense costs, and is effective for fiscal years beginning after December 15, 1998, but earlier adoption is encouraged. The Company has adopted this statement effective for the first quarter of 1998. OTHER MATTERS The Company is periodically involved in legal proceedings arising in the ordinary conduct of business. Management does not expect that such proceedings will have a material adverse effect on the Company's consolidated financial position or results of operations. During 1997, management became aware of certain industrial espionage activities that targeted the Company and several other textile manufacturers, allegedly carried out by agents of a large competitor. Management is reviewing the impact that this alleged activity may have had on the Company's operations and has engaged counsel and advisors to assist in exploring possible remedies. On Friday, April 17, 1998, a tornado struck the Company's Opp Mill in Opp, Alabama, damaging the structure's roof and outside walls as well as damaging certain inventory, electronic controls and production equipment contained within the facility. The Opp Mill, which runs a seven day, 24 hour production schedule, resumed partial production by the close of business on Monday, April 20, 1998 and had all major equipment, including 182 air-jet looms, back in service by Friday, April 24, 1998. Management believes that substantially all losses associated with this storm will be recovered through property and business interruption insurance, however, no assurances can be given as to when or whether acceptable settlements will be reached with the Company's insurance provider. YEAR 2000 INITIATIVES As a result of computer programs which historically were written using a two rather than four digit convention to define the year component of dates, a concern commonly known as the Year 2000 ("Year 2000") issue has arisen globally. Computer programs and equipment that use a two digit convention may not be able to differentiate between the 20th and 21st centuries (e.g. "00" could be either 1900 or 2000). This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. The Company has reviewed significant systems which are not presently Year 2000 compliant. Two major software replacement projects remain for the Company, both of which involve replacing current systems with purchased systems that are Year 2000 compliant. A major software replacement project is underway at the Company's Finished Fabrics Division and upon its completion, the Company intends to replace the major systems at its Fiber Products Division, which are considerably less sophisticated than the Finished Fabrics Systems. The Company screens all new equipment purchases and presently is reviewing its systems and operations to determine what systems imbedded in sophisticated production equipment or support equipment may be vulnerable to Year 2000 issues. This review will be followed with a formal communication program with equipment vendors to certify that the systems are year 2000 compliant. Remediation steps, if any, will be implemented, though there can be no guarantee that the systems of other companies on which the Company's systems rely will be timely converted and that any failure to timely convert would not have a material adverse effect on the Company's systems. As a result of the upgrades described above and assuming the remaining projects are completed in satisfactory manner, management currently believes that the Year 2000 issue will not pose significant operational problems for the Company's computer systems. The Company anticipates completing the Year 2000 project no later than August, 1999. Management believes that the cost of Year 2000 modifications will not have a material effect on results of operations. 16 17 There can be no guarantee that the software replacement projects will be successful or that the vendors supplying software to the Company will provide new software releases that are Year 2000 compliant. In addition, there can be no assurances that there will not be problems identified when screening production and support equipment and ancillary systems and that such problems will not have a material effect on the operating results. RISKS AND UNCERTAINTIES Except for historical information contained herein, the matters set forth in this report are forward looking statements which are subject to certain risks and uncertainties that could cause actual results to differ materially from those in, or which could be expected based on, such forward looking statements. The Company's expectations regarding future sales and profits assume, among other things, reasonable continued growth in the general economy which affects demand for the Company's products, and reasonable stability in raw materials pricing, changes in which affect customer purchasing decisions as well as the Company's prices and margins. The costs and benefits of the Company's discontinuance of Jupiter venture capital investments may vary from the Company's expectations with respect to anticipated proceeds from the sale of assets. For a further discussion of risks and uncertainties associated with the Company's business, readers are referred to the cautionary statement set forth in Item 1 of the Company's annual report on Form 10-K for the year ended January 3, 1998, which cautionary statement is incorporated by reference herein. 17 18 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS No reportable legal proceedings arose in the quarter ended April 4, 1998. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 11 Statements of Computation of Per Share Earnings 27 Financial Data Schedule (Filed Electronically) (b) Reports on Form 8-K (i) No reports on Form 8-K were filed during the quarter ended April 4, 1998. 18 19 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the undersigned has duly caused this report to be filed on its behalf by the undersigned hereto duly authorized. JOHNSTON INDUSTRIES, INC. Dated: May 18, 1998 By: /s/ James J. Murray ------------------------------ James J. Murray Executive Vice President Chief Financial Officer By: /s/ James J. Murray ------------------------------ James J. Murray (Principal Accounting Officer) 19 EX-11 2 COMPUTATION OF PER SHARE EARNINGS 1 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 11 - STATEMENT OF COMPUTATION OF PER SHARE EARNINGS The weighted average number of common and common share equivalents are as follows:
FOR THE FOR THE THREE MONTHS THREE MONTHS ENDED ENDED APRIL 4, MARCH 29, 1998 1997 ------------ ------------ Weighted average common shares outstanding 10,742,772 10,379,163 Shares issued from assumed exercise of incentive stock options (1) (2) (3) -- 9,515 Shares issued from assumed exercise of nonqualified stock options (1) (2) (3) -- 60,952 ------------ ------------ Weighted average number of shares outstanding, as adjusted 10,742,772 10,709,712 ============ ============ Loss from continuing operations $ (935,000) $ 1,550,000 Income (Loss) from discontinued operations -- (26,000) ------------ ------------ Net Income (Loss) (935,000) 1,524,000 Dividends on Preferred Stock -- 41,000 ------------ ------------ Net Income available to common stockholders $ (935,000) $ 1,483,000 ============ ============ Earnings (Loss) per common share-basic (3): Income (Loss) from continuing operations $ (.09) $ (.14) Discontinued operations -- -- ------------ ------------ Earnings per common share-basic $ (.09) $ (.14) ============ ============
- ------------------------------------------------------------------------------- (1) Shares issued from assumed exercise of options included the number of incremental shares which result from applying the "treasury stock method" for options. (2) For the three months ended April 4, 1998, earnings per common share is not presented on a diluted basis as the effect of common shares from assumed exercise of stock options is antidilutive in periods for which a loss is reported. (3) For the three months ended March 29, 1997, earnings per common share is not presented on a diluted basis as the difference from earnings per common share-basic is insignificant for the period. 20 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS AS OF APRIL 4, 1998 AND FOR THE THREE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS JAN-03-1998 JAN-04-1998 APR-04-1998 372,000 0 41,476,000 2,027,000 50,002,000 104,604,000 240,302,000 128,019,000 234,389,000 107,177,000 59,553,000 0 0 1,246,000 46,943,000 234,389,000 79,839,000 79,839,000 64,967,000 77,370,000 5,350,000 143,000 3,213,000 (1,333,000) (398,000) (935,000) 0 0 0 (935,000) (.09) 0
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