-----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, MB5Mz7va445W6/bIQJF75cAWz6Dopx3VzdeKzkWIZylGQhM1ryLxS9689bbSmFZn QlJDABBwYmgPObEXR+Vc0g== 0000950144-95-003452.txt : 19951212 0000950144-95-003452.hdr.sgml : 19951212 ACCESSION NUMBER: 0000950144-95-003452 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19951211 SROS: NONE 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-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-06687 FILM NUMBER: 95600563 BUSINESS ADDRESS: STREET 1: 105 THIRTEENTH ST CITY: COLUMBUS STATE: GA ZIP: 31901 BUSINESS PHONE: 7066413140 MAIL ADDRESS: STREET 1: 105 THIRTEENTH ST 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-K/A 1 JOHNSTON INDUSTRIES FORM 10-K AMENDMENT #2 1 FORM 10-K/A-2 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1995 ------------- 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) Securities registered pursuant to Section 12 (b) of the Act: Name on each exchange Title of each class on which registered ------------------- ------------------- Common Stock, $.10 Par Value New York Stock Exchange Securities Registered pursuant to Section 12 (g) of the Act: None 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 XX No ---- ---- Indicated by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K (X). The aggregate market value of the Common Stock of the Registrant held by non-affiliates of the Registrant on September 25, 1995 was $48,041,224. The aggregate market value was computed by reference to the closing price of the stock on the New York Stock Exchange on such date. 2 The number of shares outstanding of the Registrant's Common Stock as of September 15, 1995 was 10,564,979 shares. DOCUMENTS INCORPORATED BY REFERENCE:
Part of Form 10-K Document into which incorporated -------- ----------------------- 1) Specified portions of the Johnston Industries, Inc. 1995 Annual Report are incorporated by reference Parts I and II
2 3 Part I. Item 1. Business Johnston Industries, Inc. currently is a diversified manufacturer of home furnishings, industrial and, to a lesser extent, basic apparel and automotive textile fabrics. Johnston Industries, Inc. is a Delaware corporation which became the successor to a New York corporation of the same name on December 31, 1987 through a reincorporation merger, and references to "JII" or the "Company" include its predecessor and its subsidiaries, unless the context indicates otherwise. In January, 1995, the Company increased its ownership of Jupiter National, Inc. ("Jupiter") to over 50% and at June 30, 1995 owned 54.8%. Jupiter is traded on the American Stock Exchange. The Company's ownership of over 50% of Jupiter now requires the operating results of Jupiter and the Company to be consolidated in compliance with Generally Accepted Accounting Principles effective January, 1995. In November, 1992, Jupiter, which previously had operated solely as a "business development company" under the Investment Company Act of 1940 (the "1940 Act") purchased 100% ownership of the custom fabrics division of WestPoint Pepperell, now named Wellington Sears Company ("Wellington Sears"). In December, 1994, with shareholder approval, Jupiter filed a Form N-54C notifying the Securities and Exchange Commission that Jupiter was withdrawing its election to be treated as a Business Development Company, and as a result, is no longer subject to regulation under the 1940 Act. On August 16, 1995, the Company jointly announced with Jupiter an agreement and plan of merger under which the public shareholders of Jupiter would receive approximately $32.875 per share in cash from the Company subject to adjustment based upon the market value of certain investment securities held by Jupiter on a date close to the date the merger proxy statement is mailed to Jupiter shareholders. The merger is subject to approval by Jupiter's shareholders and is expected to close early in 1996. The Company made its acquisition offer to merge the companies together as management recognized growth and cost saving opportunities for both companies if merged into one operation. Some of those opportunities are the vacant floor space at Wellington Sears for expansion where there is presently no floor space available for expansion at JII; joint marketing and product development efforts as both companies serve the same markets with different product lines; certain manufacturing processes currently purchased by JII from outside vendors will be provided internally instead, and savings from economy of scale in purchasing. During 1992, the Company entered into a 50%/50% partnership with an English company to establish Tech Textiles, USA ("Tech Textiles") for the joint manufacture and sale of certain specialized textile products. The Company's investment in this entity was $4,174,000, $2,335,000 and $2,303,000 at June 30, 1995, 1994 and 1993 respectively. On September 8, 1995 the Company completed the purchase of the English company's 50% ownership to become the sole owner of Tech Textiles. The Company engages in textile manufacturing through its 100% owned subsidiaries Southern Phenix Textiles, Inc., and Opp and Micolas Mills, Inc.; Wellington Sears, a subsidiary of Jupiter, and Tech Textiles, which in the aggregate occupy 3,519,000 square feet of manufacturing, warehouse and administrative facilities. The Company spins its own yarn using Autocoro open-end automatic rotor spinning and winding machines, Murata air jet spinners, and some ring spinning equipment. Fabric is manufactured on a variety of shuttleless, rapier and air jet weaving machines as well as some shuttle looms. Non-woven fabric is made in the Company's Southern Phenix Textile's Stitchbond facility. The mills have an annual capacity of approximately 215 million linear yards of fabric (approximately 110 million pounds), about 21 million pounds of sales yarn, and approximately 93 million pounds in non-woven operations 3 4 (reclamation of textile waste products). Approximately 87% of production is for the industrial, home furnishings and automotive manufacturers; the balance is for basic apparel manufacturers and the specialty markets such as yarn and recycled textile fibers. The following table sets forth the percentage of sales to each major industry served by it:
1995 1994 1993 ---- ---- ---- Automotive 6% 10% 10% Industrial 25% 24% 24% Home Furnishing 55% 57% 48% Apparel 4% 7% 14% Specialty Markets 9% -- -- Miscellaneous 1% 2% 4% --- --- --- 100% 100% 100% === === ===
The Company believes that it is not generally directly affected by foreign competition although there is an indirect effect. As imported fabrics take an increased portion of the domestic sales volume, those companies directly affected (generally fashion and apparel manufacturers) search for sales volume in other areas to replace their lost volume. These companies disrupt mainly the Company's Industrial and Home Furnishing markets and somewhat the Company's Apparel market. Within these markets reside most of the Company s "specialized markets" which are those customers for whom the Company manufactures fabrics to the customers own dictated specifications, hence the term "specialized market" is applied. The fabrics produced for this market would not be readily usable in other markets or applications. The competition comes chiefly in the form of price cutting in order to gain orders from customers who use "specialty fabrics" which the competition may have no prior experience manufacturing and in the end may not be able to meet the customers specifications. However, the competitions price cutting activity disrupts the market place and can cause a loss of business. The majority of the Company's products are manufactured for the industrial and home furnishings segments of the market with some sales in the basic apparel areas (duck and pocketing) and in automotive products. With the addition of Wellington Sears, the Company has a new market area called the Specialty Markets which is composed of mostly sales yarn and recycled textile fibers. The direct effect of foreign competition in these areas is very minimal. In the past, the Company has attempted to market its products in Europe. In April, 1995, the position of Vice President of International Sales was established and staffed to direct the Company's sales efforts on a global basis. Through June 30, 1995, the international direct sales volume has been no more than 3% of sales. The Company's goal is to eventually have international sales account for approximately 10% of total sales revenue. Southern Phenix Textiles, Inc. Southern Phenix Textiles, Inc. ("Southern Phenix") manufactures woven fabrics from 100% polyester fiber for use in the automotive industry, home furnishings industry, for the coating and laminating trades, and by various other fabricators. Its operations include spinning, weaving, stitchbonding and finishings and its products are used in backing for foam car seat cushions, tufted upholstery and marine coated products, mattress ticking for popularly priced mattresses, and products for soft furniture. More than 75% of production is against firm orders, with finishing, packaging and other specifications determined by customers. 4 5 Southern Phenix's single supplier for most of its polyester fiber is Wellman, Inc., formerly Fiber Industries, Inc. ("Wellman"). Southern Phenix does not have a long term agreement with Wellman and does not maintain supply contracts with Wellman or any other polyester suppliers. Other potential suppliers of polyester include DuPont and Hoechst-Celanese, as well as a number of other domestic and foreign sources. In the event any one supplier ceases to be available, management does not expect any difficulty in quickly obtaining polyester from another supplier. Sales of Southern Phenix products to the automotive industry are made through Acme Mills Company, as its exclusive automotive marketing representative. Such sales to Acme Mills Company account for approximately 5% of the Company's consolidated revenue. Southern Phenix also has a contract with Glabman Teichner Company to market the majority of its decorative and upholstery fabrics. Other products are generally sold by the Company's five salesmen. Backlog At June 30, 1995, Southern Phenix's backlog of orders was approximately $11,890,000 compared to $13,299,000 at June 30, 1994 and $11,491,000 at June 30, 1993. The decrease in backlog is due to customer resistance to the increased raw material costs and a general slowing of the economy. All backlog at year-end is expected to be delivered in the current fiscal year. For the fiscal year 1995, Southern Phenix facilities operated at approximately 81% of full capacity. Southern Phenix has a manufacturing capacity of 73 million linear yards (36 million pounds). Employees As of June 30, 1995, Southern Phenix had approximately 555 full-time employees, none of whom is covered by collective bargaining agreements. Southern Phenix believes its relations with its employees are good. Competition Southern Phenix's competition consists principally of six companies, a number of which are larger and have significantly greater resources than Southern Phenix or the Company. While the Company believes that there are several competitors with larger market shares than it in each product group, market shares vary substantially from product to product within a group and there are individual products for which Southern Phenix is the market leader as well as others for which it does not have a significant market share. Areas of competition include quality of product and of service -- chiefly the ability to respond and meet customer product requirements expeditiously and reliably -- as well as price. The Company believes that service is an important positive competitive factor for Southern Phenix and that only its relatively small size is a negative factor, though one which is not viewed as significant. The Company believes that competition from domestic manufacturers has intensified over the last several years and will continue to increase in the future. The Company believes that while it is not directly affected by foreign competition, it is indirectly affected by such competition as discussed on Page 3. 5 6 Opp and Micolas Mills, Inc. Opp and Micolas Mills, Inc. ("Opp and Micolas") manufactures more than 122 different styles (in the "greige" state, i.e., unbleached and undyed as taken from the loom) of all cotton fabrics and cotton/polyester blended fabrics for the coating, home furnishings and apparel markets. Opp and Micolas also produces fabrics for the footwear and building supplies industries and for various industrial operations. Its fabrics are used in a broad range of coated products including wall coverings, coated fabrics for autos such as convertible tops, cloth roof coverings and felt window liners, rubber coated products such as automotive V-belts and other belts for industrial machinery, apparel, industrial protective clothing and specialty items, such as tote bags, handbags and shoes. Opp and Micolas buys most of its polyester from Wellman, formerly Fiber Industries, Inc., and its cotton from ten established domestic cotton merchants in the open market. Opp and Micolas does not maintain a supply agreement with Wellman or any other supplier. Management believes that adequate supplies of cotton are available in the open market and should any one of its principal suppliers of cotton or polyester cease to be available, management does not expect any difficulty in quickly locating another supplier. Opp and Micolas manufactures fabrics primarily through the use of the "open-end" spinning method but has some conventional "ring" spinning equipment still in use. Open-end spinning is a fully automated spinning process which yields a consistency and quality of yarn unobtainable from ring spinning. In recent years Opp and Micolas has engaged in an extensive capital expenditure program aimed at converting both mills to open-end spinning and shuttleless weaving. The fabrics produced by Opp and Micolas are manufactured to firm orders and are sold directly to manufacturers which have their own converting departments or finishing facilities and to fabric converters who dye and print unfinished fabrics. Opp and Micolas employs seven full-time salesmen and accepts orders from a small number of commissioned agents. Sales by agents accounted for less than 2% of its fiscal 1995 sales. Backlog At June 30, 1995, Opp and Micolas' backlog of orders was approximately $28,236,000 compared to $31,798,000 at June 30, 1994 and $26,180,000 at June 30, 1993. The decrease in backlog at June 30, 1995 from June 30, 1994, was the result of decreases in orders due to resistance to higher raw material costs and weaknesses in the economy in general. All back log at year-end is expected to be delivered in the current fiscal year. For the fiscal year 1995, Opp and Micolas operated at approximately 92% of full capacity. The Opp and Micolas Mills have an aggregate annual capacity of 102 million linear yards of fabric (47 million pounds). Employees As of June 30, 1995, Opp and Micolas had approximately 950 full-time employees, none of whom are covered by collective bargaining agreements. Opp and Micolas believes its relations with its employees are good. 6 7 Competition Opp and Micolas competition consists principally of 10 companies, a number of which are larger and have significantly greater resources than Opp and Micolas. While the Company believes that there are several competitors with larger market shares than it in each product group, market shares vary substantially from product to product within a group and there are individual products for which Opp and Micolas is the market leader as well as others for which it does not have a significant market share. Areas of competition include quality of product and service -- chiefly the ability to respond and meet customer product requirements expeditiously and reliably -- as well as price. The Company believes that service is an important positive competitive factor for Opp and Micolas and that only its relatively small size is a negative factor, though one which is not viewed as significant. The Company believes that while it is not directly affected by foreign competition, it is indirectly affected by such competition as discussed on Page 3. Jupiter National, Inc. Jupiter National is a holding company consisting of two major activities, its investment activities and Wellington Sears Company. Jupiter National commenced operations in 1960 as a federally-licensed small business investment company ("SBIC"). In 1992, Jupiter National acquired Wellington Sears, a diversified manufacturer of cotton and polyester fabrics. Investment Activities The investment activities of Jupiter National are conducted through its wholly-owned subsidiary, Greater Washington Investments, Inc. ("GWI"). GWI is a "small business development company" under the Small Business Investment Act of 1958 ("1958 Act"), which restricts its investment to qualifying small business concerns as defined in the 1958 Act. GWI invests in companies which have the potential of above-average capital appreciation as well as a current return on investment. Because of the speculative nature of GWI's investments and the lack of any ready market for most of its investment when purchased, there is minimal liquidity and a significantly greater risk of loss on each investment than is the case with traditional investment companies. However, such investments offer a sufficiently higher return when the companies are successful to compensate for the increased risk. The value of the securities shown in the table below are based on the following. Securities with readily available market quotations (Viasoft, Inc. and Zoll Medical Corporation) were valued at the current market price. All other securities were valued at fair value as determined in good faith by Jupiter s Board of Directors using a formal portfolio valuation procedure. In determining "fair value", the Jupiter Board adhered to the standard recommended for investment companies by the American Institute of Certified Public Accountants and the Securities and Exchange Commission. That standard defines "fair value" as the expected realization if the securities were to be disposed of in an orderly distribution over a reasonable period of time. There is no guarantee, however, that GWI would be able to dispose of all or certain of its investments within a reasonable period of time. Disposing of such investments under such circumstances could entail substantial discounts or losses. Following is a list of the investments held by GWI as of June 30, 1995. 7 8
VALUE OF INVESTMENT AT PORTFOLIO COMPANY NATURE OF INVESTMENT JUNE 30, 1995 ----------------- -------------------- ------------- AEGEAN R & D CORPORATION 10% subordinated note $970,000 Herndon, Virginia due 1998 (with warrants) Bioremediation company AUTOGRAPHIX, INC. 12% subordinated note 930,000 Burlington, Massachusetts due 1996 (with warrants) Presentation graphics systems CENTENNIAL MEDIA CORPORATION convertible preferred stock; 250,000 Englewood, Colorado convertible subordinated note; Publisher of Denver telephone directory and bank guaranty CCC DEVELOPMENT CORP. 14% subordinated note 650,000 Boston, Massachusetts due 1998 (with warrants) Low-income housing development CUSTOM CAPTIVE CORPORATION 11% subordinated note 850,000 Newark, Delaware due 1998 (with warrants) Industrial reclamation service company FUISZ TECHNOLOGIES, LTD. 9% subordinated note 2,250,000 Chantilly, Virginia due 1998 (with warrants) Pharmaceutical R&D GULF COMPONENTS, INC. 9% subordinated note 3,163,935 Fort Lauderdale, Florida due 1998 (with warrants) Electronic components distributor MADDEX FARM, L. P. 10% participating 1st 980,000 Shepardstown, West Virginia mortgage due 2000 Land development MCDATA CORPORATION convertible preferred stock 4,700,000 Broomfield, Colorado Computer connectivity products MEDIATECH, INC. 10-12% subordinated note 1,700,000 Herndon, Virginia due 1998 (with warrants) Research laboratory media producer METROPOLITAN PERSONNEL SERVICES, INC. 12% subordinated note 400,000 Washington, D. C. due 1999 (with warrants) Temporary personnel services
8 9 MONITORING TECHNOLOGY CORPORATION 10% subordinated note 1,000,000 Fairfax, Virginia due 2004 (with warrants) Predictive maintenance devices NEURALTECH, INC. common stock 500,000 Fairfax, Virginia Artificial neural services software SENSORMEDICS CORPORATION convertible preferred stock; 1,548,243 Anaheim, California and common stock Physiological measurement products VIASOFT, INC. common stock and warrants 7,116,193 Phoenix, Arizona Software products for COBOL re-engineering ZOLL MEDICAL CORPORATION common stock 2,625,000 Woburn, Massachusetts External cardiac pacemaker/defibrillator ----------- $29,633,371 ===========
GWI's debt consists of subordinated debentures ("Debentures") which are guaranteed by the Small Business Administration ("SBA") and bear an effective weighted-average interest rate of 7.8% at June 30, 1995. Principal payments due on these Debentures are as follows:
Year Amount ---- ------ 1998 $2,500,000 2001 7,000,000 2003 5,000,000 --------- $14,500,000 ===========
Debentures carry certain restrictions, and GWI may not (1) make any distribution to its shareholder other than periodic payments out of accumulated net realized income or (2) permit its cumulative operating deficit plus any net unrealized appreciation on investments to exceed 50% of its paid-in capital. In addition, the Debentures cannot be prepaid except with SBA approval based upon such exceptional circumstances as license surrender, reorganization and merger, debt restructure for credit or cash-flow reasons, or liquidation of idle funds as a result of large capital gains or anticipated portfolio payments. At June 30, 1995, GWI did not have available funds for distribution to its shareholder nor funds for the prepayment of its Debentures. Wellington Sears Company Wellington Sears is a diversified manufacturer of cotton and polyester fabrics for the home furnishings and industrial products markets. Its operations include spinning, weaving, finishing, product testing, waste textile fiber and fabric reclamation and other non-woven production. Its fabrics are used in outdoor furniture, wiper cloths, napery, furniture upholstery, mattress pads, bed linens, and other industrial applications. 9 10 Wellington Sears' supplier for most of its polyester is Wellman, Inc. Its cotton comes from several established domestic cotton merchants in the open market. Wellington Sears does not maintain a supply agreement with Wellman or other suppliers. Management believes that adequate supplies of cotton and polyester are available in the open market even if one of its suppliers of cotton or polyester ceases to exist. Wellington Sears spins its own yarn using manual and automated open-end spinning machines for its weaving operations. Fabric is woven on rapier and projectile weaving machines as well as some shuttle looms. Wellington Sears services approximately 2,400 customers with no single customer accounting for more than 8% of total sales. It uses both in-house sales personnel and independent brokers in the sale of its products. Approximately 70% of revenues are generated by in-house sales personnel, with the remaining 30% being generated by brokers. Fabrics sold through in-house personnel include abrasive, napery, rubber products, filtration, duck, wipe cloth and reprocessed waste products. Mattress pads are sold through commissioned sales agents. The sales and merchandising department includes 45 Company employees. The sales force is organized along geographical lines, with sales offices located in Valley, Alabama -- Corporate Office; Akron, Ohio; Ann Arbor, Michigan; Paramus, New Jersey; and Tarboro, North Carolina. Six sales representatives are located in the field offices and sell all of Wellington Sears' products with the exception of mattress pads, utilization products, and upholstery. The remaining 39 sales and merchandising personnel provide support services such as design, technical support, customer services, and coordination of production with the mill. Individuals within this group are also responsible for the sale of utilization products and mattress pad sales. The Company is able to consolidate certain functions of its subsidiaries among itself and by entering into a number of joint arrangements and transactions. The cost of certain routine administrative functions, such as the accounts receivable and payable and credit functions, is allocated among the three divisions of the Company and Wellington Sears on an equitable basis, according to the work performed for each business unit. Selling expenses incurred in connection with international sales are similarly shared by the Company s subsidiaries according to the volume of international sales generated by each unit. Wellington Sears also purchases cotton and synthetic fiber jointly with the Company. In addition, in the ordinary course of business, the Company and Wellington Sears buy goods and services from each other. Backlog At June 30, 1995, Wellington Sears' backlog of orders was approximately $21,721,000 compared to $22,411,000 at June 30 1994 and $13,739,000 at June 30, 1993. All backlog at year-end is expected to be delivered in the current fiscal year. The weaving mills have an annual capacity of approximately 40 million linear yards of fabric (approximately 27 million pounds). Approximately 55% of production is for industrial and home products, with the balance for the upholstery market. In addition, the mills have yarn capacity for sales yarn of approximately 21 million pounds annually. The non-woven operations production capacity is approximately 93 million pounds annually. 10 11 Employees At June 30, 1995, Wellington Sears had approximately 1,500 full-time employees, none of whom are covered by collective bargaining agreements. Wellington Sears believes its relations with its employees are good. Competition Wellington Sears' competition consists primarily of 20-25 companies, a number of which are larger and have significantly greater resources than Wellington Sears. While Wellington Sears believes that there are several competitors with larger market shares than it in each product group, market shares vary greatly from product to product within a group; and there are individual products for which Wellington Sears is the market leader as well as others for which it does not have a significant market share. Types of competition include quality of products and services--chiefly the ability to respond and meet customer product requirements expeditiously and reliably--as well as price. Wellington Sears believes it is generally not directly affected by foreign competition (now that it has exited the duck market), although there is an indirect effect when competitors start looking for sales volume in other areas to replace their lost volume as discussed on page 3. Revenue Contribution The Company s subsidiaries percentage of contributions to revenue for the years ended June 30, 1995, 1994, 1993 was as follows:
1995 1994 1993 ---- ---- ---- Southern Phenix 29.3% 45.1% 41.5% Opp and Micolas 38.7% 54.9% 58.5% Jupiter National 32.0% - - ----- ----- ----- 100.0% 100.0% 100.0% ===== ===== =====
Jupiter and its subsidiaries were accounted for on the equity method prior to January 1, 1995. Beginning January 1995 (the month that Jupiter became a consolidated, majority owned subsidiary of JII), Jupiter s revenues were combined with the revenues of JII (See Note 2 to the consolidated financial statements for further discussion). ITEM 2. PROPERTIES Johnston Industries, Inc. The executive offices of the Company are located at 105 13th Street, Columbus, Georgia 31901 in a 20,000 square foot, two story, brick office building, which was purchased August 20, 1993. Southern Phenix Textiles, Inc. Southern Phenix's two manufacturing facilities totaling 708,000 square feet are located in Phenix City, Alabama and the two manufacturing facilities are 100% owned by the Company. The primary mill houses Southern Phenix's administrative offices, weaving mill and finishing operations on 13 acres of a 124 -- acre tract accessible both by road and rail. The mill, which was one of the first in the United States 11 12 to make woven goods from 100% polyester, was built in 1968, but its equipment and machinery continue to be extensively modernized. A second mill with 78,000 square feet on 11 acres contains the stitchbond operation. The operating capacity of the facilities is approximately 73 million linear yards of fabric (36 million pounds) and, during, fiscal 1995, the facilities operated at approximately 81% capacity. Capital expenditures at Southern Phenix in fiscal 1995 amounted to $4,991,000. Opp and Micolas Mills, Inc. The Opp and Micolas Mills located on a major U. S. highway in Opp, Alabama is composed of the Opp Mill encompassing 13 acres and has approximately 340,000 square feet of plant facility and the Micolas Mill, which is located very near to the Opp Mill, sits on 19 acres with approximately 441,000 square feet of plant facility, all of which is 100% owned by the Company. A nearby Company-owned tract of 140 acres is available for future expansion. The mills, which share some basic facilities and services but are equipped to operate independently, are single level facilities which were built in 1922, and have undergone extensive modernization programs from the late 1980's on into the 1990's. During fiscal 1995 the Opp and Micolas Mills spent $8,880,000 in its capital expenditure program. The operating capacity of the facilities is approximately 102 million linear yards of fabric (47 million pounds), and during fiscal 1995, the facilities operated at approximately 92% capacity. Jupiter National, Inc. Jupiter's National headquarters is located in Rockville, Maryland where it owns and occupies a 3,400 square foot building on approximately three-quarters of an acre of land. Wellington Sears Company Wellington Sears Company's operations are composed of three manufacturing facilities, a finishing operation, a U.S. Certified testing laboratory, a fabric design center, a retail outlet and a corporate facility located just off Interstate I-85 between Valley, Alabama and West Point, Georgia. Wellington Sears has four additional manufacturing facilities with two located in Columbus, Georgia and one each in DeWitt, Iowa and Tarboro, North Carolina. Together the facilities total approximately 2,030,000 square feet of building space sitting on approximately 238 acres of land. All of the facilities except for one are 100% owned by Jupiter and in turn, the Company owns 54.8% of Jupiter. Wellington Sears leases the Lantuck plant in Lanett, Alabama, which is used for manufacturing non-woven mattress pads. The operating capacity of the facilities is approximately 40 million linear yards of fabric (27 million pounds), approximately 21 million pounds of sales yarn, and approximately 93 million pounds of non-woven material. The Wellington Sears facilities overall operated at approximately 85% capacity for fiscal 1995. Wellington Sears has been involved in a highly extensive modernization program since its purchase by Jupiter in November, 1992 with capital expenditures totaling $10,636,000 for fiscal 1995. JI International, Inc. (d.b.a. Tech Textiles, USA) The Tech Textiles operation is located in Phenix City, Alabama and leases from Southern Phenix 25,200 square feet of the 78,000 square foot facility housing Southern Phenix s stitchbond operation. The Company at June 30, 1995 owned 100% of JI International, Inc. Tech Textiles, USA had been operated under a partnership arrangement with Tech Textiles Limited of Andover, England. On September 8, 1995, JI International purchased the other 50% of Tech Textiles, USA for a total cost of approximately $655,00. In fiscal 1995, Tech Textiles spent $173,000 on capital expenditures. The operating capacity of Tech Textiles was approximately 7 million pounds and operated at approximately 28% of capacity during fiscal 1995. 12 13 Environmental The Company is subject to regulation under federal, state, and local laws and regulations governing pollution and protection of human health and the environment, including air emissions, water discharges, management and cleanup of solid and hazardous substances and wastes. The Company believes that its facilities and operations are in material compliance with all existing applicable laws and regulations. The Company cannot, at this time, estimate the impact of any future laws or regulations on its future operations or future capital expenditure requirements. The Company is not aware of any pending federal or state legislation that would have a material impact on the Company s financial position, results of operations or capital expenditure requirements. The Company is currently involved in litigation relating to claimed remediation costs associated for a former subsidiary facility. See "Legal Proceedings". ITEM 3. LEGAL PROCEEDINGS Johnston Industries, Inc. In 1981, a subsidiary of the Company closed a steel fabricating facility in Pennsylvania which it had operated before its closing. The facility was purchased from the Company and again operated as a steel fabricating facility by the new owner for approximately two years and thereafter was purchased by the present owner who also operated it as a steel fabricating facility for about three years. Since that time, the facility has been closed. In February 1994, the present owners of the property filed a complaint against the Company and the previous owner alleging responsibility of those parties for the cost remediation of the plant site. The original complaint alleged that such costs were in excess of $1,500,000. In July 1995, the plaintiff amended its complaint alleging estimated costs to be $3,900,000. The Company is not in agreement concerning these estimated costs, but assuming the estimate is found to be accurate, it is believed that the court will apportion the liability among each of the parties including the plaintiff for the cost of remediation of the plant site. The trial of the case began in the United States District Court, Eastern District of Pennsylvania, No. 94-CV-0752, Bethlehem Iron Works, Inc., and Steel Structures Corp., Plaintiffs, vs. Lewis Industries, Inc., Charles P. Lewis and Johnston Industries, Inc., Defendants, on July 20, 1995 and was concluded August 25, 1995. Briefs by all of the parties are to be filed before a decision is rendered, which is not expected until sometime in 1996. In June 1995, the Company established a $1,000,000 reserve for costs which it may incur in connection with the final resolution of the dispute. In addition, the Company has established a reserve in the amount of $200,000 as an estimate of potential legal and other costs to be incurred in connection with defending this matter. Although management believes the accrual described above is sufficient to cover the estimated costs of such matter, the ultimate outcome of the litigation cannot be presently determined. The Company is periodically involved in legal proceedings arising out of the ordinary conduct of its business. Management does not expect that any of these legal proceedings or the legal proceedings involving Jupiter, Polylok and Duhl discussed below, to have a material adverse effect on the Company's consolidated financial position or results of operations. 13 14 Jupiter Litigation The purchase of the assets of Polylok Corporation ("Polylok") which comprises Wellington Sears' Tarboro facility ("Tarboro") produced significant litigation among Jupiter National, Wellington Sears, Polylok, and Daniel Duhl ("Duhl"), Polylok's principal shareholder. The first action, which was settled in August 1994, involved assertions against Polylok and Duhl of misrepresentations made in connection with the purchase of Polylok's assets. Subsequently, in March 1995, Polylok and Duhl commenced an action against Jupiter National and Wellington Sears, in the United States District Court, Eastern District of North Carolina, No. 4:95-CV-105-H(2), Polylok Corporation and Polylok Finishing Corporation vs. Jupiter National, Inc. and Wellington Sears Company, which action asserted a breach of contract relating to installment payments due Duhl pursuant to a $1,600,000 purchase money note. Jupiter National and Wellington Sears filed counterclaims against Polylok and Duhl for breach of Duhl's consultancy agreement and breach of the prior August 1994 settlement. On October 18, 1995 the breach of contract claim asserted by Polylok and Duhl and the counterclaim by Jupiter and Wellington Sears for breach of consultancy agreement and the August 1994 settlement were resolved. On October 25, 1995, approximately $541,000 was placed in an escrow account to settle all obligations for Duhl s consultancy agreement. In further litigation, Polylok and Duhl have taken legal action against Jupiter and Wellington Sears regarding withdrawal of funds set aside in an escrow account, from the August 1994 settlement, providing for remediation of environmental contamination at the Tarboro plant. Subsequent to the August 1994 settlement, Jupiter paid environmental expenses, later reimbursed from the escrow account, incurred before the settlement. Polylok and Duhl have taken the position these expenses were of a non-environmental nature. However, Jupiter has taken the position these expenses relate directly to environmental concerns and in light of the 1994 settlement the reimbursement of funds from the escrow account was proper. It is not possible at this time to predict the eventual outcome of this litigation with reasonable accuracy, but management is of the opinion the results will not have a material adverse effect on the Company s consolidated financial position or results of operations. _ ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year ended June 30, 1995. PART II. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS The information appearing in the Johnston Industries, Inc. 1995 Annual Report under the caption "Quarterly Price Range of Common Stock", which reflects the high and low sales prices of the Common Stock on the New York Stock Exchange Composite Tape for the periods indicated, is set forth in Exhibit 13 (a) of the Form 10-K as originally filed by the Company on September 28, 1995. ITEM 6. SELECTED FINANCIAL DATA This information appears in Exhibit 13(b). ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information in the Johnston Industries, Inc. 1995 Annual Report under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" is reproduced in Exhibit 13(c). Supplementary Data in the Johnston Industries, Inc. 1995 Annual Report under the 14 15 caption "Quarterly Information" was reproduced in Exhibit 13(d) of the original Form 10-K filed by the Company on September 28, 1995. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's consolidated financial statements of June 30, 1995 and 1994 and for each of the years in the three year period ended June 30, 1995, notes thereto and Independent Auditors' Report are reproduced in Exhibit 13(e). ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF JOHNSTON INDUSTRIES, INC. The Directors and Executive Officers of Johnston Industries, Inc. are as follows: David L. Chandler has served as Chairman of the Board of Johnston Industries, Inc. since 1981 and as Chief Executive Officer since January, 1990. Mr. Chandler has been a Director since 1981. He had also served as President of Johnston from January, 1990 to October 1992. Mr. Chandler is 69 years old. Mr. Chandler has been Chairman of the Board of Redlaw Industries, Inc. (a former manufacturer of automotive and transportation products) and its wholly-owned subsidiary, GRM Industries, Inc., which owns approximately 41% of the Common Shares of Johnston Industries, Inc., for more than five years. He has been Chairman of the Board of Galtaco, Inc. (a former ferrous casting products manufacturer) for more than five years. Mr. Chandler is also Chairman of the Board and Chief Executive Office of Jupiter National, Inc., a 55% owned affiliate of Johnston Industries, Inc. On October 27, 1994, Mr. Chandler, in an administrative proceeding, without admitting or denying the findings or undertaking to pay any fine or penalty, consented to the issuance of a cease and desist order and findings of the Securities and Exchange Commission in connection with certain incorrect or late filings of Forms 3, 4 and 5 and Schedules 13D required to be filed with respect to Johnston and Redlaw. Under the order, Mr. Chandler may not commit or cause any violation of Section 13(d) and 16(a) of the Securities Exchange Act of 1934 and Rules 13d- 1, 13d-2, 16a-2 and 16a-3 promulgated thereunder. Gerald B. Andrews has served as President and Chief Operating Officer since October, 1992. Mr. Andrews has been a Director since 1993. Prior to that time, he had served in a variety of senior management positions at WestPoint Pepperell, over a period of 38 years, most recently as Executive Vice President of Merchandising. Mr. Andrews is 58 years old. J. Reid Bingham has been a Director of Johnston Industries, Inc. since 1991. Mr. Bingham has been a partner of Concepcion, Sexton, Bingham & Urdaneta (formerly Bingham & Castilla) (attorneys) since May, 1994. Prior to that time, he was a partner of Kirkpatrick & Lockhart since 1989, prior thereto he was a partner of Hughes Hubbard & Reed since 1987, and prior thereto he was a partner of Sage, Gray, Todd & Sims for more than five years. Mr. Bingham is 49 years old. Larry L. Galbraith has served as Executive Vice President of the Company since November 1, 1992 and as President and Chief Executive Officer of Southern Phenix Textiles, Inc. since July, 1989. Prior 15 16 to that time he had served as Vice President for engineering, purchasing and finishing at Southern Phenix Textiles, Inc. for more than five years. Mr. Galbraith is 55 years old. Roger J. Gilmartin has served as Executive Vice President of the Company since November 1, 1992 and as Chairman and Chief Executive Officer of Opp and Micolas Mills, Inc. since January, 1990. Prior to that time Mr. Gilmartin was Senior Vice President and Director of Werner International, Inc., management consultants to the textile industry for more than five years. Mr. Gilmartin is 51 years old. William J. Hart has been a Director of Johnston Industries, Inc. since 1981. He has been a partner of Farrington & Curtis (attorneys) for more than five years. Mr. Hart is 54 years old. William I. Henry has served as Vice President of Product and Operations Planning since January 1, 1993, and for more than five years prior had served as Vice President, Operations of Southern Phenix Textiles, Inc. Mr. Henry is 55 years old. Gaines R. Jeffcoat has been a Director of Johnston Industries, Inc. since 1986. Prior to Mr. Jeffcoat's retirement on June 30, 1990, he had served as Vice President of the Company since January 1, 1988 and as Chairman of the Board of Opp and Micolas Mills, Inc., a subsidiary of the Company ("Opp"), from January 1, 1988 to December 31, 1989. He was President of Opp for more than five years prior to that time. Mr. Jeffcoat is a Director of Jupiter National. Mr. Jeffcoat is 73 years old. John W. Johnson has served as Vice President and Chief Financial Officer since September 1, 1994. Mr. Johnson had been Treasurer and Secretary of the Company from January 1, 1992 until September 1, 1994. From July 1, 1991 to December, 1991 he was Assistant Secretary-Treasurer of the Company and for more than five years prior was Vice President, Finance of Southern Phenix Textiles, Inc. Mr. Johnson is 59 years old. C.J. Kjorlien has been a Director of Johnston Industries, Inc. since 1989. Mr. Kjorlien is a director of Fieldcrest Cannon, Inc., of Service America Corp. (a food service company), and of Jupiter National. From June 1974 to May 1989 he was a director of WestPoint Stevens, Inc. (a textile manufacturer). For five years prior to December 1986 he was President and Chief Operating Officer of WestPoint Stevens. Mr. Kjorlien is 79 years old. Charles F. Fazio has served as Vice President of International Sales since March, 1995. Prior to that time he had served in a variety of international sales positions with several textile companies, most recently for more than five years as Vice President International Products Division, Bibb Company. Mr. Fazio is 50 years old. F. Ferrell Walton has served as Secretary and Treasurer since September 1, 1994. Mr. Walton had been Director of Financial Operations for the Company from April 1, 1993 to September 1, 1994 and for more than five years prior to that time was Vice President, Finance of Opp and Micolas Mills, Inc. Mr. Walton is 51 years old. The Directors of Johnston Industries, Inc. are elected for a one year term by the Company's Stockholders at the Annual Meeting of Stockholders. The officers of Johnston Industries, Inc. are elected for a one year term by the Board of Directors at the Annual Meeting of the Board held following the Annual Meeting of Stockholders. 16 17 Each director and executive committee member who is not an officer of or a consultant to the Company receives a Director's fee of $12,000 per year plus $1,000 for each Board or Committee meeting attended during the fiscal year. Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who beneficially own more than 10% of the Company's Common Stock, to file with the Commission and the NYSE reports of beneficial ownership and changes in beneficial ownership of Common Stock. Officers, directors and greater than 10% stockholders are required by Commission regulations to furnish the Company with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such reports furnished to the Company or written representations that no other reports were required, the Company believes that, during Fiscal 1995, all filing requirements applicable to its directors, executive officers and 10% stockholders were fully complied with. ITEM 11. EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION AND RELATED MATTERS The following table sets forth information concerning the compensation for the Company's last three completed fiscal years with respect to its chief executive officer and the four other most highly compensated executive officers who served as such at June 30, 1995. SUMMARY COMPENSATION TABLE
LONG TERM ANNUAL COMPENSATION COMPENSATION ------------------- ------------ NAME AND OTHER ANNUAL ALL OTHER PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS / SAR'S COMPENSATION (4) ------------------ ---- ------ ----- ------------ --------------- ---------------- David L. Chandler (1) 1995 $467,500 $213,000 $46,138 (2) 44,444 $118,391 Chairman of the Board and 1994 390,000 176,788 47,296 (2) 12,718 Chief Executive Officer 1993 390,000 135,758 48,449 (2) -- Gerald B. Andrews 1995 370,000 200,000 15,306 President and 1994 361,945 185,000 3,321 Chief Operating Officer 1993 256,572 105,000 150,000 sh (3) 666 Roger J. Gilmartin 1995 285,000 138,053 7,761 Executive Vice President; 1994 285,000 142,643 1,514 Chairman of Opp and 1993 260,000 94,000 63,750 sh (3) 924 Micolas Mills Larry L. Galbraith 1995 $245,000 35,648 15,561 Executive Vice President; 1994 $235,000 55,695 3,297 President of Southern 1993 $235,000 23,500 255 Phenix Textiles John W. Johnson 1995 $157,500 64,800 7,170 Vice President -- Finance 1994 $112,083 54,000 2,473 and Chief Financial Officer 1993 $107,500 38,000 133
17 18 (1) Mr. Chandler also received compensation for his services as Chief Executive Officer of Jupiter National, which became a majority owned subsidiary of the Company during January 1995. Accordingly, the amounts shown in the table for fiscal 1995 include compensation paid to Mr. Chandler by Jupiter National for the six months ended June 30, 1995, as follows: salary of $77,500; bonus of $25,000; 44,444 shares underlying options grants; and $37,500 contributed by Jupiter National to a deferred compensation trust in which Mr. Chandler is the sole participant. Because Jupiter National was not a subsidiary of the Company prior to January 1995, the table does not reflect compensation paid to Mr. Chandler by Jupiter National during those periods. (2) Present value of consulting payments (as described on page 25). (3) Option awards. (4) Payments relating to the stock purchase plan described on pages 21 and 22. STOCK INCENTIVE PLAN GENERAL. The Amended and Restated Stock Incentive Plan for Key Employees of Johnston Industries, Inc. and its Subsidiaries (the "Incentive Plan"), approved by shareholders in December 1988, authorizes the grant of awards in the form of Incentive Stock Options ("ISO's"), within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), Non-Qualified Stock Options ("NQSO's"), Stock Appreciation Rights ("SAR's"), Restricted Stock or a combination of these forms of awards. All officers and key employees of the Company and its subsidiaries who are in positions which enable them to make significant contributions to the long-term performance and growth of the Company are eligible to receive awards. The Incentive Plan is administered by the Stock Option Committee (the "Committee") of the Board of Directors. Members of the Committee are not eligible to participate. INCENTIVE STOCK OPTIONS. The exercise price of an ISO may not be less than 100% of the fair market value on the date of the grant and the aggregate exercise price of all shares that become exercisable by an individual optionee in a single calendar year for options granted after January 1, 1987 may not exceed $100,000, plus any unused limit carryover to such year within the meaning of Section 422A of the Code. Additional restrictions apply to ISO's granted to a 10 percent stockholder (as defined in Section 422A(b)(6) of the Code). An ISO may be exercised in whole or in part throughout the period of the ISO with the exercise price to be paid in cash or in such alternate form as the Committee may authorize. An ISO terminates upon termination of the optionee's employment, subject, in the case of termination of employment by reason of death or disability, to the right to exercise within 12 months after such termination, unless the expiration date of the ISO occurs sooner. NON-QUALIFIED STOCK OPTIONS. NQSO's granted under the Incentive Plan (a) may be for such (i) number of shares, (ii) purchase price and (iii) term (up to 10 years) as the Committee, in its sole discretion, may determine and (b) become exercisable six months after date of grant (or later if the Committee so determines). An NQSO terminates upon termination of the optionee's employment, unless the Committee in its sole discretion determines otherwise, subject in the case of termination by reason of retirement at or after age 65, disability, or death, to the right to exercise within three months after retirement or disability or one year after death, unless the expiration date of the NQSO occurs sooner. STOCK APPRECIATION RIGHTS. Pursuant to the terms of the Incentive Plan, SAR's are granted only (i) in conjunction with the granting of options, (ii) in an amount not in excess of the number of Shares granted in the related option and (iii) on terms providing that the exercise of an option for a given 18 19 number of Shares terminates the related SAR for that number of Shares (so that the total number of Shares for which an option and the related SAR may be exercised cannot exceed the number of Shares granted in the option). SAR's provide the participant with an amount equal to the difference between the fair market value of the Shares on the date the SAR is exercised and the exercise price of the option. Each SAR is subject to the same conditions on termination of employment as the related option. RESTRICTED STOCK. The Committee may make awards entitling the recipient to receive shares at no out-of-pocket costs or at such price as the Committee determines, the shares purchased to be subject to the restrictions set by the Committee and which lapse or may be waived as determined by it. The following table provides information concerning options granted, options exercised, and year-end option values for the last fiscal year with respect to its chief executive officer and the four other most highly compensated executive officers who served as such at June 30, 1995. OPTION/SAR GRANTS IN LAST FISCAL YEAR No options nor SAR's were granted during the fiscal year ended June 30, 1995. The following table sets forth certain information regarding stock options granted during fiscal 1995 by Jupiter National to the individuals named in the Summary Compensation Table. JUPITER NATIONAL OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ----------------- % OF TOTAL POTENTIAL REALIZED VALUE AT ASSUMED NUMBER JUPITER OPTIONS ANNUAL RATES OF STOCK PRICE OF JUPITER GRANTED IN EXERCISE APPRECIATION FOR OPTION TERM OPTIONS EMPLOYEES PRICE PER EXPIRATION ----------------------------------- 0% GRANTED IN FY 1995 SHARE DATE 0% 5% 10% -- ------- ---------- ----- ---- -- -- --- David L. Chandler 44,444 37% $21 04/30/05 $50,000 $666,660 $1,616,151
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN- SHARES OPTIONS/SAR'S AT FY-END THE-MONEY OPTIONS/SAR'S ACQUIRED ON VALUE EXERCISABLE AT FY-END EXERCISABLE NAME EXERCISE REALIZED /UNEXERCISABLE /UNEXERCISABLE ---- -------- -------- -------------- -------------- David L. Chandler Company Options -- -- 180,000 / 0 $417,600 / $0 Jupiter National Options -- -- 100,000 / 44,444 (1) $1,685,000 / $266,664 Gerald B. Andrews Company Options -- -- 112,500 / 37,500 $107,775 / $35,925 Jupiter National Options -- -- -- -- Roger J. Gilmartin -- -- 48,750 -- Company Options -- -- 48,750 / 15,000 -- Jupiter National Options -- -- -- --
19 20 (1) The Board of Directors has authorized a transaction whereby, upon completion of the proposed merger between Johnston and Jupiter National, Mr. Chandler may choose to forego receiving the difference between the exercise price of his Jupiter National options and the purchase price of $32.50 for shares of Jupiter National common stock specified in the Merger Agreement, and in return would receive options to purchase Johnston common stock equivalent in value to 74,444 of his Jupiter National options as well as a cash payment of $2,616,487.73 (sufficient to provide Mr. Chandler with $30.00 per share after taxes for each of his remaining 70,000 options). Should the merger not be consummated, for any reason whatsoever, the Board has approved the possible purchase of up to 70,000 shares of Jupiter National common stock from Mr. Chandler at a purchase price of $30.00 per share. STOCK PURCHASE PLAN The Company has a stock purchase plan (the "Plan") under which the Company may assist selected key employees and directors of the Company and its subsidiaries in the purchase of shares of its Common Stock; as amended by the Board to date, an aggregate of 947,797 shares are covered by the Plan. The Plan is administered by a committee of directors (members of which are not eligible to participate in the Plan while serving on the committee). The committee determines the eligible key employees and directors who will be granted participation in the Plan, the number of shares which a participant may purchase, the purchase price thereof, the manner in which such purchase will be effected, any provisions for loans to be arranged to enable Plan participants to pay for their shares, any provisions for the payment of cash bonuses to reimburse Plan participants for any interest payable on their loans not covered by the dividends paid on their shares, any provisions for Company guarantee of such loans, and other terms and conditions consistent with the provisions of the Plan. The Plan authorizes the Company to guarantee loans arranged by the committee for the purchase of shares under the Plan up to a maximum of $9,000,000 in aggregate outstanding principal amount of loans. The shares purchased may consist of authorized but unissued shares, or treasury shares, or shares purchased in the open market on behalf of the participants under arrangements approved by the committee. The Company has furnished the participants with guarantees of loans for the purchase price of the shares (which bear interest at rates of 1/2% under or 1/2% above the prime lending rate of the lending bank). The committee also authorized the payment of additional compensation to the Plan participants who have purchased the 947,797 shares in the form of quarterly cash bonuses in amounts that will equal the excess of the interest payable on their loans over the dividends paid on their shares. Under the terms of the stock purchase agreements entered into between the Plan participants and the Company, the Company's obligation to pay such cash bonuses terminates upon the termination of employment of the Plan participant by the Company or any of its subsidiaries for any reason. The Plan is neither qualified under Section 401(a) of the Internal Revenue Code of 1986 nor subject to the provisions of the Employee Retirement Income Security Act of 1974. The amount of any cash bonus received under the Plan must be treated as compensation income by the employee and the Company will be entitled to a corresponding tax deduction in the same amount 20 21 which the employee is required to treat as compensation income (subject to appropriate withholding of taxes). HOURLY EMPLOYEES' PENSION PLAN The Company maintains a non-contributory Hourly Employees' Pension Plan (the "Hourly Plan") which covers substantially all hourly employees who have been employed on a full-time basis for at least one year. An employee may elect to receive distribution of benefits under the Hourly Plan upon retirement in one of several annuity forms including single life, ten years certain and life or joint and survivor. Effective July 1, 1989, accrued benefits under this plan become vested proportionately (20% per year) after an employee has been credited with three years of service under the Pension Plan. Employees attain 100% vesting of accrued benefits after seven years of credited service. If an employee participates in the Hourly Plan until normal retirement date (age 65, 66 or 67, based on the year of birth), and, if he elects to receive his distribution in the form of a single life annuity, the amount of the annual benefit upon retirement will be the sum of (a) and (b), where (a) is $96 times the number of years of service to 1992 and (b) is $192 times the number of years of service thereafter. The Hourly Plan provides that if an employee's employment terminates prior to normal retirement date, payments at normal retirement date will be reduced to reflect the early termination of his employment; if his employment terminates later than normal retirement date, payments will be equal to the benefits which are actuarially equivalent to the benefits otherwise payable at normal retirement date, but not less than the accrued benefit determined at date of retirement; and if he elects a method of distribution of benefits other than a single life annuity, payments will be adjusted to provide benefits which are actuarially equivalent to the benefits to which he would be entitled if he had elected the single life annuity method. SALARIED EMPLOYEES' PENSION PLAN The Company maintains a non-contributory Salaried Employees' Pension Plan (the "Pension Plan") which covers substantially all salaried employees who have been employed on a full-time basis for at least one year. An employee may elect to receive distribution of benefits under the Pension Plan upon retirement in one of several annuity forms, including single life, ten years certain and life or joint and survivor. Effective July 1, 1987, accrued benefits under this plan become vested proportionately (20% per year) after an employee has been credited with three years of service under the Pension Plan. Employees attain 100% vesting of accrued benefits after seven years of credited service. If an employee participates in the Pension Plan until normal retirement date (age 65, 66 or 67, based on the year of birth), and, if he elects to receive his distribution in the form of a single life annuity, the amount of his annual benefit upon retirement will be the sum of (a) and (b), where (a) is 36% (assuming 20 or more years of service) of average annual earnings and (b) is 26.25% (assuming 35 or more years of service) of the net amount of average annual earnings less Social Security average wages. (Average annual earnings means the annual average of the employee's earnings for the ten consecutive calendar years of benefit service immediately preceding his normal retirement date. Social Security average wages means the average of the maximum amount of wages subject to Social Security tax for the 35 years preceding the participant's Social Security normal retirement date.) The maximum benefit is $118,800 at normal retirement date for participants whose normal retirement dates fall during the plan year July 1, 1994, through June 30, 1995. 21 22 The following table sets forth the estimated annual normal retirement benefits (assuming Social Security Average wages of $45,000 per year) for various combinations of preretirement remuneration and years of benefit service:
Average Annual Salary Years of Benefit Service Last 10 Years -------------------------- (or Less Where Applicable) 5 10 15 20 25 30 35 -------------------------- - -- -- -- -- -- -- 125,000 14,250 28,500 42,750 57,000 60,000 63,000 66,000 175,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563 225,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563 275,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563 325,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563 375,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563 425,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563 475,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563 525,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563 575,000 17,438 34,875 52,313 69,750 73,688 77,625 81,563
The years of benefit service under the plan as of June 30, 1995, for Messrs. Galbraith, Chandler, Gilmartin, Andrews and Johnson were 23, 22, 5, 2 and 22, respectively. The Pension Plan provides that if an employee's employment terminates prior to normal retirement date, payments at normal retirement date will be reduced to reflect the early termination of his employment; if his employment terminates later than normal retirement date, payments will be adjusted to provide benefits which are actuarially equivalent to the benefits otherwise payable at the normal retirement date, but not less than the accrued benefit determined at date of retirement; and if he elects a method of distribution of benefits other than a single life annuity, payments will be adjusted to provide benefits which are actuarially equivalent to the benefits to which he would be entitled if he had elected the single life annuity method. EXECUTIVE INSURANCE PLAN The Company has maintained a contributory Executive Insurance Plan (the "Executive Plan") covering selected executives of the Company and its subsidiaries, administered by an Administrative Committee consisting of the Chief Executive Officer, the Vice President/Finance and the Secretary/Treasurer and providing for life insurance coverage of participants in the Executive Plan in an amount equal to approximately three times annual compensation up to a maximum annual salary of $100,000. The Executive Plan provides for benefits to the executive or his beneficiaries in the event of death before retirement, termination of employment, disability, termination of the Executive Plan or retirement. The Company is reimbursed for all premiums paid if the executive dies prior to retirement or if such policy is fully assigned to the executive. In January 1989, the Company determined to "freeze" the Executive Plan by neither extending benefits to persons not already participants nor changing the coverage for those persons who were already participants. It was also determined to commence benefits for participants at age 65 with the participants to elect either to purchase the insurance contract at age 65 or take payout of their benefits over a 10-year certain period commencing at that age. Participants who had already reached age 65 received payments equivalent to the amounts they would have received had their payments begun at age 65. 22 23 EMPLOYMENT AGREEMENTS The Company has an employment agreement with Mr. Chandler which continues until December 31, 1996. The agreement commits Mr. Chandler to serve as chief executive officer and entitles him to a base salary of not less than $350,000, an annual bonus equal to 1 1/2% of consolidated pre-tax earnings (as defined in the agreement and net of any consolidated pretax losses for prior years) and, upon the conclusion of his employment, to a monthly consultancy fee of $8,333 for a term equal to the number of months of his employment under the new agreement from January 1, 1990 forward. The agreement permits Mr. Chandler to terminate his employment under it at any time on six months' notice and gives him the option to terminate his employment within 30 days of the Company's merger or consolidation with or sale of all its assets to another company. The Company and Mr. Chandler are also parties to an agreement with a trustee bank establishing a trust to which payments on account of bonus and consultancy fees may be made. At the option of the Company (whose authority in this regard has been delegated by the Board of Directors to a committee of Messrs. Hart, Jeffcoat and Kjorlien) it may make the quarterly estimated bonus payment to the trust rather than to Mr. Chandler directly and may satisfy its obligations with respect to future consultancy fees by paying to the trust quarterly their current actuarial equivalent. Jupiter National has entered into an employment agreement with Mr. Chandler providing for his continued employment as a senior executive of Jupiter National until December 31, 1996. Under his employment agreement, Mr. Chandler is entitled to receive an annual salary of at least $125,000, plus such bonuses or other compensation as Jupiter National may determine. At the conclusion of his employment, Mr. Chandler is also entitled to receive a consulting fee of $6,250 per month until the earlier of (i) the completion of a term equal to the number of months during which he was employed by Jupiter National under the employment agreement (beginning with January 1991), or (ii) his death. In the event that Mr. Chandler dies prior to the completion of the term described in clause (i) of the preceding sentence, his wife will be entitled to receive $3,125 per month for that period. Mr. Andrews' employment agreement provides for his employment as President of the Company until October 1996. He is entitled to a base salary of not less than $280,000, to payments to a deferred benefit trust of $70,000 minimum each year and to annual incentive compensation in accordance with the terms of an incentive compensation plan--which may also be paid into the deferred benefit trust. Mr. Gilmartin's employment agreement provides for his employment as Chairman and Chief Executive Officer of Opp and Micolas Mills, Inc. until December 31, 1998 and entitles him to a base salary of not less than $285,000 a year and such additional compensation as is determined by the Chief Executive Officer. Mr. Galbraith's employment agreement provides for his employment as President and Chief Executive Officer of Southern Phenix Textiles, Inc. until June 30, 1998, and entitles him to a base salary of not less than $245,000 a year and such additional compensation as is determined by the Chief Executive Officer. Jupiter National has also entered into employment agreements with Kurt R. Harrington and H. Haywood Miller which expire in July 1997, but will be automatically renewed for successive one year terms thereafter unless the employee or the Company gives one year's advance notice of his or its intention not to renew. Under these agreements, Mr. Harrington and Mr. Miller are entitled to receive annual salaries of at least $103,000, plus such bonuses as Jupiter National may determine. Each of the employment agreements provides that if employment is terminated by Jupiter National without cause, the employee will 23 24 be paid all salary owing under the agreement for the remainder of the contract term, plus a pro rated portion of the prior year's bonus and continued benefits for one year. In July 1995, Wellington Sears entered into employment agreements with L. Allen Hinkle, Owen J. Hodges, III, Ralph R. Allen, A. Ray Jones and John D. Lott which expire in May 1997, but will be automatically renewed for successive one year terms thereafter unless the employee or Wellington Sears gives one year's advance notice of his or its intention not to renew. Under these agreements, Messrs. Hinkle, Hodges, Allen, Jones and Lott are entitled to receive annual salaries of at least $200,000, $167,134, $155,610, $147,210 and $124,635, respectively, plus such bonuses as Jupiter National may determine. Each of the employment agreements provides that if employment is terminated by Wellington Sears without cause, the employee will be paid all salary owing under the agreement for the remainder of the contract term, plus a pro rated portion of the prior year's bonus and continued benefits for one year. In addition, each of these employment agreements contains provisions prohibiting the employee from competing with Wellington Sears during the term of employment and, in certain cases, for a period thereafter. These agreements replaced prior Wellington Sears employment agreements entered into in 1992 with these employees, without increasing such employees' current salaries. The prior agreements could have been terminated in November 1996. In connection with the execution of the Merger Agreement, Jupiter, Wellington Sears and GWI entered into a termination agreement with Rainer H. Bosselmann pursuant to which Mr. Bosselmann resigned, effective immediately, as an officer and director of those companies, and Johnston entered into a severance agreement whereby Mr. Bosselmann resigned, effective immediately, as an officer and director of Johnston and its affiliates. Pursuant to the termination agreement, Jupiter paid Mr. Bosselmann a lump sum severance payment of $250,000. The termination agreement also provides that, upon consummation of the Merger, any unexercised stock options held by Mr. Bosselmann will be canceled in exchange for a cash payment equal to the excess of the Merger Consideration over the option exercise price. In addition, under the termination agreement, Mr. Bosselmann will continue to be employed by Jupiter at an annual salary of $25,000 and will remain eligible for benefits for a period for one year from the date of his resignation. Under the severance agreement with Johnston and its affiliates, Mr. Bosselmann received a lump sum severance payment of $75,000, and agreed to various standstill provisions for a period of eighteen months following the agreement. Item 12. Security Ownership of Certain Beneficial Owners and Management PRINCIPAL STOCKHOLDERS The following table sets forth, as of September 25, 1995, certain information with respect to each person (other than directors and executive officers) who, to the knowledge of the Company, may be deemed the beneficial owner of more than 5% of the shares of Company's outstanding common stock (the "Johnston Shares"), its only class of equity securities:
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES BENEFICIALLY OWNED PERCENT OF CLASS - ------------------------------------ ------------------------------------- ----------------- Redlaw Industries, Inc. (1) 4,264,368 40.4% 174 Stanley Street Brantford, Ontario Canada N3S 7S3 Dimensional Fund Advisors, Inc (2) 661,573 6.3% 1299 Ocean Avenue Santa Monica, California 90401
(1) These Johnston Shares are owned by GRM Industries, Inc., a Tennessee corporation and wholly-owned subsidiary of Redlaw. Redlaw is a holding company incorporated in Ontario, Canada, and 24 25 its stock is traded on the American Stock Exchange. Galtaco, a holding company incorporated in Ontario, Canada, owns approximately 8.9% of the outstanding shares of common stock of Redlaw (32.7% if Galtaco were to exercise its warrants to acquire Redlaw shares). Galtaco's stock is traded on the Toronto Stock Exchange. David L. Chandler, Chairman and Chief Executive Officer of the Company, owns approximately 42.1% of the outstanding stock of Redlaw and may be deemed to be the beneficial owner of the Shares owned by Redlaw. (2) As of December 31, 1994, based upon information contained in Schedule 13G filed by Dimensional Fund Advisors, Inc. The following table sets forth, as of September 25, 1995, with respect to the beneficial ownership of shares of common stock of the Company and shares of common stock of Jupiter National (the "Jupiter National Shares") by each director of the Company, by each executive officer of the Company identified in the Summary Compensation Table on page 7 below, and by all directors and officers of the Company as a group.
JOHNSTON COMMON STOCK JUPITER NATIONAL COMMON STOCK --------------------- ------------------------------ NUMBER OF SHARES NUMBER OF SHARES NAME OWNED BENEFICIALLY (1) PERCENT OF CLASS OWNED BENEFICIALLY(1) PERCENT OF CLASS ---- ---------------------- ---------------- --------------------- ---------------- Gerald B. Andrews 225,325 (2) 02.1% -- -- J. Reid Bingham 10,500 * 1,000 * David L. Chandler 4,762,943 (3) 43.4% 1,203,398(4) 58.3% Larry L. Galbraith 72,738 * -- -- Roger J. Gilmartin 92,450 (5) * -- -- William J. Hart 18,007 * 1,349 * Gaines R. Jeffcoat 26,434 * -- -- John W. Johnston 59,110 -- -- -- ------ C.J. Kjorlien 56,625 (6) * -- -- All directors and 5,411,232 (7) 49.3% 1,205,684(8) 58.4% officers as a group (12) Persons)
(1) Less than 1%. (2) Of the Johnston Shares held by Mr. Andrews 150,000 Shares are subject to stock options. (3) Includes Johnston Shares owned by Redlaw and its wholly owned subsidiary GRM Industries, Inc., as set forth in the preceding table. Mr. Chandler may be deemed to be a beneficial owner of those Shares by virtue of his relationship with Redlaw as set forth in Note 1 of the preceding table. Of the Johnston Shares held by Mr. Chandler, 180,000 Shares are subject to stock options. (4) Includes Jupiter National Shares owned by the Company (1,051,354 Shares of common stock). Mr. Chandler may be deemed a beneficial owner of those Shares by virtue of his relationship with the Company. This also includes 7,600 Jupiter National Shares held in the account of Mr. Chandler's daughter, Allyn P. Chandler, with regard to which Mr. Chandler may be deemed to have shared beneficial ownership. Of the Jupiter National Shares held by Mr. Chandler, 144,444 Shares are subject to stock options. (5) Of the Johnston Shares held by Mr. Gilmartin, 63,760 Shares are subject to stock options. (6) Of the Johnston Shares held by Mr. Kjorlien, 22,500 Shares are subject to stock options. 25 26 (7) Includes Johnston Shares subject to stock options as indicated for the individuals, and an aggregate of 416,250 Shares are subject to stock options for the group. (8) Includes 144,444 Jupiter National Shares subject to stock options. Item 13. Certain Relationships and Related Transactions Johnston and Jupiter National (or certain of their respective subsidiaries) have entered into a number of joint arrangements and transactions. Wellington Sears received approximately $715,000 and $220,000 from Johnston for finishing services rendered to Opp and Micolas and Southern Phenix during fiscal 1995 and fiscal 1994, respectively. In addition, Wellington Sears paid approximately $1,718,000 and $545,000 to Johnston to purchase cloth and raw materials and administrative and credit services from Johnston during fiscal 1995 and fiscal 1994, respectively. Wellington Sears' trade receivables from Johnston were approximately $146,000 and $86,000, respectively, at June 30, 1995 and June 30, 1994. Amounts payable to Johnston by Wellington Sears at June 30, 1995 and June 30, 1994, were approximately $116,000 and $38,000, respectively. Redlaw acts as a Canadian Broker and/or distributor for a number of subsidiaries of both Johnston and Jupiter National and, in that capacity, earns commissions from the Company. Redlaw received approximately $80,010 and $15,635 from commissions involving Southern Phenix Textiles during fiscal 1995 and fiscal 1994, respectively. In addition, with regard to other Johnston subsidiaries, fiscal year 1995 commissions to Redlaw totaled approximately $13,510 from Opp and Micolas Mills and some $6,225 from Tech Textiles USA. Jupiter National's subsidiary Wellington Sears paid approximately $52,590 and $4,750 to Redlaw as commissions on sales into Canada during fiscal 1995 and fiscal 1994, respectively. Mr. Kjorlien has an option expiring in 1996 which permits him to purchase 22,500 shares of the Company's Common Stock at a price of $3.22. PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) 1. Financial Statements The financial statements are filed herewith within Exhibit 13(e) , as provided in Item 8 hereof: - Independent Auditors' Report. - Consolidated Balance Sheets as of June 30, 1995 and 1994. - Consolidated Statements of Income for the fiscal years ended June 30, 1995, 1994, and 1993. - Consolidated Statements of Stockholders' Equity for the fiscal years ended June 30, 1995, 1994, and 1993. - Consolidated Statements of Cash Flows for the fiscal years ended June 30, 1995, 1994, and 1993. - Notes to Consolidated Financial Statements. 2. Financial Statement Schedules 26 27 The financial statement schedules are filed herewith within Exhibit 13(e), as provided in Item 8 hereof. (b) Reports on Form 8-K There were no reports on Form 8-K during the last quarter of the fiscal year ended June 30, 1995. (c) Exhibits *3.1(a) - Certificate of Incorporation of Registrant. *(b) - Certificate of Amendment of Registrant's Certificate of Incorporation dated December 20, 1993. *3.2 - By-Laws of Registrant. *10.2(a) - Third Amended and Restated Credit and Security Agreement dated as of January 31, 1995 among Johnston Industries, Inc., Southern Phenix Textiles, Inc., Opp and Micolas Mills, Inc., The Chase Manhattan Bank, N. A., NationsBank of North Carolina, N. A. and Comerica Bank, Exhibit 10 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995 is incorporated therein by reference. +*10.3(a) - Registrant's Executive Insurance Plan, as amended and restated effective May 21, 1984. +*(b) - Letter to Participants dated March 1, 1989 in Registrant's Executive Insurance Plan setting forth revisions thereto. +*10.4 - Registrant's Salaried Employees Pension Plan, as amended and restated effective July 1, 1989. Exhibit 10.4 to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1991 is incorporated herein by reference. +*10.5 (a) - Amended and Restated Stock Incentive Plan for Key Employees of the Registrant and its Subsidiaries. +*10.5 (b) (i)Employee Stock Purchase Plan effective October 15, 1990 (with 1991 and 1992 amendments). Exhibit 10.5(b)(i) to Registrant's Annual Report Form 10-K for the year ended June 30, 1992 is incorporated by reference. +*(b) (ii) - Amendment dated October 29, 1992 to Employee Stock Purchase Plan. Exhibit 10.5(b)ii to Registrant's Annual Report Form 10-K for the year ended June 30, 1993 is incorporated by reference. +*(b) (iii)- Amendment dated December 17, 1993 to Employee Stock Purchase Plan. +*(b) (iv) - Amendment dated January 24, 1995 to Employee Stock Purchase Plan. +*10.6(a) - Employment Agreement with Gerald B. Andrews dated as of October 17, 1992. Exhibit 10.6(b) to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993 is incorporated herein by reference. 27 28 +*(b) (i)- Employment Agreement with David L. Chandler effective as of January 1, 1990. Exhibit 10.6(d)(1) to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1992 is incorporated herein by reference. +*(b) (ii) - Trust Agreement dated as of February 12, 1991, with Chemical Bank & Trust Company and David L. Chandler. Exhibits 10.6(d)(2) to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1992 is incorporated herein by reference. +*(c) - Employment Agreement with Roger J. Gilmartin dated April 22, 1993. Exhibit 10.6(d) to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1993 is incorporated herein by reference. +*(d) - Employment Agreement with Larry L. Galbraith dated June 1, 1989. Exhibit 10.6(g) to Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1990 is incorporated herein by reference. +*(e) - Employment Agreement with W. I. Henry dated as of January 1, 1993. Exhibit 10.6(f) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 is incorporated herein by reference. +*(f) - Employment Agreement with John W. Johnson dated January 27, 1993. Exhibit 10.6(g) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 is incorporated herein by reference. +*10.7 - Johnston Industries, Inc. Deferred Payment Plan Trust Agreement dated as of October 17, 1992 with First Alabama Bank & Trust Company. Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 is incorporated herein by reference. *11. - Statement of Computation of Per Share Earnings for the years ended June 30, 1995, 1994 and 1993. *13. (a) - Quarterly Price Range of Common Stock for the years ended June 30, 1995 and 1994 is incorporated from Johnston Industries, Inc., 1995 Annual Report to the Stockholders. (b) - Financial Highlights for the fiscal years 1995 and 1994. (c) - Management Discussion and Analysis of Financial Condition and Results of Operations. *(d) - Supplementary Data captioned "Quarterly Information" is incorporated from the Johnston Industries, Inc., 1995 Annual Report to the Stockholders. (e) - Financial Statements for the year ended June 30, 1995 and 1994 and for each of the years in the three-year period ended June 30, 1995, notes and schedules thereto and Independent Auditors' Report. *21. - List of Subsidiaries of Registrant. 28 29 *23. - Consent of Deloitte & Touche LLP. *27. - Financial Data Schedule (for SEC use only) * Previously filed. Each of these exhibits was attached to the original Form 10-K filed by the Company on September 28, 1995, and is incorporated herein by reference. + Management contract or compensatory plan or arrangement required to be filed as an exhibit to Form 10-K pursuant to Item 14(c). 29 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JOHNSTON INDUSTRIES, INC. Date: December 8, 1995 By: /s/ David L. Chandler --------------------- David L. Chandler Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Gerald B. Andrews President and Chief December 8, 1995 --------------------- Operating Officer and Gerald B. Andrews Director /s/ John W. Johnson Chief Financial December 8, 1995 ------------------- Officer (Principal John W. Johnson Accounting Officer) /s/ David L. Chandler Chairman of the Board December 8, 1995 --------------------- and Chief Executive David L. Chandler Officer (principal executive officer) and Director /s/ J. Reid Bingham Director December 8, 1995 ------------------- J. Reid Bingham /s/ William J. Hart Director December 8, 1995 ------------------- William J. Hart /s/ Gaines R. Jeffcoat Director and December 8, 1995 ---------------------- Retired Vice President Gaines R. Jeffcoat /s/ C. J. Kjorlien Director December 8, 1995 ------------------ C. J. Kjorlien
30 EX-13.B 2 FINANCIAL HIGHLIGHTS 1 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 13(b) - FINANCIAL HIGHLIGHTS (In Thousands, Except Per Share Data)
Fiscal Year Ended June 30 1995(1) 1994(2) 1993(2) 1992(3) 1991(3) - ------------------------- ----- ----- ----- ----- ----- Net Sales . . . . . . . . . . . . . . . . $263,327 $159,904 $154,074 $138,272 $117,315 Income From Operations . . . . . . . . . 17,891 15,135 11,400 10,325 1,846 Pre-tax Income (Loss) . . . . . . . . . . 16,658 10,559 13,599 10,231 (1,301) Net Income(Loss) . . . . . . . . . . . . 7,875 6,495 8,414 6,689 (1,028) Earnings (Loss) Per Share . . . . . . . . .74 .60 .77 .62 .10 Income From Operations to Sales % . . . . 6.79% 9.47% 7.40% 7.47% 1.57% Net Income (Loss) to Sales %. . . . . . . 2.99% 4.06% 5.46% 4.84% (.88)% Total Assets . . . . . . . . . . . . . . 255,101 40,194 136,071 127,885 111,558 Long-Term Debt. . . . . . . . . . . . . . 98,834 36,216 22,500 30,000 25,000 Stockholders' Equity . . . . . . . . . . 63,427 59,808 60,173 57,213 52,644 Equity Per Share . . . . . . . . . . . . 593 551 550 5.26 4.91 Dividends Per Share . . . . . . . . . . . .390 .345 .320 .240 .220 Depreciation And Amortization . . . . . . 13,939 10,202 9,761 9,304 8,081 Capital Expenditures . . . . . . . . . . 21,983 12,701 10,381 9,405 18,030 Return on Beginning Assets . . . . . . . 5.62% 4.79% 6.58% 6.00% (1.02)% Return On Beginning Equity. . . . . . . . 13.17% 10.79% 14.71% 12.71% (1.81)%
- -------------------- (1) The operations of Jupiter National, Inc., a majority-owned subsidiary, for the six months ended June 30, 1995 are included in the year ended June 30, 1995. (2) Income for the years ended June 30, 1994 and 1993 has been restated to reflect the equity in earnings of Jupiter National, Inc. on an operating basis. (3) Income for the years ended June 30, 1992 and 1991 has not been restated to reflect the equity in earnings of Jupiter National, Inc. on an operating company basis due to immateriality. EX-13.C 3 MANAGEMENT'S DISCUSSION AND ANALYSIS 1 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES EXHIBIT 13(c) - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Johnston Industries, Inc. (Johnston) and its wholly owned operating subsidiaries, Opp and Micolas Mills, Inc. (Opp and Micolas) and Southern Phenix Textiles, Inc. (Southern Phenix), together with its majority owned subsidiary, Jupiter National, Inc. (Jupiter) including Wellington Sears Company (Wellington) (collectively, the Company), are principally diversified manufacturers that produce woven and non-woven textiles primarily for the residential and industrial marketplace and, to a lesser extent, for the basic apparel and automotive sectors. In addition to being a holding company for Wellington Sears, Jupiter is a holding company for Greater Washington Investments, Inc. (GWI), a small business development company under the Small Business Investment Act of 1958, as amended. GWI's investment strategy is to seek above-average capital appreciation by investing in developing companies which GWI's management believes offer significant long-term growth prospects, in a broad range of industries. Total assets attributable to the textile operations and to the venture capital operations are approximately $217.9 million and $37.2 million, respectively. In January 1995,Johnston increased its ownership interest in Jupiter from 49.6% to 54.2%. Accordingly, Jupiter operations were consolidated with Johnston operations effective January 1995. As a result, 1995 data, except net income and net income per share, is not directly comparable to prior period data. In May 1995, the Company purchased an additional 15,000 shares of Jupiter common stock bringing its total ownership to 54.8% of Jupiter's issued and outstanding common stock. Additionally, on August 16, 1995, Johnston jointly announced with Jupiter an agreement and plan of merger under which the public shareholders of Jupiter would receive $32.875 per share in cash from Johnston. The per share cash price is subject to certain adjustments based upon the market value of certain securities held by Jupiter on a date close to the date the merger proxy statement is mailed to Jupiter shareholders. The amount to be paid by Johnston is expected to be approximately $37,500,000. The merger is subject to approval by Jupiter shareholders and is expected to close in February 1996. On December 1, 1994, with shareholder approval, Jupiter filed a Form N-54C notifying the Securities and Exchange Commission that Jupiter was withdrawing its election to be treated as a Business Development Company under the Investment Company Act of 1940 as amended (the 1940 Act ) and is no longer subject to regulation under the 1940 Act. As a result, majority owned operating companies are required to be recorded at historical cost. This change was effected through a retroactive change in accounting method that has resulted in a restatement of Johnston's and Jupiter's prior financial statements through December 31, 1994. This retroactive change did not have a material impact on Johnston's financial position or results of operations. 1 2 RESULTS OF OPERATIONS Fiscal 1995 Compared with Fiscal 1994 Net sales for fiscal 1995 were $263,327,000 compared to $159,904,000 for the prior year, an increase of $103,423,000 or 65%. The majority of this increase was primarily due to sales of $84,299,000 from Wellington for the period January 1, 1995 to June 30, 1995 reflecting the consolidation of Jupiter with Johnston effective January 1, 1995. The remaining increase was primarily the result of higher unit sales and changes in product mix. Sales in the upholstery and furniture markets were up approximately $14,235,000 in fiscal 1995, an increase of 20% over fiscal 1994. Additionally, improved sales in the home products markets have increased fiscal 1995 sales. Management has continued to place greater emphasis on these high margin products and designs in the decorative fabrics sector of the home furnishings market. These increases have been partially offset by a 3% reduction in the apparel market sales at Opp and Micolas. The reduction in the apparel marketplace is the result of management s decreased emphasis in this low margin business. Additionally, net sales to the automotive sector, which is cyclical in nature, decreased in fiscal 1995 to $15,015,000 from $16,950,000 in fiscal 1994, an 11% decrease, due to lower demand especially in the quarter ended June 30, 1995. Sales backlog of Johnston and Jupiter on a consolidated basis was $61,847,000 and $67,508,000 at June 30, 1995 and 1994, respectively. The decrease in backlog at June 30, 1995 from June 30, 1994 was the result of decrease in orders due to resistance to higher raw material costs and weaknesses in the marketplace in general. These conditions have resulted in weak sales during the period subsequent to June 30, 1995. Cost of sales increased in fiscal 1995 to $209,598,000 compared to fiscal 1994 of $121,261,000 primarily as a result of $71,812,000 related to Wellington from January 1, 1995 to June 30, 1995. Sharply escalating raw material costs-- especially cotton and polyester--took a considerable toll on margins. These steep raw material increases generally could not be passed on to customers which was a major reason for lower margins in fiscal 1995 compared to fiscal 1994. Significant LIFO adjustments of $2,724,000, or 12 cents a share, for the quarter ended June 30, 1995 and $4,349,000, or 20 cents a share, for fiscal 1995 substantially reduced the Company's margins. Margins were positively impacted by the increased sales volume which continued to allow the Company to maintain an increased level of productivity through higher utilization of plant and equipment. The increased volume, coupled with certain price increases, has enabled the Company to partially offset increases in raw material costs. Selling, general, and administrative expenses increased from $13,306,000 for fiscal 1994 to $21,899,000 for fiscal 1995, a 65% increase. This increase was mainly due to the Jupiter selling, general, and administrative expenses of $8,309,000 for the period January 1, 1995 to June 30, 1995. Selling, general, and administrative expenses as a percentage of sales was 8% in fiscal 1995 and fiscal 1994. 2 3 Depreciation and amortization was up $3,737,000 in fiscal 1995 to $13,939,000 compared to fiscal 1994 of $10,202,000. This 37% increase includes depreciation and amortization expense of $2,589,000 for Jupiter for the period January 1, 1995 to June 30, 1995. In addition, the increase represents the continued investments in capital expenditures. In the last three years, the Company has invested $45,065,000 in continuing efforts to upgrade machinery and equipment to state-of-the-art levels, and to move into new more profitable markets. Net interest expense was up $3,070,000 in fiscal 1995 to $5,915,000 from fiscal 1994 of $2,845,000. This increase was mainly due to two factors. First, the consolidation of Jupiter with Johnston entailed recording substantial Jupiter debt levels, thus resulting in $2,214,000 of additional net interest expense for the period January 1, 1995 to June 30, 1995. Second, effective January 1995, Johnston restructured its revolving debt agreements and increased its borrowings under the revolving credit loan from $35,000,000 to $45,000,000. Other expenses - net includes a negative effect on both the quarter ended June 30, 1995 and fiscal 1995 net income caused by a charge of $1,000,000 to establish a reserve for estimated environmental cleanup costs related to a property sold by Johnston in 1982. This steel fabrication operation, sold by Johnston 13 years ago, has no relationship to today's operations. Johnston has been unable to amicably resolve litigation concerning responsibility for clean-up costs associated with this site. Such litigation is in process, and the ultimate outcome of the litigation cannot presently be determined. (See Note 4 of the consolidated financial statements for further discussion.) The consolidation of Jupiter also resulted in the separate reporting of income or loss activity of the investment portfolio. (See Note 2 to the consolidated financial statements for further explanation.) Hence, beginning January 1, 1995, the Company's equity in earnings/loss of equity investments included only the Company's then 50% interest in Tech Textiles, USA ( Tech Textiles ), whereas prior to January 1, 1995, the equity in earnings/loss also included Johnston's proportionate interest in its equity investment in Jupiter. The equity loss in Tech Textiles was $308,000 for fiscal 1995 compared to $980,000 in the prior year period. The Company estimated Tech Textiles to have a three-year start-up phase and at June 30, 1995 it is performing to the Company's expectations. During September 1995, Johnston purchased the remaining 50% interest in Tech Textiles for a total cost of $655,000. Thus, Tech Textiles is a consolidated wholly owned subsidiary of Johnston effective September 1995. The realized and unrealized investment portfolio gain of Jupiter for the period January 1, 1995 to June 30, 1995 was $5,191,000. (See Note 2 to the consolidated financial statements for further explanation.) This gain reflects increases in the market value of Jupiter's investment in Viasoft, Inc. of $2,602,000 and McData Corporation of $2,300,000 for the period January 1, 1995 to June 30, 1995. For the quarter ended June 30, 1995, the increase in the market value of Jupiter's investment in Viasoft, Inc. and McData Corporation was $2,452,000 and $2,300,000, respectively. Viasoft, Inc. is a company with publicly traded stock, thus the market value increase is determined in the public marketplace. McData Corporation's increase in market value was estimated by Jupiter's Board of Directors in the absence of readily available market values. For the six months ended December 31, 1994, and for the year ended June 30, 3 4 1994, Johnston's equity in the changes in net assets of Jupiter was $1,308,000 and ($161,000), respectively. For the six months ended December 31, 1994, the market price of Jupiter's investment in Zoll Medical increased $588,000. In fiscal 1994, Jupiter's investment in Zoll Medical had a substantial decrease in value, which exceeded total increases in Jupiter's remaining investments. Jupiter carries its portfolio investments at market or fair value. Minority interest is recorded for the minority shareholders' proportionate share of the equity and earnings of Jupiter. The provision for income taxes was an effective rate of 43% in fiscal 1995 versus an effective rate of 38% in fiscal 1994. The increased rate is mainly due to taxes related to equity in income of its majority owned subsidiary, Jupiter. Fiscal 1994 Compared With Fiscal 1993 Net sales for fiscal 1994 were $159,904,000 compared to $154,074,000 for the prior year, an increase of 4%. This increase was primarily the result of a 24% improvement in sales of upholstery and furniture products by Opp and Micolas and Southern Phenix offset by a 46% reduction in apparel market sales at Opp and Micolas. The decrease in the low margin apparel market sales reflects management's decision to significantly reduce its involvement in this market. Apparel market sales represent only 13% of the Opp and Micolas total business, and the increase in upholstery and furniture market products produced significantly higher gross margins. In addition, Johnston placed greater emphasis on the development of new high margin products and designs in the decorative fabrics sector of the home furnishings market. Although net sales for fiscal 1994 increased 4% from fiscal 1993, Johnston's operating income increased approximately 33%. Cost of sales as a percentage of sales made a significant improvement in 1994. Gross profit was 22% in 1993 and improved to 24% in 1994. Improved sales volumes, especially in upholstery and furniture fabrics at Southern Phenix, have significantly increased productivity through higher utilization of plant and equipment. This improvement also reflects decreased costs resulting from utilization of newer machinery and equipment purchased over the past several years. Selling, general, and administrative expenses increased 11% in fiscal 1994 compared to fiscal 1993. In fiscal 1994, approximately one-half of the increase was in selling expenses (personnel, samples, and commissions) at Southern Phenix directly related to the new line of decorative fabrics introduced in the upholstery and furniture markets. There were also small increases in support expenses in administrative functions to support the sales effort. While the absolute dollars of fiscal 1994 selling, general, and administrative expenses were higher than fiscal 1993, such expenses as a percentage of sales increased only 1/2 of 1%. In addition, increased expenses due to the development of new, value added products, were offset and substantially exceeded by increased profitability. In fiscal 1993, Johnston wrote off $736,000 related to accounts receivable. The majority of this write off was related to a bankrupt customer; however, the 4 5 amount written off was previously reserved. No such substantial write offs of accounts receivable occurred in fiscal 1994. Depreciation and amortization were up 5% in fiscal 1994 to $10,202,000 compared to $9,761,000 in fiscal 1993, reflecting the recent increased level of capital expenditures. Over the past three years, Johnston has invested $32,487,000 to continue its effort to upgrade machinery and equipment to state-of-the-art levels, and move into new more profitable markets. Net interest expense was up 18% in fiscal 1994 to $2,845,000 from the fiscal 1993 of $2,403,000. This change was primarily due to a $379,000 reduction in interest income in 1994 because of the payment of a note receivable in July 1993. The average interest rate increased slightly from 6-1/4% to 6-1/2%, and the total bank debt increased $1,800,000. Other expenses - net increased in fiscal 1994 compared to fiscal 1993. The increase in 1994 relates to the liability for Johnston's former steel fabrication operations which are discussed in Note 4 in the financial statements. This liability represents costs related to health insurance and death benefits and is stated at the actuarially determined discounted present value. In fiscal 1994, there was a loss of $980,000 from the operations of Tech Textiles, compared to a loss of $889,000 in fiscal 1993. These amounts reflect the start-up nature of this new business and are consistent with Johnston's expectations and original business plan. As of June 30, 1994 and 1993, Johnston held a 49% and 40% interest in Jupiter, respectively, and accounted for such investment using the equity method. In fiscal 1993, the net asset value of Jupiter continued to increase because of the market value of the investment portfolio and the operating profits of Wellington, a major manufacturing acquisition by Jupiter in that fiscal year. In fiscal 1994, the market value of one of the portfolio companies in which Jupiter has a financial interest decreased significantly in value, which exceeded other increases in portfolio investments of Jupiter and the operating profit generated by Wellington. Consequently, for the last two years, Johnston recognized a loss of $106,000 for fiscal 1994 and income from Jupiter of $6,163,000 for fiscal 1993. Because of these factors, Jupiter has reported volatility in its earnings for the last two years and will continue to potentially show such volatility dependent on the value of its portfolio investments due to market conditions and the profit generated from the operations of Wellington. The provision for income taxes in fiscal 1994 remained consistent with 1993 at an effective 38% rate. In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109 ("SFAS 109"), Accounting for Income Taxes. Effective July 1, 1993, the Company adopted SFAS 109 retroactively, and restated all prior years presented. The effect of the retroactive restatement on shareholders equity at July 1, 1992 was a reduction of $418,000. The restatement impact of applying SFAS 109 on net income was a $352,000 reduction and a reduction of $.03 on earnings per share in fiscal 1993. 5 6 EFFECTS OF INFLATION Management does not believe that inflation has had a material impact on the results of operations for the periods presented, except as discussed above related to sharply escalating raw material costs in fiscal 1995. These increases in raw material costs have continued into fiscal 1996 and could have a significant impact on the Company and the industry. However, management believes that to the extent general inflation affects its costs in the future, the Company can generally offset inflation by increasing prices if competitive conditions permit. LIQUIDITY AND CAPITAL RESOURCES The Company's primary needs for capital resources are to finance the purchase of the outstanding public shares of Jupiter as discussed above, and to finance accounts receivable, inventories and capital expenditures. Although definitive financing agreements have not been entered into, management believes the Company will be able to secure the financing necessary to complete the Company's proposed acquisition of the outstanding public shares of Jupiter, either in the form of additional borrowings from one or more of its existing lenders or from alternate sources. Johnston Credit Agreement - In January 1995, Johnston amended its credit agreement, increasing its available revolving credit loans and outstanding borrowings from $35,000,000 to $45,000,000 and providing for $10,000,000 in annually renewable lines of credit with outstanding borrowings of $6,800,000 as of June 30, 1995. Term Notes - Johnston's outstanding borrowings under the term notes, which were $5,000,000 as of June 30, 1994, were paid in full in March 1995. Purchase Money Mortgage Loan - A decision was made by Johnston in fiscal 1993 to move the executive office to Columbus, Georgia. In that regard, in fiscal 1994, a building was purchased and renovated, and Johnston obtained a Purchase Money Mortgage Loan of $1,325,000. As of June 30, 1995, $1,217,000 was outstanding on this loan. Covenants and Restrictions - The January 1995 credit and security agreement (the CSA) requires Johnston, among other things, to maintain certain financial ratios, specified levels of working capital and tangible net worth, as defined. The CSA also restricts Johnston's ability to increase debt, buy or sell assets, pay dividends, and issue or repurchase capital stock. At certain times during the three months ended September 30, 1995, Johnston was not in compliance with its adjusted tangible net worth covenant, leverage ratio covenant, current ratio covenant or interest coverage ratio covenant under the CSA. These events of noncompliance, as of September 30, 1995, were waived by the lending institutions in waivers dated November 14, 1995, which amend the covenants through December 31, 1995. Johnston is in compliance 6 7 with the CSA covenants as amended. Although no assurances can be given, the Company believes it will be in compliance with the CSA covenants, as amended, at year end and thereafter will be in compliance with the original covenant terms which will again be in effect as of January 1, 1996. Compliance with the terms of such reinstated covenants will be tested as of the end of the Company's first quarter for fiscal 1996. In connection with the consolidation of Jupiter effective January 1995, Johnston was required to record the debt of Jupiter and Wellington. The following summarizes the significant elements of such debt. (See Note 10 to the consolidated financial statements for further information.) Jupiter Subordinated Debentures - The subordinated debentures with an outstanding balance of $14,500,000 at June 30, 1995 are payable to the Small Business Administration. Wellington Revolving Credit Loans - In January 1995, Wellington amended its revolving credit, term loan and equipment loan agreement with a bank. The agreement provides that Wellington may obtain revolving credit loans up to an aggregate amount of the lesser of $24,000,000 or certain percentages of accounts receivable and inventories. The loan is due November 20, 1998, with an automatic renewal for one year. As of June 30, 1995, $17,361,000 was outstanding under this loan. Term Loan - The amended agreement provides for a term loan of $21,000,000 payable in monthly installments of $218,735 through November 1998, at which time the remaining unpaid balance is due. At June 30, 1995, there were borrowings of $19,687,000 under the term loan. Equipment Loans - Through November 18, 1998, Wellington may borrow up to $5,000,000 to finance the purchase of equipment. The principal amount is payable in monthly installments of 1/96th of the loan balance from August 1995 through November 1998, when the remaining balance is due. At June 30, 1995, there were borrowings of $2,768,000 under the equipment loans. Covenants and Restrictions - The revolving credit and term loan agreement (the RCTLA ) and the equipment loan facility (the ELF) require Wellington, among other things, to maintain certain financial ratios and specified levels of working capital and profitability, as defined under the RCTLA and ELF. These also restrict Wellington's ability to incur debt, buy or sell assets, pay dividends, and issue or repurchase capital stock. At certain times during the three months ended September 30, 1995, Wellington was not in compliance with its cash flow coverage ratio covenant, debt coverage ratio covenant and earnings ratio covenant. These events of noncompliance, as of September 30, 1995, were waived by the lending institutions in waivers dated November 9, 1995 which amend the covenants through July 6, 1996. Wellington is in compliance with the RCTLA and ELF covenants as 7 8 amended. Although no assurances can be given, Wellington believes it will be in compliance with the RCTLA and ELF covenants, as amended, for future periods. At certain times during the years ended June 30, 1995 and 1994, Wellington was not in compliance with either its cash flow coverage ratio covenant or debt coverage ratio covenant. These events of noncompliance were waived by the lending institution in waivers dated September 27, 1994, November 21, 1994 and April 21, 1995. Substantially all machinery and equipment, inventory and account receivables are pledged as collateral under the borrowing agreements. The net cash provided by operating activities of $17,069,000 in fiscal 1995 was $3,984,000 higher than the fiscal 1994 amount of $13,085,000. This significant increase is largely due to management of the Wellington inventory levels from January 1995 (the date of consolidation) to June 1995, which was not a factor in the prior year. Capital expenditures in fiscal 1995 were $21,983,000 compared to $12,701,000 in fiscal 1994, an increase of $9,282,000. This increase is due to $7,393,000 of capital expenditures at Wellington in fiscal 1995, which were not included in the consolidated amounts of the prior year. In addition, Johnston increased its capital expenditures by $1,889,000. These expenditures were primarily for the replacement of existing equipment with the latest technology and the implementation of new manufacturing processes. Management believes that funds generated from operations, funds available under the existing debt agreements and finalization of financing to buy the public shares of Jupiter will be sufficient to meet the needs of the Company's current operations for at least the next 12 months. NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards No. 116 ("SFAS 116"), Accounting for Contributions Received and Contributions Made, established standards for accounting and reporting for contributions received and made and is effective for fiscal years beginning after December 15, 1994. The Company expects that there will be no material effect upon implementing SFAS 116 on its financial position or results of operations. Statement of Financial Accounting Standards No. 121 ("SFAS 121"), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, established standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of and is effective for fiscal years beginning after December 15, 1995. The Company expects that there will be no material effect upon implementing SFAS 121 on its financial position or results of operations. 8 9 OTHER MATTERS On September 15, 1995, Johnston signed a "Limited Guaranty Agreement" in favor of the lender under the RCTLA to guarantee an "Overadvance" position for Wellington under the RCTLA. The amount of the "Overadvance" is $1,250,000 and Wellington is to repay the lender the "Overadvance" by January 31, 1996. The "Overadvance" will be governed by the provisions of the RCTLA. The management of Johnston does not expect any liability to arise from this guarantee. Jupiter and Wellington at June 30, 1995 were involved in a legal dispute with Polylok Corporation and its former majority shareholder. The former majority shareholder had filed motions for summary judgment on his claims for installment payments. On October 18, 1995 the legal dispute was resolved except for legal action by the shareholder and Polylok concerning the use of funds in an environmental escrow account. Management does not expect that any results of this litigation will have a material effect upon its consolidated financial position or results of operations. (See Note 16 of the consolidated financial statements for further information.) The Company is periodically involved in legal proceedings arising out of the ordinary conduct of business. Management does not expect that they will have a material adverse effect on the Company's consolidated financial position or y results of operations. 9 EX-13.E 4 JOHNSTON INDUSTRIES AND SUBSIDIARIES 1 EXHIBIT 13(e) JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS - ----------------------------------------------------------------------------------------------------------------- PAGE INDEPENDENT AUDITORS' REPORT F-1 and F-2 CONSOLIDATED FINANCIAL STATEMENTS OF JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES AS OF JUNE 30, 1995 AND 1994 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1995: Consolidated Balance Sheets F-3 Consolidated Statements of Income F-4 Consolidated Statements of Stockholders' Equity F-5 Consolidated Statements of Cash Flows F-6 and F-7 Notes to Consolidated Financial Statements F-8 to F-25 FINANCIAL STATEMENT SCHEDULES Johnston Industries, Inc. and Subsidiaries Schedule I - Condensed Financial Information of Registrant S-1 to S-4 Schedule II - Valuation and Qualifying Accounts S-5
2 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Johnston Industries, Inc.: We have audited the accompanying consolidated balance sheets of Johnston Industries, Inc. and subsidiaries (the "Company") as of June 30, 1995 and 1994, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 1995. Our audits also included the financial statement schedules listed in the Table of Contents. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Johnston Industries, Inc. and subsidiaries at June 30, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1995 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As discussed in Note 4 to the consolidated financial statements, the Company is involved in litigation relating to a steel fabricating facility which had been operated prior to its close in 1981 by a former subsidiary of the Company. In June 1995, the Company accrued an estimate of certain amounts which it may incur in connection with the final resolution of the dispute; however, the ultimate outcome of the litigation cannot presently be determined. F -1 3 As discussed in Note 2 to the consolidated financial statements, through December 31, 1994 the consolidated financial statements include the Company's investment in and equity in earnings of its affiliate, Jupiter National, Inc. ("Jupiter"). In January 1995, the Company increased its ownership interest in Jupiter from 49.6% at December 31, 1994 to 54.2%. As a result, Jupiter became a consolidated, majority owned subsidiary of the Company in January 1995. As of and for the year ended June 30, 1995, $19,892,000 of the Company's investments and $2,455,000 of the Company's earnings related to security values estimated by Jupiter's Board of Directors in the absence of readily ascertainable market values. As of June 30, 1994 and for the years ended June 30, 1994 and 1993, a portion of the Company's investment in Jupiter ($9,074,000) and the Company's interest in the earnings (losses) of Jupiter [$1,091,000 and $(582,000), respectively] related to security values estimated by Jupiter's Board of Directors in the absence of readily ascertainable market values. We have reviewed the procedures used in arriving at the estimates of value of such securities and have inspected underlying documentation and, in the circumstances, we believe the procedures are reasonable and the documentation appropriate. However, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for Jupiter's investment securities existed, and the difference could be material to the Company's consolidated financial statements. As discussed in Note 20 to the consolidated financial statements, on August 16, 1995, the Company announced an agreement to purchase for cash all publicly held shares of Jupiter. /s/ Deloitte & Touche LLP - ------------------------- DELOITTE & TOUCHE LLP Atlanta, Georgia August 18, 1995 (December 7, 1995 as to Notes 10 and 16) F-2 4 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1995 AND 1994
ASSETS 1995 1994(a) CURRENT ASSETS: Cash and cash equivalents $ 9,456,000 $ 3,914,000 Marketable securities, at fair value 9,741,000 Accounts and notes receivable, net of allowance of $1,113,000 and $368,000 43,333,000 18,152,000 Inventories 46,389,000 25,438,000 Prepaid expenses and other 1,892,000 1,330,000 -------------- -------------- Total current assets 110,811,000 48,834,000 INVESTMENTS - At market or fair value as determined by Jupiter's directors 19,892,000 INVESTMENTS - At equity 4,174,000 21,036,000 PROPERTY, PLANT, AND EQUIPMENT - Net 114,309,000 65,354,000 INTANGIBLE ASSET - Pension 2,675,000 2,874,000 OTHER ASSETS 3,240,000 2,096,000 -------------- ------------- $ 255,101,000 $ 140,194,000 ============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994(a) CURRENT LIABILITIES: Short-term borrowings $ 6,800,000 $ 2,500,000 Current maturities of long-term debt 5,894,000 5,087,000 Accounts payable 19,692,000 6,410,000 Accrued expenses 13,084,000 7,372,000 Income taxes payable 1,219,000 806,000 Deferred income taxes 2,947,000 1,164,000 -------------- ------------- Total current liabilities 49,636,000 23,339,000 LONG-TERM DEBT 98,834,000 36,216,000 -------------- ------------- OTHER LIABILITIES 14,023,000 16,876,000 -------------- ------------- LONG-TERM DEFERRED INCOME TAXES 9,012,000 3,955,000 -------------- ------------- COMMITMENTS AND CONTINGENCIES MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 20,169,000 -------------- STOCKHOLDERS' EQUITY: Preferred stock, par value $.01 per share; authorized, 3,000,000 shares; none issued Common stock, par value $.10 per share; authorized, 20,000,000 shares; issued 12,426,891 and 12,411,891 1,243,000 1,241,000 Additional paid-in capital 17,258,000 17,107,000 Retained earnings 54,808,000 51,065,000 -------------- ------------- Total 73,309,000 69,413,000 Less treasury stock: 1,861,912 and 1,682,112 shares at cost (8,108,000) (6,407,000) Less minimum pension liability adjustment, net of tax benefit (1,774,000) (3,198,000) -------------- ------------- Stockholders' equity 63,427,000 59,808,000 -------------- ------------- $ 255,101,000 $ 140,194,000 ============== =============
(a) The June 30, 1994 balances have been restated to reflect Jupiter National, Inc. on an operating company basis as discussed in Note 2. See notes to consolidated financial statements. F-3 5 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED JUNE 30, 1995, 1994, AND 1993
1995 1994(a) 1993(a) NET SALES $263,327,000 $159,904,000 $154,074,000 ------------ ------------ ------------ COSTS AND EXPENSES: Cost of sales, excluding depreciation and amortization 209,598,000 121,261,000 120,933,000 Selling, general, and administrative 21,899,000 13,306,000 11,980,000 Depreciation and amortization 13,939,000 10,202,000 9,761,000 ------------ ------------ ------------ Total costs and expenses 245,436,000 144,769,000 142,674,000 ------------ ------------ ------------ INCOME FROM OPERATIONS 17,891,000 15,135,000 11,400,000 OTHER EXPENSE: Interest expense - net 5,915,000 2,845,000 2,403,000 Other - net 1,509,000 590,000 491,000 ------------ ------------ ------------ Total other expenses 7,424,000 3,435,000 2,894,000 ------------ ------------ ------------ EQUITY IN EARNINGS (LOSSES) OF EQUITY INVESTMENTS 1,000,000 (1,141,000) 5,093,000 REALIZED AND UNREALIZED INVESTMENT PORTFOLIO GAIN 5,191,000 ------------ ------------ ------------ INCOME BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTEREST 16,658,000 10,559,000 13,599,000 PROVISION FOR INCOME TAXES 7,083,000 4,064,000 5,185,000 ------------ ------------ ------------ INCOME BEFORE MINORITY INTEREST 9,575,000 6,495,000 8,414,000 MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARY 1,700,000 ------------ ------------ ------------ NET INCOME $ 7,875,000 $ 6,495,000 $ 8,414,000 ============ ============ ============ EARNINGS PER SHARE $ .74 $ .60 $ .77 ============ ============ ============ DIVIDENDS PER SHARE $ .39 $ .35 $ .32 ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 10,697,339 10,850,141 10,931,781 ============ ============ ============
(a) Income for the years ended June 30, 1994 and 1993 has been restated to reflect the equity in earnings of Jupiter National, Inc. on an operating company basis as discussed in Note 2. See notes to consolidated financial statements. F-4 6 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED JUNE 30, 1995, 1994, AND 1993
COMMON STOCK --------------------------- PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS BALANCE, JUNE 30, 1992 - As previously reported 12,178,422 $1,219,000 $15,938,000 $43,422,000 Adjustment for Jupiter National, Inc. restatement (see Note 2) (160,000) ---------- ---------- ----------- ----------- BALANCE, JUNE 30, 1992 - As restated 12,178,422 1,219,000 15,938,000 43,262,000 Exercise of stock options 159,823 16,000 795,000 Purchase of treasury stock Net income 8,414,000 Dividends paid ($.32 per share) (3,412,000) ---------- ---------- ----------- ----------- BALANCE, JUNE 30, 1993 12,338,245 1,235,000 16,733,000 48,264,000 Exercise of stock options 73,742 6,000 376,000 Purchase of fractional shares (96) (2,000) Purchase of treasury stock Net income 6,495,000 Dividends paid ($.35 per share) (3,694,000) Minimum pension liability adjustment, net of tax benefit of $1,957,000 ---------- ---------- ----------- ----------- BALANCE, JUNE 30, 1994 12,411,891 1,241,000 17,107,000 51,065,000 Exercise of stock options 15,000 2,000 151,000 Purchase of treasury stock Net income 7,875,000 Dividends paid ($.39 per share) (4,132,000) Minimum pension liability adjustment, net of taxes of $871,000 ---------- ---------- ----------- ----------- BALANCE, JUNE 30, 1995 12,426,891 $1,243,000 $17,258,000 $54,808,000 ========== ========== =========== =========== TREASURY STOCK MINIMUM ------------------------- PENSION LIABILITY SHARES AMOUNT ADJUSTMENT TOTAL BALANCE, JUNE 30, 1992 - As previously reported 1,328,062 $(3,366,000) $57,213,000 Adjustment for Jupiter National, Inc. restatement (see Note 2) (160,000) --------- ------------ ----------- BALANCE, JUNE 30, 1992 - As restated 1,328,062 (3,366,000) 57,053,000 Exercise of stock options 811,000 Purchase of treasury stock 322,350 (2,693,000) (2,693,000) Net income 8,414,000 Dividends paid ($.32 per share) (3,412,000) --------- ------------ ----------- BALANCE, JUNE 30, 1993 1,650,412 (6,059,000) 60,173,000 Exercise of stock options 382,000 Purchase of fractional shares (2,000) Purchase of treasury stock 31,700 (348,000) (348,000) Net income 6,495,000 Dividends paid ($.35 per share) (3,694,000) Minimum pension liability adjustment, net of tax benefit of $1,957,000 $(3,198,000) (3,198,000) --------- ------------ ----------- BALANCE, JUNE 30, 1994 1,682,112 (6,407,000) (3,198,000) 59,808,000 Exercise of stock options 153,000 Purchase of treasury stock 179,800 (1,701,000) (1,701,000) Net income 7,875,000 Dividends paid ($.39 per share) (4,132,000) Minimum pension liability adjustment, net of taxes of $871,000 1,424,000 1,424,000 --------- ------------ ----------- ----------- BALANCE, JUNE 30, 1995 1,861,912 $ (8,108,000) $(1,774,000) $63,427,000 ========= ============ =========== ===========
See notes to consolidated financial statements. F-5 7 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1995, 1994, AND 1993
1995 1994(a) 1993(a) OPERATING ACTIVITIES: Net income $ 7,875,000 $ 6,495,000 $ 8,414,000 ------------ ------------ ------------ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,939,000 10,202,000 9,761,000 Provision for bad debts 89,000 151,000 383,000 Net realized and unrealized gain on portfolio (5,191,000) investment Undistributed (income) losses in investments (1,000,000) 1,141,000 (5,093,000) Minority interest in income of consolidated 1,700,000 subsidiary Changes in assets and liabilities: Accounts and notes receivable (9,140,000) (2,563,000) (375,000) Inventories 7,432,000 (2,244,000) (309,000) Deferred income taxes 1,783,000 (50,000) (21,000) Prepaid expenses and other assets 287,000 (566,000) 264,000 Accounts payable (1,014,000) (2,157,000) (4,133,000) Accrued expenses 47,000 794,000 (27,000) Income taxes payable (551,000) 168,000 113,000 Other liabilities 847,000 1,683,000 2,222,000 Other, net (34,000) 31,000 172,000 ------------ ------------ ------------ Total adjustments 9,194,000 6,590,000 2,957,000 ------------ ------------ ------------ Net cash provided by operating activities 17,069,000 13,085,000 11,371,000 ------------ ------------ ------------ INVESTING ACTIVITIES: Additions to property, plant, and equipment (21,983,000) (12,701,000) (10,381,000) Unpaid capital expenditures 5,784,000 482,000 2,767,000 Increase in investments (3,254,000) (4,578,000) (2,034,000) Repayments of loans by stockholders 5,383,000 341,000 Purchase of Jupiter, net of cash acquired 3,758,000 ------------ ------------ ------------ Net cash used in investing activities (15,695,000) (11,414,000) (9,307,000) ------------ ------------ ------------ FINANCING ACTIVITIES: Principal payments of debt (5,086,000) (4,022,000) (2,000,000) Proceeds from issuance of long-term debt 12,634,000 13,325,000 Borrowings under line-of-credit agreements 17,275,000 11,750,000 8,000,000 Repayments under line-of-credit agreements (14,975,000) (19,250,000) (4,000,000) Purchase of treasury stock (1,701,000) (348,000) (2,693,000) Proceeds from employee stock ownership plan 1,454,000 Proceeds from issuance of common stock 153,000 380,000 811,000 Dividends paid (4,132,000) (3,694,000) (3,412,000) ------------ ------------ ------------ Net cash provided by (used in) financing 4,168,000 (1,859,000) (1,840,000) activities ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,542,000 (188,000) 224,000 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,914,000 4,102,000 3,878,000 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, END OF YEAR $ 9,456,000 $ 3,914,000 $ 4,102,000 ============ ============ ============
F-6 8 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1995, 1994, AND 1993 (CONTINUED)
1995 1994 1993 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $6,720,000 $2,962,000 $2,861,000 Income taxes $3,932,000 $2,908,000 $2,472,000
(a) Years ended June 30, 1994 and 1993 have been restated to reflect the equity in earnings of Jupiter National, Inc. on an operating company basis as discussed in Note 2. See notes to consolidated financial statements. F-7 9 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1995 AND 1994 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES Principles of Consolidation - The consolidated financial statements include the accounts of Johnston Industries, Inc. ("Johnston"), its wholly owned subsidiaries, Southern Phenix Textiles, Inc. and Opp and Micolas Mills, Inc., its majority owned subsidiary, Jupiter National, Inc. ("Jupiter") and Jupiter's wholly owned subsidiaries, Wellington Sears Company ("Wellington"), Pay Telephone America, Ltd., and Greater Washington Investments, Inc. ("GWI") (collectively, the "Company"). All significant intercompany accounts and transactions have been eliminated. Johnston and its wholly owned subsidiaries and Wellington are diversified manufacturers of textile fabrics used in the residential, industrial, and to a lesser extent, apparel, and automotive marketplaces. Jupiter holds venture capital portfolio investments in new and developing companies that offer long-term growth prospects. GWI is a small business investment company licensed under the Small Business Investment Act of 1958. Under applicable Small Business Administration regulations, GWI is restricted to investing only in qualified small business concerns contemplated by the 1958 Act, as amended, and such regulations. Total assets attributable to the textile operations and to the venture capital operations as of June 30, 1995 are approximately $217.9 million and $37.2 million, respectively. Fiscal Year-End - Johnston had a fiscal year-end of June 30. However, the operating subsidiaries had a fiscal year-end based on a 52/53 week reporting period that ended on the Saturday closest to June 30. For the fiscal years ended on June 30, 1995 and 1994, such operating subsidiaries' fiscal years ended on July 1, 1995 and July 2, 1994, respectively. On September 22, 1995, the Board of Directors of Johnston authorized a change in the fiscal year from a period beginning July 1 and ending June 30 to a variable period ending on the Saturday nearest to December 31. Therefore, Johnston's fiscal period 1995 will end on December 30, 1995. Such change will make Johnston's year-end consistent with its quarterly accounting periods which, in the case of 52-week years, consist of two four week and one five week period per quarter ending on a Saturday. The Form 10-Q included information for the three months ended September 30, 1995. However, beginning on December 31, 1995 (the first day of the new fiscal year 1996), Johnston will commence filing quarterly reports for the quarters of the new fiscal year 1996. Cash Equivalents - The Company classifies all highly liquid investments with a maturity of three months or less as cash equivalents. Cash equivalents held by GWI are required to be invested in securities of the U.S. Government. Inventories - The Company's inventories of finished goods, work-in-process, and raw materials are stated at the lower of cost (using the last-in, first-out cost flow assumption) or market. Supplies are stated at cost determined on the first-in, first-out basis. Property, Plant, and Equipment - Property, plant, and equipment is stated at cost. Depreciation and amortization are computed principally by the use of the straight-line method over the estimated useful service lives of 20-40 years for buildings, 20 years for improvements, and 3-20 years for machinery and equipment. Revenue Recognition - Revenue is generally recognized as products are shipped to customers. When customers, under the terms of specific orders, request that the Company manufacture and invoice goods on a bill and hold basis, the Company recognizes revenue based on the completion date required in the order and actual completion of the manufacturing process. At that time, title and risks of ownership are transferred to the customer. F-8 10 Accounts receivable included bill and hold receivables of $9,150,000 and $3,736,000 at June 30, 1995 and 1994, respectively. Concentration of Credit Risk - The Company's accounts receivable are generally unsecured and are liquidated based on cash flows generated by its customers' operations. Valuation of Investments - Portfolio investments held by Jupiter in publicly traded entities are stated at market or fair value as determined by quoted market prices and are reflected as marketable securities in the accompanying balance sheet. Such investments expected to be sold within the next 12 months are classified as current assets. Other portfolio investments held by Jupiter are recorded at market or fair value as determined in good faith by Jupiter's Board of Directors. Unrealized appreciation (depreciation) is included as a component of net income. There are restrictions on the disposition of most of the securities, and values do not necessarily represent the amounts that may be realized from their immediate sale or other disposition. Investments in companies and joint ventures in which the Company has a 20% to 50% interest are accounted for under the equity method. The investments are recorded at cost and adjusted for the Company's share of earnings or losses and cash distributions. Recognition of Interest Income - Jupiter accrues interest on the principal balance of notes outstanding considered to be collectible. Gains or Losses on Securities Sold - Sales of securities by Jupiter are recorded on the trade date (date the order to sell is executed). The cost of securities sold is reported on the average cost basis for financial statement purposes. Realized losses are recognized for securities whose value is considered permanently impaired. Income Taxes - In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." Effective July 1, 1993, the Company adopted SFAS 109 retroactively, and restated all prior years presented. Under SFAS 109, the Company determines income taxes for financial reporting purposes using the asset and liability method. Under this method, deferred tax assets and liabilities are established for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. Earnings Per Share - Earnings per share are calculated based on the weighted average number of common and common equivalent shares outstanding during each respective fiscal year. Fully diluted earnings per share are not presented because the difference from primary earnings per share is insignificant for all periods presented. Postretirement Benefits - On July 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 106 ("SFAS 106"), "Employers' Accounting for Postretirement Benefits Other Than Pensions." The impact of adoption of SFAS 106 was not material to the Company's financial position or results of operations. Reclassifications - Certain prior year amounts have been reclassified to conform to the current year presentation. F-9 11 Contributions Made - Statement of Financial Accounting Standards No. 116 ("SFAS 116"), "Accounting for Contributions Received and Contributions Made," establishes standards for accounting and reporting for contributions received and made and is effective for fiscal years beginning after December 15, 1994. The Company expects that there will be no material effect upon implementing SFAS 116 on its financial position or results of operations. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of - Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," establishes standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. SFAS 121 is effective for fiscal years beginning after December 15, 1995. The Company expects that there will be no material effect upon implementing SFAS 121 on its financial position or results of operations. 2. JUPITER NATIONAL, INC. In January 1995, the Company purchased an additional 89,300 shares of Jupiter for approximately $2,300,000 which increased the Company's ownership interest in the outstanding shares of Jupiter from 49.6% at December 31, 1994 to 54.2%. As a result, Jupiter became a consolidated, majority owned subsidiary of the Company in January 1995. Minority interest is recorded for the minority shareholders' proportionate share of the equity and earnings of Jupiter. The following represents the results of operations on a pro forma basis assuming Johnston had owned 54.2% of Jupiter as of July 1, 1993. This pro forma information is provided for informational purposes only. Such pro forma information is based on historical information and is not necessarily indicative of the actual results that would have been achieved had Johnston purchased the additional shares of Jupiter on July 1, 1993, nor is it necessarily indicative of future results of operations (see Note 20).
YEAR ENDED JUNE 30, ----------------------------------- 1995 1994 Net sales $ 333,873,000 $ 290,572,000 Net income 8,117,000 6,371,000 Earnings per share .76 .59
The Company accounted for its investment in Jupiter using the equity method through December 31, 1994. For the six months ended December 31, 1994 and for the years ended June 30, 1994 and 1993, Johnston recorded equity in the changes in net assets of Jupiter of $1,308,000, $(161,000), and $5,982,000, respectively. As of and for the year ended June 30, 1995, $19,892,000 of the Company's investments and $2,455,000 of the Company's earnings, respectively, relate to security values estimated by Jupiter's Board of Directors. The Company' equity in the net assets of Jupiter at June 30, 1994 was $18,701,000, which included $9,074,000 of security values determined by Jupiter's Board of Directors. For the years ended June 30, 1994 and 1993, $1,091,000 and $(582,000), respectively, of the Company's equity in Jupiter's changes in net assets was derived from net unrealized appreciation (depreciation) of investments whose values have been estimated by Jupiter's Board of Directors. The quoted market value of the Company's investment in Jupiter was approximately $28,387,000 and $20,148,000 on June 30, 1995 and 1994, respectively. F-10 12 Summarized financial information of Jupiter as of June 30, 1994 and for the years ended June 30, 1994 and 1993 is as follows: FINANCIAL POSITION
1994 Net current assets $ 27,186,000 Investments 22,218,000 Total assets 111,610,000 Long-term debt (including current portion) 54,766,000 Net assets 38,099,000
RESULTS OF OPERATIONS
1994 1993 Net sales $ 130,688,000 $ 77,499,000 Operating income 5,210,000 3,508,000 Net income 233,000 15,917,000
Through November 30, 1994, Jupiter was considered a closed-end venture capital investment company that used specialized accounting policies required for investment companies to determine the net asset value of its portfolio of investments. Under these policies, securities with readily available market quotations were valued at the current market price, and all other investments were valued at fair value as determined in good faith by Jupiter's Board of Directors using a formal portfolio valuation procedure. Effective December 1, 1994, Jupiter received approval from the Securities and Exchange Commission to withdraw its election as a business development company under the Investment Act of 1940. As a result, majority owned operating companies are required to be recorded at historical cost. This change to the historical cost basis for such operating companies was effected through a retroactive change in accounting method that resulted in a restatement of Johnston's and Jupiter's prior financial statements through December 31, 1994. This retroactive change did not have a material impact on Johnston's financial position or results of operations. The remaining nonoperating assets require periodic valuation of each investment in Jupiter's consolidated portfolio to determine net asset value as described above. As a result, effective January 1995, the Company's proportionate share of the unrealized appreciation (depreciation) of Jupiter's portfolio companies will be included as a separate line item in the Company's income statement. F-11 13 The following summarizes the aggregate cost and market or fair value of the portfolio investments as of June 30, 1995:
MARKET OR COST FAIR VALUE Marketable securities $ 1,575,000 $ 9,741,000 ============= ============= Portfolio investments - long-term $ 15,426,000 $ 19,892,000 ============= =============
These investments are principally comprised of subordinated notes, preferred stock, and common stock of new and developing companies. 3. GREATER WASHINGTON INVESTMENTS, INC. As discussed in Note 1, GWI is a small business investment company licensed under the Small Business Investment Act of 1958. Summary financial information for GWI consists of the following: STATEMENT OF FINANCIAL POSITION
JUNE 30, 1995 Current assets $ 5,933,000 Portfolio investments, at fair value 23,951,000 Other assets 44,000 ------------- Total assets $ 29,928,000 ============= Current liabilities $ 325,000 Subordinated debentures 14,500,000 Deferred income taxes 2,677,000 ------------- Total liabilities 17,502,000 Shareholder's equity 12,426,000 ------------- Total liabilities and shareholder's equity $ 29,928,000 =============
F-12 14 STATEMENT OF OPERATIONS
FISCAL YEAR ENDED JUNE 30, 1995 Operating income $ 1,485,000 Operating expenses (3,000) Interest expense (1,155,000) ------------- Net operating income 327,000 Realized gain on sale of investments 392,000 Provision for income taxes (2,371,000) ------------- Net realized loss (1,652,000) Increase in unrealized appreciation of investments 6,253,000 ------------- Results of operations $ 4,601,000 =============
4. STEEL FABRICATION OPERATIONS The accompanying balance sheets as of June 30, 1995 and 1994 include accruals of $8,363,000 and $7,903,000, respectively, for the remaining costs expected to be incurred in phasing out the Company's steel fabrication operations (see Notes 9 and 11). These costs are principally related to health insurance and death benefits for former employees and are stated at the actuarially determined discounted present value. These operations were discontinued in 1981. In February 1994, the operators of a steel fabricating facility filed a complaint against a previous operator of the facility and a former subsidiary of Johnston which had operated the facility earlier before its close in 1981. The complaint seeks to have the earlier operators bear the response costs incurred in remediation of contamination at the plant site. Such costs are alleged to be approximately $3,900,000; however, the Company disputes such costs. The trial of the case began in the United States District Court for the Eastern District of Pennsylvania on July 20, 1995 and was concluded on August 25, 1995. Briefs by all of the parties are to be filed before a decision is rendered, which is not expected until 1996. In June 1995, the Company established a reserve of $1,000,000 for costs which it may incur in connection with the final resolution of the dispute. In addition, the Company has established a reserve in the amount of $200,000 as an estimate of potential legal and other costs to be incurred in connection with defending this matter. Although management believes that the accruals described above are sufficient to cover the estimated costs of such matters, the ultimate outcome of the litigation cannot presently be determined. 5. RELATED PARTY TRANSACTIONS During 1992 and 1993, the Company made secured revolving loans to Redlaw Industries, Inc. ("Redlaw"), a stockholder. As of June 30, 1993, $5,524,000 was outstanding. In July 1993, principal and interest was paid in full. An additional loan of $1,300,000 was made to Redlaw in October 1993 and interest and principal was paid in full in December 1993. All loans bore interest at the Company's interest rate on its revolving credit loan plus 1/2 of 1%. F-13 15 In May 1994, Redlaw became the commissioned sales agent in Canada for sales of textile products manufactured by the Company. The Company paid Redlaw approximately $152,000 related to Redlaw's commissioned sales business for the fiscal year ended June 30, 1995. 6. INVENTORIES Inventories consist of the following at June 30, 1995 and 1994:
1995 1994 Finished goods $ 18,191,000 $ 11,585,000 Work-in-process 15,288,000 6,897,000 Raw materials and supplies 12,910,000 6,956,000 ------------- ------------- $ 46,389,000 25,438,000 ============= Difference between LIFO carrying value and current replacement cost (838,000) ------------- Current replacement cost $ 24,600,000 =============
Although current replacement cost for inventories at June 30, 1994 was less than last-in, first-out carrying value, the carrying value was recovered through future sales which yielded normal profit margins. The excess of replacement cost over the value of inventories based upon the LIFO method was $4,107,000 at June 30, 1995. 7. EQUITY INVESTMENT Tech Textiles, USA During 1992, the Company entered into a 50%/50% partnership with an English company to establish Tech Textiles, USA ("Tech Textiles") for the joint manufacture and sale of certain specialized textile products. The Company's investment in this entity was $4,174,000 and $2,335,000 at June 30, 1995 and 1994, respectively. Losses of $308,000, $980,000, and $889,000, respectively, for the years ended June 30, 1995, 1994, and 1993 were recorded. Subsequent to year-end, the Company purchased the remaining 50% interest for a total cost of $655,000. Thus, Tech Textiles became a consolidated, wholly owned subsidiary of the Company beginning in fiscal 1996. Summarized financial information of Tech Textiles as of June 30, 1995 and 1994 and for each of the three years in the period ended June 30, 1995 is as follows:
1995 1994 FINANCIAL POSITION Net current assets $ 2,365,000 $ 593,000 Total assets 4,559,000 2,662,000 Net assets 4,174,000 2,335,000
1995 1994 1993 RESULTS OF OPERATIONS Net sales $ 4,027,000 $ 2,016,000 $ 402,000 Operating income (loss) 448,000 (147,000) (246,000) Net loss (308,000) (980,000) (889,000)
F-14 16 8. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment consist of the following at June 30, 1995 and 1994:
1995 1994 Land $ 1,373,000 $ 555,000 Buildings and improvements 33,671,000 19,422,000 Machinery and equipment 159,741,000 106,871,000 -------------- --------------- 194,785,000 126,848,000 Less accumulated depreciation and amortization (80,476,000) (61,494,000) -------------- --------------- Property, plant, and equipment - net $ 114,309,000 $ 65,354,000 ============== ===============
9. ACCRUED EXPENSES Accrued expenses consist of the following at June 30, 1995 and 1994:
1995 1994 Salaries, wages, and employee benefits $ 5,100,000 $ 2,821,000 Pension costs 2,148,000 1,697,000 Taxes, other than income taxes 1,459,000 1,276,000 Interest expense 507,000 41,000 Current estimated phase-out costs of steel fabrication operations 2,000,000 1,000,000 Other 1,870,000 537,000 ------------- ------------ $ 13,084,000 $ 7,372,000 ============= ============
10. LONG-TERM FINANCING AND SHORT-TERM BORROWINGS Long-term debt and short-term borrowings consist of the following at June 30, 1995 and 1994:
1995 1994 JOHNSTON Short-term borrowings $ 6,800,000 $ 2,500,000 ============= ============= Revolving credit loans $ 45,000,000 $ 35,000,000 Term notes payable 5,000,000 Purchase money mortgage loan 1,217,000 1,303,000 ------------- ------------- 46,217,000 41,303,000 JUPITER Subordinated debentures 14,500,000 Securities loans 1,191,000 Other debt 933,000 ------------- 16,624,000
F-15 17
1995 1994 WELLINGTON SEARS Revolving credit loans $ 17,361,000 Term loan 19,687,000 Equipment loans 2,768,000 Amounts due former affiliates of Polylok 1,434,000 Installment and other loans 637,000 -------------- 41,887,000 -------------- ------------- Total 104,728,000 41,303,000 Less current maturities (5,894,000) (5,087,000) -------------- ------------- $ 98,834,000 $ 36,216,000 ============== =============
The estimated fair value of long-term debt (including current maturities) is $107,086,000 at June 30, 1995. Interest rates that are currently available to the Company for issuance of debt with similar terms, credit characteristics, and remaining maturities were used to estimate fair value of long-term debt. JOHNSTON Amended Credit Agreement - In January 1995, Johnston amended and restated its revolving credit agreement to increase the borrowings under its revolving credit loans to $45,000,000 and to provide for $10,000,000 in annually renewable lines of credit. Principal under the agreement is payable in full no later than January 14, 1997. Interest is payable quarterly at a variable rate which is the higher of the federal funds rate plus 1/2 of 1% or the prime rate (7.5% at June 30, 1995 and 1994). A commitment fee of 1/2 of 1% on the unused portion of the revolving credit facility is payable annually. Borrowings under the lines of credit bear interest at the higher of the federal funds rate plus 1/2 of 1% or the prime rate. At June 30, 1995, there were borrowings of $6,800,000 under the lines of credit, and the interest rate under these borrowings was 9%. All machinery, equipment, inventory, and receivables of Johnston and its wholly owned subsidiaries are pledged as collateral under the Amended Credit Agreement. Terms Notes Payable - The term notes were payable to banks and bore interest at the fixed rate of 8.75% per annum. In March 1995, such term notes were paid in full. Purchase Money Mortgage Loan - In connection with the purchase of a new office building during 1994, Johnston obtained a Purchase Money Mortgage Loan of $1,325,000. At June 30, 1995, borrowings outstanding under this loan were $1,217,000. Borrowings under this loan accrue interest at the lesser of: (1) 30-day adjustable, 60-day adjustable, or 90-day adjustable LIBOR rate plus 2.70% or (2) the prime rate. The interest rate on this loan was 8.75% at June 30, 1995. Beginning on March 31, 1994, Johnston was obligated to make 58 consecutive quarterly payments of principal of $21,667 plus interest, with all remaining principal and interest due on December 31, 2008. The new office building in Columbus, Georgia is pledged as collateral under this loan agreement. F-16 18 Covenants and Restrictictions - The Amended Credit Agreement requires Johnston, among other things, to maintain certain financial ratios, specified levels of working capital and tangible net worth, as defined. This agreement also places a limit on Johnston's total borrowings to the lower of $52,000,000, Johnston's total stockholders' equity, or an amount computed using a borrowing base formula. Additionally, Johnston's restricted investments, defined to include guarantees and advances to affiliates, are limited to the lesser of 20% of Johnston's total assets or $13,500,000 plus 50% of net income for fiscal 1995, 1994, and 1993. This agreement also restricts Johnston's ability to incur debt, buy or sell assets, pay dividends, and issue or repurchase capital stock. Johnston's wholly owned subsidiaries paid dividends of $15,952,000 to Johnston during the year ended June 30, 1995. At certain times during the three months ended September 30, 1995, Johnston was not in compliance with its adjusted tangible net worth covenant, leverage ratio covenant, current ratio covenant or interest coverage ratio covenant under the credit and security agreement. These events of noncompliance, as of September 30, 1995, were waived by the lending institutions in waivers dated November 14, 1995, which amend the covenants through December 31, 1995. Johnston is in compliance with the credit and security agreement covenants as amended. Although no assurances can be given, Johnston believes it will be in compliance with the credit and security agreement covenants, as amended, for future periods. JUPITER Subordinated Debentures - The subordinated debentures, which relate to GWI, are payable to the Small Business Administration ("SBA") and bear interest at an effective weighted rate of 7.8% at June 30, 1995. Principal payments are due as follows:
YEAR ENDING JUNE 30, AMOUNT 1998 $ 2,500,000 2001 7,000,000 2003 5,000,000 ------------- $ 14,500,000 =============
The subordinated debentures contain restrictions on prepayments, distributions to shareholders, and certain operating results. At June 30, 1995, GWI did not have available funds for distribution (equity of $12,426,000) to its shareholder nor funds for the prepayment of its debentures. Securities Loans - At June 30, 1995, Jupiter had borrowed $1,191,000 under a brokerage margin account with average interest rates of 10%. WELLINGTON Revolving Credit Loans - In January 1995, Wellington amended its revolving credit, term loan, and equipment loan agreement with a bank. The agreement provides that Wellington may obtain revolving credit loans up to an aggregate amount of the lesser of $24,000,000 or certain percentages of accounts receivable and inventories through November 20, 1998, with an automatic renewal for one year. Substantially all machinery, inventory, and receivables of Wellington are pledged as collateral under such borrowing agreement. Wellington is also required to pay a commitment fee equal to 1/2 of 1% per annum on the unused portion of the revolving credit facility. The unused available line of credit at June 30, 1995 was approximately $4,770,000. Interest is payable at the current prime rate plus 1% (10% at June 30, 1995). At June 30, 1995 and 1994, Wellington had outstanding letters of credit of $400,000 and $350,000, respectively. Term Loan - The amended agreement provides for a term loan of $21,000,00 payable in monthly installments of $218,735 through November 1998, at which time the remaining unpaid balance is due. The term loan bears interest at the current prime rate plus 1% (10% at June 30, 1995). F-17 19 Equipment Loans - Through November 18, 1998, Wellington may borrow up to $5,000,000 to finance the purchase of equipment. The principal amount is payable in monthly installments of 1/96th of the loan balance from August 1995 through November 1998, when the remaining balance is due. The equipment loans bear interest at the current prime rate plus 1% (10% at June 30, 1995). Covenants and Restrictions - The amended revolving credit, term loan, and equipment loan agreement requires Wellington, among other things, to maintain certain financial ratios and specified levels of working capital and profitability, as defined. The agreement also restricts Wellington's ability to incur debt, buy or sell assets, pay dividends, transfer assets to its parent company for payment or settlement of debt, and issue or repurchase capital stock. At June 30, 1995, Wellington did not have available funds for distribution (equity of $29,722,000) to its shareholder. At certain times during the three months ended September 30, 1995, Wellington was not in compliance with its cash flow coverage ratio covenant, operating cash flow coverage ratio covenant, adjusted earnings from operations covenant and captial expenditure covenant under its credit agreements. These events of noncompliance, as of September 30, 1995, were waived by the lending institutions in waivers dated November 10, 1995 which amended the loan agreements through July 6, 1996. Wellington is in compliance with its credit agreement covenants as amended. Although no assurances can be given, Wellington believes it will be in compliance with its credit agreement covenants, as amended, for future periods. At certain times during the year ended June 30, 1995 and 1994, Wellington was not in compliance with either its cash flow coverage ratio covenant or debt coverage ratio covenant. These events of noncompliance were waived by the lending institution in waivers dated September 27, 1994, November 21, 1994, and April 21, 1995. Amounts Due Former Affiliates of Polylok - Amounts due former affiliates of Polylok are primarily comprised of $1,434,000 due under a note payable agreement and deferred compensation agreement with the former owner of Polylok Corporation. Amounts are payable in equal quarterly installments of $269,108 plus interest, which accrues at the prime interest rate (9% at June 30, 1995). During the year ended June 30, 1995, Wellington stopped making payments under these agreements due to the former owner's failure to sign a debt subordination agreement required by Wellington's lender (see Note 16). The former owner has sued Wellington for performance under the agreements. The principal and interest payments past due total $1,434,000 and $277,000, respectively, at June 30, 1995. Installment and Other Loans - Installment and other loans are comprised of $527,000 due in September 1996 for the purchase of certain machinery and equipment, and $110,000 borrowed to finance the construction of a new roof in one of the Company's facilities. The principal under the roof loan is payable in monthly installments of $7,340 through July 1996, at which time all remaining amounts are due. Both loans are noninterest-bearing, and the Company did not record any imputed interest. DEBT MATURITIES - Aggregate scheduled repayments of long-term debt are summarized as follows:
YEAR ENDING JUNE 30, AMOUNT 1996 $ 5,894,000 1997 48,653,000 1998 5,584,000 1999 31,574,000 2000 and thereafter 13,023,000 --------------- $ 104,728,000 ===============
F-18 20 11. OTHER LIABILITIES Other liabilities consist of the following at June 30, 1995 and 1994:
1995 1994 Long-term portion of estimated phase-out costs of steel fabrication operations $ 6,363,000 $ 6,903,000 Additional pension liability (see Note 17) 5,534,000 8,029,000 Other 2,653,000 1,944,000 ------------- ------------- $ 14,550,000 $ 16,876,000 ============= =============
12. COMMON STOCK On November 1, 1993, the Board of Directors approved a three-for-two stock split, whereby shareholders of record on January 4, 1994 were entitled to one additional share of common stock for every two shares held, payable on January 24, 1994. Stock options, treasury stock, outstanding common stock, and per share data have been retroactively adjusted to reflect the split. On February 1, 1993, Johnston purchased 294,000 shares of its stock at $8.50 per share from GRM Industries, Inc., a subsidiary of Redlaw. 13. STOCK OPTION PLANS Employees' Stock Incentive Plan - Johnston has a Stock Incentive Plan for Key Employees under which Johnston may grant incentive stock options, nonqualified stock options, stock appreciation rights, and restricted stock. Stock appreciation rights may only be granted in conjunction with nonqualified stock options. The maximum number of common shares which could be issued upon exercise of options or through awards granted under this plan is 2,358,450. Incentive stock options granted under the plan are exercisable, on a cumulative basis, at a rate of 25% each year, beginning one year after the date of grant. Nonqualified stock options are exercisable beginning six months after the date of grant. A summary of employee stock option activity for the three years ended June 30, 1995 is as follows:
NON- INCENTIVE QUALIFIED STOCK EXERCISE OPTIONS OPTIONS TOTAL PRICE Options outstanding at June 30, 1992 371,362 57,204 428,566 $2.37 - $5.55 Options granted 213,750 213,750 6.85 - 10.17 Options exercised (107,438) (52,386) (159,824) 2.37 - 3.22 -------- ------- -------- Options outstanding at June 30, 1993 477,674 4,818 482,492 3.22 - 10.17 Options exercised (68,924) (4,818) (73,742) 2.37 - 3.22 -------- ------- -------- Options outstanding at June 30, 1994 408,750 - 408,750 2.37 - 10.17 Options exercised (15,000) (15,000) 3.22 -------- ------- -------- Options outstanding at June 30, 1995 393,750 - 393,750 5.55 - 10.17 ======== ======= ======== Options available for grant at June 855,000 30, 1995 ========
F-19 21 At June 30, 1995, approximately 341,250 of the outstanding options are exercisable. Compensation expense is recognized when nonqualified stock options are granted at prices which are less than market value on the date of grant. Compensation expense is also recognized on stock appreciation rights based on the change in market price from the grant price. Compensation expense relating to the Johnston's Employee Stock Incentive Plan for employees was $3,000 during the year ended June 30, 1993. No compensation expense was recognized in 1995 and 1994. Other Stock Option Agreement - During 1991, Johnston entered into a nonqualified stock option agreement with a director under which the director was granted options to purchase a maximum of 22,500 shares of Johnston's common stock. The options are exercisable at $3.22 per share. Jupiter Stock Option Plans - Jupiter has an employee stock option plan and a director stock option plan under which options have been granted to purchase 428,220 shares of Jupiter common stock at prices ranging from $3.62 to $28.75. At June 30, 1995, approximately 302,000 of the options are exercisable. In connection with Johnston's planned acquisition of the remaining publicly held shares of Jupiter (see Note 20), these options are expected to be redeemed by Johnston. 14. EMPLOYEE STOCK PURCHASE PLAN On October 15, 1990, Johnston adopted an Employee Stock Purchase Plan under which selected eligible key employees and directors of Johnston were granted the opportunity to purchase shares of Johnston's common stock. Through June 30, 1995, 900,209 shares of Johnston's stock have been purchased at market prices by employees and directors under the plan. At June 30, 1995, the Company has guaranteed plan participants' bank borrowings totaling approximately $7,088,000. 15. INCOME TAXES The Company adopted SFAS 109 effective July 1, 1993 and has applied the provisions of such statement retroactively to July 1, 1988. Accordingly, the consolidated financial statements have been restated to comply with the provisions of SFAS 109. The effect of the retroactive restatement on stockholders' equity at July 1, 1991 was a reduction of $418,000. The impact of applying SFAS 109 on net income and earnings per share for the year ended June 30, 1993 was a reduction of $352,000 and $.03, respectively. F-20 22 The provision for income taxes is comprised of the following for each of the three years in the period ended June 30, 1995:
1995 1994 1993 Federal: Current $ 2,834,000 $ 2,604,000 $ 2,185,000 Deferred 3,276,000 810,000 2,191,000 ------------ ------------ ------------ 6,110,000 3,414,000 4,376,000 ------------ ------------ ------------ State: Current 552,000 689,000 392,000 Deferred 421,000 (39,000) 417,000 ------------ ------------ ------------ 973,000 650,000 809,000 ------------ ------------ ------------ Provision for income taxes $ 7,083,000 $ 4,064,000 $ 5,185,000 ============ ============ ============
The significant components of deferred income tax assets and liabilities at June 30, 1995 and 1994 are as follows:
1995 1994 Deferred tax assets: Estimated phase-out costs of steel fabrication operations $ 3,174,000 $ 3,000,000 Alternative minimum tax 1,949,000 678,000 Additional pension liabilities 1,086,000 1,957,000 Other - net 2,413,000 1,570,000 -------------- -------------- 8,622,000 7,205,000 -------------- -------------- Deferred tax liabilities: Unrealized appreciation - investments (5,012,000) Inventories (2,365,000) (2,235,000) Investments - at equity (in consolidated affiliates) (2,916,000) (1,742,000) Property, plant, and equipment (10,288,000) (8,347,000) -------------- -------------- (20,581,000) (12,324,000) -------------- -------------- Net deferred tax liability $ (11,959,000) $ (5,119,000) ============== ============== Net current deferred tax liability $ (2,947,000) $ (1,164,000) Net long-term deferred tax liability (9,012,000) (3,955,000) -------------- -------------- $ (11,959,000) $ (5,119,000) ============== ==============
Net deferred tax liabilities are classified in the financial statements as current or long-term depending upon the classification of the temporary difference to which they relate. F-21 23 The reconciliation of the Company's effective income tax rate to the federal statutory rate of 34% for the three years ended June 30, 1995, 1994, and 1993 follows:
1995 1994 1993 Federal income taxes at statutory rate $ 5,664,000 $ 3,590,000 $ 4,624,000 State income taxes, net of federal tax benefit 746,000 429,000 533,000 Equity in income of majority owned subsidiary 607,000 Impact of purchase accounting adjustments (61,000) Other, net 66,000 45,000 89,000 ------------ ------------ ------------ $ 7,083,000 $ 4,064,000 $ 5,185,000 ============ ============ ============ Effective rate 42.5% 38.5% 38.1% ===== ===== =====
At June 30, 1995, the Company has alternative minimum tax credit carryforwards of approximately $1,949,000 which have been recorded as an asset and are included in the long-term deferred taxes payable account. The Company presently believes that realization of these carryforwards is more likely than not and as such has not established any valuation allowance against this asset. 16. COMMITMENTS AND CONTINGENCIES The purchase of the assets of Polylok Corporation ("Polylok") which comprises Wellington's Tarboro facility ("Tarboro") produced significant litigation among Jupiter, Wellington, Polylok, and Daniel Duhl ("Duhl"), Polylok's principal shareholder. The first action, which was settled in August 1994, involved assertions against Polylok and Duhl of misrepresentations made in connection with the purchase of Polylok's assets. Subsequently, in March 1995, Polylok and Duhl commenced an action against Jupiter and Wellington, which action asserted a breach of contract relating to installment payments due Duhl pursuant to a $1,600,000 purchase money note. Jupiter and Wellington filed counterclaims against Polylok and Duhl for breach of Duhl's consultancy agreement and breach of the prior August 1994 settlement. On October 18, 1995, the breach of contract claim asserted by Polylok and Duhl and the counter claim by Jupiter and Wellington for breach of consultancy agreement and the August 1994 settlement were resolved. On October 25, 1995, approximately $541,000 was placed in an escrow account to settle all obligations for Mr. Duhl's consultancy agreement. In further litigation in the United States District Court, Eastern District of North Carolina, Polylok Corporation and Polylok Finishing Corporation vs. Jupiter National, Inc. and Wellington Sears Company, No. 4:95-CV-105-H(2), Polylok and Duhl have taken legal action against Jupiter and Wellington regarding withdrawal of monies set aside in an escrow account, from the August 1994 settlement, providing for remediation of environmental contamination at the Tarboro plant. Subsequent to the settlement, Jupiter paid environmental expenses, later reimbursed from the escrow account, incurred before the settlement. Polylok and Duhl have taken the position these expenses were for a non-environmental nature. However, Jupiter's position is that these expenses related directly to environmental concerns and in light of the 1994 settlement the reimbursement of monies from the escrow account was proper. The reserves recorded in connection with such legal proceedings are adequate. In September 1995, Johnston signed a "Limited Guaranty Agreement" in favor of the lender under the Wellington revolving credit, term loan, and equipment loan agreement to guarantee an "Overadvance" position for Wellington under the agreement. The amount of the "Overadvance" is $1,250,000, and Wellington is to repay the lender the "Overadvance" by January 31, 1996. The "Overadvance" will be governed by the provisions of the agreement. Management of Johnston does not expect any liability to arise from this guarantee. The Company is periodically involved in legal proceedings arising out of the ordinary conduct of its business. Management does not expect that they will have a material adverse effect on the Company's consolidated financial position or results of operations. Lease Commitments - Rent expense under operating leases covering production equipment and office facilities was $791,000 in 1995, $785,000 in 1994, and $1,100,000 in 1993. F-22 24 At June 30, 1995, the Company is committed to pay the following minimum rental payments on noncancelable operating leases:
YEAR ENDING JUNE 30, AMOUNT 1996 $ 587,000 1997 471,000 1998 257,000 1999 37,000 2000 and thereafter 22,000 ------------ $ 1,374,000 ============
Other Commitments - The Company has employment contracts with certain of its employees extending through 1999 aggregating $4,939,000. The Company has purchase commitments as of June 30, 1995 with several vendors to buy inventory with terms in excess of one year aggregating approximately $13,707,000. The Company also has capital commitments as of June 30, 1995 with several vendors for the purchase of machinery and equipment with terms extending over one year aggregating approximately $8,031,000. 17. EMPLOYEE BENEFIT PLANS Defined Benefit Pension Plans - Johnston has two noncontributory defined benefit pension plans covering substantially all hourly and salaried employees. The plan covering salaried employees provides benefit payments based on years of service and the employees' final average ten years' earnings. The plan covering hourly employees generally provides benefits of stated amounts for each year of service. Johnston's current policy is to fund retirement plans in an amount that falls between the minimum contribution required by ERISA and the maximum tax deductible contribution. Plan assets consist primarily of bonds, convertible securities, growth equity securities, cash and cash equivalents, and unallocated insurance contracts. The provisions of Financial Accounting Standards Board Statement No. 87 ("SFAS 87"), "Employers' Accounting for Pensions" require recognition in the balance sheet of an additional minimum liability and related intangible asset for pension plans with accumulated benefits in excess of plan assets. At June 30, 1995 and 1994, an additional liability of $5,534,000 and $8,029,000, respectively, is reflected in the consolidated balance sheets. At June 30, 1995 and 1994, the liability exceeded the unrecognized prior service cost resulting in a minimum pension liability, net of taxes, of $1,774,000 and $3,198,000, respectively, recorded as a reduction of the Company's equity. F-23 25 Net periodic pension cost for 1995, 1994, and 1993 was $2,342,000, $2,205,000, and $1,815,000, respectively, and included the following components:
1995 1994 1993 Service cost $ 953,000 $ 1,010,000 $ 824,000 Interest cost 1,999,000 1,829,000 1,729,000 Actual (return) loss on assets (2,460,000) 395,000 (1,202,000) Net amortization and deferral 1,850,000 (1,029,000) 464,000 ------------ ------------ ------------ Net periodic pension cost $ 2,342,000 $ 2,205,000 $ 1,815,000 ============ ============ ============
The following sets forth the funded status of the plans at June 30, 1995 and 1994:
1995 1994 Actuarial present value of benefit obligations: Vested benefit obligation $ 25,280,000 $ 24,784,000 Nonvested benefit obligation 729,000 464,000 ------------- ------------- Accumulated benefit obligation $ 26,009,000 $ 25,248,000 ============= ============= Projected benefit obligation $ 27,798,000 $ 27,048,000 Plan assets at fair value 19,013,000 15,769,000 ------------- ------------- Projected benefit obligation in excess of plan assets $ 8,785,000 $ 11,279,000 ============= ============= Unrecognized prior service cost $ 590,000 $ 491,000 Unrecognized net loss 4,649,000 6,956,000 Unrecognized net liability at date of initial adoption 2,084,000 2,382,000 Pension liability recognized 1,462,000 1,450,000 ------------- ------------- Total $ 8,785,000 $ 11,279,000 ============= =============
For the salaried and hourly plans, the weighted average discount rate used in determining the projected benefit obligation was 8% in 1995 and 7.5% in 1994, and the rate of increase in future compensation levels was graded by age from 7.5% to an ultimate rate of 4% for 1995 and was a flat rate of 6% for 1994. The expected long-term rate of return on plan assets was 8% for 1995 and 1994 for both plans. Defined Contribution Plans - Through December 31, 1994, Jupiter maintained a defined contribution employee pension plan for substantially all employees to which it made annual contributions of 10% of compensation, subject to a $30,000 individual annual limitation. A portion of the plan's assets was invested in Jupiter's common stock. At June 30, 1995, 7,554 Jupiter shares were owned by the plan. During August 1995, Jupiter received a favorable determination letter from the Internal Revenue Service to terminate the plan, effective December 31, 1994. Accordingly, the plan assets were distributed to the participants during August 1995. Wellington has a defined contribution savings plan that covers substantially all full-time Wellington employees who qualify as to age and length of service. Wellington may make discretionary contributions to the plan. Wellington made contributions of $286,000 for the year ended June 30, 1995. F-24 26 18. MAJOR CUSTOMERS Net sales to a major customer of the Company comprised 6%, 11%, and 10% of net sales for the years ended June 30, 1995, 1994, and 1993, respectively. Another major customer, who acts as a distributor for the Company, comprised 5%, 9%, and 9%, of net sales for the years ended June 30, 1995, 1994, and 1993, respectively. 19. TRUST AGREEMENTS During 1991 and 1993, the Company entered into trust agreements with officers to transfer assets to trusts in lieu of paying annual bonuses and consulting fees. These trust assets, which are included in "Other Assets" on the consolidated balance sheets and are recorded at the fair market value of the underlying assets, include corporate stocks including equity securities of affiliated companies, corporate bonds including debt securities of affiliated companies, and short-term investments. The compensation to the officers is determined in accordance with the trust agreements. Upon termination of the officers' employment with the Company, the trust assets will be distributed to the officers. If the Company becomes insolvent at any time before the assets of the trust are distributed to the officers, the trust assets may be used to satisfy the claims of the Company's creditors. As of June 30, 1995 and 1994, the trust assets and corresponding liabilities each totaled $1,061,000 and $1,005,000, respectively. 20. SUBSEQUENT EVENT On August 16, 1995, Johnston jointly announced with Jupiter an agreement and plan of merger under which the public shareholders of Jupiter would receive $32.875 per share in cash from Johnston. The per share cash price is subject to adjustment based upon the market value of certain securities held by Jupiter on a date close to the date the merger proxy statement is mailed to Jupiter shareholders. If this adjustment had been made as of the close of business on August 15, 1995, the amount to be paid by Johnston would have been $31.593 per share or approximately $37,500,000. The merger is subject to approval by Jupiter's shareholders and is expected to close in February 1996. F-25 27 JOHNSTON INDUSTRIES, INC. (PARENT COMPANY) SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS JUNE 30, 1995 AND 1994
ASSETS 1995 1994 CURRENT ASSETS: Cash and cash equivalents $ 2,979,000 $ 3,681,000 Prepaid expenses and other 469,000 522,000 Deferred income taxes 788,000 ------------ ------------- Total current assets 4,236,000 4,203,000 INVESTMENT IN WHOLLY OWNED CONSOLIDATED SUBSIDIARIES - At equity 95,705,000 92,116,000 INVESTMENTS IN MAJORITY OWNED SUBSIDIARY AND IN UNCONSOLIDATED AFFILIATES - At equity 29,067,000 21,036,000 PROPERTY, PLANT, AND EQUIPMENT - Net 2,739,000 2,331,000 INTANGIBLE ASSET - PENSION 2,675,000 2,874,000 OTHER ASSETS 1,721,000 7,127,000 LONG-TERM DEFERRED INCOME TAXES 4,859,000 5,933,000 ------------ ------------- $141,002,000 $ 135,620,000 ============ ============= LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994 CURRENT LIABILITIES: Short-term borrowings $ 6,800,000 $ 2,500,000 Current maturities of long-term debt 87,000 5,087,000 Accounts payable 856,000 280,000 Accrued expenses 3,012,000 2,037,000 Income taxes payable 656,000 Deferred income taxes 1,731,000 Intercompany payables 7,541,000 11,030,000 ------------ ------------- Total current liabilities 18,296,000 23,321,000 LONG-TERM DEBT 46,130,000 36,216,000 ------------ ------------- OTHER LIABILITIES 13,149,000 16,275,000 ------------ ------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, par value $.10 per share; authorized, 20,000,000 shares; issued 12,426,891 and 12,411,891 1,243,000 1,241,000 Additional paid-in capital 17,258,000 17,107,000 Retained earnings 54,808,000 51,065,000 ------------ ------------- Total 73,309,000 69,413,000 Less treasury stock: 1,861,912 and 1,682,112 shares at (8,108,000) (6,407,000) cost Less minimum pension liability adjustment, net of tax (1,774,000) (3,198,000) benefit ------------ ------------- Stockholders' equity 63,427,000 59,808,000 ------------ ------------- $141,002,000 $ 135,620,000 ============ =============
S - 1 28 JOHNSTON INDUSTRIES, INC. (PARENT COMPANY) SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF INCOME YEARS ENDED JUNE 30, 1995, 1994, AND 1993
1995 1994 1993 NET SALES $ - $ - $ - COSTS AND EXPENSES: Cost of sales, excluding depreciation and amortization (5,000) 483,000 96,000 Selling, general, and administrative (53,000) (310,000) 93,000 Depreciation and amortization 255,000 (240,000) (252,000) ---------------- --------------- --------------- Total costs and expenses 197,000 (67,000) (63,000) ---------------- --------------- --------------- INCOME (LOSS) FROM OPERATIONS (197,000) 67,000 63,000 OTHER EXPENSE: Interest expense - net 3,776,000 2,984,000 2,504,000 Other - net 1,717,000 619,000 1,095,000 ---------------- --------------- --------------- Total other expenses 5,493,000 3,603,000 3,599,000 ---------------- --------------- --------------- EQUITY IN EARNINGS (LOSSES) OF EQUITY INVESTMENTS 2,784,000 (1,141,000) 5,093,000 ---------------- --------------- --------------- INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES AND INCOME FROM SUBSIDIARIES (2,906,000) (4,677,000) 1,557,000 PROVISION (BENEFIT) FOR INCOME TAXES (926,000) (1,606,000) 512,000 ---------------- --------------- --------------- NET INCOME (LOSS) BEFORE INCOME OF SUBSIDIARIES (1,980,000) (3,071,000) 1,045,000 INCOME FROM OPERATIONS OF SUBSIDIARIES 9,855,000 9,566,000 7,369,000 ---------------- --------------- --------------- NET INCOME $ 7,875,000 $ 6,495,000 $ 8,414,000 ================ =============== ===============
S - 2 29 JOHNSTON INDUSTRIES, INC. (PARENT COMPANY) SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1995, 1994, AND 1993
1995 1994 1993 OPERATING ACTIVITIES: Net income $ 7,875,000 $ 6,495,000 $ 8,414,000 ----------- ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 255,000 (240,000) (252,000) Undistributed income from operations of (9,855,000) (9,566,000) (7,369,000) subsidiaries Undistributed income of affiliates (2,784,000) 1,141,000 (5,093,000) Changes in assets and liabilities: Deferred income taxes (359,000) (161,000) 507,000 Prepaid expenses and other assets (299,000) (198,000) 324,000 Accounts payable 715,000 222,000 (36,000) Accrued expenses 975,000 (18,000) (94,000) Income taxes payable (687,000) (9,000) 152,000 Intercompany accounts (9,441,000) (10,752,000) (8,019,000) Other liabilities (568,000) 487,000 1,060,000 Other, net 4,000 124,000 124,000 ----------- ----------- ----------- Total adjustments (22,044,000) (18,970,000) (18,696,000) ----------- ----------- ----------- Net cash used in operating activities (14,169,000) (12,475,000) (10,282,000) ----------- ----------- ----------- INVESTING ACTIVITIES: Additions to property, plant, and equipment (720,000) (1,997,000) (200,000) Increase in investments (5,247,000) (4,578,000) (2,034,000) Repayments of loans by stockholders 5,383,000 341,000 ----------- ----------- ----------- Net cash used in investing activities (5,967,000) (1,192,000) (1,893,000) ----------- ----------- ----------- FINANCING ACTIVITIES: Principal payments of debt (5,086,000) (4,022,000) (2,000,000) Proceeds from issuance of long-term debt 10,000,000 13,325,000 Net borrowings (repayments) under line-of-credit 4,300,000 (7,500,000) 4,000,000 agreements Purchase of treasury stock (1,701,000) (348,000) (2,693,000) Proceeds from employee stock ownership plan 1,454,000 Proceeds from issuance of common stock 101,000 380,000 811,000 Payments from consolidated subsidiaries 15,952,000 15,818,000 16,749,000 Dividends paid (4,132,000) (3,694,000) (3,412,000) ----------- ----------- ----------- Net cash provided by financing activities 19,434,000 13,959,000 14,909,000 ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (702,000) 292,000 2,734,000 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,681,000 3,389,000 655,000 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,979,000 $ 3,681,000 $ 3,389,000 =========== =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest paid $ 3,673,000 $ 2,962,000 $ 2,861,000 =========== =========== =========== Income taxes paid $ 3,168,000 $ 2,401,000 $ 2,052,000 =========== =========== ===========
S - 3 30 JOHNSTON INDUSTRIES, INC. (PARENT COMPANY) SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT NOTES TO CONDENSED FINANCIAL STATEMENTS Johnston Industries, Inc. and subsidiaries (the "Company") publish consolidated financial statements that are its primary financial statements. Therefore, these parent company condensed financial statements are not intended to be the primary financial statements of the Company, and should be read in conjunction with the consolidated financial statements and notes thereto of the Company. S - 4 31 JOHNSTON INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT ADDITIONS BEGINNING CHARGED TO OTHER BALANCE AT DESCRIPTION OF YEAR OPERATIONS ACCOUNTS DEDUCTIONS END OF YEAR ALLOWANCE FOR DOUBTFUL ACCOUNTS 1995 $ 368,000 $ 305,000 $ 838,000(2) $ (398,000)(1) $ 1,113,000 ========= ========= ========= ========== ============ 1994 $ 314,000 $ 151,000 $ (97,000)(1) $ 368,000 ========= ========= ========= ========== ============ 1993 $ 667,000 $ 383,000 $ (736,000)(1) $ 314,000 ========= ========= ========= ========== ============
(1) Amounts written off, net of recoveries. (2) Additional amount added during the year is from the consolidation of Jupiter in January 1995 representing the balance at the date of consolidation. S - 5 EX-23 5 INDEPENDENT AUDITOR'S CONSENT 1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT Johnston Industries, Inc.: We consent to the incorporation by reference in Registration Statements No. 33-86414, No. 33-38359, No. 33-44669, No. 33-50100, and No. 33-73268 of Johnston Industries, Inc. (the "Company") on Form S-8 of our report dated August 18, 1995 (December 7, 1995 as to Notes 10 and 16) appearing in the Annual Report on Form 10-K/A-2 of the Company for the year ended June 30, 1995. Such report includes an explanatory paragraph concerning litigation related to an environmental contingency. Deloitte & Touche LLP DELOITTE & TOUCHE LLP Atlanta, Georgia December 7, 1995 -----END PRIVACY-ENHANCED MESSAGE-----