-----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, MuOXPILnwN7DY9SyjDATzYGSnCtSeYZvfbI4rKwi1BY96oAxDxM+yiFRBzuRt4BI ZovzItrb/8paUuiYOSz+Wg== 0000927356-98-000353.txt : 19980323 0000927356-98-000353.hdr.sgml : 19980323 ACCESSION NUMBER: 0000927356-98-000353 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980319 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: JOHNS MANVILLE INTERNATIONAL GROUP INC CENTRAL INDEX KEY: 0000930818 STANDARD INDUSTRIAL CLASSIFICATION: ABRASIVE ASBESTOS & MISC NONMETALLIC MINERAL PRODUCTS [3290] IRS NUMBER: 841196355 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13574 FILM NUMBER: 98569232 BUSINESS ADDRESS: STREET 1: P O BOX 5108 CITY: DENVER STATE: CO ZIP: 80217-5108 BUSINESS PHONE: 3039782000 MAIL ADDRESS: STREET 1: P O BOX 5108 CITY: DENVER STATE: CO ZIP: 80217-5108 FORMER COMPANY: FORMER CONFORMED NAME: SCHULLER INTERNATIONAL GROUP INC DATE OF NAME CHANGE: 19940930 10-K405 1 FORM 10-K405 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NO. 1-13574 JOHNS MANVILLE INTERNATIONAL GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 84-1196355 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 717 17TH STREET, DENVER, COLORADO 80202 (Address of principal executive offices (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (303) 978-2000 SECURITIES REGISTERED UNDER SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- 10 7/8% Senior Notes Due 2004 New York Stock Exchange, Inc.
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 at least the past 90 days. YES [X] NO [_] Indicate 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. YES [X] NO [_] Johns Manville International Group, Inc. is a wholly owned subsidiary of Johns Manville Corporation, and there is no market for the registrant's common stock. As of March 2, 1998, there were 100 shares of the registrant's sole class of common stock outstanding. The registrant meets the conditions set forth in, and is filing this form with the reduced disclosure format prescribed by, General Instruction I of Form 10- K. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS PART I
PAGE ---- ITEM 1. BUSINESS...................................................... 1 Introduction and Description of the Business.................. 1 Insulation.................................................... 1 Roofing Systems............................................... 3 Engineered Products........................................... 3 Materials..................................................... 5 Research and Development...................................... 5 Patents....................................................... 5 Labor Relations............................................... 5 Seasonality................................................... 5 Environmental Regulations..................................... 5 Occupational Health and Safety Aspects of the Company's Products..................................................... 6 ITEM 2. PROPERTIES.................................................... 9 Headquarters.................................................. 9 Manufacturing and Development Facilities...................... 9 ITEM 3. LEGAL PROCEEDINGS............................................. 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...................................................... 10 ITEM 6. SELECTED FINANCIAL DATA....................................... 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................... 11 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................... 19 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..................................... 47 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............ 47 ITEM 11. EXECUTIVE COMPENSATION........................................ 47 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................... 47 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 47 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..................................................... 47
The "Company" or "Johns Manville" when used in this Form 10-K refers to Johns Manville International Group, Inc., incorporated in the State of Delaware in 1992, including, where applicable, its consolidated subsidiaries. i PART I ITEM 1. BUSINESS INTRODUCTION AND DESCRIPTION OF THE BUSINESS Johns Manville is a leading manufacturer of insulation and building products, with 1997 net sales of approximately $1.65 billion. Johns Manville manufactures and markets products for building and equipment insulation, commercial and industrial roofing systems, high-efficiency filtration media, and fibers and nonwoven mats used as reinforcements in building and industrial applications. Johns Manville operates manufacturing facilities in North America, Europe and China and is comprised of three principal business segments, as set forth in the following table:
PRODUCT GROUPS BY BUSINESS SEGMENT(1) PRODUCTS AND APPLICATIONS ------------------------------------- ------------------------- INSULATION Building Fiber glass wool insulation for walls, attics and floors in commercial and residential buildings; residential foam sheathing Commercial and Industrial Pipe and duct insulation and fireproof board for use in various commercial and industrial applications OEM Thermal and acoustic insulation for aircraft; marine vessels; automobiles; heating, ventilating and air conditioning ("HVAC"); and other equipment ROOFING SYSTEMS Commercial and industrial roofing systems, including membranes, insulation, accessories and related guarantees ENGINEERED PRODUCTS Mats and Fibers Continuous filament fiber glass and nonwoven fiber glass mats for roofing, flooring and specialty substrates and reinforcement of plastics and gypsum products; woven fiber glass fabrics; wall covering and plastic products Filtration Air filtration media for buildings; ultra-fine fibers for clean room air filters and battery separators; liquid filtration cartridge and media; and industrial oil sorbent products
- -------- (1) For additional business segment information and geographical data, see Note 21 to the Company's Consolidated Financial Statements contained in this report. INSULATION Johns Manville's Insulation segment, with 1997 net sales of $697.8 million, or 42 percent of Johns Manville's total net sales (before elimination of intersegment sales), is comprised of the building, commercial and industrial and OEM product groups. BUILDING Products. Johns Manville's building insulation business manufactures a complete line of fiber glass wool insulation products for walls, attics and floors in commercial and residential buildings. Johns Manville's building insulation products include fiber glass batts, rolls, blowing wool and related products. Johns Manville also produces polyisocyanurate foam sheathing for use in residential structures. 1 Johns Manville manufactures building insulation products at nine manufacturing facilities in North America to serve regional population and construction centers. This regional structure, which keeps most shipping distances within a 500-mile radius, improves Johns Manville's customer service and reduces its total transportation costs. Markets and Distribution. Demand for Johns Manville's building insulation products is driven primarily by North American housing starts. Other important influences are demand in the repair/remodel market and rates of commercial construction of warehouses and light manufacturing facilities. In addition, implementation of various federal and state energy conservation codes serves to increase the amount of insulation per unit built. Building insulation products typically reach end users through contractors, retailers and distributors. Johns Manville's marketing efforts are normally directed toward insulation contractors and national retailers. Competition. Johns Manville's building insulation business competes primarily with Owens-Corning ("OC") and Certain Teed Corporation, the U.S. subsidiary of Compagnie de Saint-Gobain ("CSG"). Johns Manville competes in the building insulation business primarily on the basis of price, packaging/merchandising and service. COMMERCIAL AND INDUSTRIAL Products. Johns Manville's commercial and industrial insulation business manufactures pipe and duct insulation for use in commercial buildings, factories, refineries and other industrial applications. In response to industry attention to indoor environmental quality, Johns Manville offers EnviroSystem(TM), a group of products sold together aimed at indoor environmental quality improvement. Such products include duct insulation with enhanced thermal and acoustical properties with an antimicrobial agent for improved air filtration. Johns Manville manufactures commercial and industrial insulation products at 13 facilities in North America. In January 1998, the Company acquired a plant located in Mesa County, Colorado from the Pabco Division of Fibreboard Corporation, a subsidiary of OC. The Mesa plant manufactures calcium silicate pipe and block insulation and Super Firetemp(TM) fireproof board. As part of this acquisition, Johns Manville acquired the Pabco(R) trademarks and tradenames associated with the business. Markets and Distribution. Demand for Johns Manville's commercial and industrial insulation products is driven primarily by commercial construction activity and by demand in the remodel/retrofit market. Commercial and industrial insulation products reach the market through Johns Manville's network of distributors, contractors and fabricators. Competition. Johns Manville's commercial and industrial insulation business primarily competes with OC, CSG and Knauf Fiberglass USA. Johns Manville competes in the commercial and industrial insulation business primarily on the basis of price, breadth of product line and strength of fabricator and distributor networks. OEM Products. Johns Manville's OEM insulation business produces thermal and acoustic insulation for aircraft, marine vessels, automobiles, HVAC and other equipment. OEM insulation products generally require extremely fine and uniform fibers to provide the required insulating properties, and therefore command higher prices than other fiber glass products. As an alternative to fiber glass insulation, the Company manufactures and sells polyimide foam insulation products for applications in aircraft and on naval vessels. Johns Manville manufactures OEM insulation products at seven facilities in the United States. Markets and Distribution. Demand for Johns Manville's OEM insulation products is driven primarily by the production of aircraft, marine vessels and automobiles and by commercial construction (for HVAC and other insulations). Johns Manville typically sells OEM insulation products to distributors and fabricators who, in turn, sell to original equipment manufacturers. 2 Competition. Johns Manville's OEM insulation business competes with a variety of large and small companies in its various niche markets. Johns Manville competes in the OEM insulation business primarily on the basis of quality and product customization. ROOFING SYSTEMS In 1997, Johns Manville's Roofing Systems segment had net sales of $510.5 million, or 30 percent of the Company's total net sales (before elimination of intersegment sales). Products. Johns Manville is a full-line supplier of roofing systems and components for low-slope commercial and industrial roofs, including a wide range of membranes, insulations, accessories and roofing system guarantees. Johns Manville's commercial roofing systems business operates 17 manufacturing facilities in the United States and has two additional plants located in Altamira, Mexico and Verona, Italy. In September 1997, the Company entered the thermoplastic roofing membrane business with its acquisition of the roofing business of HPG International, Inc. In January 1998, the Company added to this business with the acquisition of the assets of Seal-Dry/USA, Inc., including its plant located in Little Rock, Arkansas. Markets and Distribution. Demand for Johns Manville's roofing systems products is driven primarily by commercial and industrial reroofing needs. Johns Manville estimates that approximately 75 percent of its roofing material sales during 1997 were attributable to reroofing, with the balance attributable to new construction. While sales of roofing systems are affected by levels of new construction and general economic conditions, sales attributable to reroofing are less sensitive to these factors thus mitigating the adverse effect of recessionary periods. Johns Manville's marketing focus is directed to roofing contractors and distributors, owners, architects and roofing consultants who generally recommend premium roofing systems. Approximately 95 percent of Johns Manville's roofing systems sales during 1997 were sold through wholesale distributors; the remainder was sold through roofing contractors. Competition. The commercial and industrial roofing business is a highly fragmented market. Competitors include several large national participants, such as Firestone Building Products, GAF Corporation, Tamko Asphalt Products Inc., Carlisle Companies Incorporated, Sarnafil Inc., Duro-Last, Inc., and various smaller regional companies. Johns Manville competes in the commercial and industrial roofing business primarily on the basis of breadth of product line, specifications, guarantees, systems reliability and price. ENGINEERED PRODUCTS Johns Manville's Engineered Products segment had 1997 net sales of $476 million, or 28 percent of Johns Manville's total net sales (before elimination of intersegment sales). The Engineered Products segment is comprised of the mats and fibers and filtration product groups. MATS AND FIBERS Products. Johns Manville's mats and fibers business manufactures continuous filament fiber glass-based products that are used in a variety of applications. Johns Manville is a worldwide supplier of nonwoven fiber glass mat products, which are used as substrates in roofing, flooring and specialty applications. Johns Manville also sells fiber glass products (chopped fiber and rovings) for reinforcing plastics and gypsum products and for use in fiber glass wall coverings. Through its May 1997 acquisition of the Mitex group of companies, the Company entered the woven fiber glass fabrics business as a manufacturer of fiber glass wall coverings which are used primarily in commercial and industrial buildings. 3 The mats and fibers business operates three manufacturing plants and one support facility in the United States. Schuller GmbH, Johns Manville's German subsidiary, operates three plants in Germany and one plant in Poland. Schuller GmbH was the pioneer in wet fiber glass mat technology and also developed the unique sliver fiber glass process, which created the market for fiber glass wall coverings in Europe. Johns Manville's Mitex subsidiaries operate two manufacturing facilities in Sweden and one in the United Kingdom. Through a joint venture with China National New Building Materials Corporation and Tianma Corporation, Johns Manville manufactures fiber glass mat at a plant located in the City of Changzhou, Jiangsu Province, China. Johns Manville has a 60 percent interest in the joint venture. Markets and Distribution. Demand for Johns Manville's mats and fibers products is driven primarily by the worldwide commercial construction and retrofit markets, as well as by U.S. residential construction and reroofing markets. Mats and fibers products are sold directly to roofing and flooring manufacturers and to Johns Manville's Mitex subsidiaries as well as to other European textile weavers. Johns Manville's U.S. mats and fibers business provides fiber glass mat to Johns Manville's commercial roofing systems business for its fiber glass-based roofing products. Competition. Johns Manville's primary competitors in the worldwide mats and fibers business are OC, CSG, PPG Industries and Elk Corporation. Johns Manville competes in the mats and fibers business primarily on the basis of quality and service. FILTRATION Products. Johns Manville's filtration businesses produce air filtration media for commercial and industrial buildings for HVAC and other equipment and ultra-fine fibers for clean room air filters. The Company also manufactures liquid filtration cartridges and media for use in commercial and industrial applications. As with OEM insulation, filtration products generally require extremely fine and uniform fibers to provide the required filtration properties, and therefore command higher prices than other fiber glass products. In January 1997, Johns Manville expanded its synthetic manufacturing capabilities and its product lines by acquiring the assets of Ergon Nonwovens, Inc. Johns Manville produces a full line of synthetic meltblown nonwoven products used in air and liquid filtration applications, personal care and in industrial oil sorbent products. The Company manufactures filtration products at seven of Johns Manville's U.S. facilities. Markets and Distribution. Demand for Johns Manville's filtration products is driven primarily by commercial construction and commercial building occupancy (air filtration media); the construction of clean rooms requiring dust-free environments which are primarily used by the pharmaceutical and semiconductor industries (ultra-fine fibers); and the need for high-efficiency filtration of water, paints, inks, chemicals, resins and oils in industrial manufacturing operations (liquid filtration media). Increasing public attention to environmental issues also stimulates demand for filtration media and industrial oil sorbent products. Johns Manville typically sells air filtration media products to producers of air filtration systems for use in commercial buildings. The Company sells liquid filtration media products to producers of liquid filtration systems and products for use in commercial and industrial manufacturing operations. Johns Manville also sells finished cartridges for use in high-efficiency liquid filtration applications and ultra-fine fibers to specialty filtration paper manufacturers. Johns Manville sells its synthetic nonwoven products primarily to distributors and fabricators. Competition. Johns Manville's filtration business competes with a variety of large and small companies in its various niche markets. Johns Manville competes in the filtration business primarily on the basis of quality and product customization. 4 MATERIALS Fiber glass is the basic material in a significant number of Johns Manville's products. The principal raw materials used to manufacture fiber glass products include sand, soda ash, lime, borate minerals and aluminous materials. Phenol-formaldehyde, urea extended phenol-formaldehyde, urea- formaldehyde, melamine-formaldehyde and other resins are also used to bind glass fibers. All of these raw materials are readily available in sufficient quantities from various sources for Johns Manville to maintain and expand its current production levels. Johns Manville's products contain materials other than fiber glass to satisfy the broader needs of its customers. For example, calcium silicate pipe insulation products and plastic accessories complement Johns Manville's product offerings to commercial/industrial insulation distributors. Johns Manville manufactures polyimide foam for marine insulation which is used by the United States Navy in shipbuilding. Commercial roofing systems use perlite insulation board, rubber and thermo plastic membranes and polyester substrates. In addition, the Company uses several advanced polymers in roll goods for roofing substrates. The Company manufactures polyisocyanurate foam roof insulation and residential sheathing using liquid chemicals comprised primarily of polyol and polyisocyanurate. Johns Manville has broadened its product lines into certain polymer fiber applications for filtration, substrates, and equipment insulation, apparel and industrial oil sorbents. The raw materials used in these various products are readily available in sufficient quantities from various sources for Johns Manville to maintain and expand its current production levels. RESEARCH AND DEVELOPMENT The Company carries out research and development activities at its facilities in Littleton, Colorado; Mesa County, Colorado; Waterville, Ohio; Richmond, Indiana; Wertheim, Germany; and Helsingborg, Sweden. Research, development and engineering expenses for the years ended December 31, 1997, 1996 and 1995 were $31.2 million, $32.7 million and $30 million, respectively. PATENTS The Company presently owns or controls approximately 650 U.S. and foreign patents and patent applications. The Company also holds negotiated licenses under various patents owned by others. While the Company regards its patents and licenses as valuable, it does not consider any of its businesses to be materially dependent upon any single patent or license. LABOR RELATIONS At March 2, 1998, the Company employed approximately 8,300 persons worldwide, of whom approximately 3,800 were covered by collective bargaining agreements. The Company has experienced a long history of good working relationships with its employees and labor unions. SEASONALITY The Company's quarterly results of operations are moderately seasonal due to increases in construction activity that typically occur in the second and third quarters of the calendar year, thereby increasing sales and gross profits in those periods. ENVIRONMENTAL REGULATIONS All of the Company's domestic operations are subject to a variety of federal, state and local environmental laws and regulations. These laws and regulations regulate the discharge of materials into the air, land and water and govern the use and disposal of hazardous substances. The most significant of the federal laws are the Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act 5 ("RCRA") and the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"). These environmental regulatory programs are administered by the federal Environmental Protection Agency ("EPA"). In addition, states and local jurisdictions have adopted equivalent or more stringent environmental laws and regulations, or have enacted their own parallel environmental programs, which are enforced through various state and local administrative agencies. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and Note 15 to the Company's Consolidated Financial Statements. OCCUPATIONAL HEALTH AND SAFETY ASPECTS OF THE COMPANY'S PRODUCTS The Company has an ongoing product stewardship program to facilitate compliance with existing laws, and to protect the health and safety of the Company's employees, customers and the general public. This program is implemented through extensive research, a continuing process of workplace and product evaluation and an extensive communications program. National and international scientific authorities are involved on an ongoing basis in the assessment of potential human health hazards. The results of these evaluations are reported regularly to employees and customers as part of the Company's communications program. The Company manufactures, processes and sells products, and has in the past manufactured, processed and sold products, that contain certain chemicals or substances, including man-made vitreous fibers ("MMVF") such as fiber glass, refractory ceramic fiber ("RCF") and mineral wools classified by the International Agency for Research on Cancer ("IARC") as possible human carcinogens. In 1987, the IARC evaluated the carcinogenicity of MMVF. Fiber glass wool, RCF and mineral wool were classified as "possibly carcinogenic to humans." The IARC concluded that continuous glass filament (chopped strand) was "not classifiable as to human carcinogenicity." Crystalline silica exists in trace amounts in the Company's calcium silicate insulation products and is a major constituent of the diatomaceous earth products produced by a former subsidiary and in industrial sands used in the Company's direct melt operations, marble forming and roofing plants. In 1996, the IARC classified crystalline silica as "known carcinogenic to humans." The IARC classification of crystalline silica was based upon animal and human studies. Asphalt used by the Company's roofing operations presently is being evaluated by the National Institute of Occupational Safety and Health to determine its carcinogenic potential. Although crystalline silica is a contaminant in one of the raw materials used in Johns Manville's calcium silicate insulation products, the silica content constitutes less than one percent of the finished product. Respirable crystalline silica exposures have been under both "normal" and "foreseeable emergency conditions" for the Company's pipe insulation products (Thermal- 120(R) and Pabco(R) Super Caltemp Gold). Air concentrations resulting from the expected uses of these products can be properly characterized as "trace or minute" amounts of exposure. The Company recently acquired certain assets of the Pabco(R) business and its associated products. Pabco(R) has several other brands of calcium silicate products that have not been subjected to such testing and are sold under a special cancer hazard warning label in accordance with applicable law. The Company has developed and uses hazard communication materials reflecting the potential cancer hazard of crystalline silica that address the proper handling of these products by employees and customers. The industrial sands used at the Company's facilities contain only a small percentage of crystalline silica which is small enough to be inhaled. Industrial hygiene monitoring of Johns Manville employees exposure to silica has been performed since the early 1970s and have shown a minimal risk of overexposure. In cases where overexposures are likely to occur, the Company reviews work practices and requires mandatory use of respiratory protection. The Company sold most of its RCF operations in 1990 and agreed to indemnify the purchasers for pre-closing liabilities, including claims by transferred employees arising out of pre-closing occupational exposures incurred in the course of their employment with the Company or its predecessors. RCF products have been labeled as a possible cause of cancer since 1985. Subsequently, RCF product labels were revised to warn of the additional potential hazard associated with exposure to crystalline silica, which can be formed after use of RCF products at high temperatures. 6 For purposes of occupational exposure, the Occupational Safety and Health Administration regulates all MMVF as nuisance dusts. The Company believes that it is in substantial compliance with all applicable workplace exposure regulations and product "right-to-know" labeling requirements with respect to MMVF. The language on these labels not only advises of the possible health hazards, but includes proper handling and protective measures to be followed. In 1987, the IARC reviewed epidemiological studies involving occupational exposure to fiber glass wool, including a large U.S. and a large European study of fiber glass manufacturing workers that had reported modest but statistically significant increases of lung cancer deaths compared to national mortality rates. The IARC concluded that evidence of cancer in humans from such epidemiological studies was "inadequate" to permit a conclusion regarding the presence or absence of a causal relationship with fiber glass exposure. The IARC also concluded, however, that the evidence from animal studies was "sufficient" to establish a causal relationship. That finding was based entirely on positive laboratory results achieved through implantation or other artificial techniques of exposing animals to fibrous materials. The relevance of such implantation studies to the evaluation of risk to humans has been questioned by many scientists, who believe that animal inhalation studies are more appropriate than animal implantation studies to assess the potential risk to humans. In 1990, the authorities of the large U.S. epidemiological study reviewed by the IARC in 1987 noted a small, but statistically significant, excess in respiratory cancer deaths of fiber glass manufacturing workers compared with local mortality rates. However, as in the IARC assessment, the authors, after looking at the cumulative evidence from the relevant factors that might support a causal relationship, concluded that the evidence of an association between exposure to fiber glass wool and respiratory cancer was actually "somewhat weaker" than that at the time of the IARC assessment. The U.S. investigation is continuing to determine if the small excess in lung cancer was associated with lifestyle factors such as smoking or other workplace exposures. The next update is expected in late 1998 or in 1999. Data contained in the latest report of an update of the large European epidemiological study shows mortality findings for fiber glass wool similar to those from the large U.S. study. On June 24, 1994, the U.S. Department of Health and Human Services ("HHS") announced its decision to act on the recommendation of the National Toxicology Program ("NTP") and list fiber glass wool and RCF in the Seventh Annual Report on Carcinogens ("ARC") as substances which "may be reasonably anticipated" to be a carcinogen. The NTP listing criteria provide that a substance must be listed if there are two or more animal studies showing carcinogenic effect, regardless of route of exposure and notwithstanding any other evidence. As a result, the NTP concluded that the results of the experimental animal implantation studies provided sufficient evidence to support the listing. HHS explained that the NTP "reasonably anticipated" category for fiber glass essentially corresponds to the IARC 1987 "possibly carcinogenic" classification. Labels and other hazard communication materials reflecting the potential cancer risk have been developed and are used by the Company to address the proper handling of fiber glass wool products by employees and customers. In addition, the Company has agreed to indemnify certain purchasers, under certain circumstances, for personal injury claims arising out of exposure to the Company's fiber glass wool products. Since 1988, the Company has funded, in conjunction with other companies in the industry, several epidemiological and chronic animal inhalation studies to assess the cancer-causing potential of MMVF. In August 1995, the industry expanded the animal research it had begun in 1988 to include exposure of hamsters to a building insulation/wool fiber and a special application glass fiber used in some filtration and a few thermal high performance applications. As with previous research involving exposure of rats to glass fibers, this study also was a two year chronic inhalation study which was completed in 1997. The results of the study found no lung disease (no fibrosis nor cancer) in the animals exposed to the building insulation/wool fiber. In the animals exposed to the special application glass fiber, there was continued evidence of fibrosis, which did not progress, and a single mesothelioma was found in one animal. The building insulation wool fibers have not, consistent with the previous inhalation study of the fiber, produced any adverse respiratory results. These preliminary findings have been reported to the EPA under the Toxic Substances Control Act, and the Company has notified its employees and customers. 7 In 1997, the Institute of Occupation Medicine ("IOM") in Edinburgh, Scotland released preliminary results from a chronic inhalation study of E glass microfiber using rats. Some of the animals that inhaled this fiber developed lung fibrosis and tumors. E glass microfiber is no longer manufactured in the United States, however, Johns Manville produced small quantities until 1994 at one manufacturing location. E glass microfiber is different than the large diameter E glass continuous filaments that Johns Manville manufactures in its mats and fibers business. E glass continuous filaments are too thick to be inhaled into the deep lungs and are not considered to be respirable. The findings of the IOM study have also been reported to the EPA and the Company has notified its employees and former customers. The results of an industry supported epidemiological study of RCF workers was published in 1996. This case-control morbidity study evaluated chest x- rays of workers at two RCF manufacturing plants owned by Carborundum Corporation. Although no significant increase in lung fibrosis was seen, an exposure-related increase in pleural plaques was observed. In 1997 the American Conference of Governmental Industrial Hygienists ("ACGIH") classified all forms of glass fibers as an "A3-Animal Carcinogen." ACGIH defines an A3-Animal Carcinogen as follows: "The agent is carcinogenic in experimental animals at a relatively high dose, by route(s) of administration, at site(s), of histologic type(s), or by mechanism(s) that are not considered relevant to worker exposure. Available epidemiologic studies do not confirm an increased risk of cancer in exposed humans. Available evidence suggests that the agent is not likely to cause cancer in humans except under uncommon or unlikely routes or levels of exposure." By contrast, the ACGIH did not apply its definition of an "A1-Confirmed Human Carcinogen" to glass fibers. The ACGIH definition of an "A1-Confirmed Human Carcinogen" is: "The agent is carcinogenic to humans based on the weight of evidence from epidemiologic studies of, or convincing clinical evidence in, exposed humans." While there is some disagreement within the scientific and medical community regarding the interpretation of the studies, based upon its analysis to date, the Company does not believe that the IARC classification, the listing in the ARC, or any action taken by federal and state regulatory agencies will have a material adverse effect on the Company. The foregoing statement constitutes a "forward-looking statement" under federal securities laws. The Company's analysis of available data and its expectations concerning human health hazards associated with its products are subject to risks and uncertainties. Because domestic and international regulatory and scientific authorities are involved on an ongoing basis in the assessment of potential human health hazards, and there can be no assurance that future actions taken by such authorities or other developments relating to the Company's liability for its products will not have an adverse effect on the Company. 8 ITEM 2. PROPERTIES HEADQUARTERS The Company's headquarters are located in Denver, Colorado. The Company leases approximately 150,000 square feet of office space at Johns Manville Plaza in downtown Denver. MANUFACTURING AND DEVELOPMENT FACILITIES The following table sets forth certain information with respect to the Company's major manufacturing and development plants and buildings. All of the buildings are adequate and suitable for the business of the Company, have been well maintained and are in sound operating condition and regular use. The South Gate, California; Lakewood, Colorado; Kansas City, Kansas; Edison, New Jersey; Kent, Washington; and Altamira, Mexico facilities are leased.
LOCATION BUSINESS SEGMENT - -------- ---------------- UNITED STATES AND CANADA Innisfail, Alberta, Canada................... Insulation Tucson, Arizona.............................. Insulation and Engineered Products Little Rock, Arkansas........................ Roofing Systems Corona, California........................... Insulation Pittsburg, California........................ Roofing Systems South Gate, California....................... Roofing Systems Willows, California.......................... Insulation Lakewood, Colorado........................... Insulation Littleton, Colorado.......................... Insulation and Engineered Products Mesa County, Colorado........................ Insulation Jacksonville, Florida........................ Roofing Systems and Insulation Macon, Georgia............................... Roofing Systems Winder, Georgia.............................. Insulation Rockdale, Illinois........................... Roofing Systems Waukegan, Illinois........................... Insulation and Roofing Systems Bremen, Indiana.............................. Roofing Systems and Insulation Richmond, Indiana............................ Insulation Kansas City, Kansas.......................... Roofing Systems McPherson, Kansas............................ Insulation Lewiston, Maine.............................. Roofing Systems Saco, Maine.................................. Roofing Systems and Insulation Natchez, Mississippi......................... Roofing Systems Richland, Mississippi........................ Engineered Products Edison, New Jersey........................... Insulation Penbryn, New Jersey.......................... Insulation Plattsburg, New York......................... Roofing Systems Defiance, Ohio............................... Insulation and Engineered Products Waterville, Ohio............................. Engineered Products Oklahoma City, Oklahoma...................... Roofing Systems Hazelton, Pennsylvania....................... Roofing Systems and Insulation Etowah, Tennessee............................ Engineered Products Baytown, Texas............................... Roofing Systems Cleburne, Texas.............................. Insulation and Engineered Products Edinburg, Virginia........................... Roofing Systems Richmond, Virginia........................... Insulation Kent, Washington............................. Roofing Systems and Insulation Parkersburg, West Virginia................... Insulation and Engineered Products
9
LOCATION BUSINESS SEGMENT - -------- ---------------- INTERNATIONAL Changzhou, Jiangsu, China.................... Engineered Products St. Helens, England.......................... Engineered Products Karlstein, Bavaria, Germany.................. Engineered Products Steinach, Thuringen, Germany................. Engineered Products Wertheim, Baden-Wuerttemberg, Germany........ Engineered Products Verona, Italy................................ Roofing Systems Altamira, Mexico............................. Roofing Systems Lubliniec, Poland............................ Engineered Products Helsingborg, Sweden.......................... Engineered Products Stromsund, Sweden............................ Engineered Products
ITEM 3. LEGAL PROCEEDINGS The Company is involved in various legal actions occurring in the normal course of its business. In the opinion of the Company's management, adequate provision has been made for losses which may result from these actions and, accordingly, the outcome of these proceedings is not expected to have a material adverse effect on the financial condition of Johns Manville. For additional information concerning certain of these proceedings, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources--Contingent Product Liability" and "--Environmental Contingencies." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of 1997, there were no matters submitted to a vote of security holders. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company is a wholly owned subsidiary of Johns Manville Corporation, and there is not a market for the Company's common stock. ITEM 6. SELECTED FINANCIAL DATA Omitted under the reduced disclosure format pursuant to General Instruction I(2)(a) of Form 10-K. 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Johns Manville International Group, Inc. (the "Company") is a wholly owned subsidiary of Johns Manville Corporation. The Company manufactures and markets building and equipment insulation, commercial/industrial roofing systems, high-efficiency filtration media, and fibers and nonwoven mats used as reinforcements in building and industrial applications. The Company operates 50 manufacturing facilities in North America, Europe and China, and is comprised of three principal business segments: Insulation, Roofing Systems and Engineered Products. The Insulation segment consists of the Company's building insulation business, which manufactures fiber glass wool insulation for walls, attics and floors in residential and commercial buildings and polyisocyanurate foam sheathing for residential structures; commercial/industrial insulation business, which manufactures pipe and duct insulation for use in commercial buildings, factories, refineries and other industrial applications; and original equipment manufacturers ("OEM") insulation business, which manufactures thermal and acoustic insulation for aircraft, marine vessels, automobiles and heating, ventilating and air conditioning ("HVAC") and other equipment. The Roofing Systems segment consists of the Company's commercial/industrial roofing systems business, which supplies roofing membranes, insulations, accessories and related guarantees. The Engineered Products segment consists of the Company's mats and fibers business, which manufactures continuous filament fiber glass-based products used for reinforcing roofing, flooring, wall covering and plastic products. The mats and fibers business includes the Company's German subsidiary, Schuller GmbH, and the Company's Swedish and U.K. subsidiaries, the Mitex companies. The Engineered Products segment also includes the Company's filtration business, which manufactures filtration media for commercial and industrial buildings; ultra-fine fibers for clean room air filters and battery separators; liquid filtration cartridges and media for use in commercial and industrial applications; and synthetic meltblown products used in various other applications. RESULTS OF OPERATIONS The Company's net sales for 1997 increased $95.2 million, or 6.1 percent, to $1,647.6 million from $1,552.4 million in 1996. Gross profit of $431.5 million for 1997, decreased $9.1 million, or 2.1 percent, from $440.6 million in 1996. The gross profit percentage declined 2.2 percentage points to 26.2 percent for 1997 due to lower selling prices. Certain management and financial services provided by Johns Manville Corporation were reorganized and transferred to the Company at the end of 1996. Therefore, services previously provided by parent are reflected as selling, general and administrative for 1997. Selling, general, administrative and research, development and engineering expenses and services provided by parent, combined, increased slightly to $193.7 million for 1997. These expenses, however, decreased as a percentage of sales in 1997 to 11.8 percent, compared with 12.4 percent in 1996. Income from operations for 1997 was $225.7 million, up 14 percent, compared with $198 million for 1996. Income from operations during 1996 included nonrecurring charges totaling $49.2 million. Insulation Segment The Insulation segment's net sales remained essentially unchanged at $697.8 million for 1997. Income from operations for this segment decreased $4.7 million, or 4.5 percent, to $98.7 million for 1997 from $103.4 million for 1996, which included $17.6 million of nonrecurring charges. During 1997, capacity-related selling price and other competitive pressures reduced net sales and led to lower margins and a decrease in operating income for the residential insulation business compared with 1996. The selling price decreases, averaging seven-to-eight percent, were partially offset by volume increases due to strength in U.S. construction markets. The commercial/industrial business, driven primarily by pipe and duct insulations, experienced higher 1997 net sales and operating income on volume increases, while lower selling prices led to slightly decreased margins compared with 1996. Despite lower 1997 net sales in automotive products primarily due to the disposition of the 11 Company's molded parts business, operating income for OEM insulation increased for 1997 compared with 1996, reflecting strength in aerospace and other specialty insulations. Roofing Systems Segment The Roofing Systems segment's net sales increased $96.5 million, or 23.3 percent, to $510.5 million in 1997 compared with $414 million in 1996. The higher sales were primarily due to increased volumes and broadened product lines from acquisitions, partially offset by unfavorable product mix. Operating income increased $30.8 million to $62.9 million in 1997, reflecting strong margins when compared with $32.1 million for 1996, which included $5.6 million of nonrecurring charges. These increases reflected the effective integration of acquisitions, favorable raw material costs, higher roof guarantee earnings and improved productivity. Engineered Products Segment The Engineered Products segment's net sales increased $5.2 million to $476 million for 1997 compared with $470.8 million in 1996. Income from operations decreased to $92.6 million, or 18.1 percent, compared with $113.1 million in 1996, which included $4 million of income related to nonrecurring items. Net sales and operating income for the U.S. mats and fibers business decreased in 1997 as reduced costs were more than offset by declining volumes and selling prices due to competitive pressures. Strong improvements on higher sales volumes for the segment's European operations, including the incremental impacts of the Mitex acquisition, were partially offset by unfavorable currency comparisons on reported results. Net sales for the filtration business increased for 1997 on higher volumes due to recent acquisitions in the synthetic filtration media markets. These improvements in filtration were offset by competitive pricing pressures and higher acquisition-related costs which led to decreased margins and operating income for 1997. Nonrecurring Charges In 1996, the Company recorded the following pretax nonrecurring charges totaling $49.2 million. The Company completed an evaluation of a manufacturing facility with both current and former operations and determined that its best course of action was closure of the facility. Consequently, the Company recorded nonrecurring charges of $41.7 million for the shutdown of current operations, demolition of facilities and site restoration, of which $30 million, $6.1 million and $5.6 million related to corporate and eliminations, the Insulation segment and the Roofing Systems segment, respectively. Of these charges, $7.5 million were noncash asset write-downs, and at December 31, 1997, $15.4 million was classified as other current liabilities. Upon completion of these actions, the Company intends to dispose of the remaining properties and does not expect to incur significant future monitoring and maintenance costs. The Company expects to fund the charges requiring cash outlays from existing cash balances and cash generated from operations. During 1997, the Company spent minimal amounts in preparation for demolition phases of the project. Pending federal and state regulatory agency approval, the final disposition will begin in 1998 and is expected to be substantially completed by 1999, with the majority of the liabilities settled during that time frame. The nonrecurring charges are based on estimates and, therefore, are subject to risks and uncertainties related to the Company's ability to secure agreements with third parties, relinquish the properties and obtain regulatory approvals to execute the actions described above. As a result, the Company believes it is reasonably possible that these estimates may be revised in the near-term. However, the impacts of such revisions, if any, are not expected to have a material adverse effect on the Company's financial condition, liquidity or results of operations. The Company recorded additional 1996 nonrecurring charges (income) in the Insulation and Engineered Products segments of $11.5 million and $(4) million, respectively, consisting primarily of asset write-downs to estimated fair values in the automotive molded parts business, which was disposed of in 1997, and a gain on the sale of other manufacturing assets. Other Expense, net Other expense, net, was $12.2 million for 1997 compared with of $0.6 million for 1996. During 1997, other expense, net, included higher goodwill amortization, reflecting a full year of expense related to 1996 acquisitions, 12 in addition to expense related to the 1997 acquisitions. Other expense, net, for 1996 included a $7.2 million gain on the settlement of certain pension plans. Interest Compared with 1996, the Company's interest income decreased $1.4 million, primarily due to lower average cash and marketable securities balances. During 1997, the Company's interest expense increased $8.1 million due primarily to 1997 acquisition-related borrowings. Income Taxes The Company's effective tax rate on income before income taxes was 43 percent and 44 percent for the years ended December 31, 1997 and 1996, respectively. These are higher than the U.S. federal statutory tax rate principally due to higher foreign effective tax rates and state taxes. LIQUIDITY AND CAPITAL RESOURCES The Company broadly defines liquidity as the ability to generate sufficient cash flow to satisfy operating requirements, fund capital expenditures and meet existing obligations and commitments. In addition, liquidity also includes the ability to obtain appropriate financing and convert into cash those assets that are no longer required to meet the Company's strategic objectives. Therefore, liquidity should not be considered separately from capital resources, which consist of currently or potentially available funds for use in achieving long-range business objectives and meeting debt service commitments. In addition, the Company's relationship with Johns Manville Corporation should be considered in evaluating liquidity. The Company's agreements with its lenders contain a number of financial and general covenants. These include, among others, restrictions on borrowings, investments, stock issuances and repurchases, dividends and other distributions, restrictions on intercompany transactions, including transfers of cash, and transactions with Johns Manville Corporation. As of December 31, 1997 and 1996, the maximum amount available for dividends to be paid to Johns Manville Corporation under debt covenants of the Senior Notes was approximately $250 million and $210 million, respectively. Noncompliance with these or other covenants, or the occurrence of any other event of default, could result in the termination of existing credit agreements and the acceleration of debt owed by the Company and its subsidiaries. At December 31, 1997, the Company was in compliance with these covenants. The Company's cash and marketable securities balances decreased $18.5 million during 1997 to $122.4 million at December 31, 1997, from $140.9 million at December 31, 1996. At December 31, 1997, cash and marketable securities located outside the U.S. and Canada were $28.2 million. The Company's net operating activities provided $151 million of cash during 1997, compared with $185.6 million for 1996. The Company's cash flows from operating activities are primarily influenced by sales volume and selling prices. During 1997, sales volume increased primarily due to the incremental impact of acquisitions, strong U.S. commercial construction markets, and U.S. housing starts comparable to 1996 levels. The volume increases were, however, offset by selling price declines in most of the Company's businesses, particularly in residential insulation. The Company's investing activities used $200.1 million and $223.3 million in 1997 and 1996, respectively. Investing activities for 1997 used $136.5 million for acquisitions, net of cash acquired, and $90.5 million for capital expenditures. The 1997 capital expenditures included approximately $50 million related to capacity expansion projects, principally to increase mats and fibers production. Investing activities for 1997 also included proceeds from the disposition of its automotive molded parts business. Cash used in investing activities for 1996 included acquisitions of $153.1 million and capital expenditures totaling $103 million, of which approximately $45 million related to capacity expansion projects. The Company's total external debt decreased to $438.2 million at December 31, 1997 from $442.4 million at December 31, 1996. During 1997, the Company borrowed $55 million from international credit facilities to partially finance 1997 acquisitions, of which $30 million was subsequently repaid. Also during 1997, the 13 Company repaid debt totaling $30 million assumed in connection with 1996 acquisitions. This debt was refinanced with $30 million of notes payable to Johns Manville Corporation at prevailing market terms, of which $2.5 million was repaid. Financing activities for 1996 included the proceeds from a $50 million note payable to Johns Manville Corporation, due October 1, 1998, which were used to partially finance the acquisition of NRG Barriers, Inc. At December 31, 1997, the Company had $100 million available under a receivables sale facility (the "Receivables Facility") for its domestic short- term working capital requirements. Amounts available for borrowing under the Receivables Facility are based on the daily balance of certain outstanding trade accounts receivable adjusted for various factors as defined under the terms of the Receivables Facility. In addition, the Company's international subsidiaries had borrowing and working capital facilities totaling $85 million, of which $51.9 million was available at December 31, 1997. These facilities are principally secured by the Company's equity ownership in certain international subsidiaries and joint ventures. Cyclicality of Demand/Competitive Environment Demand for the Company's products has historically been cyclical due to macroeconomic factors affecting residential and commercial construction markets. Due to their specific market niches, the Company's replacement roofing, filtration and specialty products are less sensitive to business cycles. Selling prices are subject to factors influenced by the competitive environment in which the Company operates, including fluctuations in overall capacity utilization. During 1997, sales volumes increased due to continued strength in U.S. construction markets, businesses acquired in 1997 and 1996, increases in operating capacity and improvements in European construction markets. However, during 1997, most of the Company's businesses were adversely affected by capacity-related and other competitive selling price pressures, particularly in residential insulation. Capital Spending and Capacity Expansion In order to increase its U.S. production of continuous filament fiber glass to meet the demand for its mats and fibers products, in August 1997, the Company completed the expansion of existing capacity with the reconstruction of a furnace. The Company's joint venture in China, which began expansion of an existing fiber glass mat facility in 1996, is expected to be completed in 1998. The Company estimates capital spending in 1998 of approximately $128 million excluding acquisitions, of which approximately $55 million will be used in capacity expansion programs. As of December 31, 1997, outstanding purchase commitments relating to capital spending and capacity expansion projects totaled $21.9 million. The Company plans to fund its capital spending from existing cash balances and cash flows generated by operations. The Company's capacity expansion programs are periodically revised to reflect changes in demand, industry capacity and the results of productivity improvements and technological innovations. In response to the implementation of the 1990 Amendments to the federal Clean Air Act and requirements of various state air emissions regulations, the Company will be obligated to monitor and reduce air emissions at its manufacturing sites. Because many of the anticipated regulations have not yet been proposed, neither the costs nor timing of compliance can be reasonably anticipated at this time. Provisions of Titles III and VII of the 1990 Amendments and the related regulations will likely require capital expenditures in the years 1998-2001, with most of the expenditures occurring in the latter part of that time frame. Acquisitions During the third quarter of 1997, the Company acquired the roofing business of HPG International, Inc., a U.S. manufacturer of thermoplastic membranes. During the second quarter of 1997, the Company acquired the Mitex group of companies. Mitex is a manufacturer of fiber glass wall covering fabrics used primarily in 14 commercial and industrial buildings, and has manufacturing facilities in Sweden and the United Kingdom. During the first quarter of 1997, the Company acquired the assets of Ergon Nonwovens, Inc., a U.S. manufacturer of synthetic meltblown nonwoven products. The Ergon and Mitex acquisitions are associated with the businesses of the Engineered Products segment. The combined purchase price for these acquisitions, accounted for under the purchase method, was $136.5 million, net of cash acquired, financed from existing cash balances and borrowings from international credit facilities. The excess of the combined purchase prices over the estimated fair value of net assets acquired, or goodwill, amounted to approximately $84 million. These allocations were based on estimates and may be revised in the future. In January 1998, the Company acquired the assets of Seal-Dry/USA, Inc., a U.S. manufacturer of reinforced thermoplastic roofing systems. Also in January 1998, the Company acquired a plant, associated with the Insulation segment, which manufactures calcium silicate pipe and block insulation, and fireproof board. Both acquisitions will be accounted for under the purchase method. Contingent Product Liability Between 1988 and 1992, the Company manufactured phenolic roofing insulation which may, under certain circumstances, contribute to the corrosion of metal decks on which it is installed. Subsequently, the Company began a voluntary program to inspect such metal decks and remediate where appropriate. The Company has accrued for costs relating to future inspections, remediation and anticipated claims. These accruals are based on the Company's historical experience regarding the incidence of corrosion and the cost of remediation and include a number of assumptions related to the types of roofs on which phenolic insulation has been installed as well as the assumption that the Company's past remediation experience will continue over the remaining lives of roofs insulated with the Company's phenolic roofing insulation. Pursuant to reimbursement agreements with the Company's liability carriers and former owner of the phenolic roofing insulation business, the Company has been reimbursed for a portion of historical costs incurred and is entitled to receive reimbursement for a substantial portion of future costs to be incurred by the Company for inspection and remediation. In 1996, the Company and a third party were named as defendants in two class action cases filed in U.S. District Court in Boston, Massachusetts. The plaintiffs purport to represent all building owners in the U.S. with phenolic insulation installed on their roof decks and seek damages and injunctive relief, including an order requiring the removal and replacement of the phenolic insulation and remediation of any deck corrosion. The Company intends to defend these allegations vigorously. The Company has reviewed its historical inspection and remediation experience and the terms and collectibility of amounts payable under the reimbursement agreements in light of the contingencies described above. Based on the information available to date and subject to the assumptions described above, if additional costs are incurred in excess of the accrued amounts, such costs are not expected to have a material adverse effect on the Company's financial condition, liquidity or results of operations. Environmental Contingencies At December 31, 1997, the Company had remediation activities in progress at nine sites, out of a total of 19 such sites for which the Company has identified environmental conditions requiring remediation. In addition, the Company has been identified as a potentially responsible party at 24 non- Company owned or operated sites under the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or similar state legislation. Of these 24 sites, the Company's potential liability for 17 sites will be determined pursuant to the settlement agreement described in the following paragraph. The remaining seven sites are not subject to the agreement and, accordingly, the Company could be jointly and severally liable for costs of remediating these sites. 15 In 1994, the U.S. government and Johns Manville Corporation settled certain litigation concerning the Company's disposal activities prior to consummation of Johns Manville Corporation's plan of reorganization. The settlement agreement, which was made an order of the court, limits the Company's future liability under both CERCLA and the Resource Conservation and Recovery Act ("RCRA") to 55 percent of its share of site-wide response costs and natural resources damages without regard to joint and several liability for disposals made by the Company prior to consummation of Johns Manville Corporation's plan of reorganization. The agreement resolved the Company's liability at certain historical sites and also covers CERCLA and RCRA liability for other disposal sites at which the Environmental Protection Agency ("EPA") has incurred or may incur response costs and which were used by the Company prior to consummation of Johns Manville Corporation's plan of reorganization. The agreement provides that the amount the Company will be obligated to pay, in the aggregate, for such sites shall never exceed $850,000 during any given year. The EPA and others from time to time commence cleanup activities at such sites and in the future the EPA and others may assert claims against the Company with respect to such sites. The Company believes that all such activities and claims, if any, will be subject to the agreement. At December 31, 1997 and 1996, the Company's balance sheet included undiscounted accruals for environmental remediation costs, including ongoing compliance, maintenance and monitoring costs, of $34 million. The Company paid $1.3 million and $1.8 million for environmental cleanup in 1997 and 1996, respectively. The Company believes that amounts paid in 1997 and 1996 are representative of the Company's future annual environmental clean up costs and anticipates expenditures relating to costs currently accrued to be made over the next 15 years. As a result of factors such as changes in federal and state regulations, the application and effectiveness of remedial actions, the difficulty in assessing the extent of environmental contamination, and the allocation of costs among potentially responsible parties, actual costs to be incurred for environmental cleanup may vary from previous estimates. Subject to the uncertainties inherent in evaluating environmental exposures, and based on information presently available, including the Company's historical remediation experience, currently enacted environmental laws and regulations, and existing remediation technology, the Company believes that if additional costs are incurred in excess of the accrued amounts, such costs are not expected to have a material adverse effect on the Company's financial condition, liquidity or results of operations. Year 2000 Compliance The Company is engaged in a comprehensive project to modify its computer software for year 2000 compliance. Based on current estimates, spending to upgrade or replace the Company's software or systems related to year 2000 compliance is not expected to exceed $5 million through 1999. Although it is not possible to quantify the impacts year 2000 compliance issues will have on customers or suppliers, the Company does not anticipate related material adverse effects on its financial condition, liquidity or results of operations. New Accounting Pronouncements During 1997, the Financial Accounting Standards Board issued the following Statements of Financial Accounting Standards effective for periods beginning after December 15, 1997: "Reporting Comprehensive Income" ("SFAS No. 130") and "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components. Comprehensive income generally includes changes in separately reported components of equity along with net income. SFAS No. 131 establishes standards for reporting information about operating segments, along with related disclosures about products, services, geographic areas and major customers, based on the Company's disaggregation of an entity for internal operating decisions. The Company's reportable business segments are currently aligned with its internal business units. Relationship with Johns Manville Corporation The Company is a wholly owned subsidiary of Johns Manville Corporation. Accordingly, Johns Manville Corporation could cause the Company to pay dividends, subject to the terms of the Senior Notes indenture, certain other contractual limitations and applicable law. 16 In connection with the public offering of the Senior Notes during 1994, the Company and Johns Manville Corporation entered into a Corporate Agreement that, among other things, prohibits the Company and certain of its subsidiaries from issuing any capital stock or rights, warrants or options to purchase their capital stock (collectively, "Capital Stock Rights") without the approval of Johns Manville Corporation's Board of Directors. In addition, the Corporate Agreement prohibits the Company and certain of its subsidiaries from issuing any of their Capital Stock Rights if, immediately after such issuance, the Company or any of such subsidiaries would no longer be a member of the Johns Manville Corporation consolidated federal income tax group. Johns Manville Corporation has agreed with the Manville Personal Injury Settlement Trust (the "Trust") that, without the consent of the Trust, Johns Manville Corporation will not waive any provisions of the Corporate Agreement. Also in connection with the public offering of the Senior Notes, the Company and Johns Manville Corporation entered into a Tax Sharing Agreement that provides that as long as the Company and Johns Manville Corporation are included in the same consolidated tax group, the Company will pay to Johns Manville Corporation amounts equal to the U.S. federal and state income taxes (for states requiring consolidated or combined income tax returns) that the Company would otherwise have to pay if it were to file separate returns, and that Johns Manville Corporation has the authority to make tax elections for the Company. U.S. federal and state income taxes paid to Johns Manville Corporation for 1997, 1996 and 1995 totaled $53.2 million, $52.5 million and $50.4 million, respectively. In addition, the Company and Johns Manville Corporation entered into certain agreements that formalized various relationships between the two companies. Principal among these are an Intercompany Agreement by which Johns Manville Corporation provides certain management services to the Company for a fee and a Treasury Management Agreement by which Johns Manville Corporation provides certain financial services for a fee. Fees for the cost of such services are based on actual costs incurred, estimates of time spent to provide such services and other appropriate bases that management believes to be reasonable and representative of the services provided. Prior to 1997, charges for services received were included in services provided by parent in the Consolidated Statement of Income. During 1996, Johns Manville Corporation divested its investment in Riverwood International Corporation (the "Riverwood Disposition"). In connection with the Riverwood Disposition, certain management and financial services maintained by Johns Manville Corporation were reorganized and transferred to the Company, and are now reflected as selling, general and administrative expenses. Expenses incurred by the Company under the terms of the Intercompany Agreement and the Treasury Management Agreement for services provided by Johns Manville Corporation totaled $7 million and $11.8 million for the years ended December 31, 1996 and 1995, respectively. The Company believes that its current cash position, cash generated from operations, and funds available under the Receivables Facility and foreign working capital facilities will enable it to satisfy debt service requirements, ongoing capital spending and capacity expansion programs and other ongoing operating costs. However, the Company may need to access capital markets to pay the principal of its Senior Notes or in connection with possible significant future acquisitions. FORWARD-LOOKING STATEMENTS This report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Statements of the Company contained in this report concerning matters that are not historical facts, including, without limitation, statements concerning (i) the Company's estimates concerning nonrecurring charges taken in 1996, (ii) the Company's expectations as to contingencies related to phenolic roofing insulation and environmental liabilities, (iii) adverse effects on operating earnings of capacity-related and other competitive pressures in most of the Company's businesses, particularly residential insulation, (iv) expected benefits from the continuing integration of acquisitions and capacity expansions, (v) the Company's expectations concerning levels of capital spending and funding of current operations, debt service, dividends and future acquisitions and (vi) the Company's estimates concerning year 2000 compliance issues, constitute such forward-looking statements. See "Liquidity and Capital Resources." 17 Forward-looking statements of the Company are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in such statements. Important factors relating to such risks and uncertainties are set forth below. Factors that could affect the forward-looking statements generally are related to demand for the Company's products and to overall capacity levels in the industry. Demand for such products is generally cyclical and is influenced by macroeconomic factors that affect demand in residential and commercial construction and replacement markets and demand from original equipment manufacturers, including the general rate of inflation, interest rates, employment rates and overall consumer confidence. Approximately 75 percent of the Company's annual sales are made to customers in commercial/industrial markets, while the remainder are to residential construction markets. Overall capacity levels in the industry directly affect prices for the Company's products. Other factors that may affect prices include the overall competitive environment in which the Company operates, the availability and pricing of raw materials, rates of technological development and changes in productivity. In addition, overall demand for the Company's products could be affected by the factors described in "BUSINESS-Occupational Health and Safety Aspects of the Company's Products" in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Factors relating to the Company's estimates concerning nonrecurring charges are discussed in "Results of Operations." For a discussion of factors concerning contingencies related to phenolic roofing insulation, environmental matters and year 2000 compliance, see "Liquidity and Capital Resources- Contingent Product Liability, Environmental Contingencies, and Year 2000 Compliance." Other factors also could affect the Company's expected levels of capital spending and funding of current operations, debt service and dividends, including, without limitation, the contingencies and commitments discussed in the Company's financial statements included in this report for the year ended December 31, 1997. In addition, the Company's ability to make future acquisitions depends upon the ability of the Company to identify and reach agreement with viable acquisition candidates and the availability of sources of financing for such acquisitions on terms which are acceptable to the Company. 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
PAGE ---- Consolidated Balance Sheet, December 31, 1997 and 1996................... 20 Consolidated Statement of Income, for each of the three years in the period ended December 31, 1997.......................................... 21 Consolidated Statement of Cash Flows, for each of the three years in the period ended December 31, 1997.......................................... 22 Consolidated Statement of Stockholder's Equity, for each of the three years in the period ended December 31, 1997............................. 23 Notes to Consolidated Financial Statements............................... 24 Report of Independent Accountants........................................ 45 Selected Quarterly Financial Data, for each of the two years in the period ended December 31, 1997 (Unaudited).............................. 46
19 JOHNS MANVILLE INTERNATIONAL GROUP, INC. CONSOLIDATED BALANCE SHEET (IN THOUSANDS OF DOLLARS)
DECEMBER 31, --------------------- 1997 1996 ---------- ---------- ASSETS Current Assets Cash and equivalents................................... $ 107,682 $ 138,216 Marketable securities, at cost, which approximates market................................................ 14,699 2,698 Receivables............................................ 221,747 229,585 Inventories............................................ 127,061 101,041 Receivable from Parent................................. 6,408 28,176 Prepaid expenses....................................... 7,407 6,590 Deferred tax assets.................................... 33,632 31,063 ---------- ---------- Total Current Assets................................ 518,636 537,369 Property, Plant and Equipment, net...................... 797,759 769,968 Receivable from Parent.................................. 10,686 10,115 Goodwill................................................ 202,844 127,994 Other Assets............................................ 203,596 222,095 ---------- ---------- Total Assets........................................ $1,733,521 $1,667,541 ========== ========== LIABILITIES Current Liabilities Short-term debt........................................ $ 1,767 $ 31,748 Accounts payable....................................... 116,262 121,099 Compensation and employee benefits..................... 82,881 102,136 Income taxes........................................... 4,102 15,863 Other accrued liabilities.............................. 72,730 50,049 ---------- ---------- Total Current Liabilities........................... 277,742 320,895 Long-Term Debt, less current portion.................... 436,474 410,658 Notes Payable to Parent................................. 107,453 80,000 Deferred Income Taxes................................... 42,175 41,242 Postretirement Benefits Other than Pensions............. 197,336 199,473 Other Noncurrent Liabilities............................ 265,842 292,608 ---------- ---------- Total Liabilities................................... 1,327,022 1,344,876 ---------- ---------- Commitments and Contingencies (Notes 2, 6, 15 and 16) STOCKHOLDER'S EQUITY Common Stock, $1 par value; 100 shares authorized, issued and outstanding................................. Capital in Excess of Par Value.......................... 80,869 80,869 Retained Earnings....................................... 316,343 215,125 Cumulative Currency Translation Adjustment.............. 9,287 26,671 ---------- ---------- Total Stockholder's Equity.......................... 406,499 322,665 ---------- ---------- Total Liabilities and Stockholder's Equity.......... $1,733,521 $1,667,541 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 20 JOHNS MANVILLE INTERNATIONAL GROUP, INC. CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS OF DOLLARS)
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------- 1997 1996 1995 ---------- ---------- ---------- Net Sales................................... $1,647,645 $1,552,429 $1,391,522 Cost of Sales............................... 1,216,135 1,111,811 993,111 Selling, General and Administrative......... 162,511 153,278 122,902 Research, Development and Engineering....... 31,174 32,663 29,979 Services Provided by Parent................. 6,966 11,793 Nonrecurring Charges........................ 49,156 Other Income (Expense), net................. (12,150) (574) (17,787) ---------- ---------- ---------- Income from Operations...................... 225,675 197,981 215,950 Interest Income............................. 7,267 8,692 9,481 Interest Expense............................ 47,764 44,610 43,963 Interest Expense-Parent..................... 8,196 3,235 2,223 ---------- ---------- ---------- Income before Income Taxes.................. 176,982 158,828 179,245 Income Tax Expense.......................... 75,764 69,884 77,016 ---------- ---------- ---------- Net Income.................................. $ 101,218 $ 88,944 $ 102,229 ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 21 JOHNS MANVILLE INTERNATIONAL GROUP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS OF DOLLARS)
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------- 1997 1996 1995 ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................ $ 101,218 $ 88,944 $ 102,229 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........... 80,163 70,898 63,085 Deferred taxes.......................... 16,840 (14,680) 4,348 Product guarantee income................ 4,961 8,651 9,352 Provision for furnace rebuilds.......... 11,264 8,270 8,349 Pension and postretirement benefits expense................................ 6,334 11,126 20,613 Nonrecurring charges.................... 49,870 Other, net.............................. 7,152 17,360 17,033 Changes in current assets and liabilities: Receivables.............................. 23,101 8,137 (568) Inventories.............................. (18,423) (2,680) (19,327) Prepaid expenses......................... (1,494) (1,276) 1,071 Receivable from Parent................... (2,590) 6,114 (3,754) Accounts payable......................... (3,841) (5,288) (731) Compensation and employee benefits....... (9,648) (9,160) (10,888) Income taxes............................. (26,560) 3,364 1,644 Other accrued liabilities................ 23,564 (21,952) 977 Changes in noncurrent liabilities: Postretirement benefits other than pensions................................ (15,137) (16,347) (19,742) Other noncurrent liabilities............. (45,946) (15,774) (12,965) ---------- ---------- ---------- Net Cash Provided by Operating Activities............................... 150,958 185,577 160,726 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment................................ (90,528) (102,973) (111,066) Acquisitions.............................. (136,521) (153,113) Proceeds from sales of assets............. 9,350 14,055 2,023 Purchases of available-for-sale marketable securities............................... (4,986) (6,082) Purchases of held-to-maturity marketable securities............................... (14,042) (8,774) (55,519) Proceeds from sales of available-for-sale marketable securities.................... 286 6,082 Proceeds from maturities of held-to- maturity marketable securities........... 2,538 26,446 58,356 (Increase) decrease in other assets....... 28,829 (40) (6,342) ---------- ---------- ---------- Net Cash Used in Investing Activities..... (200,088) (223,303) (118,630) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of debt-external................. 56,636 63 6,622 Issuance of debt-Parent................... 30,000 55,000 Payments on debt-external................. (61,170) (18,109) (1,756) Payments on debt-Parent................... (2,547) ---------- ---------- ---------- Net Cash Provided by Financing Activities............................... 22,919 36,954 4,866 ---------- ---------- ---------- Effect of Exchange Rate Changes on Cash... (4,323) (1,340) (62) ---------- ---------- ---------- Net Increase (Decrease) In Cash And Equivalents.............................. (30,534) (2,112) 46,900 Cash and Equivalents at Beginning of Year..................................... 138,216 140,328 93,428 ---------- ---------- ---------- Cash and Equivalents at End of Year....... $ 107,682 $ 138,216 $ 140,328 ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 22 JOHNS MANVILLE INTERNATIONAL GROUP, INC. CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (IN THOUSANDS OF DOLLARS)
CUMULATIVE CAPITAL IN CURRENCY TOTAL EXCESS OF RETAINED TRANSLATION STOCKHOLDER'S PAR VALUE EARNINGS ADJUSTMENT EQUITY ---------- -------- ----------- ------------- BALANCES AT DECEMBER 31, 1994... $57,082 $ 24,439 $ 26,419 $107,940 Net income for the year......... 102,229 102,229 Currency translation............ 6,265 6,265 ------- -------- -------- -------- BALANCES AT DECEMBER 31, 1995... 57,082 126,668 32,684 216,434 Net income for the year......... 88,944 88,944 Currency translation............ (6,013) (6,013) Dividends to Parent............. (487) (487) Contribution from Parent........ 23,787 23,787 ------- -------- -------- -------- BALANCES AT DECEMBER 31, 1996... 80,869 215,125 26,671 322,665 Net income for the year......... 101,218 101,218 Currency translation............ (17,384) (17,384) ------- -------- -------- -------- BALANCES AT DECEMBER 31, 1997... $80,869 $316,343 $ 9,287 $406,499 ======= ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 23 JOHNS MANVILLE INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Johns Manville International Group, Inc. (the "Company"), a wholly owned subsidiary of Johns Manville Corporation, manufactures and markets building and equipment insulation, commercial/industrial roofing systems, high- efficiency filtration media, and fibers and nonwoven mats used as reinforcements in building and industrial applications. The Company estimates that approximately 75 percent of its annual sales are to commercial/industrial markets, while the remainder are to residential construction markets. The Company's products are sold to contractors, mass merchants, wholesale distributors and fabricators throughout North America, Europe and Asia. Principles of Consolidation The consolidated financial statements include the accounts of Johns Manville International Group, Inc. and its majority-owned subsidiaries. All significant intercompany transactions have been eliminated. Use of Estimates The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements, including disclosures of contingent liabilities. Cash and Equivalents Cash and equivalents include money market mutual funds, time deposits and marketable securities with original maturities of three months or less. Financial Instruments The Company uses the amortized cost method of accounting for investments in held-to-maturity debt securities for which it has the positive intent and ability to hold to maturity. Fair value accounting is used for debt securities that are classified as available-for-sale securities. Realized gains and losses are computed on the specific identification method. The Company does not obtain collateral or other security to support financial instruments subject to credit risk, but monitors the credit standing of counterparties. Inventories Inventories are stated at the lower of cost or market. Cost is determined principally on the last-in, first-out (LIFO) basis for all domestic subsidiaries. The first-in, first-out (FIFO) basis is used to determine the cost of inventories for all foreign subsidiaries. Related Party Transactions The Company receives certain services from and provides various other services to Johns Manville Corporation. Fees for the cost of such services are based on actual costs incurred, estimates of time spent to provide such services and other appropriate bases that management believes to be reasonable and representative of the services provided. Since the companies maintain certain administrative functions for the benefit of both entities, management is unable to differentiate between the amount allocated and the amount that would have been incurred on a stand-alone basis. Prior to 1997, charges for services received were included in services provided by parent in the Consolidated Statement of Income. During 1996, certain management and financial services previously provided by Johns Manville Corporation were reorganized and transferred to the Company, and are now reflected as selling, general and administrative expenses (see Note 6). 24 JOHNS MANVILLE INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation expense is computed using the straight-line method, based upon the estimated useful lives of the assets. Buildings are depreciated principally over 20 to 40 years, and machinery and equipment are depreciated principally over 20 years. Maintenance and repairs are charged to current period earnings, while replacements and betterments are capitalized. Goodwill Goodwill associated with acquisitions in excess of fair value of net assets acquired is amortized on a straight-line basis generally over 20 years. The Company evaluates the recoverability of goodwill through its ongoing strategic planning process. Provision for Rebuilding Furnaces The Company's glass furnaces have an estimated useful life of approximately 30 years. During that time, the refractory components of the glass furnaces are periodically rebuilt, typically every six to seven years. The timing of the periodic rebuilds is dependent upon a number of variables including production volumes, product mix, and the extent and timing of interim repair and maintenance work performed. The estimated cost to rebuild the refractory components of the Company's glass furnaces is credited to an allowance and charged to operations on a straight-line basis over the estimated period to the next rebuild date. Unusual, nonrecurring adjustments to previously established allowances, if required, are included in operating results. Revenue Recognition The Company recognizes revenue from product sales upon shipment. The Company estimates and records provisions for cash discounts, customer incentives, sales returns, allowances and original warranties in the period the sale is reported, based on its experience. The Company also sells extended roofing product guarantees for periods of 10 to 20 years. These extended guarantees cover the water tightness of roofing systems resulting from defects in materials or deficiencies in workmanship. Revenue on these product guarantees is recognized over the contract period in proportion to costs incurred. Workers' Compensation The Company accrues a liability for workers' compensation claims at present value, due to the fixed and determinable nature of the claim payments, based upon an evaluation of historical claims data and expected future claims. In addition, the Company records a receivable at present value for the portion of outstanding claims covered by third-party insurers. Income Taxes The U.S. entities of the Company are members of the Johns Manville Corporation affiliated group of corporations, which file a consolidated federal income tax return and certain consolidated state income tax returns. For all periods presented, the Company's U.S. federal tax liability and certain state tax liabilities have been computed as if these U.S. entities were filing a separate consolidated return using elections generally consistent with those employed by Johns Manville Corporation. In addition, certain state and local tax liabilities have been computed as if the Company's U.S. entities were not a member of the Johns Manville Corporation affiliated group. Pursuant to the terms of a tax sharing agreement with Johns Manville Corporation (the "Tax 25 JOHNS MANVILLE INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Sharing Agreement"), beginning in 1994, the Company's U.S. federal and consolidated state tax obligations were paid to Johns Manville Corporation. The Company and Johns Manville Corporation have also agreed that any material assessments that will result in a future taxable benefit to the Company (as determined by Johns Manville Corporation) and attributable to open tax years beginning before January 1, 1994 will be paid by the Company. Reclassifications Certain prior year information has been reclassified to conform with the current year presentation. NOTE 2-FINANCIAL INSTRUMENTS The Company has had limited involvement with derivative financial instruments and does not use them for trading purposes. The Company enters into foreign exchange forward contracts to hedge against currency fluctuations on certain material foreign currency exposures and records a receivable/payable which is classified consistently with the related outstanding foreign currency exposure. The Company did not have any forward contracts outstanding at December 31, 1997 or 1996. Gains and losses on foreign currency transactions and forward exchange contracts are included in other income (expense), net, for the period in which the exchange rate changes. The discount or premium on forward contracts is accounted for separately from the gain or loss on the contracts and is amortized to other income (expense), net, over the life of the contract. The Company had outstanding letters of credit totaling $15.4 million and $15.1 million as of December 31, 1997 and 1996, respectively. Letters of credit are primarily collateralized by cash. The Company maintains cash and cash equivalents and certain other financial instruments with various financial institutions throughout the world. The Company invests excess cash in a diversified portfolio of high-quality money market instruments consistent with the preservation of capital and the maintenance of liquidity. The Company's investment policies require diversification of investments and include restrictions on maturity and credit quality. The Company monitors compliance with these restrictions on an ongoing basis. The Company has not experienced any material losses related to these investments. The Company is exposed to credit losses in the event of nonperformance by the counterparties to its financial instruments, but does not anticipate any significant off-balance-sheet credit risk of accounting loss. The Company anticipates that counterparties will be able to fully satisfy their obligations under the contracts. At December 31, 1997, the Company held investments in debt securities that were classified as held-to-maturity with an amortized cost basis of $49.9 million, which approximated fair value. The Company's investments in held-to- maturity debt securities at December 31, 1997 were classified on the balance sheet as cash equivalents of $26 million, marketable securities of $14.7 million and other assets of $9.2 million, depending upon the nature and maturity of the investments. Of these securities, $40.7 million had contractual maturities within one year; the remainder mature in one to five years. Additionally, at December 31, 1997, the Company had investments in available-for-sale debt securities that were classified on the balance sheet as other assets of $4.7 million. The amortized cost basis of these securities approximated fair value. Of these securities, all have contractural maturities of one to five years. At December 31, 1996, the Company held investments in debt securities that were classified as held-to-maturity with an amortized cost basis of $106 million, which approximated fair value. The Company's investments in held-to- maturity debt securities at December 31, 1996, were classified on the balance sheet as 26 JOHNS MANVILLE INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS cash equivalents of $93.7 million, marketable securities of $2.7 million and other assets of $9.6 million, depending upon the nature and maturity of the investments. Of these securities, $96.2 million had contractual maturities within one year; the remainder mature in one to five years. Additionally, at December 31, 1996, the Company had investments in available-for-sale debt securities that were classified on the balance sheet as other assets of $5 million. The amortized cost basis of these securities approximated fair value. Of these securities, $4.9 million had contractual maturities of one to five years; the remainder mature in less than one year. During 1997 and 1996, the Company sold securities that had been classified as available-for-sale, resulting in proceeds of $0.3 million and $6.1 million, respectively, which approximated carrying value. NOTE 3-RECEIVABLES
(IN THOUSANDS OF DOLLARS) 1997 1996 ------------ ------------ Trade.............................................. $ 237,743 $ 242,530 Less allowances.................................... 36,780 30,016 ------------ ------------ 200,963 212,514 Other.............................................. 20,784 17,071 ------------ ------------ $ 221,747 $ 229,585 ============ ============ Included in allowances are doubtful accounts of $6 million and $7.6 million at December 31, 1997 and 1996, respectively. The Company generally requires no collateral on receivables. The provision for doubtful accounts charged (credited) to costs and expenses was $(0.2) million for 1997, $1.1 million for 1996, and $0.8 million for 1995. NOTE 4-INVENTORIES (IN THOUSANDS OF DOLLARS) 1997 1996 ------------ ------------ Finished goods..................................... $ 82,082 $ 60,456 Work-in-process.................................... 10,869 8,472 Raw materials...................................... 25,410 23,383 Supplies........................................... 8,700 8,730 ------------ ------------ $ 127,061 $ 101,041 ============ ============
Inventories in the amounts of $23.4 million, and $29.5 million at December 31, 1997 and 1996, respectively, were valued using FIFO. The balance of the inventories was valued using LIFO. The excess of current values over amounts for financial reporting purposes was $53.8 million and $51.5 million at December 31, 1997 and 1996, respectively. NOTE 5-PROPERTY, PLANT AND EQUIPMENT, NET
(IN THOUSANDS OF DOLLARS) 1997 1996 ------------ ------------ Land and improvements............................. $ 50,189 $ 47,977 Buildings......................................... 246,175 237,132 Machinery and equipment........................... 1,141,106 1,113,341 ------------ ------------ 1,437,470 1,398,450 Less accumulated depreciation..................... 639,711 628,482 ------------ ------------ $ 797,759 $ 769,968 ============ ============
27 JOHNS MANVILLE INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6-RELATED PARTY TRANSACTIONS Stock Compensation Plans Certain executives and other eligible employees of the Company participated in Johns Manville Corporation stock compensation plans, which grant deferred stock rights, restricted stock and options to purchase shares of Johns Manville Corporation stock. On July 1, 1997, Johns Manville Corporation introduced a noncompensatory employee stock ownership plan for its worldwide employees. The plan enables the Company's employees to purchase stock directly from the market and through savings plans. In addition, approximately 1.6 million options were granted to employees at $12.19 per share. These options vest through July 1, 2002 and expire on December 31, 2002. The Company's share of compensation expense recognized for stock-based compensation was $1.7 million, $1.5 million and $0.6 million in 1997, 1996 and 1995, respectively. At December 31, 1997, 5.5 million options to purchase shares of Johns Manville Corporation common stock were outstanding. The options were issued at exercise prices ranging from $9.88 to $15.55. The substantial majority of the options, other than those granted under the noncompensatory plan, vested by December 31, 1997 and expire on December 31, 2005. The Company accounts for compensation expense related to the options under APB Opinion 25 and related interpretations and, since the exercise prices on the grant date equaled or exceeded market prices on grant dates, no compensation expense was recognized. Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation" ("SFAS No. 123") was issued in 1995, and if fully adopted, changes, among other things, the methods for recognition of expense on plans involving Johns Manville Corporation's stock options. Recognition of compensation under SFAS No. 123 is optional; however, pro forma disclosures as if the Company adopted expense recognition under SFAS No. 123 beginning in 1996 are required. Had compensation cost been determined based on the fair value at grant dates for stock option awards consistent with SFAS No. 123, the Company's net income for the years ended December 31, 1997 and 1996 would have been reduced to the following pro forma amounts (in thousands of dollars):
1997 1996 -------- ------- Net Income-As reported.................... $101,218 $88,944 Pro forma................................. $ 97,412 $86,008
The pro forma compensation expense based on the fair value of the options is estimated on the grant date using the Black-Scholes option-pricing model. The weighted average assumptions used for options granted in 1997 were: dividend yield of $0.16 per share; expected volatility of 31.4 percent; a risk free rate of return of 6.3 percent and an expected life of the options of 4.5 years. The weighted average assumptions used for options granted in 1996 were: dividend yield of $0.12 per share; expected volatility of 32 percent; a risk free rate of return of 6.6 percent and an expected life of the options of four years. The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts. Additional awards in future years are possible. Notes Payable to Parent In 1997, the Company refinanced $30 million of debt assumed in connection with 1996 acquisitions by executing a note payable to Johns Manville Corporation, of which $2.5 million was repaid. During 1996, the Company executed a $50 million note payable to Johns Manville Corporation, due October 1, 1998. The proceeds were used to partially finance the acquisition of NRG Barriers, Inc. Also during 1996, $5 million was advanced to the Company to pay off debt to third parties. Interest rates charged on intercompany debt with Johns Manville Corporation are generally at LIBOR plus .75 percent or at prime rate. 28 JOHNS MANVILLE INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Intercompany Agreements The Company is a wholly owned subsidiary of Johns Manville Corporation. Accordingly, Johns Manville Corporation could cause the Company to pay dividends, subject to the terms of the Senior Notes indenture, certain other contractual limitations and applicable law. In connection with the public offering of the Senior Notes during 1994, the Company and Johns Manville Corporation entered into a Corporate Agreement that, among other things, prohibits the Company and certain of its subsidiaries from issuing any capital stock or rights, warrants or options to purchase their capital stock (collectively, "Capital Stock Rights") without the approval of Johns Manville Corporation's Board of Directors. In addition, the Corporate Agreement prohibits the Company and certain of its subsidiaries from issuing any of their Capital Stock Rights if, immediately after such issuance, the Company or any of such subsidiaries would no longer be a member of Johns Manville Corporation consolidated federal income tax group. Johns Manville Corporation has agreed with the Manville Personal Injury Settlement Trust (the "Trust") that, without the consent of the Trust, Johns Manville Corporation will not waive any provisions of the Corporate Agreement. Also in connection with the public offering of the Senior Notes, the Company and Johns Manville Corporation entered into a Tax Sharing Agreement that provides that as long as the Company and Johns Manville Corporation are included in the same consolidated tax group, the Company will pay to Johns Manville Corporation amounts equal to the U.S. federal and state income taxes (for states requiring consolidated or combined income tax returns) that the Company would otherwise have to pay if it were to file separate returns, and that Johns Manville Corporation has the authority to make tax elections for the Company. Amounts paid to Johns Manville Corporation for 1997 and 1996 U.S. federal and state income taxes totaled $53.2 million and $52.5 million, respectively. In addition, the Company and Johns Manville Corporation entered into certain agreements that formalized various relationships between the two companies. Principal among these are an Intercompany Agreement by which Johns Manville Corporation provides certain management services to the Company for a fee and a Treasury Management Agreement by which Johns Manville Corporation provides certain financial services for a fee. Fees for the cost of such services are based on actual costs incurred, estimates of time spent to provide such services and other appropriate bases that management believes to be reasonable and representative of the services provided. Cash settlements are made for all products or services provided and/or received, with interest accruing at the prime rate on past due balances. Amounts payable or receivable for transactions with Johns Manville Corporation have been reported as a current payable or receivable on the Consolidated Balance Sheet. Prior to 1997, charges for services received were included in services provided by parent in the Consolidated Statement of Income. During 1996, Johns Manville Corporation divested its investment in Riverwood International Corporation (the "Riverwood Disposition"). In connection with the Riverwood Disposition, certain management and financial services maintained by Johns Manville Corporation were reorganized and transferred to the Company, and are now reflected as selling, general and administrative expenses. Expenses incurred by the Company under the terms of the Intercompany Agreement and the Treasury Management Agreement for services provided by Johns Manville Corporation totaled $7 million and $11.8 million for the years ended December 31, 1996 and 1995, respectively. Other related party transactions During 1996, the Company advanced $23.8 million to Johns Manville Corporation to acquire Nord Bitumi U.S., Inc. which Johns Manville Corporation subsequently contributed to the Company. The contribution was accounted for as an increase in the Company's stockholder's equity. The advance, included in current receivable from parent at December 31, 1996, was repaid in February 1997. Johns Manville Corporation maintains an escrow account on behalf of the Company for its workers' compensation surety bonds which is reported as a 29 JOHNS MANVILLE INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS long-term receivable from parent in the consolidated balance sheet of $10.7 million and $10.1 million at December 31, 1997 and 1996, respectively. NOTE 7-INCOME TAXES Income taxes payable consists of the following:
(IN THOUSANDS OF DOLLARS) 1997 1996 ------------ ------------- U.S. federal and foreign income taxes............ $ 3,724 $ 13,998 State and local taxes............................ 378 615 Deferred income taxes............................ 1,250 ------------ ------------- $ 4,102 $ 15,863 ============ =============
The current receivable from parent at December 31, 1997 and 1996 included $6.4 million and $3.2 million, respectively, for the overpayment of the Company's 1997 and 1996 federal and state income tax obligations paid to Johns Manville Corporation under the terms of the Tax Sharing Agreement. The approximate tax effect of the temporary differences giving rise to the net deferred tax asset is follows:
(IN THOUSANDS OF DOLLARS) 1997 1996 ------------ ------------ U.S. Deferred Tax Assets: Employee benefit accruals...................... $ 101,830 $ 108,006 Reserves....................................... 51,023 56,251 Provision for furnace rebuilds................. 9,625 7,805 Capitalized research, development and engineering................................... 7,239 Deferred state and local taxes................. 6,552 7,488 Accounts receivable allowances................. 3,677 3,830 Other.......................................... 9,818 9,111 ------------ ------------ Total U.S. Deferred Tax Assets............... 189,764 192,491 Foreign Deferred Tax Assets...................... 2,547 842 ------------ ------------ Total Deferred Tax Assets.................... 192,311 193,333 ------------ ------------ U.S. Deferred Tax Liabilities: Property, plant and equipment.................. 100,695 97,688 Prepaid pension asset.......................... 45,342 45,821 Other.......................................... 6,710 6,675 ------------ ------------ Total U.S. Deferred Tax Liabilities.......... 152,747 150,184 ------------ ------------ Net Deferred Tax Asset........................... $ 39,564 $ 43,149 ============ ============
The Company believes, based upon its past earnings, forecasts of future earnings and potential tax planning strategies that as of December 31, 1997 and 1996, all of the deferred tax assets will be realized. Accordingly, a valuation allowance has not been provided. Deferred income tax liabilities of $42.2 million and $41.2 million as of December 31, 1997 and 1996, respectively, related to foreign operations and were primarily attributable to temporary differences on property, plant and equipment. 30 JOHNS MANVILLE INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The U.S. and foreign components of income before income taxes consist of the following:
(IN THOUSANDS OF DOLLARS) 1997 1996 1995 -------- -------- -------- U.S. ............................................. $137,779 $110,885 $136,878 Foreign........................................... 39,203 47,943 42,367 -------- -------- -------- $176,982 $158,828 $179,245 ======== ======== ========
The provision for income tax expense (benefit) on income before income taxes consists of the following:
(IN THOUSANDS OF DOLLARS) 1997 1996 1995 -------- --------- -------- Current: U.S. federal................................. $ 33,331 $ 48,274 $ 46,281 U.S. state and local......................... 7,975 11,798 9,784 Foreign...................................... 17,618 24,492 16,603 -------- --------- -------- 58,924 84,564 72,668 -------- --------- -------- Deferred: U.S. ........................................ 18,313 (8,705) 2,252 Foreign...................................... (1,473) (5,975) 2,096 -------- --------- -------- 16,840 (14,680) 4,348 -------- --------- -------- $ 75,764 $ 69,884 $ 77,016 ======== ========= ========
The effective tax rate on income before income taxes differs from the U.S. federal statutory income tax rate for the following reasons:
1997 1996 1995 ---- ---- ---- Percent of Pre-tax Income: U.S. federal statutory rate................................ 35.0% 35.0% 35.0% Increase resulting from: U.S. state and local taxes, net of federal benefit....... 3.5 3.8 3.8 Foreign income taxed at higher rates..................... 2.2 2.4 3.3 Other, net............................................... 2.1 2.8 0.9 ---- ---- ---- 42.8% 44.0% 43.0% ==== ==== ====
Undistributed earnings intended to be reinvested indefinitely by the foreign subsidiaries totaled $187.3 million at December 31, 1997. The determination of the deferred tax liability related to these undistributed earnings is not practicable. Accordingly, no U.S. deferred income tax has been recorded. NOTE 8-PENSIONS The Company maintains noncontributory defined benefit pension plans for its U.S. and German employees. Pension expense (income) and projected benefit obligations under each of these plans are determined using assumptions regarding discount rates, rates of increase in future compensation levels and expected long-term rates of return on assets. These assumptions are subject to prevailing economic conditions and, accordingly, the Company believes it is reasonably possible that a change in these assumptions may occur in the near- term. 31 JOHNS MANVILLE INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Pension Plans Substantially all of the Company's U.S. employees are covered by noncontributory defined benefit pension plans. Pension benefits are based primarily on years of service and the employee's compensation or pension rate near retirement. The Company's funding policy is to contribute funds to a trust as necessary to at least meet the minimum funding requirements of the Internal Revenue Code. Plan assets are invested primarily in equity and fixed income securities. (A) Pension Expense (Income): The Company's pension expense (income) related to the U.S. defined benefit pension plans for the years ended December 31 consists of the following:
(IN THOUSANDS OF DOLLARS) 1997 1996 1995 -------- -------- --------- Service cost-benefits earned during the year....................................... $ 7,633 $ 7,971 $ 6,436 Interest cost on projected benefit obligation................................. 45,206 43,689 45,460 Estimated return on assets: Actual (gain) loss........................ (87,412) (46,263) (145,180) Deferred gain (loss)...................... 32,552 (6,033) 100,928 Net amortization............................ (6,494) (3,558) (4,212) -------- -------- --------- Total pension expense (income)............ $ (8,515) $ (4,194) $ 3,432 ======== ======== =========
Assumptions used in determining the pension expense (income) for the years ended December 31 are as follows:
1997 1996 1995 ----- ----- ----- Discount rates............................................. 7.50% 7.00% 9.00% Rates of increase in future compensation levels............ 5.50% 5.50% 6.50% Expected long-term rates of return on assets............... 8.25% 8.00% 8.00%
(B) Funded Status: The funded status of the Company's defined benefit plans covering U.S. employees as of December 31 is as follows:
(IN THOUSANDS OF DOLLARS) 1997 1996 ------------ ------------ Actuarial present value of: Vested benefit obligation.................... $ 595,537 $ 575,851 ============ ============ Accumulated benefit obligation............... $ 624,017 $ 602,370 ============ ============ Projected benefit obligation................. $ 640,858 $ 621,842 Plan assets at fair value...................... 740,413 682,788 ------------ ------------ Plan assets in excess of projected benefit obligation.................................... 99,555 60,946 Unrecognized net loss.......................... 30,094 66,391 Unrecognized prior service costs............... 11,520 12,431 Unrecognized transition adjustment............. (11,981) (19,585) ------------ ------------ Prepaid pension asset.......................... $ 129,188 $ 120,183 ============ ============
32 JOHNS MANVILLE INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The projected benefit obligations for the U.S. plans were determined in 1997 and 1996 using a discount rate of 7.5 percent and rates of increase in future compensation levels for salary-related plans of 5.5 percent. The Company utilizes a discount rate based on available high-quality corporate bonds. The vested U.S. benefit obligation was calculated on the benefits the employees are entitled to receive if they were to separate immediately. German Pension Plan The German plan is noncontributory and is unfunded. The pension or termination benefits are based primarily on years of service and the employee's compensation. (A) Pension Expense: The pension expense, determined using a discount rate of seven percent and a rate of increase in future compensation of five percent each year, for the years ended December 31 consists of the following:
(IN THOUSANDS OF DOLLARS) 1997 1996 1995 -------- -------- -------- Service cost-benefits earned during the year.... $ 567 $ 881 $ 909 Interest cost on projected benefit obligation... 1,529 1,861 1,869 Net amortization................................ (34) 105 111 -------- -------- -------- Total pension expense......................... $2,062 $2,847 $2,889 ======== ======== ========
(B) Funded Status: The status of the Company's unfunded German plan as of December 31 is as follows:
(IN THOUSANDS OF DOLLARS) 1997 1996 ------------ ------------ Actuarial present value of: Vested benefit obligation...................... $ 21,335 $ 24,691 ============ ============ Accumulated benefit obligation................. $ 22,309 $ 25,861 ============ ============ Projected benefit obligation................... $ 23,421 $ 28,204 Unrecognized net gain............................ 4,183 2,972 Unrecognized transition adjustment............... (633) (863) ------------ ------------ Pension liability................................ $ 26,971 $ 30,313 ============ ============
Projected benefit obligations were determined using a discount rate of seven percent for both 1997 and 1996. The rate of increase in future compensation levels for salary-related plans was four percent in 1997 and five percent in 1996. The vested benefit obligation is calculated on the benefits the employees are entitled to receive if the employees were to separate immediately. Voluntary Savings Plans The Company provides voluntary savings plans in which eligible U.S. employees of the Company may participate. Employees may make contributions of up to 16 percent of their compensation. The Company matches up to six percent of certain contributions at rates ranging from 15 percent to 100 percent depending on the Company's performance. Company contributions to the savings plans were $7.1 million in 1997, $7.2 million in 1996 and $7.1 million in 1995. 33 JOHNS MANVILLE INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9-SHORT-TERM DEBT AND CREDIT FACILITIES
(IN THOUSANDS OF DOLLARS) 1997 1996 ------------ ------------- Short-term borrowings............................ $ 1,330 $ 22,634 Current portion of long-term debt................ 437 9,114 ------------ ------------- $ 1,767 $ 31,748 ============ =============
At December 31, 1997, the Company had $100 million available under a receivables sale facility (the "Receivables Facility") for its domestic short- term working capital requirements. Amounts available for borrowing under the Receivables Facility are based on the daily balance of certain outstanding trade accounts receivable, adjusted for various factors as defined under the terms of the Receivables Facility. In addition, the Company's international subsidiaries had borrowing and working capital facilities totaling $85 million, of which $51.9 million was available at December 31, 1997. These facilities are principally secured by the Company's equity ownership in certain international subsidiaries and joint ventures. NOTE 10-COMPENSATION AND EMPLOYEE BENEFITS
(IN THOUSANDS OF DOLLARS) 1997 1996 ------------ ------------- Vacation, compensation and payroll deductions... $ 46,693 $ 51,912 Self insured medical and group life coverage.... 32,805 34,812 Other........................................... 3,383 15,412 ------------ ------------- $ 82,881 $ 102,136 ============ =============
NOTE 11-ALLOWANCE FOR FURNACE REBUILDS The activity in the allowance for furnace rebuilds, included in other noncurrent liabilities, for the years ended December 31 was as follows:
(IN THOUSANDS OF DOLLARS) 1997 1996 ------------ ------------ Balance at beginning of year..................... $ 22,300 $ 22,405 Provisions for estimated costs................... 11,264 8,270 Rebuild expenditures............................. (6,063) (8,375) ------------ ------------ 27,501 22,300 Less current portion............................. 8,881 1,947 ------------ ------------ $ 18,620 $ 20,353 ============ ============
34 JOHNS MANVILLE INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12-LONG-TERM DEBT
(IN THOUSANDS OF DOLLARS) 1997 1996 ------------ ------------ UNSECURED Senior Notes with interest at 10.875%, payable 2004............................................. $ 400,000 $ 400,000 COLLATERALIZED Revolving Credit facility with interest at LIBOR plus 1%, payable 1999............................ 25,000 Industrial revenue bonds with interest at floating rates, from 2% to 8.625%, payable through 2009, collateralized by a letter of credit, real property and equipment........................... 9,557 15,702 Notes payable with interest from 5.98% to 8.13%, payable through 2007............................. 2,354 4,070 ------------ ------------ 436,911 419,772 Less current portion.............................. 437 9,114 ------------ ------------ $ 436,474 $ 410,658 ============ ============
In 1994, the Company issued $400 million of 10.875 percent Senior Notes, due 2004. Interest on these notes is payable semiannually. These notes may be redeemed on or after December 15, 1999 at prices ranging from 100 percent to 105 percent of the principal amount, plus accrued interest. Long-term debt maturities at December 31, 1997 are as follows:
(IN THOUSANDS OF DOLLARS) 1998............... $ 437 1999............... 25,274 2000............... 239 2001............... 989 2002............... 2,318 Thereafter......... 407,654 -------- $436,911 ========
The Company's agreements with its lenders contain a number of financial and general covenants. These include, among others, restrictions on borrowings, investments, stock issuances and repurchases, dividends and other distributions by the Company and restrictions on intercompany transactions including transfers of cash, and transactions with Johns Manville Corporation. As of December 31, 1997 and 1996, the maximum amount available for dividends to be paid to Johns Manville Corporation under debt covenants of the Senior Notes was approximately $250 million and $210 million, respectively. Noncompliance with these or other covenants, or the occurrence of any other event of default, could result in the termination of existing credit agreements and the acceleration of debt owed by the Company and its subsidiaries. At December 31, 1997, the Company was in compliance with these covenants. At December 31, 1997, the Company's long-term debt totaled $436.9 million and had an estimated fair value of $477.7 million. At December 31, 1996, the Company's long-term debt totaled $419.8 million and had an estimated fair value of $464.9 million. Generally, the fair value of the Company's long-term debt is an estimate based on quoted market prices, when available, or the discounted cash flow method. 35 JOHNS MANVILLE INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13-OTHER POSTRETIREMENT BENEFITS Medical and life insurance coverage is provided to eligible U.S. and Canadian retirees of the Company and their dependents under defined benefit plans. The postretirement benefit expense for the years ended December 31 consists of the following:
(IN THOUSANDS OF DOLLARS) 1997 1996 1995 -------- -------- -------- Service cost-benefits earned during the year........................................ $ 1,377 $ 1,352 $ 1,538 Interest cost on accumulated postretirement benefit obligation.......................... 13,179 12,913 15,383 Net amortization............................. (1,556) (1,552) (2,433) -------- -------- -------- Total postretirement benefit expense....... $ 13,000 $ 12,713 $ 14,488 ======== ======== ========
The postretirement benefit expense was calculated using a discount rate of 7.5 percent in 1997, seven percent in 1996 and nine percent in 1995. The Company's unfunded postretirement benefit obligation reconciled with the amounts shown in the Company's consolidated balance sheet as of December 31, 1997, is as follows:
(IN THOUSANDS OF DOLLARS) 1997 1996 ------------ ------------ Actuarial present value of the accumulated postretirement benefit obligation: Retirees...................................... $ 151,202 $ 151,123 Fully eligible plan participants.............. 10,032 8,474 Other active plan participants................ 27,569 25,013 ------------ ------------ 188,803 184,610 Unrecognized net gain........................... 1,855 8,360 Unrecognized prior service costs................ 24,518 25,950 ------------ ------------ Postretirement Benefit Obligation............... $ 215,176 $ 218,920 ============ ============
The current portions of $17.8 million and $19.5 million of the postretirement benefit obligation were recorded in compensation and employee benefits as of December 31, 1997 and 1996, respectively. The accumulated postretirement benefit obligations were determined in 1997 and 1996 using a discount rate of 7.5 percent. The Company utilizes a discount rate based on available high-quality corporate bonds. For measurement purposes, a 5.9 percent annual rate of increase in the per capita cost of covered medical benefits was assumed for 1998; the rate was assumed to decrease gradually to 5.5 percent in 2002 and remain at that level thereafter. The Company's assumptions regarding the discount rate and annual rate of increase in the per capita cost of covered medical benefits are subject to prevailing economic conditions. Accordingly, the Company believes it is reasonably possible that a change in these assumptions may occur in the near term. To illustrate, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated benefit obligation as of December 31, 1997, by $7.5 million, and the aggregate of the service and interest cost components of the periodic cost for the year then ended by $0.6 million. 36 JOHNS MANVILLE INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14-WORKERS' COMPENSATION The workers' compensation liability and related receivable at gross and present value at December 31 are:
(IN THOUSANDS OF DOLLARS) 1997 1996 ------------ ------------ Workers' Compensation Liability: Gross......................................... $117,917 $123,569 Present value................................. 66,658 69,002 Insurance Receivable: Gross......................................... $ 7,572 $ 7,765 Present value................................. 4,798 4,818
The liability and receivable were measured using risk-free discount rates of 6 percent and 6.4 percent at December 31, 1997 and 1996, respectively, which reflect rates of return on available U.S. Treasury securities with maturities similar to the timing of expected claim payments. Although the Company is exposed to credit losses in the event of nonperformance by its insurers, the Company anticipates claims for insurance coverage will be fully satisfied. Discount rates of 6.4 percent, 6.2 percent and 8.2 percent were used to measure expense for the years ended December 31, 1997, 1996 and 1995, respectively. The Company expects to pay the following amounts for its workers' compensation obligations:
(IN THOUSANDS OF DOLLARS) 1998............... $ 7,200 1999............... 7,200 2000............... 7,000 2001............... 6,600 2002............... 6,200 Thereafter......... 83,717 -------- $117,917 ========
NOTE 15-COMMITMENTS AND CONTINGENCIES Total rental expense was $12.5 million in 1997, $10.9 million in 1996 and $13.5 million in 1995. At December 31, 1997, minimum rental commitments of the Company under long- term, noncancelable operating leases are as follows:
(IN THOUSANDS OF DOLLARS) 1998............... $ 6,321 1999............... 3,938 2000............... 3,432 2001............... 3,190 2002 and thereafter........ 7,620 ------- $24,501 =======
Minimum rental commitments of the Company have not been reduced by anticipated sublease income over the lease terms of approximately $2.4 million. 37 JOHNS MANVILLE INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company has various purchase commitments for items used in the ordinary conduct of business. In the aggregate, such commitments do not exceed market prices or anticipated usage requirements. Contingent Product Liability Between 1988 and 1992, the Company manufactured phenolic roofing insulation which may, under certain circumstances, contribute to the corrosion of metal decks on which it is installed. Subsequently, the Company began a voluntary program to inspect such metal decks and remediate where appropriate. The Company has accrued for costs relating to future inspections, remediation and anticipated claims. These accruals are based on the Company's historical experience regarding the incidence of corrosion and the cost of remediation and include a number of assumptions related to the types of roofs on which phenolic insulation has been installed as well as the assumption that the Company's past remediation experience will continue over the remaining lives of roofs insulated with the Company's phenolic roofing insulation. Pursuant to reimbursement agreements with the Company's liability carriers and former owner of the phenolic roofing insulation business, the Company has been reimbursed for a portion of historical costs incurred and is entitled to receive reimbursement for a substantial portion of future costs to be incurred by the Company for inspection and remediation. In 1996, the Company and a third party were named as defendants in two class action cases filed in U.S. District Court in Boston, Massachusetts. The plaintiffs purport to represent all building owners in the U.S. with phenolic insulation installed on their roof decks and seek damages and injunctive relief, including an order requiring the removal and replacement of the phenolic insulation and remediation of any deck corrosion. The Company intends to defend these allegations vigorously. The Company has reviewed its historical inspection and remediation experience and the terms and collectibility of amounts payable under the reimbursement agreements in light of the contingencies described above. Based on the information available to date and subject to the assumptions described above, if additional costs are incurred in excess of the accrued amounts, such costs are not expected to have a material adverse effect on the Company's financial condition, liquidity or results of operations. Environmental Contingencies At December 31, 1997, the Company had remediation activities in progress at nine sites, out of a total of 19 such sites for which the Company has identified environmental conditions requiring remediation. In addition, the Company has been identified as a potentially responsible party at 24 non- Company owned or operated sites under the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or similar state legislation. Of these 24 sites, the Company's potential liability for 17 sites will be determined pursuant to the settlement agreement described in the following paragraph. The remaining seven sites are not subject to the agreement and, accordingly, the Company could be jointly and severally liable for costs of remediating these sites. In 1994, the U.S. government and Johns Manville Corporation settled certain litigation concerning the Company's disposal activities prior to consummation of Johns Manville Corporation's plan of reorganization. The settlement agreement, which was made an order of the court, limits the Company's future liability under both CERCLA and the Resource Conservation and Recovery Act ("RCRA") to 55 percent of its share of site-wide response costs and natural resources damages without regard to joint and several liability for disposals made by the Company prior to consummation of Johns Manville Corporation's plan of reorganization. The agreement resolved the Company's liability at certain historical sites and also covers CERCLA and RCRA liability for other disposal sites at which the Environmental Protection Agency ("EPA") has incurred or may incur response 38 JOHNS MANVILLE INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS costs and which were used by the Company prior to consummation of Johns Manville Corporation's plan of reorganization. The agreement provides that the amount the Company will be obligated to pay, in the aggregate, for such sites shall never exceed $850,000 during any given year. The EPA and others from time to time commence cleanup activities at such sites and in the future the EPA and others may assert claims against the Company with respect to such sites. The Company believes that all such activities and claims, if any, will be subject to the agreement. At December 31, 1997 and 1996, the Company's balance sheet included undiscounted accruals for environmental remediation costs, including ongoing compliance, maintenance and monitoring costs, of $34 million. The Company paid $1.3 million and $1.8 million for environmental cleanup in 1997 and 1996, respectively. The Company believes that amounts paid in 1997 and 1996 are representative of the Company's future annual environmental cleanup costs and anticipates expenditures relating to costs currently accrued to be made over the next 15 years. As a result of factors such as changes in federal and state regulations, the application and effectiveness of remedial actions, the difficulty in assessing the extent of environmental contamination, and the allocation of costs among potentially responsible parties, actual costs to be incurred for environmental cleanup may vary from previous estimates. Subject to the uncertainties inherent in evaluating environmental exposures, and based on information presently available, including the Company's historical remediation experience, currently enacted environmental laws and regulations, and existing remediation technology, the Company believes that if additional costs are incurred in excess of the accrued amounts, such costs are not expected to have a material adverse effect on the Company's financial condition, liquidity or results of operations. Year 2000 Compliance The Company is engaged in a comprehensive project to modify its computer software for year 2000 compliance. Based on current estimates, spending to upgrade or replace the Company's software or systems related to year 2000 compliance is not expected to exceed $5 million through 1999. Although it is not possible to quantify the impacts year 2000 compliance issues will have on customers or suppliers, the Company does not anticipate related material adverse effects on its financial condition, liquidity or results of operations. NOTE 16-NONRECURRING CHARGES In 1996, the Company recorded the following pretax nonrecurring charges totaling $49.2 million. The Company completed an evaluation of a manufacturing facility with both current and former operations and determined that its best course of action was closure of the facility. Consequently, the Company recorded nonrecurring charges of $41.7 million for the shutdown of current operations, demolition of facilities and site restoration, of which $30 million, $6.1 million and $5.6 million related to corporate and eliminations and the Insulation segment and the Roofing Systems segment, respectively. Of these charges, $7.5 million were noncash asset write-downs, and at December 31, 1997, $15.4 million was classified as other current liabilities. Upon completion of these actions, the Company intends to dispose of the remaining properties and does not expect to incur significant future monitoring and maintenance costs. The Company expects to fund the charges requiring cash outlays from existing cash balances and cash generated from operations. During 1997, the Company spent minimal amounts in preparation for demolition phases of the project. Pending federal and state regulatory agency approval, the final disposition will begin in 1998 and is expected to be substantially completed by 1999, with the majority of the liabilities settled during that time frame. The nonrecurring charges are based on estimates and, therefore, are subject to risks and uncertainties related to the Company's ability to secure agreements with third parties, relinquish the properties and obtain regulatory approvals to execute the actions described above. As a result, the Company believes it is reasonably possible that these estimates may be revised in the near-term. However, the impacts of such revisions, if any, are not expected to have a material adverse effect on the Company's financial condition, liquidity or results of operations. 39 JOHNS MANVILLE INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company recorded additional 1996 nonrecurring charges (income) in the Insulation and the Engineered Products segments of $11.5 million and $(4) million, respectively, consisting of asset write-downs to estimated fair values in the automotive molded parts business, which was disposed of during 1997, and a gain on the sale of other manufacturing assets. NOTE 17-OTHER INCOME (EXPENSE), NET
(IN THOUSANDS OF DOLLARS) 1997 1996 1995 -------- ------- -------- Amortization of intangible assets............... $(10,516) $(4,528) $ (677) Pension and postretirement benefits............. (2,068) (3,791) (6,456) Interest accretion on workers' compensation liabilities.................................... (3,072) (3,567) (2,921) Phenolic legal expenses......................... (600) (3,910) Settlement of pension plans..................... 7,216 Write-off/disposition of nonproductive assets... (6,723) Other........................................... 3,506 4,696 2,900 -------- ------- -------- $(12,150) $ (574) $(17,787) ======== ======= ========
Pension and postretirement benefits are attributable to retirees of the Company's former business operations. Interest accretion on workers' compensation liabilities primarily relates to previous asbestos operations. NOTE 18-SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest and taxes during each of the years ended December 31 was as follows:
(IN THOUSANDS OF DOLLARS) 1997 1996 1995 -------- -------- -------- Interest paid to: Parent.......................................... $ 7,109 $ 2,051 $ 2,226 Others.......................................... 48,622 44,327 44,301 Taxes paid to: Parent.......................................... $ 53,183 $ 52,470 $ 50,352 Others.......................................... 31,271 23,038 15,327
NOTE 19-ACQUISITIONS During the third quarter of 1997, the Company acquired the roofing business of HPG International, Inc., a U.S. manufacturer of thermoplastic membranes. During the second quarter of 1997, the Company acquired the Mitex group of companies. Mitex is a manufacturer of fiber glass wall covering fabrics used primarily in commercial and industrial buildings, and has manufacturing facilities in Sweden and the United Kingdom. During the first quarter of 1997, the Company acquired the assets of Ergon Nonwovens, Inc., a U.S. manufacturer of synthetic meltblown nonwoven products. The Ergon and Mitex acquisitions are associated with the businesses of the Engineered Products segment. The combined purchase price for these acquisitions, accounted for under the purchase method, was $136.5 million, net of cash acquired, financed from existing cash balances and borrowings of $55 million from international credit facilities. The excess of the combined purchase prices over the estimated fair value of net assets acquired, or goodwill, amounted to approximately $84 million. These allocations were based on estimates and may be revised in the future. 40 JOHNS MANVILLE INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In January 1998, the Company acquired the assets of Seal-Dry/USA, Inc., a U.S. manufacturer of reinforced thermoplastic roofing systems. Also in January 1998, the Company acquired a plant, associated with the Insulation segment, which manufactures calcium silicate pipe and block insulation, and fireproof board. Both acquisitions will be accounted for under the purchase method. NOTE 20-NEW ACCOUNTING PRONOUNCEMENTS During 1997, the Financial Accounting Standards Board issued the following Statements of Financial Accounting Standards effective for periods beginning after December 15, 1997: "Reporting Comprehensive Income" ("SFAS No. 130") and "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components. Comprehensive income generally includes changes in separately reported components of equity along with net income. SFAS No. 131 establishes standards for reporting information about operating segments, along with related disclosures about products, services, geopraphic areas and major customers, based on the Company's disaggregation of an entity for internal operating decisions. The Company's reportable business segments are currently aligned with its internal business units. NOTE 21-BUSINESS SEGMENTS AND GEOGRAPHIC AREA INFORMATION Beginning in 1997, the Company reorganized its business segments and will report separately its operating results in the following three principal business segments: Insulation, Roofing Systems and Engineered Products. The 1996 and 1995 results were reclassified to conform with the current presentation format. The Insulation segment consists of the Company's building insulation business, which manufactures fiber glass wool insulation for walls, attics and floors in residential and commercial buildings and polyisocyanurate foam sheathing for residential structures; commercial/industrial insulation business, which manufactures pipe and duct insulation for use in commercial buildings, factories, refineries and other industrial applications; and original equipment manufacturers ("OEM") insulation business which manufactures thermal and acoustic insulation for aircraft, marine vessels, automobiles and heating, ventilating and air conditioning ("HVAC") and other equipment. The Roofing Systems segment consists of the Company's commercial/industrial roofing systems business, which supplies roofing membranes, insulations, accessories and related guarantees. The Engineered products segment consists of the Company's mats and fibers business, which manufactures continuous filament fiber glass-based products used for reinforcing roofing, flooring, wall covering and plastic products. The mats and fibers business includes the Company's German subsidiary, Schuller GmbH, and the Company's Swedish and U.K. subsidiaries, the Mitex companies. The Engineered Products segment also includes the Company's filtration business, which manufactures filtration media for commercial and industrial buildings; ultra-fine fibers for clean room air filters and battery separators; liquid filtration cartridges and media for use in commercial and industrial applications; and synthetic meltblown products used in various other applications. 41 JOHNS MANVILLE INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS) YEARS ENDED DECEMBER 31, ---------------------------------- 1997 1996 1995 ---------- ---------- ---------- INSULATION: Net Sales.................................. $ 697,845 $ 698,954 $ 669,938 Costs and Expenses......................... 598,859 579,028 548,609 Nonrecurring Charges....................... 17,550 Other Income (Expense), net (Note D)....... (247) 977 (8,137) ---------- ---------- ---------- Income from Operations................... $ 98,739 $ 103,353 $ 113,192 ---------- ---------- ---------- ROOFING SYSTEMS: Net Sales.................................. $ 510,460 $ 414,013 $ 290,518 Costs and Expenses......................... 444,749 372,993 265,274 Nonrecurring Charges....................... 5,644 Other Income (Expense), net (Note D)....... (2,843) (3,247) (1,718) ---------- ---------- ---------- Income from Operations................... $ 62,868 $ 32,129 $ 23,526 ---------- ---------- ---------- ENGINEERED PRODUCTS: Net Sales.................................. $ 475,954 $ 470,761 $ 457,685 Costs and Expenses......................... 379,274 362,846 354,578 Nonrecurring Charges (Income).............. (4,018) Other Income (Expense), net (Note D)....... (4,118) 1,149 1,419 ---------- ---------- ---------- Income from Operations................... $ 92,562 $ 113,082 $ 104,526 ---------- ---------- ---------- CORPORATE AND ELIMINATIONS: Net Sales (Note A)......................... $ (36,614) $ (31,299) $ (26,619) Costs and Expenses......................... (13,062) (10,149) (10,676) Nonrecurring Charges....................... 29,980 Other Income (Expense), net (Note D)....... (4,942) 547 (9,351) ---------- ---------- ---------- Income from Operations................... $ (28,494) $ (50,583) $ (25,294) ---------- ---------- ---------- CONSOLIDATED TOTAL COMPANY: Net Sales.................................. $1,647,645 $1,552,429 $1,391,522 Costs and Expenses......................... 1,409,820 1,304,718 1,157,785 Nonrecurring Charges....................... 49,156 Other Income (Expense), net................ (12,150) (574) (17,787) ---------- ---------- ---------- Income from Operations................... $ 225,675 $ 197,981 $ 215,950 ========== ========== ========== ASSETS (DECEMBER 31): Insulation................................. $ 520,729 $ 537,514 $ 527,225 Roofing Systems............................ 398,734 378,845 148,369 Engineered Products........................ 582,193 478,225 454,317 Corporate (Note E)......................... 283,917 326,276 329,781 Eliminations and Adjustments (Note B)...... (52,052) (53,319) (52,903) ---------- ---------- ---------- Total.................................... $1,733,521 $1,667,541 $1,406,789 ========== ========== ==========
- -------- See notes on page 43. 42 JOHNS MANVILLE INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS) YEARS ENDED DECEMBER 31, -------------------------- 1997 1996 1995 -------- -------- -------- DEPRECIATION, DEPLETION AND AMORTIZATION: Insulation.......................................... $ 33,569 $ 30,550 $ 28,235 Roofing Systems..................................... 15,855 11,594 5,391 Engineered Products................................. 29,638 26,341 26,646 Corporate........................................... 1,101 2,413 2,813 -------- -------- -------- Total............................................. $ 80,163 $ 70,898 $ 63,085 ======== ======== ======== ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT: Insulation.......................................... $ 34,687 $ 32,531 $ 73,614 Roofing Systems..................................... 7,945 51,650 5,338 Engineered Products................................. 81,715 68,462 30,262 Corporate........................................... 949 290 1,852 -------- -------- -------- Total............................................. $125,296 $152,933 $111,066 ======== ======== ========
- -------- NOTE A: Net sales included in corporate and eliminations relate principally to the elimination of intersegment and intergeographic sales (at prices approximating market). Intersegment sales principally relate to sales from the Engineered Products segment to the Roofing Systems segment. NOTE B: Includes the elimination of intersegment and intergeographic inventory profits and the adjustment of business segment and geographic inventories, which are carried at standard costs, to the historical inventory bases used in consolidation. NOTE C: Includes the elimination of intergeographic dividends between the Company's foreign and U.S. segments. NOTE D: Other income (expense), net, as reported in each of the business segments represents specific operating income and expense items recognized by the individual business units. Other income (expense), net, included in corporate and eliminations consists of amounts primarily attributable to previous business operations. NOTE E: Corporate assets are principally cash and equivalents, marketable securities, certain investments, certain long-term receivables, receivables from parent, deferred tax assets, a portion of prepaid pension assets and a portion of property, plant and equipment. 43 JOHNS MANVILLE INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS) YEARS ENDED DECEMBER 31, ---------------------------------- 1997 1996 1995 ---------- ---------- ---------- UNITED STATES: Net Sales (Note A)......................... $1,426,609 $1,341,216 $1,200,371 Costs and Expenses......................... 1,206,560 1,109,647 993,192 Nonrecurring Charges....................... 19,176 Other Income (Expense), net................ (4,120) 9,863 (6,129) ---------- ---------- ---------- Income from Operations................... $ 215,929 $ 222,256 $ 201,050 ---------- ---------- ---------- FOREIGN: Net Sales (Note A)......................... $ 231,758 $ 224,232 $ 199,356 Costs and Expenses......................... 192,511 188,770 158,444 Other Income (Expense), net................ (1,140) 1,737 (363) ---------- ---------- ---------- Income from Operations................... $ 38,107 $ 37,199 $ 40,549 ---------- ---------- ---------- CORPORATE AND ELIMINATIONS: Net Sales (Note A)......................... $ (10,722) $ (13,019) $ (8,205) Costs and Expenses......................... 10,749 6,301 6,149 Nonrecurring Charges....................... 29,980 Other Income (Expense), net (Note C)....... (6,890) (12,174) (11,295) ---------- ---------- ---------- Income from Operations................... $ (28,361) $ (61,474) $ (25,649) ---------- ---------- ---------- CONSOLIDATED TOTAL COMPANY: Net Sales (Note A)......................... $1,647,645 $1,552,429 $1,391,522 Costs and Expenses......................... 1,409,820 1,304,718 1,157,785 Nonrecurring Charges....................... 49,156 Other Income (Expense), net................ (12,150) (574) (17,787) ---------- ---------- ---------- Income from Operations................... $ 225,675 $ 197,981 $ 215,950 ========== ========== ========== ASSETS (DECEMBER 31): United States.............................. $1,232,880 $1,207,303 $ 936,453 Foreign.................................... 268,776 187,281 193,458 Corporate (Note E)......................... 283,917 326,276 329,781 Eliminations and Adjustments (Note B)...... (52,052) (53,319) (52,903) ---------- ---------- ---------- Total.................................... $1,733,521 $1,667,541 $1,406,789 ========== ========== ==========
- -------- See notes on page 43. 44 REPORT OF INDEPENDENT ACCOUNTANTS To the Securityholders and Directors of Johns Manville International Group, Inc.: We have audited the consolidated financial statements and the financial statement schedule of Johns Manville International Group, Inc. listed in Item 14(a) of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Johns Manville International Group, Inc. as of December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand L.L.P. Denver, Colorado January 30, 1998 45 JOHNS MANVILLE INTERNATIONAL GROUP, INC. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS OF DOLLARS)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL -------- -------- -------- -------- ---------- Year Ended December 31, 1997: Net Sales...................... $379,010 $428,036 $438,122 $402,477 $1,647,645 Gross Profit................... 100,656 117,939 112,871 100,044 431,510 Income from Operations......... 51,949 66,218 60,407 47,101 225,675 Net Income..................... 22,920 31,040 29,989 17,269 101,218 ======== ======== ======== ======== ========== Year Ended December 31, 1996: Net Sales...................... $326,109 $381,403 $422,978 $421,939 $1,552,429 Gross Profit................... 93,559 108,502 121,439 117,118 440,618 Income from Operations (Note A) 57,152 59,080 70,313 11,436 197,981 Net Income..................... 27,139 28,135 33,550 120 88,944 ======== ======== ======== ======== ==========
- -------- NOTE A: During the fourth quarter of 1996, the Company recorded nonrecurring charges totaling $49.2 million. These charges include $41.7 million for the shutdown of current operations, demolition of facilities and site restoration and $7.5 million of asset write-downs to estimated fair values, partially offset by a gain on the sale of other manufacturing assets. 46 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in the Company's accountants during the two most recent fiscal years. There were also no disagreements with accountants on accounting or financial disclosures during such period. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Omitted under the reduced disclosure format pursuant to General Instruction I(2)(c) of Form 10-K. ITEM 11. EXECUTIVE COMPENSATION Omitted under the reduced disclosure format pursuant to General Instruction I(2)(c) of Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Omitted under the reduced disclosure format pursuant to General Instruction I(2)(c) of Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Omitted under the reduced disclosure format pursuant to General Instruction I(2)(c) of Form 10-K. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K a. Financial Statements, financial statement schedules and exhibits filed in this report: 1. The Company's Financial Statements and Selected Quarterly Financial Data are contained in Item 8. 2. The Company is filing herewith Schedule II-Valuation and Qualifying Accounts. b. No reports on Form 8-K were filed during the last quarter of 1997. c. Exhibit Index to the Johns Manville International Group, Inc. Annual Report on Form 10-K for Fiscal Year Ended December 31, 1997:
EXHIBIT REFERENCE ------- --------- 2. Second Amended and Restated Plan of Refiled as an exhibit to the Company's Reorganization confirmed by the United 1992 Annual Report on Form 10-K filed States Bankruptcy Court for the Southern March 30, 1993, and incorporated herein District of New York on December 22, by reference. 1986. 3.(a) Certificate of Incorporation, as Filed as an exhibit to the Company's amended. Registration Statement on Form S-1 filed September 30, 1994, and incorporated herein by reference. (b) Bylaws. Filed as an exhibit to the Company's Registration Statement on Form S-1 filed September 30, 1994, and incorporated herein by reference. (c) Certificate of Amendment to Restated Filed as an exhibit to the Company's Certificate of Incorporation. Form 10-Q for the quarter ended March 31, 1997, and incorporated herein by reference.
47
EXHIBIT REFERENCE ------- --------- 4. Amended and Restated Indenture between Filed as an exhibit to the Company's the Company and The Bank of New York, as 1994 Annual Report on Form 10-K filed Trustee, dated December 12, 1994. March 31, 1995, and incorporated herein by reference. 10.(a) Intercompany Agreement, dated as of Filed as an exhibit to the Company's September 2, 1994, between Johns Registration Statement on Form S-1 filed Manville Corporation and the Company. September 30, 1994, and incorporated herein by reference. (b) Treasury Management Agreement, dated as Filed as an exhibit to the Company's of September 22, 1994, between Johns Registration Statement on Form S-1 filed Manville Corporation and the Company. September 30, 1994, and incorporated herein by reference. (c) Tax Sharing Agreement, dated as of Filed as an exhibit to the Company's January 1, 1994, between Johns Manville Registration Statement on Form S-1 filed Corporation and the Company. September 30, 1994, and incorporated herein by reference. (d) Corporate Agreement, dated as of Filed as an exhibit to the Company's September 22, 1994, between Johns Registration Statement on Form S-1 filed Manville Corporation and the Company. September 30, 1994, and incorporated herein by reference. (e) Selling Securityholders' Agreement, Filed as an exhibit to the Company's dated as of September 22, 1994, between Registration Statement on Form S-1 filed Johns Manville Corporation and the September 30, 1994, and incorporated Trust. herein by reference. (f) Amended and Restated Receivables Filed as an exhibit to the Company's Purchase Agreement, dated as of August Registration Statement on Form S-1 filed 15, 1994, between the Company and the September 30, 1994, and incorporated banks and others named herein. herein by reference. (g) Amended and Restated Purchase and Sale Filed as an exhibit to the Company's Agreement, dated as of August 15, 1994, Registration Statement on Form S-1 filed between Johns Manville International, September 30, 1994, and incorporated Inc. and Johns Manville Funding herein by reference. Corporation. (h) Amendment to Amended and Restated Filed as an exhibit to the Company's Receivables Purchase Agreement dated as Form 10-Q for the quarter ended June 30, of June 6, 1997 among Johns Manville 1997, and incorporated herein by Funding Corporation, Johns Manville reference. International, Inc., the financial institutions listed therein as Buyers, and Morgan Guaranty Trust Company of New York, as Administrative Agent and Structuring and Collateral Agent. 24. Powers of attorney. Page 51. 27. Financial Data Schedule. Filed herewith.
48 JOHNS MANVILLE INTERNATIONAL GROUP, INC. INDEX TO FINANCIAL STATEMENT SCHEDULE TO FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997
SCHEDULE PAGE -------- ---- II Valuation and qualifying accounts, for each of the three years in the period ended December 31, 1997........................ 50
49 JOHNS MANVILLE INTERNATIONAL GROUP, INC. SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31 (IN THOUSANDS OF DOLLARS)
ADDITIONS ------------------------ CHARGED BALANCE AT (CREDITED) CHARGED BALANCE BEGINNING TO COSTS AND TO OTHER AT END CLASSIFICATION OF YEAR EXPENSES ACCOUNTS(a) DEDUCTIONS(b) OF YEAR -------------- ---------- ------------ ----------- ------------- ------- 1997 Allowances Reducing the Assets in the Balance Sheet: Doubtful accounts receivable........... $ 7,570 $ (243) $ 908 $ 2,230 $ 6,005 Cash discounts........ 1,278 -- 26,110 25,131 2,257 Other allowances...... 21,168 -- 52,904 45,554 28,518 ------- ------ ------- ------- ------- Total............... $30,016 $ (243) $79,922 $72,915 $36,780 ======= ====== ======= ======= ======= 1996 Allowances Reducing the Assets in the Balance Sheet: Doubtful accounts receivable........... $ 6,497 $1,122 $ 2,022 $ 2,071 $ 7,570 Cash discounts........ 1,967 -- 20,962 21,651 1,278 Other allowances...... 18,646 -- 34,386 31,864 21,168 ------- ------ ------- ------- ------- Total............... $27,110 $1,122 $57,370 $55,586 $30,016 ======= ====== ======= ======= ======= 1995 Allowances Reducing the Assets in the Balance Sheet: Doubtful accounts receivable........... $ 6,422 $ 776 $ -- $ 701 $ 6,497 Cash discounts........ 1,537 -- 19,963 19,533 1,967 Other allowances...... 15,765 -- 30,977 28,096 18,646 ------- ------ ------- ------- ------- Total............... $23,724 $ 776 $50,940 $48,330 $27,110 ======= ====== ======= ======= =======
- -------- NOTES: (a) Charged against sales and additions due to acquisitions. (b) Principally charges for which reserves were provided, net of recoveries. 50 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized as of the 19th day of March, 1998. JOHNS MANVILLE INTERNATIONAL GROUP, INC. (Registrant) /s/ Charles L. Henry By________________________________________ Charles L. Henry Chairman of the Board, President and Chief Executive Officer POWER OF ATTORNEY Know all men by these presents that each person whose signature appears below does hereby constitute and appoint Charles L. Henry, John P. Murphy and Richard B. Von Wald, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign all amendments to this report, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission granting unto said attorney-in- fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents or any of them, or his substitute or substitutes, lawfully do or cause to be done by virtue hereof. 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 in the capacities indicated as of March 19, 1998. SIGNATURE TITLE --------- ----- /s/ Charles L. Henry Chairman of the Board, President and - ------------------------------------- Chief Executive Officer (Principal (CHARLES L. HENRY) Executive Officer) /s/ Richard B. Von Wald Director, Executive Vice President, - ------------------------------------- General Counsel and Secretary (RICHARD B. VON WALD) /s/ John P. Murphy Director, Senior Vice President and - ------------------------------------- Chief Financial Officer (Principal (JOHN P. MURPHY) Accounting and Financial Officer) 51 ADDITIONAL INFORMATION Individuals interested in receiving additional information may contact the following: FOR COMPANY INFORMATION FOR PRODUCT INFORMATION Call (303) 978-2000 Call (303) 978-4900 or (800) 654-3103 or write to: or write to: Johns Manville International Group, Inc. Johns Manville International Group, Inc. Investor Relations Product Information P.O. Box 5108 P.O. Box 5108 Denver, CO 80217-5108 Denver, CO 80217-5108 TRANSFER AGENT INDEPENDENT ACCOUNTANTS Call 1-800-526-0801 or write to: Coopers & Lybrand L.L.P. The Bank of New York 370 Seventeenth Street, Suite 3300 120 Broadway Denver, CO 80202-5633 New York, NY 10005
52 EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the December 31, 1997 Form 10-K of Johns Manville International Group, Inc. and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 107,682 14,699 237,743 6,005 127,061 518,636 1,437,470 639,711 1,733,521 277,742 543,927 0 0 0 406,499 1,733,521 1,647,645 1,647,645 1,216,135 1,216,135 0 (243) 55,960 176,982 75,764 101,218 0 0 0 101,218 0 0
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