<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
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 number 1-8247
MANVILLE CORPORATION
------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-0856796
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
717 17th Street
Denver, Colorado 80202
------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(303) 978-2000
--------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /x/ No .
------- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
At May 10, 1994, 122,385,436 shares of the registrant's common stock were
outstanding.
<PAGE>
*PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
--------------------
* "Manville" or the "Company" when used in this report refers to Manville
Corporation, incorporated in the State of Delaware in 1981, and includes
where applicable its consolidated subsidiaries.
I-1
<PAGE>
MANVILLE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1994 1993
- ---------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and equivalents $ 92,401 $ 153,093
Marketable securities, at cost
(approximates market) 89,696 75,062
Receivables, net of allowances 308,213 304,114
Inventories 214,628 207,702
Prepaid expenses 31,270 26,747
Deferred tax assets 45,468 50,179
------------------------
Total Current Assets 781,676 816,897
Property, Plant and Equipment,
net of accumulated depreciation and
depletion of $1,024,097 and $1,017,178,
respectively 2,161,430 2,113,629
Deferred Tax Assets 348,826 331,292
Other Assets 360,165 354,419
------------------------
$3,652,097 $3,616,237
=====================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
I-2
<PAGE>
MANVILLE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
(Thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
LIABILITIES 1994 1993
- ------------------------------------------------------------------
<S> <C> <C>
Current Liabilities
Accounts and notes payable $ 201,494 $ 208,068
Compensation and employee benefits 118,779 135,024
Income taxes 29,383 21,770
Accrued dividends - Cumulative
Preference Stock, Series B 24,923 22,846
Other accrued liabilities 127,303 107,440
-------------------------
Total Current Liabilities 501,882 495,148
Long-Term Debt, less current portion 1,393,949 1,390,988
Postretirement Benefits Other Than
Pensions 252,270 246,525
Deferred Income Taxes and Other
Non-Current Liabilities 403,511 392,431
Common Stock Dividends Accrued
Not Declared (Note 3) 102,853 102,856
Cumulative Preference Stock Dividends
Accrued Not Declared (Note 3) 43,614 49,845
-------------------------
2,698,079 2,677,793
-------------------------
Profit Sharing Obligation (Note 4)
Contingencies and Commitments (Note 4)
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY 93,791 92,375
<CAPTION>
STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------
<S> <C> <C>
Cumulative Preference Stock, Series B 112,178 105,947
Common Stock 1,224 1,224
Capital in Excess of Par Value 900,562 900,562
Unearned Restricted Stock Compensation (2,353) (2,663)
Accumulated Deficit (141,312) (142,467)
Pension Liability Adjustment (4,345) (4,345)
Cumulative Currency Translation
Adjustment (5,320) (12,189)
Cost of Treasury Stock (407)
-------------------------
860,227 846,069
-------------------------
$3,652,097 $3,616,237
=================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
I-3
<PAGE>
MANVILLE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
AND ACCUMULATED DEFICIT
(Thousands of dollars, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-------------------------
INCOME 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $ 531,219 $ 504,311
Cost of Sales 411,459 397,872
Selling, General and Administrative 61,841 59,300
Research, Development and Engineering 8,921 9,440
Other Income (Loss), net (4,051) (1,841)
------------------------
Income from Operations 44,947 35,858
Interest Income 2,171 17,311
Interest Expense 31,937 36,733
Profit Sharing Expense (Note 4) 2,077 3,813
------------------------
Income before Income Taxes 13,104 12,623
Income Taxes (Benefit) 5,258 (17,759)
------------------------
Income Before Minority Interest and
Cumulative Effect of Accounting Change 7,846 30,382
Minority Interest in Consolidated
Subsidiary (460) (716)
------------------------
Income before Cumulative Effect of
Accounting Change 7,386 29,666
Cumulative Effect of a Change in Accounting
for Postemployment Benefits, net of tax (13,881)
------------------------
Net Income 7,386 15,785
Preference Stock Dividends/Accretion (6,231) (5,439)
------------------------
Net Income Applicable to Common Stock $ 1,155 $ 10,346
==============================================================================
<CAPTION>
ACCUMULATED DEFICIT
- ------------------------------------------------------------------------------
<S> <C> <C>
Accumulated Deficit at Beginning of Period $(142,467) $(167,704)
Net Income 7,386 15,785
Preference Stock Dividends/Accretion (6,231) (5,439)
------------------------
Accumulated Deficit at End of Period $(141,312) $(157,358)
==============================================================================
<CAPTION>
INCOME PER COMMON SHARE
- ------------------------------------------------------------------------------
<S> <C> <C>
Primary and Fully Diluted:
Income before Minority Interest and
Cumulative Effect of Accounting Change $ .01 $ .20
Minority Interest in Consolidated
Subsidiary (.01)
------------------------
Income before Cumulative Effect
of Accounting Change .01 .19
Cumulative Effect of a Change in
Accounting for Postemployment Benefits,
net of tax (.11)
------------------------
Net Income $ .01 $ .08
==============================================================================
</TABLE>
See Notes to Condensed Consolidated Financial
Statements.
I-4
<PAGE>
MANVILLE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 7,386 $ 15,785
Non-cash items included in net income:
Depreciation, depletion and amortization 36,436 38,697
Other postretirement benefits expense 6,254 6,788
Pension expense 717 2,096
Cumulative effect of accounting change 13,881
Profit sharing expense 2,077 3,813
Translation loss 3,189 2,438
Deferred taxes (2,134) (281)
Roofing guarantee income 1,008 825
Minority interest in net earnings of
consolidated subsidiary 460 716
Interest accretion 798
Other, net 2,661 1,006
(Increase) decrease in current assets:
Receivables (7,649) 11,553
Inventories (4,895) (29,308)
Prepaid expenses (5,370) (3,140)
Increase (decrease) in current liabilities:
Accounts payable (16,224) (14,499)
Compensation and employee benefits (19,560) (16,366)
Income taxes 7,765 (4,113)
Other accrued liabilities 17,446 22,457
Increase (decrease) in postretirement benefits
other than pensions (424) (622)
Increase in other non-current liabilities (2,742) 3,501
-----------------------
Net cash provided by operating activities 26,401 56,025
-----------------------
<CAPTION>
CASH FLOWS FROM INVESTING ACTIVITIES:
- ------------------------------------------------------------------------------
<S> <C> <C>
Purchases of property, plant and equipment (84,601) (80,985)
Proceeds from sales of marketable securities 48,109 40,543
Increase in other assets (3,130) (8,098)
Payments for acquisitions (6,275)
Proceeds from sales of assets 7,801 189
Purchases of marketable securities (62,744)
-----------------------
Net cash used in investing activities (94,565) (54,626)
-----------------------
<CAPTION>
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------------------------------------------------
<S> <C> <C>
Issuance of debt 32,774 49,283
Payments on debt (20,072) (34,194)
Dividends on Preference Stock (4,154)
Minority interest in dividend from
consolidated subsidiary (484) (484)
Stock options and warrants exercised 415
Treasury stock (407)
-----------------------
Net cash provided by financing activities 7,657 15,020
-----------------------
Effect of Exchange Rate Changes on Cash (185) 729
-----------------------
Net Increase (Decrease) in Cash and Equivalents (60,692) 17,148
Cash and Equivalents at Beginning of Period 153,093 392,172
-----------------------
Cash and Equivalents at End of Period $ 92,401 $409,320
==============================================================================
</TABLE>
See Notes to Condensed Consolidated Financial
Statements.
I-5
<PAGE>
MANVILLE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Manville Corporation is an international holding company with two principal
operating subsidiaries, Riverwood International Corporation ("Riverwood") and
Schuller International ("Schuller"), collectively referred to as "the Company".
When referring to the parent company only, Manville Corporation is defined as
the "Manville holding company". The Manville holding company owns approximately
81.5 percent of Riverwood and 100 percent of Schuller.
For additional information regarding the Company's reorganization proceedings,
accounting policies, operations and financial position refer to the Company's
1993 Annual Report and Form 10-K filed with the Securities and Exchange
Commission.
The condensed consolidated financial statements as of March 31, 1994 and
December 31, 1993 and for the three months ended March 31, 1994 and 1993 reflect
all normal, recurring adjustments which are, in the opinion of management,
necessary for a fair presentation of the financial condition and the results of
operations for the periods presented. The year-end condensed consolidated
balance sheet was derived from audited financial statements, and as presented
does not include all disclosures required by generally accepted accounting
principles.
The Company has reclassified the presentation of certain prior period
information to conform with the current presentation format.
Note 1 - Inventories
The major classes of inventories were as follows:
<TABLE>
<CAPTION>
(Thousands of dollars)
March 31, December 31,
-----------------------
1994 1993
--------- --------
<S> <C> <C>
Finished goods $ 88,723 $ 86,664
Work-in-process 26,650 19,703
Raw materials 53,589 55,883
Supplies 45,666 45,452
-------- --------
$214,628 $207,702
======== ========
</TABLE>
Note 2 - Long-Term Debt
The Company currently believes that regularly scheduled payments under existing
loan agreements will be funded through operating cash flow, proceeds from the
sale of nonstrategic assets, access to private and capital markets and amounts
available under revolving credit facilities. Scheduled amortization payments in
I-6
<PAGE>
1995 and 1996, as well as the Company's desire to modify certain covenants
contained in subsidiary financing agreements, are part of the Company's 1994
refinancing analysis. The Company anticipates that Riverwood will need to
refinance or restructure certain subsidiary debt to amend or eliminate certain
covenant restrictions. Depending upon the structure of any such refinancing or
debt restructuring, the costs of such refinancing or restructuring could be up
to $20 million based on the current interest rate environment. The Company
believes Riverwood will be able to refinance or restructure such debt on terms
and at costs satisfactory to the Company.
Note 3 - Dividends Accrued Not Declared
Presently, $102.9 million of Common Stock Dividends Accrued Not Declared are
reflected in the March 31, 1994 condensed consolidated balance sheet. These
dividends were previously accrued based upon a refinancing arrangement, since
terminated, that had been negotiated between the Company and the Manville
Personal Injury Settlement Trust (the "PI Trust"). Even though the refinancing
arrangement is no longer in effect, the Company's Board of Directors may
consider declaring and paying common dividends from time to time. In making
such decisions, the Board will evaluate the Company's capital needs, its debt
levels and the economic environment of the markets served by the Company's
businesses. The condensed consolidated balance sheet also reflects Cumulative
Preference Stock Dividends Accrued Not Declared of $43.6 million at March 31,
1994 as part of the accounting for the refinancing arrangement. Although the
common stock and preference stock dividends remain accrued, no assurance can
be given that these dividends will be declared and paid by the Company.
Note 4 - Contingencies and Commitments
The Company has an obligation to pay annually 20 percent of its net earnings
(as adjusted) to the PI Trust. Payments to the PI Trust are due each year based
on the prior year's net earnings and will continue for as long as the PI Trust
is in existence and any personal injury asbestos claims filed against the PI
Trust remain unpaid. After termination of the PI Trust, an independent profit
sharing obligation arises in favor of the Manville Property Damage Settlement
Trust. Based upon a review of the existing and potential claims facing the two
trusts, the Company believes that the profit sharing, for all practical
purposes, will be payable in perpetuity unless the Company and the trusts agree
to a restructuring or modification of the profit sharing obligations at some
future date. In the first quarter of 1994, the Company recorded $2.1 million of
profit sharing expense to be paid in 1995.
Riverwood is in the process of converting one of the two linerboard machines at
its Macon, Georgia mill to coated board production. Total capital expenditures
for the paper machine conversion and new recovery boiler were approximately $39
million
I-7
<PAGE>
during the first quarter of 1994. With the completion and start-up of the
recovery boiler during the first quarter of 1994, the expenditure program to
upgrade and convert the Macon mill to coated board continues to be on budget and
on schedule. Coated board production began in April 1994, with limited coated
board production expected to be available to meet the 1994 beverage season.
During the third quarter of 1994, Riverwood expects to shut down one paper
machine for approximately 45 days to complete the final phase of the conversion.
As of March 26, 1994, outstanding purchase commitments relating to these and
other related projects totaled approximately $37 million, which will be funded
with operating cash flow and existing cash and marketable securities balances.
In December 1988 and January 1989, the Company acquired certain phenolic roofing
insulation assets and related technology from Beazer East, Inc. ("Beazer"), the
successor to Koppers Company, Inc. The Company exited the phenolic roofing
business in February 1992. The Company has learned that phenolic roofing
insulation manufactured by the Company may, under certain circumstances,
contribute to corrosion of steel decks on which the insulation is installed.
In 1992, the Company commenced an inspection and sampling program of decks
where its phenolic product was installed between 1989 and 1992. Based on
experience to date and the information currently available, the Company
recorded an estimated loss in the fourth quarter of 1993 of approximately
$19.7 million for anticipated sampling, inspection and remediation costs.
Through March 31, 1994, the total expenditures to the Company for inspections
and claims sampling totaled approximately $2.7 million and the total
expenditures for remediation were approximately $3 million. It is possible the
ultimate loss, which cannot be determined at this time, could exceed the $19.7
million estimated loss recorded in 1993.
Any determination of the ultimate cost to the Company for phenolic-related deck
corrosion must take into consideration insurance that is available to address
such claims as well as other sources of indemnification. The Company has
substantial insurance which applies to property damage resulting from metal deck
corrosion; however, the Company is presently engaged in litigation over the
extent of such coverage with its primary insurance carrier. At this time the
Company believes it will be successful by verdicts or settlements in its efforts
to recover from its insurance carriers the receivable of $7 million reflected in
the Company's financial statements at March 31, 1994. The Company's belief that
it will be successful in this action is based on its interpretation of the
language of the relevant insurance policies and the Company's factual
investigation to date. Because of the uncertainties involved in pending
I-8
<PAGE>
litigation, no assurances are possible.
During 1993, the Company filed a lawsuit against Beazer. The Company seeks
recovery from Beazer for all costs and damages incurred as a result of the
acquisition of the phenolic business. Additionally, to the extent negligence
of others (contractors, architects, manufacturers of other roofing system
components) is a contributing factor to roof deck corrosion, the Company may
have rights in contribution for recovery of a substantial portion of its costs
from such third parties.
With respect to environmental costs, the Company is committed to full compliance
with all applicable environmental laws and regulations. Based on current
information and regulatory requirements, the Company believes accruals
established for environmental expenditures are adequate.
Note 5 - Income Taxes
In the first quarter of 1994, the Company recognized a deferred tax benefit of
$0.8 million primarily related to a tax law change in Sweden that reduced the
statutory Swedish federal tax rate to 28 percent from 30 percent.
The net income tax benefit of $17.8 million reported for the first quarter of
1993 reflects the U.S. income tax refund and changes to Brazilian income tax
rates described below, partially offset by taxes on consolidated pretax income.
As a result of a retroactive change in U.S. income tax regulations regarding the
payment of add-on minimum tax and the treatment of certain tax preference items
for the years 1977 through 1986, the Company was entitled to a federal income
tax refund plus accrued interest. During the first quarter of 1993 the Company
received $31.4 million from the U.S. Internal Revenue Service, which was
recorded as a reduction to income tax expense of $18.7 million and an increase
to interest income of $12.7 million.
Effective January 1, 1993, the government of Brazil enacted new tax provisions,
which reduced the statutory federal tax rate to 35 percent from 40 percent and
also allowed for the accelerated liquidation of future tax liabilities on
inflationary profits at reduced rates. As a result of these changes to
Brazilian tax law, the Company recognized a net deferred income tax benefit of
approximately $4.8 million in the first quarter of 1993.
Exclusive of these unusual items and their effect on income taxes, the Company's
first quarter 1994 and 1993 tax rates were 46 percent and 57 percent,
respectively. These are higher than the U.S. federal statutory rate primarily
due to U.S. state and local taxes and higher foreign effective tax rates.
Note 6 - Cumulative Effect of a Change in Accounting Principle
In the fourth quarter of 1993, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits," effective January 1, 1993. Accordingly, the March 31, 1993 financial
information has been restated to
I-9
<PAGE>
recognize an accumulated postemployment benefit obligation of $13.9 million,
net of taxes of $8.6 million.
Note 7 - Stock Incentive Plan
During the first quarter of 1993, certain key employees of Riverwood received
awards under the Riverwood International Corporation 1992 Long-Term Incentive
Plan. As a result, awards held by Riverwood employees under the Manville
Corporation Stock Incentive Plan were canceled. In connection with the
cancellation of these awards, the Company recorded a decrease of $3.4 million to
both capital in excess of par value and unearned restricted stock compensation.
Note 8 - Earnings Per Common Share
Primary earnings per common share amounts are based on the weighted average
number of common and common equivalent shares outstanding during the period.
For the first quarter of 1994, primary and fully diluted earnings per common
share amounts were based on 122,431,000 common equivalent shares. For the
first three months of 1993, primary and fully diluted earnings per common
share amounts were based on 122,923,000 and 122,950,000 common equivalent
shares, respectively.
Beginning in 1994, dividends on the Company's Cumulative Preference Stock,
Series B may be paid at an annual rate of $2.70 per share, payable quarterly,
but only at the discretion of the Company's Board of Directors. On March 1,
1994 the Company paid a preference stock dividend of $0.45 per share to
stockholders of record on February 21, 1994. The preference stock dividends of
$6.2 million for the three months ended March 31, 1994, represents the dividends
through the first quarter of 1994. The preference stock accretion of $5.4
million for the three months ended March 31, 1993 is the accretion to increase
the carrying value of the preference stock and the preference stock dividend
accrual based on the interest method.
Earnings per share amounts were calculated after the deduction for preference
stock dividends and accretion.
Note 9 - Simultaneous Sale and Purchase of Roofing Businesses
On January 16, 1994, the Company completed an exchange of certain roofing
businesses with Owens-Corning Fiberglas Corporation ("Owens-Corning") of Toledo,
Ohio. Schuller acquired Owens-Corning's commercial and industrial roofing
business in exchange for Schuller's residential roofing business.
Note 10 - Business Segment Information
Riverwood and Schuller report the results of their operations in five business
segments. Riverwood reports its results in three
I-10
<PAGE>
business segments: Coated Board System, Containerboard and U.S.
Timberlands/Wood Products. The Coated Board System segment includes the
production of coated board at paperboard mills in the United States and Europe;
converting facilities in the United States, Australia and Europe; and worldwide
packaging machinery operations related to the production and sale of beverage
and folding cartons. The Containerboard segment includes timberlands and
associated containerboard mills and corrugated box plants in Brazil as well as
kraft paper, linerboard and corrugating medium production at two U.S. mills.
The U.S. Timberlands/Wood Products segment includes timberlands and operations
engaged in the supply of pulpwood to the U.S. mill operations, and the
manufacture of lumber and plywood.
Schuller operates 35 manufacturing facilities in the United States, Canada and
Germany and reports its results in two business segments: Building Products and
Engineered Products. The Building Products segment manufactures building
insulation products, roofing products and mechanical insulation products at
plants in both the United States and Canada. Building insulation products
include thermal and acoustical fiberglass insulation products that are suitable
for use in various residential and commercial building applications. Roofing
products include roof insulations, membranes and accessories for use in various
commercial and industrial building applications. Mechanical insulation products
include fiberglass air duct systems, thermal acoustical blankets and mechanical
piping insulation. The Engineered Products segment is comprised of Schuller's
mats and reinforcements business, including Schuller GmbH, Schuller's German
subsidiary, and the equipment insulations and filtration businesses. The mats
and reinforcements business manufactures continuous filament fiberglass
products, including mats and fibers for roofing applications, fiberglass for
plastics reinforcements, textile glass products used primarily for wall
coverings and nonwoven fiberglass mats for specialty applications. The
equipment insulations business manufactures insulation for heating, ventilating
and air conditioning equipment; aircraft; appliances; and acoustic applications;
and fiberglass wool for automotive headliner and hoodliner parts. Filtration
products include air filtration media for commercial and industrial buildings
and microfibers for use in battery separators and clean room air filters.
Financial results for the Manville holding company's oil and gas property (which
was sold in the third quarter of 1993) and its equity investment in the
Stillwater platinum and palladium mining operations are included in Corporate
and Eliminations for business segment reporting purposes.
I-11
<PAGE>
<TABLE>
<CAPTION>
Manville Corporation Three Months
Consolidated Major Business Segments Ended March 31,
1994 1993
- ------------------------------------------------------------------
Net Sales
- ------------------------------------------------------------------
<S> <C> <C>
Riverwood International:
Coated Board System $169,952 $171,185
Containerboard 64,421 53,754
U.S. Timberlands/Wood Products 34,526 36,233
Corporate and Eliminations (3,991) (4,682)
- ------------------------------------------------------------------
264,908 256,490
- ------------------------------------------------------------------
Schuller International:
Building Products 145,139 128,966
Engineered Products 126,092 125,242
- ------------------------------------------------------------------
271,231 254,208
Corporate and Eliminations (4,920) (6,387)
- ------------------------------------------------------------------
Total Company Net Sales $531,219 $504,311
==================================================================
Income (Loss) From Operations
- ------------------------------------------------------------------
Riverwood International:
Coated Board System $ 23,653 $ 20,588
Containerboard (6,999) (4,615)
U.S. Timberlands/Wood Products 12,217 12,748
Corporate and Eliminations (6,373) (6,870)
- ------------------------------------------------------------------
22,498 21,851
- ------------------------------------------------------------------
Schuller International:
Building Products 14,299 9,026
Engineered Products 14,246 12,504
- ------------------------------------------------------------------
28,545 21,530
Corporate and Eliminations (6,096) (7,523)
- ------------------------------------------------------------------
Total Company Income from
Operations $ 44,947 $ 35,858
==================================================================
</TABLE>
Net sales included in Corporate and Eliminations relate primarily to the
elimination of intersegment sales (at prices approximating market).
I-12
<PAGE>
Report of Independent Accountants
To the Stockholders and Directors
of Manville Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of
Manville Corporation as of March 31, 1994 and the related condensed consolidated
statement of income and accumulated deficit and cash flows for the three month
periods ended March 31, 1994 and 1993. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1993, and the
related consolidated statements of income, stockholders' equity and cash flows
for the year then ended (not presented herein); and in our report dated
February 4, 1994, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1993, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
/s/ COOPERS & LYBRAND
- ---------------------
COOPERS & LYBRAND
Denver, Colorado
April 21, 1994
I-13
<PAGE>
Item 2.
MANVILLE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Manville Corporation is an international holding company with two principal
operating subsidiaries, Riverwood International Corporation ("Riverwood") and
Schuller International ("Schuller"), collectively referred to as "the Company".
When referring to the parent company only, Manville Corporation is defined as
the "Manville holding company". The Manville holding company owns approximately
81.5 percent of Riverwood and 100 percent of Schuller.
Riverwood and Schuller report the results of their operations in five business
segments. Riverwood reports its results in three business segments: Coated
Board System, Containerboard and U.S. Timberlands/Wood Products. The Coated
Board System segment includes the production of coated board at paperboard mills
in the United States and Europe; converting facilities in the United States,
Australia and Europe; and worldwide packaging machinery operations related to
the production and sale of beverage and folding cartons. The Containerboard
segment includes timberlands and associated containerboard mills and corrugated
box plants in Brazil as well as kraft paper, linerboard and corrugating medium
production at two U.S. mills. The U.S. Timberlands/Wood Products segment
includes timberlands and operations engaged in the supply
I-14
<PAGE>
of pulpwood to the U.S. mill operations, and the manufacture of lumber and
plywood.
Schuller operates 35 manufacturing facilities in the United States, Canada and
Germany and reports its results in two business segments: Building Products and
Engineered Products. The Building Products segment manufactures building
insulation products, roofing products and mechanical insulation products at
plants in both the United States and Canada. Building insulation products
include thermal and acoustical fiberglass insulation products that are suitable
for use in various residential and commercial building applications. Roofing
products include roof insulations, membranes and accessories for use in various
commercial and industrial building applications. Mechanical insulation products
include fiberglass air duct systems, thermal acoustical blankets and mechanical
piping insulation. The Engineered Products segment is comprised of Schuller's
mats and reinforcements business, including Schuller GmbH, Schuller's German
subsidiary, and the equipment insulations and filtration businesses. The mats
and reinforcements business manufactures continuous filament fiberglass
products, including mats and fibers for roofing applications, fiberglass for
plastics reinforcements, textile glass products used primarily for wall
coverings and nonwoven fiberglass mats for specialty applications. The
equipment insulations business manufactures insulation for heating, ventilating
and air conditioning equipment; aircraft; appliances; and acoustic applications;
and fiberglass
I-15
<PAGE>
wool for automotive headliner and hoodliner parts. Filtration products include
air filtration media for commercial and industrial buildings and microfibers for
use in battery separators and clean room air filters.
Financial results for the Manville holding company's oil and gas property (which
was sold in the third quarter of 1993) and its equity investment in the
Stillwater platinum and palladium mining operations are included in Corporate
and Eliminations for business segment reporting purposes.
Results by Segment
- ------------------
Riverwood's net sales in the first quarter of 1994 increased by $8.4 million, or
three percent, from the first quarter of 1993 due to higher sales in the
Containerboard segment, offset in part by lower sales in the U.S.
Timberlands/Wood Products segment. The Coated Board System segment's net sales
remained relatively unchanged. A lower amount of coated board sold to the open
markets was offset by an increase in coated board used in Riverwood's integrated
converting process. Net sales of beverage cartons increased in the first
quarter of 1994 compared with the first quarter of 1993 primarily due to volume
increases, while net sales of paperboard used in folding carton applications
decreased due to weak worldwide markets. Net sales of beverage cartons sold in
North America increased 10 percent primarily due to volume. However, the effect
of stronger U.S. dollar currency exchange rates
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<PAGE>
in the first quarter of 1994 compared with the same quarter of 1993 resulted in
approximately $3 million lower reported U.S. dollar net sales from international
operations. Net sales in the Containerboard segment increased $10.7 million, or
20 percent, primarily due to increased volume of containerboard sold at both
the West Monroe, Louisiana and Macon, Georgia mills, offset in part by lower
worldwide linerboard prices and lower reported net sales in Brazil. Net sales
in the U.S. Timberlands/Wood Products segment decreased by $1.7 million, or
five percent, in the first quarter of 1994 compared with the first quarter of
1993, due principally to lower selling prices of plywood and lower volume of
both plywood and lumber products, partially offset by an increase in lumber
prices.
Riverwood's gross profit for the first quarter of 1994 increased $4.7 million,
or nine percent, from the first quarter of 1993. The gross profit margin
increased to 22 percent in the first quarter of 1994 from 21 percent in the same
quarter of 1993 primarily as a result of an increase in the Coated Board System
segment's gross profit margin, offset in part by a decrease in the gross profit
margin of the Containerboard segment. The Coated Board System segment's gross
profit margin increased primarily due to improved productivity and higher volume
in the U.S. beverage markets which more than offset some declines in selling
prices primarily in folding carton markets. Lower prices in the worldwide
linerboard markets adversely affected the gross profit margin of the
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<PAGE>
Containerboard segment. The U.S. Timberlands/Wood Products segment's profit
margins remained unchanged.
Total board mill shipments in the first quarter of 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(Thousands of tons)
<S> <C> <C>
Coated Board 183.9 179.5
Containerboard 243.7 188.6
----- -----
427.6 368.1
===== =====
</TABLE>
Riverwood's selling, general and administrative expenses increased $2.2 million,
or seven percent, in the first quarter of 1994 compared with the same period in
1993, and as a percentage of net sales increased by 0.5 percentage point to 12
percent. The increase was due principally to the additional infrastructure
established to support the packaging machinery operations and the worldwide
marketing of coated board. Research, development and engineering expenses
increased by $0.3 million, or 17 percent, principally due to a higher level of
packaging machinery engineering costs associated with expanding packaging
machinery operations.
Riverwood's other income (loss), net, decreased to a net loss of $1.3 million in
the first quarter of 1994 from other income, net of $0.3 million in the first
quarter of 1993. The change in other
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<PAGE>
income (loss), net, was due principally to a one-time gain recognized in the
first quarter of 1993 on a final purchase price settlement of a previous
acquisition.
Riverwood's first quarter income from operations increased by $0.6 million, or
three percent, for 1994 compared to 1993; however, operating margins remained
unchanged at nine percent of net sales. The Coated Board System segment's
operating earnings increased $3.1 million, or 15 percent, resulting primarily
from a favorable mix of higher beverage carton sales and lower board sales to
worldwide folding carton markets and productivity improvements in the coated
board paper mills and converting plants, offset in part by higher marketing and
packaging machinery development expenditures and weak worldwide folding carton
markets. The operating loss of the Containerboard segment was $7 million for
the first quarter of 1994 compared with a loss of $4.6 million for 1993. The
operating loss in the Containerboard segment for the first quarter of 1994 was
due principally to losses at the Macon mill. The year-to-year decrease of $2.4
million in income from operations in the Containerboard segment was principally
a result of lower linerboard prices and reduced earnings from Riverwood's
Brazilian operations, offset in part by higher volume at the U.S. containerboard
operations. Income from operations in the U.S. Timberlands/Wood Products
segment decreased by $0.5 million, or four percent, primarily due to lower
selling prices for plywood products, despite improved lumber pricing.
I-19
<PAGE>
Schuller's Building Products segment first quarter 1994 net sales of $145.1
million increased by 13 percent, or $16.2 million, when compared with the same
period in 1993. This increase primarily resulted from increased sales volumes
associated with strong construction activity and market share gains, along with
an improved pricing environment, particularly in the building insulation
business. Improved operating leverage, combined with the favorable impact of
the commercial and industrial roofing business acquired in January 1994 in
exchange for the Company's residential roofing business, resulted in an
improvement in the gross profit margin to 24 percent in the first quarter of
1994 compared to 21 percent in the first quarter of 1993.
The Building Products segment reported first quarter 1994 income from operations
of $14.3 million, an increase of $5.3 million, or 58 percent, from the first
quarter of 1993.
Schuller's Engineered Products segment first quarter 1994 net sales remained
essentially flat compared with the same period in 1993, due primarily to
continued weakness in the worldwide markets of products that comprise this
segment. With the segment's gross profit margin unchanged at 21 percent for the
first quarter of both 1994 and 1993, operating earnings for this segment
increased mainly from reductions in administrative and research expenses.
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<PAGE>
The Engineered Products segment reported first quarter 1994 income from
operations of $14.2 million, an increase of $1.7 million, or 14 percent, from
the $12.5 million in income from operations reported for the first quarter of
1993.
Interest Income
Compared with the first quarter of 1993, the Company's interest income decreased
$15.1 million to $2.2 million in 1994 from $17.3 million in 1993. Of the total
quarter-to-quarter decrease, $12.7 million is attributable to accrued interest
received on the income tax refund described below. The remainder of the
quarter-to-quarter decrease is primarily due to lower average cash and
marketable securities balances held during the first quarter of 1994 compared
with the first quarter of 1993.
Interest Expense
During the first quarter of 1994, the Company capitalized interest totaling $6.1
million compared with $3.5 during the first quarter of 1993, of which the
majority was capitalized in connection with the Macon mill conversion project.
Gross interest expense incurred, before capitalization of interest, was $38.1
million for the first quarter of 1994, a decrease of $2.1 million when compared
with $40.2 million for the same period in 1993. The $2.1 million decrease in
interest expense was primarily due to a partial prepayment in August 1993 of
debt owed to the Manville Personal Injury Settlement Trust (the "PI Trust"),
offset in
I-21
<PAGE>
part by Riverwood's issuance of $125 million of 6.75 percent Convertible
Subordinated Notes in September 1993.
Profit Sharing Expense
Profit sharing expense for the first quarter of 1994 totaled $2.1 million, a
decrease of $1.7 million from the $3.8 million recorded in the first quarter of
1993. Profit sharing expense recorded in the first quarter of 1993 included the
impacts of the Brazilian income tax benefit and the U.S. income tax refund and
related accrued interest described below, partially offset by the cumulative
effect of an accounting change.
Income Taxes
In the first quarter of 1994, the Company recognized a deferred tax benefit of
$0.8 million primarily related to a tax law change in Sweden that reduced the
statutory Swedish federal tax rate to 28 percent from 30 percent.
The net income tax benefit of $17.8 million reported for the first quarter of
1993 reflects the U.S. income tax refund and changes to Brazilian income tax
rates described below, partially offset by taxes on consolidated pretax income.
As a result of a retroactive change in U.S. income tax regulations regarding the
payment of add-on minimum tax and the treatment of certain tax preference items
for the years 1977 through 1986, the
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<PAGE>
Company was entitled to a federal income tax refund plus accrued interest.
During the first quarter of 1993, the Company received $31.4 million from the
U.S. Internal Revenue Service, which was recorded as a reduction to income tax
expense of $18.7 million and an increase to interest income of $12.7 million.
Effective January 1, 1993, the government of Brazil enacted new tax provisions
which reduced the statutory federal tax rate to 35 percent from 40 percent and
also allowed for the accelerated liquidation of future tax liabilities on
inflationary profits at reduced rates. As a result of these changes to
Brazilian tax law, the Company recognized a net deferred income tax benefit of
approximately $4.8 million in the first quarter of 1993.
Exclusive of these unusual items and their effect on income taxes, the
Company's first quarter 1994 and 1993 tax rates were 46 percent and 57 percent,
respectively. These are higher than the U.S. federal statutory rate primarily
due to U.S. state and local taxes and higher foreign effective tax rates.
Cumulative Effect of a Change in Accounting Principle
In the fourth quarter of 1993, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits," effective January 1, 1993. Accordingly, the March 31, 1993 financial
information has been restated to recognize an accumulated postemployment benefit
obligation of $13.9 million, net of taxes of $8.6 million.
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<PAGE>
Net Income
Net income applicable to common stock for the first quarter of 1994 was $1.2
million, compared with $10.3 million for the same period of 1993. As previously
described, net income reported for the first quarter of 1993 included a U.S.
income tax refund plus related interest income, the Company's share of an income
tax benefit at Riverwood due to tax law changes in Brazil and a charge for the
cumulative effect of a change in accounting principle. Excluding these items
and their effect on profit sharing expense, 1993 first quarter results
applicable to common stock would have been a loss of approximately $4.3 million.
Income Per Common Share
Primary and fully diluted earnings per common share for the first quarter of
1994 were both $0.01 as compared with primary and fully diluted earnings per
common share of $0.08 each for the same period in 1993.
Earnings per common share amounts were calculated after deducting preference
stock dividends for 1994 and accretion for 1993. Primary and fully diluted
earnings per common share amounts for the first quarter of 1994 were each based
on 122,431,000 weighted average common equivalent shares outstanding. Primary
and fully diluted earnings per common share amounts for the same period of 1993
were based on 122,923,000 and 122,950,000 weighted average common equivalent
shares outstanding, respectively.
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<PAGE>
Liquidity and Capital Resources
The Company broadly defines liquidity as its ability to generate sufficient cash
flow to satisfy operating requirements, fund capital expenditures and meet its
existing obligations and commitments. In addition, liquidity includes the
ability to obtain appropriate debt and equity financing and to convert into cash
those assets that are no longer required to meet existing obligations.
Therefore, liquidity cannot be considered separately from capital resources,
which consist of current or potentially available funds for use in achieving
long-range business objectives and meeting debt service commitments.
Additionally, the Company's relationship with the PI Trust should also be
considered in analyzing liquidity.
Cash flow provided by operating activities for the first quarter of 1994 was
$26.4 million. The Manville holding company's ability to generate sufficient
cash in 1994 and beyond is dependent upon funds generated from a tax sharing
agreement with Riverwood, dividends declared by Riverwood, Schuller
operations, asset dispositions and capital raised through external sources. As
a result of the Riverwood public offerings completed during 1992, the Manville
holding company no longer has unrestricted access to cash flows generated by
Riverwood. In addition, certain of the Company's subsidiaries may be
restricted in the amount of dividends that can
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<PAGE>
be repatriated due to governmental regulations, economic conditions or
provisions contained in financing agreements.
A tax sharing agreement between the Manville holding company and Riverwood
provides that Riverwood's U.S. taxes be calculated as if it were a fully
independent entity and that such tax amounts are to be remitted to the Manville
holding company. The Company is able to apply tax benefits to reduce the
consolidated domestic tax obligation, allowing the Manville holding company to
retain a large portion of the cash remitted by Riverwood. Under the terms of
the tax sharing agreement, the Manville holding company received approximately
$13 million from Riverwood for its 1993 U.S. federal and state income taxes.
The Manville holding company currently intends to maintain at least an 80
percent ownership interest in Riverwood in order to preserve the consolidated
tax entity and utilize existing tax benefits.
Riverwood's ability to generate cash in 1994 and beyond is dependent upon funds
generated from operations and the flow of funds from subsidiaries. Funds from
operations are dependent, in part, upon Riverwood's ability to successfully
market the additional capacity from the Macon mill at prices satisfactory to
Riverwood, and Riverwood's ability to successfully implement its reengineering
and cost reduction programs.
I-26
<PAGE>
Riverwood paid quarterly cash dividends on its common stock of $0.04 per share
on March 24, 1994 and March 22, 1993. In connection with these dividends, the
Manville holding company received approximately $2 million from Riverwood during
both the first quarter of 1994 and 1993. Riverwood currently intends to
continue paying quarterly dividends of $0.04 per share subject to a number of
conditions, including approval by Riverwood's Board of Directors and compliance
with covenants in debt instruments and other agreements.
Dividends on the Company's Cumulative Preference Stock, Series B, may be paid
quarterly beginning in 1994 at an annual rate of $2.70 per share, but only at
the discretion of the Company's Board of Directors after other funding
requirements under the Plan (defined below) have been met. Manville paid a cash
dividend of $4.2 million, or $0.45 per share, on March 1, 1994 to Cumulative
Preference Stock, Series B stockholders of record on February 21, 1994.
The Company has established a $100 million receivable sale facility for
Schuller's domestic operations which requires, among other things, that the
Company maintain a specified level of tangible net worth. At March 31, 1994 the
Company met the financial covenants of the receivables sale facility. At March
31, 1994 the Company had credit facilities totaling approximately $244 million
under the domestic receivables sale facility and various foreign and domestic
revolving credit facilities, of which approximately $223 million
I-27
<PAGE>
was available for use. The Company also has arrangements with certain foreign
banks for discounting receivables. As of March 31, 1994, approximately $32
million of overseas receivables had been discounted.
At March 31, 1994 the Company had net working capital of $280 million,
including cash and marketable securities of $182 million. Approximately $35
million of cash and marketable securities is located outside of the U.S. and
Canada and approximately $90 million is held by Riverwood of which $13 million
is located outside of the U.S.
Cash and marketable securities decreased by approximately $46 million during the
first quarter of 1994. This decrease is primarily attributable to cash used on
the conversion project at the Macon mill.
Overall, the Company's debt increased during the first quarter of 1994 by
approximately $18 million principally as a result of new borrowings by foreign
subsidiaries. Principal reductions on long-term debt payable to lenders other
than the PI Trust are expected to be approximately $16 million during 1994,
prior to any refinancings. Total scheduled payments to the PI Trust during 1994
will consist of $41 million of principal and accrued interest
I-28
<PAGE>
pertaining to the regularly scheduled payments due on the Trust Bonds (defined
below).
The Company currently believes that regularly scheduled payments under existing
loan agreements will be funded through operating cash flows and other cash
sources. Scheduled amortization payments in 1995 and 1996, as well as the
Company's desire to modify certain covenants contained in subsidiary financing
agreements, are part of the Company's 1994 refinancing analysis. The Company
anticipates that Riverwood will need to refinance or restructure certain
subsidiary debt to amend or eliminate certain covenant restrictions. Depending
upon the structure of any such refinancing or debt restructuring, the costs of
such refinancing or debt restructuring could be up to $20 million based on the
current interest rate environment. The Company believes Riverwood will be able
to refinance or restructure such debt on terms and at costs satisfactory to the
Company. Riverwood is in the process of seeking the consent of the PI Trust for
certain proposed refinancing arrangements.
The Company's capital expenditures for 1994 are expected to be approximately
$315 million, of which approximately $210 million are budgeted for Riverwood
including expenditures at the Macon mill, the cost of additional packaging
machinery placements, projects that will add worldwide press and converting
capacity and costs for environmental compliance. Based on its current capital
structure,
I-29
<PAGE>
Riverwood expects to capitalize approximately $20 million of interest expense
during 1994. With the completion and start-up of the recovery boiler during the
first quarter of 1994, the program to upgrade and convert one of the Macon
mill's two linerboard machines to coated board production continues to be on
budget and on schedule. Coated board production began in April 1994, with the
start up of the on-line coater which results in limited coated board production
being available to meet the 1994 beverage season. During the third quarter
Riverwood expects to shut down one paper machine for approximately 45 days to
complete the final phase of the conversion. Outstanding purchase commitments
relating to these and other projects underway at the Macon mill totaled
approximately $37 million at quarter-end. These capital expenditures will be
funded with operating cash flow and existing cash and marketable securities
balances.
During 1993, Schuller initiated a program to expand its fiberglass wool capacity
used for building insulation products. The planned capital expansion is
estimated at approximately $100 million and will increase Schuller's building
insulation capacity by approximately 20 percent. The Company believes that such
a capacity expansion will enable its building insulation business to maintain or
modestly gain market share through 1996.
In the fourth quarter of 1993, Riverwood recorded a $25 million charge for the
write-down of assets and provisions for severance,
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<PAGE>
relocation and related costs as Riverwood restructures and consolidates certain
operations and infrastructure levels. Riverwood is implementing an ongoing plan
designed to streamline operations, increase efficiency and cost effectiveness
and enhance worldwide customer service capability. Approximately $20 million of
the restructuring reserve relates to provisions for cash expenditures that are
expected to occur through 1995 and will be funded from existing cash, operations
and anticipated savings. The remainder of the reserve is being used to write
down the book value of certain related assets. Through March 1994,
approximately $6.4 million had been charged against the restructuring reserve,
of which approximately $4.1 million related to cash expenditures. Riverwood
estimates that the restructuring program could reduce 1994 expenses by
approximately $7 million with additional benefits to be realized in later
years.
During 1993 Schuller initiated various activities to restructure its domestic
and international operations in order to reduce its cost structure and remain
competitive. Accordingly, during 1993 Schuller recorded a restructuring charge
aggregating $26.5 million related to (i) expenses for sampling, inspection and
remediation associated with a former phenolic roofing insulation business,
offset in part by expected insurance recoveries; (ii) additional severance
costs for ongoing programs to reduce costs; and (iii) estimated costs
associated with the exchange of the Company's residential roofing business for
Owens-Corning Fiberglas Corporation's North American commercial and industrial
roofing business. Approximately $21 million of these 1993 restructuring
charges will result in future cash expenditures that are expected to occur
through 1997 and will be funded from existing cash, operations and anticipated
savings. Approximately $2 million of the 1993 restructuring charges related to
the write-down of assets in conjunction with the Company's exchange of roofing
businesses. Approximately $8 million has been charged against these reserves
through March 1994, of which $5 million was charged during the first quarter
of 1994.
Schuller has implemented a portion of the separations anticipated in
connection with the restructuring plan and in January of 1994 completed the
exchange of it's residential roofing business for a commercial and industrial
roofing business. Schuller believes that it has already begun to realize
benefit from its restructuring activities implemented to date, evidenced in
part by the improvement in the gross profit margin reported in the Building
Products segment during the first quarter of 1994. Total anticipated benefits
attributable to the exchange of roofing businesses cannot be reasonably
estimated due to the nature of the transaction. Schuller estimates that
separations implemented as a result of the restructuring program will reduce
1994 expenses by approximately $10 million.
I-31
<PAGE>
In December 1988 and January 1989, the Company acquired certain phenolic roofing
insulation assets and related technology from Beazer East, Inc. ("Beazer"), the
successor to Koppers Company, Inc. The Company exited the phenolic roofing
business in February 1992. The Company has learned that phenolic roofing
insulation manufactured by the Company may, under certain circumstances,
contribute to corrosion of steel decks on which the insulation is installed.
In 1992, the Company commenced an inspection and sampling program of decks
where its phenolic product was installed between 1989 and 1992. Based on
experience to date and the information currently available, the Company
recorded an estimated loss in the fourth quarter of 1993 of approximately
$19.7 million for anticipated sampling, inspection and remediation costs.
Through March 31, 1994, the total expenditures to the Company for inspections
and claims sampling totaled approximately $2.7 million and the total
expenditures for remediation were approximately $3 million. It is possible the
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<PAGE>
ultimate loss, which cannot be determined at this time, could exceed the $19.7
million estimated loss recorded in 1993.
Any determination of the ultimate cost to the Company for phenolic-related deck
corrosion must take into consideration insurance that is available to address
such claims as well as other sources of indemnification. The Company has
substantial insurance which applies to property damage resulting from metal deck
corrosion; however, the Company is presently engaged in litigation over the
extent of such coverage with its primary insurance carrier. At this time the
Company believes it will be successful by verdicts or settlements in its efforts
to recover from its insurance carriers the receivable of $7 million reflected in
the Company's financial statements at March 31, 1994. The Company's belief that
it will be successful in this action is based on its interpretation of the
language of the relevant insurance policies and the Company's factual
investigation to date. Because of the uncertainties involved in pending
litigation, no assurances are possible.
During 1993, the Company filed a lawsuit against Beazer. The Company seeks
recovery from Beazer for all costs and damages incurred as a result of the
acquisition of the phenolic business. Additionally, to the extent negligence
of others (contractors, architects, manufacturers of other roofing system
components) is a contributing factor to roof deck corrosion, the Company may
have rights in contribution for recovery of a substantial portion of its costs
from such third parties.
The Company believes that there are certain areas that may require financial
commitments in excess of liabilities currently reflected
I-33
<PAGE>
on the consolidated balance sheet, though such amounts are not expected to have
a material impact on the financial position of the Company. With respect to
environmental costs, the Company is committed to full compliance with all
applicable environmental laws and regulations. Environmental law at the present
is dynamic, and as a result, costs that are unforeseeable at this time may be
incurred when new laws are enacted, and/or the environmental agencies promulgate
or revise regulations in furtherance of such legislation. For example, the
Company is currently awaiting the federal Environmental Protection Agency's
implementation of the 1990 Amendments to the Clean Air Act to determine their
impact on the Company's business segments. In addition, the federal
Environmental Protection Agency has issued new proposed regulations for the pulp
and paper industry (the "Proposed Regulations"). It is expected that the
earliest time for industry compliance with the Proposed Regulations should not
be prior to the first quarter of 1999. At this time, the Company estimates
capital spending that may be required to comply with the Proposed Regulations
could be between $20 million and $40 million to be spent over a three-year
period beginning in 1996.
The Company is engaged in environmental remediation projects for properties
currently owned or operated by the Company and properties divested by the
Company for which responsibility was retained for preexisting conditions. In
addition, the Company has been identified as a potentially responsible party at
certain sites
I-34
<PAGE>
under the federal Comprehensive Environmental Response, Compensation, and
Liability Act or similar state legislation, and as such could be jointly and
severally liable for remediation costs at these sites. The Company's actual
final costs in some instances cannot be estimated until the remediation process
is substantially completed. To address these contingent environmental costs,
the Company has established appropriate accruals where such costs are probable
and can be reasonably estimated. The Company believes that based on current
information and regulatory requirements, the accruals established by the Company
for environmental expenditures are adequate.
The Company believes that with cash generated from operations, its current cash
and marketable securities position, proceeds from the sale of nonstrategic
assets, access to private and capital markets and credit facilities, it can
adequately fund normal debt service requirements, its planned capital spending
program and its other commitments.
Relationship of Manville to the Personal Injury Trust
In 1982 the Company and its principal U.S. and Canadian subsidiaries filed
petitions for reorganization under Chapter 11 of the federal Bankruptcy Code.
The filings were precipitated by contingent liabilities resulting from
litigation arising out of the Company's previous asbestos-related business
operations.
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<PAGE>
The Company's Plan of Reorganization ("the Plan") was confirmed in 1986 and
consummated on November 28, 1988. The Plan relieves the Company of the burden
of defending thousands of asbestos lawsuits through the creation of two
independent trusts created to assume, administer, settle and pay claims. The
Plan, a court order ("the Injunction") and the Federal Bankruptcy Code together
operate to prohibit all persons from taking any actions against the Company with
respect to any past, present or future asbestos-related liabilities.
In lieu of bringing actions against the Company, asbestos claimants may assert
their claims only against the PI Trust or the Manville Property Damage
Settlement Trust, which have been and will continue to be funded by the Company
pursuant to the Plan. The PI Trust holds all of the Company's non-interest
bearing long-term bonds (the "Trust Bonds") with a current face value of $1
billion (present value of $323 million at March 31, 1994 as reflected in long-
term debt on the Company's condensed consolidated balance sheet) and
approximately 80 percent of the Company's common stock. In addition, the
Company has an obligation to pay 20 percent of its profits (as defined in the
Amended and Restated Supplemental Agreement between the PI Trust and the
Manville holding company) to the PI Trust. Profit sharing payments to the PI
Trust are due each year based on the prior year's net earnings and will continue
for as long as the PI Trust is in existence and any personal injury asbestos
claims filed against the PI Trust remain unpaid. After
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<PAGE>
termination of the PI Trust, an independent profit sharing obligation arises
in favor of the Manville Property Damage Settlement Trust. Based upon a review
of the existing and potential claims facing the two trusts, the Company
believes that the profit sharing, for all practical purposes, will be payable
in perpetuity unless the Company and the trusts agree to a restructuring or
modification of the profit sharing obligations at some future date. The Company
paid $13 million to the PI Trust in April 1994 related to 1993 profit sharing.
On November 19, 1990, the Company and the PI Trust entered into formal
agreements with respect to a refinancing arrangement (the "Refinancing
Arrangement") that was designed to enhance the PI Trust's liquidity, including
the payment of a series of special dividends (the "Special Dividends") to all
stockholders of up to $650 million over seven years. Dividends of $1.04 per
common share were paid by the Company on December 28, 1992 and June 14, 1993.
Certain aspects of the Refinancing Arrangement, including the Special Dividends,
restructuring of the Trust Bonds and covenant modification were dependent on
final court approval of a settlement of a class action lawsuit (the "Class
Action") instituted to restructure the method by which the PI Trust pays claims.
The Company is not a party to the Class Action. On June 27, 1991, the United
States District Courts for the Eastern and Southern Districts of New York (the
"Courts") entered an order approving the
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<PAGE>
settlement of the Class Action. On December 4, 1992, the United States Court of
Appeals for the Second Circuit vacated and remanded for further proceedings the
decision of the Courts. The Court of Appeal's decision has become final and
accordingly, those aspects of the Refinancing Arrangement conditioned upon final
court approval of the Class Action settlement have terminated.
Dividends Accrued Not Declared
Presently, $102.9 million of Common Stock Dividends Accrued Not Declared are
reflected in the March 31, 1994 condensed consolidated balance sheet. This
accrual represents the amount of the proposed third and fourth Special
Dividends under the Refinancing Arrangement which has since terminated. Even
though the refinancing arrangement is no longer in effect, the Company's Board
of Directors may consider declaring and paying common dividends from time to
time. In making such decisions, the Board may evaluate the Company's capital
needs, its debt levels and the economic environment of the markets served by
the Company's businesses. The Company also reflects Cumulative Preference
Stock Dividends Accrued Not Declared of $43.6 million at March 31, 1994 as
part of the accounting for the Refinancing Arrangement. Although the common
stock and preference stock dividends remain accrued, no assurance can be given
that these dividends will be declared and paid by the Company.
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<PAGE>
For additional information regarding the Company's accounting policies, the
Plan, the Injunction, the PI Trust, the Manville Property Damage Settlement
Trust, the Refinancing Arrangement, the Trust Bonds, the Special Dividends and
the Class Action, readers are referred to the Company's 1993 Annual Report and
Form 10-K filed with the Securities and Exchange Commission for the year ended
December 31, 1993.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
-----------------
The Company has provided detailed disclosures on its reorganization proceedings,
asbestos-health and asbestos property damage claims and other material
litigation in its earlier reports filed with the Securities and Exchange
Commission. Parties interested in obtaining the earlier reports may contact the
Company in care of Investor Relations, Manville Corporation, P.O. Box 5108,
Denver, CO 80217-5108, specifying the information desired. In addition, the
description below of the Company's Second Amended and Restated Plan of
Reorganization (the "Plan"), as modified, which was re-filed with the Securities
and Exchange Commission as an exhibit to the Company's Form 10-K for the fiscal
year ended December 31, 1992, is qualified in its entirety by reference to the
Plan. Copies of the Plan are also available from the Company upon request.
Plan of Reorganization and Related Injunction
In 1982, Manville and its principal U.S. and Canadian subsidiaries filed
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code. The filings were precipitated by contingent liabilities resulting from
litigation arising out of the Company's previous asbestos-related business
operations. A separate Plan of Reorganization for Riverwood International USA,
Inc., a principal subsidiary of Riverwood International Corporation
("Riverwood"), a majority owned subsidiary of the Company, was confirmed by the
United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court") in 1984. In December 1986, the Plan was confirmed by the
Bankruptcy Court. The order confirming the Plan became final in 1988 and the
Plan was consummated on November 28, 1988. During the fourth quarter of 1988,
the Company made various distributions to creditors and equity holders as
required under the Plan.
The Plan relieves the Company of the burden of defending thousands of asbestos
lawsuits. This is accomplished through independent trusts created to assume,
administer, settle and pay claims. In lieu of bringing actions against the
Company, asbestos claimants may assert their claims only against the Manville
Personal Injury Settlement Trust (the "PI Trust") or the Manville Property
Damage Settlement Trust (the "PD Trust"), which are funded by the Company
pursuant to the Plan. Only claims filed by May 31, 1985 may be brought against
the PD Trust. The Plan, the Injunction issued in connection with the Plan, and
the federal Bankruptcy Code together operate to prohibit all persons from taking
any actions against the Company with respect to any past, present or future
asbestos-related liabilities. The Injunction and the Plan also prohibit the
assertion of punitive damage claims by asbestos claimants against the Company,
the PI Trust or the PD Trust.
The Injunction is a unique feature of the Company's Chapter 11 proceedings and
could be challenged in future legal proceedings. The Company believes, and the
Bankruptcy Court has found, that the Injunction is essential to the Company's
ability to continue to operate
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<PAGE>
its businesses and to make required payments to the PI Trust and the PD Trust.
The Company also believes that any attempt to vacate or modify the Injunction
will be unsuccessful.
On November 19, 1990, the Company and the PI Trust entered into formal
agreements with respect to an arrangement (the "Refinancing Arrangement") which,
if consummated, would have enhanced the PI Trust's liquidity. Also on November
19, 1990, five asbestos plaintiffs filed a limited fund class action lawsuit
(the "Class Action") against the Trustees of the PI Trust in the United States
District Courts for the Eastern and Southern Districts of New York (the
"Courts"). The Class Action was filed on behalf of all beneficiaries of the PI
Trust and seeks to restructure the methods by which the PI Trust administers and
pays claims. The Company is not a party to the Class Action. The Class Action
was settled on November 23, 1990 (the "Restructuring Settlement"). Certain
provisions of the Refinancing Arrangement were subject to numerous approvals and
conditions, including, among other things, a final order approving the
Restructuring Settlement. On November 26, 1990, the Company filed a separate
motion asking the Courts and the Bankruptcy Court to issue orders reaffirming
the Injunction.
The Courts and the Bankruptcy Court entered an order, as modified in July 1991
(the "Order"), which, among other things, reaffirmed the Injunction (the
"Reaffirmation Order") and approved settlement of the Restructuring Settlement.
Thirteen appeals of the Order were filed by various parties; however, the
Reaffirmation Order was not challenged in the lower court or on appeal. On
February 24, 1992, the Court of Appeals for the Second Circuit (the "Second
Circuit") heard the various appeals of the Order.
On December 4, 1992, the Second Circuit vacated and remanded the Order. The
Second Circuit found, among other reasons for remanding the Restructuring
Settlement, that the representatives of the class may not have fairly
represented the interests of all persons who were made part of the Class Action.
The decision of the Second Circuit, as subsequently modified, has become final.
As a result, various aspects of the Refinancing Arrangement have terminated.
Attempts by the parties to the Class Action to reach a new settlement are
continuing. Three days of trial of the Class Action were held on March 15,1994
and May 11-12, 1994. In the absence of a settlement, the trial is scheduled to
resume June 9, 1994.
Those aspects of the Refinancing Arrangement which terminated when the Second
Circuit decision became final and non-appealable include:
1) Payment of the remaining special dividends: $.42 per share payable
not earlier than 1996; $.42 per share payable one year later; and,
depending on the Company's performance, additional annual dividends
with a cumulative cap of $300 million over four years commencing not
earlier than 1996;
2) Restructuring of the two bonds of the Company issued to the PI Trust
under the Plan; and
3) Modification of certain restrictive covenants contained in contracts
between the Company and the PI Trust.
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<PAGE>
Certain of the aspects of the Refinancing Arrangement referred to in (2) and (3)
of the preceding paragraph were addressed in a Bond Prepayment Agreement dated
August 25, 1993 (the "Agreement"), pursuant to which Manville made a partial
prepayment of certain of its obligations to the PI Trust under the bonds issued
to the PI Trust. The partial prepayment consisted of a cash payment of $150
million and an assignment to the PI Trust of $100 million principal amount of
Riverwood's currently outstanding notes held by Manville (the "Notes"), plus
accrued interest. The Agreement also provided for certain registration rights
with respect to the Notes pursuant to which Riverwood registered the Notes under
the Securities Act of 1933, as amended. On October 14, 1993, the PI Trust
completed a public secondary sale of the Notes. Neither the Company nor
Riverwood received any of the proceeds from the offering made by the PI Trust.
Manville is committed to the general principles underlying the terminated
Refinancing Arrangement and to fulfilling its obligations to the PI Trust and to
all stockholders under the Plan.
Environmental Proceedings
The Company's landfill at its Waukegan, Illinois facility continues to be
included on the National Priorities List ("NPL") pursuant to CERCLA. Remedial
action began during the fourth quarter of 1988 and was completed during the
third quarter of 1991. During the first quarter of 1993, the EPA issued a
supplemental CERCLA decision document, i.e., an Explanation of Significant
--------------------------
Differences ("ESD"), to reflect that, inter alia, remedial action was taken
- -----------
onsite which was in addition to that described in the Record of Decision and the
Consent Decree. The EPA is now seeking both a modification to the Consent
Decree to incorporate the additional remedial action described in the ESD as
well as appropriate deed restrictions for the site. The Company has been
informed that the Consent Decree modification and the deed restrictions should
be approved in the second quarter of 1994. After these approvals, the Company
will apply for the Certificate of Completion (the "Certificate") and the Company
is informed that the EPA will likely issue the Certificate in 1994. After the
Certificate is issued, the Company will seek to have the site deleted from the
NPL.
Regarding a landfill located in Manville, New Jersey, the Company has submitted
a revised closure plan to the New Jersey Department of Environmental Protection
and Energy ("NJDEPE"). Closure of the landfill will follow NJDEPE's approval of
the plan.
In connection with the Macon paper mill acquisition, Riverwood International
Georgia, Inc. ("RVW Georgia"), a wholly owned subsidiary of Riverwood, has made
appropriate applications and requests for all necessary permits for the
operation of the Macon facility, including an air permit for operation of a
recovery boiler that was subject to a consent order previously issued to Macon
Kraft, Inc. by the Georgia Department of Natural Resources ("GDNR"). A Consent
Order dated November 5, 1992 was entered into by RVW Georgia and GDNR (the "RVW
Consent Order") which supersedes the original consent order between Macon Kraft,
Inc. and GDNR. The terms of the RVW Consent Order require that construction of
a new recovery boiler be completed, and compliance with
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<PAGE>
GDNR's total reduced sulfur ("TRS") emission limits be demonstrated, no later
than September 29, 1994. A payment of $500,000 by RVW Georgia to GDNR was also
required. If compliance with the TRS limits is not demonstrated by September
29, 1994, an additional payment of $200,000 will be required from RVW Georgia to
GDNR. Riverwood is presently in the final stages of checkout and testing of the
recovery boiler, which began operation in the first quarter of 1994. Riverwood
anticipates that it will demonstrate compliance with GDNR's TRS emission limits
prior to September 29, 1994.
The Company has also been informed of certain environmental problems associated
with former disposal sites (most of which were never owned or operated by the
Company), in California, Colorado, Florida, Georgia, Illinois, Indiana,
Louisiana, Maine, Massachusetts, Michigan, Mississippi, New Hampshire, New
Jersey, New York, North Carolina, Ohio, Oklahoma, Tennessee, Utah and Wisconsin.
These problems include, in certain cases, the purported application of CERCLA,
RCRA, and their state law equivalents.
ITEM 2. CHANGES IN SECURITIES.
---------------------
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
-------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
Not applicable.
ITEM 5. OTHER INFORMATION.
------------------
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
None.
II-4
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MANVILLE CORPORATION
--------------------
(Registrant)
Date: May 13, 1994 By: /s/ R. B. Von Wald
--------------------------------
R. B. Von Wald
Senior Vice President,
General Counsel and Secretary
Date: May 13, 1994 By: /s/ Robert E. Cole
--------------------------------
Robert E. Cole
Senior Vice President, Finance
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