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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. 1-8247
JOHNS MANVILLE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 84-0856796
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
717 17TH STREET, DENVER, COLORADO 80202
(Address of principal executive (Zip Code)
offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (303) 978-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock ($.01 par value) New York Stock Exchange, Inc.
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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 [_]
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 the 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 [_]
Based solely on the New York Stock Exchange, Inc. closing price as of March 2,
1998, the aggregate market value of the common stock held by non-affiliates of
the registrant was approximately $406,794,559.
As of March 2, 1998, there were 161,681,345 shares of the registrant's sole
class of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents or portions thereof filed with the Securities and
Exchange Commission are incorporated herein by reference:
The Selected Five-Year Financial Data, Management's Discussion and Analysis
of Financial Condition and Results of Operations, Financial Statements and
Selected Quarterly Financial Data contained in the Company's 1997 Annual
Report to security holders are incorporated by reference into Parts I, II
and IV of this report.
The Annual Report to security holders, except for portions thereof that have
been specifically incorporated by reference, shall not be deemed filed as part
of this Annual Report on Form 10-K.
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TABLE OF CONTENTS
PART I
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PAGE
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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
Executive Officers of the Company............................. 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS...................................................... 11
ITEM 6. SELECTED FINANCIAL DATA....................................... 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................... 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................... 12
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE..................................... 12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............ 12
ITEM 11. EXECUTIVE COMPENSATION........................................ 12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................... 12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K..................................................... 12
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The "Company" or "Johns Manville" when used in this Form 10-K refers to Johns
Manville Corporation, incorporated in the State of Delaware in 1981, including,
where applicable, its consolidated subsidiaries.
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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 below.
Johns Manville Corporation was incorporated in Delaware in 1981 to continue
businesses begun by its predecessors in 1858.
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PRODUCT GROUPS BY BUSINESS SEGMENT(1) PRODUCTS AND APPLICATIONS
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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
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(1) For additional business segment information and geographical data, see
Note 26 to the Company's Consolidated Financial Statements contained in
the Company's Annual Report to security holders which is incorporated by
reference into 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.
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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.
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 CertainTeed 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.
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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.
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, building 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.
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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.
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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 thermoplastic 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 polyisocyanate. 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 ("RCRA")
and the Comprehensive Environmental Response, Compensation and Liability Act
of 1980 ("CERCLA"). These environmental regulatory programs are administered
by the federal Environmental
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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 9 to the Company's Consolidated
Financial Statements, each incorporated by reference herein.
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-
12(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 purchaser 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.
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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 authors 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
show 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 this fiber, produced any adverse respiratory
results. These findings have been reported to the EPA under the Toxic
Substances Control Act, and the Company has notified its employees and
customers.
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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 lung 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 it 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
<PAGE>
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.
<TABLE>
<CAPTION>
LOCATION BUSINESS SEGMENT
-------- ----------------
<S> <C>
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
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
LOCATION BUSINESS SEGMENT
-------- ----------------
<S> <C>
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
</TABLE>
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.
EXECUTIVE OFFICERS OF THE COMPANY
The names, ages and offices of the Chief Executive Officer and other
executive officers of the Company are listed below. Each of the executive
officers holds office until the Board of Directors meeting following the
Annual Meeting of Stockholders unless previously removed by the Board of
Directors. Messrs. Von Wald and Perry have been or were officers or executive
officers of the Company or its subsidiaries during the past five years.
Messrs. Henry, Caltrider and Murphy have been executive officers of the
Company from the respective dates indicated below. For at least the past five
years, prior to his joining the Company, Mr. Henry served in various executive
positions with E.I. du Pont de Nemours and Company. Between 1993 and the time
he joined the Company, Mr. Caltrider served as President and Chief Executive
Officer of Gundle Environmental Systems, Inc. Between 1993 and the time he
joined the Company, Mr. Murphy served as Chief Financial Officer of Gould
Pumps, Inc.
<TABLE>
<CAPTION>
NAME AND TITLE AGE EXECUTIVE OFFICER SINCE
-------------- --- -----------------------
<S> <C> <C>
Charles L. Henry............................... 56 1996
Chairman of the Board, President and Chief
Executive Officer
Richard B. Von Wald............................ 55 1989
Executive Vice President, General Counsel and
Secretary
John P. Murphy................................. 51 December 1997
Senior Vice President and Chief Financial
Officer
Harvey L. Perry, Jr. .......................... 43 1996
Senior Vice President, Engineered Products
Group
Thomas L. Caltrider............................ 47 June 1997
Senior Vice President, Insulation Group
</TABLE>
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company had 9,923 common stockholders of record at March 2, 1998. The
Common Stock is listed and traded on the New York Stock Exchange, Inc. (symbol
JM). The Company has scheduled its 1998 Annual Meeting of Stockholders for
April 24, 1998 in Denver, Colorado.
A two-year history of high and low sale prices for the Common Stock based on
the sales transactions reported by the New York Stock Exchange, Inc. is
provided below. On March 28, 1996, the Company's Board of Directors declared a
special cash dividend of $6.00 per share on the Common Stock to be paid on
April 12, 1996 to stockholders of record at the close of business on April 8,
1996.
On July 31, 1996, the Company's Board of Directors approved the payment of a
regular quarterly cash dividend, subject to periodic review by the Board of
Directors, of $.03 per share to holders of Common Stock to begin in the third
quarter of 1996. Simultaneously with the approval of the dividend policy, the
Company's Board of Directors declared a dividend of $.03 per share on the
Common Stock to be paid on October 10, 1996. On December 6, 1996, the
Company's Board of Directors declared a dividend of $.03 per share on the
Common Stock for the fourth quarter of 1996 which was paid on January 10,
1997.
On March 7, 1997, the Company's Board of Directors declared a dividend of
$.03 per share on the Common Stock for the first quarter of 1997 which was
paid on April 11, 1997. On June 6, 1997, the Company's Board of Directors
declared a dividend of $.03 per share on the Common Stock for the second
quarter of 1997 which was paid on July 11, 1997. In August 1997, the Board of
Directors increased the quarterly dividend to $.04 per share on the Common
Stock, and accordingly declared dividends of $.04 per share on August 8, 1997
and December 5, 1997 for the third and fourth quarters of 1997, which were
paid on October 10, 1997 and January 9, 1998, respectively.
MARKET PRICES PER SHARE
<TABLE>
<CAPTION>
1997 1996
COMMON STOCK COMMON STOCK
---------------- -------------
FOR THE QUARTERS ENDED HIGH LOW HIGH LOW
---------------------- ------- -------- ------ ------
<S> <C> <C> <C> <C>
March 31...................................... 12 5/8 10 1/2 14 1/2 12 1/8
June 30....................................... 12 3/8 9 3/8 15 1/4 7 3/4
September 30.................................. 13 7/16 10 15/16 10 5/8 8 1/8
December 31................................... 12 9/16 9 1/4 10 3/4 8 5/8
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
Information with respect to this item is incorporated by reference to
Selected Five-Year Financial Data in the Company's 1997 Annual Report to
security holders included in Exhibit 13 to this report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information with respect to this item is incorporated by reference to
Management's Discussion and Analysis of Financial Condition and Results of
Operations in the Company's 1997 Annual Report to security holders included in
Exhibit 13 to this report.
11
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item is incorporated by reference to the
Financial Statements and Selected Quarterly Financial Data in the Company's
1997 Annual Report to security holders included in Exhibit 13 to this report.
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
In addition to the information set forth under the caption "Executive
Officers of the Company" in Part I of this Form 10-K, the information required
by this item is incorporated by reference to the Company's 1998 Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item is incorporated by reference to the
Company's 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item is incorporated by reference to the
Company's 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item is incorporated by reference to the
Company's 1998 Proxy Statement.
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. Information with respect to financial statements is incorporated by
reference to the Financial Statements and Selected Quarterly
Financial Data in the Company's 1997 Annual Report to security
holders.
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.
12
<PAGE>
c. Exhibit Index to Johns Manville Corporation Annual Report on Form 10-K
for Fiscal Year Ended December 31, 1997:
<TABLE>
<CAPTION>
EXHIBIT REFERENCE
------- ---------
<S> <C> <C>
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 March 30, 1993, and incorporated
Southern District of New York on herein by reference.
December 22, 1986.
3.(a) Restated Certificate of Incorporation. Filed as an exhibit to the Company's
1995 Annual Report on Form 10-K filed
April 11, 1996, and incorporated
herein by reference.
(b) Certificate of Amendment to Restated Filed as an exhibit to the Company's
Certificate of Incorporation. 1995 Annual Report on Form 10-K filed
April 11, 1996, 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.
(d) Amended and Restated Bylaws. Filed as an exhibit to the Company's
1996 Annual Report on Form 10-K filed
March 31, 1997, and incorporated
herein by reference.
10.(a) Johns Manville International Employees Filed as an exhibit to the Company's
Retirement Plan.* 1994 Annual Report on Form 10-K filed
March 31, 1995, and incorporated
herein by reference.
(b) Supplemental Pension Plan.* Refiled as an exhibit to the Company's
1992 Annual Report on Form 10-K filed
March 30, 1993, and incorporated
herein by reference.
(c) Annual Executive Incentive Refiled as an exhibit to the Company's
Compensation Plan.* 1992 Annual Report on Form 10-K filed
March 30, 1993, and incorporated
herein by reference.
(d) Executive Long-Term Disability Plan.* Refiled as an exhibit to the Company's
1992 Annual Report on Form 10-K filed
March 30, 1993, and incorporated
herein by reference.
(e) Long-Term Incentive Stock Plan.* Refiled as an exhibit to the Company's
1992 Annual Report on Form 10-K filed
March 30, 1993, and incorporated
herein by reference.
(f) Amendment to Long-Term Incentive Stock Refiled as an exhibit to the Company's
Plan.* 1992 Annual Report on Form 10-K filed
March 30, 1993, and incorporated
herein by reference.
(g) Amendment No. 2 to Long-Term Incentive Filed as an exhibit to the Company's
Stock Plan.* Form 10-Q for the quarter ended June
30, 1995, and incorporated herein by
reference.
(h) Johns Manville Corporation Deferred Filed as an exhibit to the Company's
Compensation Plan.* Form S-8 filed June 19, 1996, and
incorporated herein by reference.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT REFERENCE
------- ---------
<S> <C> <C>
(i) Johns Manville Corporation Non- Filed as an exhibit to the Company's
Employee Directors' Deferred 1996 Annual Report on Form 10-K filed
Compensation Plan.* March 31, 1997, and incorporated
herein by reference.
(j) Johns Manville Corporation 1996 Stock Filed as an exhibit to the Company's
Award Plan.* Form S-8 filed June 19, 1996, and
incorporated herein by reference.
(k) Johns Manville Corporation 1996 Filed as an exhibit to the Company's
Executive Incentive Compensation Form S-8 filed June 20, 1996, and
Plan.* incorporated herein by reference.
(l) Employment Agreement between Charles Filed as an exhibit to the Company's
L. Henry and the Company.* Form 10-Q for the quarter ended
September 30, 1996, and incorporated
herein by reference.
(m) Employment Agreement between Richard Filed as an exhibit to the Company's
B. Von Wald and the Company.* 1996 Annual Report on Form 10-K filed
March 31, 1997, and incorporated
herein by reference.
(n) Employment Agreement between Harvey L. Filed as an exhibit to the Company's
Perry and the Company.* 1996 Annual Report on Form 10-K filed
March 31, 1997, and incorporated
herein by reference.
(o) Employment Agreement between Thomas L. Filed as an exhibit to the Company's
Caltrider and the Company.* Form 10-Q for the quarter ended
June 30, 1997, and incorporated herein
by reference.
(p) Intercompany Agreement between the Filed as an exhibit to the Company's
Company and Johns Manville Form 10-Q for the quarter ended
International Group, Inc., dated as of September 30, 1994, and incorporated
September 22, 1994. herein by reference.
(q) Treasury Management Agreement between Filed as an exhibit to the Company's
the Company and Johns Manville Form 10-Q for the quarter ended
International Group, Inc., dated as of September 30, 1994, and incorporated
September 22, 1994. herein by reference.
(r) Tax Sharing Agreement between the Filed as an exhibit to the Company's
Company and Johns Manville Form 10-Q for the quarter ended
International Group, Inc., dated as of September 30, 1994, and incorporated
January 1, 1994. herein by reference.
(s) Corporate Agreement between the Filed as an exhibit to the Company's
Company and Johns Manville Form 10-Q for the quarter ended
International Group, Inc., dated as of September 30, 1994, and incorporated
September 22, 1994. herein by reference.
(t) Selling Securityholders' Agreement, Filed as an exhibit to the Company's
between the Company and the Trust, 1994 Annual Report on Form 10-K filed
dated as of September 22, 1994. March 31, 1995, and incorporated
herein by reference.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT REFERENCE
------- ---------
<S> <C> <C>
(u) Second Amended and Restated Filed as an exhibit to the Company's
Supplemental Agreement between the 1995 Annual Report on Form 10-K filed
Company and the Trust, dated as of April 11, 1996, and incorporated
April 5, 1996. herein by reference.
(v) Supplemental Retirement Agreement Filed as an exhibit to the Company's
between Richard B. Von Wald and the 1994 Annual Report on Form 10-K filed
Company, effective as of November 4, on March 31, 1995, and incorporated
1994, with related agreements.* herein by reference.
(w) 1994 Long-Term Cash Incentive Filed as an exhibit to the Company's
Compensation Plan.* 1994 Annual Report on Form 10-K filed
on
March 31, 1995, and incorporated
herein by reference.
(x) Amended and Restated Indenture between Filed as an exhibit to the Company's
Johns Manville International Group, 1994 Annual Report on Form 10-K filed
Inc. and The Bank of New York, as on March 31, 1995, and incorporated
Trustee, dated December 15, 1994. herein by reference.
(y) Amended and Restated Receivables Filed as an exhibit to the Company's
Purchase Agreement dated as of August 1995 Annual Report on Form 10-K filed
15, 1994, between Johns Manville April 11, 1996, and incorporated
International Group, Inc. and the herein by reference.
banks and others named therein.
(z) Amendment to Amended and Restated Filed as an exhibit to the Company's
Receivables Purchase Agreement dated Form 10-Q for the quarter ended June
as of June 6, 1997 among Johns 30, 1997, and incorporated herein by
Manville Funding Corporation, Johns reference.
Manville 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.
(aa) Amended and Restated Manville Personal Filed as an exhibit to the Company's
Injury Settlement Trust Agreement Form 10-Q for the quarter ended June
dated as of April 29, 1997. 30, 1997, and incorporated herein by
reference.
13. 1997 Annual Report. Pages 18 through 61 of the Company's
1997 Annual Report to security holders
are filed herewith and are
incorporated herein by reference.
21. Subsidiaries of the Registrant. Filed herewith on Page 19.
23. Consent of Coopers & Lybrand L.L.P. Filed herewith.
24. Powers of Attorney. Page 20 (included on signature page to
this report).
27.1 Financial Data Schedule. Filed herewith.
</TABLE>
- --------
* Management contract or compensatory plan or arrangements.
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of Johns Manville Corporation:
Our report on the consolidated financial statements of Johns Manville
Corporation has been incorporated by reference in this Form 10-K from the 1997
Annual Report to Stockholders of Johns Manville Corporation. In connection
with our audits of such financial statements, we have also audited the related
financial statement schedule listed in the Index to Financial Statement
Schedule of this Form 10-K.
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 LLP
- -------------------------
Denver, Colorado
March 17, 1998
16
<PAGE>
JOHNS MANVILLE CORPORATION
INDEX TO FINANCIAL STATEMENT SCHEDULE
TO FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SCHEDULE PAGE
-------- ----
<C> <S> <C>
II Valuation and qualifying accounts, for each of the three years
in the period ended December 31, 1997......................... 18
</TABLE>
17
<PAGE>
JOHNS MANVILLE CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------------
BALANCE AT CHARGED (CREDITED) CHARGED TO BALANCE AT
BEGINNING TO COSTS AND OTHER END OF
CLASSIFICATION OF YEAR EXPENSES ACCOUNTS(a) DEDUCTIONS(b) YEAR
-------------- ---------- ------------------ ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
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
Deferred tax assets... 70,188 -- -- 18,188 52,000
-------- ------ ------- ------- --------
Total............... $100,204 $ (243) $79,922 $91,103 $ 88,780
======== ====== ======= ======= ========
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
Deferred tax assets... 82,512 -- -- 12,324 70,188
-------- ------ ------- ------- --------
Total............... $109,622 $1,122 $57,370 $67,910 $100,204
======== ====== ======= ======= ========
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
Deferred tax assets... 96,449 314 -- 14,251 82,512
-------- ------ ------- ------- --------
Total............... $120,173 $1,090 $50,940 $62,581 $109,622
======== ====== ======= ======= ========
</TABLE>
- --------
Notes:
(a) Charged against sales and additions due to acquisitions.
(b) Principally charges for which reserves were provided, net of recoveries.
18
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Direct and indirect subsidiaries of the Company and the jurisdiction in
which each company was incorporated are listed below. Certain companies not
important to an understanding of the Company's businesses have been omitted
and which, if aggregated, would not constitute a significant subsidiary.
<TABLE>
<CAPTION>
JURISDICTION OF
SUBSIDIARY INCORPORATION
---------- ---------------
<S> <C>
CHANGZHOU SCHULLER ZHONGXIN TIANMA FIBER GLASS PROD. CO.,
LTD. ........................................................ China
EUROPEAN OVERSEAS CORPORATION................................. Delaware
JOHNS MANVILLE AB............................................. Sweden
JOHNS MANVILLE CANADA INC. ................................... Canada
JOHNS MANVILLE CHINA LTD. .................................... Delaware
JOHNS MANVILLE EUROPEAN INVESTMENTS B.V. ..................... Netherlands
JOHNS MANVILLE FUNDING CORPORATION............................ Delaware
JOHNS MANVILLE INTERNATIONAL B.V. ............................ Netherlands
JOHNS MANVILLE INTERNATIONAL GROUP, INC. ..................... Delaware
JOHNS MANVILLE INTERNATIONAL, INC. ........................... Delaware
MANVILLE MINING COMPANY....................................... Delaware
MESA INSULATION, INC. ........................................ Delaware
MITEX AB...................................................... Sweden
MITEX GLASSFIBRE LIMITED...................................... England
NORD BITUMI SpA............................................... Italy
SCHULLER GmbH................................................. Germany
SCHULLER POLSKA Sp. zo.o. .................................... Poland
</TABLE>
19
<PAGE>
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 18th day
of March, 1998.
JOHNS MANVILLE CORPORATION
(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 18, 1998.
SIGNATURE TITLE
/s/ CHARLES L. HENRY Chairman of the Board, President and
- ------------------------------------- Chief Executive Officer (Principal
(Charles L. Henry) Executive Officer)
/s/ JOHN P. MURPHY Senior Vice President and Chief
- ------------------------------------- Financial Officer (Principal
(John P. Murphy) Accounting and Financial Officer)
/s/ LEO BENATAR Director
- -------------------------------------
(Leo Benatar)
/s/ ROBERT A. FALISE Director
- -------------------------------------
(Robert A. Falise)
/s/ TODD GOODWIN Director
- -------------------------------------
(Todd Goodwin)
20
<PAGE>
SIGNATURE TITLE
/s/ MICHAEL N. HAMMES Director
- -------------------------------------
(Michael N. Hammes)
/s/ KATHRYN R. HARRIGAN Director
- -------------------------------------
(Kathryn R. Harrigan)
/s/ LOUIS KLEIN, JR. Director
- -------------------------------------
(Louis Klein, Jr.)
/s/ FRANK J. MACCHIAROLA Director
- -------------------------------------
(Frank J. Macchiarola)
/s/ CHRISTIAN E. MARKEY, JR. Director
- -------------------------------------
(Christian E. Markey, Jr.)
/s/ WILLIAM E. MAYER Director
- -------------------------------------
(William E. Mayer)
21
<PAGE>
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 Corporation Johns Manville Corporation
Investor Relations Product Information
P.O. Box 5108 P.O. Box 5108
Denver, CO 80217-5108 Denver, CO 80217-5108
TRANSFER AGENT AND REGISTRAR INDEPENDENT ACCOUNTANTS
First Chicago Trust Company of New Coopers & Lybrand L.L.P.
York 370 Seventeenth Street, Suite 3300
P.O. Box 2500 Denver, CO 80202-5633
Jersey City, NJ 07303
Call: (800) 756-8200
Hearing Impaired: TDD: (201) 222-
4955
Internet Information:
website: http://www.fctc.com
e-mail: [email protected]
(send stockholder address changes to the
above address)
22
<PAGE>
EXHIBIT 13
SELECTED FIVE-YEAR FINANCIAL DATA
<TABLE>
<CAPTION>
In thousands of dollars, except per share amounts
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income
- ----------------------------------------------------------------------------------------------------------------
Net Sales (Note B) $1,647,645 $1,552,429 $1,391,522 $1,277,818 $1,165,810
Income from Operations (Notes A and B) 215,422 187,427 201,283 142,299 52,451
Income from Continuing Operations,
net of tax (Notes A and B) 130,529 190,525 122,006 55,606 57,837
Income before Extraordinary Items and
Cumulative Effect of Accounting Change (Note B) 150,000 406,771 115,995 65,416 60,772
Net Income (Notes B, D, E and F) 150,000 90,486 115,995 36,996 47,782
- ----------------------------------------------------------------------------------------------------------------
Financial Position (As of December 31)
- ----------------------------------------------------------------------------------------------------------------
Total Assets (Note C) $1,980,534 $1,946,726 $2,474,059 $2,317,498 $2,163,079
Long-Term Debt, less current portion 456,294 428,160 447,007 441,798 354,205
Stockholders' Equity 693,083 580,462 1,181,307 1,080,781 883,114
- ----------------------------------------------------------------------------------------------------------------
Additional Data (Note B)
- ----------------------------------------------------------------------------------------------------------------
Additions to Property, Plant and Equipment $ 125,296 $ 153,000 $ 111,329 $ 82,833 $ 62,643
Research, Development and Engineering 31,174 32,663 29,988 29,738 27,972
- ----------------------------------------------------------------------------------------------------------------
Per Share Data (Note G)
- ----------------------------------------------------------------------------------------------------------------
Earnings Per Common Share
Basic:
Income from Continuing Operations,
net of tax (Notes A and B) $.81 $ .86 $.79 $.25 $ .29
Income before Extraordinary Items and
Cumulative Effect of Accounting
Change (Note B) .93 2.29 .74 .33 .31
Net Income (Notes B, D, E and F) .93 .20 .74 .10 .21
Diluted:
Income from Continuing Operations,
net of tax (Notes A and B) .80 .85 .78 .25 .29
Income before Extraordinary Items and
Cumulative Effect of Accounting
Change (Note B) .92 2.27 .73 .33 .31
Net Income (Notes B, D, E and F) .92 .20 .73 .10 .21
Common Dividends Paid .13 6.03 1.04
- ----------------------------------------------------------------------------------------------------------------
Pro Forma Data (Note H)
- ----------------------------------------------------------------------------------------------------------------
Income from Operations $215,422 $229,367 $201,283 $142,299 $84,465
Net Income 130,529 115,267 93,443 60,992 31,816
Earnings Per Common Share (Diluted):
Net Income $.80 $.71 $.57 $.37 $.20
- ----------------------------------------------------------------------------------------------------------------
See notes on page 19.
</TABLE>
Johns Manville/18
<PAGE>
Notes to Selected Five-Year Financial Data:
(A) During 1996, the Company recorded nonrecurring charges totaling $49.2
million. These charges included $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.
(B) In the first quarter of 1996, the Company disposed of its 81.3 percent
interest in Riverwood International Corporation ("Riverwood"). Accordingly,
Riverwood's operations have been reflected as discontinued operations and its
operating results have been excluded from the determination of income from
continuing operations for all periods presented. Income from continuing
operations, net of tax, includes gains on sales of equity investments, interest
income, interest expense and profit sharing expense. Income before extraordinary
items and cumulative effect of accounting change and net income include a gain
on disposal of discontinued operations of $216.2 million, net of tax, in 1996
and a loss on disposal of discontinued operations of $42.5 million, net of tax,
in 1995.
During the third quarter of 1997, the Company recognized an additional net gain
on disposal of discontinued operations of Riverwood of $19.5 million, of which
$8.2 million related to income taxes.
(C) The net assets and liabilities of the discontinued operations of Riverwood
have been classified as net assets held for sale for all periods presented. At
December 31, 1995, 1994 and 1993, net assets held for sale totaled $375.6
million, $409.6 million and $435.4 million, respectively.
(D) In 1996, the Company recorded an extraordinary loss of $314.3 million, net
of taxes of $169.2 million, on the exchange of approximately 32.5 million shares
of the Company's common stock for the Manville Personal Injury Settlement
Trust's profit sharing right to 20 percent of the Company's net earnings (as
adjusted).
(E) The Company recorded extraordinary gains (losses) on early extinguishments
of debt, net of taxes, of $(2) million, $(28.4) million and $0.9 million in
1996, 1994 and 1993, respectively.
(F) Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits." As a result, the Company recorded a charge in 1993 of $13.9 million,
net of taxes of $8.6 million, or $0.11 per common share, against net income to
reflect the accumulated postemployment benefit obligation.
(G) During 1996, the Company redeemed its Cumulative Preference Stock, Series B.
Earnings per share amounts prior to 1997 were calculated after the deduction for
preference stock dividends/accretion and the $52.1 million premium on preference
stock redemption.
(H) Pro forma data has been adjusted to eliminate the effects of nonrecurring
charges, restructuring of operations, certain pension plan settlement gains,
gains on sales of equity investments, interest expense on the 9 percent Sinking
Fund Debentures, profit sharing expense, unusual income tax items, discontinued
operations, extraordinary gains and losses, cumulative effect of accounting
change, preference stock dividends/accretion and premium on preference stock
redemption, on a consistent basis and adjusted for estimated applicable tax
effects. In addition, earnings per share are based on 163.1 million diluted
weighted average shares for all periods presented.
Johns Manville/19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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.
Johns Manville/20
<PAGE>
1997 vs 1996
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. Selling, general, administrative and research,
development and engineering expenses, combined, increased $2.1 million to $205.7
million. These expenses, however, decreased as a percentage of sales in 1997 to
12.5 percent, compared with 13.1 percent in 1996. Income from operations for
1997 was $215.4 million, up 14.9 percent, compared with $187.4 million for 1996.
Income from operations during 1996 included nonrecurring charges totaling $49.2
million-see "1996 vs 1995 Results of Operations."
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 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.
Other Expense, net
Other expense, net, was $10.3 million for 1997 compared with $0.3 million for
1996. During 1997, other expense, net, included higher goodwill amortization,
reflecting a full year of expense related to 1996 acquisitions, in addition to
expense related to 1997 acquisitions. Other expense, net, for 1996 included a
$7.2 million gain on the settlement of certain pension plans.
Johns Manville/21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Interest
Compared with 1996, the Company's interest income decreased $8.6 million
primarily due to lower average cash and marketable securities balances.
During 1997, the Company's interest expense increased $2 million due primarily
to 1997 acquisition-related borrowings.
Income Taxes
The Company's 1997 effective income tax rate of 26 percent is lower than the
U.S. federal statutory tax rate primarily due to the impact of utilizing prior
years' general business credits and the tax benefit the Company receives on its
quarterly dividend. The Company receives a tax deduction for dividends paid on
the shares of the Company's common stock held by the Manville Personal Injury
Settlement Trust (the "Trust"). For the year ended December 31, 1996, the
Company reported a net income tax benefit of $39.1 million, which included a
$104.5 million tax benefit on the portion of the special cash dividend that was
paid to the Trust. Exclusive of the tax benefit on the special cash dividend,
the Company's effective tax rate on income from continuing operations was 43
percent for the year ended December 31, 1996. This rate is higher than the U.S.
federal statutory tax rate principally due to higher foreign effective tax rates
and state taxes.
Discontinued Operations
During the third quarter of 1997, the Company adjusted the estimated gain
recognized in 1996 on the disposition of Riverwood International Corporation
("Riverwood"). The adjustment, resulting in an additional net gain on disposal
of discontinued operations of $19.5 million, of which $8.2 million related to
income taxes, arose from the termination of certain indemnification obligations
to the purchaser of Riverwood and from the determination of certain income tax
consequences of the disposition, which were finalized with the completion of the
Company's 1996 income tax returns.
During 1996, the Company received gross cash proceeds of $1.08 billion from the
disposition of its 81.3 percent interest in Riverwood and recorded a gain of
$216.2 million, net of taxes of $138.7 million.
Extraordinary Losses
During 1996, the Company exchanged approximately 32.5 million shares of its
common stock for the Trust's profit sharing right to 20 percent of the Company's
net earnings (as adjusted). As a result, the Company recorded an extraordinary
loss of $314.3 million, net of taxes of $169.2 million.
Also during 1996, the Company redeemed its 9 percent Sinking Fund Debentures
with cash of $27.7 million, plus accrued interest of $1.6 million, resulting in
an extraordinary loss on early extinguishment of debt of $2 million, net of
taxes of $1.1 million.
Preference Stock Redemption
The Company redeemed its Cumulative Preference Stock, Series B (the "preference
stock"), with cash of $230.8 million during 1996. The premium, or excess of the
redemption price over the carrying value of the preference stock, of $52.1
million was charged directly to capital in excess of par value and, along with
preference stock dividends, was deducted from net income to compute earnings and
earnings per share applicable to common stockholders during 1996.
Earnings Per Common Share
Basic and diluted net earnings per common share for 1997 were $0.93 and $0.92,
respectively, as compared with basic and diluted net earnings per common share
of $0.20 for 1996. Gain on disposal of discontinued operations increased basic
and diluted earnings per common share by $0.12 during 1997 and increased basic
and diluted earnings per common share by $1.43 and $1.42, respectively, during
1996. The combined extraordinary losses on trust settlement and early
extinguishment of debt decreased 1996 basic and diluted earnings per common
share by $2.09 and $2.07, respectively.
Johns Manville/22
<PAGE>
1996 vs 1995
Results of Operations
Net sales increased $160.9 million, or 11.6 percent, to $1,552.4 million in 1996
from $1,391.5 million in 1995. Gross profit for 1996 increased $42.2 million, or
10.6 percent, compared with 1995, due primarily to the increased sales volumes
from acquisitions. Gross profit margins were 28.4 percent for 1996 and 28.6
percent for 1995 as the effects of lower prices were substantially offset by
operating efficiencies. Selling, general, administrative and research,
development and engineering expenses, combined, increased $23.6 million and were
slightly higher as a percentage of net sales at 13.1 percent for 1996 compared
with 12.9 percent for 1995. The increase was principally due to additional
expenses as a result of acquisitions and acquisition-related activities. The
Company's income from operations, including $49.2 million of nonrecurring
charges, decreased $13.9 million, or 6.9 percent, to $187.4 million in 1996 from
$201.3 million in 1995.
Insulation Segment
The Insulation segment's net sales increased $29.1 million, or 4.3 percent, to
$699 million for 1996 compared with $669.9 million for 1995. Income from
operations for 1996, which included $17.6 million of nonrecurring charges
discussed below, decreased $9.8 million to $103.4 million in 1996 from $113.2
million in 1995. The residential insulation business' net sales improved
moderately as higher volumes from increased housing starts in the U.S. and
Canada for most of 1996 more than offset the effects of pricing pressures, which
moderately reduced gross margins and operating income of this business. Net
sales in commercial/industrial insulations increased on higher sales volumes,
reflecting market share gains and strength in construction markets, which also
led to improved gross profit and operating income. These increases were
partially offset by weakness in sales of automotive products due to competition
from alternate materials.
Roofing Systems Segment
The Roofing Systems segment's net sales increased $123.5 million, or 42.5
percent, to $414 million in 1996 from $290.5 million in 1995. Income from
operations for 1996, which included $5.6 million of nonrecurring charges
discussed below, increased $8.6 million to $32.1 million in 1996 from $23.5
million in 1995. These increases were due primarily to the inclusion of the
operating results of the businesses acquired during 1996. In addition, 1996
gross profits and operating income reflected improved operating efficiencies.
Engineered Products Segment
The Engineered Products segment's net sales increased $13.1 million, or 2.9
percent, to $470.8 million for 1996 compared with $457.7 million for 1995.
Income from operations for 1996, which included $4 million of income related to
nonrecurring items discussed below, was $113.1 million, up $8.6 million from
$104.5 million in 1995. The U.S. mats and fibers business had significantly
higher net sales due to increased sales volumes as the Company expanded its
production capacity during 1996. Meanwhile, industry-wide capacity constraints
led to slightly higher 1996 selling prices, which improved gross profits and
operating income. These U.S. operating results were partially offset by weakness
in European construction markets and decreases in the U.S. dollar-reported
results of the Company's German operations due to the strengthening of the U.S.
dollar against the German mark. The filtration business experienced slightly
higher net sales due to expanded markets for ultra-fine fibers.
Johns Manville/23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 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 $0.3 million for 1996 compared with other expense, net,
of $17 million for 1995. Included in 1996 was a $7.2 million gain on the
settlement of certain pension plans. Other expense for 1996 also included higher
amortization of goodwill resulting from acquisitions completed during the year.
Other expense for 1995 included net asset write-offs/dispositions of $6.7
million related primarily to nonproductive assets. In addition, 1995 included a
$2.9 million charge for legal costs in connection with litigation brought by the
Company against the former owner of the phenolic roofing business.
Gain on Sale of Equity Investment
In 1995, the Company sold its remaining equity investment in Stillwater Mining
Company for net cash proceeds of $110.5 million, resulting in a pretax gain on
sale of equity investment of $74.9 million.
Interest Income
Compared with 1995, interest income in 1996 decreased by $5.3 million, due
primarily to $5.2 million of interest received during 1995 from the Internal
Revenue Service related to a 1993 income tax refund.
Profit Sharing Expense
The Company paid $6.6 million of profit sharing expense through April 1996 to
the Trust. This was the final profit sharing payment to the Trust. Profit
sharing expense for 1995 totaled $27.7 million and was also paid in 1996.
Income Taxes
For the year ended December 31, 1996, the Company reported a net income tax
benefit of $39.1 million, which included a $104.5 million tax benefit on the
portion of the special cash dividend that was paid to the Trust in 1996.
Exclusive of the tax benefit on the special cash dividend, the Company's
effective tax rate on income from continuing operations was 43 percent and 46
percent for the years ended December 31, 1996 and 1995, respectively.
Johns Manville/24
<PAGE>
These rates are higher than the U.S. federal statutory tax rate principally due
to higher foreign effective tax rates and state taxes.
Discontinued Operations
During 1996, the Company received gross cash proceeds of $1.08 billion from the
disposition of its 81.3 percent interest in Riverwood and recorded a gain of
$216.2 million, net of taxes of $138.7 million.
In the fourth quarter of 1995, the Company recorded an estimated loss on the
disposal of discontinued operations of $42.5 million. This loss primarily
relates to deferred taxes on the Company's investment in Riverwood that had not
been recognized previously. The Company recorded these taxes when it became
apparent the taxes would be incurred due to the planned disposition of
Riverwood.
Extraordinary Losses
During 1996, the Company exchanged approximately 32.5 million shares of its
common stock for the Trust's profit sharing right to 20 percent of the Company's
net earnings (as adjusted). As a result, the Company recorded an extraordinary
loss of $314.3 million, net of taxes of $169.2 million.
Also during 1996, the Company redeemed its 9 percent Sinking Fund Debentures
with cash of $27.7 million, plus accrued interest of $1.6 million, resulting in
an extraordinary loss on early extinguishment of debt of $2 million, net of
taxes of $1.1 million.
Preference Stock Redemption
The Company redeemed its preference stock with cash of $230.8 million during
1996. The premium, or excess of the redemption price over the carrying value of
the preference stock, of $52.1 million was charged directly to capital in excess
of par value and was deducted from net income to compute earnings and earnings
per share applicable to common stockholders during 1996. In addition, earnings
and earnings per share applicable to common stockholders for 1996 and 1995 were
calculated after deducting preference stock dividends.
Earnings Per Common Share
Basic and diluted net earnings per common share for 1996 were $0.20 compared
with basic and diluted net earnings per common share of $0.74 and $0.73,
respectively, for 1995. The gain on disposal of discontinued operations
increased basic and diluted earnings per share by $1.43 and $1.42, respectively,
during 1996, while the loss on disposal of discontinued operations decreased
basic and diluted earnings per share by $0.35 and $0.34, respectively, in 1995.
Income from discontinued operations increased basic and diluted earnings per
share by $0.30 and $0.29, respectively, during 1995. The combined extraordinary
losses on trust settlement and early extinguishment of debt decreased 1996 basic
and diluted earnings per common share by $2.09 and $2.07, respectively.
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.
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 Johns Manville International Group, Inc. ("Johns Manville International"),
the Company's wholly owned subsidiary, which owns all of the Company's operating
subsidiaries, and restrictions on intercompany transactions, including transfers
of cash. As of December 31, 1997 and 1996, the maximum amount available for
dividends to be paid to the Company by Johns Manville International under debt
covenants of the Senior Notes was approximately $250 million and $210 million,
respectively. Noncompliance
Johns Manville/25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 $80.2 million
during 1997 to $169.1 million at December 31, 1997, from $249.3 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 $168.7 million of cash during
1997, compared with $165.4 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. During 1996, cash flows from continuing
operations and proceeds from the settlement of pension plans were offset by cash
disbursements relating to final profit sharing obligations and expenses
associated with the Riverwood divestment.
The Company's investing activities used $213.4 million in 1997 and provided
$935.4 million during 1996. 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 the Company's automotive molded parts business. Investing
activities for 1996 provided $1.08 billion of proceeds from the disposition of
Riverwood. 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.
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 Company repaid debt totaling $30
million assumed in connection with 1996 acquisitions. The Company paid quarterly
dividends, totaling $21 million, on its common stock during 1997. During the
third quarter of 1997, the Company increased its quarterly dividend from $.03 to
$.04 per common share. Financing activities for 1996 included payment of a
special common stock dividend of $968.1 million; redemption of the Company's
preference stock and related final dividend payment of $230.8 million and $10.3
million, respectively; proceeds totaling $64.8 million from exercises of
warrants to purchase common stock; and the redemption of $27.7 million of 9
Percent Sinking Fund Debentures.
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
Johns Manville/26
<PAGE>
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.
Income Taxes
The cash taxes paid by the Company in the U.S. were substantially lower than
statutory rates due to the Company's deductions related to payments made to the
Trust, net operating loss carryforwards and tax credit carryforwards. As of
December 31, 1997, the Company will need a cumulative total of approximately
$670 million of U.S. federal taxable income to realize its net U.S. deferred tax
asset of $234.3 million. Based on the Company's historical earnings levels,
projected future earnings, and the expected timing of the taxable deductions
principally related to amounts paid by the Trust or transferred to a specific
settlement fund, the Company believes it will realize its net deferred tax
asset. The Company's valuation allowance on all deferred tax assets is subject
to change as forecasts of future years' earnings and the estimated timing of the
utilization of the Company's tax benefits are revised.
The Company receives a tax deduction for the amount of any dividends paid on
shares of the Company's common stock held by the Trust. In addition, the Company
will receive a tax deduction when the Trust sells some or all of its shares of
common stock and distributes the proceeds to its beneficiaries or transfers the
proceeds to a specific settlement fund. Under Section 468B of the U.S. Internal
Revenue Code, the Company is responsible for income taxes on the taxable income
of the Trust's specific settlement fund at a tax rate of 15 percent. Any such
taxes paid by the Company will generate a tax deduction for the Company.
Although the Company cannot predict the amount of any such future tax
obligations, the Company does not expect related future liabilities to have a
material adverse effect on the Company's financial condition, liquidity or
results of operations. However, this liability could be material in certain
situations including the Trust monetizing, and retaining the proceeds of, a
significant portion of its investment in the Company's common stock.
If the Trust were to sell the stock at a price greater than the Company's
carrying value, the Company may receive a tax benefit in excess of the deferred
tax asset reflected for financial reporting purposes. Likewise, if the Trust
were to sell the stock at a price lower than the carrying value, the Company
would receive a tax benefit less than the deferred tax asset reflected for
financial reporting purposes. To illustrate, using the December 31, 1997 closing
market price of $10.0625 per share, and assuming full realization, the deferred
tax asset related to the Company's stock held by the Trust would total
approximately $450 million, which exceeds the carrying value by nearly $300
million.
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.
Johns Manville/27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 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.
Johns Manville/28
<PAGE>
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 the Company settled certain litigation
concerning the Company's disposal activities prior to consummation of its 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 the
Company'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 the 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 effects 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.
Johns Manville/29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company believes that its current cash position, cash generated from
operations, and funds available under various credit facilities will enable it
to satisfy debt service requirements, ongoing capital spending and capacity
expansion programs, other ongoing operating costs and dividend policy. However,
the Company may need to access capital markets to pay the principal of the Johns
Manville International 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 ability to
realize its net deferred tax asset, (iii) the Company's expectations as to
contingencies related to phenolic roofing insulation and environmental
liabilities, (iv) adverse effects on operating earnings of capacity-related and
other competitive pressures in most of the Company's businesses, particularly
residential insulation, (v) expected benefits from the continuing integration of
acquisitions and capacity expansions, (vi) the Company's expectations concerning
levels of capital spending and funding of current operations, debt service,
dividends and future acquisitions and (vii) the Company's estimates concerning
year 2000 compliance issues, constitute such forward-looking statements. See
"Liquidity and Capital Resources."
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 "1996 vs 1995 Results of Operations" and factors relating to the
Company's net deferred tax asset are discussed in "Liquidity and Capital
Resources-Income Taxes." 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.
Johns Manville/30
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
In thousands of dollars
- --------------------------------------------------------------------------------------------------------------------
December 31, 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and equivalents $ 132,137 $ 206,605
Marketable securities, at cost, which approximates market 36,929 42,690
Receivables 221,943 229,665
Inventories 127,061 101,041
Prepaid expenses 11,409 7,921
Deferred tax assets 42,006 30,001
- --------------------------------------------------------------------------------------------------------------------
Total Current Assets 571,485 617,923
- --------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment, at cost
Land and improvements 50,189 47,977
Buildings 246,175 237,132
Machinery and equipment 1,141,106 1,115,649
- --------------------------------------------------------------------------------------------------------------------
1,437,470 1,400,758
Less accumulated depreciation and depletion 639,711 630,338
- --------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment, net 797,759 770,420
- --------------------------------------------------------------------------------------------------------------------
Deferred Tax Assets 194,836 212,161
Goodwill 202,844 127,994
Other Assets 213,610 218,228
- --------------------------------------------------------------------------------------------------------------------
Total Assets $1,980,534 $1,946,726
====================================================================================================================
Liabilities
Current Liabilities
Short-term debt $ 1,767 $ 31,748
Accounts payable 114,638 120,851
Compensation and employee benefits 84,221 105,629
Income taxes 8,703 35,837
Other accrued liabilities 86,785 68,888
- --------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 296,114 362,953
Long-Term Debt, less current portion 456,294 428,160
Deferred Income Taxes 42,175 41,242
Postretirement Benefits Other Than Pensions 197,419 200,822
Other Noncurrent Liabilities 295,449 333,087
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities 1,287,451 1,366,264
- --------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 2, 9, 16 and 20)
- --------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Cumulative Preference Stock, Series B, redeemed 1996
Common Stock, $.01 par value, authorized 300,000,000 shares in
1997 and 175,000,000 shares in 1996; issued and
outstanding 162,822,540 shares and 161,580,589 shares,
respectively, in 1997; and issued and outstanding
162,712,576 shares and 161,495,930 shares, respectively, in 1996 1,628 1,627
Treasury Stock, at cost, 1,241,951 shares in 1997 and 1,216,646 shares in 1996 (16,522) (16,241)
Capital in Excess of Par Value 540,422 539,423
Unearned Stock Compensation (7,224) (9,124)
Retained Earnings 165,492 38,106
Cumulative Currency Translation Adjustment 9,287 26,671
- --------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 693,083 580,462
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $1,980,534 $1,946,726
====================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
Johns Manville/31
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
In thousands of dollars, except per share amounts
- --------------------------------------------------------------------------------
For the Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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 174,573 171,027 150,135
Research, Development and Engineering 31,174 32,663 29,988
Nonrecurring Charges 49,156
Other Income (Expense), net (10,341) (345) (17,005)
- --------------------------------------------------------------------------------
Income from Operations 215,422 187,427 201,283
Gain on Sale of Equity Investment 74,889
Interest Income 10,263 18,897 24,177
Interest Expense 50,205 48,242 48,265
Profit Sharing Expense (Note 19) 6,648 27,661
- --------------------------------------------------------------------------------
Income from Continuing
Operations before Income Taxes 175,480 151,434 224,423
Income Tax Expense (Benefit) 44,951 (39,091) 102,417
- --------------------------------------------------------------------------------
Income from Continuing Operations 130,529 190,525 122,006
Income from Discontinued
Operations, net of tax and Minority
Interest (Note 21) 36,491
Gain (Loss) on Disposal of
Discontinued Operations, net of tax
(Note 21) 19,471 216,246 (42,502)
- --------------------------------------------------------------------------------
Income before Extraordinary Items 150,000 406,771 115,995
Extraordinary Losses (Notes 19 and 22) (316,285)
- --------------------------------------------------------------------------------
Net Income 150,000 90,486 115,995
Preference Stock Redemption
Premium/Dividends (60,341) (24,923)
- --------------------------------------------------------------------------------
Net Income Applicable to Common Stock $ 150,000 $ 30,145 $ 91,072
================================================================================
Earnings Per Common Share
- --------------------------------------------------------------------------------
Basic:
Income from Continuing Operations $.81 $ .86 $ .79
Income from Discontinued Operations,
net of tax and Minority Interest
(Note 21) .30
Gain (Loss) on Disposal of Discontinued
Operations, net of tax (Note 21) .12 1.43 (.35)
- --------------------------------------------------------------------------------
Income before Extraordinary Items .93 2.29 .74
Extraordinary Losses (Notes 19 and 22) (2.09)
- --------------------------------------------------------------------------------
Net Income Applicable to Common Stock $.93 $ .20 $ .74
================================================================================
Diluted:
Income from Continuing Operations $.80 $ .85 $ .78
Income from Discontinued Operations,
net of tax and Minority Interest
(Note 21) .29
Gain (Loss) on Disposal of Discontinued
Operations, net of tax (Note 21) .12 1.42 (.34)
- --------------------------------------------------------------------------------
Income before Extraordinary Items .92 2.27 .73
Extraordinary Losses (Notes 19 and 22) (2.07)
- --------------------------------------------------------------------------------
Net Income Applicable to Common Stock $.92 $ .20 $ .73
================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Johns Manville/32
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
In thousands of dollars
- --------------------------------------------------------------------------------
For the Years Ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 150,000 $ 90,486 $ 115,995
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and amortization 80,163 71,175 63,833
Deferred taxes 11,571 (67,178) 82,123
Product guarantee income 4,961 8,651 9,352
Provision for furnace rebuilds 11,264 8,270 8,349
Pension and postretirement benefits
expense 6,607 12,251 22,645
Nonrecurring charges 49,870
Gain on sale of equity investment (74,889)
Interest expense 2,318 2,047 1,808
Profit sharing expense 6,648 27,661
Income from discontinued operations (36,491)
(Gain) loss on disposal of discontinued
operations (19,471) (216,246) 42,502
Extraordinary losses 314,296
Other, net 9,721 20,534 12,450
(Increase) decrease in current assets:
Receivables 22,985 11,411 4,798
Inventories (18,423) (2,680) (19,327)
Prepaid expenses (4,165) (1,732) 1,237
Increase (decrease) in current
liabilities:
Accounts payable (5,217) (7,681) (45)
Compensation and employee benefits (11,373) (13,022) (12,247)
Income taxes (24,701) (14,186) (22,556)
Other accrued liabilities 23,264 (40,412) 6,737
Decrease in postretirement benefits
other than pensions (16,363) (16,347) (19,742)
Decrease in other noncurrent
liabilities (54,420) (16,450) (7,697)
Profit sharing paid (34,309) (18,259)
Net cash provided by discontinued
operations 29,339
- --------------------------------------------------------------------------------
Net cash provided by operating
activities 168,721 165,396 217,576
- --------------------------------------------------------------------------------
Cash Flows from Investing Activities
Purchases of property, plant and
equipment (90,528) (103,041) (111,329)
Acquisitions (136,521) (153,113)
Proceeds from sales of assets 9,351 15,386 112,672
Proceeds from disposition of Riverwood 1,081,341
Purchases of available-for-sale
marketable securities (27,664) (31,332) (68,691)
Purchases of held-to-maturity
marketable securities (14,042) (33,458) (164,406)
Proceeds from sales of available-for-sale
marketable securities 45,712 55,035 10,000
Proceeds from maturities of
held-to-maturity marketable securities 2,538 84,446 135,966
(Increase) decrease in other assets (2,233) 20,177 (2,561)
- --------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities (213,387) 935,441 (88,349)
- --------------------------------------------------------------------------------
Cash Flows from Financing Activities
Issuance of debt 56,637 63 6,622
Payments on debt (61,170) (42,786) (3,464)
Preference stock redemption/dividends (241,056) (24,923)
Dividends on common stock (20,995) (972,988)
Stock warrants exercised 64,794
Purchases of treasury stock (281) (14,242) (1,592)
Other stock transactions 330 2,514 710
- --------------------------------------------------------------------------------
Net cash used in financing activities (25,479) (1,203,701) (22,647)
- --------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash (4,323) (1,340) (62)
- --------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and
Equivalents (74,468) (104,204) 106,518
Cash and Equivalents at Beginning of Year 206,605 310,809 204,291
- --------------------------------------------------------------------------------
Cash and Equivalents at End of Year $ 132,137 $ 206,605 $ 310,809
================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Johns Manville/33
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Cumulative
Preference
Stock, Common Treasury
Series B Stock Stock
- -----------------------------------------------------------------
<S> <C> <C> <C>
BALANCES AT DECEMBER 31, 1994 $ 178,638 $ 1,228 $ (407)
Net income for the year
Currency translation
Exercise of warrants for
common stock
Stock compensation plan
transactions
Preference stock dividends
Purchase of treasury stock (1,592)
- -----------------------------------------------------------------
BALANCES AT DECEMBER 31, 1995 178,638 1,228 (1,999)
Net income for the year
Currency translation
Exercise of warrants for
common stock 69
Stock compensation plan
transactions 5
Common stock dividends
Preference stock dividends
Redemption of preference stock (178,638)
Purchase of treasury stock (14,242)
Issuance of common stock
in connection
with the profit sharing
exchange 325
- -----------------------------------------------------------------
BALANCES AT DECEMBER 31, 1996 1,627 (16,241)
Net income for the year
Currency translation
Stock compensation plan
transactions 1
Common stock dividends
Purchase of treasury stock (281)
- -----------------------------------------------------------------
BALANCES AT DECEMBER 31, 1997 $ 1,628 $(16,522)
=================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Johns Manville/34
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
In thousands of dollars
- --------------------------------------------------------------------------------------------------
Retained Cumulative
Capital in Unearned Earnings Currency Total
Excess of Stock (Accumulated Translation Stockholders'
Par Value Compensation Deficit) Adjustment Equity
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1994 $1,011,310 $(6,013) $(130,394) $26,419 $1,080,781
Net income for the year 115,995 115,995
Currency translation 6,265 6,265
Exercise of warrants for
common stock 324 324
Stock compensation plan
transactions 1,871 2,586 4,457
Preference stock dividends (24,923) (24,923)
Purchase of treasury stock (1,592)
- -------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1995 1,013,505 (3,427) (39,322) 32,684 1,181,307
Net income for the year 90,486 90,486
Currency translation (6,013) (6,013)
Exercise of warrants for
common stock 64,725 64,794
Stock compensation plan
transactions 14,989 (5,697) 9,297
Common stock dividends (972,988) (4,843) (977,831)
Preference stock dividends (8,215) (8,215)
Redemption of preference stock (52,126) (230,764)
Purchase of treasury stock (14,242)
Issuance of common stock
in connection
with the profit sharing
exchange 471,318 471,643
- --------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1996 539,423 (9,124) 38,106 26,671 580,462
Net income for the year 150,000 150,000
Currency translation (17,384) (17,384)
Stock compensation plan
transactions 999 1,900 2,900
Common stock dividends (22,614) (22,614)
Purchase of treasury stock (281)
- --------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1997 $540,422 $(7,224) $165,492 $ 9,287 $ 693,083
==================================================================================================
</TABLE>
Johns Manville/35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1:
Summary of Significant Accounting Policies
Johns Manville Corporation ("Johns Manville" or 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 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.
The Manville Personal Injury Settlement Trust (the "Trust") owns approximately
80 percent of the Company's common stock.
(A) Principles of Consolidation
The consolidated financial statements include the accounts of Johns Manville
Corporation and its majority-owned subsidiaries. All significant intercompany
transactions have been eliminated.
(B) 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.
(C) Cash and Equivalents
Cash and equivalents include money market mutual funds, time deposits and
marketable securities with original maturities of three months or less.
(D) 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.
(E) 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.
(F) 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.
(G) 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.
Johns Manville/36
<PAGE>
(H) 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.
(I) 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.
(J) 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.
(K) Income Taxes
Tax credits granted by various countries are accounted for as reductions of
income tax expense in the year in which the related expenditures become eligible
for investment benefit under applicable tax regulations.
(L) 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.
Johns Manville/37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $54.9 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 $31 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, $45.7 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 marketable securities of
$22.2 million and other assets of $4.7 million. The amortized cost basis of
these securities approximated fair value. Of these securities, $5.1 million had
contractual maturities within one year; the remaining $21.8 million have
contractual 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 $120.6 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
cash equivalents of $103.3 million, marketable securities of $7.7 million and
other assets of $9.6 million, depending upon the nature and maturity of the
investments. Of these securities, $105.8 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 marketable securities of
$35 million and other assets of $5 million. The amortized cost basis of these
securities approximated fair value. Of these securities, $19.8 million had
contractual maturities within one year; the remaining $20.2 million have
contractual maturities of one to five years.
During 1997, 1996 and 1995, the Company sold securities that had been classified
as available-for-sale, resulting in proceeds of $45.7 million, $55 million and
$10 million, respectively, which approximated carrying value each year.
<TABLE>
<CAPTION>
Note 3:
Receivables
In thousands of dollars
- ---------------------------------------------
1997 1996
- ---------------------------------------------
<S> <C> <C>
Trade $237,743 $242,530
Less allowances 36,780 30,016
- ---------------------------------------------
200,963 212,514
Other 20,980 17,151
- ---------------------------------------------
$221,943 $229,665
=============================================
</TABLE>
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 related to continuing operations was $(0.2)
million for 1997, $1.1 million for 1996, and $0.8 million for 1995.
John Manville/38
<PAGE>
<TABLE>
<CAPTION>
Note 4:
Inventories
In thousands of dollars
- ---------------------------------------------
1997 1996
- ---------------------------------------------
<S> <C> <C>
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
=============================================
</TABLE>
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.
<TABLE>
<CAPTION>
Note 5:
Short-Term Debt and Credit Facilities
In thousands of dollars
- --------------------------------------------------------
1997 1996
- --------------------------------------------------------
<S> <C> <C>
Short-term borrowings $1,330 $22,634
Current portion of long-term debt 437 9,114
- --------------------------------------------------------
$1,767 $31,748
========================================================
</TABLE>
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.
<TABLE>
<CAPTION>
Note 6:
Compensation and Employee Benefits
In thousands of dollars
- ---------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
Vacation, compensation and payroll deductions $47,937 $ 54,709
Self insured medical and group life coverage 32,879 35,032
Other 3,405 15,888
- ---------------------------------------------------------------------
$84,221 $105,629
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
Note 7:
Long-Term Debt
In thousands of dollars
- ---------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
Unsecured
10.875 percent Johns Manville
International Senior Notes, payable 2004 $400,000 $400,000
Bonds payable to the Trust 19,820 17,502
Collateralized
Revolving credit facility with interest at
LIBOR plus 1 percent, payable 1999 25,000
Industrial revenue bonds with interest at
floating rates, from 2 percent to 8.625
percent, payable through 2009,
collateralized by a letter of credit, real
property and equipment 9,557 15,702
Notes payable with interest from 5.98 percent to
8.13 percent, payable through 2007 2,354 4,070
- ---------------------------------------------------------------------
456,731 437,274
Less current portion 437 9,114
- ---------------------------------------------------------------------
$456,294 $428,160
=====================================================================
</TABLE>
10.875 Percent Johns Manville
International Senior Notes
In 1994, Johns Manville International 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.
Johns Manville/39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Bonds Payable to the Trust
At December 31, 1997, the bonds payable to the Trust (the "Trust Bonds") of
$19.8 million consist of a series of fixed payments totaling $75 million per
year in 2013 and 2014, discounted at 13 percent.
Long-term debt maturities at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
In thousands of dollars
- ---------------------------------------------------------------
<S> <C>
1998 $ 437
1999 25,274
2000 239
2001 989
2002 2,318
Thereafter 534,377
- ---------------------------------------------------------------
Total 563,634
Less interest accruing to principal (106,903)
- ---------------------------------------------------------------
$ 456,731
===============================================================
</TABLE>
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 Johns Manville International Group, Inc. ("Johns Manville International"),
the Company's wholly owned subsidiary, which owns all of the Company's operating
subsidiaries, and restrictions on intercompany transactions, including transfers
of cash. As of December 31, 1997 and 1996, the maximum amount available for
dividends to be paid to the Company by Johns Manville International 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 $456.7 million and
had an estimated fair value of $515.5 million. At December 31, 1996, the
Company's long-term debt totaled $437.3 million and had an estimated fair value
of $494.4 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.
Note 8:
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:
<TABLE>
<CAPTION>
In thousands of dollars
- ---------------------------------------------------
1997 1996
- ---------------------------------------------------
<S> <C> <C>
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
===================================================
</TABLE>
Note 9:
Commitments and Contingencies
Total rental expense related to continuing operations was $12.5 million in 1997,
$11.9 million in 1996 and $14.6 million in 1995.
At December 31, 1997, minimum rental commitments of the Company under long-term,
noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
In thousands of dollars
- ---------------------------------------------------------
<S> <C>
1998 $ 6,321
1999 3,938
2000 3,432
2001 3,190
2002 and thereafter 7,620
- ---------------------------------------------------------
$24,501
=========================================================
</TABLE>
Minimum rental commitments of the Company have not been reduced by anticipated
sublease income over the lease terms of approximately $2.4 million.
The Company has various purchase commitments for items used in the ordinary
conduct of business. In the aggregate, such commitments do not exceed current
market prices or anticipated usage requirements.
Johns Manville/40
<PAGE>
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 the Company settled certain litigation
concerning the Company's disposal activities prior to consummation of its 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 the
Company'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 the 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
Johns Manville/41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 effects 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 10:
Stockholders' Equity
During 1996, approximately 32.5 million shares of the Company's common stock
were issued under the profit sharing exchange (see Note 19). In addition,
warrants were exercised to purchase 6.9 million shares of common stock during
1996. The Company declared and paid a special cash dividend to all common
stockholders during 1996 of $6.00 per share, totaling $968.1 million,
representing a substantial portion of the proceeds from the disposition of
Riverwood International Corporation ("Riverwood").
The Company redeemed its cumulative Preference Stock, Series B, in 1996 with
cash of $230.8 million. The premium, or excess of the redemption price over the
carrying value of the preference stock, of $52.1 million was charged directly to
capital in excess of par value and, along with preference stock dividends, was
deducted from net income to compute earnings and earnings per share applicable
to common stockholders. Preference stock dividends paid in 1996 and 1995 totaled
$10.3 million and $24.9 million, respectively.
The following is a summary of shares outstanding:
<TABLE>
<CAPTION>
Cumulative Preference Stock, Common
Series B Stock
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1994 9,230,583 122,827,761
Issuance of common stock in connection with compensation plans 89,300
Forfeiture of common stock issued in connection with compensation plans (31,500)
Issuance of common stock upon exercise of warrants 34,550
Treasury stock acquired (134,358)
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 9,230,583 122,785,753
Redemption of Cumulative Preference Stock, Series B (9,230,583)
Issuance of common stock in connection with compensation plans 325,504
Issuance of common stock upon exercise of warrants 6,892,988
Treasury stock acquired (1,035,425)
Issuance of common stock in connection with the profit sharing exchange 32,527,110
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 161,495,930
Issuance of common stock in connection with compensation plans 109,964
Treasury stock acquired (25,305)
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 161,580,589
=====================================================================================================================
</TABLE>
Johns Manville/42
<PAGE>
Note 11:
Stock Compensation Plans
The Company's stock compensation plans grant eligible employees deferred stock
rights, restricted stock and options to purchase shares of the Company's common
stock. During 1996, an additional 7.9 million shares of the Company's common
stock were registered and reserved for issuance. On July 1, 1997, the Company
introduced a noncompensatory Johns Manville employee stock ownership plan for
its worldwide employees. The plan enables employees to purchase stock directly
from the market and through Company savings plans. In addition, the Company
granted approximately 1.6 million options to employees at $12.19 per share.
These options vest through July 1, 2002 and expire on December 31, 2002. In
connection with the noncompensatory plan, the Company has registered and
reserved for issuance, 5.3 million shares of its common stock. At December 31,
1997, approximately 6.6 million shares were available for issuance under stock
compensation and noncompensatory plans.
The amount of compensation expense recognized for stock-based compensation was
$2.7 million, $2.8 million and $1.8 million for the years ended December 31,
1997, 1996 and 1995, respectively.
Deferred and Restricted Stock
Deferred stock rights entitle participants to the receipt of shares of common
stock upon vesting and dividend equivalents, but no voting rights prior to
vesting, and are restricted as to disposition and are subject to forfeiture
prior to vesting upon certain circumstances. During 1997, 128,000 deferred stock
rights were issued at a weighted average market value at grant date of $11.36
per share. During 1996, 1.1 million deferred stock rights were issued at a
weighted average market value at grant date of $10.48 per share. These deferred
stock rights, of which 1.0 million were outstanding at December 31, 1997, vest
through December 31, 2000.
During 1996, 43,000 shares of restricted common stock were granted at a market
price of $10.75 per share, of which 28,000 were outstanding at December 31,
1997.
The vesting of 2.1 million shares of restricted stock previously issued was
accelerated during 1996 due to the disposition of Riverwood.
Stock Options
The Company applies APB Opinion 25 and related interpretations in accounting for
its fixed stock options. 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 the Company's plans involving stock options.
The Company's common stock options were granted at exercise prices equal to, or
in excess of, market prices on the grant dates, and therefore no compensation
cost was recognized. 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 weighted average fair values of options granted during 1997 were $3.84 per
share for options with exercise prices equal to market prices on grant dates,
and $2.81 per share for options with exercise prices exceeding market prices on
grant dates. The weighted average fair values of options granted during 1996
were $3.02 per share for options with exercise prices equal to market prices on
grant dates, and $2.71 per share for options with exercise prices exceeding
market prices on grant dates.
Johns Manville/43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of the Company's stock option plans as of December 31,
1997, 1996 and 1995 is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at Beginning of Year 5,235,225 $11.51 548,900 $ 9.00 318,400 $ 7.54
Granted 2,234,295 $12.29 5,260,440 $11.69 325,000 $10.00
Exercised (44,242) $ 8.62 (252,800) $ 7.14 (84,800) $ 7.18
Forfeited (443,416) $11.70 (321,315) $ 7.56 (9,700) $10.38
- ------------------------------------------------------------------------------------------------------------------------
Outstanding at End of Year 6,981,862 $11.76 5,235,225 $11.51 548,900 $ 9.00
========================================================================================================================
Options Exercisable at End of Year 4,685,108 2,075,515 223,900
========================================================================================================================
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
--------------------------------------------------------- -----------------------------------
Weighted Average
Range of Number Remaining Weighted Average Number Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 4.00 110,000 7.3 $ 4.00 70,400 $ 4.00
$9.88-$12.43 4,717,606 7.0 $11.20 2,747,828 $10.63
$12.44-$15.55 2,154,256 8.0 $13.40 1,866,880 $13.28
- ------------------------------------------------------------------------------------------------------------------------
6,981,862 7.3 $11.76 4,685,108 $11.58
========================================================================================================================
</TABLE>
Recognition of compensation expense under SFAS No. 123 is optional; however, pro
forma disclosures as if the Company adopted expense recognition requirements
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 and earnings per share
for the years ended December 31, 1997, 1996 and 1995 would have been reduced to
the following pro forma amounts:
<TABLE>
<CAPTION>
In thousands of dollars, except per share amounts
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income applicable to common stock:
As reported $150,000 $30,145 $91,072
Pro forma $144,476 $25,926 $90,919
Basic earnings per share:
As reported $.93 $.20 $.74
Pro forma $.89 $.17 $.74
Diluted earnings per share:
As reported $.92 $.20 $.73
Pro forma $.89 $.17 $.73
================================================================================
</TABLE>
John Manville/44
<PAGE>
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 expected life of the options of 4 years. The effects
of applying SFAS No. 123 in this pro forma disclosure are not indicative of
future amounts. SFAS No. 123 does not apply to awards prior to 1995, and
additional awards in future years are possible.
Note 12:
Earnings per Common Share
In 1997, the Company adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS No. 128"), which revises the computation and
disclosure of earnings per share. Principally, SFAS No. 128 replaces primary
earnings per share with basic earnings per share which does not consider common
stock equivalents, modifies certain dilutive computations and replaces fully
diluted earnings per share with diluted earnings per share. The adoption of SFAS
No. 128 did not have a material impact on the Company's reported results,
including prior periods which were restated.
Basic earnings per common share amounts are based on the weighted average number
of common shares outstanding during the year. The diluted earnings per common
share computation further includes all dilutive potential common shares
outstanding during the year. The basic and diluted earnings per common share
amounts are determined using the following common equivalent shares:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Basic Diluted Basic Diluted Basic Diluted
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common stock 162,768,000 162,768,000 152,201,000 152,201,000 122,886,000 122,886,000
Dilutive potential common shares:
Warrants, stock options and
deferred stock rights 1,594,000 1,228,000 1,662,000
Treasury stock (1,226,000) (1,226,000) (871,000) (871,000) (105,000) (105,000)
- ------------------------------------------------------------------------------------------------------------------------------------
161,542,000 163,136,000 151,330,000 152,558,000 122,781,000 124,443,000
====================================================================================================================================
</TABLE>
The basic and diluted earnings per common share amounts are determined using the
following income amounts:
In thousands of dollars
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
Income from Continuing Operations $130,529 $ 190,525 $122,006
Preference Stock Redemption Premium/Dividends (60,341) (24,923)
- --------------------------------------------------------------------------------
130,529 130,184 97,083
Income from Discontinued Operations,
net of tax and Minority Interest 36,491
Gain (Loss) on Disposal of Discontinued
Operations, net of tax 19,471 216,246 (42,502)
- --------------------------------------------------------------------------------
Income before Extraordinary Items 150,000 346,430 91,072
Extraordinary Losses (316,285)
- --------------------------------------------------------------------------------
Net Income Applicable to Common Stock $150,000 $ 30,145 $ 91,072
================================================================================
Johns Manville/45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13:
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.
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, exclusive of amounts related to discontinued operations, for the
years ended December 31 consists of the following:
<TABLE>
<CAPTION>
In thousands of dollars
- --------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 7,685 $ 8,506 $ 6,866
Interest cost on projected benefit obligation 45,254 44,480 46,248
Estimated return on assets
-actual (gain) loss (87,480) (46,778) (146,437)
-deferred gain (loss) 32,577 (6,168) 101,651
Net amortization (6,490) (3,297) (4,028)
- --------------------------------------------------------------------------------------
Total pension expense (income) $ (8,454) $ (3,257) $ 4,300
======================================================================================
</TABLE>
Assumptions used in determining the pension expense (income) for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
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%
=============================================================================
</TABLE>
(B) Funded Status
The funded status of the Company's defined benefit plans covering U.S. employees
as of December 31, is as follows:
<TABLE>
<CAPTION>
In thousands of dollars
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $595,970 $583,115
==============================================================================
Accumulated benefit obligation $624,619 $610,947
==============================================================================
Projected benefit obligation $641,560 $632,407
Plan assets at fair value 741,007 691,591
- ------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 99,447 59,184
Unrecognized net loss 30,213 68,559
Unrecognized prior service costs 11,509 12,204
Unrecognized transition adjustment (12,013) (20,095)
- ------------------------------------------------------------------------------
Prepaid pension asset $129,156 $119,852
==============================================================================
</TABLE>
The projected benefit obligations for the U.S. plans were determined in 1997 and
1996 using a discount rate of 7.5 percent and a rate 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 is calculated on the benefits the employees are
entitled to receive if they were to separate immediately.
Johns Manville/46
<PAGE>
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 for each year, for the
years ended December 31 consists of the following:
<TABLE>
<CAPTION>
In thousands of dollars
- ----------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
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
============================================================================
</TABLE>
(B) Funded Status
The status of the Company's unfunded German plan as of December 31 is as
follows:
<TABLE>
<CAPTION>
In thousands of dollars
- -----------------------------------------------------------
1997 1996
- -----------------------------------------------------------
<S> <C> <C>
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
===========================================================
</TABLE>
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, $7.5 million in 1996 and $7.6 million in 1995.
Note 14:
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:
<TABLE>
<CAPTION>
In thousands of dollars
- -------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 1,390 $ 1,373 $ 1,560
Interest cost on accumulated postretirement
benefit obligation 13,210 12,955 15,434
Net amortization (1,640) (1,604) (2,478)
- -------------------------------------------------------------------------------
Total postretirement benefit expense $12,960 $12,724 $14,516
===============================================================================
</TABLE>
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.
Johns Manville/47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's unfunded postretirement benefit obligation reconciled with the
amounts shown in the Company's consolidated balance sheet as of December 31, is
as follows:
<TABLE>
<CAPTION>
In thousands of dollars
- -------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of the accumulated
postretirement benefit obligation:
Retirees $151,202 $151,206
Fully eligible plan participants 10,037 8,563
Other active plan participants 27,592 25,212
- -------------------------------------------------------------------------
188,831 184,981
Unrecognized net gain 1,889 8,912
Unrecognized prior service costs 24,538 26,376
- -------------------------------------------------------------------------
Postretirement benefit obligation $215,258 $220,269
=========================================================================
</TABLE>
The current portions of $17.8 million and $19.5 million of the postretirement
benefit obligation are reflected 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.
Note 15:
Workers' Compensation
The workers' compensation liability and related receivable at gross and present
value at December 31 are:
<TABLE>
<CAPTION>
In thousands of dollars
- -------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------
<S> <C> <C>
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
===================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
In thousands of dollars
- -----------------------------------
<S> <C>
1998 $ 7,200
1999 7,200
2000 7,000
2001 6,600
2002 6,200
Thereafter 83,717
- -----------------------------------
$117,917
===================================
</TABLE>
Johns Manville/48
<PAGE>
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, 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 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 the 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.
Note 17:
Other Income (Expense), net
<TABLE>
<CAPTION>
In thousands of dollars
- -------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Amortization of intangible assets $(10,516) $(4,528) $ (677)
Pension and postretirement benefits (2,068) (3,513) (6,456)
Interest accretion on workers'
compensation liabilities (3,072) (3,567) (3,910)
Phenolic legal expenses (600) (2,921)
Settlement of pension plans 7,216
Write-off/disposition of
nonproductive assets (6,723)
Other 5,315 4,647 3,682
- -------------------------------------------------------------------------------
$(10,341) $ (345) $(17,005)
===============================================================================
</TABLE>
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:
Gain on Sale of Equity Investment
In 1995, the Company sold its remaining equity investment in Stillwater Mining
Company for net cash proceeds of $110.5 million, resulting in a pretax gain on
sale of equity investment of $74.9 million. The Company retained a five percent
net smelter royalty on metals produced from certain Stillwater mining claims.
Johns Manville/49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 19:
Profit Sharing Obligation
During 1996, the Company exchanged approximately 32.5 million shares of its
common stock for the Trust's profit sharing right to 20 percent of the Company's
net earnings (as adjusted). As a result, the Company recorded an extraordinary
loss of $314.3 million, net of taxes of $169.2 million. The extraordinary loss
was based on the New York Stock Exchange closing price of the Company's common
stock on April 4, 1996 of $14.50 per share, plus related expenses of the
transaction and other trust related settlements.
The Company paid $6.6 million of profit sharing expense through April 1996 to
the Trust. This represents the final profit sharing payment to the Trust. Profit
sharing expense for 1995 totaled $27.7 million and was also paid in 1996.
Note 20:
Income Taxes
Income taxes payable consists of the following:
<TABLE>
<CAPTION>
In thousands of dollars
- -------------------------------------------------------------
1997 1996
- -------------------------------------------------------------
<S> <C> <C>
U.S. federal and foreign income taxes $8,300 $20,857
Deferred income taxes 14,316
State and local taxes 403 664
- -------------------------------------------------------------
$8,703 $35,837
=============================================================
</TABLE>
The approximate tax effect of the temporary differences and carryforwards giving
rise to the net deferred tax asset is as follows:
<TABLE>
<CAPTION>
In thousands of dollars
- ----------------------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
U.S. Deferred Tax Assets:
Trust deductions $216,412 $215,994
Employee benefit accruals 102,379 108,613
Reserves 52,370 62,027
Credit for prior year minimum tax carryforward 20,871 22,596
Provision for furnace rebuilds 9,625 7,805
Capitalized research, development and engineering 7,239
Deferred state and local taxes 6,552 7,488
Deferred compensation 5,839 4,575
General business credit carryforward 3,523 18,188
Other 13,599 14,216
- ----------------------------------------------------------------------------
438,409 461,502
- ----------------------------------------------------------------------------
Foreign Deferred Tax Assets 2,547 842
- ----------------------------------------------------------------------------
Total Deferred Tax Assets 440,956 462,344
- ----------------------------------------------------------------------------
U.S. Deferred Tax Liabilities:
Property, plant and equipment 100,695 97,764
Prepaid pension asset 44,658 45,555
Other 6,761 6,675
- ----------------------------------------------------------------------------
Total Deferred Tax Liabilities 152,114 149,994
- ----------------------------------------------------------------------------
Net Deferred Tax Asset, before valuation allowances 288,842 312,350
Valuation Allowances (52,000) (70,188)
- ----------------------------------------------------------------------------
Net Deferred Tax Asset $236,842 $242,162
============================================================================
</TABLE>
The deferred tax asset related to Trust deductions primarily represents stock
and Trust Bonds issued to the Trust that are not yet deductible for income tax
purposes. The charge related to the Trust Bonds becomes deductible as principal
and interest payments are made to the Trust, or when the Trust Bonds are sold by
the Trust, and funds are distributed to claimants or deposited in a specific
settlement fund. The deferred tax asset related to Trust deductions includes
$206.7 million (exclusive of any related valuation allowance) generated from the
issuance of stock to the Trust.
Johns Manville/50
<PAGE>
The Company receives a tax deduction for the amount of any dividends paid on
shares of the Company's common stock held by the Trust. In addition, the Company
will receive a tax deduction when the Trust sells some or all of its shares of
common stock and distributes the proceeds to its beneficiaries or transfers the
proceeds to a specific settlement fund. Under Section 468B of the U.S. Internal
Revenue Code, the Company is responsible for income taxes on the taxable income
of the Trust's specific settlement fund at a tax rate of 15 percent. Any such
taxes paid by the Company will generate a tax deduction for the Company.
Although the Company cannot predict the amount of any such future tax
obligations, the Company does not expect related future liabilities to have a
material adverse effect on the Company's financial condition, liquidity or
results of operations. However, this liability could be material in certain
situations including the Trust monetizing, and retaining the proceeds of, a
significant portion of its investment in the Company's common stock.
If the Trust were to sell the stock at a price greater than the Company's
carrying value, the Company may receive a tax benefit in excess of the deferred
tax asset reflected for financial reporting purposes. Likewise, if the Trust
were to sell the stock at a price lower than the carrying value, the Company
would receive a tax benefit less than the deferred tax asset reflected for
financial reporting purposes.
The Trust transferred approximately $17.2 million and $1.1 billion in 1997 and
1996, respectively, to the specific settlement fund within the Trust or to
claimants generating corresponding current tax deductions for the Company. The
monies transferred and use of operating loss carryforwards were adequate to
eliminate substantially all U.S. cash income tax liability in 1996.
At December 31, 1997, the Company had a $52 million valuation allowance on its
U.S. deferred tax asset primarily related to future deductible amounts that may
not be realized. The $18.2 million decrease in the valuation allowance in 1997
is primarily due to the utilization of general business credit carryforwards
that the Company previously believed would expire unused. The valuation
allowance decreased $12.3 million in 1996 primarily due to the expiration of
foreign tax credit carryforwards and general business credit carryforwards which
were fully reserved in prior years. In accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," the Company's
valuation allowance on all deferred tax assets is subject to change as forecasts
of future years' earnings and the estimated timing of the utilization of the
Company's tax benefits and credit carryforwards are revised (including the
timing and amounts received by the Trust for its investment in Company stock).
Johns Manville/51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The approximate tax effect of the temporary differences giving rise to the net
deferred tax liability is as follows:
<TABLE>
<CAPTION>
In thousands of dollars
- -------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------
<S> <C> <C>
Foreign Deferred Tax Assets $ 1,942 $ 2,244
- -------------------------------------------------------------------------
Foreign Deferred Tax Liabilities:
Property, plant and equipment 41,772 43,486
Undistributed earnings of foreign subsidiaries 14,316
Other 2,345
- -------------------------------------------------------------------------
Total Deferred Tax Liabilities 44,117 57,802
- -------------------------------------------------------------------------
Net Deferred Tax Liability $ 42,175 $ 55,558
=========================================================================
</TABLE>
The U.S. and foreign components of income from continuing operations before
income taxes consist of the following:
<TABLE>
<CAPTION>
In thousands of dollars
- -----------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. $136,277 $103,491 $182,056
Foreign 39,203 47,943 42,367
- -----------------------------------------------------------------------------
$175,480 $151,434 $224,423
=============================================================================
</TABLE>
The provision for income tax expense (benefit) on continuing operations consists
of the following:
<TABLE>
<CAPTION>
In thousands of dollars
- --------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
U.S. federal $ 12,875 $ 2,049
U.S. state and local 2,887 $ 3,595 1,642
Foreign 17,618 24,492 16,603
- --------------------------------------------------------------------------
33,380 28,087 20,294
- --------------------------------------------------------------------------
Deferred:
U.S. 13,044 (61,203) 72,526
Foreign (1,473) (5,975) 9,597
- --------------------------------------------------------------------------
11,571 (67,178) 82,123
- --------------------------------------------------------------------------
$ 44,951 $(39,091) $102,417
==========================================================================
</TABLE>
The reported amount of income tax expense on consolidated pretax income from
continuing operations differs from the amount of income tax expense that would
result from applying the domestic federal statutory tax rate to consolidated
pretax income from continuing operations for the following reasons:
<TABLE>
<CAPTION>
In thousands of dollars
- -------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. federal statutory expense $ 61,420 $ 53,002 $ 78,543
Increase (decrease) resulting from:
Utilization of general business credits (18,188)
Deduction for dividends to the Trust (6,298) (107,213)
Foreign income taxed at higher rates 3,924 11,246 17,978
U.S. state and local taxes, net of federal benefit 1,913 1,293 1,466
Other, net 2,180 2,581 4,430
- -------------------------------------------------------------------------------------
$ 44,951 $ (39,091) $102,417
=====================================================================================
</TABLE>
Johns Manville/52
<PAGE>
As of December 31, 1997, the Company had $3.5 million of general business credit
carryforwards and $20.9 million of U.S. federal credit for prior year minimum
tax carryforwards. The general business credits expire at various dates
beginning in 2002. There is no expiration date on the prior year minimum tax
credit; however, it can only be applied against regular tax.
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 21:
Discontinued Operations
During the third quarter of 1997, the Company adjusted the estimated gain
recognized in 1996 on the disposition of Riverwood. The adjustment, resulting in
an additional net gain on disposal of discontinued operations of $19.5 million,
of which $8.2 million related to income taxes, arose from the resolution of
indemnification issues with the purchaser of Riverwood and from the
determination of certain income tax consequences of the disposition, which were
finalized with the completion of the Company's 1996 income tax returns.
During 1996, the Company received gross cash proceeds of $1.08 billion from the
disposition of its 81.3 percent interest in Riverwood and recorded a gain of
$216.2 million, net of taxes of $138.7 million.
Riverwood's results of operations have been shown as discontinued operations
through the disposition in the first quarter of 1996. Summarized information on
the discontinued operations of Riverwood is as follows:
<TABLE>
<CAPTION>
In thousands of dollars
- -----------------------------------------------------------
1995
- -----------------------------------------------------------
<S> <C>
Net Sales $1,342,304
===========================================================
Income Before Income Taxes $ 25,485
Income Tax Expense 11,214
- -----------------------------------------------------------
Income Before Equity in Earnings
of Affiliate and Minority Interest 14,271
Equity in Earnings of Affiliate, net of taxes 30,609
Minority Interest in Riverwood (8,389)
- -----------------------------------------------------------
Income from Discontinued Operations,
net of tax and Minority Interest $ 36,491
===========================================================
</TABLE>
In the fourth quarter of 1995, the Company recorded an estimated loss on the
disposal of discontinued operations of $42.5 million. This loss primarily
relates to deferred taxes on the Company's investment in Riverwood that had not
been recognized previously. The Company recorded these taxes when it became
apparent the taxes would be incurred due to the planned disposition of
Riverwood.
Johns Manville/53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 22:
Early Extinguishment of Debt
During 1996, the Company redeemed its 9 percent Sinking Fund Debentures, with
cash of $27.7 million, plus accrued interest of $1.6 million, resulting in an
extraordinary loss on early extinguishment of debt of $2 million, net of taxes
of $1.1 million.
Note 23:
Supplemental Cash Flow Information
In connection with the consolidated statement of cash flows, cash paid for
interest related to continuing operations during 1997, 1996 and 1995 was $53.8
million, $46.4 million and $47.8 million, respectively. Cash paid for income
taxes related to continuing operations during 1997, 1996 and 1995 was $48.7
million, $29.9 million and $18.9 million, respectively.
Note 24:
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.
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 25:
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.
Johns Manville/54
<PAGE>
Note 26:
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.
<TABLE>
<CAPTION>
In thousands of dollars
- ----------------------------------------------------------------------------------
December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
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) 530,930 605,461 1,397,051
Eliminations and Adjustments (Note B) (52,052) (53,319) (52,903)
- ----------------------------------------------------------------------------------
Total $1,980,534 $1,946,726 $2,474,059
==================================================================================
Years Ended December 31,
- ----------------------------------------------------------------------------------
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 2,690 3,561
- ----------------------------------------------------------------------------------
Total $ 80,163 $ 71,175 $ 63,833
==================================================================================
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 949 357 2,115
- ----------------------------------------------------------------------------------
Total $ 125,296 $ 153,000 $ 111,329
==================================================================================
</TABLE>
See notes on page 58.
Johns Manville/55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
In thousands of dollars
- ------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 (1,000) 634 4,773
Nonrecurring Charges 29,980
Other Income (Expense), net (Note D) (3,133) 776 (8,569)
- ------------------------------------------------------------------------------------
Income from Operations $ (38,747) $ (61,137) $ (39,961)
- ------------------------------------------------------------------------------------
Consolidated Total Company
Net Sales $1,647,645 $1,552,429 $1,391,522
Costs and Expenses 1,421,882 1,315,501 1,173,234
Nonrecurring Charges 49,156
Other Income (Expense), net (10,341) (345) (17,005)
- ------------------------------------------------------------------------------------
Income from Operations $ 215,422 $ 187,427 $ 201,283
====================================================================================
See notes on page 58.
</TABLE>
Johns Manville/56
<PAGE>
<TABLE>
<CAPTION>
In thousands of dollars
- ----------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
United States
Net Sales $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 $ 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 22,811 17,084 21,598
Nonrecurring Charges 29,980
Other Income (Expense), net (Note C) (5,081) (11,945) (10,513)
- ----------------------------------------------------------------------------------
Income from Operations $ (38,614) $ (72,028) $ (40,316)
- ----------------------------------------------------------------------------------
Consolidated Total Company
Net Sales $1,647,645 $1,552,429 $1,391,522
Costs and Expenses 1,421,882 1,315,501 1,173,234
Nonrecurring Charges 49,156
Other Income (Expense), net (10,341) (345) (17,005)
- ----------------------------------------------------------------------------------
Income from Operations $ 215,422 $ 187,427 $ 201,283
==================================================================================
December 31,
- ----------------------------------------------------------------------------------
Assets
United States $1,232,880 $1,207,303 $ 936,453
Foreign 268,776 187,281 193,458
Corporate (Note E) 530,930 605,461 1,397,051
Eliminations and Adjustments (Note B) (52,052) (53,319) (52,903)
- ----------------------------------------------------------------------------------
Total $1,980,534 $1,946,726 $2,474,059
==================================================================================
See notes on page 58.
</TABLE>
Johns Manville/57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes to Business Segments and Geographic Area Information:
(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.
(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.
(C) Includes the elimination of intergeographic dividends between the Company's
foreign and U.S. segments.
(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.
(E) Corporate assets are principally cash and equivalents and marketable
securities, prepaid income taxes, certain investments, the net assets held for
sale related to Riverwood, certain long-term receivables, deferred tax assets, a
portion of prepaid pension assets and a portion of property, plant and
equipment.
Johns Manville/58
<PAGE>
MANAGEMENT'S REPORT
The accompanying consolidated financial statements have been prepared by
management in conformity with generally accepted accounting principles
appropriate under the circumstances. The representations in the financial
statements and the fairness and integrity of such statements are the
responsibility of management. All of the other financial information in the
Annual Report and Form 10-K is consistent with that in the financial statements.
The Company maintains internal accounting control systems to provide reliable
financial information for the preparation of financial statements, to safeguard
assets against loss or unauthorized use and to ensure proper authorization and
accounting for all transactions. Management is responsible for maintenance of
these systems, which is accomplished through communication of established
written codes of conduct, systems, policies and procedures; employee training;
and appropriate delegation of authority and segregation of responsibilities. To
further ensure compliance with established standards and procedures, the Company
maintains a substantial program of internal audits. Oversight of management's
financial reporting and internal accounting control responsibilities is
exercised by the Board of Directors, through an Audit Committee that consists
solely of outside directors.
/s/ C.L. (Jerry) Henry /s/ J.P. Murphy
- ------------------------------------- -------------------------
C.L. (Jerry) Henry J.P. Murphy
Chairman of the Board, Senior Vice President and
President and Chief Executive Officer Chief Financial Officer
Johns Manville/59
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of Johns Manville Corporation:
We have audited the accompanying consolidated balance sheets of Johns Manville
Corporation as of December 31, 1997 and 1996 and the related consolidated
statements of income, cash flows and stockholders' equity for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Johns Manville
Corporation 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.
/s/ Coopers & Lybrand L.L.P.
Denver, Colorado
January 30, 1998
Johns Manville/60
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
In thousands of dollars, except per share amounts
- ---------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 49,698 63,032 57,906 44,786 215,422
Income before Extraordinary Items (Note A) 27,492 37,175 58,329 27,004 150,000
Net Income (Note A) 27,492 37,175 58,329 27,004 150,000
- ---------------------------------------------------------------------------------------------------------
Basic Earnings Per Common Share
Income before Extraordinary Items (Note A) $.17 $.23 $.36 $.17 $.93
Net Income (Note A) .17 .23 .36 .17 .93
Diluted Earnings Per Common Share
Income before Extraordinary Items (Note A) $.17 $.23 $.36 $.17 $.92
Net Income (Note A) .17 .23 .36 .17 .92
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
<S> <C> <C> <C> <C> <C>
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 B) 55,291 56,299 67,615 8,222 187,427
Income before Extraordinary Items (Note A) 305,537 28,150 33,918 39,166 406,771
Net Income (Loss) (Notes A, C and D) (8,759) 26,161 33,918 39,166 90,486
- ---------------------------------------------------------------------------------------------------------
Basic Earnings (Loss) Per Common Share (Note E)
Income (Loss) before Extraordinary Items (Note A) $2.44 $(.16) $.21 $.24 $2.29
Net Income (Loss) (Notes A, C and D) (.12) (.18) .21 .24 .20
Diluted Earnings (Loss) Per Common Share (Note E)
Income (Loss) before Extraordinary Items (Note A) $2.39 $(.16) $.21 $.24 $2.27
Net Income (Loss) (Notes A, C and D) (.12) (.18) .21 .24 .20
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(A) The Company disposed of its 81.3 percent interest in Riverwood in the first
quarter of 1996 and recorded a gain on the sale of $177.2 million, net of
estimated taxes of $177.8 million. In the fourth quarter of 1996, an additional
gain of $39.1 million was recognized, adjusting the estimated taxes from $177.8
million to $138.7 million.
During the third quarter of 1997, an additional net gain of $19.5 million was
recognized, of which $8.2 million related to income taxes, arising from the
termination of certain indemnification obligations to the purchaser of Riverwood
and from the determination of certain income tax consequences of the
disposition, which were finalized with the completion of the Company's 1996
income tax returns.
(B) 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.
(C) In the first quarter of 1996, the Company recorded an extraordinary loss of
$314.3 million, net of taxes of $169.2 million, on the exchange of approximately
32.5 million shares of the Company's common stock for the Trust's profit sharing
right to 20 percent of the Company's net earnings (as adjusted).
(D) In the second quarter of 1996, the Company redeemed its 9 percent Sinking
Fund Debentures due through 2003 that resulted in an extraordinary loss on early
extinguishment of debt of $2 million, net of taxes of $1.1 million. The Company
also redeemed its Cumulative Preference Stock, Series B, with cash of $230.8
million, resulting in a $52.1 million premium on preference stock redemption.
(E) Earnings (loss) per share amounts for 1996 were calculated after the
deduction for preference stock dividends and the premium on preference stock
redemption.
Johns Manville/61
<PAGE>
Exhibit 23
Consent of Independent Accountants
Re: Johns Manville Corporation Registrations:
On Form S-8 (File No. 33-29389)
and Form S-8 (File No. 33-43912)
and Form S-8 (File No. 333-06313)
and Form S-8 (File No. 333-06321)
and Form S-8 (File No. 333-06375)
and Form S-8 (File No. 333-24253)
and Form S-8 (File No. 333-31007)
Gentlemen:
We consent to the incorporation by reference in the above referenced
registration statements of our report dated January 30, 1998, on our audits of
the consolidated financial statements and financial statement schedule of Johns
Manville Corporation as of December 31, 1997 and 1996 and for the years ended
December 31, 1997, 1996 and 1995, which report is incorporated by reference in
this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Denver, Colorado
March 17, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1997 FORM 10-K OF JOHNS MANVILLE CORPORATION AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 132,137
<SECURITIES> 36,929
<RECEIVABLES> 237,743
<ALLOWANCES> 6,005
<INVENTORY> 127,061
<CURRENT-ASSETS> 571,485
<PP&E> 1,437,470
<DEPRECIATION> 639,711
<TOTAL-ASSETS> 1,980,534
<CURRENT-LIABILITIES> 296,114
<BONDS> 456,294
0
0
<COMMON> 1,628
<OTHER-SE> 691,455
<TOTAL-LIABILITY-AND-EQUITY> 1,980,534
<SALES> 1,647,645
<TOTAL-REVENUES> 1,647,645
<CGS> 1,216,135
<TOTAL-COSTS> 1,216,135
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (243)
<INTEREST-EXPENSE> 50,205
<INCOME-PRETAX> 175,480
<INCOME-TAX> 44,951
<INCOME-CONTINUING> 130,529
<DISCONTINUED> 19,471
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150,000
<EPS-PRIMARY> .93
<EPS-DILUTED> .92
</TABLE>
