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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, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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:
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 [_] No [X]
Based solely on the New York Stock Exchange, Inc. closing price as of February
22, 1999, the aggregate market value of the common stock held by non-
affiliates of the registrant was approximately $595,180,700.
As of February 22, 1999, there were 159,305,779 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 1998 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........................................... 4
Materials..................................................... 5
Research and Development...................................... 6
Patents....................................................... 6
Labor Relations............................................... 6
Seasonality................................................... 6
Environmental Regulations..................................... 6
Occupational Health and Safety Aspects of the Company's
Products...................................................... 6
ITEM 2. PROPERTIES.................................................... 10
Headquarters.................................................. 10
Manufacturing and Development Facilities...................... 10
ITEM 3. LEGAL PROCEEDINGS............................................. 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 11
Executive Officers of the Company............................. 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS...................................................... 12
ITEM 6. SELECTED FINANCIAL DATA....................................... 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................... 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................... 12
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE..................................... 13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............ 13
ITEM 11. EXECUTIVE COMPENSATION........................................ 13
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................... 13
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K..................................................... 13
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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 1998 net sales of approximately $1.78 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 fire
protection systems for use in various
commercial and industrial applications
OEM Thermal and acoustical insulation for
aircraft; marine vessels; automobiles;
heating, ventilating and air
conditioning ("HVAC");
and other equipment
Roofing Systems Commercial and industrial roofing
systems, including membranes,
insulations, 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;
polyester spunbond mats for roofing and
flooring
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;
monofilament for speciality applications
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(1) For additional business segment information and geographical data, see
Note 27 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 1998 net sales of $734.1 million,
or 41 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, fabricators 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, product
differentiation, 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
seven 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.
In November 1998, the Company formed a joint venture partnership with
Firestop Systems, Inc. to develop, manufacture and market a new line of fire
protection products. The joint venture is doing business under the name
Passive Fire Protection Partners. Passive Fire Protection Partners
manufactures caulks and spray-applied firestopping and fireproofing products.
The partnership manufactures a new line of intumescent firestop products
exclusively for Johns Manville under the Firetemp(TM) brand and the Company
markets these products throughout North America. Passive Fire Protection
Partners is based in Vancouver, British Columbia.
Markets and Distribution. Demand for Johns Manville's commercial and
industrial insulation products and fire protection products is driven
primarily by commercial construction activity and by demand in the
remodel/retrofit market, and in the case of fire protection products, by
increasing awareness and enforcement of building codes which require
installation of firestop and other fire protection systems. Commercial and
industrial products reach the market through Johns Manville's network of
distributors, contractors and fabricators.
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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, service and strength of fabricator
and distributor networks. Johns Manville's fire protection products primarily
compete with 3M, Hilti USA, Specified Technologies, Inc. and Nelson Firestop
Products. Johns Manville competes in the fire protection products market on
the basis of technological superiority and price.
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.
Johns Manville manufactures OEM insulation products at nine 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
price, quality and product customization.
Roofing Systems
In 1998, Johns Manville's Roofing Systems segment had net sales of $561.8
million, or 32 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/industrial roofing systems business operates 17
manufacturing facilities in the United States and has three additional plants
located in Altamira, Mexico; Cornwall, Ontario, Canada; and Verona, Italy.
In January 1998, the Company completed its acquisition of substantially all
of the assets of Seal-Dry/USA, Inc., adding additional capacity for
thermoplastic roofing membranes.
In May 1998, the Company acquired a plant in Cornwall, Ontario from
Exeltherm Inc., a Canadian producer of polyisocyanurate foam products for
commercial/industrial roofing applications. Exeltherm's insulation products
also include residential sheathing and insulation panels, cavity wall and
below grade application materials. Products produced at the Cornwall plant are
marketed under the E'NRG'Y 2(TM) and ISO 1(TM) Johns Manville brand names.
The Roofing Systems Group also constructed a new plant in Macon, Georgia.
The new Macon plant will produce built-up roofing membranes and also serves as
a distribution center for many of the Company's roofing products.
In December 1998, the Company purchased the perlite insulation manufacturing
assets of BMCA Insulation Products, Inc. ("BMCA"), including its plant located
in Florence, Kentucky. As part of the acquisition, the Company entered into a
long term agreement to supply BMCA with perlite insulation products.
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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 1998 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 1998 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, Carlisle Companies Incorporated, GAF
Corporation, Tamko Asphalt Products Inc., 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 value.
Engineered Products
Johns Manville's Engineered Products segment had 1998 net sales of $514.1
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.
The mats and fibers business operates four manufacturing plants and one
support facility in the United States. Johns Manville's German subsidiaries
operate five plants in Germany, one plant in Northern Ireland 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.
In May 1998, the Company acquired the outstanding shares in Skandinaviska
Jute, which owns Tasso AB. Tasso AB manufactures fiber glass wall coverings
and has a plant located in Oskarstrom, Sweden. The Oskarstrom plant is
supplied with fibers from Schuller GmbH.
In January 1999, the Company acquired the Spunbond/Monofilament operations
of Hoechst's polyester business. The Company acquired four manufacturing
plants located in Spartanburg, South Carolina; Bobingen, Germany; Berlin,
Germany; and Limavady, Northern Ireland. Under the terms of the acquisition,
the Company will also acquire a plant located in Quin Pu City, China, after
certain regulatory approvals have been granted. The Company has entered into a
long term agreement with Arteva Specialties, S.a.r.l. d/b/a KoSa ("KoSa") to
purchase polymers used in this business.
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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.
The Company manufactures filtration products at seven of Johns Manville's
U.S. facilities and one German facility.
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.
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 customers.
Commercial/industrial roofing systems use perlite insulation board, modified
bitumen and single ply membranes with polyester substrates. In
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addition, the Company uses several advanced polymers in roll goods. 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, 1998,
1997 and 1996 were approximately $32.8 million, $31.2 million and $32.7
million, respectively.
Patents
The Company presently owns or controls approximately 1,000 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 February 15, 1999, the Company employed approximately 9,500 persons
worldwide, of whom approximately 4,500 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 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--Environmental Contingencies" and Note 8 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
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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.
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
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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 the second quarter of 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.
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.
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The results of an industry supported epidemiological study of RCF workers
was published in 1996. This case-control morbidity study evaluated chest x-
rays of workers at two RCF manufacturing plants owned by Carborundum
Corporation. Although no significant increase in lung fibrosis was seen, an
exposure-related increase in pleural plaques was observed.
In 1997 the American Conference of Governmental Industrial Hygienists
("ACGIH") classified all forms of glass fibers as an "A3--Animal Carcinogen."
ACGIH defines an A3--Animal Carcinogen as follows: "The agent is carcinogenic
in experimental animals at a relatively high dose, by route(s) of
administration, at site(s), of histologic type(s), or by mechanism(s) that are
not considered relevant to worker exposure. Available epidemiologic studies do
not confirm an increased risk of cancer in exposed humans. Available evidence
suggests that the agent is not likely to cause cancer in humans except under
uncommon or unlikely routes or levels of exposure." By contrast, the ACGIH did
not apply its definition of an "A1--Confirmed Human Carcinogen" to glass
fibers. The ACGIH definition of an "A1--Confirmed Human Carcinogen" is: "The
agent is carcinogenic to humans based on the weight of evidence from
epidemiologic studies of, or convincing clinical evidence in, exposed humans."
While there is some disagreement within the scientific and medical community
regarding the interpretation of the studies, based upon its analysis to date,
the Company does not believe that the IARC classification, the listing in the
ARC, or any action taken by federal and state regulatory agencies will have a
material adverse effect on the Company. The foregoing statement constitutes a
"forward-looking statement" under federal securities laws. The Company's
analysis of available data and its expectations concerning human health
hazards associated with its products are subject to risks and uncertainties.
Because domestic and international regulatory and scientific authorities are
involved on an ongoing basis in the assessment of potential human health
hazards, 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.
9
<PAGE>
ITEM 2. PROPERTIES
Headquarters
The Company's headquarters are located in Denver, Colorado. The Company
leases approximately 161,000 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
Cornwall, Ontario, Canada................. Roofing Systems and 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....................... Engineered Products
Mesa County, Colorado..................... Insulation
Jacksonville, Florida..................... Roofing Systems and Insulation
Macon, Georgia............................ Roofing Systems
Winder, Georgia........................... Insulation
Rockdale, Illinois........................ Roofing Systems
Bremen, Indiana........................... Roofing Systems and Insulation
Richmond, Indiana......................... Insulation
Kansas City, Kansas....................... Roofing Systems
McPherson, Kansas......................... Insulation
Florence, Kentucky........................ Roofing Systems
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
Plattsburgh, New York..................... Roofing Systems
Defiance, Ohio............................ Insulation and Engineered Products
Waterville, Ohio.......................... Engineered Products
Oklahoma City, Oklahoma................... Roofing Systems
Hazleton, Pennsylvania.................... Roofing Systems and Insulation
Spartanburg, South Carolina............... Engineered Products
Etowah, Tennessee......................... Engineered Products
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>
10
<PAGE>
<TABLE>
<CAPTION>
Location Business Segment
-------- ----------------
<S> <C>
INTERNATIONAL
Changzhou, Jiangsu, China................................ Engineered Products
St. Helens, England...................................... Engineered Products
Limavady, Ireland........................................ Engineered Products
Karlstein, Bavaria, Germany.............................. Engineered Products
Berlin, Germany.......................................... Engineered Products
Bobingen, 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
Oskarstrom, 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 1998, 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. Mr. Perry has been an officer or executive officer of the Company
or its subsidiaries during the past five years. Messrs. Henry, Caltrider,
Murphy and Klocko 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 1995, Mr. Caltrider
served as President and Chief Executive Officer of Gundle Environmental
Systems, Inc. Between 1994 and the time he joined the Company, Mr. Murphy
served as Chief Financial Officer of Gould Pumps, Inc. Between 1994 and the
time he joined the Company, Mr. Klocko served as Associate General Counsel of
E.I. du Pont de Nemours and Company.
<TABLE>
<CAPTION>
Name and Title Age Executive Officer Since
-------------- --- -----------------------
<S> <C> <C>
Charles L. Henry............................... 57 1996
Chairman of the Board, President and Chief
Executive Officer
John J. Klocko, III............................ 59 August, 1998
Senior Vice President and General Counsel
John P. Murphy................................. 52 1997
Senior Vice President and Chief Financial
Officer
Harvey L. Perry, Jr............................ 44 1996
Senior Vice President, Engineered Products
Group
Thomas L. Caltrider............................ 48 1997
Senior Vice President, Insulation Group
</TABLE>
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company had 9,355 common stockholders of record at February 22, 1999.
The Common Stock is listed and traded on the New York Stock Exchange, Inc.
(symbol JM). The Company has scheduled its 1999 Annual Meeting of Stockholders
for April 23, 1999 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 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. On March 6, 1998,
the Company's Board of Directors declared a dividend of $.04 per share on the
Common Stock for the first quarter of 1998 which was paid on April 10, 1998.
On April 24, 1998, the Company's Board of Directors declared a dividend of
$.04 per share on the Common Stock for the second quarter of 1998 which was
paid on July 10, 1998. In July 1998, the Board of Directors increased the
quarterly dividend to $.06 per share on the Common Stock, and accordingly
declared dividends of $.06 per share on July 17, 1998 and December 11, 1998
for the third and fourth quarters of 1998, which were paid on October 9, 1998
and January 8, 1999, respectively.
Market Prices Per Share
<TABLE>
<CAPTION>
1998 1997
Common Stock Common Stock
------------------- ------------------
For the Quarters Ended High Low High Low
---------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
March 31...................... 13 5/8 9 13/16 12 5/8 10 1/2
June 30....................... 16 7/8 12 3/4 12 3/8 9 3/8
September 30.................. 17 13/16 11 3/8 13 7/16 10 15/16
December 31................... 16 7/16 10 15/16 12 9/16 9 1/4
</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 1998 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 1998 Annual Report to security holders included in
Exhibit 13 to this report.
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
1998 Annual Report to security holders included in Exhibit 13 to this report.
12
<PAGE>
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 1999 Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item is incorporated by reference to the
Company's 1999 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 1999 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item is incorporated by reference to the
Company's 1999 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 1998 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 1998.
c. Exhibit Index to Johns Manville Corporation Annual Report on Form 10-K
for Fiscal Year Ended December 31, 1998:
<TABLE>
<CAPTION>
Exhibit Reference
------- ---------
<S> <C> <C>
2. Second Amended and Restated Plan of Refiled as an exhibit to the Company's 1992
Reorganization confirmed by the United States Annual Report on Form 10-K filed March 30,
Bankruptcy Court for the Southern District of 1993, and incorporated herein by reference.
New York on 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.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Exhibit Reference
------- ---------
<S> <C> <C>
(b) Certificate of Amendment to Restated Filed as an exhibit to the Company's 1995
Certificate of Incorporation. 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 Form 10-Q
Certificate of Incorporation. 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 1994
Retirement Plan.* 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) 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.
(d) 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.
(e) Amendment to Long-Term Incentive Refiled as an exhibit to the Company's 1992
Stock Plan.* Annual Report on Form 10-K filed March 30,
1993, and incorporated herein by reference.
(f) Amendment No. 2 to Long-Term Incentive Filed as an exhibit to the Company's Form 10-Q
Stock Plan.* for the quarter ended June 30, 1995,
and incorporated herein by reference.
(g) Johns Manville Corporation Deferred Filed as an exhibit to the Company's Form S-8
Compensation Plan.* filed June 19, 1996, and incorporated herein by
reference.
(h) Johns Manville Corporation Non-Employee Filed as an exhibit to the Company's 1996
Directors' Deferred Compensation Plan.* Annual Report on Form 10-K filed March 31,
1997, and incorporated herein by reference.
(i) Johns Manville Corporation 1996 Stock Filed as an exhibit to the Company's Form S-8
Award Plan.* filed June 19, 1996, and incorporated herein by
reference.
(j) Johns Manville Corporation 1996 Executive Filed as an exhibit to the Company's Form S-8
Incentive Compensation Plan.* filed June 20, 1996, and incorporated herein by
reference.
(k) Employment Agreement between Filed as an exhibit to the Company's Form 10-Q
Charles L. Henry and the Company.* for the quarter ended September 30, 1996,
and incorporated herein by reference.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Exhibit Reference
------- ---------
<S> <C> <C>
(l) Amendment to Employment Agreement Filed as an exhibit to the Company's Form 10-Q
between Charles L. Henry and the Company.* for the quarter ended June 30, 1998,
and incorporated herein by reference.
(m) Employment Agreement between Filed as an exhibit to the Company's Form 10-Q
John J. Klocko, III and the Company.* for the quarter ended September 30, 1998,
and incorporated herein by reference.
(n) Employment Agreement between Filed as an exhibit to the Company's Annual
Harvey L. Perry and the Company.* Report on Form 10-K filed March 31, 1997,
and incorporated herein by reference.
(o) Amendment to Employment Agreement Filed as an exhibit to the Company's Annual
between Harvey L. Perry and the Company.* Report on Form 10-K filed March 31, 1997,
and incorporated herein by reference.
(p) Amendment to Employment Agreement Filed as an exhibit to the Company's Annual
between Harvey L. Perry and the Company.* Report on Form 10-K filed March 31, 1997,
and incorporated herein by reference.
(q) Amendment to Employment Agreement Filed as an exhibit to the Company's 1996
between Harvey L. Perry and the Company.* Annual Report on Form 10-K filed March 31,
1997, and incorporated herein by reference.
(r) Amendment and Extension of Employment Filed as an exhibit to the Company's Form 10-Q
Agreement between Harvey L. Perry, Jr. for the quarter ended June 30, 1998, and
and the Company.* incorporated herein by reference.
(s) Employment Agreement between Filed as an exhibit to the Company's Form 10-Q
Thomas L. Caltrider and the Company.* for the quarter ended June 30, 1997, and
incorporated herein by reference.
(t) Amendment and Extension of Employment Filed as an exhibit to the Company's Form 10-Q
Agreement between Thomas L. Caltrider for the quarter ended June 30, 1998, and
and the Company.* incorporated herein by reference.
(u) Employment Agreement between Filed as an exhibit to the Company's Form 10-Q
John P. Murphy and the Company.* for the quarter ended June 30, 1998, and
incorporated herein by reference.
(v) Intercompany Agreement between the Filed as an exhibit to the Company's Form 10-Q
Company and Johns Manville International for the quarter ended September 30, 1994, and
Group, Inc., dated as of incorporated herein by reference.
September 22, 1994.
(w) Selling Securityholders' Agreement, Filed as an exhibit to the Company's 1994
between the Company and the Annual Report on Form 10-K filed March 31,
Trust, dated as of September 22, 1994. 1995, and incorporated herein by reference.
(x) Second Amended and Restated Filed as an exhibit to the Company's 1995
Supplemental Agreement between the Annual Report on Form 10-K filed April 11,
Company and the Trust, dated 1996, and incorporated herein by reference.
as of April 5, 1996.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Exhibit Reference
------- ---------
<S> <C> <C>
(y) Amended and Restated Manville Personal Filed as an exhibit to the Company's Form 10-Q
Injury Settlement Trust Agreement for the quarter ended June 30, 1997, and
dated as of April 29, 1997. incorporated herein by reference.
(z) $725,000,000 Revolving Multicurrency Filed as an exhibit to the Company's Form 10-Q
Credit Agreement, dated as of May 15, for the quarter ended June 30, 1998, and
1998, among Johns Manville Corporation incorporated herein by reference.
and Johns Manville International, Inc., as
Borrowers, Bank of America National Trust
and Savings Association, as Agent,
BancAmerica Robertson Stephens and
The Bank of New York, as Syndication
Agents, and the other financial institutions
party thereto.
(aa) CDN 40,000,000 Revolving Credit Agreement, Filed as an exhibit to the Company's Form 10-Q
dated as of June 17, 1998, among for the quarter ended June 30, 1998, and
Johns Manville Canada Inc., as Borrower, incorporated herein by reference.
and Johns Manville Corporation and
Johns Manville International, Inc., as
Guarantors, Bank of Montreal, as Agent and
Arranger, and the other financial institutions
party thereto.
13. 1998 Annual Report. Pages 15 through 63 of the Company's 1998
Annual Report to security holders are filed
herewith and are incorporated herein by
reference.
21. Subsidiaries of the Registrant. Filed herewith on Page 20.
23. Consent of PricewaterhouseCoopers LLP. Filed herewith.
24. Powers of Attorney. Page 21 (included on signature page to this
report).
27. Financial Data Schedule. Filed herewith.
</TABLE>
- --------
*Management contract or compensatory plan or arrangements.
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of Johns Manville Corporation:
Our audits of the consolidated financial statements referred to in our
report dated January 29, 1999, appearing on page 62 of the 1998 Annual Report
to Shareholders of Johns Manville Corporation (which report and consolidated
financial statements are incorporated by reference in this Annual Report on
Form 10-K) also included an audit of the financial statement schedule listed
in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/ PricewaterhouseCoopers LLP
Denver, Colorado
January 29, 1999
17
<PAGE>
JOHNS MANVILLE CORPORATION
INDEX TO FINANCIAL STATEMENT SCHEDULE
to Form 10-K for the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Schedule Page
-------- ----
<C> <S> <C>
II Valuation and qualifying accounts, for each of the three years
in the period ended
December 31, 1998............................................. 19
</TABLE>
18
<PAGE>
JOHNS MANVILLE CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
for the Years Ended December 31
(In thousands of dollars)
<TABLE>
<CAPTION>
Additions
--------------------------------
Charged
Balance at Charged (Credited) (Credited) 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>
1998
----
Allowances Reducing the
Assets in
the Balance Sheet:
Doubtful accounts
receivable........... $ 6,005 $ 402 $ (557) $ 858 $ 4,992
Cash discounts........ 2,257 -- 29,679 29,194 2,742
Other allowances...... 28,518 -- 80,471 75,048 33,941
Deferred tax assets... 52,000 -- -- 1,457 50,543
-------- ------ -------- -------- --------
Total............... $ 88,780 $ 402 $109,593 $106,557 $ 92,218
======== ====== ======== ======== ========
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
======== ====== ======== ======== ========
</TABLE>
- --------
Notes:
(a) Charged against sales and additions due to acquisitions.
(b) Principally charges for which reserves were provided, net of recoveries.
19
<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
HANDELSSELSKABET INITAN A/S................................... Denmark
JOHNS MANVILLE AB............................................. Sweden
JOHNS MANVILLE CANADA INC..................................... Canada
JOHNS MANVILLE CHINA LTD...................................... Delaware
JOHNS MANVILLE EUROPEAN INVESTMENTS B.V....................... Netherlands
JOHNS MANVILLE EUROPE GmbH.................................... Germany
JOHNS MANVILLE GmbH........................................... Germany
JOHNS MANVILLE INTERNATIONAL B.V.............................. Netherlands
JOHNS MANVILLE INTERNATIONAL GROUP, INC....................... Delaware
JOHNS MANVILLE INTERNATIONAL, INC............................. Delaware
JOHNS MANVILLE LIMITED........................................ Ireland
MESA INSULATION, INC.......................................... Delaware
MITEX AB...................................................... Sweden
MITEX GLASSFIBRE LIMITED...................................... England
NORD BITUMI SpA............................................... Italy
SCHULLER GmbH................................................. Germany
SKANDINAVISKA JUTE AB......................................... Sweden
TASSO AB...................................................... Sweden
UK GLASSFIBRE LIMITED......................................... England
</TABLE>
20
<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 16th day
of March, 1999.
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
Dion Persson, 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 16, 1999.
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/ ERNEST H. DREW Director
- -------------------------------------
(Ernest H. Drew)
/s/ ROBERT A. FALISE Director
- -------------------------------------
(Robert A. Falise)
21
<PAGE>
Signature Title
/s/ TODD GOODWIN Director
- -------------------------------------
(Todd Goodwin)
/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/ CHRISTIAN E. MARKEY, JR. Director
- -------------------------------------
(Christian E. Markey, Jr.)
/s/ WILLIAM E. MAYER Director
- -------------------------------------
(William E. Mayer)
22
<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
EquiServe Limited Partnership PricewaterhouseCoopers LLP
First Chicago Division 370 Seventeenth Street, Suite 3300
P.O. Box 2500 Denver, CO 80202-5633
Jersey City, NJ 07303
Call: (201) 324-1644
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)
23
<PAGE>
SELECTED FIVE-YEAR FINANCIAL DATA
________________________________________________________________________________
<TABLE>
<CAPTION>
In thousands of dollars, except per share amounts
- ------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
Income
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales (Note B) $1,781,179 $1,647,645 $1,552,429 $1,391,522 $1,277,818
Income from Operations (Notes A, B and G) 279,737 215,422 187,427 201,283 142,299
Income from Continuing Operations,
net of tax (Notes A, B and G) 185,291 130,529 190,525 122,006 55,606
Income before Extraordinary Items and
Cumulative Effect of Accounting Change (Note B) 185,291 150,000 406,771 115,995 65,416
Net Income (Notes B, D, E and F) 180,946 150,000 90,486 115,995 36,996
- ------------------------------------------------------------------------------------------------------------------
Financial Position (As of December 31)
- ------------------------------------------------------------------------------------------------------------------
Total Assets (Note C) $2,207,185 $1,980,534 $1,946,726 $2,474,059 $2,317,498
Long-Term Debt, less current portion 587,276 456,294 428,160 447,007 441,798
Stockholders' Equity 790,108 693,083 580,462 1,181,307 1,080,781
- ------------------------------------------------------------------------------------------------------------------
Additional Data (Note B)
- ------------------------------------------------------------------------------------------------------------------
Additions to Property, Plant and Equipment $ 130,336 $ 125,296 $ 153,000 $ 111,329 $ 82,833
Research, Development and Engineering 32,823 31,174 32,663 29,988 29,738
- ------------------------------------------------------------------------------------------------------------------
Per Share Data (Note H)
- ------------------------------------------------------------------------------------------------------------------
Earnings Per Common Share
Basic:
Income from Continuing Operations,
net of tax (Notes A, B and G) $ 1.16 $ .81 $ .86 $ .79 $ .25
Income before Extraordinary Items and
Cumulative Effect of Accounting
Change (Note B) 1.16 .93 2.29 .74 .33
Net Income (Notes B, D, E and F ) 1.13 .93 .20 .74 .10
Diluted:
Income from Continuing Operations,
net of tax (Notes A, B and G) 1.15 .80 .85 .78 .25
Income before Extraordinary Items and
Cumulative Effect of Accounting
Change (Note B) 1.15 .92 2.27 .73 .33
Net Income (Notes B, D, E and F ) 1.12 .92 .20 .73 .10
Common Dividends Paid .18 .13 6.03
- ------------------------------------------------------------------------------------------------------------------
Pro Forma Data (Note I)
- ------------------------------------------------------------------------------------------------------------------
Income from Operations $ 243,749 $ 215,422 $ 229,367 $ 201,283 $ 142,299
Net Income 162,236 130,529 115,267 93,443 60,992
Earnings Per Common Share (Diluted):
Net Income $ 1.00 $ .80 $ .71 $ .57 $ .37
- ------------------------------------------------------------------------------------------------------------------
See notes on page 16.
</TABLE>
Johns Manville/15
<PAGE>
SELECTED FIVE-YEAR FINANCIAL DATA
________________________________________________________________________________
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) Total assets at December 31, 1998 include the acquisition deposit of $227.3
million for the January 1, 1999 Spunbond/Monofilament purchase from Hoechst.
The net assets and liabilities of the discontinued operations of Riverwood have
been classified as net assets held for sale at December 31, 1995 and 1994,
totaling $375.6 million and $409.6 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 termination of 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 losses on early extinguishments of debt,
net of taxes, of $31.8 million, $2 million and $28.4 million in 1998, 1996 and
1994, respectively.
(F) Effective January 1, 1998, the Company changed its method of accounting for
glass furnace rebuild costs. The cumulative effect of this change in accounting
principle increased 1998 earnings by $27.4 million, net of taxes of $17.9
million.
(G) The Company sold its five percent net smelter royalty on certain metals
produced by the Stillwater Mining Company for cash resulting in other income of
$36 million in April 1998.
(H) 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.
(I) 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, mining royalty sale proceeds, interest
expense on the 9 percent Sinking Fund Debentures, profit sharing expense, an
unusual 1996 income tax item, discontinued operations, extraordinary 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
161.9 million diluted weighted average shares for 1998 and 163.1 million pro
forma diluted weighted average shares for the other periods presented.
Johns Manville/16
<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 54 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 built-up, modified bitumen and single-
ply membranes; perlite, fiber glass and polyisocyanurate insulations; roof
guarantees; and accessories.
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 European fabrics businesses. 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.
Consistent with the Company's internal reporting, business segments discussed
below include allocated corporate expenses. The 1998 mining royalty sale
proceeds, certain nonrecurring charges and a pension settlement gain related to
1996, are reported in corporate and eliminations.
Johns Manville/17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
________________________________________________________________________________
1998 vs 1997
Results of Operations
The Company's net sales for 1998 increased $133.6 million, or 8.1 percent, to
$1,781.2 million compared with $1,647.6 million for 1997. Gross profit increased
$45.7 million to $477.2 million from $431.5 million. The gross profit margin for
1998 increased to 26.8 percent from 26.2 percent due to volume and productivity
gains across all segments, partially offset by increased fixed costs and pricing
declines in the mats and fibers and filtration businesses. Selling, general,
administrative and research, development and engineering expenses, combined,
increased $17.6 million, or 8.6 percent, to $223.4 million and were flat as a
percentage of sales at 12.5 percent compared with 1997. Other income was $25.9
million for 1998 compared with other expense of $10.3 million for 1997. Other
income for 1998 included proceeds of $36 million from a mining royalty sale.
Exclusive of the mining royalty sale proceeds, income from operations for 1998
was $243.7 million, up 13.1 percent, compared with $215.4 million for 1997.
Insulation Segment
The Insulation segment's net sales increased $36.3 million, or 5.2 percent, to
$734.1 million for 1998 compared with $697.8 million in 1997. Income from
operations increased $31.4 million, or 36.3 percent, to $118 million compared
with $86.6 million in 1997. The 1998 results for building insulation reflect
volume increases due to strong demand, improved operating efficiencies and an
improved pricing environment which began in the latter half of the year. While
commercial/industrial insulation businesses reflected moderately higher sales
volumes and selling prices for pipe and equipment insulation, gross margins and
operating income were negatively impacted by downtime for equipment upgrades
during 1998. Also in 1998, the use of alternate materials resulted in
significantly lower sales and margins in automotive products.
Roofing Systems Segment
Net sales for the Roofing Systems segment increased $51.3 million, or 10.1
percent, to $561.8 million for 1998 compared with $510.5 million in 1997 due
primarily to incremental volume increases from the recent thermoplastic membrane
acquisitions. Excluding the impact of acquisitions, net sales increased slightly
for 1998 compared with 1997. Income from operations, however, decreased to $48
million from $50.5 million for 1998 compared with 1997. Volume gains in 1998
were partially offset by pricing pressures in polyisocyanurate foam products, a
less favorable product mix and acquisition-related costs. In addition, adverse
weather conditions early in the year limited roofing activity and shipments, and
negatively affected 1998 operating margins.
Engineered Products Segment
The Engineered Products segment's net sales increased $38.1 million, or 8
percent, to $514.1 million for 1998 compared with $476 million in 1997. Income
from operations decreased slightly to $77.7 million from $78.3 million for the
same periods. The sales increases are primarily due to the May 1997 acquisition
of Mitex and the May 1998 acquisition of Tasso AB, both European manufacturers
of fiber glass wall covering fabrics. However, 1998 sales and operating income
were adversely affected by slower economic activity in Asia and Russia. Volume
increases in the U.S. mats and fibers business were partially offset by the
aforementioned weather-related declines in roofing mat shipments and lower
selling prices during 1998. Results in filtration decreased for 1998 due to
lower selling prices and a worldwide slowdown in clean room builds.
Other Income (Expense), net
The Company sold its five percent net smelter royalty on certain metals produced
by the Stillwater Mining Company for cash resulting in other income of $36
million in April 1998.
Johns Manville/18
<PAGE>
________________________________________________________________________________
Interest
Compared with 1997, the Company's interest income decreased $3.8 million due to
lower average cash and marketable securities balances.
The Company's interest expense decreased $14.3 million for 1998 compared with
1997 primarily due to the repurchase of substantially all of the Company's $400
million of 10.875 percent Senior Notes due 2004 (the "Senior Notes") in May 1998
using revolving credit facilities with significantly lower interest rates. Also
during 1998, the Company used available cash to repay borrowings under the
revolving credit facilities.
Income Taxes
The Company's effective tax rate was approximately 26 percent in 1998 and 1997.
The Company receives a tax deduction and a related reduction in its effective
tax rate when the Manville Personal Injury Settlement Trust (the "Trust") pays
claimants or makes distributions to a specific settlement fund from dividends
paid on, or proceeds received from disposition of, Company stock held by the
Trust. The Company benefited from such distribution of dividend and stock sale
proceeds to the settlement fund and from the utilization of tax credits.
Discontinued Operations
During 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.
Extraordinary Loss on Early Extinguishment of Debt
In May 1998, the Company repurchased, through a cash tender offer, substantially
all of its $400 million of 10.875 percent Senior Notes. This transaction
resulted in an extraordinary loss on the early extinguishment of debt of $31.8
million, net of taxes of $18.1 million.
Cumulative Effect of Accounting Change
Effective January 1, 1998, the Company changed its method of accounting for
glass furnace rebuild costs to the capitalization method from the allowance
method. The cumulative effect of this change in accounting principle increased
1998 earnings by $27.4 million, net of taxes of $17.9 million. This change
resulted in an increase in depreciation expense but eliminated the provision for
furnace rebuilds. The pro forma effect of this change on net income was not
material.
Earnings Per Common Share
Basic and diluted net earnings per common share for 1998 were $1.13 and $1.12,
respectively, as compared with basic and diluted net earnings per common share
of $0.93 and $0.92, respectively, for 1997. The extraordinary loss on early
extinguishment of debt decreased basic and diluted earnings per common share by
$0.20 during 1998. The cumulative effect of a change in accounting increased
basic and diluted earnings per common share by $0.17 during 1998. Gain on
disposal of discontinued operations increased basic and diluted earnings per
common share by $0.12 during 1997.
Johns Manville/19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
________________________________________________________________________________
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.
Insulation Segment
The Insulation segment's net sales remained essentially unchanged at $697.8
million for 1997. Income from operations for this segment decreased $6.3
million, or 6.8 percent, to $86.6 million for 1997 from $92.9 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 insulation
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 $28.8 million to $50.5 million in 1997, reflecting strong margins when
compared with $21.7 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 $78.3 million, or 18.1 percent, compared with $95.6 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.
Johns Manville/20
<PAGE>
________________________________________________________________________________
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. At December 31, 1998, $12 million of the remaining
liability of $37.3 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 available cash balances and cash generated from operations. Pending
federal and state regulatory agency approval, the final demolition is expected
to begin in 1999 and is expected to be substantially completed by 2000, with the
majority of liabilities settled during that time frame. Due in part to delays in
obtaining these approvals, the Company spent minimal amounts in preparation for
demolition phases of the project during 1998. 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 also recorded 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 $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.
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' tax credits and the tax benefit the Company receives on its quarterly
dividend. 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.
Johns Manville/21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
________________________________________________________________________________
Discontinued Operations
During 1997, the Company recognized an additional $19.5 million net gain related
to the 1996 disposal of the discontinued operations of Riverwood International
Corporation.
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.
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 financial and general
covenants. These include, among other things, limitations on borrowings,
investments and asset dispositions and maintenance of various financial ratios.
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, 1998, the Company was in compliance with these covenants.
Johns Manville/22
<PAGE>
________________________________________________________________________________
The Company's cash and marketable securities balances decreased $152.6 million
during 1998 to $16.5 million at December 31, 1998, from $169.1 million at
December 31, 1997. At December 31, 1998, cash and marketable securities located
outside the U.S. and Canada were $12.8 million. In conjunction with the tender
offer discussed in "1998 vs 1997 Results of Operations - Extraordinary Loss on
Early Extinguishment of Debt," the Company arranged unsecured multicurrency
revolving credit facilities (the "credit facilities") totaling approximately
$750 million at a floating interest rate of LIBOR plus an additional margin,
with an initial termination date of May 15, 2003. The Company used $450 million
of the credit facilities to repurchase the Senior Notes. At December 31, 1998,
$550 million of borrowings under the credit facilities were outstanding. The
remaining credit facilities are available for funding acquisitions and capital
expenditures, and other corporate purposes. The Company also canceled its $100
million receivables sale facility and its $75 million revolving line of credit
available to international subsidiaries. The Company's international
subsidiaries had additional borrowing and working capital facilities totaling
$13.3 million, of which $9.7 million was available at December 31, 1998. These
facilities are principally secured by the Company's equity ownership in certain
international subsidiaries and joint ventures.
The Company's net operating activities provided $226.3 million of cash during
1998, compared with $168.7 million for 1997. The Company's cash flows from
operating activities are primarily influenced by sales volume and selling
prices. As discussed in "Results of Operations," the effects of increased sales
volumes were partially offset by lower selling prices experienced during the
first half of 1998. During 1998, operating activities also included the mining
royalty sale gain, offset by the loss from the early extinguishment of the
Senior Notes. The Company expects operating results to continue to benefit from
the integration of acquisitions. Recent price improvements are expected to
continue to benefit the building insulation business. Meanwhile, slow economic
activity in Asia and Russia may continue to impact results in the Engineered
Products segment. In addition, 1999 results of operations will be affected by
1998 interest rate declines and equity market volatility, which will negatively
impact the Company's pension expense (income). However, this is not expected to
impact the Company's pension plan cash funding requirements.
The Company's investing activities used $391.1 million in 1998 and $213.4
million during 1997. Investing activities for 1998 used $92.2 million for
acquisitions, net of cash acquired, and $106.4 million for capital expenditures.
In addition, 1998 investing activities include the Company's $227.3 million
deposit for the Spunbond/Monofilament acquisition completed in 1999. The 1998
capital expenditures included approximately $46 million related to capacity
expansion projects. Cash used in investing activities for 1997 included
acquisitions of $136.5 million, net of cash acquired, and capital expenditures
totaling $90.5 million, of which approximately $50 million related to capacity
expansion projects. Investing activities for 1997 also included proceeds from
the disposition of the Company's automotive molded parts business.
The Company's financing activities for 1998 consisted of issuances of debt
totaling $599.6 million, net, and repayments of debt totaling $469.9 million,
relating primarily to the December 1998 deposit for the Spunbond/Monofilament
acquisition and the May 1998 Senior Note repurchase. In addition, the Company
purchased 3.6 million shares of its common stock from the Trust at $13 per share
and, accordingly, recognized treasury stock, at cost, of $46.8 million in 1998.
The Company paid quarterly dividends totaling $28.8 million and $21 million
during 1998 and 1997, respectively. During the third quarter of 1998, the
Company increased the quarterly dividend rate from $0.04 to $0.06 per share,
paid in the fourth quarter. During 1997, the Company repaid debt totaling $30
million assumed in connection with 1996 acquisitions. The Company also borrowed
$55 million from international credit facilities to partially finance 1997
acquisitions, of which $10 million was repaid in 1997. The remainder was repaid
in 1998.
Johns Manville/23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
________________________________________________________________________________
The Company believes that its current cash position, funds available under
credit facilities and cash generated from operations will enable it to satisfy
its debt service requirements, its ongoing capital expansion program and its
other ongoing operating costs. However, the Company may need to access capital
markets to pay the principal of its credit facilities, or in connection with
possible significant future acquisitions.
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.
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, tax credit carryforwards and, in 1996, net operating loss carryforwards.
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.
As of December 31, 1998, the Company will need a cumulative total of
approximately $570 million of U.S. federal taxable income to realize its net
U.S. deferred tax asset of $198.4 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.
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, 1998 closing
market price of $16.4375 per share, and assuming full realization, the deferred
tax asset related to the Company's stock held by the Trust would total
approximately $720 million, which exceeds the carrying value by nearly $570
million.
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. The Company cannot predict the amount of any such
future tax obligations. However, related liabilities could become 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 or the
settlement of this obligation between the Company and the Trust. During 1998,
the Company incurred approximately $3 million of these taxes, before any U.S.
federal or state benefit.
Johns Manville/24
<PAGE>
________________________________________________________________________________
Capital Spending and Capacity Expansion
The Company estimates capital spending in 1999 of approximately $160 million
excluding acquisitions, of which approximately $59 million will be used in
capacity expansion programs. As of December 31, 1998, outstanding purchase
commitments relating to capital spending and capacity expansion projects totaled
$18.1 million. The Company plans to fund its capital spending from available
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
may be obligated to further monitor and reduce air emissions at its
manufacturing sites. The Title III air toxics regulations applicable to the
Company's fiber glass plants were issued in proposed form in 1997. Subsequent
proposed amendments to those regulations in the first quarter of 1999 did not
change the substantive requirements related to air toxics. The Company does not
anticipate significant compliance costs as a result of these regulations.
Because the other anticipated regulations have not yet been proposed, neither
the costs nor timing of compliance can be reasonably anticipated at this time,
however, these anticipated regulations could require capital expenditures in the
years 1999-2001, with most of the expenditures occurring in the latter part of
that time frame.
Acquisitions
In January 1998, the Company acquired the assets of a U.S. manufacturer of
reinforced thermoplastic roofing systems and also acquired a plant associated
with the Insulation segment, which manufactures calcium silicate pipe and block
insulation, and fireproof board. In May 1998, the Company acquired Exeltherm, a
Canadian producer of polyisocyanurate foam products for commercial/industrial
roofing and residential construction. Also in May 1998, the Company acquired
Skandinaviska Jute, which owns Tasso AB, a European manufacturer of fiber glass
wall coverings. This acquisition is associated with businesses of the Engineered
Products segment. In December 1998, the Company acquired the assets of a U.S.
manufacturer of commercial/industrial roofing insulation products. Also in
December 1998, the Company entered into a joint venture to develop, manufacture
and market products used to stop the spread of fires in new and existing
buildings. This joint venture is associated with businesses of the Insulation
segment.
The combined purchase price for these acquisitions, accounted for under the
purchase method, was $92.2 million which was financed from existing cash
balances and borrowings under credit facilities. The excess of the combined
purchase price over the estimated fair value of net assets acquired, or
goodwill, amounted to approximately $59 million. Certain amounts of the purchase
price allocation related to preacquisition contingencies and restructuring
decisions were based on preliminary estimates and may be revised during 1999.
Johns Manville/25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
_______________________________________________________________________________
Subsequent Event
On January 1, 1999, the Company completed the acquisition of Hoechst's
Spunbond/Monofilament operations. This acquisition will expand existing product
lines of the Company's Engineered Products segment in North America and Europe.
The cash payment for this acquisition, to be accounted for under the purchase
method, will be $227.3 million (subject to certain post-closing adjustments),
financed with borrowings from the Company's credit facilities. The acquisition
borrowings, drawn during December 1998, are shown as the acquisition deposit on
the Company's balance sheet. The allocation of the purchase price will be
finalized during 1999 upon completion of asset valuations and determination of
preacquisition contingencies and restructuring decisions.
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, now consolidated, 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 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.
Johns Manville/26
<PAGE>
_______________________________________________________________________________
Environmental Contingencies
At December 31, 1998, the Company had remediation activities in progress at four
sites, out of a total of 16 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 14 non-Company owned or
operated sites under the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") or similar state legislation. Of these
14 sites, the Company's potential liability for ten sites will be determined
pursuant to the settlement agreement described in the following paragraph. Three
of the sites may not be subject to the settlement agreement and, accordingly,
the Company could be jointly and severally liable for costs of remediating these
sites. At one of the sites, only part of the liability will be determined by the
settlement agreement with the rest of the liability being the subject of a U.S.
Environmental Protection Agency ("EPA") de minimis settlement offer.
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 a court order,
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 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, 1998 and 1997, the Company's balance sheet included undiscounted
accruals for environmental remediation costs, including ongoing compliance,
maintenance and monitoring costs, of $34.8 million and $36.5 million,
respectively. The Company paid $1.7 million and $1.3 million for environmental
cleanup in 1998 and 1997, respectively. Except for certain one-time costs
(related to the nonrecurring charges as discussed in "Results of Operations -
Nonrecurring Charges") expected to be incurred in 1999 and 2000 totaling $12.9
million, the Company believes amounts paid in 1998 and 1997 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.
Johns Manville/27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
_______________________________________________________________________________
Year 2000 Compliance
The Company is engaged in a comprehensive project to modify its systems for year
2000 compliance. The Company's approach to year 2000 compliance activities may
be broken down into five general areas: inventory, analysis/planning,
repair/modification/testing, certification, and contingency plans.
As of December 31, 1998, the Company has completed substantially all of the
inventory and a majority of the analysis/planning phases of the project which
involved obtaining systems inventories including embedded technology, performing
on-site audits at operating locations, contacting vendors to obtain compliant
releases of hardware and software, and establishing project plans and associated
implementation schedules. Testing and repair/modification work and surveys of
major suppliers to determine their level of compliance began during the second
quarter of 1998 and will continue through the first quarter of 1999.
Certifications began during the fourth quarter of 1998, with completion expected
in early 1999. Business continuity and contingency plans, including, among other
things, manual equipment operations and scheduling, are currently being
developed to address high risk areas as they are identified with contingency
plans in place by the end of 1999. To date, the phases of the project currently
underway have progressed substantially as planned. Failure by the Company or its
vendors and customers to achieve year 2000 compliance could result in disruption
of the Company's operations, possibly impacting the Company's ability to obtain
raw materials, produce products, or collect revenues. However, the Company
believes that its compliance efforts will be successful and that significant
disruptions of the Company's operations are unlikely to develop.
The Company spent approximately $1.4 million in 1998 on year 2000 projects and
activities. The estimated total costs for year 2000 related projects and
activities, anticipated to be completed in 1999, are not expected to exceed $5
million. However, if costs are incurred in excess of the above estimates, such
costs are not expected to have a material adverse effect on the Company's
financial condition, liquidity, or results of operations. All future
expenditures will be funded through operations and will directly impact the
reported level of income. The above discussion regarding costs, risks and
estimated completion dates for year 2000 compliance activities is based on
estimates given information that is currently available, and is subject to
change.
Introduction of the Euro
On January 1, 1999, eleven countries of the European Union established a new
single European currency (the "Euro"). The Euro will become a currency in its
own right and will completely replace the currencies of the participating
countries by 2002. This conversion may affect, among other things, cross-border
competition among member countries, product pricing, exchange rate risk and
derivatives exposure, and information technology and systems. The Company's
European businesses, primarily in the Engineered Products segment, accounted for
approximately 12 percent of total sales during 1998. The Company is addressing
issues related to the conversion and, at this time, is not expecting material
adverse effects on its financial condition, liquidity or results of operations.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement, effective for all fiscal quarters of
fiscal years beginning after June 15, 1999, establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that the Company recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at fair value.
At this time, the Company cannot determine the effects, if any, adopting this
statement will have on its financial condition, liquidity or results of
operations. However, the Company does not expect a significant impact on its
results of operations.
Johns Manville/28
<PAGE>
______________________________________________________________________________
Market Risk
The Company is exposed to, among other things, the impact of interest rate
changes, foreign currency fluctuations, and changes in commodity prices related
to energy. The Company employs established policies and procedures to manage its
exposure and minimize volatility in earnings and cash flows, lower costs and
protect the value of certain foreign currency denominated assets, liabilities
and anticipated transactions. To achieve these objectives the Company enters
into interest rate swaps to manage net exposure to interest rate changes related
to its debt obligations, foreign currency contracts that change in value as
foreign exchange rates fluctuate and contracts to purchase certain quantities of
goods at fixed prices. It is the Company's policy to enter into these derivative
transactions only to the extent necessary to meet the objectives stated above.
Consequently, the Company does not enter into these transactions for speculative
purposes.
Based on a one percentage point increase in applicable interest rates, the
hypothetical pretax loss in earnings on an annual basis related to the Company's
debt and derivative financial instruments subject to interest rate risk at
December 31, 1998 would be approximately $3 million. As of December 31, 1998 the
Company did not have any significant outstanding foreign currency contracts or
commodity contracts.
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 taxes, phenolic roofing insulation and environmental
liabilities, (iv) the effect on the building insulation business resulting from
the current pricing environment, (v) the Company's estimates of capital
spending, (vi) the expected benefits from the continuing integration of
acquisitions and capacity expansions, (vii) the possible earnings decline from
the economic slow down in Asia and Russia in the Engineered Products segment,
(viii) the Company's expectations concerning interest rates and equity markets
and their effect on 1999 pension expense (income) and cash flows, (ix) the
Company's estimates on the ability of the Company and its vendors and customers
to replace, modify or upgrade computer systems in ways that adequately address
the year 2000 issue, (x) the Company's expectations concerning the Euro
conversion, (xi) the projected impact of the ultimate adoption of Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," and (xii) the Company's ability to satisfy its debt
service requirements, its ongoing capital expansion program and its other
ongoing operating costs, 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.
Johns Manville/29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
______________________________________________________________________________
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, 1998.
Specific factors that might affect the ability of the Company and its vendors
and customers to replace, modify or upgrade systems in ways that adequately
address the year 2000 issue include the ability to identify and correct all
relevant systems, unanticipated difficulties or delays in the implementation of
the Company's remediation plans and the ability of third parties to adequately
address their own year 2000 issues, as well as those issues discussed in
"Liquidity and Capital Resources - Year 2000 Compliance and Introduction of the
Euro."
Factors relating to the Company's estimates concerning nonrecurring charges are
discussed in "1997 vs 1996 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 taxes, phenolic roofing insulation, environmental matters and the
introduction of the Euro, see "Results of Operations - Income Taxes" and
"Liquidity and Capital Resources-Contingent Product Liability, Environmental
Contingencies, and Introduction of the Euro."
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, 1998.
Johns Manville/30
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
__________________________________________________________________________________________________________________
In thousands of dollars
- ------------------------------------------------------------------------------------------------------------------
December 31, 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and equivalents $ 12,350 $ 132,137
Marketable securities, at cost, which approximates market 4,168 36,929
Receivables 264,407 221,943
Inventories 131,709 127,061
Prepaid expenses 12,560 11,409
Deferred tax assets 36,648 42,006
- ------------------------------------------------------------------------------------------------------------------
Total Current Assets 461,842 571,485
- ------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment, at cost
Land and improvements 55,747 50,189
Buildings 256,153 246,175
Machinery and equipment 1,243,593 1,141,106
- ------------------------------------------------------------------------------------------------------------------
1,555,493 1,437,470
Less accumulated depreciation and depletion 691,335 639,711
- ------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment, net 864,158 797,759
- ------------------------------------------------------------------------------------------------------------------
Deferred Tax Assets 164,024 194,836
Goodwill 248,692 202,844
Acquisition Deposit (Note 25) 227,300
Other Assets 241,169 213,610
- ------------------------------------------------------------------------------------------------------------------
Total Assets $2,207,185 $1,980,534
==================================================================================================================
Liabilities
Current Liabilities
Short-term debt $ 4,641 $ 1,767
Accounts payable 128,688 114,638
Compensation and employee benefits 99,320 84,221
Income taxes 16,539 8,703
Other accrued liabilities 68,781 86,785
- ------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 317,969 296,114
Long-Term Debt, less current portion 587,276 456,294
Deferred Income Taxes 43,927 42,175
Postretirement Benefits Other Than Pensions 186,949 197,419
Other Noncurrent Liabilities 280,956 295,449
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities 1,417,077 1,287,451
- ------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 2, 8, 15 and 18)
- ------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Cumulative Preference Stock, Series B, redeemed 1996
Common Stock, $.01 par value, authorized 300,000,000 shares;
issued and outstanding 163,814,572 shares and 158,997,817 shares,
respectively, in 1998; and issued and outstanding 162,822,540 shares
and 161,580,589 shares, respectively, in 1997 1,638 1,628
Treasury Stock, at cost, 4,816,755 shares in 1998 and 1,241,951 shares in 1997 (63,067) (16,522)
Capital in Excess of Par Value 544,667 540,422
Unearned Stock Compensation (4,836) (7,224)
Retained Earnings 314,605 165,492
Accumulated Other Comprehensive Income (Note 22) (2,899) 9,287
- ------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 790,108 693,083
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $2,207,185 $1,980,534
==================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
Johns Manville/31
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
_______________________________________________________________________________________________________________________________
In thousands of dollars, except per share amounts
- -------------------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $1,781,179 $1,647,645 $1,552,429
Cost of Sales 1,303,958 1,216,135 1,111,811
Selling, General and Administrative 190,562 174,573 171,027
Research, Development and Engineering 32,823 31,174 32,663
Nonrecurring Charges 49,156
Other Income (Expense), net 25,901 (10,341) (345)
- -------------------------------------------------------------------------------------------------------------------------------
Income from Operations 279,737 215,422 187,427
Interest Income 6,433 10,263 18,897
Interest Expense 35,912 50,205 48,242
Profit Sharing Expense (Note 17) 6,648
- -------------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations before Income Taxes 250,258 175,480 151,434
Income Tax Expense (Benefit) 64,967 44,951 (39,091)
- -------------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 185,291 130,529 190,525
Gain on Disposal of Discontinued Operations, net of tax (Note 19) 19,471 216,246
- -------------------------------------------------------------------------------------------------------------------------------
Income before Extraordinary Items and Cumulative Effect of Accounting Change 185,291 150,000 406,771
Extraordinary Losses, net of tax (Notes 17 and 20) (31,754) (316,285)
Cumulative Effect of a Change in Accounting for Furnace Rebuilds,
net of tax (Note 21) 27,409
- -------------------------------------------------------------------------------------------------------------------------------
Net Income 180,946 150,000 90,486
Preference Stock Redemption Premium/Dividends (60,341)
- -------------------------------------------------------------------------------------------------------------------------------
Net Income Applicable to Common Stock 180,946 150,000 30,145
- -------------------------------------------------------------------------------------------------------------------------------
Foreign Currency Translation Adjustments, net of tax (12,186) (17,384) (6,013)
- -------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income $ 168,760 $ 132,616 $ 24,132
===============================================================================================================================
Earnings Per Common Share (Note 11)
- -------------------------------------------------------------------------------------------------------------------------------
Basic:
Income from Continuing Operations $ 1.16 $ .81 $ .86
Gain on Disposal of Discontinued Operations, net of tax (Note 19) .12 1.43
- -------------------------------------------------------------------------------------------------------------------------------
Income before Extraordinary Items and Cumulative Effect of Accounting Change 1.16 .93 2.29
Extraordinary Losses, net of tax (Notes 17 and 20) (.20) (2.09)
Cumulative Effect of a Change in Accounting for Furnace Rebuilds,
net of tax (Note 21) .17
- -------------------------------------------------------------------------------------------------------------------------------
Net Income Applicable to Common Stock $ 1.13 $ .93 $ .20
===============================================================================================================================
Diluted:
Income from Continuing Operations $ 1.15 $ .80 $ .85
Gain on Disposal of Discontinued Operations, net of tax (Note 19) .12 1.42
- -------------------------------------------------------------------------------------------------------------------------------
Income before Extraordinary Items and Cumulative Effect of Accounting Change 1.15 .92 2.27
Extraordinary Losses, net of tax (Notes 17 and 20) (.20) (2.07)
Cumulative Effect of a Change in Accounting for Furnace Rebuilds,
net of tax (Note 21) .17
- -------------------------------------------------------------------------------------------------------------------------------
Net Income Applicable to Common Stock $ 1.12 $ .92 $ .20
===============================================================================================================================
</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, 1998 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 180,946 $ 150,000 $ 90,486
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion
and amortization 93,811 80,163 71,175
Deferred taxes 17,099 11,571 (67,178)
Product guarantee income 2,283 4,961 8,651
Provision for furnace
rebuilds 11,264 8,270
Pension and
postretirement
benefits, net (1,036) 6,607 12,251
Nonrecurring charges 49,870
Interest expense 2,626 2,318 2,047
Profit sharing expense 6,648
Gain on disposal of
discontinued operations (19,471) (216,246)
Extraordinary losses 314,296
Cumulative effect of
accounting change (27,409)
Other, net 10,638 9,721 20,534
(Increase) decrease in
current assets:
Receivables (30,984) 22,985 11,411
Inventories 7,931 (18,423) (2,680)
Prepaid expenses 965 (4,165) (1,732)
Increase (decrease) in
current liabilities:
Accounts payable 7,171 (5,217) (7,681)
Compensation and employee
benefits 12,617 (11,373) (13,022)
Income taxes 11,314 (24,701) (14,186)
Other accrued liabilities (19,431) 23,264 (40,412)
Decrease in postretirement
benefits other than
pensions (23,822) (16,363) (16,347)
Decrease in other
noncurrent liabilities (18,381) (54,420) (16,450)
Profit sharing paid (34,309)
- ------------------------------------------------------------------------------------
Net cash provided by operating activities 226,338 168,721 165,396
- ------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Purchases of property,
plant and equipment (106,372) (90,528) (103,041)
Acquisition deposit (227,300)
Acquisitions (92,205) (136,521) (153,113)
Proceeds from sales of
assets 6,314 9,351 15,386
Proceeds from disposition
of Riverwood 1,081,341
Purchases of
available-for-sale
marketable securities (8,388) (27,664) (31,332)
Purchases of
held-to-maturity
marketable securities (2,033) (14,042) (33,458)
Proceeds from sales of
available-for-sale
marketable securities 30,154 45,712 55,035
Proceeds from maturities
of held-to-maturity
marketable securities 15,018 2,538 84,446
(Increase) decrease in
other assets (6,322) (2,233) 20,177
- ------------------------------------------------------------------------------------
Net cash provided by (used
in) investing activities (391,134) (213,387) 935,441
- ------------------------------------------------------------------------------------
Cash Flows from Financing
Activities
Issuance of debt 599,587 56,637 63
Payments on debt (469,873) (61,170) (42,786)
Preference stock
redemption/dividends (241,056)
Dividends on common stock (28,775) (20,995) (972,988)
Stock warrants exercised 64,794
Treasury stock transactions (46,545) (281) (14,242)
Other stock transactions 5,226 330 2,514
- ------------------------------------------------------------------------------------
Net cash provided by (used
in) financing activities 59,620 (25,479) (1,203,701)
- ------------------------------------------------------------------------------------
Effect of Exchange Rate
Changes on Cash (14,611) (4,323) (1,340)
____________________________________________________________________________________
Net Decrease in Cash and
Equivalents (119,787) (74,468) (104,204)
Cash and Equivalents at
Beginning of Year 132,137 206,605 310,809
- ------------------------------------------------------------------------------------
Cash and Equivalents at
End of Year $ 12,350 $ 132,137 $ 206,605
====================================================================================
</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, 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)
Net income for the year
Currency translation
Stock compensation plan
transactions 10
Common stock dividends
Purchase of treasury stock (46,545)
- -----------------------------------------------------------------------------
Balances at December 31,
1998 $ 1,638 $ (63,067)
=============================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Johns Manville/34
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
____________________________________________________________________________________________
In thousands of dollars
- --------------------------------------------------------------------------------------------
Accumulated Total
Capital in Unearned Other Stock-
Excess of Stock Retained Comprehensive holders'
Par Value Compensation Earnings Income Equity
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
Net income for the year 180,946 180,946
Currency translation (12,186) (12,186)
Stock compensation plan
transactions 4,245 2,388 6,643
Common stock dividends (31,833) (31,833)
Purchase of treasury stock (46,545)
- --------------------------------------------------------------------------------------------
Balances at December 31,
1998 $ 544,667 $ (4,836) $ 314,605 $ (2,899) $ 790,108
============================================================================================
</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
79 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.
Gains and losses on foreign currency transactions and related 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.
Amounts related to interest swap transactions qualifying for hedge accounting,
payable or receivable, are accrued on a current basis as adjustments to interest
expense. Any gains (losses) on the termination of the interest rate swaps are
deferred and recognized over periods corresponding to the related obligation
being hedged.
(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.
Johns Manville/36
<PAGE>
(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. The Company
evaluates the recoverability of property, plant and equipment through its
ongoing strategic planning process.
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.
(H) 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.
(I) 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.
(J) 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.
(K) 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. In order to fix a portion of the
Company's variable interest rate debt and reduce the aggregate risk to movements
in interest rates, the Company entered into interest rate swap transactions with
notional values totaling approximately $240 million. In addition to reducing
risk, the interest rate swaps have a correlation to the underlying debt
obligation, and therefore, qualify for hedge accounting. At December 31, 1998,
the fair market value of these instruments reflected unrecognized losses of $7.8
million. (For additional information on fair market value disclosures,
see Note 7.)
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 significant
forward contracts outstanding at December 31, 1998 or 1997.
Johns Manville/37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
The Company had outstanding letters of credit totaling $16.5 million and $15.4
million as of December 31, 1998 and 1997, respectively. Letters of credit are
primarily collateralized by cash.
The Company maintains cash and cash equivalents and certain other financial
instruments with various financial institutions throughout the world. The
Company invests excess cash in a diversified portfolio of high-quality money
market instruments consistent with the preservation of capital and the
maintenance of liquidity. The Company's investment policies require
diversification of investments and include restrictions on maturity and credit
quality. The Company monitors compliance with these restrictions on an ongoing
basis. The Company has not experienced any material losses related to these
investments.
The Company does not obtain collateral or other security to support financial
instruments subject to credit risk, but monitors the credit standing of
counterparties. 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, 1998, the Company held investments in debt securities that were
classified as held-to-maturity with an amortized cost basis of $12.9 million,
which approximated fair value. The Company's investments in held-to-maturity
debt securities at December 31, 1998 were classified on the balance sheet as
cash equivalents of $2 million, marketable securities of $4.2 million and other
assets of $6.7 million, depending upon the nature and maturity of the
investments. Of these securities, $6.2 million had contractual maturities within
one year; the remainder mature in one to five years. Additionally, at December
31, 1998, the Company had investments in available-for-sale debt securities,
principally escrowed funds, that were classified on the balance sheet as other
assets of $5.2 million. The amortized cost basis of these securities
approximated fair value. Of these securities, $5.1 million had contractual
maturities within one year.
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.
During 1998, 1997 and 1996, the Company sold securities that had been classified
as available-for-sale, resulting in proceeds of $30.2 million, $45.7 million and
$55 million, respectively, which approximated carrying value each year.
Johns Manville/38
<PAGE>
________________________________________________________________________________
Note 3:
Receivables
In thousands of dollars
- ---------------------------------------------
1998 1997
- ---------------------------------------------
Trade $281,389 $237,743
Less allowances 41,528 36,780
- ---------------------------------------------
239,861 200,963
Other 24,546 20,980
- ---------------------------------------------
$264,407 $221,943
- ---------------------------------------------
Included in allowances are doubtful accounts of $5 million and $6 million at
December 31, 1998 and 1997, 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 $0.4
million for 1998, $(0.2) million for 1997, and $1.1 million for 1996.
Note 4:
Inventories
In thousands of dollars
- ---------------------------------------------
1998 1997
- ---------------------------------------------
Finished goods $ 84,393 $ 82,082
Work-in-process 13,945 10,869
Raw materials 23,813 25,410
Supplies 9,558 8,700
- ---------------------------------------------
$131,709 $127,061
- ---------------------------------------------
Inventories in the amounts of $31.1 million and $23.4 million at December 31,
1998 and 1997, 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 $49.8 million and $53.8 million at December 31,
1998 and 1997, respectively.
Note 5:
Short-Term Debt and Credit Facilities
In thousands of dollars
- ---------------------------------------------
1998 1997
- ---------------------------------------------
Short-term borrowings $4,074 $1,330
Current portion of long-term
debt 567 437
- ---------------------------------------------
$4,641 $1,767
- ---------------------------------------------
The Company's international subsidiaries had borrowing and working capital
facilities totaling $13.3 million, of which $9.7 million was available at
December 31, 1998. These facilities are principally collateralized by the
Company's equity ownership in certain international subsidiaries and joint
ventures.
Note 6:
Compensation and Employee Benefits
In thousands of dollars
- ---------------------------------------------
1998 1997
- ---------------------------------------------
Vacation, compensation and
payroll deductions $ 63,089 $ 47,937
Self insured medical and
group life coverage 30,678 32,879
Other 5,553 3,405
- ---------------------------------------------
$ 99,320 $ 84,221
- ---------------------------------------------
Johns Manville/39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
Note 7:
Long-Term Debt
In thousands of dollars
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Unsecured
Revolving credit facilities $550,007
Bonds payable to the Trust 22,446 $ 19,820
10.875 percent Johns Manville
International Senior Notes 2,525 400,000
Collateralized
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 9,488 9,557
Notes payable with interest from
5.98 percent to 8.13 percent,
payable through 2007 3,377 2,354
Revolving credit facility
with interest at LIBOR plus
1 percent 25,000
- --------------------------------------------------------------------------------
587,843 456,731
Less current portion 567 437
- --------------------------------------------------------------------------------
$587,276 $456,294
- --------------------------------------------------------------------------------
Revolving Credit Facilities
In May 1998, the Company repurchased, through a cash tender offer, substantially
all of its $400 million of 10.875 percent Johns Manville International Senior
Notes due 2004 (the "Senior Notes")(see Note 20). In conjunction with the tender
offer, the Company arranged unsecured multicurrency revolving credit facilities
(the "credit facilities") totaling approximately $750 million at a floating
interest rate of LIBOR plus a margin with an initial termination date of May 15,
2003. The Company used $450 million of the credit facilities to repurchase the
Senior Notes. At December 31, 1998, $550 million of borrowings under the credit
facilities were outstanding at interest rates ranging from 3.845 percent to 7.75
percent (see Note 25).
The remaining credit facilities are available for funding acquisitions and
capital expenditures, and other corporate purposes. The Company also canceled
its $100 million receivables sale facility and its $75 million revolving line of
credit available to international subsidiaries.
Bonds Payable to the Trust
At December 31, 1998, the bonds payable to the Trust (the "Trust Bonds") of
$22.4 million consist of a series of fixed payments totaling $75 million per
year in 2013 and 2014, discounted at 13 percent.
Senior Notes
The Johns Manville International 10.875 percent Senior Notes, with interest
payable semiannually, are due 2004. These notes, substantially all of which were
repurchased as described above, 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/40
<PAGE>
________________________________________________________________________________
Long-term debt maturities at December 31, 1998 are as follows:
In thousands of dollars
- ------------------------------------------------
1999 $ 567
2000 506
2001 1,262
2002 2,592
2003 550,458
Thereafter 136,735
- ------------------------------------------------
Total 692,120
Less interest accruing to principal (104,277)
- ------------------------------------------------
$ 587,843
- ------------------------------------------------
The Company's agreements with its lenders contain financial and general
covenants. These include, among other things, limitations on borrowings,
investments, and asset dispositions, and maintenance of various financial
ratios. 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, 1998, the Company was in compliance with these
covenants.
At December 31, 1998, the Company's long-term debt totaled $587.8 million and
had an estimated fair value of $603.3 million. At December 31, 1997, the
Company's long-term debt totaled $456.7 million and had an estimated fair value
of $515.5 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:
Commitments and Contingencies
Total rental expense related to continuing operations was $14 million in 1998,
$12.5 million in 1997 and $11.9 million in 1996.
At December 31, 1998, minimum rental commitments of the Company under long-term,
noncancelable operating leases are as follows:
In thousands of dollars
- ------------------------------------------------
1999 $ 4,374
2000 3,906
2001 3,505
2002 3,774
2003 2,927
Thereafter 1,050
- ------------------------------------------------
$19,536
- ------------------------------------------------
The Company has various commitments for sales and purchases in the ordinary
conduct of business. In the aggregate, such commitments do not differ
significantly from current market prices or anticipated usage requirements.
Johns Manville/41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
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, now consolidated, 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 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, 1998, the Company had remediation activities in progress at four
sites, out of a total of 16 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 14 non-Company owned or
operated sites under the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") or similar state legislation. Of these
14 sites, the Company's potential liability for ten sites will be determined
pursuant to the settlement agreement described in the following paragraph. Three
of the sites may not be subject to the settlement agreement and, accordingly,
the Company could be jointly and severally liable for costs of remediating these
sites. At one of the sites, only part of the liability will be determined by the
settlement agreement with the rest of the liability being the subject of a U.S.
Environmental Protection Agency ("EPA") de minimis settlement offer.
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 a court order,
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
Johns Manville/42
<PAGE>
________________________________________________________________________________
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 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, 1998 and 1997, the Company's balance sheet included undiscounted
accruals for environmental remediation costs, including ongoing compliance,
maintenance and monitoring costs, of $34.8 million and $36.5 million,
respectively. The Company paid $1.7 million and $1.3 million for environmental
cleanup in 1998 and 1997, respectively. Except for certain one-time costs
(related to the nonrecurring charges discussed in Note 15) expected to be
incurred in 1999 and 2000 totaling $12.9 million, the Company believes that
amounts paid in 1998 and 1997 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.
Note 9:
Stockholders' Equity
During 1998, the Company purchased 3.6 million shares of its common stock from
the Trust at $13 per share, and accordingly, recognized treasury stock, at cost,
of $46.8 million.
During 1996, approximately 32.5 million shares of the Company's common stock
were issued under the profit sharing exchange (see Note 17). 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") (see Note 19).
The Company redeemed its 9.2 million shares of 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 totaled $10.3 million.
Johns Manville/43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
The following is a summary of shares outstanding:
<TABLE>
<CAPTION>
Common
Stock
- --------------------------------------------------------------------------------------
<S> <C>
Balance at December 31, 1995 122,785,753
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
Issuance of common stock in connection with compensation plans 1,022,242
Treasury stock acquired (3,605,014)
- --------------------------------------------------------------------------------------
Balance at December 31, 1998 158,997,817
- --------------------------------------------------------------------------------------
</TABLE>
Note 10:
Stock Compensation Plans
The Company's stock compensation plans grant eligible employees deferred stock
rights 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, 1998,
approximately 6 million shares were available for issuance under stock
compensation and noncompensatory plans.
The amount of compensation expense recognized for stock-based compensation was
$6.2 million, $2.7 million and $2.8 million for the years ended December 31,
1998, 1997 and 1996, respectively.
Deferred 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 1998, 1997 and 1996, 50,046
deferred stock rights were issued at a weighted average market value at grant
date of $13.28 per share; 128,000 deferred stock rights were issued at a
weighted average market value at grant date of $11.36 per share; and 1.1 million
deferred stock rights were issued at a weighted average market value at grant
date of $10.48 per share, respectively. At December 31, 1998, 432,042 deferred
stock rights were outstanding, with vesting through December 31, 2000.
Johns Manville/44
<PAGE>
________________________________________________________________________________
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 during 1997 under the noncompensatory plan, vested by December 31, 1997
with the remainder vesting through December 10, 2001. These options expire
between December 31, 2005 and December 10, 2008.
The weighted average fair values of options granted is as follows:
Exercise price Exercise price
equal to market exceeds market
on grant date on grant date
- --------------------------------------------------------------------
1998 $ 4.41 $ 3.35
1997 $ 3.84 $ 2.81
1996 $ 3.02 $ 2.71
- --------------------------------------------------------------------
A summary of the status of the Company's stock option plans as of December 31,
1998, 1997 and 1996 is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
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 6,981,862 $11.76 5,235,225 $11.51 548,900 $ 9.00
Granted 1,051,861 $15.01 2,234,295 $12.29 5,260,440 $11.69
Exercised (811,958) $10.61 (44,242) $ 8.62 (252,800) $ 7.14
Forfeited (170,849) $12.18 (443,416) $11.70 (321,315) $ 7.56
- --------------------------------------------------------------------------------------------------------------------
Outstanding at End of Year 7,050,916 $12.37 6,981,862 $11.76 5,235,225 $11.51
- --------------------------------------------------------------------------------------------------------------------
Options Exercisable at End of Year 4,327,708 4,685,108 2,075,515
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
<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 35,000 6.3 years $ 4.00 35,000 $ 4.00
$ 9.88-$14.69 6,046,149 6.3 years $11.92 4,265,235 $11.81
$14.70-$20.39 969,767 9.4 years $15.46 27,473 $15.31
- --------------------------------------------------------------------------------------------------------------
7,050,916 6.8 years $12.37 4,327,708 $11.77
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Johns Manville/45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
Recognition of compensation expense under SFAS No. 123 is optional. However, 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, 1998, 1997 and 1996 would
have been reduced to the following pro forma amounts:
In thousands of dollars, except per share amounts
- ------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------
Net income applicable to
common stock:
As reported $180,946 $150,000 $30,145
Pro forma $179,406 $144,476 $25,926
Basic earnings per share:
As reported $ 1.13 $ .93 $ .20
Pro forma $ 1.12 $ .89 $ .17
Diluted earnings per share:
As reported $ 1.12 $ .92 $ .20
Pro forma $ 1.11 $ .89 $ .17
- ------------------------------------------------------------
The effects of applying SFAS No. 123 in this pro forma disclosure are not
necessarily indicative of future amounts and additional awards in future years
are possible.
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 are as follows:
- -----------------------------------------------------
1998 1997 1996
- -----------------------------------------------------
Dividend yield per share $ 0.24 $0.16 $0.12
Expected volatility 36.1% 31.4% 32.0%
Risk free rate of return 4.5% 6.3% 6.6%
Expected life of options
in years 3.9 4.5 4.0
- -----------------------------------------------------
Note 11:
Earnings per Common Share
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>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
Basic Diluted Basic Diluted Basic Diluted
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common stock 163,822,000 163,822,000 162,768,000 162,768,000 152,201,000 152,201,000
Dilutive potential common shares:
Stock options, deferred stock
rights and warrants 1,895,000 1,594,000 1,228,000
Treasury stock (3,799,000) (3,799,000) (1,226,000) (1,226,000) (871,000) (871,000)
- ----------------------------------------------------------------------------------------------------------------------
160,023,000 161,918,000 161,542,000 163,136,000 151,330,000 152,558,000
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Stock options to purchase 1 million, 2.3 million and 2 million common shares in
1998, 1997 and 1996, respectively, were not included in the computation of
diluted earnings per common share because the stock options' exercise prices
were greater than the average market price of the common shares.
Johns Manville/46
<PAGE>
________________________________________________________________________________
The basic and diluted earnings per common share amounts are determined using the
following income amounts:
<TABLE>
<CAPTION>
In thousands of dollars
- ----------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from Continuing Operations $185,291 $ 130,529 $190,525
Preference Stock Redemption Premium/Dividends (60,341)
- ----------------------------------------------------------------------------------------------------------------
185,291 130,529 130,184
Gain on Disposal of Discontinued Operations, net of tax 19,471 216,246
- ----------------------------------------------------------------------------------------------------------------
Income before Extraordinary Losses and Cumulative Effect of Accounting Change 185,291 150,000 346,430
Extraordinary Losses (31,754) (316,285)
Cumulative Effect of Accounting Change 27,409
- ----------------------------------------------------------------------------------------------------------------
Net Income Applicable to Common Stock $180,946 $ 150,000 $ 30,145
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Note 12:
Pensions
U.S. Pension Plans
The Company's pension 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:
In thousands of dollars
- -------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------
Service cost $ 7,985 $ 7,399 $ 8,227
Interest cost 46,158 45,254 44,480
Expected return on
plan assets (64,330) (54,903) (52,946)
Amortization of
prior service cost 1,632 1,545 1,441
Amortization of
transition amount (8,165) (8,161) (8,053)
Recognized actuarial loss 126 3,315
- -------------------------------------------------------------
Total pension income $(16,720) $ (8,740) $ (3,536)
- -------------------------------------------------------------
Assumptions used in determining the pension income for the years ended December
31 are as follows:
1998 1997 1996
- -------------------------------------------------------------
Discount rates 7.50% 7.50% 7.00%
Rates of increase in future
compensation levels 5.50% 5.50% 5.50%
Expected long-term rates
of return on assets 9.00% 8.25% 8.00%
- -------------------------------------------------------------
Pursuant to SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," the status of the Company's defined benefit plans as
of December 31 are as follows:
In thousands of dollars
- ----------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------
Change in Projected Benefit Obligation
Benefit obligation
at beginning of year $641,560 $631,941
Service cost 7,985 7,399
Interest cost 46,158 45,254
Amendments 1,993 870
Actuarial (gains) losses 27,644 (5,437)
Benefits paid (51,343) (38,467)
- ----------------------------------------------------------------------------
Benefit obligation
at end of year $673,997 $641,560
- ----------------------------------------------------------------------------
Change in Plan Assets
Fair value of plan assets
at beginning of year $741,007 $691,592
Actual return on plan assets (22,303) 87,480
Employer contributions 16 402
Benefits paid (51,343) (38,467)
- ----------------------------------------------------------------------------
Fair value of plan assets
at end of year $667,377 $741,007
- ----------------------------------------------------------------------------
Reconciliation of Funded Status
Funded status $ (6,620) $ 99,447
Unrecognized net actuarial loss 144,490 30,213
Unrecognized prior service cost 11,870 11,509
Unrecognized transition amount (3,848) (12,013)
- ----------------------------------------------------------------------------
Prepaid pension asset $145,892 $129,156
- ----------------------------------------------------------------------------
Johns Manville/47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
The projected benefit obligations for the U.S. plans were determined in 1998 and
1997 using discount rates of 7 percent and 7.5 percent, respectively, and rates
of increase in future compensation levels for salary-related plans of 4.5
percent and 5.5 percent, respectively.
German Pension Plan
The pension expense, determined using a discount rate of 7 percent for each year
and a rate of increase in future compensation of 4 percent for 1998 and 5
percent for 1997 and 1996, for the years ended December 31 consists of the
following:
In thousands of dollars
- -----------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------
Service cost $ 665 $ 567 $ 881
Interest cost 1,727 1,529 1,861
Amortization of
transition amount 114 106 126
Recognized actuarial gain (134) (140) (21)
- -----------------------------------------------------------------------
Total pension expense $2,372 $2,062 $2,847
- -----------------------------------------------------------------------
The status of the Company's unfunded German plan as of December 31 is as
follows:
In thousands of dollars
- -----------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------
Change in Projected Benefit Obligation
Benefit obligation
at beginning of year $ 23,421 $ 28,204
Service cost 665 567
Interest cost 1,727 1,529
Actuarial gains (16) (1,790)
Foreign currency exchange
rate changes 1,857 (4,063)
Benefits paid (1,170) (1,026)
- -----------------------------------------------------------------------
Benefit obligation
at end of year $ 26,484 $ 23,421
- -----------------------------------------------------------------------
Reconciliation of Funded Status
Funded status $(26,484) $(23,421)
Unrecognized net actuarial loss (4,363) (4,183)
Unrecognized transition amount 570 633
- -----------------------------------------------------------------------
Pension obligation $(30,277) $(26,971)
- -----------------------------------------------------------------------
Projected benefit obligations were determined using a discount rate of 7 percent
for both 1998 and 1997. The rate of increase in future compensation levels for
salary-related plans was 4 percent in 1998 and 1997.
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.
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 $8.8
million in 1998, $7.1 million in 1997 and $7.5 million in 1996.
Johns Manville/48
<PAGE>
________________________________________________________________________________
Note 13:
Other Postretirement Benefits
Medical and life insurance coverage is provided to eligible U.S. and Canadian
retirees of the Company and their dependents under defined benefit plans. The
postretirement benefit expense for the years ended December 31 consists of the
following:
In thousands of dollars
- ----------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------
Service cost $ 1,530 $ 1,390 $ 1,373
Interest cost 13,488 13,210 12,955
Amortization of
prior service cost (1,838) (1,838) (1,838)
Amortization of
actuarial loss 185 198 234
- ----------------------------------------------------------
Total postretirement
benefit expense $13,365 $12,960 $12,724
- ----------------------------------------------------------
The postretirement benefit expense was calculated using a discount rate of 7.5
percent in 1998 and 1997, and 7 percent in 1996.
The Company's unfunded postretirement benefit obligation reconciled with the
amounts shown in the Company's consolidated balance sheet, pursuant to SFAS No.
132, as of December 31, is as follows:
In thousands of dollars
- ----------------------------------------------------------
1998 1997
- ----------------------------------------------------------
Change in Postretirement
Obligation
Beginning benefit obligation $ 188,831 $ 184,981
Service cost 1,530 1,390
Interest cost 13,488 13,210
Actuarial losses 16,173 2,988
Foreign currency exchange
rate changes (435) (260)
Benefits paid (15,387) (13,478)
- ----------------------------------------------------------
Ending benefit obligation $ 204,200 $ 188,831
- ----------------------------------------------------------
Reconciliation of Funded Status
Funded status $(204,200) $(188,831)
Unrecognized net
actuarial gain (loss) 9,172 (6,381)
Unrecognized prior service cost (22,700) (24,538)
Fourth quarter benefits paid 10,057 4,492
- ----------------------------------------------------------
Postretirement benefit
obligation $(207,671) $(215,258)
- ----------------------------------------------------------
The current portions of $20.7 million and $17.8 million of the postretirement
benefit obligation are reflected in compensation and employee benefits as of
December 31, 1998 and 1997, respectively. The accumulated postretirement benefit
obligations were determined in 1998 and 1997 using discount rates of 7 percent
and 7.5 percent, respectively. 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 1999; the rate was assumed to decrease gradually to 5.5 percent in
2002 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts
reported for health care plans. 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, 1998 by $8.3 million, and the aggregate of
the service and interest cost components of the periodic cost for the year then
ended by $0.6 million. Meanwhile, decreasing the assumed health care cost trend
rates by one percentage point in each year would decrease the accumulated
benefit obligation as of December 31, 1998 by $7.8 million, and the aggregate of
the service and interest cost components of the periodic cost for the year then
ended by $0.6 million.
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.
Johns Manville/49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 14:
Workers' Compensation
The workers' compensation liability and related receivable at gross and present
value at December 31 are:
In thousands of dollars
- -------------------------------------------------------
1998 1997
- -------------------------------------------------------
Workers' Compensation Liability:
Gross $112,069 $117,917
Present Value 64,709 66,658
Insurance Receivable:
Gross $ 7,740 $ 7,572
Present Value 4,652 4,798
- -------------------------------------------------------
The liability and receivable were measured using risk-free discount rates of 5
percent and 6 percent at December 31, 1998 and 1997, 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 percent, 6.4 percent and 6.2 percent were used to measure
expense for the years ended December 31, 1998, 1997 and 1996, respectively.
The Company expects to pay the following amounts for its workers' compensation
obligations:
In thousands of dollars
- -------------------------------------------------------
1999 $ 7,200
2000 7,200
2001 7,100
2002 7,000
2003 6,800
Thereafter 76,769
- -------------------------------------------------------
$112,069
- -------------------------------------------------------
Note 15:
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. At December 31, 1998, $12 million of the remaining
liability of $37.3 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 available cash balances and cash generated from operations. Pending
federal and state regulatory agency approval, the final demolition is expected
to begin in 1999 and is expected to be substantially completed by 2000, with the
majority of liabilities settled during that time frame. Due in part to delays in
obtaining these approvals, the Company spent minimal amounts in preparation for
demolition phases of the project during 1998. 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 also recorded 1996 nonrecurring charges (income) in the Insulation
and the Engineered Products segments of $11.5 million and $(4) million,
respectively,
Johns Manville/50
<PAGE>
________________________________________________________________________________
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 16:
Other Income (Expense), net
In thousands of dollars
- ------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------
Sale of mining royalty $ 35,988
Amortization of
intangible assets (13,425) $(10,516) $(4,528)
Interest accretion on
workers' compensation
liabilities (2,910) (3,072) (3,567)
Pension and
postretirement benefits 59 (2,068) (3,513)
Settlement of
pension plans 7,216
Other 6,189 5,315 4,047
- ------------------------------------------------------
$ 25,901 $(10,341) $ (345)
- ------------------------------------------------------
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 17:
Profit Sharing Obligation
During 1996, the Company exchanged approximately 32.5 million shares of its
common stock for the termination of 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 represented the final profit sharing payment to the Trust.
Note 18:
Income Taxes
Income taxes payable consists of the following:
In thousands of dollars
- ------------------------------------------------------
1998 1997
- ------------------------------------------------------
U.S. federal and foreign
income taxes $ 15,961 $ 8,300
State and local taxes 578 403
- ------------------------------------------------------
$ 16,539 $ 8,703
- ------------------------------------------------------
The approximate tax effect of the temporary differences and carryforwards giving
rise to the net deferred tax asset is as follows:
In thousands of dollars
- ------------------------------------------------------
1998 1997
- ------------------------------------------------------
U.S. Deferred Tax Assets:
Trust deductions $208,822 $216,412
Employee benefit accruals 103,865 102,379
Other accrued liabilities 50,775 52,370
Credit for prior year minimum
tax carryforward 21,391 20,871
Deferred compensation 9,106 5,839
Capitalized research, development
and engineering 6,334 7,239
Deferred state and local taxes 1,960 6,552
General business credit
carryforward 1,142 3,523
Provision for furnace rebuilds 9,625
Other 12,020 13,599
- ------------------------------------------------------
415,415 438,409
- ------------------------------------------------------
Foreign Deferred Tax Assets 2,252 2,547
- ------------------------------------------------------
Total Deferred Tax Assets 417,667 440,956
- ------------------------------------------------------
U.S. Deferred Tax Liabilities:
Property, plant and equipment 109,440 100,695
Prepaid pension asset 51,138 44,658
Other 5,874 6,761
- ------------------------------------------------------
Total Deferred Tax Liabilities 166,452 152,114
- ------------------------------------------------------
Net Deferred Tax Asset, before
valuation allowances 251,215 288,842
Valuation Allowances (50,543) (52,000)
- ------------------------------------------------------
Net Deferred Tax Asset $200,672 $236,842
- ------------------------------------------------------
Johns Manville/51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______________________________________________________________________________
The deferred tax asset related to Trust deductions primarily represents common
stock and Trust Bonds held by 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 $200.9 million (exclusive of any related valuation allowance) generated
from the issuance of stock to the Trust.
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. 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.
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. The Company cannot predict the amount of any such
future tax obligations. However, related liabilities could become 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 or the
settlement of this obligation between the Company and the Trust. During 1998,
the Company incurred approximately $3 million of these taxes, before any U.S.
federal or state benefit.
The Trust transferred approximately $69.2 million and $17.2 million in 1998 and
1997, respectively, to the specific settlement fund within the Trust or to
claimants generating corresponding current tax deductions for the Company. 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, tax credit carryforwards and, in 1996, net operating loss carryforwards.
At December 31, 1998, the Company had a $50.5 million valuation allowance on its
U.S. deferred tax asset primarily related to future deductible amounts that may
not be realized. The 1997 valuation allowance reflected an $18.2 million
decrease primarily due to the utilization of general business credit
carryforwards that the Company previously believed would expire unused. 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).
The approximate tax effect of the temporary differences giving rise to the net
deferred tax liability is as follows:
In thousands of dollars
- -------------------------------------------------------
1998 1997
- -------------------------------------------------------
Foreign Deferred Tax Assets $ 2,376 $ 1,942
- -------------------------------------------------------
Foreign Deferred Tax Liabilities:
Property, plant and equipment 43,327 41,772
Other 2,976 2,345
- -------------------------------------------------------
Total Deferred Tax Liabilities 46,303 44,117
- -------------------------------------------------------
Net Deferred Tax Liability $ 43,927 $ 42,175
- -------------------------------------------------------
Johns Manville/52
<PAGE>
_______________________________________________________________________________
The U.S. and foreign components of income from continuing operations before
income taxes consist of the following:
<TABLE>
<CAPTION>
In thousands of dollars
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. $215,427 $136,277 $103,491
Foreign 34,831 39,203 47,943
- -------------------------------------------------------------------------------
$250,258 $175,480 $151,434
- -------------------------------------------------------------------------------
</TABLE>
The provision for income tax expense (benefit) on continuing operations consists
of the following:
<TABLE>
<CAPTION>
In thousands of dollars
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
U.S. federal $ 25,422 $ 12,875
U.S. state and local 4,530 2,887 $ 3,595
Foreign 17,916 17,618 24,492
- -------------------------------------------------------------------------------
47,868 33,380 28,087
- -------------------------------------------------------------------------------
Deferred:
U.S. 16,849 13,044 (61,203)
Foreign 250 (1,473) (5,975)
- -------------------------------------------------------------------------------
17,099 11,571 (67,178)
- -------------------------------------------------------------------------------
$ 64,967 $ 44,951 $(39,091)
- -------------------------------------------------------------------------------
</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 U.S. federal statutory tax rate to consolidated pretax
income from continuing operations for the following reasons:
<TABLE>
<CAPTION>
In thousands of dollars
- -------------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. federal statutory expense $87,588 $61,420 $ 53,002
Increase (decrease) resulting from:
Deduction for shares of stock repurchased from the Trust (12,045)
Deduction for dividends to the Trust (8,795) (6,298) (107,213)
U.S. state and local taxes, net of federal benefit 3,600 1,913 1,293
Adjustment of estimated income tax expense for prior years (3,352) 825
Foreign income taxes, net of credits (451) 3,924 11,246
Utilization of general business credits (18,188)
Other, net (1,578) 1,355 2,581
- -------------------------------------------------------------------------------------------------------
$64,967 $44,951 $ (39,091)
- -------------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1998, the Company had $1.1 million of general business credit
carryforwards and $21.4 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 $81.8 million at December 31, 1998. The determination of
the deferred tax liability related to these undistributed earnings is not
practicable.
Johns Manville/53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
Note 19:
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.
Note 20:
Early Extinguishment of Debt
In May 1998, the Company repurchased through a cash tender offer substantially
all of its Senior Notes and recognized an extraordinary loss on the early
extinguishment of debt of $31.8 million, net of taxes of $18.1 million, in the
second quarter of 1998.
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 21:
Cumulative Effect of Accounting Change
Effective January 1, 1998, the Company changed its method of accounting for
glass furnace rebuild costs to the capitalization method from the allowance
method. Under the capitalization method, costs to periodically rebuild the
refractory components of the glass furnaces are capitalized when incurred and
depreciated on a straight-line basis over the estimated useful life of the
rebuild. The capitalization method provides an improved measure of the Company's
capital investment and is consistent with industry practice. Previously,
estimated costs to rebuild furnaces were credited to an allowance and charged to
operations over the estimated period to the next rebuild date. The cumulative
effect of this change in accounting principle increased 1998 earnings by $27.4
million, net of taxes of $17.9 million. This change resulted in an increase in
depreciation expense but eliminated the provision for furnace rebuilds. The pro
forma effect of this change on net income was not material.
Note 22:
Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." Comprehensive income
generally includes changes in separately reported components of equity along
with net income.
Components of equity included in comprehensive income were as follows:
<TABLE>
<CAPTION>
In thousands of dollars
- ---------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign currency translation adjustments $(22,156) $(28,973) $(9,395)
Income tax benefit 9,970 11,589 3,382
- ---------------------------------------------------------------------------------------------
Foreign currency translation adjustments, net of tax $(12,186) $(17,384) $(6,013)
- ---------------------------------------------------------------------------------------------
</TABLE>
Johns Manville/54
<PAGE>
________________________________________________________________________________
Note 23:
Supplemental Cash Flow Information
In connection with the consolidated statement of cash flows, cash paid for
interest related to continuing operations during 1998, 1997 and 1996 was $33.9
million, $48.1 million and $45.9 million, respectively. Cash paid for income
taxes related to continuing operations during 1998, 1997 and 1996 was $23.5
million, $48.7 million and $29.9 million, respectively.
Note 24:
Acquisitions
In January 1998, the Company acquired the assets of a U.S. manufacturer of
reinforced thermoplastic roofing systems and also acquired a plant associated
with the Insulation segment, which manufactures calcium silicate pipe and block
insulation, and fireproof board. In May 1998, the Company acquired Exeltherm, a
Canadian producer of polyisocyanurate foam products for commercial/industrial
roofing and residential construction. Also in May 1998, the Company acquired
Skandinaviska Jute, which owns Tasso AB, a European manufacturer of fiber glass
wall coverings. This acquisition is associated with businesses of the Engineered
Products segment. In December 1998, the Company acquired the assets of a U.S.
manufacturer of commercial/industrial roofing insulation products. Also in
December 1998, the Company entered into a joint venture to develop, manufacture
and market products used to stop the spread of fires in new and existing
buildings. This joint venture is associated with businesses of the Insulation
segment.
The combined purchase price for these acquisitions, accounted for under the
purchase method, was $92.2 million which was financed from existing cash
balances and borrowing under revolving credit facilities. The excess of the
combined purchase price over the estimated fair value of net assets acquired, or
goodwill, amounted to approximately $59 million. Certain amounts of the purchase
price allocation related to preacquisition contingencies and restructuring
decisions were based on preliminary estimates and may be revised during 1999.
Note 25:
Subsequent Event (Unaudited)
On January 1, 1999, the Company completed the acquisition of Hoechst's
Spunbond/Monofilament operations. This acquisition will expand existing product
lines of the Company's Engineered Products segment in North America and Europe.
The cash payment for this acquisition, to be accounted for under the purchase
method, will be $227.3 million (subject to certain post-closing adjustments),
financed with borrowings from the Company's credit facilities. The acquisition
borrowings, drawn during December 1998, are shown as the acquisition deposit on
the Company's balance sheet. The allocation of the purchase price will be
finalized during 1999 upon completion of asset valuations and determination of
preacquisition contingencies and restructuring decisions.
Based on preliminary estimates, the cash payment has been allocated as follows:
<TABLE>
<CAPTION>
In millions of dollars
- ----------------------------------------------------------------
<S> <C>
Current Assets $ 80
Noncurrent Assets (including Goodwill) 174
Liabilities Assumed (27)
- ----------------------------------------------------------------
Cash Payment $227
- ----------------------------------------------------------------
</TABLE>
Johns Manville/55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
The preliminary consolidated results of operations on a pro forma basis as if
the operations had been acquired as of the beginning of 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
In millions of dollars, except per share amounts
- -------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------
<S> <C> <C>
Net Sales $2,013 $1,898
Net Income 191 162
Earnings per Share - Diluted 1.18 1.00
- -------------------------------------------------------------------
</TABLE>
The estimated pro forma information is presented for informational purposes only
and is not necessarily indicative of the results of operations that would have
occurred had the acquisition been completed as of the above dates, nor are they
necessarily indicative of future results of operations.
Note 26:
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement, effective for all fiscal quarters of
fiscal years beginning after June 15, 1999, establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that the Company recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at fair value.
At this time, the Company cannot determine the effects, if any, adopting this
statement will have on its financial condition, liquidity or results of
operations. However, the Company does not expect a significant impact on its
results of operations.
Note 27:
Business Segments and Geographic Area Information
The Company reports separately its operating results in the following three
principal business segments: Insulation, Roofing Systems and Engineered
Products. The Company's reportable business segments are strategic business
units organized by product. Effective January 1, 1998, the Company adopted
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information." The Company evaluates segment
performance based on income from operations. Consistent with the Company's
internal reporting, business segments now include allocated corporate expenses.
The 1998 mining royalty sale proceeds, certain nonrecurring charges and a
pension settlement gain related to 1996, are reported in corporate and
eliminations. The 1997 and 1996 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 built-up, modified bitumen and single-
ply membranes; perlite, fiber glass and polyisocyanurate insulations; roof
guarantees; and accessories.
Johns Manville/56
<PAGE>
________________________________________________________________________________
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 European fabrics businesses. 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, 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Assets (Note B)
Insulation $ 512,428 $ 467,828 $ 506,934
Roofing Systems 429,342 368,051 327,518
Engineered Products 591,839 551,517 449,482
Corporate (39,216) (46,756) (57,219)
- --------------------------------------------------------------------------------
Total $1,494,393 $1,340,640 $1,226,715
- --------------------------------------------------------------------------------
Years Ended December 31,
- --------------------------------------------------------------------------------
Depreciation, Depletion and Amortization
Insulation $ 36,146 $ 34,031 $ 31,761
Roofing Systems 17,624 16,197 12,320
Engineered Products 40,041 29,935 27,094
- --------------------------------------------------------------------------------
Total $ 93,811 $ 80,163 $ 71,175
- --------------------------------------------------------------------------------
Additions to Long-lived Assets (Note E)
Insulation $ 65,216 $ 34,687 $ 32,531
Roofing Systems 25,154 7,945 51,650
Engineered Products 37,803 81,715 68,462
Corporate 2,163 949 357
- --------------------------------------------------------------------------------
Total $ 130,336 $ 125,296 $ 153,000
- --------------------------------------------------------------------------------
</TABLE>
See notes on page 60.
Johns Manville/57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
<TABLE>
<CAPTION>
In thousands of dollars
- --------------------------------------------------------------------------------
Years Ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Insulation
Net Sales $ 731,087 $ 694,606 $ 697,325
Intersegment Net Sales 3,004 3,239 1,629
Costs and Expenses 619,973 611,195 589,632
Nonrecurring Charges 17,550
Other Income (Expense), net 3,864 (77) 1,096
- --------------------------------------------------------------------------------
Income from Operations $ 117,982 $ 86,573 $ 92,868
- --------------------------------------------------------------------------------
Roofing Systems
Net Sales $ 561,787 $ 510,460 $ 414,013
Costs and Expenses 506,127 457,108 383,983
Nonrecurring Charges 5,644
Other Income (Expense), net (7,618) (2,841) (2,649)
- --------------------------------------------------------------------------------
Income from Operations $ 48,042 $ 50,511 $ 21,737
- --------------------------------------------------------------------------------
Engineered Products
Net Sales $ 488,305 $ 442,579 $ 441,091
Intersegment Net Sales 25,843 33,375 29,670
Costs and Expenses 432,648 393,589 380,499
Nonrecurring Charges (Income) (4,018)
Other Income (Expense), net (3,775) (4,027) 1,331
- --------------------------------------------------------------------------------
Income from Operations $ 77,725 $ 78,338 $ 95,611
- --------------------------------------------------------------------------------
Corporate and Eliminations
Intersegment Net Sales (Note A) $ (28,847) $ (36,614) $ (31,299)
Costs and Expenses (31,405) (40,010) (38,613)
Nonrecurring Charges 29,980
Other Income (Expense), net (Note D) 33,430 (3,396) (123)
- --------------------------------------------------------------------------------
Income from Operations $ 35,988 $ -- $ (22,789)
- --------------------------------------------------------------------------------
Consolidated Total Company
Net Sales $1,781,179 $1,647,645 $1,552,429
Costs and Expenses 1,527,343 1,421,882 1,315,501
Nonrecurring Charges 49,156
Other Income (Expense), net 25,901 (10,341) (345)
- --------------------------------------------------------------------------------
Income from Operations $ 279,737 $ 215,422 $ 187,427
- --------------------------------------------------------------------------------
</TABLE>
See notes on page 60.
Johns Manville/58
<PAGE>
________________________________________________________________________________
<TABLE>
<CAPTION>
In thousands of dollars
- --------------------------------------------------------------------------------
Years Ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
United States
Net Sales $1,508,096 $1,426,609 $1,341,216
Costs and Expenses 1,302,890 1,206,560 1,109,647
Nonrecurring Charges 19,176
Other Income (Expense), net 25,161 (4,120) 9,863
- --------------------------------------------------------------------------------
Income from Operations $ 230,367 $ 215,929 $ 222,256
- --------------------------------------------------------------------------------
Foreign
Net Sales $ 278,419 $ 231,758 $ 224,232
Costs and Expenses 232,010 192,511 188,770
Other Income (Expense), net (4,406) (1,140) 1,737
- --------------------------------------------------------------------------------
Income from Operations $ 42,003 $ 38,107 $ 37,199
- --------------------------------------------------------------------------------
Corporate and Eliminations
Net Sales (Note A) $ (5,336) $ (10,722) $ (13,019)
Costs and Expenses (7,557) 22,811 17,084
Nonrecurring Charges 29,980
Other Income (Expense), net (Note C) 5,146 (5,081) (11,945)
- --------------------------------------------------------------------------------
Income from Operations $ 7,367 $ (38,614) $ (72,028)
- --------------------------------------------------------------------------------
Consolidated Total Company
Net Sales $1,781,179 $1,647,645 $1,552,429
Costs and Expenses 1,527,343 1,421,882 1,315,501
Nonrecurring Charges 49,156
Other Income (Expense), net 25,901 (10,341) (345)
- --------------------------------------------------------------------------------
Income from Operations $ 279,737 $ 215,422 $ 187,427
- --------------------------------------------------------------------------------
December 31,
- --------------------------------------------------------------------------------
Long-lived Assets
United States $ 679,817 $ 637,638 $ 637,284
Foreign 168,669 155,097 127,874
Corporate 15,672 5,024 5,262
- --------------------------------------------------------------------------------
Total $ 864,158 $ 797,759 $ 770,420
- --------------------------------------------------------------------------------
See notes on page 60.
</TABLE>
Johns Manville/59
<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.
Intergeographic sales principally relate to insulation shipments from the
U.S.
(B) Operating assets primarily include amounts directly assignable to each
segment. These include trade receivables; inventory (at standard cost);
goodwill; property, plant and equipment; and capitalized software.
Capitalized software included in operating assets was $10 million, $12
million and $14.7 million in 1998, 1997 and 1996, respectively. Corporate
operating assets relate principally to the adjustment of business segment
inventories to a LIFO basis.
(C) Includes the elimination of intergeographic dividends between the Company's
foreign and U.S. segments.
(D) Other income (expense), net, included in corporate and eliminations
consists of the mining royalty sale proceeds in 1998, and certain
nonrecurring charges and a pension settlement gain in 1996.
(E) Includes property, plant and equipment purchases and additions to property,
plant and equipment from acquisitions. Additions to property, plant and
equipment from acquisitions were $24 million, $34.8 million and $50 million
in 1998, 1997 and 1996, respectively.
Johns Manville/60
<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. 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/61
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
________________________________________________________________________________
To the Stockholders and Directors of Johns Manville Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and comprehensive income and stockholders'
equity and of cash flows present fairly, in all material respects, the financial
position of Johns Manville Corporation and its subsidiaries at December 31, 1998
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Denver, Colorado
January 29, 1999
Johns Manville/62
<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, 1998
Net Sales $389,336 $445,224 $488,232 $458,387 $1,781,179
Gross Profit 95,748 119,848 130,164 131,461 477,221
Income from Operations 45,130 100,988 72,361 61,258 279,737
Income before Extraordinary Losses and
Cumulative Effect of Accounting Change (Note A) 26,030 64,968 50,671 43,622 185,291
Net Income (Notes A and B) 53,439 33,214 50,671 43,622 180,946
- ------------------------------------------------------------------------------------------------------
Basic Earnings Per Common Share
Income before Extraordinary Losses and
Cumulative Effect of Accounting Change (Note A) $ .16 $ .41 $ .32 $ .27 $ 1.16
Net Income (Notes A and B) .33 .21 .32 .27 1.13
Diluted Earnings Per Common Share
Income before Extraordinary Losses and
Cumulative Effect of Accounting Change (Note A) $ .16 $ .40 $ .31 $ .27 $ 1.15
Net Income (Notes A and B) .33 .20 .31 .27 1.12
- ------------------------------------------------------------------------------------------------------
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 Losses (Note C) 27,492 37,175 58,329 27,004 150,000
Net Income (Note C) 27,492 37,175 58,329 27,004 150,000
- ------------------------------------------------------------------------------------------------------
Basic Earnings Per Common Share
Income before Extraordinary Losses (Note C) $ .17 $ .23 $ .36 $ .17 $ .93
Net Income (Note C) .17 .23 .36 .17 .93
Diluted Earnings Per Common Share
Income before Extraordinary Losses (Note C) $ .17 $ .23 $ .36 $ .17 $ .92
Net Income (Note C) .17 .23 .36 .17 .92
- ------------------------------------------------------------------------------------------------------
</TABLE>
(A) In May 1998, the Company refinanced its $400 million of 10.875 percent
Senior Notes due 2004 (the "Senior Notes"). The refinancing, consisting of
a tender offer for cash, resulted in an extraordinary loss on the early
extinguishment of debt of $31.8 million, net of taxes of $18.1 million, in
the second quarter of 1998.
(B) Effective January 1, 1998, the Company changed its method of accounting for
glass furnace rebuild costs to the capitalization method from the allowance
method. The cumulative effect of this change in accounting principle
increased 1998 net income by $27.4 million, net of taxes of $17.9 million.
(C) 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 1996 disposition, which were finalized with the completion of the
Company's 1996 income tax returns.
Johns Manville/63
<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. 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 29, 1999, on our audits of
the consolidated financial statements and financial statement schedule of Johns
Manville Corporation as of December 31, 1998 and 1997 and for the years ended
December 31, 1998, 1997, and 1996, which report is incorporated by reference in
this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
Denver, Colorado
March 16, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1998 FORM 10K OF JOHNS MANVILLE CORPORATION AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 12,350
<SECURITIES> 4,168
<RECEIVABLES> 281,389
<ALLOWANCES> 4,992
<INVENTORY> 131,709
<CURRENT-ASSETS> 461,842
<PP&E> 1,555,493
<DEPRECIATION> 691,335
<TOTAL-ASSETS> 2,207,185
<CURRENT-LIABILITIES> 317,969
<BONDS> 587,276
0
0
<COMMON> 1,638
<OTHER-SE> 788,470
<TOTAL-LIABILITY-AND-EQUITY> 2,207,185
<SALES> 1,781,179
<TOTAL-REVENUES> 1,781,179
<CGS> 1,303,958
<TOTAL-COSTS> 1,303,958
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 402
<INTEREST-EXPENSE> 35,912
<INCOME-PRETAX> 250,258
<INCOME-TAX> 64,967
<INCOME-CONTINUING> 185,291
<DISCONTINUED> 0
<EXTRAORDINARY> (31,754)
<CHANGES> 27,409
<NET-INCOME> 180,946
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.12
</TABLE>
