<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-8247
JOHNS MANVILLE CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-0856796
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
717 17th Street
Denver, Colorado 80202
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(303) 978-2000
--------------
(Registrant's telephone number, including area code)
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 [_]
At November 8, 1999, there were 147,283,158 shares of the registrant's
common stock outstanding.
<PAGE>
*PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
--------------------
* "Johns Manville", the "Company," "JM," "we," "us" and "our" when used in
this report refers to Johns Manville Corporation, incorporated in the State
of Delaware in 1991, and includes, where applicable, its consolidated
subsidiaries.
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<PAGE>
JOHNS MANVILLE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and equivalents $ 24,475 $ 12,350
Marketable securities, at cost,
which approximates market 4,656 4,168
Receivables 324,020 264,407
Inventories 138,950 131,709
Prepaid expenses 12,995 12,560
Deferred tax assets 39,258 36,648
-------------------------
Total Current Assets 544,354 461,842
Property, Plant and Equipment,
net of accumulated depreciation
of $710,323 and $691,335, respectively 1,009,420 864,158
Deferred Tax Assets 147,531 164,024
Goodwill, net of accumulated amortization
of $38,974 and $27,166, respectively 296,070 248,692
Acquisition Deposit (Note 7) 227,300
Other Assets 238,237 241,169
-------------------------
$2,235,612 $2,207,185
=========================
LIABILITIES
- ---------------------------------------------------------------------------
Current Liabilities
Short-term debt $ 3,485 $ 4,641
Accounts payable 153,734 128,688
Compensation and employee benefits 108,929 99,320
Income taxes 10,563 16,539
Other accrued liabilities 94,535 68,781
-------------------------
Total Current Liabilities 371,246 317,969
Long-Term Debt, less current portion 557,960 587,276
Postretirement Benefits Other Than Pensions 185,010 186,949
Deferred Income Taxes and Other
Noncurrent Liabilities 321,242 324,883
-------------------------
1,435,458 1,417,077
-------------------------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------
Common Stock 1,643 1,638
Capital in Excess of Par Value 550,264 544,667
Treasury Stock, at cost (229,851) (63,067)
Unearned Stock Compensation (2,997) (4,836)
Retained Earnings 472,167 314,605
Accumulated Other Comprehensive Income 8,928 (2,899)
-------------------------
800,154 790,108
-------------------------
$2,235,612 $2,207,185
===========================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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<PAGE>
JOHNS MANVILLE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Thousands of dollars, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------------------------------------
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $569,331 $488,232 $1,623,941 $1,322,792
Cost of Sales 403,708 358,068 1,160,590 977,032
Selling, General and Administrative 49,053 45,526 149,065 133,468
Research, Development
and Engineering 9,858 8,080 29,945 23,977
Other Income (Expense), net
(Note 2) (8,176) (4,197) (21,622) 30,164
--------------------------------------------------
Income from Operations 98,536 72,361 262,719 218,479
Interest Income 707 869 1,871 4,321
Interest Expense 9,071 6,893 23,986 28,870
--------------------------------------------------
Income before Income Taxes,
Extraordinary Item and Cumulative
Effect of Accounting Change 90,172 66,337 240,604 193,930
Income Tax Expense (Note 3) 16,981 15,666 49,324 52,261
--------------------------------------------------
Income before Extraordinary Item
and Cumulative Effect of
Accounting Change 73,191 50,671 191,280 141,669
Extraordinary Loss on Early
Extinguishment of Debt,
net of tax (Note 4) (5,758) (31,754)
Cumulative Effect of a Change in
Accounting for Furnace Rebuilds,
net of tax (Note 5) 27,409
--------------------------------------------------
Net Income $ 73,191 $ 50,671 $ 185,522 $ 137,324
=========================================================================================
Comprehensive Income $ 72,912 $ 41,412 $ 197,349 $ 128,564
==================================================
EARNINGS PER COMMON SHARE
- -----------------------------------------------------------------------------------------
Basic:
Income before Extraordinary Item
and Cumulative Effect of
Accounting Change $ .49 $ .32 $ 1.22 $ .88
Extraordinary Loss on Early
Extinguishment of Debt,
net of tax (Note 4) (.04) (.19)
Cumulative Effect of a Change in
Accounting for Furnace Rebuilds,
net of tax (Note 5) .17
--------------------------------------------------
Net Income $ .49 $ .32 $ 1.18 $ .86
=========================================================================================
Diluted:
Income before Extraordinary Item
and Cumulative Effect of
Accounting Change $ .49 $ .31 $ 1.21 $ .87
Extraordinary Loss on Early
Extinguishment of Debt,
net of tax (Note 4) (.04) (.19)
Cumulative Effect of a Change in
Accounting for Furnace Rebuilds,
net of tax (Note 5) .17
--------------------------------------------------
Net Income $ .49 $ .31 $ 1.17 $ .85
=========================================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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<PAGE>
JOHNS MANVILLE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-----------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998
- --------------------------------------------------------------------------
<S> <C> <C>
Net income $ 185,522 $ 137,324
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 85,714 69,726
Deferred taxes 22,803 9,542
Pension and postretirement benefits, net 14,777 202
Cumulative effect of accounting change (27,409)
Other, net 9,950 12,459
(Increase) decrease in current assets:
Receivables (18,683) (69,921)
Inventories 20,953 5,230
Prepaid expenses 243 (1,682)
Increase (decrease) in current liabilities:
Accounts payable 16,345 9,597
Compensation and employee benefits 6,643 9,135
Income taxes (5,850) 11,902
Other accrued liabilities (12,597) (13,079)
Change in other noncurrent liabilities (9,066) (31,644)
-----------------------
Net cash provided by operating activities 316,754 121,382
-----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- --------------------------------------------------------------------------
Purchases of property, plant and equipment (92,794) (73,554)
Acquisitions (2,727) (55,037)
Proceeds from sales of assets 26 6,703
Purchases of held-to-maturity securities (1,514) (3,324)
Purchases of available-for-sale securities (4,561)
Proceeds from maturities of held-to-maturity
securities 4,185 15,024
Proceeds from sales or maturities of
available-for-sale securities 5,160 25,454
Increase in other assets (5,458) (4,050)
-----------------------
Net cash used in investing activities (97,683) (88,784)
-----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- --------------------------------------------------------------------------
Issuances of debt 210,693 411,768
Payments on debt (227,589) (481,415)
Dividends on common stock (28,645) (19,261)
Treasury and other stock transactions (162,143) (42,097)
-----------------------
Net cash used in financing activities (207,684) (131,005)
-----------------------
Effect of Exchange Rate Changes on Cash 738 (246)
-----------------------
Net Increase (Decrease) in Cash and Equivalents 12,125 (98,653)
Cash and Equivalents at Beginning of Period 12,350 132,137
-----------------------
Cash and Equivalents at End of Period $ 24,475 $ 33,484
==========================================================================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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<PAGE>
JOHNS MANVILLE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The condensed consolidated financial statements of Johns Manville Corporation as
of September 30, 1999 and December 31, 1998 and for the three and nine months
ended September 30, 1999 and 1998 reflect all normal, recurring adjustments
which are, in the opinion of management, necessary for a fair presentation of
the financial condition and the results of operations for the periods presented.
The year-end condensed consolidated balance sheet was derived from audited
financial statements, and as presented does not include all disclosures required
by generally accepted accounting principles. JM has reclassified the
presentation of certain prior period information to conform with the current
presentation format. Additional information regarding JM's accounting policies,
operations and financial position is contained or incorporated in JM's Form 10-K
for the year ended December 31, 1998 filed with the Securities and Exchange
Commission.
Note 1 - Inventories
The major classes of inventories were as follows:
<TABLE>
<CAPTION>
(Thousands of dollars)
September 30, December 31,
1999 1998
---------------------------
<S> <C> <C>
Finished goods $ 86,223 $ 84,393
Raw materials and supplies 40,916 33,371
Work-in-process 11,811 13,945
---------------------------
$138,950 $131,709
===========================
</TABLE>
Note 2 - Other Income (Expense), net
In the second quarter of 1998, JM 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.
Note 3 - Income Taxes
JM's year-to-date effective tax rates were approximately 21 percent in 1999 and
27 percent in 1998. JM receives a tax deduction and a related reduction in its
effective tax rate for all payments JM makes to the Manville Personal Injury
Settlement Trust (the "Trust") and for all proceeds the Trust receives from
sales of JM's common stock at the time such payments or proceeds are transferred
to a special designated settlement fund of the Trust or paid to claimants. JM
benefited from such stock sale proceeds and dividends during both years.
Note 4 - Debt
On July 7, 1999, JM issued $200 million of unsecured senior notes in two
tranches: $75 million at 7.71 percent due in 2006; and $125 million at 7.92
percent due in 2009. The proceeds were used to repurchase shares from the Trust
(see Note 6) and repay existing indebtedness.
On June 30, 1999, JM prepaid a bond payable to the Trust in the principal amount
of $23.9 million, resulting in a loss on the early extinguishment of debt of
$5.8 million, net of taxes of $3.6 million. The bond consisted of fixed
payments totaling $75 million per year in 2013 and 2014 and had been discounted
at 13 percent. In the second quarter of 1998, JM repurchased,
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<PAGE>
through a cash tender offer, substantially all of its $400 million of 10.875
percent senior notes due 2004. This transaction resulted in an extraordinary
loss on the early extinguishment of debt of $31.8 million, net of taxes of $18.1
million.
In order to fix a portion of JM's variable interest rate debt and reduce the
aggregate risk to movements in interest rates, JM has interest rate swaps with
notional values totaling approximately $104 million. At September 30, 1999, the
fair market value of these instruments reflected unrecognized losses of
approximately $1.5 million.
Note 5 - Cumulative Effect of Accounting Change
Effective January 1, 1998, JM 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 JM'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.
Note 6 - Earnings Per Common Share and Equity
Basic and diluted earnings per common share amounts were determined using the
reported net income and the following common equivalent shares:
<TABLE>
<CAPTION>
Third Quarter First Nine Months
1999 1998 1999 1998
- ------------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Basic 149,014,000 159,158,000 156,361,000 160,267,000
Diluted 150,219,000 161,346,000 157,959,000 162,201,000
</TABLE>
The difference between the basic and diluted weighted average shares outstanding
is due to stock options and deferred stock rights. JM paid regular quarterly
dividends of $0.06 per common share totaling $9.5 million, and $0.18 per common
share totaling $28.6 million, in the third quarter and first nine months of
1999, respectively. JM paid regular quarterly dividends of $0.04 per common
share totaling $6.3 million, and $0.12 per common share totaling $19.3 million,
for the third quarter and first nine months of 1998, respectively.
In July 1999, JM purchased 12.2 million shares of its common stock from the
Trust at $13.675 per share. Accordingly, treasury stock, at cost, of $166.8
million was recorded in the third quarter of 1999. In the second quarter of
1998, JM purchased 3.6 million shares of its common stock from the Trust at $13
per share and recorded treasury stock, at cost, of $46.8 million.
Note 7 - Acquisitions
Engineered Products Segment
On January 1, 1999, JM completed the acquisition of Hoechst's
Spunbond/Monofilament operations. This acquisition expands existing product
lines of JM's Engineered Products segment in North America and Europe. The cash
payment for this acquisition, accounted for under the purchase method, was
$227.3 million, subject to certain post-closing adjustments including
finalizations of the value of working capital acquired and ownership
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<PAGE>
transfer of a plant located in China. The acquisition was financed with
borrowings from JM's credit facilities. The acquisition borrowings, drawn during
1998, were shown as the acquisition deposit on JM's December 31, 1998 balance
sheet. The allocation of the purchase price will be finalized upon completion of
asset valuations, determination of preacquisition and purchase price
contingencies, and finalization of restructuring decisions. Based on preliminary
estimates, JM's September 30, 1999 balance sheet reflects the following
allocation of the $227.3 million cash payment:
<TABLE>
<CAPTION>
(Thousands of dollars)
- -----------------------------------------------------------------
<S> <C>
Current Assets $ 74,756
Noncurrent Assets (including Goodwill) 179,295
Liabilities Assumed (26,751)
- -----------------------------------------------------------------
Cash Payment $227,300
=================================================================
</TABLE>
The consolidated results of operations on a pro forma basis as if the operations
had been acquired as of the beginning of 1998 were as follows:
<TABLE>
<CAPTION>
(Thousands of dollars,
except per share amounts)
- ---------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Net Sales $550,630 $1,504,590
Income before Extraordinary Item and
Cumulative Effect of Accounting Change $ 55,695 $ 152,202
Net Income $ 55,695 $ 147,857
Diluted Earnings Per Share:
Income before Extraordinary Item and
Cumulative Effect of Accounting Change $ 0.34 $ 0.94
Net Income $ 0.34 $ 0.92
- ---------------------------------------------------------------------------------------------
</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 date, nor are they
necessarily indicative of future results of operations.
Effective November 1, 1999, the ownership of the plant located in China was
transferred to JM without additional cash purchase price. During the fourth
quarter, the allocated purchase price will be adjusted for the estimated fair
values of the assets acquired and liabilities assumed related to this plant.
Roofing Systems Segment
On September 2, 1999, JM acquired certain polyiso roofing insulation and
sheathing foam business operations from Apache Products Company. In connection
with this acquisition, JM assumed, and subsequently repaid, $12.5 million of
debt. This acquisition complements existing JM product lines and is accounted
for under the purchase method.
Note 8 - 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, along with Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 - an
amendment of FASB Statement No. 133" issued in July 1999, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000 and establishes
accounting and reporting standards for
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<PAGE>
derivative instruments and for hedging activities. It requires that JM
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. At this time,
JM cannot determine the effects, if any, adopting this statement will have on
its financial condition, liquidity or results of operations.
Note 9 - Business Segment Information
JM reports separately the results of the Insulation, Roofing Systems and
Engineered Products segments. The Insulation segment consists of JM's building,
commercial/industrial and original equipment manufacturers ("OEM") insulation
businesses. The Roofing Systems segment consists of JM's commercial/industrial
roofing systems business. The Engineered Products segment consists of JM's mats
and fibers, glass fabrics and air filtration businesses.
<TABLE>
<CAPTION>
(Thousands of dollars)
Three Months
Ended September 30,
- -------------------------------------------------------------------
NET SALES 1999 1998
- -------------------------------------------------------------------
<S> <C> <C>
Insulation $ 214,078 $ 194,967
Roofing Systems 167,881 166,123
Engineered Products 199,537 135,458
Eliminations (12,165) (8,316)
- -------------------------------------------------------------------
$ 569,331 $ 488,232
===================================================================
INCOME FROM OPERATIONS
- -------------------------------------------------------------------
Insulation $ 52,172 $ 36,405
Roofing Systems 14,823 18,974
Engineered Products 31,541 16,982
- -------------------------------------------------------------------
$ 98,536 $ 72,361
===================================================================
</TABLE>
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
- -------------------------------------------------------------------
NET SALES 1999 1998
- -------------------------------------------------------------------
<S> <C> <C>
Insulation $ 610,080 $ 532,572
Roofing Systems 451,841 418,892
Engineered Products 594,664 392,658
Eliminations (32,644) (21,330)
- -------------------------------------------------------------------
$1,623,941 $1,322,792
===================================================================
INCOME FROM OPERATIONS
- -------------------------------------------------------------------
Insulation $ 135,815 $ 78,095
Roofing Systems 36,295 38,722
Engineered Products 90,609 65,674
Corporate and Eliminations (Note 2) 35,988
- -------------------------------------------------------------------
$ 262,719 $ 218,479
===================================================================
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
OPERATING ASSETS 1999 1998
- -------------------------------------------------------------------
<S> <C> <C>
Insulation $ 529,570 $ 512,428
Roofing Systems 471,404 429,342
Engineered Products 781,118 591,839
Corporate (33,723) (39,216)
- -------------------------------------------------------------------
$1,748,369 $1,494,393
===================================================================
</TABLE>
Net sales included in Eliminations relate principally to intersegment sales from
the Engineered Products segment to the Roofing Systems segment at
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prices approximating market. Operating assets primarily include amounts directly
assignable to each segment. These include trade receivables totaling $294.1
million and $239.9 million at September 30, 1999 and December 31, 1998,
respectively; inventory (at standard cost); goodwill; property, plant and
equipment; and capitalized software. Capitalized software included in operating
assets was $9.9 million at September 30, 1999, and $10 million at December 31,
1998. Corporate operating assets relate principally to the adjustment of
business segment inventories to a LIFO basis.
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<PAGE>
Item 2.
JOHNS MANVILLE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales in the third quarter of 1999 increased $81.1 million, or 16.6 percent,
to $569.3 million from $488.2 million for the same period of 1998. Gross profit
increased $35.4 million to $165.6 million from $130.2 million. The gross profit
margin for the third quarter of 1999 increased to 29.1 percent compared with
26.7 percent for the same period of 1998 primarily due to an improved pricing
environment in building insulation and contributions from acquisitions.
Selling, general and administrative and research, development and engineering
expenses, combined, increased $5.3 million in 1999, in part due to acquisitions
completed over the last year. However, these expenses were lower as a
percentage of sales at 10.3 percent compared with 11 percent for 1998. Other
expense, net, for 1999 was $8.2 million, compared with $4.2 million in 1998,
reflecting higher pension expenses and goodwill amortization. Income from
operations for the third quarter of 1999 was $98.5 million, up 36.2 percent,
compared with $72.4 million for the third quarter of 1998.
Net sales in the first nine months of 1999 increased $301.1 million, or 22.8
percent, to $1,623.9 million from $1,322.8 million for the same period of 1998.
Gross profit increased $117.6 million to $463.4 million from $345.8 million. The
gross profit margin for the first nine months of 1999 increased to 28.5 percent
from 26.1 percent for 1998 due primarily to an improved pricing environment in
building insulation and contributions from acquisitions. Selling, general and
administrative and research, development and engineering expenses, combined,
increased $21.6 million in 1999, in part due to acquisitions completed over the
last year. These expenses were lower as a percentage of sales at 11 percent
compared with 11.9 percent for 1998. Other expense, net, for 1999 was $21.6
million and includes higher pension expenses, higher goodwill amortization and
expenses related to JM's exploration of strategic alternatives. Other income
for 1998 was $30.2 million, reflecting the proceeds of $36 million from a mining
royalty sale and the settlement of escrowed funds related to a landfill site
formerly used by JM. Income from operations for the first nine months of 1999
was $262.7 million, up 44 percent, compared with $182.5 million for 1998,
excluding the royalty gain.
Insulation Segment
Net sales increased $19.1 million, or 9.8 percent, to $214.1 million for the
third quarter of 1999 from $195 million in 1998. Income from operations
increased 43.3 percent to $52.2 million for the third quarter of 1999 from $36.4
million in 1998. For the first nine months of 1999, net sales increased $77.5
million, or 14.6 percent, to $610.1 million from $532.6 million in 1998. For the
same period, income from operations increased $57.7 million, or 73.9 percent, to
$135.8 million. Reflecting strength across JM's building insulation business,
these increases are due largely to improved selling prices, along with year-to-
date volume growth, as JM has continued to operate at full capacity due to
favorable North American residential and commercial construction markets. The
selling price improvements, along with volume and productivity increases, also
led to strong 1999 margins. In commercial and industrial insulation, higher
gross profits on moderate net sales increases for the three and nine month
periods
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<PAGE>
of 1999 compared with 1998 reflected volume growth and higher selling prices in
mechanical and OEM.
Roofing Systems Segment
Net sales increased slightly to $167.9 million for the third quarter of 1999
from $166.1 million for the third quarter of 1998. Income from operations in the
third quarter of 1999 was $14.8 million, a 21.9 percent decline from $19 million
in the comparable period of 1998. Continued pricing pressures in membranes and
polyiso foam insulation and softer-than-expected demand negatively impacted this
segment during the quarter. For the nine months ended September 30, 1999, net
sales increased $32.9 million, or 7.9 percent, to $451.8 million compared with
$418.9 million for the same period of 1998, driven primarily by incremental
volume growth from a December 1998 acquisition. Income from operations for the
first nine months of 1999 was $36.3 million, a 6.3 percent decline compared with
$38.7 million last year as pricing pressures and demand declines offset
acquisition-related sales volume increases.
Engineered Products Segment
Net sales increased $64 million, or 47.3 percent, to $199.5 million in the third
quarter of 1999 compared with $135.5 million for 1998. Income from operations
for the third quarter of 1999 increased $14.5 million, or 85.7 percent, to $31.5
million from $17 million for 1998. For the first nine months of 1999, net sales
increased $202 million, or 51.4 percent, to $594.7 million from $392.7 million.
Income from operations for the nine month periods increased $24.9 million, or 38
percent, to $90.6 million for 1999 from $65.7 million in 1998. The incremental
impacts of JM's January 1, 1999 acquisition of Hoechst's Spunbond/Monofilament
North American and European operations produced substantial increases in net
sales and operating income. The U.S. mats and fibers business experienced
significantly higher sales for both 1999 periods on volume growth from increased
demand in roofing mats, specialty mats and base fibers. While the higher volumes
drove the third quarter increase for this business, results for the nine months
ended September 30, 1999 continued to be adversely impacted by costs associated
with a scheduled furnace rebuild which was completed in the first quarter.
Meanwhile, sales and operating income declined for European mats and fibers and
fabrics businesses during 1999, reflecting continued softness in Europe. While
operating income improved in the filtration business in the third quarter on
higher volume for microfibers and increased clean room build activity, year-to-
date results were negatively impacted by competitive pressures and weakness in
European and Asian markets.
Interest Expense, net
Interest expense, net of interest income, increased $2.4 million, or 38.8
percent, to $8.4 million for the third quarter of 1999 compared with $6 million
in 1998. Increased borrowings used to finance the July 1999 repurchase of
common shares and repay existing indebtedness led to the higher quarterly
interest expense, net. For the first nine months of 1999 interest expense, net,
decreased $2.4 million, or 9.9 percent, to $22.1 million. Along with strong
1999 operating cash flows, interest expenses, net were reduced by the repurchase
of substantially all of JM's $400 million of 10.875 percent senior notes in May
1998 using revolving credit facilities with significantly lower interest rates.
Income Taxes
JM's year-to-date effective tax rates were approximately 21 percent in 1999 and
27 percent in 1998. JM receives a tax deduction and a related reduction in its
effective tax rate for all payments JM makes to the Trust and for all proceeds
the Trust receives from sales of JM's common stock at the time such
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<PAGE>
payments or proceeds are transferred to a special designated settlement fund of
the Trust or paid to claimants. JM benefited from such stock sale proceeds and
dividends during both years.
Under Section 468B of the U.S. Internal Revenue Code, JM 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 generate a tax deduction for JM.
JM 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 JM's common stock or the settlement of this obligation between JM
and the Trust.
Extraordinary Loss on Early Extinguishment of Debt
On June 30, 1999, JM prepaid a bond payable to the Trust in the principal amount
of $23.9 million, resulting in a loss on the early extinguishment of debt of
$5.8 million ($0.04 per share), net of taxes of $3.6 million. The bond
consisted of fixed payments totaling $75 million per year in 2013 and 2014 and
had been discounted at 13 percent.
During the second quarter of 1998, JM repurchased substantially all of its $400
million of 10.875 percent senior notes due 2004. The repurchase
resulted in an extraordinary loss on the early extinguishment of debt of $31.8
million ($0.19 per share), net of taxes of $18.1 million.
Cumulative Effect of Accounting Change
Effective January 1, 1998, JM 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 ($0.17 per share), net of taxes of $17.9 million.
Net Income
Due to the factors discussed above, JM's net income for the third quarter of
1999 was $73.2 million, or $0.49 per diluted share, compared with net income for
the third quarter of 1998 of $50.7 million, or $0.31 per diluted share. Year-to-
date net income for 1999 was $185.5 million, or $1.17 per diluted share compared
with net income for the same period of 1998 of $137.3 million, or $0.85 per
diluted share.
Liquidity and Capital Resources
Johns Manville Corporation'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 JM and its subsidiaries. At September 30,
1999, JM was in compliance with these covenants.
At September 30, 1999, JM had net working capital of $173.1 million, including
cash and marketable securities totaling $29.1 million. Total cash and
marketable securities located outside the U.S. and Canada were approximately
$22.6 million. At September 30, 1999, JM had approximately $395 million
available under its $750 million unsecured multicurrency revolving credit
facilities. JM's international subsidiaries had additional
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borrowing and working capital facilities totaling approximately $17.7 million,
of which $14.8 million was available at September 30, 1999.
Net operating activities provided $316.8 million of cash during the first nine
months of 1999, which includes the premium on the prepayment of the bond payable
to the Trust. Net operating activities for the same period of 1998 provided
$121.4 million, including the gain from the sale of the Stillwater mining
royalty, partially offset by the premium on the prepayment of the 10.875 percent
senior notes. Cash flows from operating activities are primarily influenced by
selling prices, sales volume and working capital requirements. As discussed in
"Results of Operations," JM benefited from selling price improvements in
building insulation, contributions from acquisitions and volume increases during
the first nine months of 1999. Cash usages were also significantly lower in 1999
due to improved working capital management, along with lower inventory builds
resulting from high levels of demand in building insulation and mats and fibers
as these businesses operated at full capacity.
Investing activities for the nine months ended September 30, 1999 included $92.8
million for capital expenditures, principally to increase building insulation
capacity and to complete a furnace rebuild for mats and fibers. Estimated 1999
capital expenditures total approximately $135 million excluding acquisitions, of
which approximately $50 million relate to capacity expansion projects. During
the third quarter of 1999, JM began construction on a new two module fiber glass
insulation line to expand production capacity at its Winder, Georgia facility.
JM anticipates that the line will become operational during the third quarter of
2000 and is expected to help meet forecasted demand for building and
commercial/industrial insulation products, particularly in the southeastern part
of the United States. As of September 30, 1999, outstanding purchase
commitments for capital projects totaled $43.4 million. Investing activities in
1999 also included the acquisition of certain polyiso roofing insulation and
sheathing foam business operations from Apache Products Company. Investing
activities for the first nine months of 1998 included the combined purchase
prices for acquisitions of $55 million, net of cash acquired, and capital
expenditures of $73.6 million.
Financing activities for the first nine months of 1999 included the July
issuance of $200 million of unsecured senior notes in two tranches: $75 million
at 7.71 percent due in 2006; and $125 million at 7.92 percent due in 2009. A
portion of the proceeds were used to finance the purchase of 12.2 million shares
of JM's common stock from the Trust at $13.675 per share, resulting in the
recognition of treasury stock of $166.8 million. The remaining proceeds were
used to repay existing indebtedness. Total repayments of debt were $227.6
million, including the prepayment of $23.9 million of the bond payable to the
Trust discussed above and $12.5 million of debt assumed in connection with the
Apache Products Company acquisition. Also during 1999 JM borrowed, and
subsequently repaid, $11 million under foreign facilities. In addition, JM paid
dividends of $0.18 per common share totaling $28.6 million, and received $4.6
million during the first nine months of 1999 from the exercise of stock options
previously granted to employees. JM's financing activities for the first nine
months of 1998 reflected repayments of debt totaling $481.4 million and
issuances of debt totaling $411.8 million, net, relating primarily to the
repurchase of its 10.875 percent senior notes. Also in 1998, JM purchased 3.6
million shares of its common stock from the Trust at $13 per share, and
recognized treasury stock, at cost, of $46.8 million and paid dividends of $0.12
per common share totaling $19.3 million.
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<PAGE>
Contingent Product Liability
Between 1988 and 1992, JM manufactured phenolic roofing insulation which may,
under certain circumstances, contribute to the corrosion of metal decks on which
it is installed. Subsequently, JM began a voluntary program to inspect such
metal decks and remediate where appropriate. JM has accrued for costs relating
to future inspections, remediation and anticipated claims. These accruals are
based on JM'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 our past remediation experience will continue over the remaining lives of
roofs insulated with JM's phenolic roofing insulation.
Pursuant to reimbursement agreements with JM's liability carriers and former
owner of the phenolic roofing insulation business, JM is entitled to receive
reimbursement for a substantial portion of future costs to be incurred by JM for
inspection and remediation.
In 1996, JM 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. JM is defending
these allegations vigorously.
JM 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 JM's financial condition, liquidity or results of
operations.
Environmental Contingencies
At September 30, 1999, JM had remediation activities in progress at four sites,
out of a total of 15 such sites for which JM has identified environmental
conditions requiring remediation. In addition, JM has been identified as a
potentially responsible party at 15 sites JM did not own or operate under the
federal Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") or similar state legislation. Of these 15 sites, JM's potential
liability for 12 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, JM 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 JM settled certain litigation concerning
disposal activities prior to consummation of JM's plan of reorganization. The
settlement agreement, which was made a court order, limits JM'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 JM prior to
consummation of its plan of reorganization. The agreement resolved JM's
liability at certain historical sites and also covers CERCLA and RCRA liability
for other disposal sites at which the EPA
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<PAGE>
has incurred or may incur response costs and which were used by JM prior to the
consummation of the plan of reorganization. The agreement provides that the
amount JM 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 JM with respect to such sites. JM believes that all
such activities and claims, if any, will be subject to the agreement.
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 JM's historical remediation experience, currently enacted
environmental laws and regulations, and existing remediation technology, JM
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 JM's financial
condition, liquidity or results of operations.
Year 2000 Compliance
JM is engaged in a comprehensive project to modify its systems for year 2000
compliance. JM's approach to year 2000 compliance activities may be broken down
into five general areas:
. inventory,
. analysis/planning,
. testing and repair/modification,
. certification, and
. contingency plans.
As of September 30, 1999, JM has completed substantially all of the
project including:
. embedded technology,
. performing on-site audits at operating locations,
. contacting vendors to obtain compliant releases of hardware and
software,
. 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 were
substantially completed during the second quarter of 1999. Certifications began
during the fourth quarter of 1998, and were substantially completed by the
second quarter of 1999. Business continuity and contingency plans, including
among other things manual equipment operations and scheduling, were
substantially completed by the third quarter of 1999. To date, the phases of the
project currently underway have progressed substantially as planned. Failure by
JM or its vendors and customers to achieve year 2000 compliance could result in
a disruption of operations possibly impacting our ability to:
. obtain raw materials,
. produce products, or
. collect revenues.
However, JM believes that its compliance efforts will be successful and that
significant disruptions of operations are unlikely to develop. JM has spent
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<PAGE>
approximately $3 million through September 30, 1999 on year 2000 projects and
activities. Total costs for year 2000 related projects and activities, expected
to be completed in 1999, are currently estimated to be approximately $3.5
million. However, if additional costs are incurred in excess of the above
estimates, such costs are not expected to have a material adverse effect on JM's
financial condition, liquidity, or results of operations. All expenditures will
be funded through operations and will directly impact the reported level of
future 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. JM's European
businesses, primarily in the Engineered Products segment, accounted for
approximately 16 percent of total sales for the first nine months of 1999. JM
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.
Acquisitions
On January 1, 1999, JM completed the acquisition of Hoechst's
Spunbond/Monofilament operations. This acquisition expands existing product
lines of the Engineered Products segment in North America and Europe. The cash
payment for this acquisition, accounted for under the purchase method, was
$227.3 million subject to certain post-closing adjustments including
finalizations of the value of working capital acquired. The acquisition was
financed with borrowings from credit facilities. The acquisition borrowings,
drawn during December 1998, were shown as the acquisition deposit on the balance
sheet at December 31, 1998. The preliminary allocation of the cash payment is
reflected in the September 30, 1999 balance sheet and will be finalized upon
completion of asset valuations, determination of preacquisition and purchase
price contingencies, and finalization of restructuring decisions.
Johns Manville Corporation 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, JM may need to
access capital markets to pay the principal of its credit facilities, or in
connection with share repurchases or possible significant acquisitions.
Forward-Looking Statements
This report contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Statements of JM contained in
this report concerning matters that are not historical facts, including, without
limitation, statements concerning:
. expectations concerning levels of capital spending,
. expectations of the ability of the capacity expansion at JM's Winder,
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<PAGE>
Georgia facility to help meet forecasted demand for building and
commercial/industrial products, particularly in the southeastern part
of the United States,
. expectations as to contingencies related to taxes, phenolic roofing
insulation and environmental liabilities,
. estimates on the ability of JM and its vendors and customers to
replace, modify or upgrade computer systems in ways that adequately
address the year 2000 issue,
. expectations regarding the Euro conversion and
. the 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 JM are subject to risks and uncertainties that
could cause actual results to differ materially from those expressed in such
statements. Important factors relating to such risks and uncertainties are set
forth below.
Factors that could affect the forward-looking statements generally are related
to demand for JM's products, overall capacity levels in the industry and the
overall competitive environment in which we operate. These factors are
discussed in "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Johns Manville Corporation's Annual
Report on Form 10-K for the year ended December 31, 1998.
Factors that could affect JM's capital spending and capital expansion
activities, ability to satisfy debt service requirements, ongoing capital
expansion program and other ongoing operating costs, include, without
limitation, the general factors noted above, the level of cash flow generated by
JM and the ability of JM to otherwise fund such commitments, which in turn could
be affected by general U.S. and international economic conditions as well as
financial market conditions. In addition, JM's expansion activities could be
affected by risks inherent in large capital projects.
JM's ability to realize expected benefits from acquisitions depends on a number
of factors including, without limitation, successful integration of newly
acquired operations, technology, products, employees and the overall economic
factors referred to above.
Specific factors that might affect the ability of JM 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 our
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."
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."
I-17
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
-----------------
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
---------------------
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
-------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
Not applicable.
ITEM 5. OTHER INFORMATION.
------------------
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
(a) Exhibits.
--------
Exhibit 27, Financial Data Schedule.
(b) Form 8-K.
--------
None.
II-1
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHNS MANVILLE CORPORATION
--------------------------
(Registrant)
Date: November 15, 1999 By: /s/ D. D. Persson
-------------------------------------------
D. D. Persson
Vice President, Assistant
General Counsel and Secretary
Date: November 15, 1999 By: /s/ J. P. Murphy
-------------------------------------------
J. P. Murphy
Senior Vice President and
Chief Financial Officer
II-2
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1999 FORM 10-Q OF JOHNS MANVILLE CORPORATION AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<CASH> 24,475
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<RECEIVABLES> 335,916
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