<PAGE> 1
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 June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- ------------
Commission file number 1-8247
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 August 7, 2000, there were 147,730,437 shares of the registrant's
common stock outstanding.
<PAGE> 2
*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.
I-1
<PAGE> 3
JOHNS MANVILLE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents $ 64,695 $ 61,140
Marketable securities, at cost,
which approximates market 144 3,633
Receivables 317,341 283,102
Inventories 158,995 160,340
Prepaid expenses 7,255 10,714
Deferred tax assets 26,909 39,750
----------- ------------
Total Current Assets 575,339 558,679
Property, Plant and Equipment,
net of accumulated depreciation
of $742,981 and $718,545, respectively 1,068,467 1,040,343
Deferred Tax Assets 144,421 144,027
Goodwill, net of accumulated amortization
of $50,202 and $43,447, respectively 264,815 289,582
Other Assets 266,704 257,002
----------- ------------
$ 2,319,746 $ 2,289,633
=========== ============
LIABILITIES
Current Liabilities
Short-term debt $ 11,140 $ 10,096
Accounts payable 159,687 169,747
Compensation and employee benefits 94,796 117,255
Income taxes 46,768 16,065
Other accrued liabilities 87,025 97,847
----------- ------------
Total Current Liabilities 399,416 411,010
Long-Term Debt, less current portion 472,484 503,148
Postretirement Benefits Other Than Pensions 181,918 177,836
Deferred Income Taxes and Other
Noncurrent Liabilities 319,531 329,339
----------- ------------
1,373,349 1,421,333
----------- ------------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Common Stock 1,647 1,646
Capital in Excess of Par Value 556,926 552,549
Treasury Stock, at cost (229,851) (229,851)
Unearned Stock Compensation (3,344) (2,511)
Retained Earnings 606,143 533,879
Accumulated Other Comprehensive Income 14,876 12,588
----------- ------------
946,397 868,300
----------- ------------
$ 2,319,746 $ 2,289,633
=========== ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
I-2
<PAGE> 4
JOHNS MANVILLE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Thousands of dollars, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 554,317 $ 558,852 $ 1,071,185 $ 1,054,610
Cost of Sales 397,264 396,953 777,454 756,882
Selling, General and Administrative 46,374 46,261 90,650 100,012
Research, Development
and Engineering 8,798 10,373 17,064 20,087
Plant Consolidation Charges (Note 3) 18,837 18,837
Other Income (Expense), net (3,942) (6,089) (11,548) (13,446)
----------- ----------- ----------- -----------
Income from Operations 79,102 99,176 155,632 164,183
Interest Income 2,239 536 3,163 1,164
Interest Expense 7,148 7,271 14,640 14,915
----------- ----------- ----------- -----------
Income before Income Taxes and
Extraordinary Item 74,193 92,441 144,155 150,432
Income Tax Expense (Note 4) 29,335 12,046 54,172 32,343
----------- ----------- ----------- -----------
Income before Extraordinary Item 44,858 80,395 89,983 118,089
Extraordinary Loss on Early
Extinguishment of Debt,
net of tax (Note 5) (5,758) (5,758)
----------- ----------- ----------- -----------
Net Income $ 44,858 $ 74,637 $ 89,983 $ 112,331
=========== =========== =========== ===========
Comprehensive Income $ 43,079 $ 79,520 $ 92,271 $ 124,437
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE (Note 6)
Basic:
Income before Extraordinary Item $ .30 $ .51 $ .61 $ .74
Extraordinary Loss on Early
Extinguishment of Debt,
net of tax (Note 5) (.04) (.04)
----------- ----------- ----------- -----------
Net Income $ .30 $ .47 $ .61 $ .70
=========== =========== =========== ===========
Diluted:
Income before Extraordinary Item $ .30 $ .50 $ .60 $ .73
Extraordinary Loss on Early
Extinguishment of Debt,
net of tax (Note 5) (.04) (.04)
----------- ----------- ----------- -----------
Net Income $ .30 $ .46 $ .60 $ .69
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
I-3
<PAGE> 5
JOHNS MANVILLE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 89,983 $ 112,331
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 58,206 57,404
Deferred taxes 15,718 11,153
Plant consolidation charges 18,393
Pension and postretirement benefits, net 6,124 9,878
Other, net 2,322 7,509
(Increase) decrease in current assets:
Receivables (32,054) (39,871)
Inventories (608) 12,929
Prepaid expenses 3,466 (329)
Increase (decrease) in current liabilities:
Accounts payable 115 9,724
Compensation and employee benefits (20,983) (4,920)
Income taxes 31,277 (3,286)
Other accrued liabilities (21,934) (8,676)
Change in other noncurrent liabilities (9,873) (5,028)
--------- ---------
Net cash provided by operating activities 140,152 158,818
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (91,221) (65,032)
Proceeds from sales of assets 92 15
Purchases of held-to-maturity securities (1,014)
Purchases of available-for-sale securities (4,557) (4,507)
Proceeds from maturities of held-to-maturity
securities 513 3,688
Proceeds from sales or maturities of
available-for-sale securities 4,794 5,160
Increase in other assets (3,218) (5,180)
--------- ---------
Net cash used in investing activities (93,597) (66,870)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving credit facilities, net (23,045) (30,059)
Issuances of debt 431 9,200
Payments on debt (1,578) (36,029)
Dividends on common stock (17,707) (19,078)
Treasury and other stock transactions 1,295 4,640
--------- ---------
Net cash used in financing activities (40,604) (71,326)
--------- ---------
Effect of Exchange Rate Changes on Cash (2,396) (536)
--------- ---------
Net Increase in Cash and Equivalents 3,555 20,086
Cash and Equivalents at Beginning of Period 61,140 12,350
--------- ---------
Cash and Equivalents at End of Period $ 64,695 $ 32,436
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
I-4
<PAGE> 6
JOHNS MANVILLE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The condensed consolidated financial statements of Johns Manville Corporation
("JM") as of June 30, 2000 and December 31, 1999 and for the three and six
months ended June 30, 2000 and 1999 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, 1999 filed with the Securities and Exchange
Commission.
Note 1 - Definitive Merger Agreement
On June 23, 2000, JM announced that it had entered into a definitive merger
agreement with an investor group led by affiliates of Hicks, Muse, Tate & Furst
Incorporated and Bear Stearns Merchant Banking. If the merger is completed, each
outstanding share of JM common stock, other than some shares of common stock to
be converted into shares of common stock of the surviving corporation by the
Manville Personal Injury Settlement Trust (the "Trust") and some members of JM
management, will be converted into the right to receive $13.625 in cash and 0.02
of a share of a 13 percent pay-in-kind preferred stock having a liquidation
preference of $100 per full share. The conversion into the right to receive cash
and pay-in-kind preferred stock will be recorded as a treasury stock
transaction. In addition, the merger will be accounted for as a
recapitalization; therefore, the historical bases of JM's assets and liabilities
will not be affected by the transaction. The transaction is expected to close
before the end of the year, subject to various conditions, including receipt of
financing and shareholder and regulatory approvals.
Note 2 - Inventories
The major classes of inventories were as follows:
<TABLE>
<CAPTION>
(Thousands of dollars)
June 30, December 31,
2000 1999
---------- ------------
<S> <C> <C>
Finished goods $ 104,329 $ 102,924
Raw materials and supplies 41,363 44,874
Work-in-process 13,303 12,542
---------- ------------
$ 158,995 $ 160,340
========== ============
</TABLE>
Note 3 - Plant Consolidation Charges
In connection with a rationalization process which commenced in the second
quarter of 2000, JM recorded pretax plant consolidation charges totaling $18.8
million, of which $18.4 million related to Roofing Systems and $0.4 million
related to Engineered Products. Plant consolidation charges in Roofing Systems
were due to the closure of certain manufacturing and warehouse facilities. The
purpose of these closures is to increase productivity by eliminating certain
operations and consolidating others into
I-5
<PAGE> 7
existing facilities. These charges include the noncash write-down of related
assets to net realizable values, pursuant to Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Assets to Be Disposed Of," totaling $16.9 million and other closure costs of
$1.5 million requiring cash outlays of which the majority will be settled in
2000. The asset write-downs include $10.6 million of goodwill related to the
facility closures and $6.3 million for fixed and other assets, net of
anticipated sales proceeds. The $1.5 million of other closure costs include $1
million for the separation of 93 hourly and 28 salaried employees. These actions
are expected to reduce annual operating costs in Roofing Systems by
approximately $8 million to $9 million, without negatively impacting JM's
revenue. During the second quarter, JM spent $0.8 million in cash related to the
closure costs, which resulted in a liability of $0.7 million as of June 30,
2000.
For Engineered Products, reviews were initiated during the second quarter of
2000 for the purpose of identifying areas where efficiencies could be improved
by re-engineering and streamlining certain manufacturing and administrative
processes. Consequently, plant consolidation charges related to outside
consulting and business design services were incurred during the second quarter.
All of the actions described above are part of an ongoing process as JM
continues to evaluate its operations.
Note 4 - Income Taxes
JM's year-to-date effective tax rates were approximately 38 percent in 2000 and
22 percent in 1999. 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 payments or
proceeds are transferred to a special designated settlement fund of the Trust or
paid to claimants.
JM's income tax expense of $32.3 million for the first six months of 1999
reflects benefits from the July 1999 Trust stock sale proceeds (see Note 6);
there was no such Trust stock sale in 2000. JM's first quarter 1999 income tax
expense of $20.3 million at an effective rate of 35 percent did not include such
benefits as Trust stock sale proceeds were not anticipated at that time.
Consequently, income tax expense for the second quarter of 1999 was $12 million
representing a 13 percent effective tax rate.
Note 5 - Debt
In order to reduce the aggregate risk of higher interest expense caused by
increases in interest rates on JM's variable interest rate debt, JM has entered
into interest rate swaps with notional values totaling approximately $94
million. At June 30, 2000, the fair market value of these instruments reflected
unrecognized gains of approximately $0.7 million.
On June 30, 1999, JM prepaid bonds 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. These bonds consisted of a series of
fixed payments totaling $75 million in each of 2013 and 2014, discounted at 13
percent.
I-6
<PAGE> 8
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 weighted average number of common shares:
<TABLE>
<CAPTION>
Second Quarter First Six Months
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic 148,295,000 160,233,000 148,268,000 160,095,000
Diluted 148,862,000 161,536,000 148,756,000 161,891,000
</TABLE>
The difference between 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 $8.9 million, and $0.12 per common
share totaling $17.7 million, in the second quarter and first six months of
2000, respectively. JM paid regular quarterly dividends of $0.06 per common
share totaling $9.6 million, and $0.12 per common share totaling $19.1 million,
for the second quarter and first six months of 1999, 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.
Note 7 - Commitments and Contingencies
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. Since 1993 JM has had a program to inspect such metal decks and
remediate where appropriate. JM has accrued for expected 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 and
remaining expected lives of roofs on which phenolic insulation has been
installed. At June 30, 2000 JM had accruals of $21.9 million in connection with
these anticipated costs.
JM has entered into reimbursement agreements with JM's liability carriers and
the former owner of the phenolic roofing insulation business, which provide for
reimbursement of certain future costs related to phenolic roofing insulation to
be incurred by JM. At June 30, 2000 JM had receivables of $29.5 million in
connection with the expected reimbursement of these anticipated costs.
On April 12, 2000 JM entered into a settlement agreement with representatives of
a class consisting of substantially all building owners in the United States
with JM's phenolic roof insulation installed on their metal roof decks. The
settlement agreement, which provides for compensation to these owners, is
subject to certain conditions, including court approval before becoming final. A
final court hearing is scheduled for December 13, 2000.
If the settlement agreement becomes final, JM expects to increase its accruals
by an amount in the range of $35 million to $40 million. In addition, as such
amount would be reimbursable under the reimbursement agreements, JM would
correspondingly increase its receivables by a like amount. Such reimbursements
could occur in periods subsequent to payments made under the settlement
agreement.
I-7
<PAGE> 9
Based on the information available to date and subject to the assumptions and
agreements described above, JM does not believe that its costs associated with
phenolic roofing insulation will have a material adverse effect on JM's
financial condition, liquidity or results of operations.
Environmental Contingencies
At June 30, 2000, JM had remediation activities in progress at five sites, out
of a total of 17 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 13 sites will be determined pursuant to the settlement agreement
described in the following paragraph. Two 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.
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 U.S. Environmental Protection Agency
("EPA") 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.
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 JM on
January 1, 2001, and establishes accounting and reporting standards for
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
I-8
<PAGE> 10
those instruments at fair value. At this time, JM cannot determine the effects,
if any, adopting this statement will have on its financial condition
presentation 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 and industrial and original equipment manufacturers ("OEM")
insulation businesses. The Roofing Systems segment consists of JM's commercial
and 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 June 30,
----------------------------
NET SALES 2000 1999
------------ ------------
<S> <C> <C>
Insulation $ 205,104 $ 203,020
Roofing Systems 160,771 162,122
Engineered Products 199,447 204,579
Eliminations (11,005) (10,869)
------------ ------------
$ 554,317 $ 558,852
============ ============
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM
Income from Operations:
Insulation $ 44,854 $ 44,538
Roofing Systems (2,578) 16,766
Engineered Products 36,826 37,872
------------ ------------
Income from Operations 79,102 99,176
Interest Income 2,239 536
Interest Expense 7,148 7,271
------------ ------------
Income before Income Taxes and Extraordinary Item $ 74,193 $ 92,441
============ ============
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended June 30,
----------------------------
NET SALES 2000 1999
------------ ------------
<S> <C> <C>
Insulation $ 406,979 $ 396,002
Roofing Systems 295,664 283,960
Engineered Products 388,268 395,127
Eliminations (19,726) (20,479)
------------ ------------
$ 1,071,185 $ 1,054,610
============ ============
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM
Income from Operations:
Insulation $ 87,963 $ 83,643
Roofing Systems 1,653 21,472
Engineered Products 66,016 59,068
------------ ------------
Income from Operations 155,632 164,183
Interest Income 3,163 1,164
Interest Expense 14,640 14,915
------------ ------------
Income before Income Taxes and Extraordinary Item $ 144,155 $ 150,432
============ ============
</TABLE>
Net sales included in Eliminations relate principally to intersegment sales from
the Engineered Products segment to the Roofing Systems segment at prices
approximating market.
I-9
<PAGE> 11
ITEM 2.
JOHNS MANVILLE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales in the second quarter of 2000 decreased slightly to $554.3 million
from $558.9 million for the same period of 1999. Gross profit decreased $4.8
million to $157.1 million from $161.9 million. The gross profit margin for the
second quarter of 2000 decreased to 28.3 percent compared with 29 percent for
the same period of 1999 primarily due to increased raw material and energy
costs. Selling, general and administrative and research, development and
engineering expenses, combined, decreased $1.5 million, or 2.6 percent, to $55.2
million in 2000, and were slightly lower as a percentage of sales at 10 percent.
Other expense, net, for the second quarter of 2000 decreased $2.2 million to
$3.9 million compared with $6.1 million for the same period of 1999, reflecting
a pension premium refund for certain foreign plans. Excluding plant
consolidation charges discussed below, income from operations for the second
quarter of 2000 was $97.9 million, down slightly, compared with $99.2 million
for the second quarter of 1999.
Net sales in the first half of 2000 increased $16.6 million, or 1.6 percent, to
$1,071.2 million from $1,054.6 million for the same period of 1999. Gross profit
decreased $4 million to $293.7 million from $297.7 million. The gross profit
margin for the first half of 2000 decreased to 27.4 percent from 28.2 percent
for 1999 primarily due to increased raw material and energy costs. Selling,
general and administrative and research, development and engineering expenses,
combined, decreased $12.4 million, or 10.3 percent, to $107.7 million in 2000,
and were lower as a percentage of sales at 10.1 percent compared with 11.4
percent for 1999. This improvement was due, in part, to reduced administrative
expenses resulting from cost control measures; and lower 2000 research and
development, and pension expenses. Other expense, net, for the first half of
2000 decreased $1.9 million to $11.5 million compared with $13.4 million for the
same period of 1999 due primarily to a pension premium refund for certain
foreign plans. Income from operations for the first half of 2000, excluding
plant consolidation charges, was $174.5 million, up 6.3 percent, compared with
$164.2 million for 1999.
Insulation Segment
Net sales increased slightly to $205.1 million for the second quarter of 2000
from $203 million in 1999. Income from operations for the segment increased
slightly to $44.9 million for the second quarter of 2000 from $44.5 million in
1999, due to reduced selling, general and administrative expenses, partially
offset by increased energy and other costs. Higher pricing in the segment
compared with the same period of 1999, although lower than fourth quarter 1999
levels, was offset by reduced volume due to a modest slow down in building
activity.
For the first half of 2000, net sales increased $11 million, or 2.8 percent, to
$407 million from $396 million in 1999. For the same period, income from
operations increased $4.4 million, or 5.2 percent, to $88 million from $83.6
million in 1999, due to reduced selling, general and administrative expenses,
partially offset by increased energy and other costs. Higher pricing in the
segment compared with the same period of 1999, although lower than fourth
quarter 1999 levels, was more than offset by reduced volume due to a modest slow
down in building activity.
I-10
<PAGE> 12
Roofing Systems Segment
Net sales declined slightly to $160.8 million for the second quarter of 2000
from $162.1 million for the second quarter of 1999. Excluding plant
consolidation charges of $18.4 million discussed below, income from operations
for the second quarter declined $1 million, or 5.7 percent, to $15.8 million
from $16.8 million for the same period in 1999. Price increases implemented
early in the quarter for polyiso foam, membranes and perlite board products; and
market share gains were offset by softness in the commercial and industrial
roofing markets. This segment also experienced significantly higher costs for
petroleum-based raw materials such as asphalt and vinyl in particular, and
higher energy costs during the second quarter of 2000.
For the six months ended June 30, 2000, net sales increased $11.7 million, or
4.1 percent, to $295.7 million compared with $284 million for the same period of
1999. Income from operations, excluding plant consolidation charges, declined
$1.5 million, or 6.6 percent, to $20 million from $21.5 million for the same
period of 1999. Significant volume growth, along with the incremental impacts of
a third quarter 1999 acquisition, were slightly offset by pricing pressures
experienced during the first quarter of 2000. This segment also experienced
higher costs for petroleum-based raw materials such as asphalt and vinyl in
particular, and higher energy costs.
Engineered Products Segment
Net sales decreased $5.2 million, or 2.5 percent, to $199.4 million in the
second quarter of 2000 compared with $204.6 million for 1999. Excluding plant
consolidation charges of $0.4 million discussed below, income from operations
for the second quarter of 2000 declined slightly to $37.3 million compared with
$37.9 million in 1999. These declines were due to significantly higher raw
material, particularly polymers, and energy costs, along with the unfavorable
currency translation impacts, partially offset by volume gains in most of the
businesses. In addition, while volumes in many European product lines,
especially in the spunbond business, improved during the second quarter, the
impact of unfavorable currency exchanges resulted in an overall decline in
reported European net sales. Without the impact of currency, net sales for this
segment would have been slightly higher in the second quarter of 2000 compared
with the same period of 1999. A slowdown in the North American housing
construction market led to reduced demand for U.S. mats and fibers products. Net
sales in filtration for the second quarter of 2000 reflected strong volumes for
microfibers, offset by competitive pricing pressures, compared with 1999.
For the first half of 2000, net sales decreased $6.8 million, or 1.7 percent, to
$388.3 million from $395.1 million. Income from operations, excluding plant
consolidation charges, increased $7.4 million, or 12.5 percent, to $66.5 million
for 2000 from $59.1 million in 1999. These increases were driven by first half
volume gains across most businesses, and solid manufacturing performance in both
the U.S. and Europe. The European mats and fibers business generated strong
volumes; however, unfavorable currency comparisons resulted in a decline in
reported European net sales for the first six months of 2000. Without the impact
of currency, net sales for this segment would have been slightly higher for the
first six months of 2000 compared with the same period of 1999. Net sales in
U.S. mats and fibers were flat for the first six months as the second quarter
slowdown in the North American housing construction market offset strong first
quarter demand in roofing mats, specialty mats and base fibers. Net sales for
filtration increased slightly in 2000 compared with 1999 as volume improvements
for microfibers were, for the most part, offset by competitive pricing
pressures.
I-11
<PAGE> 13
Plant Consolidation Charges
In connection with a rationalization process which commenced in the second
quarter of 2000, JM recorded pretax plant consolidation charges totaling $18.8
million, of which $18.4 million related to Roofing Systems and $0.4 million
related to Engineered Products. Plant consolidation charges in Roofing Systems
were due to the closure of certain manufacturing and warehouse facilities. The
purpose of these closures is to increase productivity by eliminating certain
operations and consolidating others into existing facilities. These charges
include the noncash write-down of related assets to net realizable values,
pursuant to Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Assets to Be Disposed Of," totaling
$16.9 million and other closure costs of $1.5 million requiring cash outlays of
which the majority will be settled in 2000. The asset write-downs include $10.6
million of goodwill related to the facility closures and $6.3 million for fixed
and other assets, net of anticipated sales proceeds. The $1.5 million of other
closure costs include $1 million for the separation of 93 hourly and 28 salaried
employees. These actions are expected to reduce annual operating costs in
Roofing Systems by approximately $8 million to $9 million, without negatively
impacting JM's revenue. During the second quarter, JM spent $0.8 million in cash
related to the closure costs, which resulted in a liability of $0.7 million as
of June 30, 2000.
For Engineered Products, reviews were initiated during the second quarter of
2000 for the purpose of identifying areas where efficiencies could be improved
by re-engineering and streamlining certain manufacturing and administrative
processes. Consequently, plant consolidation charges related to outside
consulting and business design services were incurred during the second quarter.
All of the actions described above are part of an ongoing process as JM
continues to evaluate its operations.
Interest Expense, net
Interest expense, net of interest income, decreased $1.8 million, or 27.1
percent, to $4.9 million for the second quarter of 2000 compared with $6.7
million in 1999. Interest expense, net, decreased $2.3 million, or 16.5 percent,
to $11.5 million for the first six months of 2000 compared with the same period
of 1999. Interest expense, net, was lower in both periods due to higher levels
of cash investments, higher average investment rates and lower debt balances,
partially offset by higher average borrowing rates.
Income Taxes
JM's year-to-date effective tax rates were approximately 38 percent in 2000 and
22 percent in 1999. 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's income tax expense of $32.3 million for the first six months of 1999
reflects benefits from the July 1999 Trust stock sale proceeds; there was no
such Trust stock sale in 2000. JM's first quarter 1999 income tax expense of
$20.3 million at an effective rate of 35 percent did not include such benefits
as Trust stock sale proceeds were not anticipated at that time. Consequently,
income tax expense for the second quarter of 1999 was $12 million representing a
13 percent effective tax rate.
I-12
<PAGE> 14
Extraordinary Loss on Early Extinguishment of Debt
On June 30, 1999, JM prepaid bonds 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. These bonds
consisted of a series of fixed payments totaling $75 million in each of 2013 and
2014, discounted at 13 percent.
Net Income
Due to the factors discussed above, JM's net income for the second quarter of
2000 was $44.9 million, or $0.30 per diluted share, compared with net income for
the second quarter of 1999 of $74.6 million, or $0.46 per diluted share.
Year-to-date net income for 2000 was $90 million, or $0.60 per diluted share
compared with net income for the same period of 1999 of $112.3 million, or $0.69
per diluted share.
LIQUIDITY AND CAPITAL RESOURCES
JM'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 June 30, 2000, JM was in compliance
with these covenants.
At June 30, 2000, JM had net working capital of $175.9 million, including cash
and marketable securities totaling $64.8 million. Total cash and marketable
securities located outside the U.S. and Canada were approximately $14.5 million.
At June 30, 2000, JM had approximately $481 million available under its $750
million unsecured multicurrency revolving credit facilities. JM's international
subsidiaries had additional borrowing and working capital credit facilities
totaling approximately $18.3 million, of which $11 million was available at June
30, 2000. These facilities are primarily unsecured, with the balance
collateralized by certain international receivables.
Operating activities provided $140.2 million of cash during the first six months
of 2000. Net operating activities for the same period of 1999 provided $158.8
million, including the premium on the prepayment of the bond payable to the
Trust. 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 higher selling prices in the Insulation
segment and selling price improvements for polyiso foam, membranes and perlite
board products. However, a slowdown in U.S. building activity, and commercial
and industrial roofing markets caused volumes to decline in the Insulation
segment, U.S. mats and fibers and in the Roofing Systems segment. Continuing
softness in U.S. construction markets, combined with higher costs for
petroleum-based raw materials such as asphalt, vinyl and polymers; and higher
energy costs may adversely affect our results of operations for the remainder of
2000 compared with results in the comparable periods of 1999. Operating
activities also included cash outlays to build working capital for the
construction season, which typically peaks during the third quarter. Such cash
usages were significantly lower in 1999 due to lower inventory builds resulting
from high levels of demand in building insulation and mats and fibers as these
businesses operated at full capacity. The first six months of 2000 also
reflected higher spending for JM's reimbursable phenolic inspection and
remediation program; and higher demolition spending on a previously closed
facility; partially offset by lower 2000 income tax payments.
Investing activities for the six months ended June 30, 2000 included $91.2
million for capital expenditures, principally to increase building insulation
capacity and to complete a furnace rebuild for mats and fibers.
I-13
<PAGE> 15
Investing activities for the six months ended June 30, 1999 included $65 million
for capital expenditures, principally to increase building insulation capacity
and to complete a furnace rebuild for mats and fibers. Estimated 2000 capital
expenditures are approximately $170 million excluding acquisitions, of which
approximately $87 million relate to capacity expansion projects. As of June 30,
2000, outstanding purchase commitments for capital projects totaled $38 million.
Financing activities for the first half of 2000 consisted of net repayments of
debt totaling $24.6 million and issuances of debt totaling $0.4 million,
resulting in a total debt balance at June 30, 2000 of $483.6 million compared
with $513.2 million at December 31, 1999. In addition, JM paid dividends of
$0.12 per common share totaling $17.7 million. JM's financing activities for the
first half of 1999 reflected net repayments of debt totaling $66.1 million,
including the prepayment of $23.9 million of the bond payable to the Trust
discussed above. JM also borrowed, and subsequently repaid, $8.9 million under
foreign facilities. As a result, JM's total debt decreased to $499.7 million as
of June 30, 1999 from $591.9 million at December 31, 1998. In addition, JM paid
dividends of $0.12 per common share totaling $19.1 million, and received $4.6
million during the first half of 1999 from the exercise of stock options
previously granted to employees.
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. A portion of the proceeds were used to partially finance
the July 1999 purchase of 12.2 million shares of JM's common stock from the
Trust at $13.675 per share, resulting in the third quarter recognition of
treasury stock of $166.8 million. The remaining proceeds were used to repay
existing indebtedness.
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. Since 1993 JM has had a program to inspect such metal decks and
remediate where appropriate. JM has accrued for expected 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 and
remaining expected lives of roofs on which phenolic insulation has been
installed. At June 30, 2000 JM had accruals of $21.9 million in connection with
these anticipated costs.
JM has entered into reimbursement agreements with JM's liability carriers and
the former owner of the phenolic roofing insulation business, which provide for
reimbursement of certain future costs related to phenolic roofing insulation to
be incurred by JM. At June 30, 2000 JM had receivables of $29.5 million in
connection with the expected reimbursement of these anticipated costs.
On April 12, 2000 JM entered into a settlement agreement with representatives of
a class consisting of substantially all building owners in the United States
with JM's phenolic roof insulation installed on their metal roof decks. The
settlement agreement, which provides for compensation to these owners, is
subject to certain conditions, including court approval before becoming final. A
final court hearing is scheduled for December 13, 2000.
I-14
<PAGE> 16
If the settlement agreement becomes final, JM expects to increase its accruals
by an amount in the range of $35 million to $40 million. In addition, as such
amount would be reimbursable under the reimbursement agreements, JM would
correspondingly increase its receivables by a like amount. Such reimbursements
could occur in periods subsequent to payments made under the settlement
agreement.
Based on the information available to date and subject to the assumptions and
agreements described above, JM does not believe that its costs associated with
phenolic roofing insulation will have a material adverse effect on JM's
financial condition, liquidity or results of operations.
Environmental Contingencies
At June 30, 2000, JM had remediation activities in progress at five sites, out
of a total of 17 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 13 sites will be determined pursuant to the settlement agreement
described in the following paragraph. Two 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.
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 U.S. Environmental Protection Agency
("EPA") 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.
JM 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
I-15
<PAGE> 17
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.
Definitive Merger Agreement
On June 23, 2000, JM announced that it had entered into a definitive merger
agreement with an investor group led by affiliates of Hicks, Muse, Tate & Furst
Incorporated and Bear Stearns Merchant Banking. If the merger is completed, each
outstanding share of JM common stock, other than some shares of common stock to
be converted into shares of common stock of the surviving corporation by the
Trust and some members of JM management, will be converted into the right to
receive $13.625 in cash and 0.02 of a share of a 13 percent pay-in-kind
preferred stock having a liquidation preference of $100 per full share. The
conversion into the right to receive cash and pay-in-kind preferred stock will
be recorded as a treasury stock transaction. In addition, the merger will be
accounted for as a recapitalization; therefore, the historical bases of JM's
assets and liabilities will not be affected by the transaction. The transaction
is expected to close before the end of the year, subject to various conditions,
including receipt of financing and shareholder and regulatory approvals.
It is expected that the merger will be financed primarily through the issuance
of debt, resulting in levels substantially exceeding JM's June 30, 2000 reported
debt balances of $483.6 million. Therefore, future debt service requirements
could materially impact liquidity, while also resulting in significantly higher
reported interest expenses. The merger will result in the sale of substantially
all of the Trust's investment in JM stock, which is anticipated to generate
significant U.S. federal and state tax benefit loss carryforwards. When
recognized upon the finalization of the merger, these carryforwards would
substantially increase recorded deferred tax assets.
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:
o expected levels of capital spending,
o expectations as to contingencies related to phenolic roofing
insulation and environmental liabilities,
o the expected future impacts of plant consolidation charges taken in the
second quarter of 2000,
o the impact of continuing softness in U.S. construction markets,
combined with higher costs for petroleum-based raw materials and
higher energy costs,
o the impact of the definitive merger agreement, and
o 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."
These forward-looking statements are subject to numerous assumptions, risks and
uncertainties. Factors that may cause actual results to differ from those
contemplated by the forward-looking statements, include, among others, the
following:
o fluctuations in demand for JM's products generally;
o the effect of overall capacity levels in the building products markets
served by JM;
I-16
<PAGE> 18
o the cyclical nature of the building products industry, which is
influenced by general economic conditions and other macroeconomic
factors such as the general rate of inflation, interest rates, and
employment rates that affect demand in residential and commercial,
industrial and residential construction markets;
o fluctuations in the cost of raw materials and energy sources used by
JM;
o the occupational health and safety aspects of JM's products; and
o the financial condition of JM's customers.
Factors that could affect JM's expected levels of capital spending, 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,
including the slowdown in the North American housing construction market
described above. In addition, JM's expansion activities could be affected by
risks inherent in large capital projects.
For a discussion of factors concerning contingencies related to phenolic roofing
insulation and environmental matters, see "Liquidity and Capital Resources -
Contingent Product Liability and Environmental Contingencies."
I-17
<PAGE> 19
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 10.1, Amendment No. 2 to Transition and Retirement Agreement
between Johns Manville Corporation and Charles L. Henry dated June 22,
2000.
Exhibit 10.2, Amendment to Employment Agreement between Thomas L.
Caltrider and Johns Manville International, Inc. and Johns Manville
Corporation dated June 22, 2000.
Exhibit 10.3, Amendment to Employment Agreement between Kenneth L.
Jensen and Johns Manville International, Inc. and Johns Manville
Corporation dated June 22, 2000.
Exhibit 10.4, Amendment to Employment Agreement between Harvey L.
Perry, Jr. and Johns Manville International, Inc. and Johns Manville
Corporation dated June 22, 2000.
Exhibit 27, Financial Data Schedule.
II-1
<PAGE> 20
(b) Form 8-K.
On June 27, 2000, the Company filed with the Securities and Exchange
Commission a current report on Form 8-K dated June 22, 2000, regarding
the Agreement and Plan of Merger among Johns Manville Corporation, HB
Merger LLC and HB Finance LLC and related agreements and the
transactions contemplated hereby.
II-2
<PAGE> 21
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: August 14, 2000 By: /s/ Kenneth L. Jensen
---------------------------------
Kenneth L. Jensen
Senior Vice President and
Chief Financial Officer
Date: August 14, 2000 By: /s/ D. Dion Persson
---------------------------------
D. Dion Persson
Vice President, Assistant
General Counsel and Secretary
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.1 Amendment No. 2 to Transition and Retirement Agreement between
Johns Manville Corporation and Charles L. Henry dated June 22,
2000.
10.2 Amendment to Employment Agreement between Thomas L. Caltrider
and Johns Manville International, Inc. and Johns Manville
Corporation dated June 22, 2000.
10.3 Amendment to Employment Agreement between Kenneth L. Jensen
and Johns Manville International, Inc. and Johns Manville
Corporation dated June 22, 2000.
10.4 Amendment to Employment Agreement between Harvey L. Perry, Jr.
and Johns Manville International, Inc. and Johns Manville
Corporation dated June 22, 2000.
27 Financial Data Schedule.
</TABLE>
