<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 September 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 November 7, 2000, there were 147,735,490 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.
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<PAGE> 3
JOHNS MANVILLE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents $ 140,629 $ 61,140
Marketable securities, at cost,
which approximates market 136 3,633
Receivables 300,540 283,102
Inventories 147,364 160,340
Prepaid expenses 8,874 10,714
Deferred tax assets 14,757 39,750
----------- -----------
Total Current Assets 612,300 558,679
Property, Plant and Equipment,
net of accumulated depreciation
of $763,150 and $718,545, respectively 1,052,810 1,040,343
Deferred Tax Assets 144,506 144,027
Goodwill, net of accumulated amortization
of $54,050 and $43,447, respectively 262,130 289,582
Other Assets 259,107 257,002
----------- -----------
$ 2,330,853 $ 2,289,633
=========== ===========
LIABILITIES
Current Liabilities
Short-term debt $ 10,573 $ 10,096
Accounts payable 155,715 169,747
Compensation and employee benefits 99,450 117,255
Income taxes 56,421 16,065
Other accrued liabilities 88,882 97,847
----------- -----------
Total Current Liabilities 411,041 411,010
Long-Term Debt, less current portion 444,384 503,148
Postretirement Benefits Other Than Pensions 178,643 177,836
Deferred Income Taxes and Other
Noncurrent Liabilities 307,856 329,339
----------- -----------
1,341,924 1,421,333
----------- -----------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Common Stock 1,647 1,646
Capital in Excess of Par Value 557,056 552,549
Treasury Stock, at cost (229,851) (229,851)
Unearned Stock Compensation (2,500) (2,511)
Retained Earnings 643,587 533,879
Accumulated Other Comprehensive Income 18,990 12,588
----------- -----------
988,929 868,300
----------- -----------
$ 2,330,853 $ 2,289,633
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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<PAGE> 4
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,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 540,191 $ 569,331 $ 1,611,376 $ 1,623,941
Cost of Sales 392,899 403,708 1,170,353 1,160,590
Selling, General and Administrative 42,752 49,053 133,402 149,065
Research, Development
and Engineering 8,459 9,858 25,523 29,945
Plant Consolidation Charges (Note 2) 15,420 34,257
Other Income (Expense), net (5,000) (8,176) (16,548) (21,622)
----------- ----------- ----------- -----------
Income from Operations 75,661 98,536 231,293 262,719
Interest Income 2,279 707 5,442 1,871
Interest Expense 6,824 9,071 21,464 23,986
----------- ----------- ----------- -----------
Income before Income Taxes and
Extraordinary Item 71,116 90,172 215,271 240,604
Income Tax Expense (Note 3) 24,809 16,981 78,981 49,324
----------- ----------- ----------- -----------
Income before Extraordinary Item 46,307 73,191 136,290 191,280
Extraordinary Loss on Early
Extinguishment of Debt,
net of tax (Note 4) (5,758)
----------- ----------- ----------- -----------
Net Income $ 46,307 $ 73,191 $ 136,290 $ 185,522
=========== =========== =========== ===========
Comprehensive Income $ 50,421 $ 72,912 $ 142,692 $ 197,349
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE
Basic:
Income before Extraordinary Item $ .31 $ .49 $ .92 $ 1.22
Extraordinary Loss on Early
Extinguishment of Debt,
net of tax (Note 4) (.04)
----------- ----------- ----------- -----------
Net Income $ .31 $ .49 $ .92 $ 1.18
=========== =========== =========== ===========
Diluted:
Income before Extraordinary Item $ .31 $ .49 $ .92 $ 1.21
Extraordinary Loss on Early
Extinguishment of Debt,
net of tax (Note 4) (.04)
----------- ----------- ----------- -----------
Net Income $ .31 $ .49 $ .92 $ 1.17
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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<PAGE> 5
JOHNS MANVILLE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
------------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 136,290 $ 185,522
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 86,461 85,714
Deferred taxes 24,548 22,803
Plant consolidation charges 33,399
Pension and postretirement benefits, net 9,196 14,777
Other, net 5,488 9,950
(Increase) decrease in current assets:
Receivables (10,556) (18,683)
Inventories 9,461 20,953
Prepaid expenses 1,803 243
Increase (decrease) in current liabilities:
Accounts payable 765 16,345
Compensation and employee benefits (14,811) 6,643
Income taxes 41,806 (5,850)
Other accrued liabilities (29,280) (233)
Change in other noncurrent liabilities (27,204) (21,430)
--------- ---------
Net cash provided by operating activities 267,366 316,754
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (120,580) (92,794)
Acquisitions (2,727)
Proceeds from sales of assets 118 26
Purchases of held-to-maturity securities (1,514)
Purchases of available-for-sale securities (4,557) (4,561)
Proceeds from maturities of held-to-maturity
securities 2,524 4,185
Proceeds from sales or maturities of
available-for-sale securities 4,794 5,160
Increase in other assets (5,058) (5,458)
--------- ---------
Net cash used in investing activities (122,759) (97,683)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolving credit facilities, net (35,754) (178,738)
Issuances of debt 712 210,693
Payments on debt (2,311) (48,851)
Dividends on common stock (26,570) (28,645)
Treasury and other stock transactions 1,443 (162,143)
--------- ---------
Net cash used in financing activities (62,480) (207,684)
--------- ---------
Effect of Exchange Rate Changes on Cash (2,638) 738
--------- ---------
Net Increase in Cash and Equivalents 79,489 12,125
Cash and Equivalents at Beginning of Period 61,140 12,350
--------- ---------
Cash and Equivalents at End of Period $ 140,629 $ 24,475
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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<PAGE> 6
JOHNS MANVILLE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The condensed consolidated financial statements of Johns Manville Corporation
("JM") as of September 30, 2000 and December 31, 1999 and for the three and nine
months ended September 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 December 31, 1999 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 - Inventories
The major classes of inventories were as follows:
<TABLE>
<CAPTION>
(Thousands of dollars)
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Finished goods $ 96,599 $102,924
Raw materials and supplies 35,673 44,874
Work-in-process 15,092 12,542
-------- --------
$147,364 $160,340
======== ========
</TABLE>
Note 2 - Plant Consolidation Charges
As part of an ongoing rationalization process which began in the second quarter
of 2000, JM recorded pretax third quarter plant consolidation charges totaling
$15.4 million. Of these charges, $8.1 million related to Insulation, $6.7
million related to Engineered Products and $0.6 million related to Roofing
Systems. Plant consolidation charges in the Insulation segment resulted from the
planned closure and sale of a manufacturing facility, which will be completed
during 2001. Revenues are not expected to be materially impacted as production
requirements from this facility will be fulfilled by other locations. Closure
charges totaling $4.5 million include the separation of 206 hourly and 29
salaried employees, of which 75 and 160 are expected to occur in 2000 and 2001,
respectively. Cash payments for the separations and other costs of $0.2 million,
$3.8 million and $0.5 million are expected in 2000, 2001 and 2002, respectively.
Related property, plant and equipment (having combined book values of $13.8
million) were written down $3.6 million pursuant to Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and Assets to be Disposed Of" ("SFAS No. 121"). These assets are
accounted for as held for disposal; the related suspension of depreciation prior
to disposal will not materially impact JM's reported results. Plant
consolidation charges in Engineered Products resulted from re-engineering and
streamlining certain manufacturing and administrative processes. These charges
resulted primarily from planned European workforce reductions of 50 hourly and
22 salaried employees, for which separation and other payments totaling $0.6
million, $3.9 million and $0.5 million are expected to be made in 2000, 2001 and
2002, respectively. The remaining charges resulted from the write-off of $1.6
million of certain fixed assets, and related outside consulting and business
design services incurred during the quarter. Plant consolidation charges in
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<PAGE> 7
Roofing Systems resulted from costs incurred during the third quarter related to
the second quarter actions described below, with related cash payments expected
during 2000.
During the second quarter of 2000, JM recorded $18.8 million of pretax plant
consolidation charges, 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 four manufacturing facilities. The
purpose of these closures is to increase productivity by eliminating certain
operations and consolidating others into existing facilities. These charges
included $16.9 million of noncash write-downs of related assets to net
realizable values pursuant to SFAS No. 121. Of these asset write-downs, $10.6
million related to goodwill associated with a closed manufacturing facility
acquired with a reinforced thermoplastic roofing systems business in 1998. This
goodwill write-down resulted from evaluation of the diminished value of the
related business after the facility's closure resulting from exiting a portion
of the product line manufactured at this facility, and the inability to fully
transfer production of the remaining products to other facilities. The remaining
$6.3 million related to fixed and other assets (having combined book values of
$11 million prior to write-down), net of anticipated future cash flows. The
remaining charges of $1.5 million require cash outlays, the majority of which
will be settled in 2000, including $1 million for the separation of 93 hourly
and 28 salaried employees. Plant consolidation charges for Engineered Products
related to outside consulting and business design services incurred during the
second quarter.
Through the third quarter, $0.7 million in cash related to the second and third
quarter closure costs for all of the actions described above has been paid,
resulting in a remaining liability of $10.6 million at September 30, 2000.
Note 3 - Income Taxes
JM's year-to-date effective tax rates were approximately 37 percent in 2000 and
21 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 its JM 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 during 1999, and from
dividends during both years.
Note 4 - 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 $87
million. At September 30, 2000, the fair market value of these instruments
reflected unrecognized gains of approximately $0.6 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.
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<PAGE> 8
Note 5 - 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>
Third Quarter First Nine Months
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic 148,388,000 149,014,000 148,308,000 156,361,000
Diluted 149,185,000 150,219,000 148,899,000 157,959,000
</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 $8.9 million, and $0.18 per common
share totaling $26.6 million, in the third quarter and first nine months of
2000, respectively. 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,
for the third quarter and first nine 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 6 - 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 September 30, 2000 JM had accruals of $20.3 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 September 30, 2000 JM had receivables of $26.3 million in
connection with the expected reimbursement of incurred and 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.
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<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 its financial
condition, liquidity or results of operations.
Environmental Contingencies
At September 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 13 sites JM did not own or operate under the
federal Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") or similar state legislation. Of these 13 sites, JM's potential
liability for 11 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 accrued amounts. 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 7 - Definitive Merger Agreement
As announced on June 23, 2000, JM has entered into a definitive merger agreement
with an investor group led by affiliates of Hicks, Muse, Tate & Furst
Incorporated and Bear Stearns Merchant Banking. JM also announced, on October
19, 2000, that it did not believe that the transaction would be completed on the
terms contained in the previously announced definitive merger agreement with the
investor group and that it was engaged in discussions with the investor group
regarding possible changes in the transaction.
I-8
<PAGE> 10
Note 8 - New Accounting Pronouncements
In July 2000, the FASB Emerging Issues Task Force reached a final consensus on
Issue 00-10, "Accounting for Shipping and Handling Fees and Costs." This
consensus, effective October 1, 2000 for JM, requires that all amounts billed to
a customer in a sale transaction related to shipping and handling be classified
as revenue. Although there will be reclassifications between net sales and cost
of sales, JM does not believe the application of this consensus will have a
material effect on its financial condition or results of operations.
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement, along with SFAS
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; and SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities - an amendment of
FASB Statement No. 133" issued in June 2000, 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 those instruments at fair value. At this time, JM is
currently reviewing this statement but cannot yet determine the effects, if any,
adopting these statements will have on its financial condition presentation or
results of operations.
Note 9 - Subsequent Events
In October 2000, the German government enacted a broad set of tax reforms which,
among other things, reduced the "base" corporate tax rate to 25 percent from 30
percent, effective January 1, 2001 for calendar-year companies. Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," requires
the effect of tax law and rate changes be recognized in the period in which they
are enacted, not the period or periods in which they are effective. Therefore,
JM will recognize a tax benefit from continuing operations during the fourth
quarter related to the adjustment of deferred taxes to the new rate.
On November 1, 2000, JM announced that it had signed an agreement to sell its
monofilament business to Teijin Limited. JM acquired this business, which has
annual revenues of approximately $60 million, as part of the 1999 purchase of
Hoechst's spunbond operations in the U.S. and Germany. Monofilament is used in
the paper manufacturing business and in other industrial applications. Closing
is expected to occur by the end of the year or early next year, subject to
various conditions.
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<PAGE> 11
Note 10 - 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 September 30,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
NET SALES
Insulation $ 208,979 $ 214,078
Roofing Systems 154,897 167,881
Engineered Products 183,981 199,537
Eliminations (7,666) (12,165)
----------- -----------
$ 540,191 $ 569,331
=========== ===========
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM
Income from Operations:
Insulation $ 36,832 $ 52,172
Roofing Systems 15,295 14,823
Engineered Products 23,534 31,541
----------- -----------
Income from Operations 75,661 98,536
Interest Income 2,279 707
Interest Expense 6,824 9,071
----------- -----------
Income before Income Taxes and Extraordinary Item $ 71,116 $ 90,172
=========== ===========
<CAPTION>
(Thousands of dollars)
Nine Months
Ended September 30,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
NET SALES
Insulation $ 615,958 $ 610,080
Roofing Systems 450,561 451,841
Engineered Products 572,249 594,664
Eliminations (27,392) (32,644)
----------- -----------
$ 1,611,376 $ 1,623,941
=========== ===========
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM
Income from Operations:
Insulation $ 124,795 $ 135,815
Roofing Systems 16,948 36,295
Engineered Products 89,550 90,609
----------- -----------
Income from Operations 231,293 262,719
Interest Income 5,442 1,871
Interest Expense 21,464 23,986
----------- -----------
Income before Income Taxes and Extraordinary Item $ 215,271 $ 240,604
=========== ===========
</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.
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<PAGE> 12
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 2000 decreased $29.1 million, or 5.1 percent,
to $540.2 million from $569.3 million for the same period of 1999. Gross profit
decreased $18.3 million to $147.3 million from $165.6 million. The gross profit
margin for the third quarter of 2000 decreased to 27.3 percent compared with
29.1 percent for the same period of 1999 primarily due to lower selling prices
in building insulation, and increased raw material and energy costs. Selling,
general and administrative and research, development and engineering expenses,
combined, decreased $7.7 million, or 13.1 percent, to $51.2 million in 2000, and
were lower as a percentage of sales at 9.5 percent compared with 10.3 percent
for 1999. This improvement was due primarily to cost control measures, and lower
pension expenses. Other expense, net, for the third quarter of 2000 decreased
$3.2 million to $5 million compared with $8.2 million for the same period of
1999, reflecting, in part, the reimbursement of escrowed funds related to a
landfill site formerly used by JM. Including plant consolidation charges of
$15.4 million discussed below, income from operations for the third quarter of
2000 decreased $22.8 million, or 23.2 percent, to $75.7 million compared with
$98.5 million for the same period of 1999.
Net sales for the first nine months of 2000 decreased slightly to $1,611.4
million compared with $1,623.9 million for the same period of 1999. Gross profit
decreased $22.4 million to $441 million from $463.4 million. The gross profit
margin for the first nine months of 2000 decreased to 27.4 percent from 28.5
percent for 1999 primarily due to increased raw material and energy costs,
slightly offset by improved pricing in Roofing Systems. Selling, general and
administrative and research, development and engineering expenses, combined,
decreased $20.1 million, or 11.2 percent, to $158.9 million in 2000, and were
lower as a percentage of sales at 9.9 percent compared with 11 percent for 1999.
This improvement was due primarily to cost control measures, and lower pension
expenses. Other expense, net, for the first nine months of 2000 decreased $5.1
million to $16.5 million compared with $21.6 million for the same period of 1999
due primarily to a pension premium refund for certain foreign plans and the
reimbursement of escrowed funds related to a landfill site formerly used by JM.
Including plant consolidation charges of $34.2 million discussed below, income
from operations for the first nine months of 2000 decreased $31.4 million, or 12
percent, to $231.3 million compared with $262.7 million for 1999.
Insulation Segment
Net sales decreased slightly to $209 million for the third quarter of 2000 from
$214.1 million in 1999. Reduced selling prices in building insulation more than
offset moderately improved volumes in building and commercial and industrial
insulation. Including plant consolidation charges of $8.1 million discussed
below, income from operations decreased $15.4 million, or 29.4 percent, to $36.8
million for the third quarter of 2000 from $52.2 million in 1999. Besides the
plant consolidation charges, this decrease is largely due to higher energy,
freight and raw materials costs which were slightly offset by improved
productivity and reduced selling, general and administrative expenses.
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<PAGE> 13
For the first nine months of 2000, net sales increased slightly to $616 million
from $610.1 million in 1999. Although a modest slow down in building activity
during the first nine months of 2000 resulted in lower volumes and pricing in
building insulation, this decline was more than offset by strong volumes in
commercial and industrial insulation. Including plant consolidation charges of
$8.1 million discussed below, income from operations decreased $11 million, or
8.1 percent, to $124.8 million for the first nine months of 2000 compared with
$135.8 million in 1999. Besides the plant consolidation charges, this decrease
was due to increased energy and other costs; partially offset by reduced
selling, general and administrative expenses, and improved productivity.
Roofing Systems Segment
Net sales declined $13 million, or 7.7 percent, to $154.9 million for the third
quarter of 2000 from $167.9 million for the third quarter of 1999. Price
improvements for membranes and perlite board products were offset by softness in
the commercial and industrial roofing markets. Income from operations for the
third quarter of 2000 increased slightly to $15.3 million from $14.8 million for
the same period of 1999. Pricing improvements and reduced selling, general and
administrative, and other expenses, were partially offset by significantly
higher costs for petroleum-based raw materials such as asphalt and vinyl in
particular, and higher energy costs during the third quarter of 2000.
For the nine months ended September 30, 2000, net sales decreased slightly to
$450.6 million compared with $451.8 million for the same period of 1999. Income
from operations, which includes $19 million of plant consolidation charges,
decreased $19.4 million, or 53.3 percent, to $16.9 million from $36.3 million
for the same period of 1999. Despite the significant volume gains experienced
late in the first quarter, softness in the commercial and industrial roofing
markets since that time resulted in overall volume declines for 2000 compared
with 1999. However, year-to-date 2000 price improvements for membranes and
perlite board products partially offset these volume declines. This segment also
experienced significantly higher costs for petroleum-based raw materials such as
asphalt and vinyl in particular, and higher energy costs.
Engineered Products Segment
Net sales decreased $15.5 million, or 7.8 percent, to $184 million in the third
quarter of 2000 compared with $199.5 million for 1999. Including plant
consolidation charges of $6.7 million discussed below, income from operations
decreased $8 million, or 25.4 percent, to $23.5 million compared with $31.5
million in 1999. Besides the plant consolidation charges, these declines were
due to significantly higher raw material, particularly polymers, and energy
costs; unfavorable currency translation impacts; and volume declines for the
U.S. mats and fibers business partially offset by reduced selling, general and
administrative and other costs. The impact of unfavorable currency exchanges
resulted in an overall decline in reported European net sales and operating
income of approximately $11 million and $3 million, respectively, while softness
in the U.S. commercial and industrial roofing market led to reduced demand for
U.S. mats and fibers products. Net sales in filtration for the third quarter of
2000 were essentially flat compared with 1999.
For the first nine months of 2000, net sales decreased $22.5 million, or 3.8
percent, to $572.2 million from $594.7 million primarily due to unfavorable
currency translation impacts, partially offset by volume increases in most
businesses. Income from operations, which includes $7.1 million of plant
consolidation charges, decreased slightly to $89.6 million for 2000 compared
with $90.6 million in 1999. Plant consolidation charges, higher raw material
costs, especially polymers, and energy costs; offset volume increases in
European mats and fibers and filtration product lines, increased productivity
and reduced fixed and other costs. The European mats and fibers
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business generated strong volumes; however, unfavorable currency comparisons
resulted in an overall decline in reported European net sales and operating
income of approximately $29 million and $7 million, respectively. Net sales in
U.S. mats and fibers declined during the first nine months as softness in the
U.S. commercial and industrial roofing 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.
Plant Consolidation Charges
As part of an ongoing rationalization process which began in the second quarter
of 2000, JM recorded pretax third quarter plant consolidation charges totaling
$15.4 million. Of these charges, $8.1 million related to Insulation, $6.7
million related to Engineered Products and $0.6 million related to Roofing
Systems. Plant consolidation charges in the Insulation segment resulted from the
planned closure and sale of a manufacturing facility, which will be completed
during 2001. Revenues are not expected to be materially impacted as production
requirements from this facility will be fulfilled by other locations. Closure
charges totaling $4.5 million include the separation of 206 hourly and 29
salaried employees, of which 75 and 160 are expected to occur in 2000 and 2001,
respectively. Cash payments for the separations and other costs of $0.2 million,
$3.8 million and $0.5 million are expected in 2000, 2001 and 2002, respectively.
Related property, plant and equipment (having combined book values of $13.8
million) were written down $3.6 million pursuant to Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and Assets to be Disposed Of" ("SFAS No. 121"). These assets are
accounted for as held for disposal; the related suspension of depreciation prior
to disposal will not materially impact JM's reported results. Plant
consolidation charges in Engineered Products resulted from re-engineering and
streamlining certain manufacturing and administrative processes. These charges
resulted primarily from planned European workforce reductions of 50 hourly and
22 salaried employees, for which separation and other payments totaling $0.6
million, $3.9 million and $0.5 million are expected to be made in 2000, 2001 and
2002, respectively. The remaining charges resulted from the write-off of $1.6
million of certain fixed assets, and related outside consulting and business
design services incurred during the quarter. Plant consolidation charges in
Roofing Systems resulted from costs incurred during the third quarter related to
the second quarter actions described below, with related cash payments expected
during 2000.
During the second quarter of 2000, JM recorded $18.8 million of pretax plant
consolidation charges, 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 four manufacturing facilities. The
purpose of these closures is to increase productivity by eliminating certain
operations and consolidating others into existing facilities. These charges
included $16.9 million of noncash write-downs of related assets to net
realizable values pursuant to SFAS No. 121. Of these asset write-downs, $10.6
million related to goodwill associated with a closed manufacturing facility
acquired with a reinforced thermoplastic roofing systems business in 1998. This
goodwill write-down resulted from evaluation of the diminished value of the
related business after the facility's closure resulting from exiting a portion
of the product line manufactured at this facility, and the inability to fully
transfer production of the remaining products to other facilities. The remaining
$6.3 million related to fixed and other assets (having combined book values of
$11 million prior to write-down), net of anticipated future cash flows. The
remaining charges of $1.5 million require cash outlays, the majority of which
will be settled in 2000, including $1 million for the separation of 93
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<PAGE> 15
hourly and 28 salaried employees. Plant consolidation charges for Engineered
Products related to outside consulting and business design services incurred
during the second quarter.
Through the third quarter, $0.7 million in cash related to the second and third
quarter closure costs for all of the actions described above has been paid,
resulting in a remaining liability of $10.6 million at September 30, 2000.
The actions described above, when combined and fully implemented, are expected
to reduce JM's annual operating costs (primarily cost of sales) by approximately
$27 million, without materially impacting JM's revenue. As part of its annual
strategic planning process, JM evaluates its locations, operations and joint
venture investments. As a result, during 2000 JM has initiated actions which
have impacted continuing operations. During both the second and third quarters,
JM has taken combined plant consolidation charges of $34.2 million. JM continues
to review its locations, operations and joint venture investments as part of its
2000 strategic planning process.
Interest Expense, net
Interest expense, net of interest income, decreased $3.9 million, or 45.7
percent, to $4.5 million for the third quarter of 2000 compared with $8.4
million in 1999. Interest expense, net, decreased $6.1 million, or 27.6 percent,
to $16 million for the first nine months of 2000 compared with $22.1 million for
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 37 percent in 2000 and
21 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 its JM 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 during 1999, and from
dividends during both years.
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 third quarter of
2000 was $46.3 million, or $0.31 per diluted share, compared with net income
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for the third quarter of 1999 of $73.2 million, or $0.49 per diluted share.
Year-to-date net income for 2000 was $136.3 million, or $0.92 per diluted share
compared with net income for the same period of 1999 of $185.5 million, or $1.17
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 September 30, 2000, JM was in
compliance with these covenants.
At September 30, 2000, JM had net working capital of $201.3 million, including
cash and marketable securities totaling $140.8 million. Total cash and
marketable securities located outside the U.S. and Canada were approximately
$16.5 million. At September 30, 2000, JM had approximately $509 million
available under its $750 million unsecured multicurrency revolving credit
facilities. JM's international subsidiaries had additional borrowing and working
capital facilities totaling approximately $17.3 million, of which $9.7 million
was available at September 30, 2000. These facilities are primarily unsecured,
with the balance collateralized by certain international receivables.
Operating activities provided $267.4 million of cash during the first nine
months of 2000. Operating activities for the same period of 1999 provided $316.8
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, raw material and energy costs, and working capital
requirements. As discussed in "Results of Operations," selling price
improvements for membranes and perlite board products, were slightly offset by
lower selling prices for building insulation. However, a slowdown in U.S.
building activity, including 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 JM's results of
operations for the remainder of 2000 compared with results in comparable periods
of 1999. Cash usages for working capital were significantly lower in 1999 due to
high levels of demand in the Insulation segment and mats and fibers as these
businesses operated at full capacity. Operating activities for the first nine
months of 2000 reflected higher cash interest payments; higher spending for JM's
reimbursable phenolic inspection and remediation program; and expected
demolition spending on a previously closed facility; partially offset by lower
2000 income tax payments.
Investing activities for the nine months ended September 30, 2000 included
$120.6 million for capital expenditures, principally to increase building
insulation capacity and to complete a furnace rebuild for mats and fibers.
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 2000
capital expenditures are approximately $160 million excluding acquisitions, of
which approximately $80 million relate to capacity expansion projects. As of
September 30, 2000, outstanding purchase commitments for capital projects
totaled $26 million.
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Financing activities for the first nine months of 2000 consisted of net
repayments of debt totaling $38.1 million and issuances of debt totaling $0.7
million, resulting in a total debt balance at September 30, 2000 of $455 million
compared with $513.2 million at December 31, 1999. In addition, JM paid
dividends of $0.18 per common share totaling $26.6 million. JM's financing
activities for the first nine months of 1999 reflected the issuance of $200
million of senior notes and repayments of debt totaling $227.6 million,
including the prepayment of $23.9 million of the bond payable to the Trust
discussed above. Proceeds from the senior notes were used to partially finance
the purchase of JM common stock from the Trust, resulting in recognition of
$166.8 million of treasury stock. JM also borrowed, and subsequently repaid, $11
million under foreign facilities in 1999. As a result, JM's total debt decreased
to $561.4 million as of September 30, 1999 from $591.9 million at December 31,
1998. 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.
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 September 30, 2000 JM had accruals of $20.3 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 September 30, 2000 JM had receivables of $26.3 million in
connection with the expected reimbursement of incurred and 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.
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 its financial
condition, liquidity or results of operations.
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Environmental Contingencies
At September 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 13 sites JM did not own or operate under the
federal Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") or similar state legislation. Of these 13 sites, JM's potential
liability for 11 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 accrued amounts. 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 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
As announced on June 23, 2000, JM has entered into a definitive merger agreement
with an investor group led by affiliates of Hicks, Muse, Tate & Furst
Incorporated and Bear Stearns Merchant Banking. JM also announced, on October
19, 2000, that it did not believe that the transaction would be completed on the
terms contained in the previously announced definitive merger agreement with the
investor group and that it was engaged in discussions with the investor group
regarding possible changes in the transaction.
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The merger would result in the sale of substantially all of the Trust's
investment in JM stock, generating significant U.S. federal and state tax
benefit loss carryforwards for JM. If the merger is not consummated in 2000, and
the Trust does not otherwise receive proceeds from its sales of JM stock or
transfer amounts to a designated settlement fund, JM would be required to make
substantial U.S. tax payments in the fourth quarter related to 2000. JM is
currently exploring strategies to minimize these payments. These strategies
include other transactions with the Trust, and could require significant cash
outlays.
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:
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 and third quarters 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 corporate tax rate change in Germany on tax expense
from continuing operations,
o potential fourth quarter cash tax implications in the absence of
completion of the definitive merger agreement this year, and
o the ability to satisfy its debt service requirements, and ongoing
capital spending,
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;
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 and
industrial 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 and ongoing capital spending, 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.
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JM's plant consolidation activities are also subject to the successful
re-engineering and streamlining of manufacturing and administrative processes.
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."
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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.
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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 13, 2000 By: /s/ Kenneth L. Jensen
-----------------------------------
Kenneth L. Jensen
Senior Vice President and
Chief Financial Officer
Date: November 13, 2000 By: /s/ D. Dion Persson
-----------------------------------
D. Dion Persson
Vice President, Assistant
General Counsel and Secretary
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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27 Financial Data Schedule
