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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-13574
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 84-1196355
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
717 17TH STREET, DENVER, COLORADO 80202
(Address of principal executive offices (Zip Code)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (303) 978-2000
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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10 7/8% Senior Notes Due 2004 New York Stock Exchange, Inc.
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for at least the past 90 days.
YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
YES [X] NO [_]
Johns Manville International Group, Inc. is a wholly owned subsidiary of Johns
Manville Corporation, and there is no market for the registrant's common
stock. As of March 2, 1998, there were 100 shares of the registrant's sole
class of common stock outstanding.
The registrant meets the conditions set forth in, and is filing this form with
the reduced disclosure format prescribed by, General Instruction I of Form 10-
K.
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TABLE OF CONTENTS
PART I
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PAGE
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ITEM 1. BUSINESS...................................................... 1
Introduction and Description of the Business.................. 1
Insulation.................................................... 1
Roofing Systems............................................... 3
Engineered Products........................................... 3
Materials..................................................... 5
Research and Development...................................... 5
Patents....................................................... 5
Labor Relations............................................... 5
Seasonality................................................... 5
Environmental Regulations..................................... 5
Occupational Health and Safety Aspects of the Company's
Products..................................................... 6
ITEM 2. PROPERTIES.................................................... 9
Headquarters.................................................. 9
Manufacturing and Development Facilities...................... 9
ITEM 3. LEGAL PROCEEDINGS............................................. 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS...................................................... 10
ITEM 6. SELECTED FINANCIAL DATA....................................... 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................... 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................... 19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE..................................... 47
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............ 47
ITEM 11. EXECUTIVE COMPENSATION........................................ 47
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................... 47
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K..................................................... 47
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The "Company" or "Johns Manville" when used in this Form 10-K refers to Johns
Manville International Group, Inc., incorporated in the State of Delaware in
1992, including, where applicable, its consolidated subsidiaries.
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PART I
ITEM 1. BUSINESS
INTRODUCTION AND DESCRIPTION OF THE BUSINESS
Johns Manville is a leading manufacturer of insulation and building
products, with 1997 net sales of approximately $1.65 billion. Johns Manville
manufactures and markets products for building and equipment insulation,
commercial and industrial roofing systems, high-efficiency filtration media,
and fibers and nonwoven mats used as reinforcements in building and industrial
applications. Johns Manville operates manufacturing facilities in North
America, Europe and China and is comprised of three principal business
segments, as set forth in the following table:
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PRODUCT GROUPS BY BUSINESS SEGMENT(1) PRODUCTS AND APPLICATIONS
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INSULATION
Building Fiber glass wool insulation for walls,
attics and floors in commercial and
residential buildings; residential foam
sheathing
Commercial and Industrial Pipe and duct insulation and fireproof
board for use in various commercial and
industrial applications
OEM Thermal and acoustic insulation for
aircraft; marine vessels; automobiles;
heating, ventilating and air
conditioning ("HVAC"); and other
equipment
ROOFING SYSTEMS Commercial and industrial roofing
systems, including membranes,
insulation, accessories and related
guarantees
ENGINEERED PRODUCTS
Mats and Fibers Continuous filament fiber glass and
nonwoven fiber glass mats for roofing,
flooring and specialty substrates and
reinforcement of plastics and gypsum
products; woven fiber glass fabrics;
wall covering and plastic products
Filtration Air filtration media for buildings;
ultra-fine fibers for clean room air
filters and battery separators; liquid
filtration cartridge and media; and
industrial oil sorbent products
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(1) For additional business segment information and geographical data, see
Note 21 to the Company's Consolidated Financial Statements contained in
this report.
INSULATION
Johns Manville's Insulation segment, with 1997 net sales of $697.8 million,
or 42 percent of Johns Manville's total net sales (before elimination of
intersegment sales), is comprised of the building, commercial and industrial
and OEM product groups.
BUILDING
Products. Johns Manville's building insulation business manufactures a
complete line of fiber glass wool insulation products for walls, attics and
floors in commercial and residential buildings. Johns Manville's building
insulation products include fiber glass batts, rolls, blowing wool and related
products. Johns Manville also produces polyisocyanurate foam sheathing for use
in residential structures.
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Johns Manville manufactures building insulation products at nine
manufacturing facilities in North America to serve regional population and
construction centers. This regional structure, which keeps most shipping
distances within a 500-mile radius, improves Johns Manville's customer service
and reduces its total transportation costs.
Markets and Distribution. Demand for Johns Manville's building insulation
products is driven primarily by North American housing starts. Other important
influences are demand in the repair/remodel market and rates of commercial
construction of warehouses and light manufacturing facilities. In addition,
implementation of various federal and state energy conservation codes serves
to increase the amount of insulation per unit built.
Building insulation products typically reach end users through contractors,
retailers and distributors. Johns Manville's marketing efforts are normally
directed toward insulation contractors and national retailers.
Competition. Johns Manville's building insulation business competes
primarily with Owens-Corning ("OC") and Certain Teed Corporation, the U.S.
subsidiary of Compagnie de Saint-Gobain ("CSG"). Johns Manville competes in
the building insulation business primarily on the basis of price,
packaging/merchandising and service.
COMMERCIAL AND INDUSTRIAL
Products. Johns Manville's commercial and industrial insulation business
manufactures pipe and duct insulation for use in commercial buildings,
factories, refineries and other industrial applications. In response to
industry attention to indoor environmental quality, Johns Manville offers
EnviroSystem(TM), a group of products sold together aimed at indoor
environmental quality improvement. Such products include duct insulation with
enhanced thermal and acoustical properties with an antimicrobial agent for
improved air filtration.
Johns Manville manufactures commercial and industrial insulation products at
13 facilities in North America.
In January 1998, the Company acquired a plant located in Mesa County,
Colorado from the Pabco Division of Fibreboard Corporation, a subsidiary of
OC. The Mesa plant manufactures calcium silicate pipe and block insulation and
Super Firetemp(TM) fireproof board. As part of this acquisition, Johns
Manville acquired the Pabco(R) trademarks and tradenames associated with the
business.
Markets and Distribution. Demand for Johns Manville's commercial and
industrial insulation products is driven primarily by commercial construction
activity and by demand in the remodel/retrofit market. Commercial and
industrial insulation products reach the market through Johns Manville's
network of distributors, contractors and fabricators.
Competition. Johns Manville's commercial and industrial insulation business
primarily competes with OC, CSG and Knauf Fiberglass USA. Johns Manville
competes in the commercial and industrial insulation business primarily on the
basis of price, breadth of product line and strength of fabricator and
distributor networks.
OEM
Products. Johns Manville's OEM insulation business produces thermal and
acoustic insulation for aircraft, marine vessels, automobiles, HVAC and other
equipment. OEM insulation products generally require extremely fine and
uniform fibers to provide the required insulating properties, and therefore
command higher prices than other fiber glass products. As an alternative to
fiber glass insulation, the Company manufactures and sells polyimide foam
insulation products for applications in aircraft and on naval vessels.
Johns Manville manufactures OEM insulation products at seven facilities in
the United States.
Markets and Distribution. Demand for Johns Manville's OEM insulation
products is driven primarily by the production of aircraft, marine vessels and
automobiles and by commercial construction (for HVAC and other insulations).
Johns Manville typically sells OEM insulation products to distributors and
fabricators who, in turn, sell to original equipment manufacturers.
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Competition. Johns Manville's OEM insulation business competes with a
variety of large and small companies in its various niche markets. Johns
Manville competes in the OEM insulation business primarily on the basis of
quality and product customization.
ROOFING SYSTEMS
In 1997, Johns Manville's Roofing Systems segment had net sales of $510.5
million, or 30 percent of the Company's total net sales (before elimination of
intersegment sales).
Products. Johns Manville is a full-line supplier of roofing systems and
components for low-slope commercial and industrial roofs, including a wide
range of membranes, insulations, accessories and roofing system guarantees.
Johns Manville's commercial roofing systems business operates 17
manufacturing facilities in the United States and has two additional plants
located in Altamira, Mexico and Verona, Italy.
In September 1997, the Company entered the thermoplastic roofing membrane
business with its acquisition of the roofing business of HPG International,
Inc. In January 1998, the Company added to this business with the acquisition
of the assets of Seal-Dry/USA, Inc., including its plant located in Little
Rock, Arkansas.
Markets and Distribution. Demand for Johns Manville's roofing systems
products is driven primarily by commercial and industrial reroofing needs.
Johns Manville estimates that approximately 75 percent of its roofing material
sales during 1997 were attributable to reroofing, with the balance
attributable to new construction. While sales of roofing systems are affected
by levels of new construction and general economic conditions, sales
attributable to reroofing are less sensitive to these factors thus mitigating
the adverse effect of recessionary periods.
Johns Manville's marketing focus is directed to roofing contractors and
distributors, owners, architects and roofing consultants who generally
recommend premium roofing systems. Approximately 95 percent of Johns
Manville's roofing systems sales during 1997 were sold through wholesale
distributors; the remainder was sold through roofing contractors.
Competition. The commercial and industrial roofing business is a highly
fragmented market. Competitors include several large national participants,
such as Firestone Building Products, GAF Corporation, Tamko Asphalt Products
Inc., Carlisle Companies Incorporated, Sarnafil Inc., Duro-Last, Inc., and
various smaller regional companies. Johns Manville competes in the commercial
and industrial roofing business primarily on the basis of breadth of product
line, specifications, guarantees, systems reliability and price.
ENGINEERED PRODUCTS
Johns Manville's Engineered Products segment had 1997 net sales of $476
million, or 28 percent of Johns Manville's total net sales (before elimination
of intersegment sales). The Engineered Products segment is comprised of the
mats and fibers and filtration product groups.
MATS AND FIBERS
Products. Johns Manville's mats and fibers business manufactures continuous
filament fiber glass-based products that are used in a variety of
applications. Johns Manville is a worldwide supplier of nonwoven fiber glass
mat products, which are used as substrates in roofing, flooring and specialty
applications. Johns Manville also sells fiber glass products (chopped fiber
and rovings) for reinforcing plastics and gypsum products and for use in fiber
glass wall coverings. Through its May 1997 acquisition of the Mitex group of
companies, the Company entered the woven fiber glass fabrics business as a
manufacturer of fiber glass wall coverings which are used primarily in
commercial and industrial buildings.
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The mats and fibers business operates three manufacturing plants and one
support facility in the United States. Schuller GmbH, Johns Manville's German
subsidiary, operates three plants in Germany and one plant in Poland. Schuller
GmbH was the pioneer in wet fiber glass mat technology and also developed the
unique sliver fiber glass process, which created the market for fiber glass
wall coverings in Europe. Johns Manville's Mitex subsidiaries operate two
manufacturing facilities in Sweden and one in the United Kingdom.
Through a joint venture with China National New Building Materials
Corporation and Tianma Corporation, Johns Manville manufactures fiber glass
mat at a plant located in the City of Changzhou, Jiangsu Province, China.
Johns Manville has a 60 percent interest in the joint venture.
Markets and Distribution. Demand for Johns Manville's mats and fibers
products is driven primarily by the worldwide commercial construction and
retrofit markets, as well as by U.S. residential construction and reroofing
markets. Mats and fibers products are sold directly to roofing and flooring
manufacturers and to Johns Manville's Mitex subsidiaries as well as to other
European textile weavers. Johns Manville's U.S. mats and fibers business
provides fiber glass mat to Johns Manville's commercial roofing systems
business for its fiber glass-based roofing products.
Competition. Johns Manville's primary competitors in the worldwide mats and
fibers business are OC, CSG, PPG Industries and Elk Corporation. Johns
Manville competes in the mats and fibers business primarily on the basis of
quality and service.
FILTRATION
Products. Johns Manville's filtration businesses produce air filtration
media for commercial and industrial buildings for HVAC and other equipment and
ultra-fine fibers for clean room air filters. The Company also manufactures
liquid filtration cartridges and media for use in commercial and industrial
applications. As with OEM insulation, filtration products generally require
extremely fine and uniform fibers to provide the required filtration
properties, and therefore command higher prices than other fiber glass
products.
In January 1997, Johns Manville expanded its synthetic manufacturing
capabilities and its product lines by acquiring the assets of Ergon Nonwovens,
Inc. Johns Manville produces a full line of synthetic meltblown nonwoven
products used in air and liquid filtration applications, personal care and in
industrial oil sorbent products.
The Company manufactures filtration products at seven of Johns Manville's
U.S. facilities.
Markets and Distribution. Demand for Johns Manville's filtration products is
driven primarily by commercial construction and commercial building occupancy
(air filtration media); the construction of clean rooms requiring dust-free
environments which are primarily used by the pharmaceutical and semiconductor
industries (ultra-fine fibers); and the need for high-efficiency filtration of
water, paints, inks, chemicals, resins and oils in industrial manufacturing
operations (liquid filtration media). Increasing public attention to
environmental issues also stimulates demand for filtration media and
industrial oil sorbent products.
Johns Manville typically sells air filtration media products to producers of
air filtration systems for use in commercial buildings. The Company sells
liquid filtration media products to producers of liquid filtration systems and
products for use in commercial and industrial manufacturing operations. Johns
Manville also sells finished cartridges for use in high-efficiency liquid
filtration applications and ultra-fine fibers to specialty filtration paper
manufacturers. Johns Manville sells its synthetic nonwoven products primarily
to distributors and fabricators.
Competition. Johns Manville's filtration business competes with a variety of
large and small companies in its various niche markets. Johns Manville
competes in the filtration business primarily on the basis of quality and
product customization.
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MATERIALS
Fiber glass is the basic material in a significant number of Johns
Manville's products. The principal raw materials used to manufacture fiber
glass products include sand, soda ash, lime, borate minerals and aluminous
materials. Phenol-formaldehyde, urea extended phenol-formaldehyde, urea-
formaldehyde, melamine-formaldehyde and other resins are also used to bind
glass fibers. All of these raw materials are readily available in sufficient
quantities from various sources for Johns Manville to maintain and expand its
current production levels.
Johns Manville's products contain materials other than fiber glass to
satisfy the broader needs of its customers. For example, calcium silicate pipe
insulation products and plastic accessories complement Johns Manville's
product offerings to commercial/industrial insulation distributors. Johns
Manville manufactures polyimide foam for marine insulation which is used by
the United States Navy in shipbuilding. Commercial roofing systems use perlite
insulation board, rubber and thermo plastic membranes and polyester
substrates. In addition, the Company uses several advanced polymers in roll
goods for roofing substrates. The Company manufactures polyisocyanurate foam
roof insulation and residential sheathing using liquid chemicals comprised
primarily of polyol and polyisocyanurate. Johns Manville has broadened its
product lines into certain polymer fiber applications for filtration,
substrates, and equipment insulation, apparel and industrial oil sorbents. The
raw materials used in these various products are readily available in
sufficient quantities from various sources for Johns Manville to maintain and
expand its current production levels.
RESEARCH AND DEVELOPMENT
The Company carries out research and development activities at its
facilities in Littleton, Colorado; Mesa County, Colorado; Waterville, Ohio;
Richmond, Indiana; Wertheim, Germany; and Helsingborg, Sweden. Research,
development and engineering expenses for the years ended December 31, 1997,
1996 and 1995 were $31.2 million, $32.7 million and $30 million, respectively.
PATENTS
The Company presently owns or controls approximately 650 U.S. and foreign
patents and patent applications. The Company also holds negotiated licenses
under various patents owned by others. While the Company regards its patents
and licenses as valuable, it does not consider any of its businesses to be
materially dependent upon any single patent or license.
LABOR RELATIONS
At March 2, 1998, the Company employed approximately 8,300 persons
worldwide, of whom approximately 3,800 were covered by collective bargaining
agreements. The Company has experienced a long history of good working
relationships with its employees and labor unions.
SEASONALITY
The Company's quarterly results of operations are moderately seasonal due to
increases in construction activity that typically occur in the second and
third quarters of the calendar year, thereby increasing sales and gross
profits in those periods.
ENVIRONMENTAL REGULATIONS
All of the Company's domestic operations are subject to a variety of
federal, state and local environmental laws and regulations. These laws and
regulations regulate the discharge of materials into the air, land and water
and govern the use and disposal of hazardous substances. The most significant
of the federal laws are the Clean Air Act, the Clean Water Act, the Toxic
Substances Control Act, the Resource Conservation and Recovery Act
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("RCRA") and the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"). These environmental regulatory programs are
administered by the federal Environmental Protection Agency ("EPA"). In
addition, states and local jurisdictions have adopted equivalent or more
stringent environmental laws and regulations, or have enacted their own
parallel environmental programs, which are enforced through various state and
local administrative agencies. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and Note 15 to the Company's Consolidated Financial Statements.
OCCUPATIONAL HEALTH AND SAFETY ASPECTS OF THE COMPANY'S PRODUCTS
The Company has an ongoing product stewardship program to facilitate
compliance with existing laws, and to protect the health and safety of the
Company's employees, customers and the general public. This program is
implemented through extensive research, a continuing process of workplace and
product evaluation and an extensive communications program. National and
international scientific authorities are involved on an ongoing basis in the
assessment of potential human health hazards. The results of these evaluations
are reported regularly to employees and customers as part of the Company's
communications program.
The Company manufactures, processes and sells products, and has in the past
manufactured, processed and sold products, that contain certain chemicals or
substances, including man-made vitreous fibers ("MMVF") such as fiber glass,
refractory ceramic fiber ("RCF") and mineral wools classified by the
International Agency for Research on Cancer ("IARC") as possible human
carcinogens. In 1987, the IARC evaluated the carcinogenicity of MMVF. Fiber
glass wool, RCF and mineral wool were classified as "possibly carcinogenic to
humans." The IARC concluded that continuous glass filament (chopped strand)
was "not classifiable as to human carcinogenicity." Crystalline silica exists
in trace amounts in the Company's calcium silicate insulation products and is
a major constituent of the diatomaceous earth products produced by a former
subsidiary and in industrial sands used in the Company's direct melt
operations, marble forming and roofing plants. In 1996, the IARC classified
crystalline silica as "known carcinogenic to humans." The IARC classification
of crystalline silica was based upon animal and human studies. Asphalt used by
the Company's roofing operations presently is being evaluated by the National
Institute of Occupational Safety and Health to determine its carcinogenic
potential.
Although crystalline silica is a contaminant in one of the raw materials
used in Johns Manville's calcium silicate insulation products, the silica
content constitutes less than one percent of the finished product. Respirable
crystalline silica exposures have been under both "normal" and "foreseeable
emergency conditions" for the Company's pipe insulation products (Thermal-
120(R) and Pabco(R) Super Caltemp Gold). Air concentrations resulting from the
expected uses of these products can be properly characterized as "trace or
minute" amounts of exposure. The Company recently acquired certain assets of
the Pabco(R) business and its associated products. Pabco(R) has several other
brands of calcium silicate products that have not been subjected to such
testing and are sold under a special cancer hazard warning label in accordance
with applicable law. The Company has developed and uses hazard communication
materials reflecting the potential cancer hazard of crystalline silica that
address the proper handling of these products by employees and customers.
The industrial sands used at the Company's facilities contain only a small
percentage of crystalline silica which is small enough to be inhaled.
Industrial hygiene monitoring of Johns Manville employees exposure to silica
has been performed since the early 1970s and have shown a minimal risk of
overexposure. In cases where overexposures are likely to occur, the Company
reviews work practices and requires mandatory use of respiratory protection.
The Company sold most of its RCF operations in 1990 and agreed to indemnify
the purchasers for pre-closing liabilities, including claims by transferred
employees arising out of pre-closing occupational exposures incurred in the
course of their employment with the Company or its predecessors. RCF products
have been labeled as a possible cause of cancer since 1985. Subsequently, RCF
product labels were revised to warn of the additional potential hazard
associated with exposure to crystalline silica, which can be formed after use
of RCF products at high temperatures.
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For purposes of occupational exposure, the Occupational Safety and Health
Administration regulates all MMVF as nuisance dusts. The Company believes that
it is in substantial compliance with all applicable workplace exposure
regulations and product "right-to-know" labeling requirements with respect to
MMVF. The language on these labels not only advises of the possible health
hazards, but includes proper handling and protective measures to be followed.
In 1987, the IARC reviewed epidemiological studies involving occupational
exposure to fiber glass wool, including a large U.S. and a large European
study of fiber glass manufacturing workers that had reported modest but
statistically significant increases of lung cancer deaths compared to national
mortality rates. The IARC concluded that evidence of cancer in humans from
such epidemiological studies was "inadequate" to permit a conclusion regarding
the presence or absence of a causal relationship with fiber glass exposure.
The IARC also concluded, however, that the evidence from animal studies was
"sufficient" to establish a causal relationship. That finding was based
entirely on positive laboratory results achieved through implantation or other
artificial techniques of exposing animals to fibrous materials. The relevance
of such implantation studies to the evaluation of risk to humans has been
questioned by many scientists, who believe that animal inhalation studies are
more appropriate than animal implantation studies to assess the potential risk
to humans.
In 1990, the authorities of the large U.S. epidemiological study reviewed by
the IARC in 1987 noted a small, but statistically significant, excess in
respiratory cancer deaths of fiber glass manufacturing workers compared with
local mortality rates. However, as in the IARC assessment, the authors, after
looking at the cumulative evidence from the relevant factors that might
support a causal relationship, concluded that the evidence of an association
between exposure to fiber glass wool and respiratory cancer was actually
"somewhat weaker" than that at the time of the IARC assessment. The U.S.
investigation is continuing to determine if the small excess in lung cancer
was associated with lifestyle factors such as smoking or other workplace
exposures. The next update is expected in late 1998 or in 1999. Data contained
in the latest report of an update of the large European epidemiological study
shows mortality findings for fiber glass wool similar to those from the large
U.S. study.
On June 24, 1994, the U.S. Department of Health and Human Services ("HHS")
announced its decision to act on the recommendation of the National Toxicology
Program ("NTP") and list fiber glass wool and RCF in the Seventh Annual Report
on Carcinogens ("ARC") as substances which "may be reasonably anticipated" to
be a carcinogen. The NTP listing criteria provide that a substance must be
listed if there are two or more animal studies showing carcinogenic effect,
regardless of route of exposure and notwithstanding any other evidence. As a
result, the NTP concluded that the results of the experimental animal
implantation studies provided sufficient evidence to support the listing. HHS
explained that the NTP "reasonably anticipated" category for fiber glass
essentially corresponds to the IARC 1987 "possibly carcinogenic"
classification.
Labels and other hazard communication materials reflecting the potential
cancer risk have been developed and are used by the Company to address the
proper handling of fiber glass wool products by employees and customers. In
addition, the Company has agreed to indemnify certain purchasers, under
certain circumstances, for personal injury claims arising out of exposure to
the Company's fiber glass wool products.
Since 1988, the Company has funded, in conjunction with other companies in
the industry, several epidemiological and chronic animal inhalation studies to
assess the cancer-causing potential of MMVF. In August 1995, the industry
expanded the animal research it had begun in 1988 to include exposure of
hamsters to a building insulation/wool fiber and a special application glass
fiber used in some filtration and a few thermal high performance applications.
As with previous research involving exposure of rats to glass fibers, this
study also was a two year chronic inhalation study which was completed in
1997. The results of the study found no lung disease (no fibrosis nor cancer)
in the animals exposed to the building insulation/wool fiber. In the animals
exposed to the special application glass fiber, there was continued evidence
of fibrosis, which did not progress, and a single mesothelioma was found in
one animal. The building insulation wool fibers have not, consistent with the
previous inhalation study of the fiber, produced any adverse respiratory
results. These preliminary findings have been reported to the EPA under the
Toxic Substances Control Act, and the Company has notified its employees and
customers.
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In 1997, the Institute of Occupation Medicine ("IOM") in Edinburgh, Scotland
released preliminary results from a chronic inhalation study of E glass
microfiber using rats. Some of the animals that inhaled this fiber developed
lung fibrosis and tumors. E glass microfiber is no longer manufactured in the
United States, however, Johns Manville produced small quantities until 1994 at
one manufacturing location. E glass microfiber is different than the large
diameter E glass continuous filaments that Johns Manville manufactures in its
mats and fibers business. E glass continuous filaments are too thick to be
inhaled into the deep lungs and are not considered to be respirable. The
findings of the IOM study have also been reported to the EPA and the Company
has notified its employees and former customers.
The results of an industry supported epidemiological study of RCF workers
was published in 1996. This case-control morbidity study evaluated chest x-
rays of workers at two RCF manufacturing plants owned by Carborundum
Corporation. Although no significant increase in lung fibrosis was seen, an
exposure-related increase in pleural plaques was observed.
In 1997 the American Conference of Governmental Industrial Hygienists
("ACGIH") classified all forms of glass fibers as an "A3-Animal Carcinogen."
ACGIH defines an A3-Animal Carcinogen as follows: "The agent is carcinogenic
in experimental animals at a relatively high dose, by route(s) of
administration, at site(s), of histologic type(s), or by mechanism(s) that are
not considered relevant to worker exposure. Available epidemiologic studies do
not confirm an increased risk of cancer in exposed humans. Available evidence
suggests that the agent is not likely to cause cancer in humans except under
uncommon or unlikely routes or levels of exposure." By contrast, the ACGIH did
not apply its definition of an "A1-Confirmed Human Carcinogen" to glass
fibers. The ACGIH definition of an "A1-Confirmed Human Carcinogen" is: "The
agent is carcinogenic to humans based on the weight of evidence from
epidemiologic studies of, or convincing clinical evidence in, exposed humans."
While there is some disagreement within the scientific and medical community
regarding the interpretation of the studies, based upon its analysis to date,
the Company does not believe that the IARC classification, the listing in the
ARC, or any action taken by federal and state regulatory agencies will have a
material adverse effect on the Company. The foregoing statement constitutes a
"forward-looking statement" under federal securities laws. The Company's
analysis of available data and its expectations concerning human health
hazards associated with its products are subject to risks and uncertainties.
Because domestic and international regulatory and scientific authorities are
involved on an ongoing basis in the assessment of potential human health
hazards, and there can be no assurance that future actions taken by such
authorities or other developments relating to the Company's liability for its
products will not have an adverse effect on the Company.
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ITEM 2. PROPERTIES
HEADQUARTERS
The Company's headquarters are located in Denver, Colorado. The Company
leases approximately 150,000 square feet of office space at Johns Manville
Plaza in downtown Denver.
MANUFACTURING AND DEVELOPMENT FACILITIES
The following table sets forth certain information with respect to the
Company's major manufacturing and development plants and buildings. All of the
buildings are adequate and suitable for the business of the Company, have been
well maintained and are in sound operating condition and regular use. The
South Gate, California; Lakewood, Colorado; Kansas City, Kansas; Edison, New
Jersey; Kent, Washington; and Altamira, Mexico facilities are leased.
<TABLE>
<CAPTION>
LOCATION BUSINESS SEGMENT
- -------- ----------------
<S> <C>
UNITED STATES AND CANADA
Innisfail, Alberta, Canada................... Insulation
Tucson, Arizona.............................. Insulation and Engineered Products
Little Rock, Arkansas........................ Roofing Systems
Corona, California........................... Insulation
Pittsburg, California........................ Roofing Systems
South Gate, California....................... Roofing Systems
Willows, California.......................... Insulation
Lakewood, Colorado........................... Insulation
Littleton, Colorado.......................... Insulation and Engineered Products
Mesa County, Colorado........................ Insulation
Jacksonville, Florida........................ Roofing Systems and Insulation
Macon, Georgia............................... Roofing Systems
Winder, Georgia.............................. Insulation
Rockdale, Illinois........................... Roofing Systems
Waukegan, Illinois........................... Insulation and Roofing Systems
Bremen, Indiana.............................. Roofing Systems and Insulation
Richmond, Indiana............................ Insulation
Kansas City, Kansas.......................... Roofing Systems
McPherson, Kansas............................ Insulation
Lewiston, Maine.............................. Roofing Systems
Saco, Maine.................................. Roofing Systems and Insulation
Natchez, Mississippi......................... Roofing Systems
Richland, Mississippi........................ Engineered Products
Edison, New Jersey........................... Insulation
Penbryn, New Jersey.......................... Insulation
Plattsburg, New York......................... Roofing Systems
Defiance, Ohio............................... Insulation and Engineered Products
Waterville, Ohio............................. Engineered Products
Oklahoma City, Oklahoma...................... Roofing Systems
Hazelton, Pennsylvania....................... Roofing Systems and Insulation
Etowah, Tennessee............................ Engineered Products
Baytown, Texas............................... Roofing Systems
Cleburne, Texas.............................. Insulation and Engineered Products
Edinburg, Virginia........................... Roofing Systems
Richmond, Virginia........................... Insulation
Kent, Washington............................. Roofing Systems and Insulation
Parkersburg, West Virginia................... Insulation and Engineered Products
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
LOCATION BUSINESS SEGMENT
- -------- ----------------
<S> <C>
INTERNATIONAL
Changzhou, Jiangsu, China.................... Engineered Products
St. Helens, England.......................... Engineered Products
Karlstein, Bavaria, Germany.................. Engineered Products
Steinach, Thuringen, Germany................. Engineered Products
Wertheim, Baden-Wuerttemberg, Germany........ Engineered Products
Verona, Italy................................ Roofing Systems
Altamira, Mexico............................. Roofing Systems
Lubliniec, Poland............................ Engineered Products
Helsingborg, Sweden.......................... Engineered Products
Stromsund, Sweden............................ Engineered Products
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal actions occurring in the normal
course of its business. In the opinion of the Company's management, adequate
provision has been made for losses which may result from these actions and,
accordingly, the outcome of these proceedings is not expected to have a
material adverse effect on the financial condition of Johns Manville. For
additional information concerning certain of these proceedings, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Contingent Product Liability" and
"--Environmental Contingencies."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1997, there were no matters submitted to a vote
of security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company is a wholly owned subsidiary of Johns Manville Corporation, and
there is not a market for the Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
Omitted under the reduced disclosure format pursuant to General Instruction
I(2)(a) of Form 10-K.
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Johns Manville International Group, Inc. (the "Company") is a wholly owned
subsidiary of Johns Manville Corporation. The Company manufactures and markets
building and equipment insulation, commercial/industrial roofing systems,
high-efficiency filtration media, and fibers and nonwoven mats used as
reinforcements in building and industrial applications. The Company operates
50 manufacturing facilities in North America, Europe and China, and is
comprised of three principal business segments: Insulation, Roofing Systems
and Engineered Products.
The Insulation segment consists of the Company's building insulation
business, which manufactures fiber glass wool insulation for walls, attics and
floors in residential and commercial buildings and polyisocyanurate foam
sheathing for residential structures; commercial/industrial insulation
business, which manufactures pipe and duct insulation for use in commercial
buildings, factories, refineries and other industrial applications; and
original equipment manufacturers ("OEM") insulation business, which
manufactures thermal and acoustic insulation for aircraft, marine vessels,
automobiles and heating, ventilating and air conditioning ("HVAC") and other
equipment.
The Roofing Systems segment consists of the Company's commercial/industrial
roofing systems business, which supplies roofing membranes, insulations,
accessories and related guarantees.
The Engineered Products segment consists of the Company's mats and fibers
business, which manufactures continuous filament fiber glass-based products
used for reinforcing roofing, flooring, wall covering and plastic products.
The mats and fibers business includes the Company's German subsidiary,
Schuller GmbH, and the Company's Swedish and U.K. subsidiaries, the Mitex
companies. The Engineered Products segment also includes the Company's
filtration business, which manufactures filtration media for commercial and
industrial buildings; ultra-fine fibers for clean room air filters and battery
separators; liquid filtration cartridges and media for use in commercial and
industrial applications; and synthetic meltblown products used in various
other applications.
RESULTS OF OPERATIONS
The Company's net sales for 1997 increased $95.2 million, or 6.1 percent, to
$1,647.6 million from $1,552.4 million in 1996. Gross profit of $431.5 million
for 1997, decreased $9.1 million, or 2.1 percent, from $440.6 million in 1996.
The gross profit percentage declined 2.2 percentage points to 26.2 percent for
1997 due to lower selling prices. Certain management and financial services
provided by Johns Manville Corporation were reorganized and transferred to the
Company at the end of 1996. Therefore, services previously provided by parent
are reflected as selling, general and administrative for 1997. Selling,
general, administrative and research, development and engineering expenses and
services provided by parent, combined, increased slightly to $193.7 million
for 1997. These expenses, however, decreased as a percentage of sales in 1997
to 11.8 percent, compared with 12.4 percent in 1996. Income from operations
for 1997 was $225.7 million, up 14 percent, compared with $198 million for
1996. Income from operations during 1996 included nonrecurring charges
totaling $49.2 million.
Insulation Segment
The Insulation segment's net sales remained essentially unchanged at $697.8
million for 1997. Income from operations for this segment decreased $4.7
million, or 4.5 percent, to $98.7 million for 1997 from $103.4 million for
1996, which included $17.6 million of nonrecurring charges. During 1997,
capacity-related selling price and other competitive pressures reduced net
sales and led to lower margins and a decrease in operating income for the
residential insulation business compared with 1996. The selling price
decreases, averaging seven-to-eight percent, were partially offset by volume
increases due to strength in U.S. construction markets. The
commercial/industrial business, driven primarily by pipe and duct insulations,
experienced higher 1997 net sales and operating income on volume increases,
while lower selling prices led to slightly decreased margins compared with
1996. Despite lower 1997 net sales in automotive products primarily due to the
disposition of the
11
<PAGE>
Company's molded parts business, operating income for OEM insulation increased
for 1997 compared with 1996, reflecting strength in aerospace and other
specialty insulations.
Roofing Systems Segment
The Roofing Systems segment's net sales increased $96.5 million, or 23.3
percent, to $510.5 million in 1997 compared with $414 million in 1996. The
higher sales were primarily due to increased volumes and broadened product
lines from acquisitions, partially offset by unfavorable product mix.
Operating income increased $30.8 million to $62.9 million in 1997, reflecting
strong margins when compared with $32.1 million for 1996, which included $5.6
million of nonrecurring charges. These increases reflected the effective
integration of acquisitions, favorable raw material costs, higher roof
guarantee earnings and improved productivity.
Engineered Products Segment
The Engineered Products segment's net sales increased $5.2 million to $476
million for 1997 compared with $470.8 million in 1996. Income from operations
decreased to $92.6 million, or 18.1 percent, compared with $113.1 million in
1996, which included $4 million of income related to nonrecurring items. Net
sales and operating income for the U.S. mats and fibers business decreased in
1997 as reduced costs were more than offset by declining volumes and selling
prices due to competitive pressures. Strong improvements on higher sales
volumes for the segment's European operations, including the incremental
impacts of the Mitex acquisition, were partially offset by unfavorable
currency comparisons on reported results. Net sales for the filtration
business increased for 1997 on higher volumes due to recent acquisitions in
the synthetic filtration media markets. These improvements in filtration were
offset by competitive pricing pressures and higher acquisition-related costs
which led to decreased margins and operating income for 1997.
Nonrecurring Charges
In 1996, the Company recorded the following pretax nonrecurring charges
totaling $49.2 million.
The Company completed an evaluation of a manufacturing facility with both
current and former operations and determined that its best course of action
was closure of the facility. Consequently, the Company recorded nonrecurring
charges of $41.7 million for the shutdown of current operations, demolition of
facilities and site restoration, of which $30 million, $6.1 million and $5.6
million related to corporate and eliminations, the Insulation segment and the
Roofing Systems segment, respectively. Of these charges, $7.5 million were
noncash asset write-downs, and at December 31, 1997, $15.4 million was
classified as other current liabilities. Upon completion of these actions, the
Company intends to dispose of the remaining properties and does not expect to
incur significant future monitoring and maintenance costs. The Company expects
to fund the charges requiring cash outlays from existing cash balances and
cash generated from operations. During 1997, the Company spent minimal amounts
in preparation for demolition phases of the project. Pending federal and state
regulatory agency approval, the final disposition will begin in 1998 and is
expected to be substantially completed by 1999, with the majority of the
liabilities settled during that time frame. The nonrecurring charges are based
on estimates and, therefore, are subject to risks and uncertainties related to
the Company's ability to secure agreements with third parties, relinquish the
properties and obtain regulatory approvals to execute the actions described
above. As a result, the Company believes it is reasonably possible that these
estimates may be revised in the near-term. However, the impacts of such
revisions, if any, are not expected to have a material adverse effect on the
Company's financial condition, liquidity or results of operations.
The Company recorded additional 1996 nonrecurring charges (income) in the
Insulation and Engineered Products segments of $11.5 million and $(4) million,
respectively, consisting primarily of asset write-downs to estimated fair
values in the automotive molded parts business, which was disposed of in 1997,
and a gain on the sale of other manufacturing assets.
Other Expense, net
Other expense, net, was $12.2 million for 1997 compared with of $0.6 million
for 1996. During 1997, other expense, net, included higher goodwill
amortization, reflecting a full year of expense related to 1996 acquisitions,
12
<PAGE>
in addition to expense related to the 1997 acquisitions. Other expense, net,
for 1996 included a $7.2 million gain on the settlement of certain pension
plans.
Interest
Compared with 1996, the Company's interest income decreased $1.4 million,
primarily due to lower average cash and marketable securities balances. During
1997, the Company's interest expense increased $8.1 million due primarily to
1997 acquisition-related borrowings.
Income Taxes
The Company's effective tax rate on income before income taxes was 43
percent and 44 percent for the years ended December 31, 1997 and 1996,
respectively. These are higher than the U.S. federal statutory tax rate
principally due to higher foreign effective tax rates and state taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company broadly defines liquidity as the ability to generate sufficient
cash flow to satisfy operating requirements, fund capital expenditures and
meet existing obligations and commitments. In addition, liquidity also
includes the ability to obtain appropriate financing and convert into cash
those assets that are no longer required to meet the Company's strategic
objectives. Therefore, liquidity should not be considered separately from
capital resources, which consist of currently or potentially available funds
for use in achieving long-range business objectives and meeting debt service
commitments. In addition, the Company's relationship with Johns Manville
Corporation should be considered in evaluating liquidity.
The Company's agreements with its lenders contain a number of financial and
general covenants. These include, among others, restrictions on borrowings,
investments, stock issuances and repurchases, dividends and other
distributions, restrictions on intercompany transactions, including transfers
of cash, and transactions with Johns Manville Corporation. As of December 31,
1997 and 1996, the maximum amount available for dividends to be paid to Johns
Manville Corporation under debt covenants of the Senior Notes was
approximately $250 million and $210 million, respectively. Noncompliance with
these or other covenants, or the occurrence of any other event of default,
could result in the termination of existing credit agreements and the
acceleration of debt owed by the Company and its subsidiaries. At December 31,
1997, the Company was in compliance with these covenants.
The Company's cash and marketable securities balances decreased $18.5
million during 1997 to $122.4 million at December 31, 1997, from $140.9
million at December 31, 1996. At December 31, 1997, cash and marketable
securities located outside the U.S. and Canada were $28.2 million.
The Company's net operating activities provided $151 million of cash during
1997, compared with $185.6 million for 1996. The Company's cash flows from
operating activities are primarily influenced by sales volume and selling
prices. During 1997, sales volume increased primarily due to the incremental
impact of acquisitions, strong U.S. commercial construction markets, and U.S.
housing starts comparable to 1996 levels. The volume increases were, however,
offset by selling price declines in most of the Company's businesses,
particularly in residential insulation.
The Company's investing activities used $200.1 million and $223.3 million in
1997 and 1996, respectively. Investing activities for 1997 used $136.5 million
for acquisitions, net of cash acquired, and $90.5 million for capital
expenditures. The 1997 capital expenditures included approximately $50 million
related to capacity expansion projects, principally to increase mats and
fibers production. Investing activities for 1997 also included proceeds from
the disposition of its automotive molded parts business. Cash used in
investing activities for 1996 included acquisitions of $153.1 million and
capital expenditures totaling $103 million, of which approximately $45 million
related to capacity expansion projects.
The Company's total external debt decreased to $438.2 million at December
31, 1997 from $442.4 million at December 31, 1996. During 1997, the Company
borrowed $55 million from international credit facilities to partially finance
1997 acquisitions, of which $30 million was subsequently repaid. Also during
1997, the
13
<PAGE>
Company repaid debt totaling $30 million assumed in connection with 1996
acquisitions. This debt was refinanced with $30 million of notes payable to
Johns Manville Corporation at prevailing market terms, of which $2.5 million
was repaid. Financing activities for 1996 included the proceeds from a $50
million note payable to Johns Manville Corporation, due October 1, 1998, which
were used to partially finance the acquisition of NRG Barriers, Inc.
At December 31, 1997, the Company had $100 million available under a
receivables sale facility (the "Receivables Facility") for its domestic short-
term working capital requirements. Amounts available for borrowing under the
Receivables Facility are based on the daily balance of certain outstanding
trade accounts receivable adjusted for various factors as defined under the
terms of the Receivables Facility. In addition, the Company's international
subsidiaries had borrowing and working capital facilities totaling $85
million, of which $51.9 million was available at December 31, 1997. These
facilities are principally secured by the Company's equity ownership in
certain international subsidiaries and joint ventures.
Cyclicality of Demand/Competitive Environment
Demand for the Company's products has historically been cyclical due to
macroeconomic factors affecting residential and commercial construction
markets. Due to their specific market niches, the Company's replacement
roofing, filtration and specialty products are less sensitive to business
cycles. Selling prices are subject to factors influenced by the competitive
environment in which the Company operates, including fluctuations in overall
capacity utilization.
During 1997, sales volumes increased due to continued strength in U.S.
construction markets, businesses acquired in 1997 and 1996, increases in
operating capacity and improvements in European construction markets. However,
during 1997, most of the Company's businesses were adversely affected by
capacity-related and other competitive selling price pressures, particularly
in residential insulation.
Capital Spending and Capacity Expansion
In order to increase its U.S. production of continuous filament fiber glass
to meet the demand for its mats and fibers products, in August 1997, the
Company completed the expansion of existing capacity with the reconstruction
of a furnace. The Company's joint venture in China, which began expansion of
an existing fiber glass mat facility in 1996, is expected to be completed in
1998. The Company estimates capital spending in 1998 of approximately $128
million excluding acquisitions, of which approximately $55 million will be
used in capacity expansion programs. As of December 31, 1997, outstanding
purchase commitments relating to capital spending and capacity expansion
projects totaled $21.9 million. The Company plans to fund its capital spending
from existing cash balances and cash flows generated by operations. The
Company's capacity expansion programs are periodically revised to reflect
changes in demand, industry capacity and the results of productivity
improvements and technological innovations.
In response to the implementation of the 1990 Amendments to the federal
Clean Air Act and requirements of various state air emissions regulations, the
Company will be obligated to monitor and reduce air emissions at its
manufacturing sites. Because many of the anticipated regulations have not yet
been proposed, neither the costs nor timing of compliance can be reasonably
anticipated at this time. Provisions of Titles III and VII of the 1990
Amendments and the related regulations will likely require capital
expenditures in the years 1998-2001, with most of the expenditures occurring
in the latter part of that time frame.
Acquisitions
During the third quarter of 1997, the Company acquired the roofing business
of HPG International, Inc., a U.S. manufacturer of thermoplastic membranes.
During the second quarter of 1997, the Company acquired the Mitex group of
companies. Mitex is a manufacturer of fiber glass wall covering fabrics used
primarily in
14
<PAGE>
commercial and industrial buildings, and has manufacturing facilities in
Sweden and the United Kingdom. During the first quarter of 1997, the Company
acquired the assets of Ergon Nonwovens, Inc., a U.S. manufacturer of synthetic
meltblown nonwoven products. The Ergon and Mitex acquisitions are associated
with the businesses of the Engineered Products segment.
The combined purchase price for these acquisitions, accounted for under the
purchase method, was $136.5 million, net of cash acquired, financed from
existing cash balances and borrowings from international credit facilities.
The excess of the combined purchase prices over the estimated fair value of
net assets acquired, or goodwill, amounted to approximately $84 million. These
allocations were based on estimates and may be revised in the future.
In January 1998, the Company acquired the assets of Seal-Dry/USA, Inc., a
U.S. manufacturer of reinforced thermoplastic roofing systems. Also in January
1998, the Company acquired a plant, associated with the Insulation segment,
which manufactures calcium silicate pipe and block insulation, and fireproof
board. Both acquisitions will be accounted for under the purchase method.
Contingent Product Liability
Between 1988 and 1992, the Company manufactured phenolic roofing insulation
which may, under certain circumstances, contribute to the corrosion of metal
decks on which it is installed. Subsequently, the Company began a voluntary
program to inspect such metal decks and remediate where appropriate. The
Company has accrued for costs relating to future inspections, remediation and
anticipated claims. These accruals are based on the Company's historical
experience regarding the incidence of corrosion and the cost of remediation
and include a number of assumptions related to the types of roofs on which
phenolic insulation has been installed as well as the assumption that the
Company's past remediation experience will continue over the remaining lives
of roofs insulated with the Company's phenolic roofing insulation.
Pursuant to reimbursement agreements with the Company's liability carriers
and former owner of the phenolic roofing insulation business, the Company has
been reimbursed for a portion of historical costs incurred and is entitled to
receive reimbursement for a substantial portion of future costs to be incurred
by the Company for inspection and remediation.
In 1996, the Company and a third party were named as defendants in two class
action cases filed in U.S. District Court in Boston, Massachusetts. The
plaintiffs purport to represent all building owners in the U.S. with phenolic
insulation installed on their roof decks and seek damages and injunctive
relief, including an order requiring the removal and replacement of the
phenolic insulation and remediation of any deck corrosion. The Company intends
to defend these allegations vigorously.
The Company has reviewed its historical inspection and remediation
experience and the terms and collectibility of amounts payable under the
reimbursement agreements in light of the contingencies described above. Based
on the information available to date and subject to the assumptions described
above, if additional costs are incurred in excess of the accrued amounts, such
costs are not expected to have a material adverse effect on the Company's
financial condition, liquidity or results of operations.
Environmental Contingencies
At December 31, 1997, the Company had remediation activities in progress at
nine sites, out of a total of 19 such sites for which the Company has
identified environmental conditions requiring remediation. In addition, the
Company has been identified as a potentially responsible party at 24 non-
Company owned or operated sites under the federal Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") or similar state
legislation. Of these 24 sites, the Company's potential liability for 17 sites
will be determined pursuant to the settlement agreement described in the
following paragraph. The remaining seven sites are not subject to the
agreement and, accordingly, the Company could be jointly and severally liable
for costs of remediating these sites.
15
<PAGE>
In 1994, the U.S. government and Johns Manville Corporation settled certain
litigation concerning the Company's disposal activities prior to consummation
of Johns Manville Corporation's plan of reorganization. The settlement
agreement, which was made an order of the court, limits the Company's future
liability under both CERCLA and the Resource Conservation and Recovery Act
("RCRA") to 55 percent of its share of site-wide response costs and natural
resources damages without regard to joint and several liability for disposals
made by the Company prior to consummation of Johns Manville Corporation's plan
of reorganization. The agreement resolved the Company's liability at certain
historical sites and also covers CERCLA and RCRA liability for other disposal
sites at which the Environmental Protection Agency ("EPA") has incurred or may
incur response costs and which were used by the Company prior to consummation
of Johns Manville Corporation's plan of reorganization. The agreement provides
that the amount the Company will be obligated to pay, in the aggregate, for
such sites shall never exceed $850,000 during any given year. The EPA and
others from time to time commence cleanup activities at such sites and in the
future the EPA and others may assert claims against the Company with respect
to such sites. The Company believes that all such activities and claims, if
any, will be subject to the agreement.
At December 31, 1997 and 1996, the Company's balance sheet included
undiscounted accruals for environmental remediation costs, including ongoing
compliance, maintenance and monitoring costs, of $34 million. The Company paid
$1.3 million and $1.8 million for environmental cleanup in 1997 and 1996,
respectively. The Company believes that amounts paid in 1997 and 1996 are
representative of the Company's future annual environmental clean up costs and
anticipates expenditures relating to costs currently accrued to be made over
the next 15 years.
As a result of factors such as changes in federal and state regulations, the
application and effectiveness of remedial actions, the difficulty in assessing
the extent of environmental contamination, and the allocation of costs among
potentially responsible parties, actual costs to be incurred for environmental
cleanup may vary from previous estimates. Subject to the uncertainties
inherent in evaluating environmental exposures, and based on information
presently available, including the Company's historical remediation
experience, currently enacted environmental laws and regulations, and existing
remediation technology, the Company believes that if additional costs are
incurred in excess of the accrued amounts, such costs are not expected to have
a material adverse effect on the Company's financial condition, liquidity or
results of operations.
Year 2000 Compliance
The Company is engaged in a comprehensive project to modify its computer
software for year 2000 compliance. Based on current estimates, spending to
upgrade or replace the Company's software or systems related to year 2000
compliance is not expected to exceed $5 million through 1999. Although it is
not possible to quantify the impacts year 2000 compliance issues will have on
customers or suppliers, the Company does not anticipate related material
adverse effects on its financial condition, liquidity or results of
operations.
New Accounting Pronouncements
During 1997, the Financial Accounting Standards Board issued the following
Statements of Financial Accounting Standards effective for periods beginning
after December 15, 1997: "Reporting Comprehensive Income" ("SFAS No. 130") and
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
No. 131"). SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components. Comprehensive income generally
includes changes in separately reported components of equity along with net
income. SFAS No. 131 establishes standards for reporting information about
operating segments, along with related disclosures about products, services,
geographic areas and major customers, based on the Company's disaggregation of
an entity for internal operating decisions. The Company's reportable business
segments are currently aligned with its internal business units.
Relationship with Johns Manville Corporation
The Company is a wholly owned subsidiary of Johns Manville Corporation.
Accordingly, Johns Manville Corporation could cause the Company to pay
dividends, subject to the terms of the Senior Notes indenture, certain other
contractual limitations and applicable law.
16
<PAGE>
In connection with the public offering of the Senior Notes during 1994, the
Company and Johns Manville Corporation entered into a Corporate Agreement
that, among other things, prohibits the Company and certain of its
subsidiaries from issuing any capital stock or rights, warrants or options to
purchase their capital stock (collectively, "Capital Stock Rights") without
the approval of Johns Manville Corporation's Board of Directors. In addition,
the Corporate Agreement prohibits the Company and certain of its subsidiaries
from issuing any of their Capital Stock Rights if, immediately after such
issuance, the Company or any of such subsidiaries would no longer be a member
of the Johns Manville Corporation consolidated federal income tax group. Johns
Manville Corporation has agreed with the Manville Personal Injury Settlement
Trust (the "Trust") that, without the consent of the Trust, Johns Manville
Corporation will not waive any provisions of the Corporate Agreement.
Also in connection with the public offering of the Senior Notes, the Company
and Johns Manville Corporation entered into a Tax Sharing Agreement that
provides that as long as the Company and Johns Manville Corporation are
included in the same consolidated tax group, the Company will pay to Johns
Manville Corporation amounts equal to the U.S. federal and state income taxes
(for states requiring consolidated or combined income tax returns) that the
Company would otherwise have to pay if it were to file separate returns, and
that Johns Manville Corporation has the authority to make tax elections for
the Company. U.S. federal and state income taxes paid to Johns Manville
Corporation for 1997, 1996 and 1995 totaled $53.2 million, $52.5 million and
$50.4 million, respectively.
In addition, the Company and Johns Manville Corporation entered into certain
agreements that formalized various relationships between the two companies.
Principal among these are an Intercompany Agreement by which Johns Manville
Corporation provides certain management services to the Company for a fee and
a Treasury Management Agreement by which Johns Manville Corporation provides
certain financial services for a fee. Fees for the cost of such services are
based on actual costs incurred, estimates of time spent to provide such
services and other appropriate bases that management believes to be reasonable
and representative of the services provided. Prior to 1997, charges for
services received were included in services provided by parent in the
Consolidated Statement of Income. During 1996, Johns Manville Corporation
divested its investment in Riverwood International Corporation (the "Riverwood
Disposition"). In connection with the Riverwood Disposition, certain
management and financial services maintained by Johns Manville Corporation
were reorganized and transferred to the Company, and are now reflected as
selling, general and administrative expenses. Expenses incurred by the Company
under the terms of the Intercompany Agreement and the Treasury Management
Agreement for services provided by Johns Manville Corporation totaled $7
million and $11.8 million for the years ended December 31, 1996 and 1995,
respectively.
The Company believes that its current cash position, cash generated from
operations, and funds available under the Receivables Facility and foreign
working capital facilities will enable it to satisfy debt service
requirements, ongoing capital spending and capacity expansion programs and
other ongoing operating costs. However, the Company may need to access capital
markets to pay the principal of its Senior Notes or in connection with
possible significant future acquisitions.
FORWARD-LOOKING STATEMENTS
This report contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Statements of the Company
contained in this report concerning matters that are not historical facts,
including, without limitation, statements concerning (i) the Company's
estimates concerning nonrecurring charges taken in 1996, (ii) the Company's
expectations as to contingencies related to phenolic roofing insulation and
environmental liabilities, (iii) adverse effects on operating earnings of
capacity-related and other competitive pressures in most of the Company's
businesses, particularly residential insulation, (iv) expected benefits from
the continuing integration of acquisitions and capacity expansions, (v) the
Company's expectations concerning levels of capital spending and funding of
current operations, debt service, dividends and future acquisitions and (vi)
the Company's estimates concerning year 2000 compliance issues, constitute
such forward-looking statements. See "Liquidity and Capital Resources."
17
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Forward-looking statements of the Company are subject to risks and
uncertainties that could cause actual results to differ materially from those
expressed in such statements. Important factors relating to such risks and
uncertainties are set forth below.
Factors that could affect the forward-looking statements generally are
related to demand for the Company's products and to overall capacity levels in
the industry. Demand for such products is generally cyclical and is influenced
by macroeconomic factors that affect demand in residential and commercial
construction and replacement markets and demand from original equipment
manufacturers, including the general rate of inflation, interest rates,
employment rates and overall consumer confidence. Approximately 75 percent of
the Company's annual sales are made to customers in commercial/industrial
markets, while the remainder are to residential construction markets.
Overall capacity levels in the industry directly affect prices for the
Company's products. Other factors that may affect prices include the overall
competitive environment in which the Company operates, the availability and
pricing of raw materials, rates of technological development and changes in
productivity. In addition, overall demand for the Company's products could be
affected by the factors described in "BUSINESS-Occupational Health and Safety
Aspects of the Company's Products" in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
Factors relating to the Company's estimates concerning nonrecurring charges
are discussed in "Results of Operations." For a discussion of factors
concerning contingencies related to phenolic roofing insulation, environmental
matters and year 2000 compliance, see "Liquidity and Capital Resources-
Contingent Product Liability, Environmental Contingencies, and Year 2000
Compliance."
Other factors also could affect the Company's expected levels of capital
spending and funding of current operations, debt service and dividends,
including, without limitation, the contingencies and commitments discussed in
the Company's financial statements included in this report for the year ended
December 31, 1997. In addition, the Company's ability to make future
acquisitions depends upon the ability of the Company to identify and reach
agreement with viable acquisition candidates and the availability of sources
of financing for such acquisitions on terms which are acceptable to the
Company.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheet, December 31, 1997 and 1996................... 20
Consolidated Statement of Income, for each of the three years in the
period ended December 31, 1997.......................................... 21
Consolidated Statement of Cash Flows, for each of the three years in the
period ended December 31, 1997.......................................... 22
Consolidated Statement of Stockholder's Equity, for each of the three
years in the period ended December 31, 1997............................. 23
Notes to Consolidated Financial Statements............................... 24
Report of Independent Accountants........................................ 45
Selected Quarterly Financial Data, for each of the two years in the
period ended December 31, 1997 (Unaudited).............................. 46
</TABLE>
19
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents................................... $ 107,682 $ 138,216
Marketable securities, at cost, which approximates
market................................................ 14,699 2,698
Receivables............................................ 221,747 229,585
Inventories............................................ 127,061 101,041
Receivable from Parent................................. 6,408 28,176
Prepaid expenses....................................... 7,407 6,590
Deferred tax assets.................................... 33,632 31,063
---------- ----------
Total Current Assets................................ 518,636 537,369
Property, Plant and Equipment, net...................... 797,759 769,968
Receivable from Parent.................................. 10,686 10,115
Goodwill................................................ 202,844 127,994
Other Assets............................................ 203,596 222,095
---------- ----------
Total Assets........................................ $1,733,521 $1,667,541
========== ==========
LIABILITIES
Current Liabilities
Short-term debt........................................ $ 1,767 $ 31,748
Accounts payable....................................... 116,262 121,099
Compensation and employee benefits..................... 82,881 102,136
Income taxes........................................... 4,102 15,863
Other accrued liabilities.............................. 72,730 50,049
---------- ----------
Total Current Liabilities........................... 277,742 320,895
Long-Term Debt, less current portion.................... 436,474 410,658
Notes Payable to Parent................................. 107,453 80,000
Deferred Income Taxes................................... 42,175 41,242
Postretirement Benefits Other than Pensions............. 197,336 199,473
Other Noncurrent Liabilities............................ 265,842 292,608
---------- ----------
Total Liabilities................................... 1,327,022 1,344,876
---------- ----------
Commitments and Contingencies (Notes 2, 6, 15 and 16)
STOCKHOLDER'S EQUITY
Common Stock, $1 par value; 100 shares authorized,
issued and outstanding.................................
Capital in Excess of Par Value.......................... 80,869 80,869
Retained Earnings....................................... 316,343 215,125
Cumulative Currency Translation Adjustment.............. 9,287 26,671
---------- ----------
Total Stockholder's Equity.......................... 406,499 322,665
---------- ----------
Total Liabilities and Stockholder's Equity.......... $1,733,521 $1,667,541
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales................................... $1,647,645 $1,552,429 $1,391,522
Cost of Sales............................... 1,216,135 1,111,811 993,111
Selling, General and Administrative......... 162,511 153,278 122,902
Research, Development and Engineering....... 31,174 32,663 29,979
Services Provided by Parent................. 6,966 11,793
Nonrecurring Charges........................ 49,156
Other Income (Expense), net................. (12,150) (574) (17,787)
---------- ---------- ----------
Income from Operations...................... 225,675 197,981 215,950
Interest Income............................. 7,267 8,692 9,481
Interest Expense............................ 47,764 44,610 43,963
Interest Expense-Parent..................... 8,196 3,235 2,223
---------- ---------- ----------
Income before Income Taxes.................. 176,982 158,828 179,245
Income Tax Expense.......................... 75,764 69,884 77,016
---------- ---------- ----------
Net Income.................................. $ 101,218 $ 88,944 $ 102,229
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $ 101,218 $ 88,944 $ 102,229
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 80,163 70,898 63,085
Deferred taxes.......................... 16,840 (14,680) 4,348
Product guarantee income................ 4,961 8,651 9,352
Provision for furnace rebuilds.......... 11,264 8,270 8,349
Pension and postretirement benefits
expense................................ 6,334 11,126 20,613
Nonrecurring charges.................... 49,870
Other, net.............................. 7,152 17,360 17,033
Changes in current assets and liabilities:
Receivables.............................. 23,101 8,137 (568)
Inventories.............................. (18,423) (2,680) (19,327)
Prepaid expenses......................... (1,494) (1,276) 1,071
Receivable from Parent................... (2,590) 6,114 (3,754)
Accounts payable......................... (3,841) (5,288) (731)
Compensation and employee benefits....... (9,648) (9,160) (10,888)
Income taxes............................. (26,560) 3,364 1,644
Other accrued liabilities................ 23,564 (21,952) 977
Changes in noncurrent liabilities:
Postretirement benefits other than
pensions................................ (15,137) (16,347) (19,742)
Other noncurrent liabilities............. (45,946) (15,774) (12,965)
---------- ---------- ----------
Net Cash Provided by Operating
Activities............................... 150,958 185,577 160,726
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment................................ (90,528) (102,973) (111,066)
Acquisitions.............................. (136,521) (153,113)
Proceeds from sales of assets............. 9,350 14,055 2,023
Purchases of available-for-sale marketable
securities............................... (4,986) (6,082)
Purchases of held-to-maturity marketable
securities............................... (14,042) (8,774) (55,519)
Proceeds from sales of available-for-sale
marketable securities.................... 286 6,082
Proceeds from maturities of held-to-
maturity marketable securities........... 2,538 26,446 58,356
(Increase) decrease in other assets....... 28,829 (40) (6,342)
---------- ---------- ----------
Net Cash Used in Investing Activities..... (200,088) (223,303) (118,630)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of debt-external................. 56,636 63 6,622
Issuance of debt-Parent................... 30,000 55,000
Payments on debt-external................. (61,170) (18,109) (1,756)
Payments on debt-Parent................... (2,547)
---------- ---------- ----------
Net Cash Provided by Financing
Activities............................... 22,919 36,954 4,866
---------- ---------- ----------
Effect of Exchange Rate Changes on Cash... (4,323) (1,340) (62)
---------- ---------- ----------
Net Increase (Decrease) In Cash And
Equivalents.............................. (30,534) (2,112) 46,900
Cash and Equivalents at Beginning of
Year..................................... 138,216 140,328 93,428
---------- ---------- ----------
Cash and Equivalents at End of Year....... $ 107,682 $ 138,216 $ 140,328
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CUMULATIVE
CAPITAL IN CURRENCY TOTAL
EXCESS OF RETAINED TRANSLATION STOCKHOLDER'S
PAR VALUE EARNINGS ADJUSTMENT EQUITY
---------- -------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1994... $57,082 $ 24,439 $ 26,419 $107,940
Net income for the year......... 102,229 102,229
Currency translation............ 6,265 6,265
------- -------- -------- --------
BALANCES AT DECEMBER 31, 1995... 57,082 126,668 32,684 216,434
Net income for the year......... 88,944 88,944
Currency translation............ (6,013) (6,013)
Dividends to Parent............. (487) (487)
Contribution from Parent........ 23,787 23,787
------- -------- -------- --------
BALANCES AT DECEMBER 31, 1996... 80,869 215,125 26,671 322,665
Net income for the year......... 101,218 101,218
Currency translation............ (17,384) (17,384)
------- -------- -------- --------
BALANCES AT DECEMBER 31, 1997... $80,869 $316,343 $ 9,287 $406,499
======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Johns Manville International Group, Inc. (the "Company"), a wholly owned
subsidiary of Johns Manville Corporation, manufactures and markets building
and equipment insulation, commercial/industrial roofing systems, high-
efficiency filtration media, and fibers and nonwoven mats used as
reinforcements in building and industrial applications. The Company estimates
that approximately 75 percent of its annual sales are to commercial/industrial
markets, while the remainder are to residential construction markets. The
Company's products are sold to contractors, mass merchants, wholesale
distributors and fabricators throughout North America, Europe and Asia.
Principles of Consolidation
The consolidated financial statements include the accounts of Johns Manville
International Group, Inc. and its majority-owned subsidiaries. All significant
intercompany transactions have been eliminated.
Use of Estimates
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in these
financial statements, including disclosures of contingent liabilities.
Cash and Equivalents
Cash and equivalents include money market mutual funds, time deposits and
marketable securities with original maturities of three months or less.
Financial Instruments
The Company uses the amortized cost method of accounting for investments in
held-to-maturity debt securities for which it has the positive intent and
ability to hold to maturity. Fair value accounting is used for debt securities
that are classified as available-for-sale securities. Realized gains and
losses are computed on the specific identification method.
The Company does not obtain collateral or other security to support
financial instruments subject to credit risk, but monitors the credit standing
of counterparties.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
principally on the last-in, first-out (LIFO) basis for all domestic
subsidiaries. The first-in, first-out (FIFO) basis is used to determine the
cost of inventories for all foreign subsidiaries.
Related Party Transactions
The Company receives certain services from and provides various other
services to Johns Manville Corporation. Fees for the cost of such services are
based on actual costs incurred, estimates of time spent to provide such
services and other appropriate bases that management believes to be reasonable
and representative of the services provided. Since the companies maintain
certain administrative functions for the benefit of both entities, management
is unable to differentiate between the amount allocated and the amount that
would have been incurred on a stand-alone basis. Prior to 1997, charges for
services received were included in services provided by parent in the
Consolidated Statement of Income. During 1996, certain management and
financial services previously provided by Johns Manville Corporation were
reorganized and transferred to the Company, and are now reflected as selling,
general and administrative expenses (see Note 6).
24
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation expense is
computed using the straight-line method, based upon the estimated useful lives
of the assets. Buildings are depreciated principally over 20 to 40 years, and
machinery and equipment are depreciated principally over 20 years.
Maintenance and repairs are charged to current period earnings, while
replacements and betterments are capitalized.
Goodwill
Goodwill associated with acquisitions in excess of fair value of net assets
acquired is amortized on a straight-line basis generally over 20 years. The
Company evaluates the recoverability of goodwill through its ongoing strategic
planning process.
Provision for Rebuilding Furnaces
The Company's glass furnaces have an estimated useful life of approximately
30 years. During that time, the refractory components of the glass furnaces
are periodically rebuilt, typically every six to seven years. The timing of
the periodic rebuilds is dependent upon a number of variables including
production volumes, product mix, and the extent and timing of interim repair
and maintenance work performed.
The estimated cost to rebuild the refractory components of the Company's
glass furnaces is credited to an allowance and charged to operations on a
straight-line basis over the estimated period to the next rebuild date.
Unusual, nonrecurring adjustments to previously established allowances, if
required, are included in operating results.
Revenue Recognition
The Company recognizes revenue from product sales upon shipment. The Company
estimates and records provisions for cash discounts, customer incentives,
sales returns, allowances and original warranties in the period the sale is
reported, based on its experience.
The Company also sells extended roofing product guarantees for periods of 10
to 20 years. These extended guarantees cover the water tightness of roofing
systems resulting from defects in materials or deficiencies in workmanship.
Revenue on these product guarantees is recognized over the contract period in
proportion to costs incurred.
Workers' Compensation
The Company accrues a liability for workers' compensation claims at present
value, due to the fixed and determinable nature of the claim payments, based
upon an evaluation of historical claims data and expected future claims. In
addition, the Company records a receivable at present value for the portion of
outstanding claims covered by third-party insurers.
Income Taxes
The U.S. entities of the Company are members of the Johns Manville
Corporation affiliated group of corporations, which file a consolidated
federal income tax return and certain consolidated state income tax returns.
For all periods presented, the Company's U.S. federal tax liability and
certain state tax liabilities have been computed as if these U.S. entities
were filing a separate consolidated return using elections generally
consistent with those employed by Johns Manville Corporation. In addition,
certain state and local tax liabilities have been computed as if the Company's
U.S. entities were not a member of the Johns Manville Corporation affiliated
group. Pursuant to the terms of a tax sharing agreement with Johns Manville
Corporation (the "Tax
25
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sharing Agreement"), beginning in 1994, the Company's U.S. federal and
consolidated state tax obligations were paid to Johns Manville Corporation.
The Company and Johns Manville Corporation have also agreed that any material
assessments that will result in a future taxable benefit to the Company (as
determined by Johns Manville Corporation) and attributable to open tax years
beginning before January 1, 1994 will be paid by the Company.
Reclassifications
Certain prior year information has been reclassified to conform with the
current year presentation.
NOTE 2-FINANCIAL INSTRUMENTS
The Company has had limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company enters
into foreign exchange forward contracts to hedge against currency fluctuations
on certain material foreign currency exposures and records a
receivable/payable which is classified consistently with the related
outstanding foreign currency exposure. The Company did not have any forward
contracts outstanding at December 31, 1997 or 1996.
Gains and losses on foreign currency transactions and forward exchange
contracts are included in other income (expense), net, for the period in which
the exchange rate changes. The discount or premium on forward contracts is
accounted for separately from the gain or loss on the contracts and is
amortized to other income (expense), net, over the life of the contract.
The Company had outstanding letters of credit totaling $15.4 million and
$15.1 million as of December 31, 1997 and 1996, respectively. Letters of
credit are primarily collateralized by cash.
The Company maintains cash and cash equivalents and certain other financial
instruments with various financial institutions throughout the world. The
Company invests excess cash in a diversified portfolio of high-quality money
market instruments consistent with the preservation of capital and the
maintenance of liquidity. The Company's investment policies require
diversification of investments and include restrictions on maturity and credit
quality. The Company monitors compliance with these restrictions on an ongoing
basis. The Company has not experienced any material losses related to these
investments.
The Company is exposed to credit losses in the event of nonperformance by
the counterparties to its financial instruments, but does not anticipate any
significant off-balance-sheet credit risk of accounting loss. The Company
anticipates that counterparties will be able to fully satisfy their
obligations under the contracts.
At December 31, 1997, the Company held investments in debt securities that
were classified as held-to-maturity with an amortized cost basis of $49.9
million, which approximated fair value. The Company's investments in held-to-
maturity debt securities at December 31, 1997 were classified on the balance
sheet as cash equivalents of $26 million, marketable securities of $14.7
million and other assets of $9.2 million, depending upon the nature and
maturity of the investments. Of these securities, $40.7 million had
contractual maturities within one year; the remainder mature in one to five
years. Additionally, at December 31, 1997, the Company had investments in
available-for-sale debt securities that were classified on the balance sheet
as other assets of $4.7 million. The amortized cost basis of these securities
approximated fair value. Of these securities, all have contractural maturities
of one to five years.
At December 31, 1996, the Company held investments in debt securities that
were classified as held-to-maturity with an amortized cost basis of $106
million, which approximated fair value. The Company's investments in held-to-
maturity debt securities at December 31, 1996, were classified on the balance
sheet as
26
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
cash equivalents of $93.7 million, marketable securities of $2.7 million and
other assets of $9.6 million, depending upon the nature and maturity of the
investments. Of these securities, $96.2 million had contractual maturities
within one year; the remainder mature in one to five years. Additionally, at
December 31, 1996, the Company had investments in available-for-sale debt
securities that were classified on the balance sheet as other assets of $5
million. The amortized cost basis of these securities approximated fair value.
Of these securities, $4.9 million had contractual maturities of one to five
years; the remainder mature in less than one year.
During 1997 and 1996, the Company sold securities that had been classified
as available-for-sale, resulting in proceeds of $0.3 million and $6.1 million,
respectively, which approximated carrying value.
NOTE 3-RECEIVABLES
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
1997 1996
------------ ------------
<S> <C> <C>
Trade.............................................. $ 237,743 $ 242,530
Less allowances.................................... 36,780 30,016
------------ ------------
200,963 212,514
Other.............................................. 20,784 17,071
------------ ------------
$ 221,747 $ 229,585
============ ============
Included in allowances are doubtful accounts of $6 million and $7.6 million
at December 31, 1997 and 1996, respectively. The Company generally requires no
collateral on receivables. The provision for doubtful accounts charged
(credited) to costs and expenses was $(0.2) million for 1997, $1.1 million for
1996, and $0.8 million for 1995.
NOTE 4-INVENTORIES
<CAPTION>
(IN THOUSANDS OF DOLLARS)
1997 1996
------------ ------------
<S> <C> <C>
Finished goods..................................... $ 82,082 $ 60,456
Work-in-process.................................... 10,869 8,472
Raw materials...................................... 25,410 23,383
Supplies........................................... 8,700 8,730
------------ ------------
$ 127,061 $ 101,041
============ ============
</TABLE>
Inventories in the amounts of $23.4 million, and $29.5 million at December
31, 1997 and 1996, respectively, were valued using FIFO. The balance of the
inventories was valued using LIFO. The excess of current values over amounts
for financial reporting purposes was $53.8 million and $51.5 million at
December 31, 1997 and 1996, respectively.
NOTE 5-PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
1997 1996
------------ ------------
<S> <C> <C>
Land and improvements............................. $ 50,189 $ 47,977
Buildings......................................... 246,175 237,132
Machinery and equipment........................... 1,141,106 1,113,341
------------ ------------
1,437,470 1,398,450
Less accumulated depreciation..................... 639,711 628,482
------------ ------------
$ 797,759 $ 769,968
============ ============
</TABLE>
27
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6-RELATED PARTY TRANSACTIONS
Stock Compensation Plans
Certain executives and other eligible employees of the Company participated
in Johns Manville Corporation stock compensation plans, which grant deferred
stock rights, restricted stock and options to purchase shares of Johns
Manville Corporation stock. On July 1, 1997, Johns Manville Corporation
introduced a noncompensatory employee stock ownership plan for its worldwide
employees. The plan enables the Company's employees to purchase stock directly
from the market and through savings plans. In addition, approximately 1.6
million options were granted to employees at $12.19 per share. These options
vest through July 1, 2002 and expire on December 31, 2002. The Company's share
of compensation expense recognized for stock-based compensation was $1.7
million, $1.5 million and $0.6 million in 1997, 1996 and 1995, respectively.
At December 31, 1997, 5.5 million options to purchase shares of Johns
Manville Corporation common stock were outstanding. The options were issued at
exercise prices ranging from $9.88 to $15.55. The substantial majority of the
options, other than those granted under the noncompensatory plan, vested by
December 31, 1997 and expire on December 31, 2005. The Company accounts for
compensation expense related to the options under APB Opinion 25 and related
interpretations and, since the exercise prices on the grant date equaled or
exceeded market prices on grant dates, no compensation expense was recognized.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS No. 123") was issued in 1995, and if fully adopted,
changes, among other things, the methods for recognition of expense on plans
involving Johns Manville Corporation's stock options. Recognition of
compensation under SFAS No. 123 is optional; however, pro forma disclosures as
if the Company adopted expense recognition under SFAS No. 123 beginning in
1996 are required. Had compensation cost been determined based on the fair
value at grant dates for stock option awards consistent with SFAS No. 123, the
Company's net income for the years ended December 31, 1997 and 1996 would have
been reduced to the following pro forma amounts (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Net Income-As reported.................... $101,218 $88,944
Pro forma................................. $ 97,412 $86,008
</TABLE>
The pro forma compensation expense based on the fair value of the options is
estimated on the grant date using the Black-Scholes option-pricing model. The
weighted average assumptions used for options granted in 1997 were: dividend
yield of $0.16 per share; expected volatility of 31.4 percent; a risk free
rate of return of 6.3 percent and an expected life of the options of 4.5
years. The weighted average assumptions used for options granted in 1996 were:
dividend yield of $0.12 per share; expected volatility of 32 percent; a risk
free rate of return of 6.6 percent and an expected life of the options of four
years. The effects of applying SFAS No. 123 in this pro forma disclosure are
not indicative of future amounts. Additional awards in future years are
possible.
Notes Payable to Parent
In 1997, the Company refinanced $30 million of debt assumed in connection
with 1996 acquisitions by executing a note payable to Johns Manville
Corporation, of which $2.5 million was repaid.
During 1996, the Company executed a $50 million note payable to Johns
Manville Corporation, due October 1, 1998. The proceeds were used to partially
finance the acquisition of NRG Barriers, Inc. Also during 1996, $5 million was
advanced to the Company to pay off debt to third parties.
Interest rates charged on intercompany debt with Johns Manville Corporation
are generally at LIBOR plus .75 percent or at prime rate.
28
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intercompany Agreements
The Company is a wholly owned subsidiary of Johns Manville Corporation.
Accordingly, Johns Manville Corporation could cause the Company to pay
dividends, subject to the terms of the Senior Notes indenture, certain other
contractual limitations and applicable law.
In connection with the public offering of the Senior Notes during 1994, the
Company and Johns Manville Corporation entered into a Corporate Agreement
that, among other things, prohibits the Company and certain of its
subsidiaries from issuing any capital stock or rights, warrants or options to
purchase their capital stock (collectively, "Capital Stock Rights") without
the approval of Johns Manville Corporation's Board of Directors. In addition,
the Corporate Agreement prohibits the Company and certain of its subsidiaries
from issuing any of their Capital Stock Rights if, immediately after such
issuance, the Company or any of such subsidiaries would no longer be a member
of Johns Manville Corporation consolidated federal income tax group. Johns
Manville Corporation has agreed with the Manville Personal Injury Settlement
Trust (the "Trust") that, without the consent of the Trust, Johns Manville
Corporation will not waive any provisions of the Corporate Agreement.
Also in connection with the public offering of the Senior Notes, the Company
and Johns Manville Corporation entered into a Tax Sharing Agreement that
provides that as long as the Company and Johns Manville Corporation are
included in the same consolidated tax group, the Company will pay to Johns
Manville Corporation amounts equal to the U.S. federal and state income taxes
(for states requiring consolidated or combined income tax returns) that the
Company would otherwise have to pay if it were to file separate returns, and
that Johns Manville Corporation has the authority to make tax elections for
the Company. Amounts paid to Johns Manville Corporation for 1997 and 1996 U.S.
federal and state income taxes totaled $53.2 million and $52.5 million,
respectively.
In addition, the Company and Johns Manville Corporation entered into certain
agreements that formalized various relationships between the two companies.
Principal among these are an Intercompany Agreement by which Johns Manville
Corporation provides certain management services to the Company for a fee and
a Treasury Management Agreement by which Johns Manville Corporation provides
certain financial services for a fee. Fees for the cost of such services are
based on actual costs incurred, estimates of time spent to provide such
services and other appropriate bases that management believes to be reasonable
and representative of the services provided. Cash settlements are made for all
products or services provided and/or received, with interest accruing at the
prime rate on past due balances. Amounts payable or receivable for
transactions with Johns Manville Corporation have been reported as a current
payable or receivable on the Consolidated Balance Sheet. Prior to 1997,
charges for services received were included in services provided by parent in
the Consolidated Statement of Income. During 1996, Johns Manville Corporation
divested its investment in Riverwood International Corporation (the "Riverwood
Disposition"). In connection with the Riverwood Disposition, certain
management and financial services maintained by Johns Manville Corporation
were reorganized and transferred to the Company, and are now reflected as
selling, general and administrative expenses. Expenses incurred by the Company
under the terms of the Intercompany Agreement and the Treasury Management
Agreement for services provided by Johns Manville Corporation totaled $7
million and $11.8 million for the years ended December 31, 1996 and 1995,
respectively.
Other related party transactions
During 1996, the Company advanced $23.8 million to Johns Manville
Corporation to acquire Nord Bitumi U.S., Inc. which Johns Manville Corporation
subsequently contributed to the Company. The contribution was accounted for as
an increase in the Company's stockholder's equity. The advance, included in
current receivable from parent at December 31, 1996, was repaid in February
1997. Johns Manville Corporation maintains an escrow account on behalf of the
Company for its workers' compensation surety bonds which is reported as a
29
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
long-term receivable from parent in the consolidated balance sheet of $10.7
million and $10.1 million at December 31, 1997 and 1996, respectively.
NOTE 7-INCOME TAXES
Income taxes payable consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
1997 1996
------------ -------------
<S> <C> <C>
U.S. federal and foreign income taxes............ $ 3,724 $ 13,998
State and local taxes............................ 378 615
Deferred income taxes............................ 1,250
------------ -------------
$ 4,102 $ 15,863
============ =============
</TABLE>
The current receivable from parent at December 31, 1997 and 1996 included
$6.4 million and $3.2 million, respectively, for the overpayment of the
Company's 1997 and 1996 federal and state income tax obligations paid to Johns
Manville Corporation under the terms of the Tax Sharing Agreement.
The approximate tax effect of the temporary differences giving rise to the
net deferred tax asset is follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
1997 1996
------------ ------------
<S> <C> <C>
U.S. Deferred Tax Assets:
Employee benefit accruals...................... $ 101,830 $ 108,006
Reserves....................................... 51,023 56,251
Provision for furnace rebuilds................. 9,625 7,805
Capitalized research, development and
engineering................................... 7,239
Deferred state and local taxes................. 6,552 7,488
Accounts receivable allowances................. 3,677 3,830
Other.......................................... 9,818 9,111
------------ ------------
Total U.S. Deferred Tax Assets............... 189,764 192,491
Foreign Deferred Tax Assets...................... 2,547 842
------------ ------------
Total Deferred Tax Assets.................... 192,311 193,333
------------ ------------
U.S. Deferred Tax Liabilities:
Property, plant and equipment.................. 100,695 97,688
Prepaid pension asset.......................... 45,342 45,821
Other.......................................... 6,710 6,675
------------ ------------
Total U.S. Deferred Tax Liabilities.......... 152,747 150,184
------------ ------------
Net Deferred Tax Asset........................... $ 39,564 $ 43,149
============ ============
</TABLE>
The Company believes, based upon its past earnings, forecasts of future
earnings and potential tax planning strategies that as of December 31, 1997
and 1996, all of the deferred tax assets will be realized. Accordingly, a
valuation allowance has not been provided.
Deferred income tax liabilities of $42.2 million and $41.2 million as of
December 31, 1997 and 1996, respectively, related to foreign operations and
were primarily attributable to temporary differences on property, plant and
equipment.
30
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The U.S. and foreign components of income before income taxes consist of the
following:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
U.S. ............................................. $137,779 $110,885 $136,878
Foreign........................................... 39,203 47,943 42,367
-------- -------- --------
$176,982 $158,828 $179,245
======== ======== ========
</TABLE>
The provision for income tax expense (benefit) on income before income taxes
consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
Current:
U.S. federal................................. $ 33,331 $ 48,274 $ 46,281
U.S. state and local......................... 7,975 11,798 9,784
Foreign...................................... 17,618 24,492 16,603
-------- --------- --------
58,924 84,564 72,668
-------- --------- --------
Deferred:
U.S. ........................................ 18,313 (8,705) 2,252
Foreign...................................... (1,473) (5,975) 2,096
-------- --------- --------
16,840 (14,680) 4,348
-------- --------- --------
$ 75,764 $ 69,884 $ 77,016
======== ========= ========
</TABLE>
The effective tax rate on income before income taxes differs from the U.S.
federal statutory income tax rate for the following reasons:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Percent of Pre-tax Income:
U.S. federal statutory rate................................ 35.0% 35.0% 35.0%
Increase resulting from:
U.S. state and local taxes, net of federal benefit....... 3.5 3.8 3.8
Foreign income taxed at higher rates..................... 2.2 2.4 3.3
Other, net............................................... 2.1 2.8 0.9
---- ---- ----
42.8% 44.0% 43.0%
==== ==== ====
</TABLE>
Undistributed earnings intended to be reinvested indefinitely by the foreign
subsidiaries totaled $187.3 million at December 31, 1997. The determination of
the deferred tax liability related to these undistributed earnings is not
practicable. Accordingly, no U.S. deferred income tax has been recorded.
NOTE 8-PENSIONS
The Company maintains noncontributory defined benefit pension plans for its
U.S. and German employees. Pension expense (income) and projected benefit
obligations under each of these plans are determined using assumptions
regarding discount rates, rates of increase in future compensation levels and
expected long-term rates of return on assets. These assumptions are subject to
prevailing economic conditions and, accordingly, the Company believes it is
reasonably possible that a change in these assumptions may occur in the near-
term.
31
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. Pension Plans
Substantially all of the Company's U.S. employees are covered by
noncontributory defined benefit pension plans. Pension benefits are based
primarily on years of service and the employee's compensation or pension rate
near retirement. The Company's funding policy is to contribute funds to a
trust as necessary to at least meet the minimum funding requirements of the
Internal Revenue Code. Plan assets are invested primarily in equity and fixed
income securities.
(A) Pension Expense (Income):
The Company's pension expense (income) related to the U.S. defined benefit
pension plans for the years ended December 31 consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
Service cost-benefits earned during the
year....................................... $ 7,633 $ 7,971 $ 6,436
Interest cost on projected benefit
obligation................................. 45,206 43,689 45,460
Estimated return on assets:
Actual (gain) loss........................ (87,412) (46,263) (145,180)
Deferred gain (loss)...................... 32,552 (6,033) 100,928
Net amortization............................ (6,494) (3,558) (4,212)
-------- -------- ---------
Total pension expense (income)............ $ (8,515) $ (4,194) $ 3,432
======== ======== =========
</TABLE>
Assumptions used in determining the pension expense (income) for the years
ended December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Discount rates............................................. 7.50% 7.00% 9.00%
Rates of increase in future compensation levels............ 5.50% 5.50% 6.50%
Expected long-term rates of return on assets............... 8.25% 8.00% 8.00%
</TABLE>
(B) Funded Status:
The funded status of the Company's defined benefit plans covering U.S.
employees as of December 31 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
1997 1996
------------ ------------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation.................... $ 595,537 $ 575,851
============ ============
Accumulated benefit obligation............... $ 624,017 $ 602,370
============ ============
Projected benefit obligation................. $ 640,858 $ 621,842
Plan assets at fair value...................... 740,413 682,788
------------ ------------
Plan assets in excess of projected benefit
obligation.................................... 99,555 60,946
Unrecognized net loss.......................... 30,094 66,391
Unrecognized prior service costs............... 11,520 12,431
Unrecognized transition adjustment............. (11,981) (19,585)
------------ ------------
Prepaid pension asset.......................... $ 129,188 $ 120,183
============ ============
</TABLE>
32
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The projected benefit obligations for the U.S. plans were determined in 1997
and 1996 using a discount rate of 7.5 percent and rates of increase in future
compensation levels for salary-related plans of 5.5 percent. The Company
utilizes a discount rate based on available high-quality corporate bonds. The
vested U.S. benefit obligation was calculated on the benefits the employees
are entitled to receive if they were to separate immediately.
German Pension Plan
The German plan is noncontributory and is unfunded. The pension or
termination benefits are based primarily on years of service and the
employee's compensation.
(A) Pension Expense:
The pension expense, determined using a discount rate of seven percent and a
rate of increase in future compensation of five percent each year, for the
years ended December 31 consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost-benefits earned during the year.... $ 567 $ 881 $ 909
Interest cost on projected benefit obligation... 1,529 1,861 1,869
Net amortization................................ (34) 105 111
-------- -------- --------
Total pension expense......................... $2,062 $2,847 $2,889
======== ======== ========
</TABLE>
(B) Funded Status:
The status of the Company's unfunded German plan as of December 31 is as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
1997 1996
------------ ------------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation...................... $ 21,335 $ 24,691
============ ============
Accumulated benefit obligation................. $ 22,309 $ 25,861
============ ============
Projected benefit obligation................... $ 23,421 $ 28,204
Unrecognized net gain............................ 4,183 2,972
Unrecognized transition adjustment............... (633) (863)
------------ ------------
Pension liability................................ $ 26,971 $ 30,313
============ ============
</TABLE>
Projected benefit obligations were determined using a discount rate of seven
percent for both 1997 and 1996. The rate of increase in future compensation
levels for salary-related plans was four percent in 1997 and five percent in
1996. The vested benefit obligation is calculated on the benefits the
employees are entitled to receive if the employees were to separate
immediately.
Voluntary Savings Plans
The Company provides voluntary savings plans in which eligible U.S.
employees of the Company may participate. Employees may make contributions of
up to 16 percent of their compensation. The Company matches up to six percent
of certain contributions at rates ranging from 15 percent to 100 percent
depending on the Company's performance. Company contributions to the savings
plans were $7.1 million in 1997, $7.2 million in 1996 and $7.1 million in
1995.
33
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9-SHORT-TERM DEBT AND CREDIT FACILITIES
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
1997 1996
------------ -------------
<S> <C> <C>
Short-term borrowings............................ $ 1,330 $ 22,634
Current portion of long-term debt................ 437 9,114
------------ -------------
$ 1,767 $ 31,748
============ =============
</TABLE>
At December 31, 1997, the Company had $100 million available under a
receivables sale facility (the "Receivables Facility") for its domestic short-
term working capital requirements. Amounts available for borrowing under the
Receivables Facility are based on the daily balance of certain outstanding
trade accounts receivable, adjusted for various factors as defined under the
terms of the Receivables Facility. In addition, the Company's international
subsidiaries had borrowing and working capital facilities totaling $85
million, of which $51.9 million was available at December 31, 1997. These
facilities are principally secured by the Company's equity ownership in
certain international subsidiaries and joint ventures.
NOTE 10-COMPENSATION AND EMPLOYEE BENEFITS
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
1997 1996
------------ -------------
<S> <C> <C>
Vacation, compensation and payroll deductions... $ 46,693 $ 51,912
Self insured medical and group life coverage.... 32,805 34,812
Other........................................... 3,383 15,412
------------ -------------
$ 82,881 $ 102,136
============ =============
</TABLE>
NOTE 11-ALLOWANCE FOR FURNACE REBUILDS
The activity in the allowance for furnace rebuilds, included in other
noncurrent liabilities, for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
1997 1996
------------ ------------
<S> <C> <C>
Balance at beginning of year..................... $ 22,300 $ 22,405
Provisions for estimated costs................... 11,264 8,270
Rebuild expenditures............................. (6,063) (8,375)
------------ ------------
27,501 22,300
Less current portion............................. 8,881 1,947
------------ ------------
$ 18,620 $ 20,353
============ ============
</TABLE>
34
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12-LONG-TERM DEBT
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
1997 1996
------------ ------------
<S> <C> <C>
UNSECURED
Senior Notes with interest at 10.875%, payable
2004............................................. $ 400,000 $ 400,000
COLLATERALIZED
Revolving Credit facility with interest at LIBOR
plus 1%, payable 1999............................ 25,000
Industrial revenue bonds with interest at floating
rates, from 2% to 8.625%, payable through 2009,
collateralized by a letter of credit, real
property and equipment........................... 9,557 15,702
Notes payable with interest from 5.98% to 8.13%,
payable through 2007............................. 2,354 4,070
------------ ------------
436,911 419,772
Less current portion.............................. 437 9,114
------------ ------------
$ 436,474 $ 410,658
============ ============
</TABLE>
In 1994, the Company issued $400 million of 10.875 percent Senior Notes, due
2004. Interest on these notes is payable semiannually. These notes may be
redeemed on or after December 15, 1999 at prices ranging from 100 percent to
105 percent of the principal amount, plus accrued interest.
Long-term debt maturities at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
<S> <C>
1998............... $ 437
1999............... 25,274
2000............... 239
2001............... 989
2002............... 2,318
Thereafter......... 407,654
--------
$436,911
========
</TABLE>
The Company's agreements with its lenders contain a number of financial and
general covenants. These include, among others, restrictions on borrowings,
investments, stock issuances and repurchases, dividends and other
distributions by the Company and restrictions on intercompany transactions
including transfers of cash, and transactions with Johns Manville Corporation.
As of December 31, 1997 and 1996, the maximum amount available for dividends
to be paid to Johns Manville Corporation under debt covenants of the Senior
Notes was approximately $250 million and $210 million, respectively.
Noncompliance with these or other covenants, or the occurrence of any other
event of default, could result in the termination of existing credit
agreements and the acceleration of debt owed by the Company and its
subsidiaries. At December 31, 1997, the Company was in compliance with these
covenants.
At December 31, 1997, the Company's long-term debt totaled $436.9 million
and had an estimated fair value of $477.7 million. At December 31, 1996, the
Company's long-term debt totaled $419.8 million and had an estimated fair
value of $464.9 million. Generally, the fair value of the Company's long-term
debt is an estimate based on quoted market prices, when available, or the
discounted cash flow method.
35
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13-OTHER POSTRETIREMENT BENEFITS
Medical and life insurance coverage is provided to eligible U.S. and
Canadian retirees of the Company and their dependents under defined benefit
plans. The postretirement benefit expense for the years ended December 31
consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost-benefits earned during the
year........................................ $ 1,377 $ 1,352 $ 1,538
Interest cost on accumulated postretirement
benefit obligation.......................... 13,179 12,913 15,383
Net amortization............................. (1,556) (1,552) (2,433)
-------- -------- --------
Total postretirement benefit expense....... $ 13,000 $ 12,713 $ 14,488
======== ======== ========
</TABLE>
The postretirement benefit expense was calculated using a discount rate of
7.5 percent in 1997, seven percent in 1996 and nine percent in 1995.
The Company's unfunded postretirement benefit obligation reconciled with the
amounts shown in the Company's consolidated balance sheet as of December 31,
1997, is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
1997 1996
------------ ------------
<S> <C> <C>
Actuarial present value of the accumulated
postretirement benefit obligation:
Retirees...................................... $ 151,202 $ 151,123
Fully eligible plan participants.............. 10,032 8,474
Other active plan participants................ 27,569 25,013
------------ ------------
188,803 184,610
Unrecognized net gain........................... 1,855 8,360
Unrecognized prior service costs................ 24,518 25,950
------------ ------------
Postretirement Benefit Obligation............... $ 215,176 $ 218,920
============ ============
</TABLE>
The current portions of $17.8 million and $19.5 million of the
postretirement benefit obligation were recorded in compensation and employee
benefits as of December 31, 1997 and 1996, respectively. The accumulated
postretirement benefit obligations were determined in 1997 and 1996 using a
discount rate of 7.5 percent. The Company utilizes a discount rate based on
available high-quality corporate bonds. For measurement purposes, a 5.9
percent annual rate of increase in the per capita cost of covered medical
benefits was assumed for 1998; the rate was assumed to decrease gradually to
5.5 percent in 2002 and remain at that level thereafter.
The Company's assumptions regarding the discount rate and annual rate of
increase in the per capita cost of covered medical benefits are subject to
prevailing economic conditions. Accordingly, the Company believes it is
reasonably possible that a change in these assumptions may occur in the near
term. To illustrate, increasing the assumed health care cost trend rates by
one percentage point in each year would increase the accumulated benefit
obligation as of December 31, 1997, by $7.5 million, and the aggregate of the
service and interest cost components of the periodic cost for the year then
ended by $0.6 million.
36
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14-WORKERS' COMPENSATION
The workers' compensation liability and related receivable at gross and
present value at December 31 are:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
1997 1996
------------ ------------
<S> <C> <C>
Workers' Compensation Liability:
Gross......................................... $117,917 $123,569
Present value................................. 66,658 69,002
Insurance Receivable:
Gross......................................... $ 7,572 $ 7,765
Present value................................. 4,798 4,818
</TABLE>
The liability and receivable were measured using risk-free discount rates of
6 percent and 6.4 percent at December 31, 1997 and 1996, respectively, which
reflect rates of return on available U.S. Treasury securities with maturities
similar to the timing of expected claim payments. Although the Company is
exposed to credit losses in the event of nonperformance by its insurers, the
Company anticipates claims for insurance coverage will be fully satisfied.
Discount rates of 6.4 percent, 6.2 percent and 8.2 percent were used to
measure expense for the years ended December 31, 1997, 1996 and 1995,
respectively.
The Company expects to pay the following amounts for its workers'
compensation obligations:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
<S> <C>
1998............... $ 7,200
1999............... 7,200
2000............... 7,000
2001............... 6,600
2002............... 6,200
Thereafter......... 83,717
--------
$117,917
========
</TABLE>
NOTE 15-COMMITMENTS AND CONTINGENCIES
Total rental expense was $12.5 million in 1997, $10.9 million in 1996 and
$13.5 million in 1995.
At December 31, 1997, minimum rental commitments of the Company under long-
term, noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
<S> <C>
1998............... $ 6,321
1999............... 3,938
2000............... 3,432
2001............... 3,190
2002 and
thereafter........ 7,620
-------
$24,501
=======
</TABLE>
Minimum rental commitments of the Company have not been reduced by
anticipated sublease income over the lease terms of approximately $2.4
million.
37
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has various purchase commitments for items used in the ordinary
conduct of business. In the aggregate, such commitments do not exceed market
prices or anticipated usage requirements.
Contingent Product Liability
Between 1988 and 1992, the Company manufactured phenolic roofing insulation
which may, under certain circumstances, contribute to the corrosion of metal
decks on which it is installed. Subsequently, the Company began a voluntary
program to inspect such metal decks and remediate where appropriate. The
Company has accrued for costs relating to future inspections, remediation and
anticipated claims. These accruals are based on the Company's historical
experience regarding the incidence of corrosion and the cost of remediation
and include a number of assumptions related to the types of roofs on which
phenolic insulation has been installed as well as the assumption that the
Company's past remediation experience will continue over the remaining lives
of roofs insulated with the Company's phenolic roofing insulation.
Pursuant to reimbursement agreements with the Company's liability carriers
and former owner of the phenolic roofing insulation business, the Company has
been reimbursed for a portion of historical costs incurred and is entitled to
receive reimbursement for a substantial portion of future costs to be incurred
by the Company for inspection and remediation.
In 1996, the Company and a third party were named as defendants in two class
action cases filed in U.S. District Court in Boston, Massachusetts. The
plaintiffs purport to represent all building owners in the U.S. with phenolic
insulation installed on their roof decks and seek damages and injunctive
relief, including an order requiring the removal and replacement of the
phenolic insulation and remediation of any deck corrosion. The Company intends
to defend these allegations vigorously.
The Company has reviewed its historical inspection and remediation
experience and the terms and collectibility of amounts payable under the
reimbursement agreements in light of the contingencies described above. Based
on the information available to date and subject to the assumptions described
above, if additional costs are incurred in excess of the accrued amounts, such
costs are not expected to have a material adverse effect on the Company's
financial condition, liquidity or results of operations.
Environmental Contingencies
At December 31, 1997, the Company had remediation activities in progress at
nine sites, out of a total of 19 such sites for which the Company has
identified environmental conditions requiring remediation. In addition, the
Company has been identified as a potentially responsible party at 24 non-
Company owned or operated sites under the federal Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") or similar state
legislation. Of these 24 sites, the Company's potential liability for 17 sites
will be determined pursuant to the settlement agreement described in the
following paragraph. The remaining seven sites are not subject to the
agreement and, accordingly, the Company could be jointly and severally liable
for costs of remediating these sites.
In 1994, the U.S. government and Johns Manville Corporation settled certain
litigation concerning the Company's disposal activities prior to consummation
of Johns Manville Corporation's plan of reorganization. The settlement
agreement, which was made an order of the court, limits the Company's future
liability under both CERCLA and the Resource Conservation and Recovery Act
("RCRA") to 55 percent of its share of site-wide response costs and natural
resources damages without regard to joint and several liability for disposals
made by the Company prior to consummation of Johns Manville Corporation's plan
of reorganization. The agreement resolved the Company's liability at certain
historical sites and also covers CERCLA and RCRA liability for other disposal
sites at which the Environmental Protection Agency ("EPA") has incurred or may
incur response
38
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
costs and which were used by the Company prior to consummation of Johns
Manville Corporation's plan of reorganization. The agreement provides that the
amount the Company will be obligated to pay, in the aggregate, for such sites
shall never exceed $850,000 during any given year. The EPA and others from
time to time commence cleanup activities at such sites and in the future the
EPA and others may assert claims against the Company with respect to such
sites. The Company believes that all such activities and claims, if any, will
be subject to the agreement.
At December 31, 1997 and 1996, the Company's balance sheet included
undiscounted accruals for environmental remediation costs, including ongoing
compliance, maintenance and monitoring costs, of $34 million. The Company paid
$1.3 million and $1.8 million for environmental cleanup in 1997 and 1996,
respectively. The Company believes that amounts paid in 1997 and 1996 are
representative of the Company's future annual environmental cleanup costs and
anticipates expenditures relating to costs currently accrued to be made over
the next 15 years.
As a result of factors such as changes in federal and state regulations, the
application and effectiveness of remedial actions, the difficulty in assessing
the extent of environmental contamination, and the allocation of costs among
potentially responsible parties, actual costs to be incurred for environmental
cleanup may vary from previous estimates. Subject to the uncertainties
inherent in evaluating environmental exposures, and based on information
presently available, including the Company's historical remediation
experience, currently enacted environmental laws and regulations, and existing
remediation technology, the Company believes that if additional costs are
incurred in excess of the accrued amounts, such costs are not expected to have
a material adverse effect on the Company's financial condition, liquidity or
results of operations.
Year 2000 Compliance
The Company is engaged in a comprehensive project to modify its computer
software for year 2000 compliance. Based on current estimates, spending to
upgrade or replace the Company's software or systems related to year 2000
compliance is not expected to exceed $5 million through 1999. Although it is
not possible to quantify the impacts year 2000 compliance issues will have on
customers or suppliers, the Company does not anticipate related material
adverse effects on its financial condition, liquidity or results of
operations.
NOTE 16-NONRECURRING CHARGES
In 1996, the Company recorded the following pretax nonrecurring charges
totaling $49.2 million.
The Company completed an evaluation of a manufacturing facility with both
current and former operations and determined that its best course of action
was closure of the facility. Consequently, the Company recorded nonrecurring
charges of $41.7 million for the shutdown of current operations, demolition of
facilities and site restoration, of which $30 million, $6.1 million and $5.6
million related to corporate and eliminations and the Insulation segment and
the Roofing Systems segment, respectively. Of these charges, $7.5 million were
noncash asset write-downs, and at December 31, 1997, $15.4 million was
classified as other current liabilities. Upon completion of these actions, the
Company intends to dispose of the remaining properties and does not expect to
incur significant future monitoring and maintenance costs. The Company expects
to fund the charges requiring cash outlays from existing cash balances and
cash generated from operations. During 1997, the Company spent minimal amounts
in preparation for demolition phases of the project. Pending federal and state
regulatory agency approval, the final disposition will begin in 1998 and is
expected to be substantially completed by 1999, with the majority of the
liabilities settled during that time frame. The nonrecurring charges are based
on estimates and, therefore, are subject to risks and uncertainties related to
the Company's ability to secure agreements with third parties, relinquish the
properties and obtain regulatory approvals to execute the actions described
above. As a result, the Company believes it is reasonably possible that these
estimates may be revised in the near-term. However, the impacts of such
revisions, if any, are not expected to have a material adverse effect on the
Company's financial condition, liquidity or results of operations.
39
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company recorded additional 1996 nonrecurring charges (income) in the
Insulation and the Engineered Products segments of $11.5 million and $(4)
million, respectively, consisting of asset write-downs to estimated fair
values in the automotive molded parts business, which was disposed of during
1997, and a gain on the sale of other manufacturing assets.
NOTE 17-OTHER INCOME (EXPENSE), NET
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Amortization of intangible assets............... $(10,516) $(4,528) $ (677)
Pension and postretirement benefits............. (2,068) (3,791) (6,456)
Interest accretion on workers' compensation
liabilities.................................... (3,072) (3,567) (2,921)
Phenolic legal expenses......................... (600) (3,910)
Settlement of pension plans..................... 7,216
Write-off/disposition of nonproductive assets... (6,723)
Other........................................... 3,506 4,696 2,900
-------- ------- --------
$(12,150) $ (574) $(17,787)
======== ======= ========
</TABLE>
Pension and postretirement benefits are attributable to retirees of the
Company's former business operations. Interest accretion on workers'
compensation liabilities primarily relates to previous asbestos operations.
NOTE 18-SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and taxes during each of the years ended December 31
was as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Interest paid to:
Parent.......................................... $ 7,109 $ 2,051 $ 2,226
Others.......................................... 48,622 44,327 44,301
Taxes paid to:
Parent.......................................... $ 53,183 $ 52,470 $ 50,352
Others.......................................... 31,271 23,038 15,327
</TABLE>
NOTE 19-ACQUISITIONS
During the third quarter of 1997, the Company acquired the roofing business
of HPG International, Inc., a U.S. manufacturer of thermoplastic membranes.
During the second quarter of 1997, the Company acquired the Mitex group of
companies. Mitex is a manufacturer of fiber glass wall covering fabrics used
primarily in commercial and industrial buildings, and has manufacturing
facilities in Sweden and the United Kingdom. During the first quarter of 1997,
the Company acquired the assets of Ergon Nonwovens, Inc., a U.S. manufacturer
of synthetic meltblown nonwoven products. The Ergon and Mitex acquisitions are
associated with the businesses of the Engineered Products segment.
The combined purchase price for these acquisitions, accounted for under the
purchase method, was $136.5 million, net of cash acquired, financed from
existing cash balances and borrowings of $55 million from international credit
facilities. The excess of the combined purchase prices over the estimated fair
value of net assets acquired, or goodwill, amounted to approximately $84
million. These allocations were based on estimates and may be revised in the
future.
40
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In January 1998, the Company acquired the assets of Seal-Dry/USA, Inc., a
U.S. manufacturer of reinforced thermoplastic roofing systems. Also in January
1998, the Company acquired a plant, associated with the Insulation segment,
which manufactures calcium silicate pipe and block insulation, and fireproof
board. Both acquisitions will be accounted for under the purchase method.
NOTE 20-NEW ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board issued the following
Statements of Financial Accounting Standards effective for periods beginning
after December 15, 1997: "Reporting Comprehensive Income" ("SFAS No. 130") and
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
No. 131"). SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components. Comprehensive income generally
includes changes in separately reported components of equity along with net
income. SFAS No. 131 establishes standards for reporting information about
operating segments, along with related disclosures about products, services,
geopraphic areas and major customers, based on the Company's disaggregation of
an entity for internal operating decisions. The Company's reportable business
segments are currently aligned with its internal business units.
NOTE 21-BUSINESS SEGMENTS AND GEOGRAPHIC AREA INFORMATION
Beginning in 1997, the Company reorganized its business segments and will
report separately its operating results in the following three principal
business segments: Insulation, Roofing Systems and Engineered Products. The
1996 and 1995 results were reclassified to conform with the current
presentation format.
The Insulation segment consists of the Company's building insulation
business, which manufactures fiber glass wool insulation for walls, attics and
floors in residential and commercial buildings and polyisocyanurate foam
sheathing for residential structures; commercial/industrial insulation
business, which manufactures pipe and duct insulation for use in commercial
buildings, factories, refineries and other industrial applications; and
original equipment manufacturers ("OEM") insulation business which
manufactures thermal and acoustic insulation for aircraft, marine vessels,
automobiles and heating, ventilating and air conditioning ("HVAC") and other
equipment.
The Roofing Systems segment consists of the Company's commercial/industrial
roofing systems business, which supplies roofing membranes, insulations,
accessories and related guarantees.
The Engineered products segment consists of the Company's mats and fibers
business, which manufactures continuous filament fiber glass-based products
used for reinforcing roofing, flooring, wall covering and plastic products.
The mats and fibers business includes the Company's German subsidiary,
Schuller GmbH, and the Company's Swedish and U.K. subsidiaries, the Mitex
companies. The Engineered Products segment also includes the Company's
filtration business, which manufactures filtration media for commercial and
industrial buildings; ultra-fine fibers for clean room air filters and battery
separators; liquid filtration cartridges and media for use in commercial and
industrial applications; and synthetic meltblown products used in various
other applications.
41
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
INSULATION:
Net Sales.................................. $ 697,845 $ 698,954 $ 669,938
Costs and Expenses......................... 598,859 579,028 548,609
Nonrecurring Charges....................... 17,550
Other Income (Expense), net (Note D)....... (247) 977 (8,137)
---------- ---------- ----------
Income from Operations................... $ 98,739 $ 103,353 $ 113,192
---------- ---------- ----------
ROOFING SYSTEMS:
Net Sales.................................. $ 510,460 $ 414,013 $ 290,518
Costs and Expenses......................... 444,749 372,993 265,274
Nonrecurring Charges....................... 5,644
Other Income (Expense), net (Note D)....... (2,843) (3,247) (1,718)
---------- ---------- ----------
Income from Operations................... $ 62,868 $ 32,129 $ 23,526
---------- ---------- ----------
ENGINEERED PRODUCTS:
Net Sales.................................. $ 475,954 $ 470,761 $ 457,685
Costs and Expenses......................... 379,274 362,846 354,578
Nonrecurring Charges (Income).............. (4,018)
Other Income (Expense), net (Note D)....... (4,118) 1,149 1,419
---------- ---------- ----------
Income from Operations................... $ 92,562 $ 113,082 $ 104,526
---------- ---------- ----------
CORPORATE AND ELIMINATIONS:
Net Sales (Note A)......................... $ (36,614) $ (31,299) $ (26,619)
Costs and Expenses......................... (13,062) (10,149) (10,676)
Nonrecurring Charges....................... 29,980
Other Income (Expense), net (Note D)....... (4,942) 547 (9,351)
---------- ---------- ----------
Income from Operations................... $ (28,494) $ (50,583) $ (25,294)
---------- ---------- ----------
CONSOLIDATED TOTAL COMPANY:
Net Sales.................................. $1,647,645 $1,552,429 $1,391,522
Costs and Expenses......................... 1,409,820 1,304,718 1,157,785
Nonrecurring Charges....................... 49,156
Other Income (Expense), net................ (12,150) (574) (17,787)
---------- ---------- ----------
Income from Operations................... $ 225,675 $ 197,981 $ 215,950
========== ========== ==========
ASSETS (DECEMBER 31):
Insulation................................. $ 520,729 $ 537,514 $ 527,225
Roofing Systems............................ 398,734 378,845 148,369
Engineered Products........................ 582,193 478,225 454,317
Corporate (Note E)......................... 283,917 326,276 329,781
Eliminations and Adjustments (Note B)...... (52,052) (53,319) (52,903)
---------- ---------- ----------
Total.................................... $1,733,521 $1,667,541 $1,406,789
========== ========== ==========
</TABLE>
- --------
See notes on page 43.
42
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
DEPRECIATION, DEPLETION AND AMORTIZATION:
Insulation.......................................... $ 33,569 $ 30,550 $ 28,235
Roofing Systems..................................... 15,855 11,594 5,391
Engineered Products................................. 29,638 26,341 26,646
Corporate........................................... 1,101 2,413 2,813
-------- -------- --------
Total............................................. $ 80,163 $ 70,898 $ 63,085
======== ======== ========
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT:
Insulation.......................................... $ 34,687 $ 32,531 $ 73,614
Roofing Systems..................................... 7,945 51,650 5,338
Engineered Products................................. 81,715 68,462 30,262
Corporate........................................... 949 290 1,852
-------- -------- --------
Total............................................. $125,296 $152,933 $111,066
======== ======== ========
</TABLE>
- --------
NOTE A: Net sales included in corporate and eliminations relate principally
to the elimination of intersegment and intergeographic sales (at
prices approximating market). Intersegment sales principally relate
to sales from the Engineered Products segment to the Roofing Systems
segment.
NOTE B: Includes the elimination of intersegment and intergeographic
inventory profits and the adjustment of business segment and
geographic inventories, which are carried at standard costs, to the
historical inventory bases used in consolidation.
NOTE C: Includes the elimination of intergeographic dividends between the
Company's foreign and U.S. segments.
NOTE D: Other income (expense), net, as reported in each of the business
segments represents specific operating income and expense items
recognized by the individual business units. Other income (expense),
net, included in corporate and eliminations consists of amounts
primarily attributable to previous business operations.
NOTE E: Corporate assets are principally cash and equivalents, marketable
securities, certain investments, certain long-term receivables,
receivables from parent, deferred tax assets, a portion of prepaid
pension assets and a portion of property, plant and equipment.
43
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
UNITED STATES:
Net Sales (Note A)......................... $1,426,609 $1,341,216 $1,200,371
Costs and Expenses......................... 1,206,560 1,109,647 993,192
Nonrecurring Charges....................... 19,176
Other Income (Expense), net................ (4,120) 9,863 (6,129)
---------- ---------- ----------
Income from Operations................... $ 215,929 $ 222,256 $ 201,050
---------- ---------- ----------
FOREIGN:
Net Sales (Note A)......................... $ 231,758 $ 224,232 $ 199,356
Costs and Expenses......................... 192,511 188,770 158,444
Other Income (Expense), net................ (1,140) 1,737 (363)
---------- ---------- ----------
Income from Operations................... $ 38,107 $ 37,199 $ 40,549
---------- ---------- ----------
CORPORATE AND ELIMINATIONS:
Net Sales (Note A)......................... $ (10,722) $ (13,019) $ (8,205)
Costs and Expenses......................... 10,749 6,301 6,149
Nonrecurring Charges....................... 29,980
Other Income (Expense), net (Note C)....... (6,890) (12,174) (11,295)
---------- ---------- ----------
Income from Operations................... $ (28,361) $ (61,474) $ (25,649)
---------- ---------- ----------
CONSOLIDATED TOTAL COMPANY:
Net Sales (Note A)......................... $1,647,645 $1,552,429 $1,391,522
Costs and Expenses......................... 1,409,820 1,304,718 1,157,785
Nonrecurring Charges....................... 49,156
Other Income (Expense), net................ (12,150) (574) (17,787)
---------- ---------- ----------
Income from Operations................... $ 225,675 $ 197,981 $ 215,950
========== ========== ==========
ASSETS (DECEMBER 31):
United States.............................. $1,232,880 $1,207,303 $ 936,453
Foreign.................................... 268,776 187,281 193,458
Corporate (Note E)......................... 283,917 326,276 329,781
Eliminations and Adjustments (Note B)...... (52,052) (53,319) (52,903)
---------- ---------- ----------
Total.................................... $1,733,521 $1,667,541 $1,406,789
========== ========== ==========
</TABLE>
- --------
See notes on page 43.
44
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Securityholders and Directors of
Johns Manville International Group, Inc.:
We have audited the consolidated financial statements and the financial
statement schedule of Johns Manville International Group, Inc. listed in Item
14(a) of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Johns Manville International Group, Inc. as of December 31, 1997 and 1996,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
/s/ Coopers & Lybrand L.L.P.
Denver, Colorado
January 30, 1998
45
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997:
Net Sales...................... $379,010 $428,036 $438,122 $402,477 $1,647,645
Gross Profit................... 100,656 117,939 112,871 100,044 431,510
Income from Operations......... 51,949 66,218 60,407 47,101 225,675
Net Income..................... 22,920 31,040 29,989 17,269 101,218
======== ======== ======== ======== ==========
Year Ended December 31, 1996:
Net Sales...................... $326,109 $381,403 $422,978 $421,939 $1,552,429
Gross Profit................... 93,559 108,502 121,439 117,118 440,618
Income from Operations (Note A) 57,152 59,080 70,313 11,436 197,981
Net Income..................... 27,139 28,135 33,550 120 88,944
======== ======== ======== ======== ==========
</TABLE>
- --------
NOTE A: During the fourth quarter of 1996, the Company recorded nonrecurring
charges totaling $49.2 million. These charges include $41.7 million
for the shutdown of current operations, demolition of facilities and
site restoration and $7.5 million of asset write-downs to estimated
fair values, partially offset by a gain on the sale of other
manufacturing assets.
46
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in the Company's accountants during the two most
recent fiscal years. There were also no disagreements with accountants on
accounting or financial disclosures during such period.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted under the reduced disclosure format pursuant to General Instruction
I(2)(c) of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Omitted under the reduced disclosure format pursuant to General Instruction
I(2)(c) of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Omitted under the reduced disclosure format pursuant to General Instruction
I(2)(c) of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted under the reduced disclosure format pursuant to General Instruction
I(2)(c) of Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. Financial Statements, financial statement schedules and exhibits filed in
this report:
1. The Company's Financial Statements and Selected Quarterly Financial
Data are contained in Item 8.
2. The Company is filing herewith Schedule II-Valuation and Qualifying
Accounts.
b. No reports on Form 8-K were filed during the last quarter of 1997.
c. Exhibit Index to the Johns Manville International Group, Inc. Annual
Report on Form 10-K for Fiscal Year Ended December 31, 1997:
<TABLE>
<CAPTION>
EXHIBIT REFERENCE
------- ---------
<S> <C> <C>
2. Second Amended and Restated Plan of Refiled as an exhibit to the Company's
Reorganization confirmed by the United 1992 Annual Report on Form 10-K filed
States Bankruptcy Court for the Southern March 30, 1993, and incorporated herein
District of New York on December 22, by reference.
1986.
3.(a) Certificate of Incorporation, as Filed as an exhibit to the Company's
amended. Registration Statement on Form S-1 filed
September 30, 1994, and incorporated
herein by reference.
(b) Bylaws. Filed as an exhibit to the Company's
Registration Statement on Form S-1 filed
September 30, 1994, and incorporated
herein by reference.
(c) Certificate of Amendment to Restated Filed as an exhibit to the Company's
Certificate of Incorporation. Form 10-Q for the quarter ended March
31, 1997, and incorporated herein by
reference.
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT REFERENCE
------- ---------
<C> <S> <C>
4. Amended and Restated Indenture between Filed as an exhibit to the Company's
the Company and The Bank of New York, as 1994 Annual Report on Form 10-K filed
Trustee, dated December 12, 1994. March 31, 1995, and incorporated herein
by reference.
10.(a) Intercompany Agreement, dated as of Filed as an exhibit to the Company's
September 2, 1994, between Johns Registration Statement on Form S-1 filed
Manville Corporation and the Company. September 30, 1994, and incorporated
herein by reference.
(b) Treasury Management Agreement, dated as Filed as an exhibit to the Company's
of September 22, 1994, between Johns Registration Statement on Form S-1 filed
Manville Corporation and the Company. September 30, 1994, and incorporated
herein by reference.
(c) Tax Sharing Agreement, dated as of Filed as an exhibit to the Company's
January 1, 1994, between Johns Manville Registration Statement on Form S-1 filed
Corporation and the Company. September 30, 1994, and incorporated
herein by reference.
(d) Corporate Agreement, dated as of Filed as an exhibit to the Company's
September 22, 1994, between Johns Registration Statement on Form S-1 filed
Manville Corporation and the Company. September 30, 1994, and incorporated
herein by reference.
(e) Selling Securityholders' Agreement, Filed as an exhibit to the Company's
dated as of September 22, 1994, between Registration Statement on Form S-1 filed
Johns Manville Corporation and the September 30, 1994, and incorporated
Trust. herein by reference.
(f) Amended and Restated Receivables Filed as an exhibit to the Company's
Purchase Agreement, dated as of August Registration Statement on Form S-1 filed
15, 1994, between the Company and the September 30, 1994, and incorporated
banks and others named herein. herein by reference.
(g) Amended and Restated Purchase and Sale Filed as an exhibit to the Company's
Agreement, dated as of August 15, 1994, Registration Statement on Form S-1 filed
between Johns Manville International, September 30, 1994, and incorporated
Inc. and Johns Manville Funding herein by reference.
Corporation.
(h) Amendment to Amended and Restated Filed as an exhibit to the Company's
Receivables Purchase Agreement dated as Form 10-Q for the quarter ended June 30,
of June 6, 1997 among Johns Manville 1997, and incorporated herein by
Funding Corporation, Johns Manville reference.
International, Inc., the financial
institutions listed therein as Buyers,
and Morgan Guaranty Trust Company of New
York, as Administrative Agent and
Structuring and Collateral Agent.
24. Powers of attorney. Page 51.
27. Financial Data Schedule. Filed herewith.
</TABLE>
48
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
INDEX TO FINANCIAL STATEMENT SCHEDULE
TO FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SCHEDULE PAGE
-------- ----
<C> <S> <C>
II Valuation and qualifying accounts, for each of the three years
in the period ended December 31, 1997........................ 50
</TABLE>
49
<PAGE>
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------
CHARGED
BALANCE AT (CREDITED) CHARGED BALANCE
BEGINNING TO COSTS AND TO OTHER AT END
CLASSIFICATION OF YEAR EXPENSES ACCOUNTS(a) DEDUCTIONS(b) OF YEAR
-------------- ---------- ------------ ----------- ------------- -------
<S> <C> <C> <C> <C> <C>
1997
Allowances Reducing the
Assets in the Balance
Sheet:
Doubtful accounts
receivable........... $ 7,570 $ (243) $ 908 $ 2,230 $ 6,005
Cash discounts........ 1,278 -- 26,110 25,131 2,257
Other allowances...... 21,168 -- 52,904 45,554 28,518
------- ------ ------- ------- -------
Total............... $30,016 $ (243) $79,922 $72,915 $36,780
======= ====== ======= ======= =======
1996
Allowances Reducing the
Assets in the Balance
Sheet:
Doubtful accounts
receivable........... $ 6,497 $1,122 $ 2,022 $ 2,071 $ 7,570
Cash discounts........ 1,967 -- 20,962 21,651 1,278
Other allowances...... 18,646 -- 34,386 31,864 21,168
------- ------ ------- ------- -------
Total............... $27,110 $1,122 $57,370 $55,586 $30,016
======= ====== ======= ======= =======
1995
Allowances Reducing the
Assets in the Balance
Sheet:
Doubtful accounts
receivable........... $ 6,422 $ 776 $ -- $ 701 $ 6,497
Cash discounts........ 1,537 -- 19,963 19,533 1,967
Other allowances...... 15,765 -- 30,977 28,096 18,646
------- ------ ------- ------- -------
Total............... $23,724 $ 776 $50,940 $48,330 $27,110
======= ====== ======= ======= =======
</TABLE>
- --------
NOTES:
(a) Charged against sales and additions due to acquisitions.
(b) Principally charges for which reserves were provided, net of
recoveries.
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized as of the 19th day
of March, 1998.
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
(Registrant)
/s/ Charles L. Henry
By________________________________________
Charles L. Henry
Chairman of the Board, President and
Chief Executive Officer
POWER OF ATTORNEY
Know all men by these presents that each person whose signature appears
below does hereby constitute and appoint Charles L. Henry, John P. Murphy and
Richard B. Von Wald, and each of them, with full power to act without the
other, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign all amendments to this report, and to file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission granting unto said attorney-in-
fact and agent, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agents or any of them, or his substitute or substitutes, lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated as of March 19, 1998.
SIGNATURE TITLE
--------- -----
/s/ Charles L. Henry Chairman of the Board, President and
- ------------------------------------- Chief Executive Officer (Principal
(CHARLES L. HENRY) Executive Officer)
/s/ Richard B. Von Wald Director, Executive Vice President,
- ------------------------------------- General Counsel and Secretary
(RICHARD B. VON WALD)
/s/ John P. Murphy Director, Senior Vice President and
- ------------------------------------- Chief Financial Officer (Principal
(JOHN P. MURPHY) Accounting and Financial Officer)
51
<PAGE>
ADDITIONAL INFORMATION
Individuals interested in receiving additional information may contact the
following:
<TABLE>
<S> <C>
FOR COMPANY INFORMATION FOR PRODUCT INFORMATION
Call (303) 978-2000 Call (303) 978-4900 or (800) 654-3103
or write to: or write to:
Johns Manville International Group, Inc. Johns Manville International Group, Inc.
Investor Relations Product Information
P.O. Box 5108 P.O. Box 5108
Denver, CO 80217-5108 Denver, CO 80217-5108
TRANSFER AGENT INDEPENDENT ACCOUNTANTS
Call 1-800-526-0801 or write to: Coopers & Lybrand L.L.P.
The Bank of New York 370 Seventeenth Street, Suite 3300
120 Broadway Denver, CO 80202-5633
New York, NY 10005
</TABLE>
52
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the December
31, 1997 Form 10-K of Johns Manville International Group, Inc. and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 107,682
<SECURITIES> 14,699
<RECEIVABLES> 237,743
<ALLOWANCES> 6,005
<INVENTORY> 127,061
<CURRENT-ASSETS> 518,636
<PP&E> 1,437,470
<DEPRECIATION> 639,711
<TOTAL-ASSETS> 1,733,521
<CURRENT-LIABILITIES> 277,742
<BONDS> 543,927
0
0
<COMMON> 0
<OTHER-SE> 406,499
<TOTAL-LIABILITY-AND-EQUITY> 1,733,521
<SALES> 1,647,645
<TOTAL-REVENUES> 1,647,645
<CGS> 1,216,135
<TOTAL-COSTS> 1,216,135
<OTHER-EXPENSES> 0
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</TABLE>
