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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission file number 1-13574
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1196355
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
717 17th Street
Denver, Colorado 80202
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(303) 978-2000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
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 May 11, 1998, there were 100 shares of the registrant's sole class of
common stock outstanding.
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*PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
--------------------
* "Company" when used in this report refers to Johns Manville International
Group, Inc., incorporated in the State of Delaware in 1992, and includes,
where applicable, its consolidated subsidiaries.
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JOHNS MANVILLE INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
- ------------------------------------------------- ---------- ------------
<S> <C> <C>
Current Assets
Cash and equivalents $ 73,477 $ 107,682
Marketable securities, at cost, which
approximates market 2,644 14,699
Receivables 248,654 221,747
Inventories 136,727 127,061
Receivable from parent 6,408 6,408
Prepaid expenses 7,359 7,407
Deferred tax assets 28,143 33,632
---------- ----------
Total Current Assets 503,412 518,636
Property, Plant and Equipment,
net of accumulated depreciation of
$671,054 and $639,711, respectively 829,349 797,759
Receivable from Parent 10,775 10,686
Goodwill 208,613 202,844
Other Assets 201,330 203,596
---------- ----------
$1,753,479 $1,733,521
============================================================= ==========
LIABILITIES
- ---------------------------------------------------------------------------
Current Liabilities
Short-term debt $ 1,753 $ 1,767
Accounts payable 105,176 116,262
Compensation and employee benefits 73,441 82,881
Income taxes 12,602 4,102
Other accrued liabilities 74,684 72,730
---------- ----------
Total Current Liabilities 267,656 277,742
Long-Term Debt, less current portion 423,255 436,474
Notes Payable to Parent 107,453 107,453
Postretirement Benefits Other Than Pensions 200,046 197,336
Deferred Income Taxes and Other
Noncurrent Liabilities 302,281 308,017
---------- ----------
1,300,691 1,327,022
---------- ----------
Commitments and Contingencies
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 364,337 316,343
Accumulated Other Comprehensive Income (Note 3) 7,582 9,287
---------- ----------
452,788 406,499
---------- ----------
$1,753,479 $1,733,521
============================================================= ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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JOHNS MANVILLE INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Thousands of dollars)
(Unaudited)
Three Months
Ended March 31,
---------------------------
1998 1997
--------- ---------------
Net Sales $ 389,336 $ 379,010
Cost of Sales 293,588 278,354
Selling, General and Administrative 40,580 38,337
Research, Development and Engineering 7,615 7,277
Other Income (Expense), net (817) (3,093)
--------- ---------
Income from Operations 46,736 51,949
Interest Income 1,327 2,212
Interest Expense 11,473 12,610
Interest Expense - Parent 1,877 1,334
--------- ---------
Income before Income Taxes and Cumulative Effect
of Accounting Change 34,713 40,217
Income Tax Expense 14,128 17,297
--------- ---------
Income before Cumulative Effect of Accounting
Change 20,585 22,920
Cumulative Effect of a Change in Accounting
for Furnace Rebuilds, net of tax (Note 2) 27,409
--------- ---------
Net Income $ 47,994 $ 22,920
================================================== ========= =========
Comprehensive Income (Note 3) $ 46,289 $ 16,881
========= =========
See Notes to Condensed Consolidated Financial Statements.
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JOHNS MANVILLE INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
Three Months
Ended March 31,
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1998 1997
- ------------------------------------------------- --------- ---------------
Net income $ 47,994 $ 22,920
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 23,257 18,982
Deferred taxes 1,920 1,280
Cumulative effect of accounting change (27,409)
Other, net 1,240 7,221
(Increase) decrease in current assets:
Receivables (23,408) (6,540)
Inventories (5,381) (12,643)
Prepaid expenses (19) 844
Receivable from Parent (89) 271
Increase (decrease) in current liabilities:
Accounts payable (11,962) (8,155)
Compensation and employee benefits (9,427) (12,941)
Income taxes 8,588 3,073
Other accrued liabilities 9,382 4,431
Change in other noncurrent liabilities (2,699) (5,863)
--------- ---------
Net cash provided by operating activities 11,987 12,880
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
- ------------------------------------------------------------------------------
Purchases of property, plant and equipment (22,421) (18,993)
Acquisitions (23,047) (113,010)
Proceeds from maturities of held-to-maturity
securities 13,553 1,003
Increase (decrease) in other assets (832) 23,066
--------- ---------
Net cash used in investing activities (32,747) (107,934)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------------------------------------------------
Issuance of debt - external 56,000
Issuance of debt - Parent 30,000
Payments on debt - external (13,225) (40,065)
Payments on debt - Parent (2,547)
--------- ---------
Net cash provided by (used in) financing
activities (13,225) 43,388
--------- ---------
Effect of Exchange Rate Changes on Cash (220) (467)
--------- ---------
Net Decrease in Cash and Equivalents (34,205) (52,133)
Cash and Equivalents at Beginning of Period 107,682 138,216
--------- ---------
Cash and Equivalents at End of Period $ 73,477 $ 86,083
================================================= ========= =========
See Notes to Condensed Consolidated Financial Statements.
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JOHNS MANVILLE INTERNATIONAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Johns Manville International Group, Inc.(the "Company"), is a wholly owned
subsidiary of Johns Manville Corporation. The condensed consolidated financial
statements as of March 31, 1998 and December 31, 1997 and for the three months
ended March 31, 1998 and 1997 reflect all normal, recurring adjustments which
are, in the opinion of management, necessary for a fair presentation of the
financial condition and the results of operations for the periods presented.
The year-end condensed consolidated balance sheet was derived from audited
financial statements, and as presented does not include all disclosures required
by generally accepted accounting principles. The Company has reclassified the
presentation of certain prior period information to conform with the current
presentation format. Additional information regarding the Company's accounting
policies, operations and financial position is contained or incorporated in the
Company's Form 10-K for the year ended December 31, 1997 filed with the
Securities and Exchange Commission.
Note 1 - Inventories
The major classes of inventories were as follows:
(Thousands of dollars)
March 31, December 31,
1998 1997
--------- ------------
Finished goods $ 90,188 $ 82,082
Raw materials and supplies 34,438 34,110
Work-in-process 12,101 10,869
--------- ------------
$ 136,727 $ 127,061
========= ============
Note 2 - Cumulative Effect of Accounting Change
Effective January 1, 1998, the Company changed its method of accounting for
glass furnace rebuild costs to the capitalization method from the allowance
method. Under the capitalization method, costs to periodically rebuild the
refractory components of the glass furnaces are capitalized when incurred and
depreciated on a straight-line basis over the estimated useful life of the
rebuild. The capitalization method provides an improved measure of the
Company's capital investment and is consistent with industry practice.
Previously, estimated costs to rebuild furnaces were credited to an allowance
and charged to operations over the estimated period to the next rebuild date.
The cumulative effect of this change in accounting principle increases 1998
earnings by $27.4 million, net of taxes of $17.9 million. This change resulted
in an increase in depreciation expense but eliminated the provision for furnace
rebuilds. The pro forma effect of this change on net income was not material.
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Note 3 - Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." Comprehensive income
generally includes changes in separately reported components of equity along
with net income. The Company's comprehensive income for 1998 and 1997 includes
net income as reported and foreign currency translation adjustments.
Note 4 - Acquisitions
In January 1998, the Company acquired the assets of 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. The combined
purchase price for these acquisitions, accounted for under the purchase method,
was $23 million financed from existing cash balances. The excess of the
combined purchase prices over the estimated fair value of net assets acquired,
or goodwill, amounted to approximately $8.4 million.
Note 5 - Debt Refinancing
In April 1998, the Company announced its intention to refinance its $400 million
of 10 7/8% Senior Notes due 2004 (the "Senior Notes"). The refinancing will
consist of a tender offer for cash and consent solicitation for the proposed
amendments of certain of the covenants and provisions in the indenture relating
to the Senior Notes. The anticipated prepayment of the Senior Notes will result
in an extraordinary loss on the early extinguishment of debt in the second
quarter of 1998. Based on the notes and consents tendered as of May 8, 1998,
the consent solicitation expiration date, the tender price of 111.996 and
related costs, the pretax extraordinary loss would be approximately $50
million. In conjunction with the tender offer, the Company intends to consummate
unsecured revolving credit facilities (the "credit facilities") totaling $750
million, the proceeds of which will be used to refinance the Company's Senior
Notes, fund acquisitions and capital expenditures, and for other corporate
purposes. The credit facilities contain financial covenants which include
coverage ratios, consolidated net worth requirements and restrictions on
borrowings. The Company also expects to cancel its $100 million receivables sale
facility and its $75 million international revolving line of credit at
consummation of the credit facilities.
Note 6 - New Accounting Pronouncement
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits." This statement, effective for periods
beginning
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after December 15, 1997, revises the required disclosures for employee benefit
plans, but does not change the measurement or recognition of such plans.
Note 7 - Business Segment Information
The Company reports separately the results of the Insulation, Roofing Systems
and Engineered Products segments. The Insulation segment consists of the
Company's building, commercial/industrial and original equipment manufacturers
("OEM") insulation businesses. The Roofing Systems segment consists of the
Company's commercial/industrial roofing systems business. The Engineered
Products segment consists of the Company's mats and fibers and filtration
businesses. Effective January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." Consistent with the Company's internal
reporting, business segments now include allocated corporate expenses. The 1997
results were reclassified to conform with the current presentation format.
(Thousands of dollars)
Three Months
Ended March 31,
---------------------
NET SALES 1998 1997
- ------------------------------------------------ --------- ----------
Insulation $ 164,379 $ 174,157
Roofing Systems 105,423 99,052
Engineered Products 125,852 116,110
Eliminations (6,318) (10,309)
- ------------------------------------------------ --------- ----------
Net Sales $ 389,336 $ 379,010
================================================ ========= ==========
INCOME FROM OPERATIONS
- -----------------------------------------------------------------------------
Insulation $ 19,162 $ 24,308
Roofing Systems 4,810 5,760
Engineered Products 22,764 21,881
- ------------------------------------------------ --------- ----------
Income from Operations $ 46,736 $ 51,949
================================================ ========= ==========
Net sales included in Eliminations relate principally to the elimination of
intersegment sales from the Engineered Products segment to the Roofing Systems
segment (at prices approximating market).
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ITEM 2.
JOHNS MANVILLE INTERNATIONAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's net sales in the first quarter of 1998 increased $10.3 million, or
2.7 percent, to $389.3 million compared with $379 million for the same period of
1997. Gross profit decreased $5 million, or 4.9 percent, to $95.7 million from
$100.7 million. The lower gross profit margin for the first quarter of 1998 of
24.6 percent compared with 26.6 percent for 1997 was due principally to lower
selling prices in several businesses, partially offset by productivity and cost
improvements, including a $3.6 million refund of insurance premiums related to
prior years.
Selling, general, administrative and research, development and engineering
expenses increased $2.6 million, or 5.7 percent, to $48.2 million. These
expenses were slightly higher as a percentage of sales at 12.4 percent for 1998
compared with 12 percent for 1997, due in part to acquisition-related costs and
the impact of lower selling prices. Other expense, net, was $0.8 million for
the first quarter of 1998 compared with $3.1 million for the same period of 1997
as 1998 included proceeds from the settlement of previously escrowed funds
relating to a landfill site formerly used by the Company. Income from operations
for the first quarter of 1998 was $46.7 million, down 10 percent, compared with
$51.9 million for the first quarter of 1997. Consistent with the Company's
internal reporting, business segments discussed below include allocated
corporate expenses.
Insulation Segment
The Insulation segment's net sales decreased $9.8 million, or 5.6 percent, to
$164.4 million from $174.2 million for the first quarter of 1998. Income from
operations decreased $5.1 million, or 21.2 percent, to $19.2 million from $24.3
million. The building insulation business experienced continued pricing
pressures partially offset by volume gains due to strong U.S. construction
markets, including improvements in manufactured housing and metal buildings.
The selling price declines led to lower margins and an overall decrease in
operating income for building insulations. Despite net sales decreases due to
the 1997 disposition of the molded automotive parts business, the
commercial/industrial and OEM insulation businesses had improved operating
results for the first quarter primarily due to productivity improvements and
reduced operating expenses.
Roofing Systems Segment
Net sales for the Roofing Systems segment increased $6.3 million, or 6.4
percent, to $105.4 million for the first quarter of 1998 from $99.1 million for
the same period of 1997 due to incremental volume increases from the recent
thermoplastic membranes acquisitions. This increase was partially offset by
decreased roofing activity caused by adverse weather conditions. Income from
operations for 1998 decreased $1 million to $4.8 million from $5.8 million for
1997, reflecting acquisition costs, the impact of weather-related construction
delays and competitive pressures.
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Engineered Products Segment
The Engineered Products segment's net sales increased $9.8 million to $125.9
million for the first quarter of 1998 compared with $116.1 million for the first
quarter of 1997, while income from operations increased $0.9 million, or 4
percent, to $22.8 million from $21.9 million. Volume improvements for the
Company's European operations, which includes the May 1997 acquisition of Mitex,
a manufacturer of fiber glass wall covering fabrics, were partially offset by
the impacts of unfavorable currency comparisons. The U.S. mats and fibers
business was negatively impacted due to weather-related declines in roofing mat
shipments and lower selling prices. Results in the filtration business for the
first quarter of 1998 decreased due to lower selling prices and higher
acquisition-related costs.
Interest Income
Compared with the first quarter of 1997, the Company's interest income decreased
$0.9 million to $1.3 million in 1998 from $2.2 million, due to lower average
cash and marketable securities balances.
Cumulative Effect of Accounting Change
Effective January 1, 1998, the Company changed its method of accounting for
glass furnace rebuild costs to the capitalization method from the allowance
method. Under the capitalization method, costs to periodically rebuild the
refractory components of the glass furnaces are capitalized when incurred and
depreciated on a straight-line basis over the estimated useful life of the
rebuild. The capitalization method provides an improved measure of the
Company's capital investment and is consistent with industry practice.
Previously, estimated costs to rebuild furnaces were credited to an allowance
and charged to operations over the estimated period to the next rebuild date.
The cumulative effect of this change in accounting principle increases 1998
earnings by $27.4 million, net of taxes of $17.9 million. This change resulted
in an increase in depreciation expense but eliminated the provision for furnace
rebuilds. The pro forma effect of this change on net income was not material.
Due to the factors discussed above, the Company's net income for the first
quarter of 1998 was $48 million compared with net income of $22.9 million for
the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's agreements with its lenders contain a number of financial and
general covenants. These include, among other things, restrictions on
borrowings, investments, stock issuances and repurchases, dividends and other
distributions, and restrictions on intercompany transactions, including
transfers of cash and transactions with Johns Manville Corporation. As of March
31, 1998, the maximum amount available for dividends to be paid to Johns
Manville Corporation under the debt covenants of the Company's Senior Notes was
approximately $260 million. 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 March 31, 1998, the Company was in compliance with these
covenants.
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In April 1998, the Company announced its intention to refinance its $400 million
of 10 7/8% Senior Notes due 2004 (the "Senior Notes"). The refinancing will
consist of a tender offer for cash and consent solicitation for the proposed
amendments of certain of the covenants and provisions in the indenture relating
to the Senior Notes. The anticipated prepayment of the Senior Notes will result
in an extraordinary loss on the early extinguishment of debt in the second
quarter of 1998. Based on the notes and consents tendered as of May 8, 1998,
the consent solicitation expiration date, the tender price of 111.996 and
related costs, the pretax extraordinary loss would be approximately $50
million. In conjunction with the tender offer, the Company intends to consummate
unsecured revolving credit facilities (the "credit facilities") totaling $750
million, the proceeds of which will be used to refinance the Company's Senior
Notes, fund acquisitions and capital expenditures, and for other corporate
purposes. The credit facilities contain financial covenants which include
coverage ratios, consolidated net worth requirements and restrictions on
borrowings. The Company also expects to cancel its $100 million receivables sale
facility and its $75 million international revolving line of credit at
consummation of the credit facilities.
At March 31, 1998, the Company had net working capital of $235.8 million,
including cash and marketable securities totaling $76.1 million. Total cash and
marketable securities located outside the U.S. and Canada were approximately $18
million. At December 31, 1997, the Company's cash and marketable securities
totaled $122.4 million. The Company's international subsidiaries had borrowing
and working capital facilities totaling $85 million, of which $65.2 million was
available at March 31, 1998.
The Company's net operating activities provided $12 million of cash during the
first quarter of 1998. Net operating activities for the same period of 1997
provided $12.9 million. The Company's cash flows from operating activities are
primarily influenced by sales volume and selling prices. As discussed in
"Results of Operations," the effects of increased sales volumes were partially
offset by selling price declines during the first quarter of 1998. Operating
activities also included usages for net working capital builds in anticipation
of the construction season, which typically peaks during the third quarter. The
Company's 1998 operating results are expected to benefit from the continuing
integration of acquisitions. A slightly higher level of U.S. housing starts
during the first quarter of 1998 compared with the same period of 1997 should
continue to benefit the building insulation business. Capacity-related
competitive pricing pressures are expected to stabilize for the building
insulation, mats and fibers and filtration businesses during the year. However,
competitive pressures may continue to adversely effect the results of the
Roofing Systems segment.
The Company's investing activities for the quarter ended March 31, 1998 included
$23 million for acquisitions and capital expenditures of $22.4 million. The
Company estimates 1998 capital expenditures of approximately $128 million, of
which approximately $55 million relate to capacity expansion projects. As of
March 31, 1998, outstanding purchase commitments for capital projects totaled
$24.8 million. Investing activities for the first quarter of 1997 included the
combined purchase
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prices for acquisitions of $113 million, net of cash acquired, and capital
expenditures of $19 million. Also during 1997, the Company received $23.8
million in repayment of an advance made to Johns Manville Corporation in 1996
for an acquisition which was subsequently contributed to the Company.
The Company's financing activities for the first quarter of 1998 consisted of
repayments of debt totaling $13 million incurred in connection with 1997
acquisitions. During 1997, the Company borrowed $55 million from international
credit facilities to partially finance 1997 acquisitions, of which $10 million
was subsequently repaid. Also during 1997, the 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.
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.
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Environmental Contingencies
At March 31, 1998, 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 the Company settled certain litigation
concerning the Company's disposal activities prior to consummation of its plan
of reorganization. The settlement agreement, which was made 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 the
Company's plan of reorganization. The agreement resolved the Company's
liability at certain historical sites and also covers CERCLA and RCRA liability
for other disposal sites at which the Environmental Protection Agency ("EPA")
has incurred or may incur response costs and which were used by the Company
prior to the consummation of the plan of reorganization. The agreement provides
that the amount the Company will be obligated to pay, in the aggregate, for such
sites shall never exceed $850,000 during any given year. The EPA and others
from time to time commence cleanup activities at such sites and in the future
the EPA and others may assert claims against the Company with respect to such
sites. The Company believes that all such activities and claims, if any, will
be subject to the agreement.
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
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anticipate related material adverse effects on its financial condition,
liquidity or results of operations.
Acquisition
In March 1998, the Company announced it had signed an agreement to acquire
substantially all the assets of Exeltherm Inc., a Canadian producer of
polyisocyanurate foam products for commercial/industrial and residential
construction. The acquisition will complement existing businesses of the
Insulation and Roofing Systems segments. This transaction was completed in May
1998.
The Company believes that its current cash position, funds available under
credit facilities, and cash generated from operations will enable it to satisfy
its debt service requirements, its ongoing capital expansion program and its
other ongoing operating costs. However, the Company may need to access capital
markets to pay the principal of its credit facilities, or in connection with
possible significant future acquisitions.
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 the (i) expected benefits
from the continuing integration of acquisitions and capacity expansions, (ii)
effect on the building insulation business resulting from first quarter 1998
U.S. housing starts, (iii) possible price stabilization in the current year in
the building insulation, mats and fibers and filtration industries, (iv)
Company's expectations concerning levels of capital spending and funding of
current operations, debt service and future acquisitions, (v) Company's
intention to refinance its outstanding Senior Notes, (vi) Company's expectations
as to contingencies related to phenolic roofing insulation and environmental
liabilities, and (vii) Company's estimates concerning year 2000 compliance
issues, constitute such forward-looking statements. See "Liquidity and Capital
Resources."
Forward-looking statements of the Company are subject to risks and uncertainties
that could cause actual results to differ materially from those expressed in
such statements. Important factors relating to such risks and uncertainties are
set forth below.
Factors that could affect the forward-looking statements generally are related
to demand for the Company's products, overall capacity levels in the industry
and the overall competitive environment in which the Company operates. These
factors are discussed in detail in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" incorporated in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
Factors that could affect the Company's refinancing intentions and expected
levels of capital spending and funding of current operations, debt service and
dividends, include, without limitation, the general factors noted above, the
level of cash flow generated by the Company and the ability of the Company to
otherwise fund such commitments, which in turn could be affected by general U.S.
and international
I-13
<PAGE>
economic conditions as well as financial market conditions.
The Company's ability to realize expected benefits from acquisitions depends on
a number of factors including, without limitation, successful integration of
newly acquired operations, technology, products, employees and the overall
economic factors referred to above.
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."
I-14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
-----------------
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
---------------------
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
-------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
Not applicable.
ITEM 5. OTHER INFORMATION.
------------------
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
(a) Exhibits.
--------
Exhibit 18, Letter of Coopers and Lybrand L.L.P. regarding Change in
Accounting Principles.
Exhibit 27.1, Financial Statement Schedules.
(b) Form 8-K.
--------
None.
II-1
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JOHNS MANVILLE INTERNATIONAL
GROUP, INC.
----------------------------
(Registrant)
Date: May 14, 1998 By: R. B. Von Wald
------------------------
R. B. Von Wald
Executive Vice President,
General Counsel and Secretary
Date: May 14, 1998 By: J. P. Murphy
------------------------
J. P. Murphy
Senior Vice President and
Chief Financial Officer
II-2
<PAGE>
[LOGO OF COOPERS & LYBRAND L.L.P.] EXHIBIT 18
May 1, 1998
Johns Manville
717 Seventeenth Street
Denver, Colorado 80202
We are providing this letter to you for inclusion as an exhibit to your Form 10-
Q filing pursuant to Item 601 of Regulation S-K.
We have read management's justification for the change in accounting from
accruing a reserve for the estimated costs to rebuild the refractory components
of glass furnaces to capitalizing those costs as incurred as contained in the
Company's Form 10-Q for the quarter ended March 31, 1998. Based on our reading
of the data and discussions with Company officials of the business judgment and
business planning factors relating to the change, we believe management's
justification to be reasonable. Accordingly, in reliance on management's
determination as regards elements of business judgment and business planning, we
concur that the newly adopted accounting principle described above is preferable
in the Company's circumstances to the method previously applied.
We have not audited any financial statements of Johns Manville as of any date or
for any period subsequent to December 31, 1997, nor have we audited the
application of the change in accounting principle disclosed in Form 10-Q of
Johns Manville for the three months ended March 31, 1998; accordingly, our
comments are subject to revision on completion of an audit of the financial
statements that include the accounting change.
Very truly yours,
/s/ Coopers & Lybrand L.L.P.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1998 FORM 10-Q 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 73,477
<SECURITIES> 2,644
<RECEIVABLES> 254,428
<ALLOWANCES> 6,142
<INVENTORY> 136,727
<CURRENT-ASSETS> 503,412
<PP&E> 1,500,403
<DEPRECIATION> 671,054
<TOTAL-ASSETS> 1,753,479
<CURRENT-LIABILITIES> 267,656
<BONDS> 530,708
0
0
<COMMON> 0
<OTHER-SE> 452,788
<TOTAL-LIABILITY-AND-EQUITY> 1,753,479
<SALES> 389,336
<TOTAL-REVENUES> 389,336
<CGS> 293,588
<TOTAL-COSTS> 293,588
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 327
<INTEREST-EXPENSE> 13,350
<INCOME-PRETAX> 34,713
<INCOME-TAX> 14,128
<INCOME-CONTINUING> 20,585
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 27,409
<NET-INCOME> 47,994
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<EPS-DILUTED> 0
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