Owens Corning (NYSE: OWC – news) today reported financial results for the second quarter ending June 30, 2000.
Net sales for the period of $1.295 billion were slightly below net sales of $1.310 billion in the same period a year ago. This reflects weaker demand in roofing, siding and insulation businesses, as construction activity slowed due to concerns about interest rates. Composites Systems demand remained strong during the quarter around the world and reported growth of 5%.
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Net income (excluding a charge reflecting an addition to the asbestos reserve, and the proceeds from an insurance settlement) was $61 million, or $1.04 per share on a diluted basis, compared to $76 million, or $1.31 in the same period a year ago. Income from operations was basically flat with the second quarter of 1999 impacted by higher raw material costs and weaker volumes offset by pricing actions, good cost controls, and a $5 million gain from the venturing of the Company’s European Building Materials business. The decline in net income is attributed to the small decline in income from operations coupled with higher borrowing costs and an increased tax rate for the quarter.
The company said that the increase in 30-year mortgage rates by as much as 200 basis points in the past 18 months has slowed construction activity at the same time that profit margins have come under pressure due to the significant increases in material and energy costs. Effective cost controls and pricing strategies, along with Systems Thinkingtm initiatives, have helped reduce but have not eliminated the pressure on profit margins.
The company has completed its previously announced review of the sufficiency of its provision for asbestos-related liabilities. In light of the expansion of the company’s National Settlement Program (NSP) by approximately 62,000 claims, the additional recent information derived from processing claims, the higher than expected costs to settle cases outside the NSP, and recent developments in asbestos litigation, the company has recorded a pre-tax charge of $1 billion. This change in the asbestos reserve does not alter the company’s recently reported estimated total asbestos cash outflows over the next five years.
As announced in June, the company received a total of $335 million from insurance settlement payments, of which $125 million had been recorded as an insurance receivable.
Including the charge for the addition to the asbestos litigation reserve and the $210 million (pre-tax) gain from the insurance recovery, the company had a net loss for the second quarter of $425 million, or $7.76 per share.
For the first six months of 2000, net income, excluding the special items discussed above, was $109 million, or $1.89 per share on a diluted basis, compared to $120 million, or $2.08 per share in the same period a year ago. First-half sales were $2.552 billion, compared to $2.440 billion in the first six months of 1999, representing slightly less than 5 percent growth for the half. Including the addition to the asbestos reserve and the insurance recovery, the company had a net loss of $377 million, or $6.90 per share, for the first six months of 2000.
The company also reported that it has completed its review of the Fibreboard asbestos liability and it confirmed the adequacy of the Fibreboard liability and related Fibreboard Trust asset at this time. In an effort to improve the investment returns of the Trust and assure its long-term adequacy, the company is seeking the appointment of additional independent trustees for the purpose of evaluating alternative investment strategies, including investments in Owens Corning. The appointments would be made by the Texas court that retains jurisdiction over the Trust.
Building Materials Systems
Income from operations in Building Materials was $112 million, compared to a record $131 million in the second quarter a year ago. Building Materials sales were $1.035 billion, compared to $1.064 billion in the second quarter of 1999.
Other than continued increased volumes in Cultured Stone and laminate shingles, demand in other Building Materials Systems was down compared to a year ago. Increased asphalt costs affected margins in Roofing Systems, as did higher PVC resin costs in Exterior Systems. The company continues to focus on productivity improvements, enhanced cost control, and market strategies to generate improved margins.
During the quarter the company closed a joint-venture transaction for its European Building Materials Business with Alcopor (a Swiss foam insulation company) which generated proceeds of approximately $180 million.
Composites Systems
Income from operations in Composites Systems increased to $49 million from $33 million in the same period in 1999, as the business showed continued strong demand and improved pricing.
Net sales increased 5.4 percent to $291 million, from $276 million during the second quarter of 1999, reflecting the strong global demand.
Outlook
Looking ahead, the company expects that full year 2000 sales and net income will continue to be affected by the interest rate environment, the potential for ongoing raw material cost inflation, and other energy-related cost increases. The company will continue to focus on productivity, Six Sigma programs and growth initiatives, while seeking to preserve margins through its procurement and pricing strategies. At this juncture, sales for the year are expected to be up about 4 percent while net income, excluding the impact of insurance recoveries and the asbestos reserve charge, will be approximately 20 percent below the figure for 1999.
Owens Corning is a world leader in building materials systems and composites systems. The company has sales of $5 billion and employs approximately 20,000 people worldwide. For more information, please visit Owens Corning’s Website at www.owenscorning.com.
This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in these statements. Further information on factors that could affect the company’s financial and other results are included in the company’s Form 10-Q and 10-K, filed with the Securities and Exchange Commission.
For the Quarter Ended For the Six Months Ended
June 30, June 30,
2000 2000
Reported Asbestos Ongoing Reported Asbestos Ongoing
Charge Charge
NET SALES $1,295 — $1,295 $2,552 — $2,552
COST OF SALES 996 — 996 1,968 — 1,968
Gross Margin 299 — 299 584 — 584
OPERATING EXPENSES
Marketing and
administrative 146 — 146 295 — 295
Science and
technology 14 — 14 28 — 28
Provision for asbestos
litigation claims 790 790 — 790 790 —
Other (8) — (8) 3 — 3
Total operating
expenses 942 790 152 1,116 790 326
Gain on sale
of business 5 — 5 — — —
INCOME FROM
OPERATIONS (638) (790) 152 (532) (790) 258
Cost of
borrowed funds 51 — 51 94 — 94
INCOME BEFORE PROVISION
(CREDIT) FOR
INCOME TAXES (689) (790) 101 (626) (790) 164
Provision (credit)
for income taxes (267) (304) 37 (254) (304) 50
INCOME BEFORE MINORITY
INTEREST AND EQUITY IN NET
INCOME OF
AFFILIATES (422) (486) 64 (372) (486) 114
Minority Interest (2) — (2) (4) — (4)
Equity in net income
of affiliates (1) — (1) (1) — (1)
NET INCOME $ (425) $ (486) $61 $(377) $(486) $109
Diluted Earnings
Per Share $(7.76) — $ 1.04 $(6.90) — $1.89
Diluted Shares
(in thousands) 54,793 — 59,941 54,651 — 59,804
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(unaudited)
Quarter Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
(In millions of dollars, except share data)
NET SALES $ 1,295 $1,310 $ 2,552 $2,440
COST OF SALES 996 987 1,968 1,858
Gross margin 299 323 584 582
OPERATING EXPENSES
Marketing and
administrative expenses 146 152 295 288
Science and technology
expenses 14 14 28 28
Provision for asbestos
litigation claims(1) 790 — 790 —
Other (8) 2 3 1
Total operating expenses 942 168 1,116 317
Gain on sale of assets(2) 5 — — —
INCOME (LOSS)
FROM OPERATIONS (638) 155 (532) 265
Cost of borrowed funds 51 39 94 72
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES (689) 116 (626) 193
Provision for
income taxes (267) 41 (254) 68
INCOME (LOSS) BEFORE
MINORITY INTEREST AND
EQUITY IN NET INCOME
(LOSS) OF AFFILIATES (422) 75 (372) 125
Minority Interest (2) (1) (4) (3)
Equity in net income
(loss) of affiliates (1) 2 (1) (2)
NET INCOME (LOSS) $(425) $76 $(377) $120
NET INCOME PER COMMON SHARE
Basic net income
(loss) per share $ (7.76) $1.41 $(6.90) $2.22
Diluted net income
(loss) per share $ (7.76) $1.31 $(6.90) $2.08
Weighted average number
of common shares
outstanding and common
equivalent shares
during the period
(in millions)
Basic 54.8 54.1 54.7 54.0
Diluted 54.8 59.7 54.7 59.5
(1) Reflects a $1 billion pretax charge for asbestos litigation claims,
net of insurance of $210 million.
(2) Reflects a $5 million pretax gain from the formation of the Building
Materials Europe joint venture during the second quarter of 2000, and
a $5 million pretax loss from the sale of Falcon Foam during the first
quarter of 2000.
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(unaudited)
June 30, December 31, June 30,
2000 1999 1999
(In millions of dollars)
ASSETS
CURRENT
Cash and cash equivalents $497 $70 $26
Restricted cash (3) 250 — —
Restricted cash and
securities – Fibreboard –
current portion (2) 525 900 —
Receivables 519 358 611
Inventories 549 466 502
Insurance for asbestos
litigation claims –
current portion (1) — 25 150
Deferred income taxes 182 185 366
Income tax receivable 4 61 3
Other current assets 26 23 24
Total current 2,552 2,088 1,682
OTHER
Insurance for asbestos
litigation claims(1) 93 205 228
Restricted cash and securities
– Fibreboard(2) 883 938 —
Asbestos costs to be reimbursed
– Fibreboard — — 62
Deferred income taxes 827 547 493
Goodwill 654 743 750
Investments in affiliates 90 65 51
Other noncurrent assets 259 208 243
Total other 2,806 2,706 1,827
PLANT AND EQUIPMENT, at cost 3,572 3,692 3,626
Less-accumulated depreciation (1,933) (1,992) (1,944)
Net plant and equipment 1,639 1,700 1,682
TOTAL ASSETS $6,997 $6,494 $5,191
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (continued)
(unaudited)
June 30, December 31, June 30
2000 1999 , 1999
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT
Accounts payable and
accrued liabilities $692 $839 $708
Reserve for asbestos litigation
claims – current portion(1) 925 950 1,050
Asbestos-related liabilities
– Fibreboard – current portion (2) 525 900 —
Short-term debt 43 68 121
Long-term debt – current portion 75 159 27
Total current 2,260 2,916 1,906
LONG-TERM DEBT 2,698 1,764 2,068
OTHER
Reserve for asbestos
litigation claims (1) $1,482 $820 $1,210
Asbestos-related liabilities
– Fibreboard(2) 883 938 67
Other employee benefits liability 320 318 325
Pension plan liability 37 42 52
Other 352 339 345
Total other 3,074 2,457 1,999
COMPANY OBLIGATED SECURITIES
OF ENTITIES HOLDING
SOLELY PARENT DEBENTURES 195 194 195
MINORITY INTEREST 48 44 45
STOCKHOLDERS’ EQUITY
Common stock 701 695 698
Deficit (1,894) (1,510) (1,650)
Accumulated other
comprehensive income (74) (51) (48)
Other (11) (15) (22)
Total stockholders’ equity (1,278) (881) (1,022)
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY $6,997 $6,494 $5,191
(1) As of June 30, 2000, the current portion of the reserve for asbestos
litigation claims, net of insurance, is $925 million. Excluding
Fibreboard activity, the total reserve, net of insurance, is $2,314
million.
(2) Represents assets and liabilities of the Fibreboard Settlement Trust
funded by Fibreboard’s insurers. Assets of the Trust are available
to pay asbestos-related liabilities of Fibreboard.
(3) Represents escrow funding for Owens Corning asbestos litigation
claims.
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Quarter Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
(In millions of dollars)
NET CASH FLOW FROM OPERATIONS
Net income $(425) $ 76 $(377) $120
Reconciliation of net cash
provided by operating activities
Noncash items:
Provision for asbestos
litigation claims 790 — 790 —
Provision for depreciation and
amortization 45 50 93 101
Provision (credit) for
deferred income taxes (292) 16 (288) 39
Gain on sale of assets (5) — — —
Other (14) — (32) 5
(Increase) decrease
in receivables (33) (56) (214) (142)
(Increase) decrease
in inventories (63) (7) (120) (60)
Increase (decrease) in
accounts payable and
accrued liabilities 20 (45) (60) (226)
(Increase) decrease in
income tax receivable 12 24 62 104
(Increase) decrease in
restricted cash 6 — (250) —
Proceeds from insurance for
asbestos litigation claims,
excluding Fibreboard 335 13 347 32
Payments for asbestos litigation
claims, excluding
Fibreboard (141) (175) (364) (370)
Other 7 5 (24) (6)
Net cash flow from
operations $242 $(99) $(437) $(403)
NET CASH FLOW FROM INVESTING
Additions to plant
and equipment (97) (59) (165) (99)
Investment in subsidiaries,
net of cash acquired — — (4) —
Proceeds from the sale of
affiliate or business 143 — 193 —
Other (34) (16) (36) (27)
Net cash flow
from investing $12 $(75) $(12) $(126)
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
(unaudited)
Quarter Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
(In millions of dollars)
NET CASH FLOW FROM FINANCING
Net additions to long-term
credit facilities $300 $170 $955 $261
Other additions to
long-term debt 22 1 22 251
Other reductions to
long-term debt (72) (33) (83) (33)
Net increase (decrease)
in short-term debt (44) 10 (9) 28
Dividends paid (4) (4) (8) (8)
Other — 3 — —
Net cash flow
from financing 202 147 877 499
Effect of exchange rate
changes on cash — 2 (1) 2
Net increase (decrease)
in cash and cash
equivalents 456 (25) 427 (28)
Cash and cash equivalents at
beginning of period 41 51 70 54
Cash and cash equivalents
at end of period $497 $26 $497 $26
OWENS CORNING AND SUBSIDIARIES
QUARTERLY INFORMATION ON REPORTABLE OPERATING SEGMENTS
(unaudited)
Quarter Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
(In millions of dollars)
NET SALES
Reportable Operating Segments
Building Materials
United States $942 $946 $1,834 $1,760
Europe 31 58 88 121
Canada and other 62 60 117 105
Total Building
Materials $ 1,035 $1,064 $2,039 $1,986
Composite Materials
United States 157 150 316 278
Europe 87 86 171 168
Canada and other 47 40 91 69
Total Composite
Materials 291 276 578 515
Total Reportable
Operating
Segments $1,326 $1,340 $2,617 $2,501
Reconciliation to
Consolidated Net Sales
Composite Materials
U.S. Sales to
Building
Materials U.S. (31) (30) (65) (61)
Net sales $1,295 $1,310 $2,552 $2,440
External Customer
Sales by Geographic
Region
United States $1,068 $1,066 $2,085 $1,977
Europe 118 144 259 289
Canada and other 109 100 208 174
Net Sales $1,295 $1,310 $2,552 $2,440
OWENS CORNING AND SUBSIDIARIES
QUARTERLY INFORMATION ON REPORTABLE OPERATING SEGMENTS (continued)
(unaudited)
Quarter Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
(In millions of dollars)
INCOME (LOSS) FROM OPERATIONS
Reportable Operating Segments
Building Materials
United States $103 $118 $174 $188
Europe — 1 1 4
Canada and other 9 12 13 16
Total Building
Materials 112 131 188 208
Composite Materials
United States 40 33 88 61
Europe 4 (4) 3 (4)
Canada and other 5 4 12 7
Total Composite
Materials 49 33 103 64
Total Reportable
Operating Segments $161 $164 $291 $272
Geographic Regions
United States $143 $151 $262 $249
Europe 4 (3) 4 —
Canada and other 14 16 25 23
Total Reportable
Operating Segments $161 $164 $291 $272
Reconciliation to
Consolidated Income
Before Provision for
Income Taxes
Provision for asbestos
litigation claims (790) — (790) —
Gain on sale of
affiliate or business 5 — — —
General corporate
income (expense) (14) (9) (33) (7)
Cost of borrowed funds (51) (39) (94) (72)
Consolidated Income Before
Provision for
Income Taxes $(689) $116 $(626) $193
