Company Reaffirms Guidance for 2007 TOLEDO, Ohio, August 1
/PRNewswire-FirstCall/ -- Owens Corning (NYSE:OC) today reported
consolidated net sales of $1.534 billion during the second quarter,
compared with $1.722 billion in the second quarter of 2006, an 11
percent decrease from the prior year. Second-quarter net earnings
were $29 million, or $0.22 per diluted share. Excluding
comparability items (see attached Table 2 for a discussion and
reconciliation of such items), adjusted net earnings were $49
million, or $0.37 per diluted share. As described more fully in
Table 2, such comparability items in the second quarter included
charges related to the company's prior Chapter 11 proceedings and
restructuring and other charges. Such items amounted to
approximately $30 million ($20 million after tax) during the second
quarter. "The ongoing decline of the residential construction
market in the United States continued to weaken demand for building
materials during the second quarter," said Dave Brown, president
and chief executive officer. "We believe that year-over-year
performance improvements in our Roofing & Asphalt and Composite
Solutions segments will partially offset cyclical weakness in
insulation demand. Despite the challenging market, our business mix
enables us to reaffirm prior guidance for 2007. "In addition, we've
announced strategic steps to significantly improve our business
portfolio and accelerate our global growth," said Brown. "The
acquisition of Saint-Gobain's Reinforcement and Composites business
and the sale of our Siding Solutions business will further our
ability to generate profitable growth and drive shareholder value."
Consolidated Second-Quarter Results -- Earnings before interest and
taxes (EBIT) in the second quarter of 2007 were $78 million,
compared with $168 million during the same period of 2006.
Excluding comparability items (see Table 2), adjusted EBIT for the
second quarter of 2007 was $108 million, compared with $158 million
during the same period in 2006. The overall decline was primarily
due to lower sales combined with higher raw material and labor
costs. -- For the first six months, EBIT was $111 million, compared
with $283 million for the same period of 2006. Excluding
comparability items, adjusted EBIT for the first half of 2007 was
$169 million, compared with $272 million during the same period in
2006. -- Gross margin as a percentage of consolidated net sales was
16 percent during the second quarter, compared with 17.2 percent
during the same period of 2006. For the first six months, gross
margin as a percentage of sales declined 1.6 percentage points
compared to the first half of 2006. The decline was the result of
lower building materials sales volume, selling price declines for
certain products, and higher material and labor costs. An
intangible asset impairment resulting from the strategic review of
the company's Fabwel unit decreased EBIT for the first half of 2007
by approximately $10 million. -- Marketing and administrative
expenses, as a percentage of consolidated net sales, were 9.5
percent, compared with 8.1 percent during the same period in 2006.
For the first six months, marketing and administrative expenses
were 9.9 percent of consolidated net sales, compared with 8.2
percent during the same period of 2006. This increase was primarily
due to decreased sales and the impact of transaction costs
associated with the proposed acquisition of Saint-Gobain's
Reinforcement and Composites business. Transaction costs amounted
to approximately $7 million during the second quarter of 2007 and
$18 million for the first half of the year. Business Highlights --
During the second quarter of 2007, Owens Corning increased its
ownership of Owens Corning India Limited from 60 percent to 78.5
percent to leverage this low-cost production platform to bolster
the company's growth in the Asia Pacific region. -- Owens Corning
favorably resolved negotiations with the IRS concerning differences
in interest computations applicable to a prior tax settlement. The
IRS substantively accepted Owens Corning's interest calculations
and, accordingly, reduced the interest claim by approximately $38
million. This decrease was recorded as a reduction to goodwill and
long-term debt on the Consolidated Balance Sheets. This favorable
resolution, combined with the pay off of an IRS note relating to
the interest claim and the tax settlement, will result in a
reduction of approximately $4 million in annual interest expense.
-- Owens Corning announced a share buy-back program in the first
quarter under which the company is authorized to repurchase up to 5
percent of Owens Corning's outstanding common stock. The company
did not repurchase any shares during the first six months of 2007.
-- The company's continued focus on safety resulted in an 18
percent reduction in injuries through the first six months of 2007
as compared with its Dec. 31, 2006 rate. Siding Solutions Strategic
Review Complete; Fabwel Review Continues During the first quarter
of 2007, Owens Corning announced that it would explore strategic
alternatives for its Siding Solutions and Fabwel businesses. On
July 17, 2007, Owens Corning completed the strategic review of its
Siding Solutions business. The company reached a definitive
agreement to sell the business to Saint-Gobain for $371 million.
The sale includes the company's Norandex/Reynolds distribution
business with 153 U.S. distribution centers in 38 states. Three
vinyl siding manufacturing facilities in North America located in
Claremont, N.C.; Joplin, Mo.; and London, Ontario are also part of
the transaction. The transaction is expected to close by the end of
the third quarter. For the first six months of 2007, sales and EBIT
related to the Siding Solutions business (included in the Other
Building Materials and Services segment) amounted to $379 million
and $4 million, respectively, compared with $451 million and $3
million, respectively, during the same period in 2006. Sales and
EBIT for this business for the combined 12 months ended Dec. 31,
2006 totaled $884 million and $12 million, respectively. In
addition, the EBIT of the Siding Solutions business for the
combined 12 months of 2006 included approximately $27 million of
allocated corporate cost, of which approximately $22 million will
remain a cost of continuing operations. Owens Corning's strategic
review of its Fabwel unit, the leading producer and fabricator of
components and sidewalls for recreational vehicles and cargo
trailers, continues. Fabwel is a small unit within Owens Corning's
Composite Solutions segment. Owens Corning to Acquire
Saint-Gobain's Reinforcement and Composites Business On July 27,
2007, Owens Corning announced the signing of a definitive agreement
under which Owens Corning will acquire Saint-Gobain's Reinforcement
and Composites business for $640 million. The agreement, which
converts the previously proposed joint venture into an outright
acquisition, accelerates Owens Corning's global growth strategy by
more quickly realizing the significant strategic and financial
benefits of the transaction, while enhancing the company's presence
in fast-growing emerging markets around the world. The acquisition
includes the addition of talented employees and proven
technologies. When combined with Owens Corning's resources, the new
composites business unit will become one of the most advanced in
the reinforcements industry. In 2006, the Saint-Gobain
Reinforcement and Composites business had sales of approximately
$900 million, with 4,500 employees. With this acquisition, and
following Owens Corning's proposed sale of its three manufacturing
plants in Battice, Belgium; Birkeland, Norway; and Huntingdon, Pa.,
Owens Corning's Composite Solutions business will have 42
production facilities in 16 countries. Saint-Gobain will retain its
facility in Wichita Falls, Texas. On a pro forma basis for calendar
2006, the new Owens Corning Composite Solutions reporting segment
would have had combined sales of approximately $2.2 billion,
compared with actual reported segment sales in 2006 of $1.6
billion. Owens Corning projects that the to-be acquired business
will generate earning before interest, taxes, depreciation and
amortization (EBITDA) in excess of $100 million for full year 2007.
The business currently leases certain metals used in its production
tooling. At recent market prices, the leased metals would be valued
at approximately $320 million. This projected forecast for
financial performance does not include the costs associated with
the leasing of metals. Owens Corning anticipates annual pre-tax
cost synergies of more than $100 million to be realized by the
fourth full year after close, with the majority of the synergies
achieved during the first three years. Synergies will come
primarily from reduced operating costs, improved energy efficiency
in furnaces, sourcing and reduced shipping costs. The transaction
is expected to close by the end of 2007 and remains subject to
regulatory approval in several jurisdictions, along with customary
closing conditions. 2007 Outlook The weakness in new home starts in
the United States continued through the first half of 2007. Based
on current estimates by the National Association of Home Builders
(NAHB), the slowdown in U.S. housing starts is expected to carry
through 2007 and well into 2008, which will continue to impact the
company's building materials businesses. As the year continues, the
financial performance of the Roofing and Asphalt, Composite
Solutions and Other Building Materials & Services segments is
expected to continue to improve. The company continues to estimate
that 2007 adjusted EBIT should exceed $415 million, not including
the impact of the proposed acquisition of Saint- Gobain's
Reinforcement and Composites business, the divestiture of Owens
Corning's Siding Solutions business or other strategic
organizational changes. This forecast will be updated and
communicated quarterly. Second-Quarter Business Segment Highlights
Insulating Systems -- Net sales for the second quarter of 2007 were
$441 million, a 15 percent decrease from $519 million during the
same period in 2006. The decrease was primarily volume related, the
result of a decline in demand in the U.S. housing market, combined
with lower selling prices in certain product categories. -- EBIT
for the second quarter was $42 million, compared with $112 million
during the same period in 2006. Results were unfavorably impacted
by a decline in sales volume, lower selling prices, idle facility
costs resulting from production curtailments, and increases in
material and labor costs. In addition, results were negatively
impacted by $11 million, primarily related to depreciation and
amortization costs resulting from the adoption of Fresh Start
Accounting. Composite Solutions -- Net sales for the second quarter
of 2007 were $425 million, a 3 percent increase from $411 million
during the same period in 2006. The increase in sales was primarily
attributable to slightly higher pricing, the favorable impact of
currency and the inclusion of sales from a Japanese facility
acquired in 2006. -- EBIT for the second quarter of 2007 was $28
million, compared with $51 million during the same period in 2006.
The decline was primarily due to the inclusion of the gain on the
sale of metals used in certain production tooling of approximately
$27 million during the second quarter of 2006. Excluding this item,
EBIT improved by $4 million compared to the same period in 2006 due
to slight price increases and manufacturing productivity
improvements that exceeded higher material costs. Results were
negatively impacted by $1 million resulting from the adoption of
Fresh Start Accounting. Roofing and Asphalt -- Net sales for the
second quarter of 2007 were $414 million, a 17 percent decrease
from $501 million during the same period in 2006. The decrease was
primarily due to a lower level of storm-related demand and lower
North American new residential construction and remodeling
activity. -- EBIT for the second quarter of 2007 was $29 million,
compared with $48 million during the same period in 2006 and a loss
of $8 million during the first quarter of 2007. The year-over-year
decrease was primarily driven by the lower level of storm demand
and lower volume resulting from declines in new construction
activity in North America. Results were negatively impacted by $1
million resulting from the adoption of Fresh Start Accounting.
Other Building Materials and Services -- Net sales for the second
quarter of 2007 were $303 million, a 12 percent decrease from $346
million during the same period in 2006. The decrease was primarily
the result of lower volume in the Siding Solutions business and
sales declines resulting from the closure of the HOMExperts service
line that was exited in the first quarter of 2007. -- EBIT for the
second quarter of 2007 was $17 million, compared with $8 million
during the same period in 2006. The improvement was primarily due
to increased earnings in the company's manufactured stone veneer
business and the elimination of losses from the HOMExperts service
line. The adoption of Fresh Start Accounting had no significant
impact on this segment during the second quarter of 2007. Third
quarter 2007 results are currently scheduled to be announced on
Nov. 1, 2007. Conference Call Wednesday, Aug. 1, 2007 11 a.m.
Eastern Daylight Time All Callers Live dial-in telephone number:
1-866-314-5050 or 1-617-213-8051 (Please dial in 10 minutes before
conference call start time) Passcode: 66987094 Live Webcast:
http://www.owenscorning.com/investors A telephone replay will be
available through Aug. 8, 2007 at 888-286-8010 or 617-801-6888.
Passcode: 22256014. A replay of the webcast will also be available
at http://www.owenscorning.com/investors. About Owens Corning Owens
Corning (NYSE:OC) is a world leader in building materials systems
and composite solutions. A Fortune 500 company for more than 50
years, Owens Corning people redefine what is possible each day to
deliver high-quality products and services ranging from insulation,
roofing, siding and stone, to glass composite materials used in
transportation, electronics, telecommunications and other
high-performance applications. Founded in 1938, Owens Corning is a
market-leading innovator of glass-fiber technology with sales of
$6.5 billion in 2006 and 19,000 employees in 26 countries.
Additional information is available at
http://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 is included in the company's
Forms 10-Q and 10-K, filed with the Securities and Exchange
Commission. Table 1 Owens Corning and Subsidiaries Consolidated
Statements of Earnings (Unaudited) (in millions, except per share
amounts) Prede- Prede- Successor cessor Successor cessor Three
Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006
NET SALES $1,534 $1,722 $2,858 $3,323 COST OF SALES 1,288 1,426
2,419 2,758 Gross margin 246 296 439 565 OPERATING EXPENSES
Marketing and administrative expenses 146 140 282 271 Science and
technology expenses 16 15 30 31 Restructuring credits - - (2) -
Chapter 11 related reorganization items - 17 3 27 Asbestos
litigation recoveries - - - (3) Employee emergence equity program
12 - 20 - Gain on sale of fixed assets and other (6) (44) (5) (44)
Total operating expenses 168 128 328 282 EARNINGS BEFORE INTEREST
AND TAXES 78 168 111 283 Interest expense, net 31 86 63 151
EARNINGS BEFORE TAXES 47 82 48 132 Income tax expense (benefit) 16
(169) 16 (179) EARNINGS BEFORE MINORITY INTEREST AND EQUITY IN NET
EARNINGS OF AFFILIATES 31 251 32 311 Minority interest and equity
in net (loss) earnings of affiliates (2) - (2) 3 NET EARNINGS $29
$251 $30 $314 EARNINGS PER COMMON SHARE Basic net earnings per
share $0.23 $4.54 $0.23 $5.67 Diluted net earnings per share $0.22
$4.19 $0.23 $5.24 WEIGHTED AVERAGE COMMON SHARES Basic 128.1 55.3
128.1 55.3 Diluted 131.1 59.9 131.1 59.9 Table 2 Owens Corning and
Subsidiaries Reconciliation Schedules (Unaudited) (in millions,
except per share amounts) When reviewing the operating performance
of the company with its Board of Directors and employees,
management makes adjustments to net earnings, earnings before
interest and taxes ("EBIT") and diluted earnings per share. To
calculate "adjusted earnings", "adjusted EBIT" and "adjusted
diluted earnings per share", management excludes certain items from
net earnings and earnings before interest and taxes, including
those related to the company's prior Chapter 11 proceedings and
restructuring and other activities so as to improve comparability
over time (the "comparability items"). As described more fully in
the following financial schedules, such comparability items
amounted to charges of $30 million in the second quarter of 2007
compared with a credit of $10 million during the same period of
2006. For the first half of 2007, such items amounted to charges of
$58 million, compared with a credit of $11 million during the same
period of 2006. Prede- Prede- Successor cessor Successor cessor
Three Months Ended Six Months Ended June 30, June 30, 2007 2006
2007 2006 RECONCILIATION TO ADJUSTED EARNINGS NET EARNINGS $29 $251
$30 $314 Adjustments to remove comparability items: Chapter 11
related reorganization items $- $17 $3 $27 Asbestos litigation
recoveries - Owens Corning - - - (3) Restructuring credits - - (2)
- OCV Reinforcements transaction costs 7 - 18 - (Gains) losses
related to the exit of our HOMExperts service line (1) - 7 - Losses
from strategic reviews 12 - 12 - Employee emergence equity program
12 - 20 - Gain on sale of metals - (27) - (35) Total adjustments to
remove comparability items: 30 (10) 58 (11) Tax effect of
adjustments at 34% in 2007 and 37% in 2006 (10) 4 (20) 4 ADJUSTED
EARNINGS $49 $245 $68 $307 RECONCILIATION TO ADJUSTED DILUTED
EARNINGS PER SHARE: DILUTED EARNINGS PER SHARE $0.22 $4.19 $0.23
$5.24 Total adjustments to remove comparability items 0.23 (0.17)
0.44 (0.18) Tax effect of adjustments at 34% in 2007 and 37% in
2006 (0.08) 0.07 (0.15) 0.07 ADJUSTED DILUTED EARNINGS PER SHARE
$0.37 $4.09 $0.52 $5.13 Diluted shares 131.1 59.9 131.1 59.9
RECONCILIATION TO ADJUSTED EARNINGS BEFORE INTEREST AND TAXES: NET
EARNINGS $29 $251 $30 $314 Minority interest and equity in net
(loss) earnings of affiliates (2) - (2) 3 EARNINGS BEFORE MINORITY
INTEREST AND EQUITY IN NET EARNINGS OF AFFILIATES 31 251 32 311
Income tax expense (benefit) 16 (169) 16 (179) EARNINGS BEFORE
TAXES 47 82 48 132 Interest expense, net 31 86 63 151 EARNINGS
BEFORE INTEREST AND TAXES 78 168 111 283 Total adjustments to
remove comparability items 30 (10) 58 (11) ADJUSTED EARNINGS BEFORE
INTEREST AND TAXES $108 $158 $169 $272 Table 3 Owens Corning and
Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) (in
millions) Successor June 30, December 31, 2007 2006 ASSETS Current
Cash and cash equivalents $135 $1,089 Receivables, net 793 573
Inventories 833 749 Other current assets 135 141 Total current
1,896 2,552 Other Deferred income taxes 548 549 Goodwill and other
intangible assets 2,572 2,611 Other noncurrent assets 227 237 Total
other 3,347 3,397 Net plant and equipment 2,519 2,521 TOTAL ASSETS
$7,762 $8,470 LIABILITIES AND STOCKHOLDERS' EQUITY Current Accounts
payable and accrued liabilities $986 $1,081 Accrued interest 22 39
Short term debt and current portion of long-term debt 27 1,440
Total current 1,035 2,560 Long-term debt 2,093 1,296 Other
long-term liabilities 821 884 Minority interest 38 44 Stockholders'
equity 3,775 3,686 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$7,762 $8,470 Table 4 Owens Corning and Subsidiaries Condensed
Consolidated Statements of Cash Flows (Unaudited) (in millions)
Successor Predecessor Six Months Ended June 30, 2007 2006 NET CASH
FLOW (USED FOR) PROVIDED BY OPERATING ACTIVITIES Net earnings $30
$314 Adjustments to reconcile net earnings cash used for operating
activities: Depreciation and amortization 158 124 Change in
deferred taxes (8) (204) Employee emergence equity program 20 -
Provision for post-petition interest/fees on pre-petition
obligations - 155 Payments related to Chapter 11 filings (16) -
Changes in receivables, inventories, accounts payable and accrued
liabilities (416) (288) Other (10) (22) Net cash flow (used for)
provided by operating activities (242) 79 NET CASH FLOW USED FOR
INVESTING ACTIVITIES Additions to plant and equipment (111) (189)
Investment in affiliates and subsidiaries, net of cash acquired
(29) (13) Proceeds from the sale of assets or affiliate 12 44 Net
cash flow used for investing activities (128) (158) NET CASH FLOW
(USED FOR) PROVIDED BY FINANCING ACTIVITIES Payments on long-term
debt (66) (4) Proceeds from long-term debt 609 10 Payment of Note
Payable to 524(g) Trust (1,390) - Payments on revolving credit
facility (118) - Proceeds from revolving credit facility 383 - Net
(decrease) increase in short-term debt (4) 2 Net cash flow (used
for) provided by financing activities (586) 8 Effect of exchange
rate changes on cash 2 5 NET DECREASE IN CASH AND CASH EQUIVALENTS
(954) (66) Cash and cash equivalents at beginning of period 1,089
1,559 CASH AND CASH EQUIVALENTS AT END OF PERIOD $135 $1,493 Table
5 Owens Corning and Subsidiaries Business Segment Information
(Unaudited) (in millions) Prede- Prede- Successor cessor Successor
cessor Three Three Six Six Months Months Months Months Ended Ended
Ended Ended June 30, June 30, June 30, June 30, 2007 2006 2007 2006
NET SALES Insulating Systems $441 $519 $860 $1,041 Roofing and
Asphalt 414 501 720 962 Other Building Materials and Services 303
346 535 639 Composite Solutions 425 411 828 784 Total reportable
segments 1,583 1,777 2,943 3,426 Corporate Eliminations (49) (55)
(85) (103) Consolidated $1,534 $1,722 $2,858 $3,323 EARNINGS BEFORE
INTEREST AND TAXES Insulating Systems $42 $112 $95 $235 Roofing and
Asphalt 29 48 21 78 Other Building Materials and Services 17 8 16 5
Composite Solutions 28 51 54 65 Total reportable segments $116 $219
$186 $383 RECONCILIATION TO CONSOLIDATED EARNINGS BEFORE INTEREST
AND TAXES Chapter 11 related reorganization items $- $(17) $(3)
$(27) Asbestos litigation recoveries - Owens Corning - - - 3
Restructuring credits - - 2 - OCV Reinforcements transaction costs
(7) - (18) - Gains (losses) related to the exit of our HOMExperts
service line 1 - (7) - Fabwel Impairment (12) (12) Employee
emergence equity program (12) - (20) - General corporate expense
(8) (34) (17) (76) CONSOLIDATED EARNINGS BEFORE INTEREST AND TAXES
$78 $168 $111 $283 DATASOURCE: Owens Corning CONTACT: media, Jason
Saragian, +1-419-248-8987, investors, Scott Deitz, +1-419-248-8935,
both of Owens Corning Web site: http://www.owenscorning.com/
Company News On-Call: http://www.prnewswire.com/comp/677350.html
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