<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[xx] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 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. 0-016951
FIBREBOARD CORPORATION
--------------------------------------------------
(exact name of registrant as specified in charter)
DELAWARE 94-0751580
----------------------------------------------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
2200 ROSS AVE., SUITE 3600, DALLAS, TX 75201
---------------------------------------------
(Address of principal executive offices)
(214) 954-9500
----------------------------------------------------
(Registrant's telephone number, including area code)
FORMER ADDRESS: 2121 NORTH CALIFORNIA BLVD., SUITE 560, WALNUT CREEK, CA 94596
- --------------------------------------------------------------------------------
(Former name, former address or former fiscal year, if changed since last
report)
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
--- ---
As of the close of business on November 4, 1996, the registrant had outstanding
8,496,704 shares of common stock.
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited financial statements are filed as part of this
report:
FINANCIAL STATEMENT TITLE PAGE
Consolidated Statements of Income for the three and nine month
periods ended September 30, 1996 and 1995 3
Consolidated Balance Sheets as of September 30, 1996 and
December 31, 1995 4
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 8
2
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollar Amounts in Thousands Except Per Share)
(Unaudited)
<TABLE>
QUARTER NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
----------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $151,227 $102,284 $381,453 $277,640
Cost of Sales 104,360 74,358 265,849 199,409
-------- -------- -------- --------
Gross Margin 46,867 27,926 115,604 78,231
Selling and Administrative Expenses 32,678 19,581 83,273 57,547
Goodwill Amortization 1,129 584 2,686 1,695
Unusual Items -- -- 3,150 (4,000)
-------- -------- -------- --------
Operating Income 13,060 7,761 26,495 22,989
Interest Expense (1,013) (2,078) (2,292) (6,007)
Interest and Other Income 278 566 936 1,450
-------- -------- -------- --------
Income from Continuing Operations
before Income Taxes 12,325 6,249 25,139 18,432
Income Taxes Relating to Continuing Operations (4,930) (2,502) (10,056) (7,373)
-------- -------- -------- --------
Income from Continuing Operations 7,395 3,747 15,083 11,059
Discontinued Operations:
Income from Operations, Net of Tax -- 709 -- 3,392
Gain on Disposal, Net of Tax -- 75,897 -- 75,897
-------- -------- -------- --------
Net Income $7,395 $80,353 $15,083 $90,348
-------- -------- -------- --------
-------- -------- -------- --------
Earnings Per Share:
Income from Continuing Operations $0.83 $0.42 $1.69 $1.23
Income from Discontinued Operations:
Income from Operations -- 0.08 -- 0.37
Gain on Disposal -- 8.44 -- 8.42
-------- -------- -------- --------
Net Income Per Share $0.83 $8.94 $1.69 $10.02
-------- -------- -------- --------
-------- -------- -------- --------
Common Equivalent Shares (Thousands) 8,941 8,991 8,901 9,016
</TABLE>
NOTE: Unusual items include expense of $3,150 in 1996 for relocation of the
corporate office and income of $4,000 in 1995 from the reduction of an
asbestos-related reserve.
3
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar Amounts In Thousands)
<TABLE>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 7,895 $ 12,382
Receivables 72,677 48,199
Current Portion of Notes Receivable 2,312 7,357
Inventories 70,390 57,905
Prepaid Expenses 3,986 3,941
Deferred Income Taxes 12,486 13,086
---------- ----------
Total Current Assets 169,746 142,870
Property, Plant and Equipment, at Cost:
Land and Improvements 25,544 25,676
Buildings 38,403 37,015
Machinery and Equipment 97,947 90,534
Construction in Progress 12,515 643
---------- ----------
174,409 153,868
Accumulated Depreciation (58,214) (49,391)
---------- ----------
Net Property, Plant and Equipment 116,195 104,477
Notes Receivable 5,080 5,271
Goodwill 129,960 89,302
Other Assets 18,225 17,636
---------- ----------
Total Operating Assets 439,206 359,556
Cash Restricted for Asbestos Costs 3,482 2,199
Asbestos Costs to be Reimbursed 784,051 827,865
---------- ----------
Total Assets $1,226,739 $1,189,620
---------- ----------
---------- ----------
</TABLE>
4
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar Amounts In Thousands)
<TABLE>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes Payable to Banks $ 769 $ 1,423
Current Portion of Long-Term Debt 1,192 1,346
Accounts Payable and Accrued Liabilities 91,404 63,966
Reserve for Asbestos-Related Costs 2,700 2,700
---------- ----------
Total Current Liabilities 96,065 69,435
Long-Term Debt 48,029 9,365
Reserve for Asbestos-Related Costs 7,327 8,625
Other Long-Term Liabilities 10,603 12,730
Deferred Income Taxes 14,604 13,861
---------- ----------
Total Operating Liabilities 176,628 114,016
Asbestos Claims Settlements 768,516 811,952
Long-Term Debt Associated with Asbestos 24,636 23,711
---------- ----------
Total Liabilities 969,780 949,679
Minority Interest 168 185
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock, $.01 Par Value, 3,000,000
Shares Authorized; None Issued -- --
Common Stock, $.01 Par Value, 30,000,000
Shares Authorized; 8,712,404 and 8,631,388
Shares Issued 87 86
Additional Paid-In Capital 78,844 77,293
Retained Earnings 184,651 169,568
Minimum Pension Liability Adjustment (1,400) (1,400)
Treasury Stock, at Cost, 215,700 Shares (5,215) (5,215)
Foreign Currency Translation Adjustment ( 176) (576)
---------- ----------
Total Stockholders' Equity 256,791 239,756
---------- ----------
Total Liabilities and Stockholders' Equity $1,226,739 $1,189,620
---------- ----------
---------- ----------
</TABLE>
5
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar Amounts In Thousands)
(Unaudited)
<TABLE>
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
1996 1995
-------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 15,083 $ 90,348
Adjustments to Reconcile Income to Net Cash
Provided by Continuing Operating Activities:
Income Of Discontinued Operations -- (79,289)
Depreciation and Amortization 14,525 8,755
Deferred Income Taxes 335 (76)
Deferred Long-Term Benefits (2,891) 750
Compensation for Stock Grants 641 224
Asbestos-Related Reserve -- (4,000)
Income Applicable to Minority Interest (17) --
Gain on Sale of Assets (160) (236)
Change in Working Capital 3,138 (8,372)
-------- ---------
Net Cash Provided by Continuing Operations 30,654 8,104
Discontinued Operations:
Income of Discontinued Operations -- 79,289
Depreciation, Depletion and Amortization -- 3,057
Gain on Sale of Assets -- (76,427)
Proceeds from Asset Sales -- 241,820
Net Asset Change -- 3,442
-------- ---------
Net Cash Provided by Discontinued Operations -- 251,181
Cash Flows from Investing Activities:
Non-Cash Net Assets of Acquired Operations (57,473) (13,896)
Proceeds from Asset Sales 854 --
Property, Plant and Equipment Changes (16,164) (4,248)
Reduction in Notes Receivable 5,326 1,232
Increase in Other Assets (823) (2,396)
-------- ---------
Net Cash Used by Investing Activities (68,280) (19,308)
Cash Flows from Financing Activities:
New Borrowings 45,000 22,000
Repayment of Debt (10,949) (117,244)
Purchase of Treasury Stock -- (5,215)
Employee Stock Plan Transactions 366 473
-------- ---------
Net Cash Provided (Used) by Financing Activities 34,417 (99,986)
Net Cash Provided (Used) by Business Activities (3,209) 139,991
</TABLE>
6
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Dollar Amounts In Thousands)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
1996 1995
------- --------
Cash Flows from Asbestos-Related Activities:
Receipts from Insurers 2,021 4,655
Structured Settlement Program Activity (109) 35
Other Asbestos-Related Cash Transactions (1,907) (5,866)
Change in Cash Restricted for Asbestos Costs (1,283) (386)
------- --------
Net Cash Used by Asbestos-Related Activities (1,278) (1,562)
------- --------
Net Increase (Decrease) in Cash (4,487) 138,429
Cash at Beginning of Period 12,382 8,842
------- --------
Cash at End of Period $ 7,895 $147,271
------- --------
------- --------
Cash Paid During the Period for:
Interest $ 1,832 $ 6,143
Income Taxes 10,493 5,061
Non-Cash Items:
Increase in Asbestos Claims Settlements 35,762 93,658
Payments Made to Asbestos Claimants
on Fibreboard's Behalf 79,089 67,037
Increase in Receivables from Sale of Surplus
Real Estate -- 236
7
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts in Thousands)
(Unaudited)
1. The interim financial statements included herein have been prepared, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although Fibreboard management believes that the
disclosures are adequate to make the information presented not misleading.
These interim financial statements and notes should be read in conjunction
with the financial statements and the notes thereto included in Fibreboard's
1995 Annual Report and Form 10-K.
Interim financial statements are by necessity somewhat tentative. Judgments
are used to estimate the amounts recorded each quarter for items that are
normally determinable only on an annual basis. For example, numerous items
relating to employee benefits are determined annually, with hours worked
determining pension plan contributions for the year, eligibility for
vacations, etc. Further, all inventory quantities are verified by
physically counting the units on hand at least once a year. For those
inventories not counted at the end of the quarter, quantities are determined
using measured sales and production data for the period.
The interim period financial information included herein reflects all
adjustments of a normal and recurring nature which are, in the opinion of
Fibreboard management, necessary for a fair presentation of the results of
the respective interim periods. Results of operations for interim periods
are not necessarily indicative of results to be expected for an entire year.
2. Net earnings per common and common equivalent share are calculated using the
weighted average number of common shares outstanding during the period plus
the net additional number of shares which would be issuable upon the
exercise of stock options, assuming Fibreboard used the proceeds received to
purchase additional shares at market value.
3. Inventories are valued at the lower of cost (first in, first out) or market.
Inventory costs include material, labor and operating overhead. Operating
supplies are priced at average cost. Inventories are as follows:
September 30, 1996 December 31, 1995
Finished Goods $57,739 $49,223
Raw Materials 9,026 6,898
Supplies 3,625 1,784
------- -------
Total Inventories $70,390 $57,905
------- -------
------- -------
4. The functional currency of the majority of Fibreboard's foreign operations
is the applicable local currency. Translation from the applicable foreign
currency to U. S. dollars is performed for balance sheet accounts using
exchange rates in effect at the balance sheet date and for sales and expense
accounts using a weighted average exchange rate during the period. The
resulting translation adjustment is reflected as a component of
stockholder's equity. Aggregate translation losses were $11 for the three
months ended September 30, 1996 and $646 for the nine months ended September
30, 1996. There were no translation gains or losses in 1995. To mitigate
future translation gains or
8
<PAGE>
losses on U. S. denominated debt held by a Canadian subsidiary, Fibreboard
entered into a foreign currency swap during 1996, which terminates August 6,
1998, under which Fibreboard will receive U.S. $25,000 in exchange for
Canadian $34,290. Gains or losses due to currency exchange fluctuations
during the contract period are deferred.
5. Information about Fibreboard's industry segments is set forth below:
<TABLE>
Quarter Nine Months
Ended September 30 Ended September 30
----------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES
Building Products:
Residential $131,853 $ 80,910 $298,602 $197,309
Industrial 14,125 13,880 42,675 43,954
-------- -------- -------- --------
Total Building Products 145,978 94,790 341,277 241,263
Resort Operations 5,249 7,494 40,176 36,377
-------- -------- -------- --------
Consolidated $151,227 $102,284 $381,453 $277,640
-------- -------- -------- --------
-------- -------- -------- --------
OPERATING INCOME
Building Products:
Residential $ 16,151 $ 7,681 $ 27,516 $ 13,286
Industrial 1,327 1,251 4,304 6,049
-------- --------- -------- --------
Total Building Products 17,478 8,932 31,820 19,335
Resort Operations 6 1,928 7,845 9,572
-------- --------- -------- --------
Total Operations 17,484 10,860 39,665 28,907
Unallocated Expense, Net (4,424) (3,099) (10,020) (9,918)
Unusual Items -- -- (3,150) 4,000
Interest Expense (1,013) (2,078) (2,292) (6,007)
Interest and Other Income 278 566 936 1,450
-------- -------- -------- --------
Income from Continuing Operations
before Income Taxes $ 12,325 $ 6,249 $ 25,139 $ 18,432
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
6. Fibreboard amended its $125,000 revolving credit facility in February 1996
to increase availability to $150,000. Fibreboard borrowed the additional
$25,000 in the form of a five-year term loan with interest at the same
rate as the basic facility. At September 30, 1996, $20,000 was
outstanding under the revolving credit facility. In addition, Fibreboard
established a $15,000 revolving credit facility in March 1996 to support
its Canadian operations. At September 30, 1996, $1,800 was outstanding
under this facility with interest at the same rates as Fibreboard's
$150,000 facility.
7. On February 29, 1996, Fibreboard acquired six building products distribution
centers in Arkansas, Kansas, Missouri, Oklahoma and Texas for
approximately $5,400 and on June 14, 1996 acquired an additional
distribution center in North Dakota for approximately $1,800. On July 15,
1996, a building products distribution center in Montana was acquired for
approximately $3,100. On July 1, 1996, Fibreboard acquired the outstanding
stock of Stone Products Corporation, a manufacturer of stone building
products, for approximately $51,000 including the assumption of debt. The
purchase price was funded with cash on hand and borrowings under Fibreboard's
revolving credit facility. The acquisition was accounted for as a purchase.
The following unaudited table presents the pro forma combined results
of Fibreboard and Stone Products assuming the transaction took place at
January 1, 1996 or 1995:
9
<PAGE>
<TABLE>
<CAPTION>
Quarter Nine Months
Ended September 30 Ended September 30
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $151,227 $111,080 $401,857 $300,635
Income from Continuing Operations 7,395 3,749 14,746 10,431
Income Per Share from Continuing Operations $0.83 $0.42 $1.66 $1.16
</TABLE>
The pro forma results include only adjustments necessary to reflect the
allocation of the purchase price resulting in changes in depreciation and
amortization, to recognize the interest cost associated with the purchase,
and to recognize the income tax effects of these adjustments. The results
for the first nine months of 1996 include $2,214 of pre-tax compensation
expense related to the Stone Products Long-Term Incentive Compensation
Plan. This plan included provisions that tied participant compensation to
the value of Stone Products, which increased significantly upon its sale
to Fibreboard. The pro forma results should not be considered indicative
of the results that would have occurred if the combination had been in
effect on the dates indicated or which may be obtained in the future.
8. On August 29, 1996, Fibreboard entered into a letter of intent to sell its
resort operations for approximately $121,500 in cash. The transaction is
expected to close during the fourth quarter of 1996.
9. Fibreboard's ability to continue to operate in the normal course of
business is dependent upon its ongoing capability to fund asbestos-related
defense and indemnity costs. Prior to 1972, Fibreboard manufactured
insulation products containing asbestos. Fibreboard has since been named
as a defendant in many thousands of personal injury claims for injuries
allegedly caused by asbestos exposure and in asbestos-in-buildings actions
involving many thousands of buildings.
The following tables illustrate asbestos-related personal injury claims
activity for the periods indicated:
Nine Months Ended September 30
------------------------------
1996 1995
------ ------
PERSONAL INJURY
New Claims Received 16,300 17,000
Claims Disposed:
Settled 1,031 10,811
Dismissed 820 3,428
"Green Card" Settlements(1) 6 60
Judgments(2) -- --
Adjustments(3) 91 --
Average Settlement Amount per Claim
Settled:(4)
Pre-1959 Claims $ 18 $ 10
Post-1959 Claims 5 8
Claims Pending at End of Period(5) 62,400 44,600
10
<PAGE>
1 Under Green Card Settlements, there is no determination of liability
by Fibreboard to a claimant. Instead, Fibreboard waives the statute
of limitations should a claimant develop an asbestos-related
impairment in the future.
2 Judgments represent defense verdicts in favor of Fibreboard, plaintiff
verdicts where the net amount payable by Fibreboard is zero after
applying prior settlement amounts or plaintiff verdicts where the
judgment has been paid. Additional judgments favoring plaintiffs have
been entered. Fibreboard is appealing these judgments. The amount of
such judgments is included in Fibreboard's overall liability estimate.
3 Often, multiple claims are filed for the same injury. It is often not
possible to fully identify duplicate claims until the claims are
prepared for trial. Fibreboard has an ongoing program to identify
duplicate claims and remove them from the claims database, and
anticipates additional future adjustments.
4 For claims where the initial year of exposure is known.
5 Of the claims pending at September 30, 1996, 45,300 were filed on or
after August 27, 1993, and will be covered by the Global Settlement
if approved.
During 1993, Fibreboard entered into a settlement agreement with Continental
Casualty Company (Continental) and Pacific Indemnity Company (Pacific) (the
Insurance Settlement). In addition, Fibreboard, Continental, Pacific and
plaintiffs' representatives entered into a settlement agreement (the Global
Settlement). These agreements are interrelated. Final court approval of the
agreements is required.
The U.S. District Court for the Eastern District of Texas approved both
settlements in July 1995. Both judgments were appealed. On July 26, 1996,
the U.S. Fifth Circuit Court of Appeals affirmed the Global Settlement by a
majority decision and the Insurance Settlement by a unanimous decision.
Petitions for rehearing on the Global Settlement were filed with the Fifth
Circuit by September 9, 1996. The Court has not issued a decision on these
petitions. Further appeals to the U. S. Supreme Court, although subject to
court discretion, are possible and may potentially delay final approval of
the settlements until 1997 or later.
If both the Global Settlement and Insurance Settlement are approved,
Fibreboard believes its existing and future personal injury asbestos
liabilities will be resolved through insurance resources and existing
corporate reserves. Fibreboard will contribute $10,000 toward a $1,535,000
settlement trust, which it will obtain from other remaining insurance sources
and existing reserves. The Home Insurance Company has paid $9,982 into the
trust on behalf of Fibreboard in satisfaction of an earlier settlement.
Fibreboard is obligated to pay $221, which includes interest from the
settlement date through December 31, 1995 into the escrow if the Global
Settlement is approved. The remainder of the trust will be funded by
Continental and Pacific. The insurers have placed $1,525,000 in an escrow
account pending court approval of the settlements. The trust will be used to
compensate "future" plaintiffs, defined as those plaintiffs who had not filed
a claim against Fibreboard before August 27, 1993. If the Global Settlement
is approved, such future plaintiffs only source of compensation will be the
trust, as an injunction will be entered prohibiting future claims against
Fibreboard or the insurers.
If the Global Settlement is not approved, but the Insurance Settlement is
approved, the insurers will instead provide Fibreboard with up to $2,000,000
to resolve pending unsettled claims as of August 27, 1993, and future claims
and will pay the deferred payment portion of existing settled claims.
11
<PAGE>
While Fibreboard is optimistic, there is no assurance final court approval of
either the Global Settlement or the Insurance Settlement can be obtained.
If neither the Global Settlement nor the Insurance Settlement is approved,
the parties will be bound by the outcome of the insurance coverage litigation,
unless other settlements are reached. All insurance proceeds due from other
insurers under previous settlements have been received.
In the event the settlements discussed above are not approved, Fibreboard
believes it has substantial insurance coverage for asbestos-related defense
and indemnity costs. Fibreboard's disputes with Continental and Pacific have
been the subject of litigation which began in 1979. Trial court judgments
rendered in 1990 give Fibreboard virtually unlimited insurance coverage for
asbestos-related personal injury claims where the initial exposure to
asbestos occurred prior to March 1959. Under the judgments, these insurers
can be required to pay up to $500 for each occurrence (defined as each
individual claim) with no limitation on the aggregate number of occurrences.
The insurers appealed to the California Court of Appeal. Among other issues,
Continental disputed the definition of an occurrence under its policy as
well as the trigger and scope of coverage as determined by the trial court,
while Pacific argued that its policy contained an aggregate limit as well as
disputing the trigger and scope of coverage issues. In November 1993, the
Court of Appeal issued its ruling on the trigger and scope of coverage
issues, confirming the favorable trial court judgments, except the court
held the period for coverage would begin at the time of exposure to
Fibreboard's asbestos products rather than at the time of exposure to any
company's asbestos product, with the presumption that these periods are the
same. At the request of Fibreboard, Continental and Pacific, the Court of
Appeal withheld its ruling on the remaining issues while the parties seek
approval of the Global and Insurance Settlements. If the Global and/or
Insurance Settlements are ultimately approved, Fibreboard and its insurers
will seek to dismiss the insurance coverage litigation.
In January 1994, the California Supreme Court granted review of the decision
of the Court of Appeal, but withheld further action until its decision in
another case (MONTROSE CHEMICAL CORP. V. ADMIRALS INS. CO.) then pending
before the Supreme Court was finalized. On July 3, 1995, the Supreme Court
issued a decision in MONTROSE CHEMICAL confirming a trigger of coverage
consistent with the trigger the Court of Appeal applied to the Fibreboard
policies.
By an order of October 19, 1995, the Supreme Court transferred the Fibreboard
case back to the Court of Appeal which, after reviewing its decision on trigger
and other issues in light of MONTROSE CHEMICAL, on April 30, 1996 issued a
new decision reaffirming all of the rulings in the Court's initial decision.
The insurers have again petitioned the California Supreme Court to review the
decision of the Court of Appeal.
Fibreboard has entered into an interim agreement with Continental under which
Continental agreed to provide a full defense to Fibreboard on pre-1959 claims
and make certain funds available as needed to pay currently due Structured
Settlement Obligations and other personal injury defense costs for which
Fibreboard does not otherwise have insurance available during the period pending
final approval of the Global and/or Insurance Settlement, or if neither is
approved, through the ultimate conclusion of the insurance coverage appeal,
however long that may take. In exchange for the benefits provided under this
agreement, Fibreboard agreed not to settle additional pre-1959 personal
injury claims without Continental's consent.
If neither the Global Settlement nor the Insurance Settlement are approved
and Fibreboard prevails in the appeal of the insurance coverage litigation,
Continental has agreed to provide Fibreboard with $315,000 to $425,000 to
resolve personal injury claims alleging first exposure to asbestos after
March 1959, less any amounts Fibreboard recovers from the Pacific settlement
described below. Continental would also continue to have responsibility for
all pre-1959 personal injury claims against Fibreboard up to $500 per claim.
12
<PAGE>
In March 1992, Fibreboard and Pacific entered into a settlement agreement
(the Pacific Agreement). If the Global Settlement or Insurance Settlement is
approved, the Pacific Agreement will be of no effect. If neither of the
settlements is approved, the Pacific Agreement establishes amounts payable to
Fibreboard if the trial court judgments are upheld. Fibreboard received
$10,000 upon signing the agreements and received an additional $10,000 during
1993. In addition, if the judgments are affirmed on appeal, Fibreboard will
receive from $80,000 to $105,000 to be used for claims costs for which it
does not otherwise have insurance.
In the event the trigger and scope of coverage judgments are reversed on
appeal, Pacific will owe Fibreboard nothing and will have a right to
repayment of interim funds previously advanced.
Fibreboard believes amounts available under the settlements discussed above
will be adequate to fund defense and indemnity costs until the insurance
coverage appeal is concluded, whether as a result of the final approval of
the Global and/or Insurance Settlements or the final resolution of the
insurance coverage litigation.
At September 30, 1996, Fibreboard was a defendant in six
asbestos-in-buildings claims. To date, Fibreboard has successfully defended
these claims or settled claims for modest amounts compared to the damages
sought. Based on its experience to date, Fibreboard believes the ultimate
resolution of asbestos-in-buildings claims will not have a material adverse
effect on its financial condition.
Fibreboard is also litigating with its insurance carriers and believes the total
limits of insurance policies in effect from 1932 to 1985 which may provide
coverage for asbestos-in-buildings claims aggregate $390,000 (including the
settlements discussed below), which is in addition to the personal injury
insurance coverage and does not include additional policies which contain no
aggregate limit. The insurers dispute coverage, although to date substantially
all of Fibreboard's costs of defending asbestos-in-buildings claims have been
paid by its primary carriers.
Fibreboard has reached final settlements with four of its primary insurers
and several of its excess level insurers. The final settlements confirm more
than $295,000 of insurance as needed to defend and dispose of
asbestos-in-buildings claims. Substantially all of the confirmed insurance
remains available.
The asbestos-in-buildings insurance coverage trial has been continued. No date
has been set for the trial to recommence. Fibreboard is continuing settlement
discussions with the remaining insurers. Fibreboard cannot predict whether such
discussions will result in settlements.
At the end of 1991, Fibreboard attempted to quantify its liability for
asbestos-related personal injury claims then pending and anticipated to be
received through the end of the decade. There are many opportunities for
error in such an exercise. Assumptions concerning the number of claims to be
received, the disease mix of pending and future claims and projections of
defense and indemnity costs may or may not prove correct. Fibreboard's
assumptions are based on its historical experience, modified as appropriate
for anticipated demographic changes or changes in the litigation environment.
Notwithstanding the inherent risk of significant error in such a calculation,
Fibreboard estimated the amount necessary to defend and dispose of
asbestos-related personal injury claims pending at December 31, 1991 and
anticipated through the end of the decade plus the costs of prosecuting its
insurance coverage litigation, would aggregate $1,610,000. Because of the
dynamic nature of this litigation, it is more difficult to estimate how many
personal injury claims will be received after 1999 as well as the costs of
defending and disposing of those future claims. Consequently, Fibreboard's
estimated liability contains no amounts for personal injury claims received
after the end of the decade, although it is likely additional claims will be
received thereafter.
13
<PAGE>
Fibreboard believes it is probable that it will ultimately receive insurance
proceeds of $1,584,000 for the defense and disposition of the claims
quantified above. Fibreboard's opinion was based on its understanding of the
disputed issues, the financial strength of the insurers and the opinion of
outside legal counsel regarding the outcome of the litigation. As a result,
Fibreboard recorded a liability, net of anticipated insurance proceeds, of
$26,000 at December 31, 1991, representing its best estimate of the
unreimbursed cost of resolving personal injury claims then pending and
anticipated through the remainder of the decade as well as the costs of
prosecuting the insurance coverage litigation. The balance of the net
liability was $10,027 at September 30, 1996.
Although Fibreboard, its insurers and plaintiffs' representatives entered
into the Insurance and Global Settlements discussed above, Fibreboard does
not believe these settlements impact its estimate of liability through the
end of the decade. However, during 1995 Fibreboard recorded a $4,000
reversal of previously established reserves for anticipated unreimbursable
costs as a result of a reduction in its estimate of the amounts which will be
needed for such purpose. Fibreboard will continue to reevaluate its estimates
and will make adjustments to the effect dictated by changes in the personal
injury litigation.
10. Subsequent Event
On October 24, 1996, the statutory time period to request review by the U.S.
Supreme Court of the Insurance Settlement approval judgment expired with no
request having been filed. The Insurance Settlement approval judgment is now
final and not subject to further appellate proceedings.
Fibreboard will continue to seek final approval of the Global Settlement. The
Insurance Settlement will not be fully implemented or funded until such time
as the Global Settlement has been finally resolved, with no further appeals
possible. In the event the Global Settlement is finally approved, the
Insurance Settlement will not be funded. If, however, the Global Settlement
is not approved, then the Insurance Settlement will be activated. In any
event, the insurers have begun paying deferred settlement obligations as they
come due beginning in the third quarter of 1996.
Under the Insurance Settlement, Fibreboard will continue to manage the
defense and settlement of asbestos-related personal injury claims. However,
Fibreboard is no longer subject to the risk that favorable judgments rendered
to date in the California insurance coverage litigation may be reversed or
significantly modified on appeal, as Fibreboard and its insurers will seek to
dismiss the actions pending in the California courts.
Fibreboard believes the amounts available under the Insurance Settlement
Agreement will be adequate to fund the ongoing defense and indemnity costs
associated with asbestos-related personal injury claims for the foreseeable
future.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1996 VS. 1995
OVERALL
- Net sales increased 48% due to the acquisitions of Vytec
(acquired in the fourth quarter of 1995) and Stone Products
(acquired July 1996), additional Norandex branches, and
increased shipments of industrial building products. Resort
operations revenues declined due to fewer sales under
Northstar's residential lot sales program.
- Gross margin increased 68%, and increased as a percent of sales
from 27% in 1995 to 31% in 1996. Lower raw material costs and
operating efficiencies in the residential building products
group resulted in improved consolidated gross margin while
stable raw material costs (relative to sales prices) were
experienced for industrial building products.
- Selling, general and administrative costs increased 67% due to
the increase in the number of Norandex branches since the prior
year, and the acquisitions of Vytec and Stone Products.
- Goodwill amortization increased 93% between years as a result
of the acquisitions of Vytec and Stone Products.
- As a result of the factors noted above, operating income increased
68% between years.
- Interest expense declined 51%. Borrowings were substantially
reduced compared to 1995 as proceeds from the 1995 sale of the
wood products business were used to retire debt.
- Interest and other income declined 51% as cash was utilized at
the beginning of the third quarter of 1996 to fund the
acquisition of Stone Products.
- The income tax rate was 40% in both years.
- Income from continuing operations increased 97% as a result of
the above factors.
- Net income for the third quarter of 1995 included the operating
results and gain on the sale of the wood products related
assets which were sold during the third quarter of 1995.
SEGMENT DISCUSSION
BUILDING PRODUCTS:
- Residential products sales increased 63% due to the
acquisitions of Vytec and Stone Products and new Norandex
branches added during the past year. Vytec contributed $28.9
and $2.7 million of sales and operating income in the third
quarter of 1996. On a pro forma basis, sales were $18.5 million
in the third quarter of 1995. Stone Products contributed $12.2
and $1.8 million of sales and operating income in 1996. Pro
forma sales and operating income would have been $8.8 million and
$0.8 million during the third quarter of 1995. Because of the
limited nature of pro forma adjustments, Fibreboard does not
believe pro forma comparisons between periods are indicative of
the results that would have occurred if the combination had been
in effect throughout 1996 and 1995 or which may be obtained in
the future. In addition, Norandex branch same store sales
increased
15
<PAGE>
16% between comparable quarters of 1995 and 1996. Shipments of
vinyl siding increased 158% from 414,000 squares in 1995 to
1,070,000 squares in 1996 as a result of the acquisition of Vytec
and a 52% increase in shipments by Norandex. Operating profit
increased 110% from $7.7 million in 1995 to $16.2 million. The
improvement in operating profits was due to the acquisitions of
Vytec and Stone Products, increased sales volumes at Norandex,
and lower raw material costs and higher manufacturing efficiencies
during 1996.
- Industrial products sales increased 2% on higher unit sales of
calcium silicate ("CalSil") products. Operating profits
improved 6% due primarily to higher margins on CalSil sales.
RESORT OPERATIONS:
- Resort operations revenues declined 30% while operating profit
declined from $1.9 million in 1995 to break-even in 1996.
Reduced revenues and operating profit resulted from decreased
sales under Northstar's residential lot sales program.
UNALLOCATED EXPENSE:
- Unallocated expense includes expenses associated with
Fibreboard's phantom stock plan of $1.1 million in 1995 and
$2.6 million in 1996. The expense related to the phantom stock
plan reflects the increase in the market price of Fibreboard's
common stock during the periods. Excluding the impact of such
expense, unallocated expenses decreased 6% between years.
NINE MONTHS ENDED SEPTEMBER 30, 1996 VS. 1995
OVERALL
- Net sales increased 37% due to the acquisitions of Vytec, Stone
Products and Bear Mountain, and additional Norandex branches,
reduced by lower sales of metal and industrial fireproofing
products by Pabco.
- Gross margin increased 48%, and increased as a percent of sales
from 28% in 1995 to 30% in 1996 due to lower raw material costs
and greater operating efficiencies in the residential building
products group. Gross margins for industrial products declined
due to higher raw material costs relative to sales prices.
- Selling, general and administrative costs increased 45% due to
the increase in the number of branches since the prior year, the
acquisition of Vytec in the fourth quarter of 1995, and the
acquisition of Stone Products in July 1996. SG&A costs as a
percent of sales were consistent between years.
- Goodwill amortization increased 58% between years as a result
of the acquisitions of Vytec and Stone Products.
- Unusual items included pre-tax expense of $3.2 million in 1996
for the cost of relocating the corporate headquarters to
Dallas, Texas, while the first nine months of 1995 included
pre-tax income of $4.0 million resulting from the reduction of
an asbestos-related reserve.
- As a result of the factors noted above, operating income
increased 15% between years. However, excluding unusual items,
the increase from year to year was 56%.
16
<PAGE>
- Interest expense declined 62%. Borrowings were substantially
reduced compared to 1995 as proceeds from the 1995 sale of the
wood products business were used to retire debt.
- Interest and other income declined 35%. Interest income
increased 9% as higher amounts were invested; however, this
increase was reduced by a foreign currency translation expense.
- The income tax rate was 40% in both years.
- Income from continuing operations increased 36% as a result of
the above factors.
- Net income in 1995 included the results of operations and gain
on the sale of the wood products related assets which were sold
during the third quarter of 1995.
SEGMENT DISCUSSION
BUILDING PRODUCTS:
- Residential products sales increased 51% due to the
acquisitions of Vytec and Stone Products and new Norandex
branches added during the past year. Vytec contributed $67.1 and
$6.0 million of sales and operating income during the first nine
months of 1996. On a pro forma basis, sales were $57.3 million
during the first nine months of 1995. During the first nine
months of 1996, Stone Products contributed $12.2 and $1.8 million
of sales and operating income. Had Stone Products been acquired
at the beginning of the periods, it would have contributed $32.6
and $2.8 million of pro forma sales and operating income in 1996,
compared to pro forma sales and operating income of $23.0 and
$1.5 million during the first nine months of 1995. Because of the
limited nature of pro forma adjustments, Fibreboard does not
believe pro forma comparisons between periods are indicative of
the results that would have occurred if the combination had been
in effect throughout 1996 and 1995 or which may be obtained in
the future. In addition, Norandex branch same store sales
increased 8% between years. Shipments of vinyl siding increased
104% from 1,110,000 squares in 1995 to 2,262,000 squares in 1996
as a result of the acquisition of Vytec and a 35% increase in
shipments by Norandex. Operating profits increased 107% from
$13.3 million in 1995 to $27.5 million. The improvement in
operating profits was due to lower raw material costs and higher
manufacturing efficiencies during 1996 as well as the additions
of Vytec and Stone Products.
- Industrial products sales declined 3% on lower unit sales of
fireproofing and metals products. Operating profits declined
29% due primarily to lower margins on metal sales.
RESORT OPERATIONS:
- Resort operations revenues increased 10% due to the addition of
Bear Mountain, acquired in October 1995. Operating income
decreased 18% from $9.6 million in 1995 to $7.8 million in 1996
as a result of fewer skier days at Northstar and Sierra
combined with lower sales under Northstar's residential lot
sales program.
UNALLOCATED EXPENSE:
- Unallocated expense includes expenses associated with
Fibreboard's phantom stock plan of $4.1 million in 1995 and
$4.6 million in 1996. The expense related to the phantom stock
plan reflects the increase in the market price of Fibreboard's
common stock during the periods. Excluding the impact of such
expense, unallocated expenses declined 7% between years.
17
<PAGE>
UNUSUAL ITEMS:
- During 1995, Fibreboard recorded a $4.0 million reversal of
reserves previously established for anticipated unreimbursable
asbestos-related costs as a result of a reduction in its
current estimate of the amounts which will be needed for such
purpose. During 1996, Fibreboard recorded an expense of $3.2
million related to the relocation of its corporate office to
Dallas, Texas.
FINANCIAL CONDITION
- Cash on hand at September 30, 1996 aggregated $7.9 million,
which will be utilized to fund continuing operations.
- Borrowings under Fibreboard's revolving credit facilities were
$21.8 million at September 30, 1996, with total additional
availability of $146.4 million. In addition, Fibreboard had
$25.0 million outstanding in the form of a five-year term loan.
- On July 1, 1996, Fibreboard completed the purchase of the stock
of Stone Products Corporation. The purchase price of $51.0
million including debt assumed was funded through the use of
cash on hand supplemented with borrowings under Fibreboard's
revolving credit facility.
- During the fourth quarter of 1996, Fibreboard expects to receive
approximately $95 million in net after-tax cash proceeds from the
sale of its resort operations. Upon closing the transaction,
Fibreboard's availability under the revolving credit facility
dedicated to resort operations will decrease by approximately
$36 million, resulting in a $59 million increase in net liquidity.
- Capital expenditures of approximately $21 to $25 million are
anticipated during 1996. Major anticipated projects include
the construction of a vinyl siding manufacturing plant in
Joplin, Missouri at an approximate cost of $15 million with an
expected completion date in April 1997, $5.6 million to
increase production capacity and improve productivity at the
vinyl siding manufacturing plant in London, Ontario, $1.6
million to upgrade and improve the vinyl siding manufacturing
plant in North Carolina, $6.0 to $7.0 million to replace three
chair lifts at Sierra, and infrastructure development costs of
approximately $1.2 million to support the lot sales program at
Northstar. For the first nine months of 1996, Fibreboard has
expended approximately $16.2 million on these and other projects.
- In addition to cash needs related to continuing operations,
Fibreboard must fund its minimal on-going asbestos-related
costs. To date, substantially all such costs, other than the
cost of litigating insurance coverage issues, have been funded
from insurance resources. At September 30, 1996, Fibreboard
had $3.5 million in cash on hand restricted for
asbestos-related costs. Fibreboard believes its cash needs for
asbestos-related expenditures will be satisfied through
existing settlements with asbestos-in-buildings insurers or
through the Insurance Settlement which became final on October
24, 1996.
- Additional information regarding the asbestos-related
litigation can be found in Notes 9 and 10 to the Consolidated
Financial Statements beginning on page 10.
18
<PAGE>
PART II + OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Material developments in the asbestos-related litigation are described
in Notes 9 and 10 to the Consolidated Financial Statements beginning
on page 10.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are filed as part of this Form 10-Q.
(b) The following Current Reports on Form 8-K were filed during the
period July 1, 1996 to September 30, 1996:
Date Event Reported
---- --------------
July 1, 1996 Acquisition of the stock of
Stone Products Corporation
19
<PAGE>
SIGNATURES
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.
FIBREBOARD CORPORATION
(Registrant)
Dated: November 13, 1996 By: /s/ Garold E. Swan
----------------------
Garold E. Swan
Vice President Finance
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIBREBOARD'S
AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,895
<SECURITIES> 0
<RECEIVABLES> 74,682
<ALLOWANCES> 2,005
<INVENTORY> 70,390
<CURRENT-ASSETS> 169,746
<PP&E> 174,409
<DEPRECIATION> 58,214
<TOTAL-ASSETS> 1,226,739
<CURRENT-LIABILITIES> 96,065
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0
0
<COMMON> 87
<OTHER-SE> 256,704
<TOTAL-LIABILITY-AND-EQUITY> 1,226,739
<SALES> 381,453
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<CGS> 265,849
<TOTAL-COSTS> 265,849
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,366
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<INCOME-PRETAX> 25,139
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