<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 JUNE 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 juris- (I.R.S. Employer Iden-
diction of incorporation) tification No.)
2121 North California Blvd., Suite 560, Walnut Creek, CA 94596
---------------------------------------------------------------
(Address of principal executive offices)
(510) 274-0700
-----------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
-----------------------------------------------------------
(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 __XXX__. No ____.
As of the close of business on July 29, 1996, the registrant had
outstanding 8,476,704 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 six
month periods ended June 30, 1996 and 1995 3
Consolidated balance sheets as of June 30, 1996
and December 31, 1995 4
Consolidated statements of cash flows for the six
months ended June 30, 1996 and 1995 6
Notes to consolidated financial statements 7
2
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollar Amounts in Thousands Except Per Share)
(Unaudited)
QUARTER SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
-------------------- -------------------
1996 1995 1996 1995
-------- ------- -------- --------
Net sales $119,114 $87,942 $230,226 $175,356
Cost of sales 84,453 63,962 161,489 125,051
-------- ------- -------- --------
Gross margin 34,661 23,980 68,737 50,305
Selling and administrative expenses 26,255 20,105 50,595 37,966
Goodwill amortization 787 567 1,557 1,111
Unusual items 3,150 (4,000) 3,150 (4,000)
-------- ------- -------- --------
Operating income 4,469 7,308 13,435 15,228
Interest expense (657) (2,033) (1,279) (3,929)
Interest and other income 374 458 658 884
-------- ------- -------- --------
Income from continuing operations
before income taxes 4,186 5,733 12,814 12,183
Income taxes relating to
continuing operations (1,675) (2,291) (5,126) (4,871)
-------- ------- -------- --------
Income from continuing operations 2,511 3,442 7,688 7,312
Income from discontinued operations,
net of tax -- 908 -- 2,683
-------- ------- -------- --------
Net income $ 2,511 $ 4,350 $ 7,688 $ 9,995
-------- ------- -------- --------
-------- ------- -------- --------
Earnings per share:
Income from continuing operations $0.28 $0.38 $0.86 $0.81
Income from discontinued operations -- .10 -- .30
-------- ------- -------- --------
Net income per share $0.28 $0.48 $0.86 $1.11
-------- ------- -------- --------
-------- ------- -------- --------
Common equivalent shares (thousands) 8,894 9,042 8,888 9,026
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)
JUNE 30 DECEMBER 31
1996 1995
----------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 36,175 $ 12,382
Receivables 59,325 48,199
Current portion of notes receivable 3,591 7,357
Inventories 62,754 57,905
Prepaid expenses 2,449 3,941
Deferred income taxes 13,027 13,086
----------- -----------
Total current assets 177,321 142,870
Property, plant and equipment, at cost:
Land and improvements 25,473 25,676
Buildings 37,616 37,015
Machinery and equipment 92,973 90,534
Construction in progress 4,255 643
----------- -----------
160,317 153,868
Accumulated depreciation (56,678) (49,391)
----------- -----------
Net property, plant and equipment 103,639 104,477
Notes receivable 4,711 5,271
Goodwill 88,194 89,302
Other assets 19,619 17,636
----------- -----------
Total operating assets 393,484 359,556
Cash restricted for asbestos costs 3,693 2,199
Asbestos costs to be reimbursed 802,150 827,865
----------- -----------
Total assets $1,199,327 $1,189,620
----------- -----------
----------- -----------
4
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
JUNE 30 DECEMBER 31
1996 1995
------------ -------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 2,185 $ 1,423
Current portion of long-term debt 1,380 1,346
Accounts payable and accrued liabilities 71,209 63,966
Reserve for asbestos-related costs 2,700 2,700
------------ -------------
Total current liabilities 77,474 69,435
Long-term debt 28,192 9,365
Reserve for asbestos-related costs 7,767 8,625
Other long-term liabilities 11,781 12,730
Deferred income taxes 14,131 13,861
------------ -------------
Total operating liabilities 139,345 114,016
Asbestos claims settlements 787,131 811,952
Long-term debt associated with asbestos 24,328 23,711
------------ -------------
Total liabilities 950,804 949,679
Minority interest 142 185
Commitments & 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; 8,664,404 and
8,631,388 shares issued 86 86
Additional paid-in capital 77,852 77,293
Retained earnings 177,256 169,568
Minimum pension liability adjustment (1,400) (1,400)
Treasury stock, at cost, 215,700 shares (5,215) (5,215)
Foreign currency translation adjustment (198) (576)
------------ -------------
Total stockholders' equity 248,381 239,756
------------ -------------
Total liabilities and stockholders'
equity $1,199,327 $1,189,620
------------ -------------
------------ -------------
5
<PAGE>
FIBREBOARD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar Amounts in Thousands)
(Unaudited)
SIX MONTHS ENDED JUNE 30
------------------------
1996 1995
---------- ---------
Cash flows from operating activities:
Net income $ 7,688 $ 9,995
Adjustments to reconcile income to net cash
provided by operating activities:
Income of discontinued operations -- (2,683)
Depreciation and amortization 10,513 6,695
Deferred income taxes 306 (68)
Deferred long term benefits (166) 1,384
Compensation for stock grants 297 142
Asbestos-related reserve -- (4,000)
Income applicable to minority interest (43) --
Change in working capital (3,895) (15,525)
---------- ---------
Net cash provided (used) by continuing operations 14,700 (4,060)
Discontinued operations:
Income of discontinued operations -- 2,683
Depreciation, depletion and amortization -- 2,073
Net asset change -- 8,349
---------- ---------
Net cash provided by discontinued operations -- 13,105
Cash flows from investing activities:
Non-cash net assets of acquired operations (7,140) (13,896)
Property, plant and equipment changes (6,652) (3,595)
Reduction in notes receivable 4,416 1,220
Increase in other assets (418) (1,150)
---------- ---------
Net cash used by investing activities (9,794) (17,421)
Cash flows from financing activities:
New borrowings 25,760 15,000
Repayment of debt (6,163) (16,245)
Employee stock plan transactions 132 252
---------- ---------
Net cash provided (used) by financing activities 19,729 (993)
Net cash provided (used) by business activities 24,635 (9,369)
Cash Flows From Asbestos Related Activities:
Receipts from insurers 1,989 3,247
Structured settlement program activity (124) 4
Other asbestos-related cash transactions (1,213) (2,501)
Change in cash restricted for asbestos costs (1,494) (1,738)
---------- ---------
Net cash used by asbestos-related activities (842) (988)
---------- ---------
Net increase (decrease) in cash 23,793 (10,357)
Cash at beginning of period 12,382 8,842
---------- ---------
Cash at end of period $36,175 $(1,515)
---------- ---------
---------- ---------
Cash Paid During the Period For:
Interest $ 1,177 $ 3,729
Income taxes 4,558 4,944
Non-Cash Items:
Increase in asbestos claims settlements 26,027 71,194
Payments made to asbestos claimants on Fibreboard's
behalf 50,724 48,379
6
<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:
June 30 December 31
1996 1995
------- -----------
Finished Goods $53,855 $49,223
Raw Materials 7,469 6,898
Supplies 1,430 1,784
------- -----------
Total Inventories $62,754 $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 $281 for the three
months ended June 30, 1996 and $635 for the six months ended June 30, 1996.
There were no translation gains or losses in 1995. To mitigate future
translation gains or 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.
7
<PAGE>
5. Information about Fibreboard's industry segments is set forth below:
Quarter Six Months
Ended June 30 Ended June 30
------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
Outside sales
Building products:
Residential $102,188 $ 71,354 $166,749 $116,399
Industrial 13,298 12,352 28,550 30,074
-------- -------- -------- --------
Total building products 115,486 83,706 195,299 146,473
Resort operations 3,628 4,236 34,927 28,883
-------- -------- -------- --------
Consolidated $119,114 $ 87,942 $230,226 $175,356
-------- -------- -------- --------
-------- -------- -------- --------
Operating profit (loss)
Building products:
Residential $ 11,048 $ 5,739 $ 11,365 $ 5,605
Industrial 1,280 1,986 2,977 4,798
-------- -------- -------- --------
Total building products 12,328 7,725 14,342 10,403
Resort operations (1,414) (219) 7,839 7,644
-------- -------- -------- --------
Total operations 10,914 7,506 22,181 18,047
Unallocated expense, net (6,445) (198) (8,746) (2,819)
Interest expense (657) (2,033) (1,279) (3,929)
Interest and other income 374 458 658 884
-------- -------- -------- --------
Income before income taxes $ 4,186 $ 5,733 $ 12,814 $ 12,183
-------- -------- -------- --------
-------- -------- -------- --------
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. In addition, Fibreboard established a $15,000
revolving credit facility in March 1996 to support its Canadian operations.
At June 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.
8. On July 1, 1996, Fibreboard acquired the outstanding stock of Stone
Products Corporation, a manufacturer of stone building products, for
approximately $53,000 including the assumption of debt. The purchase was
funded with cash on hand and borrowings under Fibreboard's revolving credit
facility, and is subject to adjustment. The acquisition will be accounted
for as a purchase. On July 15, 1996, a building products distribution
center in Montana was acquired for approximately $3,100.
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.
8
<PAGE>
The following tables illustrate asbestos-related personal injury
claims activity for the periods indicated:
Six Months ended June 30
------------------------
1996 1995
------------ --------
Personal Injury
New claims received 7,800 9,700
Claims disposed
Settled 754 8,617
Dismissed 693 3,311
"Green Card" settlements (1) 2 60
Judgments (2) -- --
Adjustments (3) 95 --
Average settlement amount per claim
settled (4)
pre-1959 claims $ 22 $ 10
post-1959 claims 2 8
Claims pending at end of period (5) 54,300 39,600
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 June 31, 1996 37,000 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 United States District Court for the Eastern District of Texas approved
both settlements in July 1995. Both judgments were appealed. On July 26,
1996, the Fifth Circuit Court of Appeals issued its decisions upholding the
trial court approvals of both settlements. Further appeals to the Fifth
Circuit (en banc) or 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
9
<PAGE>
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 and future claims and will pay the deferred
payment portion of existing settled claims.
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.
10
<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 June 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.
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
11
<PAGE>
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 $10,467 at June 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.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 1996 VS. 1995
Overall--
- - Net sales increased 35% due to the addition of Vytec, acquired in the fourth
quarter of 1995, additional Norandex branches and increased shipments of
industrial building products. Even with the addition of Bear Mountain,
resort operations revenues declined due to fewer operating days and lower
skier counts at Northstar and Sierra.
- - Gross margin increased 45%, and increased as a percent of sales from 27.3%
in 1995 to 29.1% in 1996. Lower raw material costs and operating
efficiencies in the residential building products group were offset by
higher raw material costs (relative to sales prices) for industrial
building products.
- - Selling, general & administrative costs increased 31% as expected due to
the increase in the number of Norandex branches when compared with the
prior year.
- - Unusual items included pre-tax expense of $3.15 million in 1996 for the
cost of relocating the corporate headquarters to Dallas, Texas, while the
second quarter of 1995 included pre-tax income of $4.0 million resulting
from the reduction of an asbestos-related reserve.
- - Considering all factors noted above, operating income decreased 39% between
years. However, excluding unusual items, the increase year to year was
130%.
- - Interest expense declined 68%. 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 18%. Interest income increased 43% 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.
- - Net income in 1995 includes the results of operations of the wood products
business, which was sold in the third quarter of 1995.
Segment discussion--
Building Products:
- - Residential products sales increased 43% due to the addition of Vytec
(acquired November 1995) and new Norandex branches added during the past
year. In addition, Norandex branch same store sales increased 10% between
years. Operating profits increased 93% from $5.7 million in 1995 to $11.0
million. The improvement in operating profits was due to lower raw material
costs and higher manufacturing efficiencies during
13
<PAGE>
1996 as well as the addition of Vytec.
- - Industrial products sales increased 8% on higher unit sales of all products.
However, operating profits declined 36% due primarily to lower margins on
metal sales.
Resort Operations:
- - Resort operations revenues declined 14%, as the addition of Bear Mountain
(acquired October 1995) was not sufficient to offset lower skier attendance
at Northstar and Sierra. Operating results declined from a loss of $0.2
million in 1995 to a loss of $1.4 million in 1996. Reduced operating
results were due to fewer operating days during the month of April in 1996
compared to 1995 as well as lower skier visits during the days operated.
Corporate Expense:
- - Corporate expense includes expenses associated with Fibreboard's phantom
stock plan of $2.5 million in 1995 and $1.5 million in 1996. Excluding the
impact of such expense, corporate costs increased 8% between years.
SIX MONTHS ENDED JUNE 30, 1996 VS. 1995
Overall--
- - Net sales increased 31% due to the addition of Vytec and Bear Mountain, which
were acquired in the fourth quarter of 1995, and additional Norandex
branches, reduced by lower sales of metal and industrial fireproofing
products by Pabco.
- - Gross margin increased 37%, and increased as a percent of sales from 28.7%
in 1995 to 29.9% 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 & administrative costs increased 33% as expected due to
the increase in the number of Norandex branches when compared with the
prior year. SG&A costs as a percent of sales were consistent between
years.
- - Unusual items included pre-tax expense of $3.15 million in 1996 for the
cost of relocating the corporate headquarters to Dallas, Texas, while the
second quarter of 1995 included pre-tax income of $4.0 million resulting
from the reduction of an asbestos-related reserve.
- - Considering all factors noted above, operating income decreased 12% between
years. However, excluding unusual items, the increase year to year was
48%.
- - Interest expense declined 67%. 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 26%. Interest income increased 46% as
higher amounts were invested; however, this increase was reduced by a
foreign currency translation expense.
14
<PAGE>
- - The income tax rate was 40% in both years.
- - Net income in 1995 includes the results of operations of the wood products
business, which was sold in the third quarter of 1995.
Segment discussion--
Building Products:
- - Residential products sales increased 43% due to the addition of Vytec
(acquired November 1995) and new Norandex branches added during the past
year. In addition, Norandex branch same store sales increased 4% between
years. Operating profits increased 103% from $5.6 million in 1995 to $11.4
million. The improvement in operating profits was due to lower raw
material costs and higher manufacturing efficiencies during 1996 as well as
the addition of Vytec.
- - Industrial products sales declined 5% on lower unit sales of fireproofing
and metals products. Operating profits declined 38% due primarily to lower
margins on metal sales.
Resort Operations:
- - Resort operations revenues increased 21% due to the addition of Bear
Mountain, acquired October 1995. Operating income increased 3% from $7.6
million in 1995 to $7.8 million in 1996.
Corporate Expense:
- - Corporate expense includes expenses associated with Fibreboard's phantom
stock plan of $3.0 million in 1995 and $2.0 million in 1996. Excluding the
impact of such expense, corporate costs declined 7% between years.
FINANCIAL CONDITION
- - Cash on hand at June 30, 1996 aggregated $36.2 million, which includes $25
million borrowed under a term loan facility during the first quarter of
1996.
- - Borrowings under Fibreboard's revolving credit facilities were $2.2 million
at June 30, 1996, with total availability of $166.4 million.
- - On July 1, 1996, Fibreboard completed the purchase of the stock of Stone
Products Corporation. The initial purchase price of $53 million (including
the assumption of debt) was funded through the use of cash on hand
supplemented with borrowings under Fibreboard's revolving credit facility.
- - Capital expenditures of approximately $16.0 to $19 million are anticipated
during 1996. Major anticipated projects include $1.6 million to upgrade
and improve the Norandex vinyl siding manufacturing plant, $6.0 to $7.0
million to replace three chairlifts at Sierra and infrastructure
development costs of approximately $1.0 to 1.2 million to support the lot
sales program at Northstar. Through the second quarter, Fibreboard has
expended approximately $5.6 million on these projects. In addition, during
the second quarter of
15
<PAGE>
1996, Fibreboard announced its plan to construct a
$15 million, 1.2 million square foot capacity vinyl siding manufacturing
plant in the south central United States. This new facility is expected to
be operational during the second quarter of 1997.
- - In addition to cash needs related to continuing operations, Fibreboard must
fund its modest 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 June 30, 1996, Fibreboard
had $3.7 million in cash on hand restricted for asbestos-related costs.
- - Fibreboard and Continental Casualty have entered into an interim agreement
under which Continental agreed to make certain funds available for defense
and indemnity costs associated with asbestos-related personal injury claims
during the period pending final approval of the Global and/or Insurance
Settlements (which are more fully discussed in Fibreboard's Annual Report
on Form 10-K for the year ended December 31, 1995), or if neither are
approved, through the final conclusion of the insurance coverage
litigation, however long that may take. Fibreboard believes the amounts to
be paid by Continental under this interim agreement and amounts available
under prior settlements with asbestos-in-buildings insurers will be
adequate to satisfy its asbestos-related cash requirements as they come
due.
- - Additional information regarding the asbestos-related litigation can be
found in Note 9 to the consolidated financial statements beginning on
page 8.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Material developments, if any, in the asbestos-related litigation are
described in Note 9 to the consolidated financial statements beginning on page
8.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of Fibreboard Corporation stockholders was held June 10,
1996, for the purpose of electing two (2) directors, to approve the
Corporation's 1995 Stock Incentive Plan, to approve an amendment to Fibreboard's
Restated Certificate of Incorporation to increase the number of authorized
shares of common stock from 15,000,000 to 30,000,000, and to ratify the
selection of Arthur Andersen LLP as independent public accountants for the 1996
fiscal year. No other business was conducted at the annual meeting.
16
<PAGE>
The following table presents the results of the voting:
Director or Issue Votes For Votes Withheld Abstentions
- --------------------- --------- -------------- -----------
John W. Koeberer 7,523,217 157,478 0
Donald K. Miller 7,524,407 156,288 0
Approval of 1995 Stock
Incentive Plan 3,643,291 1,438,903 57,152
Amendment of Certificate
of Incorporation 7,247,197 406,495 27,003
Selection of Arthur
Andersen LLP 7,606,636 44,028 30,031
Note: There were 2,541,349 broker "non votes" in connection with approval of
the 1995 Stock Incentive Plan.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) No exhibits are filed as part of this Form 10-Q.
(b) No Current Reports on Form 8-K were filed during the period April 1, 1996
to June 30, 1996.
17
<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: August 9, 1996 By: /s/ James P. Donohue
----------------------------
James P. Donohue
Senior Vice President,
Finance and Administration and
Chief Financial Officer
Dated: August 9, 1996 By: /s/ Garold E. Swan
----------------------------
Garold E. Swan
Vice President and Controller
18
<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 REFERENCES TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 36,175
<SECURITIES> 0
<RECEIVABLES> 62,319
<ALLOWANCES> 2,994
<INVENTORY> 62,754
<CURRENT-ASSETS> 177,321
<PP&E> 160,317
<DEPRECIATION> 56,678
<TOTAL-ASSETS> 1,199,327
<CURRENT-LIABILITIES> 77,474
<BONDS> 0
0
0
<COMMON> 86
<OTHER-SE> 248,295
<TOTAL-LIABILITY-AND-EQUITY> 1,199,327
<SALES> 230,226
<TOTAL-REVENUES> 230,226
<CGS> 161,489
<TOTAL-COSTS> 161,489
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 720
<INTEREST-EXPENSE> 1,279
<INCOME-PRETAX> 12,814
<INCOME-TAX> 5,126
<INCOME-CONTINUING> 7,688
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,688
<EPS-PRIMARY> .86
<EPS-DILUTED> 0
</TABLE>
