USG Corporation Reports Second Quarter 2008

NET SALES OF $1.3 BILLION AND A NET LOSS OF $40 MILLION

CHICAGO, July 22 /PRNewswire-FirstCall/ -- USG Corporation (NYSE: USG), a
leading building products company, today reported second quarter 2008 net
sales of $1.3 billion and a net loss of $40 million, or a $0.40 loss per
diluted share based on 99.1 million average diluted shares outstanding. For
the same period a year ago, the corporation recorded net sales of $1.4 billion
and net earnings of $56 million, or $0.56 per diluted share based on 99.3
million average diluted shares outstanding.
(Photo: http://www.newscom.com/cgi-bin/prnh/20010511/USGLOGO)
The corporation's consolidated second quarter 2008 results included
restructuring charges totaling $21 million ($13 million after-tax, or $0.13
per diluted share) associated with salaried workforce reductions, the closing
of distribution locations and expenses related to the shutdown of several
manufacturing lines. The corporation's consolidated second quarter 2007
results included restructuring charges of $15 million ($9 million after-tax,
or $0.09 per diluted share).
"The steep decline in the U.S. housing market, combined with unprecedented
increases in the cost of key raw materials and energy, resulted in losses in
our core wallboard business," said William C. Foote, USG Chairman and CEO.
"Our other businesses are performing reasonably well, despite their own
challenging market conditions.
"Our people continue to effectively manage the factors we can control,"
added Foote. "Plant operating efficiencies have improved since we closed or
curtailed older, higher-cost capacity, and our safety performance continues to
be outstanding. Overhead is running well below levels at the start of 2007,
and operating profitability has improved since the first quarter of 2008. We
have also achieved modest price improvement in some product lines and will
seek further increases to help offset higher operating costs. Finally, we are
keenly focused on maintaining the financial flexibility necessary during this
difficult period."
Foote concluded, "Over the longer term, we believe that the actions we are
taking now, during this steep market downturn, will position the company well
when the housing market rebounds."
For the first half of 2008, the corporation reported net sales of $2.4
billion and a net loss of $85 million, or $0.85 per diluted share based on
99.1 million average diluted shares outstanding. For the first half of 2007,
net sales were $2.7 billion and net earnings were $97 million, or $1.01 per
diluted share based on 95.5 million average diluted shares outstanding. The
corporation's consolidated results for the first six months of 2008 included
restructuring charges of $25 million ($16 million after-tax, or $0.16 per
diluted share). The corporation's consolidated results for the first six
months of 2007 included restructuring charges of $15 million ($9 million
after-tax, or $0.10 per diluted share).
Core Business Results
North American Gypsum
USG's North American Gypsum business recorded second quarter 2008 net
sales of $625 million and an operating loss of $56 million, which included
restructuring charges of $9 million. Net sales of $754 million and operating
profit of $42 million were reported in last year's second quarter. North
American Gypsum's operating profit for the second quarter of 2007 included a
$12 million restructuring charge related to salaried workforce reductions and
a plant shutdown.
United States Gypsum Company reported second quarter 2008 net sales of
$510 million and an operating loss of $65 million. This compares with second
quarter 2007 net sales of $655 million and operating profit of $30 million.
The decline in sales and operating profit was primarily attributable to
significantly lower average realized selling prices. Lower shipments of
SHEETROCK(R) brand gypsum wallboard also contributed to the decline.
Operating profits were also reduced by higher manufacturing costs,
particularly for energy and raw materials, as well as higher fuel costs.
U.S. Gypsum shipped 1.9 billion square feet of gypsum wallboard during the
second quarter of 2008, compared with 2.4 billion square feet shipped during
last year's second quarter and 2.1 billion square feet shipped in the first
quarter of 2008. U.S. Gypsum's plants operated at approximately 69 percent of
capacity during the quarter, compared with 82 percent of capacity for the same
period a year ago and 76 percent of capacity during the first quarter of 2008.
The company estimates that the industry operated at 64 percent of capacity
during the second quarter of 2008. U.S. Gypsum's average realized selling
price for gypsum wallboard was $109.81 per thousand square feet during the
second quarter of 2008, down 23 percent from the second quarter of 2007 and up
five percent over the first quarter of this year.
Second quarter 2008 profit for the company's complementary product lines
was lower compared to the second quarter of 2007, largely due to lower volumes
and higher manufacturing costs for SHEETROCK joint compounds. Profitability
improved for Fiberock(R) gypsum fiber panels, due to higher shipments and
selling prices and lower manufacturing costs compared to the second quarter of
2007.
The gypsum division of Canada-based CGC Inc. reported second quarter 2008
net sales of $90 million, an increase of $11 million, or 14 percent, compared
with the same period a year ago. An operating loss of $1 million was recorded
in the second quarter this year compared with operating profit of $1 million
reported in last year's second quarter. The increase in net sales was due to
the favorable effects of currency translation and improved results for
complementary products, including joint treatment and gypsum fiber panels.
Operating profit was affected adversely by a lower average realized selling
price of gypsum wallboard.
USG Mexico S.A. de C.V., USG's Mexico-based gypsum business, reported
second quarter 2008 net sales of $54 million, up $7 million, or 15 percent,
from last year's second quarter. This improvement in sales was largely
attributable to higher shipments of cement board and construction plasters.
Operating profit rose $1 million, to $7 million, compared with the same period
last year.
Building Products Distribution
L&W Supply Corporation and its subsidiaries, which comprise USG's building
products distribution business, reported second quarter 2008 net sales of $542
million, a decline of $112 million, or 17 percent, compared to the second
quarter of 2007. The sales decline reflects weak residential construction
demand, which reduced wallboard selling prices and volumes.
During the second quarter of 2008, L&W Supply's gypsum wallboard shipments
declined by 25 percent compared with last year's second quarter. Reflecting
the relative strength of the commercial construction market, total sales of
non-wallboard products were flat, but sales of ceiling products and
construction metal were up compared to the second quarter of 2007.
L&W Supply reported operating profit of $7 million in the second quarter
of 2008, which included restructuring charges of $5 million. In last year's
second quarter, operating profit was $45 million after a $1 million
restructuring charge. The decline in operating profit compared to the second
quarter of 2007 was largely due to lower shipments and margin for gypsum
wallboard. Second quarter operating profit was up $8 million compared to the
first quarter of 2008 as a result of improved wallboard and complementary
product volumes and the impact of cost reduction efforts.
As part of the company's ongoing efforts to manage its cost structure to
market conditions, L&W Supply has closed 20 locations since the beginning of
the year. At the end of the second quarter of 2008, L&W Supply and its
subsidiaries operated 230 locations.
Worldwide Ceilings
USG's Worldwide Ceilings business reported second quarter 2008 net sales
of $237 million, a record for any quarter in its history. Second quarter 2008
net sales rose $27 million, or 13 percent, compared with the second quarter of
2007. Operating profit, also an all-time record, was $28 million in the
quarter, an increase of $11 million, or 65 percent, compared with a year ago.
Second quarter 2008 operating profit included restructuring charges of $2
million. Second quarter 2007 operating profit included restructuring charges
of $1 million.
USG Interiors reported second quarter 2008 net sales of $141 million and
operating profit of $19 million. This compared with net sales of $135 million
and operating profit of $12 million for the second quarter of 2007. These
results reflect improved pricing for ceiling tile and grid and lower grid
manufacturing costs, partially offset by lower shipments and higher
manufacturing cost for ceiling tile.
USG International reported net sales of $92 million for the second quarter
of 2008, an increase of $21 million, or 30 percent, compared with the second
quarter of 2007. Compared with last year's second quarter, second quarter
2008 operating profit doubled to $4 million, including a $1 million
restructuring charge. The improved results reflect increased demand for
ceiling grid and joint treatment in Europe and higher ceiling tile and grid
sales in the Pacific region.
The ceilings division of CGC Inc. reported second quarter 2008 net sales
of $19 million, an increase of $4 million versus last year's second quarter.
Second quarter 2008 operating profit rose $2 million to $5 million compared
with the same period a year ago.
Other Consolidated Information
Selling and administrative expenses were $94 million for the second
quarter and $196 million for first six months of 2008, representing decreases
of $5 million, or five percent, and $20 million, or nine percent, from the
respective 2007 periods. These improvements are due primarily to a company-
wide emphasis on reducing expenses, including salaried workforce reductions.
As a percent of net sales, selling and administrative expenses were 7.5
percent for the second quarter of 2008, up from 7.0 percent for the second
quarter of 2007. Selling and administrative expenses were 8.1 percent of net
sales for the first six months of 2008, the same level reported for the first
six months of 2007.
Interest expense for the second quarter and first six months of 2008 was
$21 million and $38 million, respectively. Interest expense was $19 million
and $63 million in the second quarter and first six months of 2007,
respectively. Interest expense for the first half of 2008 was lower than in
the respective 2007 period due primarily to a lower average level of
borrowings as well as a $10 million pretax charge in the first quarter last
year to write off deferred financing fees related primarily to the
corporation's repayment of a $1.065 billion tax bridge loan in March 2007.
As of June 30, 2008, the corporation had $181 million of cash and cash
equivalents compared with $190 million as of March 31, 2008 and $297 million
as of December 31, 2007. Total debt amounted to $1.385 billion as of June 30,
2008 compared with $1.283 billion as of March 31, 2008 and $1.238 billion as
of December 31, 2007. Capital expenditures in the second quarter of 2008 were
$67 million compared with $113 million in the second quarter of 2007. For the
first six months of 2008, capital expenditures were $172 million compared with
$224 million in the first six months of 2007. The decline in capital
expenditures in the first half of 2008 reflects the substantial completion of
several strategic projects.
A conference call is being held today at 10:00 A.M. Central Time during
which USG senior management will discuss the corporation's operating results.
The conference call will be webcast on the USG Web site, www.usg.com, in the
Investor Information section. The dial-in number for the conference call is
1-800-315-2944 (1-847-413-2929 for international callers), and the passcode is
22078033. After the live webcast, a replay of the webcast will be available
on the USG Web site. In addition, a telephonic replay of the call will be
available until July 30, 2008. The replay dial-in number is 1-888-843-8996
(1-630-652-3044 for international callers), and the passcode is 22078033.
USG Corporation is a Fortune 500 manufacturer and distributor of high-
performance building systems primarily through its United States Gypsum
Company, USG Interiors, Inc. and L&W Supply Corporation subsidiaries.
Headquartered in Chicago, USG serves the residential and non-residential
construction markets, repair and remodel construction markets, and industrial
processes. USG's wall, ceiling, flooring and roofing products provide
leading-edge building solutions for customers, while L&W Supply center
locations efficiently stock and deliver building materials nationwide. For
additional information, visit the USG Web site at www.usg.com.
This press release contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 related to
management's expectations about future conditions. Actual business, market or
other conditions may differ from management's expectations and, accordingly,
may affect our sales and profitability or other results and liquidity. Actual
results may differ due to various other factors, including: economic
conditions such as the levels of new home and other construction activity,
employment levels, the availability of mortgage and construction financing,
mortgage and other interest rates, housing affordability and supply, currency
exchange rates and consumer confidence; competitive conditions, such as price,
service and product competition; shortages in raw materials; increases in raw
material, energy, transportation and employee benefit costs; the timing of
commencement of operation of new and upgraded manufacturing facilities; the
loss of one or more major customers; capacity utilization rates; capital
markets conditions and the availability of borrowings under our credit
agreement or alternative financings; the results of a review by the
Congressional Joint Committee on Taxation relating to the tax refund we
received related to the payments we made to the asbestos trust; our success in
integrating acquired businesses; changes in laws or regulations, including
environmental and safety regulations; the effects of acts of terrorism or war
upon domestic and international economies and financial markets; and acts of
God. We assume no obligation to update any forward-looking information
contained in this press release.

USG CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(dollars in millions except per share data)
(Unaudited)

Three Months Six Months
ended June 30, ended June 30,
2008 2007 2008 2007

Net sales $1,251 $1,408 $2,416 $2,667
Cost of products sold 1,180 1,206 2,304 2,253
Gross profit 71 202 112 414
Selling and
administrative expenses 94 99 196 216
Restructuring charges 21 15 25 15
Operating profit (loss) (44) 88 (109) 183
Interest expense 21 19 38 63
Interest income (1) (5) (3) (13)
Other (income), net - (2) (1) (2)
Earnings (loss) before
income taxes (64) 76 (143) 135
Income tax expense
(benefit) (24) 20 (58) 38
Net earnings (loss) $(40) $56 $(85) $97

Earnings (loss) per
common share:
Basic $(0.40) $0.56 $(0.85) $1.01
Diluted $(0.40) $0.56 $(0.85) $1.01

Average common
shares* 99,071,435 98,933,442 99,064,529 95,154,810
Average diluted
common shares* 99,071,435 99,285,127 99,064,529 95,475,012

Other Information:
Depreciation, depletion
and amortization $45 $39 $89 $87
Capital expenditures $67 $113 $172 $224

* Average common shares and average diluted common shares outstanding
are calculated in accordance with Financial Accounting Standard No.
128, "Earnings Per Share."

USG CORPORATION
CORE BUSINESS RESULTS
(dollars in millions)
(Unaudited)

Three Months Six Months
ended June 30, ended June 30,
2008 2007 2008 2007
Net Sales:

North American Gypsum:
United States Gypsum Company $510 $655 $1,024 $1,316
CGC Inc. (gypsum) 90 79 174 156
USG Mexico, S.A. de C.V. 54 47 101 90
Other subsidiaries* 22 22 38 39
Eliminations (51) (49) (94) (90)
Total 625 754 1,243 1,511

Building Products Distribution:
L&W Supply Corporation 542 654 1,032 1,158

Worldwide Ceilings:
USG Interiors, Inc. 141 135 276 260
USG International 92 71 165 140
CGC Inc. (ceilings) 19 15 34 30
Eliminations (15) (11) (27) (23)
Total 237 210 448 407

Eliminations (153) (210) (307) (409)
Total USG Corporation $1,251 $1,408 $2,416 $2,667

Operating Profit (Loss):

North American Gypsum:
United States Gypsum Company $(65) $30 $(129) $111
CGC Inc. (gypsum) (1) 1 3 7
USG Mexico, S.A. de C.V. 7 6 11 13
Other subsidiaries* 3 5 2 4
Total (56) 42 (113) 135

Building Products Distribution:
L&W Supply Corporation 7 45 6 71

Worldwide Ceilings:
USG Interiors, Inc. 19 12 34 20
USG International 4 2 8 6
CGC Inc. (ceilings) 5 3 8 5
Total 28 17 50 31

Corporate (24) (22) (54) (61)
Eliminations 1 6 2 7
Total USG Corporation $(44) $88 $(109) $183

* Includes a shipping company in Bermuda, and a mining operation in Nova
Scotia.

USG CORPORATION
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
(Unaudited)

As of As of
June 30, December 31,
2008 2007

Assets
Current Assets:
Cash and cash equivalents $181 $297
Receivables (net of reserves - $16 and $17) 553 430
Inventories 416 377
Income taxes receivable 15 37
Deferred income taxes 27 53
Other current assets 123 57

Total current assets 1,315 1,251

Property, plant and equipment (net of
accumulated depreciation and depletion
- $1,328 and $1,249) 2,665 2,596
Deferred income taxes 285 228
Goodwill 229 226
Other assets 346 320

Total Assets $4,840 $4,621

Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $386 $328
Accrued expenses 243 234
Income taxes payable 7 5

Total current liabilities 636 567

Long-term debt 1,385 1,238
Deferred income taxes 11 10
Other liabilities 626 613

Commitments and contingencies

Stockholders' Equity:
Preferred stock - -
Common stock 10 10
Treasury stock (203) (204)
Capital received in excess of par value 2,624 2,607
Accumulated other comprehensive income 65 9
Retained earnings (deficit) (314) (229)

Total stockholders' equity 2,182 2,193

Total Liabilities and Stockholders' Equity $4,840 $4,621

SOURCE USG Corporation

media, +1-312-436-4356, or investors relations, +1-312-436-4125, both of USG
Corporation