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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1996
Commission File No. 1-3660
Owens Corning
One Owens Corning Parkway
Toledo, Ohio 43659
Area Code (419) 248-8000
A Delaware Corporation
I.R.S. Employer Identification No. 34-4323452
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on
Which Registered
Common Stock - $.10 Par Value New York Stock Exchange
Rights to Purchase Series A New York Stock Exchange
Participating Preferred
Stock, no par value, of the
Registrant
Securities registered pursuant to Section 12(g) of the Act:
None
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 / /
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
At February 19, 1997, the aggregate market value of
Registrant's $.10 par value common stock (Registrant's
voting stock) held by non-affiliates was $2,297,658,153,
assuming for purposes of this computation only that all
directors and executive officers are considered affiliates.
At February 19, 1997, there were outstanding 52,769,579
shares of Registrant's $.10 par value common stock.
Parts of Registrant's definitive 1997 proxy statement filed
or to be filed pursuant to Regulation 14A (the "1997 Proxy
Statement") are incorporated by reference into Part III of
this Form 10-K.
-2-
PART I
ITEM 1. BUSINESS
Owens Corning (formerly known as Owens-Corning Fiberglas
Corporation), a global company incorporated in Delaware in
1938, serves consumers and industrial customers with high
performance glass composites and building materials systems.
These products are used in industries such as home
improvement, new construction, transportation, marine,
aerospace, energy, appliance, packaging and electronics.
Many of these products are marketed under the trademark
FIBERGLAS(R).
Approximately eighty-two percent of Owens Corning's sales
are related to home improvement, sales of composite
materials and sales outside U.S. markets. Approximately
eighteen percent of the Company's sales are related to new
U.S. residential construction.
Owens Corning's executive offices are at One Owens Corning
Parkway, Toledo, Ohio 43659; telephone (419) 248-8000.
Unless the context requires otherwise, the terms "Owens
Corning" and "Company" in this report refer to Owens Corning
and its subsidiaries.
The Company operates in two industry segments - Building
Materials and Composite Materials - divided into ten
businesses. As a general rule, there is a commonality of
process equipment and/or products within each industry
segment.
The Company also has affiliate companies in a number of
countries. Affiliated companies' sales, earnings and assets
are not included in either industry segment unless the
Company owns more than 50% of the affiliate.
Revenue, operating profit, and identifiable assets
attributable to each of Owens Corning's industry and
geographic segments, as well as information concerning the
dependence of the Company's industry segments on foreign
operations, for each of the years 1996, 1995, and 1994, are
contained in Note 1 to Owens Corning's Consolidated
Financial Statements, entitled "Segment Data", on pages 34
through 40 hereof.
BUILDING MATERIALS
Principal Products And Methods Of Distribution
Building Materials operates primarily in North America and
Europe. It also has a growing presence in Latin America and
Asia Pacific. Building Materials sells a variety of
building and home improvement products in three major
categories: glass fiber and foam insulation, roofing
materials, and other specialty products for the home, such
as housewrap, vinyl windows and patio doors, and vinyl
siding. The businesses responsible for these products and
markets include: Insulation, Building Materials Sales and
Distribution - North America, Building Materials - Europe
and Africa, Roofing/Asphalt, Specialty and Foam Products,
Western Fiberglass Group, Latin America, and Asia Pacific.
-3-
Principal Products And Methods Of Distribution (Continued)
The Company's Building Materials Sales and Distribution -
North America business is a major source of sales of
building insulation products to lumber yards and home
centers, and roofing shingles, housewrap, windows/patio
doors, and vinyl siding to retailers and
distributors. These products are used primarily in the home
improvement and new residential construction markets. In
1996, eighteen percent of the Company's sales were related
to new construction activities in the United States, while
home improvement and remodeling accounted for forty-one
percent.
Other channels for the Company's building materials include
sales of insulation products in North America to insulation
contractors, metal building insulation laminators,
mechanical insulation distributors and fabricators,
manufactured housing producers, and appliance, office
products and automotive manufacturers. Foam insulation and
related products are sold to distributors and retailers who
resell to residential builders, remodelers and do-it-
yourself customers; commercial and industrial markets
through specialty distributors; and, in some cases, large
contractors, particularly in the agricultural and cold
storage markets.
In Europe, the Company sells building insulation to large
insulation wholesalers, builder merchants, contractors,
distributors, and retailers. The Company sells mechanical
insulation products to distributors, fabricators, and
manufacturers in the heating, ventilation, power and
process, appliance and fire protection industries.
In Latin America, the Company produces and sells building
and mechanical insulation through joint venture and licensee
relationships. In Asia Pacific, the Company sells primarily
mechanical insulation through joint venture businesses,
including a majority owned insulation plant in China, and
licensees.
The Company has licensed others for the manufacture of foam
products at locations in Europe, the Middle East and Asia.
The Company sells foam products through traditional agents
and distributors where licensing does not exist.
The Company sells roofing shingles to distributors and
retailers, who resell them to residential roofing and
remodeling contractors, as well as to do-it-yourself
customers. Approximately 80% of roofing shingles sold in
North America are used for reroofing, with new residential
construction accounting for the remainder.
The Company sells industrial asphalt under the Trumbull(TM)
brand name. There are three principal kinds of industrial
asphalt: Built-Up Roofing Asphalt (BURA), used in
commercial roofing systems to provide waterproofing and
adhesion; saturants or coating asphalt, used to manufacture
roofing mats, felts and shingles; and industrial specialty
asphalt, used by manufacturers in a variety of products such
as waterproofing systems, adhesives, coatings, and product
extenders, as well as in various automotive applications.
There are various channels of distribution for the Company's
asphalt products. The Company's asphalt products are used
internally in the manufacture of the Company's residential
roofing products and are also sold to other shingle
manufacturers. In addition, asphalt is sold to roofing
contractors and distributors for BURA systems and to
manufacturers in a variety of other industries, including
automotive, chemical, rubber and construction.
-4-
Seasonality
Sales in the Building Materials segment tend to follow
seasonal home improvement, remodeling and renovation, and
new construction industry patterns. Sales levels for the
segment, therefore, are typically lower in the winter
months.
Major Customers
No customer in the Building Materials segment accounts for
more than three percent of the segment's sales.
COMPOSITE MATERIALS
Principal Products and Methods of Distribution
Composite Materials operates in North America, Europe and
Latin America, with affiliates and licensees around the
world, including a growing presence in Asia Pacific. The
businesses responsible for these products include:
Composites, Latin America, Engineered Pipe & Fabrication
Systems, and Asia Pacific.
The Company is the world's leading producer of glass fiber
materials used in composites. Composites are fabricated
material systems made up of two or more components (e.g.,
plastic resin and glass fiber) used in various applications
to replace traditional materials, such as aluminum, wood,
and steel. The global composites industry has expanded to
include more than 40,000 end-use applications. Worldwide,
the composites industry has relatively few raw material
component suppliers (glass fiber, resin and additives)
delivering to thousands of industrial customers through
various channels. Depending on the end-use application,
these raw materials move through different manufacturing
process chains, ultimately finding their way to consumers
through myriad markets worldwide. The primary end use
markets that the Company serves are construction,
transportation, and electrical/electronics.
Within the construction market, the major end-use
application for glass fiber is asphaltic roofing shingles,
where glass fiber is used to provide fire and mildew
resistance in 95% of all shingles produced in North America.
The Company sells glass fiber and/or mat directly to a small
number of major shingle manufacturers (including the
Company's own roofing business).
Tubs, showers and other related internal building components
used for both remodeling and new construction are also major
applications of glass fiber materials in the construction
market. These end-use products are some of the first
successful material substitution conversions normally
encountered in developing countries. Glass fiber for these
markets is sold to direct accounts, and also to distributors
around the world, who in turn service thousands of
customers.
The most significant use of glass fibers within the
transportation market is the automotive industry, which
continues to grow as the amount of composite materials used
per vehicle increases. There are hundreds of composites
applications, including exterior and interior body panels,
instrument panels, bumpers, lamp housings, headliners,
packaging for electronics, valve covers, luggage racks,
distributor caps, timing belts, mufflers and tanks for
alternative fuel vehicles. These composite parts are either
produced by original equipment manufacturers (OEMs), or are
purchased by OEMs from first-tier suppliers. Glass fibers
for these parts are
-5-
Principal Products and Methods of Distribution (Continued)
sold mostly to first-tier and second-tier OEM suppliers.
Non-automotive transportation applications include railcars,
shipping containers, intermodal refrigerated containers,
trailers and commercial ships.
Within the electrical/electronics markets, glass fiber is
used extensively in printed circuit boards made for the
consumer electronics, transportation, and telecommunications
industries. The Company sells glass fiber to a small number
of large fabric weavers, who, in turn, supply the rest of
the circuit board production value chain. Applications also
include fiber optic and copper cable reinforcement,
connectors, circuit breaker boxes, computer housings,
electricians' safety ladders, and hundreds of various
electro/mechanical components.
The Company manufactures large diameter glass-reinforced
plastic (GRP) pipe designed for use in underground pressure
and gravity fluid handling systems. The pipe is a filament-
wound structural composite made with glass fiber and
polyester resins. The Company has pipe joint ventures in
Thailand, Saudi Arabia, Germany, Spain, Botswana, Argentina,
Egypt, Turkey and Colombia, and wholly-owned pipe plants in
Norway and China. The Company, directly and with joint
venture partners around the world, manufactures and sells
GRP pipe directly to governments and private industry for
major infrastructure projects primarily for the safe and
efficient transport of water and waste.
Major Customers
No customer in the Composite Materials segment accounts for
more than four percent of the segment's sales.
GENERAL
Raw Materials And Patents
Owens Corning considers the sources and availability of raw
materials, supplies, equipment and energy necessary for the
conduct of its business in each industry segment to be
adequate.
The Company has numerous U.S. and foreign patents issued and
applied for relating to its products and processes in each
industry segment resulting from research and development
efforts. The Company has issued royalty-bearing patent
licenses to companies in several foreign countries. The
licenses cover technology relating to both industry
segments.
Including registered trademarks for the Owens Corning logo,
the Color Pink, and Fiberglas, the Company has approximately
125 trademarks registered in the United States and
approximately 700 trademarks registered in other countries.
The Company considers its patent and trademark positions to
be adequate for the present conduct of its business in each
of its industry segments.
Working Capital
Owens Corning's manufacturing operations in each of its
industry segments are generally continuous in nature and it
warehouses much of its production prior to sale since it
operates primarily with short delivery cycles.
-6-
Research And Development
During 1996, 1995 and 1994, the Company spent approximately
$78 million, $69 million, and $64 million, respectively, for
research and development activities. Customer sponsored
research and development was not material in any of the last
three years.
Environmental Control
Owens Corning's capital expenditures relating to compliance
with environmental control requirements were approximately
$17 million in 1996. The Company currently estimates that
such capital expenditures will be approximately $20 million
in 1997 and $22 million in 1998.
The Company does not consider that it has experienced a
material adverse effect upon its capital expenditures or
competitive position as a result of environmental control
legislation and regulations. Operating costs of
environmental control equipment, however, were approximately
$54 million in 1996. Owens Corning continues to invest in
equipment and process modifications to remain in compliance
with applicable environmental laws and regulations.
The 1990 Clean Air Act Amendments (Act) provide that the
United States Environmental Protection Agency (EPA) will
issue regulations on a number of air pollutants over a
period of years. Until these regulations are developed, the
Company cannot determine the extent the Act will affect it.
The Company anticipates that its sources to be regulated
will include glass fiber manufacturing and asphalt
processing activities. The EPA's announced schedule is to
issue regulations covering glass fiber manufacturing by late
1997 and asphalt processing activities by late 2000, with
implementation as to existing sources up to three years
thereafter. Based on information now known to the Company,
including the nature and limited number of regulated
materials it emits, the Company does not expect the Act to
have a material adverse effect on the Company's results of
operations, financial condition, or long-term liquidity.
Number Of Employees
Owens Corning averaged approximately 18,100 employees during
1996 and had approximately 18,900 employees at December 31,
1996.
Competition
Owens Corning's products compete with a broad range of
products made from numerous basic, as well as high-
performance, materials.
The Company competes with a number of manufacturers in the
United States of glass fibers in primary forms, not all of
which produce a broad line of glass fiber products.
Approximately one-half of these producers compete with the
Company's Building Materials industry segment in the sale of
glass fibers in primary form. A similar number compete with
the Company's Composite Materials industry segment.
Companies in other countries, primarily Japan, export glass
fiber products to the United States. The Company also
competes outside the United States against a number of
manufacturers of glass fibers in primary forms.
Owens Corning also competes with many manufacturers,
fabricators and distributors in the sale of products made
from glass fibers. In addition, the Company competes with
many other manufacturers in the sale of industrial asphalts
and other products.
Methods of competition include product performance, price,
terms, service and warranty.
-7-
ITEM 2. PROPERTIES
PLANTS
Owens Corning's plants as of February 1, 1997 are listed
below by industry segment and primary products, and are
owned except as noted. The Company considers that these
properties are in good condition and well maintained, and
are suitable and adequate to carry on the Company's
business. The capacity of each plant varies depending upon
product mix.
BUILDING MATERIALS SEGMENT
Thermal And Acoustical Insulation
Delmar, New York Palestine, Texas
Eloy, Arizona Phenix City, Alabama (1)
Fairburn, Georgia Salt Lake City, Utah
Kansas City, Kansas Santa Clara, California
Mount Vernon, Ohio Waxahachie, Texas
Newark, Ohio
Babelegi, South Africa Ravenhead, United Kingdom
Candiac, Canada Scarborough, Canada
Edmonton, Canada Shanghai, China (2)
Guangzhou, China Springs, South Africa
Pontyfelin, United Kingdom Vise, Belgium
Queensferry, United Kingdom
(1) Facility is leased.
(2) Under construction.
Roofing And Asphalt Processing (one of each at every
location, except as noted)
Atlanta, Georgia (1) Kearney, New Jersey
Brookville, Indiana (1) Medina, Ohio
Channelview, Texas (2) Memphis, Tennessee
Compton, California Minneapolis, Minnesota
Denver, Colorado Morehead City, North
Detroit, Michigan (2) Carolina (2) (4)
Houston, Texas Oklahoma City, Oklahoma (2)
Irving, Texas Portland, Oregon (5)
Jacksonville, Florida (3) Savannah, Georgia (1)
Jessup, Maryland Summit, Illinois (3)
(1) Roofing plant only.
(2) Asphalt processing plant only.
(3) Facility is partially leased.
(4) Facility is leased.
(5) Two asphalt processing plants, as well as one roofing plant.
-8-
Specialty and Foam Products
Byron Center, Michigan Rockford, Illinois
Hazleton, Pennsylvania St. Louis, Missouri*
Martinsville, Virginia* Tallmadge, Ohio
Barcelona, Spain Nanjing, China
Hartlepool, United Kingdom Valleyfield, Canada
*Facility is leased.
Fabrication Centers
Angola, Indiana Johnson City, Tennessee (1)
Athens, Alabama Laredo, Texas (1)
Atlanta, Georgia (1) Los Angeles, California (1)
Cleveland, Tennessee (1) Memphis, Tennessee (1)
Columbus, Ohio (1) Montgomery, Alabama (1)
Coopersville, Michigan (1) Orlando, Florida (1)
Dallas, Texas (1) Sacramento, California (1)
Grand Rapids, Michigan (1) Shelbyville, Kentucky (1) (2)
Hazelton, Pennsylvania (1) Springfield, Tennessee (1)
Hebron, Ohio Tiffin, Ohio (1)
Indianapolis, Indiana (1) Van Buren, Arkansas (1)
Brantford, Canada
(1) Facility is leased.
(2) Two facilities.
COMPOSITE MATERIALS SEGMENT
Textiles And Reinforcements
Aiken, South Carolina Huntingdon, Pennsylvania
Amarillo, Texas Jackson, Tennessee*
Anderson, South Carolina New Braunfels, Texas *
Fort Smith, Arkansas
Apeldoorn, The Netherlands Rio Claro, Brazil
Battice, Belgium San Vincente deCastellet/
Birkeland, Norway Barcelona, Spain
Guelph, Canada Springs, South Africa
L'Ardoise, France Wrexham, United Kingdom
Liversedge, United Kingdom
*Facility is leased.
Pipe
Changchun, China Sandefjord, Norway*
*Facility is leased.
-9-
OTHER PROPERTIES
Effective in mid 1996, Owens Corning's general offices of
approximately 400,000 square feet are located in the Owens
Corning World Headquarters, Toledo, Ohio. The lease for this
facility terminates May 31, 2015, with options to extend
through May 31, 2030. Under separate leases, the Company has
additional general office space of approximately 150,000
square feet, and warehouse space of approximately 100,000
square feet, located in other buildings in Toledo.
The Company's research and development function is conducted
at its Science and Technology Center, located on
approximately 500 acres of land outside Granville, Ohio. It
consists of twenty-three structures totaling approximately
635,000 square feet. The Company also has Application
Development Centers in Battice, Belgium and Bangalore,
India.
ITEM 3. LEGAL PROCEEDINGS
The paragraphs in Note 21 to the Company's Consolidated
Financial Statements, entitled "Contingent Liabilities", on
pages 66 through 70 hereof, are incorporated here by
reference.
Securities and Exchange Commission rules require the Company
to describe certain governmental proceedings arising under
federal, state or local environmental provisions unless the
Company reasonably believes that the proceeding will result
in monetary sanctions of less than $100,000. The following
proceedings are reported in response to this requirement.
Based on the information presently available to it, however,
the Company believes that the costs which may be associated
with these matters will not have a materially adverse effect
on the Company's financial position or results of
operations.
As previously reported, during the first quarter of 1995 the
Company signed a consent order with the Tennessee Department
of Environment and Conservation, providing for a remedial
investigation and feasibility study for two state Superfund
sites at which the Company was the primary generator. Based
upon the completed remedial investigation, the Tennessee
Division of Superfund has recommended that the two sites be
delisted as state Superfund sites. Formal delisting
proceedings are in process.
Also as previously reported, in August 1996 the Company
voluntarily reported to the United States Environmental
Protection Agency (EPA) that, due to a change in assumptions
regarding the formation of a reportable pollutant, the
Company had concluded that reporting deficiencies for such
pollutant had occurred at three plants. The Company has
since filed all required reports with the EPA. The Company
is unable at this time to determine the amount of penalties,
if any, that may be sought by the EPA but believes that the
Company's immediate voluntary disclosure will be a favorable
consideration in reducing any penalty that would otherwise
be sought.
-10-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Owens Corning has nothing to report under this Item.
-11-
Executive Officers of the Company
(as of March 1, 1997)
The term of office for elected officers is one year from the
annual election of officers by the Board of Directors
following the Annual Meeting of Stockholders on the third
Thursday of April. All those listed have been employees of
Owens Corning during the past five years except as
indicated.
Name and Age Position*
Glen H. Hiner (62) Chairman of the Board and Chief
Executive Officer since January
1992. Director since 1992.
Alan D. Booth (54) Vice President and Process Executive,
Customer Fulfillment Process since
June 1996; formerly Vice President
and President, Insulation - North
America (1994), Vice President,
Insulation Division, Construction
Products Group (1993) and Vice
President, Mechanical Products
Division (1986).
David T. Brown (48) Vice President and President,
Building Materials Sales and
Distribution-North America since
January 1996; formerly Vice President
and President, Roofing/Asphalt (1994),
Vice President, Roofing/Asphalt
Division (1993) and Vice President,
Atlanta Regional Sales, Building
Materials (1986).
Christian L. Campbell (46) Senior Vice President, General Counsel
and Secretary since January 1995;
formerly Vice President, General
Counsel and Secretary at Nalco
Chemical (1990).
Domenico Cecere (47) Vice President and President,
Roofing/Asphalt since January 1996;
formerly Vice President and
Controller (1993), also Vice
President, Finance and
Administration, Europe at Honeywell,
Inc. (1992).
Charles H. Dana (57) Executive Vice President since
January 1994; formerly Senior Vice
President and President - Industrial
Materials Group (1989).
David W. Devonshire (51) Senior Vice President and Chief
Financial Officer since July 1993;
formerly Corporate Vice President,
Finance at Honeywell, Inc. (1992).
-12-
Name and Age Position*
Carl B. Hedlund (49) Vice President and President, Asia
Pacific since December 1995; formerly
Vice President and President, Retail/
Distribution (1994), Vice President,
Retail and Distribution, Construction
Products Group (1993), Vice President,
Roofing Products Operating Division
(1989).
Robert C. Lonergan (53) Vice President, Science and Technology
since January 1995; formerly President,
Windows (1993), also President of Reb
Plastics, Inc. (1984).
Heinz-J. Otto (47) Vice President and President,
Composites since October 1996;
formerly Head of Region Europe and
Executive Board Member, Landis & Gyr
Corp. (1992).
Bradford C. Oelman (59) Senior Vice President, Governmental
Affairs since April 1996; formerly
Vice President-Corporate Relations
(1986).
Steven J. Strobel (39) Vice President and Controller since
September 1996; formerly Chief
Financial Officer of Kraft Canada,
Inc. (1994) and Vice President and
Controller of Kraft USA Operations
(1991).
Gregory M. Thomson (49) Senior Vice President, Human
Resources since October 1994;
formerly Vice President, Human
Resources, Public Service Electric &
Gas (1988).
Efthimios O. Vidalis (42) Vice President and President,
Insulation since July 1996; formerly
Vice President and President,
Composites (1994) and Vice President,
Reinforcements Division, Europe
(1986).
*Information in parentheses indicates year in which service
in position began.
-13-
Part II
ITEM 5. MARKET FOR OWENS CORNING'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The principal market on which Owens Corning's common stock
is traded is the New York Stock Exchange. The high and low
sales prices in dollars per share for Owens Corning's common
stock as reported in the consolidated transaction reporting
system for each quarter during 1996 and 1995 are set forth
in the following tables.
1996 High Low 1995 High Low
First Quarter 46 39-3/4 First Quarter 36-1/4 30-1/4
Second Quarter 43-1/8 37-5/8 Second Quarter 40 34-5/8
Third Quarter 43 36 Third Quarter 47-1/8 36-1/2
Fourth Quarter 43-1/2 36-1/4 Fourth Quarter 46-3/4 40-3/8
The number of stockholders of record of the Company's common
stock on February 19, 1997 was 6,813.
In June 1996, the Board of Directors of the Company approved
an annual dividend policy of $.25 per share of common stock
and declared a dividend of $.0625 per share of common stock
to stockholders of record on September 30, 1996, paid on
October 15, 1996. The Company had not previously declared
any dividends since 1986. In December 1996, the Board of
Directors of the Company declared a dividend of $.0625 per
share of common stock to stockholders of record on December
31, 1996, paid on January 15, 1997. In connection with
certain of its current bank credit facilities, the Company
has agreed to restrictions affecting the payment of cash
dividends. As of January 1, 1997, these restrictions
limited funds available for the payment of cash dividends by
the Company to approximately $93 million.
On August 30, 1996, the Company issued 472,250 shares of its
common stock, par value $.10 per share, to Celfort
Construction Materials Inc. (the "Seller") in connection
with acquisition of substantially all the assets of the
extruded polystyrene insulation products business of Seller.
Such shares were issued without registration under the
Securities Act of 1933 in reliance upon Regulation D
promulgated under the Securities Act or the exemption
provided by Section 4(2) of the Securities Act.
-14-
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of certain financial information of the
Company.
1996(a) 1995(b) 1994(c) 1993(d) 1992(e)
(In millions of dollars, except per share data and where noted)
Net sales $ 3,832 $ 3,612 $ 3,351 $ 2,944 $ 2,878
Cost of sales 2,834 2,670 2,536 2,266 2,234
Marketing,
administrative and
other expenses 1,380 452 429 350 350
Science and technology
expenses 84 78 71 69 65
Restructure costs 38 - 89 23 16
Income (loss) from
operations (504) 412 226 236 213
Cost of borrowed funds 77 87 94 89 110
Income (loss) before
provision for income
taxes (581) 325 132 147 103
Provision (credit) for
income taxes (288) 106 58 47 33
Net income (loss) (284) 231 159 131 73
Net income (loss) per
share
Primary (5.50) 4.64 3.61 3.00 1.70
Fully diluted (5.50) 4.40 3.35 2.81 1.67
Dividends per share on
common stock
Declared .1250 - - - -
Paid .0625 - - - -
Weighted average
number of shares
outstanding
(in thousands)
Primary 51,722 49,711 44,209 43,593 43,013
Fully diluted 51,722 54,106 50,025 49,410 48,844
Net cash flow from
operations 335 285 233 253 192
Capital spending 325 276 258 178 144
Total assets (f) 3,913 3,261 3,274 3,013 3,162
Long-term debt 818 794 1,037 898 1,018
Average number of
employees (in
thousands) 19 17 17 17 17
(a) During 1996, the Company recorded a net pre-tax charge
of $875 million ($542 million after-tax) for asbestos
litigation claims that may be received after 1999 and
probable additional insurance recovery; special charges
totaling $42 million ($27 million after-tax) including
valuation adjustments associated with prior
divestitures, major product line productivity
initiatives and a contribution to the Owens-Corning
Foundation; a pre-tax charge of $43 million ($26
million after-tax) for restructuring and other actions;
$27 million reduction of tax reserves due to favorable
legislation; and a pre-tax gain of $37 million ($27
million after-tax) from the sale of the Company's
ownership interest in its former Japanese affiliate,
Asahi Fiber Glass Co. Ltd.
(b) During 1995, the Company recorded a one time $8 million
tax credit as a result of a tax loss carryback.
-15-
ITEM 6. SELECTED FINANCIAL DATA (Continued)
(c) During 1994, the Company recorded a $117 million charge
($85 million after-tax) for productivity initiatives
and other actions. The Company also recorded a
$10 million after-tax charge for the adoption of
Statement of Financial Accounting Standards (SFAS) No.
106, Employers' Accounting for Postretirement Benefits
Other Than Pensions for its non-U.S. plans, a $28
million after-tax charge for the adoption of SFAS No.
112, Employers' Accounting for Postemployment Benefits,
and a $123 million after-tax credit for the change in
accounting method for rebuilding furnaces.
(d) During 1993, the Company recorded a $23 million charge
for the restructuring of its European operations, an $8
million charge ($5 million after-tax) for the writedown
of its hydrocarbon ventures to their net realizable
value, a $26 million credit for the adoption of SFAS
No. 109, Accounting for Income Taxes, and a $14 million
credit for the revaluation of deferred taxes.
(e) During 1992, the Company recorded a $16 million charge
($11 million after-tax) to reorganize the Company's
Building Materials segment and to centralize the
Company's accounting and information systems. The
Company also recorded a net extraordinary gain of $1
million resulting from the utilization of tax loss
carryforwards, partially offset by a loss on the early
retirement of debt.
(f) During 1993, the Company adopted the provisions of FIN
39 which require the Company to present separately in
its balance sheet its estimated contingent liabilities
and related insurance assets. 1992 assets have been
restated to conform with those provisions.
-16-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(All per share information in Item 7 is on a fully diluted
basis. All references to results from ongoing operations
exclude the impact of special items reported for the
relevant period.)
RESULTS OF OPERATIONS
Net sales were $3.832 billion for the year ended December
31, 1996, reflecting a 6% increase from the 1995 level of
$3.612 billion. Net sales in 1994 were $3.351 billion.
Most of the 1996 growth is attributable to volume increases
in the Building Materials segment, particularly in North
America, as well as incremental sales growth resulting from
1995 and 1996 acquisitions. Please see Notes 1 and 5 to the
Consolidated Financial Statements. Sales outside the U.S.
represented 25% of total sales for the year ended December
31, 1996, compared to 27% and 24% for the years 1995 and
1994, respectively. The strength of U.S. Building Materials
sales in combination with sluggish European Composites
business contributed to the slightly lower percentage of
sales outside the U.S. when compared to 1995. Gross margin
for each of the years ended December 31, 1996 and 1995 was
26%, up from 24% in 1994. Gross margin in 1996 was
adversely impacted by the lower sales volume in the European
Composites business.
For the year ended December 31, 1996, the Company reported a
net loss of $284 million, or $5.50 per share, compared to
net income of $231 million, or $4.40 per share, and net
income of $159 million, or $3.35 per share, for the years
ended December 31, 1995 and 1994, respectively. The 1996
net loss reflects a net after-tax charge of $542 million, or
$10.49 per share, for asbestos litigation claims that may be
received after 1999 and probable additional insurance
recovery; after- tax special charges totaling $27 million or
$.52 per share including valuation adjustments associated
with prior divestitures, major product line productivity
initiatives and a contribution to the Owens-Corning
Foundation; an after-tax charge of $26 million or $.50 per
share for restructuring and other actions; a $27 million or
$.52 per share reduction of tax reserves due to favorable
legislation; and an after-tax gain of $27 million or $.52
per share from the sale of the Company's interest in its
former Japanese affiliate, Asahi Fiber Glass Co. Ltd. The
net loss created by the special items mentioned above caused
common stock equivalents and convertible securities to be
excluded from the number of fully diluted shares reported in
1996 due to their anti-dilutive effect. For comparative
purposes, these anti-dilutive shares have been included in
the calculation of fully diluted net income per share from
ongoing operations in 1996 and represent a difference of
$.32 per share. Net income from ongoing operations was $257
million, or $4.65 per share, for the year ended December 31,
1996, compared to $223 million, or $4.25 per share in 1995,
discussed below. The 15% increase in net income from
ongoing operations in 1996 over 1995 reflects the benefits
of acquisitions, strong results from Building Materials in
North America, particularly in the roofing and foam
businesses, and a favorable litigation settlement with a
former supplier, offset in part by increased administrative
costs from regional expansion into Asia Pacific and globally
within the engineered pipe systems business. Please see
Notes 8, 12, 18 and 21 to the Consolidated Financial
Statements.
Net income of $231 million, or $4.40 per share, for the year
ended December 31, 1995 reflects a one time gain of $8
million, or $.15 per share, resulting from a tax loss
carryback. Net income from ongoing operations for the year
ended December 31, 1995, was $223 million, or $4.25 per
share. Please see Note 8 to the Consolidated Financial
Statements.
Net income of $159 million for the year ended December 31,
1994 included the following special items: an after-tax gain
of $123 million, or $2.45 per share, reflecting a change to
the capital method of accounting for the rebuilding of glass
melting facilities; an after-tax charge of $85 million, or
$1.69 per share, for productivity initiatives and other
actions; a non-cash, after-tax charge of $10 million, or
$.20 per share, to reflect adoption of Statement of
Financial Accounting Standards (SFAS) No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions,
-17-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
for plans outside the United States; and a non-cash,
after-tax charge of $28 million, or $.56 per share, to
reflect adoption of SFAS No. 112, Employers' Accounting
for Postemployment Benefits. Please see Notes 6, 18 and 19
to the Consolidated Financial Statements.
In the Building Materials segment, sales increased 12% for
the year ended December 31, 1996 compared to 1995. This
growth reflects volume increases, particularly in North
America, as well as incremental sales from 1995 and 1996
acquisitions offset by a slight decline in prices,
particularly in Canada. Income from ongoing operations for
Building Materials increased 14% from 1995 levels due to
acquisitions, increased sales volumes and the improving
performance in our Asia Pacific operation.
Building Materials sales in the U.S. increased 11% and
Canada also posted improvement in 1996. This improvement in
the North American markets is being driven by the Company's
integration of its expanded product line from acquisitions
and branded products into the Company's well established
channels of distribution. The expanded product line
includes Luminess(TM) vinyl windows, Transitions(R) vinyl
siding and FOAMULAR(R) rigid polystyrene foam insulation.
The third quarter 1996 acquisition of Celfortec, a Canadian
producer of FOAMULAR(R) insulation, also contributed to
Building Materials growth in North America. Building
Materials Europe sales increased 11% over 1995, primarily
from the second quarter 1996 acquisition of the extruded
polystyrene foam business of Linpac Insulation, with
production facilities in the U.K. and Spain. With these
acquisitions in the extruded polystyrene foam operations in
Europe and Canada and the joint venture announced in 1996 to
produce foam insulation in China, the Company has
significantly expanded its global position in the foam
insulation business as part of the Company's global building
systems strategy.
In 1996, the Company's roofing business continued to
increase sales and improve margins through volume increases
and productivity initiatives. The window business also
continued to experience significant sales growth and
productivity improvements during the year. Additionally, in
second quarter 1996 the Company acquired the U.S. assets of
Partek Insulation, a producer of rock mineral wool
insulation, which has expanded the Company's insulation
product offering into the high temperature insulation
market. The Company further expanded its Building Materials
multi-product offering in 1996 with the introduction of the
branded products, Bild-R-Tape(R) used to seal sheathing
joints and PinkSeal(TM) foam sealant.
In the Composite Materials segment, sales decreased 5% for
the year ended December 31, 1996. This sales decrease is
primarily the result of sluggish European reinforcements
business as well as a decline in the Canadian market, while
in the U.S., composites sales remained relatively flat.
Income from ongoing operations posted a 4% increase over the
prior year, reflecting improved operating performance and
productivity improvements, particularly in the U.S.
In 1996, the Company announced three new large diameter
glass reinforced plastic (GRP) pipe joint ventures, one in
Colombia, Egypt and Turkey. GRP pipe is used primarily in
water and wastewater systems. In addition to these
ventures, the Company also formed an application development
center in India and announced plans for similar such centers
in Brazil and China, to develop and promote the use of
composite materials as a replacement of more traditional
materials.
At the end of 1996, the Company announced the acquisition of
the remainder of the equity interest in Knytex(R), a
manufacturer of specialty glass fiber fabrics. This
business, which knits, weaves, stitches or bonds glass fiber
to provide value-added performance characteristics, will be
combined with the Company's existing European specialty
fabrics business to form Owens Corning Fabrics.
-18-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company's cost of borrowed funds for the year ended
December 31, 1996 was $77 million, $10 million lower than
1995. The average total debt outstanding during the year
decreased substantially in 1996 compared to 1995 as the
result of the mid-year 1995 conversion of $173 million of
the Company's 8% convertible junior subordinated debentures
into shares of common stock, combined with the issuance of
$200 million of convertible preferred securities. In 1996,
the Company averaged short-term debt of $129 million,
approximately $55 million lower than in 1995. The average
debt reduction, together with lower average short-term
interest rates, contributed to the lower cost of borrowed
funds in 1996. Additionally, due to several large
construction projects, interest capitalized in 1996
increased about $4 million over 1995. Please see Notes 2 and
3 to the Consolidated Financial Statements.
At December 31, 1996, certain of the Company's foreign
subsidiaries and state tax jurisdictions, have combined tax
net operating loss carryforwards the benefit of which is
approximately $63 million. The Company has $580 million in
net deferred tax assets at December 31, 1996, all of which
management expects will be realized through future income
from operations. Please see Note 8 to the Consolidated
Financial Statements.
LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED MATTERS
Cash flow from operations, excluding proceeds from insurance
and payments for asbestos litigation claims, was $501
million for 1996, compared to $342 million for 1995. The
increase in cash flow from operations in 1996 relates to an
increase in accounts payable and accrued liabilities offset
in part by an increase in inventory. Additionally, 1995 cash
flow from operations was reduced by $64 million for the
December 1995 funding of a Voluntary Employee's Beneficiary
Association (VEBA) trust. The 1996 cash flow from
operations reflects the disbursements for benefits from the
VEBA trust and collection of a tax receivable. Please see
Note 6 to the Consolidated Financial Statements.
At December 31, 1996, the Company's net working capital and
current ratio were negative $163 million and .85, compared
to negative $9 million and .99 at December 31, 1995, and
negative $143 million and .87 at December 31, 1994,
respectively. The decrease in 1996 was primarily due to
increased accounts payable and accrued liabilities, and also
a larger current asbestos liability, offset somewhat by
increased inventories. Excluding the impact of short-term
borrowings used to finance a $110 million U.K. acquisition
in June 1994, the Company's net working capital was negative
$33 million and its current ratio was .97 at December 31,
1994.
The Company's total borrowings at December 31, 1996, were
$934 million, $41 million higher than at year-end 1995,
still within the Company's target debt levels. The increase
in debt is primarily the result of acquisitions and
increases in inventory levels.
During 1995, virtually all of the Company's $173 million
issue of 8% convertible junior subordinated debentures were
converted. Debentures not converted were redeemed for cash.
The conversion resulted in the issuance of 5.8 million new
shares of common stock. Also in 1995, Owens-Corning
Capital, L.L.C., a Delaware limited liability company, of
which all of the common limited company interests are
indirectly owned by the Company, issued $200 million of 6.5%
cumulative convertible preferred securities. The proceeds
from the issuance were loaned to the Company and partially
used to repay a short-term credit facility. Please see Note
4 to the Consolidated Financial Statements.
-19-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
As of December 31, 1996, the Company had unused lines of
credit of $440 million available under long-term bank credit
facilities and an additional $195 million under short-term
facilities, compared to $358 million and $239 million,
respectively, at year-end 1995. The net increase in unused
available lines of credit reflects primarily a decrease in
outstanding letters of credit supporting appeals from
asbestos trials. Such letters of credit reduce credit
availability under the Company's long-term U.S. credit
facility.
Capital spending for property, plant and equipment,
excluding acquisitions, was $325 million during 1996. The
Company anticipates 1997 capital spending, exclusive of
acquisitions and investment in affiliates, will be
approximately $210 million. The Company expects that
funding for these expenditures will be from the Company's
operations and external sources as required.
Gross payments for asbestos litigation claims during 1996,
including $44 million in defense costs and $11 million for
appeal bond and other costs, were $267 million. Proceeds
from insurance were $101 million resulting in a net pretax
cash outflow of $166 million, or $100 million after-tax.
During 1996, the Company received approximately 36,400 new
asbestos personal injury cases and closed approximately
22,700 cases. During 1997, the Company's total payments for
asbestos litigation claims, including defense costs, are
expected to be approximately $300 million. Proceeds from
insurance of $100 million are expected to be available to
cover these costs, resulting in a net pretax cash outflow of
$200 million, or $120 million after-tax. Please see Note 21
to the Consolidated Financial Statements.
The Company expects funds generated from operations,
together with funds available under long and short term bank
credit facilities, to be sufficient to satisfy its debt
service obligations under its existing indebtedness, as well
as its contingent liabilities for uninsured asbestos
personal injury claims.
In June 1996 the Company filed a lawsuit in federal court in
New Orleans alleging a massive scheme to defraud the Company
in connection with asbestos litigation cases. The suit
alleges that medical test results in tens of thousands of
asbestos litigation claims were falsified by the owners and
operators of certain pulmonary function testing
laboratories. A second lawsuit, alleging similar practices,
was filed against the owner and operator of an additional
testing laboratory in February 1997. The Company believes
that at least 40,000 claims in its current backlog involve
plaintiffs whose pulmonary function tests were improperly
administered or manipulated by the testing laboratories or
otherwise inconsistent with proper medical practice.
The Company has been deemed by the Environmental Protection
Agency (EPA) to be a potentially responsible party (PRP)
with respect to certain sites under the Comprehensive
Environmental Response, Compensation and Liability Act
(Superfund). The Company has also been deemed a PRP under
similar state or local laws, including two state Superfund
sites where the Company is the primary generator. In other
instances, other PRPs have brought suits or claims against
the Company as a PRP for contribution under such federal,
state or local laws. During 1996, the Company was
designated as a PRP in such federal, state, local or private
proceedings for five additional sites. At December 31,
1996, a total of 39 such PRP designations remained
unresolved by the Company, some of which designations the
Company believes to be erroneous. The Company is also
involved with environmental investigation or remediation at
a number of other sites at which it has not been designated
a PRP. The Company has established a $17 million reserve
for its Superfund (and similar state, local and private
action) contingent liabilities. Based upon information
presently available to the Company, and without regard to
the application of insurance, the Company believes
-20-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
that, considered in the aggregate, the additional costs
associated with such contingent liabilities, including any
related litigation costs, will not have a materially adverse
effect on the Company's results of operations, financial
condition or long-term liquidity.
The 1990 Clean Air Act Amendments (Act) provide that the EPA
will issue regulations on a number of air pollutants over a
period of years. Until these regulations are developed, the
Company cannot determine the extent to which the Act will
affect it. The Company anticipates that its sources to be
regulated will include glass fiber manufacturing and asphalt
processing activities. The EPA's announced schedule is to
issue regulations covering glass fiber manufacturing by late
1997 and asphalt processing activities by late 2000, with
implementation as to existing sources up to three years
thereafter. Based on information now known to the Company,
including the nature and limited number of regulated
materials it emits, the Company does not expect the Act to
have a materially adverse effect on the Company's results of
operations, financial condition or long-term liquidity.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 23 through 71 hereof are incorporated here by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Owens Corning has nothing to report under this Item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF OWENS CORNING
The information required by this Item is incorporated by
reference from the Company's 1997 Proxy Statement except
that certain information concerning Owens Corning's
executive officers is included on pages 11 through 12
hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by
reference from the Company's 1997 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated by
reference from the Company's 1997 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by
reference from the Company's 1997 Proxy Statement.
-21-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT
1. See Index to Financial Statements on page 23 hereof
2. See Index to Financial Statement Schedules on page 72
hereof
3. See Exhibit Index beginning on page 74 hereof
Management contracts and compensatory plans and
arrangements required to be filed as an exhibit pursuant
to Item 14(c) of Form 10-K are denoted in the Exhibit
Index by an asterisk ("*").
(b) REPORTS ON FORM 8-K
During the fourth quarter of 1996, the Company filed a
current report on Form 8-K, dated December 19, 1996, under
Item 5, "Other Events".
-22-
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
OWENS CORNING
By /s/ G. H. Hiner Date March 14, 1997
Glen H. Hiner, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities
and on the dates indicated.
/s/ G. H. Hiner Date March 14, 1997
Glen H. Hiner, Chairman of the Board,
Chief Executive Officer and Director
/s/ David W. Devonshire Date March 14, 1997
David W. Devonshire, Senior Vice
President and Chief Financial Officer
/s/ Steven J. Strobel Date March 14, 1997
Steven J. Strobel, Vice President and
Controller
/s/ Norman P. Blake Jr. Date March 18, 1997
Norman P. Blake, Jr., Director
/s/ Leonard S. Coleman Jr. Date March 16, 1997
Leonard S. Coleman, Jr., Director
/s/ William Colville Date March 19, 1997
William W. Colville, Director
/s/ John H. Dasburg Date March 14, 1997
John H. Dasburg, Director
/s/ Landon Hilliard Date March 14, 1997
Landon Hilliard, Director
/s/ Trevor Holdsworth Date March 17, 1997
Trevor Holdsworth, Director
/s/ Jon M. Huntsman, Jr. Date March 14, 1997
Jon M. Huntsman, Jr., Director
/s/ Ann Iverson Date March 18, 1997
Ann Iverson, Director
/s/ W. Walker Lewis Date March 15, 1997
W. Walker Lewis, Director
/s/ Furman C. Moseley Date March 19, 1997
Furman C. Moseley, Jr., Director
/s/ W. Ann Reynolds Date March 17, 1997
W. Ann Reynolds, Director
-23-
INDEX TO FINANCIAL STATEMENTS
Item Page
Report of Independent Public Accountants 24
Summary of Significant Accounting Policies 25-26
Consolidated Statement of Income - for the
years ended December 31, 1996, 1995 and 1994 27-28
Consolidated Balance Sheet -
December 31, 1996 and 1995 29-30
Consolidated Statement of Stockholders' Equity -
for the years ended December 31, 1996, 1995 and 1994 31
Consolidated Statement of Cash Flows - for the years
ended December 31, 1996, 1995 and 1994 32-33
Notes to Consolidated Financial Statements
Notes 1 through 22 34-71
-24-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Owens Corning:
We have audited the accompanying consolidated balance sheet
of OWENS CORNING (a Delaware corporation) and subsidiaries
as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and
cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Owens Corning and subsidiaries as of December
31, 1996 and 1995, and the results of their operations and
their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in Notes 6 and 19 to the consolidated financial
statements, effective January 1, 1994, the Company changed
its methods of accounting for postretirement benefits other
than pensions for its non-U.S. plans, postemployment
benefits and furnace rebuilds.
Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The
schedule listed in the Index to Financial Statement
Schedules is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required
to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
January 18, 1997
Toledo, Ohio
-25-
OWENS CORNING AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
Owens Corning and subsidiaries' (the "Company") consolidated
financial statements include the accounts of majority owned
subsidiaries. Significant intercompany accounts and
transactions are eliminated.
Net Income per Share
Primary net income per share is computed using the weighted
average number of common shares outstanding and dilutive
common equivalent shares during the period. Fully diluted
net income per share reflects the dilutive effect of
increased shares that would result from the conversion of
debt and equity securities which are not treated as common
stock equivalents. The effects of anti-dilution are not
presented. Unless otherwise indicated, all per share
information included in the notes to the consolidated
financial statements is presented on a fully diluted basis.
Inventory Valuation
Inventories are stated at cost, which is less than market
value, and include material, labor and manufacturing
overhead. The majority of U.S. inventories are valued using
the last-in, first-out (LIFO) method and the balance of
inventories are generally valued using the first-in, first-
out (FIFO) method.
Intangible Assets
Intangible assets consist primarily of goodwill, patents and
covenants not to compete and are carried at cost less
accumulated amortization. Goodwill is amortized on a
straight-line basis over a period of forty years. Other
intangible assets are amortized over their estimated useful
lives or actual contractual lives. The Company continually
evaluates whether events and circumstances have occurred
that indicate the remaining estimated useful lives of
intangible assets may warrant revision or that the remaining
balance of these intangible assets may not be recoverable.
When factors indicate that intangible assets should be
evaluated for possible impairment, the Company uses an
estimate of the related business segment's undiscounted cash
flows over the remaining life of the intangible asset in
measuring whether the intangible asset is recoverable.
Investments in Affiliates
Investments in affiliates are accounted for using the equity
method, under which the Company's share of earnings of these
affiliates is reflected in income as earned and dividends
are credited against the investment in affiliates when
received.
Capitalization of Software Developed for Internal Use
The Company capitalizes the direct external and internal
costs incurred in connection with the development, testing
and installation of software for internal use. Internally
developed software is included in plant and equipment and is
amortized over its estimated useful life using the straight-
line method.
-26-
OWENS CORNING AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Rebuilding of Glass Melting Furnaces
The Company's glass melting furnaces periodically require
substantial rebuilding. The Company applies the capital
method of accounting for the cost of rebuilding glass
melting furnaces. Under this method, costs are capitalized
when incurred and depreciated over the estimated useful
lives of the rebuilt furnaces.
Depreciation
For assets placed in service prior to January 1, 1992, the
Company's plant and equipment is depreciated primarily using
the double-declining balance method for the first half of an
asset's estimated useful life and the straight-line method
is used thereafter. For assets placed in service after
December 31, 1991, the Company's plant and equipment is
depreciated using the straight-line method.
Derivative Financial Instruments
Gains and losses on hedges of existing assets or liabilities
are included in the carrying amount of those assets or
liabilities and are ultimately recognized in income as part
of those carrying amounts. Gains and losses on hedges of
net investments in foreign subsidiaries are included in
stockholders' equity. Gains and losses related to
qualifying hedges of firm commitments or anticipated
transactions also are deferred and are recognized in income
or as adjustments of carrying amounts when the hedged
transaction occurs. Gains and losses on forward currency
exchange contracts that do not qualify as hedges are
recognized as other income or expense.
Stock Based Compensation Plans
The Company applies Statement of Financial Accounting
Standards No. 123 (SFAS 123) in accounting for its stock
based compensation plans. In accordance with SFAS 123 the
Company applies Accounting Principles Board Opinion No. 25
and related Interpretations for expense recognition.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
Reclassifications
Certain reclassifications have been made to 1995 and 1994 to
conform with the classifications used in 1996.
-27-
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
(In millions of dollars, except share data)
NET SALES $ 3,832 $ 3,612 $ 3,351
COST OF SALES 2,834 2,670 2,536
Gross margin 998 942 815
OPERATING EXPENSES
Marketing and administrative expenses 506 443 391
Science and technology expenses (Note 9) 84 78 71
Provision for asbestos litigation claims
(Note 21) 875 - -
Restructure costs (Note 18) 38 - 89
Other (Notes 2, 4, 10, 12, 18 and 20) (1) 9 38
Total operating expenses 1,502 530 589
INCOME (LOSS) FROM OPERATIONS (504) 412 226
Cost of borrowed funds
(Notes 2, 3 and 20) 77 87 94
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES (581) 325 132
Provision (Credit) for income taxes
(Note 8) (288) 106 58
INCOME (LOSS) BEFORE EQUITY IN NET
INCOME OF AFFILIATES (293) 219 74
Equity in net income of affiliates
(Notes 5 and 12) 9 12 -
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGES (284) 231 74
Cumulative effect of accounting changes
(Notes 6 and 19) - - 85
NET INCOME (LOSS) $ (284) $ 231 $ 159
The accompanying summary of significant accounting policies and notes
are an integral part of this statement.
-28-
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Continued)
1996 1995 1994
(In millions of dollars, except share data)
NET INCOME PER COMMON SHARE
Primary:
Income (loss) before cumulative
effect of accounting changes $ (5.50) $ 4.64 $ 1.70
Cumulative effect of accounting
changes (Notes 6 and 19) - - 1.91
Net income (loss) per share $ (5.50) $ 4.64 $ 3.61
Assuming full dilution:
Income (loss) before cumulative
effect of accounting changes $ (5.50) $ 4.40 $ 1.66
Cumulative effect of accounting
changes (Notes 6 and 19) - - 1.69
Net income (loss) per share $ (5.50) $ 4.40 $ 3.35
Weighted average number of common
shares outstanding and common
equivalent shares during the
period (in millions)
Primary 51.7 49.7 44.2
Assuming full dilution 51.7 54.1 50.0
The accompanying summary of significant accounting policies and notes
are an integral part of this statement.
-29-
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
(In millions of dollars)
CURRENT
Cash and cash equivalents $ 45 $ 18
Receivables, less allowances of
$17 million in 1996 and $19
million in 1995 (Note 10) 314 314
Inventories (Note 11) 340 253
Insurance for asbestos litigation
claims - current portion (Note 21) 100 100
Deferred income taxes (Note 8) 106 70
VEBA trust (Note 6) 19 51
Income tax receivable 4 50
Investment in affiliate held for sale
(Note 12) - 36
Other current assets 30 35
Total current 958 927
OTHER
Insurance for asbestos litigation claims
(Note 21) 454 330
Deferred income taxes (Note 8) 474 252
Goodwill, less accumulated amortization
of $26 million in 1996 and $19 million
in 1995 (Note 5) 286 249
Investments in affiliates
(Notes 5 and 12) 64 50
Other noncurrent assets (Note 6 and 7) 155 147
Total other 1,433 1,028
PLANT AND EQUIPMENT, at cost
Land 58 52
Buildings and leasehold improvements 614 581
Machinery and equipment 2,384 2,266
Construction in progress 285 168
3,341 3,067
Less: Accumulated depreciation (1,819) (1,761)
Net plant and equipment 1,522 1,306
TOTAL ASSETS $ 3,913 $ 3,261
The accompanying summary of significant accounting policies and notes
are an integral part of this statement.
-30-
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - DECEMBER 31, 1996 AND 1995
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
(In millions of dollars)
CURRENT
Accounts payable and accrued liabilities
(Note 13) $ 705 $ 587
Reserve for asbestos litigation claims -
current portion (Note 21) 300 250
Short-term debt (Note 3) 96 64
Long-term debt - current portion
(Note 2) 20 35
Total current 1,121 936
LONG-TERM DEBT (Note 2) 818 794
OTHER
Reserve for asbestos litigation
claims (Note 21) 1,670 887
Other employee benefits liability
(Note 6) 349 367
Pension plan liability (Note 7) 63 75
Other (Note 20) 161 220
Total other 2,243 1,549
COMMITMENTS AND CONTINGENCIES
(Notes 15, 20 and 21)
COMPANY OBLIGATED CONVERTIBLE
SECURITY OF SUBSIDIARY HOLDING
SOLELY PARENT DEBENTURES
(MIPS, Note 4) 194 194
MINORITY INTEREST 21 -
STOCKHOLDERS' EQUITY
Preferred stock, no par value;
authorized 8 million shares,
none outstanding (Note 17)
Common stock, par value $.10
per share; authorized 100
million shares; issued
1996-52.1 million and 1995-51.4 million
shares (Notes 2, 5 and 16) 606 579
Deficit (1,072) (781)
Foreign currency translation adjustments (1) 9
Other (Note 7) (17) (19)
Total stockholders' equity (484) (212)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 3,913 $ 3,261
The accompanying summary of significant accounting policies and notes
are an integral part of this statement.
-31-
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
(In millions of dollars)
COMMON STOCK
Balance beginning of year $ 579 $ 348 $ 315
Issuance of stock for:
Conversion of debt
(Note 2) - 173 -
Acquisitions (Note 5) 20 42 27
Awards under stock compensation
plans (Note 16) 7 16 6
Balance end of year 606 579 348
DEFICIT
Balance beginning of year (781) (1,012) (1,171)
Net income (loss) (284) 231 159
Cash dividends declared (7) - -
Balance end of year (1,072) (781) (1,012)
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS
Balance beginning of year 9 (1) 5
Translation adjustments (10) 10 (6)
Balance end of year (1) 9 (1)
OTHER
Balance beginning of year (19) (15) (18)
Net increase (decrease) 2 (4) 3
Balance end of year (17) (19) (15)
STOCKHOLDERS' EQUITY $ (484) $ (212) $ (680)
The accompanying summary of significant accounting policies and notes
are an integral part of this statement.
-32-
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
(In millions of dollars)
NET CASH FLOW FROM OPERATIONS
Net income (loss) $ (284) $ 231 $ 159
Reconciliation of net cash
provided by operating activities:
Noncash items:
Provision for asbestos litigation
claims (Note 21) 875 - -
Cumulative effect of accounting
changes (Notes 6 and 19) - - (85)
Provision for depreciation and
amortization 132 125 118
Provision (credit) for deferred
income taxes (Note 8) (258) 142 59
Other 7 5 9
(Increase) decrease in
receivables (Note 10) 20 36 21
(Increase) decrease in inventories (71) (15) 17
Increase (decrease) in accounts payable
and accrued liabilities 103 (50) 53
Disbursements (funding) of VEBA trust
(Note 6) 45 (64) -
Proceeds from insurance for asbestos
litigation claims (Note 21) 101 251 87
Payments for asbestos litigation claims
(Note 21) (267) (308) (215)
Other (68) (68) 10
Net cash flow from operations 335 285 233
NET CASH FLOW FROM INVESTING
Additions to plant and equipment (325) (276) (258)
Investment in subsidiaries, net of
cash acquired (Note 5) (70) (81) (120)
Proceeds from the sale of affiliate
(Note 12) 55 - -
Other (20) (4) 23
Net cash flow from investing $ (360) $ (361) $ (355)
The accompanying summary of significant accounting policies and notes
are an integral part of this statement.
-33-
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Continued)
1996 1995 1994
(In millions of dollars)
NET CASH FLOW FROM FINANCING
(Notes 2, 3 and 4)
Net additions to long-term
credit facilities $ 39 $ 55 $ 10
Other additions to long-term debt 22 9 145
Other reductions to long-term debt (43) (128) (51)
Net increase (decrease) in
short-term debt 32 (94) 69
Issuance of preferred stock of
subsidiary, net of fees - 194 -
Dividends paid (3) - -
Other 3 - 5
Net cash flow from financing 50 36 178
Effect of exchange rate changes
on cash 2 (1) -
Net increase (decrease) in cash
and cash equivalents 27 (41) 56
Cash and cash equivalents at
beginning of year 18 59 3
Cash and cash equivalents at end
of year $ 45 $ 18 $ 59
The accompanying summary of significant accounting policies and notes
are an integral part of this statement.
-34-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Segment Data
The Company operates in two industry segments, Building
Materials and Composite Materials, and reports its results
in two ways: by industry segment and by geographic segment.
See Note 5 for detail of 1996, 1995 and 1994 acquisitions
and divestitures of businesses.
The industry segments are defined as follows:
Building Materials
Production and sale of glass wool fibers formed
into thermal and acoustical insulation and air
ducts; extruded and expanded polystyrene
insulation; roofing shingles and asphalt materials;
windows; and the branded sale of patio doors, vinyl
siding and housewrap.
Composite Materials
Production and sale of glass fiber yarns; rovings,
mats and veils; strand and reinforcement products;
glass reinforced plastic pipe; and polyester and
vinyl ester resins.
Geographic segment reporting combines the two industry
segments within the major regions: United States, Europe,
and Canada and other.
Intersegment sales are generally recorded at market or
equivalent value. Income (loss) from operations by industry
and geographic segment consists of net sales less related
costs and expenses. In computing income (loss) from
operations by segment, cost of borrowed funds and other
general corporate income and expenses have been excluded.
Certain corporate operating expenses directly traceable to
industry and geographic segments have been allocated to
those segments.
Income from operations for the year ended December 31, 1996
includes a pretax charge of $43 million for restructuring
and other actions (Note 18); a net pretax charge of $875
million for asbestos litigation claims that may be received
after 1999 and probable additional insurance recovery (Note
21); a pretax gain of $37 million from the sale of the
Company's interest in its former Japanese affiliate Asahi
Fiber Glass Co. Ltd. (Note 12); and charges totaling $42
million including valuation adjustments associated with
prior divestitures, major product line productivity
initiatives and a contribution to the Owens-Corning
Foundation. The impact of these special items was to reduce
income from operations for Building Materials in the United
States, Europe, and Canada and other by $42 million, $5
million and $3 million, respectively; Composite Materials in
the United States and Europe by $5 million and $7 million,
respectively; and to increase general corporate expense by
$861 million.
-35-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. Segment Data (Continued)
During the first quarter of 1994, the Company recorded a
$117 million pretax charge for productivity initiatives and
other actions (Note 18). The impact of this charge was to
reduce income from operations for Building Materials in the
United States and Canada and other by $50 million and $20
million respectively; Composite Materials in the United
States, Europe, and Canada and other by $6 million, $13
million, and $3 million, respectively; and to increase
general corporate expense by $25 million.
Identifiable assets by industry and geographic segment are
those assets that are used in the Company's operations in
each industry and geographic segment and do not include
general corporate assets. General corporate assets consist
primarily of cash and cash equivalents, VEBA trust, deferred
taxes, asbestos insurance, and corporate property and
equipment.
-36-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. Segment Data (Continued)
NET SALES 1996 1995 1994
(In millions of dollars)
Industry Segments
Building Materials
United States $ 2,253 $ 2,033 $ 1,952
Europe 294 264 182
Canada and other 140 107 139
Total Building Materials 2,687 2,404 2,273
Composite Materials
United States 613 610 595
Europe 400 459 355
Canada and other 132 139 128
Total Composite Materials 1,145 1,208 1,078
Intersegment sales
Building Materials - - -
Composite Materials 110 96 99
Eliminations (110) (96) (99)
Net sales $ 3,832 $ 3,612 $ 3,351
Geographic Segments
United States $ 2,866 $ 2,643 $ 2,547
Europe 694 723 537
Canada and other 272 246 267
3,832 3,612 3,351
Intersegment sales
United States 98 54 43
Europe 37 21 22
Canada and other 81 88 91
Eliminations (216) (163) (156)
Net sales $ 3,832 $ 3,612 $ 3,351
-37-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. Segment Data (Continued)
INCOME (LOSS) FROM OPERATIONS 1996 1995 1994
(In millions of dollars)
Industry Segments
Building Materials
United States $ 193 $ 195 $ 145
Europe 16 29 26
Canada and other 10 13 18
Total Building Materials 219 237 189
Composite Materials
United States 165 135 108
Europe 39 64 (8)
Canada and other 18 26 9
Total Composite Materials 222 225 109
General corporate expense (945) (50) (72)
Income (loss) from operations (504) 412 226
Cost of borrowed funds (77) (87) (94)
Income (loss) before provision for
income taxes $ (581) $ 325 $ 132
Geographic Segments
United States $ 358 $ 330 $ 253
Europe 55 93 18
Canada and other 28 39 27
General corporate expense (945) (50) (72)
Income (loss) from operations (504) 412 226
Cost of borrowed funds (77) (87) (94)
Income (loss) before provision
for income taxes $ (581) $ 325 $ 132
-38-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. Segment Data (Continued)
IDENTIFIABLE ASSETS AT
DECEMBER 31,
1996 1995 1994
(In millions of dollars)
Industry Segments
Building Materials
United States $ 971 $ 893 $ 718
Europe 239 170 162
Canada and other 277 194 136
Total Building Materials 1,487 1,257 1,016
Composite Materials
United States 385 361 326
Europe 455 388 335
Canada and other 239 145 160
Total Composite Materials 1,079 894 821
General corporate 1,283 1,024 1,363
3,849 3,175 3,200
Investments in affiliates accounted
for under the equity method 64 86 74
Total assets $ 3,913 $ 3,261 $ 3,274
Geographic Segments
United States $ 1,356 $ 1,254 $ 1,044
Europe 694 558 497
Canada and other 516 339 296
General corporate 1,283 1,024 1,363
3,849 3,175 3,200
Investments in affiliates accounted
for under the equity method 64 86 74
Total assets $ 3,913 $ 3,261 $ 3,274
-39-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. Segment Data (Continued)
PROVISION FOR DEPRECIATION
AND AMORTIZATION 1996 1995 1994
(In millions of dollars)
Industry Segments
Building Materials
United States $ 52 $ 49 $ 48
Europe 14 11 6
Canada and other 6 8 8
Total Building Materials 72 68 62
Composite Materials
United States 22 22 22
Europe 18 18 17
Canada and other 8 7 8
Total Composite Materials 48 47 47
General corporate 12 10 9
Total provision for depreciation
and amortization $ 132 $ 125 $ 118
Geographic Segments
United States $ 74 $ 71 $ 70
Europe 32 29 23
Canada and other 14 15 16
General corporate 12 10 9
Total provision for depreciation
and amortization $ 132 $ 125 $ 118
-40-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. Segment Data (Continued)
ADDITIONS TO PLANT AND EQUIPMENT
1996 1995 1994
(In millions of dollars)
Industry Segments
Building Materials
United States $ 95 $ 60 $ 85
Europe 10 36 41
Canada and other 36 33 7
Total Building Materials 141 129 133
Composite Materials
United States 63 37 41
Europe 30 39 35
Canada and other 34 18 26
Total Composite Materials 127 94 102
General corporate 57 53 23
Total additions $ 325 $ 276 $ 258
Geographic Segments
United States $ 158 $ 97 $ 126
Europe 40 75 76
Canada and other 70 51 33
General corporate 57 53 23
Total additions $ 325 $ 276 $ 258
-41-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. Long-Term Debt
1996 1995
(In millions of dollars)
Unsecured U.S. credit facility due in
1999, variable $ 35 $ 55
Unsecured U.K. credit facility due
through 2001, variable 59 -
Unsecured European credit facilities due
through 2002, variable 41 40
Unsecured Canadian credit facility due in
1999, variable - -
Guaranteed debentures due in 2001, 10% 150 150
Debentures due in 2002, 8.875% 150 150
Debentures due in 2012, 9.375% 150 150
Guaranteed debentures due in 1998, 9.8% 100 100
Eurobonds due through 2001, 9.814%
(Note 20) 54 63
Bonds due in 2000, 7.25%, payable in
Deutsche marks (Note 20) 50 50
Notes due through 2002, 6.06% to 8.50%,
payable in foreign currencies 14 26
Other long-term debt due through 2012, at
rates from 5.375% to 12.47% 35 45
838 829
Less: Current portion (20) (35)
Total long-term debt $ 818 $ 794
The U.S. credit facility has a maximum commitment of $475
million at December 31, 1996, of which $109 million was used
for standby letters of credit and $331 million was unused.
The rate of interest is either the bank's base rate, or .81%
over the certificate of deposit rate, or .5% over the London
Interbank Offered Rate (LIBOR). The rate of interest on
this facility was 6.125% at December 31, 1996. A commitment
fee of 1/5 of 1% is charged on the unused portions of this
facility.
The U.K. credit facility, payable in British pounds, has a
commitment of 35 million British pounds ($59 million U.S.
dollars) all of which was used at December 31, 1996. The
rate of interest on the facility was 6.61% at December 31,
1996. The commitment fee on any unused portion of the
facility was .31% at December 31, 1996.
-42-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. Long-Term Debt (Continued)
The European credit facilities, payable in Belgian francs,
have an aggregate commitment of 1.6 billion Belgian francs
($51 million U.S. dollars) of which 300 million Belgian
francs ($10 million U.S. dollars) was unused at December 31,
1996. The rate of interest on the facilities ranges from
3.78% to 3.89% at December 31, 1996. The commitment fee on
the unused portions of the facilities range from 3/20 to 1/4
of 1%.
The Canadian credit facility is payable in Canadian dollars
and has a maximum commitment of 135 million Canadian dollars
($99 million U.S. dollars), all of which was unused at
December 31, 1996. The rate of interest is either .69% over
the Canadian cost of funds rate, or .5% over LIBOR on U.S.
deposits, or .6% over the Canadian bankers' acceptance rate.
A commitment fee of 1/5 of 1% is charged on the unused
portions of this facility.
As is typical for bank credit facilities, the agreements
relating to the facilities described above contain
restrictive covenants, including requirements for the
maintenance of working capital, interest coverage, and
minimum coverage of fixed charges; and limitations on the
early retirement of subordinated debt, additional
borrowings, payment of dividends, and purchase of Company
stock. The agreements include a provision which would
result in all of the unpaid principal and accrued interest
of the facilities becoming due immediately upon a change of
control in ownership of the Company. A material adverse
change in the Company's business, assets, liabilities,
financial condition or results of operations constitutes a
default under the agreements.
During 1995, the Company's $173 million issue of 8%
convertible junior subordinated debentures were converted.
The conversion resulted in the issuance of 5.8 million new
shares of common stock. In conjunction with the conversion
of the debentures, the Company paid fees of approximately $3
million which are reflected as other expenses on the
Company's consolidated statement of income for the year
ended December 31, 1995.
In November 1994, Owens-Corning Finance (U.K.) plc, a wholly-
owned subsidiary of the Company, issued $140 million of
Eurobonds. These bonds are convertible into fixed rate
preference shares of Owens-Corning Finance (U.K.) plc in
November 2004 and may be redeemed at any time, at a premium,
at the option of the Company. The bonds are guaranteed by
the Company as to payments of principal and interest and
rank similarly with all other senior unsecured debt of the
Company. In May 1995, the Company repurchased a portion of
the $140 million issue of Eurobonds for $77 million.
-43-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. Long-Term Debt (Continued)
The aggregate maturities and sinking fund requirements for
all long-term debt issues for each of the five years
following December 31, 1996 are:
Credit Other Long-
Year Facilities Term Debt
(In millions of dollars)
1997 $ 8 $ 12
1998 17 115
1999 62 22
2000 27 73
2001 21 171
3.Short-Term Debt
1996 1995
(In millions of dollars)
Balance outstanding at December 31 $ 96 $ 64
Weighted average interest rates on
short-term debt outstanding at
December 31 6.2% 7.5%
In 1996 and 1995 the Company entered into two revolving
credit agreements. During each quarter the Company may
borrow up to a predetermined amount from $5 million to $6
million in 1996 and $13 million to $16 million in 1995. The
amount borrowed may be repaid in U.S. dollars at less than
or equal to the original borrowing, based upon predetermined
British pound or Belgian franc currency exchange rates. The
agreements are in effect through 1997 and bear interest at
market rates in effect at the time of each borrowing.
The Company had unused short-term lines of credit totaling
$195 million and $239 million at December 31, 1996 and 1995,
respectively.
In May 1995 the Company repaid its unsecured, variable rate,
short-term bank credit facility that was used to finance the
1994 U.K. acquisition (Note 5). This facility had a maximum
commitment of $110 million at December 31, 1994.
-44-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. Convertible Monthly Income Preferred Securities (MIPS)
In May 1995, Owens-Corning Capital, L.L.C. ("OC Capital"), a
Delaware limited liability company, all of the common
limited liability company interests in which are owned
indirectly by the Company, completed a private offering of 4
million shares of Convertible Monthly Income Preferred
Securities ("preferred securities"). The aggregate purchase
price for the offering was $200 million. In conjunction
with the offering, the Company incurred $6 million in
issuance costs.
The preferred securities are guaranteed in certain respects
by the Company and are convertible, at the option of the
holders, into Company common stock at the rate of 1.1416
shares of Company common stock for each preferred security
(equivalent to a conversion price of $43.80 per common
share). OC Capital cannot initiate any action relating to
conversion until after June 1, 1998. Distributions on the
preferred securities are cumulative and are payable at the
annual rate of 6-1/2 percent of the liquidation preference
of $50 per preferred security. Distributions of $13 million
and $8 million have been recorded as other expenses on the
Company's consolidated statement of income for the years
ended December 31, 1996 and 1995, respectively.
The Company issued $200 million of 6-1/2 percent Convertible
Subordinated Debentures due 2025 to OC Capital, which
represents the sole asset of OC Capital, in exchange for the
proceeds of the offering. The Company used the proceeds to
repay the $110 million short-term bank credit facility
utilized for the 1994 U.K. acquisition (Note 5), with the
balance used to reduce borrowings under the Company's
revolving credit facilities.
5. Acquisitions and Divestitures of Businesses
During 1996, 1995 and 1994, the Company made several
acquisitions in the Building Materials segment in the United
States and Europe, which were consummated through the
exchange of various combinations of common stock and cash.
The aggregate purchase price including possible subsequent
contingent consideration was $89 million, $126 million and
$155 million for 1996, 1995 and 1994, respectively. The
1996 acquisitions exchanged 472,250 shares of the Company's
common stock and $69 million in cash. The 1995 acquisitions
exchanged 946,922 shares of the Company's common stock and
$82 million in cash of which $1 million was paid in the
first quarter of 1996. The 1994 acquisitions exchanged
855,556 shares of the Company's common stock and $120
million in cash, net of cash acquired, for all of the assets
and liabilities of the companies acquired. The incremental
sales from the acquisitions, in the year of acquisition,
were $47 million, $41 million and $134 million for the years
ended December 31, 1996, 1995 and 1994, respectively.
The largest of these acquisitions was the $110 million 1994
acquisition of Pilkington Insulation Limited and Kitsons
Insulation Products Limited, the United Kingdom based
insulation manufacturing and industrial supply businesses of
Pilkington PLC.
-45-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. Acquisitions and Divestitures of Businesses (Continued)
The initial purchase price allocations were based on
preliminary estimates of fair market value and are subject
to revision. The 1996 acquisitions include goodwill of $32
million. The 1995 acquisitions included goodwill of $97
million and non-competition agreements of $3 million. The
1994 acquisitions included goodwill of $78 million and non-
competition agreements of $6 million. The goodwill and non-
competition agreements are being amortized on a straight-
line basis over 40 years and 7 years, respectively.
All acquisitions were accounted for under the purchase
method of accounting, whereby the assets acquired and
liabilities assumed have been recorded at their fair values
and the results of operations for the acquisitions have been
included in the Company's consolidated financial statements
subsequent to the acquisition dates. The pro forma effect of
the acquisitions was not material to net income for the
years ended December 31, 1996, 1995 or 1994.
On September 30, 1994, the Company entered into a joint
venture with Alpha Corporation of Tennessee, whereby the two
companies combined their existing resin businesses to form
Alpha/Owens-Corning, L.L.C., the largest manufacturer of
polyester resins in North America. This joint venture is
being accounted for under the equity method. For the nine
months ended September 30, 1994 resin sales totaled $58
million and were included in the Composite Materials
segment.
Late in the fourth quarter of 1994, the Company completed
the sale of its underground storage tank manufacturing
business. Sales for this business totaled $41 million in
1994 and were included in the Building Materials segment.
6.Postemployment and Postretirement Benefits Other Than
Pensions
The Company and its subsidiaries maintain health care and
life insurance benefit plans for certain retired employees
and their dependents. The health care plans in the U.S. are
unfunded and pay either 1) stated percentages of covered
medically necessary expenses, after subtracting payments by
Medicare or other providers and after stated deductibles
have been met, or, 2) fixed amounts of medical expense
reimbursement. Employees become eligible to participate in
the health care plans upon retirement under one of the
Company's pension plans if they have accumulated 10 years of
service after age 45. Some of the plans are contributory,
with some retiree contributions adjusted annually. The
Company has reserved the right to change or eliminate these
benefit plans subject to the terms of collective bargaining
agreements.
-46-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. Postemployment and Postretirement Benefits Other Than
Pensions (Continued)
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions
for its non-U.S. plans. Accordingly, the projected cost of
postretirement benefits is charged to expense during the
years in which eligible employees render service. The
cumulative effect of the adoption of this standard was a
charge of $10 million, or $.20 per share. (The Company
adopted Statement No. 106 for its U.S. plans effective
January 1, 1991.)
The following table reconciles the status of the accrued
postretirement benefits cost liability at October 31, 1996
and 1995, as reflected on the balance sheet at December 31,
1996 and 1995:
1996 1995
(In millions of dollars)
Accumulated Postretirement Benefits
Obligation:
Retirees $ (191) $ (194)
Fully eligible active plan
participants (28) (21)
Other active plan participants (58) (54)
Funded status (277) (269)
Unrecognized net gain (10) (11)
Unrecognized net reduction in
prior service cost (52) (72)
Benefit payments subsequent to
the valuation date 4 3
Accrued postretirement benefits
cost liability (includes current
liabilities of $22 million and
$19 million in 1996 and 1995,
respectively) $ (335) $ (349)
The net postretirement benefits cost for 1996, 1995 and 1994
included the following components:
1996 1995 1994
(In millions of dollars)
Service cost $ 8 $ 7 $ 8
Interest cost on accumulated post-
retirement benefits obligation 19 19 19
Net amortization and deferral (20) (24) (20)
Net postretirement benefits cost $ 7 $ 2 $ 7
-47-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. Postemployment and Postretirement Benefits Other Than
Pensions (Continued)
For measurement purposes, a 10% annual rate of increase in
the per capita cost of covered health care claims was
assumed for 1997. The rate was assumed to decrease to 9.5%
for 1998, then decrease gradually to 6.0% by 2005. The
health care cost trend rate assumption has a significant
effect on the amounts reported. To illustrate, increasing
the assumed health care cost trend rate by one percentage
point in each year would increase the accumulated
postretirement benefits obligation as of October 31, 1996,
by $16 million and the aggregate of the service and interest
cost components of net postretirement benefits cost for the
year then ended by $2 million. The discount rate used in
determining the accumulated postretirement benefits
obligation was 7.8% in 1996, 7.5% in 1995, and 8.5% in 1994.
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 112, Employers'
Accounting for Postemployment Benefits. This standard
requires the Company to recognize the obligation to provide
benefits to former or inactive employees after employment
but before retirement under certain conditions. These
benefits include, but are not limited to, salary
continuation, supplemental unemployment benefits, severance
benefits, disability-related benefits (including workers'
compensation), job training and counseling, and continuation
of benefits such as health care and life insurance coverage.
The cumulative effect of the adoption of this standard was
an undiscounted charge of $28 million, or $.56 per share,
net of related income taxes of $18 million.
The following table reconciles the status of the accrued
postemployment benefits cost liability at October 31, 1996
and 1995, as reflected on the balance sheet at December 31,
1996 and 1995:
1996 1995
(In millions of dollars)
Funded status $ (34) $ (40)
Unrecognized net gain (6) (2)
Benefit payments subsequent
to the valuation date - 1
Accrued postemployment benefit
cost liability (includes
current liabilities of $4
million in 1996 and 1995) $ (40) $ (41)
The net postemployment benefits expense was $2 million, $2
million and $3 million for 1996, 1995 and 1994,
respectively.
-48-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. Postemployment and Postretirement Benefits Other Than
Pensions (Continued)
In December 1995, the Company established a Voluntary
Employees' Beneficiary Association (VEBA) trust to cover
certain employee welfare and postretirement benefits to be
paid in 1996 and early 1997. The funded status of the trust
at December 31, 1996, is $19 million, all of which is
current. At December 31, 1995 the funded status of the
trust was $64 million, of which $13 million was classified
as long-term.
7. Pension Plans
The Company has several defined benefit pension plans
covering most employees. Under the plans, pension benefits
are generally based on an employee's number of years of
service. Company contributions to these pension plans are
based on the calculations of independent actuaries using the
projected unit credit method. Plan assets consist primarily
of equity securities with the balance in fixed income
investments. The unrecognized cost of retroactive
amendments and actuarial gains and losses are amortized over
the average future service period of plan participants
expected to receive benefits.
In August of 1995, the Company amended the pension plan for
U.S. salaried employees to change from a final average pay
formula to a cash balance formula. The new plan provisions
became effective on January 1, 1996. The change resulted in
a reduction in the projected benefit obligation of $20
million. The change is expected to reduce pension expense
in the future through the amortization of the reduction in
the projected benefit obligation, reduced service cost and
reduced interest cost on the projected benefit obligation.
The reduction in pension expense for 1996 and 1995 was $13
million and $4 million, respectively.
-49-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. Pension Plans (Continued)
Pension expense for the Company's defined benefit pension
plans includes the following:
1996 1995 1994
(In millions of dollars)
Service cost $ 14 $ 20 $ 22
Interest cost on projected
benefit obligation 62 64 58
Actual return on plan assets (106) (114) (13)
Net amortization and deferral 25 30 (64)
Net pension expense $ (5) $ - $ 3
The funded status at October 31, 1996 and 1995 is as
follows:
1996 1995
(In millions of dollars)
Over Under Over Under
Funded Funded Funded Funded
Vested benefit obligation $ 679 $ 19 $ 359 $ 312
Accumulated benefit obligation $ 757 $ 21 $ 395 $ 355
Plan assets at fair value $ 839 $ 10 $ 500 $ 316
Projected benefit obligation 805 29 447 365
Plan assets in excess of
(less than) projected
benefit obligation 34 (19) 53 (49)
Unrecognized loss 53 9 15 59
Unrecognized prior service cost (55) 1 (30) (31)
Unrecognized transition amount (41) - (35) (11)
Adjustment to minimum liability - (5) - (7)
Net pension liability (includes
current liabilities of $3 million
in 1996 and $2 million in 1995
and noncurrent assets of $43
million in 1996 and $41
million in 1995) $ (9) $ (14) $ 3 $ (39)
-50-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. Pension Plans (Continued)
The 1996, 1995 and 1994 primary actuarial assumptions used
for pension plans were:
1996 1995 1994
Discount rate 7.8% 7.5% 8.5%
Expected long-term rate of return
on plan assets 9.0% 9.0% 9.5%
Rate of compensation increase 5.1% 5.1% 5.1%
The Company also sponsors defined contribution plans
available to substantially all U.S. employees. Company
contributions for the plans are based on matching a
percentage of employee savings up to a maximum savings
level. The Company's contributions were $10 million in
1996, $12 million in 1995, and $10 million in 1994.
8. Income Taxes
1996 1995 1994
(In millions of dollars)
Income (loss) before provision
(credit) for income taxes:
U.S. $ (622) $ 226 $ 119
Foreign 41 99 13
Total $ (581) $ 325 $ 132
Provision (credit) for income taxes:
Current
U.S. $ (36) $ (45) $ (2)
State and local (6) (4) (7)
Foreign 12 13 5
Total current (30) (36) (4)
Deferred
U.S. (211) 113 51
State and local (48) 15 13
Foreign 1 14 (2)
Total deferred (258) 142 62
Total provision (credit) for
income taxes $(288) $ 106 $ 58
-51-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. Income Taxes (Continued)
The reconciliation between the U.S. federal statutory rate
and the Company's effective income tax rate is:
1996 1995 1994
U.S. federal statutory rate (35)% 35% 35%
State and local income taxes (6) 2 3
Adjustment of tax reserves due
to favorable legislation (5) - -
Operating losses of foreign
subsidiaries - - 7
Utilization of research and
development credits - (3) -
Utilization of operating loss
carryforwards (1) - (7)
Utilization of tax loss carryback - (2) -
Adjustment of valuation allowances (1) - -
Other (2) 1 6
Effective tax rate (50)% 33% 44%
As of December 31, 1996, the Company has not provided for
withholding or U.S. federal income taxes on approximately
$211 million of accumulated undistributed earnings of its
foreign subsidiaries as they are considered by management to
be permanently reinvested. If these undistributed earnings
were not considered to be permanently reinvested,
approximately $22 million of deferred income taxes would
have been provided.
During 1996 and 1995, the Company utilized tax net operating
loss carryforwards for certain of its foreign subsidiaries
and certain of its state tax jurisdictions of approximately
$7 million and $2 million, respectively. At December 31,
1996 the Company had tax net operating loss carryforwards
for certain of its foreign subsidiaries and certain of its
state tax jurisdictions of approximately $63 million, of
which $40 million expire through 2011, and the remaining $23
million of which have an indefinite carryforward.
The cumulative temporary differences giving rise to the
deferred tax assets and liabilities at December 31, 1996 and
1995 are as follows:
-52-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. Income Taxes (Continued)
1996 1995
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
(In millions of dollars)
Asbestos litigation claims $ 525 $ - $ 244 $ -
Other employee benefits 157 - 160 -
Pension plans 22 11 23 13
Depreciation - 200 - 169
Operating loss carryforwards 63 - 42 -
State and local taxes - 38 - 21
Other 140 56 102 26
Subtotal 907 305 571 229
Valuation allowances (22) - (20) -
Total deferred taxes $ 885 $ 305 $ 551 $ 229
Management fully expects to realize its net deferred tax
assets through income from future operations.
9.Science and Technology Expenses
Science and technology expenses include research and
development costs of $78 million in 1996, $69 million in
1995, and $64 million in 1994. In addition to research and
development costs, science and technology expenses include
continuing commercial activities such as engineering and
product modifications for special applications and testing.
10.Accounts Receivable Securitization
In 1996 and 1995, the Company sold certain accounts
receivable of its Building Materials operations to a 100%
owned subsidiary, Owens-Corning Funding Corporation ("OC
Funding"). In December 1994, OC Funding entered into a
three-year agreement whereby it can sell, on a revolving
basis, an undivided percentage ownership interest in a
designated pool of accounts receivable up to a maximum of
$100 million. At December 31, 1996 and 1995, $100 million
have been sold under this agreement and the sale has been
reflected as a reduction of accounts receivable in the
Company's consolidated balance sheet. The discount of $6
million on the receivables sold has been recorded as other
expenses on the Company's consolidated statement of income
for the years ended December 31, 1996 and 1995.
The Company maintains an allowance for doubtful accounts
based upon the expected collectibility of all consolidated
trade accounts receivable, including receivables sold by OC
Funding.
-53-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. Inventories
Inventories are summarized as follows:
1996 1995
(In millions of dollars)
Finished goods $ 273 $ 210
Materials and supplies 149 127
FIFO inventory 422 337
Less: Reduction to LIFO basis (82) (84)
$ 340 $ 253
Approximately $216 million and $175 million of FIFO
inventories were valued using the LIFO method at December
31, 1996 and 1995, respectively.
During 1995 and 1994, certain inventories were reduced,
resulting in the liquidation of LIFO inventory layers
carried at lower costs in prior years as compared with the
current cost of inventory. The effect of these inventory
reductions was to reduce 1995 and 1994 cost of sales by $7
million and $3 million, respectively.
12. Investments in Affiliates
At December 31, 1996 and 1995, the Company's affiliates,
which generally are engaged in the manufacture of fibrous
glass and related products for the insulation, construction,
reinforcements, and textile markets, include:
Percent Ownership
1996 1995
Alpha/Owens-Corning, L.L.C. (USA) 50% 50%
Amiantit Fiberglass Industries,
Ltd. (Saudi Arabia) 30% 30%
Arabian Fiberglass Insulation
Company, Ltd. (Saudi Arabia) 49% 49%
Asahi Fiber Glass Company, Ltd.
(Japan) - 28%
Knytex Company, L.L.C. (USA) 50% 50%
LG Owens-Corning Corp. (Korea) 30% 31%
OC Andercol Tuberias S.A. (Colombia) 50% -
OC India (India) 49% -
OC Yapi Merkezi Boru Sanayi Ve'
Ficaret (Turkey) 50% -
Owens-Corning Canos, S.A. (Argentina) 50% 50%
Owens-Corning Eternit Rohre GmbH
(Germany) 50% 50%
Owens-Corning Pipe Botswana (Pty.),
Ltd. (Botswana) 49% 49%
Owens-Corning Tubs S.A. (Spain) 50% 50%
Siam Fiberglass Co., Ltd. (Thailand) 17% 20%
Vitro-Fibras, S.A. (Mexico) 40% 40%
Early in 1996, the Company sold its ownership interest in
its Japanese affiliate Asahi Fiber Glass Co. Ltd., and
recorded a pretax gain of $37 million.
-54-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. Investments in Affiliates (Continued)
The following table provides summarized financial
information on a combined 100% basis for the Company's
affiliates accounted for under the equity method:
1996 1995 1994
(In millions of dollars)
At December 31:
Current assets $ 200 $ 338 $ 328
Noncurrent assets 259 503 513
Current liabilities 149 340 331
Noncurrent liabilities 168 236 250
For the year:
Net sales 516 962 630
Gross margin 126 178 96
Net income 36 47 7
The Company's equity in undistributed net income of affiliates
was $3 million at December 31, 1996.
13. Accounts Payable and Accrued Liabilities
1996 1995
(In millions of dollars)
Accounts payable $ 379 $ 302
Payroll and vacation pay 84 87
Payroll, property, and miscellaneous
taxes 35 39
Other employee benefits liability
(Note 6) 26 23
Other 181 136
$ 705 $ 587
-55-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
14. Consolidated Statement of Cash Flows
Cash payments for income taxes, net of refunds, and cost of
borrowed funds are summarized as follows:
1996 1995 1994
(In millions of dollars)
Income taxes $ (25) $ (34) $ (4)
Cost of borrowed funds 86 94 97
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
See Notes 2 and 5 for supplemental disclosure of non-cash
investing and financing activities.
15. Leases
The Company leases certain manufacturing equipment and
office and warehouse facilities under operating leases, some
of which include cost escalation clauses, expiring on
various dates through 2015. Total rental expense charged to
operations was $87 million in 1996, $63 million in 1995, and
$54 million in 1994. At December 31, 1996, the minimum
future rental commitments under noncancellable leases
payable over the remaining lives of the leases are:
Minimum Future
Period Rental Commitments
(In millions of dollars)
1997 $ 66
1998 57
1999 41
2000 28
2001 17
2002 through 2015 107
$ 316
-56-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
16. Stock Compensation Plans
The Company has four stock-based compensation plans. The
Company's Stock Performance Incentive Plan ("SPIP") grants
stock options, restricted stock, performance restricted
stock and phantom performance units. The Owens-Corning 1995
Stock Plan ("95 Stock Plan") grants options and restricted
stock. SPIP and the 95 Stock Plan, (collectively, the
"Plans"), permit up to two percent and one percent,
respectively, of common shares outstanding at the beginning
of each calendar year to be awarded as stock options and
restricted stock (with 25% of this amount as the maximum
permitted number of restricted stock awards). The Company
may carry forward, independently for each plan, unused
shares from prior years and may increase the shares
available for awards in any calendar year through an advance
of up to 25% of the subsequent year's allocation (determined
by using 25% of the current year's allocation). These
shares are also subject to the 25% limit for restricted
stock awards. During 1996 and 1995, the total number of
shares available under the Plans for stock awards was
2,236,577 and 1,924,271 shares, respectively. During 1995
an advance of 54,355 shares was taken from the 1996
allocation for SPIP. The following are descriptions of the
awards granted under the Plans:
Stock Options
Under the Plans, the exercise prices of each option equal
the market price of the Company's common stock on the date
of grant and an option's maximum term is 10 years. Shares
issued from the exercise of options are recorded in the
common stock accounts at the option price. The awards and
vesting periods of such awards are determined at the
discretion of the compensation committee of the Board of
Directors. During 1996 and 1995, respectively, 1,102,510
and 1,006,950 stock options were awarded under the Plans.
Restricted Stock Awards
Under the Plans, compensation expense is measured based on
the market price of the stock at the date of grant and is
recognized on a straight-line basis over the vesting
period. Stock restrictions lapse, subject to alternate
vesting plans for death, disability, approved early
retirement and involuntary termination, over various
periods ending in 2006. At December 31, 1996, the Company
had 376,409 shares of restricted stock outstanding. During
1996 and 1995, 78,510 and 148,924 shares of restricted
shares were granted, respectively. The weighted-average
grant-date fair value for shares granted was $42.67 and
$40.78 for 1996 and 1995, respectively.
Performance Restricted Stock Awards
Under the Plans, certain officers are awarded performance
shares. Performance shares represent the opportunity to
earn up to a specified number of shares of the Company's
common stock, if the Company achieves specified
performance goals during the designated performance
period. Officers, other than the Chief Executive Officer,
earn any portion of their award not earned during the
performance period seven years after the end of the
performance period, if their employment continues until
that time. Compensation expense is measured based on
market price of the Company's common stock on the date of
grant and is
-57-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
16. Stock Compensation Plans (Continued)
amortized over the performance period, approximately three
years. At December 31, 1996, the Company had 63,300 units
outstanding. During 1996 and 1995, respectively, 38,200
and 27,300, performance shares were granted. The weighted-
average grant-date fair value for shares granted was
$43.79 and $45.00 for 1996 and 1995, respectively.
Phantom Performance Units
Under the Plans, certain officers are awarded phantom
performance units. Each unit provides the holder the
opportunity to earn a cash award equal to the fair market
value of the Company's common stock upon the attainment of
certain performance goals. Officers, other than the Chief
Executive Officer, earn any portion of their award not
earned during the performance period seven years after the
end of the performance period, if their employment
continues until that time. Compensation expense is
measured based on market price of the Company's common
stock and is amortized over the performance period,
approximately three years. At December 31, 1996 the
Company had 124,600 units of phantom performance units
outstanding. During 1996 and 1995, 79,600 and 56,000
units, respectively, were awarded.
The Company also has a plan to award stock, receipt of which
may be deferred at the discretion of the directors, and
stock options to nonemployee directors, of which 70,000
shares were available for this purpose as of December 31,
1996. In 1996, 30,000 options and 4,000 stock awards were
granted, of which 1,000 were issued in conjunction with the
plan for nonemployee directors. In 1995, 10,000 options and
4,000 stock awards were granted, of which 2,000 were issued
in conjunction with the plan for nonemployee directors. The
weighted-average grant-date fair value for shares granted
was $39.63 and $35.25 for 1996 and 1995, respectively.
Under a prior plan the Company had 5,417 and 7,211 deferred
stock awards outstanding, at December 31, 1996 and 1995,
respectively. Under the terms of this plan, no further
awards may be made.
The Company applies Financial Accounting Standards Board
Statement No. 123 (SFAS 123) in accounting for its stock
based compensation plans. In accordance with SFAS 123 the
Company applies Accounting Principles Board Opinion No. 25
and related Interpretations for expense recognition. All
stock options issued by the Company are exercisable at a
price equal to the market price at the date of grant.
Accordingly, no compensation cost has been recognized for
any of the options granted under the plans. The
compensation cost that has been recorded for awards other
than options was $8 million and $3 million in 1996 and 1995,
respectively.
A summary of the status of the Company's plans that issue
options as of December 31, 1996 and 1995 and changes during
the years ending on those dates is presented below:
-58-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
16. Stock Compensation Plans (Continued)
1996 1995
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
Beginning of year 3,943,110 $ 33.34 3,290,454 $ 31.55
Options granted 1,132,510 $ 42.92 1,016,950 $ 37.46
Options exercised (142,232) $ 30.60 (300,663) $ 27.18
Options canceled (38,949) $ 41.01 (63,631) $ 35.67
End of year 4,894,439 $ 35.59 3,943,110 $ 33.34
Exercisable 2,872,156 $ 32.66 2,107,427 $ 30.97
Weighted-average
fair-value of
options granted
during the year $ 12.50 $ 11.24
The following table summarizes information about options outstanding at
December 31, 1996:
Options Outstanding
Range of Number Weighted-Average
Exercise Outstanding Remaining Exercise
Prices at 12/31/96 Contractual Life Price
$ 17.86 - 26.875 666,035 3.8 $ 23.08
27.00 - 31.50 564,321 5.0 $ 30.63
31.625 - 34.875 831,006 7.0 $ 32.25
35.00 - 40.50 1,707,092 7.3 $ 38.75
40.625 - 47.00 1,125,985 9.1 $ 43.15
Options Exercisable
Range of Number Weighted
Exercise Exercisable Average
Prices at 12/31/96 Exercise Price
$ 17.86 - 26.875 666,035 $ 23.08
27.00 - 31.50 551,655 $ 30.62
31.625 - 34.875 561,350 $ 32.21
35.00 - 40.50 1,035,088 $ 39.53
40.625 - 47.00 58,028 $ 43.95
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted average assumptions by year:
Assumptions 1996 1995
Risk-free interest rate 6.04% 5.96%
Expected life 5 years 5 years
Expected volatility 24.39% 26.25%
Expected dividends 1.43% 1.43%
-59-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
16. Stock Compensation Plans (Continued)
Had compensation cost for the Plans been determined based on
the fair value at the grant dates for awards under those
plans consistent with the method described in SFAS 123,
Accounting for Stock-Based Compensation, the Company's net
income and earnings per share would have been reduced to the
pro forma amounts indicated below:
1996 1995
Net income As reported $ (284) $ 231
Pro forma $ (288) $ 230
Primary earnings per share As reported $(5.50) $ 4.64
Pro forma $(5.57) $ 4.62
Fully diluted earnings per share As reported $(5.50) $ 4.40
Pro forma $(5.57) $ 4.38
The Company cautions that the pro forma net income and per
share results in the initial years of adoption are
overstated due to the recognition of pro forma compensation
cost over the vesting period.
17. Share Purchase Rights
In December 1996, the Company's Board of Directors declared
a dividend distribution of one preferred share purchase
right for each share of the Company's common stock. The new
rights replaced preferred share purchase rights issued in
1986, which expired on December 30, 1996. Each outstanding
share of the Company's common stock includes a preferred
share purchase right. Each right entitles the holder to buy
from the Company one one-hundredth of a share of Series A
Participating Preferred Stock of the Company at a price of
$190. The Board of Directors has designated 750,000 shares
of the Company's authorized preferred stock as Series A
Participating Preferred Stock. There are currently no
preferred shares outstanding.
Rights become exercisable and detach from the common stock
ten business days after a person or group acquires, or
announces a tender offer for, 15% or more of the Company's
outstanding shares of common stock. The rights expire on
December 30, 2006, unless redeemed earlier by the Company.
The rights are redeemable by the Company at one cent each at
any time prior to public announcement or notice to the
Company that an acquiring person or group has purchased 15%
or more of the Company's outstanding common stock (an
"Acquisition Event"). At any time after an Acquisition
Event and prior to the acquisition by such person or group
of 50% or more of the Company's outstanding common stock,
the Board of Directors may exchange one share of common
stock for each right outstanding, other than rights held by
the acquiring person or group. At any time after an
Acquisition Event and the rights become exercisable, each
right, other than rights held by the acquiring person or
group, would entitle its holder to buy common stock of the
Company (or, if the Company is subsequently acquired in a
merger or other business combination, such shares of the
acquiring or surviving company) having a market value of
twice the exercise price of the right.
-60-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
18. Restructuring of Operations and Other Actions
During the fourth quarter of 1996, the Company recorded a
$43 million pretax charge for restructuring and other
actions which includes the costs associated with a work
force realignment, a replacement of computer technology as
well as asset valuations and expenses related to exited
businesses. The $43 million pretax charge was comprised of
a $38 million restructure charge and a $5 million charge
related to an exited business. The components of the
restructure charge include $20 million for personnel
reductions, $8 million in computer technology and $10
million for asset valuations and exited businesses. The $20
million for personnel reductions represents severance costs
associated with the elimination of nearly 400 positions
worldwide. The primary employee group affected is
manufacturing personnel.
During 1994, the Company recorded a $117 million pretax
charge for productivity initiatives and other actions aimed
at reducing costs and enhancing the Company's speed, focus,
and efficiency. This $117 million pretax charge was
comprised of an $89 million charge associated with the
restructuring of the Company's business segments, as well as
a $28 million charge, primarily composed of costs associated
with the administration of the Company's former commercial
roofing business. The components of the $89 million
restructure included: $44 million for personnel reductions,
$20 million for divestiture of non-strategic businesses and
facilities, $22 million for business realignments, and $3
million for other actions. The $44 million cost for
personnel reductions primarily represents severance costs
associated with the elimination of nearly 400 positions
worldwide. The primary employee groups affected included
science and technology, field sales, corporate
administrative, and commercial roofing and resin business
personnel.
19. Glass Melting Furnace Rebuilds
Effective January 1, 1994, the Company adopted the capital
method of accounting for the cost of rebuilding glass
melting furnaces. Under this method, costs are capitalized
when incurred and depreciated over the estimated useful
lives of the rebuilt furnaces. Previously, the Company
established a reserve for the future rebuilding costs of its
glass melting furnaces through a charge to earnings between
dates of rebuilds. The change to the capital method
provides a more appropriate measure of the Company's capital
investment and is consistent with industry practice. The
cumulative effect of this change in accounting method in
1994 was an increase to earnings of $123 million, or $2.45
per share, net of related income taxes of $54 million. The
effect of this change in accounting method was to increase
depreciation expense and eliminate furnace rebuild
provision.
-61-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
20. Derivative Financial Instruments and Fair Value of
Financial Instruments
The Company is a party to financial instruments with
off-balance-sheet risk in the normal course of business to
help meet financing needs and to reduce exposure to
fluctuating foreign currency exchange rates and interest
rates. The Company is exposed to credit loss in the event
of nonperformance by the other parties to the financial
instruments described below. However, the Company does not
anticipate nonperformance by the other parties. The Company
does not engage in trading activities with these financial
instruments and does not generally require collateral or
other security to support these financial instruments. The
notional amounts of derivatives summarized in the foreign
exchange risk and interest rate risk management section
below do not generally represent the amounts exchanged by
the parties and, thus, are not a measure of the exposure of
the Company through its use of derivatives. The amounts
exchanged are calculated on the basis of the notional
amounts and the other terms of the derivatives, which relate
to interest rates, exchange rates, securities prices, or
financial or other indexes.
Foreign Exchange Risk and Interest Rate Risk Management
The Company enters into various types of derivative
financial instruments to manage its foreign exchange risk
and interest rate risk, as indicated in the following table.
Notional Amount Notional Amount
December 31, 1996 December 31, 1995
(In millions of dollars)
Forward currency exchange
contracts $ 128 $ 234
Combined interest rate
currency swaps 120 70
Options purchased 22 25
Currency swaps 120 120
Interest rate swaps 50 150
Treasury rate locks 29 -
The Company enters into forward currency exchange contracts
to manage its exposure against foreign currency fluctuations
on certain assets and liabilities denominated in foreign
currencies. As of December 31, 1996, the Company has 31
forward currency exchange contracts maturing in 1997 which
exchange 3.9 billion Belgian francs, 33 million U.S.
dollars, 17 million British pounds, 89 million French
francs, 12 billion Italian lira, and various other
currencies. As of December 31, 1995, the Company had 21
forward currency exchange contracts which matured in 1996
and exchanged 2.7 billion Belgian francs, 19 million U.S.
dollars, 11 million British pounds, 117 million French
francs, 17 billion Italian lira, and various other
currencies. Gains and losses on these foreign currency
hedges are included in the carrying amount of the related
assets and liabilities. At December 31, 1996 and 1995,
deferred gains and losses on these foreign currency hedges
are not material to the consolidated financial statements.
-62-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
20. Derivative Financial Instruments and Fair Value of
Financial Instruments (Continued)
The Company entered into forward currency exchange contracts
to hedge its equity investments in certain foreign
subsidiaries and to manage its exposure against fluctuations
in foreign currency rates. As of December 31, 1995, the
Company had two forward currency exchange contracts that
matured in 1996 which exchanged 1 billion Belgian francs
against approximately 34 million U.S. dollars to hedge its
equity investments in certain of its European subsidiaries.
At December 31, 1995, losses of $4 million on hedges of net
investments in foreign subsidiaries were included in
stockholders' equity.
The Company entered into forward currency exchange contracts
to reduce its exposure to currency fluctuations on the
proceeds of the sale of its investment in Asahi Fiber Glass
Company, Ltd. (Note 12). Gains of $4 million are included
in other income in 1996 as part of the total gain on the
sale.
The Company entered into forward currency exchange contracts
to reduce its exposure to currency fluctuations on the
anticipated 1995 earnings of certain European subsidiaries.
The nine forward currency exchange contracts which matured
in 1995, exchanged 412 million Belgian francs and 8 million
British pounds against approximately 25 million U.S.
dollars. Gains and losses on these foreign currency hedges
were included in income in the period in which the exchange
rates changed. Gains on these forward currency exchange
contracts were not material to the consolidated financial
statements.
The Company enters into combined interest rate currency
swaps to hedge its equity investments in certain foreign
subsidiaries to manage its exposure against fluctuations in
foreign currency rates. As of December 31, 1996, the
Company has three combined interest rate currency swaps
maturing in 1999 to manage this exposure. These contracts
exchange 921 million Belgian francs, 50 million French
francs and 17 million Dutch guilders. Gains and losses on
the currency swap portions of these contracts are included
in stockholders' equity. The differential interest to be
paid or received on the interest rate swap portion of these
contracts is accrued as interest rates change and is
recognized over the life of these agreements. The deferred
gains and losses on the differential interest rate changes
are not material to the consolidated financial statements in
1996.
The Company enters into option contracts to hedge
anticipated transactions with certain of its foreign
subsidiaries. As of December 31, 1996, the Company has
eight currency option contracts maturing in 1997 which hedge
the 1997 royalty payments of the Company's European
subsidiaries. As of December 31, 1996, the currency option
contracts exchanged 446 million Belgian francs and 5 million
British pounds against approximately 22 million U.S.
dollars. As of December 31, 1995, the Company had eight
currency option contracts which exchanged 526 million
Belgian francs and 6 million British pounds against
approximately 25 million U.S. dollars. Gains on the
Company's hedges of these anticipated transactions are
included as deferred revenue. At December 31, 1996 and 1995,
deferred gains on option contracts are not material to the
consolidated financial statements.
-63-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
20. Derivative Financial Instruments and Fair Value of
Financial Instruments (Continued)
In 1994, the Company entered into two currency swap
transactions to manage its exposure against foreign currency
fluctuations on the principal amount of its guaranteed
9.814% Eurobonds (Note 2). During 1995, the Company
terminated these swaps. The termination of these swaps
exchanged 140 million U.S. dollars for approximately 89
million British pounds resulting in a gain of approximately
10 million U.S. dollars. At that time, the Company entered
into a combined interest rate currency swap and a currency
swap exchanging U.S. dollars into British pounds to hedge
the interest and principal payments of the remaining
Eurobonds through 2002. These agreements also convert
part of the fixed rate interest into variable rate
interest. The gain on the exercised swaps is being
amortized over the life of the original hedge. At December
31, 1996 and 1995, $5 million and $7 million, respectively
of unamortized gain on the four cross-currency interest rate
swaps is included in other liabilities.
The Company has a cross-currency interest rate conversion
agreement from Deutsche marks into U.S. dollars to hedge the
interest and principal payments of its 7.25% Deutsche mark
bonds, due in 2000. The agreement establishes a fixed
interest rate of 11.1%.
The Company enters into interest rate swaps to manage its
interest rate risk. As of December 31, 1996, the Company
has one interest rate swap agreement to convert $50 million
in equipment lease payments from a floating LIBOR to a fixed
rate of 5.52%. The differential interest to be paid or
received is accrued as interest rates change and is
recognized over the life of the agreement. As of December
31, 1996, this amount was not material to the consolidated
financial statements. As of December 1995, the Company had
four interest rate swap agreements to reduce the interest
rates on its fixed rate borrowings. These agreements, which
were terminated in 1996, effectively converted an aggregate
principal amount of $150 million of fixed rate long-term
debt into variable rate borrowings. The $8 million gain
recognized from the termination of these swaps is being
amortized over the remaining life of the debt.
As of December 31, 1996, the Company has one cash-settled
treasury rate lock as a hedge against interest rate
fluctuations on a lease commitment. This contract
effectively locks in a treasury rate of 6.015% on a notional
amount of $29 million. The differential interest to be paid
or received at the contract termination date, March 1997,
will be deferred and amortized over the life of the lease.
-64-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
20. Derivative Financial Instruments and Fair Value of
Financial Instruments (Continued)
Other Financial Instruments with Off-Balance-Sheet Risk
As of December 31, 1996 and 1995, the Company is
contingently liable for guarantees of indebtedness owed by
certain unconsolidated affiliates of $57 million and $44
million, respectively. The Company is of the opinion that
its unconsolidated affiliates will be able to perform under
their respective payment obligations in connection with such
guaranteed indebtedness and that no payments will be
required and no losses will be incurred by the Company under
such guarantees.
Concentrations of Credit Risk
As of December 31, 1996 and 1995, the Company has no
significant group concentrations of credit risk.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate
the fair value of each category of financial instruments.
Cash and short-term financial instruments
The carrying amount approximates fair value due to the
short maturity of these instruments.
Long-term notes receivable
The fair value has been estimated using the expected
future cash flows discounted at market interest rates.
Long-term debt
The fair value of the Company's long-term debt has been
estimated based on quoted market prices for the same or
similar issues, or on the current rates offered to the
Company for debt of the same remaining maturities.
Foreign currency swaps and interest rate swaps
The fair values of foreign currency swaps and interest
rate swaps have been estimated by traded market values
or by obtaining quotes from brokers.
Forward currency exchange contracts, option contracts,
and financial guarantees
The fair values of forward currency exchange contracts,
option contracts, and financial guarantees are based on
fees currently charged for similar agreements or on the
estimated cost to terminate these agreements or
otherwise settle the obligations with the counter
parties at the reporting date.
-65-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
20. Derivative Financial Instruments and Fair Value of
Financial Instruments
(Continued)
The estimated fair values of the Company's financial
instruments as of December 31, 1996 and 1995, which have
fair values different than their carrying amounts, are as
follows:
1996 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
(In millions of dollars)
Assets:
Long-term notes
receivable $ 23 $ 21 $ 24 $ 22
Liabilities:
Long-term debt 818 881 794 875
Off-Balance-Sheet Financial
Instruments - Unrealized gains
Foreign currency swaps - 32 - 39
Interest rate swaps - 1 - 14
Combined interest rate
currency swaps - 1 - -
As of December 31, 1996 and 1995, the Company is
contingently liable for guarantees of indebtedness owed by
certain unconsolidated affiliates. There is no market for
these guarantees and they were issued without explicit cost.
Therefore, it is not practicable to establish their fair
value.
As of December 31, 1996 and 1995, the Company has also
entered into certain forward currency exchange option
contracts and treasury rate locks, the fair values of which
are not material to the consolidated financial statements.
-66-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
21. Contingent Liabilities
ASBESTOS LIABILITIES
The Company is a co-defendant with other former
manufacturers, distributors and installers of products
containing asbestos and with miners and suppliers of
asbestos fibers (collectively, the "Producers") in personal
injury and property damage litigation. The personal injury
claimants generally allege injuries to their health caused
by inhalation of asbestos fibers from the Company's
products. Most of the claimants seek punitive damages as
well as compensatory damages. The property damage claims
generally allege property damage to school, public and
commercial buildings resulting from the presence of products
containing asbestos. Virtually all of the asbestos-related
lawsuits against the Company arise out of its manufacture,
distribution, sale or installation of an asbestos-containing
calcium silicate, high temperature insulation product, the
manufacture of which was discontinued in 1972.
Status
As of December 31, 1996, approximately 157,900 asbestos
personal injury claims were pending against the Company, of
which 36,400 were received in 1996. The Company received
approximately 55,900 such claims in 1995, and 29,100 in
1994.
Many of the recent claims appear to be the product of mass
screening programs and not to involve malignancies or other
significant asbestos related impairment. The Company
believes that at least 40,000 of the recent claims involve
plaintiffs whose pulmonary function tests (PFTs) were
improperly administered or manipulated by the testing
laboratory or otherwise inconsistent with proper medical
practice, and it is investigating a number of testing
organizations and their methods. In 1996 the Company filed
suit in federal court against the owners and operators of
certain pulmonary function testing laboratories in the
southeastern U.S. challenging such improper testing
practices. This matter is now in active pre-trial discovery.
During 1996 the Company was engaged in discussions with a
group of approximately 30 leading plaintiffs' law firms to
explore approaches toward resolution of its asbestos
liability. The discussions involved the possible resolution
of both pending claims and claims that may be filed in the
future. The law firms involved in the talks agreed to
refrain from serving any further asbestos claims on the
Company unless they involved malignancies. This agreement,
which expired as to certain of the firms on November 1,
1996, was extended until January 1, 1997, by firms
representing a substantial majority of the cases
historically filed by the group. This agreement may have
impacted the number of cases received by the Company during
the second, third and fourth quarters of 1996.
-67-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
21. Contingent Liabilities (Continued)
Through December 31, 1996, the Company had resolved (by
settlement or otherwise) approximately 183,300 asbestos
personal injury claims, including the dismissal in May 1996,
for lack of medical proof, of approximately 15,000 maritime
cases which named Owens Corning as a defendant, resulting in
an 11,700 case reduction in the backlog after reduction for
duplicate cases and cases previously settled. During 1994,
1995, and 1996, the Company resolved approximately 60,600
asbestos personal injury claims, over 99% without trial, and
incurred total indemnity payments of $626 million (an
average of about $10,300 per case).
The Company's indemnity payments have varied considerably
over time and from case to case, and are affected by a
multitude of factors. These include the type and severity
of the disease sustained by the claimant (i.e.,
mesothelioma, lung cancer, other types of cancer, asbestosis
or pleural changes); the occupation of the claimant; the
extent of the claimant's exposure to asbestos-containing
products manufactured, sold or installed by the Company; the
extent of the claimant's exposure to asbestos-containing
products manufactured, sold or installed by other Producers;
the number and financial resources of other Producer
defendants; the jurisdiction of suit; the presence or
absence of other possible causes of the claimant's illness;
the availability or not of legal defenses such as the
statute of limitations or state of the art; whether the
claim was resolved on an individual basis or as part of a
group settlement; and whether the claim proceeded to an
adverse verdict or judgment.
Insurance
As of December 31, 1996, the Company had approximately $329
million in unexhausted insurance coverage (net of
deductibles and self-insured retentions and excluding
coverage issued by insolvent carriers) under its liability
insurance policies applicable to asbestos personal injury
claims. This insurance, which is substantially confirmed,
includes both products hazard coverage and primary level non-
products coverage. Portions of this coverage are not
available until 1997 and beyond under agreements with the
carriers confirming such coverage. All of the Company's
liability insurance policies cover indemnity payments and
defense fees and expenses subject to applicable policy
limits.
In addition to its confirmed primary level non-products
insurance, the Company has a significant amount of
unconfirmed potential non-products coverage with excess
level carriers. For purposes of calculating the amount of
insurance applicable to asbestos liabilities, the Company
has estimated its probable recoveries in respect of this
additional non-products coverage at $225 million, which
amount was recorded in the second quarter of 1996. This
coverage is unconfirmed and the amount and timing of
recoveries from these excess level policies will depend on
subsequent negotiations or proceedings.
-68-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
21. Contingent Liabilities (Continued)
Reserve
Prior to the second quarter of 1996 the Company's financial
statements included a reserve for the estimated cost
associated with asbestos personal injury claims that may be
received through the year 1999. Such financial statements
did not include any provision for the cost of unasserted
claims which might be received in years subsequent to 1999
because management was unable to predict the number of such
claims and other factors which would affect the cost of such
claims. Throughout 1996, the Company continued to review
the feasibility of making provision for the cost of
unasserted asbestos personal injury claims with respect to
claims which may be received by the Company during and after
the year 2000. In conducting such review the Company took
into account, among other things, the effect of recent
federal court decisions relating to punitive damages and the
certification of class actions in asbestos cases, the
pendency of the discussions with the group of plaintiffs'
law firms referred to above, the results of its continuing
investigations of medical screening practices of the kind at
issue in the federal PFT lawsuit, recent developments as to
the prospects for federal and state tort reform, the
continued rate of case filings at historically high levels,
additional information on filings received during the 1993-
1995 period and other factors. As a result of the review,
the Company took a non-recurring, noncash charge to earnings
of $1.1 billion in the second quarter of 1996. This charge
represented the Company's estimate of the indemnity and
defense costs associated with unasserted asbestos personal
injury claims that may be received by the Company in years
subsequent to 1999.
The combined effect of the $1.1 billion charge and the $225
million probable additional non-products insurance recovery
was an $875 million charge in the second quarter of 1996.
The Company's estimated total liabilities in respect of
indemnity and defense costs associated with pending and
unasserted asbestos personal injury claims that may be
received in the future, and its estimated insurance
recoveries in respect of such claims are reported separately
as follows:
-69-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
21. Contingent Liabilities (Continued)
December 31, December 31,
1996 1995
(In millions of dollars)
Reserve for asbestos
litigation claims
Current $ 300 $ 250
Other 1,670 887
Total Reserve 1,970 1,137
Insurance for asbestos
litigation claims
Current 100 100
Other 454 330
Total Insurance 554 430
Net Asbestos Liability $ 1,416 $ 707
The Company cautions that such factors as the number of
future asbestos personal injury claims received by it, the
rate of receipt of such claims, and the indemnity and
defense costs associated with asbestos personal injury
claims, as well as the prospects for confirming additional
insurance, including the additional $225 million in non-
products coverage referenced above, are influenced by
numerous variables that are difficult to predict, and that
estimates, such as the Company's, which attempt to take
account of such variables, are subject to considerable
uncertainty. The Company believes that its estimate of
liabilities and insurance will be sufficient to provide for
the costs of all pending and future asbestos personal injury
claims that involve malignancies or significant asbestos-
related functional impairment. While such estimates cover
unimpaired claims, the number and cost of unimpaired claims
are much harder to predict and such estimates reflect the
Company's belief that such claims have little or no value.
The Company will continue to review the adequacy of its
estimate of liabilities and insurance on a periodic basis
and make such adjustments as may be appropriate.
-70-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
21. Contingent Liabilities (Continued)
Management Opinion
Although any opinion is necessarily judgmental and must be
based on information now known to the Company, in the
opinion of management, while any additional uninsured and
unreserved costs which may arise out of pending personal
injury and property damage asbestos claims and additional
similar asbestos claims filed in the future may be
substantial over time, management believes that any such
additional costs will not impair the ability of the Company
to meet its obligations, to reinvest in its businesses or to
take advantage of attractive opportunities for growth.
NON-ASBESTOS LIABILITIES
Various other lawsuits and claims arising in the normal
course of business are pending against the Company, some of
which allege substantial damages. Management believes that
the outcome of these lawsuits and claims will not have a
materially adverse effect on the Company's financial
position or results of operations.
-71-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
22. Quarterly Financial Information (Unaudited)
Quarter
First Second Third Fourth
(In millions of dollars, except share data)
1996
Net sales $ 849 $ 956 $ 1,025 $ 1,002
Cost of sales 631 701 752 750
Gross margin $ 218 $ 255 $ 273 $ 252
Net income (loss) $ 39 $ (473) $ 80 $ 70
Net income per share:
Primary net income
per share $ .75 $ (9.19) $ 1.53 $ 1.32
Fully diluted net
income per share $ .73 $ (9.19) $ 1.44 $ 1.25
1995
Net sales $ 844 $ 877 $ 927 $ 964
Cost of sales 630 639 684 717
Gross margin $ 214 $ 238 $ 243 $ 247
Net income $ 33 $ 63 $ 70 $ 66
Net income per share:
Primary net income per
share $ .71 $ 1.25 $ 1.35 $ 1.27
Fully diluted net income
per share $ .68 $ 1.20 $ 1.28 $ 1.21
Net income per share and primary and fully diluted weighted
average shares are computed independently for each of the
quarters presented. Therefore, the sum of the quarterly net
income per share may not equal the per share total for the
year.
-72-
INDEX TO FINANCIAL STATEMENT SCHEDULES
Number Description Page
II Valuation and Qualifying Accounts and Reserves -
for the years ended December 31, 1996, 1995,
and 1994 73
-73-
OWENS CORNING AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Column A Column B Column C Column D Column E
Additions
(1) (2)
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Classification of Period Expenses Accounts Deductions of Period
(In millions of dollars)
FOR THE YEAR ENDED DECEMBER 31, 1996:
Allowance deducted
from asset to
which it applies -
Doubtful
Accounts $ 19 $ 3 $ - $ 5(A) $ 17
FOR THE YEAR ENDED DECEMBER 31, 1995:
Allowance deducted
from asset to
which it applies -
Doubtful
Accounts $ 16 $ 5 $ - $ 2(A) $ 19
FOR THE YEAR ENDED DECEMBER 31, 1994:
Allowance deducted
from asset to
which it applies -
Doubtful
Accounts $ 16 $ 5 $ - $ 5(A) $ 16
Shown separately -
Rebuilding
furnaces 124 - - 124(B) -
Notes:
(A) Uncollectible accounts written off, net of recoveries.
(B) Effective January 1, 1994, the Company adopted the
capital method for rebuilding furnaces. See Note 19 to
the Consolidated Financial Statements.
-74-
EXHIBIT INDEX
Exhibit
Number Document Description
(3) Articles of Incorporation and By-Laws.
(i) Certificate of Incorporation of Owens Corning,
as amended (incorporated herein by reference to
Exhibit (3) to the Company's annual report on Form
10-K (File No. 1-3660) for 1995).
(ii) By-Laws of Owens Corning, as amended
(incorporated herein by reference to Exhibit (3)
to the Company's annual report on Form 10-K (File
No. 1-3660) for 1995).
(4) Instruments Defining the Rights of Security Holders,
Including Indentures.
Credit Agreement, dated as of November 2, 1993,
among Owens-Corning Fiberglas Corporation**, the
Banks listed on Annex A thereto, and Credit Suisse,
as Agent for the Banks (incorporated herein by
reference to Exhibit (4) to the Company's quarterly
report on Form 10-Q (File No. 1-3660) for the
quarter ended September 30, 1993), as amended by
Amendment No. 1 thereto (incorporated herein by
reference to Exhibit (10) to the Company's quarterly
report on Form 10-Q (File No. 1-3660) for the
quarter ended June 30, 1994), by Amendment No. 2 and
Amendment No. 3 thereto (incorporated herein by
reference to Exhibit (4) to the Company's annual
report on Form 10-K (File No. 1-3660) for 1995) and
by Amendment No. 4 thereto (filed herewith).
The Company agrees to furnish to the Securities and
Exchange Commission, upon request, copies of all
instruments defining the rights of holders of long-
term debt of the Company where the total amount of
securities authorized under each issue does not
exceed ten percent of the Company's total assets.
(10) Material Contracts.
Credit Agreement, dated as of November 2, 1993,
among Owens-Corning Fiberglas Corporation**, the
Banks listed on Annex A thereto, and Credit Suisse,
as Agent for the Banks (incorporated herein by
reference to Exhibit (4) to the Company's quarterly
report on Form 10-Q (File No. 1-3660) for the
quarter ended September 30, 1993), as amended by
Amendment No. 1 thereto (incorporated herein by
reference to Exhibit (10) to the Company's quarterly
report on Form 10-Q (File No. 1-3660) for the
quarter ended June 30, 1994), by Amendment No. 2 and
Amendment No. 3 thereto (incorporated herein by
reference to Exhibit (4) to the Company's annual
report on Form 10-K (File No. 1-3660) for 1995) and
by Amendment No. 4 thereto (filed as Exhibit (4) to
this annual report on Form 10-K).
Rights Agreement, dated as of December 12, 1996
(incorporated herein by reference to Exhibit 1 to
the Company's Registration Statement on Form 8-A
(File No. 1-3660), dated December 19, 1996).
-75-
EXHIBIT INDEX
Exhibit
Number Document Description
The following documents are incorporated herein by
reference to Exhibit (10) to the Company's quarterly
report on Form 10-Q (File No. 1-3660) for the
quarter ended June 30, 1996:
* - Long-Term Performance Incentive Plan Terms
Applicable to Certain Executive Officers.
* - Long-Term Performance Incentive Plan Terms
Applicable to Officers Other Than Certain
Executive Officers.
* - Stock Performance Incentive Plan, as amended.
*Corporate Incentive Plan Terms Applicable to
Certain Executive Officers (incorporated herein by
reference to Exhibit (10) to the Company's quarterly
report on Form 10-Q (File No. 1-3660) for the
quarter ended March 31, 1996).
The following documents are incorporated herein by
reference to Exhibit (10) to the Company's annual
report on Form 10-K (File No. 1-3660) for 1995:
* - Corporate Incentive Plan Terms Applicable to
Key Employees Other Than Certain Executive
Officers.
* - Agreement, dated December 2, 1994, with
Christian L. Campbell.
The following documents are incorporated herein by
reference to Exhibit (10) to the Company's annual
report on Form 10-K (File No. 1-3660) for 1994:
* - Agreement, dated as of January 1, 1995, with
William W. Colville.
* - Agreement, dated June 16, 1993, with David W.
Devonshire.
*Director's Charitable Award Program (incorporated
herein by reference to Exhibit (10) to the Company's
quarterly report on form 10-Q (File No. 1-3660) for
the quarter ended September 30, 1993).
*Executive Supplemental Benefit Plan, as amended
(incorporated herein by reference to Exhibit (10) to
the Company's quarterly report on Form 10-Q (File
No. 1-3660) for the quarter ended March 31, 1993).
*Employment Agreement, dated as of December 15,
1991, with Glen H. Hiner (incorporated herein by
reference to Exhibit (10) to the Company's annual
report on Form 10-K (File No. 1-3660) for 1991), as
amended by First Amending Agreement made as of April
1, 1992 (incorporated herein by reference to Exhibit
(19) to the Company's quarterly report on Form 10-Q
(File No. 1-3660) for the quarter ended June 30,
1992).
*1987 Stock Plan for Directors, as amended
(incorporated herein by reference to Exhibit (19) to
the Company's quarterly report on Form 10-Q (File
No. 1-3660) for the quarter ended March 31, 1992).
-76-
EXHIBIT INDEX
Exhibit
Number Document Description
*Form of Key Management Severance Benefits Agreement
(incorporated herein by reference to Exhibit (10) to
the Company's annual report on Form 10-K (File No.
1-3660) for 1991).
*Form of Directors' Indemnification Agreement
(incorporated herein by reference to Exhibit (10) to
the Company's annual report on Form 10-K (File No. 1-
3660) for 1989).
The following documents are incorporated herein by
reference to Exhibit (10) to the Company's annual
report on Form 10-K (File No. 1-3660) for 1987:
* - Officers Deferred Compensation Plan.
* - Deferred Compensation Plan for Directors,
as amended.
(11) Statement re Computation of Per Share Earnings
(filed herewith).
(21) Subsidiaries of Owens Corning (filed herewith).
(23) Consent of Arthur Andersen LLP (filed herewith).
(27) Financial Data Schedule (filed herewith).
(99) Additional Exhibits.
Specimen Certificate of Common Stock of Owens
Corning (filed herewith).
* Denotes management contract or compensatory plan or
arrangement required to be filed as an exhibit pursuant
to Item 14(c) of Form 10-K.
** Now known as Owens Corning