SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1994
Commission File No. 1-3660
Owens-Corning Fiberglas Corporation
Fiberglas Tower, Toledo, Ohio 43659
Telephone No. (419)248-8000
A Delaware Corporation
I.R.S. Employer Identification No. 34-4323452
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 [ ]
Shares of common stock, par value $.10 per share, outstanding at April 30,
1994
43,253,329
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Quarter Ended
March 31,
--------------------
1994 1993
---- ----
(In millions of dollars
except share data)
NET SALES $ 677 $ 651
COST OF SALES 523 512
-------- --------
Gross margin 154 139
OPERATING EXPENSES
Marketing and administrative
expenses 87 78
Science and technology expenses 16 16
Restructuring costs (Note 3) 89 23
Other (Note 3) 29 2
-------- --------
Total operating expenses 221 119
-------- --------
INCOME (LOSS) FROM OPERATIONS (67) 20
Cost of borrowed funds (22) (23)
-------- --------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES (89) (3)
Provision (credit) for income taxes
(Note 7) (23) 7
-------- --------
INCOME (LOSS) BEFORE EQUITY IN NET
INCOME OF AFFILIATES (66) (10)
Equity in net income (loss) of affiliates (1) 1
-------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES (67) (9)
Cumulative effect of accounting changes
(Notes 4, 5, 6, and 7) 85 26
-------- --------
NET INCOME $ 18 $ 17
======== ========
The accompanying notes are an integral part of this statement.
PAGE
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OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Continued)
Quarter Ended
March 31,
--------------------
1994 1993
---- ----
(In millions of dollars
except share data)
NET INCOME PER COMMON SHARE
Primary:
Income (loss) before cumulative
effect of accounting changes $ (1.52) $ (.20)
Cumulative effect of accounting
changes 1.93 .60
-------- --------
Net income per share $ .41 $ .40
======== ========
Assuming full dilution:
Income (loss) before cumulative
effect of accounting changes $ (1.30) $ (.13)
Cumulative effect of accounting
changes 1.70 .53
-------- --------
Net income per share $ .40 $ .40
======== ========
Weighted average number of common shares outstanding
and common equivalent shares during the period
(in millions)
Primary 43.8 43.4
Assuming full dilution 49.6 49.2
The accompanying notes are an integral part of this statement.
PAGE
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OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, December 31,
1994 1993
-------- ------------
(In millions of dollars)
ASSETS
CURRENT
Cash and cash equivalents $ 5 $ 3
Receivables 360 324
Inventories (Note 9) 260 221
Deferred income taxes 139 136
Insurance for asbestos litigation
claims - current portion (Note 11) 125 125
Other current assets 43 18
-------- --------
Total current 932 827
-------- --------
OTHER
Goodwill 73 77
Investments in affiliates 60 63
Deferred income taxes 375 428
Insurance for asbestos litigation
claims (Note 11) 629 643
Other noncurrent assets 70 81
-------- --------
Total other 1,207 1,292
-------- --------
PLANT AND EQUIPMENT, at cost
Land 45 44
Buildings and leasehold improvements 536 559
Machinery and equipment 2,041 1,978
Construction in progress 107 88
-------- --------
2,729 2,669
Less--Accumulated depreciation
(Notes 4 and 8) (1,769) (1,775)
-------- --------
Net plant and equipment 960 894
-------- --------
TOTAL ASSETS $ 3,099 $ 3,013
======== =========
The accompanying notes are an integral part of this statement.
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OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Continued)
March 31, December 31,
1994 1993
-------- ------------
(In millions of dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued
liabilities (Note 3) $ 548 $ 495
Reserve for asbestos litigation
claims - current portion (Note 11) 250 275
Short-term debt 119 77
Long-term debt - current portion 27 29
-------- --------
Total current 944 876
-------- --------
LONG-TERM DEBT 973 898
-------- --------
OTHER
Reserve for asbestos litigation
claims (Note 11) 1,337 1,385
Other employee benefits liability
(Notes 5 and 6) 389 346
Reserve for rebuilding furnaces (Note 4) - 124
Pension plan liability 79 78
Other (Note 3) 233 175
-------- --------
Total other 2,038 2,108
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY
Preferred stock, no par value; authorized
8,000,000 shares, none outstanding
Common stock, par value $.10 per share;
authorized 100,000,000 shares; issued
43.8 million shares at March 31, 1994,
43.2 million shares at December 31, 1993 316 315
Deficit (1,154) (1,171)
Foreign currency translation adjustments (2) 5
Other (16) (18)
-------- --------
Total stockholders' equity (856) (869)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 3,099 $ 3,013
======== ========
The accompanying notes are an integral part of this statement.
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OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Quarter Ended
March 31,
--------------------
1994 1993
---- ----
(In millions of dollars
except share data)
NET CASH FLOW FROM OPERATIONS
Net income $ 18 $ 17
Reconciliation of net cash provided
by operating activities:
Noncash items:
Cumulative effect of accounting
changes (85) (26)
Provision for depreciation,
amortization, and rebuilding
furnaces (Notes 4 and 8) 27 36
Provision for deferred income taxes 14 2
Other 4 3
(Increase) decrease in receivables (34) (35)
(Increase) decrease in inventories (39) (29)
Increase (decrease) in accounts payable
and accrued liabilities 36 72
Proceeds from insurance for asbestos
litigation claims 14 78
Payments for asbestos litigation claims (73) (107)
Increase (decrease) in accrued income
taxes (25) (4)
Other 68 11
-------- --------
Net cash flow from operations (75) 18
-------- --------
NET CASH FLOW FROM INVESTING
Additions to plant and equipment (40) (22)
Other 1 2
-------- --------
Net cash flow from investing (39) (20)
-------- --------
The accompanying notes are an integral part of this statement.
PAGE
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OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
Quarter Ended
March 31,
--------------------
1994 1993
---- ----
(In millions of dollars
except share data)
NET CASH FLOW FROM FINANCING
Net additions (reductions) in
long-term credit facilities $ 94 $ -
Other reductions to long-term debt (20) (3)
Net increase (decrease) in
short-term debt 41 -
Other 1 4
-------- --------
Net cash flow from financing 116 1
-------- --------
Net increase (decrease) in cash and
cash equivalents 2 (1)
Cash and cash equivalents at beginning
of period 3 2
-------- --------
Cash and cash equivalents at end of
period $ 5 $ 1
======== ========
The accompanying notes are an integral part of this statement.
PAGE
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-8-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SEGMENTS Quarter Ended
March 31,
--------------------
1994 1993
---- ----
BUSINESS SEGMENTS: (In millions of dollars
except share data)
NET SALES
Building Products $ 425 $ 411
Industrial Materials 252 240
-------- --------
677 651
-------- --------
Intersegment sales
Building Products - -
Industrial Materials 22 21
Eliminations (22) (21)
-------- --------
- -
-------- --------
Consolidated net sales $ 677 $ 651
======== ========
INCOME FROM OPERATIONS
Building Products (43) 18
Industrial Materials 5 5
General corporate expense (29) (3)
-------- --------
Income (loss) from operations (67) 20
Cost of borrowed funds (22) (23)
-------- --------
Income (loss) before provision
for income taxes $ (89) $ (3)
======== ========
During the first quarter of 1994, the Company recorded a $117 million pretax
charge for productivity initiatives and other actions (Note 3). The
impact of this charge was to reduce income from operations for Building
Products and Industrial Materials by $70 million and $22 million,
respectively, and to increase general corporate expense by $25 million.
Geographically, income from operations in the United States, Canada, and
Europe and Other was reduced by $56 million, $23 million, and $13 million,
respectively.
During the first quarter of 1993, the Company recorded a $23 million charge
to reorganize its European operations, the full impact of which was
reflected as a reduction to income from operations for the Industrial
Materials segment (Note 3).
PAGE
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-9-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(1) SEGMENTS (CONTINUED) Quarter Ended
March 31,
--------------------
1994 1993
---- ----
(In millions of dollars
GEOGRAPHIC SEGMENTS: except share data)
NET SALES
United States $ 530 $ 483
Europe and other 109 125
Canada 38 43
-------- --------
677 651
-------- --------
Intersegment sales
United States 10 12
Europe and other 10 1
Canada 19 12
Eliminations (39) (25)
-------- --------
- -
-------- --------
Consolidated net sales $ 677 $ 651
======== ========
INCOME FROM OPERATIONS
United States $ (7) $ 42
Europe and other (10) (18)
Canada (21) (1)
General corporate expense (29) (3)
-------- --------
Income (loss) from operations (67) 20
Cost of borrowed funds (22) (23)
-------- --------
Income (loss) before provision
for income taxes $ (89) $ (3)
======== ========
PAGE
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OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(2) GENERAL
The financial statements included in this Report are condensed and
unaudited, pursuant to certain Rules and Regulations of the
Securities and Exchange Commission, but include, in the opinion of
the Company, adjustments necessary for a fair statement of the
results for the periods indicated, which, however, are not
necessarily indicative of results which may be expected for the
full year.
In connection with the condensed financial statements and notes included
in this Report, reference is made to the financial statements and
notes thereto contained in the Company's 1993 Annual Report on Form
l0-K, as filed with the Securities and Exchange Commission.
(3) RESTRUCTURING OF OPERATIONS AND OTHER INITIATIVES
During the first quarter of 1994, the Company recorded a $117 million
pretax charge, or $1.93 per share, for productivity initiatives and
other actions aimed at reducing costs and enhancing the Company's
speed, focus, and efficiency. This $117 million pretax charge is
comprised of an $89 million charge associated with the
restructuring of the Company's business segments during the first
quarter, as well as a $28 million charge, primarily composed of
final costs associated with the administration of the Company's
former commercial roofing business. The components of the $89
million restructure charge include: $48 million for personnel
reductions, $22 million for divestiture of non-strategic businesses
and facilities, $16 million for business realignments, and $3
million for other actions.
In the first quarter of 1993, the Company recorded a $23 million charge
to reorganize its European operations. This charge included $17
million for personnel reductions and $6 million for the writedown
of fixed assets.
(4) 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 was an
increase to earnings of $123 million, or $2.80 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. The pro forma effect of this
change was not material to net income during the first quarter of
1993.
PAGE
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OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(5) POSTEMPLOYMENT BENEFITS
Effective January 1, 1994, the Company adopted Financial Accounting
Standards Board Statement 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. The cumulative effect of the adoption of this standard
was an undiscounted charge of $28 million, or $.64 per share, net
of related income taxes of $18 million.
(6) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective January 1, 1994, the Company adopted Financial Accounting
Standards Board Statement No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" for its non-U.S.
plans. The cumulative effect of the adoption of this standard was
a charge of $10 million, or $.23 per share. (The Company adopted
Statement No. 106 for its U.S. plans effective January 1, 1991.)
(7) INCOME TAXES
Effective January 1, 1993, the Company adopted Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes."
Statement No. 109 changes the criteria for measuring the provision
for income taxes and recognizing deferred tax assets and
liabilities. The cumulative effect of adopting the standard
increased earnings by $26 million as of January 1, 1993.
The reconciliation between the U.S. federal statutory rate and the
Company's consolidated effective income tax rate is:
Quarter Ended
March 31,
----------------
1994 1993
---- ----
U. S. federal statutory rate (35)% (34)%
Operating losses of foreign
subsidiaries 14 329
Difference between foreign
tax rates
and U.S. statutory rate (1) (11)
Provision for taxes on
undistributed
earnings of foreign
subsidiaries - (92)
State and local income taxes (2) 17
Other (2) (1)
------ ------
Effective tax rate (26)% 208%
====== ======
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OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(8) DEPRECIATION OF PLANT AND EQUIPMENT
Effective April 1, 1993, the Company extended the estimated useful lives
of certain categories of plant and equipment. The effect of this
change in estimate reduced depreciation expense for the quarter
ended March 31, 1994 by $5 million compared to the prior year's
first quarter and increased income before cumulative effect of
accounting changes by $3 million, or $.07 per share.
(9) INVENTORIES
Inventories are summarized as follows:
March 31, 1994 December 31, 1993
(In millions of dollars)
Finished goods $ 236 $ 195
Materials and supplies 116 117
---------- ----------
352 312
Less: reduction to LIFO basis (92) (91)
---------- ----------
$ 260 $ 221
========== ==========
Approximately $115 million and $87 million of net inventories were
valued using the LIFO method at March 31, 1994 and December 31,
1993, respectively.
(10) CONSOLIDATED STATEMENT OF CASH FLOWS
Cash payments, net of refunds, for income taxes and cost of borrowed
funds are summarized as follows:
Quarter Ended
March 31,
---------------
1994 1993
---- ----
(In millions of dollars)
Income taxes $ (7) $ 8
Cost of borrowed funds 7 8
PAGE
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OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(11) 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 March 31, 1994, approximately 98,900 asbestos personal injury
claims were pending against the Company, 5,500 of which were
received in the first quarter of 1994. The Company received
approximately 31,700 such claims in 1993, and 26,600 in 1992.
Through March 31, 1994, the Company had resolved (by settlement or
otherwise) approximately 125,200 asbestos personal injury claims.
During 1992, 1993 and 1994 the Company resolved approximately
52,500 such claims and incurred total indemnity payments of $535
million (an average of about $10,000 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; and whether the claim
was resolved on an individual basis or as part of a group
settlement.
Insurance
---------
As of March 31, 1994, the Company had approximately $415 million in
unexhausted products hazard 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. Of this amount, $144 million will
not be available until the years 1996 through 2000 under an
agreement with the carrier confirming such insurance. An
additional $53 million (out of the $415 million coverage) is
presently the subject of coverage litigation or alternate dispute
resolution procedures. All of the Company's liability insurance
policies cover indemnity payments and defense fees and expenses
subject to applicable policy limits.
PAGE
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OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(11) CONTINGENT LIABILITIES (CONTINUED)
In addition, the Company has substantial unexhausted non-products
coverage under such liability insurance policies; an as yet
undetermined amount of such non-products coverage is expected to be
available for payment of asbestos personal injury claims and
associated defense fees and expenses. The Company has commenced
arbitration with its primary level insurance carrier seeking to
confirm the availability of certain of its non-products coverage
for payment of certain asbestos personal injury liabilities,
involving the activities of the Company's former insulation
contracting business. The Company is seeking prompt rulings on the
issues presented, and the arbitration agreement contemplates a
schedule that would result in resolution (subject to appeal) in
1994. For purposes of calculating the amount of insurance
applicable to asbestos liabilities, the Company has estimated its
recoveries in respect of non-products coverage for claims received
through 1999 at approximately $310 million, which represents the
Company's best estimate of such recoveries for such claims. The
Company cautions, however, that this coverage is unconfirmed and
that the actual amounts recovered by the Company could, depending
upon the outcome of the arbitration, be much higher or much lower.
Reserve
-------
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 through the year 1999
(the "Liabilities"), and its estimated insurance recoveries in
respect of such claims (the "Insurance"), are reported separately
as follows:
Asbestos Litigation Claims
--------------------------
March 31, 1994 December 31, 1993
-------------- -----------------
(In millions of dollars)
Reserve for asbestos litigation claims
--------------------------------------
Current $ 250 $ 275
Other 1,337 1,385
------ ------
Total Reserve 1,587 1,660
Insurance for asbestos litigation claims
----------------------------------------
Current 125 125
Other 629 643
------ ------
Total Insurance 754 768
Net Asbestos Liability $ 833 $ 892
====== ======
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OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(11) CONTINGENT LIABILITIES (CONTINUED)
Recent case filing rates have been at historically high levels
(approximately 26,600 new claims in 1992 and approximately 31,700
claims in 1993). Many of these new claims appear to be the product
of mass screening programs and not to involve significant asbestos-
related impairment. The large number of recent filings and the
uncertain value of these claims have added to the uncertainties
involved in estimating the Company's asbestos Liabilities.
Certain of the Company's principal co-defendants, the 20 members of the
Center for Claims Resolution, have entered into a proposed "global"
settlement which would require future claimants to satisfy certain
medical criteria indicative of significant asbestos-related
impairment as a pre-condition to their eligibility for settlement
payments. The Company is using similar criteria in the
implementation of its own settlement and litigation strategy and is
also seeking to require more careful proof than in the past that
claimants had significant exposure to the Company's asbestos-
containing product or operations. The Company notes, however, that
the courts have treated unimpaired claims in very different ways.
For example, the Circuit Court for Kanawha County, West Virginia
began a consolidated trial in 1994 of so-called common issues
(including punitive damage issues) of several thousand asbestos
personal injury claims (most of which appear to be unimpaired). On
the other hand, the Pennsylvania Superior Court has recently held
that asymptomatic asbestos-related pleural changes do not state a
cause of action under Pennsylvania law; unless this ruling is
overturned by the state Supreme Court, it is likely to result in
large numbers of case dismissals in Pennsylvania.
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, applicable insurance coverage beyond the
$415 million 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. Depending upon the outcome of
the various uncertainties described above, particularly as they
relate to unimpaired claims, it may be necessary at some point in
the future for the Company to make additional provision for the
uninsured costs of asbestos personal injury claims received through
the year 1999 (although no such amounts are reasonably estimable at
this time). The Company remains confident that its estimate of
Liabilities and Insurance will be sufficient to provide for the
costs of all such claims that involve malignancies or significant
asbestos-related functional impairment. The Company has reviewed
and 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.
The Company cannot estimate and is not providing for the cost of
unasserted claims which may be received by the Company after the
year 1999 because management is unable to predict the number of
claims to be received after 1999, the severity of disease which may
be involved and other factors which would affect the cost of such
claims.
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OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(11) CONTINGENT LIABILITIES (CONTINUED)
Cash Expenditures
-----------------
The Company's anticipated cash expenditures for uninsured asbestos-
related costs of claims received through 1999 are expected to
approximate $833 million, the Company's Liabilities, net of
Insurance. They will vary annually depending upon a number of
factors, including the pace of the Company's resolution of claims
and the timing of payment of its Insurance.
Management Opinion
------------------
Although any opinion is necessarily judgmental and must be based on
information now known to the Company, in the opinion of management,
the 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 will not
have a materially adverse effect on the Company's financial
position. While such additional uninsured and unreserved costs
incurred in and after the year 2000 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
------------------------
In October 1991, the Company and certain of its officers and directors
were named as defendants in a lawsuit captioned Gaetana Lavalle v.
Owens-Corning Fiberglas Corporation, et al. in the United States
District Court for the Northern District of Ohio. Lavalle purports
to be a securities class action on behalf of all purchasers of the
Company's common stock during the period November 1, 1988 through
October 18, 1991. The complaint alleges that the Company's
disclosures during the alleged class period contained material
misstatements and omissions concerning its contingent liabilities
for asbestos claims. The complaint seeks an unspecified amount of
damages (including punitive damages) on the theory that such
alleged misstatements and omissions artificially inflated the price
of the Company's stock. 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.
PAGE
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-17-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net income from ongoing operations for the first quarter of 1994 before
special items was $18 million, or $.41 per share, an increase of 24% per
share compared to $14 million, or $.33 per share, in the first quarter of
1993. The special items include an after-tax gain of $123 million, or $2.80
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 $1.93 per share, for productivity initiatives and other actions; a non-
cash, after-tax charge of $10 million, or $.23 per share, to reflect adoption
of Statement of Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" (SFAS No. 106),
for plans outside the United States; and a non-cash, after-tax charge of $28
million, or $.64 per share, to reflect adoption of SFAS No. 112, "Employers'
Accounting for Postemployment Benefits" (SFAS No. 112). Net income after
special items was $18 million, or $.41 per share, compared to $17 million, or
$.40 per share, for the first quarter of 1993. First quarter 1993 results
include a credit of $26 million, or $.60 per share, for the cumulative effect
of adopting the new accounting standard for income taxes (SFAS No. 109), and
a one-time charge of $23 million, or $.53 per share, for actions taken to
restructure the Company's business in Europe.
Net sales for the first quarter of 1994 were $677 million, an increase of 4%
from $651 million a year ago.
The Building Products segment benefitted from an 11% increase in North
American insulation sales, partially offset by a decline in residential
roofing sales compared to the prior year's quarter, as sales in early 1993
benefitted from the rebuilding from storms in Florida, Louisiana and Texas
whereas severe weather conditions across the United States adversely impacted
sales in the first two months of 1994.
In January 1994, the Company exchanged its commercial roofing business for
Schuller International's residential roofing business. This transaction
tripled the Company's capacity to produce high-style laminated shingles.
In the Composites business, demand for reinforcements during the first
quarter was strong and exceeded capacity in the Company's North American
facilities. As a result, the Company continued to import product from its
worldwide operations at an added cost. The Company is meeting that demand
with the April 1994 reactivation of its Jackson, Tennessee plant, as well as
by continuing to import products from other worldwide operations. Economic
conditions in Europe remain weak with pricing pressures more than offsetting
a modest increase in volume.
Productivity for the first quarter improved by 4%, despite the economic and
pricing pressures in Europe. Operating expenses for the first quarter
increased, primarily due to higher expenses for corporate administration.
Gross margin for the first quarter of 1994 was 23%, compared to 21% for the
prior year period, reflecting ongoing productivity improvements and cost
reductions.
In the first quarter of 1994, the Company changed its method of accounting
for the rebuilding of glass melting facilities resulting in an after-tax gain
of $123 million, or $2.80 per share. In the past, a reserve for the
estimated cost of furnace rebuilds was taken in advance. Now the cost will
be capitalized when incurred and depreciated over the useful lives of the
facilities. Owens-Corning is the last major glass manufacturer to switch to
the capital method. Please see Note 4 to the Consolidated Financial
Statements.
Late in the first quarter, the Company announced productivity initiatives and
other actions aimed at reducing costs and enhancing its speed, focus and
efficiency. The initiatives include eliminating over 350 positions
worldwide, consolidating the corporate engineering and research and
development functions at the Company's Science and Technology Center in
Granville, Ohio, and the Company's field sales and
PAGE
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-18-
administrative operations. Other actions include exiting 50-60 currently
leased facilities, continuing the rationalization of the Company's worldwide
product lines and manufacturing facilities, outsourcing various corporate
activities, and exiting non-strategic businesses (including Resol (registered
trademark) foam insulation in Canada). The pretax charge to expense for the
productivity initiatives and other actions was $117 million, comprised of an
$89 million charge associated with the restructure of the Company's
businesses, as well as a $28 million charge primarily composed of final costs
associated with the Company's former commercial roofing business. The
components of the restructure charge include: $48 million for personnel
reductions, $22 million for the divestiture of non-strategic businesses and
facilities, $16 million for business realignments and $3 million for other
improvements. These initiatives are expected to improve annual earnings per
share by $.35 to $.40, beginning in 1995. Please see Notes 1 and 3 to the
Consolidated Financial Statements.
Effective January 1, 1994, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" for non-U.S.
plans and SFAS No. 112, "Employers' Accounting for Postemployment Benefits."
The adoption of the portion for non-U.S. plans completes the adoption of SFAS
No. 106. SFAS No. 112 requires employers to recognize the obligation to
provide benefits to former or inactive employees after employment but before
retirement under certain conditions. As noted above, the cumulative effect
of adopting SFAS No. 106 and SFAS No. 112 decreased earnings by $10 million,
or $.23 per share, and $28 million, or $.64 per share, respectively, in the
first quarter of 1994. Please see Notes 5 and 6 to the Consolidated
Financial Statements.
The Company's cost of borrowed funds for the first quarter of 1994 was $1
million lower than during the corresponding quarter of the prior year due to
lower interest rates during the quarter compared to a year ago.
LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED MATTERS
Cash flow from operations was a negative $75 million for the first quarter,
compared to $18 million for the prior year's first quarter. The decrease in
cash flow is primarily due to an increase of $30 million in payments (net of
insurance proceeds) for asbestos litigation claims and a smaller accounts
payable increase compared to the prior year period. Net inventories
increased from $221 million at year-end 1993 to $260 million at the end of
the first quarter primarily due to anticipated demand for building products
with the improving weather. Total receivables at March 31, 1994 were $360
million, $36 million higher than at year-end 1993 because of seasonally
higher sales at the end of the first quarter.
At March 31, 1994, the Company's working capital was a negative $12 million
and its current ratio was .99, compared to a negative $49 million and .94,
respectively, at December 31, 1993.
Total borrowings at March 31, 1994 were $115 million higher than at year-end
1993 primarily due to working capital requirements. At the end of the first
quarter, the Company had unused lines of credit of $250 million available
under long-term bank loan facilities and an additional $45 million available
under short-term facilities, compared to $376 million and $64 million,
respectively, at year-end 1993. The decline in unused available lines of
credit reflects the Company's higher borrowings and a $29 million increase in
outstanding letters of credit counted against the Company's long-term U.S.
loan facility.
Capital spending for property, plant and equipment was $40 million during the
first quarter. At the end of the quarter, approved capital projects,
including furnace rebuilds, were $204 million. The Company expects that
funding for these expenditures will be from the Company's operations and
external sources as required.
Payments for asbestos litigation claims during the first quarter 1994,
including $14 million in defense costs, were $73 million. Proceeds from
insurance were $14 million. In the first quarter 1994, the Company received
about 5,500 new asbestos personal injury cases and closed approximately 2,900
cases. Over the next twelve months, the Company's payments for asbestos
litigation claims, including defense costs, are expected to be approximately
$250 million and proceeds from insurance of $125 million are expected to be
available to cover these costs. Please see Note 11 to the Consolidated
Financial Statements.
PAGE
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-19-
The Company expects funds generated from operations, together with funds
available under long and short term bank loan 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.
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. 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 the first quarter of 1994, the Company was designated as
a PRP in such federal, state, local or private proceedings for one additional
site. At March 31, 1994, a total of 40 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 reserves for its Superfund (and similar
state, local and private action) contingent liabilities which are reflected
in the financial statements. The Company believes these reserves are
adequate to cover these liabilities and are not material to the financial
position or results of operations of the Company. In addition, based upon
information presently available to the Company, and without regard to the
application of insurance, the Company believes 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 financial position or results of operations.
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 the
Act will affect it. The Company anticipates that its sources to be regulated
will include glass fiber manufacturing, resin manufacturing and asphalt
processing activities. The Company currently expects glass fiber
manufacturing to be regulated by 1997. 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.
<PAGE>
<PAGE>
-20-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See the paragraphs in Note 11, Contingent Liabilities, to the
Consolidated Financial Statements above, which are incorporated
here by reference.
ITEM 2. CHANGES IN SECURITIES
(a) None of the constituent instruments defining the rights of the
holders of any class of the Company's registered securities was
materially modified in the quarter ended March 31, 1994.
(b) None of the rights evidenced by any class of the Company's
registered securities was materially limited or qualified in the
quarter ended March 31, 1994 by the issuance or modification of any
other class of securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) During the quarter ended March 31, 1994, there was no material
default in the payment of principal, interest, sinking or purchase
fund installments, or any other material default not cured within
30 days, with respect to any indebtedness of the Company or any of
its significant subsidiaries exceeding 5 percent of the total assets
of the Company and its consolidated subsidiaries.
(b) During the quarter ended March 31, 1994, no material arrearage in
the payment of dividends occurred, and there was no other material
delinquency not cured within 30 days, with respect to any class of
preferred stock of the Company which is registered or which ranks
prior to any class of registered securities, or with respect to any
class of preferred stock of any significant subsidiary of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
quarter ended March 31, 1994.
ITEM 5. OTHER INFORMATION
The Company does not elect to report any information under this
item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
See Exhibit Index below, which is incorporated here by
reference.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the
quarter ended March 31, 1994.
PAGE
<PAGE>
-21-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OWENS-CORNING FIBERGLAS CORPORATION
Registrant
Date May 12, 1994 By /s/David W. Devonshire
------------
-------------------------------
David W. Devonshire
Senior Vice President and Chief
Financial Officer
Date May 12, 1994 /s/Domenico Cecere
------------
-------------------------------
Domenico Cecere
Vice President and Controller
PAGE
<PAGE>
-22-
EXHIBIT INDEX
Exhibit
Number Document Description
- - ------- --------------------
(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 for the quarter ended September
30, 1993).
Rights Agreement, dated as of December 18, 1986, between
Owens-Corning Fiberglas Corporation and Manufacturers
Hanover Trust Company, as Rights Agent, including, as
Exhibit B of such Rights Agreement, the form of Right
Certificate (incorporated herein by reference to Exhibits
1 and 2 to the Company's Registration Statement on Form
8-A, dated December 23, 1986).
The following documents are incorporated herein by
reference to Exhibit (10) to the Company's annual report
on Form 10-K for 1993:
- 1994 Corporate Incentive Plan - General Terms.
- Agreement, dated February 11, 1994, with Larry T.
Solari.
Owens-Corning Fiberglas Corporation Director's Charitable
Award Program (incorporated herein by reference to
Exhibit (10) to the Company's quarterly report on Form
10-Q for the quarter ended September 30, 1993).
Owens-Corning Fiberglas Corporation Executive
Supplemental Benefit Plan, as amended (incorporated
herein by reference to Exhibit (10) to the Company's
quarterly report on Form 10-Q 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
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 for the quarter ended June 30, 1992).
Owens-Corning Fiberglas Corporation Stock Performance
Incentive Plan (incorporated herein by reference to
Exhibit (19) to the Company's quarterly report on Form
10-Q for the quarter ended June 30, 1992).
Owens-Corning Fiberglas Corporation 1987 Stock Plan for
Directors, as amended (incorporated herein by reference
to Exhibit (19) to the Company's quarterly report on Form
10-Q for the quarter ended March 31, 1992).
Form of Key Management Severance Benefits Agreement
(incorporated herein by reference to Exhibit (10) to the
Company's annual report on Form 10-K for 1991).
PAGE
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-23-
Consulting Agreement, dated September 27, 1990, with
William W. Boeschenstein (incorporated herein by
reference to Exhibit (10) to the Company's annual
report on Form 10-K for 1990).
Owens-Corning Fiberglas Corporation 1986 Equity
Partnership Plan, as amended (incorporated herein by
reference to Exhibit (19) to the Company's quarterly
report on Form 10-Q for the quarter ended March 31,
1988), as amended by Amendment 1 thereto
(incorporated herein by reference to Exhibit (19) to
the Company's quarterly report on Form 10-Q for the
quarter ended March 31, 1989), by Amendment 2
thereto (incorporated herein by reference to Exhibit
(10) to the Company's annual report on Form 10-K for
1989) and by Amendment 3 thereto (incorporated
herein by reference to Exhibit (10) to the Company's
annual report on Form 10-K for 1990).
The following documents are incorporated herein
by reference to Exhibit (10) to the Company's
annual report on Form 10-K for 1989:
- Pension Agreement, dated April 16, 1984, with
William W. Colville.
- Form of Directors' Indemnification Agreement.
The following documents are incorporated herein
by reference to Exhibit (10) to the Company's
annual report on Form 10-K for 1987:
- Owens-Corning Fiberglas Corporation Officers
Deferred Compensation Plan.
- Owens-Corning Fiberglas Corporation Deferred
Compensation Plan for Directors, as amended.
(11) Statement re Computation of Per Share Earnings (filed
herewith).
(18) Letter re Change in Accounting Principles (filed herewith).
(99) Additional Exhibits.
Subsidiaries of Owens-Corning Fiberglas Corporation, as
amended (filed herewith).
<PAGE>
Exhibit (11)
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
Quarter Ended
March 31,
1994 1993
---- ----
(In millions of dollars,
except share data)
Primary:
- - -------
Net Income (Loss) $ 18 $ 17
======== ========
Weighted average number of shares
outstanding (thousands) 43,174 42,524
Weighted average common equivalent
shares (thousands):
Deferred awards 25 313
Stock options using average
market price 591 553
--------- ---------
Primary weighted average number of
common shares outstanding and
common equivalent shares (thousands) 43,790 43,390
======== ========
Primary per share amount $ .41 $ .40
======== ========
Fully Diluted:
- - -------------
Net Income (Loss) $ 20 $ 19
======== ========
Weighted average number of shares
outstanding (thousands) 43,174 42,524
Weighted average common equivalent
shares (thousands):
Deferred awards 25 313
Stock options using the higher
of average market price or
market price at end of period 604 584
Shares from assumed conversion of debt 5,798 5,798
--------- ---------
Fully diluted weighted average number
of common shares outstanding and
common equivalent shares (thousands) 49,601 49,219
======== ========
Fully diluted per share amount $ .40 $ .40
======== ========
Exhibit (18)
ARTHUR ANDERSEN
ARTHUR ANDERSEN & CO., SC
Arthur Andersen & Co.
300 Madison Avenue
Toledo, OH 43604-1586
419-241-8600
May 9, 1994
Owens-Corning Fiberglas Corporation
Fiberglas Tower
Toledo, Ohio 43659
Gentlemen:
This letter is written to meet the requirements of Regulation S-K calling for
a letter from a registrant's independent accountants whenever there has been
a change in accounting principle or practice.
We have been informed that, as of 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.
A complete coordinated set of financial and reporting standards for
determining the preferability of accounting principles among acceptable
alternative principles has not been established by the accounting profession.
Thus, we cannot make an objective determination of whether the change in
accounting described in the preceding paragraph is to a preferable method.
However, we have reviewed the pertinent factors, including those related to
financial reporting, in this particular case on a subjective basis, and our
opinion stated below is based on our determination made in this matter.
We are of the opinion that the Company's change in method of accounting is to
an acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is also preferable under
the circumstances in this particular case. In arriving at this opinion, we
have relied on the business judgment and business planning of your
management.
We have not audited the application of this change to the financial
statements of any period subsequent to December 31, 1993. Further, we have
not examined and do not express any opinion with respect to your financial
statements for the three months ended March 31, 1994.
Very truly yours,
Arthur Andersen & Co.
Exhibit (99)
State or Other
Jurisdiction
Subsidiaries of Owens-Corning Fiberglas Under the
Corporation (03/31/94) Which Organized
- - --------------------------------------- ---------------
Barbcorp, Inc. Delaware
Dansk-Svensk Glasfiber A/S
Deutsche Owens-Corning Glasswool GmbH Germany
Eric Company Delaware
Denmark
Deutsche Owens-Corning Glasswool GmbH Germany
Eric Company Delaware
European Owens-Corning Fiberglas Belgium
Fiberglas Canada Inc. Canada
Fiberglas Comercial Exportadora
e Importadora Ltda. Brazil
IPM Inc. Delaware
Matcorp, Inc. Delaware
N. V. Owens-Corning S.A. Belgium
O/C/FIRST CORPORATION Ohio
OCFOGO, Inc. Delaware
OCFSC, Inc. U.S. Virgin Islands
O.C. Funding B.V. The Netherlands
O/C/SECOND CORPORATION Delaware
Owens-Corning A/S Norway
Owens-Corning Cayman Limited Cayman Islands
Owens-Corning Fiberglas Deutschland GmbH Germany
Owens-Corning Fiberglas Espana, S.A. Spain
Owens-Corning Fiberglas France, S.A. France
Owens-Corning Fiberglas (G.B.) Ltd. United Kingdom
Owens-Corning Fiberglas (Italy) S.r.l. Italy
Owens-Corning Fiberglas Limitada Brazil
Owens-Corning Fiberglas Norway A/S Norway
Owens-Corning Fiberglas S.A. Uruguay
Owens-Corning Fiberglas Sweden AB Sweden
Owens-Corning Fiberglas Technology Inc. Illinois
Owens-Corning Fiberglas (U.K.) Ltd. United Kingdom
Owens-Corning Holdings Limited Cayman Islands
Owens-Corning Isolation France S.A. France
Owens-Corning (Overseas) Management Limited Cyprus
Owens-Corning Real Estate Corporation Ohio
Owens-Corning Veil Netherlands B.V. The Netherlands
Owens-Corning Veil U.K., Ltd. United Kingdom
Owens-Corning Vertriebs GmbH Germany
Palmetto Products, Inc. Delaware
Scanglas Ltd. United Kingdom
Willcorp, Inc. Delaware
Wrexham A.R. Glass Ltd. United Kingdom
