SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
January 21, 1995
OWENS-CORNING FIBERGLAS CORPORATION
A Delaware Corporation
Commission File No. 1-3660 IRS Employer Identification
No. 34-4323452
Fiberglas Tower, Toledo, Ohio 43659
Telephone No. (419) 248-8000
<PAGE>
-1-
ITEM 5. OTHER EVENTS
The purpose of this report is to file with the Securities and Exchange
Commission, and to make publicly available, the consolidated financial
statements of Owens-Corning Fiberglas Corporation for the year ended
December 31, 1994, together with the report thereon, dated January 21,
1995, of Arthur Andersen LLP.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
See Exhibit Index below, which is incorporated here by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, hereunto duly authorized.
OWENS-CORNING FIBERGLAS CORPORATION
Registrant
Date February 3, 1995 By /s/ Domenico Cecere
------------------- ------------------------------------
Domenico Cecere
Vice President and Controller
<PAGE>
-2-
EXHIBIT INDEX
Exhibit
Number Document Description
- ------- --------------------
(23) Consent of Arthur Andersen LLP
(27) Financial Data Schedule
(99) Additional Exhibits
Owens-Corning Fiberglas Corporation and Subsidiaries
Consolidated Financial Statements as of December 31,
1994 and 1993, together with Auditors' Report:
- Report of Independent Public Accountants
- Summary of Significant Accounting Policies
- Consolidated Statement of Income - for the
years ended December 31, 1994, 1993, and 1992
- Consolidated Balance Sheet - December 31, 1994
and 1993
- Consolidated Statement of Stockholders' Equity
- for the years ended December 31, 1994, 1993,
and 1992
- Notes to Consolidated Financial Statements -
Notes 1 through 22
Exhibit (23)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our report dated January 21, 1995,
included in Owens-Corning Fiberglas Corporation's current report on Form
8-K, dated January 21, 1995, into the Company's previously filed
Registration Statements, File Nos. 33-9563, 33-9986, 33-9987, 33-18262,
33-20997, 33-27209, 33-31687, 33-48707, 33-57886 and 33-55163.
ARTHUR ANDERSEN LLP
Toledo, Ohio
February 3, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
SEC form 8-K and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 59
<SECURITIES> 0
<RECEIVABLES> 296
<ALLOWANCES> 16
<INVENTORY> 223
<CURRENT-ASSETS> 930
<PP&E> 2,901
<DEPRECIATION> 1,768
<TOTAL-ASSETS> 3,274
<CURRENT-LIABILITIES> 1,073
<BONDS> 1,037
<COMMON> 348
0
0
<OTHER-SE> (1,028)
<TOTAL-LIABILITY-AND-EQUITY> 3,274
<SALES> 3,351
<TOTAL-REVENUES> 3,351
<CGS> 2,536
<TOTAL-COSTS> 2,536
<OTHER-EXPENSES> 584
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 94
<INCOME-PRETAX> 132
<INCOME-TAX> 58
<INCOME-CONTINUING> 74
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 85
<NET-INCOME> 159
<EPS-PRIMARY> 3.61
<EPS-DILUTED> 3.35
</TABLE>
Exhibit (99)
OWENS-CORNING FIBERGLAS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1993
TOGETHER WITH AUDITORS' REPORT<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Owens-Corning Fiberglas Corporation:
We have audited the accompanying consolidated balance sheet of OWENS-CORNING
FIBERGLAS CORPORATION (a Delaware corporation) and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1994. 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 Fiberglas
Corporation and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in Notes 6, 7, and 9 to the consolidated financial statements,
effective January 1, 1994, the Company changed its methods of accounting for
furnace rebuilds, postretirement benefits other than pensions for its non-
U.S. plans, and postemployment benefits, and effective January 1, 1993, the
Company changed its method of accounting for income taxes.
January 21, 1995
Toledo, Ohio<PAGE>
-1-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of 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 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. Unless otherwise indicated, all per
share information included in the notes to the Company's 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. U.S. inventories are primarily
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 net income 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.
<PAGE>
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OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
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.
Rebuilding of Glass Melting Furnaces
The Company's glass melting furnaces periodically require substantial
rebuilding. As discussed in Note 6 to the consolidated financial statements,
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.
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.
Reclassifications
Certain reclassifications have been made to 1993 and 1992 to conform with the
classifications used in 1994.
<PAGE>
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<TABLE>
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
(In millions of dollars,
except share data)
<S> <C> <C> <C>
NET SALES $ 3,351 $ 2,944 $ 2,878
COST OF SALES 2,536 2,266 2,234
-------- -------- --------
Gross margin 815 678 644
-------- -------- --------
OPERATING EXPENSES
Marketing and administrative expenses386 324 334
Science and technology expenses
(Note 11) 71 69 65
Restructure costs (Note 5) 89 23 16
Other (Note 5) 43 26 16
-------- -------- --------
Total operating expenses 589 442 431
-------- -------- --------
INCOME FROM OPERATIONS 226 236 213
Cost of borrowed funds (Notes 2 and 3) 94 89 110
-------- -------- --------
INCOME BEFORE PROVISION FOR
INCOME TAXES 132 147 103
Provision for income taxes (Note 9) 58 47 33
-------- -------- --------
INCOME BEFORE EQUITY IN NET
INCOME OF AFFILIATES 74 100 70
Equity in net income of affiliates
(Note 13) - 5 2
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEMS
AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGES 74 105 72
Extraordinary items (Notes 2 and 9) - - 1
Cumulative effect of accounting changes
(Notes 6, 7, and 9) 85 26 -
-------- -------- --------
NET INCOME $ 159 $ 131 $ 73
======== ======== ========
The accompanying summary of significant accounting policies and notes
are an integral part of this statement.
/TABLE
<PAGE>
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<TABLE>
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Continued)
1994 1993 1992
NET INCOME PER COMMON SHARE (In millions of dollars,
except share data)
<S> <C> <C> <C>
Primary:
Income before extraordinary
items and cumulative effect of
accounting changes $ 1.70 $ 2.40 $ 1.68
Extraordinary items - - .02
Cumulative effect of accounting changes1.91 .60 -
------- ------- -------
Net income per share $ 3.61 $ 3.00 $ 1.70
======= ======= =======
Assuming full dilution:
Income before extraordinary
items and cumulative effect of
accounting changes $ 1.66 $ 2.28 $ 1.65
Extraordinary items - - .02
Cumulative effect of accounting changes1.69 .53 -
------- ------- -------
Net income per share $ 3.35 $ 2.81 $ 1.67
======= ======= =======
Weighted average number of common shares
outstanding and common equivalent
shares during the period (in millions)
Primary: 44.2 43.6 43.0
Assuming full dilution: 50.0 49.4 48.8
The accompanying summary of significant accounting policies and notes
are an integral part of this statement.
/TABLE
<PAGE>
-5-
<TABLE>
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - DECEMBER 31, 1994 AND 1993
ASSETS 1994 1993
(In millions of dollars)
<S> <C> <C>
CURRENT
Cash and cash equivalents $ 59 $ 3
Receivables, less allowances of
$16 million in 1994 and 1993 (Note 20) 329 324
Inventories (Note 12) 223 221
Deferred income taxes (Note 9) 156 136
Insurance for asbestos litigation claims
- current portion (Note 21) 125 125
Other current assets 38 18
-------- --------
Total current 930 827
-------- --------
OTHER
Goodwill, less accumulated amortization
of $14 million in 1994 and $12 million
in 1993 (Note 4) 151 77
Investments in affiliates (Note 13) 74 63
Deferred income taxes (Note 9) 308 428
Insurance for asbestos litigation claims
(Note 21) 556 643
Other noncurrent assets 122 81
-------- --------
Total other 1,211 1,292
-------- --------
PLANT AND EQUIPMENT, at cost
Land 51 44
Buildings and leasehold improvements 553 559
Machinery and equipment (Note 6) 2,172 1,978
Construction in progress 125 88
-------- --------
2,901 2,669
Less: Accumulated depreciation (Note 6)(1,768) (1,775)
-------- --------
Net plant and equipment 1,133 894
-------- --------
TOTAL ASSETS $ 3,274 $ 3,013
======== ========
The accompanying summary of significant accounting policies and notes
are an integral part of this statement.
/TABLE
<PAGE>
-6-
<TABLE>
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - DECEMBER 31, 1994 AND 1993
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
(In millions of dollars)
<S> <C> <C>
CURRENT
Accounts payable and accrued
liabilities (Note 14) $ 598 $ 495
Reserve for asbestos litigation claims -
current portion (Note 21) 300 275
Short-term debt (Note 3) 155 77
Long-term debt - current portion (Note 2) 20 29
-------- --------
Total current 1,073 876
-------- --------
LONG-TERM DEBT (Note 2) 1,037 898
-------- --------
OTHER
Reserve for asbestos litigation claims
(Note 21) 1,145 1,385
Other employee benefits liability
(Note 7) 390 346
Reserve for rebuilding furnaces (Note 6) - 124
Pension plan liability (Note 8) 77 78
Other 232 175
-------- --------
Total other 1,844 2,108
-------- --------
COMMITMENTS AND CONTINGENCIES
(Notes 16, 19, and 21)
STOCKHOLDERS' EQUITY
Preferred stock, no par value; authorized
8 million shares, none outstanding (Note 18)
Common stock, par value $.10 per share;
authorized 100 million shares; issued
1994--44.2 million and 1993--43.2 million
shares (Notes 4 and 17) 348 315
Deficit (1,012) (1,171)
Foreign currency translation adjustments (1) 5
Other (Note 8) (15) (18)
-------- --------
Total stockholders' equity (680) (869)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$ 3,274 $ 3,013
======== ========
The accompanying summary of significant accounting policies and notes
are an integral part of this statement.
/TABLE
<PAGE>
-7-
<TABLE>
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
(In millions of dollars)
<S> <C> <C> <C>
COMMON STOCK
Balance beginning of year $ 315 $ 299 $ 285
Issuance of stock, including awards
under stock compensation plans
(Notes 4 and 17) 33 16 14
-------- -------- --------
Balance end of year 348 315 299
-------- -------- --------
DEFICIT
Balance beginning of year (1,171) (1,302) (1,375)
Net income 159 131 73
-------- -------- --------
Balance end of year (1,012) (1,171) (1,302)
-------- -------- --------
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
Balance beginning of year 5 4 24
Translation adjustments (6) 1 (20)
-------- -------- --------
Balance end of year (1) 5 4
-------- -------- --------
OTHER
Balance beginning of year (18) (9) (10)
Net increase (decrease) 3 (9) 1
-------- -------- --------
Balance end of year (15) (18) (9)
-------- -------- --------
STOCKHOLDERS' EQUITY $ (680) $ (869) $ (1,008)
======== ======== ========
The accompanying summary of significant accounting policies and notes
are an integral part of this statement.
/TABLE
<PAGE>
-8-
<TABLE>
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
(In millions of dollars)
<S> <C> <C> <C>
NET CASH FLOW FROM OPERATIONS
Net income $ 159 $ 131 $ 73
Reconciliation of net cash provided
by operating activities:
Noncash items:
Cumulative effect of accounting
changes (Notes 6, 7, and 9) (85) (26) -
Provision for depreciation,
amortization, and rebuilding
furnaces (Notes 6 and 10) 118 121 150
Provision (credit) for deferred
income taxes (Note 9) 59 10 (21)
Other 9 10 5
(Increase) decrease in receivables
(Note 20) 21 (22) (9)
(Increase) decrease in inventories 17 4 (17)
Increase (decrease) in accounts
payable and accrued liabilities 53 114 (9)
Increase (decrease) in accrued
income taxes (8) (21) (2)
Other 18 (9) 14
-------- -------- --------
Net cash flow from operations 361 312 184
-------- -------- --------
NET CASH FLOW FROM INVESTING
Additions to plant and equipment
(Note 6) (258) (178) (144)
Investment in subsidiaries, net
of cash acquired (Note 4) (120) - -
Other 23 - 10
-------- -------- --------
Net cash flow from investing (355) (178) (134)
-------- -------- --------
The accompanying summary of significant accounting policies and notes
are an integral part of this statement.
/TABLE
<PAGE>
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<TABLE>
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Continued)
1994 1993 1992
(In millions of dollars)
<S> <C> <C> <C>
NET CASH FLOW FROM FINANCING
(Notes 2 and 3)
Net additions (reductions) to
long-term credit facilities $ 10 $ (90) $ (123)
Other additions to long-term debt 145 - 337
Other reductions to long-term debt (51) (21) (330)
Net increase in short-term debt 69 26 50
Other 5 11 7
-------- -------- --------
Net cash flow from financing 178 (74) (59)
-------- -------- --------
NET CASH FLOW FROM ASBESTOS-RELATED
ACTIVITIES (Note 21)
Proceeds from insurance for asbestos
litigation claims 87 224 413
Payments for asbestos litigation claims(215) (283) (405)
-------- -------- --------
Net cash flow from asbestos-
related activities (128) (59) 8
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents 56 1 (1)
Cash and cash equivalents at beginning
of year 3 2 3
-------- -------- --------
Cash and cash equivalents at end
of year (Note 15) $ 59 $ 3 $ 2
======== ======== ========
The accompanying summary of significant accounting policies and notes
are an integral part of this statement.
/TABLE
<PAGE>
-10-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Segment Data
The Company operates in two industry segments, Building Products and Industrial
Materials, and reports its results in two ways: by industry segment and by
geographic segment. See Note 4 for detail of 1994 acquisitions and divestitures
of businesses.
The industry segments are defined as follows:
Building Products
Production and sale of glass wool fibers formed into thermal and
acoustical insulation and air ducts; extruded polystyrene
insulation; roofing shingles and asphalt materials; underground
storage tanks; windows; and patio doors.
Industrial Materials
Production and sale of glass fiber yarns; rovings, mats and veils;
strand and reinforcement products; fiber reinforced plastic pipe;
and polyester and vinyl ester resins.
The 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.
During the first quarter of 1994, the Company recorded a $117 million pretax
charge for productivity initiatives and other actions. 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 other, and Europe 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. In addition, the 1993 change in estimate of
fixed asset lives reduced 1993 depreciation expense for Building Products,
Industrial Materials, and general corporate expense by $9 million, $4 million,
and $1 million, respectively. During the fourth quarter of 1992, the Company
recorded a $16 million charge to reorganize its Building Products segment and
to centralize its accounting and information systems. The impact of this charge
was to reduce income from operations for Building Products by $9 million and to
increase general corporate expense by $7 million. Geographically, income from
operations in the United States and Canada and other was reduced by $8 million
and $1 million, respectively (Notes 5 and 10).
<PAGE>
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<TABLE>
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. Segment Data (Continued)
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, deferred taxes, asbestos insurance, and
corporate property and equipment.
1994 1993 1992
(In millions of dollars)
<S> <C> <C> <C>
NET SALES
Industry Segments
Building Products
United States $ 1,952 $ 1,699 $ 1,636
Europe 182 97 91
Canada and other 139 150 172
-------- -------- --------
Total Building Products 2,273 1,946 1,899
-------- -------- --------
Industrial Materials
United States 595 528 479
Europe 355 346 373
Canada and other 128 124 127
-------- -------- --------
Total Industrial Materials1,078 998 979
-------- -------- --------
Intersegment sales
Building Products - - -
Industrial Materials 99 85 88
Eliminations (99) (85) (88)
-------- -------- --------
Net sales 3,351 2,944 2,878
======== ======== ========
Geographic Segments
United States 2,547 2,227 2,115
Europe 537 443 464
Canada and other 267 274 299
-------- -------- --------
3,351 2,944 2,878
-------- -------- --------
Intersegment sales
United States 43 42 42
Europe 22 15 7
Canada and other 91 66 42
Eliminations (156) (123) (91)
-------- -------- --------
Net sales $ 3,351 $ 2,944 $ 2,878
======== ======== ========
/TABLE
<PAGE>
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<TABLE>
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. Segment Data (Continued)
1994 1993 1992
(In millions of dollars)
<S> <C> <C> <C>
INCOME (LOSS) FROM OPERATIONS
Industry Segments
Building Products
United States $ 145 $ 153 $ 94
Europe 26 16 10
Canada and other 18 6 5
-------- -------- --------
Total Building Products 189 175 109
-------- -------- --------
Industrial Materials
United States 108 101 99
Europe (8) (15) 26
Canada and other 9 12 13
-------- -------- --------
Total Industrial Materials 109 98 138
-------- -------- --------
General corporate expense (72) (37) (34)
-------- -------- --------
Income from operations 226 236 213
Cost of borrowed funds (94) (89) (110)
-------- -------- --------
Income before provision
for income taxes 132 147 103
======== ======== ========
Geographic Segments
United States 253 254 193
Europe 18 1 36
Canada and other 27 18 18
General corporate expense (72) (37) (34)
-------- -------- --------
Income from operations 226 236 213
Cost of borrowed funds (94) (89) (110)
-------- -------- --------
Income before provision
for income taxes $ 132 $ 147 $ 103
======== ======== ========
/TABLE
<PAGE>
-13-
<TABLE>
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. Segment Data (Continued)
1994 1993 1992
(In millions of dollars)
<S> <C> <C> <C>
IDENTIFIABLE ASSETS AT DECEMBER 31
Industry Segments
Building Products
United States $ 718 $ 596 $ 580
Europe 162 46 35
Canada and other 136 155 151
-------- -------- --------
Total Building Products 1,016 797 766
-------- -------- --------
Industrial Materials
United States 326 302 295
Europe 335 256 259
Canada and other 160 157 157
-------- -------- --------
Total Industrial Materials 821 715 711
-------- -------- --------
General corporate 1,363 1,438 1,636
-------- -------- --------
3,200 2,950 3,113
Investments in affiliates
accounted for under the
equity method 74 63 49
-------- -------- --------
Total assets 3,274 3,013 3,162
======== ======== ========
Geographic Segments
United States 1,044 898 875
Europe 497 302 294
Canada and other 296 312 308
General corporate 1,363 1,438 1,636
-------- -------- --------
3,200 2,950 3,113
Investments in affiliates
accounted for under the
equity method 74 63 49
-------- -------- --------
Total assets $ 3,274 $ 3,013 $ 3,162
======== ======== ========
/TABLE
<PAGE>
-14-
<TABLE>
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. Segment Data (Continued)
1994 1993 1992
(In millions of dollars)
<S> <C> <C> <C>
PROVISION FOR DEPRECIATION,
AMORTIZATION, AND REBUILDING
FURNACES
Industry Segments
Building Products
United States $ 48 $ 47 $ 68
Europe 6 2 3
Canada and other 8 11 10
-------- -------- --------
Total Building Products 62 60 81
-------- -------- --------
Industrial Materials
United States 22 24 32
Europe 17 16 21
Canada and other 8 10 10
-------- -------- --------
Total Industrial Materials 47 50 63
-------- -------- --------
General corporate 9 11 6
-------- -------- --------
Total provision for
depreciation, amortization,
and rebuilding furnaces 118 121 150
======== ======== ========
Geographic Segments
United States 70 71 100
Europe 23 18 24
Canada and other 16 21 20
General corporate 9 11 6
-------- -------- --------
Total provision for
depreciation, amortization,
and rebuilding furnaces$ 118 $ 121 $ 150
======== ======== ========
/TABLE
<PAGE>
-15-
<TABLE>
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. Segment Data (Continued)
1994 1993 1992
(In millions of dollars)
<S> <C> <C> <C>
ADDITIONS TO PLANT AND EQUIPMENT
Industry Segments
Building Products
United States $ 85 $ 82 $ 76
Europe 41 2 4
Canada and other 7 5 6
-------- -------- --------
Total Building Products 133 89 86
-------- -------- --------
Industrial Materials
United States 41 31 30
Europe 35 32 18
Canada and other 26 7 5
-------- -------- --------
Total Industrial Materials 102 70 53
-------- -------- --------
General corporate 23 19 5
-------- -------- --------
Total additions 258 178 144
======== ======== ========
Geographic Segments
United States 126 113 106
Europe 76 34 22
Canada and other 33 12 11
General corporate 23 19 5
-------- -------- --------
Total additions $ 258 $ 178 $ 144
======== ======== ========
/TABLE
<PAGE>
-16-
<TABLE>
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. Long-Term Debt
1994 1993
(In millions of dollars)
<S> <C> <C>
Unsecured credit facility due in
1997, variable $ 35 $ 30
Unsecured credit facility due in
1997, variable, payable in
Canadian dollars 4 -
Convertible junior subordinated
debentures due in 2005, 8%,
convertible at $29.75 per share 173 173
Guaranteed debentures due in 2001, 10%150 150
Debentures due in 2002, 8.875% 150 150
Debentures due in 2012, 9.375% 149 149
Guaranteed bonds due in 2019, 9.814%
(Note 19) 140 -
Guaranteed debentures due in 1998, 9.8%100 100
Bonds due in 2000, 7.25%, payable
in Deutsche marks (Note 19) 50 50
Notes due through 1997, 6.375% to
8.50%, payable in foreign
currencies 38 77
Other long-term debt due through 2012,
at rates from 5.375% to 12.47% 68 48
-------- --------
1,057 927
Less: Current portion (20) (29)
-------- --------
Total long-term debt $ 1,037 $ 898
======== ========
</TABLE>
The Company has two unsecured, variable rate, long-term bank credit facilities.
The first facility was amended in July 1994 and has a maximum commitment of $475
million at December 31, 1994, of which $211 million was used for standby letters
of credit and $229 million was unused. The rate of interest is either the
bank's base rate, or 13/16% over the certificate of deposit rate, or 11/16% over
the London Interbank Offered Rate (LIBOR). The rate of interest on borrowings
under this facility was 6.8125% at December 31, 1994. A commitment fee of 1/4
of 1% is charged on the unused portions of this facility.
The second long-term facility is payable in Canadian dollars and has a maximum
commitment of 95 million Canadian dollars (68 million U.S. dollars) at December
31, 1994, of which 89 million Canadian dollars (64 million U.S. dollars) was
unused. This facility replaced the previous Canadian facility which expired in
July 1994. The rate of interest is either 11/16% over the Canadian cost of
funds rate, or 11/16% over the LIBOR rate on U.S. deposits, or .7875% over the
Canadian bankers' acceptance rate. The rate of interest on borrowings under
this facility was 8.0% at December 31, 1994. A commitment fee of 1/4 of 1% is
charged on the unused portions of this facility.
-17-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. Long-Term Debt (Continued)
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, certain investments, 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.
The convertible junior subordinated debentures are subordinated to all present
and future indebtedness of the Company and may be redeemed at any time, at a
premium, at the option of the Company. The debentures are convertible at any
time into shares of common stock of the Company at a conversion price of $29.75
per share. The Company has reserved approximately six million additional shares
of common stock necessary for conversion.
In November 1994, Owens-Corning Finance (U.K.) PLC, a newly formed wholly-owned
subsidiary of the Company, issued $140 million of Eurobonds. These bonds bear
a coupon rate of interest of 9.814%, payable semiannually, and mature in 2019.
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 (Note 19). Subsequently, in a separate
transaction, the Company sold a put option to the holder of the bonds allowing
the option holder to require the Company to purchase a portion of the bonds for
$79 million on May 28, 1995. During January 1995, the Company received, from
an option holder, a notice of intent to exercise approximately 30% of these put
options.
During 1992, the Company called, prior to maturity, its 12% sinking fund
debentures having a face value of $46 million at a price in excess of book
value, which resulted in an extraordinary loss of $1 million, or $.02 per share,
net of related income taxes of $1 million.
In June 1992, the Company called, prior to maturity, its senior subordinated
debentures having a face value of $240 million, which resulted in an
extraordinary loss of approximately $2 million, or $.05 per share, net of
related income taxes of $1 million. <PAGE>
-18-
OWENS-CORNING FIBERGLAS CORPORATION 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, 1994 are:
<TABLE>
Credit Other Long-
Year Facilities Term Debt
(In millions of dollars)
<S> <C> <C>
1995 $ - $ 20
1996 - 35
1997 39 12
1998 - 104
1999 - 3
</TABLE>
3. Short-Term Debt
<TABLE>
1994 1993
(In millions of dollars)
<S> <C> <C>
Balance outstanding at December 31$ 155 $ 77
Weighted average interest rates
on short-term debt outstanding
at December 31 6.6% 6.6%
</TABLE>
During 1994, the Company established an unsecured, variable rate, short-term
bank credit facility in order to finance the 1994 acquisition of Pilkington
(Note 4). This facility has a maximum commitment of $110 million at December
31, 1994, all of which was used. This facility expires on May 31, 1995 and
carries an interest rate of 1/2 of 1% over the LIBOR rate. The rate of interest
on borrowings under this facility was 6.6875% at December 31, 1994.
The Company had unused short-term lines of credit totalling $91 million and $115
million at December 31, 1994 and 1993, respectively.
4. Acquisitions and Divestitures of Businesses
On May 31, 1994, the Company acquired UC Industries, Inc. ("UCI"), a privately
held foam board insulation manufacturer based in New Jersey. UCI has two
manufacturing facilities which are located in Ohio and Illinois.
<PAGE>
-19-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. Acquisitions and Divestitures of Businesses (Continued)
The purchase price of UCI was $45 million. This business combination was
consummated by the exchange of 855,556 shares of the Company's common stock for
all of the capital stock of UCI, as well as an $18 million cash payment, $6
million of which was paid to acquire the cash of UCI. The remaining $12 million
cash payment represents a stock value settlement and was paid during the fourth
quarter of 1994.
On June 2, 1994, the Company acquired Pilkington Insulation Limited and Kitsons
Insulation Products Limited (collectively, "Pilkington"), the United Kingdom-
based insulation manufacturing and distribution businesses of the Pilkington
Group. With two fiber glass insulation manufacturing facilities and one rock
wool manufacturing facility, Pilkington Insulation Limited is the United
Kingdom's largest manufacturer of fiber glass and rock wool insulation. Kitsons
Insulation Products Limited is a major supplier of thermal and acoustical
insulation products to the United Kingdom construction industry and is comprised
of 14 distribution centers.
The purchase price of Pilkington was $110 million and was financed with
borrowings from the Company's short-term bank credit facility (Note 3).
These acquisitions were accounted for using the purchase method of accounting.
Accordingly, the assets acquired and liabilities assumed have been recorded at
their fair values and the results of operations of UCI and Pilkington have been
included in the Company's consolidated financial statements subsequent to May
31, 1994 and June 2, 1994, respectively.
The purchase price allocations were based on preliminary estimates of fair
market value and are subject to revision. The estimated fair value of assets
acquired from UCI, including goodwill and a non-competition agreement, was $72
million, and liabilities assumed, including $14 million in debt, totalled $27
million. The estimated fair value of assets acquired from Pilkington, including
goodwill, was $165 million, and liabilities assumed, including $7 million in
debt, totalled $55 million. Goodwill of $78 million and the non-competition
agreement of $6 million are being amortized over 40 years and 7 years,
respectively, on a straight-line basis.
UCI and Pilkington added $134 million in post-acquisition sales for the Company
during 1994. The pro forma effect of these acquisitions was not material to net
income for the year ended December 31, 1994 or 1993.
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. The Company contributed two manufacturing
plants (Valparaiso, Indiana and Guelph, Ontario) and owns a 50 percent interest
in the joint venture. This joint venture is being accounted for under the
equity method. For the nine months ended September 30, 1994 and the years ended
December 31, 1993 and 1992, resin sales totalled $58 million, $63 million, and
$56 million, respectively, and were included in the Industrial Materials
segment.<PAGE>
-20-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. Acquisitions and Divestitures of Businesses (Continued)
Late in the fourth quarter of 1994, the Company completed the sale of its
underground storage tank manufacturing business. Sales for this business
totalled $41 million, $43 million, and $48 million in 1994, 1993, and 1992,
respectively, and were included in the Building Products segment.
5. Restructuring of Operations and Other Initiatives
During the first quarter of 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 is 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 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. The $48 million
cost for personnel reductions primarily represents severance costs associated
with the elimination of nearly 400 positions worldwide. The primary employee
groups affected include science and technology personnel, field sales personnel,
corporate administrative personnel, and commercial roofing and resin business
personnel.
As of December 31, 1994, the Company has recorded approximately $50 million in
costs against its 1994 restructure reserve, of which $35 million represents
actual cash expenditures and $15 million represents the non-cash effects of
asset write-offs and business realignments. The $35 million cash expenditure
includes personnel reduction costs of $22 million, primarily composed of partial
payments of severance costs for over 300 employees. The remaining $13 million
cash expenditure represents costs associated with the divestiture or realignment
of businesses and facilities.
During 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.
During the fourth quarter of 1992, the Company recorded a $16 million charge to
reorganize its Building Products segment and to centralize its accounting and
information systems. This charge included $14 million for personnel reductions
and $2 million for the writedown of assets.
<PAGE>
-21-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. 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 $2.45 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. The
pro forma effect of this change was not material to net income for the year
ended December 31, 1993 and was $7 million, or $.15 per share, for the year
ended December 31, 1992.
7. 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 during their term. During 1993, the
Company approved changes in its postretirement health care plans for retirees
and active employees. These changes, which reduced the accumulated benefit
obligation by $120 million and 1993 expense by $18 million, resulted in an
unrecognized net reduction in prior service cost which will be amortized through
1999.
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 expected 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, 1994 and 1993, as reflected on the balance sheet
as of December 31, 1994 and 1993:
<PAGE>
-22-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. Postemployment and Postretirement Benefits Other Than Pensions (Continued)
<TABLE>
1994 1993
(In millions of dollars)
<S> <C> <C>
Accumulated Postretirement Benefits Obligation:
Retirees $ (173) $ (182)
Fully eligible active plan participants (24) (32)
Other active plan participants (46) (39)
-------- --------
Funded status (243) (253)
Unrecognized net gain (39) (12)
Unrecognized net reduction in prior
service cost (88) (106)
-------- --------
Accrued postretirement benefits
cost liability (includes current
liabilities of $19 million in 1994
and $25 million in 1993) $ (370) $ (371)
======== ========
</TABLE>
<TABLE>
The net postretirement benefits cost for 1994, 1993 and 1992 included the
following components:
1994 1993 1992
(In millions of dollars)
<S> <C> <C> <C>
Service cost $ 8 $ 7 $ 7
Interest cost on accumulated
postretirement benefits
obligation 19 23 30
Net amortization and deferral (20) (13) -
-------- -------- --------
Net postretirement benefits
cost $ 7 $ 17 $ 37
======== ======== ========
</TABLE>
For measurement purposes, an 11% annual rate of increase in the per capita cost
of covered health care claims was assumed for 1995. The rate was assumed to
decrease to 10.5% for 1996, then decrease gradually to 6% 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, 1994, by $13 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 8.5% in 1994, 7.5% in 1993,
and 8.25% in 1992.<PAGE>
-23-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. Postemployment and Postretirement Benefits Other Than Pensions (Continued)
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. At December 31, 1994, the Company's liability for
postemployment benefits totalled $44 million, including current liabilities of
$5 million, and is included in other employee benefits liability in the
Company's consolidated balance sheet. Postemployment benefits expense was $3
million for the year ended December 31, 1994.
8. 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 or insurance contracts. 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.
<TABLE>
Pension expense for the Company's defined benefit pension plans includes the
following:
1994 1993 1992
(In millions of dollars)
<S> <C> <C> <C>
Service cost $ 22 $ 23 $ 21
Interest cost on projected
benefit obligation 58 62 59
Actual return on plan assets (13) (124) (51)
Net amortization and deferral (64) 50 (20)
-------- -------- --------
Net pension expense $ 3 $ 11 $ 9
======== ======== ========
/TABLE
<PAGE>
-24-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. Pension Plans (Continued)
<TABLE>
The funded status at October 31, 1994 and 1993 is as follows:
1994 1993
(In millions of dollars)
Over Under Over Under
Funded Funded Funded Funded
<S> <C> <C> <C> <C>
Vested benefit obligation $ 310 $ 273 $ 288 $ 305
======= ======= ======= =======
Accumulated benefit obligation$ 341$ 343$ 323$ 370
======= ======= ======= =======
Plan assets at fair value $ 466 $ 306 $ 444 $ 335
Projected benefit obligation 430 352 398 382
------- ------- ------- -------
Plan assets in excess of (less
than) projected benefit
obligation 36 (46) 46 (47)
Unrecognized loss (gain) 8 55 (12) 56
Unrecognized prior service cost (12)(24) (13) (25)
Unrecognized transition amount (39) (13) (45) (14)
Adjustment to minimum liability - (12) - (11)
------- ------- ------- -------
Net pension liability (includes
current liabilities of $8
million in 1994 and $7 million
in 1993 and noncurrent
assets of $38 million in
1994 and $20 million in 1993)$ (7)$ (40)$ (24)$ (41)
======= ======= ======= =======
/TABLE
<PAGE>
-25-
<TABLE>
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. Pension Plans (Continued)
The 1994, 1993 and 1992 primary actuarial assumptions used for pension plans
were:
1994 1993 1992
<S> <C> <C> <C>
Discount rate 8.50% 7.50% 8.25%
Expected long-term rate of
return on plan assets 9.50% 10.00% 10.00%
Rate of compensation
increase 5.10% 4.10% 4.50%
</TABLE>
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 1994, $9 million in 1993, and $7 million in
1992.
9. Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards 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. Deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of
corresponding liabilities and assets using enacted tax rates in effect for the
year in which the differences are expected to reverse. The cumulative effect
of the adoption of this standard was an increase to earnings of $26 million, or
$.53 per share.
<PAGE>
-26-
<TABLE>
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. Income Taxes (Continued)
1994 1993 1992
(In millions of dollars)
<S> <C> <C> <C>
Income (loss) before provision
(credit) for income taxes:
U.S. $ 119 $ 163 $ 107
Foreign 13 (16) (4)
-------- -------- --------
Total $ 132 $ 147 $ 103
======== ======== ========
Provision (credit) for income taxes:
Current
U.S. $ (2) $ 24 $ 41
State and local (7) 7 5
Foreign 5 6 8
-------- -------- --------
Total current (4) 37 54
-------- -------- --------
Deferred
U.S. 51 27 (5)
State and local 13 1 (4)
Foreign (2) (4) (12)
-------- -------- --------
Total deferred 62 24 (21)
-------- -------- --------
Adjustment to deferred tax
assets and liabilities for
an increase in the U.S.
federal statutory rate from
34% to 35% - (14) -
-------- -------- --------
Total provision for income taxes$ 58$ 47 $ 33
======== ======== ========
/TABLE
<PAGE>
-27-
<TABLE>
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. Income Taxes (Continued)
The reconciliation between the U.S. federal statutory rate and the Company's
effective income tax rate is:
1994 1993 1992
<S> <C> <C> <C>
U.S. federal statutory rate 35% 35% 34%
Operating losses of foreign
subsidiaries 7 10 6
Utilization of losses of foreign
subsidiaries (7) (2) -
Enacted federal tax rate change - (10) -
Difference between foreign tax
rates and U.S. statutory rate 1 - (2)
Provision (credit) for taxes on
undistributed earnings of foreign
subsidiaries - (2) (6)
State and local income taxes 3 3 1
Other 5 (2) (1)
----- ----- -----
Effective tax rate 44% 32% 32%
===== ===== =====
</TABLE>
As of December 31, 1994, the Company has not provided for withholding or U.S.
federal income taxes on approximately $124 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 $11 million of deferred income taxes
would have been provided.
During 1994, the Company utilized tax net operating loss carryforwards for
certain of its foreign subsidiaries of approximately $9 million. At December
31, 1994, the Company had tax net operating loss carryforwards for certain of
its foreign subsidiaries of approximately $27 million, certain of which expire
through 1999.
For the year ended December 31, 1992, the Company utilized book net operating
loss carryforwards which resulted in an extraordinary credit of approximately
$4 million, or $.08 per share.
<PAGE>
-28-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. Income Taxes (Continued)
The cumulative temporary differences giving rise to the deferred tax assets and
liabilities at December 31, 1994 and 1993 are as follows:
<TABLE>
1994 1993
Deferred Deferred
Deferred Tax Deferred Tax
Tax AssetsLiabilitiesTax AssetsLiabilities
(In millions of dollars)
<S> <C> <C> <C> <C>
Asbestos litigation claims$ 306$ - $ 363 $ -
Other employee benefits 171 - 148 -
Depreciation - 138 - 75
Furnace rebuild reserves - - 45 -
Warranty and product
liability reserves 29 - 25 -
Operating loss carryforwards 27 - 35 -
State and local taxes - 20 - 23
Other 122 6 90 4
-------- -------- -------- --------
Subtotal 655 164 706 102
-------- -------- -------- --------
Valuation allowances (27) (40) -
-------- -------- -------- --------
Total deferred taxes $ 628 $ 164 $ 666 $ 102
======== ======== ======== ========
</TABLE>
Management fully expects to realize its net deferred tax assets through income
from future operations.
<TABLE>
During 1992, deferred income taxes were provided for timing differences in the
recognition of certain items for income tax and financial statement purposes,
in accordance with Accounting Principles Board Opinion No. 11. These items
consisted of the following:
1992
(In millions of dollars)
<S> <C>
Asbestos litigation claims $ 2
Depreciation (9)
Furnace rebuild reserves (3)
Interest expense (1)
Undistributed earnings of
foreign subsidiaries (8)
State and local taxes 2
Warranty and product liability
reserves 1
Other postretirement benefits (6)
Other 1
--------
Deferred tax credit $ (21)
========
/TABLE
<PAGE>
-29-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. Depreciation of Plant and Equipment
During 1993, the Company completed a review of its fixed asset lives. The
Company determined that as a result of actions taken to increase its
preventative maintenance and programs initiated with its equipment suppliers to
increase the quality of their products, actual lives for certain asset
categories were generally longer than the useful lives for depreciation
purposes. Therefore, 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 year ended
December 31, 1993 by $14 million and increased income before cumulative effect
of accounting change by $8 million, or $.16 per share.
11. Science and Technology Expenses
Science and technology expenses include research and development costs of $64
million in 1994, $61 million in 1993, and $55 million in 1992. 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.
<TABLE>
12. Inventories
Inventories are summarized as follows:
1994 1993
(In millions of dollars)
<S> <C> <C>
Finished goods $ 192 $ 195
Materials and supplies 118 117
-------- --------
310 312
Less: Reduction to LIFO basis (87) (91)
-------- --------
$ 223 $ 221
======== ========
/TABLE
<PAGE>
-30-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. Inventories (Continued)
Approximately $88 million and $87 million of net inventories were valued using
the LIFO method at December 31, 1994 and 1993, respectively.
During 1994, 1993, and 1992, 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 1994, 1993, and 1992 cost of sales by $3 million, $1
million, and $4 million, respectively.
13. Investments in Affiliates
At December 31, 1994 and 1993, 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:
<TABLE>
Percent Ownership
1994 1993
<S> <C> <C>
COMPOSITES:
Alpha/Owens-Corning, L.L.C. (USA) 50% -
Knytex Company, L.L.C. (USA) 50% 50%
Vitro-Fibras, S.A. (Mexico) 40% 40%
GLOBAL PIPE:
Amiantit Fiberglass Industries, Ltd.
(Saudi Arabia) 30% 30%
Owens-Corning Eternit Rohre GmbH (Germany)50% 50%
Owens-Corning Pipe Botswana (Pty.), Ltd.
(Botswana) 49% 49%
Owens-Corning Tubs S.A. (Spain) 50% -
BUILDING PRODUCTS - EUROPE:
Arabian Fiberglass Insulation Company, Ltd.
(Saudi Arabia) 49% 49%
ASIA PACIFIC:
Asahi Fiber Glass Company, Ltd. (Japan)28% 28%
Lucky Owens-Corning Corp. (Korea) 30% 30%
Siam Fiberglass Co., Ltd. (Thailand) 20% 20%
BUILDING PRODUCTS - NORTH AMERICA:
CAE Fiberglass, Ltd. (Canada) - 25%
/TABLE
<PAGE>
-31-
<TABLE>
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
13. 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:
1994 1993 1992
(In millions of dollars)
<S> <C> <C> <C>
At December 31:
Current assets $ 328 $ 214 $ 198
Noncurrent assets 513 387 320
Current liabilities 331 240 233
Noncurrent liabilities 250 147 130
For the year:
Net sales 630 486 455
Gross margin 96 81 82
Net income 7 16 16
</TABLE>
The Company's equity in undistributed net income of affiliates was $32 million
at December 31, 1994.
<TABLE>
14. Accounts Payable and Accrued Liabilities
1994 1993
(In millions of dollars)
<S> <C> <C>
Accounts payable $ 298 $ 244
Payroll and vacation pay 91 74
Payroll, property, and miscellaneous
taxes 30 33
Other employee benefits liability
(Note 7) 24 25
1994 restructure reserve (Note 5) 34 -
Other 121 119
-------- --------
$ 598 $ 495
======== ========
/TABLE
<PAGE>
-32-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
15. Consolidated Statement of Cash Flows
Cash payments, net of refunds, for income taxes and cost of borrowed funds are
summarized as follows:
<TABLE>
1994 1993 1992
(In millions of dollars)
<S> <C> <C> <C>
Income taxes $ (4) $ 43 $ 49
Cost of borrowed funds 97 95 125
</TABLE>
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
See Note 4 for supplemental disclosure of Non-cash Investing and Financing
Activities.
16. 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 2014. Total rental expense charged
to operations was $54 million in 1994, $42 million in 1993, and $44 million in
1992. At December 31, 1994, the minimum future rental commitments under
noncancellable leases payable over the remaining lives of the leases are:
<TABLE>
Minimum Future
Period Rental Commitments
(In millions of dollars)
<S> <C>
1995 $ 38
1996 32
1997 20
1998 11
1999 6
2000 through 2014 27
-------
$ 134
=======
</TABLE>
The minimum future rental commitments reflected in the above table include
approximately $4 million per year for the lease of the Company's corporate
headquarters facility in Toledo, Ohio through 1996. The Company is currently
negotiating the lease of a new headquarters facility which would result in an
operating lease beginning in late 1996, which is not reflected above. This
operating lease would result in future rental commitments of approximately $12
million per year through 2006, $8 million per year through 2015, and, upon
renewal, $2 million per year through 2020.
<PAGE>
-33-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
17. Stock Compensation Plans
The Company's Stock Performance Incentive Plan (SPIP), approved by shareholders
in 1992, permits up to two percent 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 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 1994, the total number of shares available for
stock awards was 953,450 shares, 894,000 of which were awarded as stock options
and 59,450 as restricted stock, which includes an advance of 93,478 shares from
the 1995 allocation. 598,678 shares are also available to be awarded under a
prior plan; however, the Company does not expect any awards to be made under
that plan. Additionally, the Company has a plan to award stock options and
deferred stock awards to nonemployee directors, of which 109,500 shares were
available for this purpose as of December 31, 1994.
During 1993, the total number of shares available for stock awards was 868,215
shares, 813,900 of which were awarded as stock options and 54,315 as restricted
stock, which included an advance of 3,149 shares from the 1994 allocation.
<TABLE>
Stock Options
Activity during 1994 and 1993 in shares under option:
1994 1993
Number Price Number Price
of Range per of Range per
Shares Share Shares Share
<S> <C> <C> <C> <C>
Beginning of
year 2,560,826 $17.86 - 47.00 2,171,251 $12.13 - 33.63
Options granted 902,500 28.50 - 34.88 845,400 39.50 - 47.00
Options exercised(137,059)18.75 - 30.63 (413,269) 12.13 - 30.63
Options cancelled(35,813) 26.75 - 40.50 (42,556) 18.75 - 40.50
--------- -------------- --------- --------------
End of year 3,290,454 $17.86 - 47.00 2,560,826 $17.86 - 47.00
========= ============== ========= ==============
Exercisable 1,619,119 $17.86 - 47.00 987,089 $17.86 - 40.50
========= ============== ========= ==============
</TABLE>
Option prices represent the market price at date of grant. Shares issued under
options are recorded in the common stock accounts at the option price. Options
granted vest ratably through 1997.
<PAGE>
-34-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
17. Stock Compensation Plans (Continued)
Deferred Stock Awards
At December 31, 1994, the Company had 16,340 shares of deferred stock
outstanding, all of which were vested. During 1994, 2,000 shares of deferred
stock were granted, and 16,893 shares were issued.
Compensation expense is measured based on the market price of the stock at date
of grant and is recognized on a straight-line basis over the vesting period.
Restricted Stock Awards
At December 31, 1994, the Company had 367,282 shares of restricted stock
outstanding. Stock restrictions lapse, subject to alternate vesting plans for
approved early retirement and involuntary termination, over various periods
ending in 2004.
18. Share Purchase Rights
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 $50. 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 days after a
person or group acquires, or announces a tender offer for, 20% or more of the
Company's outstanding shares of common stock. The rights expire on
December 30, 1996, unless redeemed earlier by the Company. The rights are
redeemable by the Company at one cent each at any time prior to ten days
following public announcement or notice to the Company that an acquiring person
or group has purchased 20% or more of the Company's outstanding common stock.
If the Company is acquired in a merger or other business combination at any time
after the rights become exercisable, each right would entitle its holder to buy
shares of the acquiring or surviving company having a market value of twice the
exercise price of the right.
<PAGE>
-35-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
19. 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 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 contracts to manage its foreign
exchange risk and interest rate risk, as indicated in the following table.
<TABLE>
Notional Amount Notional Amount
December 31, 1994December 31, 1993
(In millions of dollars)
<S> <C> <C>
Forward currency exchange
contracts $ 194 $ 200
Options purchased 22 -
Currency swaps 190 50
Interest rate swaps 150 150
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, 1994, the Company has 29
forward currency exchange contracts maturing in 1995 which exchange 4.4 billion
Belgian francs, 23 million U.S. dollars, 38 million British pounds, 22 million
Deutsche marks, 19 billion Italian lira, and various other currencies. As of
December 31, 1993, the Company had 40 forward currency exchange contracts which
matured in 1994 and exchanged 4.9 billion Belgian francs, 52 million U.S.
dollars, 73 million French francs, 19 million British pounds, 30 million Dutch
guilders, 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, 1994 and 1993, deferred gains and losses on these
foreign currency hedges are not material to the consolidated financial
statements.
<PAGE>
-36-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
19. Derivative Financial Instruments and Fair Value of Financial Instruments
(Continued)
The Company has entered into forward currency exchange contracts to reduce its
exposure to currency fluctuations on the anticipated 1995 earnings of certain
European subsidiaries. As of December 31, 1994, the Company has 9 forward
currency exchange contracts which exchange 412 million Belgian francs and 8
million British pounds against approximately 25 million U.S. dollars. Gains and
losses on these foreign currency hedges are included in income in the year in
which the exchange rates change. At December 31, 1994, gains on these forward
currency exchange contracts are not material to the consolidated financial
statements.
The Company enters 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, 1994, the Company
has two forward currency exchange contracts maturing in 1995 which exchange 1.0
billion Belgian francs against approximately 32 million U.S. dollars to hedge
its equity investments in certain of its European subsidiaries. As of December
31, 1993, the Company had three forward currency exchange contracts which
matured in 1994 and exchanged 150 million Swedish krona and 1.6 billion Belgian
francs against approximately 64 million U.S. dollars to hedge its equity
investments in certain of its European subsidiaries. At December 31, 1994,
losses of $3 million on hedges of net investments in foreign subsidiaries are
included in stockholders' equity.
The Company enters into option contracts to hedge anticipated transactions with
certain of its foreign subsidiaries. As of December 31, 1994, the Company has
six currency option contracts maturing in 1995 which hedge the 1995 royalty
payments of the Company's European subsidiaries. The six currency option
contracts exchange 496 million Belgian francs and 4 million British pounds
against approximately 22 million U.S. dollars. Gains on the Company's hedges of
these anticipated transactions are included as deferred revenue in accounts
payable and accrued liabilities. At December 31, 1994, deferred gains on option
contracts are not material to the consolidated financial statements.
As of December 31, 1994, the Company has entered into two currency swap
transactions to manage its exposure against foreign currency fluctuations on the
principal amount of its guaranteed Eurobonds (Note 2). These currency swaps
mature in 2004 and exchange 140 million U.S. dollars against approximately 89
million British pounds. Gains and losses on the currency swaps are included as
deferred revenue in other liabilities. At December 31, 1994, gains on the
currency swaps are not material to the consolidated financial statements.
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%.
<PAGE>
-37-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
19. Derivative Financial Instruments and Fair Value of Financial Instruments
(Continued)
The Company enters into interest rate swaps to manage its interest rate risk.
The Company has entered into four interest rate swap agreements to reduce the
interest rates on its fixed rate borrowings. These agreements effectively
convert an aggregate principal amount of $150 million of fixed rate long-term
debt into variable rate borrowings with interest rates ranging from 5.81% to
7.96% in 1994 and 3.5% to 5.65% in 1993. The agreements mature in 1998. The
differential interest to be paid or received is accrued as interest rates change
and is recognized over the life of the agreements.
Other Financial Instruments with Off-Balance-Sheet Risk
As of December 31, 1994 and 1993, the Company is contingently liable for
guarantees of indebtedness owed by certain unconsolidated affiliates of $27
million. 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, 1994 and 1993, 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.
<PAGE>
-38-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
19. Derivative Financial Instruments and Fair Value of Financial Instruments
(Continued)
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.
The estimated fair values of the Company's financial instruments as of
December 31, 1994 and 1993, which have fair values different than their carrying
amounts, are as follows:
</TABLE>
<TABLE>
1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
(In millions of dollars)
<S> <C> <C> <C> <C>
Assets:
Long-term notes receivable$ 20$ 18 $ 7 $ 5
Liabilities:
Long-term debt 1,037 1,076 898 1,063
Off-Balance-Sheet Financial
Instruments - Unrealized
gains
Foreign currency swaps - 26 - 17
Interest rate swaps - 4 - 22
Option contracts - 1 - -<PAGE>
-39-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
19. Derivative Financial Instruments and Fair Value of Financial Instruments
(Continued)
As of December 31, 1994 and 1993, 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, 1994 and 1993, the Company has also entered into certain
forward currency exchange contracts, the fair values of which are not material
to the consolidated financial statements.
20. Accounts Receivable Securitization
In 1994, the Company sold certain accounts receivable of its Building Products
North American 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. As of December 31, 1994, $50 million has 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 recorded
on the sale of receivables is recorded as an increase in other expenses on the
Company's consolidated statement of income.
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.
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.
<PAGE>
-40-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
21. Contingent Liabilities (Continued)
Status
As of December 31, 1994, approximately 107,200 asbestos personal injury claims
were pending against the Company, 27,500 of which were received in 1994. The
Company received approximately 31,700 such claims in 1993, and 26,600 in 1992.
Through December 31, 1994, the Company had resolved (by settlement or otherwise)
approximately 139,000 asbestos personal injury claims, 18,300 of which were
resolved in 1994. During 1992, 1993 and 1994, the Company resolved
approximately 66,400 such claims and incurred total indemnity payments of $639
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; 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.
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 believes that this strategy will reduce the overall cost of asbestos
personal injury claims in the long run by channeling indemnity payments to
claimants who can establish significant asbestos-related impairment and exposure
to the Company's asbestos-containing product or operations and by substantially
reducing indemnity payments to individuals who are unimpaired or who did not
have significant such exposure. The Company's strategy has resulted in an
increased level of trial activity and an increase in the number and amount of
compensatory and punitive damage verdicts and judgments against the Company.
This strategy may have the effect of increasing average per-case indemnity costs
for claims resolved with payment, while also increasing the number of claims
dismissed without payment.
<PAGE>
-41-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
21. Contingent Liabilities (Continued)
Insurance
As of December 31, 1994, the Company had approximately $341 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 $24 million (out of the $341 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.
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. 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.
<PAGE>
-42-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
21. Contingent Liabilities (Continued)
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:
</TABLE>
<TABLE>
Asbestos Litigation Claims
December 31,December 31,
1994 1993
(In millions of dollars)
<S> <C> <C>
Reserve for asbestos litigation claims
Current $ 300 $ 275
Other 1,145 1,385
------- -------
Total Reserve 1,445 1,660
Insurance for asbestos litigation claims
Current 125 125
Other 556 643
------- -------
Total Insurance 681 768
------- -------
Net Asbestos Liability $ 764 $ 892
======= =======
</TABLE>
Case filing rates continued at historically high levels in 1994 (approximately
27,500 new claims) following receipt of 31,700 claims in 1993 and 26,600 claims
in 1992. 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.
<PAGE>
-43-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
21. Contingent Liabilities (Continued)
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 $341 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.
Cash Expenditures
The Company's anticipated cash expenditures for uninsured asbestos-related costs
of claims received through 1999 are expected to approximate $764 million, the
Company's Liabilities, net of Insurance. Cash payments 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.
<PAGE>
-44-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
21. Contingent Liabilities (Continued)
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>
-45-
OWENS-CORNING FIBERGLAS CORPORATION 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)
1994
Net sales $ 677 $ 852 $ 936$ 886
Cost of sales 523 644 705 664
------- ------- --------------
Gross margin $ 154 $ 208 $ 231$ 222
======= ======= ==============
Income (loss) before cumulative
effect of accounting changes$ (67)$ 45$ 53$ 43
Cumulative effect of accounting
changes (Notes 6 and 7) 85 - - -
------- ------- --------------
Net income $ 18 $ 45 $ 53$ 43
======= ======= ==============
Net income per share:
Primary
Income (loss) before cumulative
effect of accounting changes$ (1.52)$ 1.03$ 1.19$ .98
Cumulative effect of accounting
changes 1.93 - - -
------- ------- --------------
Net income per share $ .41 $ 1.03 $ 1.19$ .98
======= ======= ==============
Fully diluted
Income (loss) before cumulative
effect of accounting changes$ (1.30)$ .95$ 1.09$ .91
Cumulative effect of accounting
changes 1.70 - - -
------- ------- --------------
Net income per share $ .40 $ .95 $ 1.09$ .91
======= ======= ==============
<PAGE>
-46-
OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
22. Quarterly Financial Information (Unaudited) (Continued)
Quarter
First Second Third Fourth
(In millions of dollars, except share data)
1993
Net sales $ 651 $ 754 $ 785$ 754
Cost of sales 512 578 606 570
------- ------- --------------
Gross margin $ 139 $ 176 $ 179$ 184
======= ======= ==============
Income (loss) before cumulative
effect of accounting change$ (9)$ 33 $ 48$ 33
Cumulative effect of accounting
change for income taxes
(Note 9) 26 - - -
------- ------- --------------
Net income $ 17 $ 33 $ 48$ 33
======= ======= ==============
Net income per share:
Primary
Income (loss) before cumulative
effect of accounting change$ (.20)$ .76$ 1.09$ .75
Cumulative effect of accounting
change for income taxes .60 - - -
------- ------- --------------
Net income per share $ .40 $ .76 $ 1.09$ .75
======= ======= ==============
Fully diluted
Income (loss) before cumulative
effect of accounting change$ (.13)$ .71$ 1.01$ .70
Cumulative effect of accounting
change for income taxes .53 - - -
------- ------- --------------
Net income per share $ .40 $ .71 $ 1.01$ .70
======= ======= ==============
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.
