SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q/A
Amendment No. 1
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 1996
Commission File No. 1-3660
Owens Corning
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 July 31, 1996
51,522,580
Owens Corning's Form 10-Q for the quarter ended June 30, 1996, filed on
August 14, 1996, is hereby amended by amending Item 1 "Financial
Statements" and Item 2 "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of Part I, to read as set
forth below:
<PAGE>
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<S> <C> <C> <C> <C>
Quarter Six Months
Ended Ended
June 30, June 30,
1996 1995 1996 1995
(In millions of dollars, except share data)
NET SALES $ 956 $ 877 $1,805 $1,721
COST OF SALES 701 639 1,332 1,269
Gross margin 255 238 473 452
OPERATING EXPENSES
Marketing and administrative
expenses 116 102 244 215
Science and technology expenses 20 19 41 37
Provision for asbestos
litigation claims (8) 875 - 875 -
Other 6 2 3 13
Total operating expenses 1,017 123 1,163 265
INCOME (LOSS) FROM OPERATIONS (762) 115 (690) 187
Cost of borrowed funds 18 23 36 49
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (780) 92 (726) 138
Provision (credit) for income
taxes (3) (304) 33 (288) 50
INCOME (LOSS) BEFORE EQUITY
IN NET INCOME OF AFFILIATES (476) 59 (438) 88
Equity in net income of affiliates 3 4 4 7
NET INCOME (LOSS) $ (473) $ 63 $(434) $ 95
NET INCOME (LOSS) PER COMMON SHARE
Primary net income (loss)
per share $(9.19) $ 1.25 $(8.43) $1.98
Fully diluted net income
(loss) per share $(9.19) $ 1.20 $(8.43) $1.88
Weighted average number of
common shares outstanding
(in millions)
Primary 51.5 50.4 51.5 48.0
Assuming full dilution 51.5 53.4 51.5 52.3
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<S> <C> <C>
June 30, Dec. 31,
1996 1995
ASSETS (In millions of dollars)
CURRENT
Cash and cash equivalents $ 24 $ 18
Receivables 423 314
Inventories (4) 329 253
Insurance for asbestos litigation
claims - current portion (8) 100 100
Deferred income taxes 70 70
VEBA trust 42 51
Income tax receivable - 50
Investment in affiliate held for sale - 36
Other current assets 29 35
Total current 1,017 927
OTHER
Insurance for asbestos litigation
claims (8) 492 330
Deferred income taxes 597 252
Goodwill (6) 262 249
Investments in affiliates 59 50
Other noncurrent assets 146 147
Total other 1,556 1,028
PLANT AND EQUIPMENT, at cost
Land 56 52
Building and leasehold improvements 596 581
Machinery and equipment 2,308 2,266
Construction in progress 244 168
3,204 3,067
Less--Accumulated depreciation (1,797) (1,761)
Net plant and equipment 1,407 1,306
TOTAL ASSETS $3,980 $3,261
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Continued)
<TABLE>
<S> <C> <C>
June 30, Dec. 31,
1996 1995
(In millions of dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities $ 534 $ 587
Reserve for asbestos litigation claims -
current portion (8) 275 250
Short-term debt 152 64
Long-term debt - current portion 18 35
Total current 979 936
LONG-TERM DEBT 972 794
OTHER
Reserve for asbestos litigation claims (8) 1,841 887
Other employee benefits liability 360 367
Pension plan liability 68 75
Other 232 220
Total other 2,501 1,549
COMPANY OBLIGATED CONVERTIBLE
SECURITY OF SUBSIDIARY HOLDING
SOLELY PARENT DEBENTURES (MIPS) 194 194
STOCKHOLDERS' EQUITY
Common stock 584 579
Deficit (7) (1,219) (781)
Foreign currency translation adjustments (12) 9
Other (19) (19)
Total stockholders' equity (666) (212)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $3,980 $3,261
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C>
Quarter Six Months
Ended Ended
June 30, June 30,
1996 1995 1996 1995
(In millions of dollars)
NET CASH FLOW FROM OPERATIONS
Net income (loss) $(473) $ 63 $(434) $ 95
Reconciliation of net cash provided
by operating activities:
Noncash items:
Provision for asbestos litigation
claims (8) 875 - 875 -
Provision for depreciation and
amortization 32 31 63 61
Provision (credit) for deferred
income taxes (345) 27 (345) 41
Other 4 3 7 12
(Increase) decrease in receivables (34) (19) (101) (18)
(Increase) decrease in inventories (18) (44) (69) (84)
Increase (decrease) in accounts
payable and accrued liabilities 2 (31) (66) (99)
Increase (decrease) in accrued
income taxes 7 21 55 15
Proceeds from insurance for asbestos
litigation claims 33 33 63 81
Payments for asbestos litigation
claims (86) (57) (121) (155)
Other 23 (49) (14) (77)
Net cash flow from operations 20 (22) (87) (128)
NET CASH FLOW FROM INVESTING
Additions to plant and equipment (90) (55) (167) (114)
Investment in subsidiaries, net of
cash acquired (6) (39) - (39) -
Proceeds from the sale of affiliate - - 55 -
Other (6) 2 (12) -
Net cash flow from investing $(135) $ (53) $ (163) $(114)
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
<TABLE>
<S> <C> <C> <C> <C>
Quarter Six Months
Ended Ended
June 30, June 30,
1996 1995 1996 1995
(In millions of dollars)
NET CASH FLOW FROM FINANCING
Net additions (reductions) to
long-term credit facilities $ 86 $(36) $184 $ 70
Other additions to long-term
debt 13 17 13 51
Other reductions to long-term
debt (20) (74) (32) (102)
Net increase (decrease) in
short-term debt 47 (32) 88 (19)
Issuance of preferred stock of
subsidiary (MIPS) - 194 - 194
Other - 1 2 (7)
Net cash flow from financing 126 70 255 187
Effect of exchange rate changes on
cash - 2 1 3
Net increase (decrease) in cash
and cash equivalents 11 (3) 6 (52)
Cash and cash equivalents at
beginning of period 13 10 18 59
Cash and cash equivalents at end
of period $ 24 $ 7 $ 24 $ 7
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Quarter Six Months
Ended Ended
June 30, June 30,
1996 1995 1996 1995
1. SEGMENT DATA (In millions of dollars)
NET SALES
Industry Segments
Building Materials
United States $575 $493 $1,048 $949
Europe 63 62 127 127
Canada and other 25 20 43 51
Total Building Materials 663 575 1,218 1,127
Composite Materials
United States 149 151 297 303
Europe 106 115 215 220
Canada and other 38 36 75 71
Total Composite Materials 293 302 587 594
Intersegment sales
Building Materials - - - -
Composite Materials 29 26 54 52
Eliminations (29) (26) (54) (52)
Net sales $956 $877 $1,805 $1,721
Geographic Segments
United States $724 $644 $1,345 $1,252
Europe 169 177 342 347
Canada and other 63 56 118 122
956 877 1,805 1,721
Intersegment sales
United States 21 14 38 27
Europe 12 3 21 7
Canada and other 19 25 40 45
Eliminations (52) (42) (99) (79)
Net sales $956 $ 877 $1,805 $1,721
</TABLE>
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
<TABLE>
<S> <C> <C> <C> <C>
Quarter Six Months
1. SEGMENT DATA (Continued) Ended Ended
June 30, June 30,
1996 1995 1996 1995
(In millions of dollars)
INCOME FROM OPERATIONS (1)
Industry Segments
Building Materials
United States $ 70 $ 56 $ 83 $ 88
Europe 3 5 8 13
Canada and other - 1 (4) 8
Total Building Materials 73 62 87 109
Composite Materials
United States 37 41 68 75
Europe 20 15 40 23
Canada and other 5 6 11 9
Total Composite Materials 62 62 119 107
General corporate expense (897) (9) (896) (29)
Income (loss) from operations (762) 115 (690) 187
Cost of borrowed funds (18) (23) (36) (49)
Income (loss) before provision
for income taxes $(780) $ 92 $(726) $138
Geographic Segments
United States $ 107 $ 97 $ 151 $ 163
Europe 23 20 48 36
Canada and other 5 7 7 17
General corporate expense (897) (9) (896) (29)
Income (loss) from operations (762) 115 (690) 187
Cost of borrowed funds (18) (23) (36) (49)
Income (loss) before provision
for income taxes $ (780) $ 92 $(726) $138
</TABLE>
(1) Income from operations for the quarter and six months
ended June 30, 1996 includes the Company's pretax charge of
$875 million for asbestos litigation claims to be received
after 1999, all of which was recorded as a charge to general
corporate expense. Income from operations for the six months
ended June 30, 1996 includes the Company's pretax gain of $37
million from the sale of its ownership interest in its
Japanese affiliate Asahi Fiber Glass Co. Ltd., all of which
was recorded as a reduction in general corporate expense.
Also included are special charges totaling $42 million
including valuation adjustments associated with prior
divestitures, major product line productivity initiatives and
a contribution to the Owens Corning Foundation. The impact
of these special items was to reduce income from operations
for Building Materials in the United States, Europe, and
Canada and other by $19 million, $1 million and $2 million,
respectively, Composite Materials in the United States and
Europe by $3 million and $2 million, respectively, and to
increase general corporate expense by $15 million.
<PAGE>
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OWENS CORNING 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 1995 Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission.
3. INCOME TAXES
The reconciliation between the U.S. federal statutory rate
and the Company's effective income tax rate is:
<TABLE>
<S> <C> <C> <C> <C>
Quarter Six Months
Ended Ended
June 30, June 30,
1996 1995 1996 1995
(In millions of dollars)
U.S. federal statutory rate (35)% 35% (35)% 35%
Adjustment of deferred tax
asset allowance - - (1) -
State and local income taxes (3) 2 (4) 2
Other (1) (1) - (1)
Effective tax rate (39)% 36% (40)% 36%
</TABLE>
During the first quarter of 1996, the Company reversed
approximately $7 million of its valuation allowances, as
management determined that the operating loss carryforwards
of certain foreign subsidiaries are realizable.
4. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<S> <C> <C>
June 30, December 31,
1996 1995
(In millions of dollars)
Finished goods $ 276 $ 210
Materials and supplies 139 127
FIFO inventory 415 337
Less: Reduction to LIFO basis (86) (84)
Inventories $ 329 $ 253
</TABLE>
Approximately $191 million and $175 million of FIFO
inventories were valued using the LIFO method at June 30,
1996 and December 31, 1995, respectively.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. CONSOLIDATED STATEMENT OF CASH FLOWS
Cash payments, net of refunds, for income taxes and cost of
borrowed funds are summarized as follows:
<TABLE>
<S> <C> <C> <C> <C>
Quarter Six Months
Ended Ended
June 30, June 30,
1996 1995 1996 1995
(In millions of dollars)
Income taxes $ 8 $(23) $ (9) $(22)
Cost of borrowed funds 33 40 39 49
</TABLE>
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
6. ACQUISITIONS
During the second quarter of 1996, the Company made
acquisitions in the U.K. and U.S. Building Materials segment.
The aggregate purchase price of the acquisitions was $39
million.
These acquisitions were accounted for under the purchase
method of accounting, whereby the assets acquired and
liabilities assumed have been recorded at their fair values
and the results of operations of the acquisitions have been
included in the Company's consolidated financial statements
subsequent to the acquisition date.
The purchase price allocations were based on preliminary
estimates of fair market value and are subject to revision.
The purchases included goodwill of $7 million. The goodwill
is being amortized on a straight-line basis over 40 years.
The pro forma effect of the acquisitions was not material to
net income for the six months ended June 30, 1996 or 1995.
7. DIVIDENDS
During the second quarter of 1996, the Board of Directors
approved an annual dividend policy of 25 cents per share and
declared a quarterly dividend of 6-1/4 cents per share
payable on October 15, 1996 to shareholders of record as of
September 30, 1996.
8. 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
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. CONTINGENT LIABILITIES (Continued)
or installation of an asbestos-containing calcium silicate,
high temperature insulation product, the manufacture of which
was discontinued in 1972.
Status
As of June 30, 1996, approximately 152,200 asbestos personal
injury claims were pending against the Company, of which
24,300 were received in the first six months of 1996. The
Company received approximately 55,900 such claims in 1995,
29,100 in 1994, and 32,400 in 1993.
Many of the recent claims appear to be the product of mass
screening programs and not to involve malignancies or other
significant asbestos related impairment. The Company
believes that as many as 40,000 of the recent claims involve
plaintiffs whose pulmonary function tests (PFTs) were
improperly administered or manipulated by the testing
laboratory or otherwise inconsistent with proper medical
practice, and it is investigating a number of testing
organizations and their methods. On June 19, 1996 the
Company filed suit in federal court in New Orleans against
the owners and operators of certain lab facilities in the
southeastern U.S. challenging such improper testing
practices.
The Company is engaging in discussions with a group of
approximately 30 leading plaintiffs' law firms to explore
approaches toward resolution of its asbestos liability. The
discussions are expected to cover the possible resolution of
both pending claims and claims that may be filed in the
future. While discussions are ongoing, the law firms
involved in the talks have agreed to refrain from serving any
further asbestos claims on the Company unless they involve
malignancies. This agreement may have impacted the number of
cases received by the Company during the second quarter of
1996.
Through June 30, 1996, the Company had resolved (by
settlement or otherwise) approximately 176,900 asbestos
personal injury claims, including the dismissal in May 1996
of approximately 15,000 maritime cases, which named Owens
Corning as a defendant, for lack of medical proof. During
1993, 1994, and 1995, the Company resolved approximately
60,000 asbestos personal injury claims, over 99% without
trial, and incurred total indemnity payments of $641 million
(an average of about $10,700 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.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. CONTINGENT LIABILITIES (Continued)
Insurance
As of June 30, 1996, the Company had approximately $367
million in unexhausted insurance coverage (net of deductibles
and self-insured retentions and excluding coverage issued by
insolvent carriers) under its liability insurance policies
applicable to asbestos personal injury claims. This
insurance, which is substantially confirmed, includes both
products hazard coverage and primary level non-products
coverage. Portions of this coverage are not available until
1997 and beyond under agreements with the carriers confirming
such coverage. All of the Company's liability insurance
policies cover indemnity payments and defense fees and
expenses subject to applicable policy limits.
In addition to its confirmed primary level non-products
insurance, the Company has a significant amount of
unconfirmed potential non-products coverage with excess level
carriers. For purposes of calculating the amount of
insurance applicable to asbestos liabilities, the Company has
estimated its probable recoveries in respect of this
additional non-products coverage at $225 million, which
amount was recorded in the second quarter of 1996. This
coverage is unconfirmed and the amount and timing of
recoveries from these excess level policies will depend on
subsequent negotiations or proceedings.
Reserve
The Company's 1995 financial statements included a reserve
for the estimated cost associated with asbestos personal
injury claims that may be received through the year 1999.
Such financial statements did not include any provision for
the cost of unasserted claims which might be received in
years subsequent to 1999 because management was unable to
predict the number of such claims and other factors which
would affect the cost of such claims. Throughout 1996, the
Company continued to review the feasibility of making
provision for the cost of unasserted asbestos personal injury
claims with respect to claims which may be received by the
Company during and after the year 2000. In conducting such
review the Company took into account, among other things, the
effect of recent federal court decisions relating to punitive
damages and the certification of class actions in asbestos
cases, the pendency of the discussions with the group of
plaintiffs' law firms referred to above, the results of its
continuing investigations of medical screening practices of
the kind at issue in the New Orleans PFT law suit, recent
developments as to the prospects for federal and state tort
reform, the continued rate of case filings at historically
high levels, additional information on filings received
during the 1993-1995 period and other factors. As a result
of the review, the Company has taken a non-recurring, noncash
charge to earnings of $1.1 billion in the second quarter of
1996. This charge represents the Company's estimate of the
indemnity and defense costs associated with unasserted
asbestos personal injury claims that may be received by the
Company in years subsequent to 1999.
The combined effect of the $1.1 billion charge and the $225
million probable additional non-products insurance recovery
was an $875 million charge in the second quarter of 1996.
The Company's estimated total liabilities in respect of
indemnity and defense costs associated with pending and
unasserted asbestos personal injury claims that may be
received in the future (the Liabilities"), and its estimated
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. CONTINGENT LIABILITIES (Continued)
insurance recoveries in respect of such claims (the
"Insurance"), are reported separately as follows:
<TABLE>
<S> <C> <C>
Asbestos Litigation Claims
June 30, December 31,
1996 1995
(In millions of dollars)
Reserve for asbestos
litigation claims
Current $ 275 $ 250
Other 1,841 887
2,116 1,137
Insurance for asbestos
litigation claims
Current 100 100
Other 492 330
Total Insurance 592 430
Net Asbestos Liability $ 1,524 $ 707
</TABLE>
The Company cautions that such factors as the number of
future asbestos personal injury claims received by it, the
rate of receipt of such claims, and the indemnity and defense
costs associated with asbestos personal injury claims, as
well as the prospects for confirming additional insurance,
including the additional $225 million in non-products
coverage referenced above, are influenced by numerous
variables that are difficult to predict, and that estimates,
such as the Company's, which attempt to take account of such
variables, are subject to considerable uncertainty. The
Company believes that its estimate of Liabilities and
Insurance will be sufficient to provide for the costs of all
pending and future asbestos personal injury claims that
involve malignancies or significant asbestos-related
functional impairment. While such estimates cover unimpaired
claims, the number and cost of unimpaired claims are much
harder to predict and such estimates reflect the Company's
belief that such claims have little or no value. The Company
will continue to review the adequacy of its estimate of
Liabilities and Insurance on a periodic basis and make such
adjustments as may be appropriate.
Management Opinion
Although any opinion is necessarily judgmental and must be based on
information now known to the Company, in the opinion of management,
while any additional uninsured and unreserved costs which may arise out
of pending personal injury and property damage asbestos claims and
additional similar asbestos claims filed in the future may be
substantial over time, management believes that any such additional
costs will not impair the ability of the Company to meet its obligations,
to reinvest in its businesses or to take advantage of attractive
opportunities for growth.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. CONTINGENT LIABILITIES (Continued)
NON-ASBESTOS LIABILITIES
Various other lawsuits and claims arising in the normal
course of business are pending against the Company, some of
which allege substantial damages. Management believes that
the outcome of these lawsuits and claims will not have a
materially adverse effect on the Company's financial position
or results of operations.
<PAGE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(All per share information in Item 2 is on a fully diluted
basis. All references to results from ongoing operations
exclude the impact of special items reported for the relevant
period.)
RESULTS OF OPERATIONS
For the second quarter of 1996, the Company reported a net
loss of $473 million, or $9.19 per share, compared to net
income of $63 million, or $1.20 per share, for the quarter
ended June 30, 1995. The net loss was the result of a $1.1
billion charge taken during the quarter to quantify the
Company's liability for asbestos claims to be received after
1999 as well as a probable $225 million additional recovery
from insurance carriers (collectively, the "asbestos
charge"), having a combined impact after taxes of $542
million. Net income, excluding the impact of the asbestos,
charge increased by 10% to $69 million, or $1.25 per share,
for the quarter when compared to the same period in 1995.
The earnings growth from ongoing operations reflects
primarily the benefits of acquisitions and reduced cost of
borrowed funds, offset in part by increased administrative
charges resulting from the Company's continuing
implementation of its global productivity initiative,
Advantage 2000.
Net sales were $956 million for the quarter ended June 30,
1996, a 9% increase from the 1995 level of $877 million. The
growth is attributable to volume increases in the Building
Materials segment, particularly in the U.S., coupled with the
incremental increases from acquisitions. Gross margin for
the quarter ended June 30 was 27% in both 1996 and 1995.
For the six months ended June 30, 1996, the Company reported
a net loss of $434 million, or $8.43 per share, compared to
net income of $95 million, or $1.88 per share, for the
comparable 1995 period. Net income ongoing operations for the
first six months of 1996 was $108 million, or $1.98 per
share, an increase of 14% over the comparable prior year
period. Net sales for the six months ended June 30, 1996
were $1.805 billion, a 5% increase over the $1.721 billion
reported in the first six months of 1995. This increase
reflects the incremental sales from the Company's
acquisitions in combination with the improvement in Building
Materials sales in the U.S.
Marketing and administrative expenses from ongoing operations
for the six months ended June 30, 1996 increased
approximately 10% over the same period in 1995, primarily as
a result of incremental administrative expenses from the
acquisitions late in 1995 and early 1996 as well as an impact
from the continuing implementation of the Company's Advantage
2000 program. Advantage 2000 is a business system designed
to accelerate the speed and simplify the processes of doing
business globally. When fully implemented, the Advantage
2000 program will replace over 200 fragmented information
systems with a fully integrated system, leading to increased
productivity and cost savings.
In the Building Materials segment, sales increased 15% and 8%
for the quarterly and six month periods ended June 30, 1996,
respectively, compared to the same periods of the prior year.
This growth reflects the incremental sales from acquisitions
coupled with an increase in volume, particularly in North
America. The second quarter sales increase in North America
was largely driven by the roofing and asphalt business in the
U.S. which benefited from an increase in demand following a
slow first quarter hampered by severe weather conditions.
Additionally, the Company is realizing the benefits of
integrating new products into its distribution systems,
improving the sales of products like Foamular(R). Income
from ongoing operations for Building Materials increased 18%
for the quarter and was relatively unchanged for the six
months ended June 30, 1996 when compared to the same
<PAGE>
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periods in 1995. The increase in the second quarter is
primarily due to productivity improvements in the roofing and
asphalt business.
In the second quarter of 1996, the Company acquired certain
U.S. assets of Partek Insulation, Inc., a subsidiary of
Partek North America, Inc. Partek's rockwool-based
insulation will help the Company extend its mechanical
insulation product offering into higher-temperature
applications. Additionally, the Company acquired assets from
the United Kingdom-based Linpac Insulation. With production
facilities in the U.K. and Spain, Linpac's extruded
polystyrene (XPS) PolyFoam(R) insulation will be added to the
Company's European building materials product line.
In the Composite Materials segment, sales decreased slightly
for the quarter and six months ended June 30, 1996, compared
to the prior year periods, as slight gains in the Company's
identified growth regions of Africa/Latin America were more
than offset by declines attributable to a shift in product
mix in North America, currency exchange fluctuations and a
softening demand in Europe. Composite Materials income from
ongoing operations in the second quarter of 1996 was even
with the second quarter of 1995. For the six months ended
June 30, 1996, income from ongoing operations increased 16%
compared to the same period in 1995, primarily due to an
improvement in pricing coupled with productivity initiatives.
During the quarter, the Company announced plans for a new
large-diameter glass reinforced plastic (GRP) pipe joint
venture in Turkey, which is expected to start production in
the first half of 1997. Additionally the previously
announced GRP pipe venture in Cordoba, Argentina began
operations. Generally, the Company's GRP pipe is marketed to
governments and private industry for major infrastructure
projects for the transport of water and waste.
The Company's cost of borrowed funds for the quarter ended
June 30, 1996 was $5 million lower than during second quarter
1995, reflecting decreased borrowings resulting from the
issuance of $200 million of convertible monthly income
preferred securities in May 1995.
LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED MATTERS
In June 1996 the Company announced that its Board of
Directors had approved an annual dividend policy of 25 cents
per share and declared a quarterly dividend of 6-1/4 cents
per share payable on October 15, 1996 to shareholders of
record as of September 30, 1996.
Cash flow from operations, excluding asbestos-related
activities, was $73 million for the second quarter of 1996,
compared to $2 million for second quarter 1995. The increase
is attributable in part to the partial reimbursement to the
Company from the VEBA trust established in 1995 and a
reduction in the level of appeal bonds supporting asbestos
trials. Inventories at June 30, 1996 increased 30% over
December 31, 1995 levels due to the Company's seasonal
inventory build in the first half of the year and the
incremental inventories of acquisitions. Inventories as a
percent of sales for the six months ended June 30 remained
constant at 18% for 1996 and 1995. Please see Notes 4 and 5
to the Consolidated Financial Statements.
At June 30, 1996, the Company's net working capital was $38
million and its current ratio was 1.04 compared to negative
$9 million and .99, respectively, at December 31, 1995. The
increase in 1996 is in part due to the second quarter 1995
reduction in short-term borrowings and the seasonal build of
inventories. Additionally, during the first quarter of 1996,
the Company established a new long-term revolving credit
facility in the U.K. which replaced several short-term debt
instruments in Europe.
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The Company's total borrowings at June 30, 1996 were $1.142
billion, $249 million higher than at year-end 1995.
Typically, the Company reports greater cash usage during the
first half of the year as the Company builds inventories and
other working capital.
As of June 30, 1996, the Company had unused lines of credit
of $225 million available under long-term bank loan
facilities and an additional $152 million under short-term
facilities, compared to $358 million and $239 million,
respectively, at year-end 1995. The decrease in available
lines of credit is primarily the result of increased
borrowings. Letters of credit issued under the Company's
long-term U.S. loan facility, most of which support appeals
from asbestos trials, reduce credit availability of that
facility. The impact of such reduction is reflected in the
unused lines of credit discussed above.
Capital spending for property, plant and equipment, excluding
acquisitions and investments in affiliates, was $90 million
and $167 million for the quarter and six months ended June
30, 1996, respectively. For the year 1996, the Company
anticipates capital spending, exclusive of acquisitions and
investments in affiliates, to be approximately $313 million.
The Company expects that funding for these expenditures will
be from the Company's operations and external sources as
required.
Gross payments for asbestos litigation claims during the
second quarter of 1996, including $13 million in defense
costs and $1 million for appeal bond and other costs, were
$86 million. Proceeds from insurance were $33 million,
resulting in a net pretax cash outflow of $53 million, or $32
million after-tax. During the second quarter of 1996, the
Company received approximately 11,400 new asbestos personal
injury cases and closed approximately 15,200 cases. Over the
next twelve months, the Company's total payments for asbestos
litigation claims, including defense costs, are expected to
be approximately $275 million. Proceeds from insurance of
$100 million are expected to be available to cover these
costs, resulting in a net pretax cash outflow of $175
million, or $105 million after-tax. The recording of the
$1.1 billion charge relating to asbestos claims to be
received after 1999 and the probable $225 million recovery
from excess level non-products insurance carriers is not
expected to impact cash payments until the year 2000, and
will be spread out over 15 years or more. Please see Note 8
to the Consolidated Financial Statements.
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.
In June 1996 the Company filed a lawsuit in the U.S. District
Court for the Eastern District of Louisiana alleging a
massive scheme to defraud the Company in connection with
asbestos litigation cases. The suit alleges that medical
test results in tens of thousands of asbestos claims were
falsified by the owners and operators of three pulmonary
function testing laboratories. The Company believes that as
many as 40,000 claims in its current backlog involve
plaintiffs whose pulmonary function tests were improperly
administered or manipulated by the testing laboratory or
otherwise inconsistent with proper medical practice.
The Company has been deemed by the Environmental Protection
Agency (EPA) to be a potentially responsible party (PRP) with
respect to certain sites under the Comprehensive
Environmental Response, Compensation and Liability Act
(Superfund). The Company has also been deemed a PRP under
similar state or local laws, including two state Superfund
sites where the Company is the primary generator. In other
instances, other PRPs have brought suits or claims against
the Company as a PRP for contribution under such federal,
state or local laws. During the second quarter of 1996, the
Company was not designated a PRP in such federal, state,
local or private proceedings for any additional sites. At
June 30, 1996, a total of 38 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 an $18 million reserve for
its Superfund (and similar state, local and private action)
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contingent liabilities. 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 to which the Act will
affect it. The Company anticipates that its sources to be
regulated will include glass fiber manufacturing and asphalt
processing activities. The EPA's announced schedule is to
issue regulations covering glass fiber manufacturing by late
1997 and asphalt processing activities by late 2000, with
implementation as to existing sources up to three years
thereafter. Based on information now known to the Company,
including the nature and limited number of regulated
materials it emits, the Company does not expect the Act to
have a materially adverse effect on the Company's results of
operations, financial condition or long-term liquidity.
<PAGE>
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
Registrant
Date: December 20, 1996 By /s/ David W. Devonshire
David W. Devonshire
Senior Vice President and
Chief Financial Officer
(as duly authorized officer)
