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 September 30, 1996
Commission File No. 1-3660
Owens Corning
One Owens Corning Parkway, 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 September 30, 1996
52,048,661
Owens Corning's Form 10-Q for the quarter ended September 30, 1996, filed
on October 28, 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 Nine Months
Ended Ended
September 30, September 30,
1996 1995 1996 1995
(In millions of dollars, except share data)
NET SALES $1,025 $ 927 $2,830 $2,648
COST OF SALES 752 684 2,084 1,953
Gross margin 273 243 746 695
OPERATING EXPENSES
Marketing and administrative
expenses 128 106 372 321
Science and technology expenses 22 19 63 56
Provision for asbestos litigation
claims (Note 8) - - 875 -
Other (5) (4) (2) 9
Total operating expenses 145 121 1,308 386
INCOME (LOSS) FROM OPERATIONS 128 122 (562) 309
Cost of borrowed funds 20 20 56 69
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 108 102 (618) 240
Provision (credit) for income
taxes (Note 3) 31 35 (257) 85
INCOME (LOSS) BEFORE EQUITY
IN NET INCOME OF AFFILIATES 77 67 (361) 155
Equity in net income of affiliates 3 3 7 10
NET INCOME (LOSS) $ 80 $ 70 $ (354) $165
NET INCOME (LOSS) PER COMMON SHARE
Primary net income (loss) per share $1.53 $1.35 $(6.86) $ 3.36
Fully diluted net income (loss)
per share $1.44 $1.28 $(6.86) $ 3.18
Weighted average number of common
shares outstanding (in millions)
Primary 52.4 51.4 51.6 49.1
Assuming full dilution 57.0 56.0 51.6 53.4
</TABLE>
The accompanying notes are an integral part of this statement.
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OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<S> <C> <C>
Sept. 30, Dec. 31,
1996 1995
ASSETS (In millions of dollars)
CURRENT
Cash and cash equivalents $ 31 $ 18
Receivables 475 314
Inventories (Note 4) 350 253
Insurance for asbestos litigation
claims - current portion (Note 8) 100 100
Deferred income taxes 87 70
VEBA trust 38 51
Income tax receivable 16 50
Investment in affiliate held for sale - 36
Other current assets 30 35
Total current 1,127 927
OTHER
Insurance for asbestos litigation
claims (Note 8) 493 330
Deferred income taxes 519 252
Goodwill (Note 6) 276 249
Investments in affiliates 61 50
Other noncurrent assets 158 147
Total other 1,507 1,028
PLANT AND EQUIPMENT, at cost 3,258 3,067
Less--Accumulated depreciation (1,821) (1,761)
Net plant and equipment 1,437 1,306
TOTAL ASSETS $ 4,071 $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>
Sept. 30, Dec. 31,
1996 1995
(In millions of dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities $ 586 $ 587
Reserve for asbestos litigation claims -
current portion (Note 8) 325 250
Short-term debt 164 64
Long-term debt - current portion 18 35
Total current 1,093 936
LONG-TERM DEBT 965 794
OTHER
Reserve for asbestos litigation claims (Note 8) 1,735 887
Other employee benefits liability 355 367
Pension plan liability 67 75
Other 230 220
Total other 2,387 1,549
COMPANY OBLIGATED CONVERTIBLE
SECURITY OF SUBSIDIARY HOLDING
SOLELY PARENT DEBENTURES (MIPS) 194 194
STOCKHOLDERS' EQUITY
Common stock 597 579
Deficit (Note 7) (1,138) (781)
Foreign currency translation adjustments (8) 9
Other (19) (19)
Total stockholders' equity (568) (212)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $4,071 $ 3,261
</TABLE>
The accompanying notes are an integral part of this
statement.
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OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Quarter Nine Months
Ended Ended
September 30, September 30,
1996 1995 1996 1995
(In millions of dollars)
<TABLE>
<S> <C> <C> <C> <C>
NET CASH FLOW FROM OPERATIONS
Net income (loss) $ 80 $ 70 $(354) $165
Reconciliation of net cash
provided by operating
activities:
Noncash items:
Provision for asbestos
litigation claims (Note 8) - - 875 -
Provision for depreciation
and amortization 37 31 100 92
Provision (credit) for
deferred income taxes 60 38 (285) 79
Other 1 3 8 15
(Increase) decrease in receivables (48) (28) (149) (46)
(Increase) decrease in inventories (18) 32 (87) (52)
Increase (decrease) in accounts
payable and accrued liabilities 50 10 (16) (89)
Increase (decrease) in accrued
income taxes (25) 28 30 43
Proceeds from insurance for
asbestos litigation claims - 140 63 221
Payments for asbestos litigation
claims (57) (68) (178) (223)
Other (23) (49) (37) (126)
Net cash flow from operations 57 207 (30) 79
NET CASH FLOW FROM INVESTING
Additions to plant and equipment (57) (69) (224) (183)
Investment in subsidiaries, net of
cash acquired (Note 6) - (34) (39) (34)
Proceeds from the sale of affiliate - - 55 -
Other (2) - (14) -
Net cash flow from investing $ (59) $(103) $(222) $ (217)
</TABLE>
The accompanying notes are an integral part of this statement.
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OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
Quarter Nine Months
Ended Ended
September 30, September 30,
1996 1995 1996 1995
(In millions of dollars)
<TABLE>
<S> <C> <C> <C> <C>
NET CASH FLOW FROM FINANCING
Net additions (reductions) to
long-term credit facilities $ (5) $(75) $179 $ (5)
Other additions to long-term debt 5 5 18 56
Other reductions to long-term debt (1) (13) (33) (115)
Net increase (decrease) in
short-term debt 12 (9) 100 (28)
Issuance of preferred stock of
subsidiary, net of fees - - - 194
Other (2) 3 - (4)
Net cash flow from financing 9 (89) 264 98
Effect of exchange rate changes on
cash - (2) 1 1
Net increase (decrease) in cash
and cash equivalents 7 13 13 (39)
Cash and cash equivalents at
beginning of period 24 7 18 59
Cash and cash equivalents at end
of period $ 31 $ 20 $ 31 $ 20
</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 Nine Months
Ended Ended
September 30, September 30,
(1) SEGMENT DATA 1996 1995 1996 1995
(In millions of dollars)
NET SALES
Industry Segments
Building Materials
United States $ 638 $ 548 $1,677 $1,497
Europe 76 66 203 193
Canada and other 37 26 89 77
Total Building Materials 751 640 1,969 1,767
Composite Materials
United States 151 141 446 444
Europe 87 111 302 331
Canada and other 36 35 113 106
Total Composite Materials 274 287 861 881
Intersegment sales
Building Materials - - - -
Composite Materials 30 25 84 77
Eliminations (30) (25) (84) (77)
Net sales $ 1,025 $ 927 $2,830 $2,648
Geographic Segments
United States $ 789 $ 689 $2,123 $1,941
Europe 163 177 505 524
Canada and other 73 61 202 183
1,025 927 2,830 2,648
Intersegment sales
United States 17 14 46 41
Europe 8 4 29 11
Canada and other 19 28 59 73
Eliminations (44) (46) (134) (125)
Net sales $ 1,025 $ 927 $2,830 $2,648
</TABLE>
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
<TABLE>
<S> <C> <C> <C> <C>
Quarter Nine Months
Ended Ended
September 30, September 30,
(1) SEGMENT DATA (Continued) 1996 1995 1996 1995
(In millions of dollars)
INCOME FROM OPERATIONS
Industry Segments
Building Materials
United States $ 75 $ 62 $ 161 $ 150
Europe 7 7 15 20
Canada and other 9 5 5 13
Total Building Materials 91 74 181 183
Composite Materials
United States 53 24 116 99
Europe 7 23 46 46
Canada and other - 8 14 17
Total Composite Materials 60 55 176 162
General corporate expense (23) (7) (919) (36)
Income from operation 128 122 (562) 309
Cost of borrowed funds (20) (20) (56) (69)
Income before provision
for income taxes $ 108 $ 102 $ (618) $ 240
Geographic Segments
United States $ 128 $ 86 $ 277 $ 249
Europe 14 30 61 66
Canada and other 9 13 19 30
General corporate expense (23) (7) (919) (36)
Income from operations 128 122 (562) 309
Cost of borrowed funds (20) (20) (56) (69)
Income before provision
for income taxes $ 108 $ 102 $(618) $ 240
</TABLE>
(1) Income from operations for the nine months ended
September 30, 1996 includes the Company's net pretax charge
of $875 million for asbestos litigation claims that may be
received after 1999 and probable additional insurance
recovery, all of which was recorded as an increase in
general corporate expense. Income from operations for the
nine months ended September 30, 1996 also 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 Nine Months
Ended Ended
Sept. 30, Sept. 30,
1996 1995 1996 1995
U.S. federal statutory rate 35% 35% (35)% 35%
Operating losses of foreign
subsidiaries - 1 - 1
Adjustment of deferred tax
asset allowance - - (1) -
State and local income taxes (7) 2 (5) 2
Other 1 (3) (1) (3)
Effective tax rate 29% 35% (42)% 35%
</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>
September 30, December 31,
1996 1995
(In millions of dollars)
Finished goods $290 $210
Materials and supplies 148 127
FIFO inventory 438 337
Less: Reduction to LIFO basis (88) (84)
Inventories $350 $253
</TABLE>
Approximately $191 million and $175 million of FIFO
inventories were valued using the LIFO method at September
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 Nine Months
Ended Ended
Sept. 30, Sept. 30,
1996 1995 1996 1995
(In millions of dollars)
Income taxes $ 3 $(17) $(6) $(39)
Cost of borrowed funds 12 7 51 56
</TABLE>
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
Supplemental Disclosure of Non-cash Investing and Financing
Activities
Please see Note 6 to the Consolidated Financial Statements
for further information.
6. ACQUISITIONS
During the third quarter of 1996, the Company acquired
substantially all the assets of the Canadian extruded
polystyrene foam insulation business (Celfortec) of Celfort
Construction Materials Inc. The purchase price of Celfortec
was $22 million ($30 million Canadian), including possible
subsequent contingent consideration. The acquisition of
Celfortec was consummated by the exchange of 472,250 shares
of the Company's common stock and less than $1 million cash
for all the acquired assets and liabilities. Additionally,
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 second quarter
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 dates.
The purchase price allocations were based on preliminary
estimates of fair market value and are subject to revision.
The purchase of Celfortec and the second quarter acquisitions
included goodwill of $15 million and $7 million,
respectively. 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 nine
months ended September 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.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 or installation of an asbestos-containing
calcium silicate, high temperature insulation product, the
manufacture of which was discontinued in 1972.
Status
As of September 30, 1996, approximately 155,500 asbestos
personal injury claims were pending against the Company, of
which 29,700 were received in the first nine 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 pulmonary function
testing laboratories in the southeastern US challenging such
improper testing practices. This matter is now in active pre-
trial discovery.
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 involve 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.
Unless extended, this agreement will expire on November 1,
1996. This agreement may have impacted the number of cases
received by the Company during the second and third quarters
of 1996.
Through September 30, 1996, the Company had resolved (by
settlement or otherwise) approximately 179,000 asbestos
personal injury claims, including the dismissal in May 1996,
for lack of medical proof, of approximately 15,000 maritime
cases which named Owens Corning as a defendant, resulting in
an 11,700 case reduction in the backlog after reduction for
duplicate cases and cases previously settled. During 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).
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. CONTINGENT LIABILITIES (Continued)
The Company's indemnity payments have varied considerably
over time and from case to case, and are affected by a
multitude of factors. These include the type and severity of
the disease sustained by the claimant (i.e., mesothelioma,
lung cancer, other types of cancer, asbestosis or pleural
changes); the occupation of the claimant; the extent of the
claimant's exposure to asbestos-containing products
manufactured, sold or installed by the Company; the extent of
the claimant's exposure to asbestos-containing products
manufactured, sold or installed by other Producers; the
number and financial resources of other Producer defendants;
the jurisdiction of suit; the presence or absence of other
possible causes of the claimant's illness; the availability
or not of legal defenses such as the statute of limitations
or state of the art; whether the claim was resolved on an
individual basis or as part of a group settlement; and
whether the claim proceeded to an adverse verdict or
judgment.
Insurance
As of September 30, 1996, the Company had approximately $368
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 -
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. CONTINGENT LIABILITIES (Continued)
high levels, additional information on filings received
during the 1993-1995 period and other factors. As a result
of the review, the Company took a non-recurring, noncash
charge to earnings of $1.1 billion in the second quarter of
1996. This charge represented the Company's estimate of the
indemnity and defense costs associated with unasserted
asbestos personal injury claims that may be received by the
Company in years subsequent to 1999.
The combined effect of the $1.1 billion charge and the $225
million probable additional non-products insurance recovery
was an $875 million charge in the second quarter of 1996.
The Company's estimated total liabilities in respect of
indemnity and defense costs associated with pending and
unasserted asbestos personal injury claims that may be
received in the future (the "Liabilities"), and its estimated
insurance recoveries in respect of such claims (the
"Insurance"), are reported separately as follows:
<TABLE>
<S> <C> <C>
September 30,December 31,
1996 1995
(In millions of dollars)
Reserve for asbestos
litigation claims
Current $ 325 $ 250
Other 1,735 887
Total Reserve 2,060 1,137
Insurance for asbestos
litigation claims
Current 100 100
Other 493 330
Total Insurance 593 430
Net Asbestos Liability $1,467 $ 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.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. CONTINGENT LIABILITIES (Continued)
Management Opinion
Although any opinion is necessarily judgmental and must be based on
information now known to the Company, in the opinion of management, while
any additional uninsured and unreserved costs which may arise out of
pending personal injury and property damage asbestos claims and
additional similar asbestos claims filed in the future may be
substantial over time, management believes that any such additional
costs will not impair the ability of the Company to meet its obligations,
to reinvest in its businesses or to take advantage of attractive opportunities
for growth.
NON-ASBESTOS LIABILITIES
Various other lawsuits and claims arising in the normal
course of business are pending against the Company, some of
which allege substantial damages. Management believes that
the outcome of these lawsuits and claims will not have a
materially adverse effect on the Company's financial position
or results of operations.
<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 third quarter of 1996, the Company reported net
income of $80 million, or $1.44 per share, an increase of 14
percent from net income of $70 million, or $1.28 per share,
for the quarter ended September 30, 1995. The earnings growth
from operations reflects primarily the benefits of
acquisitions, strong results from the roofing and foam
businesses, and a favorable litigation settlement with a
former supplier, partially offset by increased administrative
charges resulting from the Company's continuing
implementation of its global productivity initiative,
Advantage 2000.
Net sales were $1,025 million for the quarter ended September
30, 1996, an 11 percent increase from the 1995 level of $927
million. The growth is attributable to volume increases in
the Building Materials segment worldwide, particularly in the
U.S., combined with the incremental increases from
acquisitions. Gross margin for the quarter ended September
30 was 27 percent of sales in 1996, compared to 26 percent in
1995.
For the nine months ended September 30, 1996, the Company
reported a net loss of $354 million, or $6.86 per share,
compared to net income of $165 million, or $3.18 per share,
for the comparable 1995 period. The net loss was the result
of a $1.1 billion charge taken during the second quarter to
quantify the Company's liability for asbestos claims which
may 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. Excluding the impact of the asbestos charge
and the special items reported in the first quarter of 1996,
net income for the first nine months of 1996 was $188
million, or $3.42 per share, an increase of 14% over the
comparable prior year period. Net sales for the nine months
ended September 30, 1996 were $2.830 billion, a 7% increase
over the $2.648 billion reported in the first nine months of
1995. This increase reflects the incremental sales from the
Company's acquisitions in combination with the improvement in
the Building Materials segment, particularly in the U.S.,
where increased demand due to natural disasters in the East
has required expansion of service territories of several
roofing plants.
Marketing and administrative expenses from ongoing operations
for the nine months ended September 30, 1996 increased
approximately 13% over the same period in 1995, primarily as
a result of incremental administrative expenses from the
acquisitions late in 1995 and 1996 as well as the impact of
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 17% and
11% for the quarter and nine month periods ended September
30, 1996, respectively, compared to the same periods of the
prior year. This
<PAGE>
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growth reflects the incremental sales from acquisitions
combined with an increase in volume worldwide, particularly
in the U.S. The third quarter sales increase in the U.S. was
largely driven by the roofing business which benefited from
an increase in demand. Additionally, the Company continues
to realize the benefits of integrating new products into its
distribution systems, improving the sales of products like
Foamular(R) extruded polystyrene. The Company expects
further benefits from this integration combined with its
newly introduced System Thinking(TM) strategy, which links
the Company's growing product offering with technical
expertise, to provide solution-oriented systems.
Income from ongoing operations for Building Materials
increased 23% for the quarter and 11% for the nine months
ended September 30, 1996 when compared to the same periods in
1995. The increase in the third quarter is primarily due to
productivity improvements in the roofing business and
improving profitability from Canadian operations.
In the third quarter of 1996, the Company acquired
substantially all the assets of the foam insulation business
of Celfort Construction Materials Inc. of Canada. Renamed OC
Celfortec, the Valleyfield, Quebec business, which produces
FOAMULAR(R) rigid polystyrene foam insulation, is an
important part of the Company's growth agenda into the foam
insulation business. The acquisition of Celfortec increases
the Company's foam insulation plants to six, with a seventh
under construction in China.
Additionally, at the end of the third quarter the Company
reached an agreement to acquire a majority interest in
Acoustical Fibreglass Insulation (Mnfg) (Pty) Ltd., the
largest South African manufacturer of glass fiber
reinforcements and glass fiber and rock wool insulation. The
new company, headquartered in Johannesburg, South Africa,
will be known as Owens Corning South Africa (Pty) Ltd.
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 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 nine months ended September 30, 1996,
compared to the same periods of the prior year. Gains in
Latin America, an identified growth region, and in the U.S.,
were more than offset by declines in Europe and Canada,
attributable to a softening demand, as well as a
strengthening U.S. dollar. Composite Materials income from
operations in the third quarter of 1996 increased 9% compared
to the third quarter of 1995. For the nine months ended
September 30, 1996, income from ongoing operations increased
12% compared to the same period in 1995, primarily due to an
improvement in pricing combined with productivity
initiatives, particularly in the U.S.
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 $114 million for the third quarter of 1996,
compared to $135 million for the third quarter of 1995. The
decrease is attributable in part to an increase in working
capital, particularly receivables, due to strong September
sales, coupled with increased composites inventories, where
short-term capacity is being modified as the Company's
customers adjust their inventory levels.
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At September 30, 1996, the Company's net working capital was
$34 million and its current ratio was 1.03, compared to
negative $9 million and .99, respectively, at December 31,
1995. The increase in 1996 is in part due to an increased
sales volume driving receivables as well as incremental
receivables from acquisitions, offset in large part by
increased short term borrowings. Inventories at September 30,
1996 increased 38% over December 31, 1995 levels due to
anticipated fourth quarter demand together with the
incremental inventories of acquisitions as well as the item
discussed in the preceding paragraph. Inventories as a
percent of sales for the nine months ended September 30, 1996
and 1995 remained relatively unchanged at approximately 12%.
Please see Notes 4 and 5 to the Consolidated Financial
Statements.
The Company's total borrowings at September 30, 1996 were
$1.147 billion, $254 million higher than at year-end 1995.
The Company's increased borrowings in 1996 are being driven
by the build of inventories for anticipated fourth quarter
demand as well as other working capital requirements.
As of September 30, 1996, the Company had unused lines of
credit of $231 million available under long-term bank loan
facilities and an additional $137 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 $57 million
and $224 million for the quarter and nine months ended
September 30, 1996, respectively. For the year 1996, the
Company anticipates capital spending, exclusive of
acquisitions and investments in affiliates, to be
approximately $285 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
third quarter of 1996, including $13 million in defense costs
and $3 million for appeal bond and other costs, were $57
million or $34 million after-tax. During the third quarter of
1996, the Company received approximately 5,400 new asbestos
personal injury cases and closed approximately 2,100 cases.
Over the next twelve months, the Company's total payments for
asbestos litigation claims, including defense costs, are
expected to be approximately $325 million. Proceeds from
insurance of $100 million are expected to be available to
cover these costs, resulting in a net pretax cash outflow of
$225 million, or $135 million after-tax. 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 federal court in
New Orleans alleging a massive scheme to defraud the Company
in connection with asbestos litigation cases. The suit
alleges that medical test results in tens of thousands of
asbestos claims were falsified by the owners and operators of
certain 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
<PAGE>
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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 third quarter
of 1996, the Company was designated a PRP in such federal,
state, local or private proceedings for five additional
sites. At September 30, 1996, a total of 43 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) 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)
