SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 1998
Commission File No. 1-3660
Owens Corning
One Owens Corning Parkway
Toledo, Ohio 43659
Area Code (419) 248-8000
A Delaware Corporation
I.R.S. Employer Identification No. 34-4323452
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, 1998
54,247,937
<PAGE> - 2 -
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Quarter Nine Months
Ended Ended
September 30, September 30,
1998 1997 1998 1997
(In millions of dollars, except share data)
NET SALES $1,324 $1,238 $3,747 $3,130
COST OF SALES (Note 3) 1,060 971 2,983 2,401
Gross margin 264 267 764 729
OPERATING EXPENSES (Note 3)
Marketing and administrative
expenses 138 144 419 388
Science and technology expenses 14 16 43 50
Restructure costs 30 - 117 -
Other 67 9 81 5
Total operating expenses 249 169 660 443
Gain on sale of assets (Note 4) 292 - 376 -
INCOME FROM OPERATIONS 307 98 480 286
Cost of borrowed funds 37 36 110 78
INCOME BEFORE PROVISION
FOR INCOME TAXES 270 62 370 208
Provision for income taxes (Note 6) 132 6 159 51
INCOME BEFORE MINORITY INTEREST
AND EQUITY IN NET INCOME OF
AFFILIATES 138 56 211 157
Minority interest (4) (2) (14) (6)
Equity in net income of affiliates
(Note 4) 1 5 5 13
INCOME BEFORE EXTRAORDINARY
ITEM 135 59 202 164
Extraordinary loss (Note 5) (39) - (39) -
NET INCOME $ 96 $ 59 $ 163 $ 164
</TABLE>
<PAGE> - 3 -
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (Continued)
(unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Quarter Nine Months
Ended Ended
September 30, September 30,
1998 1997 1998 1997
(In millions of dollars, except share data)
NET INCOME (LOSS) PER COMMON SHARE
(Note 10)
Basic:
Income before extraordinary item $ 2.51 $ 1.11 $ 3.76 $ 3.11
Extraordinary loss (Note 5) (.72) - (.72) -
Net income per share $ 1.79 $ 1.11 $ 3.04 $ 3.11
Diluted:
Income before extraordinary item $ 2.32 $ 1.05 $ 3.53 $ 2.92
Extraordinary loss (Note 5) (.66) - (.66) -
Net income per share $ 1.66 $ 1.05 $ 2.87 $ 2.92
Weighted average number of common
shares outstanding and common equivalent
shares during the period (in millions)
Basic 53.8 53.1 53.6 52.8
Diluted 59.2 58.3 58.8 58.1
</TABLE>
<PAGE> - 4 -
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<S> <C> <C>
September 30, December 31,
1998 1997
ASSETS (In millions of dollars)
CURRENT
Cash and cash equivalents (Note 4) $ 540 $ 58
Receivables 542 432
Inventories (Note 7) 495 503
Insurance for asbestos litigation
claims - current portion (Note 11) 125 100
Deferred income taxes 146 160
Assets held for sale (Note 4) - 41
Income tax receivable 115 96
Other current assets 44 38
Total current 2,007 1,428
OTHER
Insurance for asbestos litigation
claims (Note 11) 286 357
Asbestos costs to be reimbursed
- Fibreboard (Note 11) 85 116
Deferred income taxes 257 328
Goodwill (Note 3) 764 778
Investments in affiliates (Notes 3 and 4) 39 52
Other noncurrent assets 218 184
Total other 1,649 1,815
PLANT AND EQUIPMENT, at cost 3,417 3,585
Less--Accumulated depreciation (1,808) (1,832)
Net plant and equipment 1,609 1,753
TOTAL ASSETS $5,265 $4,996
</TABLE>
<PAGE> - 5 -
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
(unaudited)
September 30, December 31,
1998 1997
(In millions of dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities $ 832 $ 814
Reserve for asbestos litigation claims -
current portion (Note 11) 350 350
Short-term debt 77 23
Long-term debt - current portion 13 120
Total current 1,272 1,307
LONG-TERM DEBT (Note 5) 2,193 1,595
OTHER
Reserve for asbestos litigation claims
(Note 11) 1,026 1,320
Asbestos-related liabilities -
Fibreboard (Note 11) 92 123
Other employee benefits liability 320 335
Pension plan liability 56 65
Other 351 165
Total other 1,845 2,008
COMPANY OBLIGATED SECURITIES
OF ENTITIES HOLDING SOLELY
PARENT DEBENTURES (Note 5) 194 503
MINORITY INTEREST 21 24
STOCKHOLDERS' EQUITY
Common stock 678 657
Deficit (891) (1,041)
Accumulated other comprehensive income
(Note 9) (32) (40)
Other (15) (17)
Total stockholders' equity (260) (441)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $5,265 $4,996
<PAGE> - 6 -
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Quarter Nine Months
Ended Ended
September 30, September 30,
1998 1997 1998 1997
(In millions of dollars)
NET CASH FLOW FROM OPERATIONS
Net income $ 96 $ 59 $ 163 $ 164
Reconciliation of net cash provided
by operating activities:
Noncash items:
Provision for depreciation and
amortization 48 45 147 121
Provision for deferred income taxes 90 4 85 60
Extraordinary loss from early
retirement of debt (Note 5) 39 - 39 -
Gain on sale of assets (Note 4) (292) - (376) -
Other (Note 3) 115 (5) 112 (12)
(Increase) decrease in receivables 18 (40) (151) (203)
(Increase) decrease in inventories 10 47 (30) (45)
Increase (decrease) in accounts
payable and accrued liabilities 40 (30) 16 (120)
Increase (decrease) in accrued
income taxes (65) (2) 10 (28)
Proceeds from insurance for asbestos
litigation claims, excluding Fibreboard 24 29 46 93
Payments for asbestos litigation claims,
excluding Fibreboard (70) (62) (294) (247)
Other 86 42 97 (15)
Net cash flow from operations 139 87 (136) (232)
NET CASH FLOW FROM INVESTING
Additions to plant and equipment (59) (44) (180) (175)
Investment in subsidiaries, net of
cash acquired (Note 4) - (527) - (547)
Proceeds from the sale of affiliate
or business (Note 4) 528 - 662 -
Other - (1) (19) (10)
Net cash flow from investing $ 469 $(572) $ 463 $ (732)
</TABLE>
<PAGE> - 7 -
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Quarter Nine Months
Ended Ended
September 30, September 30,
1998 1997 1998 1997
(In millions of dollars)
NET CASH FLOW FROM FINANCING (Note 5)
Net additions to long-term
credit facilities $ 365 $ 709 $ (9) $ 992
Other additions to long-term debt 423 21 993 157
Other reductions to long-term debt (480) (147) (493) (188)
Net increase (decrease) in
short-term debt (48) (91) 48 (29)
Repurchase of Trust Preferred Hybrid
Securities (309) - (309) -
Premium payments on early retirement
of debt (62) - (62) -
Dividends paid (4) (3) (12) (10)
Other 5 (13) (1) 8
Net cash flow from financing (110) 476 155 930
Effect of exchange rate changes on cash - (1) - (2)
Net increase (decrease) in cash
and cash equivalents 498 (10) 482 (36)
Cash and cash equivalents at
beginning of period 42 19 58 45
Cash and cash equivalents at end
of period (Note 4) $ 540 $ 9 $ 540 $ 9
</TABLE>
<PAGE> - 8 -
OWENS CORNING AND SUBSIDIARIES
QUARTERLY INFORMATION ON INDUSTRY AND GEOGRAPHIC SEGMENTS
(unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Quarter Nine Months
Ended Ended
September 30, September 30,
1998 1997 1998 1997
1. SEGMENT DATA (In millions of dollars)
NET SALES
Industry Segments
Building Materials
United States $ 942 $ 807 $2,553 $1,907
Europe 63 74 198 220
Canada and other 55 73 160 145
Total Building Materials 1,060 954 2,911 2,272
Composite Materials
United States 143 150 449 449
Europe 85 91 282 291
Canada and other 36 43 105 118
Total Composite Materials 264 284 836 858
Intersegment sales
Building Materials - - - -
Composite Materials 29 28 87 83
Eliminations (29) (28) (87) (83)
Net sales $1,324 $1,238 $3,747 $3,130
Geographic Segments
United States $1,085 $ 957 $3,002 $2,356
Europe 148 165 480 511
Canada and other 91 116 265 263
Total $1,324 $1,238 $3,747 $3,130
Intersegment sales
United States 35 28 105 88
Europe 5 9 15 25
Canada and other 16 18 45 66
Eliminations (56) (55) (165) (179)
Net sales $1,324 $1,238 $3,747 $3,130
</TABLE>
<PAGE> - 9 -
OWENS CORNING AND SUBSIDIARIES
QUARTERLY INFORMATION ON INDUSTRY AND GEOGRAPHIC SEGMENTS
(Continued)
(unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Quarter Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(In millions of dollars)
1. SEGMENT DATA (Continued)
INCOME (LOSS) FROM OPERATIONS
Industry Segments
Building Materials
United States $ 57 $ 76 $ 147 $ 183
Europe (7) - (20) 7
Canada and other (30) 5 (32) 9
Total Building Materials 20 81 95 199
Composite Materials
United States 347 40 437 134
Europe (7) (4) (21) 2
Canada and other (4) (2) (2) (1)
Total Composite Materials 336 34 414 135
General corporate expense (49) (17) (29) (48)
Income from operations 307 98 480 286
Cost of borrowed funds (37) (36) (110) (78)
Income before provision
for income taxes $ 270 $ 62 $ 370 $ 208
Geographic Segments
United States $ 404 $ 116 $ 584 $ 317
Europe (14) (4) (41) 9
Canada and other (34) 3 (34) 8
General corporate expense (49) (17) (29) (48)
Income from operations 307 98 480 286
Cost of borrowed funds (37) (36) (110) (78)
Income before provision
for income taxes $ 270 $ 62 $ 370 $ 208
</TABLE>
<PAGE> - 10 -
OWENS CORNING AND SUBSIDIARIES
QUARTERLY INFORMATION ON INDUSTRY AND GEOGRAPHIC SEGMENTS
(Continued)
(unaudited)
Income from operations for the quarter ended September 30, 1998
includes a pretax charge of $148 million for restructuring and
other actions as well as a pretax net gain of $292 from the sale
of certain businesses. 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 $62 million, $12 million
and $32 million, respectively; reduce income from operations for
Composite Materials in Europe and Canada and other by $11 million
and $10 million, respectively; increase income from operations for
Composite Materials in the United States by $308 million; and to
increase general corporate expense by $37 million. Income from
operations for the nine months ended September 30, 1998 includes
the items above as well as the following items from the first
quarter of 1998: a pretax charge of $95 million for restructuring
and other actions and a pretax gain of $84 million from the sale
of the Company's 50% ownership interest in Alpha/Owens-Corning.
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 $17 million, $11 million and $1 million,
respectively; Composite Materials in the United States, Europe,
and Canada and other by $8 million, $27 million and $1 million,
respectively; and to decrease general corporate expense by $54
million.
<PAGE> - 11 -
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 1997
Annual Report on Form 10-K, as filed with the Securities and
Exchange Commission.
3. RESTRUCTURING OF OPERATIONS AND OTHER ACTIONS
During the third quarter of 1998, the Company recorded a $148
million pretax charge for restructuring and other actions as
the final phase of the Company's previously announced program
to close manufacturing facilities, enhance manufacturing
productivity and reduce overhead. On a cumulative basis since
the fourth quarter of 1997, the Company has recorded a total
pretax charge of $386 million, of which $143 million was
recorded in the fourth quarter of 1997, $95 million was
recorded in the first quarter of 1998, and $148 million was
recorded in the third quarter of 1998.
The $148 million pretax charge in the third quarter of 1998 was
comprised of a $30 million charge associated with the
restructuring of the Company's business segments and a $118
million charge associated with other actions, the majority of
which represent asset impairments. The $30 million restructure
charge has been classified as a separate component of operating
expenses on the Company's consolidated statement of income
while the $118 million charge for other actions is comprised of
a $60 million charge to cost of sales, a $4 million charge to
marketing and administrative expenses, and a $54 million charge
to other operating expenses. The components of the restructure
charge include $9 million for personnel reductions and $21
million for the divestiture of non-strategic businesses and
facilities, of which $20 million represents non-cash asset
write-downs to estimated fair value and $1 million represents
exit cost liabilities, comprised primarily of lease
commitments. The $9 million for personnel reductions represents
severance costs associated with the elimination of
approximately 400 positions, primarily in the U.S. and Asia.
The primary groups affected include manufacturing and
administrative personnel. As of September 30, 1998, no
payments or charges against the reserve for personnel
reductions have been made, no charges have been made against
exit cost liabilities, and no adjustments have been made to the
liability.
The components and classification of the $118 million of other
actions, of which $103 million represents non-cash asset
revaluations and $15 million represents liabilities, include:
$30 million to write down to fair value certain manufacturing
assets held for use in China, due primarily to poor current and
projected financial results, recorded as cost of sales; $15
million to write down to net realizable value equipment and
inventory made obsolete by changes in the Company's
manufacturing and marketing strategies, recorded as cost of
sales; $17 million for the write-down of an investment in and
the write off of a receivable from a joint venture in Korea to
reflect the current business outlook and the fair market value
of the assets, recorded as other operating expenses; $12 million
for the write-down of goodwill associated with the 1995
acquisition of Fiber-lite, determined to be unrecoverable due to
a change in market conditions and customer demand, recorded as
other operating expenses; and $9 million for the write-down of
certain assets in the U.S. to fair market value, recorded as cost
of sales. The Company plans to hold and use the investments but
plans to dispose of the equipment in 1998. Also included in the
$118 million charge for other actions are $13 million for the
write off of certain receivables in the U.S. and Asia determined
to be uncollectable, recorded as cost of sales and other
operating expenses; and $22 million for other actions recorded as
cost of sales, marketing and administrative expenses, and other
operating expenses.
<PAGE> - 12 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. RESTRUCTURING OF OPERATIONS AND OTHER ACTIONS (Continued)
The Company continually evaluates whether events and
circumstances have occurred that indicate that the carrying
amount of certain long-lived assets is recoverable. When
factors indicate that a long-lived asset should be evaluated
for possible impairment, the Company uses an estimate of the
expected undiscounted cash flows to be generated by the asset
to determine whether the carrying amount is recoverable or if
an impairment exists. When it is determined that an impairment
exists, the Company uses the fair market value of the asset,
usually measured by the discounted cash flows to be generated
by the asset, to determine the amount of the impairment to be
recorded in the financial statements.
During the first quarter of 1998, the Company recorded a $95
million pretax charge for restructuring and other actions as
the second phase of the Company's strategic restructuring
program to enhance manufacturing productivity and reduce
overhead.
The $95 million pretax charge in the first quarter of 1998 was
comprised of an $87 million charge associated with the
restructuring of the Company's business segments and an $8
million charge associated with other actions. The $87 million
restructure charge has been classified as a separate component
of operating expenses on the Company's consolidated statement
of income while the $8 million charge for other actions is
comprised of a $5 million charge to cost of sales and a $3
million charge to marketing and administrative expenses. The
components of the restructure charge include $81 million for
personnel reductions and $6 million for the divestiture of non-
strategic businesses and facilities, of which $2 million
represents exit cost liabilities, comprised primarily of lease
commitments. The $81 million for personnel reductions
represents severance costs associated with the elimination of
approximately 1,500 positions worldwide. The primary employee
groups affected include manufacturing and corporate
administrative personnel. As of September 30, 1998,
approximately $43 million has been paid and charged against the
reserve for personnel reductions, representing the elimination
of approximately 1,500 employees, the majority of whose
severance payments will be made over the course of 1998, and
approximately $2 million has been charged against exit cost
liabilities. No adjustments have been made to the liability.
During the fourth quarter of 1997, the Company recorded a $143
million pretax charge for restructuring and other actions as
the first phase of the program to close manufacturing
facilities, enhance manufacturing productivity and reduce
overhead. The $143 million pretax charge was comprised of a $68
million charge associated with the restructuring of the
Company's business segments and a $75 million charge associated
with asset impairments, including investments in certain
affiliates. The components of the restructure charge include
$25 million for personnel reductions; $41 million for the
divestiture of non-strategic businesses and facilities, of
which $13 million represents exit cost liabilities, primarily
for leased warehouse and office facilities to be vacated, and
$28 million represents non-cash asset revaluations; and $2
million for other actions. The divestiture of non-strategic
businesses and facilities includes the closure of the Candiac,
Quebec manufacturing facility which was completed in the first
quarter of 1998.
The $25 million for personnel reductions during the fourth
quarter of 1997 represents severance costs associated with the
elimination of nearly 550 positions worldwide. The primary
employee groups affected include manufacturing and corporate
administrative personnel. As of September 30, 1998,
approximately $17 million has been paid and charged against the
reserve for personnel reductions, representing the elimination
of approximately 550 employees, the majority of whose severance
payments will be made over the course of 1998, and
approximately $8 million has been charged against exit cost
liabilities. No adjustments have been made to the liability.
<PAGE> - 13 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. RESTRUCTURING OF OPERATIONS AND OTHER ACTIONS (Continued)
The components of the $75 million of other actions during the
fourth quarter of 1997 and their classification on the
Company's 1997 consolidated statement of income are as follows:
$17 million for the write off of certain assets and investments
associated with unconsolidated joint ventures in Spain and
Argentina due primarily to poor current and projected financial
results and the expected loss of local partners, recorded as
other operating expenses; $12 million for the write-down of
certain investments in mainland China to reflect the current
business outlook and the fair market value of the investments,
recorded as cost of sales; $24 million to write down to net
realizable value equipment and inventory made obsolete by
changes in the Company's manufacturing and marketing strategies,
recorded as cost of sales; $8 million for a supplemental
employee retirement plan approved by the Board of Directors in
December 1997, recorded as marketing and administrative expenses;
$5 million for the write-off of an insurance receivable that
was determined to be uncollectable after judicial rejection of
the Company's claim, recorded as other operating expenses; and
$9 million for several other actions recorded as cost of sales,
marketing and administrative expenses, and other operating
expenses. The Company plans to hold and use the investments
but has disposed of most of the equipment in 1998.
The following table summarizes the status of the liabilities
from the restructure program described above, including
cumulative spending and adjustments and the remaining balance as
of September 30, 1998:
<TABLE>
<S> <C> <C> <C> <C> <C>
(In millions of dollars) Initial 6/30/98 3rd Quarter 9/30/98
Balance Balance Charges Reserve Balance
Personnel Costs $ 106 $ 57 $(11) $ 9 $ 55
Facility and Business
Exit Costs 15 7 (2) 1 6
Other 2 - - - -
Total $ 123 $ 64 $(13) $10 $ 61
4. ACQUISITIONS AND DIVESTITURES OF BUSINESSES
During 1997, the Company made several acquisitions, the largest
of which were the acquisitions of Fibreboard Corporation
("Fibreboard") and AmeriMark Building Products, Inc.
("AmeriMark"). The purchase price of Fibreboard, a North
American manufacturer of vinyl siding and accessories, as well
as manufactured stone, was $660 million, including debt assumed
of $138 million, and was consummated by the exchange of cash
for all of the outstanding common shares of Fibreboard at a
price of $55 per share. The purchase price of AmeriMark, a
specialty building products company serving the exterior
residential housing industry, was $317 million and was
consummated by the exchange of $309 million in trust preferred
hybrid securities and $8 million in cash for the net assets of
AmeriMark.
The following unaudited table presents the pro forma results of
operations for the quarter and nine months ended September 30,
1997, assuming the acquisitions of Fibreboard and AmeriMark
occurred at the beginning of the periods presented. The pro
forma impact of all other acquisitions during 1997, excluding
<PAGE> - 14 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. ACQUISITIONS AND DIVESTITURES OF BUSINESSES (Continued)
Fibreboard and AmeriMark, was not material to the Company's
results of operations for the quarter or nine months ended
September 30, 1997. These results include certain
adjustments, primarily for depreciation and amortization,
interest and other expenses directly attributable to the
acquisition and are not necessarily indicative of what the
results would have been had the transactions actually
occurred at the beginning of the periods presented. The pro
forma results do not include operations that were
discontinued by Fibreboard prior to the acquisition, or
operations of Pabco.
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Quarter Nine Months
Ended Ended
September 30, September 30,
1998 1997 1998 1997
(In millions of dollars, except share data)
Net sales $ 1,324 $ 1,362 $ 3,747 $ 3,798
Income from continuing operations 135 53 202 147
Diluted earnings per share from
continuing operations $ 2.32 $ .95 $ 3.53 $ 2.63
</TABLE>
During the first quarter of 1998, the Company completed the
sale of the assets of Pabco, a producer of molded calcium
silicate insulation, fireproofing board and metal jacketing,
acquired as part of the Fibreboard acquisition in 1997. The
Company sold Pabco for $31 million in cash and $6 million in
notes receivable. The Company collected approximately $3
million of this note receivable during the third quarter of
1998.
Late in the first quarter of 1998, the Company sold its 50%
ownership interest in Alpha/Owens-Corning, LLC. With cash
proceeds of approximately $103 million, the Company recorded
a pretax gain of approximately $84 million as other income
on the Company's consolidated statement of income.
During the third quarter, the Company formed a joint
venture for its yarns and specialty materials business (the
"yarns business") to which it contributed two manufacturing
plants and certain proprietary technology. On September 30,
1998, the Company completed the sale of 51% of the joint
venture to a U.S. subsidiary of Groupe Porcher Industries of
Badinieres, France for approximately $340 million. The
Company continues to have a 49% ownership interest in the
joint venture. Upon closing, the Company also received a
distribution of approximately $191 million from the joint
venture. As a result of the sale of 51% of the yarns
business and the receipt of the distribution from the joint
venture, the Company recorded a pretax gain of approximately
$312 million. With sales of approximately $300 million in
1997, the Company's yarns business was the world's second
largest producer of glass yarns, and the largest producer of
fine yarns. Proceeds from the sale were used to reduce the
borrowings under the Company's long-term revolving credit
facility in early October 1998.
The consolidated balance sheet of the Company as of September
30, 1998 reflects the disposition of the Company's yarns
business on that date. The results of operations of the yarns
business are reflected in the Company's consolidated
statement of income through the period ending September 30,
1998. For the nine months ended September 30, 1998, the yarns
business recorded sales of approximately $205 million and net
income of approximately $36 million. Effective September 30,
1998, the Company will account for its ownership interest in
the yarns joint venture under the equity method. Due to the
joint venture's distribution of a dividend to the partners in
excess of the joint venture's total equity on September 30,
1998, the joint venture is in an equity deficit position.
Accordingly, the Company will not record any equity in the
net income of the joint venture until such time as the joint
venture has positive equity.
Additionally, during the third quarter of 1998, the Company
sold its Kitsons distribution business in the U.K. and its
windows manufacturing business in the U.S. and recorded a
pretax loss of approximately $20 million.
<PAGE> - 15 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. LONG-TERM DEBT
In the first quarter of 1998, the Company amended its long-
term revolving credit agreement and reduced the maximum
commitment equivalent to $1.8 billion, of which portions can
be denominated in Canadian dollars, Belgian francs or
British pounds subject to the provisions of the agreement.
The agreement allows the Company to borrow under multiple
options, which provide for varying terms and interest rates.
The commitment fee, charged on the entire commitment, is a
sliding scale based on credit ratings and was .15% at
September 30, 1998. As of September 30, 1998, $236 million
of this facility was used for standby letters of credit and
$674 million was unused. The average rate of interest on
this facility was 5.9% at September 30, 1998.
During the second quarter of 1998, the Company issued two
series of debt securities for an aggregate principal amount
of $550 million. The first series, representing $300 million
of the securities, is due May 1, 2005 and bears an annual
rate of interest of 7.5%, payable semiannually. The second
series, representing $250 million of the securities, is due
May 1, 2008 and bears an annual rate of interest of 7.7%,
payable semiannually. Both series of securities (the
"Notes") were issued as unsecured obligations of the Company
and are redeemable, in whole or in part, at the option of
the Company at any time at a redemption price equal to the
greater of (i) 100% of the principal amount of such Notes or
(ii) the sum of the present values of the remaining
scheduled payments of principal and interest.
<PAGE> - 16 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. LONG-TERM DEBT (Continued)
The proceeds from the issuance of the Notes, net of issuance
costs, were approximately $546 million. The Company used
the net proceeds to repay a portion of the outstanding
borrowings under its long-term revolving credit agreement
during the second quarter of 1998.
Early in the third quarter of 1998, the Company issued a
series of debt securities (the "debentures") as unsecured
obligations of the Company for an aggregate principal amount
of $400 million. The debentures bear an annual rate of
interest of 7.5%, payable semiannually, and mature on August
1, 2018. The debentures are redeemable, in whole or in
part, at the option of the Company at any time at a
redemption price equal to the greater of (i) 100% of the
principal amount of such debentures or (ii) the sum of the
present values of the remaining scheduled payments of
principal and interest. The proceeds from the issuance of
the debentures, net of issuance costs, were approximately
$395 million. The Company used the net proceeds to pay for
the principal and premium amounts of the tender offers of
certain other debt securities of the Company described
below.
Early in the third quarter of 1998, the Company commenced
cash tender offers (the "tender offers") for an aggregate
principal amount of $450 million for the following debt
securities: the $150 million aggregate principal amount of
the Company's 8 7/8% Debentures due 2002, the $150 million
aggregate principal amount of the Company's 9 3/8%
Debentures due 2012, and the $150 million aggregate
principal amount of the Company's 10% Debentures due 2001.
The tender offers were completed on August 3, 1998 and as of
that date, approximately $361 million of these Debentures
had been tendered. In connection with this early retirement
of debt, the Company paid premiums of approximately $62
million, incurred non-cash costs of approximately $2
million, and recorded an extraordinary loss of approximately
$39 million, or $.66 per share, net of related income taxes
of $25 million.
In August 1998, the Company repurchased its $309 million of
Trust Preferred Hybrid Securities which had been issued in
October 1997 as payment for the Company's acquisition of the
assets of AmeriMark. Additionally, during the third quarter
of 1998, the Company repaid $100 million of debt which
matured in August 1998. These transactions were financed by
a combination of newly issued debt securities and borrowings
from the Company's long-term revolving credit agreement.
<PAGE> - 17 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. 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
September 30, September 30,
1998 1997 1998 1997
U.S. federal statutory rate 35% 35% 35% 35%
State and local income taxes 6 3 5 3
Operating losses of foreign
subsidiaries 6 - 6 -
Foreign tax credits - (4) - (2)
Conclusion of prior year tax audits - (10) - (2)
Effect of change in state tax rates - (9) - (3)
Adjustment of deferred tax
asset valuation allowance - - - (4)
Special tax election (a) - - (3) -
Other 2 (7) - (3)
Effective tax rate 49% 8% 43% 24%
</TABLE>
(a) Represents a one-time tax benefit associated with Asia Pacific operations.
7. INVENTORIES
<TABLE>
<S> <C> <C>
September 30, December 31,
1998 1997
(In millions of dollars)
Inventories are summarized as follows:
Finished goods $ 398 $ 363
Materials and supplies 157 214
FIFO inventory 555 577
Less: Reduction to LIFO basis (60) (74)
$ 495 $ 503
</TABLE>
Approximately $354 million and $365 million of FIFO
inventories were valued using the LIFO method at September
30, 1998 and December 31, 1997, respectively.
<PAGE> - 18 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. CONSOLIDATED STATEMENT OF CASH FLOWS
Cash payments for income taxes, net of refunds, and cost of
borrowed funds are summarized as follows:
<TABLE>
<S> <C> <C> <C> <C>
Quarter Nine Months
Ended Ended
September 30, September 30,
1998 1997 1998 1997
(In millions of dollars)
Income taxes $ (1) 9 $ (82) 18
Cost of borrowed funds 15 18 87 64
</TABLE>
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
During the first nine months of 1998, gross payments for
asbestos litigation claims against Fibreboard were
approximately $91 million, all of which was paid directly by
Fibreboard's insurers or from the escrow account to
claimants on Fibreboard's behalf. During the first nine
months of 1998, Fibreboard also reached settlement
agreements with plaintiffs for amounts totaling
approximately $60 million. Fibreboard settlement agreements
are reflected on the Company's consolidated balance sheet as
an increase to both the Fibreboard asbestos costs to be
reimbursed and asbestos claims settlements when the
agreements are reached.
9. COMPREHENSIVE INCOME
During the first quarter of 1998, the Company adopted
Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130). Comprehensive
income is defined as the change in equity of a business
enterprise during a period from transactions and other
events and circumstances from nonowner sources. It includes
all changes in equity during a period except those resulting
from investments by owners and distributions to owners. SFAS
130 requires that the Company classify items of other
comprehensive income by their nature in the financial
statements and display the accumulated balance of other
comprehensive income separately in the stockholders' equity
section of the Company's consolidated balance sheet.
The Company's comprehensive income for the quarters ended
September 30, 1998 and 1997 was $112 million and $44
million, respectively. For the nine months ended September
30, 1998 and 1997, comprehensive income was $171 million and
$142 million, respectively. The Company's comprehensive
income includes net income, currency translation
adjustments, minimum pension liability adjustments, and
deferred gains and losses on certain hedging transactions.
<PAGE> - 19 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. EARNINGS PER SHARE
The following table reconciles the net income and weighted
average number of shares used in the basic earnings per
share calculation to the net income and weighted average
number of shares used to compute diluted earnings per share.
Quarter Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(In millions of dollars, except share data)
Net income used for basic
earnings per share $ 96 $ 59 $ 163 $ 164
Net income effect of assumed
conversion of debt and
preferred securities 2 2 6 6
Net income used for diluted
earnings per share $ 98 $ 61 $ 169 $ 170
Weighted average number of
shares outstanding used for
basic earnings per share
(thousands) 53,820 53,050 53,588 52,769
Deferred awards and stock options 791 693 675 739
Shares from assumed conversion of
debt and preferred securities 4,566 4,566 4,566 4,566
Weighted average number of shares
outstanding and common equivalent
shares used for diluted earnings
per share (thousands) 59,177 58,309 58,829 58,074
<PAGE> - 20 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. CONTINGENT LIABILITIES
ASBESTOS LIABILITIES
ITEM A. OWENS CORNING (EXCLUDING FIBREBOARD)
Owens Corning 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 litigation. The personal injury claimants generally
allege injuries to their health caused by inhalation of
asbestos fibers from Owens Corning's products. Most of the
claimants seek punitive damages as well as compensatory
damages. Virtually all of the asbestos-related lawsuits
against Owens Corning 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, 1998, approximately 196,300 asbestos
personal injury claims were pending against Owens Corning,
of which approximately 27,100 were received during the first
three quarters of 1998. The Company received approximately
36,500 such claims in 1997 and 36,300 in 1996.
From the inception of the asbestos litigation through
September 30, 1998, Owens Corning resolved (by settlement or
otherwise) approximately 208,130 asbestos personal injury
claims. In addition, the 196,300 claims pending against
Owens Corning as of September 30, 1998 include 13,000 claims
which are covered by existing settlement agreements and will
be processed for future payment after the Company has
received satisfactory releases from the claimants. During
1995, 1996 and 1997, Owens Corning resolved approximately
62,000 asbestos personal injury claims, over 99% without
trial. As previously reported, total indemnity payments for
these 62,000 claims, including future installment payments,
are expected to be $858 million (an average of $13,800 per
claim). Owens Corning's total indemnity and defense
payments (before application of insurance recoveries) for
asbestos personal injury claims were $300 million in 1997
and are expected to be approximately $365 million in 1998.
Recent Developments
To address the uncertainties associated with the asbestos
personal injury litigation, including the rising cost of
resolving mesothelioma claims, the Company has developed a
National Settlement Program ("NSP"). The NSP is designed to
better manage Owens Corning's asbestos liability, and that
of Fibreboard, and to better control the timing and amount
of indemnity payments for both pending and future claims.
The NSP involves an effort to negotiate long-term settlement
agreements with over 50 plaintiffs' law firms resolving, in
the aggregate, a substantial majority of the pending claims
against Owens Corning, and a similar number of Fibreboard
claims, and establishing administrative processing
arrangements for the resolution of future claims without
litigation.
<PAGE> - 21 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. CONTINGENT LIABILITIES (Continued)
ITEM A. OWENS CORNING (EXCLUDING FIBREBOARD) (Continued)
Under the NSP, each participating law firm would sign a
long-term settlement agreement ("NSP Agreement") providing
for the resolution of claims pending against both Owens
Corning and Fibreboard as of a specified date, for a
settlement amount to be negotiated with each participating
firm. Settlement amounts will vary based on a number of
factors, including the type and severity of disease and the
extent of exposure of the claimants to Owens Corning and/or
Fibreboard products. Settlement payments for these pending
cases would be made over a period of up to five years, with
most payments occurring in 1999 and 2000. All payments
would be subject to satisfactory evidence of a qualifying
medical condition, exposure to Owens Corning and/or
Fibreboard products and delivery of customary releases by
each claimant.
Under each NSP Agreement, a participating firm would also
agree (consistent with applicable legal requirements) to
resolve any future asbestos personal injury claims against
Owens Corning or Fibreboard through an administrative
processing arrangement, rather than litigation. Under such
arrangement, no settlement payment would be made for future
claims unless specified medical criteria and other
requirements were met, and the amount of any such payment
would be a specified cash settlement value based on the
disease of the claimant and other factors. In the case of
future claims not involving malignancy, such criteria would
require medical evidence of functional impairment.
Payment for future claims under the administrative
processing arrangement would begin in 2001. Payment for
such claims would be subject to an agreed upon aggregate
annual cash flow "cap" limiting Owens Corning's payments in
each year of the NSP Agreements. The NSP Agreements would
have a term of at least 10 years and may be extended by
mutual agreement of the parties.
Owens Corning would have the right to terminate each NSP
Agreement if, in its sole discretion, the NSP Agreements in
the aggregate do not resolve a sufficient number of pending
claims. In making its judgment about whether to proceed
with the NSP, Owens Corning also intends to consider, among
other factors, the average settlement values by disease, the
timing and amount of settlement payments, and the
availability and terms of any financing that may be required
to implement the program.
Each NSP Agreement would terminate automatically as to
Fibreboard if the Global Settlement discussed below receives
final court approval. Under the Global Settlement,
Fibreboard would be protected by an injunction from asbestos
personal injury claims and should have no further
liabilities for pending or future asbestos personal injury
claims. If the Global Settlement receives final court
approval, the NSP Agreements would remain in effect with
regard to Owens Corning, whose share of the total costs
under each agreement would remain unchanged. If the Global
Settlement does not receive such approval, the Insurance
Settlement will become effective. Under the Insurance
Settlement (which has received final court approval)
Fibreboard will have access to assets of approximately $1.8
billion, to be used to resolve pending and future Fibreboard
claims. The Global Settlement and the Insurance Settlement
are discussed in greater detail in Item B below. In
addition, each of Owens Corning and Fibreboard would retain
the right to terminate any individual NSP Agreement, if in
any year more than a specified number of plaintiffs
represented by the plaintiffs' firm in question had opted
out of such agreement.
<PAGE> - 22 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. CONTINGENT LIABILITIES (Continued)
ITEM A. OWENS CORNING (EXCLUDING FIBREBOARD) (Continued)
Over the past several months, Owens Corning has engaged in
discussions with over 50 plaintiffs' law firms about the NSP
and expects to conclude such discussions with a significant
number of those firms in the fourth quarter of 1998. Based
on its progress to date in such discussions, Owens Corning
believes there are reasonable prospects for implementing the
NSP in 1998 on a basis satisfactory to it and to Fibreboard.
However, there can be no assurance that this will occur.
Tobacco
Owens Corning believes that it has spent significant amounts
to resolve claims of asbestos claimants whose injuries were
caused or contributed to by cigarette smoking, and that the
major tobacco companies should be required to reimburse
asbestos defendants, in whole or in part, for past payments
made to asbestos claimants who were also smokers. The
Company is pursuing this objective through both legislative
lobbying efforts and litigation. As widely reported, the
United States Senate did consider legislation during the
first half of 1998 which would have included provisions in
the proposed national tobacco settlement to compensate past
and future asbestos plaintiffs who also suffer from
smoking-related illnesses. Because the present prospects
for any such legislation are uncertain, the Company is
increasing its litigation efforts against the tobacco
companies.
On October 9, 1998 the Circuit Court for Jefferson County,
Mississippi granted leave to file an amended complaint in an
existing action to add claims by Owens Corning against seven
leading tobacco companies and several other tobacco industry
defendants. In addition to the Mississippi lawsuit, a
lawsuit brought in December 1997 by Owens Corning and
Fibreboard is pending in the Superior Court for Alameda
County, California against the same major tobacco companies.
Pursuant to the court's order, Fibreboard and Owens Corning
filed their amended complaint on August 28, 1998. The
defendants filed challenges to certain portions of the
complaint on September 28, 1998. Responses by Owens Corning
and Fibreboard to those challenges were filed October 28,
1998, and a hearing is set for November 20, 1998. In both
cases, Owens Corning and Fibreboard seek monetary recovery
for, among other things, a portion of the payments made to
persons who brought asbestos claims and were also smokers.
PFT Litigation
As previously reported, in 1996 Owens Corning filed suit in
federal court in New Orleans, Louisiana against the owners
and operators of certain pulmonary function testing
laboratories in the southeastern United States alleging that
many pulmonary function tests ("PFTs") used in mass
screening programs were improperly administered and
manipulated by the testing laboratory or otherwise
inconsistent with proper medical practice. This matter is
now in active pre-trial discovery and the court has set an
April 1999 trial date. In January 1997, Owens Corning filed
a similar suit in federal court in Jackson, Mississippi
against the owner of an additional testing laboratory. This
suit is in the discovery phase. The Company believes that
these lawsuits have been helpful in raising the standards
for medical screening of asbestos claims.
<PAGE> - 23 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. CONTINGENT LIABILITIES (Continued)
ITEM A. OWENS CORNING (EXCLUDING FIBREBOARD) (Continued)
Indemnity and Defense Payments
Owens Corning's total indemnity and defense payments (before
application of insurance recoveries) for asbestos personal
injury claims were $300 million in 1997 and are expected to
be approximately $365 million in 1998. As previously
reported, Owens Corning'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 Owens Corning;
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.
The high level of expenditures for indemnity and defense
payments in 1997 and 1998 is attributable in large measure
to two factors: payments associated with adverse judgments
(particularly in mesothelioma cases), and significant recent
increases in the cost of settlement of mesothelioma claims.
The Company is addressing these developments by refocusing
its defense resources upon the early identification and
evaluation of mesothelioma claims and, where such claims
cannot be resolved by settlement, upon more thorough
preparation and work-up of such claims for trial. The
Company believes that the measures outlined above should
prove effective in controlling the costs of resolving such
claims and have enabled the Company to avoid significant
adverse mesothelioma judgments through the first three
quarters of this year. However, the increased cost of
resolution of mesothelioma claims, when compared to prior
years, has added to the difficulty of estimating the
Company's future asbestos liabilities. The Company cautions
that if the cost of mesothelioma settlements and judgments
is not controlled and if future annual expenditures for
asbestos personal injury claims are not reduced, the Company
may be required to make additional provision for the
anticipated costs of asbestos personal injury claims.
Insurance
As of September 30, 1998, Owens Corning had approximately
$186 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 1999 and beyond under agreements with the
carriers confirming such coverage. All of Owens Corning's
liability insurance policies cover indemnity payments and
defense fees and expenses subject to applicable policy
limits.
<PAGE> - 24 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. CONTINGENT LIABILITIES (Continued)
ITEM A. OWENS CORNING (EXCLUDING FIBREBOARD) (Continued)
In addition to its confirmed primary level non-products
insurance, Owens Corning 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, Owens Corning
has estimated its probable recoveries in respect of this
additional non-products coverage at $225 million, which
amount was recorded in 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 financial statements include a reserve for the
estimated cost associated with Owens Corning's asbestos
personal injury claims. This reserve was established
principally through a charge to income in 1991 and an
additional $1.1 billion charge to income (before taking into
account probable non-products insurance recoveries) during
1996. 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. In establishing the additional reserve in 1996, Owens
Corning took into account the information available to it at
that time including, among other things, the effect of
federal court decisions relating to punitive damages and the
certification of class actions in asbestos cases, its
discussions with a substantial group of plaintiffs' law
firms in connection with global class action settlement
negotiations, the results of its continuing investigations
of medical screening practices of the kind at issue in the
PFT lawsuits described above, the prospects for federal and
state tort reform, the continued rate of case filings at
historically high levels, and additional information on
filings received during the 1993-1995 period.
Subject to the uncertainties referred to below, Owens
Corning currently estimates that its liabilities in respect
of indemnity and defense costs associated with pending and
unasserted asbestos personal injury claims, and its
insurance recoveries in respect of such claims, are as
follows:
September 30, December 31,
1998 1997
(In millions of dollars)
Reserve for asbestos
litigation claims
Current $ 350 $ 350
Other 1,026 1,320
Total Reserve $ 1,376 $ 1,670
Insurance for asbestos
litigation claims
Current $ 125 $ 100
Other 286 357
Total Insurance $ 411 $ 457
Net Owens Corning Asbestos Liability $ 965 $ 1,213
<PAGE> - 25 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. CONTINGENT LIABILITIES (Continued)
ITEM A. OWENS CORNING (EXCLUDING FIBREBOARD) (Continued)
Owens Corning 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, are influenced by numerous variables that are
difficult to predict, and that estimates, such as Owens
Corning's, which attempt to take account of such variables,
are subject to considerable uncertainty. Included among
these variables are the outcome of Owens Corning's current
negotiations relating to the National Settlement Program
discussed above; Owens Corning's success in controlling the
costs of resolving mesothelioma claims; the outcome of the
Company's lawsuits against various tobacco companies (which
may result in some recovery by asbestos defendants for
payments to claimants who were also smokers); future federal
legislative developments relating to a national tobacco
settlement; the impact of the reentry into the tort system
in 1997 of the asbestos defendants participating in the
Center for Claims Resolution; and the outcome of the Supreme
Court's decision with respect to the Fibreboard Global
Settlement, which is expected in the course of 1999.
In the first three quarters of 1998, Owens Corning achieved
considerable success in reducing adverse verdicts,
particularly in mesothelioma cases, by refocusing its
defense resources on such cases. However, anticipated
reductions in the number of new asbestos personal injury
claims received have not occurred, and mass screening
programs to identify potential plaintiffs appear to be
continuing. Recent developments also suggest that the
prospects for new federal and state tort reform legislation
have been reduced. In addition, recent court decisions
appear to have reduced the prospects for success of efforts
to achieve a global class action settlement of all pending
and future asbestos personal injury claims against Owens
Corning. The reduced prospects for use of the global class
action approach to resolve such claims suggest that
resolution of large numbers of asbestos personal injury
claims can be achieved only by private settlement
agreements, such as those contemplated by the NSP. Such
agreements can definitively resolve pending claims, but
would provide less certainty than the class action approach
in resolving future claims. Owens Corning will continue to
review the adequacy of its estimate of liabilities and
insurance in connection with the preparation of its 1998
financial statements in light of the status of the National
Settlement Program (and any effect on such estimate of the
settlement values and other financial terms of such
program), the results of its efforts to control the costs of
mesothelioma settlements and other relevant factors, and
will make such adjustments as may be appropriate.
Management Opinion
Although any opinion is necessarily judgmental and must be
based on information now known to Owens Corning, in the
opinion of management, while any additional uninsured and
unreserved costs which may arise out of pending personal
injury asbestos claims and additional similar asbestos
claims filed in the future may be substantial over time,
management believes that such additional costs will not
impair the ability of the Company to meet its obligations,
to reinvest in its businesses, or to pursue its growth
agenda.
<PAGE> - 26 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. CONTINGENT LIABILITIES (Continued)
ITEM B. FIBREBOARD (EXCLUDING OWENS CORNING)
Prior to 1972, Fibreboard manufactured insulation products
containing asbestos. Fibreboard has since been named as a
defendant in many thousands of personal injury claims for
injuries allegedly caused by asbestos exposure.
Status
As of September 30, 1998, approximately 128,000 asbestos
personal injury claims were pending against Fibreboard,
25,600 of which were received in the first three quarters of
1998. Fibreboard received approximately 33,000 such claims
in 1997 and 32,900 in 1996. These claims and most of the
pending claims are made against the Fibreboard Global
Settlement Trust and are subject to the Global Settlement
injunction discussed below. During 1995, 1996 and 1997,
Fibreboard resolved approximately 20,100 asbestos personal
injury claims and incurred indemnity payments of $257
million (an average of about $12,800 per case).
The average cost per claim has increased recently from the
historical average cost of $11,000 per claim. This is due
to the absence of group settlements, where large numbers of
low value cases are traditionally settled along with higher
value cases, and due to the fact that in 1996 and 1997 a
relatively small number of individual cases involving more
seriously injured plaintiffs were settled as exigent claims
(principally malignancy claims,) during the pendency of the
Global Settlement injunction discussed below.
As of September 30, 1998, amounts payable under various
asbestos claim settlement agreements were $92 million.
These amounts are payable either from the Settlement Trust
discussed below or directly by the insurers. Amounts due
from insurers in payment of these or past claims paid
directly by Fibreboard, as of September 30, 1998 are $85
million.
Global Settlement
During 1993, Fibreboard, its insurers and representatives of
a class of future asbestos plaintiffs who have claims
arising from asbestos prior to August 27, 1993, entered into
the Global Settlement. Under the Global Settlement,
Fibreboard would be protected by an injunction from asbestos
personal injury claims, and should have no further asbestos
personal injury liabilities. On July 26, 1996, the U.S.
Fifth Circuit Court of Appeals affirmed the Global
Settlement by a majority decision.
The parties opposing the Global Settlement filed petitions
seeking review with the U.S. Supreme Court. On June 27,
1997, the Supreme Court granted the petition, vacated the
judgment and remanded the case to the Fifth Circuit for
further consideration in light of the Supreme Court's
decision in the Amchem Products, Inc. v Windsor case.
Amchem involved a proposed nationwide class action
settlement of future asbestos personal injury claims against
the members of the Center for Claims Resolution. The
Supreme Court, affirming the intermediate appellate court,
disapproved and vacated the Amchem class action settlement,
determining that the Amchem class action failed to meet the
class action certification requirements of Federal Rule of
Civil Procedure 23. On January 27, 1998, a panel of the Fifth
<PAGE> - 27 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. CONTINGENT LIABILITIES (Continued)
ITEM B. FIBREBOARD (EXCLUDING OWENS CORNING) (Continued)
Circuit reaffirmed, by majority vote, its prior decision,
and again approved the Global Settlement. In June, the
United States Supreme Court granted certiorari, agreeing to
review the decision by the Fifth Circuit. In light of this
decision by the Supreme Court, a final resolution of the
Global Settlement may not be known until the second half of
1999 or later.
The parties will continue to seek approval of the Global
Settlement. If the Global Settlement becomes effective, all
asbestos-related personal injury liabilities of Fibreboard
will be resolved through insurance funds and existing
corporate reserves and a permanent injunction would bar the
filing of any further claims against Fibreboard or its
insurers by class members. Upon final approval, Fibreboard's
insurers are required to pay existing settlements and assume
full responsibility for any claims filed before August 27,
1993, the date the settling parties reached agreement on the
terms of the Global Settlement. A court-supervised claims
processing trust ("Settlement Trust") will be responsible
for resolving claims which were not filed against Fibreboard
before August 27, 1993, and any further claims that might
otherwise be asserted against Fibreboard in the future by
members of the class.
The Settlement Trust will be funded principally by
Fibreboard's insurers, Continental Casualty Company
("Continental") and Pacific Indemnity Company ("Pacific").
These insurers have placed $1,525 million in an interest-
bearing escrow account pending court approval of the
settlements. Fibreboard is responsible for contributing $10
million plus accrued interest toward the Settlement Trust,
which it will obtain from other remaining insurance sources
and existing reserves. The Home Insurance Company has
already paid $9.9 million into the escrow account on behalf
of Fibreboard, in satisfaction of an earlier settlement
agreement. The balance of the escrow account was $1,705
million at September 30, 1998 after payment of interim
expenses and exigent claims associated with the Global
Settlement.
Insurance Settlement
In 1993, Fibreboard, Continental and Pacific entered into
the Insurance Settlement, which was structured as an
alternative solution in the event the Global Settlement
fails to receive final approval. Under the Insurance
Settlement, Continental and Pacific will pay in full
settlements reached as of August 27, 1993 and provide
Fibreboard with the remaining balance of the Global
Settlement escrow account for claims filed after August 27,
1993, plus an additional $475 million, less amounts paid
since August 27, 1993 for claims which were pending but not
settled at that date. Upon fulfillment of their obligations
under the Insurance Settlement, Continental and Pacific will
be discharged from any further obligations to Fibreboard
under their insurance policies and will be protected by an
injunction against any claims of asbestos personal injury
claimants based upon those insurance policies. Under the
Insurance Settlement, Fibreboard will manage the defense and
resolution of asbestos-related personal injury claims and
will remain subject to suit by asbestos personal injury
claimants. On October 24, 1996, the statutory time period
for objectors to seek further judicial review of the
Insurance Settlement lapsed with no petition for review
having been filed with the U.S. Supreme Court. Therefore,
the Insurance Settlement is now final and not subject to
further appeal.
<PAGE> - 28 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. CONTINGENT LIABILITIES (Continued)
ITEM B. FIBREBOARD (EXCLUDING OWENS CORNING) (Continued)
The Insurance Settlement will not be fully funded until such
time as the Global Settlement has been finally resolved. In
the event the Global Settlement is finally approved, the
Insurance Settlement will not be funded.
Management Opinion
While there are various uncertainties regarding whether the
Global Settlement or the Insurance Settlement will be in
effect, and these may ultimately impact Fibreboard's
liability for asbestos personal injury claims, the Company
believes the amounts available under the Insurance
Settlement will be adequate to fund the ongoing defense and
indemnity costs associated with asbestos-related personal
injury claims for the foreseeable future.
OTHER 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> - 29 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(All per share information in Item 2 is on a diluted basis.)
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-
looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from
those projected in the statements. Some of the important
factors that may influence possible differences are
continued competitive factors and pricing pressures,
construction activity, interest rate movements, issues
involving implementation of new business systems,
achievement of expected cost reductions and asbestos
litigation.
RESULTS OF OPERATIONS
Business Overview
The Company's growth agenda has focused on increasing sales
and earnings by (i) acquiring businesses with products that
can be sold through existing or complementary distribution
channels, (ii) achieving productivity improvements in
existing and acquired businesses and (iii) entering new
growth markets. The Company is implementing two major
initiatives, System Thinking (TM) and Advantage 2000, to
enhance sales growth and achieve productivity improvements
across all businesses. System Thinking for the Home (TM)
leverages the Company's broad product offering and strong
brand recognition to increase its share of the building
materials and home improvement markets. This systems
approach represents a shift from product-oriented selling to
providing systems-driven solutions that combine the
Company's insulation, roofing, exterior and sound control
systems, to provide a high performance, cost-effective
building "envelope" for the home. In the composite
materials business, the Company has partnered with the
plastics industry and, with the Company's System Thinking
philosophy, is taking a solution-oriented, customer-focused
approach toward the continuous development of substitution
opportunities for composite materials. In addition, the
Company is implementing Advantage 2000, a fully integrated
business technology system designed to reduce costs and
improve business processes.
The Company has grown its sales from nearly $3.4 billion in
1994 to approximately $5.0 billion in 1997 on a pro forma
basis, giving effect to acquisitions made in 1997.
Acquisitions have been a significant component of that
growth. Since 1994, the Company has completed 17
acquisitions for an aggregate purchase price of over $1.2
billion. The Company's acquisitions have broadened its
lines of business to include siding, accessories and other
home exteriors and have diversified its materials portfolio
beyond fiber glass to include polymers such as vinyl and
styrene, and metal and stone. In 1997, the Company
completed the two largest of these acquisitions by acquiring
Fibreboard Corporation ("Fibreboard") and AmeriMark Building
Products, Inc. ("AmeriMark"), making Owens Corning the
leader in the U.S. vinyl siding, siding accessories and cast
stone markets, as well as a large specialty distributor in
North America through approximately 190 company-owned
distribution centers.
<PAGE> - 30 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Despite improvements in the Company's strategic position in
1997, the Company experienced a highly competitive pricing
environment in several of its product markets that
negatively impacted financial results. In North America,
insulation pricing decreased by approximately 10 percent
over the course of 1997 and worldwide composites pricing
decreased by approximately 6 percent during 1997. Income
from operations for 1997 was adversely impacted by
approximately $87 million as a result of price declines in
insulation products and approximately $64 million as a
result of price declines affecting composite materials.
Offset by small price increases in other businesses, the net
effect of price on 1997 income from operations was
approximately $142 million.
As a result of the growth of the Company's business and the
significant pricing pressure experienced in 1997, the
Company implemented a strategic restructuring program
designed to improve profitability, augment previously
announced profitability initiatives, and improve operational
efficiency. The specific objectives of this strategic
program are discussed in "Restructuring of Operations and
Other Actions" below and in Note 3 to the Consolidated
Financial Statements.
Quarter Ended September 30, 1998
Sales and Profitability
Net sales for the quarter ended September 30, 1998 were
$1.324 billion, reflecting a 7% increase from the third
quarter 1997 level of $1.238 billion. The increase is
primarily due to the acquisition of AmeriMark which was
completed early in the fourth quarter of 1997. Volume
declines in North American and European residential
insulation markets were partially offset by volume increases
in mechanical and other insulation markets, while insulation
price levels were virtually flat compared to the third
quarter of 1997. The Company, however, continues to benefit
from an upward price trend, particularly in residential
insulation, as a result of price increases implemented
throughout 1998. Strength in U.S. residential roofing
markets resulted in increased volume and price levels during
the third quarter of 1998 compared to the same period in
1997. In the vinyl siding market, volume increases were
largely offset by declines in pricing during the quarter.
Price increases in U.S. and European composites markets
helped to offset volume declines in those markets during the
quarter. There was virtually no impact of currency
translation on sales in foreign currencies during the third
quarter of 1998. Please see Note 1 to the Consolidated
Financial Statements.
Sales outside the U.S. represented 18% of total sales for
the quarter ended September 30, 1998, compared to 20% for
the quarter ended June 30, 1998 and 23% for the quarter
ended September 30, 1997. The decline in non-U.S. sales as
a percentage of total sales compared to the quarter ended
June 30, 1998 is due to the volume declines during the
quarter, particularly in European insulation and composites
markets. The drop from 23% in the third quarter of 1997 is
attributable to the European volume declines during the
third quarter of 1998 as well as the October 1997
acquisition of AmeriMark in the U.S. Gross margin for the
quarter ended September 30, 1998 was 20% of net sales, down
from 22% in the third quarter of 1997 and 23% in the second
quarter of 1998. Included in cost of sales in the third
quarter of 1998 was a $60 million charge, or 5% of sales, as
part of the $148 million charge for restructuring and other
actions, described below. Gross margin during the third
quarter of 1998 reflects the benefits of price improvements,
cost reductions resulting from the Company's restructuring
program that was begun in the fourth quarter of 1997, and
continuing productivity improvements across the Company's
businesses.
<PAGE> - 31 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
In the first quarter of 1998, the Company announced price
increases effective in March 1998 applicable to its
residential insulation products of approximately 8 percent
and price increases applicable to its commercial and
industrial insulation products of approximately 4 percent.
The Company also announced price increases of 5 to 7 percent
affecting certain residential roofing products, effective in
April 1998. In the second quarter of 1998, the Company
announced a 9 percent price increase effective June 15, 1998
applicable to its residential insulation products. The
Company realized most of these price increases during the
third quarter of 1998; however, long-term contracts with
certain customers continue to delay some of the benefits
until the fourth quarter of 1998 or early 1999. In
September 1998, the Company announced a 9 percent price
increase applicable to its residential and commercial
insulation markets and expects to realize most of the
benefits of this increase during the fourth quarter of 1998.
For the quarter ended September 30, 1998, the Company
reported net income of $96 million, or $1.66 per share,
compared to net income of $59 million, or $1.05 per share,
for the quarter ended September 30, 1997. Net income for
the third quarter of 1998 includes the $148 million pretax
charge ($108 million after-tax) for restructuring and other
actions and a $292 million pretax net gain ($174 million
after-tax) from the sale of certain businesses. Net income
for the quarter and nine months ended September 30, 1998
also reflects reductions in manufacturing and operating
expenses, resulting from the Company's strategic
restructuring program, announced in early 1998 and discussed
below. Cost of borrowed funds during the third quarter of
1998 was at a level comparable to that of the third quarter
of 1997 due to similar levels of average debt during the
periods. The reduction in equity in net income of
affiliates for the quarter ended September 30, 1998 reflects
the first quarter 1998 sale of the Company's 50% ownership
interest in Alpha/Owens-Corning, LLC. As part of the
Company's debt realignment strategy, the Company
repurchased, via a tender offer, certain debt securities
during the third quarter of 1998 and recorded an
extraordinary loss of $39 million, or $.66 per share, net of
related income taxes of $25 million. Please see Notes 3, 4
and 5 to the Consolidated Financial Statements.
Net sales for the nine months ended September 30, 1998 were
$3.747 billion, a 20% increase over the $3.130 billion
reported for the first nine months of 1997. This increase
reflects the incremental sales from the fourth quarter 1997
acquisition of AmeriMark described above as well as the
acquisition of Fibreboard which was completed at the end of
the second quarter of 1997. Sales results also reflect the
impact of price declines compared to the nine months ended
September 30, 1997.
For the nine months ended September 30, 1998, the Company
reported net income of $163 million, or $2.87 per share,
compared to net income of $164 million, or $2.92 per share
for the nine months ended September 30, 1997. Net income
for the nine months ended September 30, 1998 includes the
items from the third quarter referred to above, as well as
the following items from the first quarter of 1998: a
pretax charge of $95 million ($63 million after-tax) for
restructuring and other actions; an $84 million pretax gain
($52 million after-tax) from the sale of the Company's 50%
ownership interest in Alpha/Owens-Corning, LLC; as well as a
$13 million tax benefit associated with Asia Pacific
operations. Net income also reflects the benefits of the
cost savings generated by the Company's restructuring
program, announced in early 1998 and described below. Net
income for the nine months ended September 30, 1998 reflects
increased cost of borrowed funds and minority interest
expense due to the financing of the Fibreboard and AmeriMark
acquisitions during 1997. Net income for the nine months
ended September 30, 1997 includes a $15 million pretax
credit ($10 million after-tax) from the modification of
certain employee benefits in the U.S. during the second
quarter of 1997. Please see Notes 3, 4, 5 and 6 to the
Consolidated Financial Statements.
<PAGE> - 32 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Marketing and administrative expenses were $138 million for
the third quarter of 1998 compared to $144 million in the
third quarter of 1997. The decrease in marketing and
administrative expenses is largely due to the benefits of
the Company's strategic restructuring program, offset
partially by the incremental costs from the AmeriMark
acquisition.
Restructuring of Operations and Other Actions
During the third quarter of 1998, the Company recorded a
$148 million pretax charge for restructuring and other
actions as the final phase of the previously announced
strategic program to reduce overhead, enhance manufacturing
productivity, and close manufacturing facilities. This
charge includes $30 million for restructuring and $118
million for other actions, the majority of which represent
asset impairments.
The $30 million restructuring charge includes approximately
$9 million for costs associated with the elimination of
approximately 400 positions, primarily in the U.S. and Asia,
and $21 million for the divestiture of non-strategic
businesses and facilities, of which $1 million represents
exit cost liabilities, comprised primarily of lease
commitments. The $21 million for non-strategic businesses
and facilities is comprised primarily of $12 million for the
closure of certain U.S. manufacturing facilities and $6
million for the closure of a pipe manufacturing facility in
China.
The primary components of the $118 million charge for other
actions and their classification on the Company's
consolidated statement of income include: $30 million to
write down to fair value certain manufacturing assets held
for use in China, due primarily to poor current and
projected financial results, recorded as cost of sales; $15
million to write down to net realizable value equipment and
inventory made obsolete by changes in the Company's
manufacturing and marketing strategies, recorded as cost of
sales; $17 million for the write-down of an investment in
and the write-off of a receivable from a joint venture in
Korea to reflect the current business outlook and the fair
market value of the assets, recorded as other operating
expenses; $12 million for the write-down of goodwill
associated with the 1995 acquisition of Fiber-lite,
determined to be unrecoverable due to a change in market
conditions and customer demand, recorded as other operating
expenses; and $9 million for the write-down of certain
assets in the U.S. to fair market value, recorded as cost of
sales. The Company plans to hold and use the investments
but plans to dispose of the equipment in 1998. Also
included in the $118 million charge for other actions are
$13 million for the write-off of certain receivables in the
U.S. and Asia determined to be uncollectable, recorded as
cost of sales and other operating expenses; and $22 million
for other actions recorded as cost of sales, marketing and
administrative expenses, and other operating expenses.
The Company continually evaluates whether events and
circumstances have occurred that indicate that the carrying
amount of certain long-lived assets is recoverable. When
factors indicate that a long-lived asset should be evaluated
for possible impairment, the Company uses an estimate of the
expected undiscounted cash flows to be generated by the
asset to determine whether the carrying amount is
recoverable or if an impairment exists. When it is
determined that an impairment exists, the Company uses the
fair market value of the asset, usually measured by the
discounted cash flows to be generated by the asset, to
determine the amount of the impairment to be recorded in the
financial statements.
<PAGE> - 33 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
As discussed above, the $148 million charge for
restructuring and other actions during the third quarter of
1998 was the final phase of the Company's previously
announced strategic program to reduce overhead, enhance
manufacturing productivity and close manufacturing
facilities. On a cumulative basis since the fourth quarter
of 1997, a total pretax expense of $386 million has been
recorded, of which $143 million was recorded in the fourth
quarter of 1997, $95 million was recorded in the first
quarter of 1998, and $148 million was recorded in the third
quarter of 1998. The total charge recorded to date is
comprised of approximately $185 million for the
restructuring program and approximately $201 million for
other actions. The restructuring program, of which $68
million was recorded in the fourth quarter of 1997, $87
million was recorded in the first quarter of 1998, and $30
million was recorded in the third quarter of 1998, includes
approximately $115 million for costs associated with an
overall headcount reduction of approximately 2,450 at
numerous locations around the world, predominantly in the
U.S., Canada and Europe. The remaining $70 million of
restructuring includes $68 million for the divestiture of
non-strategic businesses and facilities, of which $16
million represents exit cost liabilities, and $2 million for
other actions.
The primary components of the cumulative $68 million of
costs for non-strategic businesses and facilities include
$28 million for the closure of the Candiac insulation
manufacturing plant in Quebec, Canada, $9 million for the
closure of several North American distribution locations,
$12 million for the closure of certain U.S. manufacturing
facilities, $6 million for the closure of a pipe
manufacturing facility in China, and $13 million for other
actions.
The primary components of the $201 million charge for other
actions and their classification on the Company's
consolidated statement of income include, in addition to the
items discussed above as part of the $118 million charge
during the third quarter of 1998, the following: $17
million for the write-off of certain assets and investments
associated with unconsolidated joint ventures in Spain and
Argentina due primarily to poor current and projected
financial results and the expected loss of local partners,
recorded as other operating expenses; $12 million for the
write-down of certain investments in mainland China to
reflect the current business outlook and the fair market
value of the investments, recorded as cost of sales; $24
million to write down to net realizable value equipment and
inventory made obsolete by changes in the Company's
manufacturing and marketing strategies, recorded as cost of
sales; $8 million for a supplemental employee retirement
plan approved by the Board of Directors in December 1997,
recorded as marketing and administrative expenses; $5
million for the write-off of an insurance receivable that
was determined to be uncollectable after judicial rejection
of the Company's claim, recorded as other operating
expenses; and $17 million for several other actions recorded
as cost of sales, marketing and administrative expenses, and
other operating expenses. The Company plans to hold and use
the investments but has disposed of most of the equipment in
1998.
As a result of the Company's strategic restructuring
program, the Company has realized a decrease in
manufacturing and operating expenses of approximately $70
million during the first nine months of 1998. Based upon
expected economic conditions over the next few years,
including effects on matters such as labor, material and
other costs, the Company expects total cost reductions of
approximately $100 million in 1998, and an additional $75
million when the program is fully implemented in 1999,
resulting in ongoing pretax savings of approximately $175
million per year. The expected $175 million in cost
reductions, the majority of which will be cash savings, is
comprised of $150 million in reduced personnel costs, $14
million in reduced facility costs, and $11 million of
reductions in related program spending.
<PAGE> - 34 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company has implemented programs to gain synergies in
its Exterior Systems Business during 1998. As a result of
these programs, which include closing redundant facilities,
integrating business systems, and improving purchasing
leverage, the Company has reduced costs and expects a total
cost reduction of approximately $30 million during 1998 and
approximately $50 million per year in 1999 and beyond, the
majority of which will be cash savings.
Accounting Changes
During the first quarter of 1998, the Company adopted
Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130). Comprehensive
income is defined as the change in equity of a business
enterprise during a period from transactions and other
events and circumstances from nonowner sources. The
Company's comprehensive income includes net income, currency
translation adjustments, minimum pension liability
adjustments, and deferred gains and losses on certain
hedging transactions. Please see Note 9 to the Consolidated
Financial Statements.
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133). This statement establishes
accounting and reporting standards requiring that every
derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at
its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in
the income statement, and requires that a company must
formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting.
SFAS 133 is effective for fiscal years beginning after June
15, 1999, but earlier adoption is allowed. The Company has
not yet quantified the impact of adopting SFAS 133 and has
not determined the timing of or the method of adoption. The
Company is aware, however, that the adoption of SFAS 133
could increase volatility in earnings and other
comprehensive income.
Building Materials
In the Building Materials segment, sales increased 11% in
the third quarter of 1998 compared to the third quarter of
1997, reflecting the incremental sales from the AmeriMark
acquisition. Volume increases in North American vinyl
siding markets and volume and price increases in North
American residential roofing markets were largely offset by
a slight decline in residential insulation volume, as well
as vinyl siding price declines. The translation impact of
sales denominated in foreign currencies was minimal during
the quarter ended September 30, 1998. Income from
operations was $20 million for the third quarter of 1998,
down from $81 million in the third quarter of 1997. Income
from operations includes a $106 million charge for
restructuring and other actions, including a $20 million
loss on the sale of certain businesses, during the third
quarter of 1998, offset partially by the cost reductions
resulting from the early 1998 restructuring program. Please
see Notes 1, 3 and 4 to the Consolidated Financial
Statements.
<PAGE> - 35 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
The consolidated results of the Company include the results
of operations of Fibreboard and AmeriMark beginning with the
third and fourth quarters of 1997, respectively. To enhance
comparability, certain information below is presented on a
pro forma basis and reflects the acquisitions of Fibreboard
(excluding Pabco and operations that were discontinued by
Fibreboard prior to the acquisition) and AmeriMark as though
they had occurred at the beginning of the period presented.
(The pro forma impact of all other acquisitions during 1997,
excluding Fibreboard and AmeriMark, was not material to the
Company's results of operations for the nine months ended
September 30, 1997.) The pro forma results include certain
adjustments, primarily for depreciation and amortization,
interest and other expenses directly attributable to the
acquisitions, and are not necessarily indicative of the
combined results that would have occurred had the
acquisitions occurred at the beginning of that period.
These pro forma results do not reflect the expected benefits
from the consolidation of the exterior systems business
discussed above.
<TABLE>
<S> <C> <C> <C> <C>
PRO FORMA AS REPORTED
Nine Months Nine Months
Ended Ended
September 30, September 30,
1998 1997 1998 1997
(In millions of dollars, except share data)
Net sales $ 3,747 $ 3,798 $ 3,747 $ 3,130
Income from continuing operations 202 147 202 164
Diluted earnings per share from
continuing operations $ 3.53 $ 2.63 $ 3.53 $ 2.92
</TABLE>
Early in the first quarter of 1998, the Company completed
the sale of the assets of Pabco, a producer of molded
calcium silicate insulation, fireproofing board and metal
jacketing, acquired as part of the Fibreboard acquisition in
1997. Please see Note 4 to the Consolidated Financial
Statements.
Composite Materials
In the Composite Materials segment, sales were down 7% for
the quarter ended September 30, 1998 compared to 1997.
Volume declines across global markets drove the sales
decline, due in part to slower demand in the electronics
market. Slight price increases in U.S. and European
composites markets compared to the third quarter of 1997
partially offset the volume declines. The translation
impact of sales denominated in foreign currencies was
slightly favorable during the third quarter of 1998. Income
from operations was $336 million in the third quarter of
1998, compared to $34 million in the third quarter of 1997.
The largest component of this increase is the $287 million
credit to income in the third quarter of 1998, comprised of
a $312 million gain from the sale of the Company's yarns and
specialty materials business described below and a $25
million charge for restructuring and other actions described
above. Income from operations also reflects productivity
improvements and cost reductions resulting from the
Company's restructuring program. Compared to the fourth
quarter of 1997 and the first six months of 1998, price
levels were higher in the third quarter of 1998, indicating
the benefits of the Company's previously announced price
increases in the composites business. Please see Notes 1, 3
and 4 to the Consolidated Financial Statements.
<PAGE> - 36 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
During the third quarter, the Company formed a joint venture
for its yarns and specialty materials business (the "yarns
business") to which it contributed two manufacturing plants
and certain proprietary technology. On September 30, 1998,
the Company completed the sale of 51% of the joint venture
to a U.S. subsidiary of Groupe Porcher Industries of
Badinieres, France for approximately $340 million. The
Company continues to have a 49% ownership interest in the
joint venture. Upon closing, the Company also received a
distribution of approximately $191 million from the joint
venture. With sales of approximately $300 million in 1997,
the Company's yarns business was the world's second largest
producer of glass yarns, and the largest producer of fine
yarns. Proceeds from the sale were used to reduce the
borrowings under the Company's long-term revolving credit
facility in early October 1998. Please see Note 4 to the
Consolidated Financial Statements.
The consolidated balance sheet of the Company as of
September 30, 1998 reflects the disposition of the Company's
yarns business on that date. The results of operations of
the yarns business are reflected in the Company's
consolidated statement of income through the period ending
September 30, 1998. For the nine months ended September 30,
1998, the yarns business recorded sales of approximately
$205 million and net income of approximately $36 million.
Effective September 30, 1998, the Company will account for
its ownership interest in the yarns joint venture under the
equity method. Due to the joint venture's distribution of a
dividend to the partners in excess of the joint venture's
total equity on September 30, 1998, the joint venture is in
an equity deficit position. Accordingly, the Company will
not record any equity in the net income of the joint venture
until such time as the joint venture has positive equity.
LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED MATTERS
Cash flow from operations was $139 million for the quarter
ended September 30, 1998, compared to $87 million for the
quarter ended September 30, 1997. The increase in cash flow
from operations in 1998 is largely attributable to an
increase in income from operations, offset slightly by an
increase in payments for asbestos litigation claims during
the third quarter of 1998 compared to the third quarter of
1997. Payments for asbestos litigation claims were $70
million during the quarter and proceeds from insurance were
$24 million, compared to $62 million and $29 million,
respectively, during the third quarter of 1997. The
increase in net payments is due to the timing of asbestos
claims settlements and the collection of insurance proceeds.
The Company anticipates $365 million of total payments for
asbestos litigation claims during 1998. Reflected in cash
flow from operations during the quarter is an increase in
income taxes receivable of approximately $86 million.
Inventories at September 30, 1998 decreased $8 million to
$495 million from the December 31, 1997 level and were down
$40 million, including $37 million for divestitures and non-
cash write-offs during the third quarter, from the June 30,
1998 level. Receivables at September 30, 1998 were $542
million, a 25% increase over the December 31, 1997 level,
due to the seasonal increase in third quarter sales,
particularly in September. Receivables at September 30,
1998, however, were $55 million lower, including $39 million
for divestitures and non-cash write-offs during the quarter,
than the June 30, 1998 level. This decline in inventories
and receivables from the June 30, 1998 level contributed to
the favorable cash flow from operations during the third
quarter of 1998. On a comparative basis, inventories and
receivables at September 30, 1998, adjusted for AmeriMark
and the divestitures and non-cash write-offs during the
third quarter of 1998, were $23 million and $27 million
lower, respectively, than the levels at September 30, 1997,
indicating improved working capital management during 1998.
<PAGE> - 37 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
At September 30, 1998, the Company's net working capital was
$735 million and its current ratio was 1.58, compared to
$121 million and 1.09, respectively, at December 31, 1997.
Included in net working capital at September 30, 1998 are
the $530 million proceeds received from the sale of the
Company's yarns and specialty materials business on that
date. The proceeds are reflected as cash and cash
equivalents on the Company's consolidated balance sheet at
September 30, 1998, but were used to reduce borrowings under
the Company's long-term revolving credit facility in early
October 1998. Increases in receivables, a reduction in the
current portion of the reserve for asbestos litigation
claims, and a reduction in the current portion of long-term
debt compared to December 31, 1997 also contributed to the
increase in net working capital at September 30, 1998.
The Company's total borrowings at September 30, 1998 were
$2.283 billion, $545 million higher than at year-end 1997.
As discussed above, the $530 million of proceeds from the
sale of the Company's yarns and specialty materials business
were used to reduce borrowing under the Company's long-term
revolving credit facility in early October 1998.
As of September 30, 1998, the Company had unused lines of
credit of $674 million available under long-term bank credit
facilities and an additional $173 million under short-term
facilities, compared to $884 million and $224 million,
respectively, at year-end 1997. The decrease in unused
available lines of credit reflects the Company's increased
borrowings at September 30, 1998 compared to December 31,
1997 as well as an agreed $200 million reduction in the
maximum availability from the Company's credit facility
during the first quarter of 1998. Letters of credit issued
under the facility, most of which support appeals from
asbestos trials, also reduce the available credit. The
impact of such reduction is reflected in the unused lines of
credit discussed above. Please see Note 5 to the
Consolidated Financial Statements.
Early in the third quarter of 1998, the Company issued a
series of debt securities as unsecured obligations of the
Company for an aggregate principal amount of $400 million.
The net proceeds of $395 million were used to pay for the
principal and premium amounts of the tender offers of
certain other debt securities of the Company. These tender
offers were completed on August 3, 1998 and as of that
completion date, approximately $361 million of these debt
securities had been tendered. In connection with this early
retirement of debt, the Company paid premiums of
approximately $62 million, incurred related non-cash costs
of approximately $2 million, and recorded an extraordinary
loss of approximately $39 million, or $.66 per share, net of
related income taxes of $25 million. Please see Note 5 to
the Consolidated Financial Statements.
In early August 1998, the Company repurchased its $309
million of Trust Preferred Hybrid Securities which had been
issued in October 1997 as payment for the Company's
acquisition of the assets of AmeriMark. Additionally,
during the third quarter of 1998, the Company repaid $100
million of debt which matured in August 1998. These
transactions were financed by a combination of newly issued
debt securities and borrowings from the Company's long-term
revolving credit facility. Please see Note 5 to the
Consolidated Financial Statements.
Capital spending for property, plant and equipment,
excluding acquisitions, was $59 million in the third quarter
of 1998. The Company anticipates 1998 capital spending,
exclusive of acquisitions and investments in affiliates,
will be approximately $250 million, the majority of which
has been expended or is committed. The Company expects that
funding for these expenditures will be from the Company's
operations and external sources as required.
<PAGE> - 38 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Gross payments for asbestos litigation claims during the
third quarter of 1998, including payments for claims settled
in prior years and excluding amounts payable in future
years, were $70 million. The third quarter 1998 expenditures
include $18 million in defense and other costs. Proceeds
from insurance were $24 million resulting in a net pretax
cash outflow of $46 million, or $28 million after-tax.
During the third quarter of 1998, the Company received
approximately 10,600 new asbestos personal injury cases and
closed approximately 3,000 cases. Over the next twelve
months, the Company's total payments for asbestos litigation
claims, including defense costs, are expected to be
approximately $350 million. Proceeds from insurance of $125
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. If the National Settlement Program
(described more fully in Note 11 to the Consolidated
Financial Statements) is implemented by the Company in the
fourth quarter of 1998, the Company's gross payments for
asbestos litigation claims would increase in 1999 and 2000,
but would be substantially lower than the 1998 payments
thereafter. The increased settlement payments in 1999 and
2000 would resolve a significant number of cases pending
against Owens Corning and would establish administrative
processing agreements with participating law firms to pay
future claimants specified amounts based on the type and
severity of disease, instead of litigating those claims.
The aggregate amount of such increases in 1999 and 2000 will
depend on the outcome of negotiations currently underway
with participating plaintiffs' firms. Please see Note 11 to
the Consolidated Financial Statements.
Gross payments for asbestos litigation claims against
Fibreboard for the quarter ended September 30, 1998 were
approximately $17 million, all of which was paid directly by
Fibreboard's insurers or from an escrow account funded by
its insurers to claimants on Fibreboard's behalf. During
the third quarter, Fibreboard received approximately 4,900
new asbestos personal injury claims, and resolved
approximately 1,000 claims. Whether or not the National
Settlement Program is implemented, payments for asbestos
claims against Fibreboard over the next twelve months and
thereafter are expected to be paid by Fibreboard's insurers
or from the escrow account. Such payments would be made
pursuant to either the Global Settlement or the Insurance
Settlement relating to Fibreboard's asbestos personal injury
claims. A final United States Supreme Court decision as to
the Global Settlement is expected in the course of 1999. If
the Global Settlement does not receive final court approval,
the Insurance Settlement (which has received final court
approval) would become effective, and Fibreboard will have
access to assets of approximately $1.8 billion, to resolve
pending and future Fibreboard claims. Please see Notes 8
and 11 to the Consolidated Financial Statements.
The Company expects funds generated from operations,
together with funds available under long and short term bank
credit facilities, to be sufficient to satisfy its debt
service obligations under its existing and anticipated
indebtedness, its contingent liabilities for uninsured
asbestos personal injury claims, as well as its capital
expenditure programs and growth agenda.
The Company has been deemed by the Environmental Protection
Agency (EPA) to be a potentially responsible party (PRP)
with respect to certain sites under the Comprehensive
Environmental Response, Compensation and Liability Act
(Superfund). The Company has also been deemed a PRP under
similar state or local laws. In other instances, other PRPs
have brought suits or claims against the Company as a PRP
for contribution under such federal, state or local laws.
During the third quarter of 1998, the Company was designated
as a PRP in such federal, state, local or private
proceedings for three additional sites. At September 30,
1998, a total of 37 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.
<PAGE> - 39 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company has established a $31 million reserve for its Superfund (and
similar state, local and private action) contingent liabilities. Based upon
information presently available to the Company, and without regard to the
application of insurance, the Company believes that, considered in the
aggregate, the additional costs associated with such contingent
liabilities, including any related litigation costs, will not have a
materially adverse effect on the Company's results of operations, financial
condition or long-term liquidity.
The 1990 Clean Air Act Amendments (Act) provide that the EPA will issue
regulations on a number of air pollutants over a period of years. Until
these regulations are developed, the Company cannot determine the extent to
which the Act will affect it. The Company anticipates that its sources to
be regulated will include wool fiberglass, mineral wool, asphalt processing
and roofing, and metal coil coating. The EPA's currently announced
schedule is to issue regulations covering wool fiberglass, mineral wool,
asphalt processing and roofing in 1999, and metal coil coating in 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.
Year 2000 Compliance
The Company has been actively implementing new systems and technology since
1995 as part of its Advantage 2000 program to improve productivity and
operational efficiency. An additional objective of this initiative is to
ensure all business transactions are supporting requirements to process
data accurately in the year 2000 and beyond. The scope of this program has
been continuously expanded to include each of the seventeen acquisitions
made by the Company during the past four years. To date, over 50% of the
Company's systems have been replaced and are in operation for daily
business transaction processing. The Company's schedule is to implement
all remaining system updates throughout the period ending July 1, 1999, and
all system changes are currently on schedule. The Company assesses the risk
of these systems not being Year 2000 ready as negligible.
The Company is now auditing and taking inventory of all non-information
processors, controllers and microchips in its facilities. Until the audit
and inventory are complete and the results evaluated, the Company will not
know the extent of its Year 2000 compliance risks with these processors,
controllers and microchips. This audit and inventory is scheduled for
completion by the end of 1998. The Company will then evaluate how these
processors, controllers and microchips affect the operations of the
facilities and develop remediation, scheduling and contingency plans for
implementing the required changes to make these operations Year 2000 ready.
The cumulative cost of business systems replacement from 1995 through the
end of the third quarter of 1998 has been $143 million, including $99
million for information technology and $44 million for related training and
deployment in various business locations. The Company currently estimates
the costs for information technology, non-information technology and
training and deployment at all remaining locations to be approximately $35
million to $45 million.
The Company is working with its vendors, suppliers and customers to
determine if their systems will be Year 2000 ready as well. In the event
that suppliers or vendors are unable to convert or replace systems
appropriately, the Company intends to switch to suppliers that are able to
provide Year 2000 transaction processing.
<PAGE> - 40 -
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 11, Contingent Liabilities, to the Company's
Consolidated Financial Statements above, which is
incorporated here by reference.
Securities and Exchange Commission rules require the Company
to describe certain governmental proceedings arising under
federal, state or local environmental provisions unless the
Company reasonably believes that the proceedings will result
in monetary sanctions of less than $100,000. The following
proceeding is reported in response to this requirement.
Based on the information presently available to it, however,
the Company believes that the costs which may be associated
with this matter will not have a materially adverse effect
on the Company's financial position or results of operations.
By letter of September 10, 1998, the New Jersey
Department of Environmental Protection (DEP)
alleged violation of an Administrative Consent
Order relating to an asbestos remediation
project. DEP's notice explained that Owens
Corning and another party would be subject to a
minimum penalty of $1,407,000. Company
representatives have been in communication with
DEP staff to promptly correct noted
deficiencies. The Company anticipates resolving
this matter without impositon of the indicated
penalties.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) None of the constituent instruments defining the rights
of the holders of any class of the Company's registered
securities was materially modified in the quarter ended
September 30, 1998.
(b) None of the rights evidenced by any class of the
Company's registered securities was materially limited
or qualified in the quarter ended September 30, 1998 by
the issuance or modification of any other class of
securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) During the quarter ended September 30, 1998, there was
no material default in the payment of principal,
interest, sinking or purchase fund installments, or
any other material default not cured within 30 days,
with respect to any indebtedness of the Company or any
of its significant subsidiaries exceeding 5 percent of
the total assets of the Company and its consolidated
subsidiaries.
(b) During the quarter ended September 30, 1998, no
material arrearage in the payment of dividends occurred,
and there was no other material delinquency not cured
within 30 days, with respect to any class of preferred
stock of the Company which is registered or which ranks
prior to any class of registered securities, or with
respect to any class of preferred stock of any
significant subsidiary of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders
during the quarter ended September 30, 1998.
ITEM 5. OTHER INFORMATION
The Company does not elect to report any information
under this item.
<PAGE> - 41 -
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
See Exhibit Index below, which is incorporated here by
reference.
(b) Reports on Form 8-K.
During the quarter ended September 30, 1998, the Company
filed the following current reports on Form 8-K:
- Filed July 17, 1998, under Items 5 and 7
- Filed July 24, 1998, under Items 5 and 7.
- Filed August 4, 1998, under Item 5.
<PAGE> - 42 -
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: November 5, 1998 By: /s/ Domenico Cecere
Domenico Cecere
Senior Vice President and
Chief Financial Officer
(as duly authorized officer)
Date: November 5, 1998 By: /s/ Steven J. Strobel
Steven J. Strobel
Vice President and Controller
<PAGE> - 43 -
EXHIBIT INDEX
Exhibit
Number Document Description
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession.
Agreement and Plan of Merger, dated as of May 27,
1997, among Owens Corning, Sierra Corp. and
Fibreboard Corporation (incorporated herein by
reference to Exhibit 2(a) to the Company's current
report on Form 8-K (File No. 1-3660), filed May 28,
1997).
LLC Interest Sale and Purchase Agreement, dated as
of July 31, 1998, among Owens Corning, Advanced
Glassfiber Yarns LLC and Glass Holdings Corp.
(incorporated herein by reference to Exhibit 2 to
the Company's current report on Form 8-K (File No. 1-
3660), filed October 14, 1998).
Amendment No. 1 to LLC Interest Sale and Purchase
Agreement dated as of September 30, 1998
(incorporated herein by reference to Exhibit 2 to the
Company's current report on Form 8-K (File No. 1-
3660), filed October 14, 1998).
(3) Articles of Incorporation and By-Laws.
(i) Certificate of Incorporation of Owens Corning, as
amended (incorporated herein by reference to
Exhibit (3)(i) to the Company's quarterly report
on Form 10-Q (File No. 1-3660) for the quarter
ended March 31, 1997).
(ii) By-Laws of Owens Corning, as amended
(incorporated herein by reference to Exhibit (19)
to the Company's quarterly report on Form 10-Q
(File No. 1-3660) for the quarter ended March
31, 1988).
(4) Instruments Defining the Rights of Security Holders,
Including Indentures.
Indenture, dated as of May 5, 1997, between Owens
Corning and The Bank of New York, as Trustee
(incorporated herein by reference to Exhibit 4.5.1 to
the Company's current report on Form 8-K (File No. 1-
3660), filed May 1, 1997).
Credit Agreement, dated as of June 26, 1997, among
Owens Corning, other Borrowers and Guarantors, the
Banks listed on Annex A thereto, and Credit Suisse
First Boston, as Agent (filed as Exhibit (4) to the
Company's quarterly report on Form 10-Q (File No. 1-
3660) for the quarter ended June 30, 1997) as
amended by Amendment No. 1 thereto (incorporated
herein by reference to Exhibit (4) to the Company's
annual report on Form 10-K (File No. 1-3660) for the
year ended December 31, 1997).
(10) Material Contracts.
Owens Corning Supplemental Executive Retirement Plan,
effective as of January 1, 1998 (incorporated herein
by reference to Exhibit 10 to the Company's
quarterly report on Form 10-Q (File No. 1-3660) for
the quarter ended June 30, 1998).
Credit Agreement, dated as of June 26, 1997, among
Owens Corning, other Borrowers and Guarantors, the
Banks listed on Annex A thereto, and Credit Suisse
First Boston, as Agent (filed as Exhibit (4) to the
Company's quarterly report on Form 10-Q (File No. 1-
3660) for the quarter ended June 30, 1997) as
amended by Amendment No. 1 thereto (incorporated
<PAGE> - 44 -
EXHIBIT INDEX
Exhibit
Number Document Description
(10) Material Contracts (Continued).
herein by reference to Exhibit (4) to the Company's
annual report on Form 10-K (File No. 1-3660) for the
year ended December 31, 1997).
Agreement and Plan of Merger, dated as of May 27,
1997, among Owens Corning, Sierra Corp. and
Fibreboard Corporation (incorporated herein by
reference to Exhibit 2(a) to the Company's current
report on Form 8-K (File No. 1-3660), filed May 28,
1997).
<PAGE> - 45 -
EXHIBIT INDEX
Exhibit
Number Document Description
(11) Statement re Computation of Per Share Earnings
(filed herewith).
(27) Financial Data Schedule (filed herewith).
(99) Additional Exhibits.
Subsidiaries of Owens Corning, as amended (filed herewith).
- 46 - Exhibit (11)
OWENS CORNING AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
Quarter Nine Months
Ended Ended
September 30, September 30,
1998 1997 1998 1997
(In millions of dollars, except share data)
<TABLE>
<S> <C> <C> <C> <C>
Basic:
Net income $ 96 $ 59 $ 163 $ 164
Basic weighted average
number of common
shares outstanding
(thousands) 53,820 53,050 53,588 52,769
Basic per share amount $ 1.79 $ 1.11 $ 3.04 $ 3.11
Diluted:
Net income $ 98 $ 61 $ 169 $ 170
Weighted average number of
common shares outstanding
(thousands) 53,820 53,050 53,588 52,769
Weighted average common
equivalent shares
(thousands):
Deferred awards 19 14 17 14
Stock options using the
average market price
during the period 772 679 658 725
Shares from assumed conversion
of preferred securities 4,566 4,566 4,566 4,566
Diluted weighted average number
of common shares outstanding and
common equivalent shares
(thousands) 59,177 58,309 58,829 58,074
Diluted per share amount $ 1.66 $ 1.05 $ 2.87 $ 2.92
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 540
<SECURITIES> 0
<RECEIVABLES> 542
<ALLOWANCES> 0
<INVENTORY> 495
<CURRENT-ASSETS> 2,007
<PP&E> 3,417
<DEPRECIATION> 1,808
<TOTAL-ASSETS> 5,265
<CURRENT-LIABILITIES> 1,272
<BONDS> 2,193
<COMMON> 678
194
0
<OTHER-SE> (938)
<TOTAL-LIABILITY-AND-EQUITY> 5,265
<SALES> 3,747
<TOTAL-REVENUES> 3,747
<CGS> 2,983
<TOTAL-COSTS> 2,983
<OTHER-EXPENSES> 81
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110
<INCOME-PRETAX> 370
<INCOME-TAX> 159
<INCOME-CONTINUING> 202
<DISCONTINUED> 0
<EXTRAORDINARY> (39)
<CHANGES> 0
<NET-INCOME> 163
<EPS-PRIMARY> 3.04<F1>
<EPS-DILUTED> 2.87<F2>
<FN>
<F1> Represents basic earnings per share as defined in FASB Statement No. 128
<F2> Represents diluted earnings per share as defined in FASB Statement No. 128.
</FN>
</TABLE>
Exhibit (99)
<TABLE>
<S> <C>
State or Other
Jurisdiction
Under the Laws of
Subsidiaries of Owens Corning (9/30/98) Which Organized
Accord Vinyl Siding Inc. Ontario
AmeriMark Building Products, Inc. Delaware
Carriage Hill Stone Co. Ohio
Commercial Owens Corning Chile Limitada Chile
Crown Manufacturing Inc. Canada
Cultured Stone Corporation California
Deutsche Owens-Corning Glasswool GmbH Germany
Engineered Pipe Systems, Inc. Delaware
Engineered Yarns America, Inc. Massachusetts
Eric Company Delaware
European Owens-Corning Fiberglas, S.A. Belgium
Fabwel, Inc. Indiana
Falcon Foam Corporation Delaware
Fibreboard Corporation Delaware
Flowtite Argentina AS Argentina
Flowtite AS Norway
Flowtite Iberica, S.A. Spain
Flowtite Offshore Services Ltd. Cyprus
Flowtite Pipe & Tanks AS Norway
Flowtite Technology AS Norway
Goodman Ventures, Inc. Delaware
IPM Inc. Delaware
Integrex Delaware
Jefferson Holdings, Inc. Delaware
LMP Impianti Srl Italy
Matcorp, Inc. Delaware
Norandex Inc. Delaware
N.V. Owens-Corning S.A. Belgium
OC Celfortec Inc. Canada
O/C/FIRST CORPORATION Ohio
OCFOGO, Inc. Delaware
O.C. Funding B.V. The Netherlands
O/C/SECOND CORPORATION Delaware
OCW Acquisition Corporation
(dba, Delsan Industries Corp.) Delaware
Owens Corning (Anshan) Fiberglas Co. Limited China
Owens Corning (China) Investment Company, Ltd. China
Owens Corning Building Materials Espana S.A. Spain
Owens-Corning Building Products (U.K.) Ltd. United Kingdom
Owens Corning Canada Inc. Canada
Owens-Corning Capital Holdings I, Inc. Delaware
Owens-Corning Capital Holdings II, Inc. Delaware
Owens-Corning Capital L.L.C. Delaware
Owens Corning Cayman (China) Holdings Cayman Islands
Owens-Corning Cayman Limited Cayman Islands
Owens-Corning Changchun Guan Dao Company Ltd. China
Owens Corning Espana SA Spain
Owens-Corning Fiberglas A.S. Limitada Brazil
</TABLE>
<PAGE>
<TABLE>
<S> <C>
State or Other
Jurisdiction
Under the Laws of
Subsidiaries of Owens Corning (9/30/98) Which Organized
Owens-Corning Fiberglas Deutschland GmbH Germany
Owens-Corning Fiberglas Espana, S.A. Spain
Owens-Corning Fiberglas France S.A. France
Owens-Corning Fiberglas (G.B.) Ltd. United Kingdom
Owens-Corning Fiberglas Norway A/S Norway
Owens-Corning Fiberglas S.A. Uruguay
Owens-Corning Fiberglas Sweden Inc. Delaware
Owens-Corning Fiberglas Technology Inc. Illinois
Owens-Corning Fiberglas (U.K.) Ltd. United Kingdom
Owens-Corning Fiberglas (U.K.) Pension Plan Ltd. United Kingdom
Owens-Corning Finance (U.K.) PLC United Kingdom
Owens Corning Foamular Board Company Limited China
Owens-Corning FSC, Inc. Barbados
Owens-Corning Funding Corporation Delaware
Owens-Corning (Guangzhou) Fiberglas Co., Ltd. China
Owens-Corning Holdings Limited Cayman Islands
Owens Corning HT, Inc. Delaware
Owens-Corning Isolation France S.A. France
Owens Corning (Japan) Ltd. Japan
Owens Corning Mexico, S.A. de C.V. Mexico
Owens-Corning Ontario Holdings Inc. Ontario
Owens-Corning Overseas Holdings, Inc. Delaware
Owens Corning Pipe (Africa) Pvt. Ltd. Zimbabwe
Owens Corning Polyfoam UK Ltd. United Kingdom
Owens-Corning Real Estate Corporation Ohio
Owens Corning (Shanghai) Fiberglas Co., Ltd. China
Owens Corning (Singapore) PTE Ltd. Singapore
Owens Corning South Africa (Pty) Ltd. South Africa
Owens-Corning (Sweden) AB Sweden
Owens-Corning (UK) Holdings Limited United Kingdom
Owens-Corning Veil Netherlands B.V. The Netherlands
Owens-Corning Veil U.K. Ltd. United Kingdom
P Metals, Inc. Delaware
Prestige Vinyl Siding Inc. Ontario
Procanpol SP.Z.O.O. Poland
Quest Industries, LLC Delaware
Scanglas Ltd. United Kingdom
Soltech, Inc. Kentucky
T Acquisition Inc. Delaware
Trumbull Asphalt Co. of Delaware Delaware
Vytec Corporation Ontario
Vytec Sales Corporation Delaware
Willcorp, Inc. Delaware
Wrexham A.R. Glass Ltd. United Kingdom
10110 Newfoundland Limited Newfoundland
</TABLE>
