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 June 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 June 30, 1998
54,019,954
<PAGE>
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PART 1. FINANCIAL INFORMATION
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<S> <C> <C> <C> <C>
Quarter Six Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
(In millions of dollars, except share data)
NET SALES $1,286 $1,017 $2,423 $1,892
COST OF SALES 985 778 1,923 1,430
Gross margin 301 239 500 462
OPERATING EXPENSES
Marketing and administrative expenses 152 122 281 244
Science and technology expenses 14 17 29 34
Restructure costs (Note 3) - - 87 -
Other (Note 4) 1 (8) (70) (4)
Total operating expenses 167 131 327 274
INCOME FROM OPERATIONS 134 108 173 188
Cost of borrowed funds 36 23 73 42
INCOME BEFORE PROVISION
FOR INCOME TAXES 98 85 100 146
Provision for income taxes (Note 6) 34 25 27 45
INCOME BEFORE MINORITY
INTEREST AND EQUITY
IN NET INCOME OF AFFILIATES 64 60 73 101
Minority interest (5) (2) (10) (4)
Equity in net income of affiliates - 5 4 8
NET INCOME $ 59 $ 63 $ 67 $ 105
NET INCOME PER COMMON SHARE
Basic net income per share $1.09 $1.19 $1.25 $1.99
Diluted net income per share $1.02 $1.11 $1.20 $1.88
Weighted average number of common
shares outstanding and common equivalent
shares during the period (in millions)
Basic 53.6 52.9 53.5 52.6
Diluted 58.9 58.2 58.7 57.9
</TABLE>
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<S> <C> <C>
June 30, December 31,
ASSETS 1998 1997
(In millions of dollars)
CURRENT
Cash and cash equivalents $ 42 $ 58
Receivables 597 432
Inventories (Note 7) 535 503
Insurance for asbestos litigation claims -
current portion (Note 12) 125 100
Deferred income taxes 137 160
Assets held for sale (Note 4) - 41
Income tax receivable 27 96
Other current assets 64 38
Total current 1,527 1,428
OTHER
Insurance for asbestos litigation
claims (Note 12) 310 357
Asbestos costs to be reimbursed
- Fibreboard (Note 12) 89 116
Deferred income taxes 356 328
Goodwill 788 778
Investments in affiliates (Note 4) 50 52
Other noncurrent assets 181 184
Total other 1,774 1,815
PLANT AND EQUIPMENT, at cost
Land 65 66
Buildings and leasehold improvements 683 676
Machinery and equipment 2,677 2,629
Construction in progress 222 214
3,647 3,585
Less: Accumulated depreciation (1,888) (1,832)
Net plant and equipment 1,759 1,753
TOTAL ASSETS $5,060 $4,996
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Continued)
<TABLE>
<S> <C> <C>
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
(In millions of dollars)
CURRENT
Accounts payable and accrued liabilities $ 793 $ 814
Reserve for asbestos litigation claims -
current portion (Note 12) 325 350
Short-term debt 119 23
Long-term debt - current portion 128 120
Total current 1,365 1,307
LONG-TERM DEBT (Note 5) 1,761 1,595
OTHER
Reserve for asbestos litigation claims
(Note 12) 1,121 1,320
Asbestos-related liabilities - Fibreboard
(Note 12) 96 123
Other employee benefits liability 340 335
Pension plan liability 61 65
Other 174 165
Total other 1,792 2,008
COMPANY OBLIGATED SECURITIES
OF ENTITIES HOLDING SOLELY
PARENT DEBENTURES 503 503
MINORITY INTEREST 21 24
STOCKHOLDERS' EQUITY
Common stock 669 657
Deficit (987) (1,041)
Accumulated other comprehensive income
(Note 9) (48) (40)
Other (16) (17)
Total stockholders' equity (382) (441)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,060 $4,996
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<S> <C> <C> <C> <C>
Quarter Six Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
(In millions of dollars)
NET CASH FLOW FROM OPERATIONS
Net income $ 59 $ 63 $ 67 $ 105
Reconciliation of net cash
provided by operating activities:
Noncash items:
Provision for depreciation and
amortization 47 39 99 76
Provision (credit) for deferred
income taxes 40 39 (5) 56
Other 4 (6) (87) (7)
(Increase) decrease in receivables (40) (56) (169) (163)
(Increase) decrease in inventories (4) (1) (40) (92)
Increase (decrease) in accounts
payable and accrued liabilities (12) (31) (24) (90)
Increase (decrease) in accrued
income taxes 77 (15) 75 (26)
Proceeds from insurance for asbestos
litigation claims, excluding
Fibreboard 5 24 22 64
Payments for asbestos litigation
claims, excluding Fibreboard (95) (90) (224) (185)
Other (26) (38) 11 (57)
Net cash flow from operations 55 (72) (275) (319)
NET CASH FLOW FROM INVESTING
Additions to plant and equipment (74) (57) (121) (131)
Investment in subsidiaries, net of
cash acquired - - - (20)
Proceeds from the sale of affiliate
or business (Note 4) - - 134 -
Other - (4) (19) (9)
Net cash flow from investing $ (74) $ (61) $ (6) $(160)
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
<TABLE>
<S> <C> <C> <C> <C>
Quarter Six Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
(In millions of dollars)
NET CASH FLOW FROM FINANCING
Net additions (reductions) to
long-term credit facilities $(659) $ 26 $ (374) $ 283
Other additions to long-term debt 565 108 570 136
Other reductions to long-term debt (11) (39) (13) (41)
Net increase in short-term debt 60 45 96 62
Dividends paid (4) (4) (8) (7)
Other (6) 2 (6) 21
Net cash flow from financing (55) 138 265 454
Effect of exchange rate changes
on cash 1 1 - (1)
Net increase (decrease) in cash
and cash equivalents (73) 6 (16) (26)
Cash and cash equivalents at
beginning of period 115 13 58 45
Cash and cash equivalents at end
of period $ 42 $ 19 $ 42 $ 19
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C> <C>
Quarter Six Months
Ended Ended
June 30, June 30,
1. SEGMENT DATA 1998 1997 1998 1997
(In millions of dollars)
NET SALES
Industry Segments
Building Materials
United States $872 $ 600 $1,611 $1,100
Europe 70 72 135 146
Canada and other 53 41 105 72
Total Building Materials 995 713 1,851 1,318
Composite Materials
United States 155 161 306 299
Europe 100 103 197 200
Canada and other 36 40 69 75
Total Composite Materials 291 304 572 574
Intersegment sales
Building Materials - - - -
Composite Materials 27 29 58 56
Eliminations (27) (29) (58) (56)
Net sales $1,286 $1,017 $2,423 $1,892
Geographic Segments
United States $1,027 $ 761 $1,917 $1,399
Europe 170 175 332 346
Canada and other 89 81 174 147
Total $1,286 $1,017 $2,423 $1,892
Intersegment sales
United States 38 31 70 60
Europe 1 7 10 16
Canada and other 17 26 29 48
Eliminations (56) (64) (109) (124)
Net sales $1,286 $1,017 $2,423 $1,892
</TABLE>
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
<TABLE>
<S> <C> <C> <C> <C>
Quarter Six Months
Ended Ended
June 30, June 30,
1. SEGMENT DATA (Continued) 1998 1997 1998 1997
(In millions of dollars)
INCOME (LOSS) FROM OPERATIONS
Industry Segments
Building Materials
United States $ 88 $ 70 $ 90 $ 107
Europe 2 2 (13) 7
Canada and other 1 2 (2) 4
Total Building Materials 91 74 75 118
Composite Materials
United States 53 52 90 94
Europe 3 (1) (14) 6
Canada and other 3 (1) 2 1
Total Composite Materials 59 50 78 101
General corporate expense (16) (16) 20 (31)
Income from operations 134 108 173 188
Cost of borrowed funds (36) (23) (73) (42)
Income before provision
for income taxes $ 98 $ 85 $ 100 $ 146
Geographic Segments
United States $ 141 $ 122 $ 180 $ 201
Europe 5 1 (27) 13
Canada and other 4 1 - 5
General corporate expense (16) (16) 20 (31)
Income from operations 134 108 173 188
Cost of borrowed funds (36) (23) (73) (42)
Income before provision
for income taxes $ 98 $ 85 $ 100 $ 146
</TABLE>
Income from operations for the six months ended June 30, 1998
includes a pretax charge of $95 million for restructuring and
other actions. The impact of this special item 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 increase
general corporate expense by $30 million. Income from
operations for the six months ended June 30, 1998 also includes
a pretax gain of $84 million from the sale of the Company's 50%
ownership interest in Alpha/Owens-Corning. The impact of this
gain was to decrease general corporate expense by $84 million.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 first quarter of 1998, the Company recorded a $95
million pretax charge for restructuring and other actions to
enhance manufacturing productivity and reduce overhead. This
charge represents the second phase of the Company's
strategic restructuring program announced in January 1998.
Of the Company's estimated $250 million total pretax charge
for this strategic program, $238 million has been charged on
a cumulative basis since the fourth quarter of 1997 and the
Company expects additional charges as further actions are
finalized.
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 June 30, 1998, approximately $34 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 $1
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 to close manufacturing facilities, enhance
manufacturing productivity and reduce overhead. The $143
million pretax charge represents the first phase of the
Company's strategic restructuring program and 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 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.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RESTRUCTURING OF OPERATIONS AND OTHER ACTIONS (Continued)
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 June 30, 1998, approximately
$15 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 $7 million has been charged against exit cost
liabilities. No adjustments have been made to the liability.
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 obsolete 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 plans to
dispose of the equipment in 1998.
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 six months ended June 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
Fibreboard and AmeriMark, was not material to the Company's
results of operations for the quarter or six months ended June
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.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. ACQUISITIONS AND DIVESTITURES OF BUSINESSES (Continued)
<TABLE>
<S> <C> <C> <C> <C>
Quarter Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
(In millions of dollars,
except share data)
Net sales $1,286 $1,328 $2,423 $2,436
Income from continuing operations 59 61 67 94
Diluted earnings per share from
continuing operations $ 1.02 $ 1.07 $ 1.20 $ 1.69
</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.
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.
On July 31, 1998, the Company announced the formation of a
new joint venture for the Company's yarns and specialty
materials business. The Company will contribute two
manufacturing plants in the U.S. and certain proprietary
technology to the joint venture and plans to sell 51% of its
ownership interest in the business to Groupe Porcher
Industries located in Badinieres, France, for approximately
$360 million. Upon closing, scheduled to occur during the
third quarter of 1998, the Company will receive an
additional distribution of approximately $210 million from
the joint venture. With sales of approximately $300 million
in 1997, the Company's yarn business is the world's second
largest producer of glass yarns, and the largest producer of
fine yarns. Proceeds from the sale will be used to reduce
the borrowings under the Company's long-term revolving
credit facility.
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 June
30, 1998. As of June 30, 1998, $241 million of this
facility was used for standby letters of credit and $1.039
billion was unused. The average rate of interest on this
facility was 6.0% at June 30, 1998.
In early May 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>
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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.
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
were tendered. In connection with this early retirement of
debt, the Company paid premiums of approximately $62 million
and recorded an extraordinary loss of approximately $39
million, net of related income taxes of $23 million.
In early August 1998, the Company called 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. This transaction was financed with
borrowings from the Company's long-term revolving credit
agreement.
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 Six Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
U.S. federal statutory rate 35% 35% 35% 35%
State and local income taxes 5 3 3 3
Foreign tax rate differences - - 3 -
Adjustment of deferred tax
asset valuation allowance - - - (5)
Special tax election (a) - - (13) -
Other (5) (8) (1) (2)
Effective tax rate 35% 30% 27% 31%
</TABLE>
(a) Represents a one-time tax benefit associated with Asia
Pacific operations.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. INVENTORIES
<TABLE>
<S> <C> <C>
June 30, December 31,
1998 1997
(In millions of dollars)
Inventories are summarized as follows:
Finished goods $ 423 $ 363
Materials and supplies 179 214
FIFO inventory 602 577
Less: Reduction to LIFO basis (67) (74)
$ 535 $ 503
</TABLE>
Approximately $354 million and $365 million of FIFO
inventories were valued using the LIFO method at June 30,
1998 and December 31, 1997, respectively.
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 Six Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
(In millions of dollars)
Income taxes $(84) 3 $(81) 9
Cost of borrowed funds 49 43 72 56
</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 six months of 1998, gross payments for
asbestos litigation claims against Fibreboard were
approximately $74 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 six
months of 1998, Fibreboard also reached settlement
agreements with plaintiffs for amounts totaling
approximately $47 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.
<PAGE>
-14-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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
June 30, 1998 and 1997 was $43 million and $62 million,
respectively. For the six months ended June 30, 1998 and
1997, comprehensive income was $59 million and $98 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.
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.
<TABLE>
<S> <C> <C> <C> <C>
Quarter Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
(In millions of dollars,
except share data)
Net income used for basic earnings
per share $ 59 $ 63 $ 67 $ 105
Net income effect of assumed
conversion of debt and preferred
securities 2 2 4 4
Net income used for diluted
earnings per share $ 61 $ 65 $ 71 $ 109
Weighted average number of shares
outstanding used for basic
earnings per share (thousands) 53,563 52,945 53,465 52,642
Deferred awards and stock options 762 703 621 771
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) 58,891 58,214 58,652 57,979
</TABLE>
11. SUBSEQUENT EVENTS
Early in the third quarter of 1998, the Company entered into
various agreements involving the issuance of debt
securities, the cash tender offers of existing debt, the
call of the Company's Trust Preferred Hybrid Securities, and
the formation of a joint venture for the Company's yarns and
specialty materials business. Please see Notes 4 and 5 to
the Consolidated Financial Statements for further discussion
of these matters.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
12. 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 June 30, 1998, approximately 188,600 asbestos personal
injury claims were pending against Owens Corning, of which
16,500 were received in the first half of 1998. The Company
received approximately 36,500 such claims in 1997 and 36,300
in 1996.
Many of the recent claims appear to be the product of mass
screening programs and not to involve malignancies or other
significant asbestos-related impairment. Owens Corning
believes that at least 40,000 of the recent claims involve
plaintiffs whose pulmonary function tests ("PFTs") were
improperly administered or manipulated by the testing
laboratory or otherwise inconsistent with proper medical
practice. 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 U.S. challenging such improper testing
practices. 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.
Through June 30, 1998, Owens Corning had resolved (by
settlement or otherwise) approximately 205,400 asbestos
personal injury claims. During 1995, 1996 and 1997, Owens
Corning resolved approximately 62,000 asbestos personal
injury claims, over 99% without trial. 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 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. For example, in two recent
trials in two different jurisdictions where thousands of
cases are pending against the Company, a Jefferson County,
Mississippi jury returned a multimillion award against the
<PAGE>
-16-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
12. CONTINGENT LIABILITIES (CONTINUED)
Company while an Orleans Parish, Louisiana jury returned an
award of less than $100,000. Both trials involved similar
groups of plaintiffs alleging either an asbestos-related
lung cancer or an asbestos-related non-malignant condition.
The Company vigorously disputed the allegations in both
cases.
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 $360 million in 1998. This high level of
expenditures, and the anticipated increase in 1998, are
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 half 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.
Tobacco
The Company is closely monitoring the proposed federal
legislation to implement a nationwide tobacco settlement.
Owens Corning, Fibreboard and other asbestos defendants have
collectively spent billions of dollars to resolve asbestos
personal injury claims to which smoking was a substantial
causal or contributing factor. The Company believes that
any federal legislation implementing the proposed tobacco
settlement must make adequate financial provision for
compensating asbestos personal injury claimants for the role
tobacco use played in their injuries and for reimbursing
asbestos defendants, in whole or in part, for past payments
that have been made to asbestos personal injury claimants
who were also smokers. As widely reported, the United
States Senate did consider legislation during the first half
of 1998 which would have included provisions to compensate
past and future asbestos plaintiffs who also suffer from
smoking-related illnesses. While no legislation to date has
been passed, other legislation is currently under
consideration in the House of Representatives and the
Company is continuing to direct its legislative lobbying
efforts toward achievement of fair treatment for asbestos
defendants and asbestos personal injury claimants.
Owens Corning and Fibreboard have filed suit in the Superior
Court for Alameda County, California against seven leading
manufacturers of tobacco products. The complaint alleges
that cigarette smoking causes or contributes to lung cancer,
a variety of other cancers and chronic obstructive pulmonary
disease. The complaint seeks to require the defendants to
reimburse Owens Corning and Fibreboard for all or part of
the amounts which they have spent in resolving the personal
injury claims of asbestos plaintiffs whose injuries were
caused or contributed to by cigarette smoking. The
defendants challenged the complaint as legally insufficient.
<PAGE>
-17-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
12. CONTINGENT LIABILITIES (Continued)
The trial court by order of July 23, 1998 overruled these
challenges as to two claims, for restitution and for
violation of unfair business practice statutes, and
sustained the challenges to other claims, permitting the
Company and Fibreboard to amend the complaint to overcome
the defendants' objections to them.
Fibreboard
As described in greater detail below, Fibreboard is a party
to two class action settlements relating to asbestos
personal injury claims, the Global Settlement and the
Insurance Settlement. If the Global Settlement is approved,
Fibreboard will be protected by an injunction from asbestos
personal injury claims and should have no further asbestos
personal injury liabilities. If the Global Settlement is not
approved, the Insurance Settlement, which has been approved
by the courts, will become effective. In such event,
Fibreboard will receive the payments due under the Insurance
Settlement, the injunction protecting Fibreboard from
asbestos personal injury claims will be dissolved, and
Fibreboard will return to the tort system as a defendant.
Should the Insurance Settlement come into effect, Owens
Corning and Fibreboard anticipate establishing a joint
facility that would provide, consistent with Fibreboard's
contractual obligations under the Insurance Settlement, for
the joint defense and settlement of asbestos personal injury
claims against the two defendants. Such a joint facility
would have the potential for achieving synergistic savings
in defense and settlement costs compared to the costs either
Company would otherwise likely incur.
Insurance
As of June 30, 1998, Owens Corning had approximately $210
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.
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 for the costs
of asbestos claims expected to be received through 1999 and
an additional $1.1 billion charge to income (before taking
into account the probable non-products insurance recoveries)
during 1996 for cases that may be received subsequent to
1999. In establishing the reserve, Owens Corning took into
<PAGE>
-18-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. CONTINGENT LIABILITIES (Continued)
account, among other things, the effect of federal court
decisions relating to punitive damages and the certification
of class actions in asbestos cases, the discussions with a
substantial group of plaintiffs' law firms in connection
with global settlement negotiations, the results of its
continuing investigations of medical screening practices of
the kind at issue in the federal PFT lawsuits, recent
developments as to the prospects for federal and state tort
reform, the continued rate of case filings at historically
high levels, additional information on filings received
during the 1993-1995 period and other factors. 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.
Owens Corning's estimated total liabilities in respect of
indemnity and defense costs associated with pending and
unasserted asbestos personal injury claims that may be
received in the future, and its estimated insurance
recoveries in respect of such claims, are reported
separately as follows:
<TABLE>
<S> <C> <C>
June 30, December 31,
1998 1997
(In millions of dollars)
Reserve for asbestos
litigation claims
Current $ 325 $ 350
Other $1,122 1,320
Total Reserve 1,447 1,670
Insurance for asbestos
litigation claims
Current 125 100
Other 310 357
Total Insurance 435 457
Net Owens Corning Asbestos Liability $1,012 $1,213
</TABLE>
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 Owens Corning's future success in
controlling the costs of resolving mesothelioma claims, the
outcome of the Company's litigation against the tobacco
companies and of the appellate proceedings related to the
Fibreboard Global Settlement, and federal legislative
developments concerning asbestos and/or tobacco. Owens
Corning believes that its estimate of liabilities and
<PAGE>
-19-
OWNES CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. CONTINGENT LIABILITIES (Continued)
insurance will be sufficient to provide for the costs of all
pending and future asbestos personal injury claims that
involve malignancies or significant asbestos-related
functional impairment. While such estimates cover
unimpaired claims, the number and cost of unimpaired claims
are much harder to predict and such estimates reflect Owens
Corning's belief that such claims have little or no value.
Owens Corning will continue to review the adequacy of its
estimate of liabilities and insurance on a periodic basis
and make such adjustments as may be appropriate.
Management Opinion
Although any opinion is necessarily judgmental and must be
based on information now known to 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 any such additional costs will not
impair the ability of the Company to meet its obligations,
to reinvest in its businesses or to take advantage of
attractive opportunities for growth.
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 June 30, 1998, approximately 124,000 asbestos personal
injury claims were pending against Fibreboard, 20,700 of
which were received in the first two 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
(all of which are malignancy claims) during the pendency of
the Global Settlement injunction discussed below.
As of June 30, 1998, amounts payable under various asbestos
claim settlement agreements were $138 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 June 30, 1998 are $131
million.
Insurance Arrangements
Fibreboard has unique insurance arrangements for personal
injury claims. During 1993, Fibreboard and its insurers,
Continental Casualty Company (Continental) and Pacific
Indemnity Company (Pacific), entered into the Insurance
Settlement, and Fibreboard, its insurers and
representatives of a class of future asbestos plaintiffs who
have claims arising from exposure to asbestos prior to
August 27, 1993, entered into the Global Settlement. These
agreements are interrelated and require final court
approval. On July 26, 1996, the U.S. Fifth Circuit Court of
Appeals affirmed the Global Settlement by a majority
decision and the Insurance Settlement by a unanimous
decision.
<PAGE>
-20-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. CONTINGENT LIABILITIES (Continued)
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
requirements of Federal Rule of Civil Procedure 23. On
January 27, 1998, a panel of the Fifth 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.
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.
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. A permanent injunction barring the
filing of any further claims against Fibreboard or its
insurers by class members is included as part of the Global
Settlement. 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
Continental and 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 $1,696 million at June 30, 1998, after payment
of interim expenses and exigent claims associated with the
Global Settlement.
If the Global Settlement becomes effective, Fibreboard would
have no on-going or future liabilities for asbestos personal
injury claims in excess of the $10 million currently
reserved in accrued liabilities.
The Insurance Settlement is 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
<PAGE>
-21-
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. CONTINGENT LIABILITIES (Continued)
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.
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>
-22-
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 high-
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 composites
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>
-23-
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 has 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 June 30, 1998
Sales and Profitability
Net sales for the quarter ended June 30, 1998 were $1,286
million, reflecting a 26% increase from the second quarter
1997 level of $1,017 million. The increase is primarily due
to the acquisition of Fibreboard, completed at the end of
the second quarter of 1997, and the acquisition of
AmeriMark, completed early in the fourth quarter of 1997.
Volume increases in North American insulation markets helped
to offset volume declines in the roofing market. Sales
results also reflect a decline in insulation pricing during
the second quarter of 1998, compared to the second 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 earlier in 1998.
Volume declines in the U.S. composites market were partially
offset by price increases in the U.S. While volume was up
moderately in European composites, prices are down from the
second quarter 1997 levels. Despite the adverse economic
conditions in Asia Pacific, sales volume was stable,
indicating continued growth in market share in that region.
There was virtually no impact of currency translation on
sales in foreign currencies during the second quarter of
1998. Please see Note 1 to the Consolidated Financial
Statements.
Sales outside the U.S. represented 20% of total sales for
the quarter ended June 30, 1998, compared to 25% for the
quarter ended June 30, 1997. The decline in non-U.S. sales
as a percentage of total sales is due to the 1997
acquisitions of Fibreboard and AmeriMark, which are
primarily U.S. operations. Gross margin for the quarter
ended June 30, 1998 was 23% of net sales, consistent with
the second quarter 1997 level, but up significantly from the
18% level in the first quarter of 1998. The increase in the
second quarter 1998 gross margin compared to the first
quarter 1998 reflects improving prices and the realization
of cost savings resulting from the Company's restructuring
program that was begun in the fourth quarter of 1997.
<PAGE>
-24-
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. Despite
the Company's successful implementation of price increases,
insulation pricing during the second quarter of 1998 was
below the second quarter 1997 level, due in part to long-
term contracts with some customers. However, the Company
expects to realize increased benefits of the recent price
increases during the third and fourth quarters of 1998.
For the quarter ended June 30, 1998, the Company reported
net income of $59 million, or $1.02 per share, compared to
net income of $63 million, or $1.11 per share, for the
quarter ended June 30, 1997. Net income for the second
quarter of 1998 reflects the decline in insulation prices
compared to the second quarter of 1997, as well as increased
cost of borrowed funds and minority interest expense due to
the financing of the 1997 Fibreboard and AmeriMark
acquisitions. Partially offsetting these increased expenses
were the benefits of the Company's strategic restructuring
program. The 1998 reduction in equity in net income of
affiliates reflects the first quarter 1998 sale of the
Company's 50% ownership interest in Alpha/Owens-Corning,
LLC. During the second quarter of 1997, the Company
benefited from a $15 million pretax credit ($10 million
after-tax) from the modification of certain employee
benefits in the U.S. Please see Notes 3 and 4 to the
Consolidated Financial Statements.
Net sales for the six months ended June 30, 1998 were $2,423
million, a 28% increase over the $1,892 million reported for
the first six months of 1997. This increase reflects the
acquisitions of Fibreboard and AmeriMark described above.
For the six months ended June 30, 1998, the Company reported
net income of $67 million, or $1.20 per share, compared to
net income of $105 million, or $1.88 per share for the six
months ended June 30, 1997. Net income for the six months
ended June 30, 1998 includes 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 one-time tax benefit
associated with Asia Pacific operations. Net income for the
six months ended June 30, 1998 also reflects the increased
cost of borrowed funds and minority interest expense as
described above. Please see Notes 3, 4 and 6 to the
Consolidated Financial Statements.
Marketing and administrative expenses were $152 million for
the second quarter of 1998 compared to $122 million in the
second quarter of 1997. The increase in marketing and
administrative expenses is largely due to the incremental
costs from acquisitions and increased accruals for
performance-based variable pay programs. Partially
offsetting the increase in marketing and administrative
expenses in the second quarter of 1998 were the benefits of
the Company's strategic restructuring program announced in
early 1998 and described below.
<PAGE>
-25-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Restructuring of Operations and Other Actions
The $95 million pretax charge referred to above for
restructuring and other actions during the first quarter of
1998 was the second phase of the Company's strategic program
to reduce overhead, enhance manufacturing productivity and
close manufacturing facilities. This charge includes $87
million for restructuring and $8 million for other actions.
Of the Company's originally estimated $250 million total
pretax charge for restructuring and other actions announced
in early 1998, $143 million was recorded in the fourth
quarter of 1997 and $95 million was recorded in the first
quarter of 1998. The Company continues to evaluate further
restructuring actions and expects additional charges during
the second half of 1998. The total charge recorded to date
is comprised of approximately $155 million for the
restructuring program and approximately $83 million for
other actions. The restructuring program, of which $68
million was recorded in the fourth quarter of 1997 and $87
million was recorded in the first quarter of 1998, includes
approximately $106 million for costs associated with an
overall headcount reduction of approximately 2,050 at
numerous locations around the world, predominantly in the
U.S., Canada and Europe. The remaining $49 million of
restructuring includes $47 million for non-strategic
businesses and facilities of which $15 million represents
exit cost liabilities, and $2 million for other actions.
The costs for non-strategic businesses and facilities
include $28 million for the closure of the Candiac
insulation manufacturing plant in Quebec, Canada and $9
million for the closure of several North American
distribution locations.
The primary components of the $83 million charge for other
actions and their classification on the Company's
consolidated statement of income include $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 obsolete 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 plans to dispose of the equipment in
1998.
Based upon the results of the Company's strategic
restructuring program and expected economic conditions over
the next few years, including effects on matters such as
labor, material and other costs, the Company expects to
decrease operating costs by approximately $100 million in
1998, and by 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>
-26-
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 expects to reduce costs by an
additional $30 million during 1998 and more than $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 40% in
the second quarter of 1998 compared to the second quarter of
1997, reflecting the incremental sales from acquisitions.
The increase was slightly offset by roofing volume and
insulation price declines, particularly in the U.S. Income
from operations was $91 million for the second quarter of
1998, up 23% from $74 million in the second quarter of 1997.
The increase reflects the benefits of the restructuring
program, offset partially by volume and price declines.
Please see Notes 1 and 3 to the Consolidated Financial
Statements.
<PAGE>
-27-
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 six months ended June 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
Six Months Six Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
(In millions of dollars, except share data)
Net sales $ 2,423 $ 2,436 $ 2,423 $ 1,892
Income from continuing operations 67 94 67 105
Diluted earnings per share from
continuing operations $ 1.20 $ 1.69 $ 1.20 $ 1.88
</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 4% for
the quarter ended June 30, 1998 compared to 1997. Volume
declines in the U.S. drove the sales decline, due in part to
slower demand in the electronics market as well as some
order cancellations resulting from the General Motors
strike. Price declines in European composites compared to
the second quarter of 1997 were only moderately offset by
the benefits of volume growth. The translation impact of
sales denominated in foreign currencies was minimal during
the quarter ended June 30, 1998. Despite the slight decline
in sales, income from operations was $59 million in the
second quarter of 1998, up 18% from $50 million in the
second quarter of 1997. This increase reflects productivity
improvements and cost reduction programs described above.
Compared to the fourth quarter of 1997 and the first quarter
of 1998, price levels were higher in the second quarter of
1998, indicating the benefits of the Company's previously
announced price increases in the composites business.
Please see Notes 1 and 3 to the Consolidated Financial
Statements.
<PAGE>
-28-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
On July 31, 1998, the Company announced the formation of a
new joint venture for the Company's yarns and specialty
materials business. The Company will contribute two
manufacturing plants in the U.S. and certain proprietary
technology to the joint venture and plans to sell 51% of its
ownership interest in the business to Groupe Porcher
Industries located in Badinieres, France, for approximately
$360 million. Upon closing, scheduled to occur during the
third quarter of 1998, the Company will receive an
additional distribution of approximately $210 million from
the joint venture. With sales of approximately $300 million
in 1997, the Company's yarn business was the world's second
largest producer of glass yarns, and the largest producer
of fine yarns. Proceeds from the sale will be used to reduce
the borrowings under the Company's long-term revolving credit
facility.
LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED MATTERS
Cash flow from operations was $55 million for the quarter
ended June 30, 1998, compared to negative $72 million for
the quarter ended June 30, 1997. The increase in cash flow
from operations in 1998 is largely attributable to the
second quarter 1998 collection of an $85 million federal
income tax receivable. Payments for asbestos litigation
claims were $95 million during the quarter and proceeds from
insurance were $5 million, compared to $90 million and $24
million, respectively, during the second 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 $375 million of total
payments for asbestos litigation claims during 1998.
Inventories at June 30, 1998 increased $32 million, or 6%,
over December 31, 1997 levels due to the Company's normal
seasonal inventory build in the first half of the year. On
a comparative basis, inventories at June 30, 1998, adjusted
for AmeriMark, were approximately $100 million lower than
the level at June 30, 1997. Receivables at June 30, 1998
were $597 million, a 38% increase over the December 31, 1997
level, due to high sales levels during June 1998.
At June 30, 1998, the Company's net working capital was $162
million and its current ratio was 1.12, compared to $121
million and 1.09, respectively, at December 31, 1997. The
increase in 1998 was primarily due to increased receivables
and inventories as well as a reduction in the current
portion of the reserve for asbestos litigation claims.
The Company's total borrowings at June 30, 1998 were $2.008
billion, $270 million higher than at year-end 1997,
reflecting typical cash usage during the first half of the
year as the Company builds inventories and other working
capital. Total borrowings at June 30, 1998 were down from
the March 31, 1998 level of $2.060 billion due in part to
the receipt of proceeds from the sale of Alpha/Owens-Corning
LLC and the collection of an income tax receivable, a
portion of which was used to reduce debt during April 1998.
As of June 30, 1998, the Company had unused lines of credit
of $1.103 billion available under long-term bank credit
facilities and an additional $125 million under short-term
facilities, compared to $884 million and $224 million,
respectively, at year-end 1997. The net increase in unused
available lines of credit reflects the Company's issuance of
$550 million of debt securities in early May 1998, the net
proceeds of which were used to reduce borrowings under the
Company's long-term credit facility in the U.S. The
increase in unused available lines of credit resulting from
this payment was largely offset by increased borrowings at
June 30, 1998 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.
<PAGE>
-29-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
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. The tender
offers were completed on August 3, 1998 and as of that date,
approximately $361 million of these debt securities were
tendered. In connection with this early retirement of debt,
the Company paid premiums of approximately $62 million and
recorded an extraordinary loss of approximately $39 million,
net of related income taxes of $23 million. Please see Note
5 to the Consolidated Financial Statements.
In early August 1998, the Company called 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. This transaction was financed with
borrowings from the Company's long-term revolving credit
facility.
Capital spending for property, plant and equipment,
excluding acquisitions, was $74 million in the second
quarter of 1998. The Company anticipates 1998 capital
spending, exclusive of acquisitions and investments in
affiliates, will be approximately $245 million, the majority
of which is uncommitted. The Company expects that funding
for these expenditures will be from the Company's operations
and external sources as required.
Gross payments for asbestos litigation claims during the
second quarter of 1998, including payments for claims
settled in prior years and excluding amounts payable in
future years, were $95 million. The second quarter 1998
expenditures include $21 million in defense and other costs.
Proceeds from insurance were $5 million resulting in a net
pretax cash outflow of $90 million, or $54 million after-
tax. During the second quarter of 1998, the Company
received approximately 8,300 new asbestos personal injury
cases and closed approximately 2,200 cases. Over the next
twelve months, the Company's total payments for asbestos
litigation claims, including defense costs, are expected
to be approximately $325 million. Proceeds from insurance
of $125 million are expected to be available to cover these
costs, resulting in a net pretax cash outflow of $200
million, or $120 million after- tax. Please see Note 12 to
the Consolidated Financial Statements.
Gross payments for asbestos litigation claims against
Fibreboard for the quarter ended June 30, 1998 were
approximately $34 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 second quarter, Fibreboard received approximately 14,700
new asbestos personal injury claims, and resolved
approximately 4,400 claims. Payments for asbestos claims
against Fibreboard are expected to be paid by Fibreboard's
insurers or from the escrow account. Please see Notes 8 and
12 to the Consolidated Financial Statements.
<PAGE>
-30-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
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 second quarter of 1998, the Company was
designated as a PRP in such federal, state, local or private
proceedings for 1 additional site. At June 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.
The Company has established a $33 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 and mineral wool in 1998, 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.
<PAGE>
-31-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
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 in the third quarter 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 second quarter of 1998 has been
$142 million, including $98 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>
-32-
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See the paragraphs in Note 12, Contingent Liabilities, to
the Company's Consolidated Financial Statements above, which
are incorporated here by reference.
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
June 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 June 30, 1998 by the
issuance or modification of any other class of
securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) During the quarter ended June 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 June 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
(a) The Company's annual meeting of stockholders was held
April 16, 1998.
(b) The matters voted upon at the meeting, and the votes
cast with respect to each, were:
1. Election of four directors for a term expiring in
2001: Gaston Caperton - 47,027,314 shares cast for
election and 2,113,940 shares withheld; William W.
Colville - 47,125,786 shares cast for election and
2,015,468 shares withheld; Landon Hilliard -
47,170,395 shares cast for election and 1,970,859
shares withheld; Glen H. Hiner - 46,606,726 shares
cast for election and 2,534,528 shares withheld.
2. Approval of the action of the Board of Directors
in selecting Arthur Andersen LLP as independent
public accountants for the Company for the year
1998: 48,203,004 shares were cast for the proposal;
732,303 shares were cast against; and 205,947
shares abstained.
There were no broker nonvotes on any matter.
ITEM 5. OTHER INFORMATION
The Company does not elect to report any information under
this item.
<PAGE>
-33-
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 June 30, 1998, the Company
filed the following current reports on Form 8-K:
- Filed April 16, 1998, under Item K, with unaudited
financial statements, without notes, for the first
quarter of 1998.
- Filed April 17, 1998, under Item 5.
- Filed May 5, 1998, under Items 5 and 7.
<PAGE>
-34-
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: August 7, 1998 By: /s/ Domenico Cecere
Domenico Cecere
Senior Vice President
and Chief Financial Officer
(as duly authorized officer)
Date: August 7, 1998 By: /s/ Steven J. Strobel
Steven J. Strobel
Vice President and Controller
<PAGE>
-35-
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).
(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 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 (filed herewith).
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 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>
-36-
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).
OWENS CORNING
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective as of January 1, 1998
<PAGE>
OWENS CORNING SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Table of Contents
Page
Article I. Establishment and Purpose of the Plan 1
1.1 Establishment of the Plan 1
1.2 Purpose of the Plan 1
Article II. Definitions 2
2.1 Actuarial Equivalent 2
2.2 Administrator 2
2.3 Affiliate 2
2.4 Beneficiary 2
2.5 Board of Directors 3
2.6 Cash Balance Account 3
2.7 Cash Balance Plan 3
2.8 Code 3
2.9 Eligible Employee 3
2.10 Employer 4
2.11 Excess Plan 4
2.12 Hire Date 4
2.13 Offset Amount 4
2.14 Plan 4
2.15 Prior Accrued Retirement Benefits 4
2.16 Supplemental Retirement Benefit 6
2.17 Supplement Survivor's Benefit 6
Article III. Supplemental Retirement Benefit 7
3.1 Eligible Employees 7
3.2 Supplemental Retirement Benefit 7
3.3 Supplemental Survivor's Benefit 10
Article IV. Forfeiture of Supplemental Benefits 11
<PAGE>
4.1 Disclosure of Proprietary Information 11
4.2 Direct Competition with the Employer or an Affiliate 12
4.3 Discharge for Just Cause 12
Article V. Form of Payment 14
Article VI. Nature of Interest of Participant 15
6.1 Unsecured General Creditor 15
6.2 Trust Fund 15
6.3 No Right to Transfer Interest 16
Article VII. Administration 17
7.1 Administrator 17
7.2 Powers of the Administrator 17
7.3 Finality of Administrator Determinations 18
Article VIII. Miscellaneous 19
8.1 Amendment, Suspension, and Termination 19
8.2 Board of Directors' Power to Delegate Authority 19
8.3 Indemnification 20
8.4 No Employment Rights 20
8.5 No Impact on Other Benefits 21
8.6 Incapacity of Recipient 21
8.7 Data 21
8.8 Misstatements 21
8.9 Taxes 22
8.10 Applicable Law 22
8.11 Usage of Terms and Headings 22
APPENDIX A. Employees Eligible for Supplemental
Retirement Benefits A-1
<PAGE> -1-
OWENS CORNING SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
[Effective as of January 1, 1998]
ARTICLE I
ESTABLISHMENT AND PURPOSE OF THE PLAN
1.1 Establishment of the Plan. Effective as of January 1, 1998,
Owens Corning hereby establishes the "Owens Corning Supplemental
Executive Retirement Plan."
1.2 Purpose of the Plan. The Plan is intended to constitute an
unfunded program maintained primarily for the purpose of providing
deferred compensation for a select group of management or highly
compensated employees consistent with the requirements of Sections
201(2), 301(a)(3), and 401(a)(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). The Plan provides
supplemental retirement income to Eligible Employees.
<PAGE> -2-
ARTICLE II
DEFINITIONS
The following words and phrases as used in this Plan
have the following meanings:
2.1 Actuarial Equivalent. The term "Actuarial
Equivalent" shall have the same meaning as the term "GATT
Assumptions" as defined in Appendix B of the Cash Balance
Plan.
2.2 Administrator. The term "Administrator" means the
individual described in Section 7.1 who is designated to
administer the Plan.
2.3 Affiliate. The term "Affiliate" shall have the
same meaning given to such term by the Cash Balance Plan.
2.4 Beneficiary. The term "Beneficiary" means the
person or persons designated by the Eligible Employee to
receive the death benefit under the Cash Balance Plan after
the death of the Eligible Employee.
2.5 Board of Directors. The term "Board of Directors"
means the Board of Directors of Owens Corning.
<PAGE> -3-
2.6 Cash Balance Account. The term "Cash Balance
Account" means the Eligible Employee's "Account" (as defined
under the Cash Balance Plan) determined in accordance with
the Cash Balance Plan and increased to reflect any benefits
accrued on behalf of the Eligible Employee under the Excess
Plan.
2.7 Cash Balance Plan. The term "Cash Balance Plan"
means the Owens Corning Cash Balance Pension Plan, which is
part of the Owens Corning Merged Retirement Plan and is set
forth in Attachment 1 to the Owens Corning Merged Retirement
Plan, as amended.
2.8 Code. The term "Code" means the Internal Revenue
Code of 1986, as amended.
2.9 Eligible Employee. The term "Eligible Employee"
means an individual who meets the requirements of Section
2.10 Employer. The term "Employer" means Owens Corning
and any other Affiliate that has adopted the Cash Balance
Plan.
<PAGE> -4-
2.11 Excess Plan. The term "Excess Plan" means the
Owens-Corning Fiberglas Corporation Executive Supplemental
Benefit Plan, as amended and restated effective April 1,
1992, and as amended from time to time thereafter.
2.12 Hire Date. The term "Hire Date" means the date on
which the Eligible Employee was first employed with the
Employer or such other date as provided in Appendix A for
such Eligible Employee.
2.13 Offset Amount. The term "Offset Amount" means the
amount applicable to an Eligible Employee as determined under
Section 3.2(c).
2.14 Plan. The term "Plan" means the "Owens Corning
Supplemental Executive Retirement Plan" as set forth herein
and as amended from time to time.
2.15 Prior Accrued Retirement Benefits. The term "Prior
Accrued Retirement Benefits" means all nonforfeitable
retirement benefits accrued on behalf of an Eligible Employee
under any "pension plan" (as defined in Section 3(2) of
ERISA), including all tax-qualified and non-tax-qualified
defined benefit and defined contribution plans other than any
<PAGE> -5-
defined contribution plan that the Administrator determines
was not the primary source of the Eligible Employee's
retirement benefits from his or her prior employer,
determined as of the date the Eligible Employee is first
employed with the Employer, and expressed,
(1) in the case of a "defined benefit plan" (as defined
in ERISA section 3(35)), in the form of a single
life annuity commencing at the participant's normal
retirement age under such plan (or the age 65
single life annuity Actuarial Equivalent of the
accrued benefit under such plan, if such a form is
not available under the plan), and
(2) in the case of a defined contribution plan, as the
aggregate lump sum balance of all accounts under
such plan (or the Actuarial Equivalent of such
account balances, if a lump sum benefit is not
available under the plan) other than the portion of
any accounts attributable to qualified cash or
deferred arrangements maintained pursuant to Code
section 401(k), employer matching contributions and
employee contributions made pursuant to Code
section 401(m), or to any other amounts
attributable to employee contributions. For
purposes of this Section, any pension plan (within
the meaning of section 3(2) of ERISA) which is not
a defined benefit plan shall be treated as a
defined contribution plan.
<PAGE> -6-
2.16 Supplemental Retirement Benefit. The term
"Supplemental Retirement Benefit" means a benefit that is
payable to an Eligible Employee in accordance with Article
III of this Plan.
2.17 Supplemental Survivor's Benefit. The term
"Supplemental Survivor's Benefit" means a benefit that is
payable to a Beneficiary in accordance with Article III of
this Plan.
<PAGE> -7-
ARTICLE III
SUPPLEMENTAL RETIREMENT BENEFIT
3.1 Eligible Employees. An individual is an Eligible
Employee if he or she is a member of a select group of
management or highly compensated employees of an Employer,
and he or she --
(1) is named in Appendix A to this Plan,
(2) is 100% vested in his or her benefit under the Cash
Balance Plan,
(3) provides the Administrator, within 6 months of the
later of his or her Hire Date or the date his or
her name is first included in Appendix A to this
Plan, with written evidence, in a form satisfactory
to the Administrator, of his or her Prior Accrued
Retirement Benefits, and
(4) does not forfeit the Supplemental Retirement
Benefit under the provisions of Article IV.
3.2 Supplemental Retirement Benefit.
(a) An Eligible Employee shall be entitled to a
Supplemental Retirement Benefit as determined under Sections
3.2(b) and (c) upon his or her termination of employment with
all Employers.
<PAGE> -8-
(b) An Eligible Employee's Supplemental Retirement
Benefit shall be a single sum amount equal to (1) the product
of the Eligible Employee's Cash Balance Account, determined
as of the first day of the first calendar month following the
Eligible Employee's date of termination of employment with
the Employer, multiplied by the factor applicable to the
Eligible Employee under the chart below, minus (2) the
Eligible Employee's Offset Amount as determined under Section
3.2(c).
<TABLE>
<S> <C>
Age at Hire Date Factor
30 0.50
35 1.00
40 1.50
45 2.00
50 2.50
55 4.00
60 1.50
65 or older 0.00
</TABLE>
The factor for a participant with an age at Hire Date
between two ages set forth above shall be determined by
interpolating between the applicable factors based on
the Eligible Employee's attained, whole years of age as
of his or her Hire Date.
<PAGE> -9-
(c) An Eligible Employee's Offset Amount shall
equal the sum of --
(1) the Actuarial Equivalent present value, determined
as of the first day of the first calendar month following
the Eligible Employee's date of termination of
employment with the Employer, of the Eligible
Employee's Prior Accrued Retirement Benefits
attributable to defined benefit plans (as described
in Section 2.15(1)), plus
(2) the Eligible Employee's Prior Accrued Retirement
Benefits attributable to defined contribution plans
(as described in Section 2.15(2)) increased for
interest, for the period beginning on the Eligible
Employee's date of hire with the Employer and
ending on the first day of the first calendar month
following his or her date of termination of
employment with the Employer, determined in
accordance with the method described in the Cash
Balance Plan for determining "Interest Credits" (as
defined in the Cash Balance Plan).
<PAGE> -10-
3.3 Supplemental Survivor's Benefit. Upon the death
of an Eligible Employee, his or her Beneficiary shall be paid
the Supplemental Retirement Benefit that would have been
payable to the Eligible Employee determined as of the
Eligible Employee's date of death, or, if earlier, his or her
date of termination of employment with the Employer.
<PAGE> -11-
ARTICLE IV
FORFEITURE OF SUPPLEMENTAL BENEFITS
4.1 Disclosure of Proprietary Information. The
Supplemental Retirement Benefits otherwise payable under the
terms of this Plan shall be forfeited and the Employer and
the Plan shall have no additional liability if an Eligible
Employee discloses, divulges, publishes or otherwise reveals
either directly or through another, to any person, firm or
corporation, any knowledge or information concerning any
Employer or Affiliate inventions, devices, technical data,
strategic plans (business and technical), or financial data
(including any data classified as "Secret and Proprietary
Information"), which knowledge or information has in any way
been disclosed to or acquired by the Eligible Employee during
the term of his or her employment with the Employer or an
Affiliate. Such knowledge or information shall not include
knowledge or information which:
(1) is or was in the public domain at the time of its
disclosure to the Eligible Employee; or,
(2) enters the public domain after the date of
disclosure to the Eligible Employee except where
such entry is a result of a breach by the Eligible
Employee of this Section; or,
(3) is disclosed to the Eligible Employee by a third
party having a bona fide right to make such
disclosure, or is otherwise lawfully obtained from
other sources; or,
<PAGE> -12-
(4) is disclosed to others by the Employer or Affiliate
without restriction.
4.2 Direct Competition with the Employer or an
Affiliate. The Supplemental Retirement Benefits payable
under the terms of this Plan shall be forfeited and the
Employer and the Plan shall have no further liability to an
Eligible Employee if said Eligible Employee directly or
indirectly, in any capacity, performs any compensated service
for, be employed by or become associated in any firm,
corporation or partnership engaged in the manufacture,
production or sale of products which compete with products
produced or sold by the Employer or an Affiliate. For the
purposes of this Plan, products shall be limited to these
which are manufactured, produced or sold by the Employer or
an Affiliate as described in the Employer's or Affiliate's
most recent Annual Report to its stockholders.
4.3 Discharge for Just Cause. The Supplemental
Retirement Benefits otherwise payable under the terms of this
Plan shall be forfeited and the Employer and the Plan shall
have no further liability if the employment of said Eligible
Employee by the Employer or Affiliate is terminated or
otherwise ceases for "Just Cause." "Just Cause" shall mean
discharge or resignation as the direct result of any act or
omission which constitutes a misdemeanor or a felony, or
<PAGE> -13-
which clearly evidences fraud or dishonesty on the part of
the Eligible Employee.
<PAGE> -14-
ARTICLE V
FORM OF PAYMENT
A Supplemental Retirement Benefit or Supplemental
Survivor's Benefit payable under this Plan shall be payable
to the Eligible Employee or Beneficiary, as applicable, in
the form of a lump sum payment to be made as soon as
administratively practicable following the Eligible
Employee's termination of employment with the Employer and
all Affiliates, or, if applicable, following the Eligible
Employee's death.
<PAGE> -15-
ARTICLE VI
NATURE OF INTEREST OF PARTICIPANT
6.1 Unsecured General Creditor. The interests of
Eligible Employees and Beneficiaries in the Plan shall be
that of unsecured general creditors, with no secured or
preferential right to any assets of Owens Corning or any
Employer, Affiliate, or any other party for payment of
benefits under this Plan. Any property held by Owens Corning
or any Employer for the purpose of generating the cash flow
for benefit payments shall remain its general, unpledged and
unrestricted assets. Any Employer's obligation under the
Plan shall be an unfunded and unsecured promise to pay
benefits in the future.
6.2 Trust Fund. Each Employer shall be responsible for
the payment of benefits provided under the Plan to its
Eligible Employees. At its discretion, the Employer may
establish one or more trusts, with such trustees as the Board
of Directors may approve, for the purpose of providing for
the payment of such benefits. Any trustee so appointed shall
be bonded in a manner satisfactory to the Employer. Whether
or not such a trust is irrevocable, its assets shall at all
times be subject to the claims of the Employer's general
creditors in the event of the Employer's insolvency. To the
extent any benefits provided under the Plan are paid from
such trust, the Employer shall have no further obligation to
pay Plan benefits.
<PAGE> -16-
Plan benefits not paid from the trust
shall remain the obligation of the Employer.
6.3 No Right to Transfer Interest. Rights to benefits
payable under the Plan are not subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
or encumbrance.
<PAGE> -17-
ARTICLE VII
ADMINISTRATION
7.1 Administrator. (a) Except as provided in (b)
below, the Plan shall be administered by the Senior Vice
President of Human Resources of Owens Corning, or, by the
individual who holds the functional equivalent of such
position.
(b) The Chairman and Chief Executive Officer of
Owens Corning shall be the Administrator with respect to any
matters involving the participation in this Plan of the
individual described in (a) above.
7.2 Powers of the Administrator. The Administrator's
powers shall include, but shall not be limited to, the power
to adopt rules consistent with the Plan; the power to decide
all questions relating to the interpretation of the terms and
provisions of the Plan; the power to resolve all other
questions arising under the Plan (including, without
limitation, the power to remedy possible ambiguities,
inconsistencies, or omissions by a general rule or particular
decision); and the power to designate all or a part of the
previously described powers to another employee of Owens
Corning. The Administrator shall have full and absolute
discretion and authority to exercise each of the foregoing
powers.
<PAGE> -18-
7.3 Finality of Administrator Determinations. Determinations
by the Administrator and any interpretation, rule,
or decision adopted by the Administrator under the Plan or in
carrying out or administering the Plan shall be final and
binding for all purposes and upon all interested persons,
their heirs, and their personal representatives.
<PAGE> -19-
ARTICLE VIII
MISCELLANEOUS
8.1 Amendment, Suspension, and Termination.
(a) The Board of Directors shall have the right
to amend, suspend, or terminate the Plan at any time.
(b) The Board of Directors or the Chairman and
Chief Executive Officer of Owens Corning shall have the right
to amend Appendix A of the Plan at any time to designate
additional individuals eligible to participate in the Plan.
(c) The Vice President of Human Resources of Owens
Corning, or the individual who holds the functional
equivalent of such position, may adopt minor amendments to
the Plan without prior approval of the Board of Directors
that (i) are necessary or advisable for purposes of
compliance with applicable laws and regulations, (ii) relate
to administrative practices, or (iii) have an insubstantial
financial effect on Plan benefits and expenses.
8.2 Board of Directors' Power to Delegate Authority.
The Board of Directors may, in its discretion, delegate to
any person or persons all or any part of the Board's
authority and responsibility under the Plan, including,
without limitation, the authority to amend the Plan.
<PAGE> -20-
8.3 Indemnification. Owens Corning shall indemnify any
individual who is a director, officer or employee of an
Employer, or his or her heirs and legal representatives,
against all liability and reasonable expense, including
counsel fees, amounts paid in settlement and amounts of
judgments, fines or penalties, incurred or imposed upon him
or her in connection with any claim, action, suit or
proceeding, whether civil, criminal, administrative or
investigative, in connection with his or her duties under the
Plan, provided that such act or omission does not constitute
gross negligence or willful misconduct.
8.4 No Employment Rights. No provisions of the Plan or
any action taken by an Employer, the Board of Directors, or
the Administrator shall give any person any right to be
retained in the employ of an Employer, and each Employer
specifically reserves the right and power to dismiss or
discharge any Eligible Employee.
8.5 No Impact on Other Benefits. Amounts accrued under
this Plan shall not be included in an Eligible Employee's
compensation for purposes of calculating benefits under any
other plan, program or arrangement sponsored by an Employer
or Affiliate.
<PAGE> -21-
8.6 Incapacity of Recipient. If an Eligible Employee
or Beneficiary entitled to a distribution under the Plan is
living under guardianship or conservatorship, distributions
payable under the terms of the Plan to such recipient shall
be paid to the appointed guardian or conservator and such
payment shall be a complete discharge of any liability of all
Employers.
8.7 Data. Each Eligible Employee and Beneficiary shall
furnish the Employer with all proofs of dates of birth and
death and other proofs necessary for the administration of
the Plan, and no Employer shall be liable for the fulfillment
of any obligations in any way dependent upon such information
unless and until the same shall have been received by the
Employer in form satisfactory to it.
8.8 Misstatements. If any relevant fact relating to
any person is found to have been misstated, the benefit
payable to an Eligible Employee or Beneficiary shall be the
benefit which would have been provided on the basis of the
correct information. Any excess payments due to such
misstatement shall be refunded to the Employer or withheld by
it from any further amounts otherwise payable, and any
underpayment shall be paid to the Eligible Employee or
Beneficiary as soon as administratively practicable.
<PAGE> -22-
8.9 Taxes. To the extent required by law, amounts
credited under the Plan shall be subject to Federal social
security and unemployment taxes during the year the services
giving rise to such contributions were performed (or, if
later, when the amounts are not subject to a substantial risk
of forfeiture). Each Employer shall withhold from any
distributions made pursuant to the Plan such amounts as may
be required by Federal, state or local law.
8.10 Applicable Law. The Plan shall be construed and
administered under the laws of the State of Ohio, except to
the extent that such laws are preempted by ERISA.
8.11 Usage of Terms and Headings. Words in the
masculine gender shall include the feminine and the singular
shall include the plural, and vice versa, unless qualified by
the context. Any headings are included for ease of reference
only, and are not to be construed to alter the terms of the
Plan.
IN WITNESS WHEREOF, Owens Corning has caused this Plan,
to be effective as of January 1, 1998, to be executed on its
behalf by the undersigned duly authorized officer this 13th
day of May, 1998.
<PAGE> -23-
Owens Corning
By: /s/ Robert C. Lonergan
------------------------
Robert C. Lonergan
Senior Vice President - Strategic Resources
<PAGE> A-1
APPENDIX A
EMPLOYEES ELIGIBLE FOR SUPPLEMENTAL
RETIREMENT BENEFITS
Employee Name Title
- 37 - Exhibit (11)
OWENS CORNING AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<S> <C> <C> <C> <C>
Quarter Six Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
(In millions of dollars, except share data)
Basic:
Net income $ 59 $ 63 $ 67 $ 105
Basic weighted average number of
common shares outstanding
(thousands) 53,562 52,945 53,464 52,642
Basic per share amount $ 1.09 $ 1.19 $ 1.25 $ 1.99
Diluted:
Net income $ 61 $ 65 $ 71 $ 109
Weighted average number of common
shares outstanding (thousands) 53,563 52,945 53,465 52,642
Weighted average common equivalent
shares (thousands):
Deferred awards 16 14 16 14
Stock options using the
average market price
during the period 746 689 605 757
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) 58,891 58,214 58,652 57,979
Diluted per share amount $ 1.02 $ 1.11 $ 1.20 $ 1.88
</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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 42
<SECURITIES> 0
<RECEIVABLES> 597
<ALLOWANCES> 0
<INVENTORY> 535
<CURRENT-ASSETS> 1,527
<PP&E> 3,647
<DEPRECIATION> 1,888
<TOTAL-ASSETS> 5,102
<CURRENT-LIABILITIES> 1,365
<BONDS> 1,761
<COMMON> 669
503
0
<OTHER-SE> (1,051)
<TOTAL-LIABILITY-AND-EQUITY> 5,102
<SALES> 2,423
<TOTAL-REVENUES> 2,423
<CGS> 1,923
<TOTAL-COSTS> 1,923
<OTHER-EXPENSES> (70)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73
<INCOME-PRETAX> 100
<INCOME-TAX> 27
<INCOME-CONTINUING> 67
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67
<EPS-PRIMARY> 1.25<F1>
<EPS-DILUTED> 1.20<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)
State or Other
Jurisdiction
Under the Laws of
Subsidiaries of Owens Corning (6/30/98) 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 AS Norway
Flowtite Iberica, S.A. Spain
Flowtite Offshore Services Ltd. Cyprus
Flowtite Pipe & Tanks AS Norway
Flowtite Technology AS Norway
IPM Inc. Delaware
Integrex Delaware
Kitsons Insulation Products Ltd. United Kingdom
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 Canos, S.A. Argentina
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
Owens-Corning Fiberglas Deutschland GmbH Germany
Owens-Corning Fiberglas Espana, S.A. Spain
State or Other
Jurisdiction
Under the Laws of
Subsidiaries of Owens Corning (6/30/98) Which Organized
Owens-Corning Fiberglas France S.A. France
Owens-Corning Fiberglas (G.B.) Ltd. United Kingdom
Owens-Corning Fiberglas (Italy) S.r.l. Italy
Owens-Corning Fiberglas 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 Polypan SPA Italy
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
Palmetto Products, Inc. Delaware
Prestige Vinyl Siding Inc. Ontario
Procanpol SP.Z.O.O. Poland
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
