<PAGE>
RULE NO. 424(b)(2)
REGISTRATION NO. 333-47961
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED APRIL 16, 1998
$550,000,000
OWENS CORNING
$300,000,000
7.5% NOTES DUE MAY 1, 2005
$250,000,000
7.7% NOTES DUE MAY 1, 2008
---------------
The 7.5% Notes due May 1, 2005 (the "2005 Notes") and the 7.7% Notes due May
1, 2008 (the "2008 Notes" and together with the 2005 Notes, the "Notes") are
being offered by Owens Corning ("Owens Corning" or the "Company"). Interest on
the Notes is payable on May 1 and November 1 of each year, commencing November
1, 1998. The Notes will be 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 (not including the
portion of any such payments of interest accrued as of the redemption date)
discounted to the redemption date on a semiannual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as
defined herein), plus, in each case, accrued and unpaid interest thereon to
the redemption date. The Notes will not be entitled to any sinking fund. Each
series of Notes will be represented by Book Entry Securities registered in the
name of The Depository Trust Company or its nominee. Beneficial interests in
the Book Entry Securities will be shown on, and transfer thereof will be
effected only through, records maintained by The Depository Trust Company and
its participants. Except as described herein, Notes in definitive form will
not be issued. The Notes will be issued only in denominations of $1,000 and
integral multiples thereof. See "Description of the Notes".
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT(2) COMPANY(1)(3)
----------------- ------------ --------------
<S> <C> <C> <C>
Per 2005 Note.................... 99.928% 0.625% 99.303%
Total............................ $299,784,000 $1,875,000 $297,909,000
Per 2008 Note.................... 99.950% 0.650% 99.300%
Total............................ $249,875,000 $1,625,000 $248,250,000
</TABLE>
- -------
(1) Plus accrued interest from May 1, 1998.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting estimated expenses of $557,500 payable by the Company.
---------------
The Notes offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that the
Notes will be ready for delivery in book entry form only through the
facilities of The Depository Trust Company in New York, New York, on or about
May 5, 1998, against payment therefor in immediately available funds.
The Underwriters for the 2005 Notes:
GOLDMAN, SACHS & CO.
BANCAMERICA ROBERTSON STEPHENS
BARCLAYS CAPITAL INC.
CHASE SECURITIES INC.
J.P. MORGAN & CO.
The Underwriters for the 2008 Notes:
GOLDMAN, SACHS & CO.
CITICORP SECURITIES, INC.
CREDIT SUISSE FIRST BOSTON
FIRST CHICAGO CAPITAL MARKETS, INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
---------------
The date of this Prospectus Supplement is April 30, 1998.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE NOTES, AND
THE IMPOSITION OF A PENALTY BID IN CONNECTION WITH THE OFFERING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Prospectus and the documents incorporated by reference herein contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). These
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those projected in these
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. Further information on factors that could
affect the Company's financial and other results are included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the
"1997 Form 10-K") filed with the Securities and Exchange Commission and
incorporated herein by reference.
THE COMPANY
Owens Corning is a world leader in building materials and high performance
glass fiber composites. The Company's products are used in industries such as
home improvement, new construction, transportation, marine, aerospace, energy,
appliance and electronics. The Company is a market leader in each of the North
American markets for insulation, roofing and vinyl siding, and is the world
leader in composites. In 1997, the Building Materials segment accounted for
74% of the Company's total sales and the Composite Materials segment accounted
for 26% of total sales.
BUILDING MATERIALS
The Company's Building Materials business sells a variety of building and
home improvement products in three major categories: (i) glass fiber, foam and
mineral wool insulation, (ii) roofing materials, and (iii) exterior products
for the home, such as vinyl and metal siding and accessories, vinyl windows
and patio doors, rainware (gutters and downspouts), cast stone building
products and housewrap. The Owens Corning name, its trademarked color PINK and
licensed Pink Panther icon and its FIBERGLAS(R) trademark enjoy strong brand
recognition with homeowner consumers in the building materials market.
COMPOSITE MATERIALS
The Company is the world's leading producer of glass fiber materials used in
composites. Composites are fabricated material systems made up of two or more
components (e.g., plastic resin and glass fiber) used in various applications
to replace traditional materials, such as aluminum, wood, and steel. The
global composites industry has expanded to include thousands of end-use
applications. The primary end-use markets that the Company serves are
construction, transportation, and electrical/electronics. In the construction
market, the major end-use application for glass fiber is asphalt roofing
shingles. In the transportation market, glass fiber is used mainly in
automotive and truck parts, a use that is continuing to grow as the amount of
composite materials per vehicle increases. Within the electrical/electronics
markets, glass fiber is used extensively in printed circuit boards made for
the consumer electronics, transportation and telecommunications industries.
S-2
<PAGE>
GROWTH STRATEGY
Owens Corning'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
and Advantage 2000, to achieve productivity improvements across all
businesses. System Thinking for the HomeTM leverages Owens Corning'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 addition, Owens Corning 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 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 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 its two largest 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 speciality distributor in North America
through nearly 200 company-owned distribution centers.
PRICING ENVIRONMENT
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 composite pricing decreased by approximately 6 percent from
late 1996 through 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.
RECENT DEVELOPMENTS
RESTRUCTURING TO IMPROVE PROFITABILITY
As a result of the growth in Owens Corning's business through acquisitions
and the significant pricing pressure the Company experienced in 1997, the
Company has implemented a strategic restructuring program designed to improve
profitability. The restructuring program will streamline the organization,
reduce overhead, enhance manufacturing productivity and close high cost
manufacturing facilities, resulting in a 9 percent reduction (approximately
2,200 people) in the work force worldwide. 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 pre-tax savings of $175 million per year. In addition to the
restructuring savings of $100 million, the Company expects to achieve an
additional $30 million in 1998 in synergies and cost savings from integrating
the Fibreboard and AmeriMark acquisitions.
The restructuring program and other cost reduction initiatives are expected
to result in a pre-tax charge of $250 million. Approximately $143 million of
the charge was recorded in the fourth quarter of
S-3
<PAGE>
1997, which is reflected in the results of operations for the year ended
December 31, 1997. Approximately $95 million of the charge was recorded in the
first quarter of 1998 and the balance is expected to be charged during the
remainder of the year.
DIVESTITURE PROGRAM
The Company is also focused on divesting certain non-strategic operations to
reduce debt and focus its efforts on core businesses. The divestiture program
is expected to result in net cash proceeds during 1998 of between $400 and
$500 million. 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, and its 50 percent interest in Alpha/Owens Corning
L.L.C., a manufacturer and marketer of unsaturated polyester and vinylester
resins, for approximately $140 million. The Company continues to evaluate
other divestiture opportunities.
RECENT PRICING ACTIONS
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 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.
FIRST QUARTER 1998 RESULTS
Net sales were $1.137 billion, a first-quarter record and an increase of 30
percent over $875 million recorded in the first quarter of 1997. Net income
was $8 million, or $.16 per diluted share in the first quarter, compared to
$42 million, or $.76 per diluted share reported for the first quarter of 1997.
Results for the first quarter of 1998 include a pre-tax charge of $95
million for restructuring and other actions. Also included is a pre-tax gain
of $84 million on the sale of the Company's 50 percent interest in Alpha/Owens
Corning L.L.C., and a tax credit of $13 million associated with Asia Pacific
operations.
BUILDING MATERIALS
Sales in Building Materials were $856 million for the first quarter of 1998,
up 41 percent over the first quarter of 1997, primarily driven by the two
major acquisitions (Fibreboard and AmeriMark) made in 1997 in the Exterior
Systems Business. Sales growth was also fueled by strong volumes in most U.S.
Building Materials businesses, influenced by strong housing starts and
accelerated customer purchases in advance of announced and implemented price
increases.
Building Materials income from operations was a loss of $16 million in the
first quarter of 1998 compared to income of $44 million in the first quarter
of 1997 due to price deterioration in fiber glass insulation during the second
half of 1997 and 1998 restructuring and other charges of $29 million.
COMPOSITE MATERIALS
Sales in Composite Materials were $281 million in the first quarter of 1998,
up 4 percent over the first quarter of 1997, driven by double-digit volume
growth. Lower price levels in the United States and currency impacts offset a
portion of the benefit from volume increases. Compared to the fourth quarter
of 1997, however, aggregate price levels were up.
Composites income from operations declined to $19 million in the first
quarter of 1998 from $51 million in the first quarter of 1997 due to the 1998
restructuring and other charges of $36 million.
COST REDUCTION
At the end of the first quarter, job reductions as a result of restructuring
or attrition totaled 1,900 employees, or 8 percent of the total workforce. Of
the total planned pre-tax restructuring and other charges of $250 million
announced January 9, 1998 approximately $143 million was recorded in the
fourth quarter of 1997 and $95 million was recorded in the first quarter of
1998.
S-4
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Notes offered hereby, after payment of
expenses related to the offering and underwriting discounts, are expected to
be approximately $545.6 million. The Company intends to use the net proceeds
to repay a portion of the outstanding borrowings under its revolving credit
agreement dated as of June 26, 1997, as amended (the "Credit Agreement"). The
Company intends to draw $100 million under the Credit Agreement to repay the
principal of its 9.8% Debentures when they mature on August 15, 1998. The
Credit Agreement has a maximum commitment of $1.8 billion and provides for
varying terms and interest rates. The average interest rate was 6.25% at
December 31, 1997. Borrowings under the Credit Agreement were used to repay
the Company's previous U.S. and Canadian credit facilities and select short-
term debt and to fund the acquisition of Fibreboard.
CAPITALIZATION
The following table summarizes (i) the actual consolidated capitalization of
the Company at December 31, 1997 and (ii) the capitalization of the Company as
adjusted to reflect the issuance of the Notes offered hereby and the
application of the estimated net proceeds thereof. This table should be read
in conjunction with the Company's Consolidated Financial Statements and Notes
thereto included in this Prospectus.
<TABLE>
<CAPTION>
AT DECEMBER 31,
1997
------------------
AS
ACTUAL ADJUSTED
------ --------
(IN MILLIONS)
<S> <C> <C>
Short-term debt, including current portion of long-term
debt...................................................... $ 143(a) $ 143
====== ======
Long-term debt
Credit Agreement......................................... 899 353
2005 Notes............................................... -- 300
2008 Notes............................................... -- 250
Other.................................................... 696 696
------ ------
Total long-term debt................................... $1,595 $1,599
Company obligated securities of entities holding solely
parent debentures
Convertible Monthly Income Preferred Securities (MIPS)... $ 194 $ 194
Trust Preferred Hybrid Securities........................ 309 309
------ ------
503 503
------ ------
Stockholders' equity....................................... (441) (441)
------ ------
Total capitalization................................... $1,800 $1,804
====== ======
</TABLE>
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(a) Includes $100 million of the Company's 9.8% Debentures due August 15,
1998.
S-5
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for each of the five fiscal years in the period ended December 31,
1997, which has been derived from the consolidated financial statements of the
Company audited by Arthur Andersen LLP, independent public accountants. The
following table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Company's Consolidated Financial Statements and the Notes thereto included in
this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997(A) 1996(B) 1995(C) 1994(D) 1993(E)
------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................. $4,373 $3,832 $3,612 $3,351 $2,944
Cost of sales......................... 3,446 2,840 2,670 2,536 2,266
Marketing and administrative ex-
penses............................... 580 500 443 391 327
Science and technology expenses....... 69 84 78 71 69
Provision for asbestos litigation
claims............................... -- 875 -- -- --
Restructuring costs................... 68 38 -- 89 23
Other................................. 28 (14) 1 38 23
------ ------ ------ ------ ------
Income (loss) from operations......... 182 (491) 420 226 236
Cost of borrowed funds................ 111 77 87 94 89
Minority interest..................... (11) (8) (5) -- --
Net income (loss)..................... 47 (284) 231 159 131
CASH FLOW DATA:
Net cash flow from operations......... $ 131 $ 335 $ 285 $ 233 $ 253
Depreciation and amortization......... 173 141 132 118 121
Capital spending...................... (227) (325) (276) (258) (178)
Payments for asbestos litigation
claims, excluding Fibreboard......... (300) (267) (308) (215) (283)
Proceeds from insurance for asbestos
litigation claims, excluding
Fibreboard........................... 97 101 251 87 224
RATIO OF EARNINGS TO FIXED CHARGES(f).. 1.34x -- 3.67x 2.15x 2.42x
</TABLE>
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(a) During 1997, the Company recorded a pre-tax charge of $143 million ($104
million after-tax) for restructuring and other actions, a $15 million pre-
tax credit ($10 million after tax) resulting from the modification of
certain employee benefits, as well as a $15 million after-tax charge for
the cumulative effect of the change in method of accounting for business
process reengineering costs.
(b) During 1996, the Company recorded a pre-tax charge of $43 million ($26
million after-tax) for restructuring and other actions; a net pre-tax
charge of $875 million ($542 million after-tax) for asbestos litigation
claims that may be received after 1999 and probable additional insurance
recovery; a pre-tax gain of $37 million ($27 million after-tax) from the
sale of the Company's ownership interest in its Japanese affiliate Asahi
Fiber Glass Co. Ltd.; a $27 million one-time tax benefit; and special
charges totaling $42 million ($27 million after-tax) including valuation
adjustments associated with prior divestitures major product line
productivity initiatives and a contribution to the Owens-Corning
Foundation.
(c) During 1995, the Company recorded a one-time $8 million tax credit as a
result of a tax loss carryback.
(d) During 1994, the Company recorded a $117 million charge ($85 million
after-tax) for productivity initiatives and other actions. The Company
also recorded a $10 million after-tax charge for the adoption of SFAS 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
S-6
<PAGE>
for its non-U.S. plans, a $28 million after-tax charge for the adoption of
SFAS 112, "Employers' Accounting for Postemployment Benefits," and a $123
million after-tax credit for the change in accounting method for rebuilding
furnaces.
(e) During 1993, the Company recorded a $23 million charge for the
restructuring of its European operations, an $8 million charge ($5 million
after-tax) for the write-down of its hydrocarbon ventures to their net
realizable value, a $26 million credit for the adoption of SFAS 109,
"Accounting for Income Taxes," and a $14 million credit for the
revaluation of deferred taxes.
(f) For purposes of the calculation of these ratios, earnings represent net
income before fixed charges, provision for taxes on income, undistributed
earnings of equity basis investments, extraordinary losses from early
retirement of debt and the cumulative effect of accounting changes. Fixed
charges include interest expense, the portion (one-third) of rental
expense deemed to be representative of interest and preferred stock
dividends requirements of consolidated subsidiaries. The Company's
earnings in 1996 were insufficient to cover fixed charges by approximately
$600 million.
S-7
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL DATA
The following table sets forth selected unaudited pro forma consolidated
financial data for the year ended December 31, 1997, which give effect to the
acquisitions of Fibreboard and AmeriMark as if they had occurred at the
beginning of 1997. The pro forma impact of all other acquisitions during 1997
was not material to the Company's results of operations for the year ended
December 31, 1997. The unaudited pro forma consolidated financial data
presented are not necessarily indicative of actual results that would have
been achieved had the above transactions been completed on the dates assumed
and do not purport to project the Company's financial position at any future
date or its results of operations for any future period.
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31, 1997(A)
-------------------------------
(IN MILLIONS)
<S> <C>
INCOME STATEMENT DATA:
Net sales................................ $5,041
Income from operations (b)............... 196
Cost of borrowed funds................... 131
Minority interest........................ (23)
Net income from continuing operations ... 46
</TABLE>
- --------
(a) The pro forma results for the year ended December 31, 1997 include certain
adjustments, primarily for depreciation and amortization, interest and
other expenses directly attributable to the acquisitions of Fibreboard and
AmeriMark. The pro forma results do not include operations that were
discontinued by Fibreboard prior to the acquisition, or Pabco.
(b) During 1997, the Company recorded a pre-tax charge of $143 million ($104
million after-tax) for restructuring and other actions, a $15 million pre-
tax credit ($10 million after-tax) resulting from the modification of
certain employee benefits, as well as a $15 million after-tax charge for
the cumulative effect of the change in method of accounting for business
process reengineering costs.
S-8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales were $4.373 billion for the year ended December 31, 1997,
reflecting a 14% increase from the 1996 level of $3.832 billion. Net sales in
1995 were $3.612 billion. Growth in 1997 is mostly attributable to the
acquisition of Fibreboard that was completed at the end of the second quarter
and the acquisition of AmeriMark that was completed early in the fourth
quarter of 1997. Volume increases in composites were partially offset by
declines in worldwide composites pricing. The decline in composites pricing
was most notable in Europe and primarily reflects an overall weak economic
climate. The sales results also reflect a decline in insulation prices
worldwide. Additionally, sales were adversely affected by the translation
impact of a stronger U.S. dollar on sales in foreign currencies. Sales outside
the U.S. represented 24% of total sales for the year ended December 31, 1997,
compared to 25% and 27% for the years 1996 and 1995, respectively. Gross
margin for the year ended December 31, 1997 was 21%, down from 26% in 1996 and
1995. The decline in the 1997 gross margin primarily reflects lower prices in
insulation and composites worldwide.
For the year ended December 31, 1997, the Company reported net income of $47
million, or $.88 per diluted share, compared to a net loss of $284 million, or
$5.54 per share, for the year ended December 31, 1996, and net income of $231
million, or $4.41 per share, for the year ended December 31, 1995. Net income
for 1997 includes a pre-tax charge of $143 million ($104 million after-tax)
for restructuring and other actions. Net income for 1997 also reflects
increased cost of borrowed funds and minority interest expense, due primarily
to the financing of the Fibreboard and AmeriMark acquisitions; a $10 million
after-tax credit resulting from the modification of certain employee benefits
in the second quarter; as well as a $15 million after-tax charge for the
cumulative effect of the change in method of accounting for business process
reengineering costs.
The 1996 net loss reflects a net after-tax charge of $542 million for
asbestos litigation claims that may be received after 1999; after-tax special
charges totaling $27 million including valuation adjustments associated with
prior divestitures, major product line productivity initiatives and a
contribution to the Owens-Corning Foundation; an after-tax charge of $26
million for restructuring and other actions; a $27 million reduction of tax
reserves due to favorable legislation; and an after-tax gain of $27 million
from the sale of the Company's ownership interest in its former Japanese
affiliate, Asahi Fiber Glass Co. Ltd. Net income for the year ended December
31, 1995 includes a one-time gain of $8 million resulting from a tax loss
carryback.
Marketing and administrative expenses were $580 million in 1997 compared to
$500 million in 1996. The increase in marketing and administrative expenses is
due to the incremental costs from acquisitions.
The Company's cost of borrowed funds for the year ended December 31, 1997
was $111 million, $34 million higher than 1996. This increase is primarily
related to the Company's borrowings to finance the acquisition of Fibreboard.
The remainder of the increase is due to borrowings related to the Company's
working capital requirements.
At December 31, 1997, the Company has $488 million in net deferred tax
assets, all of which management expects will be realized through future income
from operations.
The $143 million pre-tax charge referred to above for restructuring and
other actions was the first phase of the Company's strategic program to reduce
overhead, enhance manufacturing productivity and close manufacturing
facilities. The Company estimates that the total cost of this program and
other costs will approximate $250 million, with the remainder of the actions
to be taken in the first quarter of 1998. Based upon expected economic
conditions over the next few years, including labor, material and
S-9
<PAGE>
other costs, the Company expects to be able to decrease operating costs by
approximately $100 million in 1998, and by an additional $75 million when
fully implemented in 1999, resulting in ongoing savings of $175 million per
year.
BUILDING MATERIALS
In the Building Materials segment, sales increased 20% in 1997 compared to
1996. This growth reflects the incremental sales from acquisitions as well as
volume increases worldwide, resulting from the integration of the Company's
expanded product line. The benefits of acquisitions and volume growth were
reduced by a decline in prices and the adverse impact of a stronger dollar.
Income from operations for Building Materials was $123 million in 1997, a 44%
decrease from the 1996 level of $219 million. This decrease is due to
insulation pricing pressures as well as a portion of the special charges
described above.
During 1997, the Company made several acquisitions in the Building Materials
segment in the United States and Europe which were consummated through the
exchange of various combinations of common stock, cash, and trust preferred
hybrid securities. The largest of these were the acquisitions of Fibreboard
and AmeriMark, which were completed at the end of the second quarter and early
in the fourth quarter, respectively. With these acquisitions, the Company has
obtained the leading North American sales position in vinyl siding as well as
broad distribution capabilities.
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
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 year ended December 31, 1997 or 1996. 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 those
periods.
<TABLE>
<CAPTION>
PRO FORMA YEAR ENDED ACTUAL YEAR ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ---------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(IN MILLIONS OF DOLLARS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Net sales.................... $ 5,041 $ 4,932 $ 4,373 $ 3,832
Income (loss) from continuing
operations.................. 46 (301) 62 (284)
Diluted earnings per share
from continuing operations.. $ .86 $ (5.86) $ 1.17 $ (5.54)
</TABLE>
COMPOSITE MATERIALS
In the Composite Materials segment, sales were up slightly for the year
ended December 31, 1997 compared to 1996. Volume increases, particularly in
Europe, were largely offset by pricing pressures globally as well as the
impact of a stronger dollar on sales in foreign currencies. Income from
operations was $165 million in 1997, down 26% from $222 million in 1996. This
decline largely reflects the decline in price globally. Income from operations
also includes a portion of the special charges described above.
The Company completed two acquisitions in the Composite Materials segment
during 1997, including the acquisition of the remainder of the Company's
equity interest in Knytex, a manufacturer of specialty glass fiber fabrics.
The Company's other acquisition was that of the assets of The Stewart
S-10
<PAGE>
Group, Inc., a manufacturer and marketer of a composite central strength
member for telecommunication cable using proprietary technology. With this
acquisition, the Company now markets a complete line of glass fiber products
that protect and reinforce fiber optic and copper telecommunications cable.
LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED MATTERS
Cash flow from operations, excluding proceeds from insurance and payments
for asbestos litigation claims, was $334 million for 1997, compared to $501
million for 1996. The decrease in cash flow from operations in 1997 is largely
attributable to the Company's lower earnings in 1997. Cash flow from
operations also reflects the Company's substantial income tax receivable as of
December 31, 1997, which will be received early in 1998. Decreases in
receivables and inventories, excluding those acquired during 1997, were
largely offset by a decline in accounts payable and accrued liabilities. The
1996 cash flow from operations reflects an inflow due to a higher level of
disbursements for benefits from the Voluntary Employees' Beneficiary
Association trust (VEBA) in 1996 compared to 1997.
The Company's net working capital and current ratio were $121 million and
1.09 compared to negative $163 million and .85, at December 31, 1997 and 1996,
respectively. The increase in 1997 was primarily due to increased receivables
and inventories as well as an increase in income taxes receivable.
The Company's total borrowings at December 31, 1997, were $1,738 million,
$804 million higher than at year-end 1996. The increase in debt is primarily
the result of the financing of the Fibreboard acquisition as well as increases
in working capital.
As of December 31, 1997, the Company had unused lines of credit of $884
million available under long-term bank credit facilities and an additional
$224 million under short-term facilities, compared to $440 million and $195
million, respectively, at year-end 1996. The increase in unused available
lines of credit reflects primarily the establishment of a new $2 billion
credit facility in June, 1997. Letters of credit issued under the facility,
most of which support appeals from asbestos trials, reduce the available
credit. The impact of such reduction is reflected in the unused lines of
credit discussed above.
Capital spending for property, plant and equipment, excluding acquisitions,
was $227 million in 1997. The Company anticipates 1998 capital spending,
exclusive of acquisitions and investments in affiliates, will be approximately
$220 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 1997, including amounts
deferred from prior years and excluding amounts deferred to future years, were
$300 million. The 1997 expenditures include $51 million in defense costs and
$7 million for appeal bond and other costs. Proceeds from insurance were $97
million resulting in a net pre-tax cash outflow of $203 million, or $122
million after-tax. During 1997, the Company received approximately 35,300 new
asbestos personal injury cases and closed approximately 19,200 cases. During
1998, the Company's total payments for asbestos litigation claims, including
defense costs, are expected to be approximately $350 million. Proceeds from
insurance of $100 million are expected to be available to cover these costs,
resulting in a net pre-tax cash outflow of $250 million, or $150 million
after-tax.
Gross payments for asbestos litigation claims against Fibreboard for the six
months ended December 31, 1997 were approximately $126 million, all of which
was paid directly by Fibreboard's insurers or from the escrow account to
claimants on Fibreboard's behalf. During the year, Fibreboard received
approximately 33,000 new asbestos personal injury claims, and resolved
approximately 2,800 claims. During the next twelve months, any payments for
asbestos claims against Fibreboard are expected to be paid by Fibreboard's
insurers or from the escrow account.
S-11
<PAGE>
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 indebtedness, as
well as its contingent liabilities for uninsured asbestos personal injury
claims.
The Company has been deemed by the Environmental Protection Agency (EPA) to
be a potentially responsible party (PRP) with respect to certain sites under
the Comprehensive Environmental Response, Compensation and Liability Act
(Superfund). The Company has also been deemed a PRP under similar state or
local laws, including two state Superfund sites where the Company is the
primary generator. In other instances, other PRPs have brought suits or claims
against the Company as a PRP for contribution under such federal, state or
local laws. During 1997, the Company was designated as a PRP in such federal,
state, local or private proceedings for two additional sites. At December 31,
1997, a total of 42 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 $31 million reserve, of which $15 million relates to Fibreboard,
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 (the "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 roofing and
processing, and metal coil coating. The EPA's currently announced schedule is
to issue regulations covering wool fiberglass and mineral wool in 1998,
asphalt roofing and processing 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 the Advantage 2000 program. A key objective of this initiative
is to ensure all business transactions are compliant with requirements to
process 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. All remaining system updates will be implemented throughout the
period ending July 1, 1999.
The cumulative cost of business systems replacement from 1995 through the
end of 1997 has been $139 million, including $97 million for information
technology and $42 million for related training and deployment in various
business locations. The current estimates for all remaining locations range
from approximately $35 million to $45 million for information technology,
manufacturing technology, and training and deployment costs.
The Company is also working with all suppliers to ensure their systems are
year 2000 compliant as well. All costs associated with supplier compliance
will be borne by them. In the event that some suppliers are unable to convert
or replace systems appropriately, the Company will switch suppliers to those
that are able to provide compliant transaction processing.
S-12
<PAGE>
ASBESTOS LITIGATION
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 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.
For a discussion of the Company's asbestos liabilities, see Note 22 to the
Company's Consolidated Financial Statements included in this Prospectus.
DESCRIPTION OF THE NOTES
The following sets forth the particular terms of the 2005 Notes and the 2008
Notes offered hereby and supplements and should be read in conjunction with
the statements in the accompanying Prospectus under the caption "Description
of Debt Securities." Capitalized terms not otherwise defined herein shall have
the meanings given to them in the accompanying Prospectus.
GENERAL
Each series of the Notes will be issued as a series of Debt Securities under
an Indenture (the "Indenture") dated as of May 5, 1997 between the Company and
The Bank of New York, as Trustee, which is more fully described in the
accompanying Prospectus.
The 2005 Notes will be issued as unsecured obligations of the Company in an
aggregate principal amount of $300,000,000 and will mature on May 1, 2005. The
2008 Notes will be issued as unsecured obligations of the Company in an
aggregate principal amount of $250,000,000 and will mature on May 1, 2008.
Each Series of the Notes will bear interest from May 1, 1998, payable semi-
annually in arrears on each May 1 and November 1, commencing November 1, 1998,
at the rate set forth on the cover page of this Prospectus Supplement, to the
persons in whose names the Notes are registered on the preceding April 15 and
October 15, respectively.
The principal of, premium, if any, and interest on the Notes will be
payable, the transfer of Notes will be registrable and the Notes may be
presented for exchange, at the office of the Trustee located at 101 Barclay
Street, Floor 21W., New York, NY 10286, attention Corporate Trust, Trustee
Administration. So long as the Notes are represented by Book Entry Securities,
the interest payable on the Notes will be paid to Cede & Co., the nominee of
The Depository Trust Company ("DTC"), the Depositary for the Notes, or its
registered assigns as the registered owner of the Book Entry Securities, by
wire transfer of immediately available funds on each of the applicable
interest payment dates, not later than 2:30 p.m. Eastern Standard Time. If the
Notes are no longer represented by Book Entry Securities, payment of interest
may, at the option of the Company, be made by check mailed to the address of
the Person entitled thereto.
No sinking fund is provided for the Notes.
OPTIONAL REDEMPTION
The Notes will be 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 thereon (not
S-13
<PAGE>
including the portion of any such payments of interest accrued as of the
redemption date) discounted to the redemption date on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Adjusted
Treasury Rate (determined on the third Business Day preceding such redemption
date), plus, in each case, accrued and unpaid interest thereon to the
redemption date.
"Adjusted Treasury Rate" means the arithmetic mean of the yields under the
heading "Week Ending" published in the Statistical Release most recently
published prior to the date of determination under the caption "Treasury
Constant Maturities" for the maturity (*rounded to the nearest month)
corresponding to the remaining life to maturity, as of the redemption date, of
the principal being redeemed, plus 0.25% in the case of the 2005 Notes and
0.375% in the case of the 2008 Notes. If no maturity set forth under such
heading exactly corresponds to the maturity of such principal, yields for the
two published maturities most closely corresponding to the maturity of such
principal shall be calculated pursuant to the immediately preceding sentence,
and the Adjusted Treasury Rate shall be interpolated or extrapolated from such
yields on a straight-line basis, rounding in each of the relevant periods to
the nearest month.
"Statistical Release" means the statistical release designated "H.15(519)"
or any successor publication which is published weekly by the Federal Reserve
System and which establishes yields on actively-traded United States
government securities adjusted to constant maturities, or, if such statistical
release is not published at the time of any determination under the terms of
the Notes, then such other reasonably comparable index which shall be
designated by the Company.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of the Notes to be redeemed.
Unless the Company defaults in payment of the redemption price, on and after
the redemption date, interest will cease to accrue on the Notes or portions
thereof called for redemption.
BOOK ENTRY, DELIVERY AND FORM
Each series of the Notes will be represented by Book Entry Securities that
will be deposited with, or on behalf of, DTC and registered in the name of
Cede & Co., the nominee of DTC.
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities of its participating organizations ("participants") and to
facilitate the clearance and settlement of securities transactions, such as
transfers and pledges, among its participants in such securities through
electronic computerized book-entry changes in accounts of the participants,
thereby eliminating the need for physical movement of securities certificates.
Participants include securities brokers and dealers (including the
Underwriters), banks, trust companies, clearing corporations and certain other
organizations, some of whom (and/or their representatives) own DTC. Access to
DTC's book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. Persons who
are not participants may beneficially own securities held by DTC only through
participants.
Unless and until they are exchanged in whole or in part for certificated
Notes, in definitive form, the Book Entry Securities may not be registered for
transfer or exchange except as a whole by DTC to a nominee of DTC or by a
nominee of DTC to DTC or another nominee of DTC or by DTC or any such nominee
to a successor depository or a nominee of such successor depository.
A further description of DTC's procedures with respect to the Notes is set
forth in the accompanying Prospectus under the heading "Description of Debt
Securities--Book Entry Debt Securities."
S-14
<PAGE>
DEFEASANCE
The provisions described under "Description of Debt Securities--Defeasance of
Offered Debt Securities or Certain Covenants in Certain Circumstances" in the
accompanying Prospectus are applicable to the 2005 Notes and the 2008 Notes.
S-15
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
and the related Pricing Agreements, the Company has agreed to sell to each of
such Underwriters named below, and each of such Underwriters has severally
agreed to purchase, the principal amount of the Notes set forth opposite its
name below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF 2005 NOTES
------------ ----------------
<S> <C>
Goldman, Sachs & Co. ....................................... $150,000,000
BancAmerica Robertson Stephens.............................. 37,500,000
Barclays Capital Inc. ...................................... 37,500,000
Chase Securities Inc. ...................................... 37,500,000
J.P. Morgan Securities Inc. ................................ 37,500,000
------------
Total..................................................... $300,000,000
============
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF 2008 NOTES
------------ ----------------
<S> <C>
Goldman, Sachs & Co. ....................................... $125,000,000
Citicorp Securities, Inc. .................................. 31,250,000
Credit Suisse First Boston Corporation ..................... 31,250,000
First Chicago Capital Markets, Inc. ........................ 31,250,000
NationsBanc Montgomery Securities LLC ...................... 31,250,000
------------
Total..................................................... $250,000,000
============
</TABLE>
Under the terms and conditions of the Underwriting Agreement and the Pricing
Agreements, the Underwriters are committed to take and pay for all of the
Notes, if any are taken.
The Underwriters propose to offer the Notes in part directly to the public
at the initial public offering price set forth on the cover page of this
Prospectus Supplement and in part to certain securities dealers at such price
less a concession of 0.375% of the principal amount of the 2005 Notes and
0.400% of the principal amount of the 2008 Notes. The Underwriters may allow,
and such dealers may reallow, a concession not to exceed 0.250% of the
principal amount of the 2005 Notes and 0.250% of the principal amount of the
2008 Notes to certain brokers and dealers. After the Notes are released for
sale to the public, the offering price and other selling terms may from time
to time be varied by the Underwriters.
The Notes are a new issue of securities with no established trading market.
The Company has been advised by the Underwriters that they intend to make a
market in the Notes but are not obligated to do so and may discontinue market
making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes.
In connection with the offering, the Underwriters may purchase and sell the
Notes in the open market. These transactions may include over-allotment and
stabilizing transactions and purchases to cover short positions created by the
Underwriters in connection with the offering. Stabilizing transactions consist
of certain bids or purchases for the purpose of preventing or retarding a
decline in the market price of the Notes; and short positions created by the
Underwriters involve the sale by the Underwriters of a greater number of Notes
than they are required to purchase from the Company in the offering. The
Underwriters also may impose a penalty bid, whereby selling concessions
allowed to broker-dealers in respect of the securities sold in the offering
may be reclaimed by the Underwriters if such Notes are repurchased by the
Underwriters in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Notes, which
may be higher than the price that might otherwise prevail in the open market;
and these activities, if commenced, may be discontinued at any time. These
transactions may be effected in the over-the-counter market or otherwise.
S-16
<PAGE>
Barclays Bank PLC, The Chase Manhattan Bank and The Chase Manhattan Bank of
Canada, Citibank N.A., Credit Suisse First Boston and Credit Suisse First
Boston Canada, The First National Bank of Chicago and First Chicago NBD Bank
Canada, Morgan Guaranty Trust Company of New York and Nationsbank, N.A. are
affiliates of Barclays Capital Inc., Chase Securities Inc., Citicorp
Securities, Inc., Credit Suisse First Boston Corporation, First Chicago
Capital Markets, Inc., J.P. Morgan Securities Inc. and NationsBanc Montgomery
Securities LLC, respectively, and are lenders under the Credit Agreement and
have in the past, and may in the future, engage in other commercial banking
transactions with the Company. The Company intends to use a portion of the net
proceeds of this offering to repay in part amounts outstanding under the
Credit Agreement, and such lenders will receive in excess of 10% of such net
proceeds (not including underwriting compensation). Because more than 10% of
the net proceeds of the offering will be received by entities affiliated with
members of the National Association of Securities Dealers, Inc. (the "NASD")
participating in the offering made hereby, the offering is being conducted
pursuant to Rule 2710(c)(8) of the Conduct Rules of the NASD.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.
VALIDITY OF THE NOTES
The validity of the Notes offered hereby will be passed upon for the Company
by Shearman & Sterling, New York, New York and for the Underwriters by
Sullivan & Cromwell, Los Angeles, California.
S-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Owens Corning:
We have audited the accompanying consolidated balance sheet of OWENS CORNING
(a Delaware corporation) and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of income, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Owens Corning and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
As discussed in Note 6 to the consolidated financial statements, during the
fourth quarter of 1997, the Company changed its method of accounting for
business process reengineering costs.
Arthur Andersen LLP
January 27, 1998
Toledo, Ohio
F-1
<PAGE>
OWENS CORNING AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Owens Corning and subsidiaries' (the "Company") consolidated financial
statements include the accounts of majority owned subsidiaries, unless
ownership is considered temporary. Significant intercompany accounts and
transactions are eliminated.
NET INCOME PER SHARE
Basic net income per share is computed using the weighted average number of
common shares outstanding during the period. Diluted net income per share
reflects the dilutive effect of common equivalent shares and increased shares
that would result from the conversion of debt and equity securities. The
effects of anti-dilution are not presented. Unless otherwise indicated, all
per share information included in the notes to the consolidated financial
statements is presented on a diluted basis. The 1996 and 1995 earnings per
share calculations have been restated in accordance with Statement of
Financial Accounting Standards No. 128.
INVENTORY VALUATION
Inventories are stated at cost, which is less than market value, and include
material, labor and manufacturing overhead. The majority of U.S. inventories
are valued using the last-in, first-out (LIFO) method and the balance of
inventories are generally valued using the first-in, first-out (FIFO) method.
GOODWILL
Goodwill is carried at cost, less accumulated amortization, and is amortized
on a straight-line basis over a period of forty years. The Company continually
evaluates whether events and circumstances have occurred that indicate the
remaining estimated useful life of goodwill may warrant revision or that the
remaining balance may not be recoverable. When factors indicate that goodwill
should be evaluated for possible impairment, the Company uses an estimate of
the related business segment's undiscounted cash flows over the remaining life
of the goodwill in measuring whether the goodwill is recoverable.
INVESTMENTS IN AFFILIATES
Investments in affiliates are accounted for using the equity method, under
which the Company's share of earnings of these affiliates is reflected in
income as earned and dividends are credited against the investment in
affiliates when received.
CAPITALIZATION OF SOFTWARE DEVELOPED FOR INTERNAL USE
The Company capitalizes the direct external and internal costs incurred in
connection with the development, testing and installation of software for
internal use. Internally developed software is included in plant and equipment
and is amortized over its estimated useful life using the straight-line
method.
DEPRECIATION
For assets placed in service prior to January 1, 1992, the Company's plant
and equipment is depreciated primarily using the double-declining balance
method for the first half of an asset's estimated useful life and the
straight-line method is used thereafter. For assets placed in service after
December 31, 1991, the Company's plant and equipment is depreciated using the
straight-line method.
F-2
<PAGE>
OWENS CORNING AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
Gains and losses on hedges of existing assets or liabilities are included in
the carrying amount of those assets or liabilities and are ultimately
recognized in income as part of those carrying amounts. Gains and losses on
hedges of net investments in foreign subsidiaries are included in
stockholders' equity. Gains and losses related to qualifying hedges of firm
commitments or anticipated transactions also are deferred and are recognized
in income or as adjustments of carrying amounts when the hedged transaction
occurs. Gains and losses on forward currency exchange contracts that do not
qualify as hedges are recognized as other income or expense.
STOCK BASED COMPENSATION PLANS
The Company applies Statement of Financial Accounting Standards No. 123
(SFAS 123) in accounting for its stock based compensation plans. In accordance
with SFAS 123 the Company applies Accounting Principles Board Opinion No. 25
and related Interpretations for expense recognition.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to 1996 and 1995 to conform with
the classifications used in 1997.
F-3
<PAGE>
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS OF DOLLARS,
EXCEPT SHARE DATA)
<S> <C> <C> <C>
NET SALES....................................... $ 4,373 $ 3,832 $ 3,612
COST OF SALES................................... 3,446 2,840 2,670
-------- -------- --------
Gross margin.................................. 927 992 942
-------- -------- --------
OPERATING EXPENSES
Marketing and administrative expenses......... 580 500 443
Science and technology expenses (Note 12)..... 69 84 78
Provision for asbestos litigation claims (Note
22).......................................... -- 875 --
Restructure costs (Note 4).................... 68 38 --
Other (Notes 4 and 15)........................ 28 (14) 1
-------- -------- --------
Total operating expenses.................... 745 1,483 522
-------- -------- --------
INCOME (LOSS) FROM OPERATIONS................... 182 (491) 420
Cost of borrowed funds (Notes 2, 3 and 21)...... 111 77 87
-------- -------- --------
INCOME (LOSS) BEFORE PROVISION (CREDIT) FOR
INCOME TAXES................................... 71 (568) 333
Provision (credit) for income taxes (Note 11)... 9 (283) 109
-------- -------- --------
INCOME (LOSS) BEFORE MINORITY INTEREST AND
EQUITY IN NET INCOME OF AFFILIATES............. 62 (285) 224
Minority interest (Notes 7 and 8)............... (11) (8) (5)
Equity in net income of affiliates (Note 15).... 11 9 12
-------- -------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE.............................. 62 (284) 231
Cumulative effect of accounting change (Note 6). (15) -- --
-------- -------- --------
NET INCOME (LOSS)............................... $ 47 $ (284) $ 231
======== ======== ========
NET INCOME PER COMMON SHARE (Note 19)
Basic:
Income (loss) before cumulative effect of
accounting change............................ $ 1.18 $ (5.54) $ 4.73
Cumulative effect of accounting change (Note
6)........................................... (.29) -- --
-------- -------- --------
Net income (loss) per share................... $ .89 $ (5.54) $ 4.73
======== ======== ========
Diluted:
Income (loss) before cumulative effect of
accounting change............................ $ 1.17 $ (5.54) $ 4.41
Cumulative effect of accounting change (Note
6)........................................... (.29) -- --
-------- -------- --------
Net income (loss) per share................... $ .88 $ (5.54) $ 4.41
======== ======== ========
Weighted average number of common shares
outstanding and common equivalent shares during
the period (in millions)
Basic......................................... 52.9 51.3 48.7
Diluted....................................... 53.5 51.3 53.9
</TABLE>
The accompanying summary of significant accounting policies and notes are an
integral part of this statement.
F-4
<PAGE>
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET--DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents......................... $ 58 $ 45
Receivables, less allowances of $20 million in
1997 and $17 million in 1996 (Note 13)........... 432 314
Inventories (Note 14)............................. 503 340
Insurance for asbestos litigation claims--current
portion (Note 22)................................ 100 100
Deferred income taxes (Note 11)................... 160 106
Assets held for sale (Note 5)..................... 41 --
Income tax receivable (Note 11)................... 96 4
Other current assets.............................. 38 49
------------ ------------
Total current.................................... 1,428 958
------------ ------------
OTHER
Insurance for asbestos litigation claims (Note
22).............................................. 357 454
Asbestos costs to be reimbursed--Fibreboard (Note
22).............................................. 116 --
Deferred income taxes (Note 11)................... 328 474
Goodwill, less accumulated amortization of $45
million in 1997 and $26 million in 1996 (Note 5). 778 286
Investments in affiliates (Notes 4 and 15)........ 52 64
Other noncurrent assets (Note 10)................. 184 155
------------ ------------
Total other...................................... 1,815 1,433
------------ ------------
PLANT AND EQUIPMENT, at cost
Land.............................................. 66 58
Buildings and leasehold improvements.............. 676 614
Machinery and equipment........................... 2,629 2,384
Construction in progress.......................... 214 285
------------ ------------
3,585 3,341
Less: Accumulated depreciation.................... (1,832) (1,819)
------------ ------------
Net plant and equipment.......................... 1,753 1,522
------------ ------------
TOTAL ASSETS...................................... $ 4,996 $ 3,913
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities (Note
16).............................................. $ 814 $ 705
Reserve for asbestos litigation claims--current
portion (Note 22)................................ 350 300
Short-term debt (Note 3).......................... 23 96
Long-term debt--current portion (Note 2).......... 120 20
------------ ------------
Total current.................................... 1,307 1,121
------------ ------------
LONG-TERM DEBT (Note 2)........................... 1,595 818
------------ ------------
OTHER
Reserve for asbestos litigation claims (Note 22).. 1,320 1,670
Asbestos-related liabilities--Fibreboard (Note
22).............................................. 123 --
Other employee benefits liability (Note 9)........ 335 349
Pension plan liability (Note 10).................. 65 63
Other............................................. 165 161
------------ ------------
Total other...................................... 2,008 2,243
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 18, 21 and
22)
COMPANY OBLIGATED SECURITIES OF ENTITIES HOLDING
SOLELY PARENT DEBENTURES (Notes 7 and 8)......... 503 194
------------ ------------
MINORITY INTEREST................................. 24 21
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value; authorized 8
million shares, none outstanding (Note 20)....... -- --
Common stock, par value $.10 per share; authorized
100 million shares; issued 1997--53.6 million and
1996--52.1 million shares (Notes 2, 5 and 19).... 657 606
Deficit........................................... (1,041) (1,072)
Foreign currency translation adjustments.......... (37) (1)
Other (Notes 10 and 19)........................... (20) (17)
------------ ------------
Total stockholders' equity....................... (441) (484)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 4,996 $ 3,913
============ ============
</TABLE>
The accompanying summary of significant accounting policies and notes are an
integral part of this statement.
F-5
<PAGE>
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
COMMON STOCK
Balance beginning of year........................ $ 606 $ 579 $ 348
Issuance of stock for:
Conversion of debt (Note 2).................... -- -- 173
Acquisitions (Note 5).......................... 16 20 42
Awards under stock compensation plans (Note
19)........................................... 35 7 16
-------- -------- --------
Balance end of year.............................. 657 606 579
-------- -------- --------
DEFICIT
Balance beginning of year........................ (1,072) (781) (1,012)
Net income (loss)................................ 47 (284) 231
Cash dividends declared.......................... (16) (7) --
-------- -------- --------
Balance end of year.............................. (1,041) (1,072) (781)
-------- -------- --------
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
Balance beginning of year........................ (1) 9 (1)
Translation adjustments.......................... (36) (10) 10
-------- -------- --------
Balance end of year.............................. (37) (1) 9
-------- -------- --------
OTHER
Balance beginning of year........................ (17) (19) (15)
Net increase (decrease).......................... (3) 2 (4)
-------- -------- --------
Balance end of year.............................. (20) (17) (19)
-------- -------- --------
STOCKHOLDERS' EQUITY............................. $ (441) $ (484) $ (212)
======== ======== ========
</TABLE>
The accompanying summary of significant accounting policies and notes are an
integral part of this statement.
F-6
<PAGE>
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
NET CASH FLOW FROM OPERATIONS
Net income (loss).............................. $ 47 $ (284) $ 231
Reconciliation of net cash provided by
operating activities:
Noncash items:
Provision for asbestos litigation claims
(Note 22)................................... -- 875 --
Cumulative effect of accounting change (Note
6).......................................... 15 -- --
Provision for depreciation and amortization.. 173 141 132
Provision (credit) for deferred income taxes
(Note 11)................................... 110 (258) 142
Other (Note 4)............................... 49 (2) (2)
(Increase) decrease in receivables (Note 13)... 57 20 36
(Increase) decrease in inventories............. 60 (71) (15)
Increase (decrease) in accounts payable and
accrued liabilities........................... (60) 103 (50)
Disbursements (funding) of VEBA trust.......... 19 45 (64)
Proceeds from insurance for asbestos litigation
claims, excluding Fibreboard (Note 22)........ 97 101 251
Payments for asbestos litigation claims,
excluding Fibreboard (Note 22)................ (300) (267) (308)
Other.......................................... (136) (68) (68)
-------- -------- --------
Net cash flow from operations.................... 131 335 285
-------- -------- --------
NET CASH FLOW FROM INVESTING
Additions to plant and equipment............... (227) (325) (276)
Investment in subsidiaries, net of cash
acquired (Note 5)............................. (564) (70) (81)
Proceeds from the sale of affiliate (Note 15).. -- 55 --
Other.......................................... (8) (20) (4)
-------- -------- --------
Net cash flow from investing..................... $ (799) $ (360) $ (361)
======== ======== ========
NET CASH FLOW FROM FINANCING (Notes 2, 3 and 7)
Net additions to long-term credit facilities... $ 796 $ 39 $ 55
Other additions to long-term debt.............. 108 22 9
Other reductions to long-term debt............. (133) (43) (128)
Net increase (decrease) in short-term debt..... (81) 32 (94)
Issuance of preferred stock of subsidiary...... -- -- 194
Dividends paid................................. (14) (3) --
Other.......................................... 6 3 --
-------- -------- --------
Net cash flow from financing................. 682 50 36
-------- -------- --------
Effect of exchange rate changes on cash.......... (1) 2 (1)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... 13 27 (41)
Cash and cash equivalents at beginning of year... 45 18 59
-------- -------- --------
Cash and cash equivalents at end of year......... $ 58 $ 45 $ 18
======== ======== ========
</TABLE>
The accompanying summary of significant accounting policies and notes are an
integral part of this statement.
F-7
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SEGMENT DATA
The Company operates in two industry segments, Building Materials and
Composite Materials, and reports its results in two ways: by industry segment
and by geographic segment. See Note 5 for detail of 1997, 1996 and 1995
acquisitions and divestitures of businesses.
The industry segments are defined as follows:
Building Materials
Production and sale of glass wool fibers formed into thermal and acoustical
insulation and air ducts; extruded and expanded polystyrene insulation;
roofing shingles and asphalt materials; windows and doors; vinyl and metal
siding and accessories; cast stone building products; and the branded sale of
housewrap.
Composite Materials
Production and sale of glass fiber yarns; rovings, mats and veils; strand
and reinforcement products; glass reinforced plastic pipe; and polyester and
vinyl ester resins.
The geographic segment reporting combines the two industry segments within
the major regions: United States, Europe, and Canada and other.
Intersegment sales are generally recorded at market or equivalent value.
Income (loss) from operations by industry and geographic segment consists of
net sales less related costs and expenses. In computing income (loss) from
operations by segment, cost of borrowed funds and other general corporate
income and expenses have been excluded. Certain corporate operating expenses
directly traceable to industry and geographic segments have been allocated to
those segments.
Income from operations for the year ended December 31, 1997 includes a
pretax charge of $143 million for restructuring and other actions (Note 4).
The impact of these special items was to reduce income from operations for
Building Materials in the United States, Europe, and Canada and other by $21
million, $6 million and $62 million, respectively; Composite Materials in the
United States, Europe, and Canada and other by $5 million, $6 million and $3
million, respectively; and to increase general corporate expense by $40
million.
Income (loss) from operations for the year ended December 31, 1996 includes
a pretax charge of $43 million for restructuring and other actions (Note 4); a
net pretax charge of $875 million for asbestos litigation claims (Note 22); a
pretax gain of $37 million from the sale of the Company's ownership interest
in its former Japanese affiliate Asahi Fiber Glass Co. Ltd. (Note 15); and
charges totaling $42 million including valuation adjustments associated with
prior divestitures, major product line productivity initiatives and a
contribution to the Owens-Corning Foundation. The impact of these special
items was to reduce income from operations for Building Materials in the
United States, Europe, and Canada and other by $42 million, $5 million and $3
million, respectively; Composite Materials in the United States and Europe by
$5 million and $7 million, respectively; and to increase general corporate
expense by $861 million.
Identifiable assets by industry and geographic segment are those assets that
are used in the Company's operations in each industry and geographic segment
and do not include general corporate assets. General corporate assets consist
primarily of cash and cash equivalents, deferred taxes, asbestos assets, and
corporate property and equipment.
F-8
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
NET SALES
INDUSTRY SEGMENTS
Building Materials
United States................................... $ 2,704 $ 2,253 $ 2,033
Europe.......................................... 301 284 264
Canada and other................................ 212 145 107
-------- -------- --------
Total Building Materials...................... 3,217 2,682 2,404
-------- -------- --------
Composite Materials
United States................................... 607 613 610
Europe.......................................... 392 400 459
Canada and other................................ 157 137 139
-------- -------- --------
Total Composite Materials..................... 1,156 1,150 1,208
-------- -------- --------
Intersegment sales
Building Materials.............................. -- -- --
Composite Materials............................. 100 110 96
Eliminations.................................... (100) (110) (96)
-------- -------- --------
Net sales..................................... $ 4,373 $ 3,832 $ 3,612
======== ======== ========
GEOGRAPHIC SEGMENTS
United States.................................... $ 3,311 $ 2,866 $ 2,643
Europe........................................... 693 684 723
Canada and other................................. 369 282 246
-------- -------- --------
$444,373 $ 3,832 $ 3,612
-------- -------- --------
Intersegment sales
United States................................... 115 98 54
Europe.......................................... 31 37 21
Canada and other................................ 86 81 88
Eliminations.................................... (232) (216) (163)
-------- -------- --------
Net sales..................................... $ 4,373 $ 3,832 $ 3,612
======== ======== ========
</TABLE>
F-9
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
INCOME (LOSS) FROM OPERATIONS
INDUSTRY SEGMENTS
Building Materials
United States................................... $ 184 $ 193 $ 195
Europe.......................................... (3) 16 29
Canada and other................................ (58) 10 13
-------- -------- -------
Total Building Materials...................... 123 219 237
-------- -------- -------
Composite Materials
United States................................... 174 165 135
Europe.......................................... (7) 39 64
Canada and other................................ (2) 18 26
-------- -------- -------
Total Composite Materials..................... 165 222 225
-------- -------- -------
General corporate expense......................... (106) (932) (42)
-------- -------- -------
Income (loss) from operations................. 182 (491) 420
Cost of borrowed funds............................ (111) (77) (87)
-------- -------- -------
Income (loss) before provision for income
taxes........................................ $ 71 $ (568) $ 333
======== ======== =======
GEOGRAPHIC SEGMENTS
United States.................................... $ 358 $ 358 $ 330
Europe........................................... (10) 55 93
Canada and other................................. (60) 28 39
General corporate expense........................ (106) (932) (42)
-------- -------- -------
Income (loss) from operations................. $ 182 $ (491) $ 420
======== ======== =======
</TABLE>
F-10
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
IDENTIFIABLE ASSETS AT DECEMBER 31,
INDUSTRY SEGMENTS
Building Materials
United States......................................... $ 2,127 $ 971 $ 893
Europe................................................ 253 239 170
Canada and other...................................... 325 243 194
-------- -------- --------
Total Building Materials............................ 2,705 1,453 1,257
-------- -------- --------
Composite Materials
United States......................................... 415 385 361
Europe................................................ 260 355 388
Canada and other...................................... 166 206 145
-------- -------- --------
Total Composite Materials........................... 841 946 894
-------- -------- --------
General corporate....................................... 1,398 1,450 1,024
-------- -------- --------
4,944 3,849 3,175
Investments in affiliates accounted for under the equity
method................................................. 52 64 86
-------- -------- --------
Total assets........................................ $ 4,996 $ 3,913 $ 3,261
======== ======== ========
GEOGRAPHIC SEGMENTS
United States.......................................... $ 2,542 $ 1,356 $ 1,254
Europe................................................. 513 594 558
Canada and other....................................... 491 449 339
General corporate...................................... 1,398 1,450 1,024
-------- -------- --------
$ 4,944 $ 3,849 $ 3,175
======== ======== ========
</TABLE>
F-11
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
PROVISION FOR DEPRECIATION AND AMORTIZATION
INDUSTRY SEGMENTS
Building Materials
United States......................................... $ 72 $ 57 $ 52
Europe................................................ 18 16 13
Canada and other...................................... 16 7 9
-------- -------- --------
Total Building Materials............................ 106 80 74
-------- -------- --------
Composite Materials
United States......................................... 24 22 22
Europe................................................ 18 18 18
Canada and other...................................... 9 9 8
-------- -------- --------
Total Composite Materials........................... 51 49 48
-------- -------- --------
General corporate...................................... 16 12 10
-------- -------- --------
Total provision for depreciation and amortization... $ 173 $ 141 $ 132
======== ======== ========
GEOGRAPHIC SEGMENTS
United States.......................................... $ 96 $ 79 $ 74
Europe................................................. 36 34 31
Canada and other....................................... 25 16 17
General corporate...................................... 16 12 10
-------- -------- --------
Total provision for depreciation and amortization... $ 173 $ 141 $ 132
======== ======== ========
</TABLE>
F-12
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
ADDITIONS TO PLANT AND EQUIPMENT
INDUSTRY SEGMENTS
Building Materials
United States........................................ $ 82 $ 95 $ 60
Europe............................................... 18 10 36
Canada and other..................................... 29 36 33
-------- -------- --------
Total Building Materials........................... 129 141 129
-------- -------- --------
Composite Materials
United States........................................ 21 63 37
Europe............................................... 14 30 39
Canada and other..................................... 17 34 18
-------- -------- --------
Total Composite Materials.......................... 52 127 94
-------- -------- --------
General corporate.................................... 46 57 53
-------- -------- --------
Total additions.................................... $ 227 $ 325 $ 276
======== ======== ========
GEOGRAPHIC SEGMENTS
United States......................................... $ 103 $ 158 $ 97
Europe................................................ 32 40 75
Canada and other...................................... 46 70 51
General corporate..................................... 46 57 53
-------- -------- --------
Total additions.................................... $ 227 $ 325 $ 276
======== ======== ========
</TABLE>
F-13
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
------------ ------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C>
U.S. credit facility due in 2002, variable.......... $ 899 $ --
U.S. credit facility due in 1999, variable.......... -- 35
U.K. credit facility due through 2001, variable..... -- 59
European credit facilities due through 2001,
variable........................................... 34 41
Guaranteed debentures due in 2001, 10%.............. 150 150
Debentures due in 2002, 8.875%...................... 150 150
Debentures due in 2012, 9.375%...................... 150 150
Guaranteed debentures due in 1998, 9.8%............. 100 100
U.S. medium term notes due in 2000, 7.0%............ 60 --
Bonds due in 2000, 7.25%, payable in Deutsche marks
(Note 21).......................................... 50 50
Eurobonds due through 2001, 9.814% (Note 21)........ 46 54
Other long-term debt due through 2012, at rates from
5.375% to 12.47%................................... 76 49
------------ -----------
1,715 838
Less: Current portion............................... (120) (20)
------------ -----------
Total long-term debt................................ $ 1,595 $ 818
============ ===========
</TABLE>
In the second quarter of 1997, the Company entered into a long-term
revolving credit agreement with a maximum commitment equivalent to $2 billion,
of which portions can be denominated in Canadian dollars, Belgian francs or
British pounds. 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 December 31, 1997. As of December 31, 1997, $217
million of this facility was used for standby letters of credit and $884
million was unused. The average rate of interest on this facility was 6.25% at
December 31, 1997.
The European credit facilities are payable in Belgian francs and U.S.
dollars and have an aggregate commitment of 1.439 billion Belgian francs (39
million U.S. dollars) and 30 million U.S. dollars. The rate of interest on
these facilities at December 31, 1997 was 4.235% and 6.26%, respectively. The
commitment fee on the unused portions of the facilities range from 1/10 to 1/4
of 1%.
As is typical for bank credit facilities, the agreements relating to the
facilities described above contain restrictive covenants, including
requirements for the maintenance of interest coverage, a leverage ratio and
minimum coverage of fixed charges; and limitations on the early retirement of
subordinated debt, additional borrowings, payment of dividends, and purchase
of Company stock. The agreements include a provision which would result in all
of the unpaid principal and accrued interest of the facilities becoming due
immediately upon a change of control in ownership of the Company. A material
adverse change in the Company's business, assets, liabilities, financial
condition or results of operations constitutes a default under the agreements.
During 1995, the Company's $173 million issue of 8% convertible junior
subordinated debentures was converted. The conversion resulted in the issuance
of 5.8 million new shares of common stock.
F-14
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The aggregate maturities and sinking fund requirements for all long-term
debt issues for each of the five years following December 31, 1997 are:
<TABLE>
<CAPTION>
CREDIT OTHER LONG-
YEAR FACILITIES TERM DEBT
---- ------------ ------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C>
1998...................................... $ 7 $ 113
1999...................................... 17 13
2000...................................... 5 132
2001...................................... 5 170
2002...................................... 899 191
</TABLE>
3. SHORT-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN MILLIONS
OF DOLLARS)
<S> <C> <C>
Balance outstanding at December 31........................ $ 23 $ 96
Weighted average interest rates on short-term debt
outstanding at December 31............................... 5.9% 6.2%
</TABLE>
The Company had unused short-term lines of credit totaling $224 million and
$195 million at December 31, 1997 and 1996, respectively.
4. RESTRUCTURING OF OPERATIONS AND OTHER ACTIONS
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 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 including the closure of the Candiac, Quebec manufacturing
facility to be completed in 1998, and $2 million for other actions. The $25
million for personnel reductions represents severance costs associated with
the elimination of nearly 550 positions worldwide. The primary employee groups
affected include manufacturing and corporate administrative personnel.
During the fourth quarter of 1996, the Company recorded a $43 million pretax
charge for restructuring and other actions which included the costs associated
with a work force realignment, a replacement of computer technology as well as
asset valuations and expenses related to exited businesses. The $43 million
pretax charge was comprised of a $38 million restructure charge and a $5
million charge related to an exited business. The components of the
restructure charge included $20 million for personnel reductions, $8 million
in computer technology and $10 million for asset valuations and exited
businesses.
The $20 million for personnel reductions represented severance costs
associated with the elimination of nearly 400 positions worldwide. The primary
employee group affected was manufacturing personnel. At December 31, 1997, the
balance remaining in the reserve is approximately $3 million.
5. ACQUISITIONS AND DIVESTITURES OF BUSINESSES
During 1997, the Company made several acquisitions in the Building Materials
segment in the United States and Europe as well as two acquisitions in the
Composite Materials segment in the United States and Canada, which were
consummated through the exchange of various combinations of common stock,
cash, and trust preferred hybrid securities (Note 8). The aggregate purchase
price was $886 million for 1997. On June 27, 1997, the Company acquired
Fibreboard Corporation, a North
F-15
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
American manufacturer of vinyl siding and accessories, as well as manufactured
stone. Fibreboard operates more than 130 company-owned distribution centers in
32 states. The purchase price of this acquisition 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. At the time of acquisition, management formulated a plan to divest
Fibreboard's calcium silicate insulation and metal jacket business (Pabco).
Pabco's net assets are included in assets held for sale on the Company's
consolidated balance sheet.
On October 1, 1997, the Company completed the asset acquisition of AmeriMark
Building Products, Inc., a specialty building products company which serves
the exterior residential housing industry. The acquisition was completed for a
purchase price of $309 million in trust preferred hybrid securities and $8
million in cash.
The Company completed four additional acquisitions during 1997 in the U.S.,
Europe and Canada. The aggregate purchase price of these acquisitions was $47
million. These acquisitions exchanged 340,000 shares of the Company's common
stock and $34 million in cash. The pro forma effect of these acquisitions,
except for the acquisitions of Fibreboard and AmeriMark, was not material to
net income for the year ended December 31, 1997 or 1996.
During 1996 and 1995, the Company also made several acquisitions in the
Building Materials segment in the United States, Canada and Europe. The 1996
acquisitions exchanged 472,250 shares of the Company's common stock and $69
million in cash. The 1995 acquisitions exchanged 1,125,140 shares of the
Company's common stock and $82 million in cash, of which $1 million was paid
in the first quarter of 1996 and 228,218 shares were issued during 1997.
The incremental sales from the acquisitions, in the year of acquisition,
were $534 million, $47 million and $41 million for the years ended December
31, 1997, 1996 and 1995, respectively.
The initial purchase price allocations were based on preliminary estimates
of fair market value and are subject to revision. The estimated fair value of
assets acquired during 1997, including goodwill of $518 million, was $1.404
billion, and liabilities assumed, including $150 million in debt, totaled $518
million. The 1996 acquisitions included goodwill of $32 million. The 1995
acquisitions included goodwill of $97 million.
All acquisitions were accounted for under the purchase method of accounting,
whereby the assets acquired and liabilities assumed have been recorded at
their fair values and the results of operations for the acquisitions have been
included in the Company's consolidated financial statements subsequent to the
dates of acquisition.
The following unaudited table presents the pro forma results of operations
for the years ended December 31, 1997 and 1996, assuming the acquisitions of
Fibreboard and AmeriMark occurred at the beginning of each period presented.
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 Pabco.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1997 1996
------------ ------------
(IN MILLIONS OF DOLLARS,
EXCEPT SHARE DATA)
<S> <C> <C>
Net sales...................................... $ 5,041 $ 4,932
Income (loss) from continuing operations....... 46 (301)
Diluted earnings per share from continuing
operations.................................... $ .86 $ (5.86)
</TABLE>
F-16
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. BUSINESS PROCESS REENGINEERING COSTS
In the fourth quarter of 1997, the Company recorded a $15 million charge, or
$.29 per share, net of related income taxes of $10 million, to comply with a
new required accounting interpretation announced November 20, 1997. The
Emerging Issues Task Force (EITF), a subcommittee of the Financial Accounting
Standards Board (FASB), requires that the cost of business process
reengineering activities that are part of a systems development project be
expensed as those costs are incurred. Any unamortized costs that were
previously capitalized must be written off as a cumulative adjustment in the
quarter containing November 20, 1997.
7. CONVERTIBLE MONTHLY INCOME PREFERRED SECURITIES (MIPS)
In 1995, Owens-Corning Capital, L.L.C. ("OC Capital"), a Delaware limited
liability company, all of the common limited liability company interests in
which are owned indirectly by the Company, completed a private offering of 4
million shares of Convertible Monthly Income Preferred Securities ("Preferred
Securities"). The aggregate purchase price for the offering was $200 million.
In conjunction with the offering, the Company incurred $6 million in issuance
costs.
The Preferred Securities are guaranteed in certain respects by the Company
and are convertible, at the option of the holders, into Company common stock
at the rate of 1.1416 shares of Company common stock for each Preferred
Security (equivalent to a conversion price of $43.80 per common share). OC
Capital cannot initiate any action relating to conversion until after June 1,
1998. Distributions on the Preferred Securities are cumulative and are payable
at the annual rate of 6 1/2% of the liquidation preference of $50 per
Preferred Security. Distributions of $13 million, $13 million, and $8 million
have been recorded net of tax as minority interest on the Company's
consolidated statement of income for the years ended December 31, 1997, 1996
and 1995, respectively.
The Company issued $200 million of 6 1/2% Convertible Subordinated
Debentures due 2025 to OC Capital, which represents the sole asset of OC
Capital, in exchange for the proceeds of the offering.
8. TRUST PREFERRED HYBRID SECURITIES
In 1997, the Company delivered 6,180,000 7% Income PRIDES securities
("Hybrid Securities") in payment of $309 million of the purchase price for the
Company's acquisition of the assets of AmeriMark Building Products, Inc. (Note
5). Each Hybrid Security represents (i) beneficial ownership by the holder of
one 7% Trust Preferred Security ("Trust Preferred Security") of Owens Corning
Capital III, a Delaware statutory business trust all of the common securities
of which are owned by the Company (the "Trust"), having a liquidation amount
of $50, providing for cumulative distributions at the rate of 7% per annum
through November 15, 2000 and at a reset rate thereafter, and guaranteed in
certain respects by the Company, and (ii) the obligation of the holder under a
contract with the Company for the purchase on November 16, 2000, at a price of
$50, of a number of shares of the Company's common stock as determined by a
formula based on the market price of common stock. The aggregate number of
shares issuable under such formula ranges from 6.2 million to 8.5 million.
In connection with delivery of the Hybrid Securities, the Company entered
into a Registration Rights Agreement providing for, among other things, (i)
the Company to register the Hybrid Securities so as to permit them to be
resold to the public, (ii) in the event that the Hybrid Securities are not
registered and sold by October 1, 1999 (subject to acceleration in certain
events), the Company either to arrange for the sale of such securities to a
third party or to cause the Trust to redeem the Trust Preferred Securities,
(iii) in the event the Hybrid Securities are sold to a third party for a net
amount less than $50 plus accrued and unpaid distributions, the Company's
payment of a deficiency amount, and (iv) so long as the original holder holds
the Hybrid Securities, the Company's payment of an additional amount, per
security held, of up to 2% per annum.
F-17
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Distributions of $5 million in the fourth quarter of 1997 pursuant to the
Trust Preferred Securities have been recorded net of tax as minority interest.
The Company issued $319 million of 7% Debentures due November 15, 2002 to
the Trust, which represents the sole asset of the Trust, in exchange for the
Trust Preferred Securities and the common securities of the Trust.
9. POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company and its subsidiaries maintain health care and life insurance
benefit plans for certain retired employees and their dependents. The health
care plans in the U.S. are unfunded and pay either 1) stated percentages of
covered medically necessary expenses, after subtracting payments by Medicare
or other providers and after stated deductibles have been met, or, 2) fixed
amounts of medical expense reimbursement.
Employees become eligible to participate in the health care plans upon
retirement under the Company's pension plans if they have accumulated 10 years
of service after age 45. Some of the plans are contributory, with some retiree
contributions adjusted annually. The Company has reserved the right to change
or eliminate these benefit plans subject to the terms of collective bargaining
agreements.
The following table reconciles the status of the accrued postretirement
benefits cost liability at October 31, 1997 and 1996, as reflected on the
balance sheet at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C>
Accumulated Postretirement Benefits Obligation:
Retirees..................................... $ (225) $ (191)
Fully eligible active plan participants...... (44) (28)
Other active plan participants............... (59) (58)
------------ ------------
Funded status.................................. (328) (277)
Unrecognized net (gain) loss................... 30 (10)
Unrecognized net reduction in prior service
cost........................................ (32) (52)
Benefit payments subsequent to the valuation
date.......................................... 4 4
------------ ------------
Accrued postretirement benefits cost
liability (includes current liabilities of
$24 million and $22 million in 1997 and
1996, respectively)......................... $ (326) $ (335)
============ ============
</TABLE>
The net postretirement benefits cost for 1997, 1996 and 1995 included the
following components:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Service cost.................................. $ 7 $ 8 $ 7
Interest cost on accumulated postretirement
benefits obligation.......................... 20 19 19
Net amortization and deferral................. (20) (20) (24)
-------- -------- --------
Net postretirement benefits cost.............. $ 7 $ 7 $ 2
======== ======== ========
</TABLE>
For measurement purposes, an 8% annual rate of increase in the per capita
cost of covered health care claims was assumed for 1998. The rate was assumed
to decrease to 7% for 1999, then decrease to 6% by 2000. The health care cost
trend rate assumption has a significant effect on the amounts reported. To
illustrate, increasing the assumed health care cost trend rate by one
percentage point in each year would increase the accumulated postretirement
benefits obligation as of October 31, 1997, by $45 million and the aggregate
of the service and interest cost components of net postretirement benefits
cost for the year then ended by $5 million. The discount rate used in
determining the accumulated postretirement benefits obligation was 7.25% in
1997, 7.75% in 1996 and 7.5% in 1995.
F-18
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company also recognizes the obligation to provide benefits to former or
inactive employees after employment but before retirement under certain
conditions. These benefits include, but are not limited to, salary
continuation, supplemental unemployment benefits, severance benefits,
disability-related benefits (including workers' compensation), job training
and counseling, and continuation of benefits such as health care and life
insurance coverage. The accrued postemployment benefits cost liability at
October 31, 1997 and 1996, as reflected on the balance sheet at December 31,
1997 and 1996 was $37 million and $40 million, respectively, including current
liabilities of $4 million in each year. The net postemployment benefits
expense was less than $1 million for 1997 and $2 million for 1996 and 1995.
10. PENSION PLANS
The Company has several defined benefit pension plans covering most
employees. Under the plans, pension benefits are generally based on an
employee's pay and number of years of service. Company contributions to these
pension plans are based on the calculations of independent actuaries using the
projected unit credit method. Plan assets consist primarily of equity
securities with the balance in fixed income investments. The unrecognized cost
of retroactive amendments and actuarial gains and losses are amortized over
the average future service period of plan participants expected to receive
benefits.
Pension expense for the Company's defined benefit pension plans includes the
following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Service cost............ $ 23 $ 14 $ 20
Interest cost on
projected benefit
obligation............. 64 62 64
Actual return on plan
assets................. (160) (106) (114)
Net amortization and
deferral............... 75 25 30
Curtailment gain........ (4) -- --
-------- -------- --------
Net pension expense..... $ (2) $ (5) $ --
======== ======== ========
</TABLE>
The funded status at October 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
OVER UNDER OVER UNDER
FUNDED FUNDED FUNDED FUNDED
------ ------ ------ ------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Vested benefit obligation....................... $273 $649 $679 $ 19
==== ==== ==== ====
Accumulated benefit obligation.................. $275 $706 $757 $ 21
==== ==== ==== ====
Plan assets at fair value....................... $378 $681 $839 $ 10
Projected benefit obligation.................... 286 711 805 29
---- ---- ---- ----
Plan assets in excess of (less than) projected
benefit
obligation..................................... 92 (30) 34 (19)
Unrecognized (gain) loss........................ (21) 37 53 9
Unrecognized prior service cost................. 1 (49) (55) 1
Unrecognized transition amount.................. (16) (22) (41) --
Adjustment to minimum liability................. -- (4) -- (5)
---- ---- ---- ----
Net pension liability (includes current
liabilities of less than $1 million in 1997 and
$3 million in 1996 and noncurrent assets of $53
million in 1997 and $43 million in 1996)....... $ 56 $(68) $ (9) $(14)
==== ==== ==== ====
</TABLE>
F-19
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The 1997, 1996 and 1995 primary actuarial assumptions used for pension plans
were:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate.............................................. 7.25% 7.75% 7.50%
Expected long-term rate of return on plan assets........... 9.00% 9.00% 9.00%
Rate of compensation increase.............................. 5.00% 5.10% 5.10%
</TABLE>
The Company also sponsors defined contribution plans available to
substantially all U.S. employees. Company contributions for the plans are
based on matching a percentage of employee savings up to a maximum savings
level. The Company's contributions were $13 million in 1997, $10 million in
1996, and $12 million in 1995.
11. INCOME TAXES
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Income (loss) before provision (credit) for
income taxes:
U.S........................................ $ 151 $ (609) $ 234
Foreign.................................... (80) 41 99
-------- -------- -------
Total.................................... $ 71 $ (568) $ 333
======== ======== =======
Provision (credit) for income taxes:
Current
U.S........................................ $ (123) $ (31) $ (42)
State and local............................ 1 (6) (4)
Foreign.................................... 21 12 13
-------- -------- -------
Total current............................ (101) (25) (33)
-------- -------- -------
Deferred
U.S........................................ 151 (211) 113
State and local............................ (3) (48) 15
Foreign.................................... (38) 1 14
-------- -------- -------
Total deferred........................... 110 (258) 142
-------- -------- -------
Total provision (credit) for income
taxes: $ 9 $ (283) $ 109
======== ======== =======
</TABLE>
The reconciliation between the U.S. federal statutory rate and the Company's
effective income tax rate is:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory rate................................. 35% (35)% 35%
State and local income taxes................................ 5 (6) 2
Adjustment of tax reserves due to favorable legislation..... -- (5) --
Operating losses of foreign subsidiaries.................... 24 -- --
Foreign tax credits......................................... (6) -- --
Change in effective state income tax rate................... (9) -- --
Conclusion of prior year tax audits......................... (4) -- --
Utilization of tax loss carrybacks.......................... (20) -- (2)
Adjustment of valuation allowances.......................... (10) (1) --
Other....................................................... (3) (3) (2)
--- --- ---
Effective tax rate.......................................... 12% (50)% 33%
=== === ===
</TABLE>
F-20
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1997, the Company has not provided for withholding or
U.S. federal income taxes on approximately $244 million of accumulated
undistributed earnings of its foreign subsidiaries as they are considered by
management to be permanently reinvested. If these undistributed earnings were
not considered to be permanently reinvested, approximately $28 million of
deferred income taxes would have been provided.
At December 31, 1997, the Company had net operating loss carryforwards for
certain of its foreign subsidiaries and certain of its state tax
jurisdictions, the tax benefit of which is approximately $101 million. Tax
benefits of $62 million expire over the period from 1998 through 2012, and the
remaining $39 million have an indefinite carryforward.
The cumulative temporary differences giving rise to the deferred tax assets
and liabilities at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
DEFERRED DEFERRED
DEFERRED TAX DEFERRED TAX
TAX ASSETS LIABILITIES TAX ASSETS LIABILITIES
---------- ----------- ---------- -----------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Asbestos litigation claims..... $455 $-- $525 $--
Other employee benefits........ 152 -- 157 --
Pension plans.................. 24 14 22 11
Depreciation................... -- 233 -- 200
Operating loss carryforwards... 101 -- 63 --
State and local taxes.......... -- 43 -- 38
Other.......................... 190 110 140 56
---- ---- ---- ----
Subtotal..................... 922 400 907 305
Valuation allowances........... (34) -- (22) --
---- ---- ---- ----
Total deferred taxes........... $888 $400 $885 $305
==== ==== ==== ====
</TABLE>
Management fully expects to realize its net deferred tax assets through
income from future operations.
12. SCIENCE AND TECHNOLOGY EXPENSES
Science and technology expenses include research and development costs of
$69 million in 1997, $78 million in 1996, and $69 million in 1995. In addition
to research and development costs, science and technology expenses include
continuing commercial activities such as engineering and product modifications
for special applications and testing in 1996 and 1995.
13. ACCOUNTS RECEIVABLE SECURITIZATION
In 1997, 1996 and 1995, the Company sold certain accounts receivable of its
Building Materials operations to a 100% owned subsidiary, Owens-Corning
Funding Corporation ("OC Funding"). In December 1994, OC Funding entered into
a three-year agreement whereby it could sell, on a revolving basis, an
undivided percentage ownership interest in a designated pool of accounts
receivable up to a maximum of $100 million. In November 1997, the agreement
was amended to extend its term by 2 years and to increase the maximum to $125
million. At December 31, 1997 and 1996, $100 million have been sold under this
agreement and the sale has been reflected as a reduction of accounts
receivable in the Company's consolidated balance sheet. The discount of $6
million on the receivables sold has been recorded as other expenses on the
Company's consolidated statement of income for the years ended December 31,
1997, 1996, and 1995. The Company maintains an allowance for doubtful accounts
based upon the expected collectibility of all consolidated trade accounts
receivable, including receivables sold by OC Funding.
F-21
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C>
Finished goods................................... $ 363 $ 273
Materials and supplies........................... 214 149
------------ ------------
FIFO inventory................................... 577 422
Less: Reduction to LIFO basis (74) (82)
------------ ------------
$ 503 $ 340
============ ============
</TABLE>
Approximately $365 million and $216 million of FIFO inventories were valued
using the LIFO method at December 31, 1997 and 1996, respectively.
During 1995, certain inventories were reduced, resulting in the liquidation
of LIFO inventory layers carried at lower costs in prior years as compared
with the current cost of inventory. The effect of these inventory reductions
was to reduce cost of sales by $7 million.
15. INVESTMENTS IN AFFILIATES
At December 31, 1997 and 1996, the Company's affiliates, which generally are
engaged in the manufacture of fibrous glass and related products for the
insulation, construction, reinforcements, and textile markets, include:
<TABLE>
<CAPTION>
PERCENT OWNERSHIP
------------------
1997 1996
--------- --------
<S> <C> <C>
Alpha/Owens-Corning, L.L.C. (USA)....................... 50% 50%
Amiantit Fiberglass Industries, Ltd. (Saudi Arabia)..... 30% 30%
Arabian Fiberglass Insulation Company, Ltd. (Saudi
Arabia)................................................. 49% 49%
*Knytex Company, L.L.C. (USA)............................ 100% 50%
LG Owens-Corning Corporation (Korea).................... 30% 30%
OC Andercol Tuberias S.A. (Colombia).................... 50% 50%
Owens-Corning (India) Limited........................... 49% 49%
Owens-Corning Yapi Merkezi Boru Sanayi VeTicaret A.S.
(Turkey)................................................ 50% 50%
*Owens-Corning Canos, S.A. (Argentina)................... 100% 50%
Owens-Corning Eternit Rohre GmbH (Germany).............. 50% 50%
Owens-Corning Pipe Botswana (Proprietary) Limited
(Botswana).............................................. 49% 49%
*Owens-Corning Tubs S.A. (Spain)......................... 100% 50%
Siam Fiberglass Co., Ltd. (Thailand).................... 17% 17%
Vitro-Fibras, S.A. (Mexico)............................. 40% 40%
</TABLE>
- --------
Early in 1996, the Company sold its ownership interest in its Japanese
affiliate Asahi Fiber Glass Co. Ltd., and recorded a pretax gain of $37
million.
*The Company's consolidated financial statements include the January 1997
acquisition of the remaining 50% interest in Knytex. The Company considers
its 100% ownership of Owens-Corning Canos, S.A. and Owens-Corning Tubs S.A.
to be temporary and therefore continues to account for them as unconsolidated
affiliates under the equity method.
F-22
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table provides summarized financial information on a combined
100% basis for the Company's affiliates accounted for under the equity method:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
At December 31:
Current assets.................................. $ 227 $ 200 $ 338
Noncurrent assets............................... 289 259 503
Current liabilities............................. 145 149 340
Noncurrent liabilities.......................... 287 168 236
For the year:
Net sales....................................... 535 516 962
Gross margin.................................... 133 126 178
Net income...................................... 21 36 47
</TABLE>
The Company's equity in undistributed net income of affiliates was $3
million at December 31, 1997.
16. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
1997 1996
------------ ------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C>
Accounts payable.................................. $ 436 $ 379
Payroll and vacation pay.......................... 61 84
Payroll, property, and miscellaneous taxes........ 27 35
Other employee benefits liability (Note 9)........ 28 26
Restructure costs (Note 4)........................ 44 34
Other............................................. 218 147
------------ ------------
$ 814 $ 705
============ ============
</TABLE>
17. CONSOLIDATED STATEMENT OF CASH FLOWS
Cash payments for income taxes, net of refunds, and cost of borrowed funds
are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Income taxes................................... $ (6) $ (25) $ (34)
Cost of borrowed funds......................... 123 86 94
</TABLE>
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
During the six months ended December 31, 1997, gross payments for asbestos
litigation claims filed against Fibreboard were approximately $126 million,
all of which was paid directly by Fibreboard's insurers or from the escrow
account to claimants on Fibreboard's behalf. During the six months ended
December 31, 1997, Fibreboard also recorded settlements with plaintiffs for
amounts totaling approximately $132 million. Fibreboard settlement agreements
are reflected on the Company's consolidated balance sheet as an increase in
both the Fibreboard asbestos costs to be reimbursed and Fibreboard asbestos-
related liabilities when the agreements are reached.
See Notes 5 and 8 for supplemental disclosure of non-cash investing and
financing activities.
F-23
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. LEASES
The Company leases certain manufacturing equipment and office and warehouse
facilities under operating leases, some of which include cost escalation
clauses, expiring on various dates through 2015. Total rental expense charged
to operations was $124 million in 1997, $87 million in 1996, and $63 million
in 1995. At December 31, 1997, the minimum future rental commitments under
noncancellable leases payable over the remaining lives of the leases are:
<TABLE>
<CAPTION>
MINIMUM FUTURE
PERIOD RENTAL COMMITMENTS
------ ------------------------
(IN MILLIONS OF DOLLARS)
<S> <C>
1998................................................ $ 90
1999................................................ 58
2000................................................ 31
2001................................................ 22
2002................................................ 16
2003 through 2015................................... 113
----
$330
====
</TABLE>
19. STOCK COMPENSATION PLANS
The Company has four stock-based compensation plans. The Company's Stock
Performance Incentive Plan ("SPIP") grants stock options, restricted stock,
performance restricted stock and phantom performance units. The Owens Corning
1995 Stock Plan ("95 Stock Plan") grants options, restricted stock and
performance stock awards. The SPIP and the 95 Stock Plan (collectively, the
"Plans"), permit up to two percent and one percent, respectively, of common
shares outstanding at the beginning of each calendar year to be awarded as
stock options and restricted stock (with 25% of this amount as the maximum
permitted number of restricted stock awards). The Company may carry forward,
independently for each plan, unused shares from prior years and may increase
the shares available for awards in any calendar year through an advance of up
to 25% of the subsequent year's allocation (determined by using 25% of the
current year's allocation). These shares are also subject to the 25% limit for
restricted stock awards. During 1997 the maximum number of shares available
under the Plans for stock awards was 2,236,576 shares. The following are
descriptions of the awards granted under the Plans:
Stock Options
Under the Plans, the exercise prices of each option equal the market price
of the Company's common stock on the date of grant and an option's maximum
term is 10 years. Shares issued from the exercise of options are recorded in
the common stock accounts at the option price. The awards and vesting periods
of such awards are determined at the discretion of the compensation committee
of the board of directors. During 1997, 1996 and 1995, respectively,
1,103,027, 1,102,510 and 1,006,950 stock options were awarded under the Plans.
Restricted Stock Awards
Under the Plans, compensation expense is measured based on the market price
of the stock at date of grant and is recognized on a straight-line basis over
the vesting period. Stock restrictions lapse, subject to alternate vesting
plans for death, disability, approved early retirement and involuntary
termination, over various periods ending in 2005. At December 31, 1997, the
Company had 302,182 shares of restricted stock outstanding. During 1997, 1996
and 1995, 77,250, 78,510 and 148,924 shares of restricted stock were granted,
respectively. The weighted-average grant-date fair value for shares granted
was $44.66, $42.67 and $40.78 for 1997, 1996 and 1995, respectively.
F-24
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Performance Restricted Stock Awards
Under the Plans, certain officers are awarded performance shares.
Performance shares represent the opportunity to earn up to a specified number
of shares of the Company's common stock, if the Company achieves specified
performance goals during the designated performance period. Officers other
than the Chief Executive Officer, earn any portion of their award not earned
during the performance period seven years after the end of the performance
period, if their employment continues until that time. Compensation expense is
measured based on market price of the Company's common stock on the date of
grant and is amortized over the performance period, approximately three years.
At December 31, 1997, the Company had 96,400 units outstanding. During 1997,
1996 and 1995, respectively, 37,100, 38,200 and 27,300 performance shares were
granted. The weighted-average grant-date fair value for shares granted was
$44.61, $43.79 and $45.00 for 1997, 1996 and 1995, respectively.
Phantom Performance Units
Under the Plans, certain officers are awarded phantom performance units.
Each unit provides the holder the opportunity to earn a cash award equal to
the fair market value of the Company's common stock upon the attainment of
certain performance goals. Officers, other than the Chief Executive Officer,
earn any portion of their award not earned during the performance period seven
years after the end of the performance period, if their employment continues
until that time. Compensation expense is measured based on market price of the
Company's common stock and is amortized over the performance period,
approximately three years. At December 31, 1997, the Company had 184,250
phantom performance units outstanding. During 1997, 1996 and 1995, 77,850,
79,600 and 56,000 units, respectively, were awarded.
Performance Stock Awards
Under the Plans, certain employees are awarded unrestricted stock based upon
achievement of certain goals within a designated performance period.
Compensation cost for these awards is accrued over the performance period
based upon a base compensation level and the performance level achieved. Stock
awards are issued in the year subsequent to the performance period. The number
of shares issued is based upon the market price of the stock on date of
issuance and the level of compensation earned. In 1997, 122,362 shares were
issued to employees.
The Company also has a plan to award stock and stock options to nonemployee
directors. The receipt of the stock awards may be deferred at the discretion
of the directors. Approximately 351,000 shares were available under this plan
at December 31, 1997. As of December 31, 1997, 15,500 deferred awards were
outstanding. In 1997, 10,000 options and 5,500 stock awards were granted,
1,500 of which were issued. In 1996, 30,000 options and 4,000 stock awards
were granted, of which 1,000 were issued. In 1995, 10,000 options and 4,000
stock awards were granted of which 2,000 were issued. The weighted-average
grant-date fair value for shares granted was $39.13, $39.63 and $35.25 for
1997, 1996 and 1995, respectively.
Under a prior plan, the Company had 5,417 deferred stock awards outstanding
at December 31, 1996. No awards were outstanding under this plan at December
31, 1997. Under the terms of this plan, no further awards may be made.
The Company applies Financial Accounting Standards Board Statement No. 123
(SFAS 123) in accounting for its stock based compensation plans. In accordance
with SFAS 123 the Company applies Accounting Principles Board Opinion No. 25
and related Interpretations for expense recognition. All stock options issued
by the Company are exercisable at a price equal to the market price at the
date of grant. Accordingly, no compensation cost has been recognized for any
of the
F-25
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
options granted under the Plans. The compensation cost that has been recorded
for awards other than options was $12 million, $17 million and $3 million in
1997, 1996 and 1995, respectively.
A summary of the status of the Company's plans that issue options as of
December 31, 1997, 1996, and 1995 and changes during the years ending on those
dates is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year....... 4,894,439 $35.59 3,943,110 $33.34 3,290,454 $31.55
Options granted......... 1,113,027 $44.80 1,132,510 $42.92 1,016,950 $37.46
Options exercised....... (724,661) $30.29 (142,232) $30.60 (300,663) $27.18
Options canceled........ (156,647) $41.63 (38,949) $41.01 (63,631) $35.67
--------- --------- ---------
End of year............. 5,126,158 $38.15 4,894,439 $35.59 3,943,110 $33.34
========= ========= =========
Exercisable............. 3,047,126 $34.78 2,872,156 $32.66 2,107,427 $30.97
Weighted-average fair-
value of options
granted during the
year................... $14.29 $12.50 $11.24
</TABLE>
The following table summarizes information about options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- ------------------------
WEIGHTED-AVERAGE
-----------------------
WEIGHTED-
NUMBER REMAINING NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/97 LIFE PRICE AT 12/31/97 PRICE
- --------------- ----------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$17.860-26.790 398,907 3.1 $23.30 398,907 $23.30
$28.500-30.625 399,115 4.2 $30.60 399,115 $30.60
$32.125-36.125 729,230 6.0 $32.31 717,730 $32.26
$36.875-39.125 868,674 7.2 $37.50 549,665 $37.50
$39.625-47.000 2,730,232 7.7 $43.19 981,709 $41.47
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions by year:
<TABLE>
<CAPTION>
ASSUMPTIONS 1997 1996 1995
----------- ----- ----- -----
<S> <C> <C> <C>
Risk-free interest rate................................. 6.31% 6.04% 5.96%
Expected life (in years)................................ 5 5 5
Expected volatility..................................... 24.64% 24.39% 26.25%
Expected dividends...................................... .82% 1.43% 1.43%
</TABLE>
F-26
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Had compensation cost for the Plans been determined based on the fair value
at the grant dates for awards under those plans consistent with the method
described in SFAS 123, Accounting for Stock-Based Compensation, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ---------
(IN MILLIONS OF
DOLLARS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Net income
As reported................................ $ 47 $ (284) $ 231
Pro forma.................................. $ 40 $ (288) $ 230
Basic earnings per share
As reported................................ $ .89 $ (5.54) $ 4.73
Pro forma.................................. $ .76 $ (5.61) $ 4.71
Diluted earnings per share
As reported................................ $ .88 $ (5.54) $ 4.41
Pro forma.................................. $ .75 $ (5.61) $ 4.39
</TABLE>
The Company cautions that the pro forma impact in the initial years of
adoption of this disclosure distorts what may be the pro forma impact on
future years due to the recognition of pro forma compensation cost over the
vesting period.
The following table reconciles the net income (loss) and weighted average
number of shares used in the basic earnings per share calculation to the net
income (loss) and weighted average number of shares used to compute diluted
earnings per share.
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN MILLIONS OF
DOLLARS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Net income (loss) used for basic earnings per
share.......................................... $ 47 $ (284) $ 231
Net income (loss) effect of assumed conversion
of debt and preferred securities............... -- -- 7
--------- --------- ---------
Net income (loss) used for diluted earnings per
share.......................................... $ 47 $ (284) $ 238
========= ========= =========
Weighted average number of shares outstanding
used for basic earnings per share (thousands).. 52,860 51,349 48,744
Deferred awards and stock options............... 686 -- 802
Shares from assumed conversion of debt and
preferred securities........................... -- -- 4,372
--------- --------- ---------
Weighted average number of shares outstanding
and common equivalent shares used for diluted
earnings per share (thousands)................. 53,546 51,349 53,918
========= ========= =========
</TABLE>
20. SHARE PURCHASE RIGHTS
Each outstanding share of the Company's common stock includes a preferred
share purchase right. Each right entitles the holder to buy from the Company
one one-hundredth of a share of Series A Participating Preferred Stock of the
Company at a price of $190. The Board of Directors has designated 750,000
shares of the Company's authorized preferred stock as Series A Participating
Preferred Stock. There were no preferred shares outstanding at December 31,
1997.
Rights become exercisable and detach from the common stock ten business days
after a person or group acquires, or announces a tender offer for, 15% or more
of the Company's outstanding shares of common stock. The rights expire on
December 30, 2006, unless redeemed earlier by the Company.
F-27
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The rights are redeemable by the Company at one cent each at any time prior to
public announcement or notice to the Company that an acquiring person or group
has purchased 15% or more of the Company's outstanding common stock (an
"Acquisition Event"). At any time after an Acquisition Event and prior to the
acquisition by such person or group of 50% or more of the Company's
outstanding common stock, the Board of Directors may exchange one share of
common stock for each right outstanding, other than rights held by the
acquiring person or group. At any time after an Acquisition Event and the
rights become exercisable, each right, other than rights held by the acquiring
person or group, would entitle its holder to buy common stock of the Company
having a market value of twice the exercise price of the right (or, if the
Company is subsequently acquired in a merger or other business combination,
such shares of the acquiring or surviving company). Until the rights detach
from the common stock (or the earlier termination or redemption of the
rights), an additional right will be issued with every share of newly issued
common stock.
21. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to help meet financing needs and to reduce
exposure to fluctuating foreign currency exchange rates and interest rates.
The Company is exposed to credit loss in the event of nonperformance by the
other parties to the financial instruments described below. However, the
Company does not anticipate nonperformance by the other parties. The Company
does not engage in trading activities with these financial instruments and
does not generally require collateral or other security to support these
financial instruments. The notional amounts of derivatives summarized in the
foreign exchange risk and interest rate risk management section below do not
generally represent the amounts exchanged by the parties and, thus, are not a
measure of the exposure of the Company through its use of derivatives. The
amounts exchanged were calculated on the basis of the notional amounts and the
other terms of the derivatives, which relate to interest rates, exchange
rates, securities prices, or financial or other indexes.
FOREIGN EXCHANGE RISK AND INTEREST RATE RISK MANAGEMENT
The Company enters into various types of derivative financial instruments to
manage its foreign exchange risk and interest rate risk, as indicated in the
following table.
<TABLE>
<CAPTION>
NOTIONAL AMOUNT NOTIONAL AMOUNT
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C>
Forward currency exchange contracts...... $154 $128
Combined interest rate currency swaps.... 120 120
Options purchased........................ 35 22
Currency swaps........................... 145 120
Interest rate swaps...................... 550 50
Treasury rate locks...................... -- 29
</TABLE>
The Company enters into forward currency exchange contracts to manage its
exposure against foreign currency fluctuations on certain assets and
liabilities denominated in foreign currencies. As of December 31, 1997, the
Company has 32 forward currency exchange contracts maturing in 1998 which
exchange 1.4 billion Belgian francs, 36 million U.S. dollars, 11 million
British pounds, 105 million French francs, 198 million Norwegian krone, and
various other currencies. As of December 31, 1996, the Company had 31 forward
currency exchange contracts maturing in 1997 which exchanged 3.9 billion
Belgian francs, 33 million U.S. dollars, 17 million British pounds, 89 million
French francs, 12 billion Italian lira, and various other currencies. Gains
and losses on these foreign currency hedges are
F-28
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
included in the carrying amount of the related assets and liabilities. At
December 31, 1997 and 1996, deferred gains and losses on these foreign
currency hedges were not material to the consolidated financial statements.
During 1997, the Company entered into forward currency exchange contracts to
reduce its exposure to currency fluctuations on the anticipated 1998 net sales
of certain Canadian subsidiaries. The seven forward currency exchange
contracts which mature in 1998, exchange 10 million Canadian dollars against 7
million U.S. dollars. At December 31, 1997, the deferred losses on these
forward currency exchange contracts were not material to the consolidated
financial statements.
During 1996, the Company entered into forward currency exchange contracts to
reduce its exposure to currency fluctuations on the proceeds of the sale of
its investment in Asahi Fiber Glass Company, Ltd. (Note 15). Gains of $4
million were included in other income in 1996 as part of the total gain on the
sale.
The Company enters into combined interest rate currency swaps to hedge its
equity investments in certain foreign subsidiaries to manage its exposure
against fluctuations in foreign currency rates. As of December 31, 1997 and
1996, the Company had three combined interest rate currency swaps maturing in
1999 to manage this exposure. These contracts exchange 921 million Belgian
francs, 50 million French francs, 17 million Dutch guilders and 50 million
U.S. dollars. Gains and losses on the currency swap portions of these
contracts are included in stockholders' equity. The differential interest to
be paid or received on the interest rate swap portion of these contracts is
accrued as interest rates change and is recognized over the life of these
agreements. At December 31, 1997, deferred gains of $10 million are included
as a component of shareholders' equity. At December 31, 1996, deferred gains
and losses on these foreign currency hedges were not material to the
consolidated financial statements.
During 1996, the Company entered into option contracts to hedge 1997 royalty
payments of the Company's European subsidiaries. At December 31, 1996, the
currency option contracts exchanged 446 million Belgian francs and 5 million
British pounds against approximately 22 million U.S. dollars. At December 31,
1996, deferred gains on option contracts were not material to the consolidated
financial statements.
In 1994, the Company entered into two currency swap transactions to manage
its exposure against foreign currency fluctuations on the principal amount of
its guaranteed 9.814% Eurobonds (Note 2). During 1995, the Company terminated
these swaps. The termination of these swaps exchanged 140 million U.S. dollars
for approximately 89 million British pounds, resulting in a gain of
approximately 10 million U.S. dollars. At that time, the Company entered into
a combined interest rate currency swap and a currency swap exchanging U.S.
dollars into British pounds to hedge the interest and principal payments of
the Eurobonds. These agreements also convert part of the fixed rate interest
into variable rate interest. The gain on the exercised swaps is being
amortized over the life of the original hedge. At December 31, 1997 and 1996,
$3 million and $5 million, respectively, of unamortized gain on the four
cross-currency interest rate swaps is included in other liabilities.
The Company has a cross-currency swap converting from Deutsche marks into
U.S. dollars to hedge the interest and principal payments of its 7.25%
Deutsche mark bonds, due in 2000. The agreement establishes a fixed interest
rate of 11.1%.
The Company enters into interest rate swaps to manage its interest rate
risk. As of December 31, 1997, the Company has seven ordinary interest rate
swaps that effectively convert an aggregate principal amount of $350 million
of variable rate long-term debt into fixed rate borrowings. For the year ended
December 31, 1997, losses of $8 million related to these swaps have been
recorded as a component of interest expense.
F-29
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1997, the Company entered into three interest rate swaps as a hedge
against interest rate fluctuation on an anticipated refinancing of the Trust
Preferred Hybrid Securities (See Note 8). These swaps effectively lock in an
interest rate of 6.3% on a notional amount of $150 million. As of December 31,
1997, deferred losses on these contracts are not material to the consolidated
financial statements.
As of December 31, 1997, the Company has an interest rate swap to convert
$50 million in equipment lease payments from a floating LIBOR to a fixed rate
of 5.52%. The differential interest to be paid or received is accrued as
interest rates change and is recognized over the life of the agreement. As of
December 31, 1997 and 1996, this amount was not material to the consolidated
financial statements.
As of December 31, 1996, the Company had one cash-settled treasury rate lock
as a hedge against interest rate fluctuations on a lease commitment. This
contract effectively locked in an interest rate of 6.015% on a notional amount
of $29 million. This contract was settled in 1997. The loss on the contract is
being amortized over the life of the lease and is not material to the
consolidated financial statements.
At December 31, 1995, the Company had four interest rate swaps to reduce the
interest rates on its fixed rate borrowings. These agreements, which were
terminated in 1996, effectively converted an aggregate principal amount of
$150 million of fixed rate long-term debt into variable rate borrowings. The
$8 million gain recognized from the termination of these swaps is being
amortized over the remaining life of the debt.
OTHER FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
As of December 31, 1997 and 1996, the Company is contingently liable for
guarantees of indebtedness owed by certain unconsolidated affiliates of $84
million and $57 million, respectively. The Company is of the opinion that its
unconsolidated affiliates will be able to perform under their respective
payment obligations in connection with such guaranteed indebtedness and that
no payments will be required and no losses will be incurred by the Company
under such guarantees.
CONCENTRATIONS OF CREDIT RISK
As of December 31, 1997 and 1996, the Company has no significant group
concentrations of credit risk.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each category of financial instruments.
Cash and short-term financial instruments
The carrying amount approximates fair value due to the short maturity of
these instruments.
Long-term notes receivable
The fair value has been estimated using the expected future cash flows
discounted at market interest rates.
Long-term debt
The fair value of the Company's long-term debt has been estimated based
on quoted market prices for the same or similar issues, or on the current
rates offered to the Company for debt of the same remaining maturities.
Foreign currency swaps and interest rate swaps
The fair values of foreign currency swaps and interest rate swaps have
been estimated by traded market values or by obtaining quotes from brokers.
F-30
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Forward currency exchange contracts, option contracts, and financial
guarantees
The fair values of forward currency exchange contracts, option contracts,
and financial guarantees are based on fees currently charged for similar
agreements or on the estimated cost to terminate these agreements or
otherwise settle the obligations with the counter parties at the reporting
date.
The estimated fair values of the Company's financial instruments as of
December 31, 1997 and 1996, which have fair values different than their
carrying amounts, are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------- --------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- -----
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
ASSETS:
Long-term notes receivable.................... $ 18 $ 17 $ 23 $ 21
LIABILITIES:
Long-term debt................................ 1,595 1,659 818 881
OFF-BALANCE-SHEET FINANCIAL
INSTRUMENTS--UNREALIZED GAINS:
Foreign currency swaps........................ -- 21 -- 32
Interest rate swaps........................... -- (9) -- 1
Combined interest rate currency swaps......... -- 13 -- 1
Options....................................... -- 2 -- --
</TABLE>
As of December 31, 1997 and 1996, the Company is contingently liable for
guarantees of indebtedness owed by certain unconsolidated affiliates. There is
no market for these guarantees and they were issued without explicit cost.
Therefore, it is not practicable to establish their fair value.
As of December 31, 1997 and 1996, the Company has also entered into certain
treasury rate locks, the fair values of which are not material to the
consolidated financial statements.
22. 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 December 31, 1997, approximately 173,800 asbestos personal injury
claims were pending against Owens Corning, of which 35,300 were received in
1997, 36,300 were received in 1996 and 55,800 in 1995.
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
F-31
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. In
January 1997, Owens Corning filed a similar suit in federal court in Jackson,
Mississippi against the owner of an additional testing laboratory.
Through December 31, 1997, Owens Corning had resolved (by settlement or
otherwise) approximately 202,500 asbestos personal injury claims. During 1995,
1996 and 1997, Owens Corning resolved approximately 63,700 asbestos personal
injury claims, over 99% without trial. Total indemnity payments for these
63,700 claims, including future installment payments, are expected to be $858
million (an average of $13,500 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.
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 $350 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 these measures should prove
effective in controlling the costs of resolving such claims. However, the
increased cost of resolution of mesothelioma claims 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. Several bills have been introduced
in Congress. One, introduced by Senator Hatch, makes provision for payment of
$4.8 billion over 25 years for programs and activities to be conducted by the
Secretary of Labor relating to asbestos-related injuries for which use of
tobacco is determined to be a significant contributing factor. 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.
The Company is directing its legislative lobbying efforts toward achievement
of this objective.
F-32
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 will
become effective. In such event, Fibreboard will receive the payments from its
insurance carriers 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 December 31, 1997, Owens Corning had approximately $232 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 1998 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 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
F-33
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(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>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(IN MILLIONS OF DOLLARS)
<S> <C> <C>
Reserve for asbestos litigation claims
Current.......................................... $ 350 $ 300
Other............................................ 1,320 1,670
------ ------
Total Reserve.................................. 1,670 1,970
------ ------
Insurance for asbestos litigation claims
Current.......................................... 100 100
Other............................................ 357 454
------ ------
Total Insurance................................ 457 554
------ ------
Net Owens Corning Asbestos Liability............... $1,213 $1,416
====== ======
</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 Insurance Settlement, and federal legislative
developments concerning asbestos and/or tobacco. Owens Corning believes that
its estimate of liabilities and insurance will be sufficient to provide for
the costs of all pending and future asbestos personal injury claims that
involve malignancies or significant asbestos-related functional impairment.
While such estimates cover unimpaired claims, the number and cost of
unimpaired claims are much harder to predict and such estimates reflect 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.
F-34
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Status
As of December 31, 1997, approximately 108,400 asbestos personal injury
claims were pending against Fibreboard. Fibreboard received approximately
33,000 such claims in 1997, 32,900 in 1996 and 20,700 in 1995. 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 (by settlement or
otherwise) 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 December 31, 1997, amounts payable under various asbestos claim
settlement agreements were $123 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 December 31, 1997 are $116 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.
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. It is anticipated that the parties
opposing the Global Settlement will seek further review of this decision--by a
petition for rehearing en banc by the Fifth Circuit, and/or a petition for
certiorari to the U. S. Supreme Court. In light of this decision by the Fifth
Circuit, final resolution of the Global Settlement may not be known until the
second half of 1998 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
F-35
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
further claims against Fibreboard or its insurers 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 $1,689 million at
December 31, 1997, 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
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.
F-36
<PAGE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
23. SUBSEQUENT EVENT (UNAUDITED)
Subsequent to December 31, 1997, the Company announced a strategic
restructuring program to reduce overhead, enhance manufacturing productivity
and close manufacturing facilities. The Company estimates that the cost of
this program and other costs will approximate $250 million. Certain of these
actions were initiated in December 1997 and are reflected in the results of
operations for the year ended December 31, 1997 (Note 4). The remainder of the
actions will be taken in the first quarter of 1998.
24. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
----------------------------------------------
FIRST SECOND THIRD FOURTH
--------------------- ----------- -----------
(IN MILLIONS OF DOLLARS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
1997
Net sales...................... $ 875 $ 1,017 $ 1,238 $ 1,243
Cost of sales.................. 652 778 953 1,063
--------- ----------- ----------- -----------
Gross margin................... $ 223 $ 239 $ 285 $ 180
========= =========== =========== ===========
Income (loss) before cumulative
effect of accounting change... 42 63 59 (102)
Cumulative effect of accounting
change (Note 6)............... -- -- -- (15)
--------- ----------- ----------- -----------
Net income (loss).............. $ 42 $ 63 $ 59 $ (117)
========= =========== =========== ===========
Net income (loss) per share:
Basic net income (loss) per
share
Income (loss) before cumu-
lative effect of account-
ing change................ $ .80 $ 1.19 $ 1.11 $ (1.91)
Cumulative effect of ac-
counting change........... -- -- -- (.29)
--------- ----------- ----------- -----------
Net income (loss) per
share..................... $ .80 $ 1.19 $ 1.11 $ (2.20)
========= =========== =========== ===========
Diluted net income (loss) per
share
Income (loss) before cumu-
lative effect of account-
ing change................ $ .76 $ 1.11 $ 1.05 $ (1.91)
Cumulative effect of ac-
counting change (Note 6).. -- -- -- (.29)
--------- ----------- ----------- -----------
Net income (loss) per share.. $ .76 $ 1.11 $ 1.05 $ (2.20)
========= =========== =========== ===========
1996
Net sales...................... $ 849 $ 956 $ 1,025 $ 1,002
Cost of sales.................. 632 702 754 752
--------- ----------- ----------- -----------
Gross margin................... $ 217 $ 254 $ 271 $ 250
========= =========== =========== ===========
Net income (loss).............. $ 39 $ (473) $ 80 $ 70
========= =========== =========== ===========
Net income (loss) per share:
Basic net income (loss) per
share....................... $ .77 $ (9.25) $ 1.56 $ 1.35
========= =========== =========== ===========
Diluted net income (loss) per
share....................... $ .73 $ (9.25) $ 1.45 $ 1.26
========= =========== =========== ===========
</TABLE>
Net income per share and basic and diluted weighted average shares are
computed independently for each of the quarters presented. Therefore, the sum
of the quarterly net income per share may not equal the per share total for
the year.
F-37
<PAGE>
U.S. $1,000,000,000
OWENS CORNING
DEBT SECURITIES
----------------
Owens Corning (the "Company") may from time to time offer its unsecured debt
securities consisting of notes, debentures or other evidences of indebtedness
(the "Debt Securities") which may be issued in one or more series or issuances
and will be limited to U.S. $1,000,000,000 aggregate public offering price (or
such greater amount if issued at an original issue discount, as shall result
in aggregate proceeds of U.S. $1,000,000,000). Certain specific terms of the
particular series of Debt Securities in respect of which this Prospectus is
being delivered are set forth in the accompanying Prospectus Supplement (the
"Prospectus Supplement"), including the specific designation, the aggregate
principal amount, the denomination, the maturity, the premium, if any, the
interest rate (which may be fixed, floating or adjustable rate), if any, the
method of calculating payment of interest, if any, the place or places where
principal of, and premium, if any, and interest, if any, on, such Debt
Securities will be payable, any terms of redemption at the option of the
Company or of the holder, any sinking fund provisions, the initial public
offering price and other specific terms. Unless otherwise specified in a
Prospectus Supplement, the Debt Securities, when issued, will be unsecured and
will rank equally with all other unsecured and unsubordinated indebtedness of
the Company.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------
The Company may sell the Debt Securities to or through underwriters, through
dealers or agents, directly to purchasers or through a combination of such
methods. See "Plan of Distribution". The accompanying Prospectus Supplement
sets forth the names of any underwriters, dealers or agents, if any, involved
in the sale of the Debt Securities in respect of which this Prospectus is
being delivered and any applicable fee, commission or discount arrangements
with them.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF DEBT SECURITIES UNLESS
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
----------------
The date of this Prospectus is April 16, 1998.
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or make any representations, other than those contained or
incorporated by reference in this Prospectus and the applicable Prospectus
Supplement, and if given or made such information or representations must not
be relied upon as having been authorized by the Company or any agent,
underwriter or dealer. This Prospectus and the applicable Prospectus
Supplement do not constitute an offer of any securities other than those to
which they relate, or an offer to sell or a solicitation of an offer to buy
those to which they relate in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. The delivery
of this Prospectus and/or the applicable Prospectus Supplement at any time
does not imply that the information herein or therein is correct as of any
time subsequent to its date.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities of the Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at 7 World Trade Center, 13th
Floor, Suite 1300, New York, New York 10048 and Suite 1400, Citicorp Center,
14th Floor, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material can also be obtained at prescribed rates by writing to the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549. The Commission also maintains a site on the world wide web at
http://www.sec.gov that contains reports, proxy and information statements and
other information filed electronically by the Company. In addition, such
reports, proxy statements and other information may be inspected at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005, upon which the common stock of the Company is traded.
This Prospectus constitutes a part of a registration statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by the Company with the Commission under the Securities Act
of 1933, as amended (the "Securities Act"). This Prospectus and any
accompanying Prospectus Supplement do not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Debt Securities offered
hereby, reference is made to the Registration Statement and the exhibits and
the financial statements, notes and schedules filed as a part thereof or
incorporated by reference therein, which may be inspected at the public
reference facilities of the Commission, at the addresses set forth above.
Statements made in this Prospectus and any Prospectus Supplement concerning
the contents of any documents referred to herein are not necessarily complete,
and in each instance are qualified in all respects by reference to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following document filed by the Company with the Commission pursuant to
the Exchange Act is incorporated herein by reference:
(1) the Company's Annual Report on Form 10-K (File No. 1-3660) for the
fiscal year ended December 31, 1997, filed on March 13, 1998 (the "1997 Form
10-K").
(2) the Company's Current Reports on Form 8-K, filed on January 9, 1998 and
on April 16, 1998.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof
and prior to the termination of the offering of the Debt Securities shall
hereby be deemed to be incorporated by reference into this Prospectus and to
be a part of this Prospectus from the date of filing of such documents. Any
statement contained herein, or in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein, shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that any statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein or
in any accompanying Prospectus Supplement modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of the Registration
Statement or this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents described above and incorporated by reference
herein (not including the exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents). Written or
telephone requests should be directed to: Owens Corning, One Owens Corning
Parkway, Toledo, Ohio 43659, Attention: Secretary's Office (telephone: (419)
248-8000).
3
<PAGE>
THE COMPANY
Owens Corning, a global company incorporated in Delaware in 1938, serves
consumers and industrial customers with high-performance glass composites and
building materials systems. These products are used in industries such as home
improvement, new construction, transportation, marine, aerospace, energy,
appliance, packaging and electronics. Many of these products are marketed
under the trademark FIBERGLAS(R) and/or the color PINK trademark. The Company
operates in two industry segments--Building Materials and Composite Materials.
Owens Corning acquired Fibreboard Corporation and AmeriMark Building Products,
Inc. in 1997, making Owens Corning the leader in the U.S. vinyl siding, siding
accessories and cast stone markets, as well as providing the Company with a
large network of company-owned specialty distribution centers. These
operations are included in the Building Materials segment. The Company also
has affiliate companies in a number of countries.
The Company's principal executive offices are located at Owens Corning World
Headquarters, Toledo, Ohio 43659, and its telephone number is (419) 248-8000.
Unless the context indicates otherwise, references in this Prospectus to the
"Company" include Owens Corning and its consolidated subsidiaries.
USE OF PROCEEDS
Except as set forth in a Prospectus Supplement, the Company intends to use
the net proceeds from the sale of the Debt Securities for general corporate
purposes, including, without limitation, working capital, capital
expenditures, investments in or loans to subsidiaries, repurchases or
redemptions of the Company's outstanding debt securities or other reductions
of the Company's outstanding borrowings, possible future business
acquisitions, the satisfaction of other obligations or for such other purposes
as may be specified in the applicable Prospectus Supplement.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities are to be issued under an Indenture (as amended or
supplemented from time to time, the "Indenture") between the Company and The
Bank of New York, as Trustee (the "Trustee"), a copy of which is filed as an
exhibit to the Registration Statement. The statements herein relating to the
Debt Securities and the following summaries of certain provisions of the
Indenture do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all the provisions of the Indenture,
including the definitions therein of certain terms, and the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). Wherever particular
sections or defined terms of the Indenture are referred to in this section or
in a Prospectus Supplement, such sections or defined terms are incorporated
herein or therein by reference.
The following sets forth certain general terms and provisions of the Debt
Securities offered hereby. The particular terms of the Debt Securities offered
by any Prospectus Supplement (the "Offered Debt Securities") will be described
in the Prospectus Supplement relating to such Offered Debt Securities (the
"Applicable Prospectus Supplement").
CERTAIN DEFINITIONS
"Attributable Debt" will be defined to mean the total net amount of rent
(discounted at the rate of 12% per annum compounded semiannually) required to
be paid under a lease during the remaining term of such lease.
"Consolidated Net Tangible Assets" will be defined as the aggregate amount
of assets after deducting therefrom (a) all current liabilities (excluding any
thereof constituting Funded Debt by reason of being renewable or extendable)
and (b) all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles, all as set forth on the most
recent balance sheet of the Company and its consolidated subsidiaries and
computed in accordance with generally accepted accounting principles.
"Debt" will be defined as notes, bonds, debentures or other similar
evidences of indebtedness for money borrowed.
4
<PAGE>
"Funded Debt" will be defined as all indebtedness for money borrowed, or
evidenced by a bond, debenture, note or similar instrument or agreement
whether or not for money borrowed, having a maturity of more than 12 months
from the date as of which the amount thereof is to be determined or having a
maturity of less than 12 months but by its terms being renewable or extendable
beyond 12 months from such date at the option of the borrower.
"Mortgage" will be defined as any pledge, mortgage or other lien.
"Principal Property" will be defined as any facility (together with the land
upon which it is erected and fixtures comprising a part thereof) used
primarily for manufacturing, processing or warehousing, located in the United
States, and having a gross book value as of the date of determination thereof
in excess of 1% of Consolidated Net Tangible Assets, other than any such
facility or portion thereof (i) which is financed by means of industrial
revenue bonds or (ii) which, in the opinion of the Board of Directors of the
Company, is not of material importance to the total business conducted by the
Company and its Subsidiaries as an entirety.
"Restricted Subsidiary" will be defined as a Subsidiary of the Company which
owns any Principal Property.
"Subsidiary" will be defined as a corporation at least a majority of the
outstanding voting stock of which is owned, directly or indirectly, by the
Company and/or one or more Subsidiaries of the Company.
GENERAL
The Indenture does not limit the amount of Debt Securities that may be
issued thereunder and Debt Securities may be issued thereunder from time to
time in one or more series. The Debt Securities will be unsecured and
unsubordinated obligations of the Company and will rank equally and ratably
with other unsecured and unsubordinated obligations of the Company.
Unless otherwise indicated in the Applicable Prospectus Supplement,
principal of, premium, if any, and interest on the Debt Securities will be
payable, and the transfer of Debt Securities will be registrable, at the
office or agency to be maintained by the Company in The City of New York and
at any other office or agency maintained by the Company for such purpose.
(Sections 301, 305 and 1002) The Debt Securities will be issued only in fully
registered form without coupons and, unless otherwise indicated in the
Applicable Prospectus Supplement, in denominations of $1,000 or integral
multiples thereof. (Section 302) No service charge will be made for any
registration of transfer or exchange of the Debt Securities, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
change imposed in connection therewith. (Section 305)
The Applicable Prospectus Supplement will describe the terms of the Offered
Debt Securities, including: (1) the title of the Offered Debt Securities; (2)
any limit on the aggregate principal amount of the Offered Debt Securities;
(3) the person or entity to whom any interest on the Offered Debt Securities
shall be payable, if other than the person or entity in whose name that
Security (or one or more Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest, (4) the date or dates
on which the principal of and premium, if any, on the Offered Debt Securities
is payable or the method of determination thereof; (5) the rate or rates at
which the Offered Debt Securities shall bear interest, if any, the date or
dates from which any such interest shall accrue or the method by which such
date or dates shall be determined, the Interest Payment Dates on which any
such interest shall be payable and the Regular Record Date for interest
payable on any Interest Payment Date; (6) the place or places where the
principal of, premium, if any, and interest on the Offered Debt Securities
shall be payable; (7) the period or periods within which, the price or prices
at which, the currency or currencies (including currency units) in which and
the other terms and conditions upon which the Offered Debt Securities may be
redeemed, in whole or in part, at the option of the Company, (8) the
obligation, if any, of the Company to redeem or purchase the Offered Debt
Securities pursuant to any sinking fund or analogous provisions or at the
option of a holder thereof and the period or periods within which, the price
or prices at which
5
<PAGE>
and the other terms and conditions upon which the Offered Debt Securities
shall be redeemed or purchased, in whole or in part, pursuant to such
obligation; (9) if other than denominations of $1,000 and any integral
multiple thereof, the denominations in which the Offered Debt Securities shall
be issuable; (10) the currency, currencies or currency units in which payment
of the principal of and any premium and interest on any Offered Debt
Securities shall be payable if other than the currency of the United States of
America; (11) if the amount of payments of principal of or any premium or
interest on any Offered Debt Securities may be determined with reference to an
index, formula or other method, the index, formula or other method by which
such amounts shall be determined; (12) if the principal of or any premium or
interest on any Offered Debt Securities is to be payable, at the election of
the Company or a holder thereof, in one or more currencies or currency units
other than that or those in which the Debt Securities are stated to be
payable, the currency, currencies or currency units in which payment of the
principal of and any premium and interest on the Offered Debt Securities as to
which such election is made shall be payable, and the periods within which and
the other terms and conditions upon which such election is to be made; (13) if
other than the principal amount thereof, the portion of the principal amount
of the Offered Debt Securities which shall be payable upon declaration of
acceleration of the maturity thereof or the method by which such portion may
be determined; (14) the applicability of the provisions described under "--
Defeasance of Offered Debt Securities or Certain Covenants in Certain
Circumstances"; (15) if the Offered Debt Securities will be issuable only in
the form of a Book Entry Security as described under "--Book Entry Debt
Securities", the Depositary or its nominee with respect to the Offered Debt
Securities and the circumstances under which the Book Entry Security may be
registered for transfer or exchange or authenticated and delivered in the name
of a person or entity other than the Depositary or its nominee; and (16) any
other terms of the Offered Debt Securities. The Company does not intend to
issue these Debt Securities in any currency other than U.S. dollars. (Section
301)
Debt Securities may be sold at a substantial discount below their stated
principal amount, bearing no interest or interest at a rate which at the time
of issuance is below market rates. Material U.S. federal income tax
consequences and special considerations applicable to any such Debt Securities
will be described in the Applicable Prospectus Supplement.
If any index is used to determine the amount of payments of principal of,
premium, if any, or interest, if any, on any series of Debt Securities,
material U.S. federal income tax, accounting and other considerations
applicable thereto will be described in the Applicable Prospectus Supplement.
BOOK ENTRY DEBT SECURITIES
The following description of Book Entry Securities will apply to any series
of Debt Securities except as otherwise provided in the Prospectus Supplement
relating thereto.
The Debt Securities of a series may be issued in the form of one or more
Book Entry Securities that will be deposited with or on behalf of a
Depositary, which will be a clearing agent registered under the Exchange Act.
Book Entry Securities will be registered in the name of the Depositary or a
nominee of the Depositary, will be deposited with such Depositary or nominee
or a custodian therefor and will bear a legend regarding the restrictions on
exchanges and registration of transfer thereof and any such other matters as
may be provided for pursuant to the Indenture. Unless and until it is
exchanged in whole or in part for Debt Securities in definitive certificated
form, a Book Entry Security may not be transferred or exchanged except as a
whole by the Depositary for such Book Entry Security to a nominee of such
Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by such Depositary or any such nominee to a
successor Depositary for such series or a nominee of such successor
Depositary, or except in the circumstances described in the Applicable
Prospectus Supplement. (Section 305)
Upon the issuance of any Book Entry Security, and the deposit of such Book
Entry Security with or on behalf of the Depositary for such Book Entry
Security, the Depositary will credit on its book-entry registration
6
<PAGE>
and transfer system the respective principal amounts of the Debt Securities
represented by such Book Entry Security to the accounts of institutions
("Participants") that have accounts with the Depositary. The accounts to be
credited will be designated by the underwriters or agents engaging in the
distribution of such Debt Securities or by the Company, if such Debt
Securities are offered and sold directly by the Company. Ownership of
beneficial interests in a Book Entry Security will be limited to Participants
or persons that may hold interests through Participants. Ownership of
beneficial interests in a Book Entry Security will be shown on, and the
transfer of that ownership will be effected only through, records maintained
by the Depositary for such Book Entry Security or by its nominee. Ownership of
beneficial interests in such Book Entry Security by persons who hold through
Participants will be shown on, and the transfer of such beneficial interests
within such Participants will be effected only through, records maintained by
such Participants. The laws of some jurisdictions require that certain
purchasers of securities take physical delivery of such securities in
definitive form. Such laws may impair the ability to transfer beneficial
interests in such a Book Entry Security.
So long as the Depositary for a Book Entry Security, or its nominee, is the
owner of such Book Entry Security, such Depositary or such nominee, as the
case may be, will be considered the sole owner or holder of the Debt Security
represented by such Book Entry Security for all purposes under the Indenture.
Accordingly, each person owning a beneficial interest in such Book Entry
Security must rely on the procedures of the Depositary and, if such person is
not a Participant, on the procedures of the Participant through which such
person owns its interest, to exercise any rights of a holder under such
Indenture. The Company understands that under existing industry practices, if
it requests any action of holders or if an owner of a beneficial interest in a
Book Entry Security desires to give or take any instruction or action which a
holder is entitled to give or take under the Indenture, the Depositary would
authorize the Participants holding the relevant beneficial interests to give
or take such instruction or action, and such Participants would authorize
beneficial owners owning through such Participants to give or take such
instruction or action or would otherwise act upon the instructions of
beneficial owners holding through them.
Unless otherwise specified in the Applicable Prospectus Supplement, payments
with respect to principal, premium, if any, and interest, if any, on the Debt
Securities represented by a Book Entry Security registered in the name of the
Depositary or its nominee will be made to such Depositary or its nominee, as
the case may be, as the registered owner of such Book Entry Security. The
Company expects that the Depositary for any Debt Securities represented by a
Book Entry Security, upon receipt of any payment of principal or interest in
respect of such Book Entry Security, will credit immediately Participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the Book Entry Security as shown on the records of the
Depositary. The Company also expects that payments by Participants to owners
of beneficial interests in such Book Entry Security held through such
Participants will be governed by standing instructions and customary
practices, as is now the case with securities in bearer form held for the
accounts of customers or registered in "street name", and will be the
responsibility of such Participants. None of the Company, the Trustee or any
agent of the Company or the Trustee shall have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial interests in any Book Entry Security, or for maintaining,
supervising or reviewing any records relating to such beneficial interests.
A Book Entry Security shall be exchangeable for Debt Securities in
certificated registered form, of like tenor and of an equal aggregate
principal amount, only if (a) the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary for such Book Entry Security or
if at any time the Depositary ceases to be a clearing agency registered under
the Exchange Act, (b) the Company in its sole discretion determines that such
Book Entry Security shall be exchangeable for Debt Securities in certificated
registered form or (c) there shall have occurred and be continuing an Event of
Default with respect to the Debt Securities. Any Book Entry Security that is
exchangeable pursuant to the preceding sentence shall be exchangeable for Debt
Securities registered in the name or names of such person or persons as the
Depositary shall instruct the Trustee. It is expected that such instructions
may be based upon directions received by the Depositary from its participants
with respect to ownership of beneficial interests in such Book Entry Security.
7
<PAGE>
CERTAIN COVENANTS OF THE COMPANY
Restrictions on Secured Debt
If subsequent to the date of the initial issuance of the Debt Securities of
any series, the Company or any Subsidiary shall incur, issue, assume or
guarantee any Debt secured by a Mortgage on any Principal Property owned by
the Company or any Restricted Subsidiary or on any shares of stock or Debt of
any Restricted Subsidiary, the Company will secure, or cause such Subsidiary
to secure, such Debt Securities equally and ratably with (or prior to) such
secured Debt, unless after giving effect thereto the aggregate amount of all
such Debt so secured together with all Attributable Debt in respect of sale
and leaseback transactions involving Principal Properties owned by the Company
or a Restricted Subsidiary and otherwise prohibited by the Indenture would not
exceed 10% of the Consolidated Net Tangible Assets. This restriction will not
apply to, and therefore the following shall be excluded in computing secured
Debt for the purpose of such restriction: Debt secured by (a) Mortgages on
property of, or on any shares of stock or Debt of, any corporation existing at
the time such corporation becomes a Restricted Subsidiary, (b) Mortgages in
favor of the Company or any Restricted Subsidiary, (c) Mortgages in favor of
the United States of America, or any agency, department or other
instrumentality thereof, to secure progress, advance or other payments
pursuant to any contract or provision of any statute, (d) Mortgages on
property, shares of stock or Debt existing at the time of acquisition thereof
(including acquisition through merger or consolidation) and purchase money
Mortgages and construction cost Mortgages (including those incurred within 120
days following the purchase or completion of the property in question) and (e)
any extension, renewal or replacement of any Mortgage referred to in the
foregoing clauses (a) through (d) inclusive. The Indenture will not restrict
the incurring of unsecured Debt by the Company or its Subsidiaries.
Restrictions on Sales and Leasebacks
Neither the Company nor any Restricted Subsidiary may enter into any sale
and leaseback transaction involving any Principal Property owned by the
Company or any Restricted Subsidiary, the acquisition of which, or completion
of construction and commencement of full operation of which, has occurred more
than 120 days prior to such sale and leaseback transaction, unless (a) the
Company or such Restricted Subsidiary could create Debt secured by a Mortgage
on such property in accordance with the immediately preceding paragraph in an
amount equal to the Attributable Debt with respect to the sale and leaseback
transaction without equally and ratably securing the Outstanding Debt
Securities or (b) the Company, within 120 days after the sale or transfer of
such property, applies to the retirement of its Funded Debt an amount equal to
the greater of (i) the net proceeds of the sale of the Principal Property sold
and leased back pursuant to such arrangement or (ii) the fair market value of
the Principal Property so sold and leased back, subject to credits for certain
voluntary retirements of Funded Debt. This restriction will not apply to any
sale and leaseback transaction (a) between the Company and a Restricted
Subsidiary or between Restricted Subsidiaries or (b) involving a lease for a
period of three years or less.
Unless otherwise indicated in the Applicable Prospectus Supplement, the
Indenture does not contain covenants specifically designed to protect holders
of Debt Securities in the event of a highly leveraged transaction,
restructuring, change in control, merger or similar transaction involving the
Company that may adversely affect holders of Debt Securities.
EVENTS OF DEFAULT
Any one of the following events will constitute an Event of Default under
the Indenture with respect to Debt Securities of any series: (a) failure to
pay any interest on any Debt Security of that series when due, continued for
30 days; (b) failure to pay principal of or any premium on any Debt Security
of that series when due; (c) failure to deposit any sinking fund payment, when
due, in respect of any Debt Security of that series; (d) failure to perform,
or breach of, any covenant or warranty of the Company in the Indenture with
respect to Debt Securities of that series continued for 60 days after written
notice as provided in the Indenture; (e) certain
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<PAGE>
events of bankruptcy, insolvency or reorganization of the Company; or (f) any
other Event of Default provided with respect to Debt Securities of that
series. (Section 501)
If any Event of Default with respect to the Debt Securities of any series at
the time outstanding occurs and is continuing, either the Trustee or the
holders of at least 25% in aggregate principal amount of the Outstanding Debt
Securities of that series may declare the principal amount (or, if the Debt
Securities of that series are Original Issue Discount Securities, such portion
of the principal amount as may be specified in the terms thereof) of all the
Debt Securities of that series to be due and payable immediately. At any time
after a declaration of acceleration with respect to Debt Securities of any
series has been made, but before a judgment or decree based on acceleration
has been obtained, the holders of a majority in aggregate principal amount of
Outstanding Debt Securities of that series may, under certain circumstances,
rescind and annul such acceleration. (Section 502)
Reference is made to the Applicable Prospectus Supplement relating to any
series of Offered Debt Securities that are Original Issue Discount Securities
for the particular provisions relating to acceleration of the Stated Maturity
of a portion of the principal amount of such series of Original Issue Discount
Debt Securities upon the occurrence of an Event of Default and the
continuation thereof.
The Indenture provides that, subject to the duty of the Trustee during
default to act with the required standard of care, the Trustee will be under
no obligation to exercise any of its rights or powers under the Indenture at
the request or direction of any of the holders of Debt Securities, unless such
holders shall have offered to the Trustee reasonable indemnity. (Section 603)
Subject to such provisions for the indemnification of the Trustee and to
certain other conditions, the holders of a majority in aggregate principal
amount of the Outstanding Debt Securities of any series will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee, with respect to the Debt Securities of that series. (Section 512)
No holder of any series of Debt Securities will have any right to institute
any proceeding with respect to the Indenture or for any remedy thereunder,
unless such holder shall have previously given to the Trustee written notice
of a continuing Event of Default and unless the holders of at least 25% in
principal amount of the Outstanding Debt Securities of that series shall have
made written request, and offered reasonable indemnity, to the Trustee to
institute such proceeding as trustee, and the Trustee shall not have received
from the holders of a majority in aggregate principal amount of the
Outstanding Debt Securities of that series a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
(Section 507) However, such limitations do not apply to a suit instituted by a
holder of a Debt Security for enforcement of payment of the principal of and
premium, if any, or interest on such Debt Security on or after the respective
due dates expressed in such Debt Security. (Section 508)
The Company is required to furnish to the Trustee annually a statement as to
the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance. (Section 1004)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and
the Trustee without the consent of the holders of any of the Debt Securities
in order (i) to evidence the succession of another entity to the Company and
the assumption of the covenants and obligations of the Company under the Debt
Securities and the Indenture by such successor to the Company; (ii) to add to
the covenants of the Company for the benefit of the holders of all or any
series of Debt Securities or surrender any right or power conferred on the
Company by the Indenture; (iii) to add additional Events of Default with
respect to any series of Debt Securities; (iv) to add to or change any
provisions to such extent as necessary to facilitate the issuance of Debt
Securities in bearer form or to facilitate the issuance of Book Entry
Securities; (v) to add to, change or eliminate any provision
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<PAGE>
affecting only Debt Securities not yet issued; (vi) to secure the Debt
Securities; (vii) to establish the form or terms of Debt Securities of any
series; (viii) to evidence and provide for successor Trustees or to add or
change any provisions to such extent as necessary to provide for or facilitate
the appointment of a separate Trustee or Trustees for specific series of Debt
Securities; (ix) to permit payment in respect of Debt Securities in bearer
form in the United States to the extent allowed by law; (x) to cure any
ambiguity, to correct or supplement any mistaken or inconsistent provisions or
to make any other provisions with respect to matters or questions arising
under the Indenture, provided that any such action (other than in respect of a
mistaken provision) does not adversely affect in any material respect the
interests of any holder of Debt Securities of any series then outstanding.
(Section 901)
Modifications and amendments of the Indenture also may be made by the
Company and the Trustee with the consent of the holders of not less than a
majority in aggregate principal amount of the Outstanding Debt Securities of
each series issued under the Indenture and affected by the modification or
amendments; provided, however, that no such modification or amendment may,
without the consent of the Holders of all Debt Securities affected thereby,
(i) change the Stated Maturity of the principal amount of, or any installment
of principal of or interest on, any Debt Security; (ii) reduce the principal
amount of, or the premium, if any, or (except as otherwise provided in the
Applicable Prospectus Supplement) interest on, any Debt Security (including in
the case of an Original Issue Discount Security the amount payable upon
acceleration of the maturity thereof); (iii) change the place or currency of
payment of principal of, premium, if any, or interest on any Debt Security;
(iv) impair the right to institute suit for the enforcement of any payment on
any Debt Security on or after the Stated Maturity thereof (or in the case of
redemption, on or after the Redemption Date); or (v) reduce the percentage in
principal amount of Outstanding Debt Securities of any series, the consent of
whose holders is required for modification or amendment of the Indenture or
for waiver of compliance with certain provisions of the Indenture or for
waiver of certain defaults. (Section 902)
The holders of at least a majority in aggregate principal amount of the
Outstanding Debt Securities of any series may, on behalf of all holders of
Debt Securities of that series, waive compliance by the Company with certain
restrictive provisions of the Indenture. (Section 1010) The holders of not
less than a majority in aggregate principal amount of the Outstanding Debt
Securities of any series may, on behalf of all holders of Debt Securities of
that series, waive any past default under the Indenture, except a default in
the payment of principal, premium or interest or in respect of a covenant or
provision of the Indenture that cannot be modified or amended without the
consent of the holder of each Outstanding Debt Security of such series
affected thereby. (Section 513)
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not consolidate with or merge with or into any other entity
or transfer or lease its assets substantially as an entirety to any entity,
unless (i) either the Company is the continuing corporation, or any successor
or purchaser is a corporation, partnership or trust organized under the laws
of the United States of America, any State thereof or the District of
Columbia, and any such successor or purchaser expressly assumes the Company's
obligations on the Debt Securities under a supplemental indenture, (ii)
immediately after giving effect to the transaction, no Event of Default, and
no event which, after notice or lapse of time or both, would become an Event
of Default, shall have occurred and be continuing, (iii) if properties or
assets of the Company become subject to a Mortgage not permitted by the
Indenture, the Company or such successor entity, as the case may be, takes
such steps as shall be necessary effectively to secure the Debt Securities
equally and ratably with (or prior to) all Debt secured thereby, and (iv) if a
supplemental indenture is to be executed in connection with such
consolidation, merger, transfer or lease, the Company has delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel stating compliance
with these provisions. (Section 801)
DEFEASANCE OF OFFERED DEBT SECURITIES OR CERTAIN COVENANTS IN CERTAIN
CIRCUMSTANCES
Defeasance and Discharge
The Indenture provides that the terms of any series of Debt Securities may
provide that the Company, at the Company's option, will be discharged from any
and all obligations in respect of the Debt Securities of such series
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<PAGE>
(except for certain obligations to register the transfer or exchange of Debt
Securities of such series, to replace stolen, lost or mutilated Debt
Securities of such series, to maintain paying agencies and to hold moneys for
payment in trust) upon the deposit with the Trustee, in trust, of money and/or
U.S. Government Obligations which, through the payment of interest and
principal thereof in accordance with their terms, will provide money in an
amount sufficient to pay any installment of principal (and premium, if any)
and interest on, and any mandatory sinking fund payments in respect of, the
Debt Securities of such series on the stated maturity of such payments in
accordance with the terms of the Indenture and such Debt Securities. Such
discharge may only occur if, among other things, the Company has delivered to
the Trustee an opinion of counsel to the effect that the Company has received
from, or there has been published by, the United States Internal Revenue
Service a ruling, or there has been a change in tax law, in either case to the
effect that such discharge will not be deemed, or result in, a taxable event
with respect to holders of the Debt Securities of such series. (Sections 1302
and 1304)
Defeasance of Certain Covenants
The Indenture provides that the terms of any series of Debt Securities may
provide the Company with the option to omit to comply with certain restrictive
covenants described in this Prospectus under "--Certain Covenants of the
Company--Restrictions on Secured Debt", "--Certain Covenants of the Company--
Restrictions on Sales and Leasebacks" and "--Consolidation, Merger and Sale of
Assets". The Company, in order to exercise such option, will be required to
deposit with the Trustee money and/or U.S. Government Obligations which,
through the payment of interest and principal thereof in accordance with their
terms, will provide money in an amount sufficient to pay principal (and
premium, if any) and interest on, and any mandatory sinking fund payments in
respect of, the Debt Securities of such series on the stated maturity of such
payments in accordance with the terms of the Indenture and such Debt
Securities. The Company will also be required to deliver to the Trustee an
opinion of counsel to the effect that the deposit and related covenant
defeasance will not cause the holder of the Debt Securities of such series to
recognize income, gain or loss for federal income tax purposes. (Sections 1303
and 1304)
In the event the Company exercises this option and the Debt Securities of
such series are declared due and payable because of the occurrence of any
Event of Default, the amount of money and U.S. Government Obligations on
deposit with the Trustee will be sufficient to pay amounts due on the Debt
Securities of such series at the time of their stated maturity but may not be
sufficient to pay amounts due on the Debt Securities of such series at the
time of the acceleration resulting from such Event of Default. However, the
Company shall remain liable for such payments.
The Applicable Prospectus Supplement will state if any defeasance provision
will apply to the Offered Debt Securities.
CONCERNING THE TRUSTEE
The Bank of New York, a New York banking corporation, is the Trustee under
the Indenture and is also trustee under several other indentures with the
Company. The Company maintains banking and other business relationships in the
ordinary course of business with The Bank of New York. Pursuant to the
provisions of the Trust Indenture Act, upon the occurrence of certain events,
The Bank of New York may be deemed to have a conflicting interest, by virtue
of its acting as the Trustee under the Indenture, the several other indentures
and its other business relationships with the Company, thereby requiring it to
resign and be replaced by a successor trustee under any or all of the
Indenture or the several other indentures.
The Trustee may resign at any time or may be removed by the holders of at
least a majority in aggregate principal amount of the Outstanding Debt
Securities. If the Trustee resigns, is removed or becomes incapable of acting
as Trustee or if a vacancy occurs in the office of the Trustee for any cause,
a successor Trustee shall be appointed in accordance with the provisions of
the Indenture.
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PLAN OF DISTRIBUTION
Any of the Debt Securities being offered hereby may be sold in any one or
more of the following ways from time to time: (i) through agents; (ii) to or
through underwriters; (iii) through dealers; and (iv) directly by the Company
to purchasers.
The distribution of the Debt Securities may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
Offers to purchase Debt Securities may be solicited by agents designated by
the Company from time to time. Any such agent involved in the offer or sale of
the Debt Securities in respect of which this Prospectus is delivered will be
named, and any commissions payable by the Company to such agent will be set
forth, in the Applicable Prospectus Supplement. Unless otherwise indicated in
such Prospectus Supplement, any such agent will be acting on a reasonable best
efforts basis for the period of its appointment. Any such agent may be deemed
to be an underwriter, as that term is defined in the Securities Act, of the
Debt Securities so offered and sold.
If Debt Securities are sold by means of an underwritten offering, the
Company will execute an underwriting agreement with an underwriter or
underwriters at the time an agreement for such sale is reached, and the names
of the specific managing underwriter or underwriters, as well as any other
underwriters, the respective amounts underwritten and the terms of the
transaction, including commissions, discounts and any other compensation of
the underwriters and dealers, if any, will be set forth in the Applicable
Prospectus Supplement which will be used by the underwriters to make resales
of the Debt Securities in respect of which this Prospectus is being delivered
to the public. If underwriters are utilized in the sale of any Debt Securities
in respect of which this Prospectus is being delivered, such Debt Securities
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices determined
by the underwriters at the time of sale. Debt Securities may be offered to the
public either through underwriting syndicates represented by managing
underwriters or directly by one or more underwriters. If any underwriter or
underwriters are utilized in the sale of Debt Securities, unless otherwise
indicated in the Applicable Prospectus Supplement, the underwriting agreement
will provide that the obligations of the underwriters are subject to certain
conditions precedent and that the underwriters with respect to a sale of such
Debt Securities will be obligated to purchase all such Debt Securities if any
are purchased.
If a dealer is utilized in the sale of the Debt Securities in respect of
which this Prospectus is delivered, the Company will sell such Debt Securities
to the dealer as principal. The dealer may then resell such Debt Securities to
the public at varying prices to be determined by such dealer at the time of
resale. Any such dealer may be deemed to be an underwriter, as such term is
defined in the Securities Act, of the Debt Securities so offered and sold. The
name of the dealer and the terms of the transaction will be set forth in the
Prospectus Supplement relating thereto.
Offers to purchase Debt Securities may be solicited directly by the Company
and the sale thereof may be made by the Company directly to institutional
investors or others, who may be deemed to be underwriters within the meaning
of the Securities Act with respect to any resale thereof. The terms of any
such sales will be described in the Prospectus Supplement relating thereto.
If so indicated in the Applicable Prospectus Supplement, the Company may
authorize agents and underwriters to solicit offers by certain institutions to
purchase Debt Securities from the Company at the public offering price set
forth in the Applicable Prospectus Supplement pursuant to delayed delivery
contracts providing for payment and delivery on the date or dates stated in
the Applicable Prospectus Supplement. Such delayed delivery contracts will be
subject to only those conditions set forth in the Applicable Prospectus
Supplement. A commission indicated in the Applicable Prospectus Supplement
will be paid to underwriters and agents soliciting purchases of Debt
Securities pursuant to delayed delivery contracts accepted by the Company.
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Agents, underwriters and dealers may be entitled under relevant agreements
with the Company to indemnification by the Company against certain
liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which such agents, underwriters and
dealers may be required to make in respect thereof.
Each series of Debt Securities will be a new issue and will have no
established trading market. The Company may elect to list any series of Debt
Securities on an exchange but, unless otherwise specified in the Applicable
Prospectus Supplement, the Company shall not be obligated to do so. No
assurance can be given as to the liquidity of the trading market for any of
the Debt Securities.
Agents, underwriters and dealers may be customers of, engage in transactions
with, or perform services for, the Company and its subsidiaries in the
ordinary course of business.
LEGAL OPINIONS
Unless otherwise specified in a Prospectus Supplement relating to particular
Debt Securities, the validity of the Debt Securities offered hereby, will be
passed upon for the Company by Shearman & Sterling, New York, New York. The
validity of the Debt Securities offered hereby will be passed upon for the
underwriters, dealers or agents, if any, by counsel to be named in the
Applicable Prospectus Supplement.
EXPERTS
The financial statements and schedule incorporated in this Prospectus by
reference to the 1997 Form 10-K have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated in this Prospectus by reference in reliance upon
the authority of said firm as experts in giving said reports.
The consolidated financial statements of the Company included in any
subsequent Annual Report of the Company on Form 10-K and incorporated by
reference in this Prospectus will have been examined by the independent public
accountants whose report thereon appears in such Annual Report. Such
consolidated financial statements of the Company shall be deemed to be
incorporated herein from the date of filing of the applicable report on Form-
10K in reliance on the reports of such independent public accountants, given
on the authority of such firm as experts in auditing and accounting.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS
PROSPECTUS SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION
IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Cautionary Statement Concerning Forward-Looking Statements................ S-2
The Company............................................................... S-2
Recent Developments....................................................... S-3
Use of Proceeds........................................................... S-5
Capitalization............................................................ S-5
Selected Historical Consolidated Financial Data........................... S-6
Pro Forma Consolidated Financial Data..................................... S-8
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... S-9
Asbestos Litigation....................................................... S-13
Description of the Notes.................................................. S-13
Underwriting.............................................................. S-16
Validity of the Notes..................................................... S-17
Report of Independent Public Accountants.................................. F-1
PROSPECTUS
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 3
The Company............................................................... 4
Use of Proceeds........................................................... 4
Description of Debt Securities............................................ 4
Plan of Distribution...................................................... 12
Legal Opinions............................................................ 13
Experts................................................................... 13
</TABLE>
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$550,000,000
OWENS CORNING
$300,000,000
7.5% NOTES DUE MAY 1, 2005
$250,000,000
7.7% NOTES DUE MAY 1, 2008
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PROSPECTUS SUPPLEMENT
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The Underwriters for the 2005 Notes:
GOLDMAN, SACHS & CO.
BANCAMERICA ROBERTSON STEPHENS
BARCLAYS CAPITAL INC.
CHASE SECURITIES INC.
J.P. MORGAN & CO.
The Underwriters for the 2008 Notes:
GOLDMAN, SACHS & CO.
CITICORP SECURITIES, INC.
CREDIT SUISSE FIRST BOSTON
FIRST CHICAGO CAPITAL MARKETS, INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
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