SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1999
Commission File No. 1-3660
Owens Corning
One Owens Corning Parkway
Toledo, Ohio 43659
Area Code (419) 248-8000
A Delaware Corporation
I.R.S. Employer Identification No. 34-4323452
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes / X / No / /
Shares of common stock, par value $.10 per share, outstanding at
March 31, 1999
54,819,220
<PAGE>
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<TABLE>
ITEM 1. FINANCIAL STATEMENTS
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<S> <C> <C>
Quarter Ended
March 31,
1999 1998
(In millions of dollars,
except share data)
NET SALES $ 1,130 $ 1,137
COST OF SALES 871 938
Gross margin 259 199
OPERATING EXPENSES
Marketing and administrative
expenses 136 129
Science and technology expenses 14 15
Restructure costs (Note 3) - 87
Other (1) 13
Total operating expenses 149 244
Gain on sale of assets(Note 4) - 84
INCOME FROM OPERATIONS 110 39
Cost of borrowed funds 33 37
INCOME BEFORE PROVISION (CREDIT)
FOR INCOME TAXES 77 2
Provision (credit) for income taxes 27 (7)
INCOME BEFORE MINORITY
INTEREST AND EQUITY
IN NET INCOME OF AFFILIATES 50 9
Minority interest (2) (5)
Equity in net income (loss) of
affiliates (4) 4
NET INCOME $ 44 $ 8
NET INCOME PER COMMON SHARE
Basic net income per share $ .81 $ .16
Diluted net income per share $ .77 $ .16
Weighted average number of common
shares outstanding and common equivalent
shares during the period (in millions)
Basic 53.9 53.4
Diluted 59.3 53.8
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
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<TABLE>
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<S> <C> <C>
March 31, December 31,
1999 1998
ASSETS (In millions of dollars)
CURRENT
Cash and cash equivalents $ 51 $ 54
Receivables 555 451
Inventories (Note 7) 496 437
Insurance for asbestos litigation
claims - current portion (Note 11) 150 150
Deferred income taxes 368 293
Income tax receivable 30 117
Other current assets 25 27
Total current 1,675 1,529
OTHER
Insurance for asbestos litigation
claims (Note 11) 241 260
Asbestos costs to be reimbursed -
Fibreboard (Note 11) 70 74
Deferred income taxes 508 608
Goodwill 754 762
Investments in affiliates (Note 4) 42 45
Other noncurrent assets 241 205
Total other 1,856 1,954
PLANT AND EQUIPMENT, at cost 3,572 3,498
Less--Accumulated depreciation (1,904) (1,880)
Net plant and equipment 1,668 1,618
TOTAL ASSETS $ 5,199 $ 5,101
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
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<TABLE>
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Continued)
<S> <C> <C>
March 31, December 31,
1999 1998
(In millions of dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and
accrued liabilities $ 755 $ 942
Reserve for asbestos litigation
claims - current portion
(Note 11) 1,050 850
Short-term debt 108 69
Long-term debt - current portion 51 22
Total current 1,964 1,883
LONG-TERM DEBT (Note 5) 1,903 1,535
OTHER
Reserve for asbestos litigation claims
(Note 11) 1,385 1,780
Asbestos-related liabilities -
Fibreboard (Note 11) 75 79
Other employee benefits liability 325 326
Pension plan liability 47 55
Other 358 364
Total other 2,190 2,604
COMPANY OBLIGATED SECURITIES
OF ENTITIES HOLDING SOLELY
PARENT DEBENTURES 195 194
MINORITY INTEREST 44 19
STOCKHOLDERS' EQUITY
Common stock 696 679
Deficit (1,723) (1,762)
Accumulated other comprehensive
income (Note 9) (48) (37)
Other (22) (14)
Total stockholders' equity (1,097) (1,134)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 5,199 $ 5,101
</TABLE>
The accompanying notes are an integral part of this statement.
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<TABLE>
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<S> <C> <C>
Quarter Ended
March 31,
1999 1998
(In millions of dollars)
NET CASH FLOW FROM OPERATIONS
Net income $ 44 $ 8
Reconciliation of net cash
provided by operating
activities:
Noncash items:
Provision for depreciation
and amortization 53 52
Provision (credit) for deferred
income taxes 23 (45)
Gain on sale of assets - (84)
Other 5 (7)
(Increase) decrease in receivables (86) (129)
(Increase) decrease in inventories (53) (36)
Increase (decrease) in accounts
payable and accrued liabilities (181) (12)
(Increase) decrease in income tax
receivable 80 (2)
Proceeds from insurance for asbestos
litigation claims, excluding Fibreboard 19 17
Payments for asbestos litigation claims,
excluding Fibreboard (195) (129)
Other (13) 37
Net cash flow from operations (304) (330)
NET CASH FLOW FROM INVESTING
Additions to plant and equipment (40) (47)
Proceeds from the sale of affiliate
or business (Note 4) - 134
Other (11) (19)
Net cash flow from investing $ (51) $ 68
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
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<TABLE>
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<S> <C> <C>
Quarter Ended
March 31,
1999 1998
(In millions of dollars)
NET CASH FLOW FROM FINANCING
Net additions to long-term
credit facilities $ 91 $ 285
Other additions to long-term debt 250 3
Net increase in short-term debt 18 36
Dividends paid (4) (4)
Other (3) -
Net cash flow from financing 352 320
Effect of exchange rate changes
on cash - (1)
Net increase (decrease) in cash
and cash equivalents (3) 57
Cash and cash equivalents at
beginning of period 54 58
Cash and cash equivalents at end
of period $ 51 $ 115
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
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<TABLE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<S> <C> <C>
Quarter Ended
1. SEGMENT DATA March 31,
1999 1998
(In millions of dollars)
NET SALES
Reportable Operating Segments
Building Materials
United States $ 814 $ 739
Europe 63 65
Canada and other 48 52
Total Building Materials 925 856
Composite Materials
United States 128 182
Europe 82 97
Canada and other 26 33
Total Composite Materials 236 312
Total Reportable Operating Segments 1,161 1,168
Reconciliation to Consolidated Net Sales
Composite Materials U.S. Sales to
Building Materials U.S. (31) (31)
Net Sales $ 1,130 $ 1,137
External Customer Sales by Geographic Region
United States $ 911 $ 890
Europe 145 162
Canada and other 74 85
Net Sales $ 1,130 $ 1,137
</TABLE>
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<TABLE>
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<S> <C> <C>
Quarter Ended
1. SEGMENT DATA (Continued) March 31,
1999 1998
(In millions of dollars)
INCOME (LOSS) FROM OPERATIONS
Reportable Operating Segments
Building Materials
United States $ 67 $ (6)
Europe 3 (4)
Canada and other 6 -
Total Building Materials 76 (10)
Composite Materials
United States 28 42
Europe - 9
Canada and other 3 1
Total Composite Materials 31 52
Total Reportable Operating
Segments $ 107 $ 42
Geographic Regions
United States $ 95 $ 36
Europe 3 5
Canada and other 9 1
Total Reportable Operating
Segments $ 107 $ 42
Reconciliation to Consolidated Income
Before Provision for Income Taxes
Restructuring and other charges - (95)
Gain on sale of affiliate or business - 84
General corporate income 3 8
Cost of borrowed funds (33) (37)
Consolidated Income Before
Provision for Income Taxes $ 77 $ 2
</TABLE>
During the first quarter of 1999, the Company changed its method
of allocation of certain costs. Income from operations in 1998
for each reportable segment has been restated in accordance with
this change.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. GENERAL
The financial statements included in this Report are condensed
and unaudited, pursuant to certain Rules and Regulations of the
Securities and Exchange Commission, but include, in the opinion
of the Company, adjustments necessary for a fair statement of
the results for the periods indicated, which, however, are not
necessarily indicative of results which may be expected for the
full year.
In connection with the condensed financial statements and notes
included in this Report, reference is made to the financial
statements and notes thereto contained in the Company's 1998
Annual Report on Form 10-K, as filed with the Securities and
Exchange Commission.
3. RESTRUCTURING OF OPERATIONS AND OTHER ACTIONS
During the third quarter of 1998, the Company recorded a $148
million pretax charge for restructuring and other actions as the
final phase of the Company's previously announced program to
close manufacturing facilities, enhance manufacturing
productivity and reduce overhead. On a cumulative basis since
the fourth quarter of 1997, the Company has recorded a total
pretax charge of $386 million, of which $143 million was recorded
in the fourth quarter of 1997, $95 million was recorded in the
first quarter of 1998, and $148 million was recorded in the third
quarter of 1998.
The $148 million pretax charge in the third quarter of 1998 was
comprised of a $30 million charge associated with the
restructuring of the Company's business segments and a $118
million charge associated with other actions, the majority of
which represent asset impairments. The $30 million restructure
charge has been classified as a separate component of operating
expenses on the Company's consolidated statement of income while
the $118 million charge for other actions is comprised of a $60
million charge to cost of sales, a $4 million charge to marketing
and administrative expenses, and a $54 million charge to other
operating expenses. The components of the restructure charge
include $9 million for personnel reductions and $21 million for
the divestiture of non-strategic businesses and facilities, of
which $20 million represents non-cash asset write-downs to
estimated fair value and $1 million represents exit cost
liabilities, comprised primarily of lease commitments. The $9
million for personnel reductions represents severance costs
associated with the elimination of approximately 400 positions,
primarily in the U.S. and Asia. The primary groups affected
include manufacturing and administrative personnel. As of March
31, 1999, approximately $5 million has been paid and charged
against the reserve for personnel reductions, representing the
elimination of approximately 400 positions, the majority of whose
severance payments will be made over the course of 1999. Charges
of less than $1 million have been made against exit cost
liabilities. No adjustments have been made to the liability.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. RESTRUCTURING OF OPERATIONS AND OTHER ACTIONS (Continued)
The components and classification of the $118 million of other
actions, of which $103 million represents non-cash asset
revaluations, include: $30 million to write down to fair value
certain manufacturing assets held for use in China, due primarily
to poor current and projected financial results, recorded as cost
of sales; $15 million to write down to net realizable value
equipment and inventory made obsolete by changes in the Company's
manufacturing and marketing strategies, recorded as cost of
sales; $17 million for the write-down of an investment in and the
write off of a receivable from a joint venture in Korea to
reflect the business outlook at that time and the fair market
value of the assets, recorded as other operating expenses; $12
million for the write-down of goodwill associated with the 1995
acquisition of Fiber-lite, determined to be unrecoverable due to
a change in market conditions and customer demand, recorded as
other operating expenses; and $9 million for the write-down of
certain assets in the U.S. to fair market value, recorded as cost
of sales. The Company plans to hold and use the investments, but
disposed of the equipment in 1998. Also included in the $118
million charge for other actions are $13 million for the write
off of certain receivables in the U.S. and Asia determined to be
uncollectable, recorded as cost of sales and other operating
expenses; and $22 million for other actions recorded as cost of
sales, marketing and administrative expenses, and other operating
expenses.
During the first quarter of 1998, the Company recorded a $95
million pretax charge for restructuring and other actions as the
second phase of the Company's strategic restructuring program to
enhance manufacturing productivity and reduce overhead.
The $95 million pretax charge in the first quarter of 1998 was
comprised of an $87 million charge associated with the
restructuring of the Company's business segments and an $8
million charge associated with other actions. The $87 million
restructure charge has been classified as a separate component of
operating expenses on the Company's consolidated statement of
income while the $8 million charge for other actions is comprised
of a $5 million charge to cost of sales and a $3 million charge
to marketing and administrative expenses. The components of the
restructure charge include $81 million for personnel reductions
and $6 million for the divestiture of non-strategic businesses
and facilities, of which $2 million represents exit cost
liabilities, comprised primarily of lease commitments. The $81
million for personnel reductions represents severance costs
associated with the elimination of approximately 1,500 positions
worldwide. The primary employee groups affected include
manufacturing and corporate administrative personnel. As of
March 31, 1999, approximately $58 million has been paid and
charged against the reserve for personnel reductions,
representing the elimination of approximately 1,500 employees,
the majority of whose severance payments were made over the
course of 1998, and approximately $2 million has been charged
against exit cost liabilities. No adjustments have been made to
the liability.
During the fourth quarter of 1997, the Company recorded a $143
million pretax charge for restructuring and other actions as the
first phase of the program to close manufacturing facilities,
enhance manufacturing productivity and reduce overhead. The $143
million pretax charge was comprised of a $68 million charge
associated with the restructuring of the Company's business
segments and a $75 million charge associated with asset
impairments, including investments in certain affiliates. The
components of the restructure charge include $25 million for
personnel reductions; $41 <PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. RESTRUCTURING OF OPERATIONS AND OTHER ACTIONS (Continued)
million for the divestiture of non-strategic businesses and
facilities, of which $13 million represents exit cost
liabilities, primarily for leased warehouse and office facilities
to be vacated, and $28 million represents non-cash asset
revaluations; and $2 million for other actions. The divestiture
of non-strategic businesses and facilities includes the closure
of the Candiac, Quebec manufacturing facility.
The $25 million for personnel reductions during the fourth
quarter of 1997 represents severance costs associated with the
elimination of nearly 550 positions worldwide. The primary
employee groups affected include manufacturing and corporate
administrative personnel. As of March 31, 1999, approximately $21
million has been paid and charged against the reserve for
personnel reductions, representing the elimination of
approximately 550 employees, the majority of whose severance
payments were over the course of 1998, and approximately $9
million has been charged against exit cost liabilities. No
adjustments have been made to the liability.
The components of the $75 million of other actions during the
fourth quarter of 1997 and their classification on the Company's
1997 consolidated statement of income are as follows: $17 million
for the write off of certain assets and investments associated
with unconsolidated joint ventures in Spain and Argentina due
primarily to poor current and projected financial results and the
expected loss of local partners, recorded as other operating
expenses; $12 million for the write-down of certain investments
in mainland China to reflect the current business outlook and the
fair market value of the investments, recorded as cost of sales;
$24 million to write down to net realizable value equipment and
inventory made obsolete by changes in the Company's manufacturing
and marketing strategies, recorded as cost of sales; $8 million
for a supplemental employee retirement plan approved by the Board
of Directors in December 1997, recorded as marketing and
administrative expenses; $5 million for the write-off of an
insurance receivable that was determined to be uncollectable
after judicial rejection of the Company's claim, recorded as
other operating expenses; and $9 million for several other
actions recorded as cost of sales, marketing and administrative
expenses, and other operating expenses. The Company plans to
hold and use the investments but disposed of most of the
equipment in 1998.
The following table summarizes the status of the liabilities from
the restructure program described above, including cumulative
spending and adjustments and the remaining balance as of March
31, 1999:
<TABLE>
<S> <C> <C> <C>
(In millions of dollars) Beginning Total Ending
Liability Payments Liability
Personnel Costs $ 115 $ (84) $ 31
Facility and Business
Exit Costs 16 (11) 5
Other 2 (2) -
Total $ 133 $ (97) $ 36
</TABLE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. RESTRUCTURING OF OPERATIONS AND OTHER ACTIONS (Continued)
The Company continually evaluates whether events and
circumstances have occurred that indicate that the carrying
amount of certain long-lived assets is recoverable. When factors
indicate that a long-lived asset should be evaluated for possible
impairment, the Company uses an estimate of the expected
undiscounted cash flows to be generated by the asset to determine
whether the carrying amount is recoverable or if an impairment
exists. When it is determined that an impairment exists, the
Company uses the fair market value of the asset, usually measured
by the discounted cash flows to be generated by the asset, to
determine the amount of the impairment to be recorded in the
financial statements.
4. ACQUISITIONS AND DIVESTITURES OF BUSINESSES
In connection with a proposal received from its Korean joint
venture partner, the Company infused approximately $29 million of
cash into this venture in March, 1999. As a result of this
investment, along with additional investments by the other
partner, the Company increased its ownership interest in Owens
Corning Korea to 70%. The Company accounted for this transaction
under the purchase method of accounting whereby the assets
acquired and liabilities assumed, including $84 million in debt,
have been recorded at their fair values and the results of
operations have been consolidated since the date of acquisition.
Prior to that date, the Company accounted for this joint venture
under the equity method.
During the first quarter of 1998, the Company completed the sale
of the assets of Pabco, a producer of molded calcium silicate
insulation, fireproofing board and metal jacketing, acquired as
part of the Fibreboard acquisition in 1997. The Company sold
Pabco for $31 million in cash and $6 million in notes receivable,
all of which was collected during 1998.
Late in the first quarter of 1998, the Company sold its 50%
ownership interest in Alpha/Owens-Corning, LLC. With cash
proceeds of approximately $103 million, the Company recorded a
pretax gain of approximately $84 million as other income on the
Company's consolidated statement of income.
The consolidated balance sheet of the Company as of March 31,
1999 reflects the September 30, 1998 disposition of the Company's
yarns and specialty materials business (the "yarns business").
The results of operations of the yarns business were reflected in
the Company's consolidated statement of income through the period
ending September 30, 1998. For the three months ended March 31,
1998, the yarns business recorded sales of approximately $73
million and income from operations of approximately $23 million.
Effective September 30, 1998, the Company accounts for its
ownership interest in the yarns joint venture under the equity
method.
5. LONG-TERM DEBT
During the first quarter of 1999, the Company issued $250 million
of senior debt securities ("the securities") as unsecured
obligations of the Company. These securities, which mature in
2009, bear an annual rate of interest of 7.0%, payable
semiannually. The proceeds from the issuance of these securities
were used to reduce borrowings under the Company's long-term
revolving credit agreement.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. INCOME TAXES
The reconciliation between the U.S. federal statutory rate and
the Company's effective income tax rate is:
<TABLE>
<S> <C> <C> <C> <C>
Quarter Ended March 31,
1999 1998
In millions % of pretax In millions % of pretax
of dollars income of dollars income
U.S. federal
statutory
rate $ 27 35% $ 1 35%
State and local
income taxes 2 3 (1) (50)
Special tax
election (a) - - (13) (650)
Foreign tax rate
differences - - 3 150
Other $ (2) (3) $ 3 165
Effective tax
provision
and rate $ 27 35% $ (7) (350)%
(a) Represents a one-time tax benefit associated with Asia
Pacific operations.
</TABLE>
7. INVENTORIES
<TABLE>
<S> <C> <C>
March 31, December 31,
1999 1998
(In millions of dollars)
Inventories are summarized as follows:
Finished goods $ 368 $ 317
Materials and supplies 187 176
FIFO inventory 555 493
Less: Reduction to LIFO basis (59) (56)
Total Inventory $ 496 $ 437
Approximately $306 million and $271 million of FIFO inventories
were valued using the LIFO method at March 31, 1999 and December
31, 1998, respectively.
</TABLE>
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. CONSOLIDATED STATEMENT OF CASH FLOWS
Cash payments for income taxes, net of refunds, and cost of
borrowed funds are summarized as follows:
<TABLE>
<S> <C> <C>
Quarter
Ended
March 31,
1999 1998
(In millions of dollars)
Income taxes $ (82) $ 3
Cost of borrowed funds 27 23
</TABLE>
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
During the first quarter of 1999, gross payments for asbestos
litigation claims against Fibreboard were approximately $27
million, all of which was paid directly by Fibreboard's insurers
or from the escrow account to claimants on Fibreboard's behalf.
During the first quarter of 1999, Fibreboard also reached
settlement agreements with plaintiffs for amounts totaling
approximately $23 million. Fibreboard settlement agreements are
reflected on the Company's consolidated balance sheet as an
increase to both the Fibreboard asbestos costs to be reimbursed
and asbestos claims settlements when the agreements are reached.
Please refer to Note 4 for disclosure of Non-Cash Investing and
Financing activities.
9. COMPREHENSIVE INCOME
During the first quarter of 1998, the Company adopted Statement
of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130). Comprehensive income is
defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from
nonowner sources. It includes all changes in equity during a
period except those resulting from investments by owners and
distributions to owners. SFAS 130 requires that the Company
classify items of other comprehensive income by their nature in
the financial statements and display the accumulated balance of
other comprehensive income separately in the stockholders' equity
section of the Company's consolidated balance sheet.
The Company's comprehensive income for the quarters ended March
31, 1999 and 1998 was $33 million and $16 million, respectively.
The Company's comprehensive income includes net income, currency
translation adjustments, minimum pension liability adjustments,
and deferred gains and losses on certain hedging transactions.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. EARNINGS PER SHARE
The following table reconciles the net income and weighted
average number of shares used in the basic earnings per share
calculation to the net income and weighted average number of
shares used to compute diluted earnings per share.
<TABLE>
<S> <C> <C>
Quarter Ended
March 31,
1999 1998
(In millions of dollars,
except share data)
Net income used for basic
earnings per share $ 44 $ 8
Net income effect of assumed
conversion of preferred securities 2 -
Net income used for diluted
earnings per share $ 46 $ 8
Weighted average number of shares
outstanding used for basic earnings
per share (thousands) 53,932 53,373
Deferred awards and stock options 768 472
Shares from assumed conversion of
preferred securities 4,566 -
Weighted average number of shares
outstanding and common equivalent
shares used for diluted earnings
per share (thousands) 59,266 53,845
</TABLE>
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
11. CONTINGENT LIABILITIES
Asbestos Liabilities
ITEM A. - OWENS CORNING (EXCLUDING FIBREBOARD)
Owens Corning is a co-defendant with other former manufacturers,
distributors and installers of products containing asbestos and
with miners and suppliers of asbestos fibers 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 and distribution of which was
discontinued in 1972.
National Settlement Program
In December 1998, Owens Corning announced a National Settlement
Program (NSP) under which a substantial majority of the asbestos
claims pending against the Company have been resolved. As of
March 31, 1999, approximately 188,000 asbestos personal injury
claims against the Company have been settled under the NSP. The
NSP also establishes procedures and fixed payments for resolving
future claims brought by participating plaintiffs' law firms
without litigation through at least 2008. Average payments per
claim under the NSP are expected to be substantially lower than
those experienced by Owens Corning in recent years. Settlement
payments aggregating approximately $1.2 billion for cases pending
against Owens Corning will be made over a period of up to five
years, with most payments occurring in 1999 and 2000. Such
payments will be made from the Company's available cash and
credit resources.
The Company established the NSP in response to the rising cost in
recent years of mesothelioma settlements and judgments, as well
as significant changes in the legal environment, such as the
Supreme Court's 1997 decision in Georgine v. Amchem Products,
Inc., striking down an asbestos class action settlement. The NSP
is designed to better manage Owens Corning's asbestos liability,
and that of Fibreboard (see Item B below), and to enable the
Company to better predict the timing and amount of indemnity
payments for both pending and future claims.
Under the NSP, each participating law firm has agreed to a long-
term settlement agreement ("NSP Agreement") providing for the
resolution of claims pending against Owens Corning for a
settlement amount negotiated with each participating firm.
Settlement amounts to each claimant vary based on a number of
factors, including the type and severity of disease. All
payments will be subject to satisfactory evidence of a qualifying
medical condition and exposure to the Company's products,
delivery of customary releases by each claimant and other
conditions. The NSP Agreements allow claimants to receive prompt
payment without incurring the significant delays and
uncertainties of litigation. Claimants settling non-malignancy
claims may also be entitled to seek additional compensation if
they develop a more severe asbestos-related medical condition in
the future.
<PAGE>
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OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
11. CONTINGENT LIABILITIES
ITEM A. - OWENS CORNING (EXCLUDING FIBREBOARD) (Continued)
Under each NSP Agreement, the participating firm also agrees
(consistent with applicable legal requirements) to resolve any
future asbestos personal injury claims against Owens Corning
through an administrative processing arrangement, rather than
litigation. Under such arrangement, no settlement payment will
be made for future claims unless specified medical criteria and
other requirements are met, and the amount of any such payment
will be a specified cash settlement value based on the disease of
the claimant and other factors. In the case of future claims not
involving malignancy, such criteria require medical evidence of
functional impairment. Payments for both pending and future
claims will be managed by Integrex, a wholly-owned Owens Corning
subsidiary that specializes in claims processing.
It is anticipated that payments for a limited number of future
"exigent" claims (principally malignancy claims) under the
administrative processing arrangement will generally begin in
2001, while payments for most other future claims will begin in
2003. Payments for claims in 2003 and later years under the NSP
will be subject to certain conditions designed to increase the
predictability of annual cash outflows for asbestos payments.
NSP Agreements have a term of at least 10 years and may be
extended by mutual agreement of the parties. Each of Owens
Corning and Fibreboard (see Item B below) retains the right to
terminate any individual NSP Agreement if in any year more than a
specified number of plaintiffs represented by the plaintiffs'
firm in question opt out of such agreement.
Asbestos Related Payments
In the first quarter of 1999, the Company made $195 million of
asbestos related payments. These payments fell within four major
categories: pre-NSP settlements - covering resolution of
verdicts, settlements and appeals effected prior to the
implementation of the NSP; NSP settlements - covering cases
within the NSP; non-NSP settlements - covering cases outside the
NSP; and defense and administrative expenses - including the cost
of pursuing recoveries from insurance companies.
The Company currently estimates that it will incur total asbestos
related payments of approximately $995 million for 1999, as
follows:
<TABLE>
<S> <C>
(in millions of dollars)
Pre-NSP Settlements $ 192
NSP Settlements 728
Non-NSP Settlements 50
Defense and Administrative Expenses 25
$ 995
</TABLE>
All amounts discussed above are before tax and application of
insurance recoveries.
<PAGE>
- 18 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
11. CONTINGENT LIABILITIES
ITEM A. - OWENS CORNING (EXCLUDING FIBREBOARD) (Continued)
Tobacco
Owens Corning believes that it has spent significant amounts to
resolve claims of asbestos claimants whose injuries were caused
or contributed to by cigarette smoking, and that the major
tobacco companies should be required to reimburse asbestos
defendants, in whole or in part, for past payments made to
asbestos claimants who were also smokers. The Company is
pursuing this objective through both legislative lobbying efforts
and litigation. As widely reported, the United States Senate did
consider legislation during the first half of 1998 which would
have included provisions in the proposed national tobacco
settlement to compensate past and future asbestos plaintiffs who
also suffer from smoking-related illnesses. Because the present
prospects for any such legislation are uncertain, the Company has
increased its litigation efforts against the tobacco companies.
In October 1998, the Circuit Court for Jefferson County,
Mississippi granted leave to file an amended complaint in an
existing action to add claims by Owens Corning against seven
leading tobacco companies and several other tobacco industry
defendants. The court has set a February 2000 trial date for
this action. In addition to the Mississippi lawsuit, a lawsuit
brought in December 1997 by Owens Corning and Fibreboard is
pending in the Superior Court for Alameda County, California
against the same major tobacco companies. In both cases, Owens
Corning and Fibreboard seek monetary recovery for, among other
things, a portion of the payments made to persons who brought
asbestos claims and were also smokers.
PFT Litigation
As previously reported, in 1996 Owens Corning filed suit in
federal court in New Orleans, Louisiana against the owners and
operators of certain pulmonary function testing laboratories in
the southeastern United States alleging that many pulmonary
function tests ("PFTs") used in mass screening programs were
improperly administered and manipulated by the testing
laboratories or otherwise inconsistent with proper medical
practice. This matter is now in active pre-trial discovery and a
January 2000 trial date has been set. In January 1997, Owens
Corning filed a similar suit in federal court in Jackson,
Mississippi against the owner of an additional testing
laboratory. This suit is in the discovery phase. The Company
believes that these lawsuits have been helpful in raising the
standards for medical screening of asbestos claims and in
developing, and gaining widespread acceptance by plaintiffs'
firms of, the medical criteria included in the NSP Agreements.
Insurance
As of March 31, 1999, Owens Corning had approximately $166
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 2000 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 policy limits.
<PAGE>
- 19 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
11. CONTINGENT LIABILITIES
ITEM A. - OWENS CORNING (EXCLUDING FIBREBOARD) (Continued)
In addition to its confirmed primary level non-products
insurance, Owens Corning has a significant amount of unconfirmed
potential non-products coverage with excess level carriers. For
purposes of calculating the amount of insurance applicable to
asbestos liabilities, Owens Corning has estimated its probable
recoveries in respect of this additional non-products coverage at
$225 million, which amount was recorded in 1996. This coverage
is unconfirmed and the amount and timing of recoveries from these
excess level policies will depend on subsequent negotiations or
proceedings.
Reserve
The Company's financial statements include a reserve for the
estimated cost associated with Owens Corning's asbestos personal
injury claims. This reserve was established initially through a
charge to income in 1991, with an additional $1.1 billion charge
to income (before taking into account probable non-products
insurance recoveries) recorded in 1996. The combined effect of
the $1.1 billion charge and the $225 million probable additional
non-products insurance recovery was an $875 million charge in the
second quarter of 1996. Reflecting the substantial new
information about pending and future claims gained in the NSP
negotiations with plaintiffs' law firms and the recent changes in
the legal environment referred to above, the Company in the
fourth quarter of 1998 increased its asbestos reserves by $1.4
billion, resulting in an after-tax charge to 1998 earnings of
$906 million. Subject to the uncertainties referred to below,
Owens Corning estimates that its liabilities in respect of
indemnity and defense costs associated with pending and
unasserted asbestos personal injury claims and its insurance
recoveries in respect of such claims, at March 31, 1999, are as
follows:
<TABLE>
<S> <C> <C>
March 31, December 31,
1999 1998
(In millions of dollars)
Reserve for asbestos litigation
claims
Current $ 1,050 $ 850
Other 1,385 1,780
Total Reserve $ 2,435 $ 2,630
Insurance for asbestos litigation
claims
Current $ 150 $ 150
Other 241 260
Total Insurance $ 391 $ 410
Net Owens Corning
Asbestos Liability $ 2,044 $ 2,220
</TABLE>
Owens Corning believes that the NSP will improve its ability to
estimate the timing and amount of indemnity payments and defense
costs for both pending and future asbestos personal injury
claims. Nevertheless, the Company cautions that its estimate of
its liabilities for such claims is influenced by numerous
variables that are difficult to predict and that such estimate
therefore remains subject to uncertainty.
<PAGE>
- 20 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
11. CONTINGENT LIABILITIES
ITEM A. - OWENS CORNING (EXCLUDING FIBREBOARD) (Continued)
Such variables include the number of claims filed in the future
and the severity of disease involved in such claims; whether or
not such claims are covered by an NSP Agreement; the extent, if
any, to which an individual plaintiff exercises his/her right to
opt out of an NSP Agreement and/or utilize other counsel that is
not a participant in the NSP; the extent if any to which Owens
Corning exercises its right to terminate one or more of the NSP
Agreements due to excessive opt-outs; and Owens Corning's success
in controlling the costs of resolving claims outside the NSP.
Management Opinion
Although any opinion is necessarily judgmental and must be based
on information now known to Owens Corning, in the opinion of
management, while any additional uninsured and unreserved costs
which may arise out of pending personal injury asbestos claims
and additional similar asbestos claims filed in the future may be
substantial over time, management believes that such additional
costs will not impair the ability of the Company to meet its
obligations, to reinvest in its businesses, or to pursue its
growth agenda.
ITEM B. FIBREBOARD (EXCLUDING OWENS CORNING)
Prior to 1972, Fibreboard manufactured insulation products
containing asbestos. Fibreboard has since been named as a
defendant in many thousands of personal injury claims for
injuries allegedly caused by asbestos exposure.
Status
As of March 31, 1999, approximately 129,000 asbestos personal
injury claims were pending against Fibreboard. Most of the
pending claims are made against the Fibreboard Global Settlement
Trust and are subject to the Global Settlement injunction
discussed below.
National Settlement Program
Fibreboard is a participant in the NSP and is a party to most of
the NSP Agreements discussed in Item A. These agreements settle
claims pending against Fibreboard and claims which are currently
barred claims that would be filed against Fibreboard in the event
the U.S. Supreme Court overturns the Global Settlement (discussed
below). The agreements also provide for the resolution of other
future asbestos personal injury claims against Fibreboard through
the administrative processing arrangement described in Item A.
If the Global Settlement is overturned and the Insurance
Settlement (discussed below) therefore becomes effective,
Fibreboard anticipates that in excess of 100,000 asbestos
personal injury claims pending against it would be resolved under
the NSP. Settlement payments for such claims would be made over
a period of five years, with most payments occurring in 1999 and
2000. Such payments would be made from the approximately $1.9
billion in funds available under the Insurance Settlement.
<PAGE>
- 21 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
11. CONTINGENT LIABILITIES
ITEM B. - FIBREBOARD (EXCLUDING OWENS CORNING) (Continued)
Each NSP Agreement will terminate automatically as to Fibreboard
if the Global Settlement receives final court approval. Under
the Global Settlement, Fibreboard is protected by an injunction
from asbestos personal injury claims and should have no further
uninsured liabilities for pending or future asbestos personal
injury claims. If the Global Settlement receives final court
approval, the NSP Agreements would remain in effect with regard
to Owens Corning, whose share of the total costs under the
agreements would remain substantially unchanged.
Global Settlement
During 1993, Fibreboard, its insurers and representatives of a
class of future asbestos plaintiffs who have claims arising from
asbestos prior to August 27, 1993, entered into the Global
Settlement. Under the Global Settlement, Fibreboard is protected
by an injunction from claims, and should have no further asbestos
personal injury liabilities. On July 26, 1996, the Fifth Circuit
Court of Appeals affirmed the Global Settlement by a majority
decision.
The parties opposing the Global Settlement filed petitions
seeking review with the U.S. Supreme Court. On June 27, 1997,
the Supreme Court granted the petition, vacated the judgment and
remanded the case to the Fifth Circuit for further consideration
in light of the Supreme Court's decision in the Amchem Products
v. Windsor case. Amchem involved a proposed nationwide class
action settlement of future asbestos personal injury claims
against the members of the Center for Claims Resolution. The
Supreme Court, affirming the intermediate appellate court,
disapproved and vacated the Amchem class action settlement,
determining that the Amchem class action failed to meet the class
action certification requirements of Federal Rule of Civil
Procedure 23. On January 27, 1998, a panel of the Fifth Circuit
reaffirmed, by majority vote, its prior decision, and again
approved the Global Settlement. In June 1998, the United States
Supreme Court granted certiorari, agreeing to review the decision
by the Fifth Circuit. The Supreme Court heard oral argument on
the case in December 1998, and a decision is expected in the
second quarter of 1999.
If the Global Settlement becomes effective, all asbestos-related
personal injury liabilities of Fibreboard will be resolved
through insurance funds and existing corporate reserves of
Fibreboard, and a permanent injunction would bar the filing of
any further claims against Fibreboard or its insurers by class
members. Upon final approval, Fibreboard's insurers are required
to pay existing settlements and assume full responsibility for
any claims filed before August 27, 1993, the date the settling
parties reached agreement on the terms of the Global Settlement.
A court-supervised claims processing trust ("Settlement Trust")
will be responsible for resolving claims which were not filed
against Fibreboard before August 27, 1993, and any further claims
that might otherwise be asserted against Fibreboard in the future
by members of the class.
The Settlement Trust will be funded principally by Fibreboard's
insurers, Continental Casualty Company ("Continental") and
Pacific Indemnity Company ("Pacific"). These insurers placed
$1.525 billion 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 its existing reserves.
<PAGE>
- 22 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
11. CONTINGENT LIABILITIES
ITEM B. - FIBREBOARD (EXCLUDING OWENS CORNING) (Continued)
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 approximately $1.7 billion at March 31, 1999 after payment of
interim expenses and exigent claims associated with the Global
Settlement.
Insurance Settlement
In 1993, Fibreboard, Continental and Pacific entered into the
Insurance Settlement, which was structured as an alternative
solution in the event the Global Settlement fails to receive
final approval. Under the Insurance Settlement, Continental and
Pacific will pay in full settlements reached as of August 27,
1993. In addition they will provide Fibreboard with the
remaining balance of the Global Settlement escrow account for
claims filed after August 27, l993, plus an additional $475
million subject to certain adjustments. Upon fulfillment of
their obligations under the Insurance Settlement, Continental and
Pacific will be discharged from any further obligations to
Fibreboard under their insurance policies and will be protected
by an injunction against any claims of asbestos personal injury
claimants based upon those insurance policies. Under the
Insurance Settlement, Fibreboard will manage the defense and
resolution of asbestos-related personal injury claims and will
remain subject to suit by asbestos personal injury claimants. On
October 24, 1996, the statutory time period for objectors to seek
further judicial review of the Insurance Settlement lapsed with
no petition for review having been filed with the U.S. Supreme
Court. Therefore, the Insurance Settlement is now final and not
subject to further appeal.
The Insurance Settlement will not become effective and 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
Fibreboard's ongoing defense and indemnity costs associated with
asbestos-related personal injury claims for the foreseeable
future.
<PAGE>
- 23 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(All per share information in Item 2 is on a diluted basis.)
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements are subject to
risks and uncertainties that could cause actual results to differ
materially from those projected in the statements. Some of the
important factors that may influence possible differences are
continued competitive factors and pricing pressures, construction
activity, interest rate movements, issues involving
implementation of new business systems, Year 2000 readiness,
achievement of expected cost reductions, asbestos litigation, and
general economic conditions.
RESULTS OF OPERATIONS
Business Overview
The Company's growth agenda has focused on increasing sales and
earnings by (i) acquiring businesses with products that can be
sold through existing or complementary distribution channels,
(ii) achieving productivity improvements and cost reductions in
existing and acquired businesses and (iii) entering new growth
markets. The Company is implementing two major initiatives, the
System Thinking (TM) strategy and Advantage 2000, to enhance
sales growth and achieve productivity improvements across all
businesses. System Thinking for the Home (TM) leverages the
Company's broad product offering and strong brand recognition to
increase its share of the building materials and home improvement
markets. This systems approach represents a shift from product-
oriented selling to providing systems-driven solutions that
combine the Company's insulation, roofing, exterior and acoustic
systems, to provide a high performance, cost-effective building
"envelope" for the home. In the Composite Materials business, the
Company has partnered with the plastics industry and, with the
Company's System Thinking philosophy, is taking a solution-
oriented, customer-focused approach toward the continuous
development of substitution opportunities for composite
materials. In addition, the Company is implementing Advantage
2000, a fully integrated business technology system designed to
reduce costs and improve business processes.
The Company has grown its sales from nearly $3.4 billion in 1994
to $5.0 billion in 1998. Acquisitions have been a significant
component of that growth. Since 1994, the Company has completed
17 acquisitions for an aggregate purchase price of over $1.2
billion. The Company's acquisitions have broadened its lines of
business to include siding, accessories and other home exteriors
and have diversified its materials portfolio beyond fiber glass
to include polymers such as vinyl and styrene, and metal and
stone. In 1997, the Company completed the two largest of these
acquisitions by acquiring Fibreboard Corporation ("Fibreboard")
and AmeriMark Building Products, Inc. ("AmeriMark"), making Owens
Corning the leader in the U.S. vinyl siding, siding accessories
and manufactured stone markets, as well as a large specialty
distributor in North America through 180 Company-owned
distribution centers.
Despite the benefits of its growth agenda, the Company
experienced a highly competitive pricing environment during 1997
and into 1998. In order to improve its strategic position and
operational efficiency, the Company implemented several
profitability and productivity initiatives, including the
strategic restructuring program, discussed below, which was begun
in late 1997. This program, along with the realignment of the
Company's Exterior Systems business, enabled the Company to
benefit from cost reductions of approximately $142 million during
1998. The specific objectives of this strategic program are
discussed in "Restructuring of Operations and Other Actions"
below and in Note 3 to the Consolidated Financial Statements.
<PAGE>
- 24 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
During 1998, the pricing environment applicable to several of the
Company's major products, particularly residential insulation,
began to improve. Over the course of the year, the Company
announced three separate price increases, totaling 27%,
applicable to residential insulation. Another 9% price increase
applicable to such products was announced effective January 1999.
By the end of 1998, most notably in the fourth quarter, the
Company's average price levels of insulation products surpassed
the year-end 1997 levels. Despite the successful implementation
of price increases during 1998, including the restoration of
residential insulation prices to their late 1996 levels, income
from operations during 1998 was adversely impacted by
approximately $44 million, compared to 1997, due largely to the
relatively low insulation pricing base in effect at the beginning
of 1998, the lag in fully realizing the 1998 price increases as
the Company honored the remainder of pre-existing pricing
contracts, and price declines attributable to vinyl siding
products. The cost reductions, productivity improvements, and
significant pricing improvements achieved during 1998 have
continued into the first quarter of 1999.
Quarter Ended March 31, 1999
Sales and Profitability
Net sales for the quarter ended March 31, 1999 were $1.130
billion, down slightly from the first quarter 1998 level of
$1.137 billion. The sales decline is due largely to the transfer
of the Company's yarns business to an unconsolidated joint
venture during the third quarter of 1998. On a comparative
basis, excluding the yarns and other divested businesses in 1998,
sales during the first quarter of 1999 were up 7% from the first
quarter of 1998. In the Building Materials business, sales
during the first quarter of 1999 reflect the continued strength
in the U.S. roofing market, with both volume and price
improvements, compared to the first quarter of 1998, and the
continued upward price trend applicable to residential insulation
products, particularly in the U.S. Volume increases in the vinyl
siding market were offset by price declines in that market
compared to the first quarter of 1998. In the Composites
business, sales reflect volume declines, particularly in the U.S.
Slight price increases in the U.S. were offset by price declines
in European and Asian markets during the first quarter of 1999.
On a consolidated basis, there was virtually no impact of
currency translation on sales in foreign currencies during the
first quarter of 1999 compared to the first quarter of 1998.
Please see Note 1 to the Consolidated Financial Statements.
Sales outside the U.S. represented 19% of total sales during the
first quarter of 1999, compared to 22% during the first quarter
of 1998. The relative decline in non-U.S. sales is due to the
1999 volume and price increases attributable to U.S. roofing and
insulation products, along with insulation volume declines in
Canada and Europe. Gross margin for the quarter ended March 31,
1999 was 23% of net sales, compared to 18% in the first quarter
of 1998. The increase in gross margin reflects the benefits of
the cost reductions resulting from the Company's strategic
restructuring program, price increases applicable to many of the
Company's products, and continuing productivity improvements
across the Company's businesses.
For the quarter ended March 31, 1999, the Company reported net
income of $44 million, or $.77 per share, compared to net income
of $8 million, or $.16 per share, for the quarter ended March 31,
1998. Net income in the first quarter of 1999 reflects the
benefits of the cost-saving programs and productivity initiatives
implemented throughout 1998 as well as the benefits of pricing
improvements, particularly in U.S. residential insulation
markets. Included in the first quarter 1998 net income are a $95
million pretax charge ($63 million after-tax) for the Company's
restructuring program and an $84 million pretax gain ($52 million
after-tax) from the sale of the Company's 50% ownership interest
in Alpha/Owens-Corning. Cost of borrowed funds during the first
quarter of 1999 was $33 million, $4 million lower than the first
quarter 1998 level, due to a reduction in average interest rates.
The reduction in minority interest expense reflects the Company's
third quarter 1998 repurchase of its Trust Preferred Hybrid
Securities.
<PAGE>
- 25 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
On a comparative basis, the reduction in equity in net income of
affiliates for the quarter ended March 31, 1999 versus the same
quarter of 1998 reflects the sale of the Company's 50% ownership
interest in Alpha/Owens-Corning, LLC at the end of the first
quarter of 1998, and costs associated with the start-up of the
Company's composites joint venture in India. Please see Notes 3
and 4 to the Consolidated Financial Statements.
Marketing and administrative expenses were $136 million during
the first quarter of 1999, compared to $129 million in the first
quarter of 1998. The increase is primarily attributable to
increased marketing programs targeted at new growth initiatives,
partially offset by the benefits of cost reductions resulting
from the Company's strategic restructuring program.
Restructuring of Operations and Other Actions
Please see also Note 3 to the Consolidated Financial Statements.
During the first and third quarters of 1998, the Company recorded
a total pretax charge of $243 million for restructuring and other
actions as part of the Company's strategic restructuring program
to reduce overhead, enhance manufacturing productivity, and close
manufacturing facilities, which was announced in early 1998.
This charge includes $117 million for restructuring and $126
million for other actions in 1998, the majority of which
represent asset impairments. On a cumulative basis since the
fourth quarter of 1997, the Company has recorded a total pretax
charge of $386 million for this program, of which $185 million
represents restructure costs and $201 million represents other
actions.
The $117 million restructuring charge in 1998 includes
approximately $90 million for costs associated with the
elimination of approximately 1,900 positions worldwide and $27
million for the divestiture of non-strategic businesses and
facilities, of which $3 million represents exit cost liabilities,
comprised primarily of lease commitments. The $27 million charge
for non-strategic businesses and facilities includes $12 million
for the closure of certain U.S. manufacturing facilities, $6
million for the closure of a pipe manufacturing facility in
China, and $9 million for other actions.
The primary components of the $126 million charge for other
actions in 1998 and their classification on the Company's
consolidated statement of income include: $30 million to write
down to fair value certain manufacturing assets held for use in
China, due primarily to poor current and projected financial
results, recorded as cost of sales; $15 million to write down to
net realizable value equipment and inventory made obsolete by
changes in the Company's manufacturing and marketing strategies,
recorded as cost of sales; $17 million for the write-down of an
investment in and the write-off of a receivable from a joint
venture in Korea to reflect the business outlook at that time and
the fair market value of the assets, recorded as other operating
expenses; $12 million for the write-down of goodwill associated
with the 1995 acquisition of Fiber-lite, determined to be
unrecoverable due to a change in market conditions and customer
demand, recorded as other operating expenses; and $9 million for
the write-down of certain assets in the U.S. to fair market
value, recorded as cost of sales. The Company plans to hold and
use the investments but disposed of most of the equipment in
1998. Also included in the $126 million charge for other actions
are $13 million for the write-off of certain receivables in the
U.S. and Asia determined to be uncollectable, recorded as cost of
sales and other operating expenses; and $30 million for other
actions recorded as cost of sales, marketing and administrative
expenses, and other operating expenses.
<PAGE>
- 26 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
As indicated above, certain of the charges recorded during 1998
represent valuation adjustments associated with asset
impairments. The Company continually evaluates whether events
and circumstances have occurred that indicate that the carrying
amount of certain long-lived assets is recoverable. When factors
indicate that a long-lived asset should be evaluated for possible
impairment, the Company uses an estimate of the expected
undiscounted cash flows to be generated by the asset to determine
whether the carrying amount is recoverable or if an impairment
exists. When it is determined that an impairment exists, the
Company uses the fair market value of the asset, usually measured
by the discounted cash flows to be generated by the asset, to
determine the amount of the impairment to be recorded in the
financial statements.
As a result of the strategic restructuring program, the Company
realized a decrease in manufacturing and operating expenses of
approximately $110 million during 1998. Based upon expected
economic conditions over the next few years, including effects on
matters such as labor, material and other costs, the Company
expects to achieve total annual pretax savings of approximately
$175 million in 1999 and each year thereafter from this program.
The expected $175 million in cost reductions, the majority of
which will be cash savings, is comprised of $150 million in
reduced personnel costs, $14 million in reduced facility costs,
and $11 million of reductions in related program spending. The
Company also expects additional cost savings during 1999
resulting from improved logistics and materials sourcing.
The Company also implemented programs to gain synergies in its
Exterior Systems Business during 1998. As a result of these
programs, which include closing redundant facilities, integrating
business systems, and improving purchasing leverage, the Company
reduced costs by approximately $32 million during 1998 and
expects to save an additional $20 million per year in 1999 and
beyond, the majority of which will be cash savings.
Building Materials
In the Building Materials segment, sales increased 8% in the
first quarter of 1999 compared to the first quarter of 1998,
reflecting increased volume and significant price improvements
attributable to U.S. residential insulation products, as well as
volume and price increases in U.S. roofing markets. Building
Materials sales also reflect the benefits of volume increases in
North American vinyl siding markets and European insulation
markets during the first quarter of 1999, offset by price
declines in those markets. There was virtually no translation
impact of sales denominated in foreign currencies during the
first quarter of 1999. Income from operations was $76 million
during the first quarter of 1999 compared to a loss of $10
million during the comparable 1998 period. Income from
operations in 1999 reflects productivity improvements and cost
reductions resulting from the strategic restructuring program, as
well as volume and price increases in the U.S. roofing and
residential insulation markets. Please see Note 1 to the
Consolidated Financial Statements.
Early in the first quarter of 1998, the Company completed the
sale of the assets of Pabco, a producer of molded calcium
silicate insulation, fireproofing board and metal jacketing,
acquired as part of the Fibreboard acquisition in 1997. Please
see Note 4 to the Consolidated Financial Statements.
Composite Materials
In the Composite Materials segment, sales were down 24% during
the first quarter of 1999, compared to the first quarter of 1998,
due largely to the disposition (discussed below) of 51% of the
Company's yarns and specialty materials business (the "yarns
business") late in the third quarter of 1998. Adjusted for the
<PAGE>
- 27 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
impact of this disposition, sales were down 4% during the first
quarter of 1999 compared to 1998, primarily due to volume
declines in U.S. markets. Slight price increases in U.S.
composites markets were offset by price declines across European
and Asian markets. The translation impact of sales denominated
in foreign currencies was slightly favorable during the first
quarter of 1999. Income from operations was $31 million in the
first quarter of 1999, compared to $52 million in the prior-year
period. The decline is due largely to the disposition of the
yarns business in the third quarter of 1998 as well as the volume
and price declines discussed above. Income from operations
during the first quarter of 1999 also reflects the benefits of
productivity improvements and cost reductions from the Company's
restructuring program. Please see Note 1 to the Consolidated
Financial Statements.
During the third quarter of 1998, the Company formed a joint
venture for its yarns business to which it contributed two
manufacturing plants and certain proprietary technology. On
September 30, 1998, the Company completed the sale of 51% of the
joint venture to a U.S. subsidiary of Groupe Porcher Industries
of Badinieres, France for $340 million. The Company continues to
have a 49% ownership interest in the joint venture. Upon
closing, the Company also received a distribution of
approximately $193 million from the joint venture. By retaining
a 49% ownership interest in the joint venture, the Company will
continue to safeguard its proprietary technology and participate
in the yarns market. Please see Note 4 to the Consolidated
Financial Statements.
The consolidated balance sheet of the Company as of March 31,
1999 and December 31, 1998 reflects the third quarter 1998
disposition of the Company's yarns business. The results of
operations of the yarns business were reflected in the Company's
consolidated statement of income through the period ending
September 30, 1998. For the three months ended March 31, 1998,
the yarns business recorded sales of approximately $73 million
and income from operations of approximately $23 million.
Effective September 30, 1998, the Company accounts for its
ownership interest in the yarns joint venture under the equity
method.
Accounting Changes
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" (SFAS 133).
This statement establishes accounting and reporting standards
requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded
in the balance sheet as either an asset or liability measured at
its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document,
designate, and assess the effectiveness of transactions that
receive hedge accounting. SFAS 133 is effective for fiscal years
beginning after June 15, 1999, but earlier adoption is allowed.
The Company has begun to assess the impact of SFAS 133 on its
financial statements and plans to adopt this accounting change
effective January 1, 2000. The Company has not yet fully
quantified the impact of SFAS 133 but is aware that the adoption
of SFAS 133 could increase volatility in earnings and other
comprehensive income.
LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED MATTERS
Cash flow from operations was negative $304 million for the
quarter ended March 31, 1999, compared to negative $330 million
for the quarter ended March 31, 1998. The improvement in cash
flow from operations in 1999 is largely attributable to increased
earnings and the collection of an $85 million federal income tax
receivable, offset partially by an increase in payments for
asbestos litigation claims, net of insurance. Payments for
asbestos litigation claims were $195 million during the first
quarter of 1999 and proceeds from <PAGE>
- 28 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
insurance were $19 million, compared to $129 million and $17
million, respectively, during the first quarter of 1998. The
increase in net payments resulted principally from the
implementation of the National Settlement Program (NSP) in the
fourth quarter of 1998. The Company anticipates $995 million of
total payments for asbestos litigation claims during 1999 due to
the continuing implementation of the Company's NSP, described in
Note 11 to the Consolidated Financial Statements. The Company
expects that $150 million of insurance proceeds will be available
to partially cover these costs. Please see Notes 8 and 11 to the
Consolidated Financial Statements.
Inventories at March 31, 1999 increased by $59 million from the
December 31, 1998 level, due largely to the seasonal build of
inventories and other working capital. Receivables at March 31,
1999 were $555 million, a $104 million increase over the December
31, 1998 level, attributable to the seasonal increase in sales.
The decrease in accounts payable and accrued liabilities from
$942 million at December 31, 1998 to $755 million at March 31,
1999 reflects typical payment patterns during the first quarter.
At March 31, 1999, the Company's net working capital was negative
$289 million and its current ratio was .85, compared to negative
$354 million and .81, respectively, at December 31, 1998 and $309
million and 1.24, respectively, at March 31, 1998. A $700
million increase in the current portion of the reserve for
asbestos litigation claims, net of insurance, due to the
implementation of the Company's National Settlement Program,
partially offset by the related income tax benefit, contributed
to the decrease in net working capital at March 31, 1999 compared
to March 31, 1998.
The Company's total borrowings at March 31, 1999 were $2.062
billion, $436 million higher than at year-end 1998. The Company
typically uses cash during the first half of the year as it
builds inventory and other working capital.
As of March 31, 1999, the Company had unused lines of credit of
$1.243 billion available under long-term bank credit facilities
and an additional $130 million under short-term facilities,
compared to $1.307 billion and $124 million, respectively, at
year-end 1998. The net decrease in unused available lines of
credit reflects the Company's increased borrowings at March 31,
1999 compared to December 31, 1998. During the first quarter of
1999, the Company issued $250 million of debt securities, the
proceeds of which were used to reduce borrowings under the long-
term bank credit facility. Letters of credit issued under the
facility, most of which support appeals from asbestos trials,
also reduce the available credit. The impact of such reduction is
reflected in the unused lines of credit discussed above. Please
see Note 5 to the Consolidated Financial Statements.
During 1998, the Company implemented a debt realignment program
intended to reduce financing costs. This program, which extended
the average length of term debt from four years to ten years,
included the issuance of a total of $950 million in new debt
securities, the repurchase of the Company's $309 million of Trust
Preferred Hybrid Securities and the retirement of $361 million of
higher-rate debt securities.
Capital spending for property, plant and equipment, excluding
acquisitions, was $40 million in the first quarter of 1999. The
Company anticipates that 1999 capital spending, exclusive of
acquisitions and investments in affiliates, will be approximately
$225 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.
<PAGE>
- 29 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Asbestos Litigation
Gross payments for asbestos litigation claims during the first
quarter of 1999, including payments for claims settled in prior
years, were $195 million. Proceeds from insurance were $19
million resulting in a net pretax cash outflow of $176 million
($115 million after-tax). The first quarter 1999 gross payments
compare to first quarter 1998 gross payments of approximately
$129 million. The increase in 1999 is principally attributable to
payments in 1999 for claims resolved in prior years and because,
in conjunction with National Settlement Program negotiations,
Owens Corning was able to achieve additional settlements on
favorable terms of certain appeals and other pending claims. On
December 15, 1998, Owens Corning announced a National Settlement
Program (NSP) under which a substantial majority of the asbestos
claims pending against the Company have been resolved. Average
payments per claim under the NSP are expected to be substantially
lower than those experienced by Owens Corning in recent years.
Settlement payments aggregating approximately $1.2 billion for
cases pending against Owens Corning will be made over a period of
up to five years, with most payments occurring in 1999 and 2000.
Such payments will be made from the Company's available cash and
credit resources. As a result of such payments, the Company's
gross payments for asbestos litigation claims will increase in
1999 and 2000 over the levels experienced in recent years.
However, such payments are expected to be substantially lower
than historical levels in 2001 and subsequent years. The
Company's total payments for asbestos litigation claims in 1999,
including defense costs, are expected to be approximately $995
million, due principally to payments in conjunction with the NSP.
Proceeds from insurance of $150 million are expected to be
available to partially cover these costs, resulting in a net
pretax cash outflow of $845 million. Such asbestos payments will
reduce the Company's income tax payments by approximately $300
million in future periods. The increase in expected total
payments for 1999 from the level estimated in the Company's
financial statements at December 31, 1998, reflects continuing
implementation of the NSP, including the addition of 25
plaintiffs' firms to the NSP in the first quarter of 1999. In
addition to providing for the resolution of pending claims
against Owens Corning, the NSP establishes administrative
processing arrangements with participating law firms under which
future asbestos claims will be resolved without litigation, with
future claimants to receive specified amounts based on the type
and severity of disease and other factors. Please see Note 11 to
the Consolidated Financial Statements.
Gross payments for asbestos litigation claims against Fibreboard
during the first quarter of 1999 were approximately $27 million,
all of which were paid directly by Fibreboard's insurers or from
an escrow account funded by its insurers to claimants on
Fibreboard's behalf. Fibreboard is a participant in the NSP and
is a party to most of the NSP Agreements. If the Global
Settlement is overturned by the United States Supreme Court, and
the Insurance Settlement therefore becomes effective, it is
anticipated that in excess of 100,000 asbestos litigation claims
pending against Fibreboard would be resolved under the NSP.
Payments for such claims would be made over the next five years
with most payments occurring in 1999 and 2000. Such payments
would be made from the approximately $1.9 billion in funds
available under the Insurance Settlement to resolve pending and
future Fibreboard claims. Please see Notes 8 and 11 to the
Consolidated Financial Statements.
The Company expects funds generated from operations, together
with funds available under long and short term bank credit
facilities, to be sufficient to satisfy its debt service
obligations under its existing and anticipated indebtedness, its
contingent liabilities for uninsured asbestos personal injury
claims, as well as its capital expenditure programs and growth
agenda.
Environmental Matters
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
<PAGE>
- 30 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
or local laws. In other instances, other PRPs have brought suits
or claims against the Company as a PRP for contribution under
such federal, state or local laws. During the first quarter of
1999, the Company was designated as a PRP in such federal, state,
local or private proceedings for 3 additional sites. At March
31, 1999, a total of 40 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 $30 million reserve for its
Superfund (and similar state, local and private action)
contingent liabilities. Based upon information presently
available to the Company, and without regard to the application
of insurance, the Company believes that, considered in the
aggregate, the additional costs associated with such contingent
liabilities, including any related litigation costs, will not
have a materially adverse effect on the Company's results of
operations, financial condition or long-term liquidity.
The 1990 Clean Air Act Amendments (Act) provide that the EPA will
issue regulations on a number of air pollutants over a period of
years. Until these regulations are developed, the Company cannot
determine the extent to which the Act will affect it. The
Company anticipates that its sources to be regulated will include
wool fiber glass, mineral wool, wet formed fiber glass mat,
amino/phenolic resin, secondary aluminum smelting, asphalt
processing and roofing, metal coil coating, and open molded fiber-
reinforced plastics. The EPA's currently announced schedule is
to issue regulations covering wool fiber glass, mineral wool, wet
formed fiber glass mat, amino/phenolic resin, secondary aluminum
smelting, and asphalt processing and roofing in 1999; and metal
coil coating and fiber-reinforced plastics 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 Readiness
This information should be considered a Year 2000 Readiness
Disclosure.
Background
Some of the Company's existing information technology ("IT")
systems and control systems containing embedded technology such
as processors, controllers and microchips ("Non-IT") were
originally programmed using two digits rather than four digits to
define the applicable year. As a result, such systems, if not
remediated, may experience miscalculations or disruptions when
processing information containing dates that fall after December
31, 1999 or other dates that could cause computer malfunctions
(the "Year 2000 Issue").
The Company's State of Readiness
In recognition of the significance of the Year 2000 Issue, the
Company formed a senior management team representing business
units and business process functions including information
technology, sourcing, customer relations, logistics, facilities
and legal. This team oversees the Company's efforts to assess
and resolve the Year 2000 Issue. In addition, the Company's
individual organizational units have developed, and are
implementing, Year 2000 plans. These plans include assessment of
all the Company's IT and Non-IT systems and an evaluation of the
external environment to identify significant exposure areas and
to develop appropriate remediation or other risk management
approaches. The Company is also developing business continuity
plans to assure that all of its operations are prepared in the
case of an unexpected system or supplier failure.
<PAGE>
- 31 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
IT Systems
The Company has been actively implementing new systems and
technology on a worldwide basis since 1995 as part of its
Advantage 2000 program to improve productivity and operational
efficiency. One objective of this initiative is to ensure all
business transactions are supporting requirements to process data
accurately in the year 2000 and beyond. The scope of this
program has been continuously expanded to include each of the
seventeen acquisitions made by the Company during the past five
years.
To date, over 80% of the Company's IT systems are both ready for
the year 2000 and are already in operation for daily business
transaction processing. This has been accomplished through the
comprehensive implementation of enterprise resource planning
software across most of the Company's business units. The
Company's schedule is to have updated or replaced all remaining
IT systems by the end of second quarter 1999. Management expects
that most of these remaining IT systems will be in full operation
by the end of second quarter 1999, and that all will be in full
operation by the end of the third quarter. All significant
system changes are currently progressing to achieve this
schedule.
Non-IT Systems
The Company has completed an inventory and assessment of
substantially all of the Non-IT systems in its operating
facilities. Those Non-IT systems that may fail as a result of
the Year 2000 Issue have been identified. Corrective actions
such as replacement, update or installation of vendor supplied
upgrades are currently being performed. Concurrent with this
renovation process, the Company is now testing Year 2000
corrections to ensure that Non-IT systems will function properly
on key dates in accordance with testing methodologies which
management believes are reasonable and reflective of practices
employed by comparable companies. As with the IT systems
discussed above, the Company plans to have all of the identified
technology remediated and tested by the end of second quarter
1999. Most locations will also be operating with these
remediated systems within the same time frame; all locations are
expected to be using these systems for business operations by the
end of third quarter 1999.
External Environment
The Company is working with its suppliers and customers to assess
their level of Year 2000 readiness. This process includes both
the receipt of confirmation documents as well as selective on-
site visits. Critical suppliers have been identified;
confirmations received, and now the Company is conducting visits,
which will continue throughout the second quarter of 1999. Based
upon results of the confirmations and visits, the Company expects
to develop any required contingency plans by the end of the third
quarter. Such contingency plans will include, as appropriate,
using alternate suppliers that are Year 2000 ready.
Estimated Costs
The cumulative cost of systems replacement, remediation and
update from 1995 through the first quarter of 1999 has been
approximately $150 million, including technology, design and
development, and related training and deployment in business
locations. The Company currently estimates that its remaining
costs to assess and resolve the Year 2000 Issue including the
replacement and remediation at all remaining locations are in the
range of $20 million to $25 million. These cost estimates are
based on currently available information, and may be subject to
change.
<PAGE>
- 32 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Risks
If needed modifications and upgrades of systems are not made on a
timely basis by the Company or its materially significant
suppliers, the Company could experience significant disruptions
to one or more of its operations, financial loss, legal liability
and similar risks, any of which could have a material adverse
effect on the Company's results of operations or financial
position. The Company believes that the most reasonably likely
worst case scenario would be a short-term slowdown or cessation
of manufacturing operations at one or more of the Company's
facilities and a short-term inability on the part of the Company
to process orders and billings in a timely manner, and to deliver
product to customers. In view of the Company's Year 2000
readiness program, including contingency and continuity plans,
the Company believes that significant disruptions are unlikely
and that any disruptions would be both short-term and manageable.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company is exposed to the impact of changes in foreign
currency exchange rates and interest rates in the normal course
of business. The Company manages such exposures through the use
of certain financial and derivative financial instruments. The
Company's objective with these instruments is to reduce exposure
to fluctuations in earnings and cash flows associated with
changes in foreign currency exchange rates and interest rates.
The Company enters into various forward contracts and options,
which change in value as foreign currency exchange rates change,
to preserve the carrying amount of foreign currency-denominated
assets, liabilities, commitments, and certain anticipated foreign
currency transactions and earnings. The Company also enters into
certain currency and interest rate swaps to protect the carrying
amount of its investments in certain foreign subsidiaries, to
hedge the principal and interest payments of certain debt
instruments, and to manage its exposure to fixed versus floating
interest rates.
The Company's policy is to use foreign currency and interest rate
derivative financial instruments only to the extent necessary to
manage exposures as described above. The Company does not enter
into foreign currency or interest rate derivative transactions
for speculative purposes.
The Company uses a variance-covariance Value at Risk (VAR)
computation model to estimate the potential loss in the fair
value of its interest rate-sensitive financial instruments and
its foreign currency-sensitive financial instruments. The VAR
model uses historical foreign exchange rates and interest rates
as an estimate of the volatility and correlation of these rates
in future periods. It estimates a loss in fair market value
using statistical modeling techniques.
The amounts presented below represent the maximum potential one-
day loss in fair value that the Company would expect from adverse
changes in foreign currency exchange rates or interest rates
assuming a 95% confidence level:
<TABLE>
<S> <C> <C>
Risk Category March 31, December 31,
1999 1998
(In millions of dollars)
Foreign currency $1 $1
Interest rate $9 $8
</TABLE>
Virtually all of the potential loss associated with interest rate
risk is attributable to fixed-rate long-term debt instruments.
<PAGE>
- 33 -
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 11, Contingent Liabilities, to the Company's
Consolidated Financial Statements above, which is incorporated
here by reference.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) None of the constituent instruments defining the rights of
the holders of any class of the Company's registered
securities was materially modified in the quarter ended
March 31, 1999.
(b) None of the rights evidenced by any class of the Company's
registered securities was materially limited or qualified in
the quarter ended March 31, 1999 by the issuance or
modification of any other class of securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) During the quarter ended March 31, 1999, there was no
material default in the payment of principal, interest,
sinking or purchase fund installments, or any other material
default not cured within 30 days, with respect to any
indebtedness of the Company or any of its significant
subsidiaries exceeding 5 percent of the total assets of the
Company and its consolidated subsidiaries.
(b) During the quarter ended March 31, 1999, no material
arrearage in the payment of dividends occurred, and there was
no other material delinquency not cured within 30 days, with
respect to any class of preferred stock of the Company which
is registered or which ranks prior to any class of registered
securities, or with respect to any class of preferred stock
of any significant subsidiary of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
quarter ended March 31, 1999.
ITEM 5. OTHER INFORMATION
The Company does not elect to report any information under this
item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
See Exhibit Index below, which is incorporated here by
reference.
(b) Reports on Form 8-K.
During the quarter ended March 31, 1999, the Company filed
the following current report on Form 8-K:
- Filed February 8, 1999, under Item 5.
<PAGE>
- 34 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
OWENS CORNING
Registrant
Date: May 3, 1999 By: /s/ J. Thurston Roach
J. Thurston Roach
Senior Vice President and
Chief Financial Officer
(as duly authorized officer)
Date: May 3, 1999 By: /s/ Steven J. Strobel
Steven J. Strobel
Vice President and Controller
<PAGE>
- 35 -
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit
Number Document Description
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession.
LLC Interest Sale and Purchase Agreement, dated as of July
31, 1998, among Owens Corning, Advanced Glassfiber Yarns
LLC and Glass Holdings Corp. (incorporated herein by
reference to Exhibit 2 to the Company's current report on
Form 8-K (File No. 1-3660), filed October 14, 1998).
Amendment No. 1 to LLC Interest Sale and Purchase Agreement
dated as of September 30, 1998 (incorporated herein by
reference to Exhibit 2 to the Company's current report
on Form 8-K (File No. 1-3660), filed October 14, 1998).
(3) Articles of Incorporation and By-Laws.
(i) Certificate of Incorporation of Owens Corning, as
amended (incorporated herein by reference to Exhibit
(3)(i) to the Company's quarterly report on Form 10-Q
(File No. 1-3660) for the quarter ended March 31,
1997).
(ii) By-Laws of Owens Corning, as amended (incorporated
herein by reference to Exhibit (3) to the Company's
annual report on Form 10-K (File No. 1-3660) for the
year 1995).
(4) Instruments Defining the Rights of Security Holders,
Including Indentures.
Indenture, dated as of May 5, 1997, between Owens Corning
and The Bank of New York, as Trustee (incorporated herein
by reference to Exhibit 4.5.1 to the Company's current
report on Form 8-K (File No. 1-3660), filed May 14, 1997).
Credit Agreement, dated as of June 26, 1997, among
Owens Corning, other Borrowers and Guarantors, the Banks
listed on Annex A thereto, and Credit Suisse First
Boston, as Agent (incorporated herein by reference to
Exhibit (4) to the Company's quarterly report on Form 10-
Q (File No. 1-3660) for the quarter ended June 30, 1997),
as amended by Amendment No. 1 thereto (incorporated
herein by reference to Exhibit (4) to the Company's
annual report on Form 10-K (File No. 1-3660) for the year
1997) and Amendment No. 2 thereto (incorporated herein by
reference to Exhibit (4) to the Company's annual report
on Form 10-K (File No. 1-3660) for the year 1998).
(10) Material Contracts.
Owens Corning Deferred Compensation Plan (filed
herewith).
Corporate Incentive Plan Terms Applicable to Certain
Executive Officers (filed herewith).
Corporate Incentive Plan Terms Applicable to Key
Employees Other Than Certain Executive Officers (filed
herewith).
</TABLE>
<PAGE>
- 36 -
<TABLE>
EXHIBIT INDEX
<S> <C>
Exhibit
Number Document Description
(11) Statement re Computation of Per Share Earnings
(filed herewith).
(27) Financial Data Schedule (filed herewith).
(99) Additional Exhibits.
Subsidiaries of Owens Corning, as amended
(filed herewith).
</TABLE>
<PAGE>
Exhibit (10)
OWENS CORNING DEFERRED COMPENSATION PLAN
Effective as of January 1, 1999
ARTICLE I
ESTABLISHMENT AND PURPOSE OF THE PLAN
1.1 Establishment of the Plan. Effective as of January 1,
1999, Owens Corning hereby establishes the "Owens Corning
Deferred Compensation Plan."
1.2 Purpose of the Plan. The Plan is intended to
constitute an unfunded program maintained primarily for the
purpose of permitting a select group of management or highly
compensated employees to defer compensation in a manner
consistent with the requirements of Sections 201(2), 301(a)(3),
and 401(a)(1) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
ARTICLE II
DEFINITIONS
The following words and phrases as used in this Plan have
the following meanings:
2.1 Account. The term "Account" means the bookkeeping
account established by the Employer for each Eligible Employee to
which all deferrals and Investment Returns shall be credited.
2.2 Administrator. The term "Administrator" means the
individual described in Section 7.1 who is designated to
administer the Plan.
2.3 Affiliated Employer. The term "Affiliated Employer"
shall have the same meaning given to such term by the Owens
Corning Savings and Profit Sharing Plan.
2.4 Beneficiary. The term "Beneficiary" means the Eligible
Employee's beneficiary under the Owens Corning Savings and Profit
Sharing Plan.
2.5 Board of Directors. The term "Board of Directors"
means the Board of Directors of Owens Corning.
2.6 Code. The term "Code" means the Internal Revenue Code
of 1986, as amended.
2.7 Eligible Employee. The term "Eligible Employee" means
an individual who meets the requirements of Section 3.1.
2.8 Employer. The term "Employer" means Owens Corning and
any other Affiliated Employer that has adopted the Owens Corning
Savings and Profit Sharing Plan or has been designated by the
Board of Directors.
2.9 Investment Returns. The term "Investment Returns"
means the earnings and losses credited to an Eligible Employee's
Account in accordance with Section 3.6.
<PAGE>
2.10 Plan. The term "Plan" means the "Owens Corning
Deferred Compensation Plan" as set forth herein and as amended
from time to time.
ARTICLE III
COMPENSATION DEFERRALS
3.1 Eligible Employees. An individual is an Eligible
Employee if he or she is a member of a select group of management
or highly compensated employees of an Employer, and he or she --
(1) is an elected officer or appointed officer of Owens
Corning, or
(2) is a key employee of an Employer and is designated for
participation in the Plan by the Compensation Committee
of the Board of Directors.
3.2 Deferrals of Cash Compensation. An Eligible Employee
may elect, by submitting to the Administrator a properly
completed Deferral Election Form (in the form attached hereto as
Exhibit A), to defer the receipt of up to 50% of cash salary and
up to 100% of bonus compensation earned for services rendered to
the Employer during a calendar year. Eligible employees may also
be required to defer certain compensation as directed by the
Compensation Committee of the Board of Directors, subject to the
terms and conditions of the Plan and the underlying grant or
award. Thus, Eligible Employees may receive awards of incentive
pay that have special deferral terms and conditions that require
the deferral of that award (or a portion thereof) for a specified
period of time subject to special vesting and forfeiture
provisions.
3.3 Timing for Elections. Deferral Election Forms may be
submitted on an annual basis, with a properly submitted deferral
election becoming effective, to the extent administratively
practicable, for compensation earned on or after the January 1
which next follows the acceptance of the Deferral Election Form
by the Administrator; provided, however, that within 30 days of
first becoming an Eligible Employee, such Eligible Employee may
submit a Deferral Election Form and such election shall be
effective as soon as administratively practicable. Elections
with regard to Investment Returns and the time and manner of
payment of deferred amounts are one-time elections with regard to
amounts deferred pursuant to a particular Deferral Election Form.
A Deferral Election Form shall remain effective until a
superseding Deferral Election Form becomes effective. An
Eligible Employee may cease voluntary salary deferrals at any
time by submitting a properly completed Deferral Election Form to
the Administrator, which shall be effective for compensation
earned after the effective date of the election. Notwithstanding
the foregoing, a Participant may not make deferrals under this
Plan during any period for which contributions must be suspended
as a condition of the Eligible Employee's receipt of a hardship
withdrawal from the Owens Corning Savings and Profit Sharing Plan
or any other plan maintained by Owens Corning or an Affiliated
Employer that includes a qualified cash or deferred arrangement
under Code section 401(k).
3.4 Deferred Compensation Accounts. For the purpose of
determining liabilities under the Plan, the Employer shall
maintain an Account for each Eligible Employee. An Eligible
Employee's Account shall be credited with amounts deferred by the
Eligible Employee pursuant to the Plan and any Investment Returns
thereon.
3.5 Investment Returns. The Investment Return on an
Eligible Employee's Account shall be the amount necessary to
increase or decrease the Account to the amount it would have been
if it were invested in accordance with this Section. Investment
Returns for cash amounts deferred pursuant to Section 3.2 hereof
shall be determined as if such amounts were invested, at the
Eligible Employee's election pursuant to the Deferral Election
Form, in a fund invested in Owens Corning stock or an account
bearing interest at an annual effective rate equal to the prime
rate of interest quoted in the Wall Street Journal for the first
business day of the applicable calendar year. Notwithstanding
the foregoing, the Employer shall be under no obligation to make
any investments in accordance with the investment election of any
Eligible Employee.
<PAGE>
ARTICLE IV
FORFEITURE OF INVESTMENT RETURNS
4.1 Disclosure of Proprietary Information. The Investment
Returns otherwise payable (other than net losses) under the terms
of this Plan shall be forfeited and the Employer and the Plan
shall have no liability for Investment Returns to an Eligible
Employee (or his or her Beneficiary) if the Eligible Employee
discloses, divulges, publishes or otherwise reveals either
directly or through another, to any person, firm or corporation,
any knowledge or information concerning any Employer or
Affiliated Employer inventions, devices, technical data,
strategic plans (business and technical), or financial data
(including any data classified as "Secret and Proprietary
Information"), which knowledge or information has in any way been
disclosed to or acquired by the Eligible Employee during the term
of his or her employment with the Employer or an Affiliated
Employer. Such knowledge or information shall not include
knowledge or information which:
(1) is or was in the public domain at the time of its
disclosure to the Eligible Employee; or,
(2) enters the public domain after the date of
disclosure to the Eligible Employee except where such
entry is a result of a breach by the Eligible Employee
of this Section; or,
(3) is disclosed to the Eligible Employee by a third
party having a bona fide right to make such disclosure,
or is otherwise lawfully obtained from other sources;
or,
(4) is disclosed to others by the Employer or
Affiliated Employer without restriction.
4.2 Direct Competition with the Employer or an Affiliated
Employer. The Investment Returns payable under the terms of this
Plan (other than net losses) shall be forfeited and the Employer
and the Plan shall have no further liability to an Eligible
Employee if said Eligible Employee directly or indirectly, in any
capacity, performs any compensated service for, is employed by or
becomes associated with any firm, corporation or partnership
engaged in the manufacture, production or sale of products which
compete with products produced or sold by the Employer or an
Affiliated Employer. For the purposes of this Plan, products
shall be limited to these which are manufactured, produced or
sold by the Employer or an Affiliated Employer as described in
the Employer's or Affiliated Employer's most recent Annual Report
to its stockholders.
4.3 Discharge for Just Cause. The Investment Returns
otherwise payable under the terms of this Plan (other than net
losses) shall be forfeited and the Employer and the Plan shall
have no further liability if the employment of said Eligible
Employee by the Employer or Affiliated Employer is terminated or
otherwise ceases for "Just Cause". "Just Cause" shall mean
discharge or resignation as the direct result of any act or
omission which constitutes a misdemeanor or a felony, or which
clearly evidences fraud or dishonesty on the part of the Eligible
Employee.
4.4 Involuntary Deferrals. For grants or awards of
compensation that require deferral in whole or in part as a
condition of the grant or award, the vesting and forfeiture
provisions established by the Compensation Committee for purposes
of such grant or award will apply to such grant or award in
addition to the provisions hereof and will result in forfeiture
of the award and its Investment Returns unless fully satisfied by
the Eligible Employee.
<PAGE>
ARTICLE V
PAYMENT OF ACCOUNT
5.1 Payment to Eligible Employee. An Eligible Employee
shall be eligible to receive distribution of vested amounts in
his or her Account in the manner specified in his or her Deferral
Election Forms. Distribution of an Eligible Employee's Account
shall be made in one of the following forms: (1) lump sum payment
on a date certain, (2) lump sum payment upon the Eligible
Employee's termination of employment, or (3) payment of up to 10
substantially equal annual installments beginning either upon a
date certain or as soon as administratively practicable following
the date of the Eligible Employee's termination of employment,
with annual installments payable on each anniversary of such
date; provided, any remaining Account balance upon the tenth
anniversary of an Eligible Employee's termination of employment
shall be distributed in a lump sum as soon as is administratively
practicable thereafter.
5.2 Payment upon Death of Eligible Employee. In the event
of the death of the Eligible Employee, the vested balance of the
Eligible Employee's Account shall be payable to the Eligible
Employee's Beneficiary in a lump sum.
5.3 Form of Payment. All amounts shall be paid in cash.
5.4 Payment in the Event of Unforeseeable Emergency. An
Eligible Employee may request a distribution of amounts
voluntarily deferred in the event of an unforeseeable emergency,
up to but not exceeding the amount reasonably needed to satisfy
the emergency. For the purposes of this paragraph, an
"unforeseeable emergency" means severe financial hardship to the
Eligible Employee resulting from a sudden and unexpected illness
or accident of the Eligible Employee or of a dependent, loss of
the Eligible Employee's property due to casualty, or other
similar extraordinary and unforeseeable circumstances arising as
a result of events beyond the control of the Eligible Employee.
Notwithstanding the foregoing, payment may not be made to the
extent the unforeseeable emergency may be or is relieved by
insurance, liquidation of the Eligible Employee's assets
(provided such liquidation does not cause severe financial
hardship), or by cessation of deferrals under this Plan.
Unforeseeable emergencies do not include the need or desire to
send a child to college or to purchase a home. Whether an
unforeseeable emergency exists shall be determined by the
Administrator in his or her sole discretion. The Administrator
may require such documentation from the Eligible Employee as the
Administrator deems necessary to substantiate a request for
distribution due to an unforeseeable emergency.
ARTICLE VI
NATURE OF INTEREST OF ELIGIBLE EMPLOYEE
6.1 Unsecured General Creditor. The interests of Eligible
Employees and Beneficiaries in the Plan shall be that of
unsecured general creditors, with no secured or preferential
right to any assets of Owens Corning or any Employer, Affiliated
Employer, or any other party for payment of benefits under this
Plan. Any property held by Owens Corning or any Employer for the
purpose of generating the cash flow for benefit payments shall
remain its general, unpledged and unrestricted assets. Any
Employer's obligation under the Plan shall be an unfunded and
unsecured promise to pay benefits in the future.
<PAGE>
6.2 Trust Fund. Each Employer shall be responsible for the
payment of benefits provided under the Plan to its Eligible
Employees. At its discretion, the Employer may establish one or
more trusts, with such trustees as the Board of Directors may
approve, for the purpose of providing for the payment of such
benefits. Any trustee so appointed shall be bonded in a manner
satisfactory to the Employer. Whether or not such a trust is
irrevocable, its assets shall at all times be subject to the
claims of the Employer's general creditors in the event of the
Employer's insolvency. To the extent any benefits provided under
the Plan are paid from such trust, the Employer shall have no
further obligation to pay Plan benefits. Plan benefits not paid
from the trust shall remain the obligation of the Employer.
6.3 Change of Control. In the event of a "Change of
Control" as defined in the Owens Corning Stock Performance
Incentive Plan, Owens Corning (or its successor in interest)
shall contribute an amount equal to the value of all Eligible
Employees' Accounts under the Plan to an irrevocable trust within
10 days of such Change of Control. The terms of such trust shall
be consistent with Internal Revenue Service Revenue Procedure 92-
64 (as modified or superseded by the Internal Revenue Service),
and the trustee the shall be an independent third party financial
institution.
6.4 No Right to Transfer Interest. Rights to benefits
payable under the Plan are not subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, or
encumbrance.
ARTICLE VII
ADMINISTRATION
7.1 Administrator. (a) Except as provided in (b) below,
the Plan shall be administered by the Leader, Compensation, at
Owens Corning, or by the individual who holds the functional
equivalent of such position.
(b) The Senior Vice President, Strategic Resources of
Owens Corning shall be the Administrator with respect to any
matters involving the participation in this Plan of the
individual described in (a) above.
7.2 Powers of the Administrator. The Administrator's
powers shall include, but shall not be limited to, the power to
adopt rules consistent with the Plan; the power to decide all
questions relating to the interpretation of the terms and
provisions of the Plan; the power to resolve all other questions
arising under the Plan (including, without limitation, the power
to remedy possible ambiguities, inconsistencies, or omissions by
a general rule or particular decision); and the power to
designate all or a part of the previously described powers to
another employee of Owens Corning. The Administrator shall have
full and absolute discretion and authority to exercise each of
the foregoing powers.
7.3 Finality of Administrator Determinations. Deter
minations by the Administrator and any interpretation, rule, or
decision adopted by the Administrator under the Plan or in
carrying out or administering the Plan shall be final and binding
for all purposes and upon all interested persons, their heirs,
and their personal representatives.
<PAGE>
ARTICLE VIII
MISCELLANEOUS
8.1 Amendment, Suspension, and Termination. (a) The
Board of Directors shall have the right to amend, suspend, or
terminate the Plan at any time.
(b) The Vice President of Human Resources of Owens
Corning, or the individual who holds the functional equivalent of
such position, may adopt minor amendments to the Plan without
prior approval of the Board of Directors that (i) are necessary
or advisable for purposes of compliance with applicable laws and
regulations, (ii) relate to administrative practices, or (iii)
have an insubstantial financial effect on Plan benefits and
expenses.
8.2 Board of Directors' Power to Delegate Authority. The
Board of Directors may, in its discretion, delegate to any person
or persons all or any part of the Board's authority and
responsibility under the Plan, including, without limitation, the
authority to amend the Plan.
8.3 Indemnification. Owens Corning shall indemnify any
individual who is a director, officer or employee of an Employer,
or his or her heirs and legal representatives, against all
liability and reasonable expense, including counsel fees, amounts
paid in settlement and amounts of judgments, fines or penalties,
incurred or imposed upon him or her in connection with any claim,
action, suit or proceeding, whether civil, criminal,
administrative or investigative, in connection with his or her
duties under the Plan, provided that such act or omission does
not constitute gross negligence or willful misconduct.
8.4 No Employment Rights. No provisions of the Plan or any
action taken by an Employer, the Board of Directors, or the
Administrator shall give any person any right to be retained in
the employ of an Employer, and each Employer specifically
reserves the right and power to dismiss or discharge any Eligible
Employee.
8.5 Incapacity of Recipient. If an Eligible Employee or
Beneficiary entitled to a distribution under the Plan is living
under guardianship or conservatorship, distributions payable
under the terms of the Plan to such recipient shall be paid to
the appointed guardian or conservator and such payment shall be a
complete discharge of any liability of all Employers.
8.6 Data. Each Eligible Employee and Beneficiary shall
furnish the Employer with all proofs of date of death and other
proofs necessary for the administration of the Plan, and no
Employer shall be liable for the fulfillment of any obligations
in any way dependent upon such information unless and until the
same shall have been received by the Employer in form
satisfactory to it.
8.7 Misstatements. If any relevant fact relating to any
person is found to have been misstated, the benefit payable to an
Eligible Employee or Beneficiary shall be the benefit which would
have been provided on the basis of the correct information. Any
excess payments due to such misstatement shall be refunded to the
Employer or withheld by it from any further amounts otherwise
payable, and any underpayment shall be paid to the Eligible
Employee or Beneficiary as soon as administratively practicable.
8.8 Taxes. To the extent required by law, amounts credited
under the Plan shall be subject to Federal social security and
unemployment taxes during the year the services giving rise to
such contributions were performed (or, if later, when the amounts
are not subject to a substantial risk of forfeiture). Federal
social security and unemployment taxes shall be withheld from
current compensation otherwise payable to the Eligible Employee.
Each Employer shall withhold from any distributions made pursuant
to the Plan such amounts as may be required by Federal, state or
local law.
8.9 Applicable Law. The Plan shall be construed and
administered under the laws of the State of Ohio, except to the
extent that such laws are preempted by ERISA.
8.10 Usage of Terms and Headings. Words in the masculine
gender shall include the feminine and the singular shall include
the plural, and vice versa, unless qualified by the context. Any
headings are included for ease of reference only, and are not to
be construed to alter the terms of the Plan.
<PAGE>
Exhibit (10)
OWENS CORNING
Corporate Incentive Plan Terms Applicable to Certain Executive
Officers
(As amended and restated, January 1, 1999)
1. Application
Set forth below are the annual incentive plan terms
applicable to those employees of Owens Corning (the "Company"),
its subsidiaries and affiliates who are executive officers of the
Company and whose annual incentive compensation for any taxable
year of the Company commencing on or after January 1, 1999 the
Committee (as hereafter defined) anticipates would not be
deductible by the Company in whole or in part but for compliance
with section 162(m)(4)(C) of the Internal Revenue Code of 1986 as
amended ("162(m) Covered Employee"), including members of the
Board of Directors who are such employees. Such terms are
hereafter referred to as the "Plan" or "Corporate Incentive
Plan".
2. Eligibility
All 162(m) Covered Employees shall be eligible to be
selected to participate in this Corporate Incentive Plan. The
Committee shall select the 162(m) Covered Employees who shall
participate in this Plan in any year no later than 90 days after
the commencement of the year (or no later than such earlier or
later date as may be the applicable deadline for the compensation
payable to such 162(m) Covered Employee for such year hereunder
to qualify as "performance-based" under section 162(m)(4)(C) of
the Internal Revenue Code of 1986 as amended (the "Code")).
Selection to participate in this Plan in any year does not
require the Committee to, or imply that the Committee will,
select the same person to participate in the Plan in any
subsequent year.
3. Administration
The Plan shall be administered by the Compensation Committee
of the Board of Directors (the "Board"), or by another committee
appointed by the Board consisting of not less than two (2)
Directors who are not Employees (the "Committee"). The Committee
shall be comprised exclusively of Directors who are not Employees
and who are "outside directors" within the meaning of
Section162(m)(4)(C) of the Code. To the extent permitted by law,
the Committee may delegate its administrative authority with
respect to the Corporate Incentive Plan and, in the event of any
such delegation of authority, the term "Committee" as used in
this Plan shall be deemed to refer to the Committee's delegate as
well as to the Committee. The Committee shall, subject to the
provisions herein, select employees to participate herein;
establish and administer the performance goals and the award
opportunities applicable to each participant and certify whether
the goals have been attained; construe and interpret the Plan and
any agreement or instrument entered into under the Plan;
establish, amend, or waive rules and regulations for the Plan's
administration; and make all other determinations which may be
necessary or advisable for the administration of the Plan. Any
determination by the Committee pursuant to the Plan shall be
final, binding and conclusive on all employees and participants
and anyone claiming under or through any of them.
<PAGE>
4. Establishment of Performance Goals and Award Opportunities
No later than 90 days after the commencement of each year
commencing on or after January 1, 1999 (or by such earlier or
later date as may be the applicable deadline for compensation
payable hereunder for such year to qualify as "performance-based"
under section 162(m)(4)(C) of the Code), the Committee shall
establish in writing the method for computing the amount of
compensation which will be payable under the Plan to each
participant in the Plan for such year if the performance goals
established by the Committee for such year are attained in whole
or in part and if the participant's employment by the Company,
its subsidiaries and affiliates continues without interruption
during that year. Such method shall be stated in terms of an
objective formula or standard that precludes discretion to
increase the amount of the award that would otherwise be due upon
attainment of the goals. No provision hereof is intended to
preclude the Committee from exercising negative discretion with
respect to any award hereunder, within the meaning of the
Treasury regulations under Code section 162(m).
No later than 90 days after the commencement of each year
commencing on or after January 1, 1999 (or by such earlier or
later date as may be the applicable deadline for compensation
payable hereunder for such year to qualify as "performance-based"
under section 162(m)(4)(C) of the Code), the Committee shall
establish in writing the performance goals for such year, which
shall be based on any of the following performance criteria,
either alone or in any combination, and on either a consolidated
or business unit level, as the Committee may determine: sales,
net asset turnover, earnings per share, cash flow, cash flow from
operations, operating profit, net operating profit, net income,
income from operations, operating margin, net income margin,
return on net assets, return on total assets, return on common
equity, return on total capital, shareholder value added, total
shareholder return, common stock price appreciation, total
shareholder return relative to a defined marketplace, receivables
growth, debt to equity ratios, earnings to fixed charges ratios,
introduction of new products and/or services, or developing
and/or implementing action plans or strategies. The foregoing
criteria shall have any reasonable definitions that the Committee
may specify at the time such criteria are adopted, which may
include or exclude any or all of the following items as the
Committee may specify: extraordinary, unusual or non-recurring
items; effects of accounting changes; effects of currency
fluctuations; effects of financing activities (e.g., effect on
earnings per share of issuance of convertible debt securities);
expenses for restructuring or productivity initiatives; other non-
operating items; spending for acquisitions; effects of
divestitures; and effects of asbestos activities and settlements.
Any such performance criterion or combination of such criteria
may apply to the participant's award opportunity in its entirety
or to any designated portion or portions of the award
opportunity, as the Committee may specify. Extraordinary items,
such as capital gains and losses, which affect any performance
criterion applicable to the award (including but not limited to
the criterion of net income) and which are required to be taken
into account for purposes of Owens Corning's financial statements
under generally accepted accounting principles, shall be excluded
or included in determining the extent to which the corresponding
performance goal has been achieved so that the integrity and
intent of the performance goal are maintained.
5. Maximum Award
The maximum dollar amount that may be paid to any
participant under the Plan for any year is $4 million.
<PAGE>
6. Attainment of Performance Goals Required
Awards shall be paid under this Plan for any year solely on
account of the attainment of the performance goals established by
the Committee with respect to such year, within the meaning of
applicable Treasury regulations. Awards shall also be contingent
on continued employment by the Company, its subsidiaries and
affiliates during such year. The only exceptions to these rules
apply in the event of termination of employment by reason of
death or Disability, or in the event of a Change of Control of
the Company (as such terms are defined in the Company's Stock
Performance Incentive Plan as amended and restated on January 1,
1999 ("SPIP")), during such year, in which case the following
provisions shall apply. In the event of termination of employment
by reason of death or Disability during a Plan year, an award
shall be payable under this Plan to the participant or the
participant's estate for such year, which shall be adjusted, pro-
rata, for the period of time during the Plan year the participant
actually worked. In the event of a Change of Control during a
Plan year and prior to any termination of employment, incentive
awards shall be paid under the Plan at the higher of (a) one half
of participating salary for such year (as determined by the
Committee), or (b) projected performance for the year, determined
at the time the Change of Control occurs. An additional exception
shall apply in the event of termination of employment by reason
of Retirement (as defined in the SPIP) during a Plan year, but
only if and to the extent it will not prevent any award payable
hereunder (other than an award payable in the event of death,
Disability, Change of Control or Retirement) from qualifying as
"performance-based compensation" under section 162(m)(4)(C) of
the Code. Subject to the preceding sentence, in the event of
termination of employment by reason of Retirement during a Plan
year an award may but need not (as the Committee may determine)
be payable under this Plan to the participant, which shall be
adjusted, pro-rata, for the period of time during the Plan year
the participant actually worked. A participant whose employment
terminates prior to the end of a Plan year for any reason not
excepted above shall not be entitled to any award under the Plan
for that year.
7. Shareholder Approval and Committee Certification
Contingencies; Payment of Awards
Payment of any awards under this Plan shall be contingent
upon shareholder approval, prior to payment, of the material
terms of the performance goals under which the awards are to be
paid, in accordance with applicable Treasury regulations under
Code section 162(m). Unless and until such shareholder approval
is obtained, no award shall be paid pursuant to this Plan.
Subject to the provisions of paragraph 6 above relating to death,
Disability, Change of Control and Retirement, payment of any
award under this Plan shall also be contingent upon the
Compensation Committee's certifying in writing that the
performance goals and any other material terms applicable to such
award were in fact satisfied, in accordance with applicable
Treasury regulations under Code section 162(m). Unless and until
the Committee so certifies, such award shall not be paid. Unless
the Committee provides otherwise, (a) earned awards shall be paid
promptly following such certification, and (b) such payment shall
be made in cash (subject to any payroll tax withholding the
Company may determine applies). Any amount payable to a
participant hereunder shall be in addition to any annual
incentive compensation to which the participant may be
contractually entitled for such year pursuant to an employment
agreement with the Company, unless such employment agreement
provides otherwise.
8. Amendment or Termination
The Committee may amend, modify or terminate this Plan at
any time, provided that a termination or adverse modification
shall only become effective 30 days after written notice thereof
is given to each participant. Each participant shall be eligible
to receive the incentive compensation to which the participant
would have been otherwise entitled but for such termination or
modification, pro-rata for the period of the Plan year prior to
the termination or modification.
<PAGE>
9. Interpretation and Construction
Any provision of this Plan to the contrary notwithstanding,
(a) awards under this Plan are intended to qualify as performance-
based compensation under Code Section 162(m)(4)(C), and (b) any
provision of the Plan that would prevent an award under the Plan
from so qualifying shall be administered, interpreted and
construed to carry out such intention and any provision that
cannot be so administered, interpreted and construed shall to
that extent be disregarded. No provision of the Plan, nor the
selection of any eligible employee to participate in the Plan,
shall constitute an employment agreement or affect the duration
of any participant's employment, which shall remain "employment
at will" unless an employment agreement between the Company and
the participant provides otherwise. Both the participant and the
Company shall remain free to terminate employment at any time to
the same extent as if the Plan had not been adopted.
<PAGE>
10. Governing Law
The terms of this Plan shall be governed by the laws of the
State of Delaware, without reference to the conflicts of laws
principles of that state.
<PAGE>
<PAGE>
Exhibit (10)
OWENS CORNING
Corporate Incentive Plan Terms Applicable to Key Employees Other
Than Certain Executive Officers
(As amended and restated, January 1, 1999)
1. Application
Set forth below are the annual incentive plan terms applicable to
those employees of Owens Corning Corporation (the "Company"), its
subsidiaries and affiliates who, in the opinion of the Committee
(as hereafter defined), are key employees, including members of
the Board of Directors who are such employees, but excluding any
such employees who are executive officers of the Company and
whose annual incentive compensation for any taxable year of the
Company commencing on or after January 1, 1995 the Committee
anticipates would not be deductible by the Company in whole or in
part but for compliance with section 162(m)(4)(C) of the Internal
Revenue Code of 1986 as amended ("162(m) Covered Employee").
Such terms are hereafter referred to as the "Incentive Plan".
2. Eligibility
All employees of the Company, its subsidiaries and affiliates
who, in the opinion of the Committee, are key employees,
including members of the Board of Directors who are such
employees, but excluding 162(m) Covered Employees, shall be
eligible to be selected to participate in this Incentive Plan.
The Committee may select the eligible employees who shall
participate in this Incentive Plan in any year at any time before
or during such year. Selection to participate in this Incentive
Plan in any year does not require the Committee to, or imply that
the Committee will, select the same person to participate in the
Incentive Plan in any subsequent year.
3. Administration
The Plan shall be administered by the Compensation Committee of
the Board of Directors (the "Board"), or by another committee
appointed by the Board consisting of not less than two (2)
Directors who are not Employees (the "Committee"). To the extent
permitted by law, the Committee may delegate its administrative
authority with respect to the Incentive Plan and, in the event of
any such delegation of authority, the term "Committee" as used in
this Incentive Plan shall be deemed to refer to the Committee's
delegate as well as to the Committee. The Committee shall,
subject to the provisions herein, select employees to participate
herein; establish and administer the performance goals and the
award opportunities applicable to each participant and certify
whether the goals have been attained; construe and interpret the
Incentive Plan and any agreement or instrument entered into under
the Incentive Plan; establish, amend, or waive rules and
regulations for the Incentive Plan's administration; and make all
other determinations which may be necessary or advisable for the
administration of the Incentive Plan. Any determination by the
Committee pursuant to the Incentive Plan shall be final, binding
and conclusive on all employees and participants and anyone
claiming under or through any of them.
<PAGE>
4. Establishment of Performance Goals and Award Opportunities
At any time before or during each year, the Committee shall
establish the method for computing the amount of compensation
which will be payable under the Incentive Plan to each
participant in the Incentive Plan for such year if the
performance goals established by the Committee for such year are
attained in whole or in part and if the participant's employment
by the Company, its subsidiaries and affiliates continues without
interruption during that year. The Committee shall also establish
the performance goals for such year, which may be based on any of
the following performance criteria, either alone or in any
combination, and on either a consolidated or business unit level
as the Committee may determine, or such other criteria as the
Committee may select: sales, net asset turnover, earnings per
share, cash flow, cash flow from operations, operating profit,
net operating profit, net income, income from operations,
operating margin, net income margin, return on net assets, return
on total assets, return on common equity, return on total
capital, and shareholder value added, total shareholder return,
common stock price appreciation, total shareholder return
relative to a defined marketplace, receivables growth, debt to
equity ratios, earnings to fixed charges ratios, introduction of
new products and/or services, or developing and/or implementing
action plans or strategies. The foregoing criteria shall have
any reasonable definitions that the Committee may specify at the
time such criteria are adopted, which may include or exclude any
or all of the following items as the Committee may specify:
extraordinary, unusual or non-recurring items; effects of
accounting changes; effects of currency fluctuations; effects of
financing activities (e.g., effect on earnings per share of
issuance of convertible debt securities); expenses for
restructuring or productivity initiatives; other non-operating
items; spending for acquisitions; effects of divestitures; and
effects of asbestos activities and settlements. Any such
performance criterion or combination of such criteria may apply
to the participant's award opportunity in its entirety or to any
designated portion or portions of the award opportunity, as the
Committee may specify. Extraordinary items, such as capital
gains and losses, which affect any performance criterion
applicable to such award (including but not limited to the
criterion of net income) and which are required to be taken into
account for purposes of Owens Corning's financial statements
under Generally Accepted Accounting Principles, shall be excluded
or included in determining the extent to which the corresponding
performance goal has been achieved so that the integrity and
intent of the performance goal are maintained.
5. Awards
Participating employees' individual awards may vary as a
percentage of their Participating Salaries, based on both the
funding approved by the Committee and on the participant's
performance and contribution, as determined in the sole
discretion of the Company. Participating Salary is defined as
the product of the participant's total base salary paid during a
given Incentive Plan year, multiplied by the participant's
incentive pay percentage, at maximum funding. Aggregate awards
under the annually recurring Incentive Plan for any year may not
exceed 100% of the Participating Salaries of participants in the
Incentive Plan for such year, as determined by the Committee.
<PAGE>
6. Employment Requirement
A participant's award under this Incentive Plan for any year
shall be contingent on continued employment by the Company, its
subsidiaries and affiliates during such year. The only
exceptions to this rule apply in the event of termination of
employment by reason of death, disability, retirement or job
elimination (all as determined by the Committee), or in the event
of a change of control of Owens Corning (as determined by the
Committee), during such year, in which case the following
provisions shall apply. In the event of termination of
employment by reason of death, disability, retirement or job
elimination during a year (as determined by the Committee), an
award shall be payable under this Incentive Plan to the
participant or the participant's estate for such year, which
shall be adjusted, pro-rata, for the period of time during the
year the participant actually worked. In the event of a change
of control of Owens Corning during a year and prior to any
termination of employment, incentive awards shall be paid under
the Incentive Plan at the higher of (a) one half of Participating
Salary for such year (as determined by the Committee), or (b)
projected performance for the year, determined at the time the
change of control occurs. A participant whose employment
terminates prior to the end of a year for any reason not excepted
above shall not be entitled to any award under the Incentive Plan
for that year.
7. Payment of Awards
Except as provided otherwise in this Incentive Plan or by the
Committee, payment of each award under this Incentive Plan for
any year shall be contingent upon a determination by the
Committee that the performance goals and employment conditions
applicable to such award have been satisfied. Unless and until
the Committee so determines, such award shall not be paid.
Unless the Committee provides otherwise, (a) earned awards shall
be paid promptly following such determination, and (b) such
payment shall be made in cash (subject to any payroll tax
withholding the Company may determine applies).
8. Amendment or Termination
The Committee may amend, modify or terminate this Incentive Plan
at any time, provided that a termination or modification shall
only become effective 30 days after written notice thereof is
given to each participant. Each participant shall be eligible to
receive the incentive compensation to which the participant would
have been otherwise entitled but for such termination or
modification, pro-rata for the period of the year prior to the
termination or modification.
9. Interpretation and Construction
Any provision of this Incentive Plan to the contrary
notwithstanding, (a) no provision of this Incentive Plan shall
apply to any 162(m) Covered Employee, and (b) any provision of
this Incentive Plan that would prevent an award to any 162(m)
Covered Employee under any plan or arrangement other than this
Incentive Plan from qualifying as performance-based compensation
under Code Section 162(m)(4)(C) shall be administered,
interpreted and construed to enable such award to so qualify and
any provision that cannot be so administered, interpreted and
construed shall to that extent be disregarded. No provision of
the Incentive Plan, nor the selection of any eligible employee to
participate in the Incentive Plan, shall constitute an employment
agreement or affect the duration of any participant's employment,
which shall remain "employment at will" unless an employment
agreement between the Company and the participant provides
otherwise. Both the participant and the Company shall remain
free to terminate employment at any time to the same extent as if
the Incentive Plan had not been adopted.
10. Governing Law
The terms of this Incentive Plan shall be governed by the laws of
the State of Delaware, without reference to the conflicts of laws
principles of that state.
<PAGE>
Exhibit (11)
OWENS CORNING AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<S> <C> <C>
Quarter Ended
March 31,
1999 1998
(In millions of dollars,
except share data)
Basic:
Net income $ 44 $ 8
Basic weighted average number
of common shares outstanding
(thousands) 53,932 53,373
Basic per share amount $ .81 $ .16
Diluted:
Net income $ 46 $ 8
Weighted average number of
shares outstanding (thousands) 53,932 53,373
Weighted average common equivalent
shares (thousands):
Deferred awards 563 352
Stock options using the higher of
average market price or market
price at end of period 205 120
Shares from assumed conversion
of preferred securities 4,566 -
Diluted weighted average number
of common shares outstanding and
common equivalent shares (thousands) 59,266 53,845
Diluted per share amount $ .77 $ .16
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 51
<SECURITIES> 0
<RECEIVABLES> 555
<ALLOWANCES> 0
<INVENTORY> 496
<CURRENT-ASSETS> 1,675
<PP&E> 3,572
<DEPRECIATION> 1,904
<TOTAL-ASSETS> 5,199
<CURRENT-LIABILITIES> 1,964
<BONDS> 1,903
<COMMON> 696
195
0
<OTHER-SE> (1,793)
<TOTAL-LIABILITY-AND-EQUITY> 5,199
<SALES> 1,130
<TOTAL-REVENUES> 1,130
<CGS> 871
<TOTAL-COSTS> 871
<OTHER-EXPENSES> (1)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> 77
<INCOME-TAX> 27
<INCOME-CONTINUING> 44
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44
<EPS-PRIMARY> .81<F1>
<EPS-DILUTED> .77<F2>
<FN>
<F1> Represents basic earnings per share as defined in FASB Statement No. 128
<F2> Represents diluted earnings per share as defined in FASB Statement No. 128.
</FN>
</TABLE>
<PAGE>
Exhibit (99)
<TABLE>
<S> <C>
State or Other
Jurisdiction
Under the Laws
of Which
Subsidiaries of Owens Corning (3/31/99) Organized
AmeriMark Building Products, Inc. Delaware
Commercial Owens Corning Chile Limitada Chile
Crown Manufacturing Inc. Canada
Cultured Stone Corporation California
Decillion, LLC Delaware
Deutsche Owens-Corning Glasswool GmbH Germany
Engineered Pipe Systems, Inc. Delaware
Engineered Yarns America, Inc. Massachusetts
Eric Company Delaware
European Owens-Corning Fiberglas, S.A. Belgium
Fabwel, Inc. Indiana
Falcon Foam Corporation Delaware
Fibreboard Corporation Delaware
Flowtite (Africa) (Private) Limited Zimbabwe
Flowtite AS Norway
Flowtite Eksport AS Norway
Flowtite Offshore Services Ltd. Cyprus
Flowtite Pipe & Tanks AS Norway
Flowtite Technology AS Norway
Goodman Ventures, Inc. Delaware
IPM Inc. Delaware
Integrex Delaware
Jefferson Holdings, Inc. Delaware
LMP Impianti Srl Italy
Norandex Inc. Delaware
N.V. Owens-Corning S.A. Belgium
OC Celfortec Inc. Canada
O.C. Funding B.V. The Netherlands
OCW Acquisition Corporation
(dba, Delsan Industries Corp.) Delaware
Owens Corning (Anshan) Fiberglas Co. Limited China
Owens Corning Australia Pty Limited Australia
Owens Corning (China) Investment Company, Ltd. China
Owens Corning Building Materials Espana S.A. Spain
Owens-Corning Building Products (U.K.) Ltd. United Kingdom
Owens Corning Canada Inc. Canada
Owens-Corning Capital Holdings I, Inc. Delaware
Owens-Corning Capital Holdings II, Inc. Delaware
Owens-Corning Capital L.L.C. Delaware
Owens Corning Cayman (China) Holdings Cayman Islands
Owens-Corning Cayman Limited Cayman Islands
Owens Corning Espana SA Spain
Owens-Corning Fiberglas A.S. Limitada Brazil
</TABLE>
<PAGE>
<TABLE>
<S> <C>
State or Other
Jurisdiction
Under the Laws
of Which
Subsidiaries of Owens Corning (3/31/99) Organized
Owens-Corning Fiberglas Deutschland GmbH Germany
Owens-Corning Fiberglas Espana, S.A. Spain
Owens-Corning Fiberglas France S.A. France
Owens-Corning Fiberglas (G.B.) Ltd. United Kingdom
Owens-Corning Fiberglas Norway A/S Norway
Owens-Corning Fiberglas S.A. Uruguay
Owens-Corning Fiberglas Sweden Inc. Delaware
Owens-Corning Fiberglas Technology Inc. Illinois
Owens-Corning Fiberglas (U.K.) Ltd. United Kingdom
Owens-Corning Fiberglas (U.K.)
Pension Plan Ltd. United Kingdom
Owens-Corning Finance (U.K.) PLC United Kingdom
Owens-Corning FSC, Inc. Barbados
Owens-Corning Funding Corporation Delaware
Owens-Corning (Guangzhou) Fiberglas Co., Ltd. China
Owens-Corning Holdings Limited Cayman Islands
Owens Corning HT, Inc. Delaware
Owens-Corning Isolation France S.A. France
Owens Corning (Japan) Ltd. Japan
Owens Corning Korea Korea
Owens Corning Mexico, S.A. de C.V. Mexico
Owens-Corning Ontario Holdings Inc. Ontario
Owens-Corning Overseas Holdings, Inc. Delaware
Owens Corning NRO II Inc. Canada
Owens Corning NRO Inc. Canada
Owens Corning Polyfoam UK Ltd. United Kingdom
Owens-Corning Real Estate Corporation Ohio
Owens Corning (Shanghai) Fiberglas Co., Ltd. China
Owens Corning (Singapore) PTE Ltd. Singapore
Owens Corning South Africa (Pty) Ltd. South Africa
Owens Corning SpA Italy
Owens-Corning (Sweden) AB Sweden
Owens-Corning (UK) Holdings Limited United Kingdom
Owens-Corning Veil Netherlands B.V. The Netherlands
Owens-Corning Veil U.K. Ltd. United Kingdom
P Metals, Inc. Delaware
Procanpol SP.Z.O.O. Poland
Quest Industries, LLC Delaware
Scanglas Ltd. United Kingdom
Soltech, Inc. Kentucky
T Acquisition Inc. Delaware
Trumbull Asphalt Co. of Delaware Delaware
Vytec Corporation Ontario
Vytec Sales Corporation Delaware
Willcorp, Inc. Delaware
Wrexham A.R. Glass Ltd. United Kingdom
10110 Newfoundland Limited Newfoundland
</TABLE>
