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, 2000
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, 2000
55,477,636
- 2 -
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(unaudited)
<TABLE>
<S> <C> <C>
Quarter Ended
March 31,
---------
2000 1999
---- ----
(In millions of dollars,
except share data)
NET SALES $ 1,257 $ 1,130
COST OF SALES 972 871
-------- ---------
Gross margin 285 259
-------- ---------
OPERATING EXPENSES
Marketing and administrative
expenses 148 136
Science and technology expenses 14 14
Other (Note 4) 18 (1)
-------- ---------
Total operating expenses 180 149
-------- ---------
INCOME FROM OPERATIONS 105 110
OTHER
Cost of borrowed funds 42 33
Other (Note 12) - -
-------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES 63 77
Provision for income taxes (Note 6) 13 27
-------- ---------
INCOME BEFORE MINORITY INTEREST
AND EQUITY IN NET INCOME OF AFFILIATES 50 50
Minority Interest (2) (2)
Equity in net income (loss) of affiliates - (4)
-------- ---------
NET INCOME $ 48 $ 44
========= =========
NET INCOME PER COMMON SHARE
Basic net income per share $ .88 $ .81
--------- ---------
Diluted net income per share $ .84 $ .77
--------- ---------
Weighted average number of common shares
outstanding and common equivalent shares
during the period (in millions)
Basic 54.6 53.9
Diluted 59.8 59.3
</TABLE>
The accompanying notes are an integral part of this statement.
- 3 -
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<S> <C> <C>
March 31, December 31,
2000 1999
---- ----
(In millions of dollars)
ASSETS
- ------
CURRENT
Cash and cash equivalents $ 41 $ 70
Restricted cash (Note 11) 256 -
Restricted cash and securities -
Fibreboard - current
portion (Note 12) 711 900
Receivables 531 358
Inventories (Note 7) 511 466
Insurance for asbestos litigation
claims - current portion (Note 11) - 25
Deferred income taxes 184 185
Income tax receivable 4 61
Other current assets 23 23
--------- --------
Total current 2,261 2,088
--------- --------
OTHER
Insurance for asbestos litigation
claims (Note 11) 218 205
Restricted cash and securities -
Fibreboard (Note 12) 879 938
Deferred income taxes 543 547
Goodwill 716 743
Investments in affiliates 57 65
Other noncurrent assets 243 208
--------- --------
Total other 2,656 2,706
--------- --------
PLANT AND EQUIPMENT, at cost
Land 68 70
Buildings and leasehold improvements 726 725
Machinery and equipment 2,659 2,639
Construction in progress 257 258
--------- --------
3,710 3,692
Less-accumulated depreciation (2,003) (1,992)
--------- --------
Net plant and equipment 1,707 1,700
--------- --------
TOTAL ASSETS $ 6,624 $ 6,494
========= ========
</TABLE>
The accompanying notes are an integral part of this statement.
- 4 -
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (continued)
(unaudited)
<TABLE>
<S> <C> <C>
March 31, December 31,
2000 1999
---- ----
(In millions of dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT
Accounts payable and accrued
liabilities $ 717 $ 839
Reserve for asbestos litigation
claims - current portion
(Note 11) 806 950
Asbestos-related liabilities -
Fibreboard - current portion
(Note 12) 711 900
Short-term debt 105 68
Long-term debt - current portion 157 159
------- -------
Total current 2,496 2,916
------- -------
LONG-TERM DEBT 2,410 1,764
------- -------
OTHER
Reserve for asbestos litigation claims
(Note 11) 742 820
Asbestos-related liabilities -
Fibreboard (Note 12) 879 938
Other employee benefits liability 319 318
Pension plan liability 38 42
Other 342 339
------- -------
Total other 2,320 2,457
------- -------
COMPANY OBLIGATED SECURITIES OF
ENTITIES HOLDING SOLELY PARENT
DEBENTURES 194 194
------- -------
MINORITY INTEREST 46 44
------- -------
STOCKHOLDERS' EQUITY
Common stock 702 695
Deficit (1,466) (1,510)
Accumulated other comprehensive income
(Notes 9 and 12) (66) (51)
Other (12) (15)
------- -------
Total stockholders' equity (842) (881)
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 6,624 $ 6,494
======== =======
</TABLE>
The accompanying notes are an integral part of this statement.
- 5 -
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<S> <C> <C>
Quarter Ended
March 31,
---------
2000 1999
---- ----
(In millions of dollars)
NET CASH FLOW FROM OPERATIONS
Net income $ 48 $ 44
Reconciliation of net cash provided by
operating activities:
Noncash items:
Provision for depreciation and
amortization 48 53
Provision (credit) for deferred
income taxes 4 23
Other (13) 5
(Increase) decrease in receivables (181) (86)
(Increase) decrease in inventories (57) (53)
Increase (decrease) in accounts
payable and accrued liabilities (80) (181)
(Increase) decrease in income
tax receivable 50 80
Proceeds from insurance for asbestos
litigation claims, excluding
Fibreboard (Note 11) 12 19
Payments for asbestos litigation
claims, excluding Fibreboard
(Note 11) (223) (195)
(Increase) decrease in restricted
cash (Note 11) (256) -
Other (31) (13)
------- -------
Net cash flow from operations $ (679) $ (304)
------- -------
NET CASH FLOW FROM INVESTING
Additions to plant and equipment $ (68) $ (40)
Investment in subsidiaries, net of
cash acquired (4) -
Proceeds from the sale of business
or affiliate (Note 4) 50 -
Other (2) (11)
------- -------
Net cash flow from investing $ (24) $ (51)
------- -------
</TABLE>
The accompanying notes are an integral part of this statement.
- 6 -
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<S> <C> <C>
Quarter Ended
March 31,
---------
2000 1999
---- ----
(In millions of dollars)
NET CASH FLOW FROM FINANCING
Net additions to long-term credit
facilities $ 655 $ 91
Other additions to long-term debt - 250
Other reductions to long-term debt (11) -
Net increase in short-term debt 35 18
Dividends paid (4) (4)
Other - (3)
------- --------
Net cash flow from financing $ 675 $ 352
------- --------
Effect of exchange rate changes on cash (1) -
------- --------
Net increase (decrease) in cash and cash
equivalents (29) (3)
Cash and cash equivalents at beginning of
period 70 54
------- --------
Cash and cash equivalents at end of
period $ 41 $ 51
======= ========
</TABLE>
The accompanying notes are an integral part of this statement.
- 7 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. SEGMENT DATA
<TABLE>
<S> <C> <C>
Quarter Ended
March 31,
---------
2000 1999
---- ----
(In millions of dollars)
NET SALES
Reportable Operating Segments
- -----------------------------
Building Materials
United States $ 905 $ 814
Europe 57 63
Canada and other 45 48
---------- --------
Total Building Materials 1,007 925
---------- --------
Composite Materials
United States 158 128
Europe 85 82
Canada and other 41 26
---------- --------
Total Composite Materials 284 236
---------- --------
Total Reportable Operating Segments 1,291 1,161
Reconciliation to Consolidated Net Sales
- ----------------------------------------
Composite Materials U.S. Sales to
Building Materials U.S. (34) (31)
---------- --------
Net sales $ 1,257 $ 1,130
========== ========
External Customer Sales by Geographic Region
- --------------------------------------------
United States $ 1,029 $ 911
Europe 142 145
Canada and other 86 74
---------- --------
Net Sales $ 1,257 $ 1,130
========== ========
</TABLE>
- 8 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
1. SEGMENT DATA (continued)
<TABLE>
<S> <C> <C>
Quarter Ended
March 31,
---------
2000 1999
---- ----
(In millions of dollars)
INCOME (LOSS) FROM OPERATIONS
Reportable Operating Segments
- -----------------------------
Building Materials
United States $ 73 $ 70
Europe (1) 3
Canada and other 4 4
-------- -------
Total Building Materials 76 77
-------- -------
Composite Materials
United States 48 28
Europe - -
Canada and other 7 3
-------- -------
Total Composite Materials 55 31
-------- -------
Total Reportable Operating Segments $ 131 $ 108
======== =======
Geographic Regions
United States $ 121 $ 98
Europe (1) 3
Canada and other 11 7
-------- -------
Total Reportable Operating
Segments $ 131 $ 108
-------- -------
Reconciliation to Consolidated Income
Before Provision for Income Taxes
- -------------------------------------
Realignment and other costs (11) -
Loss on sale of affiliate or business (5) -
General corporate income (expense) (10) 2
Cost of borrowed funds (42) (33)
-------- -------
Consolidated Income Before Provision
for Income Taxes $ 63 $ 77
======== =======
</TABLE>
- 9 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
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 1999
Annual Report on Form 10-K, as filed with the Securities and
Exchange Commission.
3. RESTRUCTURING OF OPERATIONS AND OTHER ACTIONS
During 1998, the Company recorded a $243 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. Including the $143 million pretax charge for
restructuring and other actions in the fourth quarter of 1997,
the Company recorded a total pretax charge of $386 million during
1997 and 1998.
The $243 million pretax charge during 1998 was comprised of a
$117 million charge associated with the restructuring of the
Company's business segments and a $126 million charge associated
with other actions, the majority of which represent asset
impairments. The $117 million restructure charge has been
classified as a separate component of operating expenses on the
Company's consolidated statement of income while the $126 million
charge for other actions was comprised of a $65 million charge to
cost of sales, a $7 million charge to marketing and
administrative expenses, and a $54 million charge to other
operating expenses. The components of the restructure charge
included $90 million for personnel reductions and $27 million for
the divestiture of non-strategic businesses and facilities, of
which $24 million represented non-cash asset write-downs to
estimated fair value and $3 million represented exit cost
liabilities, comprised primarily of lease commitments. The $90
million for personnel reductions represented severance costs
associated with the elimination of approximately 1,900 positions
worldwide. The primary groups affected included manufacturing
and administrative personnel. As of March, 2000, approximately
$79 million has been paid and charged against the reserve for
personnel reductions, representing the elimination of
approximately 1,900 positions, the majority of whose severance
payments were made over the course of 1998 and 1999. Charges of
approximately $3 million have been made against exit cost
liabilities and 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 included $25 million for
personnel reductions; $41 million for the divestiture of non-
strategic businesses and facilities, of which $13 million
represented exit cost liabilities, primarily for leased warehouse
and office facilities to be vacated, and $28 million represented
non-cash asset revaluations; and $2 million for other actions.
The divestiture of non-strategic businesses and facilities
included the closure of the Candiac, Quebec manufacturing
facility. During the second quarter of 1999, the Candiac
manufacturing facility was re-opened in order to meet current
market demands.
- 10 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
3. RESTRUCTURING OF OPERATIONS AND OTHER ACTIONS (continued)
The $25 million for personnel reductions during the fourth
quarter of 1997 represents severance costs associated with the
elimination of nearly 550 positions worldwide. The primary
employee groups affected include manufacturing and corporate
administrative personnel. As of March 31, 2000, approximately $22
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 1999, and approximately
$10 million has been charged against exit cost liabilities. No
adjustments have been made to the liability.
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, 2000:
(In millions of dollars)
<TABLE>
<S> <C> <C> <C>
Beginning Total Ending
Liability Payments Liability
--------- -------- ---------
Personnel Costs $ 115 $ (101) $ 14
Facility and Business Exit Costs 16 (13) 3
Other 2 (2) -
-------- -------- -------
Total $ 133 $ (116) $ 17
======== ======== =======
</TABLE>
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
During the first quarter of 2000, the Company completed the sale
of the assets of Falcon Foam, a producer of foam insulation in
Michigan and California. Net proceeds from the sale were $50
million and resulted in a pretax loss of approximately $5 million
including transaction costs. This net loss was recorded as other
operating expenses on the consolidated statement of income.
During the first quarter of 2000, the Company also realigned its
vinyl siding manufacturing operations, resulting in the closure
of its Fair Bluff, North Carolina manufacturing plant. This
realignment resulted in a $9 million pretax expense, all of which
was recorded as other operating expenses on the consolidated
statement of income.
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
- 11 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
the date of acquisition. Prior to that date, the Company
accounted for this 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.
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>
Quarter Ended March 31,
2000 1999
---- ----
U.S. federal statutory rate 35% 35%
State and local income taxes 2 3
Special tax election (a) (18) -
Foreign tax rate differences 1 -
Other - (3)
---- ----
Effective tax rate 20% 35%
==== ====
</TABLE>
(a) Represents the implementation of a tax strategy associated
with one of our foreign subsidiaries.
7. INVENTORIES
<TABLE>
<S> <C> <C>
March 31, 2000 December 31, 1999
-------------- -----------------
Inventories are summarized as (In millions of dollars)
follows:
Finished goods $ 393 $ 374
Materials and supplies 185 158
----- -----
FIFO inventory 578 532
Less: Reduction to LIFO basis (67) (66)
----- -----
Total inventory $ 511 $ 466
===== =====
</TABLE>
Approximately $307 million and $269 million of FIFO inventories
were valued using the LIFO method at March 31, 2000 and December
31, 1999, respectively.
- 12 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
8. CONSOLIDATED STATEMENT OF CASH FLOWS
Cash payments (refunds) for income taxes and cost of borrowed
funds are summarized as follows:
<TABLE>
<S> <C> <C>
Quarter Ended March 31,
2000 1999
---- ----
(In millions of dollars)
Income taxes $(44) $(82)
Cost of borrowed funds 41 27
</TABLE>
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
Please refer to Notes 4 and 12 for disclosure of Non-Cash
activities.
9. COMPREHENSIVE INCOME
The Company's comprehensive income for the quarters ended March
31, 2000 and 1999 was $34 million and $33 million, respectively.
The Company's comprehensive income includes net income, currency
translation adjustments, and deferred gains and losses on certain
hedging transactions.
10. EARNINGS PER SHARE
The following table reconciles the net income and weighted
average number of shares used in the basic earnings per share
calculation to the net income and weighted average number of
shares used to compute diluted earnings per share.
<TABLE>
<S> <C> <C>
Quarter Ended March 31,
2000 1999
---- ----
(In millions of dollars,
except share data)
Net income used for basic earnings
per share $ 48 $ 44
Net income effect of assumed
conversion of preferred securities 2 2
------- -------
Net income used for diluted
earnings per share $ 50 $ 46
======= =======
Weighted average number of shares
outstanding used for basic
earnings per share (thousands) 54,590 53,932
Deferred awards and stock options 598 768
Shares from assumed conversion of
preferred securities 4,566 4,566
------- -------
Weighted average number of shares
outstanding and common equivalent
shares used for diluted earnings
per share (thousands) 59,754 59,266
======= =======
</TABLE>
- 13 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
11. CONTINGENT LIABILITIES
Asbestos Liabilities
- --------------------
ITEM A. - OWENS CORNING (EXCLUDING FIBREBOARD)
Numerous claims have been asserted against Owens Corning alleging
personal injury arising from inhalation of asbestos fibers.
Virtually all of these claims arise out of Owens Corning's
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. The vast majority of these claims are being resolved
through the National Settlement Program described below. As a
result of this program, the number of new lawsuits filed against
Owens Corning has been sharply reduced from historical levels.
National Settlement Program
- ---------------------------
Owens Corning has implemented a National Settlement Program
("NSP"), which it continues to expand. As of March 31, 2000, the
number of plaintiffs' law firms participating in the NSP is
approximately 115 and Owens Corning has settled, through the NSP,
more than 235,000 asbestos personal injury claims. 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 made under
the NSP are substantially lower than those experienced by Owens
Corning for comparable claims prior to the NSP.
Owens Corning 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 help Owens
Corning better predict the timing and amount of indemnity
payments for both pending and future claims.
Terms and Conditions of NSP Agreements
- --------------------------------------
Under the NSP, each participating law firm has agreed to a long-
term settlement agreement ("NSP Agreement"). All NSP Agreements
provide for the resolution of both present claims (those claims,
including unfiled claims, pending at the time a participating
firm enters into an NSP Agreement) and future claims (those
claims that may arise after a participating firm enters into an
NSP Agreement) against either Owens Corning or Fibreboard, or
both. The NSP allows both present and future claimants to receive
prompt payment without incurring the significant delays and
uncertainties of litigation, while enabling Owens Corning and
Fibreboard to manage their respective businesses predictably and
efficiently.
Settlement amounts for both present and future claims have been
negotiated with each participating firm, and each firm has
communicated with its respective clients to obtain authority to
settle individual claims. Payments to each claimant may vary
based on a number of factors, including the type and severity of
disease, age and occupation. All payments will be subject to
satisfactory evidence of a qualifying medical condition and exposure
- 14 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
11. CONTINGENT LIABILITIES
ITEM A. - OWENS CORNING (EXCLUDING FIBREBOARD) (continued)
to Owens Corning's and/or Fibreboard's products, delivery of
customary releases by each claimant, and other conditions.
Certain claimants settling non-malignancy claims with Owens
Corning and/or Fibreboard are or will be entitled to an agreed
pre-determined amount of additional compensation if they later
develop a more severe asbestos-related medical condition.
Owens Corning and Fibreboard (see Item B below) each 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 reject and ultimately opt out of
such agreement. Opt out procedures for future claims are
specified in the settlement agreements, and provide for mediation
and further negotiation before a claimant may pursue his or her
case in the court system.
As to future claims, each participating NSP firm has agreed
(consistent with applicable legal requirements) to recommend to
its future clients, based on appropriately exercised professional
judgment, to resolve any future asbestos personal injury claims
against Owens Corning and/or Fibreboard through an administrative
processing arrangement, rather than litigation. In the case of
future non-malignancy claims, claimants must present medical
evidence of functional impairment, as well as the product
exposure criteria and other requirements set forth above, to be
entitled to compensation.
Payments to claimants for both settled present and future claims
are being managed by Integrex, a wholly-owned Owens Corning
subsidiary that specializes in, among other things, claims
processing.
Payment Schedules
- -----------------
Payments under the NSP for settled present claims will generally
be made through 2005, with the majority of payments made in 1999
and 2000. It is anticipated that payments for a limited number
of future "exigent claims" (principally those of living
malignancy claimants) will generally begin in 2000. Payments for
other qualifying future claims generally will begin in 2003,
and will be made on the following schedule, based on when such
claims are accepted by Owens Corning for payment:
<TABLE>
<S> <C>
Date Accepted for Payment Year in which Claim Will be Paid
- ------------------------------------- ----------------------------------
January 1, 1999 through June 30, 2000 2003
July 1, 2000 through December 31, 2001 2004
January 1, 2002 through June 30, 2003 2005
July 1, 2003 through December 31, 2004 2006
January 1, 2005 through June 30, 2006 2007
July 1, 2006 or later 60 days to one
year after acceptance
</TABLE>
The schedule of payments for qualifying future claims under NSP
Agreements entered into during the fourth quarter of 1999 and
thereafter will be delayed by at least one year.
- 15 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
11. CONTINGENT LIABILITIES
ITEM A. - OWENS CORNING (EXCLUDING FIBREBOARD) (continued)
If, in any calendar year after 2002, the payment of any amounts
under the NSP in respect of future claims might cause a default
under Owens Corning's then prevailing loan covenants, Owens
Corning will have the right to defer payment of such amounts
until February 15 of the following year. Commencing in 2003,
subject to the variables and uncertainties discussed below, Owens
Corning expects that its payments for such amounts will not
exceed $150 million per year. Additional settlement payments
will be made by Fibreboard (see Item B below).
In addition to the right to defer payments for future cases,
Owens Corning has requested that NSP participating firms agree to
defer payments in 2000 through 2002 on present cases to the
extent necessary to ensure that Owens Corning limits its total
asbestos payments to the following schedule: $950 million in
2000, $400 million in 2001, and $250 million in 2002. This
deferral program is designed to ensure continued predictability
and manageability of Owens Corning's cash flow, while taking into
account the ongoing expansion of the NSP, the timing of expected
future insurance recoveries, efficient tax planning, and
compliance with ongoing loan covenants. Owens Corning has agreed
to pay any such deferred amounts in two equal installments in
2003 and 2004, subject to then applicable loan covenants. Any
such deferred amounts paid in 2003 and 2004 would be in addition
to the payments for future Owens Corning claims (described above)
during such years.
To respond to Owens Corning's request for deferrals, the NSP
firms appointed an Executive Committee to consider the request,
conduct appropriate due diligence, and make a recommendation to
NSP participating firms. This review has been completed, and the
Executive Committee has agreed to recommend the schedule of
payments described above ("Deferral Program"). To facilitate
implementation of the Deferral Program, Owens Corning will
request that each participating firm agree to amend its
respective NSP Agreement accordingly.
Asbestos-Related Payments
- -------------------------
In the first quarter of 2000, Owens Corning made $479 million of
asbestos-related payments, falling within four major categories:
(1) Settlements in respect of verdicts incurred or claims
resolved prior to the implementation of the NSP ("Pre-NSP
Settlements"); (2) NSP settlements; (3) Non-NSP settlements
covering cases not resolved by the NSP; and (4) Defense, claims
processing and administrative expenses, as follows:
<TABLE>
<S> <C>
(In millions of dollars)
Pre-NSP Settlements $ 25
NSP Settlements 426
Non-NSP Settlements 18
Defense, Claims Processing and
Administrative Expenses 10
------
$ 479
</TABLE>
The payments for NSP Settlements include amounts deposited in
escrow accounts established to facilitate claims processing
("Administrative Deposits"). At March 31, 2000, approximately
- 16 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
11. CONTINGENT LIABILITIES
ITEM A. - OWENS CORNING (EXCLUDING FIBREBOARD) (continued)
$256 million of Administrative Deposits made by Owens Corning had
not been finally distributed to claimants ("Undistributed
Administrative Deposits") and, accordingly, are reflected in
Owens Corning's consolidated balance sheet as restricted assets,
under the caption "Restricted cash", and have not been subtracted
from Owens Corning's reserve for asbestos personal injury claims
(discussed below).
All amounts discussed above are before tax and application of
insurance recoveries. Owens Corning currently estimates that it
will make asbestos-related payments (including Administrative
Deposits) before tax and application of insurance recoveries of
approximately $950 million during 2000, $400 million in 2001 and
$250 million in 2002. The actual amounts of such payments will
depend on numerous variables, including: (1) the rate at which
NSP claims are submitted and processed; (2) the severity of
disease involved in such claims; (3) the number and type of non-
NSP claims resolved; (4) the cost of resolving such claims,
including defense costs; (5) the amount of insurance recoveries
obtained; and (6) the acceptance and applicability of the
Deferral Program described above.
Since inception of the NSP, Owens Corning has attempted to settle
individual non-NSP claims for payments consistent with payments
to NSP claimants. Such settlements are preferable to trials,
provided that the agreed settlement is fair in relation to
similarly situated NSP claimants, because both the timing and
amount of such payments are more predictable. Owens Corning
notes that in recent months it has received a number of
settlement demands from non-NSP plaintiffs' counsel which have
exceeded historical settlement averages for like cases. In the
event this trend continues, and Owens Corning is unable to reach
acceptable settlements, Owens Corning may have to take certain
cases to trial in order to obtain fair and appropriate resolution
of those cases, and to pay settlement amounts that more closely
approximate NSP settlement values. If this strategy is
successful, non-participating plaintiffs' counsel may elect to
join the NSP rather than continue to seek excessive settlement
values. However, the possibility of adverse verdicts which exceed
NSP settlement values, the increased costs of defense and
appeals, and the delays inherent in litigation, may affect the
predictability of Owens Corning's estimated cash outflows for
asbestos.
Asbestos Legislation
- --------------------
In the fall of 1999, both the United States Senate and House of
Representatives held hearings on proposed legislation (S 758 and
HR 1283) intended to address the problem of asbestos litigation.
Although the original House and Senate proposals were virtually
identical, the House has been active in considering revisions to
HR 1283. In the first quarter of 2000, the House Judiciary
Committee approved HR 1283, amended to protect private settlement
plans and to make such plans enforceable. Owens Corning believes
that key members of Congress view the NSP favorably and that, if
any asbestos legislation is eventually enacted, it will be
consistent with the continued implementation of the NSP.
Other Asbestos-Related Litigation
- ---------------------------------
As previously reported, Owens Corning believes that it has spent
significant amounts to resolve claims of asbestos claimants whose
injuries were caused or exacerbated by cigarette smoking. Owens
Corning
- 17 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
11. CONTINGENT LIABILITIES
ITEM A. - OWENS CORNING (EXCLUDING FIBREBOARD) (continued)
is pursuing litigation against tobacco companies (discussed
below) to obtain payment of monetary damages (including punitive
damages) for payments made by Owens Corning and Fibreboard to
asbestos claimants who developed smoking related diseases.
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
tobacco companies and several other tobacco industry defendants.
The court has set a February 2001 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
tobacco companies.
Insurance
- ---------
As of March 31, 2000, Owens Corning had approximately $218
million in unexhausted insurance coverage (net of deductibles and
self-insured retentions) under its liability insurance policies
applicable to asbestos personal injury claims. A substantial
portion of this amount represents unconfirmed potential non-
products coverage with excess level insurance carriers, as to
which Owens Corning has estimated its probable recoveries. Owens
Corning also has a significant amount of other unconfirmed
potential non-products coverage with excess level carriers. The
amount and timing of recoveries from excess level policies will
depend on subsequent negotiations or proceedings.
Reserve
- -------
Owens Corning'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. Reflecting the
substantial new information about now settled present and
expected future claims gained in the NSP negotiations with
plaintiffs' law firms, and the recent changes in the legal
environment referred to above, Owens Corning in the fourth
quarter of 1998 increased its asbestos reserves by $1.4 billion.
This resulted in an after-tax charge to 1998 earnings of $906
million. Subject to the variables and uncertainties referred to
below, Owens Corning estimates that its liabilities associated
with pending and unasserted future asbestos personal injury
claims and its insurance recoveries in respect of such claims, at
March 31, 2000, are as follows, including $256 million of
Undistributed Administrative Deposits:
- 18 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
11. CONTINGENT LIABILITIES
ITEM A. - OWENS CORNING (EXCLUDING FIBREBOARD) (continued)
<TABLE>
<S> <C> <C>
March 31, December 31,
2000 1999
---- ----
(In millions of dollars)
Reserve for asbestos litigation claims
--------------------------------------
Current $ 806 $ 950
Other 742 820
------- -------
Total Reserve $ 1,548 $ 1,770
------- -------
Insurance for asbestos litigation claims
----------------------------------------
Current $ - $ 25
Other 218 205
------- -------
Total Insurance $ 218 $ 230
------- -------
Net Owens Corning Asbestos Liability $ 1,330 $ 1,540
======= =======
</TABLE>
The NSP has improved Owens Corning's ability to quantify the cost
of resolving virtually all of the claims that were pending (filed
and unfiled) against Owens Corning prior to the NSP.
Nevertheless, Owens Corning cautions that its estimate of its
liabilities for unresolved pending and expected future non-NSP
claims, as well as future NSP claims, is influenced by numerous
variables that are difficult to predict and that such estimate
therefore remains subject to considerable uncertainty. Such
variables include, among others, the cost of resolving pending
non-NSP claims; the number, severity of disease, and jurisdiction
of claims filed in the future (especially the number of
mesothelioma claims); how many future claimants are covered by an
NSP Agreement; the extent, if any, to which an individual
claimant exercises his or her right to opt out of an NSP
Agreement and/or utilize counsel not participating in the NSP;
the extent, if any, to which counsel that are not bound by an NSP
Agreement undertake the representation of asbestos personal
injury plaintiffs against Owens Corning; 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 or for other
reasons; and Owens Corning's success in controlling the costs of
resolving future non-NSP claims.
As referenced above, Owens Corning also notes that in recent
months it has received a number of settlement demands from non-
NSP plaintiffs' counsel which have exceeded historical settlement
averages for like cases. Although Owens Corning presently cannot
assess what impact, if any, the number of extraordinarily high
settlement demands might have on its estimate of its liabilities
for asbestos claims, this event further contributes to the
uncertainty surrounding that estimate. Recent bankruptcies of
two other defendants in the personal injury litigation may also
have an adverse impact on future NSP claimants' willingness to
accept agreed NSP values to resolve their claims, as well as on
the cost of resolving future non-NSP claims.
Owens Corning will continue to review the adequacy of its
estimates of liabilities and insurance on a periodic basis and
make such adjustments as may be appropriate.
- 19 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
11. CONTINGENT LIABILITIES
ITEM A. - OWENS CORNING (EXCLUDING FIBREBOARD) (continued)
Management Opinion
- ------------------
Although any opinion is necessarily judgmental and must be based
on an assessment of the variables and uncertainties described
above, 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 Owens Corning to meet its obligations or to
reinvest in its businesses.
ITEM B. - FIBREBOARD (EXCLUDING OWENS CORNING)
Prior to 1972, Fibreboard manufactured insulation products
containing asbestos. Fibreboard has since been named as defendant
in many thousands of personal injury claims for injuries
allegedly caused by asbestos exposure. The vast majority of
these claims are being resolved through the NSP, as described
below.
National Settlement Program
- ---------------------------
Fibreboard is a participant in the NSP and is a party to the NSP
Agreements discussed in Item A. The NSP Agreements became
effective as to Fibreboard in the fourth quarter of 1999, when
the Insurance Settlement (discussed below) became effective. The
NSP Agreements settle asbestos personal injury claims that had
been filed against Fibreboard by participating plaintiffs' law
firms and claims that could have been filed against Fibreboard by
such firms following the lifting, in the third quarter of 1999,
of an injunction which had barred the filing of asbestos personal
injury claims against Fibreboard. As of March 31, 2000,
Fibreboard has settled, through the NSP, approximately 200,000
asbestos personal injury claims. The NSP Agreements also provide
for the resolution of other future asbestos personal injury
claims against Fibreboard through the administrative processing
arrangement described in Item A. The timing of payments for
settled and future Fibreboard claims will be consistent,
generally, with the timing of Owens Corning payments, described
in Item A.
Insurance Settlement
- --------------------
In 1993, Fibreboard and two of its insurers, Continental Casualty
Company ("Continental") and Pacific Indemnity Company
("Pacific"), entered into the Insurance Settlement. The
Insurance Settlement became effective in the fourth quarter of
1999 and is final and not subject to appeal.
Since 1993, Continental and Pacific paid, either directly or
through an escrow account funded by them, for substantially all
settlements of asbestos claims reached prior to the initiation of
the NSP. Under the Insurance Settlement, Continental and Pacific
provided $1,873 million during the fourth quarter of 1999 to fund
Fibreboard's costs of resolving pending and future asbestos
claims, under the NSP, in the tort system, or otherwise.
The Insurance Settlement funds are held in and invested
by the Fibreboard Settlement Trust and are
- 20 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
11. CONTINGENT LIABILITIES
ITEM B. FIBREBOARD (EXCLUDING OWENS CORNING) (continued)
available to satisfy Fibreboard's pending and future asbestos-
related liabilities. As of March 31, 2000, $1,479 million was
held in the Fibreboard Settlement Trust and $111 million was held
in Undistributed Administrative Deposits on behalf of Fibreboard.
On an ongoing basis, the funds held in the Trust will be subject
to investment earnings/losses and will be reduced as applied to
satisfy Fibreboard's asbestos liabilities. Generally, it is
expected that payments of Fibreboard's asbestos liabilities will
be paid directly by the Fibreboard Settlement Trust on behalf of
Fibreboard. Any asbestos related amounts paid directly by
Fibreboard are subject to reimbursement from the Trust's assets.
Under the terms of the Trust, any of such assets that ultimately
are not used to fund Fibreboard's asbestos liabilities must be
distributed to charity.
Funds held in the Fibreboard Settlement Trust and Fibreboard's
Undistributed Administrative Deposits are reflected on Owens
Corning's consolidated balance sheet as restricted assets. These
assets are reflected as current assets or other assets, with each
category denoted "Restricted cash and securities - Fibreboard".
The funds held in the Trust must be expended either in connection
with Fibreboard's asbestos-related liabilities or to satisfy the
obligation under the Trust to distribute to charity the assets,
if any, remaining in the Trust after satisfaction of all such
liabilities. Accordingly, Owens Corning's consolidated balance
sheet also reflects liabilities in an aggregate amount equal to
the funds held in the Trust and Fibreboard's Undistributed
Administrative Deposits. These liabilities, denoted as "Asbestos-
related liabilities - Fibreboard", are reflected as current or
other liabilities, depending on the period in which payment is
expected. At March 31, 2000, Owens Corning estimates
Fibreboard's asbestos-related liabilities at $1,476 million. See
Note 12 for additional information concerning the Fibreboard
Settlement Trust.
Asbestos-Related Payments
- -------------------------
In the first quarter of 2000, gross payments for asbestos
litigation claims against Fibreboard were approximately $385
million, all of which were paid/reimbursed by the Fibreboard
Settlement Trust. These payments fell within four major
categories, as follows:
<TABLE>
<S> <C>
(In millions of dollars)
Pre-1993 and Interim Claims $ 11
NSP Settlements 342
Non-NSP Settlements 20
Defense, Claims Processing and
Administrative Expenses 12
--------
$ 385
</TABLE>
The payments for NSP Settlements include Administrative Deposits
on behalf of Fibreboard. At March 31, 2000, there were
approximately $111 million of Undistributed Administrative
Deposits made on behalf of Fibreboard. As described above, these
Undistributed Administrative Deposits are included as restricted
assets, under the caption "Restricted cash and securities -
Fibreboard", on Owens Corning's consolidated balance sheet.
- 21 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
11. CONTINGENT LIABILITIES
ITEM B. FIBREBOARD (EXCLUDING OWENS CORNING) (continued)
Owens Corning currently estimates that Fibreboard will incur
total asbestos payments (including Administrative Deposits) of
approximately $800 million in 2000, $350 million in 2001 and $170
million in 2002, all of which are payable/reimbursable by the
Fibreboard Settlement Trust as described above. The actual
amounts of such payments will depend on the same variables and
uncertainties as those described above affecting Owens Corning's
payments.
Management Opinion
- ------------------
Owens Corning cautions that its estimate of Fibreboard's asbestos-
related liabilities is influenced by the same types of variables
and is subject to similar uncertainty as in the case of Owens
Corning. Although any opinion is necessarily judgmental and must
be based on an assessment of the variables and uncertainties
described above, Owens Corning believes the amounts available
from the Fibreboard Settlement Trust will be adequate to fund
Fibreboard's ongoing defense and indemnity costs associated with
asbestos-related personal injury claims for the foreseeable
future.
OTHER LIABILITIES
Various other lawsuits and claims arising in the normal course of
business are pending against Owens Corning, some of which allege
substantial damages. Management believes that the outcome of
these lawsuits and claims will not have a materially adverse
effect on Owens Corning's financial position or results of
operations.
- 22 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
12. FIBREBOARD SETTLEMENT TRUST
Under the Insurance Settlement described in Note 11, two of
Fibreboard's insurers provided $1.873 billion during the fourth
quarter of 1999 to fund Fibreboard's costs of resolving pending
and future asbestos claims. The Insurance Settlement funds are
held in and invested by the Fibreboard Settlement Trust (the
"Trust") and are available to satisfy Fibreboard's pending and
future asbestos-related liabilities. On an ongoing basis, the
funds held in the Trust will be subject to investment
earnings/losses and will be reduced as applied to satisfy
Fibreboard's asbestos liabilities. Under the terms of the Trust,
any Trust assets which ultimately are not used to fund
Fibreboard's asbestos liabilities must be distributed to charity.
The Trust is a qualified settlement fund for federal income tax
purposes, and is taxed separately from Owens Corning on its net
taxable income, after deduction for related administrative
expenses.
General Accounting Treatment
- ----------------------------
The assets of the Trust are comprised of cash and marketable
securities (collectively, the "Trust Assets") and, with
Fibreboard's Undistributed Administrative Deposits, are reflected
on Owens Corning's consolidated balance sheet as restricted
assets. These assets are reflected as current assets or other
assets, with each category denoted "Restricted cash and
securities - Fibreboard". The funds held in the Trust must be
expended either in connection with Fibreboard's asbestos-related
liabilities or to satisfy the obligation under the Trust to
distribute to charity the assets, if any, remaining in the Trust
after satisfaction of all such liabilities. Accordingly, Owens
Corning's consolidated balance sheet also reflects liabilities in
an aggregate amount equal to the funds held in the Trust and
Fibreboard's Undistributed Administrative Deposits. These
liabilities, denoted as "Asbestos-related liabilities -
Fibreboard," are reflected as current or other liabilities,
depending on the period in which payment is expected. At March
31, 2000, Owens Corning estimates Fibreboard's asbestos-related
liabilities at $1.476 billion, with a residual obligation to
charity of $114 million. Payments from the Trust and
distributions from Undistributed Administrative Deposits for
asbestos-related liabilities reduce both the assets and related
liabilities on the consolidated balance sheet.
For accounting purposes, the Trust Assets are classified from
time to time as "available for sale" or "held to maturity" and
are reported in the Company's consolidated financial statements
in accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Accordingly,
marketable securities classified as available for sale are
recorded at fair market value and marketable securities
designated as held to maturity are recorded at amortized cost.
Any unrealized increase/decrease in fair market value is
reflected as a change in the carrying amount of the asset on the
consolidated balance sheet as well as an increase/decrease to
other comprehensive income within stockholders' equity, net of
tax. The residual liability to be paid to charity will also
increase/decrease, with a related decrease/increase to other
comprehensive income within stockholders' equity, net of tax.
Any earnings and realized gains/losses on the Trust Assets are
reflected as an increase/decrease in the carrying amount of such
assets on the consolidated balance sheet as well as other
income/expense on the consolidated statement of income. The
residual liability to be paid to charity will also
increase/decrease, with related other expense/income on the
consolidated statement of income. Cost for purposes of computing
realized gains/losses is determined using the specific
identification method.
- 23 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
12. FIBREBOARD SETTLEMENT TRUST (continued)
Results for the Period Ending March 31, 2000
- --------------------------------------------
Trust Assets generated interest/dividend earnings of
approximately $20 million in the first quarter of 2000, which
have been recorded as an increase in the carrying amount of the
assets on Owens Corning's consolidated balance sheet and as other
income on the consolidated statement of income. This income,
however, has been offset by an equal charge to other expense,
which represents the increase in the residual liability to be
paid to charity.
Payments for asbestos litigation claims from the Trust (including
Administrative Deposits) during the first quarter of 2000 were
approximately $385 million. Such payments were funded by existing
cash in the Trust or proceeds from the sale of securities. The
sale of securities during the first quarter of 2000 resulted in a
net realized gain of less than $1 million. Realized gains or
losses from the sale of securities are reflected on the Company's
financial statements in the same manner as actual returns on
Trust Assets, described above.
At March 31, 2000, the fair market value adjustment for those
securities designated as available for sale resulted in a net
unrealized gain of approximately $1 million. This gain has been
reflected in the Company's consolidated balance sheet as an
increase to the carrying amount of the asset and an increase to
other comprehensive income. This gain has also been reflected as
an increase to the liability to be paid to charity, with a
corresponding decrease to other comprehensive income.
At March 31, 2000, the fair value of Trust Assets was $1.479
billion, all of which were invested in marketable securities.
$600 million of these marketable securities have been classified
as a current asset while the remaining securities have been
classified as noncurrent assets.
The amortized cost, gross unrealized holding gains and losses and
fair value of the investment securities available for sale at
March 31, 2000 and December 31, 1999 are as follows:
<TABLE>
<S> <C> <C> <C> <C>
March 31, 2000
--------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
---- ---- ---- -----
(In millions of dollars)
Corporate Bonds $ 363 $ - $ - $ 363
Corporate Notes 376 - - 376
Municipal Bonds 239 - - 239
Mutual Funds 85 - - 85
Time Deposits 195 - - 195
US Government
Bonds 221 - - 221
------ ----- ----- -------
Total $1,479 - - $ 1,479
</TABLE>
- 24 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
12. FIBREBOARD SETTLEMENT TRUST (continued)
<TABLE>
<S> <C> <C> <C> <C>
December 31, 1999
-----------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
---- ---- ---- -----
(In millions of dollars)
Corporate Bonds $ 85 $ - $ - $ 85
Corporate Notes 1,334 - (1) 1,333
Municipal Bonds 199 - - 199
US Government Bonds 221 - - 221
------- ------ ------ -------
Total $ 1,839 $ - $ (1) $ 1,838
</TABLE>
Maturities of investment securities classified as available for
sale at March 31, 2000 and December 31, 1999 by contractual
maturity are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to
recall or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<S> <C> <C> <C> <C>
March 31, 2000 December 31, 1999
-------------- -----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
(In millions of dollars)
Due within one year $ 818 $ 818 $ 1,152 $ 1,152
Due after one year through
five years 50 50 72 72
Due after five years through
ten years 16 16 87 87
Due after ten years 595 595 528 527
-------- -------- ------- -------
Total $ 1,479 $ 1,479 $ 1,839 $ 1,838
</TABLE>
- 25 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
12. FIBREBOARD SETTLEMENT TRUST (continued)
The table below summarizes Trust and Administrative Deposits activity for
the first quarter of 2000:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Unrealized Sale Realized
Balance and Gain / of Gain / Balance
12/31/99 Dividends (Loss) Securities (Loss) Other Payments 3/31/00
-------- --------- ---------- ---------- ------- ----- -------- -------
Assets
- ------
Cash (Note
11) $ - $ - $ - $ 385 $ - $ - $(385) $ -
Restricted
Cash
(Note 11) - - - - - 111 - 111
Marketable
Securities:
Available
for Sale 1,838 20 1 (385) - 5 - 1,479
------ ----- ------ ------ ----- ---- ----- ------
Total
Assets $1,838 $ 20 $ 1 $ - $ - $116 $(385) $1,590
====== ===== ====== ====== ===== ==== ===== ======
Liabilities
- -----------
Asbestos
Litigation
Claims
(Note 11) $1,750 $ - $ - $ - $ - $111 $(385) $1,476
Charity 88 20 1 - - 5 - 114
------ ----- ------ ----- ----- ---- ----- ------
Total
Liabilities
$ 1,838 $ 20 $ 1 $ - $ - $116 $(385) $1,590
======= ===== ====== ===== ===== ===== ===== ======
</TABLE>
- 26 -
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, material
costs, construction activity, interest rate movements, issues
involving implementation of new business systems, achievement of
expected cost reductions, asbestos litigation, and general
economic conditions.
RESULTS OF OPERATIONS
Business Overview
- -----------------
Owens Corning's growth agenda has focused on increasing sales and
earnings by (i) acquiring businesses with products that can be
sold through existing or complementary distribution channels,
(ii) achieving productivity improvements and cost reductions in
existing and acquired businesses, (iii) entering new growth
markets and (iv) forming strategic alliances and partnerships to
complement our existing businesses. We have implemented 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
leverages our broad product offering and strong brand recognition
to increase our share of the building materials and home
improvement markets. This systems approach represents a focus on
systems-driven solutions that combine Owens Corning's insulation,
roofing, exterior and acoustic systems, to provide a high
performance, cost-effective building "envelope" for the home. We
are also very committed to taking full advantage of e-Business
opportunities. Through alliances with BuildNet and ImproveNet,
for example, we are working directly with consumers to help them
find solutions for their needs. In the Composite Systems
Business, Owens Corning has partnered with end users, OEMs,
systems suppliers and other players within the supply chain for
development of substitution opportunities for composite systems.
In addition, Owens Corning has virtually completed the
implementation of Advantage 2000, a fully integrated business
technology system designed to reduce costs and improve business
processes.
Owens Corning's sales have grown from less than $3.4 billion in
1994 to over $5.0 billion in 1999. Acquisitions have been a
significant source of that growth. Since 1994, we completed 17
acquisitions for an aggregate purchase price of over $1.2
billion. These acquisitions have broadened our lines of business
to include siding, accessories and other home exteriors and have
diversified our materials portfolio beyond fiber glass to include
polymers (such as vinyl and styrene), metal and stone.
During 1998 and 1999, we realized the benefits of pricing
improvements applicable to many of our products and cost
reductions resulting from our strategic restructuring program and
other profitability and productivity initiatives. Pricing
improvements over the course of 1999, particularly in residential
insulation, resulted in approximately a $140 million increase in
income from operation compared to 1998. These cost reductions
and pricing improvements have continued into 2000. However,
during first quarter 2000, we have experienced a significant
increase in our roofing and vinyl raw material costs, which are
directly related to higher crude oil prices.
- 27 -
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Quarter Ended March 31, 2000
- ----------------------------
Sales and Profitability
- -----------------------
Net sales for the quarter ended March 31, 2000 were $1.257
billion, up 11% from the first quarter 1999 level of $1.130
billion. The sales increase is due largely to higher volume and
favorable pricing in the Building Materials business as well as
volume increases in the Composite Systems business. In the
Building Materials business, sales during the first quarter of
2000 reflect both volume and price improvements in the U.S.
roofing market as well as price improvements on the asphalt
market prices compared to the first quarter of 1999, continued
favorable price trends applicable to residential insulation
products, particularly in the U.S., and volume and price
increases in the vinyl siding market. In the Composites
business, sales reflect volume increases, particularly in the
U.S., as well as slight price increases in all composites markets
during the first quarter of 2000. On a consolidated basis, there
was virtually no currency translation impact on sales denominated
in foreign currencies during the first quarter of 2000 compared
to the first quarter of 1999. Please see Note 1 to the
Consolidated Financial Statements.
Sales outside the U.S. represented 18% of total sales during the
first quarter of 2000, compared to 19% during the first quarter
of 1999. The relative decline in non-U.S. sales is primarily due
to the volume and price increases in 2000 attributable to U.S.
roofing, vinyl and composites products, along with volume and
price declines in Canadian and European insulation markets.
Gross margin for the quarter ended March 31, 2000 was 23% of net
sales, which is unchanged from the first quarter of 1999. The
consistent gross margin percentage reflects price and volume
increases offset by raw material price increases as discussed
above.
Marketing and administrative expenses were $148 million during
the first quarter of 2000, compared to $136 million in the first
quarter of 1999. The increase is primarily attributable to
increased marketing programs targeted at new growth initiatives.
These expenditures reflect our commitment to growth evidenced by
the 11% sales increase in the first quarter of 2000.
For the quarter ended March 31, 2000, Owens Corning reported net
income of $48 million, or $.84 per share, compared to net income
of $44 million, or $.77 per share, for the quarter ended March
31, 1999. Net income in the first quarter of 2000 reflects the
price and volume increases described above, offset in part by
increased material costs as well as increased marketing and
administrative expenses. Additionally, net income includes the
impact of losses associated with the realignment and sale of
certain businesses in the U.S., offset by an $11 million tax
benefit reflecting the implementation of our tax strategy
associated with one of our foreign subsidiaries. Cost of borrowed
funds during the first quarter of 2000 was $42 million, $9
million higher than the first quarter 1999 level, due to
increased debt supporting payments associated with the National
Settlement Program and higher rates on floating rate debt.
Building Materials
- ------------------
In the Building Materials segment, sales increased 9% to $1.007
billion in the first quarter of 2000 compared to the first
quarter of 1999, reflecting increased volume and price
improvements attributable to U.S. roofing products, primarily in
the laminent shingles market, and a pass-through of increased
asphalt costs, as well as price increases in the U.S. insulation
markets, which were slightly offset by volume decreases.
Building Materials sales also reflect the benefits of volume and
price increases in U.S. vinyl siding markets, offset by volume
and price declines in the Canadian and European insulation
markets. There was virtually no currency translation impact on
sales denominated in foreign currencies during the first quarter
of 2000. Income from operations was $76 million during the first
quarter of 2000, which is consistent with the amount reported in
- 28 -
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
the same period in 1999. Income from operations in the first
quarter of 2000 reflects the volume and price improvements
described above, offset by an increase in asphalt and PVC resin
raw material costs, associated with roofing and vinyl products.
Due to the rapid rise in crude oil prices and significantly
increased market demand for PVC during the first quarter of 2000,
Owens Corning was unable to fully pass through the rapidly rising
costs of asphalt and PVC resin. Actions taken during the quarter
to improve productivity and increase prices are expected to close
the gap going forward. Please see Note 1 to the Consolidated
Financial Statements.
Composite Materials
- -------------------
In the Composite Materials segment, sales were up 20% to $284
million during the first quarter of 2000, compared to the first
quarter of 1999, due to slight price and significant volume
increases. Price increases were consistent across all markets.
volume increased significantly in the U.S. market and moderately
in Europe, more than offsetting slight decreases in Asia and
Canada. The currency translation impact on sales denominated in
foreign currencies was slightly unfavorable during the first
quarter of 2000. Income from operations was $55 million in the
first quarter of 2000, compared to $31 million in the prior-year
period. The increase reflects volume and price increases
discussed above as well as an approximately $15 million net
pretax cost reduction relating to the continuing benefits of our
asset optimization programs. Please see Note 1 to the
Consolidated Financial Statements.
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. In June 1999, the FASB issued SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133." SFAS
137 delays the effective date to fiscal years beginning after
June 15, 2000, but earlier adoption is allowed.
We are assessing the impact of SFAS 133 on our financial
statements and plan to adopt this accounting change effective
January 1, 2001. We have completed an inventory of both our
freestanding derivatives, including forward contracts, option
contracts, currency swaps and interest rate swaps, and
derivatives which are embedded in other contracts. During the
second quarter of 2000, we will estimate the financial impact of
adoption, evaluate existing risk management activities and
perform an information systems assessment. We will review our
risk management policies and modify our business processes as
needed in order to comply with SFAS 133 and to temper the
volatility in earnings and other comprehensive income.
LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED MATTERS
Cash flow from operations was negative $679 million for the
quarter ended March 31, 2000, compared to negative $304 million
for the quarter ended March 31, 1999. The decline in cash flow
from operations in 2000 is largely attributable to a $291 million
increase in payments for asbestos litigation claims (including
- 29 -
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
amounts deposited in escrow accounts established to facilitate
claims processing ("Administrative Deposits")) net of insurance,
a smaller federal income tax refund and an increase in accounts
receivable. The low level of receivables at December 31, 1999
reflected the benefits of collection efforts at the end of last
year. Payments for asbestos litigation claims (including
Administrative Deposits) were $479 million during the first
quarter of 2000 and proceeds from insurance were $12 million,
compared to $195 million and $19 million, respectively, during
the first quarter of 1999. A portion of the 2000 payments include
payments delayed from 1999; the balance reflects scheduled
payments under the National Settlement Program (NSP). Please see
Notes 8 and 11 to the Consolidated Financial Statements.
Inventories at March 31, 2000 increased by $45 million from the
December 31, 1999 level, due largely to the seasonal build of
inventories. Receivables at March 31, 2000 were $531 million, a
$173 million increase over the December 31, 1999 level,
attributable to the seasonal increase in sales. As indicated
above, the low level of receivables at December 31, 1999
reflected the benefits of collection efforts at the end of last
year. The decrease in accounts payable and accrued liabilities
from $839 million at December 31, 1999 to $717 million at March
31, 2000 reflects typical payment patterns during the first
quarter.
At March 31, 2000, Owens Corning's net working capital was
negative $235 million and our current ratio was .91, compared to
negative $828 million and .72, respectively, at December 31, 1999
and negative $289 million and .85, respectively, at March 31,
1999. A $94 million decrease in the current portion of the
reserve for asbestos litigation claims, net of insurance,
contributed to the increase in net working capital at March 31,
2000 compared to March 31, 1999. Offsetting the above were a
nearly $200 million decline in the current portion of our
deferred income tax asset and an approximately $100 million
increase in the current portion of long-term debt compared to
March 31, 1999.
Total borrowings at March 31, 2000 were $2.672 billion, $681
million higher than at year-end 1999, reflecting increased
payments for asbestos litigation claims and increased levels of
working capital. Owens Corning typically uses cash during the
first half of the year as it builds inventory and other working
capital.
As of March 31, 2000, we had unused lines of credit of $595
million available under long-term bank credit facilities and an
additional $139 million under short-term facilities, compared to
$1.239 billion and $174 million, respectively, at year-end 1999.
The decrease in unused available lines of credit reflects Owens
Corning's increased borrowings at March 31, 2000 compared to
December 31, 1999. Letters of credit issued under the facility
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.
Capital spending for property, plant and equipment, excluding
acquisitions, was $68 million in the first quarter of 2000.
Owens Corning anticipates that 2000 capital spending, exclusive
of acquisitions and investments in affiliates, will be
approximately $295 million, the majority of which is uncommitted.
We expect that funding for these expenditures will be from our
operations and external sources as required.
Asbestos Litigation
- -------------------
Please see also Note 11 to the Consolidated Financial Statements.
Owens Corning has implemented the NSP, which, as of March 31,
2000, has settled more than 235,000 asbestos personal injury
claims against Owens Corning. The NSP has also established
procedures and fixed payments for resolving future claims brought
by participating plaintiffs' law firms through an administrative
processing arrangement, without litigation, through at least
2008. Payments under the NSP for settled
- 30 -
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
present claims will generally be made through 2005, with the
majority of payments made in 1999 and 2000. It is anticipated
that payments for a limited number of future "exigent claims"
(principally those of living malignancy claimants) will generally
begin in 2000. Payments for other qualifying future claims
generally will begin in 2003, and will be made on the following
schedule, based on when such claims are accepted by Owens Corning
for payment:
<TABLE>
<C> <C>
Date Accepted for Payment Year in which Claim Will be Paid
------------------------- --------------------------------
January 1, 1999 through June 30, 2000 2003
July 1, 2000 through December 31, 2001 2004
January 1, 2002 through June 30, 2003 2005
July 1, 2003 through December 31, 2004 2006
January 1, 2005 through June 30, 2006 2007
July 1, 2006 or later 60 days to one year
after acceptance
</TABLE>
The schedule of payments for qualifying future claims under NSP
Agreements entered into during the fourth quarter of 1999 and
thereafter will be delayed by at least one year.
If, in any calendar year after 2002, the payment of any amounts
under the NSP in respect of future claims might cause a default
under Owens Corning's then prevailing loan covenants, Owens
Corning will have the right to defer payment of such amounts
until February 15 of the following year. Commencing in 2003,
subject to the variables and uncertainties discussed in Note 11
to the Consolidated Financial Statements, Owens Corning expects
that its payments for such amounts will not exceed $150 million
per year. Additional settlement payments will be made by
Fibreboard, as discussed below.
In addition to the right to defer payments for future cases,
Owens Corning has requested that NSP participating firms agree to
defer payments in 2000 through 2002 on present cases to the
extent necessary to ensure that Owens Corning limits its total
asbestos payments to the following schedule: $950 million in
2000, $400 million in 2001, and $250 million in 2002. This
deferral program is designed to ensure continued predictability
and manageability of Owens Corning's cash flow, while taking into
account the ongoing expansion of the NSP, the timing of expected
future insurance recoveries, efficient tax planning, and
compliance with ongoing loan covenants. Owens Corning has agreed
to pay any such deferred amounts in two equal installments in
2003 and 2004, subject to then applicable loan covenants. Any
such deferred amounts paid in 2003 and 2004 would be in addition
to the payments for future Owens Corning claims (described above)
during such years.
To respond to Owens Corning's request for deferrals, the NSP
firms appointed an Executive Committee to consider the request,
conduct appropriate due diligence, and make a recommendation to
NSP participating firms. This review has been completed, and the
Executive Committee has agreed to recommend the schedule of
payments described above ("Deferral Program"). To facilitate
implementation of the Deferral Program, Owens Corning will
request that each participating firm agree to amend its
respective NSP Agreement accordingly.
In the first quarter of 2000, gross payments for asbestos
litigation claims (including Administrative Deposits) by Owens
Corning (excluding Fibreboard) were $479 million. Proceeds from
insurance were $12 million, resulting in a net pretax cash
outflow of $467 million. Owens Corning currently estimates that
it (excluding Fibreboard) will make asbestos-related payments
(including Administrative Deposits) before tax and application of
insurance recoveries of approximately $950 million during 2000,
$400 million in 2001 and
- 31 -
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
$250 million in 2002. The actual amounts of such payments will
depend on numerous variables, including: (1) the rate at which
NSP claims are submitted and processed; (2) the severity of
disease involved in such claims; (3) the number and type of non-
NSP claims resolved; (4) the cost of resolving such claims,
including defense costs; (5) the amount of insurance recoveries
obtained; and (6) the acceptance and applicability of the
Deferral Program described above.
Fibreboard is a party to the NSP Agreements, which became
effective as to Fibreboard in the fourth quarter of 1999, when
the Insurance Settlement (discussed below) became effective. As
of March 31, 2000, Fibreboard has settled, through the NSP,
approximately 200,000 asbestos personal injury claims. The NSP
Agreements also provide for the resolution of other future
asbestos personal injury claims against Fibreboard through the
administrative processing arrangement described above for Owens
Corning. The timing of payments for settled and future
Fibreboard claims will be consistent, generally, with the timing
of Owens Corning payments, described above.
Under the Insurance Settlement, two of Fibreboard's insurers
provided $1,873 million during the fourth quarter of 1999 to fund
Fibreboard's costs of resolving pending and future asbestos
claims, under the NSP, in the tort system, or otherwise. The
Insurance Settlement funds are held in and invested by the
Fibreboard Settlement Trust and are available to satisfy
Fibreboard's pending and future asbestos-related liabilities. As
of March 31, 2000, $1,479 million was held in the Fibreboard
Settlement Trust and $111 million was held in Undistributed
Administrative Deposits on behalf of Fibreboard. On an ongoing
basis, the funds held in the Trust will be subject to investment
earnings/losses and will be reduced as applied to satisfy
Fibreboard's asbestos liabilities. Generally, it is expected
that payments of Fibreboard's asbestos liabilities will be paid
directly by the Fibreboard Settlement Trust on behalf of
Fibreboard. Any asbestos-related amounts paid directly by
Fibreboard are subject to reimbursement from the Trust's assets.
Under the terms of the Trust, any of such assets that ultimately
are not used to fund Fibreboard's asbestos liabilities must be
distributed to charity.
Funds held in the Fibreboard Settlement Trust and Fibreboard's
Undistributed Administrative Deposits are reflected on Owens
Corning's Consolidated Balance Sheet as restricted assets. These
assets are reflected as current assets or other assets, with each
category denoted "Restricted cash and securities - Fibreboard".
The funds held in the Trust must be expended either in connection
with Fibreboard's asbestos-related liabilities or to satisfy the
obligation under the Trust to distribute to charity the assets,
if any, remaining in the Trust after satisfaction of all such
liabilities. Accordingly, Owens Corning's Consolidated Balance
Sheet also reflects liabilities in an aggregate amount equal to
the funds held in the Trust and Fibreboard's Undistributed
Administrative Deposits. These liabilities, denoted as "Asbestos-
related liabilities - Fibreboard", are reflected as current or
other liabilities, depending on the period in which payment is
expected. At March 31, 2000, Owens Corning estimates
Fibreboard's asbestos-related liabilities at $1,476 million, with
a residual obligation to charity of $114 million. See Note 12 to
the Consolidated Financial Statements for additional information
concerning the Fibreboard Settlement Trust.
In the first quarter of 2000, gross payments for asbestos
litigation claims (including Administrative Deposits) against
Fibreboard were approximately $385 million, all of which were
paid/reimbursed by the Fibreboard Settlement Trust. Owens
Corning currently estimates that Fibreboard will incur total
asbestos payments (including Administrative Deposits) of
approximately $800 million in 2000, $350 million in 2001 and $170
million in 2002, all of which are payable/reimbursable by the
Fibreboard Settlement Trust as described above.
Owens Corning expects funds generated from operations, together
with funds available under long and short term bank credit
facilities, liability insurance policies, and the Fibreboard
Settlement Trust, to be sufficient to meet its liquidity
requirements.
- 32 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Environmental Matters
- ---------------------
Owens Corning 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). We have
also been deemed a PRP under similar state or local laws. In
other instances, other PRPs have brought suits or claims against
us as a PRP for contribution under such federal, state or local
laws. During the first quarter of 2000, we were designated as a
PRP in such federal, state, local or private proceedings for 2
additional sites. At March 31, 2000, a total of 48 such PRP
designations remained unresolved. We are also involved with
environmental investigation or remediation at a number of other
sites at which Owens Corning has not been designated a PRP.
We have established a $27 million reserve for our Superfund (and
similar state, local and private action) contingent liabilities.
Based upon information presently available to us, and without
regard to the application of insurance, we believe 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 our 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. The EPA issued regulations for wool fiber glass and
mineral wool in June 1999, for amino/phenolic resin in January,
2000 and for secondary aluminum smelting in March 2000. We
anticipate that our other sources to be regulated will be, wet
formed fiber glass mat, asphalt processing and roofing, metal
coil coating, and open molded fiber-reinforced plastics, but all
dates per the EPA's currently announced schedule are listed as
"Pending." Based on information now known to us, including the
nature and limited number of regulated materials Owens Corning
emits, we do not expect the Act to have a materially adverse
effect on our results of operations, financial condition or long-
term liquidity.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Owens Corning is exposed to the impact of changes in foreign
currency exchange rates and interest rates in the normal course
of business. We manage such exposures through the use of certain
financial and derivative financial instruments. Our 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.
We enter 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. We also enter into certain
currency and interest rate swaps to protect the carrying amount
of 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.
Our policy is to use foreign currency and interest rate
derivative financial instruments only to the extent necessary to
manage exposures as described above. We do not enter into
foreign currency or interest rate derivative transactions for
speculative purposes.
We use 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
- 33 -
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
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 we would expect from adverse changes
in foreign currency exchange rates or interest rates assuming a
95% confidence level:
<TABLE>
<S> <C> <C>
March 31, December 31,
2000 1999
----- ----
Risk Category (In millions of dollars)
-------------
Foreign currency $ - $ -
Interest rate $ 8 $ 6
</TABLE>
Virtually all of the potential loss associated with interest rate
risk is attributable to fixed-rate long-term debt instruments.
- 34 -
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 11, Contingent Liabilities, to Owens Corning'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 Owens Corning's registered
securities was materially modified in the quarter ended March
31, 2000.
(b) None of the rights evidenced by any class of Owens Corning's
registered securities was materially limited or qualified in the
quarter ended March 31, 2000 by the issuance or modification of
any other class of securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) During the quarter ended March 31, 2000, 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 Owens Corning or any of our significant
subsidiaries exceeding 5 percent of the total assets of Owens
Corning and consolidated subsidiaries.
(b) During the quarter ended March 31, 2000, 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 Owens Corning 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 Owens Corning.
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, 2000.
ITEM 5. OTHER INFORMATION
Owens Corning 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, 2000, Owens Corning filed
the following current report on Form 8-K:
- Filed January 25, 2000, under Item 5, "Other Events".
- 35 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Owens Corning has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
OWENS CORNING
Registrant
Date: May 8, 2000 By: /s/ Michael H. Thaman
------------ ------------------------
Michael H. Thaman
Senior Vice President and
Chief Financial Officer
(as duly authorized officer)
Date: May 8, 2000 By: /s/ Deyonne F. Epperson
------------ --------------------------
Deyonne F. Epperson
Vice President and Controller
- 36 -
EXHIBIT INDEX
Exhibit
Number Document Description
- ------- --------------------
(3) Articles of Incorporation and By-Laws.
(i) Certificate of Incorporation of Owens Corning,
as amended (incorporated herein by reference to
Exhibit (3) to Owens Corning'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 Owens Corning's annual report on Form 10-K
(File No. 1-3660) for the year 1999).
(11) Statement re Computation of Per Share Earnings (filed herewith).
(27) Financial Data Schedule (filed herewith).
(99) Additional Exhibits.
Specimen Certificate of Common Stock of Owens Corning (filed herewith).
Subsidiaries of Owens Corning, as amended (filed herewith).
Exhibit (11)
------------
OWENS CORNING AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<S> <C> <C>
Quarter Ended
March 31,
---------
2000 1999
---- ----
(In millions of dollars,
except share data)
Basic:
- -----
Net income $ 48 $ 44
-------- ---------
Basic weighted average number of common
shares outstanding (thousands) 54,590 53,932
Basic per share amount $ .88 $ .81
======== =========
Diluted:
- -------
Net income $ 50 $ 46
---------- ---------
Weighted average number of shares
outstanding (thousands) 54,590 53,932
Weighted average common equivalent shares
(thousands):
Deferred awards 576 563
Stock options using the higher of average
market price or market price at end of
period 22 205
Shares from assumed conversion of
preferred securities 4,566 4,566
---------- ---------
Diluted weighted average number of common
shares outstanding and common equivalent
shares (thousands) 59,754 59,266
=========== ==========
Diluted per share amount $ .84 $ .77
=========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS CONTAINED IN THE SEC FORM OF WHICH
THIS EXHIBIT IS A PART 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-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 41
<SECURITIES> 711
<RECEIVABLES> 531
<ALLOWANCES> 0
<INVENTORY> 511
<CURRENT-ASSETS> 2,261
<PP&E> 3,710
<DEPRECIATION> 2,003
<TOTAL-ASSETS> 6,624
<CURRENT-LIABILITIES> 2,496
<BONDS> 2,410
<COMMON> 702
194
0
<OTHER-SE> 1,544
<TOTAL-LIABILITY-AND-EQUITY> 6,624
<SALES> 1,257
<TOTAL-REVENUES> 1,257
<CGS> 972
<TOTAL-COSTS> 972
<OTHER-EXPENSES> (18)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42
<INCOME-PRETAX> 63
<INCOME-TAX> 13
<INCOME-CONTINUING> 50
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48
<EPS-BASIC> .88
<EPS-DILUTED> .84
EXHIBIT (99)
------------
COMMON STOCK COMMON STOCK
NUMBER [Text shown ] SHARES
NR [in this ]
[section ]
[appears in ] CORPORATE SEAL, DELAWARE
[engraved ] OWENS CORNING
[border bars] 1938
[Stock vignette graphic: semi globe, surmounted by eagle,
flanked by 2 male figures]
THIS CERTIFICATE IS CUSIP 69073F 10 3
TRANSFERABLE IN NEW YORK SEE REVERSE FOR CERTAIN DEFINITIONS
OWENS CORNING
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS IS TO CERTIFY THAT
IS THE OWNER OF
FULL-PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF
10 cents EACH OF THE COMMON STOCK OF
Owens Corning (hereinafter referred to as the "Corporation")
transferable on the books of the Corporation by the holder hereof
in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate and the shares
represented hereby are issued and shall be held subject to all of
the provisions of the Certificate of Incorporation, as amended,
of the Corporation (a copy of which certificate is on file with
the Transfer Agent), to all of which the holder by acceptance
hereof assents. This certificate is not valid until
countersigned by the Transfer Agent and registered by the
Registrar.
Witness the seal of the Corporation and the signatures of
its duly authorized officers.
Dated:
Countersigned and Registered:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
Transfer Agent
and Registrar,
By /s/ Maura Abeln Smith /s/ Glen H. Hiner
------------------ ---------------------- -------------------------
AUTHORIZED OFFICER Secretary Chairman of the Board and
Chief Executive Officer
<PAGE>
The following abbreviations, when used in the inscription on the
face of this certificate, shall be construed as though they were written
out in full according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFT MIN ACT- ---------CUSTODIAN---------
in common (Cust) (Minor)
TEN ENT - as tenants under Uniform Gifts to Minors
by the entireties Act------------
JT TEN - as joint tenants (State)
with right of
survivorship and not
as tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, ------ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ----------------------------------------------------------------
- ----------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING
POSTAL ZIP CODE OF ASSIGNEE
- ----------------------------------------------------------------
- ----------------------------------------------------------------
- --------------------------------------------------------- Shares
of the capital stock represented by the within Certificate, and
do hereby irrevocably constitute and appoint -------------------
- ----------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-
named Corporation with full power of substitution in the
premises.
Dated, ---------------
X------------------------------------------
Signature(s) Guaranteed:
- ---------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS,
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
[The following Notice appears vertically on
right side of certificate] NOTICE: THE
SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY
CHANGE WHATEVER.
Exhibit (99)
------------
State or Other
Jurisdiction
Under the Laws of
Subsidiaries of Owens Corning (3/31/2000) Which Organized
- ----------------------------------------- ----------------
Commercial Owens Corning Chile Limitada Chile
Crown Manufacturing Inc. Canada
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
Exterior Systems, Inc. Delaware
Falcon Foam Corporation Delaware
Fibreboard Corporation Delaware
Flowtite (Africa) (Private) Limited Zimbabwe
Flowtite AS Norway
Flowtite Eksport AS Norway
Flowtite Eksport Argentina 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
Integrex Ventures LLC Delaware
Jefferson Holdings, Inc. Delaware
LMP Impianti Srl Italy
NV Owens Corning Building Materials SA Belgium
OC (Belgium) Holdings, Inc. Delaware
OC Celfortec Inc. Canada
O.C. Funding B.V. The Netherlands
OCW Acquisition Corporation (dba,
Delsan Industries Corp.) Delaware
Owens Corning (Anshan) Fiberglass Co., Ltd. China
Owens Corning Australia Pty Limited Australia
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 (China) Investment Company, Ltd. China
Owens Corning Composites Italia S.r.l. Italy
Owens Corning Composites SPRL Belgium
Owens Corning Espana SA Spain
Owens-Corning Fiberglas A.S. Limitada Brazil
State or Other
Jurisdiction
Under the Laws of
Subsidiaries of Owens Corning (3/31/2000) Which Organized
- ----------------------------------------- --------------------
Owens-Corning Fiberglas Deutschland GmbH Germany
Owens-Corning Fiberglas Espana, S.A. Spain
Owens-Corning Fiberglas France S.A. France
Owens-Corning Fiberglas (G.B.) Ltd. United Kingdom
Owens-Corning Fiberglas Norway A/S Norway
Owens-Corning Fiberglas S.A. Uruguay
Owens-Corning Fiberglas Sweden Inc. Delaware
Owens-Corning Fiberglas Technology Inc. Illinois
Owens-Corning Fiberglas (U.K.) Ltd. United Kingdom
Owens-Corning Fiberglas (U.K.)
Pension Plan Ltd. United Kingdom
Owens-Corning Finance (U.K.) PLC United Kingdom
Owens-Corning 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 NRO Inc. Canada
Owens Corning NRO II Inc. Canada
Owens-Corning Overseas Holdings, Inc. Delaware
Owens Corning Polyfoam UK Ltd. United Kingdom
Owens-Corning Real Estate Corporation Ohio
Owens Corning Remodeling Systems, LLC Delaware
Owens Corning (Shanghai) Fiberglas Co., Ltd. China
Owens Corning (Singapore) Pte Ltd. Singapore
Owens Corning South Africa (Pty) Ltd South Africa
Owens Corning S.p.A 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
Owens Corning VF Holdings, Inc. Canada
Procanpol SP. Z.O.O. Poland
Quest Industries, LLC Delaware
Scanglas Ltd. United Kingdom
Soltech, Inc. Kentucky
Trumbull Asphalt Co. of Delaware Delaware
Vytec Corporation Ontario
Willcorp, Inc. Delaware
Wrexham A.R. Glass Ltd. United Kingdom
