-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JUnPvwklUR2yZ+CZINMzYrvhCp01hioshY9xyfARshVRH1jjmpgaKr7RfBjkzTYm VqzTKWs7EN8OLTPtbZqgLA== 0000075234-96-000037.txt : 19961224 0000075234-96-000037.hdr.sgml : 19961224 ACCESSION NUMBER: 0000075234-96-000037 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19961223 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OWENS CORNING CENTRAL INDEX KEY: 0000075234 STANDARD INDUSTRIAL CLASSIFICATION: ABRASIVE ASBESTOS & MISC NONMETALLIC MINERAL PRODUCTS [3290] IRS NUMBER: 344323452 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-03660 FILM NUMBER: 96684937 BUSINESS ADDRESS: STREET 1: OWENS CORNING WORLD HEADQUARTERS STREET 2: ONE OWENS CORNING PARKWAY CITY: TOLEDO STATE: OH ZIP: 43659 BUSINESS PHONE: 4192488000 MAIL ADDRESS: STREET 1: OWENS CORNING WORLD HEADQUARTERS STREET 2: ONE OWENS CORNING PARKWAY CITY: TOLEDO STATE: OH ZIP: 43659 FORMER COMPANY: FORMER CONFORMED NAME: OWENS CORNING FIBERGLAS CORP DATE OF NAME CHANGE: 19920703 10-Q/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q/A Amendment No. 1 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended June 30, 1996 Commission File No. 1-3660 Owens Corning Fiberglas Tower, Toledo, Ohio 43659 Telephone No. (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 July 31, 1996 51,522,580 Owens Corning's Form 10-Q for the quarter ended June 30, 1996, filed on August 14, 1996, is hereby amended by amending Item 1 "Financial Statements" and Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of Part I, to read as set forth below: -2- PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS OWENS CORNING AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME Quarter Six Months Ended Ended June 30, June 30, 1996 1995 1996 1995 (In millions of dollars, except share data) NET SALES $ 956 $ 877 $1,805 $1,721 COST OF SALES 701 639 1,332 1,269 Gross margin 255 238 473 452 OPERATING EXPENSES Marketing and administrative expenses 116 102 244 215 Science and technology expenses 20 19 41 37 Provision for asbestos litigation claims (8) 875 - 875 - Other 6 2 3 13 Total operating expenses 1,017 123 1,163 265 INCOME (LOSS) FROM OPERATIONS (762) 115 (690) 187 Cost of borrowed funds 18 23 36 49 INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (780) 92 (726) 138 Provision (credit) for income taxes (3) (304) 33 (288) 50 INCOME (LOSS) BEFORE EQUITY IN NET INCOME OF AFFILIATES (476) 59 (438) 88 Equity in net income of affiliates 3 4 4 7 NET INCOME (LOSS) $ (473) $ 63 $(434) $ 95 NET INCOME (LOSS) PER COMMON SHARE Primary net income (loss) per share $(9.19) $ 1.25 $(8.43) $1.98 Fully diluted net income (loss) per share $(9.19) $ 1.20 $(8.43) $1.88 Weighted average number of common shares outstanding (in millions) Primary 51.5 50.4 51.5 48.0 Assuming full dilution 51.5 53.4 51.5 52.3
The accompanying notes are an integral part of this statement. -3- OWENS CORNING AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET June 30, Dec. 31, 1996 1995 ASSETS (In millions of dollars) CURRENT Cash and cash equivalents $ 24 $ 18 Receivables 423 314 Inventories (4) 329 253 Insurance for asbestos litigation claims - current portion (8) 100 100 Deferred income taxes 70 70 VEBA trust 42 51 Income tax receivable - 50 Investment in affiliate held for sale - 36 Other current assets 29 35 Total current 1,017 927 OTHER Insurance for asbestos litigation claims (8) 492 330 Deferred income taxes 597 252 Goodwill (6) 262 249 Investments in affiliates 59 50 Other noncurrent assets 146 147 Total other 1,556 1,028 PLANT AND EQUIPMENT, at cost Land 56 52 Building and leasehold improvements 596 581 Machinery and equipment 2,308 2,266 Construction in progress 244 168 3,204 3,067 Less--Accumulated depreciation (1,797) (1,761) Net plant and equipment 1,407 1,306 TOTAL ASSETS $3,980 $3,261
The accompanying notes are an integral part of this statement. -4- OWENS CORNING AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Continued) June 30, Dec. 31, 1996 1995 (In millions of dollars) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT Accounts payable and accrued liabilities $ 534 $ 587 Reserve for asbestos litigation claims - current portion (8) 275 250 Short-term debt 152 64 Long-term debt - current portion 18 35 Total current 979 936 LONG-TERM DEBT 972 794 OTHER Reserve for asbestos litigation claims (8) 1,841 887 Other employee benefits liability 360 367 Pension plan liability 68 75 Other 232 220 Total other 2,501 1,549 COMPANY OBLIGATED CONVERTIBLE SECURITY OF SUBSIDIARY HOLDING SOLELY PARENT DEBENTURES (MIPS) 194 194 STOCKHOLDERS' EQUITY Common stock 584 579 Deficit (7) (1,219) (781) Foreign currency translation adjustments (12) 9 Other (19) (19) Total stockholders' equity (666) (212) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,980 $3,261
The accompanying notes are an integral part of this statement. -5- OWENS CORNING AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS Quarter Six Months Ended Ended June 30, June 30, 1996 1995 1996 1995 (In millions of dollars) NET CASH FLOW FROM OPERATIONS Net income (loss) $(473) $ 63 $(434) $ 95 Reconciliation of net cash provided by operating activities: Noncash items: Provision for asbestos litigation claims (8) 875 - 875 - Provision for depreciation and amortization 32 31 63 61 Provision (credit) for deferred income taxes (345) 27 (345) 41 Other 4 3 7 12 (Increase) decrease in receivables (34) (19) (101) (18) (Increase) decrease in inventories (18) (44) (69) (84) Increase (decrease) in accounts payable and accrued liabilities 2 (31) (66) (99) Increase (decrease) in accrued income taxes 7 21 55 15 Proceeds from insurance for asbestos litigation claims 33 33 63 81 Payments for asbestos litigation claims (86) (57) (121) (155) Other 23 (49) (14) (77) Net cash flow from operations 20 (22) (87) (128) NET CASH FLOW FROM INVESTING Additions to plant and equipment (90) (55) (167) (114) Investment in subsidiaries, net of cash acquired (6) (39) - (39) - Proceeds from the sale of affiliate - - 55 - Other (6) 2 (12) - Net cash flow from investing $(135) $ (53) $ (163) $(114)
The accompanying notes are an integral part of this statement. -6- OWENS CORNING AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Continued) Quarter Six Months Ended Ended June 30, June 30, 1996 1995 1996 1995 (In millions of dollars) NET CASH FLOW FROM FINANCING Net additions (reductions) to long-term credit facilities $ 86 $(36) $184 $ 70 Other additions to long-term debt 13 17 13 51 Other reductions to long-term debt (20) (74) (32) (102) Net increase (decrease) in short-term debt 47 (32) 88 (19) Issuance of preferred stock of subsidiary (MIPS) - 194 - 194 Other - 1 2 (7) Net cash flow from financing 126 70 255 187 Effect of exchange rate changes on cash - 2 1 3 Net increase (decrease) in cash and cash equivalents 11 (3) 6 (52) Cash and cash equivalents at beginning of period 13 10 18 59 Cash and cash equivalents at end of period $ 24 $ 7 $ 24 $ 7
The accompanying notes are an integral part of this statement. -7- OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) Quarter Six Months Ended Ended June 30, June 30, 1996 1995 1996 1995 1. SEGMENT DATA (In millions of dollars) NET SALES Industry Segments Building Materials United States $575 $493 $1,048 $949 Europe 63 62 127 127 Canada and other 25 20 43 51 Total Building Materials 663 575 1,218 1,127 Composite Materials United States 149 151 297 303 Europe 106 115 215 220 Canada and other 38 36 75 71 Total Composite Materials 293 302 587 594 Intersegment sales Building Materials - - - - Composite Materials 29 26 54 52 Eliminations (29) (26) (54) (52) Net sales $956 $877 $1,805 $1,721 Geographic Segments United States $724 $644 $1,345 $1,252 Europe 169 177 342 347 Canada and other 63 56 118 122 956 877 1,805 1,721 Intersegment sales United States 21 14 38 27 Europe 12 3 21 7 Canada and other 19 25 40 45 Eliminations (52) (42) (99) (79) Net sales $956 $ 877 $1,805 $1,721
-8- OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Quarter Six Months 1. SEGMENT DATA (Continued) Ended Ended June 30, June 30, 1996 1995 1996 1995 (In millions of dollars) INCOME FROM OPERATIONS (1) Industry Segments Building Materials United States $ 70 $ 56 $ 83 $ 88 Europe 3 5 8 13 Canada and other - 1 (4) 8 Total Building Materials 73 62 87 109 Composite Materials United States 37 41 68 75 Europe 20 15 40 23 Canada and other 5 6 11 9 Total Composite Materials 62 62 119 107 General corporate expense (897) (9) (896) (29) Income (loss) from operations (762) 115 (690) 187 Cost of borrowed funds (18) (23) (36) (49) Income (loss) before provision for income taxes $(780) $ 92 $(726) $138 Geographic Segments United States $ 107 $ 97 $ 151 $ 163 Europe 23 20 48 36 Canada and other 5 7 7 17 General corporate expense (897) (9) (896) (29) Income (loss) from operations (762) 115 (690) 187 Cost of borrowed funds (18) (23) (36) (49) Income (loss) before provision for income taxes $ (780) $ 92 $(726) $138
(1) Income from operations for the quarter and six months ended June 30, 1996 includes the Company's pretax charge of $875 million for asbestos litigation claims to be received after 1999, all of which was recorded as a charge to general corporate expense. Income from operations for the six months ended June 30, 1996 includes the Company's pretax gain of $37 million from the sale of its ownership interest in its Japanese affiliate Asahi Fiber Glass Co. Ltd., all of which was recorded as a reduction in general corporate expense. Also included are special charges totaling $42 million including valuation adjustments associated with prior divestitures, major product line productivity initiatives and a contribution to the Owens Corning Foundation. The impact of these special items was to reduce income from operations for Building Materials in the United States, Europe, and Canada and other by $19 million, $1 million and $2 million, respectively, Composite Materials in the United States and Europe by $3 million and $2 million, respectively, and to increase general corporate expense by $15 million. -9- OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. GENERAL The financial statements included in this Report are condensed and unaudited, pursuant to certain Rules and Regulations of the Securities and Exchange Commission, but include, in the opinion of the Company, adjustments necessary for a fair statement of the results for the periods indicated, which, however, are not necessarily indicative of results which may be expected for the full year. In connection with the condensed financial statements and notes included in this Report, reference is made to the financial statements and notes thereto contained in the Company's 1995 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission. 3. INCOME TAXES The reconciliation between the U.S. federal statutory rate and the Company's effective income tax rate is: Quarter Six Months Ended Ended June 30, June 30, 1996 1995 1996 1995 (In millions of dollars) U.S. federal statutory rate (35)% 35% (35)% 35% Adjustment of deferred tax asset allowance - - (1) - State and local income taxes (3) 2 (4) 2 Other (1) (1) - (1) Effective tax rate (39)% 36% (40)% 36%
During the first quarter of 1996, the Company reversed approximately $7 million of its valuation allowances, as management determined that the operating loss carryforwards of certain foreign subsidiaries are realizable. 4. INVENTORIES Inventories are summarized as follows: June 30, December 31, 1996 1995 (In millions of dollars) Finished goods $ 276 $ 210 Materials and supplies 139 127 FIFO inventory 415 337 Less: Reduction to LIFO basis (86) (84) Inventories $ 329 $ 253
Approximately $191 million and $175 million of FIFO inventories were valued using the LIFO method at June 30, 1996 and December 31, 1995, respectively. -10- OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. CONSOLIDATED STATEMENT OF CASH FLOWS Cash payments, net of refunds, for income taxes and cost of borrowed funds are summarized as follows: Quarter Six Months Ended Ended June 30, June 30, 1996 1995 1996 1995 (In millions of dollars) Income taxes $ 8 $(23) $ (9) $(22) Cost of borrowed funds 33 40 39 49
The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. 6. ACQUISITIONS During the second quarter of 1996, the Company made acquisitions in the U.K. and U.S. Building Materials segment. The aggregate purchase price of the acquisitions was $39 million. These acquisitions were accounted for under the purchase method of accounting, whereby the assets acquired and liabilities assumed have been recorded at their fair values and the results of operations of the acquisitions have been included in the Company's consolidated financial statements subsequent to the acquisition date. The purchase price allocations were based on preliminary estimates of fair market value and are subject to revision. The purchases included goodwill of $7 million. The goodwill is being amortized on a straight-line basis over 40 years. The pro forma effect of the acquisitions was not material to net income for the six months ended June 30, 1996 or 1995. 7. DIVIDENDS During the second quarter of 1996, the Board of Directors approved an annual dividend policy of 25 cents per share and declared a quarterly dividend of 6-1/4 cents per share payable on October 15, 1996 to shareholders of record as of September 30, 1996. 8. CONTINGENT LIABILITIES ASBESTOS LIABILITIES The Company is a co-defendant with other former manufacturers, distributors and installers of products containing asbestos and with miners and suppliers of asbestos fibers (collectively, the "Producers") in personal injury and property damage litigation. The personal injury claimants generally allege injuries to their health caused by inhalation of asbestos fibers from the Company's products. Most of the claimants seek punitive damages as well as compensatory damages. The property damage claims generally allege property damage to school, public and commercial buildings resulting from the presence of products containing asbestos. Virtually all of the asbestos-related lawsuits against the Company arise out of its manufacture, distribution, sale -11- OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. CONTINGENT LIABILITIES (Continued) or installation of an asbestos-containing calcium silicate, high temperature insulation product, the manufacture of which was discontinued in 1972. Status As of June 30, 1996, approximately 152,200 asbestos personal injury claims were pending against the Company, of which 24,300 were received in the first six months of 1996. The Company received approximately 55,900 such claims in 1995, 29,100 in 1994, and 32,400 in 1993. Many of the recent claims appear to be the product of mass screening programs and not to involve malignancies or other significant asbestos related impairment. The Company believes that as many as 40,000 of the recent claims involve plaintiffs whose pulmonary function tests (PFTs) were improperly administered or manipulated by the testing laboratory or otherwise inconsistent with proper medical practice, and it is investigating a number of testing organizations and their methods. On June 19, 1996 the Company filed suit in federal court in New Orleans against the owners and operators of certain lab facilities in the southeastern U.S. challenging such improper testing practices. The Company is engaging in discussions with a group of approximately 30 leading plaintiffs' law firms to explore approaches toward resolution of its asbestos liability. The discussions are expected to cover the possible resolution of both pending claims and claims that may be filed in the future. While discussions are ongoing, the law firms involved in the talks have agreed to refrain from serving any further asbestos claims on the Company unless they involve malignancies. This agreement may have impacted the number of cases received by the Company during the second quarter of 1996. Through June 30, 1996, the Company had resolved (by settlement or otherwise) approximately 176,900 asbestos personal injury claims, including the dismissal in May 1996 of approximately 15,000 maritime cases, which named Owens Corning as a defendant, for lack of medical proof. During 1993, 1994, and 1995, the Company resolved approximately 60,000 asbestos personal injury claims, over 99% without trial, and incurred total indemnity payments of $641 million (an average of about $10,700 per case). The Company's indemnity payments have varied considerably over time and from case to case, and are affected by a multitude of factors. These include the type and severity of the disease sustained by the claimant (i.e., mesothelioma, lung cancer, other types of cancer, asbestosis or pleural changes); the occupation of the claimant; the extent of the claimant's exposure to asbestos-containing products manufactured, sold or installed by the Company; the extent of the claimant's exposure to asbestos-containing products manufactured, sold or installed by other Producers; the number and financial resources of other Producer defendants; the jurisdiction of suit; the presence or absence of other possible causes of the claimant's illness; the availability or not of legal defenses such as the statute of limitations or state of the art; whether the claim was resolved on an individual basis or as part of a group settlement; and whether the claim proceeded to an adverse verdict or judgment. -12- OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. CONTINGENT LIABILITIES (Continued) Insurance As of June 30, 1996, the Company had approximately $367 million in unexhausted insurance coverage (net of deductibles and self-insured retentions and excluding coverage issued by insolvent carriers) under its liability insurance policies applicable to asbestos personal injury claims. This insurance, which is substantially confirmed, includes both products hazard coverage and primary level non-products coverage. Portions of this coverage are not available until 1997 and beyond under agreements with the carriers confirming such coverage. All of the Company's liability insurance policies cover indemnity payments and defense fees and expenses subject to applicable policy limits. In addition to its confirmed primary level non-products insurance, the Company has a significant amount of unconfirmed potential non-products coverage with excess level carriers. For purposes of calculating the amount of insurance applicable to asbestos liabilities, the Company has estimated its probable recoveries in respect of this additional non-products coverage at $225 million, which amount was recorded in the second quarter of 1996. This coverage is unconfirmed and the amount and timing of recoveries from these excess level policies will depend on subsequent negotiations or proceedings. Reserve The Company's 1995 financial statements included a reserve for the estimated cost associated with asbestos personal injury claims that may be received through the year 1999. Such financial statements did not include any provision for the cost of unasserted claims which might be received in years subsequent to 1999 because management was unable to predict the number of such claims and other factors which would affect the cost of such claims. Throughout 1996, the Company continued to review the feasibility of making provision for the cost of unasserted asbestos personal injury claims with respect to claims which may be received by the Company during and after the year 2000. In conducting such review the Company took into account, among other things, the effect of recent federal court decisions relating to punitive damages and the certification of class actions in asbestos cases, the pendency of the discussions with the group of plaintiffs' law firms referred to above, the results of its continuing investigations of medical screening practices of the kind at issue in the New Orleans PFT law suit, recent developments as to the prospects for federal and state tort reform, the continued rate of case filings at historically high levels, additional information on filings received during the 1993-1995 period and other factors. As a result of the review, the Company has taken a non-recurring, noncash charge to earnings of $1.1 billion in the second quarter of 1996. This charge represents the Company's estimate of the indemnity and defense costs associated with unasserted asbestos personal injury claims that may be received by the Company in years subsequent to 1999. The combined effect of the $1.1 billion charge and the $225 million probable additional non-products insurance recovery was an $875 million charge in the second quarter of 1996. The Company's estimated total liabilities in respect of indemnity and defense costs associated with pending and unasserted asbestos personal injury claims that may be received in the future (the Liabilities"), and its estimated -13- OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. CONTINGENT LIABILITIES (Continued) insurance recoveries in respect of such claims (the "Insurance"), are reported separately as follows: Asbestos Litigation Claims June 30, December 31, 1996 1995 (In millions of dollars) Reserve for asbestos litigation claims Current $ 275 $ 250 Other 1,841 887 2,116 1,137 Insurance for asbestos litigation claims Current 100 100 Other 492 330 Total Insurance 592 430 Net Asbestos Liability $ 1,524 $ 707
The Company cautions that such factors as the number of future asbestos personal injury claims received by it, the rate of receipt of such claims, and the indemnity and defense costs associated with asbestos personal injury claims, as well as the prospects for confirming additional insurance, including the additional $225 million in non-products coverage referenced above, are influenced by numerous variables that are difficult to predict, and that estimates, such as the Company's, which attempt to take account of such variables, are subject to considerable uncertainty. The Company believes that its estimate of Liabilities and Insurance will be sufficient to provide for the costs of all pending and future asbestos personal injury claims that involve malignancies or significant asbestos-related functional impairment. While such estimates cover unimpaired claims, the number and cost of unimpaired claims are much harder to predict and such estimates reflect the Company's belief that such claims have little or no value. The Company will continue to review the adequacy of its estimate of Liabilities and Insurance on a periodic basis and make such adjustments as may be appropriate. Management Opinion Although any opinion is necessarily judgmental and must be based on information now known to the Company, in the opinion of management, while any additional uninsured and unreserved costs which may arise out of pending personal injury and property damage asbestos claims and additional similar asbestos claims filed in the future may be substantial over time, management believes that any such additional costs will not impair the ability of the Company to meet its obligations, to reinvest in its businesses or to take advantage of attractive opportunities for growth. -14- OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. CONTINGENT LIABILITIES (Continued) NON-ASBESTOS LIABILITIES Various other lawsuits and claims arising in the normal course of business are pending against the Company, some of which allege substantial damages. Management believes that the outcome of these lawsuits and claims will not have a materially adverse effect on the Company's financial position or results of operations. -15- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (All per share information in Item 2 is on a fully diluted basis. All references to results from ongoing operations exclude the impact of special items reported for the relevant period.) RESULTS OF OPERATIONS For the second quarter of 1996, the Company reported a net loss of $473 million, or $9.19 per share, compared to net income of $63 million, or $1.20 per share, for the quarter ended June 30, 1995. The net loss was the result of a $1.1 billion charge taken during the quarter to quantify the Company's liability for asbestos claims to be received after 1999 as well as a probable $225 million additional recovery from insurance carriers (collectively, the "asbestos charge"), having a combined impact after taxes of $542 million. Net income, excluding the impact of the asbestos, charge increased by 10% to $69 million, or $1.25 per share, for the quarter when compared to the same period in 1995. The earnings growth from ongoing operations reflects primarily the benefits of acquisitions and reduced cost of borrowed funds, offset in part by increased administrative charges resulting from the Company's continuing implementation of its global productivity initiative, Advantage 2000. Net sales were $956 million for the quarter ended June 30, 1996, a 9% increase from the 1995 level of $877 million. The growth is attributable to volume increases in the Building Materials segment, particularly in the U.S., coupled with the incremental increases from acquisitions. Gross margin for the quarter ended June 30 was 27% in both 1996 and 1995. For the six months ended June 30, 1996, the Company reported a net loss of $434 million, or $8.43 per share, compared to net income of $95 million, or $1.88 per share, for the comparable 1995 period. Net income ongoing operations for the first six months of 1996 was $108 million, or $1.98 per share, an increase of 14% over the comparable prior year period. Net sales for the six months ended June 30, 1996 were $1.805 billion, a 5% increase over the $1.721 billion reported in the first six months of 1995. This increase reflects the incremental sales from the Company's acquisitions in combination with the improvement in Building Materials sales in the U.S. Marketing and administrative expenses from ongoing operations for the six months ended June 30, 1996 increased approximately 10% over the same period in 1995, primarily as a result of incremental administrative expenses from the acquisitions late in 1995 and early 1996 as well as an impact from the continuing implementation of the Company's Advantage 2000 program. Advantage 2000 is a business system designed to accelerate the speed and simplify the processes of doing business globally. When fully implemented, the Advantage 2000 program will replace over 200 fragmented information systems with a fully integrated system, leading to increased productivity and cost savings. In the Building Materials segment, sales increased 15% and 8% for the quarterly and six month periods ended June 30, 1996, respectively, compared to the same periods of the prior year. This growth reflects the incremental sales from acquisitions coupled with an increase in volume, particularly in North America. The second quarter sales increase in North America was largely driven by the roofing and asphalt business in the U.S. which benefited from an increase in demand following a slow first quarter hampered by severe weather conditions. Additionally, the Company is realizing the benefits of integrating new products into its distribution systems, improving the sales of products like Foamular(R). Income from ongoing operations for Building Materials increased 18% for the quarter and was relatively unchanged for the six months ended June 30, 1996 when compared to the same -16- periods in 1995. The increase in the second quarter is primarily due to productivity improvements in the roofing and asphalt business. In the second quarter of 1996, the Company acquired certain U.S. assets of Partek Insulation, Inc., a subsidiary of Partek North America, Inc. Partek's rockwool-based insulation will help the Company extend its mechanical insulation product offering into higher-temperature applications. Additionally, the Company acquired assets from the United Kingdom-based Linpac Insulation. With production facilities in the U.K. and Spain, Linpac's extruded polystyrene (XPS) PolyFoam(R) insulation will be added to the Company's European building materials product line. In the Composite Materials segment, sales decreased slightly for the quarter and six months ended June 30, 1996, compared to the prior year periods, as slight gains in the Company's identified growth regions of Africa/Latin America were more than offset by declines attributable to a shift in product mix in North America, currency exchange fluctuations and a softening demand in Europe. Composite Materials income from ongoing operations in the second quarter of 1996 was even with the second quarter of 1995. For the six months ended June 30, 1996, income from ongoing operations increased 16% compared to the same period in 1995, primarily due to an improvement in pricing coupled with productivity initiatives. During the quarter, the Company announced plans for a new large-diameter glass reinforced plastic (GRP) pipe joint venture in Turkey, which is expected to start production in the first half of 1997. Additionally the previously announced GRP pipe venture in Cordoba, Argentina began operations. Generally, the Company's GRP pipe is marketed to governments and private industry for major infrastructure projects for the transport of water and waste. The Company's cost of borrowed funds for the quarter ended June 30, 1996 was $5 million lower than during second quarter 1995, reflecting decreased borrowings resulting from the issuance of $200 million of convertible monthly income preferred securities in May 1995. LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED MATTERS In June 1996 the Company announced that its Board of Directors had approved an annual dividend policy of 25 cents per share and declared a quarterly dividend of 6-1/4 cents per share payable on October 15, 1996 to shareholders of record as of September 30, 1996. Cash flow from operations, excluding asbestos-related activities, was $73 million for the second quarter of 1996, compared to $2 million for second quarter 1995. The increase is attributable in part to the partial reimbursement to the Company from the VEBA trust established in 1995 and a reduction in the level of appeal bonds supporting asbestos trials. Inventories at June 30, 1996 increased 30% over December 31, 1995 levels due to the Company's seasonal inventory build in the first half of the year and the incremental inventories of acquisitions. Inventories as a percent of sales for the six months ended June 30 remained constant at 18% for 1996 and 1995. Please see Notes 4 and 5 to the Consolidated Financial Statements. At June 30, 1996, the Company's net working capital was $38 million and its current ratio was 1.04 compared to negative $9 million and .99, respectively, at December 31, 1995. The increase in 1996 is in part due to the second quarter 1995 reduction in short-term borrowings and the seasonal build of inventories. Additionally, during the first quarter of 1996, the Company established a new long-term revolving credit facility in the U.K. which replaced several short-term debt instruments in Europe. -17- The Company's total borrowings at June 30, 1996 were $1.142 billion, $249 million higher than at year-end 1995. Typically, the Company reports greater cash usage during the first half of the year as the Company builds inventories and other working capital. As of June 30, 1996, the Company had unused lines of credit of $225 million available under long-term bank loan facilities and an additional $152 million under short-term facilities, compared to $358 million and $239 million, respectively, at year-end 1995. The decrease in available lines of credit is primarily the result of increased borrowings. Letters of credit issued under the Company's long-term U.S. loan facility, most of which support appeals from asbestos trials, reduce credit availability of that facility. The impact of such reduction is reflected in the unused lines of credit discussed above. Capital spending for property, plant and equipment, excluding acquisitions and investments in affiliates, was $90 million and $167 million for the quarter and six months ended June 30, 1996, respectively. For the year 1996, the Company anticipates capital spending, exclusive of acquisitions and investments in affiliates, to be approximately $313 million. The Company expects that funding for these expenditures will be from the Company's operations and external sources as required. Gross payments for asbestos litigation claims during the second quarter of 1996, including $13 million in defense costs and $1 million for appeal bond and other costs, were $86 million. Proceeds from insurance were $33 million, resulting in a net pretax cash outflow of $53 million, or $32 million after-tax. During the second quarter of 1996, the Company received approximately 11,400 new asbestos personal injury cases and closed approximately 15,200 cases. Over the next twelve months, the Company's total payments for asbestos litigation claims, including defense costs, are expected to be approximately $275 million. Proceeds from insurance of $100 million are expected to be available to cover these costs, resulting in a net pretax cash outflow of $175 million, or $105 million after-tax. The recording of the $1.1 billion charge relating to asbestos claims to be received after 1999 and the probable $225 million recovery from excess level non-products insurance carriers is not expected to impact cash payments until the year 2000, and will be spread out over 15 years or more. Please see Note 8 to the Consolidated Financial Statements. The Company expects funds generated from operations, together with funds available under long and short term bank loan facilities, to be sufficient to satisfy its debt service obligations under its existing indebtedness, as well as its contingent liabilities for uninsured asbestos personal injury claims. In June 1996 the Company filed a lawsuit in the U.S. District Court for the Eastern District of Louisiana alleging a massive scheme to defraud the Company in connection with asbestos litigation cases. The suit alleges that medical test results in tens of thousands of asbestos claims were falsified by the owners and operators of three pulmonary function testing laboratories. The Company believes that as many as 40,000 claims in its current backlog involve plaintiffs whose pulmonary function tests were improperly administered or manipulated by the testing laboratory or otherwise inconsistent with proper medical practice. The Company has been deemed by the Environmental Protection Agency (EPA) to be a potentially responsible party (PRP) with respect to certain sites under the Comprehensive Environmental Response, Compensation and Liability Act (Superfund). The Company has also been deemed a PRP under similar state or local laws, including two state Superfund sites where the Company is the primary generator. In other instances, other PRPs have brought suits or claims against the Company as a PRP for contribution under such federal, state or local laws. During the second quarter of 1996, the Company was not designated a PRP in such federal, state, local or private proceedings for any additional sites. At June 30, 1996, a total of 38 such PRP designations remained unresolved by the Company, some of which designations the Company believes to be erroneous. The Company is also involved with environmental investigation or remediation at a number of other sites at which it has not been designated a PRP. The Company has established an $18 million reserve for its Superfund (and similar state, local and private action) -18- contingent liabilities. In addition, based upon information presently available to the Company, and without regard to the application of insurance, the Company believes that, considered in the aggregate, the additional costs associated with such contingent liabilities, including any related litigation costs, will not have a materially adverse effect on the Company's financial position or results of operations. The 1990 Clean Air Act Amendments (Act) provide that the EPA will issue regulations on a number of air pollutants over a period of years. Until these regulations are developed, the Company cannot determine the extent to which the Act will affect it. The Company anticipates that its sources to be regulated will include glass fiber manufacturing and asphalt processing activities. The EPA's announced schedule is to issue regulations covering glass fiber manufacturing by late 1997 and asphalt processing activities by late 2000, with implementation as to existing sources up to three years thereafter. Based on information now known to the Company, including the nature and limited number of regulated materials it emits, the Company does not expect the Act to have a materially adverse effect on the Company's results of operations, financial condition or long-term liquidity. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OWENS CORNING Registrant Date: December 20, 1996 By /s/ David W. Devonshire David W. Devonshire Senior Vice President and Chief Financial Officer (as duly authorized officer) -----END PRIVACY-ENHANCED MESSAGE-----