-----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, PMvODK89BxLFwApxuwvdrvms1SQsEG1fWIAmGuyudCrcfi01gtEoN0s4Mo83dBC2 KVHrz40NH+bPD/JFkIWAdg== 0000075234-00-000003.txt : 20000315 0000075234-00-000003.hdr.sgml : 20000315 ACCESSION NUMBER: 0000075234-00-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000314 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-K SEC ACT: SEC FILE NUMBER: 001-03660 FILM NUMBER: 568987 BUSINESS ADDRESS: STREET 1: OWENS CORNING WORLD HEADQUARTERS STREET 2: ONE OWENS CORNING PKWY 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-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1999 Commission File No. 1-3660 Owens Corning One Owens Corning Parkway Toledo, Ohio 43659 Area Code (419) 248-8000 A Delaware Corporation I.R.S. Employer Identification No. 34-4323452 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock - $.10 Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] At February 21, 2000, the aggregate market value of Registrant's $.10 par value common stock (Registrant's voting stock) held by non-affiliates was $850,590,859, assuming for purposes of this computation only that all directors and executive officers are considered affiliates. At February 21, 2000, there were outstanding 55,485,313 shares of Registrant's $.10 par value common stock. Parts of Registrant's definitive 2000 proxy statement filed or to be filed pursuant to Regulation 14A (the "2000 Proxy Statement") are incorporated by reference into Part III of this Form 10-K. - 2 - PART I ITEM 1. BUSINESS Owens Corning, a global company incorporated in Delaware in 1938, serves consumers and industrial customers with building materials systems and composites systems. The systems and services provided by our Building Materials Systems division are used in residential remodeling and repair, commercial improvement, new residential and commercial construction, and other related markets. The systems and services offered by our Composite Systems division are used in end-use markets such as building construction, automotive, telecommunications, marine, aerospace, energy, appliance, packaging and electronics. Many of Owens Corning's products are marketed under registered trademarks, including Propink(R), Advantex(R), Miravista(R) and/or the color PINK. Approximately 80% of Owens Corning's sales are related to home improvement, non-residential markets, sales of composite materials and sales outside U.S. markets. Approximately 20% of our sales are related to new U.S. residential construction. Owens Corning operates in two reportable operating segments -- Building Materials Systems and Composite Systems. In 1999, the Building Materials segment accounted for 80% of our total sales while Composite Systems accounted for 20% of total sales. During 1999, Owens Corning implemented growth initiatives throughout the businesses, mainly by establishing partnerships with e-business and internet companies, leading technology companies, and strategic manufacturing enterprises. We launched a national advertising campaign targeting home owners and restructured our organization to focus on the strategic growth markets that we are pursuing. We also continued with the implementation of the National Settlement Program, adding more participating plaintiffs' law firms and increasing the number of settled asbestos personal injury claims. Owens Corning also has affiliate companies in a number of countries. Affiliated companies' sales, earnings and assets are not included in either operating segment unless we own more than 50% of the affiliate and the ownership is not considered temporary. Revenue from external customers, income from operations and total assets attributable to each of Owens Corning's operating segments and geographic regions, as well as information concerning the dependence of our operating segments on foreign operations, for each of the years 1999, 1998, and 1997, are contained in Note 1 to Owens Corning's Consolidated Financial Statements, entitled "Segment Data", on pages 42 through 47 hereof. Owens Corning's executive offices are at One Owens Corning Parkway, Toledo, Ohio 43659; telephone (419) 248-8000. Owens Corning's web site provides information on our business and products, and assists our customers in various building projects. It is located at www.owenscorning.com. Unless the context requires otherwise, the terms "Owens Corning", "we" and "our" in this report refer to Owens Corning and its subsidiaries. BUILDING MATERIALS SYSTEMS Principal Products And Methods Of Distribution Building Materials Systems operates primarily in North America. It also has a growing presence in Europe, Latin America and Asia Pacific. Building Materials Systems sells a variety of products and services in three major categories: (i) glass fiber, foam and mineral wool insulation systems, (ii) roofing systems, and (iii) exterior systems for the home, including vinyl and metal siding and accessories, vinyl windows and patio doors, rainware (consisting primarily of gutters and downspouts), manufactured stone veneer and rebranded housewrap. The businesses responsible - 3 - for these markets are: Insulating Systems, Roofing Systems, Exterior Systems, System Thinking Sales and Distribution and International Building Materials Systems. In 1997, Owens Corning became the industry leader in the vinyl siding market with our acquisitions of Fibreboard Corporation and AmeriMark Building Products, Inc. Together, these acquisitions represent over $1 billion in residential exterior building product sales, including vinyl siding, vinyl windows and patio doors, aluminum products and Cultured Stone(R) veneer. We have six vinyl siding manufacturing plants, four aluminum products manufacturing plants, two manufactured stone plants and more than 180 company-owned specialty distribution centers. Almost all siding is sold through distribution, mostly specialty distributors who cater to exterior contractors by providing siding, siding accessories, aluminum rainware and often windows and patio doors. Owens Corning's network of company-owned outlets accounts for over half of Owens Corning's siding sales. Cultured Stone products are sold primarily through independent dealers and masonry suppliers. The System Thinking Sales and Distribution Organization channels our sales of building insulation systems, roofing shingles and accessories, housewrap, windows/patio doors, and vinyl siding through home centers, lumberyards, retailers and distributors. Other channels of distribution for insulation systems in North America include insulation contractors, wholesalers, specialty distributors, metal building insulation laminators, mechanical insulation distributors and fabricators, manufactured housing producers, and appliance, office products and automotive manufacturers. Foam insulation and related products are sold to distributors and retailers who resell to residential builders, remodelers and do-it-yourself customers; commercial and industrial markets through specialty distributors; and, in some cases, large contractors, particularly in the agricultural and cold storage markets. These products are used primarily in the home improvement, new residential construction, and commercial construction and repair markets. In 1999, approximately 20% of Owens Corning's sales were related to new construction activities in the United States, while home improvement and remodeling accounted for approximately 40%. Approximately 80% of roofing shingles sold in North America are used for reroofing, with new residential construction accounting for the remainder. Owens Corning also sells residential shingles through exports from the U.S. to East European, Latin American and Asia Pacific countries. Owens Corning sells non-paving asphalt products, including industrial and specialty applications, under the Trumbull brand name. There are three principal kinds of industrial asphalt: Built-Up Roofing Asphalt (BURA), used in commercial flat roof systems to provide waterproofing and adhesion; saturants or coating asphalt, used to manufacture roofing mats, felts and residential shingles; and industrial specialty asphalt, used by manufacturers in a variety of products such as waterproofing systems, adhesives, coatings, dyes, and product extenders, as well as in various automotive applications. There are several channels of distribution for these products. They are used internally in the manufacture of residential roofing products and are also sold to other shingle manufacturers. In addition, asphalt is sold to roofing contractors and distributors for BURA systems and to manufacturers in a variety of other industries, including automotive, chemical, rubber and construction. In Europe, Asia and Latin America, building techniques do not employ as much open-cavity construction as in North America, resulting in a greater opportunity for growth in foam insulation than glass fiber in these markets. In developing markets, both foam and glass fiber insulation are opportunities. In Europe, we sell building insulation to large insulation wholesalers, builder merchants, contractors, distributors, and retailers. - 4 - Owens Corning sells mechanical insulation products to distributors, fabricators, and manufacturers in the heating, ventilation, power and process, appliance and fire protection industries. Outside North America, Owens Corning has foam plants in the U.K., Spain and Italy and has licensed others for the manufacture of foam products at locations in Europe, the Middle East and Asia. Owens Corning sells foam products through traditional agents and distributors. In Latin America, Owens Corning produces and sells building and mechanical insulation primarily through an affiliate joint venture in Mexico, as well as exports from U.S. plants. In Asia Pacific, we sell primarily mechanical insulation through joint venture businesses, including two majority owned insulation plants and an insulation fabrication center in China, two minority owned joint ventures, one in Saudi Arabia and one in Thailand, and four licensees. Seasonality Sales in the Building Materials segment tend to follow seasonal home improvement, remodeling and renovation, and new construction industry patterns. Sales levels for the segment, therefore, are typically lower in the winter months. Major Customers No customer in the Building Materials segment accounted for more than 4% of the segment's sales in 1999. COMPOSITE MATERIALS Principal Products and Methods of Distribution Composite Systems operates in North America, Europe and Latin America, with affiliates and licensees around the world, including a growing presence in Asia Pacific. The businesses responsible for these products include: Composites Systems and Engineered Pipe Systems. Owens Corning is the world's leading producer of glass fiber materials used in composites. Composites systems are made up of two or more components (e.g., plastic resin and a fiber, traditionally a glass fiber) used in various applications to replace traditional materials, such as aluminum, wood, and steel. We are increasingly providing systems that are designed for a specific end-use application, and entail a material, a proprietary process and a fully assembled part or system. The global composites industry has thousands of end-use applications. Owens Corning has selected strategic markets and end-users, where we provide integral solutions, such as the automotive, telecommunications/electronics, and building construction markets. A large portion of the business also serves thousands of applications within the consumer, industrial and infrastructure markets. Within the building construction market, the major end-use application for glass fiber is asphalt roofing shingles, where a glass fiber mat is used to provide fire and mildew resistance in 95% of all such shingles produced in North America. We sell glass fiber and/or mat directly to a small number of major shingle manufacturers, including our own roofing business. Tubs, showers and other related internal building components used for both remodeling and new construction are also major applications of composite materials in the construction market. These end-use products are some of the first successful material substitution conversions normally encountered in developing countries. Glass fiber reinforcements and composite material solutions for these markets are sold to direct accounts, and also to distributors around the world, who in turn service thousands of customers. - 5 - More than 80% of transportation-related composite solutions are used in automotive applications. Non-automotive transportation applications include heavy trucks, rail cars, shipping containers, refrigerated containers, trailers and commercial ships. Growth continues in automotive applications, as composite systems create new applications or displace other materials in existing applications. There are hundreds of composites applications, including body panels, door modules, integrated front-end systems, instrument panels, chassis and underbody components and systems, and heat and noise shields. These composite parts are either produced by original equipment manufacturers (OEMs), or are purchased by OEMs from first-tier suppliers. Within the telecommunications and electronics markets, glass fiber composites are used to protect and reinforce fiber optic and copper cables. Owens Corning also produces central strength members for fiber optic cables. Other end-uses include connectors, circuit breaker boxes, computer housings, electricians' safety ladders, and hundreds of various electro/mechanical components. Through its 49% interest in a yarns joint venture, Owens Corning continues to participate in the yarns and specialty material markets, where glass fiber is used extensively in printed circuit boards made for the consumer electronics, transportation, and telecommunications industries. The consumer, industrial and infrastructure markets include sporting goods and marine applications. Owens Corning sells composite materials to OEMs and boat builders, both directly and through distributors. Owens Corning manufactures large diameter glass-reinforced plastic (GRP) pipe designed for use in underground pressure and gravity fluid handling systems. The pipe is a filament-wound structural composite made with glass fiber and polyester resins. We, directly and with joint venture partners around the world, manufacture and sell GRP pipe directly to governments and private industry for major infrastructure projects, primarily for the safe and efficient transport of water and waste. Major Customers No customer in the Composite Materials segment accounted for more than 5% of the segment's sales in 1999. GENERAL Raw Materials and Patents Owens Corning considers the sources and availability of raw materials, supplies, equipment and energy necessary for the conduct of business in each of our operating segments to be adequate. Owens Corning has numerous U.S. and foreign patents issued and applied for relating to our products and processes in each operating segment, resulting from research and development efforts. We have issued royalty-bearing patent licenses to companies in several foreign countries. The licenses cover technology relating to both operating segments. Including registered trademarks for the Owens Corning logo, the color PINK, and FIBERGLAS, Owens Corning has approximately 300 trademarks registered in the United States and approximately 1,480 trademarks registered in other countries. - 6 - We consider our patent and trademark positions to be adequate for the present conduct of business in each of our operating segments. Working Capital Owens Corning's manufacturing operations in each operating segment are generally continuous in nature and we warehouse much of our production prior to sale since we operate primarily with short delivery cycles. Research and Development During 1999, 1998 and 1997, Owens Corning spent approximately $59 million, $57 million, and $69 million, respectively, for research and development activities. Customer sponsored research and development was not material in any of the last three years. Environmental Control Owens Corning's capital expenditures relating to compliance with environmental control requirements were approximately $17 million in 1999. We currently estimate that such capital expenditures will be approximately $25 million in 2000 and $20 million in 2001. We do not consider that we have experienced a material adverse effect upon our capital expenditures or competitive position as a result of environmental control legislation and regulations. Operating costs of environmental control equipment, however, were approximately $55 million in 1999. We continue to invest in equipment and process modifications to remain in compliance with applicable environmental laws and regulations. The 1990 Clean Air Act Amendments (Act) provide that the United States Environmental Protection Agency (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 and for amino/phenolic resin in January, 2000. We anticipate that our other sources to be regulated will be secondary aluminum smelting, 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 we emit, we do not expect the Act to have a materially adverse effect on our results of operations, financial condition or long-term liquidity. Competition Owens Corning's products compete with a broad range of products made from numerous basic, as well as high-performance, materials. We compete with a number of manufacturers in the United States of glass fibers in primary forms, not all of which produce a broad line of glass fiber products. Approximately one-half of these producers compete with our Building Materials operating segment in the sale of glass fibers in primary form. A similar number compete with our Composite Materials operating segment. Companies in other countries export small quantities of glass fiber products to the United States. We also compete outside the United States with a number of manufacturers of glass fibers in primary forms. - 7 - We also compete with many manufacturers, fabricators and distributors in the sale of products made from glass fibers. In addition, we compete with many other manufacturers in the sale of roofing materials for sloped roofing, industrial asphalts, vinyl siding, windows and patio doors and other products. We provide services on a fee-for-service basis in the form of materials and product testing, in competition with numerous testing laboratories, and also sell claims management services. Methods of competition include product performance, price, terms, service and warranty. ITEM 2. PROPERTIES PLANTS Owens Corning's principal plants as of March 1, 2000 are listed below by operating segment and primary products, and are owned except as noted. We consider that these properties are in good condition and well maintained, and are suitable and adequate to carry on our business. The capacity of each plant varies depending upon product mix. BUILDING MATERIALS SEGMENT Thermal and Acoustical Insulation Delmar, New York Palestine, Texas Eloy, Arizona Phenix City, Alabama (1) Fairburn, Georgia Salt Lake City, Utah Kansas City, Kansas Santa Clara, California Mount Vernon, Ohio Waxahachie, Texas Newark, Ohio Anshan, China Queensferry, United Kingdom Babelegi, South Africa Ravenhead, United Kingdom Candiac, Canada Scarborough, Canada Edmonton, Canada Shanghai, China Guangzhou, China Springs, South Africa Pontyfelin, United Kingdom Vise', Belgium (1) Facility is leased. Foam Insulation Rockford, Illinois Tallmadge, Ohio Hartlepool, United Kingdom Valleyfield, Canada Santa Perpetua, Spain (1) Volpiano, Italy Turin, Italy (1) (1) Facility is leased. - 8 - Roofing and Asphalt Processing (one of each at every location, except as noted). Adelanto, California (1) (3) Jessup, Maryland Atlanta, Georgia Kearny, New Jersey Brookville, Indiana (1) Medina, Ohio Channelview, Texas (2) Memphis, Tennessee Compton, California Minneapolis, Minnesota Denver, Colorado Morehead City, North Detroit, Michigan (2) Carolina (2) (3) Ennis, Texas (2) North Bend, Ohio (2) Ft. Lauderdale, Florida (2) Oklahoma City, Oklahoma (2) Houston, Texas Portland, Oregon (4) Irving, Texas Savannah, Georgia (1) Jacksonville, Florida Summit, Illinois (1) Roofing plant only. (2) Asphalt processing plant only. (3) Facility is leased. (4) Two asphalt processing plants, as well as one roofing plant. OEM Solutions Group Angola, Indiana Indianapolis, Indiana (1) Athens, Alabama Johnson City, Tennessee (1) Cleveland, Tennessee (1) Los Angeles, California (1) Columbus, Ohio (1) Louisville, Kentucky (1) Dallas, Texas (1) Montgomery, Alabama (1) Grand Rapids, Michigan (1) Oklahoma City, Oklahoma (1) Hazelton, Pennsylvania (1) Springfield, Tennessee (1) Hebron, Ohio Tiffin, Ohio (1) Brantford, Canada (1) Facility is leased. Manufactured Housing/Recreational Vehicles Specialty Parts Douglas, Georgia Nappanee, Indiana Elkhart, Indiana Plant City, Florida (1) Goshen, Indiana Waco, Texas (1) (1) Facility is leased. Metal Products Ashville, Ohio Richmond, Virginia Beloit, Wisconsin Roxboro, North Carolina - 9 - Cast Stone Products Chester Co., South Carolina (1) Navarre, Ohio Napa, California (2) (1) Under construction. (2) Facility is leased. Vinyl Siding Atlanta, Georgia (1) Joplin, Missouri Claremont, North Carolina Olive Branch, Mississippi London, Ontario Mission, British Columbia (1) Facility is leased. Windows/Patio Doors Bradenton, Florida Lakeland, Florida In addition, Owens Corning has approximately 185 Specialty Distribution Centers in 36 states in the U.S. COMPOSITE MATERIALS SEGMENT Textiles and Reinforcements Aiken, South Carolina Fort Smith, Arkansas Amarillo, Texas Huntingdon, Pennsylvania (1) Anderson, South Carolina Jackson, Tennessee (1) Duncan, South Carolina (1) New Braunfels, Texas (1) Apeldoorn, The Netherlands Liversedge, United Kingdom Battice, Belgium Rio Claro, Brazil Birkeland, Norway San Vincente deCastellet/ Guelph, Canada Barcelona, Spain Kimchon, Korea Springs, South Africa L'Ardoise, France Wrexham, United Kingdom (1) Facility is leased. Engineered Pipe Systems Bagneres-De-Bigorre, France (1) Sandefjord, Norway (2) (1) Facility is leased. (2) Facility is partly leased. - 10 - OTHER PROPERTIES Owens Corning's principal executive offices of approximately 400,000 square feet are located in the Owens Corning World Headquarters, Toledo, Ohio. The lease for this facility terminates May 31, 2015, with options to extend through May 31, 2030. Owens Corning's research and development activities are primarily conducted at our Science and Technology Center, located on approximately 500 acres of land outside Granville, Ohio. It consists of more than 20 structures totaling more than 600,000 square feet. Our Integrex subsidiary maintains offices and laboratories at the Science and Technology Center and also leases facilities in Granville, Ohio; New York City, New York; and Carmel, Indiana. Owens Corning also has Application Development Centers in Battice, Belgium; Shanghai, China; and Bangalore, India. ITEM 3. LEGAL PROCEEDINGS The paragraphs in Note 22 to Owens Corning's Consolidated Financial Statements, entitled "Contingent Liabilities", on pages 78 through 84 hereof, are incorporated here by reference. Securities and Exchange Commission rules require us to describe certain governmental proceedings arising under federal, state or local environmental provisions unless we reasonably believe that the proceeding will result in monetary sanctions of less than $100,000. The following proceeding is reported in response to this requirement. Based on the information presently available to us, however, we believe that the costs which may be associated with this matter will not have a materially adverse effect on Owens Corning's financial position or results of operations. Owens Corning has received information that the Ohio Environmental Protection Agency may be contemplating an enforcement action relating to our plant in Newark, Ohio. It is believed that this matter primarily involves alleged air emission violations which occurred in the early 1990's. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Owens Corning has nothing to report under this Item. - 11 - Executive Officers of Owens Corning (as of March 1, 2000) The term of office for elected officers is one year from the annual election of officers by the Board of Directors following the Annual Meeting of Stockholders in April. The name, age and business experience during the past five years of Owens Corning's executive officers as of March 1, 2000 are set forth below. All those listed have been employees of Owens Corning during the past five years except as indicated. Name and Age Position* Glen H. Hiner (65) Chairman of the Board and Chief Executive Officer since January 1992. Director since 1992. Rhonda L. Brooks (48) Vice President and President, Roofing Systems Business since January 1998; formerly Vice President, Investor Relations (1997), Vice President, Marketing, Composites (1995), and Senior Vice President and General Manager of Ply Gem Industries. David T. Brown (51) Vice President and President, Insulating Systems Business since January 1998; formerly Vice President and President, Building Materials Sales and Distribution- North America (1996), and Vice President and President, Roofing/Asphalt. Domenico Cecere (50) Senior Vice President and President, Building Materials System Business since January 1999; formerly Senior Vice President and Chief Financial Officer (1998), Vice President and President, Roofing/Asphalt (1996), and Vice President and Controller. Deyonne F. Epperson (43) Vice President and Controller since February 2000; formerly Vice President, Corporate Audit (1997), Director-level member of the Treasury Management Team, Corporate Treasury, at Honeywell (1995), and Controller, Honeywell Technology Center, at Honeywell. Richard D. Lantz (48) Vice President and President, System Thinking Sales and Distribution Business since January 1998; formerly Vice President - Marketing, Insulation Business (1997), Vice President, Marketing and Sales Support, Building Materials Sales and Distribution (1996), Vice President, Marketing, Roofing and Asphalt (1995), and Business Development Manager, Roofing and Asphalt. Robert C. Lonergan (56) Senior Vice President, Strategic Resources since January 1998; formerly Vice President and President, Building Materials Europe and Africa (1997), Vice President, Science and Technology (1995), and President, Windows Division. - 12 - Name and Age Position* Heinz-J. Otto (50) Vice President and President, Composites Systems Business since October 1996; formerly Member of the Executive Board and Head of Region Europe at Landis & Gyr Corp. headquartered in Zug, Switzerland. J. Thurston Roach (58) Senior Vice President and Chief Financial Officer since January 1999; formerly Senior Vice President and President, North America Building Materials Systems Business (1998), Vice Chairman of Simpson Investment Company (1997), President of Simpson Timber Company (1996), and Senior Vice President, Chief Financial Officer and Secretary of Simpson Investment Company. Maura Abeln Smith (44) Senior Vice President, General Counsel and Secretary since February 1998; formerly Vice President and General Counsel of GE Plastics. Michael H. Thaman (35) Vice President and President, Exterior Systems Business since January 1999; formerly Vice President and President, Engineered Pipe Systems (1997), General Manager, OEM Solutions Group (1996), and Plant Manager - Toronto, Canada. *Information in parentheses indicates year in which service in position began. - 13 - Part II ITEM 5. MARKET FOR OWENS CORNING'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The principal market on which Owens Corning's common stock is traded is the New York Stock Exchange. The high and low sales prices in dollars per share for Owens Corning's common stock as reported in the consolidated transaction reporting system for each quarter during 1999 and 1998 are set forth in the following tables. 1999 High Low 1998 High Low - ------------------------------------ -------------------------------------- First Quarter 37-5/8 28-11/16 First Quarter 37 27 Second Quarter 43-3/4 30-13/16 Second Quarter 44-1/2 34-13/16 Third Quarter 35-15/16 21-11/16 Third Quarter 46-5/8 32 Fourth Quarter 22-7/8 14-9/16 Fourth Quarter 39-15/16 25-5/8
The number of stockholders of record of Owens Corning's common stock on February 21, 2000 was 6,342. Owens Corning declared regular dividends of $.075 per share of common stock for each of the quarters of 1998 and 1999. In connection with certain of our current bank credit facilities, Owens Corning has agreed to restrictions affecting the payment of cash dividends. As of March 1, 2000, these restrictions limited funds available for the payment of cash dividends by Owens Corning to $20 million annually. - 14 - ITEM 6. SELECTED FINANCIAL DATA The following is a summary of certain financial information of the Company. 1999 1998(a) 1997(b) 1996(c) 1995(d) ------ ------- ------- ------- ------- (In millions of dollars, except per share data and where noted) Net Sales $5,048 $5,009 $4,373 $3,832 $3,612 Cost of Sales 3,824 3,944 3,482 2,840 2,670 Marketing, administrative and other expenses 587 659 572 523 444 Science and Technology expenses 59 57 69 84 78 Restructure costs - 117 68 38 - Provision for asbestos litigation claims - 1,415 - 875 - Gain on sale of assets - 359 - 37 - Income (loss) from operations 578 (824) 182 (491) 420 Cost of borrowed funds 152 140 111 77 87 Income (loss) before provision for income taxes 426 (964) 71 (568) 333 Provision (credit) for income taxes 149 (306) 9 (283) 109 Net income (loss) 270 (705) 47 (284) 231 Net income (loss) per share Basic 4.98 (13.16) .89 (5.54) 4.73 Diluted 4.67 (13.16) .88 (5.54) 4.41 Dividends per share on common stock Declared 0.3000 .3000 .2750 .1250 - Paid 0.3000 .3000 .2625 .0625 - Weighted average number of shares outstanding (in thousands) Basic 54,083 53,579 52,860 51,349 48,744 Diluted 59,452 53,579 53,546 51,349 53,918 Net cash flow from operations (28) 124 131 335 285 Capital spending 244 253 227 325 276 Total assets 6,494 5,101 4,996 3,913 3,261 Long-term debt 1,764 1,535 1,595 818 794 Average number of employees (in thousands) 20 20 22 19 17
(a) During 1998, the Company recorded a pretax charge of $1.415 billion ($906 million after-tax) for asbestos litigation claims, a pretax charge of $243 million ($171 million after- tax) for restructuring and other actions, a pretax net credit of $275 million ($165 million after-tax) from the sale of the Company's yarns and other businesses, a pretax credit of $84 million ($52 million after tax) from the sale of its ownership interest in Alpha/Owens-Corning, LLC, a $39 million after-tax extraordinary loss from the early retirement of debt, and a $10 million charge for various tax adjustments. - 15 - ITEM 6. SELECTED FINANCIAL DATA (Continued) (b) During 1997, the Company recorded a pretax charge of $143 million ($104 million after-tax) for restructuring and other actions as well as a $15 million after-tax charge for the cumulative effect of the change in method of accounting for business process reengineering costs. The incremental sales from the 1997 acquisitions were $534 million during 1997. (c) During 1996, the Company recorded a net pretax charge of $875 million ($542 million after-tax) for asbestos litigation claims that may be received after 1999 and probable additional insurance recovery; special charges totaling $42 million ($27 million after-tax) including valuation adjustments associated with prior divestitures, major product line productivity initiatives and a contribution to the Owens-Corning Foundation; a pretax charge of $43 million ($26 million after-tax) for restructuring and other actions; a $27 million reduction of tax reserves due to favorable legislation; and a pretax gain of $37 million ($27 million after-tax) from the sale of the Company's ownership interest in its former Japanese affiliate, Asahi Fiber Glass Co. Ltd. (d) During 1995, the Company recorded an $8 million tax credit as a result of a tax loss carryback. - 16 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (All per share information discussed below is on a diluted basis.) CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the statements. Some of the important factors that may influence possible differences are continued competitive factors and pricing pressures, construction activity, interest rate movements, issues involving implementation of new business systems, achievement of expected cost reductions, 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 markets. 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 systems 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. 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 has grown its sales from $3.4 billion in 1994 to over $5.0 billion in 1999 and 1998. Acquisitions have been a significant component of that growth. Between 1994 and 1997, we completed 17 acquisitions for an aggregate purchase price of over $1.2 billion. These acquisitions have broadened the products and services offered to home owners, home remodelers and home builders to include siding, accessories and other home exteriors products and have diversified the materials we utilize beyond fiber glass to include polymers such as vinyl and styrene, and metal and stone. (Please see Note 5 to the Consolidated Financial Statements.) During 1999 and 1998, we formed many alliances and partnerships to complement our existing markets. Despite the benefits of our growth agenda, we experienced a highly competitive pricing environment during 1997 and 1998. In order to improve our strategic position and operational efficiency, we implemented several profitability and productivity initiatives, including the strategic restructuring program, discussed below, which was begun in late 1997. This program, along with the realignment of our Exterior Systems business, enabled us to benefit from pretax cost reductions of approximately $142 million during 1998 and an additional $84 million during 1999. The specific objectives of this strategic program are discussed in "Restructuring of Operations and Other Actions" below and in Note 4 to the Consolidated Financial Statements. - 17 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) During 1998, the pricing environment applicable to several of our major products, particularly residential insulation, began to improve. By the end of 1998, our average price levels of insulation products surpassed the year-end 1997 levels. Despite the successful implementation of price increases during 1998, including the restoration of residential insulation prices to their late 1996 levels, income from operations during 1998 was adversely impacted by approximately $44 million, compared to 1997, due largely to the relatively low insulation pricing base in effect at the beginning of 1998, the lag in fully realizing the 1998 price increases as we honored the remainder of pre- existing pricing contracts, and price declines attributable to vinyl siding products. During 1999, Owens Corning continued to benefit from its previously implemented strategic initiatives. The cost reductions and significant pricing improvements achieved during 1998 continued throughout 1999. Pricing improvements during 1999, particularly in residential insulation, resulted in approximately a $140 million increase in income from operations compared to 1998. Years Ended December 31, 1999, 1998 and 1997 - -------------------------------------------- Sales and Profitability - ----------------------- Net sales for the year ended December 31, 1999 were $5.048 billion, up slightly from $5.009 billion in 1998. Net sales in 1997 were $4.373 billion. The sales increase reflects the incremental benefits of acquisitions; continued strength in the North American Building Materials Business; higher volume, offset partially by price weakness, in the Composite Systems Business; and the transfer of Owens Corning's yarns business to an unconsolidated joint venture at the end of the third quarter of 1998. On a comparative basis, excluding the yarns and other divested businesses in 1998, sales during 1999 were up 6% from the 1998 level. The impact of currency translation on sales in foreign currencies was slightly unfavorable during 1999, compared to 1998, reflecting a stronger U.S. dollar during 1999. Please see Note 1 to the Consolidated Financial Statements. In the Building Materials Systems business, sales during 1999 reflect the continued strength in the U.S. roofing and insulation markets. We continue to benefit from improved pricing of many of our products, particularly residential insulation. Please see "Building Materials Systems" below for further discussion of these matters. In the Composites Business, sales reflect a reduction attributable to the transfer of our yarns business indicated above. Composites sales also reflect volume increases in the U.S. and Europe, offset partially by the impact of pricing pressure, particularly in Europe. Please see "Composite Systems" below for further discussion of these matters. Sales outside the U.S. represented 19% of total sales for the year ended December 31, 1999, compared to 20% during 1998 and 24% for 1997. The relative decline in non-U.S. sales is largely due to the 1999 sales increases attributable to U.S. roofing and insulation products. Gross margin for the year ended December 31, 1999 was 24% of net sales, compared to 21% and 20% in 1998 and 1997, respectively. Gross margin during 1998 and 1997 reflected a charge of $65 million and $38 million, respectively, for costs associated with Owens Corning's strategic restructuring program. The increase in gross margin in 1999 also reflects price increases applicable to several of our products and the incremental benefits of the cost reductions resulting from the strategic restructuring program. - 18 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) For the year ended December 31, 1999, Owens Corning reported net income of $270 million, or $4.67 per share, compared to a net loss of $705 million, or $13.16 per share, for the year ended December 31, 1998 and net income of $47 million, or $.88 per share, for the year ended December 31, 1997. Net income in 1999 reflects the increase in gross margin, attributable partially to volume but primarily to pricing improvements, particularly in U.S. residential insulation markets, and the incremental benefits of the cost-saving programs implemented throughout 1999 and 1998. Net income in 1999 also reflects a tax credit of approximately $13 million for a special tax election associated with U.K. operations. During 1999, cost of borrowed funds was $152 million, up $12 million from 1998. The increase is primarily the result of higher average debt outstanding. Marketing and administrative expenses totaled $592 million, up slightly from the 1998 level, resulting from growth funding and partially offset by incremental restructuring benefit. The net loss in 1998 included a $1.415 billion pretax charge ($906 million after-tax) for asbestos litigation claims, a $243 million pretax charge ($171 million after-tax) for restructuring and other actions and a $359 million pretax gain ($217 million after-tax) from the sale of certain businesses. Also included were manufacturing and operating expense reductions, resulting from the strategic restructuring program. Cost of borrowed funds during 1998 was $140 million, $29 million higher than the 1997 level, due to higher levels of average debt, offset partially by a reduction in average interest rates during 1998. The reduction in equity in net income of affiliates for the year ended December 31, 1998 reflects the first quarter 1998 sale of Owens Corning's 50 percent ownership interest in Alpha/Owens Corning, LLC. As part of a debt realignment strategy, we repurchased, via a tender offer, certain debt securities during the third quarter of 1998 and recorded an extraordinary loss of $39 million, or $.72 per share, net of related income taxes of $25 million. Please see Notes 2, 4, 5 and 22 to the Consolidated Financial Statements. Net income for the year ended December 31, 1997 was $47 million, or $.88 per share, and reflected the adverse impact of lower prices in insulation and composites worldwide compared to 1996. Net income for 1997 also included a pretax charge of $143 million ($104 million after-tax) for restructuring and other actions; a $15 million credit ($10 million after-tax) resulting from the modification of certain employee benefits in the second quarter of 1997; and a $15 million after-tax charge for the cumulative effect of the change in method of accounting for business process reengineering costs. Please see Notes 4, 6 and 8 to the Consolidated Financial Statements. Restructuring of Operations and Other Actions - --------------------------------------------- Please see also Note 4 to the Consolidated Financial Statements. During the first and third quarters of 1998, Owens Corning recorded a total pretax charge of $243 million for restructuring and other actions as part of a strategic restructuring program to reduce overhead, enhance manufacturing productivity, and close manufacturing facilities, which was announced in early 1998. This charge included $117 million for restructuring and $126 million for other actions in 1998, the majority of which represented asset impairments. On a cumulative basis since the fourth quarter of 1997, Owens Corning has recorded a total pretax charge of $386 million for this program, of which $185 million represented restructure costs and $201 million represented other actions. - 19 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The $117 million restructuring charge in 1998 included approximately $90 million for costs associated with the elimination of approximately 1,900 positions worldwide and $27 million for the divestiture of non-strategic businesses and facilities, of which $3 million represented exit cost liabilities, comprised primarily of lease commitments. The $27 million charge for non-strategic businesses and facilities included $12 million for the closure of certain U.S. manufacturing facilities, $6 million for the closure of a pipe manufacturing facility in China, and $9 million for other actions. The primary components of the $126 million charge for other actions in 1998 and their classification on our consolidated statement of income included: $30 million to write down to fair value certain manufacturing assets held for use in China, due primarily to poor current and projected financial results at that time, recorded as cost of sales; $15 million to write down to net realizable value equipment and inventory made obsolete by changes in our manufacturing and marketing strategies, recorded as cost of sales; $17 million for the write-down of an investment in and the write-off of a receivable from a joint venture in Korea to reflect the business outlook at that time and the fair market value of the assets, recorded as other operating expenses; $12 million for the write-down of goodwill associated with a 1995 acquisition, determined to be unrecoverable due to a change in market conditions and customer demand, recorded as other operating expenses; and $9 million for the write-down of certain assets in the U.S. to fair market value, recorded as cost of sales. Owens Corning plans to hold and use the investments but disposed of most of the equipment in 1998. Also included in the $126 million charge for other actions were $13 million for the write-off of certain receivables in the U.S. and Asia determined to be uncollectable, recorded as cost of sales and other operating expenses; and $30 million for other actions recorded as cost of sales, marketing and administrative expenses, and other operating expenses. During the fourth quarter of 1997, we recorded a $143 million pretax charge for restructuring and other actions as the first phase of the strategic restructuring program. The $143 million pretax charge was comprised of a $68 million charge associated with the restructuring of our 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 representing severance costs associated with the elimination of nearly 550 positions worldwide; $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. The components of the $75 million of other actions during 1997 and their classification on Owens Corning's consolidated statement of income included: $17 million for the write-off of certain assets and investments associated with unconsolidated joint ventures in Spain and Argentina due primarily to poor current and projected financial results and the expected loss of local partners, recorded as operating expenses; $12 million for the write-down of certain investments in mainland China to reflect the current business outlook at that time and the fair market value of the investments, recorded as cost of sales; $24 million to write-down to net realizable value equipment and inventory - 20 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) made obsolete by changes in our manufacturing and marketing strategies, recorded as cost of sales; $8 million for a supplemental employee retirement plan approved by the Board of Directors in December 1997, recorded as marketing and administrative expenses; $5 million for the write-off of an insurance receivable that was determined to be uncollectable after judicial rejection of the claim, recorded as other operating expenses; and $9 million for several other actions recorded as cost of sales, marketing and administrative expenses, and other operating expenses. Owens Corning plans to hold and use the investments but disposed of the equipment in 1998. As indicated above, certain of the charges recorded during 1998 and 1997 represented valuation adjustments associated with asset impairments. We continually evaluate 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, we use 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, we use the fair market value of the asset, usually measured by the discounted cash flows to be generated by the asset, to determine the amount of the impairment to be recorded in the financial statements. As a result of the strategic restructuring program, Owens Corning realized a decrease in manufacturing and operating expenses of approximately $110 million during 1998 and an additional $61 million in 1999. The $171 million in pretax cost reductions, the majority of which have been cash savings, is comprised of approximately $145 million in reduced personnel costs, approximately $15 million in reduced facility costs, and approximately $11 million of reductions in related program spending. We have also realized additional cost savings during 1999 resulting from improved logistics and materials sourcing. Owens Corning also implemented programs to gain synergies in our Exterior Systems Business during 1998. As a result of these programs, which included closing redundant facilities, integrating business systems, and improving purchasing leverage, we reduced costs by approximately $32 million during 1998 and an additional $23 million in 1999, the majority of which have been cash savings. Building Materials Systems - -------------------------- In the Building Materials Systems segment, sales increased 5% in 1999, compared to 1998, largely reflecting volume and price improvements attributable to U.S. residential insulation products as well as in the vinyl siding market. Price improvements in the North American roofing market during 1999 were offset by volume declines in that market. The impact of sales denominated in foreign currencies was unfavorable during 1999, compared to 1998, reflecting a stronger U.S. dollar during 1999. Income from operations was $437 million during 1999, compared to $266 million during 1998. Income from operations in 1999 reflects price increases in the residential insulation market as well as incremental cost reductions resulting from the strategic restructuring program. Please see Note 1 to the Consolidated Financial Statements. - 21 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Composite Systems - ----------------- In the Composite Systems segment, sales were down 12% during 1999, compared to 1998, due largely to the disposition (discussed below) of 51% of Owens Corning's yarns and specialty materials business (the "yarns business") late in the third quarter of 1998. Adjusted for the impact of this disposition, sales were up 6% during 1999, compared to 1998, due to volume increases in the U.S., driven by strong roofing mat sales, and in Europe, particularly in reinforcements. The translation impact of sales denominated in foreign currencies was unfavorable during 1999, reflecting a stronger U.S. dollar. Income from operations was $159 million in 1999, compared to $208 million in the prior-year period. Approximately one-fourth of the 1998 income was attributable to the yarns business. Adjusted for the disposition of the yarns business, income from operations during 1999 increased 5% compared to 1998, reflecting pricing weakness, particularly in Europe. We expect business conditions in Europe to remain highly competitive during 2000. Please see Note 1 to the Consolidated Financial Statements. During the third quarter of 1998, we formed a joint venture for our yarns business to which we contributed two manufacturing plants and certain proprietary technology. On September 30, 1998, we completed the disposition of 51% of the yarns business to a U.S. subsidiary of Groupe Porcher Industries of Badinieres, France for $340 million. We continue to have a 49% ownership interest in the joint venture. Upon closing, we also received a distribution of approximately $193 million from the joint venture. By retaining a 49% ownership interest in the joint venture, we will continue to safeguard our proprietary technology and participate in the yarns market. Please see Note 5 to the Consolidated Financial Statements. The results of operations of the yarns business were reflected in our consolidated statement of income through the period ending September 30, 1998. For the nine months ended September 30, 1998, the yarns business recorded sales of approximately $205 million and income from operations of approximately $57 million. Effective September 30, 1998, we account for our ownership interest in the yarns joint venture under the equity method. Accounting Changes - ------------------ In June 1998, the Financial Accounting Standards Board (FASB) 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. - 22 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 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 substantially completed an inventory of our freestanding derivatives, including forward contracts, option contracts, currency swaps and interest rate swaps, and have begun an inventory of derivatives which may be embedded in other contracts. We plan to complete these inventories, estimate the financial impact of adoption, evaluate existing risk management activities, and perform an information systems assessment by the end of the second quarter of 2000. 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 $28 million for the year ended December 31, 1999, compared to $124 million for the year ended December 31, 1998. Compared to 1998, cash flow from operations in 1999 reflects an increase in payments for asbestos litigation claims, net of insurance. The increase in payments for asbestos litigation claims reflects Owens Corning's implementation of the National Settlement Program (NSP) in the fourth quarter of 1998. During 1999, payments for asbestos litigation claims were $860 million and proceeds from insurance were $180 million, compared to $455 million and $47 million, respectively, during 1998. This increase in payments for asbestos litigation claims, net of insurance, was offset, in part, by increased earnings and the favorable impact of a decline in receivables during 1999 compared to 1998. Please see Note 22 to the Consolidated Financial Statements. Inventories at December 31, 1999 were $466 million, an increase of $29 million from an unusually low level at December 31, 1998. Receivables at December 31, 1999 were $358 million, a $93 million decrease from the December 31, 1998 level, resulting from strong year-end collection efforts. The decrease in accounts payable and accrued liabilities from $942 million at December 31, 1998 to $839 million at December 31, 1999 reflects asbestos-related payments of $80 million as well as spending associated with restructure liabilities during the year. At December 31, 1999, our net working capital was negative $828 million and our current ratio was .72, compared to negative $354 million and .81, respectively, at December 31, 1998. This decline in net working capital is largely attributable to a decrease in accounts receivable, as described above, as well as a $225 million increase in the current portion of the reserve for asbestos litigation claims, net of insurance, partially offset by the related income tax benefit. The increase in the current portion of the reserve for asbestos litigation claims reflects the implementation of the NSP. Owens Corning's total borrowings at December 31, 1999 were $1.991 billion, $365 million higher than at year-end 1998. The increase reflects additional cash requirements related to the asbestos claims paid during 1999 under the NSP, offset in part by a favorable increase in cash flow from operations attributable to improved working capital management. As of December 31, 1999, we had unused lines of credit of $1.239 billion available under long- term bank credit facilities and an additional $174 million under short-term facilities, compared to $1.307 billion and $124 million, respectively, at year-end 1998. The decrease in unused long-term available lines of credit reflects increased borrowings at December 31, 1999 compared to December 31, 1998. Additionally, letters of credit issued under the long-term bank facility also reduce the available credit. The increase in unused short-term available lines of credit results from a $50 million increase in the credit available under short-term facilities. Please see Notes 2 and 3 to the Consolidated Financial Statements. - 23 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) During 1998, Owens Corning implemented a debt realignment program intended to reduce financing costs. This program, which extended the average length of term debt from four years to ten years, included the issuance of a total of $950 million in new debt securities, the repurchase of $309 million of Trust Preferred Hybrid Securities and the retirement of $361 million of higher- rate debt securities. During the first quarter of 1999, we issued $250 million of debt securities, the proceeds of which were used to reduce borrowings under the long-term bank credit facility. Capital spending for property, plant and equipment, excluding acquisitions, was $244 million in 1999. Owens Corning anticipates that 2000 capital spending, exclusive of acquisitions and investments in affiliates, will be approximately $300 million, most 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 Notes 17 and 22 to the Consolidated Financial Statements. Owens Corning has implemented the NSP, which, as of December 31, 1999, has settled approximately 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 present claims will generally be made through 2002, 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 2001. 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: 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
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 22 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. - 24 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Gross payments for asbestos litigation claims during 1999 by Owens Corning (excluding Fibreboard), including payments for claims settled in prior years, were $860 million. Proceeds from insurance were $180 million, resulting in a net pretax cash outflow of $680 million. During 2000, the total payments for asbestos litigation claims by Owens Corning (excluding Fibreboard) are expected to be approximately $950 million. Proceeds from insurance of $25 million are expected to be available to cover these costs, resulting in a net pretax cash outflow of $925 million. Owens Corning currently estimates that it (excluding Fibreboard) will incur total asbestos payments before tax and application of insurance recoveries of approximately $400 million in 2001 and $250 million in 2002. 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 December 31, 1999, 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 December 31, 1999, $1,838 million was held in the Fibreboard Settlement Trust. 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 which ultimately are not used to fund Fibreboard's asbestos liabilities must be distributed to charity. Funds held in the Fibreboard Settlement Trust 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 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. 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 December 31, 1999, Owens Corning estimates Fibreboard's asbestos related liabilities at $1,750 million, with a residual obligation to charity of $88 million. See Note 23 to the Consolidated Financial Statements for additional information concerning the Fibreboard Settlement Trust. Gross payments for asbestos litigation claims against Fibreboard during 1999 were approximately $136 million, all of which were paid/reimbursed by Fibreboard's insurers or the Fibreboard Settlement Trust. Owens Corning currently estimates that Fibreboard - 25 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) will incur total asbestos payments of approximately $900 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-term and short-term bank credit facilities, liability insurance policies, and the Fibreboard Settlement Trust, to be sufficient to meet its liquidity requirements. 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 1999, we were designated as a PRP in such federal, state, local or private proceedings for 10 additional sites. At December 31, 1999, a total of 46 such PRP designations remained unresolved. We are also involved with environmental investigation or remediation at a number of other sites at which it has not been designated a PRP. We have established a $29 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 and for amino/phenolic resin in January, 2000. We anticipate that our other sources to be regulated will be secondary aluminum smelting, 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 it emits, we do not expect the Act to have a materially adverse effect on our results of operations, financial condition or long-term liquidity. Year 2000 Readiness - ------------------- Background - ---------- Some of our existing information technology ("IT") systems and control systems containing embedded technology such as processors, controllers and microchips ("Non-IT") were originally programmed using two digits rather than four digits to define the applicable year. As a result, such systems, if they had not been remediated, may have experienced miscalculations or disruptions when processing information containing dates that fall after December 31, 1999 or other dates that could cause computer malfunctions (the "Year 2000 Issue"). - 26 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) State of Readiness - ------------------ In recognition of the significance of the Year 2000 Issue, we formed a senior management team representing business units and business process functions including information technology, sourcing, customer relations, logistics, facilities, and legal. This team oversaw our efforts to assess and resolve the Year 2000 Issue. In addition, individual organizational units developed, and implemented, Year 2000 plans. These plans included assessments of all of our IT and Non-IT systems, and an evaluation of the external environment to identify significant exposure areas and to develop appropriate remediation or other risk management approaches. We also developed business continuity plans to help assure that all of our operations were prepared in the case of an unexpected system, supplier or customer failure. Transition to the Year 2000 - --------------------------- As a result of the assessments and preparations performed over the past five years, we experienced no failures of our IT or Non- IT systems which could have resulted in an interruption of production or service to its customers. The few minor failures that did occur were of only a nuisance level nature and were corrected and resolved within hours of their occurrence. Costs - ----- The cumulative cost of systems replacement, Year 2000 remediation, and regular update from 1995 through 1999 was approximately $160 million, including technology, design and development, and related training and deployment in business locations. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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 our investments in certain foreign subsidiaries, to hedge the principal and interest payments of certain debt instruments, and to manage our 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. - 27 - ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued) We use a variance-covariance Value at Risk (VAR) computation model to estimate the potential loss in the fair value of our interest rate-sensitive financial instruments and our foreign currency-sensitive financial instruments. The VAR model uses historical foreign exchange rates and interest rates as an estimate of the volatility and correlation of these rates in future periods. It estimates a loss in fair market value using statistical modeling techniques. The amounts presented below represent the maximum potential one- day loss in fair value that we would expect from adverse changes in foreign currency exchange rates or interest rates assuming a 95% confidence level: December 31, December 31, Risk Category 1999 1998 - ------------- ---- ---- (In millions of dollars) Foreign currency $ - $1 Interest rate $ 6 $8 Virtually all of the potential loss associated with interest rate risk is attributable to fixed-rate long-term debt instruments. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Pages 31 through 89 hereof are incorporated here by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Owens Corning has nothing to report under this Item. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF OWENS CORNING The information required by this Item is incorporated by reference from Owens Corning's 2000 Proxy Statement except that certain information concerning Owens Corning's executive officers is included on pages 11 through 12 hereof. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference from Owens Corning's 2000 Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference from Owens Corning's 2000 Proxy Statement. - 28 - ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference from Owens Corning's 2000 Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) DOCUMENTS FILED AS PART OF THIS REPORT 1. See Index to Financial Statements on page 30 hereof 2. See Index to Financial Statement Schedules on page 90 hereof 3. See Exhibit Index beginning on page 92 hereof Management contracts and compensatory plans and arrangements required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K are denoted in the Exhibit Index by an asterisk ("*"). (b) REPORTS ON FORM 8-K During the fourth quarter of 1999, Owens Corning filed the following current report on Form 8-K: - Dated October 14, 1999, under Item 5, "Other Events" and Item 7, "Financial Statements and Exhibits" - 29 - Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OWENS CORNING By /s/ Glen H. Hiner Date 3/10/2000 Glen H. Hiner, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Glen H. Hiner Date 3/10/2000 Glen H. Hiner, Chairman of the Board, Chief Executive Officer and Director /s/ J. Thurston Roach Date 3/13/2000 J. Thurston Roach, Senior Vice President and Chief Financial Officer /s/ Deyonne F. Epperson Date 3/13/2000 Deyonne F. Epperson, Vice President and Controller /s/ Curtis H. Barnette Date 3/13/2000 Curtis H. Barnette, Director Date Norman P. Blake, Jr., Director /s/ Gaston Caperton Date 3/12/2000 Gaston Caperton, Director /s/ Leonard S. Coleman, Jr. Date 3/13/2000 Leonard S. Coleman, Jr., Director /s/ William W. Colville Date 3/11/2000 William W. Colville, Director /s/ Landon Hilliard Date 3/13/2000 Landon Hilliard, Director Date Jon M. Huntsman, Jr., Director /s/ Ann Iverson Date 3/14/2000 Ann Iverson, Director /s/ W. Walker Lewis Date 3/12/2000 W. Walker Lewis, Director /s/ Furman C. Moseley, Jr. Date 3/13/2000 Furman C. Moseley, Jr., Director /s/ W. Ann Reynolds Date 3/13/2000 W. Ann Reynolds, Director - 30 - INDEX TO FINANCIAL STATEMENTS ------------------------------ Item Page - ---- ---- Report of Independent Public Accountants......................31 Summary of Significant Accounting Policies...............32 - 33 Consolidated Statement of Income - for the years ended December 31, 1999, 1998 and 1997............34 - 35 Consolidated Statement of Comprehensive Income - for the years ended December 31, 1999, 1998 and 1997.........36 Consolidated Balance Sheet - December 31, 1999 and 1998..37 - 38 Consolidated Statement of Stockholders' Equity - for the years ended December 31, 1999, 1998 and 1997.........39 Consolidated Statement of Cash Flows - for the years ended December 31, 1999, 1998 and 1997..................40 - 41 Notes to Consolidated Financial Statements Notes 1 through 24......................................42 - 89 - 31 - REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Stockholders of Owens Corning: We have audited the accompanying consolidated balance sheet of OWENS CORNING (a Delaware corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Owens Corning and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. As discussed in Note 6 to the consolidated financial statements, during the fourth quarter of 1997, the Company changed its method of accounting for business process reengineering costs. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the Index to Financial Statement Schedules is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP January 24, 2000 Toledo, Ohio - 32 - OWENS CORNING AND SUBSIDIARIES ------------------------------ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ Principles of Consolidation Owens Corning and subsidiaries' (the "Company") consolidated financial statements include the accounts of majority owned subsidiaries, unless ownership is considered temporary. Intercompany accounts and transactions are eliminated. Net Income per Share Basic net income per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income per share reflects the dilutive effect of common equivalent shares and increased shares that would result from the conversion of debt and equity securities. The effects of anti-dilution are not presented. Unless otherwise indicated, all per share information included in the Notes to the Consolidated Financial Statements is presented on a diluted basis. Inventory Valuation Inventories are stated at cost, which is less than market value, and include material, labor and manufacturing overhead. The majority of U.S. inventories are valued using the last-in, first-out (LIFO) method and the balance of inventories are generally valued using the first-in, first-out (FIFO) method. Goodwill Goodwill is carried at cost, less accumulated amortization, and is amortized on a straight-line basis over a period of forty years. The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of goodwill may warrant revision or that the remaining balance may not be recoverable. When factors indicate that goodwill should be evaluated for possible impairment, the Company uses an estimate of the undiscounted cash flows of the related business over the remaining life of the goodwill in assessing whether the goodwill is recoverable. Investments in Affiliates Investments in affiliates are accounted for using the equity method, under which the Company's share of earnings of these affiliates is reflected in income as earned and dividends are credited against the investment in affiliates when received. Capitalization of Software Developed for Internal Use The Company capitalizes the direct external and internal costs incurred in connection with the development, testing and installation of software for internal use. Internally developed software is included in plant and equipment and is amortized over its estimated useful life using the straight-line method. - 33 - OWENS CORNING AND SUBSIDIARIES ------------------------------ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ (Continued) Depreciation For assets placed in service prior to January 1, 1992, the Company's plant and equipment is depreciated primarily using the double-declining balance method for the first half of an asset's estimated useful life and the straight-line method is used thereafter. For assets placed in service after December 31, 1991, the Company's plant and equipment is depreciated using the straight-line method. Derivative Financial Instruments Gains and losses on hedges of existing assets or liabilities are included in the carrying amount of those assets or liabilities and are ultimately recognized in income as part of those carrying amounts. Gains and losses on hedges of net investments in foreign subsidiaries are included in stockholders' equity. Gains and losses related to qualifying hedges of firm commitments or anticipated transactions also are deferred and are recognized in income or as adjustments of carrying amounts when the hedged transaction occurs. Gains and losses on forward currency exchange contracts that do not qualify as hedges are recognized as other income or expense. Stock Based Compensation Plans The Company applies Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123) for disclosures of its stock based compensation plans. The Company applies Accounting Principles Board Opinion No. 25 and related Interpretations for expense recognition as permitted by SFAS 123. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain reclassifications have been made to 1998 and 1997 to conform with the classifications used in 1999. - 34 - OWENS CORNING AND SUBSIDIARIES ------------------------------ CONSOLIDATED STATEMENT OF INCOME --------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 ---------------------------------------------------- 1999 1998 1997 ---- ---- ---- (In millions of dollars, except share data) NET SALES $ 5,048 $ 5,009 $ 4,373 COST OF SALES 3,824 3,944 3,482 ------- ------- -------- Gross margin 1,224 1,065 891 ------- ------- -------- OPERATING EXPENSES Marketing and administrative expenses 592 587 544 Science and technology expenses (Note 12) 59 57 69 Provision for asbestos litigation claims (Note 22) - 1,415 - Restructure costs (Note 4) - 117 68 Other (Note 4) (5) 72 28 ------- ------- -------- Total operating expenses 646 2,248 709 ------- ------- -------- Gain on sale of assets (Note 5) - 359 - INCOME (LOSS) FROM OPERATIONS 578 (824) 182 OTHER Cost of borrowed funds (Notes 2, 3 and 21) 152 140 111 Other (Note 23) - - - -------- ------- -------- INCOME (LOSS) BEFORE PROVISION (CREDIT) FOR INCOME TAXES 426 (964) 71 Provision (credit) for income taxes (Note 11) 149 (306) 9 -------- ------- -------- INCOME (LOSS) BEFORE MINORITY INTEREST AND EQUITY IN NET INCOME (LOSS) OF AFFILIATES 277 (658) 62 Minority interest (Notes 7 and 8) (6) (16) (11) Equity in net income (loss) of affiliates (Note 15) (1) 8 11 ------- ------- -------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 270 (666) 62 Extraordinary loss (Note 2) - (39) - Cumulative effect of accounting - - (15) change (Note 6) -------- ------- -------- NET INCOME (LOSS) $ 270 $(705) $ 47 ======== ======= ========
The accompanying summary of significant accounting policies and notes are an integral part of this statement. - 35 - OWENS CORNING AND SUBSIDIARIES ----------------------------- CONSOLIDATED STATEMENT OF INCOME --------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 ---------------------------------------------------- (Continued) 1999 1998 1997 ---- ---- ---- (In millions of dollars, except share data) NET INCOME PER COMMON SHARE (Note 19) Basic: Income (loss) before extraordinary item and cumulative effect of accounting change $ 4.98 $(12.44) $ 1.18 Extraordinary loss (Note 2) - (.72) - Cumulative effect of accounting change (Note 6) - - (.29) -------- --------- --------- Net Income (Loss) per Share $ 4.98 $(13.16) $ .89 ======== ========= ========= Diluted: Income (loss) before extraordinary item and cumulative effect of accounting change $ 4.67 $ (12.44) $ 1.17 Extraordinary loss (Note 2) - (.72) - Cumulative effect of accounting change (Note 6) - - (.29) -------- --------- --------- Net Income (Loss) per Share $ 4.67 $(13.16) $ .88 ======== ========= ========= Weighted average number of common shares outstanding and common equivalent shares during the period (in millions) Basic 54.1 53.6 52.9 Diluted 59.5 53.6 53.5
The accompanying summary of significant accounting policies and notes are an integral part of this statement. - 36 - OWENS CORNING AND SUBSIDIARIES ------------------------------ CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ----------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 ------------------------------------------------------ 1999 1998 1997 ---- ---- ---- (In millions of dollars) Net Income (Loss) $ 270 $ (705) $ 47 Other comprehensive income, net of tax: Foreign currency translation adjustments (21) 6(a) (46) Minimum pension liability adjustment (net of taxes of $1 million in 1999 and 1998) 2 1 - Hedging gains/(losses) 5 (4) 10 ------- ------- ------- Other comprehensive income (loss) (14) 3 (36) ------- ------- ------- Comprehensive income (loss) $ 256 $ (702) $ 11 ====== ======= =======
(a) Includes certain reclassifications to net income due to the sale or disposition of certain businesses, the impact of which was not material to other comprehensive income. The accompanying summary of significant accounting policies and notes are an integral part of this statement. - 37 - OWENS CORNING AND SUBSIDIARIES ------------------------------ CONSOLIDATED BALANCE SHEET - DECEMBER 31, 1999 AND 1998 ------------------------------------------------------- 1999 1998 ---- ---- ASSETS (In millions of - ------ dollars) CURRENT Cash and cash equivalents $ 70 $ 54 Restricted securities - Fibreboard - current portion (Note 23) 900 - Receivables, less allowances of $26 million in 1999 and $23 million in 1998 (Note 13) 358 451 Inventories (Note 14) 466 437 Insurance for asbestos litigation claims - current portion Note 22) 25 150 Deferred income taxes (Note 11) 185 293 Income tax receivable (Note 11) 61 117 Other current assets 23 27 ------ ------ Total current 2,088 1,529 ------- ------ OTHER Insurance for asbestos litigation claims (Note 22) 205 260 Restricted securities - Fibreboard (Note 23) 938 - Asbestos costs to be reimbursed - Fibreboard (Note 22) - 74 Deferred income taxes (Note 11) 547 608 Goodwill, less accumulated amortization of $97 million in 1999 and $78 million in 1998 Notes 4 and 5) 743 762 Investments in affiliates (Notes 4 and 15) 65 45 Other noncurrent assets (Note 10) 208 205 ------ ------ Total other 2,706 1,954 ------- ------- PLANT AND EQUIPMENT, at cost Land 70 64 Buildings and leasehold improvements 725 701 Machinery and equipment 2,639 2,476 Construction in progress 258 257 ------ ------ 3,692 3,498 Less: Accumulated depreciation (1,992) (1,880) ------- ------- Net plant and equipment 1,700 1,618 ------- ------ TOTAL ASSETS $6,494 $5,101 ======= =======
The accompanying summary of significant accounting policies and notes are an integral part of this statement. - 38 - OWENS CORNING AND SUBSIDIARIES ------------------------------ CONSOLIDATED BALANCE SHEET - DECEMBER 31, 1999 AND 1998 -------------------------------------------------------- (Continued) 1999 1998 ---- ---- LIABILITIES AND STOCKHOLDERS' EQUITY (In millions of - ------------------------------------ dollars) CURRENT Accounts payable and accrued liabilities (Note 16) $ 839 $ 942 Reserve for asbestos litigation claims - current portion (Note 22) 950 850 Asbestos related liabilities - Fibreboard - - current portion (Note 23) 900 - Short-term debt (Note 3) 68 69 Long-term debt - current portion (Note 2) 159 22 ------ ------ Total current 2,916 1,883 ------ ------ LONG-TERM DEBT (Note 2) 1,764 1,535 ------ ------ OTHER Reserve for asbestos litigation claims (Note 22) 820 1,780 Asbestos related liabilities - Fibreboard (Note 23) 938 79 Other employee benefits liability (Note 9) 318 326 Pension plan liability (Note 10) 42 55 Other 339 364 ------ ------ Total other 2,457 2,604 ------ ------ COMMITMENTS AND CONTINGENCIES (Notes 18, 21 and 22) COMPANY OBLIGATED SECURITIES OF ENTITIES HOLDING SOLELY PARENT DEBENTURES (Notes 7 and 8) 194 194 ------ ------ MINORITY INTEREST 44 19 ------- ------- STOCKHOLDERS' EQUITY Preferred stock, no par value; authorized 8 million shares, none outstanding (Note 20) Common stock, par value $.10 per share; authorized 100 million shares; issued 1999 - 54.8 million and 1998 - 54.3 million shares (Notes 5 and 19) 695 679 Deficit (1,510) (1,762) Accumulated other comprehensive income (51) (37) Other (Note 19) (15) (14) ------- ------- Total stockholders' equity (881) (1,134) ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' $6,494 $5,101 EQUITY ======= =======
The accompanying summary of significant accounting policies and notes are an integral part of this statement. - 39 - OWENS CORNING AND SUBSIDIARIES ------------------------------ CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY ---------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 ---------------------------------------------------- 1999 1998 1997 ---- ---- ---- COMMON STOCK (In millions of dollars) Balance beginning of year $679 $ 657 $ 606 Issuance of stock for: Acquisitions (Note 5) - - 16 Awards under stock compensation plans (Note 19) 16 22 35 -------- -------- ------ Balance end of year 695 679 657 -------- -------- ------ DEFICIT Balance beginning of year (1,762) (1,041) (1,072) Net income (loss) 270 (705) 47 Cash dividends declared (18) (16) (16) -------- --------- ------- Balance end of year (1,510) (1,762) (1,041) -------- --------- ------- ACCUMULATED OTHER COMPREHENSIVE INCOME Balance beginning of year Currency translation adjustment (41) (47) (1) Minimum pension liability (2) (3) (3) adjustment Deferred gains (losses) on hedges 6 10 - -------- --------- ------- (37) (40) (4) Adjustments Currency translation adjustment (21) 6 (46) Minimum pension liability 2 1 - adjustment Deferred gains (losses) on hedges 5 (4) 10 -------- --------- ------- (14) 3 (36) Balance end of year Currency translation adjustment (62) (41) (47) Minimum pension liability - (2) (3) adjustment Deferred gains (losses) on hedges 11 6 10 -------- --------- ------- Balance end of year (51) (37) (40) -------- --------- ------- OTHER Balance beginning of year (14) (17) (14) Net increase (decrease) (1) 3 (3) ------- -------- ------- Balance end of year (15) (14) (17) ------- -------- ------- STOCKHOLDERS' EQUITY $(881) $(1,134) $ (441) ======= ======== =======
The accompanying summary of significant accounting policies and notes are an integral part of this statement. - 40 - OWENS CORNING AND SUBSIDIARIES ------------------------------ CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------ FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 ---------------------------------------------------- 1999 1998 1997 ---- ---- ---- (In millions of dollars) NET CASH FLOW FROM OPERATIONS Net income (loss) $ 270 $ (705) $ 47 Reconciliation of net cash provided by operating activities: Noncash items: Provision for asbestos litigation claims (Note 22) - 1,415 - Extraordinary loss from early retirement of debt (Note 2) - 39 - Cumulative effect of accounting change (Note 6) - - 15 Provision for depreciation and amortization 210 197 173 Provision (credit) for deferred income taxes (Note 11) 163 (416) 110 Gain on sale of assets (Note 5) - (359) - Other (Note 4) (2) 122 49 (Increase) decrease in receivables (Note 13) 112 (58) 57 (Increase) decrease in inventories (25) 16 60 Increase (decrease) in accounts payable and accrued liabilities (113) 120 (60) Disbursements of VEBA trust - - 19 Proceeds from insurance for asbestos litigation claims, excluding Fibreboard (Note 22) 180 47 97 Payments for asbestos litigation claims, excluding Fibreboard (Note 22) (860) (455) (300) Proceeds from Fibreboard Settlement Trust as reimbursed for claims paid (Note 23) 22 - - Payments for Fibreboard asbestos litigation claims paid directly by the Company and reimbursed by the Fibreboard (22) - - Settlement Trust (Note 23) Other 37 161 (136) ------- ------- -------- Net cash flow from operations (28) 124 131 ------- ------- -------- NET CASH FLOW FROM INVESTING Additions to plant and equipment (244) (253) (227) Investment in subsidiaries, net of cash acquired (Note 5) (1) - (564) Proceeds from the sale of affiliate or business (Notes 5 and 15) - 668 - Other 20 (33) (8) ------- ------- -------- Net cash flow from investing $(225) $ 382 $ (799) ------- ------- --------
The accompanying summary of significant accounting policies and notes are an integral part of this statement. - 41 - OWENS CORNING AND SUBSIDIARIES ------------------------------ CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 ---------------------------------------------------- (Continued) 1999 1998 1997 ---- ---- ---- NET CASH FLOW FROM FINANCING (Notes 2, 3 and 8) Net additions (reductions) to long- term credit facilities $ 91 $ (635) $ 796 Other additions to long-term debt 253 971 108 Other reductions to long-term debt (38) (494) (133) Net increase (decrease) in short- term debt (24) 41 (81) Repurchase of trust preferred hybrid securities - (309) - Premiums paid for early retirement of debt - (62) - Dividends paid (16) (16) (14) Other 2 (4) 6 ------- ------- ------- Net cash flow from financing 268 (508) 682 ------- ------- ------- Effect of exchange rate changes on 1 (2) (1) cash ------- ------- ------- Net increase (decrease) in cash and 16 (4) 13 cash equivalents Cash and cash equivalents at beginning 54 58 45 of year ------- ------- ------ Cash and cash equivalents at end of $ 70 $ 54 $ 58 year ======= ======= =======
The accompanying summary of significant accounting policies and notes are an integral part of this statement. - 42 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- 1. Segment Data In accordance with Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," the Company has identified two reportable operating segments and has reported financial and descriptive information about each of those segments below on a basis that is used internally for evaluating segment performance and deciding how to allocate resources to those segments. The Company's two reportable operating segments are defined as follows: Building Materials - ------------------ Production and sale of glass wool fibers formed into thermal and acoustical insulation and air ducts; extruded polystyrene insulation; roofing shingles and asphalt materials; windows and doors; vinyl and metal siding and accessories; cast stone building products; and the branded sale of housewrap. Composite Materials ------------------- Production and sale of glass fiber rovings, mats and veils; long-fibre reinforced thermoplastic compounds, glass reinforced plastic pipe; tailored composite solutions for the automotive, buildings and telecommunications markets, and composite manufacturing services. Intersegment sales, which include sales of Composite Materials to Building Materials, are generally recorded at market or equivalent value and are included in the internal evaluation of segment performance. Income (loss) from operations by operating segment consists of net sales less related costs and expenses and is presented on a basis that is used internally for evaluating segment performance. Certain categories of expenses such as cost of borrowed funds, general corporate expenses or income, and certain non-recurring expense or income items are excluded from the internal evaluation of segment performance. Accordingly, these items are not reflected in income (loss) from operations for the Company's reportable operating segments. Please refer to the reconciliation of reportable operating segment income from operations to consolidated income before income taxes below for additional information about such items. Total assets by reportable operating segment are those assets that are used in the Company's operations in each operating segment and do not include general corporate assets. General corporate assets consist primarily of cash and cash equivalents, deferred taxes, asbestos assets, and corporate property and equipment. Please refer to the reconciliation of reportable operating segment assets to consolidated total assets below for additional information about such items. External customer sales by geographic region are attributed based upon the location from which the product is shipped. Long-lived assets by geographic region are attributed based upon the location of the assets. - 43 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- (Continued) 1. Segment Data (Continued) NET SALES 1999 1998 1997 ---- ---- ---- (In millions of dollars) Reportable Operating Segments - ----------------------------- Building Materials United States $3,632 $3,436 $ 2,704 Europe 234 272 301 Canada and other 245 219 212 ------ ------- ------- Total Building Materials 4,111 3,927 3,217 ------ ------- ------- Composite Materials United States 569 686 707 Europe 338 372 392 Canada and other 144 135 157 ------ ------- -------- Total Composite Materials 1,051 1,193 1,256 ------ ------- -------- Total Reportable Operating Segments 5,162 5,120 4,473 Reconciliation to Consolidated Net Sales - ----------------------------------- Composite Materials U.S. sales to Building Materials U.S. (114) (111) (100) ------- ------- -------- Net Sales $5,048 $5,009 $ 4,373 ======= ======= ======= External Customer Sales by Geographic Region - ------------------------------------- United States $4,087 $4,011 $ 3,311 Europe 572 644 693 Canada and other 389 354 369 ------ ------ ------- Net Sales $5,048 $5,009 $ 4,373 ====== ====== =======
- 44 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- (Continued) 1. Segment Data (Continued) INCOME (LOSS) FROM OPERATIONS 1999 1998 1997 ---- ---- ---- (In millions of dollars) Reportable Operating Segments - ----------------------------- Building Materials United States $ 392 $ 235 $ 180 Europe 12 15 (1) Canada and other 33 16 (6) ------- ------- -------- Total Building Materials 437 266 173 ------- ------- -------- Composite Materials United States 144 170 180 Europe (1) 27 (9) Canada and other 16 11 5 ------ ------- ------- Total Composite Materials 159 208 176 ------ -------- ------- Total Reportable Operating $ 596 $ 474 $ 349 Segments ====== ======= ======= Geographic Regions - ------------------ United States $ 536 $ 405 $ 360 Europe 11 42 (10) Canada and other 49 27 (1) ------- ------- -------- Total Reportable Operating $ 596 $ 474 $ 349 Segments ====== ======= ======= Reconciliation to Consolidated Income (Loss) Before Provision (Credit) for Income Taxes - -------------------------------------- Restructuring and other charges - (243) (143) (Note 4) Asbestos litigation claims (Note 22) - (1,415) - Gain on sale of affiliate or - 359 - business (Note 5) General corporate income (expense) (18) 1 (24) Cost of borrowed funds (152) (140) (111) ------- ------- -------- Consolidated Income (Loss) Before Provision (Credit) for Income Taxes $ 426 $ (964) $ 71 ======= ======= =======
- 45 - OWENS CORNING AND SUBSIDIARIES ------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 1. Segment Data (Continued) TOTAL ASSETS December 31, 1999 1998 1997 ---- ---- ---- (In millions of dollars) Reportable Operating Segments - ----------------------------- Building Materials United States $ 1,973 $1,894 $ 2,066 Europe 226 279 268 Canada and other 222 220 330 ------- ------- ------- Total Building Materials 2,421 2,393 2,664 ------- ------- ------- Composite Materials United States 317 331 438 Europe 201 244 260 Canada and other 300 163 164 ------- ------- ------- Total Composite Materials 818 738 862 ------- ------- ------- Total Reportable Operating $ 3,239 $3,131 $ 3,526 Segments ======== ======= ======= Reconciliation to Consolidated Total Assets - ------------------------------ Asbestos insurance asset 230 484 573 Deferred income taxes 732 901 488 Income tax receivable 61 117 96 Cash and cash equivalents 70 54 58 Restricted marketable equity securities - Fibreboard 1,838 - - Settlement Trust Investments in affiliates 65 45 52 LIFO inventory valuation (66) (56) (74) adjustment Other general corporate assets 325 425 277 ------- ------- -------- Consolidated Total Assets $6,494 $5,101 $ 4,996 ======= ======= ======== LONG-LIVED ASSETS BY GEOGRAPHIC REGION - ------------------------------- United States $1,707 $1,698 $ 1,792 Europe 339 371 357 Canada and other 397 311 382 ------- ------- ------- Total Long-Lived Assets $2,443 $ 2,380 $ 2,531 ======= ======= =======
- 46 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 1. Segment Data (Continued) PROVISION FOR DEPRECIATION AND AMORTIZATION 1999 1998 1997 ---- ---- ---- (In millions of dollars) Reportable Operating Segments - ----------------------------- Building Materials United States $ 95 $ 96 $ 72 Europe 20 20 18 Canada and other 13 12 16 -------- ------ ------- Total Building Materials 128 128 106 -------- ------ ------- Composite Materials United States 22 19 24 Europe 19 18 18 Canada and other 18 11 9 -------- ------ ------- Total Composite Materials 59 48 51 -------- ------ ------- Total Reportable Operating $ 187 $ 176 $ 157 Segments ======== ====== ======= Geographic Regions United States $ 117 $ 115 $ 96 Europe 39 38 36 Canada and other 31 23 25 -------- ------ ------- Total Reportable Operating $ 187 $ 176 $ 157 Segments ======== ====== ======= Reconciliation to Consolidated Provision for Depreciation and Amortization - ------------------------------- General Corporate Depreciation and Amortization 23 21 16 -------- ------- -------- Consolidated Provision for Depreciation and Amortization $ 210 $ 197 $ 173 ======== ======= ========
- 47 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 1. Segment Data (Continued) ADDITIONS TO LONG-LIVED ASSETS - ------------------------------ ADDITIONS TO PLANT AND EQUIPMENT 1999 1998 1997 ---- ---- ---- (In millions of dollars) Reportable Operating Segments - ----------------------------- Building Materials United States $ 127 $ 117 $ 82 Europe 17 15 18 Canada and other 9 17 29 ------- ------- ------- Total Building Materials 153 149 129 ------- ------- ------- Composite Materials United States 12 32 21 Europe 18 35 14 Canada and other 25 4 17 ------- ------- ------- Total Composite Materials 55 71 52 ------- ------- ------- Total Reportable Operating $ 208 $ 220 $ 181 Segments ======= ======= ======= Geographic Regions - ------------------- United States $ 139 $ 149 $ 103 Europe 35 50 32 Canada and other 34 21 46 ------- ------ ------- Total Reportable Operating $ 208 $ 220 $ 181 Segments ======== ======= ======== ADDITIONS TO GOODWILL (1) - - 446 -------- ------- ------- Total Additions to Long-Lived Assets of Reportable $ 208 $ 220 $ 627 Operating Segments ======== ======= ========
(1) During 1997, the Company made certain acquisitions (Note 5) which included cash expenditures for goodwill of $446 million, of which $431 million was in Building Materials in the U.S., $9 million was in Composite Materials in the U.S., and $6 million was in Building Materials in Europe. - 48 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 2. Long-Term Debt 1999 1998 ---- ---- (In millions of dollars) U.S. credit facility due in 2002, $ 366 $ 259 variable Asian credit facility due in 2003, 23 29 variable European credit facilities due in - 10 1999, variable Debentures due in 2005, 7.5% 300 300 Debentures due in 2008, 7.7% 250 250 Debentures due in 2009, 7.0% 250 - Debentures due in 2018, 7.5% 400 400 Guaranteed debentures due in 2001, 10% 42 42 Debentures due in 2002, 8.875% 40 40 Debentures due in 2012, 9.375% 7 7 U.S. medium term notes due in 2000, 60 60 7.0% Bonds due in 2000, 7.25%, payable in Deutsche marks (Note 21) 50 50 Eurobonds due through 2001, 9.814% 25 36 (Note 21) Other long-term debt due through 2012, at rates from 6.25% to 13.80% 110 74 ------- ------- 1,923 1,557 Less: Current portion (159) (22) ------- ------- Total long-term debt $1,764 $1,535 ======= ======
In 1998, the Company amended its long-term revolving credit agreement and reduced the maximum commitment equivalent to $1.8 billion, of which portions can be denominated in Canadian dollars, Belgian francs or British pounds subject to the provisions of the agreement. The agreement allows the Company to borrow under multiple options, which provide for varying terms and interest rates. The commitment fee, charged on the entire commitment, is a sliding scale based on credit ratings and was .25% at December 31, 1999. As of December 31, 1999, $195 million of this facility was used for standby letters of credit and $1.239 billion was unused. The weighted average rate of interest on this facility was 6.81% at December 31, 1999. The Asian credit facility is payable in U.S. dollars and has an aggregate commitment of 35 million U.S. dollars. The rate of interest on this facility at December 31, 1999 was 7.08%. The commitment fee on the unused portions of the facility was .375% at December 31, 1999. The European credit facilities, which terminated in 1999, was payable in U.S. dollars and had an aggregate commitment of 10 million U.S. dollars. - 49 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- (Continued) 2. Long-Term Debt (Continued) As is typical for bank credit facilities, the agreements relating to the facilities described above contain restrictive covenants, including requirements for the maintenance of interest coverage, a leverage ratio and minimum coverage of fixed charges; and limitations on the early retirement of subordinated debt, additional borrowings, payment of dividends, and purchase of Company stock. The agreements include a provision which would result in all of the unpaid principal and accrued interest of the facilities becoming due immediately upon a change of control in ownership of the Company. A material adverse change in the Company's business, assets, liabilities, financial condition or results of operations constitutes a default under the agreements. During 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. See also Note 21 to the Consolidated Financial Statements. During 1998, the Company issued three series of debt securities for an aggregate principal amount of $950 million. The first series, representing $300 million of the securities, is due May 1, 2005 and bears an annual rate of interest of 7.5%, payable semiannually. The second series, representing $250 million of the securities, is due May 1, 2008 and bears an annual rate of interest of 7.7%, payable semiannually. The third series, with an aggregate amount of $400 million, bears an annual rate of interest of 7.5%, payable semiannually, and matures on August 1, 2018. All series of securities (the "Notes") were issued as unsecured obligations of the Company and are redeemable, in whole or in part, at the option of the Company at any time at a redemption price equal to the greater of (i) 100% of the principal amount of such Notes or (ii) the sum of the present values of the remaining scheduled payments of principal and interest at prevailing market rates. During the third quarter of 1998, the Company commenced cash tender offers (the "tender offers") for an aggregate principal amount of $450 million for the following debt securities: the $150 million aggregate principal amount of the Company's 8-7/8% Debentures due 2002, the $150 million aggregate principal amount of the Company's 9-3/8% Debentures due 2012, and the $150 million aggregate principal amount of the Company's 10% Debentures due 2001. The tender offers were completed on August 3, 1998 and as of that date, approximately $361 million of these Debentures had been tendered. In connection with this early retirement of debt, the Company paid premiums of approximately $62 million, incurred non-cash costs of approximately $2 million, and recorded an extraordinary loss of approximately $39 million, or $.72 per share, net of related income taxes of $25 million. Additionally, during the third quarter of 1998, the Company repurchased its $309 million of Trust Preferred Hybrid Securities at face value which had been issued in October 1997 as payment for the Company's acquisition of the assets of AmeriMark and also repaid $100 million of other debt which matured in August 1998. - 50 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 2. Long-Term Debt (Continued) The aggregate maturities and sinking fund requirements for all long-term debt issues for each of the five years following December 31, 1999 are: Credit Other Long-Term Year Facilities Debt ---- ----------- ---------------- (In millions of dollars) 2000 $ - $159 2001 - 64 2002 366 88 2003 23 1 2004 - 7 3. Short-Term Debt 1999 1998 ---- ---- (In millions of dollars) Balance outstanding at December 31 $ 68 $ 69 Weighted average interest rates on short-term debt outstanding at December 31 6.7% 6.4% The Company had unused short-term lines of credit totaling $174 million and $124 million at December 31, 1999 and 1998, respectively. - 51 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------------------------------------------- (Continued) 4. Restructuring of Operations and Other Actions During the third quarter of 1998, the Company recorded a $148 million pretax charge for restructuring and other actions as the final phase of the Company's previously announced program to close manufacturing facilities, enhance manufacturing productivity and reduce overhead. On a cumulative basis since the fourth quarter of 1997, the Company has recorded a total pretax charge of $386 million, of which $143 million was recorded in the fourth quarter of 1997, $95 million was recorded in the first quarter of 1998, and $148 million was recorded in the third quarter of 1998. The $148 million pretax charge in the third quarter of 1998 was comprised of a $30 million charge associated with the restructuring of the Company's business segments and a $118 million charge associated with other actions, the majority of which represent asset impairments. The $30 million restructure charge has been classified as a separate component of operating expenses on the Company's consolidated statement of income while the $118 million charge for other actions was comprised of a $60 million charge to cost of sales, a $4 million charge to marketing and administrative expenses, and a $54 million charge to other operating expenses. The components of the restructure charge included $9 million for personnel reductions and $21 million for the divestiture of non-strategic businesses and facilities, of which $20 million represented non-cash asset write-downs to estimated fair value and $1 million represented exit cost liabilities, comprised primarily of lease commitments. The $9 million for personnel reductions represented severance costs associated with the elimination of approximately 400 positions, primarily in the U.S. and Asia. The primary groups affected included manufacturing and administrative personnel. As of December 31, 1999, approximately $8 million has been paid and charged against the reserve for personnel reductions, representing the elimination of approximately 400 positions, the majority of whose severance payments were made over the course of 1999. Charges of approximately $1 million have been made against exit cost liabilities and no adjustments have been made to the liability. The components and classification of the $118 million of other actions, of which $103 million represents non-cash asset revaluations, included: $30 million to write down to fair value certain manufacturing assets held for use in China, due primarily to poor current and projected financial results at that time, recorded as cost of sales; $15 million to write down to net realizable value equipment and inventory made obsolete by changes in the Company's manufacturing and marketing strategies, recorded as cost of sales; $17 million for the write-down of an investment in and the write- off of a receivable from a joint venture in Korea to reflect the business outlook at that time and the fair market value of the assets, recorded as other operating expenses; $12 million for the write-down of goodwill associated with the 1995 acquisition of Fiber-lite, determined to be unrecoverable due to a change in market conditions and customer demand, recorded as other operating expenses; and $9 million for the write-down of certain assets in the U.S. to fair market value, recorded as cost of sales. The Company plans to hold and use the investments but disposed of the equipment in 1998. Also included in the $118 million charge for other actions were $13 million for the write- off of certain receivables in the U.S. and Asia determined to be uncollectable, recorded as cost of sales and other operating expenses; and $22 million for other actions recorded as cost of sales, marketing and administrative expenses, and other operating expenses. - 52 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- (Continued) 4. Restructuring of Operations and Other Actions (Continued) During the first quarter of 1998, the Company recorded a $95 million pretax charge for restructuring and other actions as the second phase of the Company's strategic restructuring program to enhance manufacturing productivity and reduce overhead. The $95 million pretax charge in the first quarter of 1998 was comprised of an $87 million charge associated with the restructuring of the Company's business segments and an $8 million charge associated with other actions. The $87 million restructure charge has been classified as a separate component of operating expenses on the Company's consolidated statement of income while the $8 million charge for other actions was comprised of a $5 million charge to cost of sales and a $3 million charge to marketing and administrative expenses. The components of the restructure charge included $81 million for personnel reductions and $6 million for the divestiture of non- strategic businesses and facilities, of which $2 million represented exit cost liabilities, comprised primarily of lease commitments. The $81 million for personnel reductions represented severance costs associated with the elimination of approximately 1,500 positions worldwide. The primary employee groups affected included manufacturing and corporate administrative personnel. As of December 31, 1999, approximately $67 million has been paid and charged against the reserve for personnel reductions, representing the elimination of approximately 1,500 employees, the majority of whose severance payments were made over the course of 1998 and 1999, and approximately $2 million has been charged against exit cost liabilities. No adjustments have been made to the liability. During the fourth quarter of 1997, the Company recorded a $143 million pretax charge for restructuring and other actions as the first phase of the program to close manufacturing facilities, enhance manufacturing productivity and reduce overhead. The $143 million pretax charge was comprised of a $68 million charge associated with the restructuring of the Company's business segments and a $75 million charge associated with asset impairments, including investments in certain affiliates. The components of the restructure charge 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. The $25 million for personnel reductions during the fourth quarter of 1997 represented severance costs associated with the elimination of nearly 550 positions worldwide. The primary employee groups affected included manufacturing and corporate administrative personnel. As of December 31, 1999, 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 made 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. - 53 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 4. Restructuring of Operations and Other Actions (Continued) The components and classification of the $75 million of other actions during the fourth quarter of 1997 included: $17 million for the write-off of certain assets and investments associated with unconsolidated joint ventures in Spain and Argentina due primarily to poor current and projected financial results and the expected loss of local partners, recorded as other operating expenses; $12 million for the write-down of certain investments in mainland China to reflect the current business outlook, at that time, and the fair market value of the investments, recorded as cost of sales; $24 million to write down to net realizable value equipment and inventory made obsolete by changes in the Company's manufacturing and marketing strategies, recorded as cost of sales; $8 million for a supplemental employee retirement plan approved by the Board of Directors in December 1997, recorded as marketing and administrative expenses; $5 million for the write-off of an insurance receivable that was determined to be uncollectable after judicial rejection of the Company's claim, recorded as other operating expenses; and $9 million for several other actions recorded as cost of sales, marketing and administrative expenses, and other operating expenses. The Company plans to hold and use the investments but disposed of most of the equipment in 1998. The following table summarizes the status of the liabilities from the restructure program described above, including cumulative spending and adjustments and the remaining balance as of December 31, 1999: (In millions of dollars) Beginning Total Ending Liability Payments Liability --------- -------- --------- Personnel Costs $ 115 $ (97) $ 18 Facility and Business Exit Costs 16 (13) 3 Other 2 (2) - ----- ------ ----- Total $ 133 $(112) $ 21 ===== ====== ===== 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. - 54 - OWENS CORNING AND SUBSIDIARIES ------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- (Continued) 5. Acquisitions and Divestitures of Business Acquisitions - ------------ In connection with a proposal received from its Korean joint venture partner, the Company infused approximately $29 million of cash into this venture in March 1999. As a result of this investment, along with additional investments by the other partner, the Company increased its ownership interest in Owens Corning Korea to 70%. The Company accounted for this transaction under the purchase method of accounting whereby the assets acquired and liabilities assumed, including $84 million in debt, have been recorded at their fair values and the results of operations have been consolidated since the date of acquisition. Prior to that date, the Company accounted for this joint venture under the equity method. The pro forma effect of this acquisition was not material to the financial statements. During 1997, the Company made several acquisitions in the Building Materials segment in the United States and Europe and two acquisitions in the Composite Materials segment in the United States and Canada. These acquisitions were consummated through the exchange of various combinations of common stock, cash, and trust preferred hybrid securities (Note 8) for an aggregate purchase price of $886 million. The largest of these was the acquisition of Fibreboard Corporation (Fibreboard), a North American manufacturer of vinyl siding and accessories, as well as manufactured stone, which operates more than 130 company-owned distribution centers in 32 states. The purchase price of this acquisition was $660 million, including debt assumed of $138 million and was consummated by the exchange of cash for all of the outstanding common shares of Fibreboard at a price of $55 per share. At the time of acquisition, management formulated a plan to divest Fibreboard's calcium silicate insulation and metal jacket business (Pabco). During the first quarter of 1998, the Company sold Pabco for approximately $37 million. The second largest acquisition in 1997 was the acquisition of AmeriMark Building Products, Inc. (AmeriMark), a specialty building products company serving the exterior residential housing industry. The acquisition was completed for a purchase price of $317 million and was consummated by the exchange of $309 million in trust preferred hybrid securities and $8 million in cash for the net assets of AmeriMark. The Company completed four additional acquisitions during 1997 in the U.S., Europe and Canada. The aggregate purchase price of these acquisitions was $47 million. These acquisitions exchanged 340,000 shares of the Company's common stock and $34 million in cash for the net assets of the acquired companies. Additionally, during 1997, the Company issued 178,218 shares of its common stock as a final adjustment to certain of its 1995 acquisitions. The incremental sales from the acquisitions, in the year of acquisition, were $534 million for the year ended December 31, 1997. The pro forma effect of the 1997 acquisitions, except for the acquisitions of Fibreboard and AmeriMark, was not material to net income for the year ended December 31, 1997. All acquisitions were accounted for under the purchase method of accounting, whereby the assets acquired and liabilities assumed have been recorded at their fair values and the results of operations for the acquisitions have been included in the Company's consolidated financial statements subsequent to the dates of acquisition. The estimated fair value of assets acquired during 1997 was $1.409 billion, and liabilities assumed, including $150 million in debt, totaled $523 million. Total assets acquired during 1997 included goodwill of $546 million, of which $446 million represents a cash expenditure. - 55 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 5. Acquisitions and Divestitures of Business (Continued) The following unaudited table presents the pro forma results of operations for the year ended December 31, 1997, assuming the acquisitions of Fibreboard and AmeriMark occurred at the beginning of the period presented. These results include certain adjustments, primarily for depreciation and amortization, interest and other expenses directly attributable to the acquisition and are not necessarily indicative of what the results would have been had the transactions actually occurred at the beginning of the period presented. The pro forma results do not include operations that were discontinued by Fibreboard prior to the acquisition, or Pabco. Year Ended December 31, 1997 ----------------- (In millions of dollars, except share data) Net sales $ 5,041 Income from continuing operations 46 Diluted earnings per share from continuing operations $ .86 Divestitures - ------------ Late in the first quarter of 1998, the Company sold its 50% ownership interest in Alpha/Owens Corning, LLC. With cash proceeds of approximately $103 million, the Company recorded a pretax gain of approximately $84 million. During the third quarter of 1998, the Company formed a joint venture for its yarns and specialty materials business (the "yarns business") to which it contributed two manufacturing plants and certain proprietary technology. On September 30, 1998, the Company completed the sale of 51% of the yarns business to a U.S. subsidiary of Groupe Porcher Industries of Badinieres, France for $340 million. The Company continues to have a 49% ownership interest in the joint venture. Upon closing, the Company also received a distribution of $193 million from the joint venture. In connection with the sale, the Company entered into an agreement with the joint venture to support the liquidity of the joint venture up to a maximum of $65 million. As a result of the sale of 51% interest ofin the yarns joint venture business and the receipt of the distribution from the joint venture, the Company recordeded a pretax gain of $295 million, net of its commitment under the agreement referred to above. The results of operations of the yarns business are reflected in the Company's consolidated statement of income through the period ending September 30, 1998. For the nine months ended September 30, 1998 and the year ended December 31, 1997, the yarns business recorded sales of approximately $205 million and $277 million, respectively, and income from operations of approximately $57 million and $80 million, respectively. Effective September 30, 1998, the Company accounts for its ownership interest in the yarns business under the equity method. - 56 - OWENS CORNING AND SUBSIDIARIES ----------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 5. Acquisitions and Divestitures of Business (Continued) Additionally, during the third quarter of 1998, the Company sold its Kitsons distribution business in the U.K. and its windows manufacturing business in the U.S. and recorded a pretax loss of approximately $20 million. 6. Business Process Reengineering Costs In the fourth quarter of 1997, the Company recorded a $15 million charge, or $.29 per share, net of related income taxes of $10 million, to comply with a new required accounting interpretation announced November 20, 1997. The Emerging Issues Task Force, a subcommittee of the Financial Accounting Standards Board (FASB), requires that the cost of business process reengineering activities that are part of a systems development project be expensed as those costs are incurred. Any unamortized costs that had previously been capitalized were written off as a cumulative adjustment in the fourth quarter of 1997. 7. Convertible Monthly Income Preferred Securities (MIPS) In 1995, Owens Corning Capital, L.L.C. ("OC Capital"), a Delaware limited liability company, all of the common limited liability company interests in which are owned indirectly by the Company, completed a private offering of 4 million shares of Convertible Monthly Income Preferred Securities ("Preferred Securities"). The aggregate purchase price for the offering was $200 million. The Preferred Securities are guaranteed in certain respects by the Company and are convertible, at the option of the holders, into Company common stock at the rate of 1.1416 shares of Company common stock for each Preferred Security (equivalent to a conversion price of $43.80 per common share). Effective June 1, 1998, OC Capital can initiate conversion. Distributions on the Preferred Securities are cumulative and are payable at the annual rate of 6-1/2% of the liquidation preference of $50 per Preferred Security. Distributions of $13 million ($8 million after-tax) have been recorded net of tax as minority interest on the Company's consolidated statement of income for each of the years ended December 31, 1999, 1998 and 1997. The Company issued $200 million of 6-1/2% Convertible Subordinated Debentures due 2025 to OC Capital, which represents the sole asset of OC Capital, in exchange for the proceeds of the offering. - 57 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- (Continued) 8. Trust Preferred Hybrid Securities In 1997, the Company delivered 6,180,000 7% Income PRIDES securities ("Hybrid Securities") in payment of $309 million of the purchase price for the Company's acquisition of the assets of AmeriMark Building Products, Inc. (Note 5). Distributions of $13 million and $5 million ($8 million and $3 million after-tax, respectively) pursuant to the Trust Preferred Securities have been recorded net of tax as minority interest during 1998 and 1997, respectively. During the third quarter of 1998, the Company repurchased the Hybrid Securities at face value and redeemed the Debentures. 9. Postemployment and Postretirement Benefits Other Than Pensions The Company and its subsidiaries maintain health care and life insurance benefit plans for certain retired employees and their dependents. The health care plans in the U.S. are unfunded and pay either 1) stated percentages of covered medically necessary expenses, after subtracting payments by Medicare or other providers and after stated deductibles have been met, or, 2) fixed amounts of medical expense reimbursement. Employees become eligible to participate in the health care plans upon retirement under the Company's pension plans if they have accumulated 10 years of service after age 45. Some of the plans are contributory, with some retiree contributions adjusted annually. The Company has reserved the right to change or eliminate these benefit plans subject to the terms of collective bargaining agreements. In accordance with Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," the following tables provide a reconciliation of the changes in the accumulated postretirement benefits obligation and the accrued benefits cost liability at October 31, 1999 and 1998, as reflected on the consolidated balance sheet at December 31, 1999 and 1998: - 58 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 9. Postemployment and Postretirement Benefits Other Than Pensions (Continued) 1999 1998 ---- ---- (In millions of dollars) Change in Accumulated Postretirement Benefit Obligation - ------------------------------------- Benefits obligation at beginning of $ 343 $ 328 period Service cost 8 9 Interest cost 24 23 Amendments 1 (2) Impact of curtailment - (12) Actuarial (gain) loss (35) 20 Currency (gain) loss 1 (2) Benefits paid (23) (21) -------- ------- Benefits obligation at end of period $ 319 $ 343 ======== ======= Funded status $(319) $(343) Unrecognized net actuarial (gain) loss 2 37 Unrecognized prior service cost - (11) Benefit payments subsequent to valuation date 4 3 -------- ------- Accrued benefit cost (includes current liabilities of $26 million and $21 million in 1999 and 1998 respectively) $(313) $(314) ======== ======= Weighted-average assumptions as of December 31 1999 1998 - ---------------------------------- ---- ---- Discount rate 8.0% 7.0%
The following table presents the components of net periodic benefits cost during 1999, 1998 and 1997: Components of net periodic benefit cost 1999 1998 1997 - --------------------------------------- ---- ---- ---- (In millions of dollars) Service cost $ 8 $ 9 $ 7 Interest cost 24 23 20 Amortization of prior service cost (9) (20) (20) Curtailment (gain) loss - (3) - ---- ------ ----- Net periodic benefit cost $ 23 $ 9 $ 7 ==== ====== =====
For measurement purposes, a 6.5% annual rate of increase in the per capita cost of covered health care claims was assumed for 2000. The rate was assumed to decrease to 6.0% for 2001 and thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. To illustrate, a one- percentage point change in the assumed health care cost trend rate would have the following effects as of October 31, 1999 and 1998: - 59 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 9. Postemployment and Postretirement Benefits Other Than Pensions (Continued) 1999 1998 ---- ---- 1-Percentage Point 1-Percentage Point Increase Decrease Increase Decrease -------- -------- --------- -------- (In millions of dollars) Effect on total of service and interest cost components $ 4 $ (3) $ 4 $ (3) Effect on accumulated postretirement benefit obligation 29 (23) 31 (27)
The Company also recognizes the obligation to provide benefits to former or inactive employees after employment but before retirement under certain conditions. These benefits include, but are not limited to, salary continuation, supplemental unemployment benefits, severance benefits, disability-related benefits (including workers' compensation), job training and counseling, and continuation of benefits such as health care and life insurance coverage. The accrued postemployment benefits cost liability at October 31, 1999 and 1998, as reflected on the balance sheet at December 31, 1999 and 1998 was $34 million and $36 million, respectively, including current liabilities of $4 million and $3 million, respectively. The net postemployment benefits expense was $2 million in 1999 and 1998, and less than $1 million in 1997. 10. Pension Plans The Company has several defined benefit pension plans covering most employees. Under the plans, pension benefits are generally based on an employee's pay and number of years of service. Company contributions to these pension plans are based on the calculations of independent actuaries using the projected unit credit method. Plan assets consist primarily of equity securities with the balance in fixed income investments. The unrecognized cost of retroactive amendments and actuarial gains and losses are amortized over the average future service period of plan participants expected to receive benefits. In accordance with Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," the following tables provide a reconciliation of the changes in the projected pension benefits obligation, the changes in the pension plan assets, and the net pension liability at October 31, 1999 and 1998, as reflected on the consolidated balance sheet at December 31, 1999 and 1998: - 60 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 10. Pension Plans (Continued) 1999 1998 ---- ---- (In millions of dollars) Change in Projected Pension Benefit Obligation - ------------------------------------ Benefits obligation at beginning of period $ 975 $ 997 Service cost 19 19 Interest cost 65 69 Amendments 2 2 Impact of curtailment (4) (7) Impact of foreign currency translation - (7) Actuarial (gain) loss (57) 70 Employee contributions 2 3 Benefits paid (137) (171) ------- ------- Benefits obligation at end of period $ 865 $ 975 ======= =======
Benefits paid during 1999 and 1998 include payments resulting from the Company's restructuring program and the sale of certain businesses. (Notes 4 and 5) Change in Pension Plan Assets 1999 1998 - ----------------------------- ---- ---- (In millions of dollars) Fair value of plan assets at beginning of period $ 961 $1,059 Actual return on plan assets 154 74 Impact of foreign currency translation 2 (9) Employer contributions 2 4 Employee contributions 3 3 Settlement (16) (5) Benefits paid (129) (165) ------- ------- Fair value of plan assets at end of period $ 977 $ 961 ======= ======= Funded status $ 112 $ (14) Unrecognized net transition (asset) obligatn (22) (31) Unrecognized net actuarial (gain) loss (53) 77 Unrecognized prior service cost (25) (32) ------- ------- Prepaid (accrued) benefit cost $ 12 $ - ======= ======= Amounts Recognized in the Consolidated Balance Sheet 1999 1998 - -------------------------------------- ---- ---- (In millions of dollars) Prepaid benefit cost $ 51 $ 53 Accrued benefit liability (includes current liabilities of less than $1 (39) (56) million in 1999 and 1998) Accumulated other comprehensive income - 3 -------- ------- Net amount recognized $ 12 $ - ======== =======
- 61 - OWENS CORNING AND SUBSIDIARIES ----------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- (Continued) 10. Pension Plans (Continued) Weighted-average assumptions as of December 31 1999 1998 ---------------------------------- ---- ---- Discount rate 8.00% 7.00% Expected return on plan assets 9.00% 9.00% Rate of compensation increase 5.50% 5.50%
The following table presents the components of net periodic pension cost during 1999, 1998 and 1997: Components of Net Periodic Pension Cost 1999 1998 1997 -------------------------- ---- ---- ---- (In millions in dollars) Service cost $ 19 $ 19 $ 15 Interest cost 65 69 64 Expected return on plan assets (75) (83) (84) Amortization of transition amount (5) (5) (5) Amortization of prior service cost (4) (7) (7) Amortization of net actuarial (gain) loss 5 4 11 Curtailment/Settlement (gain) loss (6) 1 2 ------ ------ ----- Net periodic benefit cost $(1) $(2) $ (4) ====== ====== =====
Certain of the Company's pension plans have an accumulated benefit obligation (ABO) in excess of the fair value of plan assets. The ABO and fair value of plan assets for such plans are $9 million and $4 million, respectively, at October 31, 1999, and $744 million and $707 million, respectively, at October 31, 1998. Certain of the Company's pension plans are unfunded. The portion of the total projected benefit obligation attributable to unfunded plans is approximately $3 million and $13 million at October 31, 1999 and 1998, respectively. The Company also sponsors defined contribution plans available to substantially all U.S. employees. Company contributions for the plans are based on matching a percentage of employee savings up to a maximum savings level. The Company's contributions were $14 million in 1999, $14 million in 1998, and $13 million in 1997. - 62 - OWENS CORNING AND SUBSIDIARIES ------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 11. Income Taxes 1999 1998 1997 ---- ---- ---- (In millions in dollars) Income (loss) before provision (credit) for income taxes: U.S. $ 374 $(897) $151 Foreign 52 (67) (80) ----- ----- ----- Total $ 426 $(964) $71 ===== ===== ===== Provision (credit) for income taxes: Current U.S. $(56) $(86) $(123) State and local (2) - 1 Foreign 16 5 21 ----- ----- ----- Total current (42) (81) (101) ----- ----- ----- Deferred U.S. 158 (203) 151 State and local 25 (20) (3) Foreign 8 (2) (38) ----- ----- ----- Total deferred 191 (225) 110 ----- ----- ----- Total provision (credit) for income taxes $ 149 $(306) $9 ===== ===== =====
The reconciliation between the U.S. federal statutory rate and the Company's effective income tax rate is: 1999 1998 1997 ---- ---- ---- U.S. federal statutory rate 35% (35)% 35% State and local income taxes 4 (1) 5 Operating losses of foreign subsidiaries 2 3 24 Foreign tax credits (1) - (6) Change in effective state income tax rate - - (9) Conclusion of prior year tax audits - - (4) Utilization of tax loss carrybacks - - (20) Adjustment of valuation allowances - - (10) Special tax election (a) (3) (1) - Other (2) 2 (3) ------- ------ ------ Effective tax rate 35% (32)% 12% ======= ======= ======
(a) Represents a one-time tax benefit associated with Asia Pacific operations in 1998 and with UK operations in 1999. - 63 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 11. Income Taxes (Continued) As of December 31, 1999, the Company has not provided for withholding or U.S. federal income taxes on approximately $288 million of accumulated undistributed earnings of its foreign subsidiaries as they are considered by management to be permanently reinvested. If these undistributed earnings were not considered to be permanently reinvested, approximately $26 million of deferred income taxes would have been provided. At December 31, 1999, the Company had net operating loss carryforwards for certain of its foreign subsidiaries and certain of its state tax jurisdictions, the tax benefit of which is approximately $275 million. Tax benefits of $208 million expire over the period from 2000 through 2020, and the remaining $67 million have an indefinite carryforward. The cumulative temporary differences giving rise to the deferred tax assets and liabilities at December 31, 1999 and 1998 are as follows: 1999 1998 ---- ---- Deferred Deferred Deferred Deferred Tax Tax Tax Tax Assets Liabilities Tax Liabilities -------- ----------- --------- ----------- (In millions of dollars) Asbestos litigation claims $ 618 $ - $ 844 $ - Other employee benefits 140 - 142 - Pension plans 20 17 23 12 Depreciation - 254 - 217 Operating loss carryforwards 275 - 157 - State and local taxes - 58 - 60 Other 283 214 237 155 ------ ----- ------ -------- Subtotal 1,336 543 1,403 444 Valuation allowances (61) - (58) - ------ ----- ------ -------- Total deferred taxes $1,275 $ 543 $1,345 $ 444 ====== ===== ====== ========
Management fully expects to realize its net deferred tax assets through income from future operations. 12. Science and Technology Expenses Science and technology expenses represent research and development costs of $59 million in 1999, $57 million in 1998, and $69 million in 1997. - 64 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 13. Accounts Receivable Securitization In 1999, 1998 and 1997, the Company sold certain accounts receivable of its Building Materials operations to a 100% owned subsidiary, Owens Corning Funding Corporation ("OC Funding"). OC Funding has an agreement whereby it can sell, on a revolving basis, an undivided percentage ownership interest in a designated pool of accounts receivable, up to a maximum of $125 million, which will expire in October 2000. At December 31, 1999 and 1998, $125 million have been sold under this agreement, and the sale has been reflected as a reduction of accounts receivable in the Company's consolidated balance sheet. In 1999, 1998 and 1997, the Company also sold certain accounts receivable of certain European operations. At December 31, 1999 and 1998, $70 million and $71 million have been sold, respectively, and the sale has been reflected as a reduction of accounts receivable in the Company's consolidated balance sheet. The Company maintains an allowance for doubtful accounts based upon the expected collectibility of all consolidated trade accounts receivable, including receivables sold by OC Funding and the European operations. Discounts of $9 million, $9 million and $6 million on the receivables sold have been recorded as other expenses on the Company's consolidated statement of income for the years ended December 31, 1999, 1998 and 1997, respectively. 14. Inventories Inventories are summarized as follows: 1999 1998 ---- ---- (In millions of dollars) Finished goods $ 374 $ 317 Materials and supplies 158 176 ------ ------- FIFO inventory 532 493 Less: Reduction to LIFO basis (66) (56) ------ ------- Total inventory $ 466 $ 437 ====== ======= Approximately $269 million and $271 million of total inventories were valued using the LIFO method at December 31, 1999 and 1998, respectively. - 65 - OWENS CORNING AND SUBSIDIARIES ------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 15. Investments in Affiliates At December 31, 1999 and 1998, the Company's affiliates, which generally are engaged in the manufacture of fibrous glass and related products for the insulation, construction, reinforcements, and textile markets, include: Percent Ownership 1999 1998 ---- ---- Advanced Glassfiber Yarns, LLC (U. S.) 49% 49% Amiantit Fiberglass Industries, 30% 30% Ltd. (Saudi Arabia) Arabian Fiberglass Insulation Company, Ltd. Saudi Arabia) 49% 49% Owens Corning Energy LLC (U. S.) 50% - Flowtite Andercol S.A. (Colombia) 50% 50% (a) Flowtite Argentina (Argentina) 100% 100% Flowtite (Botswana) (Proprietary) 49% 49% Limited (Botswana) (a) Flowtite Iberica, S.A. (Spain) 100% 100% Mat Line LLC (U. S.) 50% - Northern Elastomeric, Inc. (U. S.) 50% - Owens Corning (India) Limited (India) 49% 49% (b) Owens Corning Korea (Korea) 70% 30% Owens Corning (Nanjing) (China) 50% 50% Owens Corning Yapi Merkezi Boru Sanayi VeTicaret A.S. (Turkey) 50% 50% Owens-Corning Eternit Rohre 50% 50% GmbH (Germany) Siam Fiberglass Co., Ltd. (Thailand) 17% 17% Stamax LLC (Netherlands) 50% - Stamax NA LLC (U. S.) 50% - Vitro-Fibras, S.A. (Mexico) 40% 40%
(a) In late 1997, the Company acquired 100% ownership of Owens- Corning Canos, S.A. and Flowtite Iberica, S.A. The Company considers its 100% ownership to be temporary and therefore continues to account for them as unconsolidated affiliates under the equity method. (b) On March 12, 1999, the Company increased its ownership interest in Owens Corning Korea to 70%, and has consolidated this subsidiary since that date. - 66 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- (Continued) 15. Investments in Affiliates (Continued) The following table provides summarized financial information on a combined 100% basis for the Company's affiliates accounted for under the equity method: 1999 1998 1997 ---- ---- ---- (In millions of dollars) At December 31: Current assets $239 $245 $227 Noncurrent assets 623 684 289 Current liabilities 171 143 145 Noncurrent liabilities 514 585 287 For the year ended December 31: Net sales 477 540 535 Gross margin 138 159 133 Net income 7 30 21 The Company's equity in undistributed net income of affiliates was $12 million at December 31, 1999. Net sales, gross margin, and net income for the year ended December 31, 1998 have been presented on a full-year basis for Advanced Glassfiber Yarns, LLC (AGY). The Company's former specialty yarns business is included in the Company's consolidated financial statements through the period ending September 30, 1998 (Note 5). Net sales, gross margin, and net income for Owens Corning Korea have been included in the amounts reported for 1998 and 1997. This information has not been included for 1999 as the entity has been consolidated since March 12, 1999. - 67 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- (Continued) 16. Accounts Payable and Accrued Liabilities 1999 1998 ---- ---- (In millions of dollars) Accounts payable $ 456 $ 522 Payroll and vacation pay 26 51 Payroll, property, and miscellaneous taxes 32 34 Other employee benefits liability (Note 9) 30 24 Restructure costs (Note 4) 17 35 Other 278 276 ------ ------ Total $ 839 $ 942 ====== ====== 17. Consolidated Statement of Cash Flows Cash payments (refunds) for income taxes and cost of borrowed funds are summarized as follows: 1999 1998 1997 ---- ---- ---- (In millions of dollars) Income taxes $ (77) $(80) $ (6) Cost of borrowed funds 154 151 123 The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. During the years ended December 31, 1999 and 1998 and the six months ended December 31, 1997, gross payments for asbestos litigation claims filed against Fibreboard were approximately $136 million, $129 million and $126 million, respectively, all of which were paid/reimbursed by Fibreboard's insurers or the Fibreboard Settlement Trust. See Notes 5 and 8 for supplemental disclosure of non-cash investing and financing activities. 18. Leases The Company leases certain manufacturing equipment and office and warehouse facilities under operating leases, some of which include cost escalation clauses, expiring on various dates through 2015. Total rental expense charged to operations was $143 million in 1999, $130 million in 1998, and $124 million in 1997. At December 31, 1999, the minimum future rental commitments under noncancellable leases with initial maturities greater than one year payable over the remaining lives of the leases are: - 68 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- (Continued) 18. Leases (Continued) Minimum Future Rental Commitments Period ------------------ ------ (In millions of dollars) 2000 $ 82 2001 68 2002 57 2003 42 2004 22 2005 through 2015 94 ------ $ 365 ======= 19. Stock Compensation Plans The Company currently has three stock-based compensation plans. The Company's Stock Performance Incentive Plan ("SPIP") grants stock options, restricted stock, performance restricted stock and phantom performance units. The Owens Corning 1995 Stock Plan ("95 Stock Plan") grants options, restricted stock and performance stock awards. The SPIP and the 95 Stock Plan (collectively, the "Plans"), permit up to 2 percent and 1 percent, respectively, of common shares outstanding at the beginning of each calendar year to be awarded as stock options and restricted stock (with 25% of this amount as the maximum permitted number of restricted stock awards). The Company may carry forward, independently for each plan, unused shares from prior years and may increase the shares available for awards in any calendar year through an advance of up to 25% of the subsequent year's allocation (determined by using 25% of the current year's allocation). These shares are also subject to the 25% limit for restricted stock awards. During 1999, the maximum number of shares available under the Plans for stock awards was 2,616,789 shares. The following are descriptions of the awards granted under the Plans: Stock Options ------------- Under the Plans, the exercise prices of each option equal the market price of the Company's common stock on the date of grant and an option's maximum term is 10 years. Shares issued from the exercise of options are recorded in the common stock accounts at the option price. The awards and vesting periods of such awards are determined at the discretion of the compensation committee of the Board of Directors. During 1999, 1998 and 1997, respectively, 1,930,292, 1,747,472 and 1,103,027 stock options were awarded under the Plans. Restricted Stock Awards ----------------------- Under the Plans, compensation expense is measured based on the market price of the stock at date of grant and is recognized on a straight-line basis over the vesting period. Stock restrictions lapse, subject to alternate vesting plans for death, disability, approved early retirement and involuntary termination, over various periods ending in 2006. At December 31, 1999, the Company had 408,117 shares of restricted stock outstanding. During 1999, 1998 and 1997, 284,500, 64,550 and 77,250 shares of restricted stock were granted, respectively. The weighted-average grant-date fair value for shares granted was $34.81, $30.36 and $44.66 for 1999, 1998 and 1997, respectively. - 69 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- (Continued) 19. Stock Compensation Plans (Continued) Performance Restricted Stock Awards ----------------------------------- Under the Plans, certain officers are awarded performance shares. Performance shares represent the opportunity to earn up to a specified number of shares of the Company's common stock, if the Company achieves specified performance goals during the designated performance period. Any portion of the award not earned during the performance period is forfeited by the officer at the end of such period. Compensation expense is measured based on market price of the Company's common stock and is recognized over the performance period, which is generally three years. At December 31, 1999, the Company had 64,675 units outstanding and none were granted during 1999. During 1998 and 1997, respectively, 46,600 and 37,100 performance shares were granted. Phantom Performance Units ------------------------- Under the Plans, certain officers are awarded phantom performance units. Each unit provides the holder the opportunity to earn a cash award equal to the fair market value of the Company's common stock upon the attainment of certain performance goals. Any portion of the award not earned during the performance period is forfeited by the officer at the end of such period. Compensation expense is measured based on market price of the Company's common stock and is recognized over the performance period, which is generally three years. At December 31, 1999, the Company had 104,899 phantom performance units outstanding and none were granted during 1999. During 1998 and 1997, respectively, 65,750 and 77,850 units, were awarded. Performance Stock Awards ------------------------ Under the Plans, certain employees are awarded unrestricted stock based upon achievement of certain goals within a designated performance period. Compensation cost for these awards is accrued over the performance period based upon a base compensation level and the performance level achieved. Stock awards are issued in the year subsequent to the performance period. The number of shares issued is based upon the market price of the stock on date of issuance and the level of compensation earned. In 1999, 1998 and 1997, respectively, 267,711, 74,854, and 122,362 shares were issued to employees. The Company also has a plan to award stock and stock options to non-employee directors. The receipt of the stock awards may be deferred at the discretion of the directors. Approximately 334,500 shares were available under this plan at December 31, 1999. As of December 31, 1999, 22,000 deferred awards were outstanding. In 1999, 10,000 options and 5,000 stock awards were granted, 500 of which were issued. In 1998, no options and 5,500 stock awards were granted, 500 of which were issued. In 1997, 10,000 options and 5,500 stock awards were granted, of which 3,500 were issued. The weighted-average grant-date fair value for shares granted was $36.53, $40.72 and $39.13 for 1999, 1998 and 1997, respectively. - 70 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 19. Stock Compensation Plans (Continued) The Company applies Financial Accounting Standards Board Statement No. 123 (SFAS 123) for disclosures of its stock based compensation plans. The Company applies Accounting Principles Board Opinion No. 25 and related Interpretations for expense recognition as permitted by SFAS 123. All stock options issued by the Company are exercisable at a price equal to the market price at the date of grant. Accordingly, no compensation cost has been recognized for any of the options granted under the Plans. The compensation cost that has been recorded for awards other than options was $21 million, $21 million and $12 million in 1999, 1998 and 1997, respectively. A summary of the status of the Company's plans that issue options as of December 31, 1999, 1998, and 1997 and changes during the years ending on those dates is presented below: 1999 1998 1997 ---- ---- ---- Weighted- Weighted- Weighted- Number Average Number Average Number Average of Exercise of Exercise of Exercise Shares Price Shares Price Shares Price ------ --------- ------ --------- ------ --------- Beginning 6,095,968 $ 36.72 5,126,158 $ 38.15 4,894,439 $ 35.59 of Year Options 1,940,292 $ 34.81 1,747,472 $ 32.17 1,113,027 $ 44.80 granted Options (79,850) $ 28.66 (495,797) $ 32.74 (724,661) $ 30.29 exercised Options (236,043) $ 38.02 (281,865) $ 41.62 (156,647) $ 41.63 canceled --------- --------- --------- End of year 7,720,367 $ 36.29 6,095,968 $ 36.72 5,126,158 $ 38.15 ========= ========= ========= Exercisable 4,426,982 $ 37.22 3,568,291 $ 36.60 3,047,126 $ 34.78 Weighted- average fair-value of options granted during the year $ 12.14 $ 10.96 $ 14.29
- 71 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 19. Stock Compensation Plans (Continued) The following table summarizes information about options outstanding at December 31, 1999: Options Outstanding Options Exercisable ----------------------------------- ------------------- Number Weighted-Average Number Weighted Outstanding Remaining Exercisable Average Range of at Contractual Exercise at Exercise Exercise Prices 12/31/99 Life Price 12/31/99 Price - --------------- ----------- ----------- -------- ----------- -------- $17.860 - $28.438 1,267,298 6.14 $27.253 609,600 $25.998 $28.500 - $34.625 876,016 3.54 $31.618 862,016 $31.586 $34.813 - $34.875 1,885,524 9.00 $34.813 30,976 $34.822 $35.250 - $40.500 1,822,969 5.50 $38.456 1,436,189 $38.636 $40.688 - $47.000 1,868,560 6.09 $43.980 1,488,201 $43.752
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions by year: Assumptions 1999 1998 1997 ----------- ---- ---- ---- Risk-free interest rate 4.79% 5.46% 6.31% Expected life (in years) 5 5 5 Expected volatility 32.44% 29.89% 24.64% Expected dividends .61% .69% .82% Had compensation cost for the Plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method described in SFAS 123, the Company's net income (loss) and net income (loss) per share would have been reduced to the pro forma amounts indicated below: 1999 1998 1997 ---- ---- ---- (In millions of dollars, except share data) Net income (loss) As reported $ 270 $ (705) $ 47 Pro forma $ 260 $ (714) $ 40 Basic net income As reported $4.98 $(13.16) $.89 (loss) per share Pro forma $4.80 $(13.33) $.76 Diluted net income As reported $4.67 $(13.16) $.88 (loss) per share Pro forma $4.50 $(13.33) $.75 The Company cautions that the pro forma results in 1997 do not reflect the full impact of pro forma compensation expense. Options vest ratably over a three year period;, therefore, 1998 is the first year in which the full impact is reflected. The following table reconciles the net income (loss) and weighted average number of shares used in the basic earnings per share calculation to the net income (loss) and weighted average number of shares used to compute diluted earnings per share. - 72 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- (Continued) 19. Stock Compensation Plans (Continued) 1999 1998 1997 ---- ---- ---- (In millions of dollars, except share data) Net income (loss) used for basic earnings per share $ 270 $(705) $ 47 Net income (loss) effect of assumed conversion of preferred securities 8 - - ----- ----- ------ Net income (loss) used for diluted earnings per share $ 278 $(705) $ 47 ===== ===== ====== Weighted average number of shares outstanding used for basic earnings per share (thousands) 54,083 53,579 52,860 Deferred awards and stock options 803 - 686 Shares from assumed conversion of preferred securities 4,566 - - ----- ------ ------ Weighted average number of shares outstanding and common equivalent shares used for diluted earnings per share thousands) 59,452 53,579 53,546 ====== ====== ======
During 1998 and 1997, diluted shares outstanding exclude approximately 4.6 million common shares from the potential conversion of certain preferred securities of a subsidiary (Note 7) due to their anti-dilutive effect. For the year ended December 31, 1998, diluted shares also exclude approximately 700 thousand shares, primarily from the potential exercise of stock options, due to their anti-dilutive effect. 20. Share Purchase Rights Through December 1999, each outstanding share of the Company's common stock included a preferred share purchase right. Each right entitled the holder to buy from the Company one one- hundredth of a share of Series A Participating Preferred Stock of the Company at a price of $190. The Board of Directors had designated 750,000 shares of the Company's authorized preferred stock as Series A Participating Preferred Stock. There were no preferred shares outstanding at December 31, 1998. On December 31, 1999, the Company redeemed all share purchase rights outstanding under its Rights Agreement established in December 1996. Pursuant to the terms of the Rights Agreement, the redemption price was $0.01 per right. The redemption price was paid in January 2000. - 73 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 21. Derivative Financial Instruments and Fair Value of Financial Instruments The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to help meet financing needs and to reduce exposure to fluctuating foreign currency exchange rates and interest rates. The Company is exposed to credit loss in the event of nonperformance by the other parties to the financial instruments described below. However, the Company does not anticipate nonperformance by the other parties. The Company does not engage in trading activities with these financial instruments and does not generally require collateral or other security to support these financial instruments. The notional amounts of derivatives summarized in the foreign exchange risk and interest rate risk management section below do not generally represent the amounts exchanged by the parties and, thus, are not a measure of the exposure of the Company through its use of derivatives. The amounts exchanged were calculated on the basis of the notional amounts and the other terms of the derivatives, which relate to interest rates, exchange rates, securities prices, or financial or other indexes. Foreign Exchange Risk and Interest Rate Risk Management - ------------------------------------------------------- The Company enters into various types of derivative financial instruments to manage its foreign exchange risk and interest rate risk, as indicated in the following table. Notional Amount Notional Amount December 31, 1999 December 31, 1998 ----------------- ----------------- (In millions of dollars) Forward currency exchange contracts $ 203 $ 303 Combined interest rate currency swaps 140 190 Options purchased 1 10 Currency swaps 190 215 Interest rate swaps 151 33 The Company enters into forward currency exchange contracts to manage its exposure against foreign currency fluctuations on certain assets and liabilities denominated in foreign currencies. As of December 31, 1999, the Company has 26 forward currency exchange contracts maturing in 2000 which exchange 89 million Euro, 32 million U.S. dollars, 23 million British pounds, 255 million Norwegian krone, and various other currencies. As of December 31, 1998, the Company has 28 forward currency exchange contracts maturing in 1999 which exchange 4.2 billion Belgian francs, 57 million U.S. dollars, 43 million Dutch guilders, 6 million British pounds, 95 million Norwegian krone, and various other currencies. Gains and losses on these foreign currency hedges are included in the carrying amount of the related assets and liabilities. During 1998, the Company entered into forward currency exchange contracts to reduce its exposure to currency fluctuations on the anticipated 1999 net sales to certain Japanese companies. The four forward currency exchange contracts, which matured in 1999, exchanged approximately 1.356 billion Japanese yen against approximately 10 million U.S. dollars. For the year ended December 31, 1999, the Company recorded losses on these forward currency exchange contracts of approximately $2 million. - 74 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 21. Derivative Financial Instruments and Fair Value of Financial Instruments (Continued) During 1999 and 1998, the Company also entered into a foreign currency exchange contract to reduce its exposure to certain U.S. dollar - denominated debt instruments in China. The 1999 contract, which matures in 2000, will exchange approximately 67 million Chinese renminbi against approximately 8 million U.S. dollars. The 1998 contract, which matured in 1999, exchanged approximately 158 million Chinese renminbi against approximately 19 million U.S. dollars. The Company enters into combined interest rate currency swaps to hedge its equity investments in certain foreign subsidiaries to manage its exposure against fluctuations in foreign currency rates. As of December 31, 1998 and 1997, the Company had three combined interest rate currency swaps which matured in 1999 to manage this exposure. These contracts exchanged 921 million Belgian francs, 50 million French francs, 17 million Dutch guilders and 50 million U.S. dollars. At December 31, 1999 and 1998, deferred gains of $11 million and $6 million, respectively, are included as a component of stockholders' equity. In 1994, the Company entered into two currency swap transactions to manage its exposure against foreign currency fluctuations on the principal amount of its guaranteed 9.814% Eurobonds (Note 2). During 1995, the Company terminated these swaps. The termination of these swaps exchanged 140 million U.S. dollars for approximately 89 million British pounds, resulting in a gain of approximately 10 million U.S. dollars. At that time, the Company entered into a combined interest rate currency swap and a currency swap exchanging U.S. dollars into British pounds to hedge the interest and principal payments of the Eurobonds. These agreements also convert part of the fixed rate interest into variable rate interest. The gain on the exercised swaps is being amortized over the life of the original hedge. At December 31, 1999 and 1998, $1 million and $2 million, respectively, of unamortized gain on the four cross-currency interest rate swaps is included in other liabilities. The Company has a cross-currency swap converting from Deutsche marks into U.S. dollars to hedge the interest and principal payments of its 7.25% Deutsche mark bonds, due in 2000. The agreement establishes a fixed interest rate of 11.1%. - 75 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 21. Derivative Financial Instruments and Fair Value of Financial Instruments (Continued) During 1999, the Company entered into an interest rate swap to convert one half of the principal payments on its $250 million debt issuance from a fixed rate of 7.0% to a floating LIBOR rate. As of December 31, 1999, the Company has an interest rate swap to convert $26 million in equipment lease payments from a floating LIBOR to a fixed rate of 5.52%. As of December 31, 1998, the Company had an interest rate swap to convert $33 million in equipment lease payments from a floating LIBOR to a fixed rate of 5.52%. The differential interest to be paid or received is accrued as interest rates change and is recognized over the life of the agreement. As of December 31, 1999 and 1998, this amount was not material to the consolidated financial statements. During 1997, the Company entered into interest rate swaps to manage its interest rate risk. As of December 31, 1997, the Company had seven ordinary interest rate swaps that effectively converted an aggregate principal amount of $350 million of variable rate long-term debt into fixed rate borrowings. These swaps were terminated during 1998, resulting in the deferral of a loss of approximately $8 million which is being amortized through 2002. For each of the years ended December 31, 1998 and 1997, losses of approximately $1 million related to these swaps have been recorded as a component of cost of borrowed funds. During 1997, the Company entered into three interest rate swaps as a hedge against interest rate fluctuation on an anticipated refinancing of the Trust Preferred Hybrid Securities (See Note 8). These swaps were intended to lock in an interest rate of 6.3% on a notional amount of $150 million. During 1998, the Company terminated these swaps and incurred an $8 million loss on the transaction. This loss was recorded as other operating expenses on the Company's consolidated statement of income for the year ended December 31, 1998. Other Financial Instruments with Off-Balance-Sheet Risk - ------------------------------------------------------- As of December 31, 1999 and 1998, the Company is contingently liable for guarantees of indebtedness owed by certain unconsolidated affiliates of $125 million and $116 million, respectively. The Company is of the opinion that its unconsolidated affiliates will be able to perform under their respective payment obligations in connection with such guaranteed indebtedness and that no payments will be required and no losses will be incurred by the Company under such guarantees. Concentrations of Credit Risk - ----------------------------- As of December 31, 1999 and 1998, the Company has no significant group concentrations of credit risk. Fair Value of Financial Instruments - ----------------------------------- The following methods and assumptions were used to estimate the fair value of each category of financial instruments: Cash and short-term financial instruments ----------------------------------------- The carrying amount approximates fair value due to the short maturity of these instruments. Restricted Securities Fibreboard Settlement Trust ------------------------------------------------- The fair values of securities in the Fibreboard Settlement Trust have been estimated by traded market values or by obtaining quotes from brokers. - 76 - OWENS CORNING AND SUBSIDIARIES ----------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 21. Derivative Financial Instruments and Fair Value of Financial Instruments (Continued) Long-term notes receivable -------------------------- The fair value has been estimated using the expected future cash flows discounted at market interest rates. Long-term debt --------------- The fair value of the Company's long-term debt has been estimated based on quoted market prices for the same or similar issues, or on the current rates offered to the Company for debt of the same remaining maturities. Foreign currency swaps and interest rate swaps ---------------------------------------------- The fair values of foreign currency swaps and interest rate swaps have been estimated by traded market values or by obtaining quotes from brokers. Forward currency exchange contracts, option contracts, and financial guarantees ------------------------------------------------------------- The fair values of forward currency exchange contracts, option contracts, and financial guarantees are based on fees currently charged for similar agreements or on the estimated cost to terminate these agreements or otherwise settle the obligations with the counter parties at the reporting date. The estimated fair values of the Company's financial instruments as of December 31, 1999 and 1998, which have fair values different than their carrying amounts, are as follows: 1999 1998 ---- ---- Carrying Fair Carrying Fair Amount Value Amount Value ------ ----- ------ ----- (In millions of dollars) Assets - ------ Long-term notes receivable $ 15 $ 13 $ 20 $ 17 Liabilities - ----------- Long-term debt 1,764 1,654 1,535 1,561 Off-Balance-Sheet Financial Instruments - Unrealized gains (losses) - ----------------------------------------- Currency swaps - 19 - 32 Interest rate swaps - (1) - - Combined interest rate currency swaps - 4 - 13 Options - - - - Forward currency exchange contracts - (1) - (1)
- 77 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 21. Derivative Financial Instruments and Fair Value of Financial Instruments (Continued) As of December 31, 1999 and 1998, the Company is contingently liable for guarantees of indebtedness owed by certain unconsolidated affiliates. There is no market for these guarantees and they were issued without explicit cost. Therefore, it is not practicable to establish their fair value. 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. Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS 133," which delayed the effective date of SFAS 133, is effective for fiscal years beginning after June 15, 2000, but earlier adoption is allowed. The Company is assessing the impact of SFAS 133 on its financial statements and plans to adopt this accounting change effective January 1, 2001. The Company has substantially completed an inventory of its freestanding derivatives, including forward contracts, option contracts, currency swaps and interest rate swaps, and has begun an inventory of derivatives which may be embedded in other contracts. The Company plans to complete these inventories, estimate the financial impact of adoption, evaluate existing risk management activities, and perform an information systems assessment by the end of the second quarter of 2000. The Company will review its risk management policies and modify its business processes as needed in order to comply with SFAS 133 and to temper the volatility in earnings and other comprehensive income. - 78 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 22. 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 December 31, 1999, the number of plaintiffs' law firms participating in the NSP is approximately 110 and Owens Corning has settled, through the NSP, approximately 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. Under the NSP, each participating law firm has agreed to a long- term settlement agreement ("NSP Agreement"). The NSP Agreements provide for the resolution of both present claims (those claims, including unfiled claims, pending at the time a participating plaintiffs' firm entered into an NSP Agreement) and future claims against Owens Corning and Fibreboard for settlement amounts negotiated with each participating firm. NSP Agreements may be extended beyond 2008 by mutual agreement of the parties. As to present claims, settlement amounts to each claimant vary based on a number of factors, including the type and severity of disease. All payments will be subject to satisfactory evidence of a qualifying medical condition and exposure to Owens Corning's products, delivery of customary releases by each claimant, and other conditions. The NSP allows claimants to receive prompt payment without incurring the significant delays and uncertainties of litigation. Certain claimants settling non- malignancy claims with Owens Corning and/or Fibreboard have agreed to accept as part of the settlement a pre-determined amount of additional compensation if they later develop a more severe asbestos-related medical condition. - 79 - OWENS CORNING AND SUBSIDIARIES ------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------- (Continued) 22. Contingent Liabilities (Continued) Under each NSP Agreement, a participating firm also agrees (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 Fibreboard through an administrative processing arrangement, rather than litigation. Under such arrangement, no settlement payment will be made for future claims unless specified medical criteria, product exposure and other requirements are met, and the amount of any such payment will be within a range of specified cash settlement values based on the disease of the claimant and other factors. In the case of future claims not involving malignancy, such criteria require medical evidence of functional impairment. Payments 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. Payments under the NSP for settled present claims will generally be made through 2002, 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 2001. 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: 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 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 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). 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 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. - 80 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 22. Contingent Liabilities (Continued) Asbestos Related Payments - ------------------------- In 1999, Owens Corning made $860 million of asbestos related payments, falling within four major categories: (1) Settlements in respect of verdicts incurred 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: (In millions of dollars) Pre-NSP Settlements $ 170 NSP Settlements 570 Non-NSP Settlements 30 Defense, Claims Processing and Administrative Expenses 90 ------ $ 860 All amounts discussed above are before tax and application of insurance recoveries. Owens Corning currently estimates that it will incur total asbestos payments 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 the rate at which NSP claims are submitted and processed, the severity of disease (especially mesothelioma) involved in such claims, the number of non-NSP claims resolved and the cost of resolving such claims. In this respect, since implementation of the NSP, Owens Corning's preference has been to attempt to settle non-NSP claims (using criteria similar to those established by the NSP) rather than take them through the litigation process. Such settlements expedite payments to deserving claimants while increasing predictability to Owens Corning. 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 increased costs of defense, the possibility of adverse verdicts which exceed NSP settlement values, 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. It appears likely that a substitute for or amendment of HR 1283 will be introduced in the House Judiciary Committee during 2000. While details of the revised legislation have yet to be determined, Owens Corning believes that key members of Congress view the NSP favorably and that, if any asbestos legislation is enacted, it will be consistent with the continued implementation of the NSP. - 81 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- (Continued) 22. Contingent Liabilities (Continued) 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 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 December 31, 1999, Owens Corning had approximately $230 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 December 31, 1999, are as follows: - 82 - OWENS CORNING AND SUBSIDIARIES ------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 22. Contingent Liabilities (Continued) December 31, December 31, 1999 1998 ---- ---- (In millions of dollars) Reserve for asbestos litigation claims - --------------------------------- Current $ 950 $ 850 Other 820 1,780 ------- ------ Total Reserve $ 1,770 $ 2,630 ------- ------- Insurance for asbestos litigation claims - --------------------------------- Current $ 25 $ 150 Other 205 260 ------- ------- Total Insurance $ 230 $ 410 ------- ------- Net Owens Corning Asbestos Liability $ 1,540 $ 2,220 ======= ======= 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 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 other 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 claims outside the NSP. As referenced above, Owens Corning also notes that in recent months it has received a number of settlement demands from non-NSP plaintiff's 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. 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. 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. - 83 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 22. Contingent Liabilities (Continued) 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 December 31, 1999, 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 have 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 available to satisfy Fibreboard's pending and future asbestos related liabilities. As of December 31, 1999, $1,838 million was held in the Fibreboard Settlement Trust. 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 which ultimately are not used to fund Fibreboard's asbestos liabilities must be distributed to charity. - 84 - OWENS CORNING AND SUBSIDIARIES ------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 22. Contingent Liabilities (Continued) Funds held in the Fibreboard Settlement Trust 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 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. 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 December 31, 1999, Owens Corning estimates Fibreboard's asbestos related liabilities at $1,750 million. See Note 23 for additional information concerning the Fibreboard Settlement Trust. Asbestos Related Payments - ------------------------- Gross payments for asbestos litigation claims against Fibreboard during 1999 were approximately $136 million, all of which were paid/reimbursed by Fibreboard's insurers or the Fibreboard Settlement Trust. Owens Corning currently estimates that Fibreboard will incur total asbestos payments of approximately $900 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 numerous variables, including the rate at which NSP claims are submitted and processed, the severity of disease (especially mesothelioma) involved in such claims, the number of non-NSP claims resolved and the cost of resolving such claims. 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. - 85 - OWENS CORNING AND SUBSIDIARIES ------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ----------------------------------------- (Continued) 23. Fibreboard Settlement Trust Under the Insurance Settlement described in Note 22, 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 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 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. 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 December 31, 1999, Owens Corning estimates Fibreboard's asbestos related liabilities at $1.750 billion, with a residual obligation to charity of $88 million. Payments from the Trust 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. - 86 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- (Continued) 23. Fibreboard Settlement Trust (Continued) Results for the Period Ending December 31, 1999 - ----------------------------------------------- Since the funding of the Trust in the fourth quarter of 1999, Trust Assets generated interest/dividend earnings of approximately $17 million, 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 during December 1999 were approximately $51 million. Such payments were funded by existing cash in the Trust or proceeds from the sale of securities. The sale of securities during December 1999 resulted in a realized loss 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 December 31, 1999, the fair market value adjustment for those securities designated as available for sale resulted in an unrealized loss of approximately $1 million. This loss has been reflected in the Company's consolidated balance sheet as a reduction to the carrying amount of the asset and a charge to other comprehensive income. This loss has also been reflected as a reduction to the liability to be paid to charity, with a corresponding credit to other comprehensive income. At December 31, 1999, the fair value of Trust Assets was $1.838 billion, all of which were invested in marketable securities. $900 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 December 31, 1999 are as follows: Gross Gross Amortized Unrealized Unrealized Fair Cost Gain Loss Value --------- ---------- ---------- --------- (In millions of dollars) US Government Bonds $ 221 $ - $ - $ 221 Municipal Bonds 199 - - 199 Corporate Bonds 85 - - 85 Corporate Notes 1,334 - (1) 1,333 --------- ---------- ---------- --------- Total $ 1,839 $ - $ (1) $1,838
Maturities of investment securities classified as available for sale at 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. - 87 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (Continued) 23. Fibreboard Settlement Trust (Continued) Amortized Cost Fair Value ---- ---------- (In millions of dollars) Due within one year $ 1,152 $ 1,152 Due after one year through five years 72 72 Due after five years through ten years 87 87 Due after ten years 528 527 ----------- ----------- Total $ 1,839 $ 1,838 The table below summarizes Trust activity from inception to December 31, 1999: Interest Unrealized Sale Realized Balance and Gain/ of Gain/ Balance 12/8/99 Dividends (Loss) Securities (Loss) Payments 12/31/99 ------- --------- --------- ---------- -------- -------- -------- (In millions of dollars) Assets - ------ Cash $ - $ - $ - $ 51 $ - $(51) $ - Marketable Securities: Available for Sale $1,873 $17 $ (1) $ (51) - - $1,838 ------ ----- ------- -------- ----- ------ ------- Total Assets $1,873 $17 $ (1) $ - $ - $(51) $1,838 ====== ===== ======= ======== ====== ====== ======= Liabilities - ----------- Asbestos Litigation Claims $1,801 $ - $ - $ - $ - $(51) $1,750 Charity $ 72 $17 $ (1) - - - $ 88 ------ ----- ------- -------- ------ ------ ------- Total Liabilities $1,873 $17 $ (1) $ - $ - $(51) $1,838 ====== ===== ======= ======== ====== ====== =======
- 88 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- (Continued) 24. Quarterly Financial Information (Unaudited) Quarter ------------------------------------- First Second Third Fourth ----- ------ ----- ------ (In millions of dollars, except share data) 1999 - ---- Net sales $ 1,130 $1,310 $1,333 $1,275 Cost of sales 871 987 986 980 ------- ------ ------- ------ Gross margin $ 259 $ 323 $ 347 $ 295 ======= ====== ======= ====== Net income $ 44 $ 76 $ 89 $ 61 ======= ====== ======= ====== Net income per share: Basic net income per share $ .81 $ 1.41 $ 1.64 $ 1.11 ======= ======= ======= ====== Diluted net income per share $ .77 $ 1.31 $ 1.53 $ 1.05 ======= ======= ======= ====== - 89 - OWENS CORNING AND SUBSIDIARIES ------------------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------- (Continued) 24. Quarterly Financial Information (Unaudited)(Continued) Quarter ------------------------------------ First Second Third Fourth ----- ------ ----- ------ (In millions of dollars, except share data) 1998 - ---- Net sales $1,137 $1,286 $1,324 $1,262 Cost of sales 938 985 1,060 961 ------ ------- ------ ------ Gross margin $ 199 $ 301 $ 264 $ 301 ====== ======== ====== ====== Income (loss) before extraordinary item 8 59 135 (868) Extraordinary loss (Note 2) - - (39) - ------ -------- ------- ------ Net income (loss) $ 8 $ 59 $ 96 $(868) ====== ======== ======= ====== Net income (loss) per share: Basic net income (loss) per share: Income (loss) before extraordinary item .16 1.09 2.51 (16.16) Extraordinary loss (Note 2) - - (.72) - ------ -------- -------- ------- Net income (loss) per share $ .16 $ 1.09 $ 1.79 $(16.16) ======== ======== ======== ======= Diluted net income (loss) per share: Income (loss) before extraordinary item $ .16 $ 1.02 $ 2.32 $(16.16) Extraordinary loss (Note 2) - - (.66) - ------- -------- -------- -------- Net income (loss) per share $ .16 $ 1.02 $ 1.66 $(16.16) ======= ======== ========= ======= - 90 - INDEX TO FINANCIAL STATEMENT SCHEDULES -------------------------------------- Number Description Page - ------ ----------- ---- II Valuation and Qualifying Accounts and Reserves - for the years ended December 31, 1999, 1998, and 1997..................91 - 91 - OWENS CORNING AND SUBSIDIARIES ------------------------------ SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES ------------------------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 ----------------------------------------------------- Column A Column B Column C Column D Column E Additions ---------------- (1) (2) Balance Charged at to Charged Balance Beginning Costs to at of and Other End of Classification Period Expenses Accounts Deductions Period - -------------- -------- -------- -------- ---------- ------ (In millions of dollars) FOR THE YEAR ENDED DECEMBER 31, 1999: Allowance deducted from asset to which it applies - Doubtful Accounts $ 23 $ 5 $ - $ 2 (B) $ 26 Reserve to which it applies - Restructure Costs 49 - - 28 (C) 21(E) FOR THE YEAR ENDED DECEMBER 31, 1998: Allowance deducted from asset to which it applies - Doubtful Accounts $ 20 $ 9 $ - $ 6(B) $ 23 Reserve to which it applies - Restructure Costs 44 93 - 88(C) 49(D) FOR THE YEAR ENDED DECEMBER 31, 1997: Allowance deducted from asset to which it applies - Doubtful Accounts $ 17 $ 3 $ 6(A) $ 6(B) $ 20 Reserve to which it applies - Restructure Costs 34 40 - 30(C) 44
Notes: (A) Allowances of subsidiaries acquired. (B) Uncollectible accounts written off, net of recoveries. (C) Cash payments. (D) Includes non-current liabilities of $14 million. (E) Includes non-current liabilities of $8 million. - 92 - 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 (filed herewith). (4) Instruments Defining the Rights of Security Holders, Including Indentures. Indenture, dated as of May 5, 1997, between Owens Corning and The Bank of New York, as Trustee (incorporated herein by reference to Exhibit 4.5.1 to Owens Corning's current report on Form 8-K (File No. 1-3660), filed May 14, 1997). Credit Agreement, dated as of June 26, 1997, among Owens Corning, other Borrowers and Guarantors, the Banks listed on Annex A thereto, and Credit Suisse First Boston, as Agent (incorporated herein by reference to Exhibit (4) to Owens Corning's quarterly report on Form 10-Q (File No. 1- 3660) for the quarter ended June 30, 1997), as amended by Amendment No. 1 thereto (incorporated herein by reference to Exhibit (4) to Owens Corning's annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1997) and Amendment No. 2 thereto (incorporated herein by reference to Exhibit (4) to Owens Corning's annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1998). Owens Corning agrees to furnish to the Securities and Exchange Commission, upon request, copies of all instruments defining the rights of holders of long-term debt of Owens Corning where the total amount of securities authorized under each issue does not exceed ten percent of Owens Corning's total assets. (10) Material Contracts. Credit Agreement, dated as of June 26, 1997, among Owens Corning, other Borrowers and Guarantors, the Banks listed on Annex A thereto, and Credit Suisse First Boston, as Agent (incorporated herein by reference to Exhibit (4) to Owens Corning's quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1997), as amended by Amendment No. 1 thereto (incorporated herein by reference to Exhibit (4) to Owens Corning's annual report on Form 10-K (File No. 1- 3660) for the year ended December 31, 1997) and Amendment No. 2 thereto (incorporated herein by reference to Exhibit (4) to Owens Corning's annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1998). * Director's Charitable Award Program, as amended (filed herewith). * Key Management Severance Agreement with David T. Brown (filed herewith). - 93 - EXHIBIT INDEX ------------- * Corporate Incentive Plan Terms Applicable to Key Employees Other Than Certain Executive Officers (incorporated herein by reference to Exhibit (10) to Owens Corning's quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1999). The following documents are incorporated herein by reference to Exhibit (10) to Owens Corning's quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended March 31, 1999: * - Owens Corning Deferred Compensation Plan. * - Corporate Incentive Plan Terms Applicable to Certain Executive Officers. The following documents are incorporated herein by reference to Exhibit (10) to Owens Corning's annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1998: * - Stock Performance Incentive Plan, as amended. * - Key Management Severance Agreement with Maura Abeln Smith. * - Key Management Severance Agreement with Domenico Cecere. * - Key Management Severance Agreement with J. Thurston Roach. * - Letter to Maura Abeln Smith. * - Letter to J. Thurston Roach. * Owens Corning Supplemental Executive Retirement Plan, effective as of January 1, 1998 (incorporated herein by reference to Exhibit (10) to Owens Corning's quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1998). The following documents are incorporated herein by reference to Exhibit (10) to Owens Corning's annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1997: * - Renewal Agreement, effective as of July 31, 1999, with Glen H. Hiner. * - Agreement with Domenico Cecere. * 1987 Stock Plan for Directors, as amended (incorporated herein by reference to Exhibit (10) to Owens Corning's quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1997). The following documents are incorporated herein by reference to Exhibit (10) to Owens Corning's quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1996: * - Long-Term Performance Incentive Plan Terms Applicable to Certain Executive Officers. * - Long-Term Performance Incentive Plan Terms Applicable to Officers Other Than Certain Executive Officers. - 94 - EXHIBIT INDEX ------------- * Agreement, dated as of January 1, 1995, with William W. Colville (incorporated herein by reference to Exhibit (10) to Owens Corning's annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1994) and amendment dated September 29, 1997 (incorporated herein by reference to Exhibit (10) to Owens Corning's annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1997). * Executive Supplemental Benefit Plan, as amended (incorporated herein by reference to Exhibit (10) to Owens Corning's quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended March 31, 1993). * Employment Agreement, dated as of December 15, 1991, with Glen H. Hiner (incorporated herein by reference to Exhibit (10) to Owens Corning's annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1991), as amended by First Amending Agreement made as of April 1, 1992 (incorporated herein by reference to Exhibit (19) to Owens Corning's quarterly report on Form 10-Q (File No. 1-3660) for the quarter ended June 30, 1992). * Form of Directors' Indemnification Agreement (incorporated herein by reference to Exhibit (10) to Owens Corning's annual report on Form 10-K (File No. 1-3660) for the year ended December 31, 1989). * Deferred Compensation Plan for Directors, as amended (incorporated herein by reference to Exhibit (10) to Owens Corning's annual report on Form 10-K (File No. 1- 3660) for the year ended December 31, 1987). (11) Statement re Computation of Per Share Earnings (filed herewith). (21) Subsidiaries of Owens Corning (filed herewith). (23) Consent of Arthur Andersen LLP (filed herewith). (27) Financial Data Schedule (filed herewith). * Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. EX-3 2 Exhibit (3) ----------- BY-LAWS of OWENS CORNING ARTICLE I STOCKHOLDERS Section 1. Annual Meeting. An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, either within or without the State of Delaware, on such date, and at such time as the Board of Directors shall each year fix, which date shall be within thirteen months subsequent to the last annual meeting of stockholders. Section 2. Special Meetings. Except as otherwise required by law or by the Certificate of Incorporation and subject to the rights of the holders of any class or series of stock having a preference over the common stock of the Corporation as to dividends or upon liquidation, dissolution or winding up, special meetings of stockholders may be called only by the Board of Directors pursuant to a resolution approved by a majority of the whole Board of Directors. Special meetings of stockholders shall be held at such place, within or without the State of Delaware, date and time as the Board of Directors shall fix. Section 3. Organization and Conduct of Business. Such person as the Board of Directors may have designated or, in the absence of such a person, the Chief Executive Officer of the Corporation or, in his absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman appoints. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as he determines to be in order. At a meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before a meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that notice of the date of the meeting is not given to stockholders, or public disclosure by means of a filing with the Securities and Exchange Commission of such date is not made, at least 70 days prior to the date of such meeting, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder and (d) any material interest of the stockholder in such business. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at a meeting of stockholders, except in accordance with the procedures set forth in this Article I, Section 3. The chairman of a meeting of stockholders shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Article I, Section 3, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section 4. Nomination of Directors. Only persons who are nominated in accordance with the procedures set forth in this Article I, Section 4, shall be eligible for election as directors by action of the stockholders. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Article I, Section 4. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; provided, however, that in the event that notice of the date of the meeting is not given to stockholders, or public disclosure by means of a filing with the Securities and Exchange Commission of such date is not made, at least 70 days prior to the date of such meeting, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, and (iii) the class and number of shares of the Corporation which are beneficially owned by such person; and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such stockholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such stockholder. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the By-Laws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 5. Notice of Meetings. Written notice of the place, date, and time of all meetings of stockholders, and the purpose or purposes for which the meeting was called, shall be given, not less than ten nor more than sixty days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by the Delaware General Corporation Law or the Certificate of Incorporation. No notice of any meeting of stockholders need be given to any stockholder who submits a signed waiver of notice to the Secretary of the Corporation, whether before or after the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the stockholder attends a meeting, in person or by proxy, for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the grounds that the meeting is not lawfully called or convened. When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 6. Quorum. At any meeting of the stockholders, the holders of a majority of all the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by the Certificate of Incorporation or by law. Where a separate vote by a class or classes is required, a majority of the shares of such class or classes, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to the vote on that matter. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time. If a notice of any adjourned special meeting of stockholders is sent to all stockholders entitled to vote thereat, stating that it will be held with those present constituting a quorum, then except as otherwise required by the Certificate of Incorporation or by law, those present at such adjourned meeting, in person or by proxy, shall constitute a quorum, and all matters shall be determined by a majority of the votes cast at such meeting. Section 7. Record Dates. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, or to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which record date shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to the time for such other action as described in this section. If no record date is fixed pursuant to the foregoing paragraph: (a) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (b) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting, provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 8. Proxies and Voting. A stockholder may, by an instrument in writing or by a transmission permitted by law filed in accordance with the procedures established for the meeting, authorize any other person or persons to act for such stockholder as proxy to vote for such stockholder at any and all meetings of stockholders and to waive all notices which such stockholder may be entitled to receive. Each stockholder shall have one vote for every share of stock entitled to vote which is registered in his or her name on the record date for the meeting, except as otherwise provided herein or required by the Certificate of Incorporation or by law. All voting, including on the election of directors, unless otherwise required by the Certificate of Incorporation or by law, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote for the election of directors, elections for directors shall be by ballot. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting. All elections shall be determined by a plurality of the votes cast, and, except as otherwise required by the Certificate of Incorporation or by law, all other matters shall be determined by a majority of the votes cast. Section 9. Stock List. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in the name of each stockholder, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. ARTICLE II BOARD OF DIRECTORS Section 1. Qualifications of Directors. Each director shall be a person sui juris. No director need be a stockholder of the Corporation. Section 2. Number, Term of Office and Vacancies. The number of directors who shall constitute the whole Board of Directors, and the terms of office of each director, shall be determined in accordance with the Certificate of Incorporation. Newly created directorships and vacancies shall be filled in the manner provided in the Certificate of Incorporation. Section 3. Regular Meetings. Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required. Section 4. Special Meetings. Special meetings of the Board of Directors may be called by one-third of the directors then in office (rounded up to the nearest whole number) or by the Chairman of the Board or Chief Executive Officer and shall be held at such place, on such date, and at such time as they or he shall fix. Notice of each special meeting shall be given to each director by the Secretary or Assistant Secretary of the Corporation or by the Chairman of the Board, Chief Executive Officer, or directors calling said meeting. Such notice may be given personally or by telephone, or by written notice, telegram, cable, facsimile or telex, mailed or directed to the address of the director appearing upon the books of the Corporation, and shall set forth the date, time and place of the meeting, but need not state the purpose or purposes thereof unless required by the Certificate of Incorporation or by law. Notice of the meeting shall be sufficient in time if actually delivered to the director notified, or delivered properly addressed and prepaid to the carrier thereof, or telecopied, sufficiently early to be delivered in due and regular course to the director notified, in time to enable him to attend such meeting. Notice to any director of a meeting of the Board of Directors may be waived by him, and shall be deemed waived by him by his presence at the meeting. Section 5. Quorum. At any meeting of the Board of Directors, a majority of the total number of the whole Board shall constitute a quorum for all purposes. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof. Section 6. Participation in Meetings By Conference Telephone. Members of the Board of Directors, or of any committee thereof, may participate in a meeting of the Board or any committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting. Section 7. Conduct of Business. At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or required by the Certificate of Incorporation or by law. Action may be taken by the Board of Directors without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors. Section 8. Compensation of Directors. Directors, pursuant to resolution of the Board of Directors, may receive fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the Board of Directors. Section 9. Approval of Minutes. The minutes of meetings of the Board of Directors may be acted upon at any subsequent meeting thereof and the approval of the minutes of any meeting of the Board of Directors shall have the effect of ratifying and validating any of the acts reported therein with like effect as if such acts had been properly approved or authorized at such meeting, providing that such approval is by such vote as would have been sufficient to authorize the acts so reported. ARTICLE III COMMITTEES Section 1. Committees of the Board of Directors. The Board of Directors, by a vote of a majority of the whole Board may, from time to time, designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any other provided for herein, elect a director or directors to serve as the member or members thereof, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. If the resolution which designates the committee or a supplemental resolution of the Board of Directors shall so provide, any committee so designated may exercise the power and authority of the Board of Directors to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law. In the absence or disqualification of any member of any committee and any alternate member in his place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. Section 2. Conduct of Business. Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by the Certificate of Incorporation or by law. Unless otherwise designated by the Board of Directors, one-third of the members shall constitute a quorum unless the committee shall consist of one or two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof. Each committee shall hold meetings upon the call of its chairman, the Chairman of the Board, the Chief Executive Officer, or any one of its members, at such date, time and place as set forth in the notice of meeting. Notice of each meeting of a committee of the Board of Directors shall be given to each member by the Secretary or Assistant Secretary of the Corporation, Chairman of the Board, Chief Executive Officer or by the member of the committee calling the meeting. Such notice may be given personally or by telephone or by written notice, telegram, cable, facsimile or telex, mailed or directed to the address of the member appearing upon the books of the Corporation and shall set forth the date, time and place of the meeting, but need not state the purpose or purposes thereof unless required by the Certificate of Incorporation or by law. Notice of the meeting shall be sufficient in time if actually delivered to the member of the committee notified, or delivered properly addressed and prepaid to the carrier thereof, or telecopied, sufficiently early to be delivered in due and regular course to the member notified, in time to enable him to attend such meeting. Notice to any member of a meeting of a committee of the Board may be waived by him, and shall be deemed waived by him by his presence at the meeting. Action may be taken by conference telephone as provided in Article II, Section 6. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee. Section 3. Officers. The Board of Directors may designate one or more members of any committee to act as the chairman and the secretary of any committee, and each person so designated shall continue as such during the pleasure of the Board. Unless so designated, a committee may choose its own officers, including officers pro tem, and if no secretary has been designated by the Board or the committee, the Secretary of the Corporation shall act as secretary of the committee and keep proper minutes of the proceedings of such committee. ARTICLE IV OFFICERS Section 1. Elected Officers. The officers of the Corporation shall consist of a President, one or more Vice Presidents, a Secretary, a Treasurer and such other officers as the Board of Directors may from time to time elect. The Board of Directors shall consider the election of officers at its first meeting after every annual meeting of stockholders and may consider that subject at such other times as the Board may deem appropriate. Each officer shall hold office until his successor is elected and qualified or until his earlier resignation, retirement or removal. Each officer elected by the Board of Directors or appointed pursuant to Section 2 of this Article IV shall be retired from the Corporation, unless mandatory retirement of such officer is prohibited by law, in accordance with the Corporation's retirement programs not later than the last day of the month in which the officer attains age sixty-five. Any number of offices may be held by the same person. Each officer elected by the Board of Directors or any person thereto specifically authorized by the Board may, in the name and on behalf of the Corporation, receive and receipt for moneys and other properties, execute and deliver contracts, deeds, mortgages, leases, bonds, undertakings, powers of attorney, and other instruments, and assign, endorse, transfer, deliver, release, and satisfy any and all contracts, mortgages, leases, stock certificates, bonds, promissory notes, drafts, checks, bills, orders, receipts, acquittances, and other instruments, and may, when necessary, affix the corporate seal thereto. The Chairman of the Board, President, Chief Executive Officer and Vice Presidents elected by the Board may delegate, designate or authorize named individuals to execute and attest on behalf of the Corporation bids, contracts, performance bonds and similar documents arising in the ordinary day-to-day operations of the Corporation and its divisions. Section 2. Appointed Officers. The Chief Executive Officer designated by the Board of Directors, or if a Chief Executive Officer has not been so designated, the President of the Corporation, may, from time to time, create and abolish such functional, divisional or regional offices of Vice President or Assistant Vice President with such powers and duties and subject to such limitations of authority as he may prescribe and he may make appointments to, and removals from, any such office, but such appointees shall not exercise specific powers or duties pertaining to the elective offices of the Corporation as provided in this Article IV of the By-Laws, except as prescribed by the Board of Directors, either generally or specially. Section 3. Compensation. The Board of Directors, or any committee thereof so designated, may, from time to time, fix the compensation of the several officers, agents, and employees of the Corporation and may delegate to any officer of the Corporation, or any committee composed of officers of the Corporation, the power to fix the compensation of the officers, agents, and employees of the Corporation. Section 4. Chairman of the Board. The Board of Directors may elect one of the members of the Board as Chairman of the Board, who, if elected, shall preside at all meetings of stockholders and directors and shall also perform such duties as may be prescribed by the Board. Except where by law the signature of the President is required, the Chairman of the Board shall possess the same power as the President to sign all certificates, contracts and other instruments of the Corporation. Section 5. Vice Chairman of the Board. The Board of Directors may designate one of the members of the Board as Vice Chairman of the Board who, in the absence or disability of the Chairman of the Board or during any vacancy of that office, shall perform the duties of the Chairman of the Board. He shall also perform such duties as may be prescribed by the Board or delegated to him by the Chief Executive Officer. Section 6. Chief Executive Officer. The Board of Directors shall designate either the Chairman of the Board or the President as Chief Executive Officer of the Corporation, who, subject to the direction and control of the Board, shall have the responsibility for the general management and control of the business and affairs of the Corporation and shall perform all duties and have all powers which are commonly incident to the office of chief executive or which the Board of Directors delegates to him. He shall have power to sign all stock certificates, contracts and other authorized instruments of the Corporation and shall have general supervision and direction of all other officers, employees and agents of the Corporation. The Chief Executive Officer, prior to each annual meeting of stockholders, shall submit to the Board of Directors a report of the operations of the Corporation during the preceding fiscal year and of its affairs, and from time to time shall report to the Board all matters affecting the Corporation's interests which may come to his knowledge. Section 7. President. The President, in the absence or disability of the Chairman of the Board and the Vice Chairman of the Board or during vacancies in both of such offices, shall preside at all meetings of stockholders and directors. He shall perform such duties as may be prescribed by the Board of Directors or delegated to him by the Chief Executive Officer. Section 8. Vice President. Each Vice President shall have such powers and duties as may be delegated to him by the Board of Directors. The Board of Directors, or the Chief Executive Officer, or if a Chief Executive Officer has not been so designated, the President, may assign further descriptive titles to the Vice Presidents, prescribe their duties and rank and may designate them numerically. Section 9. Secretary. The Secretary shall keep an accurate record of all proceedings of the stockholders and the Board of Directors and committees of the Board; sign all certificates for shares and deeds, mortgages, bonds, contracts, notes and other instruments executed by the Corporation requiring his signature or as may be prescribed by the Chief Executive Officer or the President; give notices of meetings of stockholders and of directors; produce on request at any meeting of stockholders a certified list of stockholders arranged in alphabetical order, showing the number of shares held by each; and perform such other and further duties as may from time to time be prescribed by the Board, or a committee of the Board, or as may from time to time be assigned or delegated to him by the Chief Executive Officer or the President. He shall have custody and care of the seal of the Corporation. Section 10. Treasurer. Subject to the direction and control of the Board of Directors, the Chief Executive Officer, and any officer who may be designated by the Board with responsibility for finance, the Treasurer shall have custody of the funds and securities belonging to the Corporation, and shall deposit all funds in the name and to the credit of the Corporation in such depository or depositories as may be designated by the Board or by an officer or officers duly authorized by the Board to designate depositories. He shall make such disbursements of the funds of the Corporation as are authorized and shall render to the Board of Directors, whenever the Board may require it, an account of all his transactions as Treasurer. The Treasurer shall also perform such other duties as the Board of Directors may prescribe from time to time. Section 11. Controller. The Controller shall keep proper books of account and full and accurate records of the receipts and disbursements of the funds belonging to the Corporation and of its operations. The Controller shall render to the Board of Directors, any of its committees, the Chief Executive Officer, and the President, such statements as to the financial condition of the Corporation and as to its operations as each or any of them may request. Section 12. All Officers. The several officers shall perform all other duties usually incident to their respective offices, or which may be required by the stockholders or Board of Directors; shall from time to time, and also whenever requested, report to the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President all matters affecting the Corporation's interests which may come to their knowledge and, on the expiration of their terms of office, shall respectively deliver all books, papers, money and property of the Corporation in their hands to their successors, or to the Chief Executive Officer, or to any person designated by the Board to receive the same. Section 13. Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof. Section 14. Removal. Any officer of the Corporation may be removed at any time, with or without cause, by the Board of Directors. Section 15. Action with Respect to Securities of Other Corporations. Unless otherwise directed by the Board of Directors, each of the Chairman of the Board, the Vice Chairman of the Board, the President, any Vice President elected by the Board of Directors, the Treasurer and the Secretary shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of, or with respect to any action of stockholders of, any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation. Section 16. Security. The Board of Directors may require any officer, agent or employee of the Corporation to provide security for the faithful performance of his duties, in such amount and of such character and on such terms as may be determined from time to time by the Board of Directors. ARTICLE V STOCK Section 1. Certificates of Stock. Each stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by, the Chairman of the Board, the Vice Chairman of the Board, the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, certifying the number of shares owned by him. Any or all of the signatures and the seal of the Corporation on the certificate may be facsimile, engraved, stamped or printed. In the event that any officer or transfer agent who has signed or whose facsimile signature has been placed upon a stock certificate shall have ceased to be such officer or transfer agent before such certificate is issued, it may be issued by the Corporation with the same effect as if the officer or transfer agent were such at the date of issue. Section 2. Transfers of Stock. Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by a transfer agent or agents designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Section 3 of Article V of these By-Laws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor. Section 3. Lost, Stolen or Destroyed Certificates. If a person claiming to be the holder of stock in the Corporation claims that the certificate representing such stock has been lost, stolen or destroyed, a duplicate certificate or written instrument may be issued by the Corporation's Transfer Agent for the stock upon being furnished with an affidavit of such loss, theft or destruction in form and substance satisfactory to the Transfer Agent and, upon giving to the Corporation of a bond or agreement of indemnity executed by such holder or owner with a surety company authorized to do business in the State of Delaware or in the State of Ohio as surety, in form approved by counsel for the Corporation, for full and complete indemnification to the Corporation of all losses, costs and expenses of every kind and nature whatsoever which may result to the Corporation or any of its agents or employees by reason of the issuance of such duplicate certificate. Section 4. Regulations. The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish. ARTICLE VI FINANCES Section 1. Fiscal Year. The fiscal year shall begin on the first day of January in each year. Section 2. Borrowings. Any two of the following officers: the Chairman of the Board, Vice Chairman of the Board, President, Executive Vice President, Senior Vice President, Vice President-Finance, Treasurer, Assistant Treasurer, or any employee of the Corporation designated in writing by any two of said officers, may from time to time in the name of the Corporation borrow money with an obligation to repay not exceeding one year from any bank, trust company or financial institution in such amounts as the officers or designated employee may deem necessary or desirable for the current needs of the Corporation. All obligations for moneys borrowed by the Corporation, and guarantees by the Corporation of moneys borrowed by subsidiaries of the Corporation, shall bear the signatures of any two of the following officers: the Chairman of the Board, Vice Chairman of the Board, President, Executive Vice President, Senior Vice President, Vice President-Finance, Treasurer and Assistant Treasurer, only one of which may be an Assistant Treasurer. Section 3. Banking Authorizations. Except as provided in Section 2 of this Article VI, all checks, drafts, notes, or other obligations for the payment of money shall be signed by such person or persons as the Board of Directors shall direct. The Board may delegate to any officer or officers the power to designate a depository or depositories for the Corporation and to appoint a signer or signers upon such instruments in respect of the funds held by all or any particular depositories. The Board may authorize the use of facsimile or mechanically applied signatures or may delegate to an officer or officers the power to authorize the use thereof. The Board may authorize the use of Depository Transfer Instruments without signature from one corporate account maintained with a duly designated depository to any other corporate account maintained either with the same or some other duly designated depository. The Board may authorize the use of other generally accepted means of transferring funds without signature from a corporate account maintained with a duly designated depository to any other corporate account or to the account of another party at the same or some other depository. ARTICLE VII NOTICES Section 1. Notices. Except as otherwise specifically provided herein or required by the Certificate of Incorporation or by law, all notices required to be given, other than by publication in a newspaper, to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by pre-paid telegram or mailgram. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice is received, if hand delivered, or dispatched, if delivered through the mails or by telegram or mailgram, shall be the time of the giving of the notice. Section 2. Waivers. A written waiver of any notice, signed by a stockholder, director, officer, employee or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, director, officer, employee or agent. Neither the business to be transacted nor the purpose of any meeting need be specified in such a waiver unless so required by the Certificate of Incorporation or as otherwise provided in these By-Laws. ARTICLE VIII MISCELLANEOUS Section 1. Facsimile Signatures. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these By-Laws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. Section 2. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". Section 3. Reliance upon Books, Reports and Records. Each director, each member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors so designated, or by any other person as to matters which such director, committee member or officer reasonably believes are within such other person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation. Section 4. Time Periods. In applying any provision of these By-Laws which require that an act be done or not done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included. Section 5. Gender. Whenever the masculine gender is used in these By-Laws, it shall be deemed to include both the male and female genders. ARTICLE IX INDEMNIFICATION OF DIRECTORS AND OFFICERS The Corporation shall, to the fullest extent permitted by applicable law from time to time in effect, (but, in the case of any amendment of such law, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment) indemnify any and all persons who may serve or who have served at any time as directors or officers of the Corporation, or who at the request of the Corporation may serve or at any time have served as directors, officers, employees or agents of another corporation (including subsidiaries of the Corporation) or of any partnership, joint venture, trust or other enterprise, and any directors or officers of the Corporation who at the request of the Corporation may serve or at any time have served as agents or fiduciaries of an employee benefit plan of the Corporation or any of its subsidiaries, from and against any and all of the expenses, liabilities or other matters referred to in or covered by law whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent. The Corporation may also indemnify any and all other persons whom it shall have power to indemnify under any applicable law from time to time in effect to the extent permitted by such law. The indemnification provided by this Article IX shall not be deemed exclusive of any other rights to which any person may be entitled under any provision of the Certificate of Incorporation, other By-Law, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, and shall be contract rights and continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. If a claim under this Article IX is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days, the director or officer may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the director or officer shall be entitled to be paid also the expense of prosecuting or defending such suit. In (i) any suit brought by the director or officer to enforce a right to indemnification hereunder (but not in a suit brought by the director or officer to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the director or officer has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the director or officer is proper in the circumstances because the director or officer has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board, independent legal counsel, or its stockholders) that the director or officer has not met such applicable standard of conduct, shall create a presumption that the director or officer has not met the applicable standard of conduct or, in the case of such a suit brought by the director or officer, be a defense to such suit. In any suit brought by the director or officer to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the director or officer is not entitled to be indemnified, or to such advancement of expenses, under this Article IX or otherwise shall be on the Corporation. The indemnification provided in this Article IX shall inure to each person referred to herein, whether or not the person is serving in any of the enumerated capacities at the time such expenses (including attorneys' fees), judgments, fines or amounts paid in settlement are imposed or incurred, and whether or not the claim asserted against him is based on matters which antedate the adoption of this Article IX. None of the provisions of this Article IX shall be construed as a limitation upon the right of the Corporation to exercise its general power to enter into a contract or understanding of indemnity with a director, officer, employee, agent or any other person in any proper case not provided for herein. Each person who shall act or have acted as a director or officer of the Corporation shall be deemed to be doing so in reliance upon such right of indemnification. For purposes of this Article IX, the term "Corporation" shall include constituent corporations referred to in subsection (h) of Section 145 of the General Corporation Law of the State of Delaware (or any similar provision of applicable law at the time in effect). ARTICLE X AMENDMENTS These By-Laws may be amended by a majority vote of the stockholders entitled to vote at any annual or special meeting of the stockholders provided notice of the proposed amendment shall be included in the notice of the meeting. The Board of Directors, by a majority vote of the whole Board at any meeting, may amend these By-Laws, including By-Laws adopted by the stockholders, provided that the stockholders may from time to time specify particular provisions of the By-Laws which shall not be amended by the Board of Directors. EX-10 3 Exhibit (10) ------------ Owens Corning Director's Charitable Award Program ----------------------------------- 1. PURPOSE OF THE PROGRAM The Owens Corning Director's Charitable Award Program (the "Program") allows each eligible Director of Owens Corning to recommend that the Owens Corning Foundation (the "Foundation") make a donation of $1,000,000 to the eligible tax-exempt organization(s) (the "Donee(s)") selected by the Director, with the donation to be made, in the Director's name, in ten equal annual installments, with the first installment to be made as soon as is practicable after the Director's death. The purpose of the Program is to recognize the interest of Owens Corning and its Directors in supporting worthy educational institutions and other charitable organizations, and to enhance the role of the Foundation in Owens Corning's charitable giving programs, thereby enhancing the public image of the Foundation. 2. ELIGIBILITY All persons serving as Directors of Owens Corning as of July 1, 1993, shall be eligible to participate in the Program upon the completion of the Program enrollment requirements. All Directors who join Owens Corning's Board of Directors after that date shall be immediately eligible to participate in the Program upon election to the Board and after completing the Program enrollment requirements. 3. VESTING All participating Directors serving on the Board as of June 17, 1999 are fully vested in the Program. For Directors elected to the Board after that date, a Director will be vested upon the completion of two terms (or six years) of service on the Board. A Director who dies or becomes totally and permanently disabled while serving on the Board will be fully vested in the Program. Accelerated vesting is within the discretion of the Compensation Committee of the Board of Directors. 4. RECOMMENDATION OF DONATION When a Director becomes eligible to participate in the Program, he or she shall make a written recommendation to the Foundation, on a form approved by Owens Corning for this purpose, designating the Donee(s) which he or she intends to be the recipient(s) of the Foundation donation to be made on his or her behalf. A Director may revise or revoke any such recommendation prior to his or her death by signing a new Recommendation Form and submitting it to the Foundation. 5. AMOUNT AND TIMING OF DONATION Each eligible Director may choose one organization to receive a Foundation donation of $1,000,000, or two organizations to receive donations aggregating $1,000,000. Each recommended organization must be recommended to receive a donation of at least $100,000. The donation will be made by the Foundation in ten equal annual installments, with the first installment to be made as soon as is practicable after the Director's death. If a Director recommends more than one organization to receive a donation, each will receive a prorated portion of each annual installment. Each annual installment payment will be divided between the recommended organizations in the same proportions as the total donation amount has been allocated between the organizations by the Director. However, no donation will be made to an organization on a Director's behalf unless the Director is vested in the Program. Owens Corning will provide the Foundation with the funds needed to make the donations on a Director's behalf. The necessary funds will be provided no later than when a donation is payable, but Owens Corning may also elect, in its discretion, to provide all or any part of the necessary funds to the Foundation before the donations become payable. 6. DONEES In order to be eligible to receive a donation, a recommended organization must initially, and at the time a donation is to be made, qualify to receive tax-deductible donations under the Internal Revenue Code, and be reviewed and approved by the Foundation. A recommendation will be approved unless it is determined, in the exercise of good faith judgment, that a donation to the organization would be detrimental to the best interests of Owens Corning. A Director's private foundation is not eligible to receive donations under the Program. 7. FUNDING AND PROGRAM ASSETS Owens Corning may fund the Program or it may choose not to fund the Program. If Owens Corning elects to fund the Program in any manner, neither the Directors nor their recommended Donee(s) shall have any rights or interests in any assets of Owens Corning identified for such purpose. Nothing contained in the Program shall create, or be deemed to create, a trust, actual or constructive, for the benefit of a Director or any Donee recommended by a Director to receive a donation, or shall give, or be deemed to give, any Director or recommended Donee any interest in any assets of the Program or Owens Corning. 8. AMENDMENT OR TERMINATION The Board of Directors of Owens Corning may, at any time, without the consent of the Directors participating in the Program, amend, suspend, or terminate the Program. 9. ADMINISTRATION The Program shall be administered by the Human Resources Division of Owens Corning. The Program Administrator shall have plenary authority in its discretion, but subject to the provisions of the Program, to prescribe, amend, and rescind rules, regulations and procedures relating to the Program. The determinations of the Program Administrator on the foregoing matters shall be conclusive and binding on all interested parties. 10. CHANGE OF CONTROL If there is a Change Of Control of Owens Corning, the Program will become irrevocable with respect to the Directors then participating. Also, Owens Corning will immediately transfer sufficient assets (including any insurance policies on the Directors' lives, if appropriate) into a trust, administered by an independent trustee, so that the trust will have adequate funds to make the anticipated donations for the Directors then participating. For the purpose of this Program, the term Change of Control will be defined as the term is defined in the Stock Performance Incentive Plan, as amended from time to time. 11. GOVERNING LAW The Program shall be construed and enforced according to the laws of the state of Ohio, and all provisions thereof shall be administered according to the laws of said state. 12. EFFECTIVE DATE The effective date of the Program is July 1, 1993. A Director's recommendation will be effective when he or she completes all enrollment requirements. EX-10 4 Exhibit (10) ------------ KEY MANAGEMENT SEVERANCE AGREEMENT ---------------------------------- This Severance Agreement (the "Agreement") is made as of November 24, 1998 by and between OWENS CORNING, a Delaware corporation (the "Company"), and David T. Brown, an officer of the Company ("Executive"). WHEREAS the Company and Executive have previously entered into a Severance Agreement dated as of September 11, 1995 (the "Prior Agreement") providing for certain benefits to be conferred upon Executive under specified circumstances in the event that Executive's employment is terminated by the Company on the terms and conditions set forth therein, and: WHEREAS the Compensation Committee of the Board of Directors of the Company (the "Committee") has approved a new severance agreement to provide Executive with certain additional protections and to conform the terms of such agreement to the current policy of the Company regarding an officer's entitlement to pay, benefits and privileges on the termination of his employment; NOW THEREFORE, the parties hereto agree as follows: 1. Termination Absent a Change of Control. --------------------------------------- a) If, prior to a Change of Control (as defined in paragraph 7(c) below), (i) the Company terminates Executive's employment for any reason other than Permanent Total Disability or Cause (as defined in paragraphs 7(e) and 7(b)(1)&(2), respectively, below), or (ii) Executive voluntarily terminates his employment under circumstances involving a Constructive Termination (as defined in paragraph 7(d), below), Executive will be entitled to the following compensation, provided that Executive executes a Release and Non-Competition Agreement satisfactory to the Company: 1) Base salary earned and as yet unpaid through the effective date of termination; and 2) Two years' Base Pay (as defined in paragraph 7(a) below); and 3) Two times Executive's Separation Incentive Payment (as defined in paragraph 7(f) below); and 4) Incentive Pay as yet unpaid from the prior fiscal year and Incentive Pay for the fiscal year of termination, prorated for the period of Executive's actual employment prior to termination; and 5) The greater of (i) Executive's vested Cash Balance Pension Benefit or (ii) an amount equal to Executive's vested Pension Benefit under the Company's Salaried Employees' (Final Average) Retirement Plan plus a pension supplement calculated as though Executive had been credited with three additional years of service under that Plan and had Executive been three years older at the date of termination. b) If, prior to a Change of Control, the Company terminates Executive's employment for Cause (as defined in paragraph 7(b)(3), below), Executive will only be entitled to base salary earned and as yet unpaid through the effective date of termination and Executive's vested Cash Balance Pension Benefit or vested Final Average Plan Pension Benefit, whichever is greater, UNLESS, (i) the Company exercises its discretion to award Executive (in addition to the aforementioned base salary and vested pension amounts) some portion of the following compensation, based on effort expended and results obtained to date and (ii) Executive executes a Release and Non-Competition Agreement satisfactory to the Company: 1) Up to but no more than Twelve months' Base Pay (as defined in paragraph 7(a) below); and 2) Up to but no more than one times Executive's Separation Incentive Payment (as defined in paragraph 7(f) below); and 3) Up to but no more than the amount of Incentive Pay as yet unpaid from the prior fiscal year. c) The compensation payable under paragraph 1(a) or 1(b), above, shall be paid as soon as practicable after Executive signs, returns and does not revoke the requisite Release and Non- Competition Agreement. d) In the event of a termination of Executive's employment under the circumstances described in paragraph 1(a) above: 1) All stock options previously awarded to Executive shall, to the extent not already vested, immediately vest, and shall be exercisable (subject to applicable blackout restrictions) for up to six months following the date of termination or the original expiration date, whichever is sooner. 2) All shares of restricted stock previously awarded to Executive shall, to the extent not already vested, immediately vest and be payable. 3) All outstanding but unearned performance shares shall be forfeited. 4) All of Executive's non-qualified deferred compensation or retirement benefits, if any, accrued through the date of termination under any non-qualified deferred compensation plan or arrangement shall immediately vest and be payable, to the extent permissible under the terms of such plan or arrangement. e) In the event of a termination of Executive's employment under the circumstances described in paragraph 1(b) above: 1) All stock options previously awarded to Executive which are exercisable on the date of termination shall be exercisable (subject to applicable blackout restrictions) for up to six months following the date of termination or the original expiration date, whichever is sooner. 2) All unvested shares of restricted stock and all outstanding but unearned performance shares previously awarded to Executive shall be forfeited. 3) All of Executive's non-qualified deferred compensation or retirement benefits, if any, accrued and vested through the date of termination under any non-qualified deferred compensation plan or arrangement shall be payable, to the extent permissible under the terms of such plan or arrangement. f) If Executive's employment ends under circumstances described in paragraph 1(a) above as a result of the sale by the Company of a business unit, division or facility, payments will be made under this paragraph 1 only if Executive is not offered a substantially equivalent position with the Company or with the new owner of the business (without regard to whether Executive accepts such a position). If Executive receives and accepts a suitable offer from the new owner of the business and is subsequently terminated within one year of the closing date of the sale under circumstances that would result in payment of benefits under this paragraph 1(a), Executive will be treated as though he had been terminated by the Company and receive the payments provided for in this Agreement, less any amounts or benefits provided by the new owner in connection with Executive's termination. 2. Termination On or After a Change of Control. -------------------------------------------- a) If, within a two-year period after a Change of Control, (i) the Company (or any successor) terminates Executive's employment for any reason other than Permanent Total Disability or Cause (as defined in paragraphs 7(e) and 7(b)(1)&(2), respectively, below), or (ii) Executive voluntarily terminates his employment under circumstances involving a Constructive Termination, Executive will be entitled to the following compensation, provided that Executive executes a Release and Non-Competition Agreement satisfactory to the Company: 1) Base salary earned and as yet unpaid through the effective date of termination; and 2) Two years' Base Pay; and 3) Two times Executive's Separation Incentive Payment; and 4) Incentive Pay as yet unpaid from the prior fiscal year and Target Level Incentive Pay (as defined in paragraph 7(h) below) for the fiscal year of termination, prorated for the period of Executive's actual employment prior to termination; and 5) The greater of (i) Executive's vested Cash Balance Pension Benefit or (ii) an amount equal to Executive's vested Pension Benefit under the Company's Salaried Employees' (Final Average) Retirement Plan plus a pension supplement calculated as though Executive had been credited with three additional years of service under that Plan and had Executive been three years older at the date of termination. b) If, within a two-year period after a Change of Control, the Company (or any successor) terminates Executive's employment for Cause (as defined in paragraph 7(b)(3), below), Executive will only be entitled to base salary earned and as yet unpaid through the effective date of termination and Executive's vested Cash Balance Pension Benefit or vested Final Average Plan Pension Benefit, whichever is greater, UNLESS, (i) the Company exercises its discretion to award Executive (in addition to the aforementioned base salary and vested pension amounts) some portion of the following compensation, based on effort expended and results obtained to date and (ii) Executive executes a Release and Non-Competition Agreement satisfactory to the Company: 1) Up to but no more than Twelve months' Base Pay (as defined in paragraph 7(a) below); and 2) Up to but no more than one times Executive's Separation Incentive Payment (as defined in paragraph 7(f) below); and 3) Up to but no more than the amount of Incentive Pay as yet unpaid from the prior fiscal year. c) The compensation payable under paragraphs 2(a) or 2(b), above, will be paid as soon as practicable after Executive signs, returns and does not revoke the requisite Release and Non- Competition Agreement. d) In the event of a termination of Executive's employment under the circumstances described in paragraph 2(a) above: 1) All stock options previously awarded to Executive shall, to the extent not already vested, immediately vest, and shall be exercisable (subject to applicable blackout restrictions) for up to six months following the date of termination or the original expiration date, whichever is sooner. 2) All shares of restricted stock previously awarded to Executive shall, to the extent not already vested, immediately vest and be payable. 3) All outstanding but unearned performance shares shall be forfeited. 4) All of Executive's non-qualified deferred compensation or retirement benefits, if any, accrued through the date of termination under any non-qualified deferred compensation plan or arrangement shall immediately vest and be payable, to the extent permissible under the terms of such plan or arrangement. e) In the event of a termination of Executive's employment under the circumstances described in paragraph 2(b) above: 1) All stock options previously awarded to Executive which are exercisable on the date of termination shall be exercisable (subject to applicable blackout restrictions) for up to six months following the date of termination or the original expiration date, whichever is sooner. 2) All unvested shares of restricted stock and all outstanding but unearned performance shares previously awarded to Executive shall be forfeited. 3) All of Executive's non-qualified deferred compensation or retirement benefits, if any, accrued and vested through the date of termination under any non-qualified deferred compensation plan or arrangement shall be payable, to the extent permissible under the terms of such plan or arrangement. f) The Compensation Committee of the Board of Directors, in its sole discretion, may determine that no Change of Control or Potential Change of Control shall be deemed to have occurred with respect to any Executive who, in connection with a Change of Control or Potential Change of Control, acts in a capacity other than in their capacity as an employee of the Corporation, its subsidiaries or affiliates or otherwise fails to act in the Company's best interests with respect to said Change of Control. 3. Termination For Other Reasons. ------------------------------ If Executive voluntarily terminates his employment (including by reason of retirement) other than as provided in paragraph 1(a) or 2(a) above, or if Executive's employment is terminated due to death or Permanent Total Disability, Executive shall not be entitled to any benefits under this Agreement, but shall be entitled to any other benefits to which he is otherwise entitled under the terms of any employee benefit plans or arrangements of the Company. 4. Continuation of Insurance Benefits. ----------------------------------- In the event Executive's employment terminates under the circumstances described in paragraph 1(a) or 2(a) of this Agreement, the Company will continue Executive's participation and coverage for a period of two years (the "Severance Period") from Executive's last day of employment with the Company under all the Company's life, medical and dental plans ("Insurance Benefits"), in which Executive is participating immediately prior to such employment termination, subject to the Company's right to modify the terms of the plans or arrangements providing these benefits. If Executive is employed by another entity during the Severance Period, the Company will be a secondary obligor only with respect to medical and dental Insurance Benefits and life insurance coverage shall immediately cease. 5. Non-Duplication of Benefits. ---------------------------- Any compensation or benefits payable under the terms of this Agreement will be offset and not augmented by other compensation or benefits of the same or similar type payable under any existing plan or agreement of the Company or any other arrangement between Executive and the Company covering the Executive (including, but not limited to, any Company severance policy and the Company's Annual Incentive Plan). It is intended that this Agreement NOT duplicate benefits Executive is entitled to under the Company's regular severance policy, any related policies, or any other contracts, agreements or arrangements between Executive and the Company. 6. Term. ----- This Agreement shall be effective from the date hereof throughout Executive's term of employment as an officer of the Company, but shall expire and be of no effect immediately after the second anniversary of a Change of Control. 7. Certain Defined Terms. ---------------------- As used herein, the following terms shall have the following meanings: a) "Base Pay" shall mean the greater of the annual salary paid to Executive as of the date of termination of his employment or the date of the Change of Control, as the case may be, notwithstanding any pay reduction that may be related to a Constructive Termination. b) "Cause" shall mean: 1) conviction of any felony or failure to contest prosecution for a felony; or 2) willful misconduct or dishonesty which is directly and materially harmful to the business or reputation of the Company; or 3) willful or continued failure to substantially perform his duties as an executive of the Company, other than as a result of total or partial incapacity due to physical or mental illness (abuse of alcohol, drugs or controlled substances not being considered a physical or mental illness for purposes of this paragraph), unless within three to six months after written notice has been provided to Executive by the Company, Executive cures such willful or continued failure to perform. c) "Change of Control" shall mean: 1) the holders of the voting securities of the Company shall have approved a merger or consolidation of the Company with any other entity, unless the proposed merger or consolidation would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, where such merger or consolidation is, in fact, consummated; 2) a plan of complete liquidation of the Company shall have been adopted or the holders of voting securities of the Company shall have approved an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company's assets; 3) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "1934 Act") shall become the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 15% or more of the combined voting power of the Company's then outstanding shares; 4) during any period of two consecutive years, members who at the beginning of such period constituted the Board shall have ceased for any reason to constitute a majority thereof, unless the election, or nomination for election by the Company's stockholders, of each director shall have been approved by the vote of at least two-thirds of the directors then still in office and who were directors at the beginning of such period (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest); or 5) the occurrence of any other change of control of a nature that would be required to be reported in accordance with Form 8-K pursuant to Sections 13 or 15(d) of the 1934 Act or in the Company's proxy statement in accordance with Schedule 14A of Regulation 14A promulgated under the 1934 Act, or in any successor forms or regulations to the same effect. d) A "Constructive Termination" shall be deemed to have occurred only if: 1) prior to a Change of Control: Executive's Base Pay is reduced without his written consent; or 2) on or within a two-year period after a Change of Control: (A) Executive's Base Pay or annual incentive pay opportunity is reduced without his written consent; (B) Executive is required by the Company without his written consent to relocate to a new place of business that is more than fifty miles from Executive's place of business prior to the Change of Control (or the Company mandates a substantial increase in the amount of required business travel); or (C) there is a material adverse change in Executive's duties or responsibilities in comparison to the duties or responsibilities which Executive had prior to the Change of Control. e) "Permanent Total Disability" shall be deemed to have occurred if, at the end of any month Executive then is, and has been, for eighteen (18) consecutive calendar months then ending, unable to perform his duties in the normal and regular manner due to mental or physical illness or injury. Any determination of such inability to perform shall be made by the Company in good faith. f) "Separation Incentive Payment" shall be the greater of (i) Executive's average payments under the Company's normal, annual Corporate Incentive Plan (CIP) for the three years immediately preceding the year of termination (or annualized for such shorter period as Executive may have been employed by the Company), or (ii) one-half of Executive's average participating salary under such Plan for the three years immediately preceding the year of termination (or annualized for such shorter period as Executive may have been employed by the Company). g) "Participating Salary" is the product of Executive's total base salary paid during any given incentive year, multiplied by Executive's incentive pay percentage, at maximum funding. h) "Target Level Incentive" shall be the greater of (i) one-half of Executive's participating salary under the Company's Annual Incentive Plan for the year of termination, or (ii) the payment Executive would have received under such Plan for the year of termination based on projected corporate performance for such year as determined by the Committee in its sole discretion at the time of the Change of Control. 8. Outplacement Assistance. ------------------------ The Company will arrange outplacement assistance for Executive, to be provided by a mutually agreed-upon firm engaged in said business. Such assistance shall continue for up to one year following Executive's termination or until such time as suitable employment is attained, whichever is sooner. Outplacement costs incurred in this connection will be borne by the Company, but will not include costs of travel to/from the outplacement firm or in connection with job interviews, etc. For up to six months following Executive's termination, the Company will also make available reasonable office space and administrative and communication services for Executive's use in seeking suitable employment. In no event will the Company pay Executive in lieu of outplacement assistance. 9. Confidentiality. ---------------- Consistent with Executive's preexisting legal and contractual obligations and in exchange for the consideration provided by the Company in this Agreement and for Executive's continued employment and exposure to confidential information at the Company, Executive agrees to hold in strict confidence and not disclose to any other person any confidential or proprietary information of the Company, including, without limitation, trade secrets, formulas for Company products, production techniques or processes or methods and apparatus for producing any products of the Company, or other non-public information relating to the business, research and development, employees and/or customers of the Company and its subsidiaries and affiliates, except to the extent required by law, or with the written consent of the Company. Executive will, immediately on termination, deliver to the Company all files containing data, correspondence, books, notes, and other written, graphic or computer records under Executive's control relating to the Company or its subsidiaries or affiliates, regardless of the media in which they are embodied or contained. 10. Agreement Not To Compete. ------------------------- In exchange for the consideration provided by the Company in this Agreement as well as Executive's continued employment and exposure to confidential information at the Company, Executive agrees not to, directly or indirectly, for a period of two years following Executive's termination of employment, engage or participate in any business that is involved in research or development activities or in the manufacturing of any product which competes with any of the Company's products, except with the written consent of the Company. On termination, Executive agrees to execute a separate Release and Non-Competition Agreement in a form acceptable to the Company to memorialize this agreement and understands that the failure to do so will render Executive ineligible for any severance pay, benefits or privileges whatsoever. 11. Mutual Release and Indemnity. ----------------------------- In the event of Executive's termination under circumstances described in paragraphs 1(a), 1(b), 2(a) or 2(b), the Company agrees to release and discharge Executive from any claim it may then or thereafter have against Executive with respect to employment with the Company or any of its subsidiaries or affiliates (other than with regard to Executive's obligations under this Agreement), and agrees to indemnify Executive in accordance with its then current policies or practices for active employees for any claims made against Executive by third parties arising out of the proper performance of Executive's duties as an employee of the Company or any of its subsidiaries or affiliates. In exchange for the consideration provided by the Company in this Agreement, together with the Company's release and indemnity, Executive agrees to release and discharge the Company, and its subsidiaries, affiliates, officers, directors, employees and agents (the "Released Persons") from any claim that Executive may then or thereafter have against the Company or such Released Persons (excluding any claim for the compensation, benefits and privileges described herein) arising out of or in connection with Executive's employment or termination of employment by the Company or any of its subsidiaries or affiliates. On termination, Executive agrees to execute a separate Release and Non-Competition Agreement in a form acceptable to the Company to memorialize this agreement and understands that the failure to do so will render Executive ineligible for any severance pay, benefits or privileges whatsoever. 12. Severability. ------------- Whenever possible each provision and term of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision or term of this Agreement shall be held to be prohibited by or invalid under such applicable law, then such provision or term shall be ineffective only to the extent of such prohibition or invalidity, without invalidating or affecting in any manner whatsoever the remainder of such provision or term, or the remaining provisions or terms of this Agreement. 13. Modification and Waiver of Breach. ---------------------------------- No waiver or modification of this Agreement shall be binding unless it is in writing, signed by the parties hereto. No waiver of a breach hereof shall be deemed to constitute a waiver of a further breach, whether of a similar or dissimilar nature. 14. Assignment. ----------- This Agreement shall be binding upon and inure to the benefit of any successors of the Company. As used herein, "successors" shall include any person, firm, corporation or other business entity which at any time, whether by merger, purchase or otherwise, acquires all or substantially all of the assets or business of the Company. 15. Notice. ------- Any written notice to be given hereunder to Executive may be delivered to him personally or shall be deemed to have been given upon deposit thereof in the U.S. mail, certified mail, postage prepaid, addressed to Executive at the address as it shall appear on the records of the Company. 16. Construction of Agreement. -------------------------- This Agreement is made and entered into in the State of Ohio and shall be construed under the laws of Ohio. 17. Entire Agreement. ----------------- This Agreement constitutes the entire understanding between the parties with respect to Executive's severance pay, benefits and privileges in the event of a termination of Executive's employment with the Company, superseding all negotiations, prior discussions and agreements, written or oral, concerning said severance arrangements. This Agreement may not be amended except in writing by the parties hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. OWENS CORNING, /s/ Glen H. Hiner - ------------------- Glen H. Hiner Chairman and CEO Agreed to and accepted: ___________________________ Date: ____________________ EX-11 5 Exhibit (11) ------------ OWENS CORNING AND SUBSIDIARIES COMPUTATION OF PER SHARE EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 Basic: - ----- 1999 1998 1997 ---- ---- ---- (In millions of dollars, except share data) Net income (loss) $ 270 $ (705) $ 47 ====== ======== ====== Basic weighted average number of common shares outstanding (thousands) 54,083 53,579 52,860 ====== ======== ====== Basic per share amount $4.98 $(13.16) $ .89 ====== ======== ====== Diluted: - -------- Net income (loss) $ 270 $ (705) $ 47 ====== ======= ====== Weighted average number of shares outstanding (thousands) 54,697 53,579 52,860 Weighted average common equivalent shares (thousands): Deferred awards 189 - 352 Stock options using the average market price during the period - - 334 Shares from assumed conversion of preferred securities 4,566 - - ------ ------ ------ Diluted weighted average number of common shares outstanding and common equivalent shares (thousands) 59,452 53,579 53,546 ====== ======= ====== Diluted per share amount $4.67 $(13.16) $ .88 ====== ======= ======
EX-21 6 Exhibit (21) ------------ State or Other Jurisdiction Under the Laws of Subsidiaries of Owens Corning (12/31/99) Which Organized - ---------------------------------------- ----------------- Commercial Owens Corning Chile Limitada Chile Crown Manufacturing Inc. Canad Decillion, LLC. Delaware Deutsche Owens-Corning Glasswool GmbH German 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 Jefferson Holdings, Inc. Delaware LMP Impianti Srl Italy NV Owens Corning Building Materials SA Belgium N.V. Owens-Corning S.A. Belgium OC Celfortec Inc. Canada O.C. Funding B.V. The Netherlands OCW Acquisition Corporation (dba, Delsan Industries Corp.) Delaware Owens Corning (Anshan) 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 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 (12/31/99) 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 (Shanghai) Fiberglas Co., Ltd. China Owens Corning (Singapore) Pte Ltd. Singapore Owens Corning South Africa (Pty) Ltd South Africa Owens Corning SpA Italy Owens-Corning (Sweden) AB Sweden Owens-Corning (UK) Holdings Limited United Kingdom Owens-Corning Veil Netherlands B.V. The Netherlands Owens-Corning Veil U.K. Ltd. United Kingdom 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
EX-23 7 Exhibit (23) ------------ CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated January 24, 2000, included in Owens Corning's annual report on Form 10-K for the year ended December 31, 1999, into Owens Corning's previously filed Registration Statements, File Nos. 33-9563, 33-9986, 33- 9987, 33-18262, 33-20997, 33-27209, 33-31687, 33-48707, 33-57886, 33-60487, 333-09367, 333-24501, 333-48153, 333-47961, 333-76715, 333-76717 and 333-76765. ARTHUR ANDERSEN LLP Toledo, Ohio March 13, 2000 EX-27 8 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 12-MOS DEC-31-1999 DEC-31-1999 70 900 358 - 466 2,088 3,692 1,992 6,494 2,916 1,764 695 194 0 (1,576) 6,494 5,048 5,048 3,824 3,824 (5) 0 152 426 149 277 0 0 0 270 4.98 4.67 -----END PRIVACY-ENHANCED MESSAGE-----