0000075234-95-000011.txt : 19950815 0000075234-95-000011.hdr.sgml : 19950815 ACCESSION NUMBER: 0000075234-95-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OWENS CORNING FIBERGLAS CORP CENTRAL INDEX KEY: 0000075234 STANDARD INDUSTRIAL CLASSIFICATION: ABRASIVE ASBESTOS & MISC NONMETALLIC MINERAL PRODUCTS [3290] IRS NUMBER: 344323452 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03660 FILM NUMBER: 95563275 BUSINESS ADDRESS: STREET 1: FIBERGLASS TOWER CITY: TOLEDO STATE: OH ZIP: 43659 BUSINESS PHONE: 4192488000 MAIL ADDRESS: STREET 1: FIBERGLASS TOWER CITY: TOLEDO STATE: OH ZIP: 43659 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended June 30, 1995 Commission File No. 1-3660 Owens-Corning Fiberglas Corporation Fiberglas Tower, Toledo, Ohio 43659 Telephone No. (419)248-8000 A Delaware Corporation I.R.S. Employer Identification No. 34-4323452 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Shares of common stock, par value $.10 per share, outstanding at July 31, 1995 50,731,842 -2- PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME Quarter Six Months Ended Ended June 30, June 30, ------------- ------------- 1995 1994 1995 1994 ---- ---- ---- ---- (In millions of dollars, except share data) NET SALES $ 877 $ 852 $1,721$1,529 COST OF SALES 639 644 1,269 1,167 ------ ------ ------------ Gross margin 238 208 452 362 OPERATING EXPENSES Marketing and administrative expenses 103 92 216 179 Science and technology expenses 18 17 36 33 Restructuring costs (Note 5) - - - 89 Other (Notes 3, 4, 5, and 11) 2 4 13 33 ------ ------ ------------ Total operating expenses 123 113 265 334 ------ ------ ------------ INCOME FROM OPERATIONS 115 95 187 28 Cost of borrowed funds 23 23 49 45 ------ ------ ------------ INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 92 72 138 (17) Provision for income taxes (Note 8)33 26 50 3 ------ ------ ------------ INCOME (LOSS) BEFORE EQUITY IN NET INCOME OF AFFILIATES 59 46 88 (20) Equity in net income (loss) of affiliates 4 (1) 7 (2) ------ ------ ------------ INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 63 45 95 (22) Cumulative effect of accounting changes (Notes 6 and 7) - - - 85 ------ ------ ------------ NET INCOME $ 63 $ 45 $ 95$ 63 ====== ====== ============
The accompanying notes are an integral part of this statement. -3- OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (Continued) Quarter Six Months Ended Ended June 30, June 30, ------------- ------------- 1995 1994 1995 1994 ---- ---- ---- ---- (In millions of dollars, except share data) NET INCOME PER COMMON SHARE Primary: Income (loss) before cumulative effect of accounting changes$ 1.25$ 1.03 $ 1.98$ (.49) Cumulative effect of accounting changes - - - 1.93 ------ ------ ------------ Net income per share $ 1.25 $ 1.03 $ 1.98$ 1.44 ====== ====== ============ Assuming full dilution: Income (loss) before cumulative effect of accounting changes$ 1.20$ .95 $ 1.88$ (.35) Cumulative effect of accounting changes - - - 1.70 ------ ------ ------------ Net income per share $ 1.20 $ .95 $ 1.88$ 1.35 ====== ====== ============ Weighted average number of common shares outstanding and common equivalent shares during the period (in millions) (Notes 3 and 4) Primary 50.4 44.1 48.0 44.0 Assuming full dilution 53.4 49.9 52.3 49.8
The accompanying notes are an integral part of this statement. -4- OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET June 30, December 31, 1995 1994 ------------- ------------ ASSETS (In millions of dollars) CURRENT Cash and cash equivalents $ 7 $ 59 Receivables (Note 11) 362 329 Inventories (Note 9) 314 223 Deferred income taxes 158 156 Insurance for asbestos litigation claims - current portion (Note 12) 125 125 Other current assets 71 38 ------ ------ Total current 1,037 930 ------ ------ OTHER Goodwill (Note 3) 178 151 Investments in affiliates 78 74 Deferred income taxes 261 308 Insurance for asbestos litigation claims (Note 12) 475 556 Other noncurrent assets 153 122 ------ ------ Total other 1,145 1,211 ------ ------ PLANT AND EQUIPMENT, at cost Land 53 51 Buildings and leasehold improvements 574 553 Machinery and equipment 2,233 2,172 Construction in progress 175 125 ------ ------ 3,035 2,901 Less--Accumulated depreciation (1,834) (1,768) ------ ------ Net plant and equipment 1,201 1,133 ------ ------ TOTAL ASSETS $3,383 $3,274 ====== ======
The accompanying notes are an integral part of this statement. -5- OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Continued) June 30, December 31, 1995 1994 ------------- ------------ (In millions of dollars) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT Accounts payable and accrued liabilities $ 515 $ 598 Reserve for asbestos litigation claims - current portion (Note 12) 300 300 Short-term debt 144 155 Long-term debt - current portion 24 20 Accrued income taxes 5 - ------ ------ Total current 988 1,073 ------ ------ LONG-TERM DEBT (Note 3) 883 1,037 ------ ------ OTHER Reserve for asbestos litigation claims (Note 12) 990 1,145 Other employee benefits liability 381 390 Pension plan liability 77 77 Other 241 232 ------ ------ Total other 1,689 1,844 ------ ------ COMMITMENTS AND CONTINGENCIES (Note 12) MINORITY INTEREST (Note 4) 194 - STOCKHOLDERS' EQUITY (Note 3) Preferred stock, no par value; authorized 8,000,000 shares, none outstanding Common stock, par value $.10 per share; authorized 100,000,000 shares; issued 50.7 million shares at June 30, 1995, and 44.2 million shares at December 31, 1994 545 348 Deficit (918) (1,012) Foreign currency translation adjustments17 (1) Other (15) (15) ------ ------ Total stockholders' equity (371) (680) ------ ------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$3,383 $3,274 ====== ======
The accompanying notes are an integral part of this statement. -6- OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS Quarter Six Months Ended Ended June 30, June 30, ------------- ------------- 1995 1994 1995 1994 ---- ---- ---- ---- (In millions of dollars) NET CASH FLOW FROM OPERATIONS Net income $ 63 $ 45 $ 95$ 63 Reconciliation of net cash provided by operating activities: Noncash items: Cumulative effect of accounting changes - - - (85) Provision for depreciation and amortization 31 28 61 55 Provision for deferred income taxes 27 7 41 21 Other 3 1 12 5 (Increase) in receivables (Note 11)(19)(46) (18) (80) (Increase) decrease in inventories(44)24 (84) (15) Increase (decrease) in accounts payable and accrued liabilities(31) (29) (99) 7 Increase (decrease) in accrued income taxes 21 15 15 (10) Other (49) (26) (77) 42 ------ ------ ------------ Net cash flow from operations2 19 (54) 3 ------ ------ ------------ NET CASH FLOW FROM INVESTING Additions to plant and equipment(55) (64) (114) (104) Investment in subsidiaries, net of cash acquired - (107) - (107) Other 2 1 - 2 ------ ------ ------------ Net cash flow from investing(53) (170) (114) (209) ------ ------ ------------
The accompanying notes are an integral part of this statement. -7- OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Continued) Quarter Six Months Ended Ended June 30, June 30, ------------- ------------- 1995 1994 1995 1994 ---- ---- ---- ---- (In millions of dollars) NET CASH FLOW FROM FINANCING (Note 3) Net additions (reductions) to long-term credit facilities$ (36)$ 129 $ 70$ 223 Other additions to long-term debt17 - 51 - Other reductions to long-term debt(74) (6) (102) (26) Net increase (decrease) in short-term debt (32) 60 (19) 101 Issuance of preferred stock of subsidiaries, net of fees (Note 4)194 - 194 - Other 1 3 (7) 4 ------ ------ ------------ Net cash flow from financing 70 186 187 302 ------ ------ ------------ NET CASH FLOW FROM ASBESTOS-RELATED ACTIVITIES (Note 12) Proceeds from insurance for asbestos litigation claims 33 14 81 28 Payments for asbestos litigation claims (57) (39) (155) (112) ------ ------ ------------ Net cash flow from asbestos- related activities (24) (25) (74) (84) ------ ------ ------------ Effect of exchange rate changes on cash2 - 3 - Net increase (decrease) in cash and cash equivalents (3) 10 (52) 12 Cash and cash equivalents at beginning of period 10 5 59 3 ------ ------ ------------ Cash and cash equivalents at end of period $ 7 $ 15 $ 7$ 15 ====== ====== ============
The accompanying notes are an integral part of this statement. -8- OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Quarter Six Months Ended Ended June 30, June 30, ------------- ------------- (1) SEGMENT DATA 1995 1994 1995 1994 ---- ---- ---- ---- NET SALES (In millions of dollars) Industry Segments Building Products United States $ 493 $ 499 $ 949$ 878 Europe 62 34 127 57 Canada and other 20 39 51 62 ------ ------ ------------ Total Building Products 575 572 1,127 997 ------ ------ ------------ Composite Materials United States 151 161 303 312 Europe 115 87 220 162 Canada and other 36 32 71 58 ------ ------ ------------ Total Composite Materials 302 280 594 532 ------ ------ ------------ Intersegment sales Building Products - - - - Composite Materials 26 28 52 50 Eliminations (26) (28) (52) (50) ------ ------ ------------ Net sales $ 877 $ 852 $1,721$1,529 ====== ====== ============ Geographic Segments United States $ 644 $ 660 $1,252$1,190 Europe 177 121 347 219 Canada and other 56 71 122 120 ------ ------ ------------ 877 852 1,721 1,529 ------ ------ ------------ Intersegment sales United States 14 9 27 19 Europe 3 7 7 15 Canada and other 25 28 45 47 Eliminations (42) (44) (79) (81) ------ ------ ------------ Net sales $ 877 $ 852 $1,721$1,529 ------ ------ ------------
During the first quarter of 1994, the Company recorded a $117 million pretax charge for productivity initiatives and other actions (Note 5). The impact of this charge was to reduce income from operations for Building Products and Composite Materials by $70 million and $22 million, respectively, and to increase general corporate expense by $25 million. Geographically, income from operations for Building Products in the United States and Canada and other was reduced by $50 million and $20 million, respectively. Income from operations for Composite Materials in the United States, Europe, and Canada and other was reduced by $6 million, $13 million, and $3 million, respectively. -9- OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Quarter Six Months Ended Ended June 30, June 30, ------------- ------------- (1) SEGMENT DATA (Continued) 1995 1994 1995 1994 ---- ---- ---- ---- INCOME (LOSS) FROM OPERATIONS (In millions of dollars) Industry Segments Building Products United States $ 56 $ 52 $ 88$ 26 Europe 5 4 13 8 Canada and other 1 12 8 (9) ------ ------ ------------ Total Building Products 62 68 109 25 ------ ------ ------------ Composite Materials United States 41 34 75 53 Europe 15 2 23 (11) Canada and other 6 1 9 - ------ ------ ------------ Total Composite Materials 62 37 107 42 ------ ------ ------------ General corporate expense (9) (10) (29) (39) ------ ------ ------------ Income from operations 115 95 187 28 Cost of borrowed funds (23) (23) (49) (45) ------ ------ ------------ Income (loss) before provision for income taxes $ 92 $ 72 $ 138$ (17) ====== ====== ============ Geographic Segments United States $ 97 $ 86 $ 163$ 79 Europe 20 6 36 (3) Canada and other 7 13 17 (9) General corporate expense (9) (10) (29) (39) ------ ------ ------------ Income from operations 115 95 187 28 Cost of borrowed funds (23) (23) (49) (45) ------ ------ ------------ Income (loss) before provision for income taxes $ 92 $ 72 $ 138$ (17) ====== ====== ============
-10- OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (2) GENERAL The financial statements included in this Report are condensed and unaudited, pursuant to certain Rules and Regulations of the Securities and Exchange Commission, but include, in the opinion of the Company, adjustments necessary for a fair statement of the results for the periods indicated, which, however, are not necessarily indicative of results which may be expected for the full year. In connection with the condensed financial statements and notes included in this Report, reference is made to the financial statements and notes thereto contained in the Company's 1994 Annual Report on Form l0-K, as filed with the Securities and Exchange Commission. (3) LONG-TERM DEBT AND STOCKHOLDERS' EQUITY During the first quarter of 1995, the Company called, prior to maturity, approximately $150 million of its $173 million issue of 8% convertible junior subordinated debentures. The remaining $23 million of debentures which were not called were converted by the holders during the first quarter of 1995. The debentures were convertible into shares of the Company's common stock at a conversion price of $29.75 (33.613 shares of common stock per $1,000 principal amount of debentures). During the first quarter of 1995 approximately $63 million of debentures were converted. During the second quarter of 1995, the remaining $87 million of debentures were converted. The conversion of these debentures, along with the additional conversion of $23 million of debentures referred to above, resulted in the issuance of 5.8 million new shares of common stock. In conjunction with the calling of the debentures, the Company paid fees of approximately $3 million which are reflected as other expenses on the Company's consolidated statement of income for the six months ended June 30, 1995. In May 1995, the Company repurchased a portion of its $140 million issue of Eurobonds for $79 million. In connection with this repurchase, the Company recorded $3 million as other expenses on the consolidated statement of income for the quarter ended June 30, 1995. -11- OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (3) LONG-TERM DEBT AND STOCKHOLDERS' EQUITY (Continued) Early in the first quarter of 1995, the Company completed the acquisitions of four privately-owned manufacturing and technology facilities in the western United States ("the acquisitions"). The aggregate purchase price of the acquisitions, including possible subsequent contingent consideration, was $26 million. The acquisitions were consummated by the exchange of 582,222 shares of the Company's common stock and less than $1 million in cash for all of the acquired assets and liabilities. The acquisitions were accounted for under the purchase method of accounting, whereby the assets acquired and liabilities assumed have been recorded at their fair values and the results of operations of the acquisitions have been included in the Company's consolidated financial statements subsequent to the acquisition date. The purchase price allocations were based on preliminary estimates of fair market value and are subject to revision. Goodwill of $22 million and a non-competition agreement of $3 million were recorded in this business combination and are being amortized over 40 years and 7 years, respectively, on a straight-line basis. The pro forma effect of the acquisitions was not material to net income for the six months ended June 30, 1994. (4) CONVERTIBLE MONTHLY INCOME PREFERRED SECURITIES On May 10, 1995, Owens-Corning Capital, L.L.C., a Delaware limited liability company, all of the common limited 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). The Company cannot initiate any action relating to conversion until after June 1, 1998. Distributions on the preferred securities are cumulative and are payable at the annual rate of 6-1/2 percent of the liquidation preference of $50 per preferred security. The distributions are recorded as an increase in other expenses on the Company's consolidated statement of income. The proceeds of the offering were loaned to the Company and used by the Company to repay the $110 million short-term bank credit facility utilized for the 1994 U.K. acquisition, with the balance used to reduce borrowings under the Company's revolving credit facilities. -12- OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (5) RESTRUCTURING OF OPERATIONS AND OTHER INITIATIVES During the first quarter of 1994, the Company recorded a $117 million pretax charge for productivity initiatives and other actions aimed at reducing costs and enhancing the Company's speed, focus, and efficiency. This $117 million pretax charge is comprised of an $89 million charge associated with the restructuring of the Company's business segments, as well as a $28 million charge, primarily composed of final costs associated with the administration of the Company's former commercial roofing business. The components of the $89 million restructure charge were revised during the first quarter of 1995 and include: $44 million for personnel reductions, $20 million for divestiture of non-strategic businesses and facilities, $22 million for business realignments, and $3 million for other actions. The $44 million cost for personnel reductions primarily represents severance and other personnel costs associated with the elimination of nearly 400 positions worldwide. The primary employee groups affected include science and technology personnel, field sales personnel, corporate administrative personnel, and commercial roofing and resin business personnel. As of June 30, 1995, the Company has recorded approximately $65 million in cumulative costs against its 1994 restructure reserve, of which $50 million represents actual cash expenditures and $15 million represents the non-cash effects of asset write-offs and business realignments. The $50 million cash expenditure includes personnel reduction costs of $35 million, primarily composed of severance costs for over 300 employees. The remaining $15 million cash expenditure includes $12 million for costs associated with the divestiture or realignment of businesses and facilities and $3 million for other actions. (6) GLASS MELTING FURNACE REBUILDS Effective January 1, 1994, the Company adopted the capital method of accounting for the cost of rebuilding glass melting furnaces. Under this method, costs are capitalized when incurred and depreciated over the estimated useful lives of the rebuilt furnaces. Previously, the Company established a reserve for the future rebuilding costs of its glass melting furnaces through a charge to earnings between dates of rebuilds. The change to the capital method provides a more appropriate measure of the Company's capital investment and is consistent with industry practice. The cumulative effect of this change in accounting method was an increase to earnings of $123 million, or $2.47 per share, net of related income taxes of $54 million. The effect of this change in accounting method was to increase depreciation expense and eliminate furnace rebuild provision. -13- OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (7) POSTEMPLOYMENT AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS Effective January 1, 1994, the Company adopted Financial Accounting Standards Board Statement No. 112, "Employers' Accounting for Postemployment Benefits." This standard requires the Company to recognize the obligation to provide benefits to former or inactive employees after employment but before retirement under certain conditions. The cumulative effect of the adoption of this standard was an undiscounted charge of $28 million, or $.57 per share, net of related income taxes of $18 million. Effective January 1, 1994, the Company adopted Financial Accounting Standards Board Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" for its non-U.S. plans. The cumulative effect of the adoption of this standard was a charge of $10 million, or $.20 per share. (The Company adopted Statement No. 106 for its U.S. plans effective January 1, 1991.) (8) INCOME TAXES The reconciliation between the U.S. federal statutory rate and the Company's consolidated effective income tax rate is: Quarter Six Months Ended Ended June 30, June 30, ---------------- ---------------- 1995 1994 1995 1994 ------ ------ ------ ------ U. S. federal statutory rate35% 35% 35% (35)% Operating losses of foreign subsidiaries - (3) - 63 Difference between foreign tax rates and U.S. statutory rate - 2 - 4 State and local income taxes 2 3 2 2 Adjustment to valuation allowance - (7) - (28) Other (1) 6 (1) 11 ------ ------ ------ ------ Effective tax rate 36% 36% 36% 17% ====== ====== ====== ====== /TABLE -14- OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(9) INVENTORIES Inventories are summarized as follows: June 30, December 31, 1995 1994 ------------------------- (In millions of dollars) Finished goods $ 268 $ 192 Materials and supplies 137 118 ------ ------ 405 310 Less: reduction to LIFO basis (91) (87) ------ ------ $ 314 $ 223 ====== ======
Approximately $139 million and $88 million of net inventories were valued using the LIFO method at June 30, 1995 and December 31, 1994, respectively. (10) CONSOLIDATED STATEMENT OF CASH FLOWS Cash payments, net of refunds, for income taxes and cost of borrowed funds are summarized as follows: Quarter Six Months Ended Ended June 30, June 30, ---------------- ---------------- 1995 1994 1995 1994 ------ ------ ------ ------ Income taxes $ (23) $ 1 $ (22) $ (6) Cost of borrowed funds 40 36 49 43
See Note 3 for supplemental disclosure of Non-cash Investing and Financing Activities. -15- OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (11) ACCOUNTS RECEIVABLE SECURITIZATION In December 1994, Owens-Corning Funding Corporation (OC Funding) entered into a three-year 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 $100 million. As of June 30, 1995, $100 million has been sold under this agreement and the sale has been reflected as a reduction of accounts receivable in the Company's consolidated balance sheet. The discount of $4 million on the sale of receivables has been recorded as an increase in other expenses on the Company's consolidated statement of income for the six months ended June 30, 1995. The Company maintains an allowance for doubtful accounts based upon the expected collectibility of all consolidated trade accounts receivable, including receivables sold by OC Funding. (12) CONTINGENT LIABILITIES ASBESTOS LIABILITIES The Company is a co-defendant with other former manufacturers, distributors and installers of products containing asbestos and with miners and suppliers of asbestos fibers (collectively, the Producers) in personal injury and property damage litigation. The personal injury claimants generally allege injuries to their health caused by inhalation of asbestos fibers from the Company's products. Most of the claimants seek punitive damages as well as compensatory damages. The property damage claims generally allege property damage to school, public and commercial buildings resulting from the presence of products containing asbestos. Virtually all of the asbestos- related lawsuits against the Company arise out of its manufacture, distribution, sale or installation of an asbestos-containing calcium silicate, high temperature insulation product, the manufacture of which was discontinued in 1972. Status As of June 30, 1995, approximately 116,400 asbestos personal injury claims were pending against the Company, 23,200 of which were received in the first half of 1995. The Company received approximately 27,500 such claims in 1994, and 31,700 in 1993. Through June 30, 1995, the Company had resolved (by settlement or otherwise) approximately 153,000 asbestos personal injury claims. During 1993, 1994 and the first half of 1995, the Company resolved approximately 54,600 such claims and incurred total indemnity payments of $513 million (an average of less than $10,000 per case). The Company's indemnity payments have varied considerably over time and from case to case, and are affected by a multitude of factors. These include the type and severity of the disease sustained by the claimant (i.e., mesothelioma, lung cancer, other types of cancer, asbestosis or pleural changes); the occupation of the claimant; the extent of the claimant's exposure to -16- OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (12) CONTINGENT LIABILITIES (Continued) asbestos-containing products manufactured, sold or installed by the Company; the extent of the claimant's exposure to asbestos-containing products manufactured, sold or installed by other Producers; the number and financial resources of other Producer defendants; the jurisdiction of suit; the presence or absence of other possible causes of the claimant's illness; the availability or not of legal defenses such as the statute of limitations or state of the art; whether the claim was resolved on an individual basis or as part of a group settlement; and whether the claim proceeded to an adverse verdict or judgment. Insurance As of June 30, 1995, the Company had approximately $262 million in unexhausted products hazard coverage (net of deductibles and self-insured retentions and excluding coverage issued by insolvent carriers) under its liability insurance policies applicable to asbestos personal injury claims. Of this amount, $144 million will not be available until the years 1996 through 2000 under an agreement with the carrier confirming such insurance. An additional $24 million (out of the $262 million coverage) is presently the subject of coverage litigation or alternate dispute resolution procedures. All of the Company's liability insurance policies cover indemnity payments and defense fees and expenses subject to applicable policy limits. In addition, the Company has substantial unexhausted non-products coverage under such liability insurance policies; an as yet undetermined amount of such non-products coverage is expected to be available for payment of asbestos personal injury claims and associated defense fees and expenses. The Company has commenced arbitration with its primary level insurance carrier seeking to confirm the availability of certain of its non-products coverage for payment of certain asbestos personal injury liabilities, involving the activities of the Company's former insulation contracting business. The Company is seeking prompt rulings on the issues presented. For purposes of calculating the amount of insurance applicable to asbestos liabilities, the Company has estimated its recoveries in respect of non- products coverage for claims received through 1999 at approximately $310 million, which represents the Company's best estimate of such recoveries for such claims. The Company cautions, however, that this coverage is unconfirmed and that the actual amounts recovered by the Company could, depending upon the outcome of the arbitration, be much higher or much lower. Reserve The Company's estimated total liabilities in respect of indemnity and defense costs associated with pending and unasserted asbestos personal injury claims that may be received through the year 1999 (the "Liabilities"), and its estimated insurance recoveries in respect of such claims (the "Insurance"), are reported separately as follows: -17- OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (12) CONTINGENT LIABILITIES (Continued) Asbestos Litigation Claims June 30, December 31, 1995 1994 (In millions of dollars) Reserve for asbestos litigation claims Current $ 300 $ 300 Other 990 1,145 ------- ------- Total Reserve 1,290 1,445 Insurance for asbestos litigation claims Current 125 125 Other 475 556 ------- ------- Total Insurance 600 681 ------- ------- Net Asbestos Liability $ 690 $ 764 ======= =======
Case filing rates have continued at historically high levels with the receipt of approximately 23,200 new claims during the first half of 1995, following the receipt of approximately 27,500 claims in 1994 and approximately 31,700 claims in 1993. Many of these new claims appear to be the product of mass screening programs and not to involve significant asbestos-related impairment. The large number of recent filings and the uncertain value of these claims have added to the uncertainties involved in estimating the Company's asbestos Liabilities. Certain of the Company's principal co-defendants, the 20 members of the Center for Claims Resolution, have entered into a proposed "global" settlement which would require future claimants to satisfy certain medical criteria indicative of significant asbestos-related impairment as a pre- condition to their eligibility for settlement payments. The Company is using similar criteria in the implementation of its own settlement and litigation strategy and is also seeking to require more careful proof than in the past that claimants had significant exposure to the Company's asbestos-containing product or operations. The Company believes that this strategy will reduce the overall cost of asbestos personal injury claims in the long run by channeling indemnity payments to claimants who can establish significant asbestos-related impairment and exposure to the Company's asbestos-containing product or operations and by substantially reducing indemnity payments to individuals who are unimpaired or who did not have significant such exposure. The Company's strategy has resulted in an increased level of trial activity and an increase in the number and amount -18- OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (12) CONTINGENT LIABILITIES (Continued) of compensatory and punitive damage verdicts and judgments against the Company. This strategy may have the effect of increasing average per-case indemnity costs for claims resolved with payment, while also increasing the number of claims dismissed without payment. The Company cautions that such factors as the number of future asbestos personal injury claims received by it, the rate of receipt of such claims, and the indemnity and defense costs associated with asbestos personal injury claims, as well as the prospects for confirming additional, applicable insurance coverage beyond the $262 million referenced above, are influenced by numerous variables that are difficult to predict, and that estimates, such as the Company's, which attempt to take account of such variables, are subject to considerable uncertainty. Depending upon the outcome of the various uncertainties described above, particularly as they relate to unimpaired claims, it may be necessary at some point in the future for the Company to make additional provision for the uninsured costs of asbestos personal injury claims received through the year 1999 (although no such amounts are reasonably estimable at this time). The Company remains confident that its estimate of Liabilities and Insurance will be sufficient to provide for the costs of all such claims that involve malignancies or significant asbestos-related functional impairment. The Company has reviewed and will continue to review the adequacy of its estimate of Liabilities and Insurance on a periodic basis and make such adjustments as may be appropriate. The Company cannot estimate and is not providing for the cost of unasserted claims which may be received by the Company after the year 1999 because management is unable to predict the number of claims to be received after 1999, the severity of disease which may be involved and other factors which would affect the cost of such claims. Cash Expenditures The Company's anticipated cash expenditures for uninsured asbestos-related costs of claims received through 1999 are expected to approximate $690 million, the Company's Liabilities, net of Insurance, before tax benefits. They will vary annually depending upon a number of factors, including the pace of the Company's resolution of claims and the timing of payment of its Insurance. -19- OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (12) CONTINGENT LIABILITIES (Continued) Management Opinion Although any opinion is necessarily judgmental and must be based on information now known to the Company, in the opinion of management, the additional uninsured and unreserved costs which may arise out of pending personal injury and property damage asbestos claims and additional similar asbestos claims filed in the future will not have a materially adverse effect on the Company's financial position. While such additional uninsured and unreserved costs incurred in and after the year 2000 may be substantial over time, management believes that any such additional costs will not impair the ability of the Company to meet its obligations, to reinvest in its businesses or to take advantage of attractive opportunities for growth. NON-ASBESTOS LIABILITIES In October 1991, the Company and certain of its officers and directors were named as defendants in a lawsuit captioned Gaetana Lavalle v. Owens-Corning Fiberglas Corporation, et al. in the United States District Court for the Northern District of Ohio. Lavalle purports to be a securities class action on behalf of all purchasers of the Company's common stock during the period November 1, 1988 through October 18, 1991. The complaint alleges that the Company's disclosures during the alleged class period contained material misstatements and omissions concerning its contingent liabilities for asbestos claims. The defendants (including the Company) have entered into an agreement to settle this lawsuit with the alleged class, which settlement is subject to court approval after notice to the proposed class. Various other lawsuits and claims arising in the normal course of business are pending against the Company, some of which allege substantial damages. Management believes that the outcome of these lawsuits and claims will not have a materially adverse effect on the Company's financial position or results of operations. -20- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (All per share information in Item 2 is on a fully diluted basis.) RESULTS OF OPERATIONS Net income for the second quarter of 1995 was $63 million, or $1.20 per share, an increase of 38% from net income of $45 million, or $.95 per share, in the second quarter of 1994. Net sales were $877 million during the second quarter of 1995, compared to $852 million during the second quarter of 1994. The results for the second quarter were largely driven by the Company's worldwide composites business, significant improvements in all of the Company's European businesses, and benefits of the 1994 productivity initiatives. Gross margin for the quarter ended June 30, 1995 increased to 27%, compared to 24% in 1994, and income from operations increased to $115 million in the second quarter of 1995, up 21% from $95 million in 1994. Marketing and administrative expenses increased by $11 million in the second quarter of 1995 compared to the second quarter of 1994. This increase was primarily due to incremental costs from acquired businesses and additional costs of expanding into new global markets. For the six months ended June 30, 1995, the Company reported net income of $95 million, or $1.88 per share, compared to $63 million, or $1.35 per share, for the comparable 1994 period. This earnings growth reflects more favorable pricing, the benefits of the 1994 acquisitions of the United Kingdom-based insulation and industrial supply businesses of Pilkington plc ("the U.K. acquisition") and the United States-based UC Industries, Inc. ("UCI"), as well as productivity initiatives. Net sales were $1.721 billion for the six months ended June 30, 1995, reflecting a 13% increase from the 1994 level of $1.529 billion. Approximately one-half of the 1995 sales growth resulted from pricing gains worldwide. The balance of the sales growth reflects the benefits of the 1994 acquisitions as well as the favorable impact of a weaker U.S. dollar. In the Building Products segment, sales for the quarter ended June 30, 1995 were even compared to the second quarter of 1994, but were up 13% for the first half of 1995. Excluding the impact of the first quarter 1994 charge for restructure and other initiatives (please see notes 1 and 5 to the Consolidated Financial Statements), income from operations for total Building Products increased 15% in the first half of 1995 but was down 9% for the quarter primarily due to the weak Canadian economy. The weakness in Canada, anticipated lower housing starts in the U.S. and softness in retail sales, were significantly offset by improved U.S. margins and contributions from the Company's expanding European business. In Europe, the Company continues to realize the benefits of its acquired glass fiber insulation manufacturing facilities in the U. K. During the second quarter of 1995, the Company's Board of Directors approved plans to build a second insulation plant in China in order to take advantage of significant market demand in that region. The Company plans to begin production at its previously announced 90%-owned joint venture insulation manufacturing facility in Guangzhou, China by the end of the summer. -21- In the Composite Materials segment, total sales increased 8% during the second quarter of 1995 compared to the 1994 level. Total Composite Materials sales grew 20% during the quarter when adjusted for the deconsolidation of the Company's resins business, which became an unconsolidated 50%-owned joint venture on September 30, 1994. Income from operations was up 68% from the second quarter of 1994, led by increasing strength in Europe, productivity improvements, and pricing gains worldwide. In Europe, where the Company continues to benefit from economic improvement, Composite sales were up 32% over the second quarter of 1994, reflecting increased demand and pricing, as well as a favorable currency impact. Income from operations for European Composites increased from 2% of sales in the second quarter of 1994 to 13% of sales in the second quarter of 1995. The Company expects the European economic recovery to continue throughout 1995. In April 1995, the Company opened its new manufacturing plant for large- diameter glass-reinforced plastic pipe in Changchun, China and announced the formation of a pipe joint venture in Argentina. The Company also opened a distribution center in Bogota to serve new customers in Colombia, Ecuador, Peru and Venezuela. The Company's cost of borrowed funds of $23 million for the quarter ended June 30, 1995 was comparable to the second quarter 1994 level as reduced borrowings were offset by higher interest rates during the second quarter of 1995. In April 1995, the Company completed the conversion of its 8% convertible junior subordinated debentures into shares of common stock. This conversion reduced the Company's overall debt and saves $13.8 million in annual interest expense. Please see note 3 to the Consolidated Financial Statements. LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED MATTERS Cash flow from operations, excluding asbestos-related activities, was $2 million for the second quarter of 1995, compared to $19 million for the second quarter of 1994. Typically, the Company reports greater cash usage during the first half of the year as the Company builds inventories and other working capital. Total receivables at June 30, 1995 were $33 million higher than the December 31, 1994 level due to an increase in sales, offset largely by the sale, on a revolving basis, of an additional $50 million in receivables which occurred in early January 1995. Please see note 11 to the Consolidated Financial Statements. Net inventories increased from $223 million at December 31, 1994 to $314 million at June 30, 1995 due to anticipated seasonal demand for building products worldwide, while accounts payable and accrued liabilities decreased from $598 million at December 31, 1994 to $515 million at June 30, 1995. The Company's net working capital was $49 million and its current ratio was 1.05 at June 30, 1995 compared to negative $143 million and .87, respectively, at December 31, 1994. The improvement in 1995 was primarily due to the increase in net inventories as well as the decrease in accounts payable during the first half of 1995. -22- During the first quarter of 1995, the Company called, prior to maturity, approximately $150 million of its $173 million issue of 8% convertible junior subordinated debentures. The $23 million of debentures which were not called were converted by the holders during the first quarter of 1995. The debentures were convertible into shares of the Company's common stock at a conversion price of $29.75 per share, representing 33.613 shares of common stock per $1,000 principal amount. During March and April 1995, virtually all of the $173 million of debentures were converted, which resulted in the issuance of 5.8 million new shares of common stock. The conversion of these debentures into shares of common stock has no impact on the Company's fully diluted earnings per share as these shares have already been reflected in that calculation. Debentures not converted were redeemed for cash at face value with a 5.6% premium and accrued interest. During the second quarter of 1995, Owens-Corning Capital, L.L.C., a Delaware limited liability company, of which all of the common limited company interests are indirectly owned by the Company, issued $200 million of 6.5% cumulative convertible preferred securities. The proceeds from the issuance were partially used to repay the Company's short-term credit facility. The Company's total borrowings at June 30, 1995 were $161 million lower than at year-end 1994. During the second quarter of 1995, the Company increased its available line of credit under its Canadian credit facility, which now has a commitment of 125 million Canadian dollars (91 million U.S. dollars). As of June 30, 1995, the Company had total unused lines of credit of $278 million available under long-term bank loan facilities and an additional $125 million under short-term facilities, compared to $293 million and $91 million, respectively, at December 31, 1994. The net increase in unused available lines of credit was created by decreased borrowings coupled with a decrease in outstanding letters of credit supporting appeals from asbestos trials (which reduce credit availability under the Company's long-term U.S. bank loan facility). Please see notes 3 and 4 to the Consolidated Financial Statements. Capital spending for property, plant and equipment was $55 million during the second quarter of 1995. At the end of the second quarter, approved capital projects were $117 million. The Company expects that funding for these expenditures will be from the Company's operations and external sources as required. Gross payments for asbestos litigation claims during the second quarter of 1995, including $13 million in defense costs, were $57 million. Proceeds from insurance were $33 million, resulting in a net pretax cash outflow of $24 million, or $14 million after-tax. During the second quarter of 1995, the Company received approximately 13,100 new asbestos personal injury cases and closed approximately 3,200 cases. Over the next twelve months, total payments for asbestos litigation claims, including defense costs, are expected to be approximately $300 million. Proceeds from insurance of $125 million are expected to be available to cover these costs, resulting in a net pretax cash outflow of $175 million, or $105 million after-tax. Please see note 12 to the Consolidated Financial Statements. -23- The Company expects funds generated from operations, together with funds available under long and short term bank loan facilities, to be sufficient to satisfy its debt service obligations under its existing indebtedness, as well as its contingent liabilities for uninsured asbestos personal injury claims. The Company has been deemed by the Environmental Protection Agency (EPA) to be a potentially responsible party (PRP) with respect to certain sites under the Comprehensive Environmental Response, Compensation and Liability Act (Superfund). The Company has also been deemed a PRP under similar state or local laws, including two state Superfund sites where the Company is the primary generator. In other instances, other PRPs have brought suits or claims against the Company as a PRP for contribution under such federal, state or local laws. During the second quarter of 1995, the Company was designated as a PRP in such federal, state, local or private proceedings for one additional site. At June 30, 1995, a total of 37 such PRP designations remained unresolved by the Company, some of which designations the Company believes to be erroneous. The Company is also involved with environmental investigation or remediation at a number of other sites at which it has not been designated a PRP. The Company has a $26 million reserve for its Superfund (and similar state, local and private action) contingent liabilities. Based upon information presently available to the Company, and without regard to the application of insurance, the Company believes that, considered in the aggregate, the additional costs associated with such contingent liabilities, including any related litigation costs, will not have a materially adverse effect on the Company's financial position or results of operations. The 1990 Clean Air Act Amendments (Act) provide that the EPA will issue regulations on a number of air pollutants over a period of years. Until these regulations are developed, the Company cannot determine the extent to which the Act will affect it. The Company anticipates that its sources to be regulated will include glass fiber manufacturing and asphalt processing activities. The Company currently expects glass fiber manufacturing to be regulated by 1997. Based on information now known to the Company, including the nature and limited number of regulated materials it emits, the Company does not expect the Act to have a material adverse effect on the Company's results of operations, financial condition, or long-term liquidity. FUTURE REQUIRED ACCOUNTING CHANGE In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121). The Company is required to adopt the new standard no later than January 1, 1996. The Company does not expect the cumulative effect of the adoption of SFAS No. 121 to be material to the consolidated financial statements. -24- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS See the paragraphs in Note 12, Contingent Liabilities, to the Consolidated Financial Statements above, which are incorporated here by reference. ITEM 2. CHANGES IN SECURITIES (a)None of the constituent instruments defining the rights of the holders of any class of the Company's registered securities were materially modified in the quarter ended June 30, 1995. (b)None of the rights evidenced by any class of the Company's registered securities were materially limited or qualified in the quarter ended June 30, 1995 by the issuance or modification of any other class of securities. ITEM 3. DEFAULTS UPON SENIOR SECURITIES (a)During the quarter ended June 30, 1995, there was no material default in the payment of principal, interest, sinking or purchase fund installments, or any other material default not cured within 30 days, with respect to any indebtedness of the Company or any of its significant subsidiaries exceeding 5 percent of the total assets of the Company and its consolidated subsidiaries. (b)During the quarter ended June 30, 1995, no material arrearage in the payment of dividends occurred, and there was no other material delinquency not cured within 30 days, with respect to any class of preferred stock of the Company which is registered or which ranks prior to any class of registered securities, or with respect to any class of preferred stock of any significant subsidiary of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a)The Company's annual meeting of stockholders was held April 20, 1995. (c)The matters voted upon at the meeting, and the votes cast with respect to each, were: 1. Election of four directors for a term expiring in 1998: William W. Colville - 38,226,769 shares cast for election and 867,567 shares withheld; Landon Hilliard - 38,694,707 shares cast for election and 399,629 shares withheld; Glen H. Hiner - 38,344,712 shares cast for election and 749,624 shares withheld; and Sir Trevor Holdsworth - 38,649,133 shares cast for election and 445,203 shares withheld. 2. Approval of the action of the Board of Directors in selecting Arthur Andersen LLP as independent public accountants for the Company for the year 1995: 38,553,483 shares cast for the proposal; 387,137 shares cast against; and 153,716 shares abstained. There were no broker nonvotes. -25- ITEM 5. OTHER INFORMATION The Company does not elect to report any information under this item. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a)Exhibits. See Exhibit Index below, which is incorporated here by reference. (b)Reports on Form 8-K. The Company did not file any reports on Form 8-K during the quarter ended June 30, 1995. -26- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OWENS-CORNING FIBERGLAS CORPORATION Registrant Date August 14, 1995 By /s/David W. Devonshire --------------- ------------------------------- David W. Devonshire Senior Vice President and Chief Financial Officer Date August 14, 1995 By /s/Domenico Cecere --------------- ------------------------------- Domenico Cecere Vice President and Controller -27- EXHIBIT INDEX Exhibit Number Document Description (3) Articles of Incorporation and By-Laws. Certificate of Incorporation of Owens-Corning Fiberglas Corporation, as amended (incorporated herein by reference to Exhibit (3) to the Company's annual report on Form 10-K for 1986 (File No. 1-3660)). By-Laws of Owens-Corning Fiberglas Corporation, as amended (incorporated herein by reference to Exhibit (19) to the Company's quarterly report on Form 10-Q for the quarter ended March 31, 1988 (File No. 1-3660)). (11) Statement re Computation of Per Share Earnings (filed herewith). (27) Financial Data Schedule (filed herewith). EX-11 2 -28- Exhibit (11) OWENS-CORNING FIBERGLAS CORPORATION AND SUBSIDIARIES COMPUTATION OF PER SHARE EARNINGS Quarter Ended For the Six Months June 30, ended June 30, 1995 1994 1995 1994 ---- ---- ---- ---- (In millions of dollars, except share data and where noted) Primary: -------- Net Income $ 63 $ 45 $ 95 $ 63 ======= ======= ======= ======= Weighted average number of shares outstanding (thousands) 49,917 43,423 47,648 43,314 Weighted average common equivalent shares (thousands): Deferred awards 15 22 15 24 Stock options using average market price 469 611 376 618 ------- ------- ------- ------- Primary weighted average number of common shares outstanding and common equivalent shares (thousands) 50,401 44,056 48,039 43,956 ======= ======= ======= ======= Primary per share amount $ 1.25 $ 1.03 $ 1.98 $ 1.44 ======= ======= ======= ======= Fully Diluted: -------------- Net Income $ 64 $ 47 $ 98 $ 67 ======= ======= ======= ======= Weighted average number of shares outstanding (thousands) 49,917 43,423 47,648 43,314 Weighted average common equivalent shares (thousands): Deferred awards 15 22 15 24 Stock options using the higher of average market price or market price at end of period 490 613 402 627 Shares from assumed conversion of debt 728 5,798 2,901 5,798 Shares from assumed conversion of preferred securities 2,283 - 1,305 - ------- ------- ------- ------- Fully diluted weighted average number of common shares outstanding and common equivalent shares (thousands) 53,433 49,856 52,271 49,763 ======= ======= ======= ======= Fully diluted per share amount $ 1.20 $ .95 $ 1.88 $ 1.35 ======= ======= ======= =======
EX-27 3
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 6-MOS DEC-31-1995 JUN-30-1995 7 0 330 22 314 1,037 3,035 1,834 3,383 988 883 545 0 0 (916) 3,383 1,721 1,721 1,269 1,269 252 6 49 145 50 95 0 0 0 95 1.98 1.88