SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1999
Commission File No. 1-3660
Owens Corning
One Owens Corning Parkway
Toledo, Ohio 43659
Area Code (419) 248-8000
A Delaware Corporation
I.R.S. Employer Identification No. 34-4323452
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes / X / No / /
Shares of common stock, par value $.10 per share, outstanding at March 31, 1999
54,819,220
ITEM 1. FINANCIAL STATEMENTS
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Quarter Ended
March 31,
1999 1998
(In millions of dollars,
except share data)
NET SALES $ 1,130 $ 1,137
COST OF SALES 871 938
Gross margin 259 199
OPERATING EXPENSES
Marketing and administrative
expenses 136 129
Science and technology expenses 14 15
Restructure costs (Note 3) - 87
Other (1) 13
Total operating expenses 149 244
Gain on sale of assets(Note 4) - 84
INCOME FROM OPERATIONS 110 39
Cost of borrowed funds 33 37
INCOME BEFORE PROVISION (CREDIT)
FOR INCOME TAXES 77 2
Provision (credit) for income taxes 27 (7)
INCOME BEFORE MINORITY
INTEREST AND EQUITY
IN NET INCOME OF AFFILIATES 50 9
Minority interest (2) (5)
Equity in net income (loss) of
affiliates (4) 4
NET INCOME $ 44 $ 8
NET INCOME PER COMMON SHARE
Basic net income per share $ .81 $ .16
Diluted net income per share $ .77 $ .16
Weighted average number of common
shares outstanding and common equivalent
shares during the period (in millions)
Basic 53.9 53.4
Diluted 59.3 53.8
|
The accompanying notes are an integral part of this statement.
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, December 31,
1999 1998
ASSETS (In millions of dollars)
CURRENT
Cash and cash equivalents $ 51 $ 54
Receivables 555 451
Inventories (Note 7) 496 437
Insurance for asbestos litigation
claims - current portion (Note 11) 150 150
Deferred income taxes 368 293
Income tax receivable 30 117
Other current assets 25 27
Total current 1,675 1,529
OTHER
Insurance for asbestos litigation
claims (Note 11) 241 260
Asbestos costs to be reimbursed -
Fibreboard (Note 11) 70 74
Deferred income taxes 508 608
Goodwill 754 762
Investments in affiliates (Note 4) 42 45
Other noncurrent assets 241 205
Total other 1,856 1,954
PLANT AND EQUIPMENT, at cost 3,572 3,498
Less--Accumulated depreciation (1,904) (1,880)
Net plant and equipment 1,668 1,618
TOTAL ASSETS $ 5,199 $ 5,101
|
The accompanying notes are an integral part of this statement.
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Continued)
March 31, December 31,
1999 1998
(In millions of dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and
accrued liabilities $ 755 $ 942
Reserve for asbestos litigation
claims - current portion
(Note 11) 1,050 850
Short-term debt 108 69
Long-term debt - current portion 51 22
Total current 1,964 1,883
LONG-TERM DEBT (Note 5) 1,903 1,535
OTHER
Reserve for asbestos litigation claims
(Note 11) 1,385 1,780
Asbestos-related liabilities -
Fibreboard (Note 11) 75 79
Other employee benefits liability 325 326
Pension plan liability 47 55
Other 358 364
Total other 2,190 2,604
COMPANY OBLIGATED SECURITIES
OF ENTITIES HOLDING SOLELY
PARENT DEBENTURES 195 194
MINORITY INTEREST 44 19
STOCKHOLDERS' EQUITY
Common stock 696 679
Deficit (1,723) (1,762)
Accumulated other comprehensive
income (Note 9) (48) (37)
Other (22) (14)
Total stockholders' equity (1,097) (1,134)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 5,199 $ 5,101
|
The accompanying notes are an integral part of this statement.
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Quarter Ended
March 31,
1999 1998
(In millions of dollars)
NET CASH FLOW FROM OPERATIONS
Net income $ 44 $ 8
Reconciliation of net cash
provided by operating
activities:
Noncash items:
Provision for depreciation
and amortization 53 52
Provision (credit) for deferred
income taxes 23 (45)
Gain on sale of assets - (84)
Other 5 (7)
(Increase) decrease in receivables (86) (129)
(Increase) decrease in inventories (53) (36)
Increase (decrease) in accounts
payable and accrued liabilities (181) (12)
(Increase) decrease in income tax
receivable 80 (2)
Proceeds from insurance for asbestos
litigation claims, excluding Fibreboard 19 17
Payments for asbestos litigation claims,
excluding Fibreboard (195) (129)
Other (13) 37
Net cash flow from operations (304) (330)
NET CASH FLOW FROM INVESTING
Additions to plant and equipment (40) (47)
Proceeds from the sale of affiliate
or business (Note 4) - 134
Other (11) (19)
Net cash flow from investing $ (51) $ 68
|
The accompanying notes are an integral part of this statement.
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Quarter Ended
March 31,
1999 1998
(In millions of dollars)
NET CASH FLOW FROM FINANCING
Net additions to long-term
credit facilities $ 91 $ 285
Other additions to long-term debt 250 3
Net increase in short-term debt 18 36
Dividends paid (4) (4)
Other (3) -
Net cash flow from financing 352 320
Effect of exchange rate changes
on cash - (1)
Net increase (decrease) in cash
and cash equivalents (3) 57
Cash and cash equivalents at
beginning of period 54 58
Cash and cash equivalents at end
of period $ 51 $ 115
|
The accompanying notes are an integral part of this statement.
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarter Ended
1. SEGMENT DATA March 31,
1999 1998
(In millions of dollars)
NET SALES
Reportable Operating Segments
Building Materials
United States $ 814 $ 739
Europe 63 65
Canada and other 48 52
Total Building Materials 925 856
Composite Materials
United States 128 182
Europe 82 97
Canada and other 26 33
Total Composite Materials 236 312
Total Reportable Operating Segments 1,161 1,168
Reconciliation to Consolidated Net Sales
Composite Materials U.S. Sales to
Building Materials U.S. (31) (31)
Net Sales $ 1,130 $ 1,137
External Customer Sales by Geographic Region
United States $ 911 $ 890
Europe 145 162
Canada and other 74 85
Net Sales $ 1,130 $ 1,137
|
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Quarter Ended
1. SEGMENT DATA (Continued) March 31,
1999 1998
(In millions of dollars)
INCOME (LOSS) FROM OPERATIONS
Reportable Operating Segments
Building Materials
United States $ 67 $ (6)
Europe 3 (4)
Canada and other 6 -
Total Building Materials 76 (10)
Composite Materials
United States 28 42
Europe - 9
Canada and other 3 1
Total Composite Materials 31 52
Total Reportable Operating
Segments $ 107 $ 42
Geographic Regions
United States $ 95 $ 36
Europe 3 5
Canada and other 9 1
Total Reportable Operating
Segments $ 107 $ 42
Reconciliation to Consolidated Income
Before Provision for Income Taxes
Restructuring and other charges - (95)
Gain on sale of affiliate or business - 84
General corporate income 3 8
Cost of borrowed funds (33) (37)
Consolidated Income Before
Provision for Income Taxes $ 77 $ 2
|
During the first quarter of 1999, the Company changed its method of allocation of certain costs. Income from operations in 1998 for each reportable segment has been restated in accordance with this change.
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. GENERAL
The financial statements included in this Report are condensed and unaudited, pursuant to certain Rules and Regulations of the Securities and Exchange Commission, but include, in the opinion of the Company, adjustments necessary for a fair statement of the results for the periods indicated, which, however, are not necessarily indicative of results which may be expected for the full year.
In connection with the condensed financial statements and notes included in this Report, reference is made to the financial statements and notes thereto contained in the Company's 1998 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission.
3. RESTRUCTURING OF OPERATIONS AND OTHER ACTIONS
During the third quarter of 1998, the Company recorded a $148 million pretax charge for restructuring and other actions as the final phase of the Company's previously announced program to close manufacturing facilities, enhance manufacturing productivity and reduce overhead. On a cumulative basis since the fourth quarter of 1997, the Company has recorded a total pretax charge of $386 million, of which $143 million was recorded in the fourth quarter of 1997, $95 million was recorded in the first quarter of 1998, and $148 million was recorded in the third quarter of 1998.
The $148 million pretax charge in the third quarter of 1998 was comprised of a $30 million charge associated with the restructuring of the Company's business segments and a $118 million charge associated with other actions, the majority of which represent asset impairments. The $30 million restructure charge has been classified as a separate component of operating expenses on the Company's consolidated statement of income while the $118 million charge for other actions is comprised of a $60 million charge to cost of sales, a $4 million charge to marketing and administrative expenses, and a $54 million charge to other operating expenses. The components of the restructure charge include $9 million for personnel reductions and $21 million for the divestiture of non-strategic businesses and facilities, of which $20 million represents non-cash asset write-downs to estimated fair value and $1 million represents exit cost liabilities, comprised primarily of lease commitments. The $9 million for personnel reductions represents severance costs associated with the elimination of approximately 400 positions, primarily in the U.S. and Asia. The primary groups affected include manufacturing and administrative personnel. As of March 31, 1999, approximately $5 million has been paid and charged against the reserve for personnel reductions, representing the elimination of approximately 400 positions, the majority of whose severance payments will be made over the course of 1999. Charges of less than $1 million have been made against exit cost liabilities. No adjustments have been made to the liability.
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. RESTRUCTURING OF OPERATIONS AND OTHER ACTIONS (Continued)
The components and classification of the $118 million of other actions, of which $103 million represents non-cash asset revaluations, include: $30 million to write down to fair value certain manufacturing assets held for use in China, due primarily to poor current and projected financial results, recorded as cost of sales; $15 million to write down to net realizable value equipment and inventory made obsolete by changes in the Company's manufacturing and marketing strategies, recorded as cost of sales; $17 million for the write-down of an investment in and the write off of a receivable from a joint venture in Korea to reflect the business outlook at that time and the fair market value of the assets, recorded as other operating expenses; $12 million for the write-down of goodwill associated with the 1995 acquisition of Fiber-lite, determined to be unrecoverable due to a change in market conditions and customer demand, recorded as other operating expenses; and $9 million for the write-down of certain assets in the U.S. to fair market value, recorded as cost of sales. The Company plans to hold and use the investments, but disposed of the equipment in 1998. Also included in the $118 million charge for other actions are $13 million for the write off of certain receivables in the U.S. and Asia determined to be uncollectable, recorded as cost of sales and other operating expenses; and $22 million for other actions recorded as cost of sales, marketing and administrative expenses, and other operating expenses.
During the first quarter of 1998, the Company recorded a $95 million pretax charge for restructuring and other actions as the second phase of the Company's strategic restructuring program to enhance manufacturing productivity and reduce overhead.
The $95 million pretax charge in the first quarter of 1998 was comprised of an $87 million charge associated with the restructuring of the Company's business segments and an $8 million charge associated with other actions. The $87 million restructure charge has been classified as a separate component of operating expenses on the Company's consolidated statement of income while the $8 million charge for other actions is comprised of a $5 million charge to cost of sales and a $3 million charge to marketing and administrative expenses. The components of the restructure charge include $81 million for personnel reductions and $6 million for the divestiture of non-strategic businesses and facilities, of which $2 million represents exit cost liabilities, comprised primarily of lease commitments. The $81 million for personnel reductions represents severance costs associated with the elimination of approximately 1,500 positions worldwide. The primary employee groups affected include manufacturing and corporate administrative personnel. As of March 31, 1999, approximately $58 million has been paid and charged against the reserve for personnel reductions, representing the elimination of approximately 1,500 employees, the majority of whose severance payments were made over the course of 1998, and approximately $2 million has been charged against exit cost liabilities. No adjustments have been made to the liability.
During the fourth quarter of 1997, the Company recorded a $143 million pretax charge for restructuring and other actions as the first phase of the program to close manufacturing facilities, enhance manufacturing productivity and reduce overhead. The $143 million pretax charge was comprised of a $68 million charge associated with the restructuring of the Company's business segments and a $75 million charge associated with asset impairments, including investments in certain affiliates. The components of the restructure charge include $25 million for personnel reductions; $41
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. RESTRUCTURING OF OPERATIONS AND OTHER ACTIONS (Continued)
million for the divestiture of non-strategic businesses and facilities, of which $13 million represents exit cost liabilities, primarily for leased warehouse and office facilities to be vacated, and $28 million represents non-cash asset revaluations; and $2 million for other actions. The divestiture of non-strategic businesses and facilities includes the closure of the Candiac, Quebec manufacturing facility.
The $25 million for personnel reductions during the fourth quarter of 1997 represents severance costs associated with the elimination of nearly 550 positions worldwide. The primary employee groups affected include manufacturing and corporate administrative personnel. As of March 31, 1999, approximately $21 million has been paid and charged against the reserve for personnel reductions, representing the elimination of approximately 550 employees, the majority of whose severance payments were over the course of 1998, and approximately $9 million has been charged against exit cost liabilities. No adjustments have been made to the liability.
The components of the $75 million of other actions during the fourth quarter of 1997 and their classification on the Company's 1997 consolidated statement of income are as follows: $17 million for the write off of certain assets and investments associated with unconsolidated joint ventures in Spain and Argentina due primarily to poor current and projected financial results and the expected loss of local partners, recorded as other operating expenses; $12 million for the write-down of certain investments in mainland China to reflect the current business outlook and the fair market value of the investments, recorded as cost of sales; $24 million to write down to net realizable value equipment and inventory made obsolete by changes in the Company's manufacturing and marketing strategies, recorded as cost of sales; $8 million for a supplemental employee retirement plan approved by the Board of Directors in December 1997, recorded as marketing and administrative expenses; $5 million for the write-off of an insurance receivable that was determined to be uncollectable after judicial rejection of the Company's claim, recorded as other operating expenses; and $9 million for several other actions recorded as cost of sales, marketing and administrative expenses, and other operating expenses. The Company plans to hold and use the investments but disposed of most of the equipment in 1998.
The following table summarizes the status of the liabilities from the restructure program described above, including cumulative spending and adjustments and the remaining balance as of March 31, 1999:
(In millions of dollars) Beginning Total Ending
Liability Payments Liability
Personnel Costs $ 115 $ (84) $ 31
Facility and Business
Exit Costs 16 (11) 5
Other 2 (2) -
Total $ 133 $ (97) $ 36
|
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. RESTRUCTURING OF OPERATIONS AND OTHER ACTIONS (Continued)
The Company continually evaluates whether events and circumstances have occurred that indicate that the carrying amount of certain long-lived assets is recoverable. When factors indicate that a long-lived asset should be evaluated for possible impairment, the Company uses an estimate of the expected undiscounted cash flows to be generated by the asset to determine whether the carrying amount is recoverable or if an impairment exists. When it is determined that an impairment exists, the Company uses the fair market value of the asset, usually measured by the discounted cash flows to be generated by the asset, to determine the amount of the impairment to be recorded in the financial statements.
4. ACQUISITIONS AND DIVESTITURES OF BUSINESSES
In connection with a proposal received from its Korean joint venture partner, the Company infused approximately $29 million of cash into this venture in March, 1999. As a result of this investment, along with additional investments by the other partner, the Company increased its ownership interest in Owens Corning Korea to 70%. The Company accounted for this transaction under the purchase method of accounting whereby the assets acquired and liabilities assumed, including $84 million in debt, have been recorded at their fair values and the results of operations have been consolidated since the date of acquisition. Prior to that date, the Company accounted for this joint venture under the equity method.
During the first quarter of 1998, the Company completed the sale of the assets of Pabco, a producer of molded calcium silicate insulation, fireproofing board and metal jacketing, acquired as part of the Fibreboard acquisition in 1997. The Company sold Pabco for $31 million in cash and $6 million in notes receivable, all of which was collected during 1998.
Late in the first quarter of 1998, the Company sold its 50% ownership interest in Alpha/Owens-Corning, LLC. With cash proceeds of approximately $103 million, the Company recorded a pretax gain of approximately $84 million as other income on the Company's consolidated statement of income.
The consolidated balance sheet of the Company as of March 31, 1999 reflects the September 30, 1998 disposition of the Company's yarns and specialty materials business (the "yarns business"). The results of operations of the yarns business were reflected in the Company's consolidated statement of income through the period ending September 30, 1998. For the three months ended March 31, 1998, the yarns business recorded sales of approximately $73 million and income from operations of approximately $23 million. Effective September 30, 1998, the Company accounts for its ownership interest in the yarns joint venture under the equity method.
5. LONG-TERM DEBT
During the first quarter of 1999, the Company issued $250 million of senior debt securities ("the securities") as unsecured obligations of the Company. These securities, which mature in 2009, bear an annual rate of interest of 7.0%, payable semiannually. The proceeds from the issuance of these securities were used to reduce borrowings under the Company's long-term revolving credit agreement.
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. INCOME TAXES
The reconciliation between the U.S. federal statutory rate and the Company's effective income tax rate is:
Quarter Ended March 31,
1999 1998
In millions % of pretax In millions % of pretax
of dollars income of dollars income
U.S. federal
statutory
rate $ 27 35% $ 1 35%
State and local
income taxes 2 3 (1) (50)
Special tax
election (a) - - (13) (650)
Foreign tax rate
differences - - 3 150
Other $ (2) (3) $ 3 165
Effective tax
provision
and rate $ 27 35% $ (7) (350)%
(a) Represents a one-time tax benefit associated with Asia
Pacific operations.
|
7. INVENTORIES
March 31, December 31,
1999 1998
(In millions of dollars)
Inventories are summarized as follows:
Finished goods $ 368 $ 317
Materials and supplies 187 176
FIFO inventory 555 493
Less: Reduction to LIFO basis (59) (56)
Total Inventory $ 496 $ 437
Approximately $306 million and $271 million of FIFO inventories
were valued using the LIFO method at March 31, 1999 and December
31, 1998, respectively.
|
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. CONSOLIDATED STATEMENT OF CASH FLOWS
Cash payments for income taxes, net of refunds, and cost of borrowed funds are summarized as follows:
Quarter
Ended
March 31,
1999 1998
(In millions of dollars)
Income taxes $ (82) $ 3
Cost of borrowed funds 27 23
|
The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
During the first quarter of 1999, gross payments for asbestos litigation claims against Fibreboard were approximately $27 million, all of which was paid directly by Fibreboard's insurers or from the escrow account to claimants on Fibreboard's behalf. During the first quarter of 1999, Fibreboard also reached settlement agreements with plaintiffs for amounts totaling approximately $23 million. Fibreboard settlement agreements are reflected on the Company's consolidated balance sheet as an increase to both the Fibreboard asbestos costs to be reimbursed and asbestos claims settlements when the agreements are reached.
Please refer to Note 4 for disclosure of Non-Cash Investing and Financing activities.
9. COMPREHENSIVE INCOME
During the first quarter of 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. SFAS 130 requires that the Company classify items of other comprehensive income by their nature in the financial statements and display the accumulated balance of other comprehensive income separately in the stockholders' equity section of the Company's consolidated balance sheet.
The Company's comprehensive income for the quarters ended March 31, 1999 and 1998 was $33 million and $16 million, respectively. The Company's comprehensive income includes net income, currency translation adjustments, minimum pension liability adjustments, and deferred gains and losses on certain hedging transactions.
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10. EARNINGS PER SHARE
The following table reconciles the net income and weighted average number of shares used in the basic earnings per share calculation to the net income and weighted average number of shares used to compute diluted earnings per share.
Quarter Ended
March 31,
1999 1998
(In millions of dollars,
except share data)
Net income used for basic
earnings per share $ 44 $ 8
Net income effect of assumed
conversion of preferred securities 2 -
Net income used for diluted
earnings per share $ 46 $ 8
Weighted average number of shares
outstanding used for basic earnings
per share (thousands) 53,932 53,373
Deferred awards and stock options 768 472
Shares from assumed conversion of
preferred securities 4,566 -
Weighted average number of shares
outstanding and common equivalent
shares used for diluted earnings
per share (thousands) 59,266 53,845
|
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
11. CONTINGENT LIABILITIES
Asbestos Liabilities
ITEM A. - OWENS CORNING (EXCLUDING FIBREBOARD)
Owens Corning is a co-defendant with other former manufacturers, distributors and installers of products containing asbestos and with miners and suppliers of asbestos fibers in personal injury litigation. The personal injury claimants generally allege injuries to their health caused by inhalation of asbestos fibers from Owens Corning's products. Most of the claimants seek punitive damages as well as compensatory damages. Virtually all of the asbestos-related lawsuits against Owens Corning arise out of its manufacture, distribution, sale or installation of an asbestos-containing calcium silicate, high temperature insulation product, the manufacture and distribution of which was discontinued in 1972.
National Settlement Program
In December 1998, Owens Corning announced a National Settlement Program (NSP) under which a substantial majority of the asbestos claims pending against the Company have been resolved. As of March 31, 1999, approximately 188,000 asbestos personal injury claims against the Company have been settled under the NSP. The NSP also establishes procedures and fixed payments for resolving future claims brought by participating plaintiffs' law firms without litigation through at least 2008. Average payments per claim under the NSP are expected to be substantially lower than those experienced by Owens Corning in recent years. Settlement payments aggregating approximately $1.2 billion for cases pending against Owens Corning will be made over a period of up to five years, with most payments occurring in 1999 and 2000. Such payments will be made from the Company's available cash and credit resources.
The Company established the NSP in response to the rising cost in recent years of mesothelioma settlements and judgments, as well as significant changes in the legal environment, such as the Supreme Court's 1997 decision in Georgine v. Amchem Products, Inc., striking down an asbestos class action settlement. The NSP is designed to better manage Owens Corning's asbestos liability, and that of Fibreboard (see Item B below), and to enable the Company to better predict the timing and amount of indemnity payments for both pending and future claims.
Under the NSP, each participating law firm has agreed to a long- term settlement agreement ("NSP Agreement") providing for the resolution of claims pending against Owens Corning for a settlement amount negotiated with each participating firm. Settlement amounts to each claimant vary based on a number of factors, including the type and severity of disease. All payments will be subject to satisfactory evidence of a qualifying medical condition and exposure to the Company's products, delivery of customary releases by each claimant and other conditions. The NSP Agreements allow claimants to receive prompt payment without incurring the significant delays and uncertainties of litigation. Claimants settling non-malignancy claims may also be entitled to seek additional compensation if they develop a more severe asbestos-related medical condition in the future.
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
11. CONTINGENT LIABILITIES
ITEM A. - OWENS CORNING (EXCLUDING FIBREBOARD) (Continued)
Under each NSP Agreement, the participating firm also agrees (consistent with applicable legal requirements) to resolve any future asbestos personal injury claims against Owens Corning through an administrative processing arrangement, rather than litigation. Under such arrangement, no settlement payment will be made for future claims unless specified medical criteria and other requirements are met, and the amount of any such payment will be a specified cash settlement value based on the disease of the claimant and other factors. In the case of future claims not involving malignancy, such criteria require medical evidence of functional impairment. Payments for both pending and future claims will be managed by Integrex, a wholly-owned Owens Corning subsidiary that specializes in claims processing.
It is anticipated that payments for a limited number of future "exigent" claims (principally malignancy claims) under the administrative processing arrangement will generally begin in 2001, while payments for most other future claims will begin in 2003. Payments for claims in 2003 and later years under the NSP will be subject to certain conditions designed to increase the predictability of annual cash outflows for asbestos payments. NSP Agreements have a term of at least 10 years and may be extended by mutual agreement of the parties. Each of Owens Corning and Fibreboard (see Item B below) retains the right to terminate any individual NSP Agreement if in any year more than a specified number of plaintiffs represented by the plaintiffs' firm in question opt out of such agreement.
Asbestos Related Payments
In the first quarter of 1999, the Company made $195 million of asbestos related payments. These payments fell within four major categories: pre-NSP settlements - covering resolution of verdicts, settlements and appeals effected prior to the implementation of the NSP; NSP settlements - covering cases within the NSP; non-NSP settlements - covering cases outside the NSP; and defense and administrative expenses - including the cost of pursuing recoveries from insurance companies.
The Company currently estimates that it will incur total asbestos related payments of approximately $995 million for 1999, as follows:
(in millions of dollars)
Pre-NSP Settlements $ 192
NSP Settlements 728
Non-NSP Settlements 50
Defense and Administrative Expenses 25
$ 995
|
All amounts discussed above are before tax and application of insurance recoveries.
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
11. CONTINGENT LIABILITIES
ITEM A. - OWENS CORNING (EXCLUDING FIBREBOARD) (Continued)
Tobacco
Owens Corning believes that it has spent significant amounts to resolve claims of asbestos claimants whose injuries were caused or contributed to by cigarette smoking, and that the major tobacco companies should be required to reimburse asbestos defendants, in whole or in part, for past payments made to asbestos claimants who were also smokers. The Company is pursuing this objective through both legislative lobbying efforts and litigation. As widely reported, the United States Senate did consider legislation during the first half of 1998 which would have included provisions in the proposed national tobacco settlement to compensate past and future asbestos plaintiffs who also suffer from smoking-related illnesses. Because the present prospects for any such legislation are uncertain, the Company has increased its litigation efforts against the tobacco companies.
In October 1998, the Circuit Court for Jefferson County, Mississippi granted leave to file an amended complaint in an existing action to add claims by Owens Corning against seven leading tobacco companies and several other tobacco industry defendants. The court has set a February 2000 trial date for this action. In addition to the Mississippi lawsuit, a lawsuit brought in December 1997 by Owens Corning and Fibreboard is pending in the Superior Court for Alameda County, California against the same major tobacco companies. In both cases, Owens Corning and Fibreboard seek monetary recovery for, among other things, a portion of the payments made to persons who brought asbestos claims and were also smokers.
PFT Litigation
As previously reported, in 1996 Owens Corning filed suit in federal court in New Orleans, Louisiana against the owners and operators of certain pulmonary function testing laboratories in the southeastern United States alleging that many pulmonary function tests ("PFTs") used in mass screening programs were improperly administered and manipulated by the testing laboratories or otherwise inconsistent with proper medical practice. This matter is now in active pre-trial discovery and a January 2000 trial date has been set. In January 1997, Owens Corning filed a similar suit in federal court in Jackson, Mississippi against the owner of an additional testing laboratory. This suit is in the discovery phase. The Company believes that these lawsuits have been helpful in raising the standards for medical screening of asbestos claims and in developing, and gaining widespread acceptance by plaintiffs' firms of, the medical criteria included in the NSP Agreements.
Insurance
As of March 31, 1999, Owens Corning had approximately $166 million in unexhausted insurance coverage (net of deductibles and self-insured retentions and excluding coverage issued by insolvent carriers) under its liability insurance policies applicable to asbestos personal injury claims. This insurance, which is substantially confirmed, includes both products hazard coverage and primary level non-products coverage. Portions of this coverage are not available until 2000 and beyond under agreements with the carriers confirming such coverage. All of Owens Corning's liability insurance policies cover indemnity payments and defense fees and expenses subject to policy limits.
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
11. CONTINGENT LIABILITIES
ITEM A. - OWENS CORNING (EXCLUDING FIBREBOARD) (Continued)
In addition to its confirmed primary level non-products insurance, Owens Corning has a significant amount of unconfirmed potential non-products coverage with excess level carriers. For purposes of calculating the amount of insurance applicable to asbestos liabilities, Owens Corning has estimated its probable recoveries in respect of this additional non-products coverage at $225 million, which amount was recorded in 1996. This coverage is unconfirmed and the amount and timing of recoveries from these excess level policies will depend on subsequent negotiations or proceedings.
Reserve
The Company's financial statements include a reserve for the estimated cost associated with Owens Corning's asbestos personal injury claims. This reserve was established initially through a charge to income in 1991, with an additional $1.1 billion charge to income (before taking into account probable non-products insurance recoveries) recorded in 1996. The combined effect of the $1.1 billion charge and the $225 million probable additional non-products insurance recovery was an $875 million charge in the second quarter of 1996. Reflecting the substantial new information about pending and future claims gained in the NSP negotiations with plaintiffs' law firms and the recent changes in the legal environment referred to above, the Company in the fourth quarter of 1998 increased its asbestos reserves by $1.4 billion, resulting in an after-tax charge to 1998 earnings of $906 million. Subject to the uncertainties referred to below, Owens Corning estimates that its liabilities in respect of indemnity and defense costs associated with pending and unasserted asbestos personal injury claims and its insurance recoveries in respect of such claims, at March 31, 1999, are as follows:
March 31, December 31,
1999 1998
(In millions of dollars)
Reserve for asbestos litigation
claims
Current $ 1,050 $ 850
Other 1,385 1,780
Total Reserve $ 2,435 $ 2,630
Insurance for asbestos litigation
claims
Current $ 150 $ 150
Other 241 260
Total Insurance $ 391 $ 410
Net Owens Corning
Asbestos Liability $ 2,044 $ 2,220
|
Owens Corning believes that the NSP will improve its ability to estimate the timing and amount of indemnity payments and defense costs for both pending and future asbestos personal injury claims. Nevertheless, the Company cautions that its estimate of its liabilities for such claims is influenced by numerous variables that are difficult to predict and that such estimate therefore remains subject to uncertainty.
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
11. CONTINGENT LIABILITIES
ITEM A. - OWENS CORNING (EXCLUDING FIBREBOARD) (Continued)
Such variables include the number of claims filed in the future and the severity of disease involved in such claims; whether or not such claims are covered by an NSP Agreement; the extent, if any, to which an individual plaintiff exercises his/her right to opt out of an NSP Agreement and/or utilize other counsel that is not a participant in the NSP; the extent if any to which Owens Corning exercises its right to terminate one or more of the NSP Agreements due to excessive opt-outs; and Owens Corning's success in controlling the costs of resolving claims outside the NSP.
Management Opinion
Although any opinion is necessarily judgmental and must be based on information now known to Owens Corning, in the opinion of management, while any additional uninsured and unreserved costs which may arise out of pending personal injury asbestos claims and additional similar asbestos claims filed in the future may be substantial over time, management believes that such additional costs will not impair the ability of the Company to meet its obligations, to reinvest in its businesses, or to pursue its growth agenda.
ITEM B. FIBREBOARD (EXCLUDING OWENS CORNING)
Prior to 1972, Fibreboard manufactured insulation products containing asbestos. Fibreboard has since been named as a defendant in many thousands of personal injury claims for injuries allegedly caused by asbestos exposure.
Status
As of March 31, 1999, approximately 129,000 asbestos personal injury claims were pending against Fibreboard. Most of the pending claims are made against the Fibreboard Global Settlement Trust and are subject to the Global Settlement injunction discussed below.
National Settlement Program
Fibreboard is a participant in the NSP and is a party to most of the NSP Agreements discussed in Item A. These agreements settle claims pending against Fibreboard and claims which are currently barred claims that would be filed against Fibreboard in the event the U.S. Supreme Court overturns the Global Settlement (discussed below). The agreements also provide for the resolution of other future asbestos personal injury claims against Fibreboard through the administrative processing arrangement described in Item A. If the Global Settlement is overturned and the Insurance Settlement (discussed below) therefore becomes effective, Fibreboard anticipates that in excess of 100,000 asbestos personal injury claims pending against it would be resolved under the NSP. Settlement payments for such claims would be made over a period of five years, with most payments occurring in 1999 and 2000. Such payments would be made from the approximately $1.9 billion in funds available under the Insurance Settlement.
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
11. CONTINGENT LIABILITIES
ITEM B. - FIBREBOARD (EXCLUDING OWENS CORNING) (Continued)
Each NSP Agreement will terminate automatically as to Fibreboard if the Global Settlement receives final court approval. Under the Global Settlement, Fibreboard is protected by an injunction from asbestos personal injury claims and should have no further uninsured liabilities for pending or future asbestos personal injury claims. If the Global Settlement receives final court approval, the NSP Agreements would remain in effect with regard to Owens Corning, whose share of the total costs under the agreements would remain substantially unchanged.
Global Settlement
During 1993, Fibreboard, its insurers and representatives of a class of future asbestos plaintiffs who have claims arising from asbestos prior to August 27, 1993, entered into the Global Settlement. Under the Global Settlement, Fibreboard is protected by an injunction from claims, and should have no further asbestos personal injury liabilities. On July 26, 1996, the Fifth Circuit Court of Appeals affirmed the Global Settlement by a majority decision.
The parties opposing the Global Settlement filed petitions
seeking review with the U.S. Supreme Court. On June 27, 1997,
the Supreme Court granted the petition, vacated the judgment and
remanded the case to the Fifth Circuit for further consideration
in light of the Supreme Court's decision in the Amchem Products
v. Windsor case. Amchem involved a proposed nationwide class
action settlement of future asbestos personal injury claims
against the members of the Center for Claims Resolution. The
Supreme Court, affirming the intermediate appellate court,
disapproved and vacated the Amchem class action settlement,
determining that the Amchem class action failed to meet the class
action certification requirements of Federal Rule of Civil
Procedure 23. On January 27, 1998, a panel of the Fifth Circuit
reaffirmed, by majority vote, its prior decision, and again
approved the Global Settlement. In June 1998, the United States
Supreme Court granted certiorari, agreeing to review the decision
by the Fifth Circuit. The Supreme Court heard oral argument on
the case in December 1998, and a decision is expected in the
second quarter of 1999.
If the Global Settlement becomes effective, all asbestos-related personal injury liabilities of Fibreboard will be resolved through insurance funds and existing corporate reserves of Fibreboard, and a permanent injunction would bar the filing of any further claims against Fibreboard or its insurers by class members. Upon final approval, Fibreboard's insurers are required to pay existing settlements and assume full responsibility for any claims filed before August 27, 1993, the date the settling parties reached agreement on the terms of the Global Settlement. A court-supervised claims processing trust ("Settlement Trust") will be responsible for resolving claims which were not filed against Fibreboard before August 27, 1993, and any further claims that might otherwise be asserted against Fibreboard in the future by members of the class.
The Settlement Trust will be funded principally by Fibreboard's insurers, Continental Casualty Company ("Continental") and Pacific Indemnity Company ("Pacific"). These insurers placed $1.525 billion in an interest-bearing escrow account pending court approval of the settlements. Fibreboard is responsible for contributing $10 million plus accrued interest toward the Settlement Trust, which it will obtain from other remaining insurance sources and its existing reserves.
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
11. CONTINGENT LIABILITIES
ITEM B. - FIBREBOARD (EXCLUDING OWENS CORNING) (Continued)
The Home Insurance Company has already paid $9.9 million into the escrow account on behalf of Fibreboard, in satisfaction of an earlier settlement agreement. The balance of the escrow account was approximately $1.7 billion at March 31, 1999 after payment of interim expenses and exigent claims associated with the Global Settlement.
Insurance Settlement
In 1993, Fibreboard, Continental and Pacific entered into the Insurance Settlement, which was structured as an alternative solution in the event the Global Settlement fails to receive final approval. Under the Insurance Settlement, Continental and Pacific will pay in full settlements reached as of August 27, 1993. In addition they will provide Fibreboard with the remaining balance of the Global Settlement escrow account for claims filed after August 27, l993, plus an additional $475 million subject to certain adjustments. Upon fulfillment of their obligations under the Insurance Settlement, Continental and Pacific will be discharged from any further obligations to Fibreboard under their insurance policies and will be protected by an injunction against any claims of asbestos personal injury claimants based upon those insurance policies. Under the Insurance Settlement, Fibreboard will manage the defense and resolution of asbestos-related personal injury claims and will remain subject to suit by asbestos personal injury claimants. On October 24, 1996, the statutory time period for objectors to seek further judicial review of the Insurance Settlement lapsed with no petition for review having been filed with the U.S. Supreme Court. Therefore, the Insurance Settlement is now final and not subject to further appeal.
The Insurance Settlement will not become effective and will not be fully funded until such time as the Global Settlement has been finally resolved. In the event the Global Settlement is finally approved, the Insurance Settlement will not be funded.
Management Opinion
While there are various uncertainties regarding whether the Global Settlement or the Insurance Settlement will be in effect, and these may ultimately impact Fibreboard's liability for asbestos personal injury claims, the Company believes the amounts available under the Insurance Settlement will be adequate to fund Fibreboard's ongoing defense and indemnity costs associated with asbestos-related personal injury claims for the foreseeable future.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(All per share information in Item 2 is on a diluted basis.)
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the statements. Some of the important factors that may influence possible differences are continued competitive factors and pricing pressures, construction activity, interest rate movements, issues involving implementation of new business systems, Year 2000 readiness, achievement of expected cost reductions, asbestos litigation, and general economic conditions.
RESULTS OF OPERATIONS
Business Overview
The Company's growth agenda has focused on increasing sales and
earnings by (i) acquiring businesses with products that can be
sold through existing or complementary distribution channels,
(ii) achieving productivity improvements and cost reductions in
existing and acquired businesses and (iii) entering new growth
markets. The Company is implementing two major initiatives, the
System Thinking (TM) strategy and Advantage 2000, to enhance
sales growth and achieve productivity improvements across all
businesses. System Thinking for the Home (TM) leverages the
Company's broad product offering and strong brand recognition to
increase its share of the building materials and home improvement
markets. This systems approach represents a shift from product-
oriented selling to providing systems-driven solutions that
combine the Company's insulation, roofing, exterior and acoustic
systems, to provide a high performance, cost-effective building
"envelope" for the home. In the Composite Materials business, the
Company has partnered with the plastics industry and, with the
Company's System Thinking philosophy, is taking a solution-
oriented, customer-focused approach toward the continuous
development of substitution opportunities for composite
materials. In addition, the Company is implementing Advantage
2000, a fully integrated business technology system designed to
reduce costs and improve business processes.
The Company has grown its sales from nearly $3.4 billion in 1994 to $5.0 billion in 1998. Acquisitions have been a significant component of that growth. Since 1994, the Company has completed 17 acquisitions for an aggregate purchase price of over $1.2 billion. The Company's acquisitions have broadened its lines of business to include siding, accessories and other home exteriors and have diversified its materials portfolio beyond fiber glass to include polymers such as vinyl and styrene, and metal and stone. In 1997, the Company completed the two largest of these acquisitions by acquiring Fibreboard Corporation ("Fibreboard") and AmeriMark Building Products, Inc. ("AmeriMark"), making Owens Corning the leader in the U.S. vinyl siding, siding accessories and manufactured stone markets, as well as a large specialty distributor in North America through 180 Company-owned distribution centers.
Despite the benefits of its growth agenda, the Company experienced a highly competitive pricing environment during 1997 and into 1998. In order to improve its strategic position and operational efficiency, the Company implemented several profitability and productivity initiatives, including the strategic restructuring program, discussed below, which was begun in late 1997. This program, along with the realignment of the Company's Exterior Systems business, enabled the Company to benefit from cost reductions of approximately $142 million during 1998. The specific objectives of this strategic program are discussed in "Restructuring of Operations and Other Actions" below and in Note 3 to the Consolidated Financial Statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
During 1998, the pricing environment applicable to several of the Company's major products, particularly residential insulation, began to improve. Over the course of the year, the Company announced three separate price increases, totaling 27%, applicable to residential insulation. Another 9% price increase applicable to such products was announced effective January 1999. By the end of 1998, most notably in the fourth quarter, the Company's average price levels of insulation products surpassed the year-end 1997 levels. Despite the successful implementation of price increases during 1998, including the restoration of residential insulation prices to their late 1996 levels, income from operations during 1998 was adversely impacted by approximately $44 million, compared to 1997, due largely to the relatively low insulation pricing base in effect at the beginning of 1998, the lag in fully realizing the 1998 price increases as the Company honored the remainder of pre-existing pricing contracts, and price declines attributable to vinyl siding products. The cost reductions, productivity improvements, and significant pricing improvements achieved during 1998 have continued into the first quarter of 1999.
Quarter Ended March 31, 1999
Sales and Profitability
Net sales for the quarter ended March 31, 1999 were $1.130 billion, down slightly from the first quarter 1998 level of $1.137 billion. The sales decline is due largely to the transfer of the Company's yarns business to an unconsolidated joint venture during the third quarter of 1998. On a comparative basis, excluding the yarns and other divested businesses in 1998, sales during the first quarter of 1999 were up 7% from the first quarter of 1998. In the Building Materials business, sales during the first quarter of 1999 reflect the continued strength in the U.S. roofing market, with both volume and price improvements, compared to the first quarter of 1998, and the continued upward price trend applicable to residential insulation products, particularly in the U.S. Volume increases in the vinyl siding market were offset by price declines in that market compared to the first quarter of 1998. In the Composites business, sales reflect volume declines, particularly in the U.S. Slight price increases in the U.S. were offset by price declines in European and Asian markets during the first quarter of 1999. On a consolidated basis, there was virtually no impact of currency translation on sales in foreign currencies during the first quarter of 1999 compared to the first quarter of 1998. Please see Note 1 to the Consolidated Financial Statements.
Sales outside the U.S. represented 19% of total sales during the first quarter of 1999, compared to 22% during the first quarter of 1998. The relative decline in non-U.S. sales is due to the 1999 volume and price increases attributable to U.S. roofing and insulation products, along with insulation volume declines in Canada and Europe. Gross margin for the quarter ended March 31, 1999 was 23% of net sales, compared to 18% in the first quarter of 1998. The increase in gross margin reflects the benefits of the cost reductions resulting from the Company's strategic restructuring program, price increases applicable to many of the Company's products, and continuing productivity improvements across the Company's businesses.
For the quarter ended March 31, 1999, the Company reported net income of $44 million, or $.77 per share, compared to net income of $8 million, or $.16 per share, for the quarter ended March 31, 1998. Net income in the first quarter of 1999 reflects the benefits of the cost-saving programs and productivity initiatives implemented throughout 1998 as well as the benefits of pricing improvements, particularly in U.S. residential insulation markets. Included in the first quarter 1998 net income are a $95 million pretax charge ($63 million after-tax) for the Company's restructuring program and an $84 million pretax gain ($52 million after-tax) from the sale of the Company's 50% ownership interest in Alpha/Owens-Corning. Cost of borrowed funds during the first quarter of 1999 was $33 million, $4 million lower than the first quarter 1998 level, due to a reduction in average interest rates. The reduction in minority interest expense reflects the Company's third quarter 1998 repurchase of its Trust Preferred Hybrid Securities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
On a comparative basis, the reduction in equity in net income of affiliates for the quarter ended March 31, 1999 versus the same quarter of 1998 reflects the sale of the Company's 50% ownership interest in Alpha/Owens-Corning, LLC at the end of the first quarter of 1998, and costs associated with the start-up of the Company's composites joint venture in India. Please see Notes 3 and 4 to the Consolidated Financial Statements.
Marketing and administrative expenses were $136 million during the first quarter of 1999, compared to $129 million in the first quarter of 1998. The increase is primarily attributable to increased marketing programs targeted at new growth initiatives, partially offset by the benefits of cost reductions resulting from the Company's strategic restructuring program.
Restructuring of Operations and Other Actions
Please see also Note 3 to the Consolidated Financial Statements.
During the first and third quarters of 1998, the Company recorded a total pretax charge of $243 million for restructuring and other actions as part of the Company's strategic restructuring program to reduce overhead, enhance manufacturing productivity, and close manufacturing facilities, which was announced in early 1998. This charge includes $117 million for restructuring and $126 million for other actions in 1998, the majority of which represent asset impairments. On a cumulative basis since the fourth quarter of 1997, the Company has recorded a total pretax charge of $386 million for this program, of which $185 million represents restructure costs and $201 million represents other actions.
The $117 million restructuring charge in 1998 includes approximately $90 million for costs associated with the elimination of approximately 1,900 positions worldwide and $27 million for the divestiture of non-strategic businesses and facilities, of which $3 million represents exit cost liabilities, comprised primarily of lease commitments. The $27 million charge for non-strategic businesses and facilities includes $12 million for the closure of certain U.S. manufacturing facilities, $6 million for the closure of a pipe manufacturing facility in China, and $9 million for other actions.
The primary components of the $126 million charge for other actions in 1998 and their classification on the Company's consolidated statement of income include: $30 million to write down to fair value certain manufacturing assets held for use in China, due primarily to poor current and projected financial results, recorded as cost of sales; $15 million to write down to net realizable value equipment and inventory made obsolete by changes in the Company's manufacturing and marketing strategies, recorded as cost of sales; $17 million for the write-down of an investment in and the write-off of a receivable from a joint venture in Korea to reflect the business outlook at that time and the fair market value of the assets, recorded as other operating expenses; $12 million for the write-down of goodwill associated with the 1995 acquisition of Fiber-lite, determined to be unrecoverable due to a change in market conditions and customer demand, recorded as other operating expenses; and $9 million for the write-down of certain assets in the U.S. to fair market value, recorded as cost of sales. The Company plans to hold and use the investments but disposed of most of the equipment in 1998. Also included in the $126 million charge for other actions are $13 million for the write-off of certain receivables in the U.S. and Asia determined to be uncollectable, recorded as cost of sales and other operating expenses; and $30 million for other actions recorded as cost of sales, marketing and administrative expenses, and other operating expenses.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
As indicated above, certain of the charges recorded during 1998 represent valuation adjustments associated with asset impairments. The Company continually evaluates whether events and circumstances have occurred that indicate that the carrying amount of certain long-lived assets is recoverable. When factors indicate that a long-lived asset should be evaluated for possible impairment, the Company uses an estimate of the expected undiscounted cash flows to be generated by the asset to determine whether the carrying amount is recoverable or if an impairment exists. When it is determined that an impairment exists, the Company uses the fair market value of the asset, usually measured by the discounted cash flows to be generated by the asset, to determine the amount of the impairment to be recorded in the financial statements.
As a result of the strategic restructuring program, the Company realized a decrease in manufacturing and operating expenses of approximately $110 million during 1998. Based upon expected economic conditions over the next few years, including effects on matters such as labor, material and other costs, the Company expects to achieve total annual pretax savings of approximately $175 million in 1999 and each year thereafter from this program. The expected $175 million in cost reductions, the majority of which will be cash savings, is comprised of $150 million in reduced personnel costs, $14 million in reduced facility costs, and $11 million of reductions in related program spending. The Company also expects additional cost savings during 1999 resulting from improved logistics and materials sourcing.
The Company also implemented programs to gain synergies in its Exterior Systems Business during 1998. As a result of these programs, which include closing redundant facilities, integrating business systems, and improving purchasing leverage, the Company reduced costs by approximately $32 million during 1998 and expects to save an additional $20 million per year in 1999 and beyond, the majority of which will be cash savings.
Building Materials
In the Building Materials segment, sales increased 8% in the first quarter of 1999 compared to the first quarter of 1998, reflecting increased volume and significant price improvements attributable to U.S. residential insulation products, as well as volume and price increases in U.S. roofing markets. Building Materials sales also reflect the benefits of volume increases in North American vinyl siding markets and European insulation markets during the first quarter of 1999, offset by price declines in those markets. There was virtually no translation impact of sales denominated in foreign currencies during the first quarter of 1999. Income from operations was $76 million during the first quarter of 1999 compared to a loss of $10 million during the comparable 1998 period. Income from operations in 1999 reflects productivity improvements and cost reductions resulting from the strategic restructuring program, as well as volume and price increases in the U.S. roofing and residential insulation markets. Please see Note 1 to the Consolidated Financial Statements.
Early in the first quarter of 1998, the Company completed the sale of the assets of Pabco, a producer of molded calcium silicate insulation, fireproofing board and metal jacketing, acquired as part of the Fibreboard acquisition in 1997. Please see Note 4 to the Consolidated Financial Statements.
Composite Materials
In the Composite Materials segment, sales were down 24% during the first quarter of 1999, compared to the first quarter of 1998, due largely to the disposition (discussed below) of 51% of the Company's yarns and specialty materials business (the "yarns business") late in the third quarter of 1998. Adjusted for the
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
impact of this disposition, sales were down 4% during the first quarter of 1999 compared to 1998, primarily due to volume declines in U.S. markets. Slight price increases in U.S. composites markets were offset by price declines across European and Asian markets. The translation impact of sales denominated in foreign currencies was slightly favorable during the first quarter of 1999. Income from operations was $31 million in the first quarter of 1999, compared to $52 million in the prior-year period. The decline is due largely to the disposition of the yarns business in the third quarter of 1998 as well as the volume and price declines discussed above. Income from operations during the first quarter of 1999 also reflects the benefits of productivity improvements and cost reductions from the Company's restructuring program. Please see Note 1 to the Consolidated Financial Statements.
During the third quarter of 1998, the Company formed a joint venture for its yarns business to which it contributed two manufacturing plants and certain proprietary technology. On September 30, 1998, the Company completed the sale of 51% of the joint venture to a U.S. subsidiary of Groupe Porcher Industries of Badinieres, France for $340 million. The Company continues to have a 49% ownership interest in the joint venture. Upon closing, the Company also received a distribution of approximately $193 million from the joint venture. By retaining a 49% ownership interest in the joint venture, the Company will continue to safeguard its proprietary technology and participate in the yarns market. Please see Note 4 to the Consolidated Financial Statements.
The consolidated balance sheet of the Company as of March 31, 1999 and December 31, 1998 reflects the third quarter 1998 disposition of the Company's yarns business. The results of operations of the yarns business were reflected in the Company's consolidated statement of income through the period ending September 30, 1998. For the three months ended March 31, 1998, the yarns business recorded sales of approximately $73 million and income from operations of approximately $23 million. Effective September 30, 1998, the Company accounts for its ownership interest in the yarns joint venture under the equity method.
Accounting Changes
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). This statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS 133 is effective for fiscal years beginning after June 15, 1999, but earlier adoption is allowed. The Company has begun to assess the impact of SFAS 133 on its financial statements and plans to adopt this accounting change effective January 1, 2000. The Company has not yet fully quantified the impact of SFAS 133 but is aware that the adoption of SFAS 133 could increase volatility in earnings and other comprehensive income.
LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED MATTERS
Cash flow from operations was negative $304 million for the quarter ended March 31, 1999, compared to negative $330 million for the quarter ended March 31, 1998. The improvement in cash flow from operations in 1999 is largely attributable to increased earnings and the collection of an $85 million federal income tax receivable, offset partially by an increase in payments for asbestos litigation claims, net of insurance. Payments for asbestos litigation claims were $195 million during the first quarter of 1999 and proceeds from
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
insurance were $19 million, compared to $129 million and $17 million, respectively, during the first quarter of 1998. The increase in net payments resulted principally from the implementation of the National Settlement Program (NSP) in the fourth quarter of 1998. The Company anticipates $995 million of total payments for asbestos litigation claims during 1999 due to the continuing implementation of the Company's NSP, described in Note 11 to the Consolidated Financial Statements. The Company expects that $150 million of insurance proceeds will be available to partially cover these costs. Please see Notes 8 and 11 to the Consolidated Financial Statements.
Inventories at March 31, 1999 increased by $59 million from the December 31, 1998 level, due largely to the seasonal build of inventories and other working capital. Receivables at March 31, 1999 were $555 million, a $104 million increase over the December 31, 1998 level, attributable to the seasonal increase in sales. The decrease in accounts payable and accrued liabilities from $942 million at December 31, 1998 to $755 million at March 31, 1999 reflects typical payment patterns during the first quarter.
At March 31, 1999, the Company's net working capital was negative $289 million and its current ratio was .85, compared to negative $354 million and .81, respectively, at December 31, 1998 and $309 million and 1.24, respectively, at March 31, 1998. A $700 million increase in the current portion of the reserve for asbestos litigation claims, net of insurance, due to the implementation of the Company's National Settlement Program, partially offset by the related income tax benefit, contributed to the decrease in net working capital at March 31, 1999 compared to March 31, 1998.
The Company's total borrowings at March 31, 1999 were $2.062 billion, $436 million higher than at year-end 1998. The Company typically uses cash during the first half of the year as it builds inventory and other working capital.
As of March 31, 1999, the Company had unused lines of credit of $1.243 billion available under long-term bank credit facilities and an additional $130 million under short-term facilities, compared to $1.307 billion and $124 million, respectively, at year-end 1998. The net decrease in unused available lines of credit reflects the Company's increased borrowings at March 31, 1999 compared to December 31, 1998. During the first quarter of 1999, the Company issued $250 million of debt securities, the proceeds of which were used to reduce borrowings under the long- term bank credit facility. Letters of credit issued under the facility, most of which support appeals from asbestos trials, also reduce the available credit. The impact of such reduction is reflected in the unused lines of credit discussed above. Please see Note 5 to the Consolidated Financial Statements.
During 1998, the Company implemented a debt realignment program intended to reduce financing costs. This program, which extended the average length of term debt from four years to ten years, included the issuance of a total of $950 million in new debt securities, the repurchase of the Company's $309 million of Trust Preferred Hybrid Securities and the retirement of $361 million of higher-rate debt securities.
Capital spending for property, plant and equipment, excluding acquisitions, was $40 million in the first quarter of 1999. The Company anticipates that 1999 capital spending, exclusive of acquisitions and investments in affiliates, will be approximately $225 million, the majority of which is uncommitted. The Company expects that funding for these expenditures will be from the Company's operations and external sources as required.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Asbestos Litigation
Gross payments for asbestos litigation claims during the first quarter of 1999, including payments for claims settled in prior years, were $195 million. Proceeds from insurance were $19 million resulting in a net pretax cash outflow of $176 million ($115 million after-tax). The first quarter 1999 gross payments compare to first quarter 1998 gross payments of approximately $129 million. The increase in 1999 is principally attributable to payments in 1999 for claims resolved in prior years and because, in conjunction with National Settlement Program negotiations, Owens Corning was able to achieve additional settlements on favorable terms of certain appeals and other pending claims. On December 15, 1998, Owens Corning announced a National Settlement Program (NSP) under which a substantial majority of the asbestos claims pending against the Company have been resolved. Average payments per claim under the NSP are expected to be substantially lower than those experienced by Owens Corning in recent years. Settlement payments aggregating approximately $1.2 billion for cases pending against Owens Corning will be made over a period of up to five years, with most payments occurring in 1999 and 2000. Such payments will be made from the Company's available cash and credit resources. As a result of such payments, the Company's gross payments for asbestos litigation claims will increase in 1999 and 2000 over the levels experienced in recent years. However, such payments are expected to be substantially lower than historical levels in 2001 and subsequent years. The Company's total payments for asbestos litigation claims in 1999, including defense costs, are expected to be approximately $995 million, due principally to payments in conjunction with the NSP. Proceeds from insurance of $150 million are expected to be available to partially cover these costs, resulting in a net pretax cash outflow of $845 million. Such asbestos payments will reduce the Company's income tax payments by approximately $300 million in future periods. The increase in expected total payments for 1999 from the level estimated in the Company's financial statements at December 31, 1998, reflects continuing implementation of the NSP, including the addition of 25 plaintiffs' firms to the NSP in the first quarter of 1999. In addition to providing for the resolution of pending claims against Owens Corning, the NSP establishes administrative processing arrangements with participating law firms under which future asbestos claims will be resolved without litigation, with future claimants to receive specified amounts based on the type and severity of disease and other factors. Please see Note 11 to the Consolidated Financial Statements.
Gross payments for asbestos litigation claims against Fibreboard during the first quarter of 1999 were approximately $27 million, all of which were paid directly by Fibreboard's insurers or from an escrow account funded by its insurers to claimants on Fibreboard's behalf. Fibreboard is a participant in the NSP and is a party to most of the NSP Agreements. If the Global Settlement is overturned by the United States Supreme Court, and the Insurance Settlement therefore becomes effective, it is anticipated that in excess of 100,000 asbestos litigation claims pending against Fibreboard would be resolved under the NSP. Payments for such claims would be made over the next five years with most payments occurring in 1999 and 2000. Such payments would be made from the approximately $1.9 billion in funds available under the Insurance Settlement to resolve pending and future Fibreboard claims. Please see Notes 8 and 11 to the Consolidated Financial Statements.
The Company expects funds generated from operations, together with funds available under long and short term bank credit facilities, to be sufficient to satisfy its debt service obligations under its existing and anticipated indebtedness, its contingent liabilities for uninsured asbestos personal injury claims, as well as its capital expenditure programs and growth agenda.
Environmental Matters
The Company has been deemed by the Environmental Protection Agency (EPA) to be a Potentially Responsible Party (PRP) with respect to certain sites under the Comprehensive Environmental Response, Compensation and Liability Act (Superfund). The Company has also been deemed a PRP under similar state
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
or local laws. In other instances, other PRPs have brought suits or claims against the Company as a PRP for contribution under such federal, state or local laws. During the first quarter of 1999, the Company was designated as a PRP in such federal, state, local or private proceedings for 3 additional sites. At March 31, 1999, a total of 40 such PRP designations remained unresolved by the Company, some of which designations the Company believes to be erroneous. The Company is also involved with environmental investigation or remediation at a number of other sites at which it has not been designated a PRP.
The Company has established a $30 million reserve for its Superfund (and similar state, local and private action) contingent liabilities. Based upon information presently available to the Company, and without regard to the application of insurance, the Company believes that, considered in the aggregate, the additional costs associated with such contingent liabilities, including any related litigation costs, will not have a materially adverse effect on the Company's results of operations, financial condition or long-term liquidity.
The 1990 Clean Air Act Amendments (Act) provide that the EPA will issue regulations on a number of air pollutants over a period of years. Until these regulations are developed, the Company cannot determine the extent to which the Act will affect it. The Company anticipates that its sources to be regulated will include wool fiber glass, mineral wool, wet formed fiber glass mat, amino/phenolic resin, secondary aluminum smelting, asphalt processing and roofing, metal coil coating, and open molded fiber- reinforced plastics. The EPA's currently announced schedule is to issue regulations covering wool fiber glass, mineral wool, wet formed fiber glass mat, amino/phenolic resin, secondary aluminum smelting, and asphalt processing and roofing in 1999; and metal coil coating and fiber-reinforced plastics in 2000, with implementation as to existing sources up to three years thereafter. Based on information now known to the Company, including the nature and limited number of regulated materials it emits, the Company does not expect the Act to have a materially adverse effect on the Company's results of operations, financial condition or long-term liquidity.
Year 2000 Readiness
This information should be considered a Year 2000 Readiness Disclosure.
Background
Some of the Company's existing information technology ("IT") systems and control systems containing embedded technology such as processors, controllers and microchips ("Non-IT") were originally programmed using two digits rather than four digits to define the applicable year. As a result, such systems, if not remediated, may experience miscalculations or disruptions when processing information containing dates that fall after December 31, 1999 or other dates that could cause computer malfunctions (the "Year 2000 Issue").
The Company's State of Readiness
In recognition of the significance of the Year 2000 Issue, the Company formed a senior management team representing business units and business process functions including information technology, sourcing, customer relations, logistics, facilities and legal. This team oversees the Company's efforts to assess and resolve the Year 2000 Issue. In addition, the Company's individual organizational units have developed, and are implementing, Year 2000 plans. These plans include assessment of all the Company's IT and Non-IT systems and an evaluation of the external environment to identify significant exposure areas and to develop appropriate remediation or other risk management approaches. The Company is also developing business continuity plans to assure that all of its operations are prepared in the case of an unexpected system or supplier failure.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
IT Systems
The Company has been actively implementing new systems and technology on a worldwide basis since 1995 as part of its Advantage 2000 program to improve productivity and operational efficiency. One objective of this initiative is to ensure all business transactions are supporting requirements to process data accurately in the year 2000 and beyond. The scope of this program has been continuously expanded to include each of the seventeen acquisitions made by the Company during the past five years.
To date, over 80% of the Company's IT systems are both ready for the year 2000 and are already in operation for daily business transaction processing. This has been accomplished through the comprehensive implementation of enterprise resource planning software across most of the Company's business units. The Company's schedule is to have updated or replaced all remaining IT systems by the end of second quarter 1999. Management expects that most of these remaining IT systems will be in full operation by the end of second quarter 1999, and that all will be in full operation by the end of the third quarter. All significant system changes are currently progressing to achieve this schedule.
Non-IT Systems
The Company has completed an inventory and assessment of substantially all of the Non-IT systems in its operating facilities. Those Non-IT systems that may fail as a result of the Year 2000 Issue have been identified. Corrective actions such as replacement, update or installation of vendor supplied upgrades are currently being performed. Concurrent with this renovation process, the Company is now testing Year 2000 corrections to ensure that Non-IT systems will function properly on key dates in accordance with testing methodologies which management believes are reasonable and reflective of practices employed by comparable companies. As with the IT systems discussed above, the Company plans to have all of the identified technology remediated and tested by the end of second quarter 1999. Most locations will also be operating with these remediated systems within the same time frame; all locations are expected to be using these systems for business operations by the end of third quarter 1999.
External Environment
The Company is working with its suppliers and customers to assess their level of Year 2000 readiness. This process includes both the receipt of confirmation documents as well as selective on- site visits. Critical suppliers have been identified; confirmations received, and now the Company is conducting visits, which will continue throughout the second quarter of 1999. Based upon results of the confirmations and visits, the Company expects to develop any required contingency plans by the end of the third quarter. Such contingency plans will include, as appropriate, using alternate suppliers that are Year 2000 ready.
Estimated Costs
The cumulative cost of systems replacement, remediation and update from 1995 through the first quarter of 1999 has been approximately $150 million, including technology, design and development, and related training and deployment in business locations. The Company currently estimates that its remaining costs to assess and resolve the Year 2000 Issue including the replacement and remediation at all remaining locations are in the range of $20 million to $25 million. These cost estimates are based on currently available information, and may be subject to change.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Risks
If needed modifications and upgrades of systems are not made on a timely basis by the Company or its materially significant suppliers, the Company could experience significant disruptions to one or more of its operations, financial loss, legal liability and similar risks, any of which could have a material adverse effect on the Company's results of operations or financial position. The Company believes that the most reasonably likely worst case scenario would be a short-term slowdown or cessation of manufacturing operations at one or more of the Company's facilities and a short-term inability on the part of the Company to process orders and billings in a timely manner, and to deliver product to customers. In view of the Company's Year 2000 readiness program, including contingency and continuity plans, the Company believes that significant disruptions are unlikely and that any disruptions would be both short-term and manageable.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the impact of changes in foreign currency exchange rates and interest rates in the normal course of business. The Company manages such exposures through the use of certain financial and derivative financial instruments. The Company's objective with these instruments is to reduce exposure to fluctuations in earnings and cash flows associated with changes in foreign currency exchange rates and interest rates.
The Company enters into various forward contracts and options, which change in value as foreign currency exchange rates change, to preserve the carrying amount of foreign currency-denominated assets, liabilities, commitments, and certain anticipated foreign currency transactions and earnings. The Company also enters into certain currency and interest rate swaps to protect the carrying amount of its investments in certain foreign subsidiaries, to hedge the principal and interest payments of certain debt instruments, and to manage its exposure to fixed versus floating interest rates.
The Company's policy is to use foreign currency and interest rate derivative financial instruments only to the extent necessary to manage exposures as described above. The Company does not enter into foreign currency or interest rate derivative transactions for speculative purposes.
The Company uses a variance-covariance Value at Risk (VAR) computation model to estimate the potential loss in the fair value of its interest rate-sensitive financial instruments and its foreign currency-sensitive financial instruments. The VAR model uses historical foreign exchange rates and interest rates as an estimate of the volatility and correlation of these rates in future periods. It estimates a loss in fair market value using statistical modeling techniques.
The amounts presented below represent the maximum potential one- day loss in fair value that the Company would expect from adverse changes in foreign currency exchange rates or interest rates assuming a 95% confidence level:
Risk Category March 31, December 31,
1999 1998
(In millions of dollars)
Foreign currency $1 $1
Interest rate $9 $8
|
Virtually all of the potential loss associated with interest rate risk is attributable to fixed-rate long-term debt instruments.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 11, Contingent Liabilities, to the Company's Consolidated Financial Statements above, which is incorporated here by reference.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) None of the constituent instruments defining the rights of the holders of any class of the Company's registered securities was materially modified in the quarter ended March 31, 1999.
(b) None of the rights evidenced by any class of the Company's registered securities was materially limited or qualified in the quarter ended March 31, 1999 by the issuance or modification of any other class of securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) During the quarter ended March 31, 1999, there was no material default in the payment of principal, interest, sinking or purchase fund installments, or any other material default not cured within 30 days, with respect to any indebtedness of the Company or any of its significant subsidiaries exceeding 5 percent of the total assets of the Company and its consolidated subsidiaries.
(b) During the quarter ended March 31, 1999, no material arrearage in the payment of dividends occurred, and there was no other material delinquency not cured within 30 days, with respect to any class of preferred stock of the Company which is registered or which ranks prior to any class of registered securities, or with respect to any class of preferred stock of any significant subsidiary of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the quarter ended March 31, 1999.
ITEM 5. OTHER INFORMATION
The Company does not elect to report any information under this item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
See Exhibit Index below, which is incorporated here by reference.
(b) Reports on Form 8-K.
During the quarter ended March 31, 1999, the Company filed the following current report on Form 8-K:
- Filed February 8, 1999, under Item 5.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
OWENS CORNING
Registrant
Date: May 3, 1999 By: /s/ J. Thurston Roach
J. Thurston Roach
Senior Vice President and
Chief Financial Officer
(as duly authorized officer)
Date: May 3, 1999 By: /s/ Steven J. Strobel
Steven J. Strobel
Vice President and Controller
|
EXHIBIT INDEX
Exhibit
Number Document Description
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession.
LLC Interest Sale and Purchase Agreement, dated as of July
31, 1998, among Owens Corning, Advanced Glassfiber Yarns
LLC and Glass Holdings Corp. (incorporated herein by
reference to Exhibit 2 to the Company's current report on
Form 8-K (File No. 1-3660), filed October 14, 1998).
Amendment No. 1 to LLC Interest Sale and Purchase Agreement
dated as of September 30, 1998 (incorporated herein by
reference to Exhibit 2 to the Company's current report
on Form 8-K (File No. 1-3660), filed October 14, 1998).
(3) Articles of Incorporation and By-Laws.
(i) Certificate of Incorporation of Owens Corning, as
amended (incorporated herein by reference to Exhibit
(3)(i) to the Company's quarterly report on Form 10-Q
(File No. 1-3660) for the quarter ended March 31,
1997).
(ii) By-Laws of Owens Corning, as amended (incorporated
herein by reference to Exhibit (3) to the Company's
annual report on Form 10-K (File No. 1-3660) for the
year 1995).
(4) Instruments Defining the Rights of Security Holders,
Including Indentures.
Indenture, dated as of May 5, 1997, between Owens Corning
and The Bank of New York, as Trustee (incorporated herein
by reference to Exhibit 4.5.1 to the Company's current
report on Form 8-K (File No. 1-3660), filed May 14, 1997).
Credit Agreement, dated as of June 26, 1997, among
Owens Corning, other Borrowers and Guarantors, the Banks
listed on Annex A thereto, and Credit Suisse First
Boston, as Agent (incorporated herein by reference to
Exhibit (4) to the Company's quarterly report on Form 10-
Q (File No. 1-3660) for the quarter ended June 30, 1997),
as amended by Amendment No. 1 thereto (incorporated
herein by reference to Exhibit (4) to the Company's
annual report on Form 10-K (File No. 1-3660) for the year
1997) and Amendment No. 2 thereto (incorporated herein by
reference to Exhibit (4) to the Company's annual report
on Form 10-K (File No. 1-3660) for the year 1998).
(10) Material Contracts.
Owens Corning Deferred Compensation Plan (filed
herewith).
Corporate Incentive Plan Terms Applicable to Certain
Executive Officers (filed herewith).
Corporate Incentive Plan Terms Applicable to Key
Employees Other Than Certain Executive Officers (filed
herewith).
|
EXHIBIT INDEX
Exhibit
Number Document Description
(11) Statement re Computation of Per Share Earnings
(filed herewith).
(27) Financial Data Schedule (filed herewith).
(99) Additional Exhibits.
Subsidiaries of Owens Corning, as amended
(filed herewith).
|
Exhibit (10)
OWENS CORNING DEFERRED COMPENSATION PLAN
Effective as of January 1, 1999
ARTICLE I
ESTABLISHMENT AND PURPOSE OF THE PLAN
1.1 Establishment of the Plan. Effective as of January 1, 1999, Owens Corning hereby establishes the "Owens Corning Deferred Compensation Plan."
1.2 Purpose of the Plan. The Plan is intended to constitute an unfunded program maintained primarily for the purpose of permitting a select group of management or highly compensated employees to defer compensation in a manner consistent with the requirements of Sections 201(2), 301(a)(3), and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
ARTICLE II
DEFINITIONS
The following words and phrases as used in this Plan have the following meanings:
2.1 Account. The term "Account" means the bookkeeping account established by the Employer for each Eligible Employee to which all deferrals and Investment Returns shall be credited.
2.2 Administrator. The term "Administrator" means the individual described in Section 7.1 who is designated to administer the Plan.
2.3 Affiliated Employer. The term "Affiliated Employer" shall have the same meaning given to such term by the Owens Corning Savings and Profit Sharing Plan.
2.4 Beneficiary. The term "Beneficiary" means the Eligible Employee's beneficiary under the Owens Corning Savings and Profit Sharing Plan.
2.5 Board of Directors. The term "Board of Directors" means the Board of Directors of Owens Corning.
2.6 Code. The term "Code" means the Internal Revenue Code of 1986, as amended.
2.7 Eligible Employee. The term "Eligible Employee" means an individual who meets the requirements of Section 3.1.
2.8 Employer. The term "Employer" means Owens Corning and any other Affiliated Employer that has adopted the Owens Corning Savings and Profit Sharing Plan or has been designated by the Board of Directors.
2.9 Investment Returns. The term "Investment Returns" means the earnings and losses credited to an Eligible Employee's Account in accordance with Section 3.6.
2.10 Plan. The term "Plan" means the "Owens Corning Deferred Compensation Plan" as set forth herein and as amended from time to time.
ARTICLE III
COMPENSATION DEFERRALS
3.1 Eligible Employees. An individual is an Eligible
Employee if he or she is a member of a select group of management
or highly compensated employees of an Employer, and he or she --
(1) is an elected officer or appointed officer of Owens
Corning, or
(2) is a key employee of an Employer and is designated for
participation in the Plan by the Compensation Committee
of the Board of Directors.
3.2 Deferrals of Cash Compensation. An Eligible Employee may elect, by submitting to the Administrator a properly completed Deferral Election Form (in the form attached hereto as Exhibit A), to defer the receipt of up to 50% of cash salary and up to 100% of bonus compensation earned for services rendered to the Employer during a calendar year. Eligible employees may also be required to defer certain compensation as directed by the Compensation Committee of the Board of Directors, subject to the terms and conditions of the Plan and the underlying grant or award. Thus, Eligible Employees may receive awards of incentive pay that have special deferral terms and conditions that require the deferral of that award (or a portion thereof) for a specified period of time subject to special vesting and forfeiture provisions.
3.3 Timing for Elections. Deferral Election Forms may be submitted on an annual basis, with a properly submitted deferral election becoming effective, to the extent administratively practicable, for compensation earned on or after the January 1 which next follows the acceptance of the Deferral Election Form by the Administrator; provided, however, that within 30 days of first becoming an Eligible Employee, such Eligible Employee may submit a Deferral Election Form and such election shall be effective as soon as administratively practicable. Elections with regard to Investment Returns and the time and manner of payment of deferred amounts are one-time elections with regard to amounts deferred pursuant to a particular Deferral Election Form. A Deferral Election Form shall remain effective until a superseding Deferral Election Form becomes effective. An Eligible Employee may cease voluntary salary deferrals at any time by submitting a properly completed Deferral Election Form to the Administrator, which shall be effective for compensation earned after the effective date of the election. Notwithstanding the foregoing, a Participant may not make deferrals under this Plan during any period for which contributions must be suspended as a condition of the Eligible Employee's receipt of a hardship withdrawal from the Owens Corning Savings and Profit Sharing Plan or any other plan maintained by Owens Corning or an Affiliated Employer that includes a qualified cash or deferred arrangement under Code section 401(k).
3.4 Deferred Compensation Accounts. For the purpose of determining liabilities under the Plan, the Employer shall maintain an Account for each Eligible Employee. An Eligible Employee's Account shall be credited with amounts deferred by the Eligible Employee pursuant to the Plan and any Investment Returns thereon.
3.5 Investment Returns. The Investment Return on an Eligible Employee's Account shall be the amount necessary to increase or decrease the Account to the amount it would have been if it were invested in accordance with this Section. Investment Returns for cash amounts deferred pursuant to Section 3.2 hereof shall be determined as if such amounts were invested, at the Eligible Employee's election pursuant to the Deferral Election Form, in a fund invested in Owens Corning stock or an account bearing interest at an annual effective rate equal to the prime rate of interest quoted in the Wall Street Journal for the first business day of the applicable calendar year. Notwithstanding the foregoing, the Employer shall be under no obligation to make any investments in accordance with the investment election of any Eligible Employee.
ARTICLE IV
FORFEITURE OF INVESTMENT RETURNS
4.1 Disclosure of Proprietary Information. The Investment
Returns otherwise payable (other than net losses) under the terms
of this Plan shall be forfeited and the Employer and the Plan
shall have no liability for Investment Returns to an Eligible
Employee (or his or her Beneficiary) if the Eligible Employee
discloses, divulges, publishes or otherwise reveals either
directly or through another, to any person, firm or corporation,
any knowledge or information concerning any Employer or
Affiliated Employer inventions, devices, technical data,
strategic plans (business and technical), or financial data
(including any data classified as "Secret and Proprietary
Information"), which knowledge or information has in any way been
disclosed to or acquired by the Eligible Employee during the term
of his or her employment with the Employer or an Affiliated
Employer. Such knowledge or information shall not include
knowledge or information which:
(1) is or was in the public domain at the time of its
disclosure to the Eligible Employee; or,
(2) enters the public domain after the date of
disclosure to the Eligible Employee except where such
entry is a result of a breach by the Eligible Employee
of this Section; or,
(3) is disclosed to the Eligible Employee by a third
party having a bona fide right to make such disclosure,
or is otherwise lawfully obtained from other sources;
or,
(4) is disclosed to others by the Employer or
Affiliated Employer without restriction.
4.2 Direct Competition with the Employer or an Affiliated Employer. The Investment Returns payable under the terms of this Plan (other than net losses) shall be forfeited and the Employer and the Plan shall have no further liability to an Eligible Employee if said Eligible Employee directly or indirectly, in any capacity, performs any compensated service for, is employed by or becomes associated with any firm, corporation or partnership engaged in the manufacture, production or sale of products which compete with products produced or sold by the Employer or an Affiliated Employer. For the purposes of this Plan, products shall be limited to these which are manufactured, produced or sold by the Employer or an Affiliated Employer as described in the Employer's or Affiliated Employer's most recent Annual Report to its stockholders.
4.3 Discharge for Just Cause. The Investment Returns otherwise payable under the terms of this Plan (other than net losses) shall be forfeited and the Employer and the Plan shall have no further liability if the employment of said Eligible Employee by the Employer or Affiliated Employer is terminated or otherwise ceases for "Just Cause". "Just Cause" shall mean discharge or resignation as the direct result of any act or omission which constitutes a misdemeanor or a felony, or which clearly evidences fraud or dishonesty on the part of the Eligible Employee.
4.4 Involuntary Deferrals. For grants or awards of compensation that require deferral in whole or in part as a condition of the grant or award, the vesting and forfeiture provisions established by the Compensation Committee for purposes of such grant or award will apply to such grant or award in addition to the provisions hereof and will result in forfeiture of the award and its Investment Returns unless fully satisfied by the Eligible Employee.
ARTICLE V
PAYMENT OF ACCOUNT
5.1 Payment to Eligible Employee. An Eligible Employee shall be eligible to receive distribution of vested amounts in his or her Account in the manner specified in his or her Deferral Election Forms. Distribution of an Eligible Employee's Account shall be made in one of the following forms: (1) lump sum payment on a date certain, (2) lump sum payment upon the Eligible Employee's termination of employment, or (3) payment of up to 10 substantially equal annual installments beginning either upon a date certain or as soon as administratively practicable following the date of the Eligible Employee's termination of employment, with annual installments payable on each anniversary of such date; provided, any remaining Account balance upon the tenth anniversary of an Eligible Employee's termination of employment shall be distributed in a lump sum as soon as is administratively practicable thereafter.
5.2 Payment upon Death of Eligible Employee. In the event of the death of the Eligible Employee, the vested balance of the Eligible Employee's Account shall be payable to the Eligible Employee's Beneficiary in a lump sum.
5.3 Form of Payment. All amounts shall be paid in cash.
5.4 Payment in the Event of Unforeseeable Emergency. An Eligible Employee may request a distribution of amounts voluntarily deferred in the event of an unforeseeable emergency, up to but not exceeding the amount reasonably needed to satisfy the emergency. For the purposes of this paragraph, an "unforeseeable emergency" means severe financial hardship to the Eligible Employee resulting from a sudden and unexpected illness or accident of the Eligible Employee or of a dependent, loss of the Eligible Employee's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Eligible Employee. Notwithstanding the foregoing, payment may not be made to the extent the unforeseeable emergency may be or is relieved by insurance, liquidation of the Eligible Employee's assets (provided such liquidation does not cause severe financial hardship), or by cessation of deferrals under this Plan. Unforeseeable emergencies do not include the need or desire to send a child to college or to purchase a home. Whether an unforeseeable emergency exists shall be determined by the Administrator in his or her sole discretion. The Administrator may require such documentation from the Eligible Employee as the Administrator deems necessary to substantiate a request for distribution due to an unforeseeable emergency.
ARTICLE VI
NATURE OF INTEREST OF ELIGIBLE EMPLOYEE
6.1 Unsecured General Creditor. The interests of Eligible Employees and Beneficiaries in the Plan shall be that of unsecured general creditors, with no secured or preferential right to any assets of Owens Corning or any Employer, Affiliated Employer, or any other party for payment of benefits under this Plan. Any property held by Owens Corning or any Employer for the purpose of generating the cash flow for benefit payments shall remain its general, unpledged and unrestricted assets. Any Employer's obligation under the Plan shall be an unfunded and unsecured promise to pay benefits in the future.
6.2 Trust Fund. Each Employer shall be responsible for the payment of benefits provided under the Plan to its Eligible Employees. At its discretion, the Employer may establish one or more trusts, with such trustees as the Board of Directors may approve, for the purpose of providing for the payment of such benefits. Any trustee so appointed shall be bonded in a manner satisfactory to the Employer. Whether or not such a trust is irrevocable, its assets shall at all times be subject to the claims of the Employer's general creditors in the event of the Employer's insolvency. To the extent any benefits provided under the Plan are paid from such trust, the Employer shall have no further obligation to pay Plan benefits. Plan benefits not paid from the trust shall remain the obligation of the Employer.
6.3 Change of Control. In the event of a "Change of
Control" as defined in the Owens Corning Stock Performance
Incentive Plan, Owens Corning (or its successor in interest)
shall contribute an amount equal to the value of all Eligible
Employees' Accounts under the Plan to an irrevocable trust within
10 days of such Change of Control. The terms of such trust shall
be consistent with Internal Revenue Service Revenue Procedure 92-
64 (as modified or superseded by the Internal Revenue Service),
and the trustee the shall be an independent third party financial
institution.
6.4 No Right to Transfer Interest. Rights to benefits payable under the Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, or encumbrance.
ARTICLE VII
ADMINISTRATION
7.1 Administrator. (a) Except as provided in (b) below, the Plan shall be administered by the Leader, Compensation, at Owens Corning, or by the individual who holds the functional equivalent of such position.
(b) The Senior Vice President, Strategic Resources of Owens Corning shall be the Administrator with respect to any matters involving the participation in this Plan of the individual described in (a) above.
7.2 Powers of the Administrator. The Administrator's powers shall include, but shall not be limited to, the power to adopt rules consistent with the Plan; the power to decide all questions relating to the interpretation of the terms and provisions of the Plan; the power to resolve all other questions arising under the Plan (including, without limitation, the power to remedy possible ambiguities, inconsistencies, or omissions by a general rule or particular decision); and the power to designate all or a part of the previously described powers to another employee of Owens Corning. The Administrator shall have full and absolute discretion and authority to exercise each of the foregoing powers.
7.3 Finality of Administrator Determinations. Deter minations by the Administrator and any interpretation, rule, or decision adopted by the Administrator under the Plan or in carrying out or administering the Plan shall be final and binding for all purposes and upon all interested persons, their heirs, and their personal representatives.
ARTICLE VIII
MISCELLANEOUS
8.1 Amendment, Suspension, and Termination. (a) The Board of Directors shall have the right to amend, suspend, or terminate the Plan at any time.
(b) The Vice President of Human Resources of Owens Corning, or the individual who holds the functional equivalent of such position, may adopt minor amendments to the Plan without prior approval of the Board of Directors that (i) are necessary or advisable for purposes of compliance with applicable laws and regulations, (ii) relate to administrative practices, or (iii) have an insubstantial financial effect on Plan benefits and expenses.
8.2 Board of Directors' Power to Delegate Authority. The Board of Directors may, in its discretion, delegate to any person or persons all or any part of the Board's authority and responsibility under the Plan, including, without limitation, the authority to amend the Plan.
8.3 Indemnification. Owens Corning shall indemnify any individual who is a director, officer or employee of an Employer, or his or her heirs and legal representatives, against all liability and reasonable expense, including counsel fees, amounts paid in settlement and amounts of judgments, fines or penalties, incurred or imposed upon him or her in connection with any claim, action, suit or proceeding, whether civil, criminal, administrative or investigative, in connection with his or her duties under the Plan, provided that such act or omission does not constitute gross negligence or willful misconduct.
8.4 No Employment Rights. No provisions of the Plan or any action taken by an Employer, the Board of Directors, or the Administrator shall give any person any right to be retained in the employ of an Employer, and each Employer specifically reserves the right and power to dismiss or discharge any Eligible Employee.
8.5 Incapacity of Recipient. If an Eligible Employee or Beneficiary entitled to a distribution under the Plan is living under guardianship or conservatorship, distributions payable under the terms of the Plan to such recipient shall be paid to the appointed guardian or conservator and such payment shall be a complete discharge of any liability of all Employers.
8.6 Data. Each Eligible Employee and Beneficiary shall furnish the Employer with all proofs of date of death and other proofs necessary for the administration of the Plan, and no Employer shall be liable for the fulfillment of any obligations in any way dependent upon such information unless and until the same shall have been received by the Employer in form satisfactory to it.
8.7 Misstatements. If any relevant fact relating to any person is found to have been misstated, the benefit payable to an Eligible Employee or Beneficiary shall be the benefit which would have been provided on the basis of the correct information. Any excess payments due to such misstatement shall be refunded to the Employer or withheld by it from any further amounts otherwise payable, and any underpayment shall be paid to the Eligible Employee or Beneficiary as soon as administratively practicable.
8.8 Taxes. To the extent required by law, amounts credited under the Plan shall be subject to Federal social security and unemployment taxes during the year the services giving rise to such contributions were performed (or, if later, when the amounts are not subject to a substantial risk of forfeiture). Federal social security and unemployment taxes shall be withheld from current compensation otherwise payable to the Eligible Employee. Each Employer shall withhold from any distributions made pursuant to the Plan such amounts as may be required by Federal, state or local law.
8.9 Applicable Law. The Plan shall be construed and administered under the laws of the State of Ohio, except to the extent that such laws are preempted by ERISA.
8.10 Usage of Terms and Headings. Words in the masculine gender shall include the feminine and the singular shall include the plural, and vice versa, unless qualified by the context. Any headings are included for ease of reference only, and are not to be construed to alter the terms of the Plan.
Exhibit (10)
OWENS CORNING
Corporate Incentive Plan Terms Applicable to Certain Executive Officers
(As amended and restated, January 1, 1999)
1. Application
Set forth below are the annual incentive plan terms applicable to those employees of Owens Corning (the "Company"), its subsidiaries and affiliates who are executive officers of the Company and whose annual incentive compensation for any taxable year of the Company commencing on or after January 1, 1999 the Committee (as hereafter defined) anticipates would not be deductible by the Company in whole or in part but for compliance with section 162(m)(4)(C) of the Internal Revenue Code of 1986 as amended ("162(m) Covered Employee"), including members of the Board of Directors who are such employees. Such terms are hereafter referred to as the "Plan" or "Corporate Incentive Plan".
2. Eligibility
All 162(m) Covered Employees shall be eligible to be selected to participate in this Corporate Incentive Plan. The Committee shall select the 162(m) Covered Employees who shall participate in this Plan in any year no later than 90 days after the commencement of the year (or no later than such earlier or later date as may be the applicable deadline for the compensation payable to such 162(m) Covered Employee for such year hereunder to qualify as "performance-based" under section 162(m)(4)(C) of the Internal Revenue Code of 1986 as amended (the "Code")). Selection to participate in this Plan in any year does not require the Committee to, or imply that the Committee will, select the same person to participate in the Plan in any subsequent year.
3. Administration
The Plan shall be administered by the Compensation Committee of the Board of Directors (the "Board"), or by another committee appointed by the Board consisting of not less than two (2) Directors who are not Employees (the "Committee"). The Committee shall be comprised exclusively of Directors who are not Employees and who are "outside directors" within the meaning of Section162(m)(4)(C) of the Code. To the extent permitted by law, the Committee may delegate its administrative authority with respect to the Corporate Incentive Plan and, in the event of any such delegation of authority, the term "Committee" as used in this Plan shall be deemed to refer to the Committee's delegate as well as to the Committee. The Committee shall, subject to the provisions herein, select employees to participate herein; establish and administer the performance goals and the award opportunities applicable to each participant and certify whether the goals have been attained; construe and interpret the Plan and any agreement or instrument entered into under the Plan; establish, amend, or waive rules and regulations for the Plan's administration; and make all other determinations which may be necessary or advisable for the administration of the Plan. Any determination by the Committee pursuant to the Plan shall be final, binding and conclusive on all employees and participants and anyone claiming under or through any of them.
4. Establishment of Performance Goals and Award Opportunities
No later than 90 days after the commencement of each year commencing on or after January 1, 1999 (or by such earlier or later date as may be the applicable deadline for compensation payable hereunder for such year to qualify as "performance-based" under section 162(m)(4)(C) of the Code), the Committee shall establish in writing the method for computing the amount of compensation which will be payable under the Plan to each participant in the Plan for such year if the performance goals established by the Committee for such year are attained in whole or in part and if the participant's employment by the Company, its subsidiaries and affiliates continues without interruption during that year. Such method shall be stated in terms of an objective formula or standard that precludes discretion to increase the amount of the award that would otherwise be due upon attainment of the goals. No provision hereof is intended to preclude the Committee from exercising negative discretion with respect to any award hereunder, within the meaning of the Treasury regulations under Code section 162(m).
No later than 90 days after the commencement of each year commencing on or after January 1, 1999 (or by such earlier or later date as may be the applicable deadline for compensation payable hereunder for such year to qualify as "performance-based" under section 162(m)(4)(C) of the Code), the Committee shall establish in writing the performance goals for such year, which shall be based on any of the following performance criteria, either alone or in any combination, and on either a consolidated or business unit level, as the Committee may determine: sales, net asset turnover, earnings per share, cash flow, cash flow from operations, operating profit, net operating profit, net income, income from operations, operating margin, net income margin, return on net assets, return on total assets, return on common equity, return on total capital, shareholder value added, total shareholder return, common stock price appreciation, total shareholder return relative to a defined marketplace, receivables growth, debt to equity ratios, earnings to fixed charges ratios, introduction of new products and/or services, or developing and/or implementing action plans or strategies. The foregoing criteria shall have any reasonable definitions that the Committee may specify at the time such criteria are adopted, which may include or exclude any or all of the following items as the Committee may specify: extraordinary, unusual or non-recurring items; effects of accounting changes; effects of currency fluctuations; effects of financing activities (e.g., effect on earnings per share of issuance of convertible debt securities); expenses for restructuring or productivity initiatives; other non- operating items; spending for acquisitions; effects of divestitures; and effects of asbestos activities and settlements. Any such performance criterion or combination of such criteria may apply to the participant's award opportunity in its entirety or to any designated portion or portions of the award opportunity, as the Committee may specify. Extraordinary items, such as capital gains and losses, which affect any performance criterion applicable to the award (including but not limited to the criterion of net income) and which are required to be taken into account for purposes of Owens Corning's financial statements under generally accepted accounting principles, shall be excluded or included in determining the extent to which the corresponding performance goal has been achieved so that the integrity and intent of the performance goal are maintained.
5. Maximum Award
The maximum dollar amount that may be paid to any participant under the Plan for any year is $4 million.
6. Attainment of Performance Goals Required
Awards shall be paid under this Plan for any year solely on account of the attainment of the performance goals established by the Committee with respect to such year, within the meaning of applicable Treasury regulations. Awards shall also be contingent on continued employment by the Company, its subsidiaries and affiliates during such year. The only exceptions to these rules apply in the event of termination of employment by reason of death or Disability, or in the event of a Change of Control of the Company (as such terms are defined in the Company's Stock Performance Incentive Plan as amended and restated on January 1, 1999 ("SPIP")), during such year, in which case the following provisions shall apply. In the event of termination of employment by reason of death or Disability during a Plan year, an award shall be payable under this Plan to the participant or the participant's estate for such year, which shall be adjusted, pro- rata, for the period of time during the Plan year the participant actually worked. In the event of a Change of Control during a Plan year and prior to any termination of employment, incentive awards shall be paid under the Plan at the higher of (a) one half of participating salary for such year (as determined by the Committee), or (b) projected performance for the year, determined at the time the Change of Control occurs. An additional exception shall apply in the event of termination of employment by reason of Retirement (as defined in the SPIP) during a Plan year, but only if and to the extent it will not prevent any award payable hereunder (other than an award payable in the event of death, Disability, Change of Control or Retirement) from qualifying as "performance-based compensation" under section 162(m)(4)(C) of the Code. Subject to the preceding sentence, in the event of termination of employment by reason of Retirement during a Plan year an award may but need not (as the Committee may determine) be payable under this Plan to the participant, which shall be adjusted, pro-rata, for the period of time during the Plan year the participant actually worked. A participant whose employment terminates prior to the end of a Plan year for any reason not excepted above shall not be entitled to any award under the Plan for that year.
7. Shareholder Approval and Committee Certification Contingencies; Payment of Awards
Payment of any awards under this Plan shall be contingent upon shareholder approval, prior to payment, of the material terms of the performance goals under which the awards are to be paid, in accordance with applicable Treasury regulations under Code section 162(m). Unless and until such shareholder approval is obtained, no award shall be paid pursuant to this Plan. Subject to the provisions of paragraph 6 above relating to death, Disability, Change of Control and Retirement, payment of any award under this Plan shall also be contingent upon the Compensation Committee's certifying in writing that the performance goals and any other material terms applicable to such award were in fact satisfied, in accordance with applicable Treasury regulations under Code section 162(m). Unless and until the Committee so certifies, such award shall not be paid. Unless the Committee provides otherwise, (a) earned awards shall be paid promptly following such certification, and (b) such payment shall be made in cash (subject to any payroll tax withholding the Company may determine applies). Any amount payable to a participant hereunder shall be in addition to any annual incentive compensation to which the participant may be contractually entitled for such year pursuant to an employment agreement with the Company, unless such employment agreement provides otherwise.
8. Amendment or Termination
The Committee may amend, modify or terminate this Plan at any time, provided that a termination or adverse modification shall only become effective 30 days after written notice thereof is given to each participant. Each participant shall be eligible to receive the incentive compensation to which the participant would have been otherwise entitled but for such termination or modification, pro-rata for the period of the Plan year prior to the termination or modification.
9. Interpretation and Construction
Any provision of this Plan to the contrary notwithstanding,
(a) awards under this Plan are intended to qualify as performance-
based compensation under Code Section 162(m)(4)(C), and (b) any
provision of the Plan that would prevent an award under the Plan
from so qualifying shall be administered, interpreted and
construed to carry out such intention and any provision that
cannot be so administered, interpreted and construed shall to
that extent be disregarded. No provision of the Plan, nor the
selection of any eligible employee to participate in the Plan,
shall constitute an employment agreement or affect the duration
of any participant's employment, which shall remain "employment
at will" unless an employment agreement between the Company and
the participant provides otherwise. Both the participant and the
Company shall remain free to terminate employment at any time to
the same extent as if the Plan had not been adopted.
10. Governing Law
The terms of this Plan shall be governed by the laws of the State of Delaware, without reference to the conflicts of laws principles of that state.
Exhibit (10)
OWENS CORNING
Corporate Incentive Plan Terms Applicable to Key Employees Other Than Certain Executive Officers
(As amended and restated, January 1, 1999)
1. Application
Set forth below are the annual incentive plan terms applicable to those employees of Owens Corning Corporation (the "Company"), its subsidiaries and affiliates who, in the opinion of the Committee (as hereafter defined), are key employees, including members of the Board of Directors who are such employees, but excluding any such employees who are executive officers of the Company and whose annual incentive compensation for any taxable year of the Company commencing on or after January 1, 1995 the Committee anticipates would not be deductible by the Company in whole or in part but for compliance with section 162(m)(4)(C) of the Internal Revenue Code of 1986 as amended ("162(m) Covered Employee"). Such terms are hereafter referred to as the "Incentive Plan".
2. Eligibility
All employees of the Company, its subsidiaries and affiliates who, in the opinion of the Committee, are key employees, including members of the Board of Directors who are such employees, but excluding 162(m) Covered Employees, shall be eligible to be selected to participate in this Incentive Plan. The Committee may select the eligible employees who shall participate in this Incentive Plan in any year at any time before or during such year. Selection to participate in this Incentive Plan in any year does not require the Committee to, or imply that the Committee will, select the same person to participate in the Incentive Plan in any subsequent year.
3. Administration
The Plan shall be administered by the Compensation Committee of the Board of Directors (the "Board"), or by another committee appointed by the Board consisting of not less than two (2) Directors who are not Employees (the "Committee"). To the extent permitted by law, the Committee may delegate its administrative authority with respect to the Incentive Plan and, in the event of any such delegation of authority, the term "Committee" as used in this Incentive Plan shall be deemed to refer to the Committee's delegate as well as to the Committee. The Committee shall, subject to the provisions herein, select employees to participate herein; establish and administer the performance goals and the award opportunities applicable to each participant and certify whether the goals have been attained; construe and interpret the Incentive Plan and any agreement or instrument entered into under the Incentive Plan; establish, amend, or waive rules and regulations for the Incentive Plan's administration; and make all other determinations which may be necessary or advisable for the administration of the Incentive Plan. Any determination by the Committee pursuant to the Incentive Plan shall be final, binding and conclusive on all employees and participants and anyone claiming under or through any of them.
4. Establishment of Performance Goals and Award Opportunities
At any time before or during each year, the Committee shall
establish the method for computing the amount of compensation
which will be payable under the Incentive Plan to each
participant in the Incentive Plan for such year if the
performance goals established by the Committee for such year are
attained in whole or in part and if the participant's employment
by the Company, its subsidiaries and affiliates continues without
interruption during that year. The Committee shall also establish
the performance goals for such year, which may be based on any of
the following performance criteria, either alone or in any
combination, and on either a consolidated or business unit level
as the Committee may determine, or such other criteria as the
Committee may select: sales, net asset turnover, earnings per
share, cash flow, cash flow from operations, operating profit,
net operating profit, net income, income from operations,
operating margin, net income margin, return on net assets, return
on total assets, return on common equity, return on total
capital, and shareholder value added, total shareholder return,
common stock price appreciation, total shareholder return
relative to a defined marketplace, receivables growth, debt to
equity ratios, earnings to fixed charges ratios, introduction of
new products and/or services, or developing and/or implementing
action plans or strategies. The foregoing criteria shall have
any reasonable definitions that the Committee may specify at the
time such criteria are adopted, which may include or exclude any
or all of the following items as the Committee may specify:
extraordinary, unusual or non-recurring items; effects of
accounting changes; effects of currency fluctuations; effects of
financing activities (e.g., effect on earnings per share of
issuance of convertible debt securities); expenses for
restructuring or productivity initiatives; other non-operating
items; spending for acquisitions; effects of divestitures; and
effects of asbestos activities and settlements. Any such
performance criterion or combination of such criteria may apply
to the participant's award opportunity in its entirety or to any
designated portion or portions of the award opportunity, as the
Committee may specify. Extraordinary items, such as capital
gains and losses, which affect any performance criterion
applicable to such award (including but not limited to the
criterion of net income) and which are required to be taken into
account for purposes of Owens Corning's financial statements
under Generally Accepted Accounting Principles, shall be excluded
or included in determining the extent to which the corresponding
performance goal has been achieved so that the integrity and
intent of the performance goal are maintained.
5. Awards
Participating employees' individual awards may vary as a percentage of their Participating Salaries, based on both the funding approved by the Committee and on the participant's performance and contribution, as determined in the sole discretion of the Company. Participating Salary is defined as the product of the participant's total base salary paid during a given Incentive Plan year, multiplied by the participant's incentive pay percentage, at maximum funding. Aggregate awards under the annually recurring Incentive Plan for any year may not exceed 100% of the Participating Salaries of participants in the Incentive Plan for such year, as determined by the Committee.
6. Employment Requirement
A participant's award under this Incentive Plan for any year shall be contingent on continued employment by the Company, its subsidiaries and affiliates during such year. The only exceptions to this rule apply in the event of termination of employment by reason of death, disability, retirement or job elimination (all as determined by the Committee), or in the event of a change of control of Owens Corning (as determined by the Committee), during such year, in which case the following provisions shall apply. In the event of termination of employment by reason of death, disability, retirement or job elimination during a year (as determined by the Committee), an award shall be payable under this Incentive Plan to the participant or the participant's estate for such year, which shall be adjusted, pro-rata, for the period of time during the year the participant actually worked. In the event of a change of control of Owens Corning during a year and prior to any termination of employment, incentive awards shall be paid under the Incentive Plan at the higher of (a) one half of Participating Salary for such year (as determined by the Committee), or (b) projected performance for the year, determined at the time the change of control occurs. A participant whose employment terminates prior to the end of a year for any reason not excepted above shall not be entitled to any award under the Incentive Plan for that year.
7. Payment of Awards
Except as provided otherwise in this Incentive Plan or by the Committee, payment of each award under this Incentive Plan for any year shall be contingent upon a determination by the Committee that the performance goals and employment conditions applicable to such award have been satisfied. Unless and until the Committee so determines, such award shall not be paid. Unless the Committee provides otherwise, (a) earned awards shall be paid promptly following such determination, and (b) such payment shall be made in cash (subject to any payroll tax withholding the Company may determine applies).
8. Amendment or Termination
The Committee may amend, modify or terminate this Incentive Plan at any time, provided that a termination or modification shall only become effective 30 days after written notice thereof is given to each participant. Each participant shall be eligible to receive the incentive compensation to which the participant would have been otherwise entitled but for such termination or modification, pro-rata for the period of the year prior to the termination or modification.
9. Interpretation and Construction
Any provision of this Incentive Plan to the contrary notwithstanding, (a) no provision of this Incentive Plan shall apply to any 162(m) Covered Employee, and (b) any provision of this Incentive Plan that would prevent an award to any 162(m) Covered Employee under any plan or arrangement other than this Incentive Plan from qualifying as performance-based compensation under Code Section 162(m)(4)(C) shall be administered, interpreted and construed to enable such award to so qualify and any provision that cannot be so administered, interpreted and construed shall to that extent be disregarded. No provision of the Incentive Plan, nor the selection of any eligible employee to participate in the Incentive Plan, shall constitute an employment agreement or affect the duration of any participant's employment, which shall remain "employment at will" unless an employment agreement between the Company and the participant provides otherwise. Both the participant and the Company shall remain free to terminate employment at any time to the same extent as if the Incentive Plan had not been adopted.
10. Governing Law
The terms of this Incentive Plan shall be governed by the laws of the State of Delaware, without reference to the conflicts of laws principles of that state.
Exhibit (11)
OWENS CORNING AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
Quarter Ended
March 31,
1999 1998
(In millions of dollars,
except share data)
Basic:
Net income $ 44 $ 8
Basic weighted average number
of common shares outstanding
(thousands) 53,932 53,373
Basic per share amount $ .81 $ .16
Diluted:
Net income $ 46 $ 8
Weighted average number of
shares outstanding (thousands) 53,932 53,373
Weighted average common equivalent
shares (thousands):
Deferred awards 563 352
Stock options using the higher of
average market price or market
price at end of period 205 120
Shares from assumed conversion
of preferred securities 4,566 -
Diluted weighted average number
of common shares outstanding and
common equivalent shares (thousands) 59,266 53,845
Diluted per share amount $ .77 $ .16
|
| ARTICLE 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. |
| MULTIPLIER: 1,000,000 |
| PERIOD TYPE | 3 MOS |
| FISCAL YEAR END | DEC 31 1998 |
| PERIOD END | MAR 31 1999 |
| CASH | 51 |
| SECURITIES | 0 |
| RECEIVABLES | 555 |
| ALLOWANCES | 0 |
| INVENTORY | 496 |
| CURRENT ASSETS | 1,675 |
| PP&E | 3,572 |
| DEPRECIATION | 1,904 |
| TOTAL ASSETS | 5,199 |
| CURRENT LIABILITIES | 1,964 |
| BONDS | 1,903 |
| COMMON | 696 |
| PREFERRED MANDATORY | 195 |
| PREFERRED | 0 |
| OTHER SE | (1,793) |
| TOTAL LIABILITY AND EQUITY | 5,199 |
| SALES | 1,130 |
| TOTAL REVENUES | 1,130 |
| CGS | 871 |
| TOTAL COSTS | 871 |
| OTHER EXPENSES | (1) |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 33 |
| INCOME PRETAX | 77 |
| INCOME TAX | 27 |
| INCOME CONTINUING | 44 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 44 |
| EPS PRIMARY | .81 1 |
| EPS DILUTED | .77 2 |
| 1 | Represents basic earnings per share as defined in FASB Statement No. 128 |
| 2 | Represents diluted earnings per share as defined in FASB Statement No. 128. |
Exhibit (99)
State or Other
Jurisdiction
Under the Laws
of Which
Subsidiaries of Owens Corning (3/31/99) Organized
AmeriMark Building Products, Inc. Delaware
Commercial Owens Corning Chile Limitada Chile
Crown Manufacturing Inc. Canada
Cultured Stone Corporation California
Decillion, LLC Delaware
Deutsche Owens-Corning Glasswool GmbH Germany
Engineered Pipe Systems, Inc. Delaware
Engineered Yarns America, Inc. Massachusetts
Eric Company Delaware
European Owens-Corning Fiberglas, S.A. Belgium
Fabwel, Inc. Indiana
Falcon Foam Corporation Delaware
Fibreboard Corporation Delaware
Flowtite (Africa) (Private) Limited Zimbabwe
Flowtite AS Norway
Flowtite Eksport AS Norway
Flowtite Offshore Services Ltd. Cyprus
Flowtite Pipe & Tanks AS Norway
Flowtite Technology AS Norway
Goodman Ventures, Inc. Delaware
IPM Inc. Delaware
Integrex Delaware
Jefferson Holdings, Inc. Delaware
LMP Impianti Srl Italy
Norandex Inc. Delaware
N.V. Owens-Corning S.A. Belgium
OC Celfortec Inc. Canada
O.C. Funding B.V. The Netherlands
OCW Acquisition Corporation
(dba, Delsan Industries Corp.) Delaware
Owens Corning (Anshan) Fiberglas Co. Limited China
Owens Corning Australia Pty Limited Australia
Owens Corning (China) Investment Company, Ltd. China
Owens Corning Building Materials Espana S.A. Spain
Owens-Corning Building Products (U.K.) Ltd. United Kingdom
Owens Corning Canada Inc. Canada
Owens-Corning Capital Holdings I, Inc. Delaware
Owens-Corning Capital Holdings II, Inc. Delaware
Owens-Corning Capital L.L.C. Delaware
Owens Corning Cayman (China) Holdings Cayman Islands
Owens-Corning Cayman Limited Cayman Islands
Owens Corning Espana SA Spain
Owens-Corning Fiberglas A.S. Limitada Brazil
|
State or Other
Jurisdiction
Under the Laws
of Which
Subsidiaries of Owens Corning (3/31/99) Organized
Owens-Corning Fiberglas Deutschland GmbH Germany
Owens-Corning Fiberglas Espana, S.A. Spain
Owens-Corning Fiberglas France S.A. France
Owens-Corning Fiberglas (G.B.) Ltd. United Kingdom
Owens-Corning Fiberglas Norway A/S Norway
Owens-Corning Fiberglas S.A. Uruguay
Owens-Corning Fiberglas Sweden Inc. Delaware
Owens-Corning Fiberglas Technology Inc. Illinois
Owens-Corning Fiberglas (U.K.) Ltd. United Kingdom
Owens-Corning Fiberglas (U.K.)
Pension Plan Ltd. United Kingdom
Owens-Corning Finance (U.K.) PLC United Kingdom
Owens-Corning FSC, Inc. Barbados
Owens-Corning Funding Corporation Delaware
Owens-Corning (Guangzhou) Fiberglas Co., Ltd. China
Owens-Corning Holdings Limited Cayman Islands
Owens Corning HT, Inc. Delaware
Owens-Corning Isolation France S.A. France
Owens Corning (Japan) Ltd. Japan
Owens Corning Korea Korea
Owens Corning Mexico, S.A. de C.V. Mexico
Owens-Corning Ontario Holdings Inc. Ontario
Owens-Corning Overseas Holdings, Inc. Delaware
Owens Corning NRO II Inc. Canada
Owens Corning NRO Inc. Canada
Owens Corning Polyfoam UK Ltd. United Kingdom
Owens-Corning Real Estate Corporation Ohio
Owens Corning (Shanghai) Fiberglas Co., Ltd. China
Owens Corning (Singapore) PTE Ltd. Singapore
Owens Corning South Africa (Pty) Ltd. South Africa
Owens Corning SpA Italy
Owens-Corning (Sweden) AB Sweden
Owens-Corning (UK) Holdings Limited United Kingdom
Owens-Corning Veil Netherlands B.V. The Netherlands
Owens-Corning Veil U.K. Ltd. United Kingdom
P Metals, Inc. Delaware
Procanpol SP.Z.O.O. Poland
Quest Industries, LLC Delaware
Scanglas Ltd. United Kingdom
Soltech, Inc. Kentucky
T Acquisition Inc. Delaware
Trumbull Asphalt Co. of Delaware Delaware
Vytec Corporation Ontario
Vytec Sales Corporation Delaware
Willcorp, Inc. Delaware
Wrexham A.R. Glass Ltd. United Kingdom
10110 Newfoundland Limited Newfoundland
|