Document QM4grmDv3pgMD4YJVyaB5JrV5

securities and exchange commission Wsstragtoo* D. C. 2*5* FORM!6-Q Quamriy Report Pursuant to Section 13 or 15(d) of the Securities Exchange Ad of 193d For die Quarter Haded September 30,1996 Commission File No. 1-3660 Owes Coraifig One Owere Coniiag Parity, Toledo, Ohio 43659 Telephone No. (419) 2454006 A Delaware Corporation I.R.S. Employer Identification No. 34-4323452 Indicate by check mark whether the Registrant (1) has filed aK r^orts required to be filed by Seaioa 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 bees subject to such filing requirensetns for the past 90 days. Y1XJ No | j Shares of common stock, par value S.10 per share, oufftandmg at September 30, 1996 52,04$,661 VW-04344 INDEX Page Cover Page.................. .............................................................................................. ................................ 1 FAKTI Item 3. financial Statements Consolidated Stagsest of Income........-.................. ....................................................... 2 Consolidated Balance Sheet..............................................................................................5*4 Coosolidaad Statencot of Casfc Flows...................... ..................................................... Notec to Consolidated Financial Statements Segsoeae*...................... ............................. ................................................................ General..................................... ....................................................................................9 Income Taxes..................................................................... ....9 Inventories...................................... ............................................................... -.............9 Consolidated $* of Cads Flows.......... ............................................................... 10 Acquisitions.......................... 10 Dividends....... ................ 10 Contingent Liabilities......................................................................................... H-U Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operation............................................................................ 15*1 S PARTB Item I. Legal Proceedings............... ................................................................................................... 19 Item 2. Changes in Securities.............................................................................................................19 Item 3. Defaults Upon Senior Securities................................................................. 19 Item a. Submisskjn of Matters to a Vote of Security Holders.................................................... 19 Item 5. Other Ltiormation................................................................. 20 Jsm6. Exbfrie aad Reports on Fora S*K ........................ ......................................................... 20 Signatures................................................................................................................. ..........21 Exhibits .................................. 22-25 2 - PAST 2. FINANCIAL INFORMATION ITEM l. FINANCIAL STATEMENTS OWENS CORNING AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME NET SALES COST OF SALES Gross margin OPERATING EXPENSES Marketing and almuua&ative exposes Science and technology expenses Provision for asbestos litigation claims {Note 8) Other Too) operating expenses INCOME (LOSS) FROM OPERATIONS Cost of borrowed funds INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES Provision (credit) for income taxes (Note 3) INCOME (LOSS) BEFORE EQUITY IN NET INCOME OF AFFILIATES Equity in set income of affiliate* Qetrtsr Nine Moods Ended Ended frffrtffnNr-ty, SfWWBhW SL- J22f iffi jjgg (la nailUots of dollars, except share data) SI,025 S 927 $ 2,830 ?S2 684 2.084 $2,648 1.953 .. m 2*3 ___ 246 ___ ffiS 128 106 22 19 f* <4\ 372 63 875 m 145 -121 1.308 128 122 (562) ____ 22 ____22 _____56 321 56 9 --3&S 309 ____ 8 108 102 (618) 240 ____ U ____25 ..Q!D ____ 85 7? _____ 2 67 (361) 155 _____ m NET INCOME (LOSS) i___ a S_Z2 8--Q54) L.J& NET INCOME (LOSS) PER COMMON SHARE Primary oe income Goss) per share Fully diluted net income Goss) per share Weighted average number of common shares otastaading (in millions) Primary Assuming foJ] dilution S--JL22 $ 1 44 S. 1.35 S t.28 S (6 86) S 16.86) $ 3J6 L-ilS 52.4 57.0 51.4 56.0 51.6 51.6 49.1 53.4 The Accompanying notes are aa integral pan of fcis statement. -3 OWENS CORKING AND SUBSIDIARIES CONSOLIDATED BALANCE assess CURRENT Cash afid ff#b ju'ivs)kes Receivables Inventories (Note 4) Insurance for asbestos ifcipxioc claims current portion (Note g) Debarred income taxes VEBA trust Income tax receivable investment is affiliate held for sale Other Oirreat assets Tool aintat OTHER Insurance for asbestos litigation claims (Note 8) Deferred income taxes Goodwill (Note 6) Investments in affiliates Other noncurrem assess Total other PLANT AND EQUIPMENT, * cost Less--Aecmsalased deprectexkm Net plant sad equipment TOTAL ASSETS Sc**.36, Dec. 31 > -1* -*995 (la aaMoae of dollars) S 31 475 350 100 *? 38 16 ______ & L12? S 18 314 253 100 70 51 so 36 35 ____ 322 493 519 276 61 158 ____LS22 3-258 L437 $. -4.071 330 252 249 50 142 1.028 3,067 *Li&n ... 1..3Q6 i },m The accompanying ax^s are aa insegra! pan of &i$ statement. -4 - OWENS CORNING A? SUBSIDIARIES CONSOLIDATED BALANCE .n:i3 tt (Continued) LIAll AND STOCKHOLDERS EQUITY Sept. 33, Dec. 31, J22L. (In mUiioss ofdollss) CURRENT Accounts payable and accrued liabilities Reserve for asbestos litigation dahra cuneat portion (Note 1) SboctHerm debt Long-term debt - carom portion Total current S 386 325 164 12 1.093 t 587 250 64 25 936 LONG-TERM DEBT OTHER Reserve for asbestos litigation claims (Note 8) Other employee beeefts liability Peadoc plan liability Other Total other COMPANY OBLIGATED CONVERTIBLE SECURITY OF SUBSIDIARY HOLDING SOLELY PARENT DEBENTURES (MIPS) STOCKHOLDERS' EQUITY Common stock Deficit (Note 7) Foreign currency translation adjustments Other Total stockholders' equity TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY _____ m 1.735 355 67 _____ m _____ 224 887 367 75 -------- 22 LS49 _____ m 597 (U38) (8) n9i - -(568) 1--Mil IS* 579 (781) 9 ______ 02) _____012) LJL2S1 The accompanying axes are an integral pan of this statement. -5 OWENS CORNING AND SUBSIDIARIES CONSOLIDATED STAT1 ST OF CASS FLOWS Quarter Ended !*fine Months Eo<fcd 12* 1225 J326 ISa (Id mflibia of dollars) NET CASH FLOW FROM OPERATIONS Net income (loss) Reconciliation of wash provided by operating activities: Noncash tarns: Provision for asbestos litigadoo claims (Note 8) Provision for drortciabo 8nd amortization Provision (credit) for deferred income taxes Other (Increase) decrease in receivables (Increase) decrease in inventories Increase (decrease) in scofluatt payable &ad accrued liabilities bonase (decrease) is accrued locome taxes Ocher $ 80 * 3? 60 l (48) (18) 50 05) J2& Net gyh How from operations NET CASH FLOW FROM INVESTING -OH Additions to pUm sod equipment investment m subsidiaries, net of cash acquired (Note 6) Proceeds from tbe sale of affiliate Other (57) _J2> $ 70 31 38 3 08) 32 10 28 _U1 659) (34) -------a S (354) 875 100 (285) 8 (149) (87) (16) 30 _J2Z> 85 <224) <39) 55 (14) S 165 - 92 79 15 (46) (52) (89) 43 (126) ____Si ' (my (34) * * No cash How from investing Si2> 8 (103) 8022) 5 (217) Tbe accompanying notes are as integral pan of this stateotfit. -6* OWENS COKWGAWSVBSWIAMXES CONSOLIDATED STATEMENT OF CASH FLOWS (CoB&aued) NET CASH FLOW FROM FINANCING Quarter Nine Monte Ended Ended 30. IStf 1225 J225 23$ (In millions of dollars) Nr additions (reductions) to iong-earm credit facilities Otter additions to Jong-term debt Otter reductions to long-teras debt Ns increase (decrease) Is aborwena debt issuance ofpreferred stock of subsidiary, os offees Otter $ (5) * US) 5s (I) 03) 12 m . ____ 2) _____2 Ns cash flow from financing _____ 2 m NET CASH FLOW FROM ASBESTOS-RELATED ACnvmES Proceeds frost insurance for asbestos litigation clrinR Payoeas for asbestos litigation dates Ns cab flow from asbestosrelated activities Effea of exchange rale changes on cash Ns increase (decrease) ic cash and cash equivalents _ ..... fin 140 a ......CP ____2 ......... 7 ____ 8) 7 13 Cash aa* cash equivalents at beginning of period Cash sad cash equivalents & end ofperiod ____24 ------- 2 S__2i S 20 sm 18 (33) 100 % - ;26* s &) 56 015) (7S) 4) ____21 63 221 cm) nis) _____ i .......Q) ____ 1 13 09) ____ is ____s S-- u The accompanying notes are an Integra? pair of this staenjeta. 7 OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOUDA1ED FINANCIAL STATI (oauuSHad) NTS U> SEGMENT DATA NTT SALES Quarter Ended Septefflbcr30 Nine Meathi Ended M Jfi M (In millions ofdo!tare) Industry Building Materials United States Europe Canada and other Tal Building Material* Composite Materials United States Europe Canada and other Total Composite Material* Intersegment sales Building Materials Composite Materials EUmmatiops Net sales Geogshic Segments $ 636 76 ____21 S 54 66 ____2fi $1,677 203 ____ 82 _ZiL -1.969 $2,497 103 ____22 1.767 151 r? ____ & 274 141 m ____22 .... m 446 302 - 113 .....&>!. 444 331 ,m _sii 30 25 nm ___ OS) 11222 S 727 64 _JM> 77 ___ 02) S 2.630 $2.648 United Staes Europe Canada and o&er intersegment saks United States Europe Canada and other EJtauoaeions Ns sales S 769 163 ___ 22 1.025 $ 669 177 ___ fii --3Z7. $2,123 505 - -202 Jim $1,941 524 ..... m -2.643 17 6 19 -... m) 14 4 26 -...m S 1.025 46 29 59 - ri34) 41 12 73 ni5) $2.830 sm OWENS CORNING AND SUK3DURIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (I) SEGMENT DATA (Continued) INCOME FROM OPERATIONS Quarter NbfMont&t Ended Ceded SttKfiffitalriXfe gnfcar Xw 12* (Is millions ofdoUars) Building Materials Unfcgi States Europe Canada aj cdier Total Building Materials Composite Materials United States Europe Canada and other Total Composite Materials General corporate expense Income from operations Cos ofborrowed foods Income before provision for income taxes $ 75 7 _____a ____1 8 2 7 * 74 $ 161 15 _____ 5 181 8 150 20 ____ S3 _Lil 53 7 ____& 24 23 _____ i ____25 m) fl) 128 m ___ m .... ttQ) ltd 46 11 ___126 99 46 12 ..... i am (562? ....<ap ( 309 ___ m $ 108 $--102 8 f618> 8 240 United States Europe Canada and otheT General corpora# expense $m 14 9 ___ m> $ 86 30 13 ____ CD $ 277 61 19 .. mi) 8 249 66 30 (36) Income foots operations 128 122 (562) 309 Coat ofborrowed fonds -.Qffl <> ..... a Income before provision for income taxes S 108 $ 102 $ f6m 8 240 (I) fecome from operations for the nine months coded Sepie&bt iO, 1996 iaclodes the Company's tw pretax charge of $175 million for asbestos IIda. ioa claims that may be received after 1999 sod probable additional insurance recovery, all of which ws recorded as a& teats* is general corporate expanse, income from operations for foe doe sloths ended September 30, 1996 also Incudes ae Comply** praax gate of $3? million from foe sale of * ownership interest to sa Mpaxse affiliate Asafct Ffoa Glass Co. Ud.r gft of wfcteh was receded as a reduction is general corporate expense. Also included are special charges tooling $43 million including valuation adjustmests a&sociacd wfah prior divestitures, major Kduct line productivity initiatives and a contribution to foe Owes Coming Foundation. - iroact of these special items was to reduce income from operations for Building Material! te foe United States, Europe, aid Canada and ofotr by $19 raftkifi, $1 nuBicn aw $2 million, respectively, Composite Materials in foe Unites States aad Europe by S3 mStion add 82 million, respectively, and to Increase gerai corpora expense by $15 million. -II- OWEXS CORNING AND SUBSIDIARIES NOTES TO CONSOUDATED FINANCIAL STATEMENTS (Continued) 8. COOTINCEOT LIABILITIES ASBESTOS UABUJTES The Company is a co^efeodac: with other former manufacturers, distribaton tad umaBets of produce containing asbestos ad with miner* ad suppliers of asbestos fibm (collectivdy, the "Producers') is personal injury ad property damage litigation. The personal injury daimaaa generally allege injuries to foal; health caused by tshdaUcn of asbestos fibers from the Company's products. Most of dm claimants seek punitive damages as well as compenssory damages. The property damage claims generally allege property damage to school, public aad commercial buildings resulting from the presence of products containing asbestos. Virtually all of foe asbestos-related lawsuits against the Company arise out of Us manufacture, distribution, sale or installation of an asbestos-containing calcium silicate, high temperature insulation product, foe manufacture of which was discontinued u 1972. Stan# As of September 30, 1996, approximately 155,500 asbestos personal injury claims were pending against foe Company, of which 29,700 were received in foe first sine months of 1996. The Company received approximately 55,900 such claims is 1995, 29,100 ic 1994, and 32,400 in 1993. May of foe recta claims appear to be foe product of m&u screening programs aad aot to involve malignancies or other significant asbestos related impairment. The Company bdieves due as many as 40,000 of foe recent claims involve plaintiffs whose pulmonary function teas (PFTs) were improperly administered or manipulated by foe testing laboratory or otherwise iaeoBSBte* with proper medical practice, and it is investigating a amber of testing organizations ad their methods. On June 19,1996 foe Company filed suit in federal court In New Orleans against foe owners and person of certain pulmonary function testing laboratories in foe southeastern US challenging such improper testing practices. This maser is now in active pre-crUl discovery. The Company is engaging in discussions with a group of approximately 30 leading plaintiffs' law firms to explore approaches toward resolution -of its asbestos 4iab&ty. The-discusa&as involve foe possible resolution of both pending claims and daks that may be filed is foe future. While discussions are ongoing, foe law firms involved in the talks have agreed to refrain from serving any further asbestos claims on foe Company uniess they involve malignancies. Unless extended, fob agreement w21 expire oc Novanber 1, 1996. This agreement may have ii*p*gfgri foe number of cases received by foe Company during foe second and third quarters of 1996. Through September 30, 1996. foe Company had resolved (by sesleaect or otherwise) approximately 179,000 asbestos personal Injury claims, including foe dismissal la May 1996, for Uti: of medical proof, of approximately 15,000 maritime cases which named Owens Coating as a defendant, resulting in an 11,700 case reduction i& foe backlog after reduction for duplicate cases aad cases previous)y seeded. During 1993. 1994, ad 1993, foe Coagtasy rewived approximately 60,000 asbestos personal injury claims, over 99% without trial, and incurred total indemnity payments of $641 millioa (an average of about $10,700 per case). -9- OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CoBtiaaed) Tbe financial sataaents tedudcd in this Report an condensed sod unaudited, pursuantw cartas Rules aad Regulations offee Securities and Exri^ange CommftKioB, but include, in fee optaioo erf the Company, adjusmeats accessary fee a fair gatecaeot of the results for fee periods wftcatfri, which, however, mt soc necessarily indicative of results which say be expected for fee fell yetr. Id connection wife fee coodeosed financial statemeats and notes included in this Report, reference is made to fee financial steameas and aote& thereto contained lit fee Company's 1995 AjmM Report oe Form 10-K, as filed wife fee Securities and Exchange Commission. 3. INCOME TAXES The reconciliation between fee U.S. federal statutory me aad fee Company's effective income tax rate is: U.S. federal statutory rase Operating lessee of fcrogn subsidiaries Adjustment of deferred tax asses allowance Sate and load income taxes Other Effective tax me Quarter Ended Seat. 30. 1996 uss 35% (7) ___ i 35% I - 2 __0) mJ2% mm2% Ntoe Months Ended 05)* (1) (S) --QJ M2)% 35% 1 2 __ 0) 35* Doting fee first quarter of 1996, fee Company reversed approximately S? minton of its valuation allowances, as management determined feat fee operating loss carryforwards of certain foreign subsidiaries are realizable. 4. IN\TENTORIES Inventories are summarized as follows: Sesteabcr 30, DeceoberSl, 1994- 19S5- <Id mfiiiocs of dollars) Finished goods Materials and supplies FIFO inventory $ 290 143 4ii $ 220 Less: Reduction to UFO basis 04) Inventories 3 ISO US Approximately 5191 million and $175 million of FIFO inventories were valued using fee UFO method at September 30,2996 and December 32,1995. respectively. -10OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATES FINANCIAL STATEMENTS (Continued) 5. CONSOLIDATES) STATEMENT OF CASH FLOWS Cash payments, net ofrefcads, for income tw<* and cost ofborrowed foods are summarized as follows: Quarter Ended bfine Months Ended 30, _ 122g Income met Cost of borrowed foods S3 12 $ (I?) 7 S (6) 51 $ (39) 50 The Company considers ail highly liquid debt iassruments purchased with a maturity of three rozBhs or leas to be cash equivalents. 9* ^on-S^h JffmH Ftagrchtf Piease see Note 6 to the Consolidated Financial Scasmena for further information. . ACQUISITIONS During the third quarter of 1996, the Company acquired substantially all the asses of the Canadian extruded polystyrene foam insulation business (Cetfonec) of Celfort Construction Materials Ido. The purchase price of Ceifonec was $22 million (330 millton Canadian), including possible subsequent contingent consideration. The acquisition of Ctifoztec was consummated by the exchange of472,250 shares of the Company's common stock and less than $1 militon cash for all the acquired assets and liabilities. Additionally, daring the second quarter of 1996v the. Company made acquisitions in the U.K, tod VS. BuHdiag Maerials segment. The aggregate purchase price of the second quarter acquisitions was 339 million. Time acquisitions were accounted for under the purchase method of ftecouafrng, whereby the assets acquired and liabilities assumed have been recorded as their fair values and the results of operations of die acquisitions have bees included b the Company's consolidated financial iCTForaits subsequent to the acquisition riataa. The purchase price allocations were baaed on preliminary estimates of fair market value and are subject to revision. The porch*** of Celfortec and the second quaner acquisitions Included goodwill of 315 million and $7 million, respectively. The goodwill is being amortized os a ssaigbMtae basts over 40 years. The pro forma effect of the acquisitions was n material to net income for the nice month* ended September 30,1996 or 1995. 7. DIVIDENDS During the second quarter of 1996, the Board of Diraoere approved a& annual dlvideod policy of 25 cans per share and declared a quarwiy dividend of 6*1M cess per share payable on October 15,1996 to shareholders of record aa of September 30,1996. -12- OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Comisawl) 8. OTNTJNGENTiMB^ The Company'* indemnity payments have varied considerably over time xod from case to case* aad are affected by a sndtkude of floors. These include to* type and severity of toe disease sustained by toe claimant <*.e,, mesothelioma, long cancer, other types of cancer, aabcstoria or pkxffd changes); toe occupation of toe rfa'iroaTg; the extern of the d**msmvs exposure to asbestoscontaining products manufattgred, sold or installed by the Company; the extern of the eUanatd's exposure to asbeuos-comalai&g products manufactured, sold or Installed by other Producers; the ousabcs and fiwrwfal tescAscea of toe Producer defeodsmu; toe jartsdktioo of suit; the preset** or abseace of other possible causes of die claimant's Qlness; the availability or oot of legal defeases such as the statute of limitations or stats ofdie art; whether the claim was resolved on as individual basis or as pact of a group MBietaeat; and whether the data proceeded to an adverse verdict or judgment. Insurance As of Sqxaober 30, 1996, die Company had approximately $368 million k unexhausted insurance coverage (set of deductibles and self-insured rewotioos and extiudtog coverage issued by involves* carriers) unde its liability ksurancc poUcw* applicable to asbestos personal kysry daks. This insurance, which is substantially confirmed, includes both products hazard coverage afid primary level ooa-products coverage. Portioes of this coverage are not available until 1997 and beyond under agreements with toe carriers confirming such coverage. All of toe Company's liability toairarwe policies cover indemnity payzaems and defense fees and exposes subject to applicable policy limits. h addition to te confirmed primary level non-products Insurance, toe Company has a signifies# amount of unccBfin&ed potential aon^rodus coverage with excess level carriers. For purposes of calculating toe amou&t of insurance applicable to asbestos Uabiihtes, toe Company has rinng*f ha probable ttcoveriea & rapea of tola additions noo-prodms coverage & $225 million, which amount was recorded in toe second quarter of 1996. This coverage is ucconihmcd asd toe amount and timing of recoveries from these excess level policies will depend 0& subsequent negotiations or proceeding*. Reserve The Company's 199S fiia&cUi sttse&& included a reserve for toe cos with asbestos personal injury claims toff may be received through toe year 1999. Such financial sms&cou did sot include any provision for toe cost of unassorted daims 't&kh might be received in years subitem 1999 because ounagesoeui was unable *> predict toe imstoer of sutio risk?* and otoer faaon which would affea toe cost of such claims. Throughout 1996, toe Company continued to review toe feasibility of making provision tor toe cost of unassorted asbestos personal btfury claims vhh respect to claims which may be t*tasd by toe Company daring and after toe year 2000. b conducting such rrvkw toe Company took, into acwm. among otoer things, toe effect of recent federal court decisions relating to punitive damages irrf the certification of class actions in asbestos esses, the pendency of toe dkcusskm* wtto toft group of pJaistiffc1 law firms referred to above, * ; reccct developments as to the prospects for federal and state ton reform, toe continued me of case filings az historically - -13- OWENS COMING AND SUBSIDIARIES NOTES TO CONSOUPATEP FINANCIAL STATI (Coatimud) 8. CO&TfNGEST LIABILITIES (Continued) NTS feigfc levels, additions! isfcnaafe on filial received during fee 1993-1995 period and other feoore. As 8 result offee review, die Company took a KHwecurrbg, noncash charge to earnings f$U billion is fee second quarter of 1996. This charge represented the Company's estimate of the indemnity sod defease casts assoclaarf with tmassmed asbestos pereonal injury claims that may he received by the Company in years subsequees to 1999. The crabbed effect of the $1.1 billion charge and the $225 millioa probable additional aonproduco msurence recovery wasan $875 mAlion charge in the second quarter of 1996. The Company's estimated total liabilities in respect of indemnity and defense costs associated with pending and unasserted asbestos personal injury chirm that may be received in die foaire (the 'Liabilities"), and ice estimated insurance recoveries in respect of such claims (the 'Insurance"), are reported separately as follows: Reserve for asbestos ifflgffikm claims------ September 30, December 31, im___________ OW ....... dn miHiens of dollars) Correct Other Teal Reserve $ 325 1.735 2.060 $ 250 ... m 1.137 Insurance for asbestos litigation daims Current Other Total Insurance Net Asbestos liability too --522 1.467 100 ?y> *g> $ 707 The Company camions that such factors as the number of furore asbestos personal injury claims received by U, die rate of receipt of such cUims, and the indemnity and defease costs atsoctifwl with asbeeus personal u* jy claims, as wdi as the prospects for confirming additional tourase, including the additional $225 million in non-products coverage referenced above, art mfiowced by numerous variables feat are difficult to predict, and fear estimates, such as fee Company's, which attempt to take account of such variables, are subject to considerable uncertainty. The Company believes feat its estimate of Liabilities and Insurance will be sufficient to provide for fee costs of all pending and fecire asbestos personal injury claims shat Involve malignancies or significant asbestos-related fractional impairment. While such coyer unimpaired claims, fee number and coat of unin^aired claims are much harder to predict aad such reflect fee Company's belief feat stub tiaims have little or oo value. The Company w01 continue to review fee adequacy of ns estimate of Liabilities and Insurance on a periodic basis and sake such adjustments as may be appropriate.  u- OWENS CORNING AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STAT3 <Coatifiu*9 STS 5. CONTINGENT INABILITIES (Continued) Although asy opinion B subject to fee oBcerttfeties described shore a&d anm be based og information now known so fee Company, Id the opinioo of manigecnetfi, any stidctionai uninsured cad unreserved cons which may arise out of pending pcswnaJ injury aad property damage asbestos claim and additional simitar asbestos claims filed in fee future will sot bave a materially adverse e#f* o& fee Company's financial position- Management believes feat my nidi additional costs would aot impair fee abiiky of fee Company to meet its o&Ugstioos, to reinvest in j& business or to take advantage of attractive opportunities for growth. flON-ASESSTOS HAWM1BS Various other lawsuits and claims arising ia the normal course of business aitpe&dfeg against fee Company, some of which allege substantial damages. Management believes that fee outcome of these lawsuits and dams will aot have a materially adverse effect os fee Company's financial position or results of operations. -15- mEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS <AQ per dare fafomio is tea 2bqdb My diluted basis. All referaoceft renits from oqgpfaag operations exclude foe kaput ofspedti tens repotted for foe relevant period.) RESULTS OF OPERATE* For foe third quarter of 1996, foeCospaBy repotted** income of$80 auUioa. or $1.44 per dare, ao feoease of 14 percent from net income of $70 naflky or $1.28 per share, for the garter ended Sefxecober 30, 1995. The earnings growth fro epariott rejects primarily the beofiB of eatmtiom, srong testda fro tie roofing and foam bsamaaes, sod a fevotafcle litigation seriaaea with a former supplier, partially offset by' increased arimftiisrative charges it&ifrtag from the Oxtpany's auiag tapiessesaadoB ofits global productivity initiative* Advantage 2000. N sales were $1,025 mBisnfor foe eerier ended Stptanher 30. 1996. ao 11 percent Incnm* fro the 1995 iMt of $927 aaSlkm. The growth is attributable to volume increases in foe Bcfldfag Materials segment worldwide, particularly is foe ILS., combined with foe focreaeatti wrasse from ecquisibau. Gross margm for foe quarter ended September 30 was 27 percent of sales is 1996. cocoparid 26 percent In 1995. Earnings before inurcst and taxes <EKT) fro operations was $128 mfflta in the third quarter of 1996, compared to $122 mtlik in foe third quarter of 1995. For foe afoe months ended September 30,1996. foe Company reported a net toss of $354 mBlfea, or $6.86 per share, compared net Income of$165 million. or$3.18 pt? Asst, for foe comparable 1995 period. The net loss was foe result of a $1.1 bUJic* charge taken during foe second quarter to quantify foe Convoy's liability for asbestos claims whkh may be received after 1999 as wed as a probable $225 mBIk* additional recovey from insurance carriers (coUectivtiy, foe "asbestos charge''), having a combmed hopvx after taxes of $$42 mSlioc. Exdadag the impact of foe asbestos charge aad foe special ksss reported is foe first quarter of 1996, jm mcome for foe first mne months of 1996 was $188 rmiiica, or S3.42 pec share, sc increase of 14% over foe cotnparaNe prtor year period. Net sales for foe nine months mkd September 30, 1996 wwe $2,830 bQiaoci, a 7% testae over foe $2.64$ biiikm repotted in foe ft cine awahs of 1995. This increase reflects foe bsremeocti sties from foe Coapaoy`8 acquiritiftm in arabination with foe uxprovenect in foe Building HstmaU segosm, particularly fo foe U.S.. where increased demand due to a&urti dis&m in foe East has required eqartsiop ofsa-vice territories ofsr^erti roofing plants. Mattering and administrative expenses from oegoisg operafow for foe runs motths eoded September 30, 1996 acreased appfoximaQiy 13% over foe same period in 1995, primarily a result of iaarassaJ afoaiostrarive expeoses from foe tequatexs bee ia 1995 *ol 1996 as well foe ftnp*-*- of foe continuing anplcmegarioB of foe Company's Advantage 2000 program. Advantage 2000 is a tasfoes sysos designed to accefcnoe foe speed and simplify foe processes of fonog business globally. When My implanercgl, foe Advantage 2000 program will repUa over 200 fragsemeri system wife a ftdJy integrated system, leading to foraser* ^rochicovay and cos savings- Id foe ftuSdmg Materials segment. sale iocreased 17% and 11% for foe quamr and aloe troth periods ended Sermrober 30.1996. rtapectivdy, compared to foe om- periods offoe prior year. This *16- growth reflate the bcraBefical tabs from arfttiairiroi whined with an feenaee to voktsie woridwide, pattetorty tobeU.S. Tbefofcdqasttr sai tocwasetofoeU.S. was largely frrvcctrf the rooftog busmss which banefteri from an bfrewe is demand. AteJooaBy, foe Cotqpaay coodmus to realm foe benefits of jacegyattog new pcoduas into os distribution systems, imsjrtft'togbe safes of products like FoaimUrfR) extzwied polystyrene. Tbe Company expects tefoer beoefto font bis nwgncte combined wib as newly nerodMed System ThmflngCTM) strategy. wtisfo Bate be Company's growing productoffering wfcfc tedmkal expertise, to provide sdawo-orietred systems. Income from ocgotog operates for Buitfiag Materials bataued 23% for be quarter and 11% for tbe time ottocfas coded September 30,1996 when compared to be same patah.to 1995. Tbe increase Id tbe third quarter k primarily due to productivity 'sxsptovecHte to tbe roofing business and to?rovfeg proffcabafcy fro Canolas operates. 2b tbe bird quarter of 2996, be Company attired abeanbdly aU be assess of tbe bam iasutotica business of Cdfort Coosmnte Materials loc. of Canaria, Roamed OC Cdferae, tbe VaUeyfMd, Quebec business. which produces FOAMULAR<R) rigid polystyrene foam insulate, is an pan of tbe Company** growfo ageoda toco tbe foam insulation hostess. TV aajtisfete of Cetfonac increases tbe Company's foam insulate plains to six, with & seventh under coeansate to China, AddkioaaBy, s tbe ead of the bird quarter be Company reached as agreement to acquire a majority intffea in Acoustical Fibreglass insulate (Mnfg) (Pry) Ud.r be largess Scab African m&mdastBrer of glass fiber TetofoteeanenR mi glass fiber ud rock wool tosdate. Tbe new osapwy, bwigaanetd to Johannesburg, South Africa, will be knows as Owens Coming Soufo Africa (Pty)Ito. In be second quarter of 1996, te Company oquiratf cerate U.S. asses of Partek Irft a subsidiary of Partefc North America Inc. Party's rockwoi-based insulate wBl help be Company iwnri its gedaalca) Insulate produg offering too higfcg-mmperaage applicates. Additionally be COcpany acqiirad be United Krogtevfrased Ltopac Insulate. Wfch production bcHtries to be CX. and Spain, liapacs earutied polystyrene (XPS) PotyPoam{R) tosubricn w31 be added to be Company's European building materials product line. to tbe Composite Materials sagam, ales deceased slighdy for be qawar cri xme mootas ended September 30, 1996, coc^ared be same periods of tbe prior year. Catos to Item America, as &eried growth region, and to be U-S-, wae more than offiw by declines in aari Canada, ritriburi)2easoftflQtogdeca^, as wed toassrecgbemz^U.S. doUar. Compcsae Materials awsme from operates to fee bird qusier of 1996 increased 9% compared to be bird quarter of 1995. For be.nitKJoot^ao^Sepfflte- 30, 5996, tocoB^from ongobg operators tocrosed 12% compared to be same period to 1995, primarily (toe to as iaproveoictt is priefeg combined with productivity to&cves, patiaiariy to beU.S. ,ucxmxrt cafttal ksocrces aw other related mattet^ to June 1996 l Coetpany ssoouste bat Its Board of Dimon bad approved an ***,<.) drvtdeod policy of 25 cam per share and declared a quarviy dividend of 6-1/4 cents per bare payaUe cm October 15,2996toshareboideaof reordas ofSepmber30,1996. Cash Sow from operates, excluding asbestos^riaed activities, was $114 ntiiJkw for be bird cgsarter of 1996, compared 5235 fiblico lor be bird quarter of 1995. The decrease is aaribuefoto to pt ac increase to trorideg capital, paroaiarfy receivables, due to strong Sqxoter sales, eot^ed wib toatased ccmposkes tovaatories, when stet-etftn capacity is being modified as be Ctagusy's customers adjust beto tovesaory toveto. 17- M 30,1996, foe Company's net waking capital was $34 mfflioo sod is cants* Mao tv t.Q3, coa?^a^$92oe 3.99, respecti^, * Dcc*^ Thetoaeaseta 1996 is hi pan due as banged sales volume drivbg xeceivabies as weS as towwml ncatabte tan gufetocaa, efes is large pan by increased sboct tens IxaTuwfop. iavetwries * September 30, 1996 increased 3$% over December 31,199S levels to p wtoriruBeri fourth gutter demand togedag wife the tatcoeaBl inventories of acqoiritioss as wtU s tbe kern dfecssaed la toe preceding paragraph. Inventories as a penes ofsake tor toe nine months tad Segmab* 30,1996 aed 1995 remabed rebrivety ntKhaagtri at apptoziizacdy 12*. Please see Notes 4 and 5 to toe Consolidated Fuaoaal Stataae. The Company's foal borrowings September 30, 1996 were $1,147 bilks, $254 su&ioo higher toae at year-end 1995. The Company's increased bonewmgs to 1996 ate being driv by toe befld of tovezsories for amkipand fourth quarter demand as well as other writing capfcai requimacm. As of Sepumber 30,1996. the Company had unused lines of credit of $231 miUop available under faog-ttrm baafc km facilities sad as aidioonal $13? mfllton under ibatona foaJioes, conyasrad to $35$ msston and $239 mffltan, respectively, ft yam-end 1995. Tbe decrease to available Ik* of c2t is primarily toe tteuk of increased borrowtogs, teem of ends issued under toe Company's k*g*4firo U.S. toso farilsp, most of whito support 3?eaU ton beams trials, reduce entok svaUabsIky of that ftajity. Tbe impact ofsnefa reduction is reSeaed to toe unused lines ofcredit dsaa&tdtoove. Capial pending to? property, ptax and equipment, adudb^acquMtic* sod avestt&efls to affUtast, was $5? m&ioa and $224 Bullitt tor toe quarter art mas moans ended September 30, 1996, respectively. For toe year 1996, toe Company anticipates cspk&i spacing, exclusive of acquisitions and tovestmeats to affiliates, be ^proxtoatey S2S5 calltoo. Tbe Company expects that finding tor these expendcuers will be ton toe Company** operations and external sourcesrequired. Gross paymem for asbestos Utigsfos claims during the third quarter of 1996, todudtog$l3 aBUoc to defease coss and $3 mUito tor appeal bond aod other coss, were $57 mSlioc or $34 Bfilitoo *ter*ex. Durtog toe third quarter of 1996, toe Cocapscy festival ^pprotoasatiy 5,400 oerw asbestos persona! tojujy cases sad dosed approzimsely 2.103 cases. Over tbe next twdve mottos, toe Company s tom) payment for asbestos legation claims, including defease costs, at expected to be approxtoasriy $325 million. Proceeds tan jasuraocs of $100 million are axpasod to be svafiabto cover these costs, resulting to a net pr*ax cash outflow of $225 million, or $135 mildoo tote-ox. Please see Noe $ to toe ConsoWirfll Ftoaixaai Sramvots TbeCompaey expects toads generated taa operations,-together with fimds moUttole under long cad toon term bank loan facilities, to be sufficient satisfy te debt service obligations under its existing tnrkfrrrinw, as well as its coodogea liabilities for uctosured asbestos persaal injury data. Tbe Company has been deemed by the Environmental Protection Agercy <EPa) to be a poeaetiaBy reepetstte party (PRP) with respect certain sites under toe Con^rehasrve EevtaSBenol Response. Cda^eosatioo and Liability Aa (Superfund). Tbe Company has also been deemed a PRP mix timiisr satetx local tas, including nw stsu Sijper&ad sites ufesretoe Cccq^oy is primary H* generator. In other Instances, ofcer fW have brought Riie or daifln against tbeCeopacy as aPRP to ccneriiwion under such federal, sctfe a* tod laws. During ibe to! quarts of 1996, the Company s <Vrigmnd a US' in such federal, safe, local or private proceedings to five ottsfcaaJ ikes. Ac September 30, I99d, M of sacfe PRP deaigssjooe rasmtoadoraotod fey fire Caapaoy, tea of which dfrignariwe toe Company batmen to be tfraawjs. 13* Cee^aoy b *bo fevcived wife ecvkossxocal tovestigmkn or rwpodfgion at a aastor of other utts * wiucfe k has ax bees designated a PRP. TheCoapesy b eeablkbed an $18 miBbo reserve to as Supertax* <*ad sraSar sse, toad sad privoe ac&tt) ccotagea UabSitias. In addtooo, based upon atomapoc prececdy svaflafele to the Coapasy, and wfcfaoat regard to the application of fesuraare, the Cotapacy bcfrves that, considered m the aggregate, toe VittVaal cafe KtociaftM wbh p*ch ccastagm ttabfihiea, todading any related litigation rests, wtU ox have a materially advov effect cm dm Cotapafs flmafoi poskkm or resoiB ofopenftkws. The 1990 Qasa An Act Ameodnwots (AcO provide flak the EPA wflj issue regulator on a "imW of air pollutants over a prod of years. Until these regulates a dewfcpei, the Crstpacy ogees dammae the eceo to which {be Aa wfi] affect zl The Company aofcpfts fits its sources to be regulated wBi todode glass fiber inaauftaging and asphalt proceed activkfes. 7be EPA's soaftarawti scheduh is y> feme regulations covering glass fiber ma&Ezfeourug by late 1997 and ptak processing activities by late 2000, whb taptaaeotatiofi as so editing sources up to three years thereafter. Based os Bforrnatinn now iown to the Company, tzsdudtog the tsasst aad Undud suate ofregulars* aateruls it ante, die Company does ret expect the Aa to have a materially Averse e&a on tbeCc*B$8ny's results ofoperations, financial coaditioc or Jong-tmn liquidity. PAST 0. OTHER INFORMATION ITEM 1. lGAL PROCEEDINGS 19- Sm foe paragraphs fo Note Cotrtfogeo* UaMHtiee, to foe Coosoiktod Financial Saeeaem above, which are incorporated here by reference. Securities and Exchange CommSsstafl rule require the Company deacr&e certain govensaemal proceedings arising under federal, awe or local Mvirojuaebul provisions unless the Company reasonably believes tbs foe proceedings will result la monetary sanction* of less than $100,000. The following proceeding is reported in response to this requirement. Based os the information presently ava&abU to it, bowever, die Company believes the die costs which Bay be modsaoi wish this maser will not have a materially adverse effect on the Company's financial position or results of operations. In August 1996, the Company voluntarily reported to the United States Environmental Protection Agency (EFA) foal due to a change in assumptions regarding the formation of a reportable pollutant, foe Company had concluded that reporting deficiencies for such pollutant had occurred at three plants. The Company has since filed all required reports with foe EFA. The Company h unable az fob time to determine foe amount of penalties, if any, that may be sought by foe SPA but believes that foe Company's immediate voiumay disclosure will be a favorable consideration la reducing any penalty that would otherwise be sought. ITEM 2. CHANGES IN SECURITIES (a) None of foe constfcueai instruments defining foe rights of foe holders of any class of foe Company's registered securities was materially modified fo foe quarter ended September 30, 1996. (b) None of foe lights evidenced by any class of foe Company's registered securities was materially limited or qualified fo foe quarter ended September 30. 1996 by foe issuance or modification of any other class of securities. ITEM 3. DEFAULTS UPON SENIOR SECURITIES (a) During foe quarter ended September 30,1996, there was material default in foe payment of principal, interest, sinking or purchase fund iostatoems, ox any ofoer material default not cured whhfo 30 days, with respect to any indebtedness of foe Company or any of its sjgifokam subsidiaries exceeding 5 percent of foe total assets of foe Company and its consolidated subsidiaries. (b) During foe quarter ended September 30, 1996, ao material arrearage fo foe payment of divideads occurred, and there was no otbec n .erisl delaqaeocy not cured within 30 days, whh respect to any class of preferred stock o. foe 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 foe Company. rmu. SUBMISSION of matters to a vote of security holders No garter was submitted to a vote of security holders during foe quarter ttfoed September 30, 1996. nIMS. oramINFORMATION Coapaay does sen elect to report any iafbma&m coder this ham. ITEM 6. MTS AND RH*ORTS ON FORM ** (a) Exhibits. See Exhibit Index below, which is incorporated here by reference, (b) Repots os Fora 8*JC 7be Company Sd not file any reports cm Fonc 8-K during the quarter ended September 30, 1996. *21- SGNATCBES pursuant to tbe reQairw&ests of the Securities Exchange Ad of 1934, the Cdspeny has defy tfeemaao duly authorized. OWEKSCOKNZNG RegbawB P*; OcrtwJiJgfi, Bv * fifTteAd W. Dcvoiahire David W. Devonshire Senior Vice President and Chief Financial Officer Pa*: Wtt Bv /s/ Saves 3 Steven J. StroW Vice President tod Controller -22- Exbtbit Nmfthg it; >:*> <3> Anides of haxpontkxi and By-Laws. Certificate of tocorpomkra of Owens Corning, s am*M (kcorporarod herein by reference to Exh&it (3) the Company's aTM*,*] report on Pona JOK for 1995 (File Ho. 1-3660)). (U> 0?) (99) By-Laws of Owens Com!ag, as amused (incorporated herein by reference to Exhibit (3) to the Company's annual report os Form ZO-K for 1995 (File No. 1-3660)). Sutmtaii re Computation ofPer Share Earnings (filed herewith). Financial Data Schedule {filed herewith). Additional Exhibits Subsidiaries of Owens Coming, as amended {filed herewith). OWENS CORNING AND SUBSIDIARIES COMPUTATION OFPER SHARE EARN Primary; Quarter Ended FftoeMfiftths Ended ____ SeflrM,..- 1996 ms .199*. (In millbos ofdollars, except share data and where noted) Net rocome (Joss) $ SO $ 69 . s 054) $ 165 Weighted average number of shares outstanding (thousands) Si,782 50,745 51,616 4*482 Weighted average common equivalent share* (thousands): Deferred awards Stock options using weighted average market price 15 ____522 16 ___ m IS -MU Primary weighted average nomber of common shares outstanding sod common equivalent shares (thousands) Primary per share amount 52.374 51-383 S IJ3 S T.35 S1-6H> 49 060 f te.86) 5 3.36 Net income (loss) Weighted average number of shares outstanding (thousands) Weighted average common equivalent shares (thousands); Deferred awards Stock options using the higher of average market price or market price a: end ofperiod Shares from assumed conversion of debt Shares from assumed conversion of preferred securities Fully diluted weighted average cumber of common shares oureanritng and common equivalent shares (thousands) FuHy diluted per share amount f ...B * 71 51.782 50.745 IS 16 615 652 4.S66 4566 S6.97g $5.959 * IM i 1.28 1 f3S41 t 170 51.616 46482 15 484 _ z*m 2-283 S.K616 53.395 S (6.86) $ 3.18 Sateorp, lac. Crosslink B.V. Crown Manufacturing Inc. Daask*Sveaak Giaaf&er A/S Deutsche Owem-CocnJag GUsswool GmbH Eric Company European Owens-Cbroing Fiberglas, S.A. Falcon Foam Corporation Fiber-flex Co., be. Fiberflex lacwporaMd Flber-tiw Corpontios IPM, Inc. Kroon* insulation Products Ltd. Matcorp.bc. N. V. Oweas-CoromgS.A. OC Cettottec lac. O/C/FIRST CORPORATION OCFOGO, be. O. c. Funding B.V. O/C/SECOND CORPORATION OC (UK) Holdings Lsahad OC Utah Four Corporation OCW Corporation (<, Delsan) Owes-Conting A/S Owens Corning Building Materials Espana S.A. Owens^bming Buildmg Products (U.K.) Ltd. Owens Coming Canada Inc. Owens-Coraiag Capital Holdings L be. Owens-Coraing Capital Holdings E. lac. Oweia-Coruiag Coital L.L.C. Owens Coming Cayman (China) Holdings Ow*-Coming Cayman Limited Owens-Coming Chingcbtas Guac Dao Company Ltd. Owens Coming E&pana Sa Owens-Coming FibcrgUs A.S. Lhnteda Oweas-Coming R*rgias Deu&dtiaad GmbH Owecs-Comisg Fibe-gli* Espana, S.A. Owens-Coming Flterglas France S.A Owens-Con ` jg Fibergias (G.B.)Ud. OwecsComiog Hberglas (Italy) S.r.l. Owens-Coming Flbergitt Norway A/S OweosComing Flbergte S.A. OweosConung FSwrglas Sweden AB Owens-Coming FibergUs Sweden be, Owaos-Coming Fibergias Technology be. Owetss-Coming F2rgias (U.K.) Lid. Owecs-Coraing Finance (U.K.)pic Owens-Coming FSC, l&c. State Otter JsrfedKtien UadtffeUftsof Which Delaware Holland Canada gfeSBttt Grainy Delaware Belgium Delaware New Jersey Georgia Delaware Delaware linked Kingdom Delaware Belgium Canada Ohio Delaware The Noheriaads Delaware United Kingdom Utah Delaware Norway Spain United Kingdom Ctayf? Delaware Delaware Delaware Cayman fciapfly Cayman Islands PRC China Spain Brazil Germany Spain France United Kingdom Italy Norway Uruguay Sweden Delaware Illinois United Kingdom United Kingdom Barbados 25~ SatekHaria of Ow* Corang S/SO/ra State or Other Jurisdiction Ualer the L*w$ of Owens-Coming Funding Corporation Delaware OweaKkramg (Guangzhou) FR*rglas Co., Ltd. PRC Orica Owens-Coming BoldiegsLimittd Cayman Islands Owes Coning HT, toe. Owecs-Conung Isol&joc France S.A. Delaware - France Oweas-Corntog Ootario Holdings lac. Canada Owtas-Comtog Overseas Holdings, be. Delaware Owecs-Comiag (Oversees) Maaagsaam Limited Cyprus is Owccs Coming Polyfoem UK }jd. Owes-Coming Read Estate Corporation United Kingdom Ohio Owes Corning (Shanghai) Fiberglas Co., Lot PRCOitoa Owes Coming {Singapore) FTE Lid. Singapore Owecs-Coming Trading, lid. British Virgin Islands Owes-Coming UK Holdings Limited United Kingdom J OwesComing VeB Netherlands B.V. The Netherlands OwmsCoruing Veil UX Lei. United Kingdom Owens-Coming Venriebs GmbH Germany l Palmera Products, lac. tI i { Scaagas Ltd. SFF Acquisition Corp. SFF2 Acquisition Corp. j Schecb, Inc. UC Industrie. Inc. Delaware United Kingdom Teaneesee Keatecfcy Keotucfy Delaware WDs.t. Belgium Western Fiberglass, Inc. Utah Wtsra Ffeergiass of Arizona Utah Western Fiberglass ofTexas, be. Utah Wiilcorp, Inc. Delaware Wrexham A.R. Glass Ltd. United Kingdom Owens Coming Pipe Africa (Pvt) Ltd. Zimbabwe ZoU Castor Holding Corporation Delaware 2053051 Ontario Inc. Canada i 10862# Ontario be. Canada I i