Document YjwGbwL82kdXpyBZkN3DO9e1y

Owens-Cdrning Fiberglas Corporation 1992 Annual Report PLAINTIFFS EXHIBIT WV-02871 ' Owens Corning WV-02871 Owens-Corning is a global technology-based enterprise that develops, manufactures and markets materials for consumers and business and industrial customers. The Company is the world's leading supplier of glass fiber materials and a major producer of polyester resins. Owens-Corning strives for excellence dirough its commitment to three guiding principles: customer satisfaction, individual dignity, and shareholder value. Table of Contents , , t -r 1 Uhivr 1< S!*ah< 3 t1nunci.il IlighSinlit' 4 I\jkamlinj* imr <ilnliai I'rcMWe 6 Acu-kni!ing 1 cctimAt>pial litrnn it>n 8 i-'miisfnft on i'wpt(ratfSlc rrfsHip 10 KusSncss <)miim 14 Manaymi-nl Discussion and Anal*sis 15 Smo-Vcar Simiiuan 19 ttnyiicial SlatcBicols 3fl IMrulnrs and Officers 40 Ocncrat * \5 l\ fv CamMi, Oitt H> MMri M.n StKK Owens Corning To our shareholders yearago, when Owens-Coming emb&ked on a new era ofglobal growth, I listed three principles that would guide our action plan: share holder value, individual dignify, and customer satisfaction. In 1992. I am pleased to report, we made considerable progress on all three fronts. Let me share with you some of the highlights: A Refocused Company In 1992. ourprimary objective was to enhance shareholder value by improving earnings in every quarter as compared to the year-ago period, We accomplished that objective. But more importantly, perhaps, we also initiated a number of steps to refocus the Company to enhance shareholder value over the long-term. Ihese steps included: Introducing a new corporate logo that emphasizes our commitmew to global growth and unifies our businesses around the world. Reorganizing the Construction Products Group (CPG) to strengthen its focus on customers and markets, enhance its competitive position, and further improve its speed and productivity. Centralizing and consolidating our accounting and information systems, which will speed the Company's responsiveness to customers white reducing costs, lnvcaing$12nuUkmtomodemizeandcxpandaspeci^fy insulation line at our plant in Waxahachie. Texas. That line will produce a higher quality product at lower cost and enable us to manufacture an additional 30 million pounds of building insulation, positioning the Company to meet growing demand in the rebounding housing market, Announcatgpirns to activate our industrial materials plant in Jackson, Tennessee. The plant, mothballed in 19S7, will reopen in tl spring of 1994. employing about 80 people in a state-of-the-art facility with advanced environmental systems to minimize waste and other air and wateremissions, The plan! will manufacture the same amount of product as in 19S6, when it had 500 employees, And reducing our outside legal expenses for asbestos litigation from $175 million in 1991 to the current rate of$55 million per year. We plan continued improvement in this area. G/en H. Wnor Chairmen andChief Execulin Officer 1 Nel tneomV ffamilltotujdatlaril m s> 60 -U*_JL_ W *82 'Btfrrt qrrcM ehatgti On mlkonf^dottaes) S.7SC 3MO Product*vt*Y Improvements (In nChofU <4Mto>s\ 200 Thanks to these and other cost control and productivity measures, we saw a significant improvement in earnings in 1992 despite continued weak economic conditions. For the year, Owens-Coming earned $84 million, or $1-95 per share, before one-tune reorganisation costs of $,25 per share in the fourth quarter, compared to income of$41 million, or $1.01 per share, be fore special charges in 1991. The Company's reported net income for 1992 was $73 million, or $ 1,70 per share, compared to a reported net loss of $742 million, or $18,13 per share, after special charges in 1991. Net sales in 1992 were $2.9 billion, an increase of$95 million, of 3.4 percent, from 1991. Many ofour U.S. construction products and industrial materials businesses have been strengthening - notably building insulation, residential roofing, and industrial yams. Economic conditions remain sluggish in many ofouf other global markets, including Canada, Europe and Brazil. But we are optimistic that we will achieve double-digitearnings gains in 1993. For a detailed discussion ofour operating performance in 1992,1 encourage you to read `Management's Discussion and Analysis/' which begins on page 14 ofthis report. Meeting Our Customers' Needs From Toledo, Ohio to Banice, Belgium, our entire organization has strengthened its commitment to meeting the needs ofchit customers. Ibis is exemplified by the "style teams'' ox our Aiken, SouthCarolina, and Huntingdon. Pennsylvania, industrial materials plants, where we have formed ongoing partnerships with ourcustomers to address issues ofmutual concern, such as product quality and manufacturing efficiency. These efforts continue to win praise - and awards from our customers. In 1992, more than 12 companies, including Miiliken, Frigidaire and Avis, cited Owens-Coming as an outstanding supplier. Time is going tobe the battlefield of the 1990s, and increasing the speed of our product!cm. sales, service, distribution and product development functions is another way in which we are achieving customer satisfaction. All these steps will add value to our customers by increasing their revenues or reducing their costs. Our vision is to be so valuable to ourcustomers that they cannot afford to do business without us, Becoming A Preferred Employer We Iwve made great strides toward becoming the preferred place ofemployment for the best individuals, regardless of their sex. race, creed, religion or national origin, Owens-Coming now its female plant manager - Sheree L. Bargabos of the Oklahoma City roofing plant, and its first female Director of .Marketing Communications for CPO - Karen L. Strauss. And with the appointment of Paula B< I Cholmoixtcley as Vice President, Business Development and Global Sourcing, we have our first woman and first person ofcolor as an officer of the corporation. $$ BIEffen fn Annuel Sales By 'Hie Year 2000 Gariy, 1992 was a year of considerable achievement forOwens-Coming. But we are not resting on our laurels. In 1993,ourobjective, once again, is to improve earnings in every quarter as compared to the year-ago period Beyond that, we have an even more ambitious goal - to reach $5 billion in annual saks by the year 2000. To achieve that goal, we will concentrate on three key strategies: productivity enhancement, technological innovation, and global growth. To enhance productiv- Financial Highlights icy, we are implementing aggressive programs, instituting company-wide measurements and setting future productivity objectives at 5 to6 percent annua) improvement. In 1992, our 6 percent productivity improvement yielded 5180 million m savings. Toensure that techno logical innovation ocmtiiwes to fuel our growth and ener gise theorganization, in 1992 (In millions ofdo&tn, eicepi vetshare data andwherenoted} Net Silsi Income (Sou) from operations Provis>n (credit) foe income taxes Net Ineome (Lota) As 4 percent ofnet sales Per Share Information Income 0osx) beforeextraordinary kerns and cumulative effect ofaccounting change Extraordinary items Cumulative effect ofaccounting change /brother postretirement benefits Not Income (Loee) per Share Capital spending Total assets Total debt Average number ofemptoyees (in Thousands) Shares outstanding (as of December 31) (in Thousands) NlM Hos meaningful 1992 $ 2378 S -213 33 73 3% 1991 2,783 (628) <238) (742) N/M S 1990 3,069 293 58 n 2% 9 1.69 5 <12.58) S .02 J.78 (.05) mnm $ 1.70 9 130 9 2,128 9 1399 17 43.013 (5.55) $ (18.13) S 96 S 2.106 $ 1,172 17 40.924 -- $ 1.73 % 121 % 1.80? $ 1300 iS 42,019 we stepped up our recruiting effons on college campuses, increased research and developroetv spending, find placed more emphasis on creating new products and processes over the long-tem. You will find a description of some ofour most exciting innovations, as well as a number ofpromising prospects, on page 6. To achieve global grow*,we will maintain our share of existing markets and enter new markets. Wc see great potential for long-term growth in Europe - particularly in Germany and Slovakia. We are also exploring a number of opportunities in China, which is an integral part ofour Asia/Pacific strategy. As you can see, Owens-Coming has an active agenda for growth: growth in new products and markets through advanced technology, growth in revenues - and growth in earnings. We will execute this agenda in an environment that creates customer satisfaction, individual dignity, and shareholder value. Chairman and ChiefExecutive Ojficer March, 1993 3 A new plan* in Klmebon, Korea is providing Owens'Cornlng with local production in one of the fastest growing markets in Asia. Owens-Coming's global growth strategy is being mapped out by a planning team headed by Paula K.J. Cholmondele?, Vice President. Business Develop ment and Global Sourcing {page 5). Expanding our global presence - grou Ih markets * quickly and tfUcienJiv:' J. Dennis Menton Vice President, hilcmaibnoi 4 t ^Jur mission is to be (he g1oi>ai leader in all markets in which we compete. To achieve to mission - and to attain our goal ofreaching $5 billson in annual sales by the year 2000- we arc aggressively exploring promising growth opportunities around the world. These include: Asia and the Far East We see tremen dous growth potential along the Pacific Run and in China, where wc sue forming joint ventures to increase air presence. Korea is another fast-growing market. Wc have partnered wills Lucky Ltd., of tite Lucky-Goidstar Group, on the design, engi neering, construction and operation of a new plant in Kirochon. The Company is also active in Japan, where it has had a joint venture since the mid-1950s. Other markets include Taiwan, Singapore, Saudi Arabia, Thailand, and Australia. Europe. A unified Germany and die opening of Eastern European countries offer new market opportunities for our existing facilities in Spain, Belgium, Norway, Sweden, France, the Netherlands, and the (/rated Kingdom. T**appoK infrastructure-projects in Germany, we have formed a joint venture company with Eiemit-AG to manufacture targe dj&maerghss~re'mforved plastic pipe We are considering otherjoint ventures in the region, as well as potential acquisitions, Africa. In 1992, wc established ajoint venture company in Botswana to manufacture large diameter glass-reinforced plastic pipe. North/South America. We are in the process of integrating all of our North American operations and, with support from our facilities in Brazil and our joint venture in Mexico, expanding our markets in South America, Applications and needs may vary, but a consumer in the US., Europe, Asia or any where else in the world can be confident in the quality and consistency of Owens-Coming '$ products, no matter where they are manufactured, 5 Since its founding, Owens-Coming has been a technology-driven company intent on developing new manufacturing processes, new products, and new product applications. The Company's principal Science and Technology Center is on a 500-acre campus in Granville, Ohio. We also maintain a major research center in Baaice, Belgium, and operate 13 other support laboratories near our manufac turing facilities and customers worldwide. In 1992, we stepped up our recruiting efforts on college campuses, increased re search and development spending, and placed more emphasis on creating new products and processes overthe long-term. Our recent innovations include: * Fsbron* - A composite used to create lineals for windows and patio doors. The com posite consists of polyester resin reinforced with Fiberglas* continuous strand mat and finished with a durable, baked-on, two-pan polyurethane coating. The inner core contains rigid Fiberglas thermal insulation. * Hoilex* hollow fiber- The first fun damentally new glass fiber developed in many years, offering mechanical properties equal to E-glass at 25 percent lower weight. The mate rial is targeted initially for weight-sensitive aerospace applications. S-2 Glass* fiber composite-A strucmral/baliistic material for military vehicles, providing performance equal to current aramid-fiber commercial armor at one-third less thickness. Aura* insulation - Using a proprietary vacuum seal process, this revolutionary high R-value insulation concept will be used in refrigerators, freezers, and other appliances. ft P-4 - The Programmable Powdered Preform Process (P-4) is a robotized preform ing system intended to meet growing demand by industrial producers for a preformed product with greater structural stability. The P-4 pro cess allows better design freedom by providing good control of the positioning and orientation ofglass fibers. Mm&k* Kly Hit 6 Accelerating technological innovation Our research efforts are focused on devel oping innovative new products such as windows using our patented Flbron technology (p*S and more efficient manufacturing pro cesses, such as out P4 technology (below}. 4 We are always exploring methods to increase the efficiency of our glass melting seeking opportunity for we ani better products am! pro* ct'.sse's particularly at the seams where tair core teck/Hthgic* overlap?' Or. Sbarell MikesoB Vice PnMcnt, Science and Technology 7 employees t Ower*.CornJns.s Ke^cUy. *^iPartnef8 lo Education p*,, Ebnivntttry Menaaet * the Ken*as Cify Ptefl?, worths wfth MwJemsuimprove Of OlirpMMiu^' to ***** end *alety expetjonB of pi! and "se them *peff* ^ Focusing on corporate stewardship to fclfc****** lin.*hNul; fem c*i*ihafR 8 CJwens-Coming is dedicated to corporate stewardship - a commitment to improving the qualify of life through our products, our manu facturing processes, and our people. To as, corporate stewardship means ensuring that our products are safe and used safely; setting the * standard in environmental responsibility, and promoting community involvement at our locations around die world. Community Involvement The people ofOwens-Coming have contrib uted millions of dollars to local charities and spent countless hours serving as volunteers in their communities around the world. Education is another top priority for Owens-Coming. T1>e Company contributes to educational programs at the elementary, secondary and college levels in many of tlte communities where it does business. Environmental Responsibility Product Safety Four recent studies conducted by leading medical schools and research centers have confirmed once again that fiber glass is safe. The weight ofthe evidence cannot be ignored; more than <S0exhaustive studies in both ani mals and humans over five decades have con sistently found that there is no association between breathing glass fibers and the devel opment of lung cancer. Needless to say, our products must meet the health and safety expectations of all who manufacture and use them. Accordingly, we am continually reviewing the safety and health effects of all our products, conducting our own tests and sponsoring independent research by some ofthe world's leading scien tists. We share our findings with regulators, scientists, customers, employees, end-users, and the public. Owens-Coming's history is built upon environ mental conservation, from its first energy-effi cient Itome in 1952 to its nationally recognized Environmental laboratory of today. Increasing the amount ofinsulation in a home or building decreases the amount ofenergy used in heating or cooling and minimizes the release of pollut ants into the atmosphere. In sddkkm 10 iis ongoing efforts io pro mote conservation, the Company is committed to reducing manufacturing waste. Wlten it is activated in 1994, our plant in Jackson, Tennessee, will serve as a model for the industry; its advanced environmental systems will minimize waste and other air and water emissions, eliminaiing live need for our own landfill. low Mmi, 9 Construction Products Group The Construction Products Group fCPGl, which operates primarily in North America and Europe, sells a variety of construction products in three major catego ries; insulation, roofing materials, and windows/patio doors. CPG offers superior product qual ity, complemented by unmatched customer service. CPG supports product safes with consumer pro motions and national advertising featuring the Pink Panther. As a result, consumer preference for the Owens-Coming brand is extremely high. Commitment to our customers odds value'bySnereeeing thosr revenues or reducing their costs. Our vision is to be so valuable to our customers that they cannot afford to do business without us. Products Owcns-Coming's Pinfc building insula tion is sold in two major forms -- retail rolls foruse by consumer? and bafts for use by contractors. Owens-Coming's SpaceSaver*packaging h easy co cany and contains installation tips highlighting the Department of Energy's R-value recommendations. Markets Insulation products are sold to contrac tors. distributors and, through retail stores, to consumers. Used in ringteand multi-family construction, as well as commercial buildings, insulation prod ucts^iro^deewergy savings.-improved comfort and acoustical advantages. Mechanical insulation products include SSL II*pipc insulation with a unique double seal; tank and equipment insula tion; and duct insulation system*. Owens-Coming also produces insulation for metal buildings and specialty insula tions for autos and appliances. Mechanical insulation products are sold primarily through distributors and insula tion contractors for use in commercial and industrial buildings to insulate air handling and pipe systems. Specialty products are*sokkodistributors, fabrica tors, and directly to manufacturers for the automotive and appliance industries. Outlook Housing starts in the U.S. and Canada are improving moderately. New government reguMlions arid building codes w}j| in crease the "take-pef-unit" of insulation, allowing for stead)' growth in the U.S. and Canada. There are also promising opportunities for growth in Europe and the Far East. Despite ihe continued weaktiess in new comtnereial construction, commercial renovation offers a stable opportunity for mechanical insulation products. Specialty product sales will impwo as general economic conditions continue to rebound. }< The Owens-Coming line of residential roofingproducts consists of the standard Classic* three-tab shingle, Oakridge architectural shingles and the new Shadow series, a more aesthetically pleasing shingle. All shingles feature a heart of Fiberglas* inat for superior weatherability. The commercial roofing line encom passes Owens-Coming roof insulation, PermaPly roofing mat and PermaMop modified asphalt. The Company is also the world leader in industrial roofing asphalt. Owens-Coming recently started manu facturing windows and patio doors for use in residential and light commercial applications. These products feature lineals made with the Company's pat ented Rbron* technology. Shingles are sold through distributors and retailers to residential roofing and remod eling contractors. The introduction ofa high-style product scries offers consum ers and contractors a broader selection -sad's dTsrinctr** look thatenhancesar chitectural design. Commercial roofing h sold to contractors either directly or through distributors. Asp-haft products are afco soid co indus tries for use in a variety of other products such as water-prdbfuig systems. Windows and patio doors are sold through distributors for the new construc tion marker artd d'erccOy todealers and installers for the replacement market. Reroofmg represents 75 percent of resi dential shingle demand. New constracfi7 accents for the remaining 25 per cent. The fact that homes need new roofs on average every I ? years guarantees growth in reroofing demand well jmo the next decade. Reroofing demand, which accounts for 75 percent of sales, will continue to grow due to the large stock ofcommercial buildings needing replacement roofs in the coming years. With S5 billion in annual sales in the U.S. alone, the global residential window market offers great promi se for Owens-Coming. .............. .. Setting the standard >1 The Industrial Materials Group {IMG} comprises several major product categories: fiber glass reinforcements, fiber glass textile yarns, polyester resins, wet-process chopped strands, wet-proeess mats, and under ground tanks. In addition to its substantial operations in North America, the group serves expanding markets through sub sidiaries In Europe and Brazil, and affiliates and licensees around the world. IMG takes a systematic, global approach to defining a custo mer's needs and determining how to deliver e quality product ''to metrt'those "needs, tt uses Owens-Corning's global tech nology end research capabilities to improve existing products and create revolutionary new products. Products Textile yams are fires fiber glass strands, most of which are woven into fabrics principally used to reinforce electronic circuit boards. Yams arc also used In non-woven applications such as rein forced craft paper, packaging tape and other packaging materials. Continuous roving consists of bundled, untwisted strands of fiber glass, which are typically chopped by the customer and used in spray-up or molded rein forcement applications. Markets Textile yams are sold to weavers, con verters or fabricators, whose products are later used in the electronic, packag ing, aerospace and automotive industries. Specialty yams are also sold as reinforc ing agerns for fiberopucand-auto igni tion cables. Continuous rovings are sold directly or through distributors to rudders and fabri cators in the transportation, industrial, construction, corrosion and marine markets. Outlook There will be continued growth for yams in high-performance applications such as printed circuit boards and aerospace fabrics. We have seen continued growth in the use ofour roving products in out princi pal markets, in particular, we are seeing an increase in demand from suppliers 10 the transports*ion Industry. Mats are made either from chopped yrands. continuous brands laid down in a swirl partem. or by a wet-laid process. Fabrics are usually woven from continu ous roving. Chopped strands offiber gfass are blooded with resins to make compounds for Compression ot injection molding. Wet-process chopped strands have a high moisture chemistry (tat makes them well surfed w produce sterries used in tests. Gweris-Comrng h a majorproducerof advanced polyester resins used in the manufacture of reinforced composite products. Most kinds of woven rovings and mats are sold directly or through distributors to automotive and marine manufacturers orotherindustrial moJdcrs or fabrieafors Continuous strand mats are used in the productiorrofpufcnjded fiberglass fernforced plastic (FRP). Chopped strands arc sold to polymer producers who mix them with resms to produce reinforced compounds used by molderssomake such products as small appliance, housings and auto pans. Wet. processchopped strands arcprocessed into mats and veils used in roofing, floor ing and other specially applications. Resins are sold directly or through distributors to molders and fabricators artd are used in app]teatterns in the trans portation, appliance and equipment, corrosion and consuvciion* and consumer markets. As the automotive and marine markets gradually gam momentum, demand for mais and fabrics & beginning to increase. Demand for reinforced plastic continues to he very strong. Demand for wct-process chopped strands is highly dependent on (he roofing mar ket, which has been stowing gradual improvement recently. Most resins are used in the transportation, consumer, construction and corrosion markets. Automakers are expected 10 increase use ofOv-ens-Cotning's highperformance Atryl' resin. Management's Discussion and Analysis Net Sates '*S 5? v; *92 focdtne From Operation** i/n nolhtwsofdt'ltem SQO 40C* ito ll 100 P iJ A9 *0 W *82 ekn'tts Results of Operations Owens-Coming is beginning to benefit from a combination ofa modest economic upturn in the United Slates and our ongoing emphasis on improving productivity. Sales are strengthening in many of our U.S. construction products and industrial materials businesses -- notably building insulation, residential roofing, and industrial yams -- and we expect these trends to continue in 1993. Economic conditions in many ofour other global markets -- including Canada, Europe, and Brazil -- continue to 1* sluggish. In Europe, slightly improved sales in Great Britain, France, and Italy have been offset by weakness in Germany, To accommodate growing demand forindustrial fiber glass materials efficiently and at the lowest cost, Owens-Coming will reactivate its plant in Jackson, Tennessee- Tte plant, which was moth balled in 1987, will reopen in tlie spring of 1994, employing 80 individuals in a state-of-the-art facility with advanced environmental systems to minimize waste and other air and water emis sions. The plant will manufacture the same amount ofproduct as in 1986, when it had about 500 employees. Tiie Company also is investing SI 2 million to modernize a specialty insulation line at its plant in Wsxahachie, Texas (near Fort Worth), !hat line will produce a higher quality product at lower cost. It wil) also enable Owens-Coming to make an additional 30 million pounds ofresidential building insulation annually, fjositioaing the Company to meet growing demand in the rebounding housing market. Owens-Coming marie considerable headway in 1992 in developing new technologies., processes and products. The Company added $6 million to its research and development budget for long term projects and shifted its R&D focus to place more emphasis on developing new products and product applications. Several promising new products were introduced, including a revolutionary new superinsulation concept; patio doors featuring our patented Fibron* technology; and Hollex* hollow reinforcement fibers, which are being targeted initially for use in commercial aircraft flooring. During the fourth quarter of ) 992, Owens-Coroing charged to earnings $16 million, or $.25 per share, in costs related to the reorganization ofthe Constnjction Products Group and centralization of the-Company'-s accounting endinformation-systems. Thefwwganiaation is designed40 strengthen the Construction Products Group's focus on customers, enhance its competitive posi tion, and further improve its efficiency. The systems centralization will speed the Company's responsiveness to customers while reducing costs. Thanks to these and other initiatives to enhance jroductivity, the Company's earnings in 1992 improved each quarter over 1991, despite poor economic conditions. Owens-Coming reported net income for the year of $73 million, or $ 1.70 per share, compared to a reported net loss of $742 million, or $18.13 per share, and net income of $73 million, or $1.73 per share, in 1991 and 1990. respectively. Owens-Coming earned $84 million, os S1.95 per share, in 1992 before the special reorganization charge, compared to prior year income of $4 j million, or 5J .01 per share, before special charges. Please see Noies 14 and 18 to the Consolidated Financial Statements. Net sales were $2.9 billion in 1992, an increase of $95 miIlion, or 3 percent, from 1991. Sales in j 990 were $3.1 billion. 14 Segment Data' da uftonu elJetlaai Nat Setae $Z,87B Aided by the.revival ofbousing activity in the U.S. and government rvcw building and energy codes, llie Company's insulation business is showing very positive signs. Sales in most insulation product markets increased in 1992 as comjwred to 1991. Wlule insulation prices increased late in the year, they remain lower than 1991 levels. Residential roofing sales increased strongly in 1992, due primarily to the increase in housing starts, strong reroofing activity, and demand created by storm damage in Texas, l-ouisiana, and Florida. {ecjiftciion PtedutH l*duiina> Uauttafs Sl.fidft 587S income from Operations 247 8 CflniN*(NiJO ftufii-OJ 8 Mjirnel> ttOd In the Industrial Materials Group, volumes and earnings increased significantly in North America in 1992, tlKHigh pricing was lower than 1991 levels. In Europe, where economic conditions remain depressed, demand remains essentially flat and margins have been impacted by price erosion- However, there are some signs that volumes are trending upward- the lower prices in Europe are ibe result of the weaker U.S, dollar and excess industry capacity. The Company is taking steps to substantially improve productivity there. The Company's gross margin percentage of net sales was 21% for 1992, compared to 21 % in 1991, and 25% in 1990. The decline from 1990 reflects a relatively higher proportion ofresiden tial roofing products sales, which have lower margins than our other products, and continued global pressure on prices. Marketing and administrative costs for 1992 increased by $22 million, or 8%, compared to 1991, primarily because of spending increases m advertising and promotion, pension costs, and legal support. Science and technology expenses increased $ 11 million, primarily as a result of increased new product development efforts. The $30 million decrease in "Other" expenses in 1992 compared to 1991 reflects reduced charges for stock appreciation rights, and product liabil ity expenses related to the Company's non-asbestos products, partially offset by expenses for the reorganization, described above, of the Company's Construction products Group, accounting, and information systems. Com of borrowed funds declined by $21 million m 1992. The decrease is due to a $73 million reduction in debt since December 31,1991, and lower interest rates on the Company's debt, resulting primarily from $300 million in refinancing during the year. The reduction in debt was funded by the Company's cash flow from operations. Please see Note 2 to the Consolidated Financial Statements. *#% $1,477 General corporateexpenses. reported on a segment basis, decreased by SSI 7 million in 1992 com pared ro the previous year, reflecting the 1991 charge of $824 million forasbestos personal injury claims. General corporate identifiable assets in 1992 and 1991 were higlter than 1990, reflecting the deferred tax asset resulting from the tax effect of the 1991 accruals for unasserted asbestos claims astd other postretiremen* benefits. Please see Notes 14 and 18 to the Consolidated Financial Sratemenis. 8 8 ,i>duii'>ol Uvtf'tob S76S "Somrxi W( * jm,I, <iNyfU'>< //I Ill'll' Liquidity, Capital Resources and Other Related Matters Cash flow from operations was $192 million for 1992, compared to $253 million for 1991 and 3361 million for 1990. The decrease in cash flow in 1992 compared to 1991 primarily resulted from changes in working capital items because of changing business conditions. While 1991 cash flow from operations benefited from a large reduction in receivables and lower inventories as business slowed due ro weak economic conditions in the Company's major markets, receivables held steady and inventories grew at year-end 1992 as business began to strengtlten in the U.S. The decrease in cash flow' in \991 compared to 1990 was primarily due to the effect of lower 15 Total Aasotc Capital Spending ih> de/to'*/ J50 sales and lower net income. Receivables were $3JO million at December 3 L 1992, compared to $308 million at the end of 1991 and $375 million atthe end of 1990. Net inventories were $233 million at year-end 1992 compared io $219 million and $237 million at year-end 1991 and 1990, respectively. The 1992 level reflects higher production to meet increased demand in the second half of the year, which has continued into 1993, Inventories at December 31, 1992, as a percent age of the fourth quarter's annualized sales were 8%, unchanged from the end of J 991 and 1990. The Company's total borrowings ax December 31,1992, were Si.I billion, compared to SI -2 billion at December 31,1991, and $1,3 billion at December 31.1990. Al year-end 1992, the Company had unused lines ofcredit of $290 million under its Jong-term bank loan facilities and an additional $134 million under short-term facilities. In 1992, thc-Company issued 3300 million in 10 and 20 year debentures at an average interest rate of9 1/8%. The proceeds were used to redeem $240 million m itighcr cost debentures, which will result in annual interest expense sav ings ofapproximately $6 million. Please see Note 2 to the Consolidated Financial Statements. At year-end 1992, the Company's working capital decreased to $123 million and its current ratio decreased to 1.2, compared to working capital of $171 million and a current ratio of 1.4 at yearend 1991, and $58 million and 1.1, respectively, at year-end 1990. The decreases in 1992 are primarily due to increases in il>e Company's outstanding short-term debt and the current portion of the asbestos litigation claims reserve. Capital spending for property, plant and equipment was $130 million in 1992. compared to S96 million in 1991 and $121 million in 1990. At the end of 1992, approved capital projects, exclud ing furnace rebuilds, were $77 million. The Company is planning capital spending of approxi mately $140 million in 1993, excluding furnace rebuilds. Funding for these expenditures will be from the Company's operations and external sources as required. In 1992, Owens-Coming received 26,600 new asbestos liability cases and resolved 27,300 cases at an average cost ofabout $10,000 per case. Plaintiffs' attorneys appear to have increased the case filing rate in 1992 in anticipation of new trends in settlement arrangements that would im pose stricter medical criteria on payments for asbestos-related impairments. Owens-Coming con tinues to Isave a substantial amount of unexhausted insurance -- $675 million of product liability coverage at year-end 1992 -- but the highersettlement rate wiH accelerate cashoutlays for litiga tion beginning in 1993. The Company lias an established asbestos reserve ($950 million at yearend 1992) to cover the estimated uninsured asbestos liability costs for cases received through the end of the decade. After initiating a program to control asbestos defense costs, our outside asbestos defense expenses liave declined significantly to the current rale of $55 million per year. We cxj>cct continued im provement in this area. Please see Note 18 to the Consolidated Financial Statements. The Company expects funds generated from operations, together with funds available under long and shoo term bank loan facilities, to be sufficient to satisfy its debt service obligations under its existing indebtedness as well as its contingent liabilities for uninsured asbestos personal injury claims. 16 Total Dabt tlx PtHxxn ofItalian) The Company has been deemed by the Environmental Protection Agency (EPA) to be a poten tially resjxmsible party (PRP) with respect to certain sites under the Comprehensive Environmen .'/O') tal Response, Compensation and Liability Act (Superfund). During 1992, the Company was designated as a PRP for eight additional sites, increasing the total to 3.9, some of which designa tions she Company believes to be erroneous. The Company has established reserves for its non Superfund contingent liabilities which are reflected in the financial statements. The Company believes these reserves are adequate to cover these liabilities and arc not material to the financial position or results of operations of the Company. In addition, based upon information presently available to the Company, and without regard to the application of insurance, the Company be lieves that, considered in the aggregate, the additional costs associated with such Supetfund con tingent liabilities, including any related litigation costs, will not have a materially adverse effect on the Company's financial position or results of operations. JM 90 V> *82 Tite 1990 Clean Air Art Amendments (Act) provide that the EPA will issue regulations on a I t number of air pollutants over a period of years. Until these regulations are promulgated, the Company cannot determine how and when the Act will affect it. The Company anticipates that its sources to be regulated will include glass fiber manufacturing, resin manufacturing, and asphalt processing activities. The Company currently expeas glass fiber manufacturing to be regulated by 1997. Bused on inforniacion now known to (he Company, including die nature and limited number of regulated materials it emits, the Company does not expect the Act to have a material adverse effect on the Company's results ofoperations, financial condition, or long-term liquidity. Future Required Accounting Change In February 1992, the Financial Accounting Standards Board (FASB) issued Statement No. 109. `Accounting for Income Taxes." The Company is required to adopt the new standard no later ! than 1993. Tl* current estimate of the cumulative effect ofthe accounting change will be an in crease in reported net income ofapproximately $25 million. Please see Note 6 to the Consoli dated Financial Statements. The Company has estimated that the foreign portion of Financial Accounting Standard No. 106. "Employers* Accounting for Postretiremen! Benefits Other Than Pensions" will be a charge of less than $30 million. Adoption of the foreign portion is required for 1995 financial reporting. In November 1992, the FASB issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits." This standard requires employers to recognize the obligation to provide benefits to former or inactive employees afteremployment but before retirement under certain conditions. The obligation should be recognized if it is attrib utable to employees' service already rendered, the rights to these benefits accumulate or vest, payment of the benefits is probable and the amount can be reasonably estimated. Statement No. 112 is effective for the Company beginning in 1994, The impact of Statement No. 112 on the Company in the year of adoption has not been estimated at (his lime. 17 Seven-Year Summary of Operations (...I.n..m.<iflVlionso}dollars, exceln shoredaw and where wiedt 1992 Net Saks $2,878 Cost of Sales 2,261 Marketing, Administrative and Other Expense* 339 Science and Technology Expenses 65 Income (Loss) from Operations (a.c.d.i) 213 Cost of Borrowed Funds 110 income (Loss) before Provision for Income l anes (a^,d.f,i) 103 Provision (Credit) for Income Taxes 33 Net Income (Loss) (a,c.d,e,f,g,i) 73 Net Income (Loss) per Share (a,b,c,d,e>f,g.i) 1.70 Weighted Average Number ofShares Outstanding (in Thousands) 43,013 Net Cash How from Operations 192 Capital Spending 130 Total Assets 2.126 Total Debt 1,099 Average Number ofEmployees (in Thousands) (h> 17 1991 1990 $ 2,783 $3,069 2,186 2.304 1,171 414 54 58 (628) 293 131 165 (759) 128 (238) 58 (742) 73 (18.13) 1.73 40.924 253 96 2,106 1.172 17 42.019 361 121 1.807 1,300 18 !9S9"' 1988 $2,964 $ 2,798 2,161 1.999 323 278 48 44 432 477 166 170 266 301 103 . 127 172 189 4.08 4.51 42,170 395 125 1.924 1.482 20 41.856 360 127 1.596 1,444 20 1987 $2,857 2.129 258 43 427 221 343 136 200 4.81 41.583 290 97 1,590 1,635 21 1986 $ 3.G09 2.756 619 90 144 94 36 30 16 0.49 31.776 416 145 2,187 2.469 30 (II1989date consolidates resultscfOwtns-Corning Canada beginning in thefourth quarterof1989. (a)During 1991 non-recurring $800 million chargefor unasscrtedasbestos (ttiga\(on claims was recorded. (hi 199! results include a $227 million aftertax charge. or$SSS per share,for the cumulative effect ofthe accountingchangefor otherposttriiremeitt benefits IdDuring 1990a restructuring costof$65million was recorded. Id)Dating 1989 anadditional $50 million was addedto existing asbestos-relatedclaims reserves,a $50million credit was recorded resultingfroma settlement reached with theI8S anda restructuring cost ofSSO million recorded lei During i98B an $8 million extraordinary lass resultedfrom the early retirementofdebt, ft During !9S7a gain cf$l4l million resultedfrom the sale ofthe Aerospace andStrategic Materials Group. (glDonng /937a $20million extraordinary loss resultedfrom the early retirementcfdebt. IhIIncludes employees ofO*ens-Coming Canada. lil During !986 o restructuring cost ofS200 million was >ecorded. Price Range of Common Stock First Quarter Second Quarter Hurd Quarter fourth Quaner 1992 High Low 39% 22% 37% 36Va 36% 29% 29% 27 Y im Kish Low 26ft 15 28)s 23ft 35ft 25ft 35ft 16ft 1990 High Low 26ft 20ft ?AY* 20% 23ft 14ft 16ft 13% To the Stockholders of Owens-Corning Fiberglas Corporation: Report of Independent Public Accountant* Wehave sudst^*e accompanying oonso&dai&d hakncc sheet ofOWHns-CORNINO HBERGIAS CORPORATION {a Delaware corporation) and subsidiaries as ofDecember 31, 1992 and 1991, and the related consolidated statements of income, stockholder' equity and cash flows foreach ofthe three years in theperiod ended December 31,I992.'nse financial statements are the responsibility ofthe Company's management Our responsibility is to express an opinion on these financial statements based on oar audits. Wcconducted ouraudits in axordare* with generally accepted auditing standards, Those standards require that wepian and perform the auditto obtain reasonable assurance about whether the financial statements are freeofmaterial misstatement An audit includes examining, on a tea basis, evidence supporting die amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluat ing the overall financial statement presentation. We believe that our audits provide a reasonable basis for air opinion. In our opinion, die financial statements referred to above present fairly, in all material respects, the financial position of Owens-Coming Fiberglas Corporation and subsidiaries as of December 31,1992 and 1991, and the results oftheir operations and their cash flows for each ofdie three years in the period ended December 31,1992, in wiformity with generally accepted accounting principles. As discussed m Noe 14 to the consolidated financial state ments, effective January 1,1991, the Company changed Us method ofaccounting for postretirement benefits otherthan pensions. Management's Report The financial statements ofOwens-Coraing Fiberglas Corporation and subsidiaries have been prepared by manage ment in conformity with generally accepted accounting principles. Management uses its best informedjudgments to ensure that these statements fairly reflect the Company** financial position. Financial information contained elsewhere in this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls designed to provide reasonable assurances that assets are protected from improperuse and char transactions are property authorized and recorded The Board ofDirectors pursues hs responsibility foroverview ofthe Company's financial statements through its Audit Committee, which iscomprised ofdirector* who are nor office?* or employees ofthe Company. The Audit Committee meets periodically vrith management, the Company's internal auditors, and the independent public accountants to review and assess the activities ofeach in meeting their respective respon sibilities. The independent public accountants and thedirector of internal auditing have full and free access to the Audit Committee to discuss die scope and results of their audit work, the adequacy of internal accounting controls, and the quality of management's financial reporting. f&s 9s * Glen H. Hiner Chairman and ChiefExecutive Officer CUzuW> January 20,1993 Toledo, Ohio v-^ Paula H.J. Gttlmofxieley Chief Financial Officer (Interims Charles R. Bland Vice President and Controller 19 Summary of Significant Accounting Policies Principles of ConaoMdation 7*0 consolidated financial statements include the accounts of subsidiaries. Significant intercompany accounts and transac tions aie eliminated. Net Income per Shore Net income per share is computed using the weighted average numberofcommon shares outstanding andcommon equivalent Stares during the period. Inventory Valuation Inventories are stated at cost, which is less than market value, and include material, labor, and manufacturing overhead. US. inventories we primarily valued using the last-in, firet-oui (UFO) method and the balance ofinventories arc generally valued using the fira-in, first-out (ITFO) method. Goodwill Goodwill is amortized on a straight-line basts over a period of forty years. Investment* In AffUSatoe Investments in affiliates are accounted for using theequity method, under which the Company's share of earnings of these affiliates is reflected in income as earned and dividends are credited against (he investment in affiliates when received. Depreciation For assets placed in service prior to January 1,1992, the Company's inland equipment is depreciated primarily using the doubfe-decitning balance method forthe firsf baifofan asset's estimated useful life and die straight-line method is used thereafter. For assets placed in service afterDecember 31,1991. the Company's plant and equipment is depreciated using the straight-line method. The Company believes that the change in depreciation method is appropriate and is more consistent with the method used by the majority ofcompanies in similar lines of business. The change in depreciation method has not lad a material effect on the 1992 financial statements. Reserve (or RebuU&ng Furnace* The Company's glass melting furnaces md related machines periodically require substantial rebuilding. The estimated future cost ofsuch rebuilding is charged to operations and credited to the reserve on a straight-lino basis over the estimated period to the next rebuild dare. Actual costs are charged to the reserve when the furnaces are rebuilt. Income Tax** Certain income and expense hems are reported b different periods for financial statements and for income tax determina tion. Tbe effect oftimingdifferences between amounts reported forfinancial statement purposes and for income tax purposes is shown as deferred income taxes. Provision is made for taxes that would be payable on that portion ofdie undistributed earnings offoreign subsidiaries expected to be remitted to tbe parent company. Provision has not been made for taxes on the undistributed earnings of foreign subsidiaries that are deemed to be permanently reinvested 20 Consolidated Statement of Income Fortheyears endedDecember 31. 1992,199! and1990 OnmillionsofdolUtri, exceptshare data) Net Sates Cost of Sales (Note 7) Gross margin Operating Expenses Marketing and administrative experses Science and technology expenses (Note5) Provision for asbestos litigation claims (Note 18} Other (Notes 4 sid 12) Total operatingexpenses foeoma (total from Operations Cos?ofborrowed funds (Notes 2 and 3) bteorna (loss) before Provision for Incoma Taiet Provision (credit) for income tax5 (Note 6) Income (loss) before Equity In Not Income of Affiliate* Equity In nea incomeofaffiliates (Note8> Income (Usi) before Extraorifinary Rems and Cumulative Effect of Accounting Change Extraordinary hems (Notes 2 and 6) Cumulative effect of accounting change forotherposrredscmeni benefits, oe* ofincome taxes of$117 million (Note 14) Net Income (Loss} Net Income {Loss! per Share Primary*. Income (Joss) before extraordinary items and cumulative effect ofaccounting change Extraordinary items (Notes 2 aid 6) Cumulative effect of accounting change forother postretiremen* benefits (Note !4) Net Income (Loss! per Share Assuming Full Dilution: Income (loss) before extraordinary hems and cumulative effect of accounting change Extraordinary items (Notes 2 and6) Qwtubiive effect ofaccounting change for other postretirement benefits (Note 14) Nat income (Loss) per Share Weighted average number of common shares outstanding and common equivalent shares during ihe period (in millions) Primary: Assuming full dilution: 7htaecompaming summary ofsignificantaccountingpoliciesandnotesareintegral parti ofthu statement 1992 $2*878 2*281 817 1991 $ 2,783 2,186 597 1990 S 3,069 2304 765 30? 65 **% 32 - 404 213 (110) 103 33 70 2 72 1 285 54 824 62 1225 (628) 03U 059) (238) <521) 6 (515) -- 309 58 24 81 472 293 065) 128 58 70 5 75 (2> (227) $ 73 S (742) S 73 $ 1.68 .02 -- $ 1.70 S 0258) -- (5.55) S <18.13) $ S 1.78 (.05) -- 1.73 $ 1.65 .02 -- $ 1.67 $ 02.58) -- (S.55> $ S 08.13) $ 1.78 <m -- 1.73 43.0 48.8 40,9 40,9 42.0 42.0 21 Consolidated Balance Sheet December21, 19920*41991 (Jnodtijotmfdeilan} As*9tt Current Cash andcash equivalents Receivables, less allowances of$20 million in 1992 and $18 million in 1991 Inventories {Note 7) Deferred income taxes (Note 6) Other curceta assets Total current Other Goodwill,kss accumulated amcrtzaBoft of$12 million in 1992 and $8 million in 1991 Investments ki affiliates (Note 8) Deferred income taxes (Note 6) Other nonewrent assets Total other Plant and Equipment, at Cost Land Buildings and leasehold improvements Machinery and equipment Construction in progress Less: Accumulated depreciation Net plant and equipment Total Assets Theaccompanying summary erfsigntfkaia accounting policies andnotes arc integral parts ofdusstatement. 1992 1991 9 2$ 3 . 310 308 233 219 98 76 18 1? 658 639 84 49 421 68 622 96 45 416 60 61? 46 549 1,886 79 2,560 11,714) 646 51 555 U80 41 2.52T 0.6S7 870 $2,126 $ 2,106 22 Consolidated Balance Sheet becetr&erSl. 1992 end 199J millions ofdollars! UsbWKlea and Stockholder** Equhy Current Accountspayable aod atsruedliabilities (Note 9) Stott-term debt {No* 3) Reserve forasbestos litigation claims- current portion (Note 18) I-ong-ferm debt -current portion (Nose 2) Acmted incometaxes (Note 6) Total current tong-Torm Debt (Note 21 Other Reserve for asbestos litigation claims (No* 18) Otherpostretiremen! benefits BaWlity (Note 14) Reserve forrebuilding furnaces Penskm plan liability (Note IS) Oder Total other Commitments and Contingencies (Notes 11 end 16} Stockholders* Equity Preferred stock, no par value; authorized 8 million shares, none outstanding (Note 13) Common stock, par value $,10 per share; authorized 100 million sham; issued 1992 -42.5 nt2Bon and 1991 -41.7 mMon shares (Note 12) Dc&rf foreign currency translation adjustments Other Total stockholders' equity Total Usbltttte* end Stockholder*' Equity Consolidated Statement of Stockholders' Equity fOfthe years endedDecember SI. 3992.1991 and2990On tnitiiansofdollars} Common Stock Balance beginning ofyear Issuance ofstock aid deferred swards understock compensation plans (Note12) Balanceend ofyear OefieH Balance beginning ofyear Net income (lois) Balance end of year foreign Currency Translation Adjustments Balance beginning ofyear TiansUtkm adjustments Balance end of year Other Balance beginning of year Net increase (decrease) Balance end ofyear Stockholder*' Equity Tfrerjwfpenyinf summary ojsifnjficarttaccountingrpolicies andnates are integral pom ofthis statement 1992 1991 * 390 66 60 25 14 835 1,016 $ 404 6 5 18 15 448 1,148 900 358 124 62 137 1,581 950 343 113 54 126 U36 299 (1,302) 4 (91 (1.008) 285 (1.375) 24 (10) (1,076) $2.126 $ 2.106 1992 1991 1990 $ 285 $ 268 S 266 14 17 2 299 28S 268 <1.3751 73 (1302) (633) (742) CU75) (706) 73 (633) 24 25 14 <201 <*> 11 4 24 25 (10) 00) 1-- (9) 0) <91 00) 00) $<1,0081 S (1,076) S (350) 23 Consolidated Statement of Cash Flows For DecemberJl, 1992. }99i and 1990(in mllitma ofdollars} Nat Cosh Row from Operations Net income (Toss) Reconciliation of net cash provided by operating activities: Noncash hems: Cumulative effect of accounting change for other postretirement benefits, net oftax Provision for asbestos litigation claims Provision for depreciation and amortization Provision for rebuilding furnaces Provision (credit) for deferred income taxes Amortization ofdiscount on long-term debt Other Uninsured asbestos claims and insurance deductibles (Increase) decrease in receivables (Increase) decrease in inventories Increase (decrease) in accounts payable and accrued liabilities Increase (decrease) in accrued income taxes Other Net cash flow from operations Net Cash Row from Investing Additions to plant and equipment Expenditures for rebuilding furnaces Otlier Net cash flow from investing Net Cash Flow from Financing Net additions (reductions) hi long-term credit facilities Other additions to long-term debt Other reductions to long-term debt Net increase (decrease) in short-term debt Other Net cash flow from financing Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning ofyear Cash and cash equivalents at end ofyear (Note 10) The accompanying sumnai, ofsignificant accounting policies andnotes are integral parsepfthis statement. 1992 1991 1990 $ 73 $ (742) $ 73 -- -- 123 27 * (21) 1 4 m (17J 3 (2) 14 192 227 824 132 28 008) 20 3 59 24 (6> (9) 11 2S3 -- 24 139 30 05) 33 <2> m 106 15 (57) (4) 27 361 (130) (14) 10 (134) (96) (18) (6) 020) 021) (25) 3 043) (123) 337 (330) 50 7 (89) (D 3 $ ZS (152) 465 (296) (159) 5 037) <4) 7 3$ 87 28 (346) (9) -- (240) (22) 29 7 24 Notes to Consolidated Financial Statements *. iruiustfy Segments Company operates in two industry segments, the Construc tion Protects Group and the Industrial Materials Croupand reports its results in two ways: by business segment and geogt^hicaiiy. The business segments are as follows: Construction Products Production and sale ofglass wool fibers formed into thermal and acoustical insulation and airducts; roofing shingles, buih-up roofing systems and asphah materials; underground storage tanks; windows; and pariodoors. industrial Materials Production and sale of glass fiber yams, rovings, mats, strand and reinforcementproducts, and resins and gekoais. The business segment reporting is as foBows: Construction Prwfeias Group, withabreakdownofrestdtsbyprincgal business areas--the United States, andCanada and other. Industrial Materials Group, with results detailed for the United States, and Europe and other. The geographic reporting combines the two business segments within the major regions: United States. Europe and other, and Canada. Intercompany sales are generally recorded at market orequiva lent value. Income (loss) from operations by industry segment consists ofnet sabs less related costs and expenses. Incomputing income(tees) from opessMs bysegment, cost of borrowed funds and othergeneral corporate income and expenses have been excluded. Certain corporate operating expenses directly traceableto industry segments have been allocated to those segments. The pre-tax charge of$65 million related totheCompany's rescucturing (Note 4) reduced 1990 income floss! from operations for the Construction Products Group by $8 million in the United States and$41 million in Canada and other; the Industrial Materials Group by $1 million in the United Stales and $7 railLion in Europe and other, and increased the general cosporate expease by $8 million. Identifiable assets by industry segment arethose assets that are used in the Company's operations in each industry segment and donot include general corporate assets. General corporate assets consist primarily ofcash and cash equivalents, deferred taxes, andcorporate property and equipment. 25 1. Industry Segments (Continued) (Jn millions cfdollars) 1992 Business Segments Net Sales Construction Products United States Canada and other Industrial Materials $1,636 263 United States Europe and other 479 600 2478 1991 S 1,578 262 422 521 2,783 1990 $ 1,704 303 469 593 3,069 Intercompany safes Construction Products United States Canada and other Indisirial Materials United States Europe and other Eliminations Consolidated rot sales M* 1 120 48 (169! $2478 -- -- 90 19 (109) s 2.783 -- -- 93 3 (96) S 3.069 Income (Leas) from Operations Construction Products United States $ 94 s 83 S Canada and other 16 13 Industrial Materials United Stales 99 67 Europe and other 39 60 General corporate expense <34} (85!) 131 05) 107 106 <36) Income (loss) from operations Cost of borrowed funds 313 M10) (628) 031) 793 065) Income (loss) before provision for income taxes $ 103 s (759) $ 128 (In mUictj gfeMlars) 1992 199! Business Segments Identifiable Assets at Daeamber 31 ConstnKtbn Products United Stales $ 580 $ Canada and other 186 Industrial Materials United States 295 Europe and other 416 Genera! corporate 600 583 215 238 429 596 Investments in affiliates accounted forunder the equ&y method 2477 49 2461 45 Total assess 92,126 $ 2,106 1990 S 620 255 246 489 165 1.775 32 s 1,807 Depreciation and Amortization Construction Products United States Canada and other $ 66 11 Industrial Materials Untied States 24 Europe and other 27 General corporate 6 $ 60 $ 12 23 27 10 65 12 26 28 8 Total depreciation and amortization $ 123 S 132 $ 139 Addition* to Plant and Equipment Constractics Products United States $ 66 Canada and other 9 Industrial Materials United Stales 29 Europe and other General coiporate 21 5 $ Total additions $ 130 $ 50 $ 6 54 9 16 25 19 26 57 96 $ 121 26 (fomitiiont ofMan) Geographic Segments Nt$afn Uniad Slates Europe andother Canada Intercompany sales United Stares Europe andother Canada Eliminations Consolidated net sales 1992 1991 1990 92,119 S44 219 2,879 $ 2,000 529 254 2.783 $ 2.173 582 314 3.069 129 a 41 (169) 90 4 15 009) 93 3 . (96) 9&97B $ 2.783 $ 3.069 Income (LmiI from Opetations United States $ 193 $ 150 $ 238 Europe andother 48 67 ns Canada 6 6 (27) General corporate expense lnc&xs{k'S5} (34) (851) .... (36) from operations 213 (628) 293 Coa<rf borrowed funds (1101 <13 J) (165) Income (loss) before provision for income taxes S 103 $ (759) $ 128 (in millions ofdeHart) 1992 1991 Geographic Segments MMtffisMe A**ee* t December 31 United States 3 876 $ Europe and other 386 Cauda 237 Genera] corporate 600 821 376 268 596 Investments in affiliates accounted for under theequity method 2/377 * 49 2.061 45 Total assets 62,126 S 2,106 1990 $ 866 429 315 165 1.775 32 $ 1U07 Depreciation end Amerthatioft United States 6 79 Europeand other 23 Canada 13 General corporate 6 $ 83 $ 25 14 10 91 25 15 8 Total depreciation and snoriizatiofl 8 123 $ Addition* to Plant end Equipment United Slates $ 95 $ Europe and other 21 Canada 9 Genera] corporate 5 132 $ 66 s 18 7 5 139 .... 79 26 9 7 Total additions $ 130 * 96 % 121 27 2. Long-Term Oabt___ </n millionsofdoHorsi 1992 1991 Unsecured credit facility due in 1994, variable Unsecured credit facility due in 1994, 9 81 $ 193 variable, payable in Canadian dollars 39 56 Convertiblejunior subordinated debentures due to 2005,8%, convertible ax $29.75 per share Guaranteed debentures due to 2001.10% 173 ISO 173 150 Debentures due in 2002,8.875% 180 Debentures due in 2012,9375% 149 MM Guaranteed debentures due to 1998,9.8% 100 99 Notes due through 2007,4,75% to 1435%, payable to foreign currencies 92 100 Ronds due to 2000,7.25%, payable to Deutsche marks, (Note 16) SO 50 Industrial revenue bonds maturing from 1993 through 2012, at rates from 5.75% to 1035% 22 22 Debentures due to 2000,93%, subject to annual sinking hind requirements of$3 million 20 20 Bonds due to 2000.5.375%, payable to Swiss francs 99 Extendable notesdue to 2005,11,15% through 1993 e8 Senior subordinated debenturesdue in 2001.11.75% 240 Debentures due to 2010,12%, subject to annual sinking fund requirements of $4 million 46 Less: Current portion %AA3 (25) 1,166 (18) Tots! long-term debt 91,018 $ 1.148 28 The Company has two unsecured, variable rale, hank credit facilities. Ihe first facility has a maximum commitment of $304 milKoa atDeccmber 31,1992 (ofwhich $223 million was unused), reducing to $229 milium over its remaining 1-1/2 year term. The rate of interest at December 31.1992, iseither the hank's base rate, or 7/8% over the certificate ofdeposit rate, or 3/4%overthe1-ondon interbank Offered Rate (UBOR). The rate of interest oo borrowings under this facility was 4.63% at December 31,1992. Aammtitmemfeeof3/8of 1% is charged on the unused portions ofthis facility. The second facility is payable m Canadian dollars and has a maximum commitment of 135 million Canadian dollars <106 million U.S. dollars) at December 31,1992, of which 85 million Canadian (biters (67 million VS. dollars) was unused The me ofinterest'December 31,1992, is either the Canadian prime rate plus 1/8 of l%,or9A0of 1% over the Canadian barites' acceptance rate, or theCanadian cost offunds rate plus 1/40 of 1%, The Canadian prime rate cannot be less than the Canadian bankers' acceptance rate plus 9/10 of 1%, The rate ofinterest on borrowings under this facility was 7.72% at December 31, 1992. A commitment fee of3/8 of 1% is charged on the unused portions ofthis facUiry. As is typical forbank credit facilities, the agreements relating to the facilities described above contain restrictive covenants, including requirements for toe maintenance of working capital, minimum cash EBIT and minimum coverage offixed charges; and limitations on the early retirement ofdebt, additional borrowings, capital expenditures, certain investments, payment of dividends, and purchase of Company stock. The agreements include a provision which would result in ail of the unpaid principal and accrued interest of toe facilities becoming due immediately upon a change ofcontrol in ownershipof the Company. A material adverse change in the Company's business, assets, liabilities, financial condition or results of operations constitutes a default undertoe agreements. In May 1992, the Company issued $300 million ofdebentures in two parts. The firstpartconsisted of$150 million ofdeben tures due June 1,2002, with aneffective interest rate of 8.897%. The second part consisted of $150 million ofdebentures due June 1,2012, with an effective interest rate of9.418%. Interest is paid semi-annually for both issues. to June J991, a European subsidiary of the Company issued $150 million ofguaranteed debentures due June 1.2001, with at interest rate of 10% per annum, payable semi-annually. In August 1991, the Company's Canadian subsidiary issued $100 million of guaranteed debentures due August 15,1998. with an interest rate of9.8% per annum, payable semi-annually. The debentures are unsecured. la April 1991, theCompany Issued $173 million ofconvertible jink? subordinated debentures due December 30,2005, with an interest rate of 8% pex annum, payable semi-annually. The debentures are subordinated to all present and future indebted ness ofdie Company and may be redeemed at the option ofthe Company beginning June 30,1994, Prior to redemption or roawrify, the debenturesam convertible into shares of common stock ofthe Company at a conversion price of$29.75 per share, subject to adjustment in certain events. The Company has reserved approximately six million additional silares ofcom mon stock necessary forconversion. During 1992, the Company called, priorto maturity, its 12% sinking hind debentures having a face value of $46 million at a price in excess ofbook value, which resulted in an extraordinarytossofSi million ($.02 per share), netofrelated income taxesof$2 million. In June 1992, the Company called, priorto maturity, its senior subordinated debentures having a face value of$240 million, which resulted in an extraordinary loss of approximately $2 million <$.05 pershare), net ofrelated income taxes of $1 million. During 1990.the Company purchased, prior to maturity, a portion ofits senior subordinated debentures having a face value of $60 million at a price in excess ofbook value, whichresulted in an extraordinary loss of $1 million ($.02 per share), net ofrelated income taxes of S1 million. In December 1991, the Company called at par the remaining outstanding principal amount of $205 million ofitsjunior subordinated discount debentures due in 2006. Nosignificant gain or loss wasrealized. During 1990, the Company pur chased,prior to maturity, a portion of itsjunior subordinated discount debentures having a face value of$125 million at a pice in excess ofbook value, which resulted zn an extraordi nary loss of $1 million <$.03 per share), net of related income taxes of $1 railiioa The aggregate maturities and sinking hind requirements for all long-term dds issues for each of the five years following December 3). 1992 are: Year 1993 1994 1995 1996 1997 On millionsefdiMars> Credit Facilities S-- _520 -- -- Other Long-Term Debt $ 25 31 24 27 10 3. Short-Term Debt 0"millions ofdollars1 1992 1991 Balance outstanding at December 31 $56 $ 6 Weighted average intern*rates on shori-term debt outstanding at December 31 11.5' The Company had short-term unused lines of credit totalling 5134 miBkm aid $232 million ai December 31,1992 and 1991. respectively. 4. Restructuring of Operations During the fourth quarter of 1990, the Company recorded a $65 million pre-tax charge which included $26 million for personnel reductions, $14 million fra* the write-down offixed assets and $25 million for otheritems.* 5. Science and Technology Expenses Science and technology expenses include research and develop ment costs of$55 million in 1992, $47 million in 1991, and $51 million in 1990. In addition to research and development costs, science and technology expenses include continuing commercial activities such as engineering and product modifications for special applications and testing. 6. Income Taxes (in miihons ofdollars) Income (loss) before provision (credit) fra incrane taxes: US. Foreign Total Provision (credit) for incrane taxes: Current U.S. State and local Foreign Total current Deferred U.S, State and local Foreign Total deferred Total provision (credit) for income taxes 1992 1991 1990 $ 107 $ (749) $ (4) (10) $ 103 $ (759) S 140 (12) 128 $ 41 $ 5 8 84 53 $ 8 9 ?G 42 11 20 73 <51 (308) (4) (9) (12) 9 (21) (308) I (2) (14) (25) $ 33 $ (238) $ 58 29 Income Taxes {Continued) Deferred income taxes result from timing differences in the recognition of certain kerns for income tax and financial state ment purposes. The sources of these differences and the net tax provisions are; _______________ (In ra/ltionj ofdollars) 1992 1991 1990 Asbestos litigation claims 9 2 $ (290) S Depreciation (9) 04) Furnace rebuild reserves (31 (4> Interest expense (1) 1 Undistributed earnings of (8) 19 0) (9) foreign subsidiaries Stale and local tax expense Warranty and product liability accrual Other postretiremen! benefits expense Other <81 2 1 (6) 1 10 07) 32 <6) (4) --(6) (2) 3 Deferred (ax credit 9 (21) $ <308} $ 05) The reconciliation between the U.S. federal statutory rate and the Company's effective income tax rate is: 1992 1991 1990 U.S. federal statutory rate Operating losses of foreign subsidiaries Difference between foreign tax rates and U.S. statutory rate Provision (credit) for taxes on undistributed earnings of foreign subsidiaries State and local income taxes Other 34% 6 <21 (9) 1 ft) 34% 34% (2) 17 13 .(2) .03) --5 -- (1) Effective tax we 32% 31% 45% Provision has been made for additional U.S. taxes on that portion of (be undistributed earnings ofcertain foreign subsid iaries expected to be remitted to the parent company. The Company has not provided income taxes on $68 million undistributedearnings of foreign subsidiaries drat are deemed to be permanently reinvested. In die event these earnings are ultimately remitted to the Company, it is anticipated dial foreign lax credits will be available to offset a portion of(he U.S. income taxes payable. In February 1992, the Financial Accounting Standards Board (FASB) issued Statement Na'109, '`Accounting for income Taxes'! StatementNo. 109 changes the criteria for measuring the provision forincome taxes and recognizing deferred tax assets and liabilities. A deferred tax assetor liability is created when a difference exists between the tax basis ofan asset or liability and the amount reported in the financial statements. Deferred tax assets and liabilities are measured uxrng a tax rate convention based upon enacted tax laws and rates.The Com pany will adoptthe new standard effective January 1,1993, the required effective date. The impact ofStatement No. 109 on the Company in the yearofadoption is an expected increase to net income ofapproximately $25 million. for the year ended December 31,1992, the Company utilized book net operating loss carryforwards which resulted in an extraordinary credit ofapproximately $4 million, or $,09 per share. 7. Inventories Inventories are summarized as follows: (In ntlUons oftteiUan) Finished goods Materials and suppiks Less: Reduction to UFO basis 1992 1991 $ 203 S 192 119 122 322 (69) 314 (95) $ 233 S 219 At December 31,1992, the Company had book net operating loss carryforwards for certain of the Company's foreign subsidiaries ofapproximately $! 19 million, the benefit of which has iw been reflected in the financial statements. For tax retun) purposes, these foreign subsidiaries have tax net operating loss carryforwards ofapproximately $74 million at December 3 S, 1992, which expire through 1999. Approximately $97 million and $99 million ofnet inventories were valued using theUFO method at December 31, 1992 and 1991, respectively. During J992 and i991, certain inventories were reduced, resulting in the liquidation of LIFO inventory layers carried ai lower costs in prior years as compared with the currentcost of inventory. The effect of these inventory reductions was to reduce 1992 and 1991 cost of sales by $4 million and $6 million, respectively. 30 8. Investments in Affiliates At December 31,1992 and 1995, the Company's affiliates, which getunify are engagedm die manufactureoffibrous glass products for the insulation, construction, reinforcements. and textile markets, include: Percent Ownership 1992 end 1991 Antiantii Fiberglass Industries, Ltd. (Saadi Arabia) Arabian Fiberglass Insulation Company (Saudi Arabia) Asahi Fiber Glass Company, Ltd. (Japan) CAE Fiberglass, Ltd. (Canada) Lucky FiberGlass Corp, (Korea) Siam GRP industries (Thailand) Vitro-Pforas, SA. (Mexico)___ ________ 30.0% 49.0 28.0 25.0 30.0 20.0 40.0 Summarized financial information for the Company's affiliates; (In millionsofdollars! 1992 1991 1990 At December 31: Current assets Noncurrem assets Current liabilities Noncurrent liabilities For the year: Met sales Gross margin Net income 198 $ 164 $ 185 320 231 222 233 206 241 130 58 55 465 467 398 82 100 91 16 27 20 10. Consolidated Statement of Cash Flows Cash payments for income taxes and cost ofborrowed funds are sommartaai ss follow; (fn Millionscfdollar*) 1992 1991 1990 Income taxes Cost ofborrowed funds 9 49 $ 85 $ 77 125 108 130 The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. 11. Looms The Compmy leasescertain office and warehouse facilities and equipment under operating leases, some of which include cost escalation clauses, expiring on various dates through 2011. Total rental expense charged to operations was $44 million in 1992. $44miJlninl99l.andS39minionmI990. At December 31, 2992. the minimum future rental commitments unde- noncanceliable leases payable over the remaining lives ofthe teases are: Period(in millions ofMian) 1993 1994 1995 1996 1997 1998 through 2011 Minimum Future Rental Commitments $ 25 20 12 8 5 19 $ 89 The Company's equity in undistributed net income ofaffiliates was $27 million at December 31.1992. 9. Accounts Payable ond'Accruod UaSttHle* (In mlhonscfddla's) 1992 1991 Accounts payable Payroll and vacation pay Payroll, property, and miscellaneous * 185 $ 156 87 66 taxes Other postretiremen* benefits liability Other 36 3? 21 19 92 126 3 390 $ 404 12. Stock Compensation Plans RutCcrop&ay's StockPerforarawe IncetaWe Plan 1SP2>, approved by shardsolders in 1992. permits up to two percent of common sharesoutstanding at the beginning ofeach calendar year to be awarded as stock options and restricted stock (with 25% of this amount as the maximumpermitted numberof restricted stock awards). For 1992. this amount was 833,035 shares. 760,500ofwhich were awarded as stock options and 56400 as restricted stock. 576,308 shares are alsoavailable to be awarded undera prior plan, however the Companydoes not expect any awards made underthat plan to exceed die annual SPEP limits. Additionally, the Company has a plan to award stock options to nonempioycc directors, erfwhich 162,000 shares were available forthig purpose as ofDecember 31.1991 Stock Options Activity during 1992 and 1991 in shares underoption: 1892 1991 Number of Shares Priee Range per Shea Ntraber of Shaw Price Range pc Shan: Begsiajfof year 1,981.989 $12.13-2646 Options granted 770400 2948 3343 Opticas exacted 53MS1) 12.13-26.75 Optkns cancelled {44,767) 18.75 - 3043 1,878,803 $1213-2688 771.600 mm mm 1786-26,75 1213-23.13 1213-26.75 Eid dyear 2,171461 $12.13-3343 1,981,989 $1213-2688 Etqrisabfe 783422 $12.13-30.63 822328 $1213 2688 Option prices represent the market price a date ofgram. Shares issued uodet options are recorded in the common stock accounts at the option price. Options granted vest ratably through 1996. Stock Appreciation High** Stock appreciation rights (SARs) have been granted to employees in tandem with sock options awarded in 1986, and may be paid m cash re stock. At December 31,1992, rights covering 65.400 shares were outstanding and exercisable. The Company recog nizes compensation expense in connection with die SARs to the extent that the market price ofits common stock exceeds the grant price ofthe shares subject to such rights. Total SARs expense was $4 million for 1992. $7 million for 1991 and 56 million credit for 1990. Deferred Stock Awards At Deccmber31, J992, the Company had 319,963 shares of deferred stock outstanding. Deferred slock awards vest ratably over various periods ending in 1994. During 1992, no shares of deferred stock were granted, 3.326 shares were cancelled and 405,708 shares were issued. Compensation expense is measured based on the market price ofthe stock at date of gram and * recognized on a straight-line basisoverthe vesting period. Restricted Stock Awards At December 31 1992, the Company had 353,017 shares of restricted.stock outstanding. Stock restrictions lapse, subject to alternate vesting plans forapproved early retirement and involuntary termination, in 1994 through 1996 and in 1999. 13. Share Purchase Rights Each outstanding share ofthe Company's common stock includes a preferred share purchase right. Each right entitles the holder to buy from the Company one one-hundredth ofa share ofSeries A Participating Preferred Stock ofthe Company at a pice of$50. The BoardofDirectors has designated 450,000 shares ofthe Company's authorized preferred stock as Series A Participating Preferred Stock. There are cunefflly no preferred shares outstanding. Rights becomeexercisable and detach from the common stock ten days after a persoo or group acquires, orannounces a tender offerfor. 20% or more ofthe Company's outstanding shares of common stock. The fights expire on December 30,1996, unless redeemed earlier by the Company. The rights are redeemable by the Company at one cent each at any time prior to ten days followingpublic announcement or notice to the Company that an acquiring person orgroup has purchased 20% or more of the Company's outstanding common stock. Ifthe Company is acquired m a mergerorother business combination at any time after the rights become exercisable, each right would entitle its holder to buy shares of the acquiring or surviving company having a market value oftwice the exercise price ofthe right. 14. Postretiremen! Benefits Other than Pensions The Company and its subsidiaries maintain health care and life insurance benefit plans for certain retired employees and their dependents. The health care plans are unfunded and pay either 1) stated percentages ofcovered medically necessary expenses, after subtracting payments by Medicare orotherproviders and after stated deductibles have been met, or 2) fixed amounts of medical expense reimbursements. Employees become eligible to participate in the health care plans upon retirement under one of the Company's pension plans. Some ofthe plans are contributory, with some retiree contributions adjusted annually. The Company has reserved the right to change <>r eliminate these benefit plans subject to the terms ofcollective bargaining agreements during their term. 32 The Company adopted Staienvers of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" as ofJanuary 1.1991, for Us U.S. plans. Accordingly, the expected cost of postretirenwnt batefits are charged to expense during the yeas in which eligibleemployees render service. The pre-tax cumulative effect ofthe unfunded obligation of$344 million <$227 million after tax) was charged against earnings as ofJanuary 1,1991. Adoption of Statement No. 106 for non-U.S, plans isrequired for 1995 financial repotting. The estimated impact on the Cbmpsny in tftc yearofadoption is a charge to earningsofless than $30 million. Prior to 1991, the Company recognized postretiremen! benefits cost in the year that the benefits were paid. This cost was $24 million in 1990. The following tabic reconciles die status ofdie accrued postretiremen! benefits cost liability at October 31,1992 and 1991, as reflected on rhe balance sheer as offtKemka*3?, 1992 and 1991: (In auHloni <4tbtlars) 1992 1991 Accumulated Postretiremenr Benefits Obligation: Retirees Fully eligible active plan participants Other active plan participants Funded status Unrecognized net loss (gain) $ (239) $ 037) (311 07) mi (3601 (191 (98) (362) -- Accrued postretiremen* benefits cost BabffityTmchides curreta iiabifitiesof$2! million in 1992 and $19 million in 1991) $ (379) $ (362) The net postretiremen! benefits cost for 1992 and 1991 included the foliowing components: {/a trMo*s cfdoUortf Service cost Interest cost on accumulated postretirement benefits obligation 199? 3991 $ 7$ 6 30 29 Net postretiremen! benefits cost * 37 $ 35 For measurement purposes, a 12% annua) rate ofincrease in the per capita costof covered health care claims was assumed for 1993, The rate was assumed todecrease lo 11.5% for 1994. thendecrease gradually to 6%. The health care cost trend rate assumption has a significant effect on the amounts reported To illustrate, increasing the assumed heal* care cost trend rates by one percentage point in each year would increase the accumu lated postretiremen! benefits obligation as ofOctober 31,1992, by $34 million and the aggregateofthe service and interest cost components of net posgetiiemem benefits cost for the yearthen ended by $4 million. The discount rate used in determining the accumulated postretiremen! benefits obligation was .25% in 1992 and 8.6% in 1991. In November 1992,the FAS8 issued Statement ofFinancial Accounting Standards No. 112, "Employers' Accounting for Postemploymem Benefits" This standard requires employers to recognize die obligation to providebenefits to formeror inactive employees afteremployment but before retirement undercertain conditions. The obligation should be recognized if it b attributable to employees' service already tendered, the rights to these benefits ac&imulateor vest, payment of the benefits is probable and die amount can be reasonably esti mated. Statement No. 112 is effective forthe Company beginning in 1994. The impact ofStatement No. 112 on the Company in the yearof adoption has not been estimated at this time. tS. Pension Plans The Company has several pension plans covering substantially all full-time employees. Underthe plans, pension benefits are generally based on an employee's number of years of service and compensation. Company contributions*e.pcasiaaplantarebasedonihe calculations ofan independent actuary using die projected unit credit metliod. Plan assets consist primarily of U.S. and non\)S. equity securities with the balance in fixed income invest ments. The unrecognized cos ofretroactive amendments and actuarial gains and losses are amortized over the average future service of plan participants expected to receive benefits. 33 15. Pension Plans {Continued) Pension expense for theCompany's defined benefit pension plans includes the following: (In mUHonsefdoilaia} 1992 mi 1990 Service cost $ 21 S 18 S 21 Interest cost on projected benefit obligation 59 58 58 Actual (return) loss onplan assets <6t> (147) 34 Net amortisation and deferral (20) 75 (HO) Net pension expense S 9 S 4S 3 The fended states at October 31.1992 and 1991 is as follows: (In mtUiora ofdollars} 1992 1991 Over Under Rmded Funded Vestedbenefit obligation 6 254 9 291 s 492 Accumulated benefit obligation $ 301 5 340 $ 589 Ran assets at fair value 395 9 316 $ 715 Projected benefit obligation 39? 358 691 Ratassets in excess (less than) projected benefit obligation m (43) 24 Unrecognized loss (gain) Unrecognizedprior service cost Unrecognized transition amount 35 13) (521 59 (26) (17) 31 (32) (74) Net pension liability {includes current liabilities of $6 million in 1992 and S9 million in 1991 and 519 million and SI2 million in other noncurrent assets in 1992 and 1991, respectively) $ (22) 4 (271 $ (51) The 1992,1991 and 1990 primary actuarial assumptions used for pension plans were: Discount rate Expected long-term me of return on assets Race ofcompensation increase 1992 &25<* 1991 8.60% 1990 9.50% 10.00% 10.00% 10.00% 4.50% 4.50% 4,50% The Company also sponsors defined contribution plans available substantially all V.S. employees. Company contributions for the plans ate based on matching a percentage ofemployee savings up to a maximum savings level. The Company's contribution was$7 million in 1992, J7 million in 199hand $6 million in 1990. 16, Financial Instruments with Off-Balance-Sheet Risk end Significant Group Concentrations of Credit Risk The Company is a party to financial instruments with off* balance-sheet risk in die normal course ofbusiness to help meet financing needs and to reduce exposure to fluctuating foreign currency exchange rates. The Company is exposed tocredit loss in the eventofnonperformance by the other parties tothe financial instrument* describedbelow.However, the Company does not anticipate nooperfomunce by the otherparties. The Company docs notgenerally require collateral or other security to support these financial instruments. The Company enters intoforward currency exchange contracts to hedge against foreign currency fluctuations on certain assets and liabilities denominated in foreign currencies. As ofDecem ber 21.1992. the Company has forward currency exchange contracts maturing in 1993 which exchange the following currencies: 2 billion Belgian francs, 19 million U.S. dollars, 68 million Swedish krona. 12 million British pounds, and various othercurrencies. Trie Company has two forward currency exchange contracts maturing in 1993 toexchange 150 million Swedish krona and 680 million Belgian francs against approxi mately 42 millionD-S. dollars to Itedge an equity investment in a European subsidiary. Gains and losses on hedges ofnet investments in foreign subsidiaries are included in stockholders' equity. Gains and losses on other foreign currency hedges are included in income m the year in which the exchange rates change. As ofDecember 31>*f992,,the*Company`has entered into four interest me swap agreementsto reduce the interest rates on its fixed rateborrowings. These agreements effectively convert an aggregate principal amount of SI50 million offixed rate long term debt into variable rate borrowings with interest rates ranging from 3,75% to 5.9%. The agreements mature m 1998. The differential interest to be paid or received is accrued as interest rates change and is recognized over die life of the agreements. The Company has a cross-currency interest rate conversion agreement from Deutsche maiks into U S. dollars to hedge tiie interest and principal payments of its 9.25% Deutsche mark bonds, due in 2000 The agreement establishes a fixed interest rate of H.1%. As of December 31, 1992 and 1991, the Company has no significant group concentrations ofcredit risk. 34 17. Disclosures about Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value ofeach class offinancial instruments. Cash and short-term financial instruments The carrying amount approximates lair value due to the short maturity of these instruments. loAfl-tarm notes receivable The fairvalue has been estimated using the expected future ca-^i flows discounted at niarket interest rates loaq^rm debt The fairvalue of the Company's long-term debt has txea estimated based on quoted market prices for the same orsimilar issues, oron the current rates offered to the Company for debt of the same remaining maturities. Foreign currency swaps and interact swaps The fair value offoreign currency swaps and interest rate swaps has been estimated by traded marker values or by obtaining Quotes from brokers The estimated fair values of the Company's financial instni- moTtsasofDecember31, !P92reas Carrying Fair (In milhofuefdoDofij Amount Value Cash and short-term financial instruments Long-term notes receivables Long-term debt Foreign currency swaps and interest rate swaps $ 783 8 1.018 $ 783 7 1,102 MMM 35 18. Contingent Liabilities Asbestos Uabllltiea The Company is a co-defendant with former manufacturers and distributors ofproducts containing asbestos and with miner;and suppliers of asbestos fibers (collectively, the Ihoducers) in personal injury and property damage litigation. The personal injury claimants generally allege injuries to their health caused by inhalation ofasbestos fibers from the Company's products. Most oftlte claimants seek punitive damages as well as compensatory damages. The property damage claims generally allege property damage to school, public and commercial buildings resulting from the presence ofproducts containing asbestos. Virtually all of the asbestos-related lawsuits against the Company arise out of its manufacture, distribution, sale or installation ofan ashesos-containing calcium silicate, high temperature insulation product, the manufacture of which was discontinued in 1972. Status As ofDecember 31,1992, approximately 85,300 asbestos personal Injury claims were pending against the Company. The Company received approximately 26,$0Gsuc$i claimsin 1992.20,900 in 1991 and 22300 in 1990. Through December 3X, 1992, the Company hadresolved (by settlement or otherwise) approximately 101,100 asbestos personal Injury claims, 27,300ofwhich were resolved in 1992. During 1990,1991 and 1992, the Company molved approximaely54OQ such daintssodincurred soul indemnity payments of $539 million (an average of less than $10,000 per case). As of December 31.1992, the Company had agreed in principle to settle approximately 22,800 additional cases which will be processed and reflected in settlements (hiring 1993 and futureyears. Although the precise amounts are subject to certain contingencies, the average payment in these additional cases is expected to be somewhat higher than the Company's settlement average for 1990,1991 and 1992. TheCompany's indemnity payments have variedconsiderably over time and from case to case, and are affected by a multitude of factors. These include the type and severity ofthe disease sustained by the claimant (i.e., mesothelioma,longcancer, other types ofcancer, asbestos** orpleura! changes); the occupation of the claimant: the extent ofthe claimant`s exposure to asbestos-containing products manufactured, sold or installed by the Company; the extent ofthe daimam'sexposure to asbestos-containing products manufactured or sold by other Producers; the number and financial resourcesofother Producer defendants; the jurisdiction ofsuit; die presence or absence ofother possible causes ofthe cterraarw's illness; (he avsBabBity orsot oflegal defenses such as the statute of limitations or state ofthe art; and whether the claim was resolved on an individual basis or as pan of-a group ssoterwa. Insurance As ofDecember 3!. 1992, the Company had approximately $675 million m unexhausted insurance average (nd ofdeduc tibles and self-insured retentions and excluding coverage issued by insolvent carriers) under its products liability insurance policies. Of this amount, $144 million will not be available until *e years 1996 tough 2000 under an agreement with the carrier cojifirming such insurance and $133 million is the subject of pending coverage litigation. All of the Company's products liability insurance policies cover indemnity payments and defense fees and expasses subject to applicable policy limits. In addition, the Company has substantial unexhausted insurance coverage under certain non-produets liability insur ance policies; an as yet undetermined amount ofcoverage under such policies will be available for payment ofasbestos personal injuryclaims andassociateddefense fees and expenses. 35 18. Contingent Liabilities (Continued} Reserve As a result ofns pre-1992 charges forasbestos litigation, she Company had a reserve of $950 million and $955 million (including $50million and $5 million in current liabilities) as of December31,1992 and 1991, respectively. This reserve reflects the Company's best estimate of the uninsured indemnity and defense costs (hat may be associated with pending and unas sorted asbestos personal injury claims that may be received by the Company through 1999. The Company cannot estimate and is not providing for the cost ofunasserted claims which may be received by the Company after (he year 1999 because manage ment is unable to predict the numberofclaims to be received after 1999, the severity ofdisease which may be involved and other factors which would affect the cost of such claims. The Company cautions that such factors as the numberof future asbestos personal injury chums received by it, tltc rate ofreceipt ofsuch claims and the indemnity and defense costs associated with such claims, as well as fee prospects for confirming additional, applicable insurance coverage beyond the $675 million referenced above, are influenced by numerous variables that are difficult to predict, and that estimates, such as the Company's, which attempt to take account ofsuch variables are subject to considerable uncertainty. Accordingly, the actual uninsured costs associated with asbestos personal injury claims received by the Company through 1999 may be higherof lower than those provided forby the Company*s $950 million reserve, The Company will continue to review the adequacy of its reserve for the uninsured costs of pending and unassened claimson a periodic basts and make such adjustments to its reserve as may then be appropriate. Cash Expenditure* TheCompany's anticipated cash expenditures for uninsured asbestos-related costs forclaims received through 1999 are expected to approximate the Company's existing reserve. The cash expenditures are expected to begin in 1993, They will vary annually depending upon a numberoffactors, including the paceof the Company's resolution ofclaims andthepayment of its insurance, Management Opinion Although any opinion is necessarily judgmental and must be based on information now known to the Company, in the opinion of management, the additional uninsured and unre served costs which may arise out of pending personal injury and property damage asbestos claims and additional similar asbestos claims Hied in (he future will not have a materially admseeffect on fee Company's financial position. Nort-Asbetos liabilities In October 1991, the Company and certain ofits officers and directors were named as defendants in a lawsuit captioned Gaetana Lavalfc v. Owens-Coming FibergUs Corporation, et ai. in the United States DistrictCourt forthe Northern District of Ohio, l^vallepurpoR&to be a securitiesclass action otvbehaU ofall purchasers erf the Company's common stock during the period November l, 1988 through October 18,1991. The complaint alleges that the Company's disclosures during fee alleged class period contained materia] misstatements and omissions concerning its contingent liabilities for asbestos claims. The complaint seeks an unspecified amount ofdamages (including punitive damages) on fee theory that sucb alleged misstatements and omistio*is artificially inflated the price erf fee Company's stock. Various otherlawsuits and claims arising in fee normal course of business are pending against the Com pany, some of which allege substantial damages. Management believes that the outcome ofthese lawsuits and claims will not have a materially adverse effect on the Company's financial position or results ofoperations. 36 19. Quarterly Financial Information {Unaudited) (In nvttkmsofdollars, extrasskatedata) 1992 Nat 8di Coat of Salas Gross pofir Income before Extraordinary Hems Extraordinary Hems Net Income Net Income per Share: Primary Income before Extraordinary lions Extraordinary items Net income per Sfcere Fully Diluted Income before Extraordinary Items Extraordinary hems Net Income per Share Quarter First Second Third Fourth t 626 6 732 ft 786 ft 734 496 576 613 876 $ 130 $ 166 ft 173 ft 168 $ 6 6 22 ft 32 ft 12 (1) mnem 2 6 $ 21 ft 32 ft 14 S .13 ft .52 ft .76 ft .30 003} -- .03 s .13 ft .49 ft .75 ft .33 .13 ft .61 ft .71 ft .30 (.03) -- .03 * .13 ft AS ft .71 ft .33 (Inmillionsoffalters, exceptshare dasa) 1991* Net Sales Cost ofSales Gross profit income (Loss) before Cumulative Effect ofAccountingChange CumdSauvc effect ofaccounting change Net Income (Loss) Ne( income (loss) per Share: Primary Income (Loss) before Cumulative Effect of Accounting Change Cumulative effect ofaccounting change Ms income (Loss)perShare Fully Diluted Income (Loss) before Cumulative Effcci of Accounting Change Cumulative effeci of accounting change Net Income (Loss) per Share Quarter First Second Third fourth s 612 S 501 $ mS s (25) 5 <227) s (252) $ 735 S 578 157 3 13 $ -- 13 $ 749 S 580 169 3 687 527 160 26 $ (529) ---- 26 $ (529) $ (.62) S (5.58) $ (6.20) $ .32 3 -- .32 3 .62 $ (12.83) ---- .62 $ 02.83) s (.62) $ (5.58) $ (6.20) $ .32 3 -- .32 S .59 $ (12.83) ---- 59 $ (12.83) See AWs U and IS so the eonsoltdcuedfinancialsratetnens*- Net income (Joss) per s)iaxe and primary and fully diluted weighted average shares are coifiputed independently for each ofthe quarters presented. Therefore. the sum of live quarterly net income (loss) per share nay not equal the per share total for the year. 3? Directors and Officers AiofMarcft i, *993 DIRECTORS mwnW. &oe8chent^n \A Former Chairman of the Board and ChiefExecutive Officer Owens-Coming Norman P. Blake, Jr. 1X5 Chairman ofthe Board and ChiefExecutive Officer USF & G Corporation Charles E. E*l*y, Jr. 3,4 Former ChairTnaa ofthe Board and Chief Executive Office Corporation London HlfHarri 2,3,5 Partner, Brown Brothers Karriman &Co, Gln M. Miner Chairman ofthe Board and ChiefExecutive Officer Owens-Consing Walker Lawt* Executive Vice {'resident AvoDptD&JCts. \k, David T. MeGovam 3,4 OfCounsel, Shearman & Staling Furman C. Momley. Jr, U.4 {ta&dent. Simpson Investment Company and Chairman Simpson PaperCompany Peter L Scott 2.3^5 FwirtaChairman ofthe Board The Block & Decker Corporarwn O^ectofs serve00 committees ofthe Board as indicated by the numbers following thdrnames. }. Executive Commiaee Btan H. Minor Chairman 2. Compensation Committee NWrL Scott Chairman 3. MdftCommittee Chariai E. Etftcy, Jr. Chairman 4. Tiwt Review Committee Furman C, Mewley, Jr. Chairman 5. Corporate Governance Committee Uandon Milliard Chairman CORPORATE OFFICERS Gten H. Miner Chatman ofthe Board wtd Chief Executive Office* WItUam W-CotirtBe Senior Vice President. Genera] Counsel and Secretary ChaHea H. Dana Senior VkePresident sad President Industrial Materials Group Bobafl P,HwWan> Senior Vk* President Human Resources UrrvT.Sotari Senior Vice President and President Obstruction Products Group Dr. Jeai R. Bmlw Vice President Health, Safety and Environmental Affaire ChaHes ft. Bland Vice President and Controller Paula H. J. OMlmMuMay Vice President Business Development and Global Sourcing MIRam P.Dant Vice President Tax Daniel W. Dymorttowski Vice President Industrial Relations Charles D. MeGUi Vice President Information Systems J. DennH Mentor Vke President International Mtahsol I. MUter Vice President and Treasurer Bradford C Oatman Vice Pieadeoi Corporate Relations David G. ScMaudaeker V>a: President Environmental Affairs and Regulatory Law Gilbert Soore Vice President Intgmaooaa) Financeand Assistant Treasurer SCIENCE AND TECHNOLOGY CONSTRUCTION PRODUCTS GROUP INDUSTRIAL MATERIALS GROUP Dr. ShrK L WkMtll Vice President Science and Technology Dr. Grant F. Camrth Vice Resident Industrial Materials Carry T. $^ri President insulation Division AknO. Booth Vice Preyed Window* Division Damriaft. Mf Vice Presides CharlasH. Dona Presktera Robert X DaGanpe Vice Presides Tdk Materials Mulcting European Operations Gng^re Amery Vice President Or. Robert L Honttw Vice President ConsinKtOTi Products Walt^B. ftaad Vice Prggidcnz Corporate Engineering RobntD. Betyard Vice Presides! Saks Roofing end Asphalt Division Owona-Comlng Canada DsrskJHoMM Vice PresKkm OC and Presides* and ClaefEucodve Officer Davftf T, Brown VsrePrerideM fidwart Mirra Vice President Trumbull Products Timothy E. Watah Vice President Comxrjcreial Roofing Ratail and Distr&ulion DMeh>n Carl B. Hadlund Vice President ffiehard 6. FHswrt Vke President Operations John A, Varmotden Vice Presides! Marieting and Sales Operations Warren 0. Knowfom Vice President Rudolph H. KUar Vke President Roofing Manufacturing John B. Janice Vice President Stesiss and Coatings Division Maurice P. Umdrigan Vice Preside North Afracrfasrr Sales Patrick F. Moore Vice President Reinforcements Mateials Marketing RobntQ. Piitds Vice President Manufacturing Jeremiah M. SuEUvan Vice President Financial anti Business Hanning Andre TcHiualnt Vice President Technical Operations EfthfenJoaO. Vtdatt* Vice President Reinforeesnenls Division Brazilian Operations Scott K. Keapka Ve President J. Potor Dotgon VaxPreudcm Saks Richard O. Webb Vice President Insulation Manufacturing Thomas KL Seymour Vice Presideot Reudl MaAttiflg Jerry e. Setter VieePrerideet NsaoiaJ Accounts Finance Frank E. Glover Vice President Planning end Growth WaytM A. Earley Vice President General Information Corporate Address Owcns*Coming World Headquarters fibciglas Tower Toledo, Ohio43659 (4)9)243-3000 Shareholder Services Owens-Ccsrsng maintains a Shareholder Services Office si world headquaneis in Toledo,Ohioto assist stockholders. Inquiries sue welcome at the world headquarters address. Transfer Agent end Registrar Chemical Bank acts as botfiTraasfer Agent and Registrar for ihe Company, Questions on changeof ownership, total stares owned, consolidation ofaccounts, and other such mans* should be sera toChemical Bank, SecurityholderRelations, P.O. Box 24935 - Church Street Station. New York, New York 10249, or phone 14500-647-4273. Auditor* Arthur Andersen & Co., Toledo, Ohio is the independent public accounting firm forthe Company. Change of Address A change of addicts should be reported promptly by sending a tenor toChemical Back, SecmityhoklerRelations, P.O. Box 2493S- Church Street Station, New York. New York 10249. PormlO-K 7he Company will provide without charge to any person who is abeneficial owner of its shares a copy of (he Company's 1992 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission. Requests should be addressed to Sharon Traudt, Office ofthe Secretary, Owens-Coming Rberglas Corporation, Fiberglas Tower, Toledo, Ohio 43659. Annual Moating Tlte annual stockholders meeting ofOwens-Coming Fiberglas Corporation will be held in SeaCate Centre, 401 Jefferson Avenue, Toledo. Ohio at 2 p.m. Thursday, April 15,1993. Stock Exchange Owens-Coming stock is listed for trading on the New York Stock Exchange under the symbol OCF. 40