Document wq2mB8pBOOrL1nnxzmvdMER6o

71 1996 Annua] Report WV-04753 Financial Highlights Net Seles (In rmfltofv* ofdeUars) $000 Creuft /friwm/n> W ~J5 ** income from Ongoing Operations ll>i tmlhot** ofdtAlort} SCt! (IroviA >r/iyMg Income Statement (In millions <4dollars, except per share data anduihere noted) Net Seles Gross Margin from ongoing operations income {loss) from operations income from ongoing operations Net income (loss) Net income from ongoing operations As a percent of sales Per Share information Fully Diluted Earnings per Share Net Income (loss) Net Income from ongoing operations Fully diluted shares {in thousands) Year Ended December31, 1996 1995 1994 $ 3,832 1005 5 3.612 942 $ 3351 8)6 (504) 419 412 412 226 343 {264) 257 7% 231 223 159 150 5% S (5.50) $ 4.6S'" 51,722'" S 4.40 $ 4.25 54,106 S 3.35 S 305 50.025 vfSoiAs 10% n% rm Fully Diluted Earnings per Share (Ongoing Operations} (!n dollar*j sew 1' I: Ii |_ *ee Balance Sheet (In millions ofdollars) Total assets Ibtai debt Total other liabilities MIPS Minority interest Total stockholders' equity Year Ended December31. 1996 1995 1994 $ 3,913 S 934 S 3,248 S 194 $ 21 S (464) $ 3,261 $ 893 S 2,386 $ 194 $ S (212) S 3,274 $ 1,212 S 2,742 5-- $ ..... S (680) Cash Flows (hi millions ofdollars) Net cash llow from operations excluding asbestos-related activities Net cash flow from investing Net cash flow from financing Net cash How from asbestos-related activities Year Ended December 31. 1995 1995 1994 $ 501 S (360) $ 50 s (166) $ 342 $ (361) $ 36 5 (57) S 361 S (355) $ 178 S (128) Capital Spending s 325 $ 276 $ 258 (a) FuKy diluted shores do nd include CS million shares front the assumed comerston of stock options and MIPS due to their aMx-dilxiluv effect. These slaves haxe be*m Included ni the calcukUum ofearnings persharefrom ongoing operationsfor comixirisous udh prior years Table of Contents T1io Cham*i.ois I\>rsinxine x?on! Tinnkmg SiewanKhi|> S> siom Thinking . Application Development S\Mem Hunkmg ' Maj-kes Development S>siem Thinking for ijie Hmim S.v stoni Tinnking Gk>b;il Exr-an;,itm 1 4 {> H JD i :> S> sioni Thinking Husi i loss Soi-> u ox Management *s ! Jiv i .<>uI \n,ih m*. Ten-Year Sommniv of 0)>er;ii miis Fjriant iaJ .Sim emontx Diroi ?ors and Senior Officers Sv ss >iii Tlnnk mg 1n Pji i n;itu>n At < * i4 11 .h> li is 1 The Chairman's Perspective For the fifth consecutive year, hs June, Owens Coming Owens Coming reported higher filed a lawsuit under the Federal earnings from ongoing operations. Racketeering statutes (RICO) against 1996 was also the second consecutive three pulmonary function testing year for record gates and earnings facilities and their principals. for the Company. For the 20th consecutive quarter, The lawsuit alleges a massive adtemc to defraud the Company wc met our goal of reporting higher by generating falsified medical test earnings from ongoing operations results. The alleged false results were than the same period the year before. intended to substantiate the filing For the year, earnings from and settlement of lens of tlfousands ongoing operations wore $257 of asbestos-related claims against million or $4.65 per hilly diluted Owens Coming. share, tip 15 percent from $223 On that momentous day, we million, or $4.25 per share in 1995. served notice dial we will fight Sales increased to $3,832 billion, vigorously against fraudulent asb**stos up 6 percent or $220 million, claims. We have since filed a second from $3,612 billion in 1995. suit against artotter testing facility. Quarterly sales also broke In the second quarter of 1996, tlve $J billion mark for the first time in both the tltird and fourth quarters "1996 confirmed our growth agenda..." we recorded a charge, associated with an asbestos-containing product we last manufactured in 1972, to In June, I was also very pleased account for claims anticipated after and proud to announce our first dividend since the 1999 That charge, a net total of $542 million after-tax Company's recapitalisation 10 years ago This was made along with other special items recorded in the first and possible, by the reduction of debt to targeted levels driven fourth quarters, resulted in a net loss of $284 million, or by continued improvement in casts flow generation, ft S5 50 per share, for the year. reflects our confidence in the Company's ability So both But the real bottom lino to our actions is that wo can fund our growth agenda anil to satisfy our asbestos compensate fairly those injured, quantify our asbestos obligations. We continue to expand globally, supported liability and, at the same time, reward our shareholders by strategic acquisitions, and to invest in our primary and advance our global growth agenda productivity program Advantage 2000. Throughout this report, you'll see many examples But, 1996 was not-wirhout disappointment. AiUtough of our three-pronged growth strategy ofglobal cxpan^kio, we generated 4 percent improvement In productivity new products and applications, aria targeted acquisition. as measured on an absolute basis, we did not meet our 1996 results again illustrate the logic of that strategy continuous improvement target lor operating margin. as*d the balance of our businesses. The strength ofour Focus on continued margin improvement by our businesses, roofing, specialty and foam businesses, including acquisi supported by the implementation of Advantage 2000, will tions made in 1995 and 1996, countered a general softness be key to achieving this goal in the future. In Composites and economic weakness in Bure-*. Despite the disappointment in operating margin The performance of our 12 niche acquisitions has Improvement, we did oonfinn our growth agenda by tnade its impact felt by contributing more than half or our accelerating our $5 billion annual sales goat a full year, sales growth over the past two years. Our acquisitions have tol999. exceeded our criteria of 13% rate of return and contributed Regarding asbestos, we have consistently stated that to EPS growth in the year after acquisition Three of die wc will fairly compensate anyone boriesiiy injured by our last five acquisitions have been outside of the U.S product. However, we also will legally oppose fraudulent Our acquisitions also have been a major factor In claims from any source Such claims urdemuise the integrity changing the composition of our Company as reflected ofour system ofjustice and dwrat both Owens Coming in our expanded product portfolio to serve customers. and deserving claimants. We are no longer a company based sofely on glass fiber o technology. Our offerings now Include scjTvmcsi - extracted arid exiaiM polystyrenes - vinyi windows, vmyl siding and fabricated products Tor a vanecy of thermal and acoustical markets for original equipment manufacturing. To better reflect our global strategy as & broad-based materials compart}', we havocl>srtged ihe Company name to Owens Corning, dropping the word Fiberglas. Our new ticker symbol, OWC, corresponds to the new name. Foe today and tomorrow, Owens Coming also is strengthened by an exceptional level of product and !?cmejval arcwanfehip. The science anti technology behind its proven performance make glass fiber a major contributor to energy conser<^;wn and ootsfort. Glass Rbei is also one of the most tested niaserials ever for health and safety In contrast, materials used as alternatives for giass fiber lack anywhere near Use sarise level of testing data and proven jjerldrmance. The same dedication to excellence found in our stewardship programs Is mirrored internally, where o-jr goal of developing a safety culture has made considerable Progress. 'Vimugh iewlerskjp actions, engineering design, ergonomics and the aggressive encouragement ofsafe I'lCtamcrf. we are cononualiy enhancing occupational health and safety to protect our v4u*6fe human assets. In September, we announced a newstrategic thrust for Owens Coming -a new way to do business which we call System Thinking". System Thinking enables our businesses to combine individual parrs and tasks with integrated solutions and processes. Its a shift from a product orientation to systemdriven solutions across ail our lines of business. System Thinking creates nature and h&ctit links that bring people and work together. Ujoins Owens Coming people, resources and capabilities to produce common, simple and global solutions. It adds value for customers doing business with Owens Coining. System Thinking is becoming pervasive at Owens Coming. You will see many examples of its competitive *dva/;?age forour business, und cur custcmws, as you read this report. System Thinking begins with our Core Values - easterner Satisfaction, Individual Dignity and Shareholder Value the principles ivftfcfc guide oD Wat ive do. ttfcrirfflg in concert, our value system loads the way we do business, focuses our priorities and better prepares us to pursue Owens Coming's aggressive growth agenda The first implementation, System Thinking for the Homer was jniroduced in September by our Buildissg Materials business. H will transform the way homes are built, marketed, maintained and Improved Building materials for the envelope of the home have typically been purchased ft la carte - one item at a time, one brand at, a time. Our research tells us tfiat & majority ofconsumers no longer want to buy that way. They dun's want to assemble a series ofuxlivkiual products for their projects They want integrated systems that address tfieir whofc need. Vie? wux.fysierx Thmking. Gy linking all of our products, iedtnical expertise and resources inti sciutoCKinunted systems.System Thinkirtg for the Home helps Owens Coming expand its scope to successfully compete in the larger, $ 132 billion home improvement market. We. can continue our heritage of growing by helping educate homeowners in how to maximize the value and oimfert oftheir iiomes. And, nf> can aggressively build sh>, gFowtfsjaewcategodfrs and generate additional sales. We expect the impact ofSystem Thinking will enable the Company's Building Materials business to grow at a rate up to twice the industry's rate ofgrowth. Todate, one of the most pervasive examples ofSystem Thinking at Owens Coming Is our Advantage 2000 information technology system and business process reengineering initiative. Launch**! in 1995. Advantage 2000 is more than half way through the two-year conversion of our 200 outdated computer system to aninterconnected intemsuotfal and operational Infrastructure. Advantage 2000 globally integrates our employees wiili a common, simple system Its direct and timely access to HtformaUonwill help them make better business decisions. It's on track to deliver $50 million in annual savings begmning in 1998. 0 To further enhance our understanding and implementation of common, simple ana' global systems, we're moving toward a process-based organizational structiire. This new structure is being focused on how we cart optimise, our resources, maximize our speed and simplify our processes to make Owens Coming the easiest company to do business with. in 1996, we expanded our new Rewards & Resources Program which sigjilficantly iirtfes employees' compensation and benefttn to the Company's performance. Fixed-<*isi benefit "entitlements' lave been replaced byvariable rewards 1n the fonn of stock, stock options, profit sharing, a cash balance plan and Oex credits. Our US. salaried employees aid many of our primary employees earned Oieir first awards under this program in 1996. Global expansion of Rewards & Resources to all employees is our goal. The awards arc* determined by the same performance measures which apply to our management incentive pay plan. Awards vary' depending upon Company performance and con generate considerable rewards Jbr profitable results. This is a leadin&edge program and an accomplishment of which we're proud. Owens Coming employees are sharing risks and rewards on the same basis as our shareitoldm We all do well only when the Company does well. in concluding the fifth year of our growth agenda, we are proud of the.acoorapiisfcments of Owens Coming's people in embracing change and strengthening our industry leadership. Noteworthy is their ability to consistently generate current growth while enhancing long-term sustainable value for our investors. Looking ahead to 1997, we see a clialienging year. Continued strong financial results will be tempered by a fugJier effective tax rate. We forecast the sales monymtum established in Building Materials in NorthAmerica to continue. We are expecting a turnaround in Europe in the second halfof the year. 1996 confirmed our growth agenda and the histone performance of our team provides us with every assurance that we will meet or exceed our demanding goals in 1097 We greatly appreciate your continued interest and support o To support our Co? of Indwticvl Dignity Owns Comag <josalPda new h&ia> mstyctb nelpunpwe raeUical tfewserw w ?reeo s/jnvwtknscar &us*ajupj{x pJant SuM^rtotglobal Erut>oiis soc-nsi in,% Habitat fw Huiirijfj. jhojni in Hyng*y copWbpuoris&four '!;> produois Thf etfets ad1.**".? Value &, rfaJBms.i'gotrsJo&aJ grwif' ageMa System Thinking": Stewardship Sr? a Company famous for PINK, green is also a very important color. One of Owens Coming's most comprehensive systems encompasses the Company's commitment to our world's life systems through product and environmental stewardship Propelled by Secern Thinking and aggressive goals for continuous improvement, Owens Coming views stewardship as a never-ending responsibility for our products throughout their entire life cycle. From their origins in our Science & Technology labs to choir ultimate end-use in our homes and the thousands of products that improve our quality of life, our materials are among the most extensively tested and monitored to safeguard the health and safety of our customers, employees and neighbors. To cultivate a safe workplace, we are using a strong socio-iechnical systems approach wltich integrates a safe working environment with safe employee behaviors in a supportive, leadership culture. Likewise, a safe workplace is one ofthe key goals in the engineering design of our products equipment and processes. In our manufacturing process, we are the world's largest user of recycled glass bottles. We've used some 4 billion pounds of recycled glass injust the past 117 years. In addition, waste from our Jackson, Tennessee, Composites plant is shipped i.o our Waxahachie, Texas, insulation facility, where two Our Environmental Affairs team has developed ESS, Environments! Support System, The ESS provides the environmental management population at Owens Coming a paperless resource for sharing, cataloging, preserving and easily retrieving environmental compliance requirements, implementation approaches, best practices and tools. In Environmental and Corporate Technology's labs, our science base is linked with our stewardship agenda and Environmental Affairs' database to develop proactive, systems solutions to environmental challenges. The Company's proactive steps in addressing environmental issues were acknowledged with the certification of our recycling efforts by Scientific Certification Systems. What's more, we are proud sponsors of mh _aj_. the Good Cents Environmental Home ^1 HAlJH HO jUMC.Huwntaae and EPA Energy Star Programs. ** In addition to the energy"efficiency and safety advantages of Owens Coming's high-quality products, our communities from the Company's focus on beii^g a good corporate UMtwdWsu citizen and a good neighbor. We arc; worksng dosely with local American Lung Association* II tnum*tionat HEALTH HOUSE projects to create &nd buM the healthy hornet of the future, with our Insulating System as a key component. Owens Coming people devote tlwusands of hours In locai volunteer efforts. Company dona tions ofproducts support recovery efforts from natural disasters. Such organizations as Habitat for Humanity,' GREEN sohooi/science program, Junior Achievement and The United Way1 receive considerable employee support. tlfcVe used sanet bdlion pounds c/ recycled ftbss in just the cast 10s ear* At oiir ^WfocPie,Tp**> flaulato* MnWy. toreof sna?er.&J freer, other Owrete Con4r$ ulastfs a* fwycted daily. o ftftgreds of panes ef snTonswycfi sfiow Owens CamJogs tectiM*, prouvets. systems, businesses a&fl fijshda! pertojTrtancc can 6M**y Ce s*sd as the Cottssjv's taertiet worti aide website, http wwowenwxerujtn-cm Owens Cotwj sQenustsdevewped T^uMeJC mwzero- w^sie container. Made tifasnhaJt, !c replaces Piper butVets svj a wmpkieV ntaJtabJe *Sththe prodon jJ store* A CacsBiiy team ftora Europe and the U S. assisted at 0 haWat forHamarwy IriwrauonaJ buJd m Hujs&ary.tn } W&. supported scierai Ha9ttalprojects Id S9S6,jncfe ihan ?Q0 compo'ere lepiacesJ b> ou? Advantage 2COD rotative were eontnUneit to tfcwm of schools 0 System Thinking I Application Development A system perspective led ta Owns Coming's An important growth area for composites is innovation of glass fiber composites nearly in the building and rebuilding of the world's infra 60 years ago. structure. Success breeds success as the world's 'Today, as materials technologies continue as developing nations employ glass fiber composites the critical agents of change in tens of thousands to meet the rigorous demands of outdoor, civil of products across almost every industry, System engineering and industrial environments. Proven Thinking is more important than ever. performance and System Tainking are expanding Owens Coming glass fiber reinforcement and the use ofglass fiber-reinforced products in textile product systems take form in a matrix of such areas as reinforcing rod for concrete unique compositions and processes. 'They 3dd systems, poles for lighting systems and strength, lower weight and resist corrosion for cabling for telecommunications systems, automotive, marine, household, recreational and In May 1996, a group of students industrial applications. Through enabling tac&wlcgies and processes, our composite systems combine with customer systems to advance the state of the art and to provide integrated solutions to complex design and engineering challenges. from Universidade de SSo Paulo in Brazil t'ompieted a project spanning six months to win the Gold Medal \Urun'?of(heCKs-eftS Offnmg Global Design Chain*#*. the in Owens Coming's Global Design "Kaiigaitw' bike is mdt *uh glass K*r Challenge. Eight schools from around and fcwujes a unique the world participated in the da*i$A. atliur.tabie for ccrc,n for94*fthe challenge to design a "world bike." world'* people In the award-winning Ford Taurus With innovative design and radiator support, Owens the use of glass fiber materials, the Coming glass fibers enabled a composite material to replace metal, yet support Fved <'injnasd 21 pans v<fl M,u-iibJ>* steps \vu)t itsgfnss renlxred SMC n*clat"i suppon students exceeded the competition's goal of creating a bicycle affordable for 85% of die world's population. The design the weight of several radiator has since attracted widespread interest from the components. The design flexibility and bicycle industry. Kecj-J Otto prwifcw. Cnnpofctes is icjtfcftj (f>c- ftwitivi<aj g)a* fk*s compc:'e Miir5 "5th an aagtcwnx: locus en no" pecddctsauaine* ajs'&rat.cns structural integrity available w&h composites enabled Ford to consolidate what formerly required 23 separate parts into a two-piece modular assembly. Our own operating performance and productivity improvements were In 1995, Owens Coming continued ro show its. strong commitment to grow markets in partnership with customers by opening a new* Application Development Center in Bangalore, India. The Center complements our Composites manufacturing jointventure in India. System Thinking and our evident in 1996 as Composite's earnings from advanced materials technology are merged there with ongoing operations were up 4 percent while sales customer designs and processes, it's positioned to were down 5 percent. The downturn reflected lead market diange and growth by translating our continued economic deterioration in Europe and global composites and building materials experience some softness in U.S. markets. and applications locally. Application Development Cuttow Apptofon SyiWn . ___ Connects Owens Owning unique ccsiUraiscn of protfuett, experience knowledge fo? tsctoueAl solutions so customer objecw* avl e^Ktaooisi Centers are also planned for China and Brazil. Srvk Sysftm <?wiis Ccrrjx# i cajwMtfc'i wplerr*** advanced pnxJixi deveiopmuitt sofotjwa and added `afce *ivx*j in iuve*'* of cusawers. ?dwtegy Symm MM*MMMMM, ,,, Enables she Cmnpanyro leap Jcrv.-aM vdth Uie mnovio( of iv.>w composite fnaienais and processes Predeel SytWwH The ffkr'feinibrcMtcrnperfKe naiwiaa. resins anrt erutoUng pre% common to ever* Oeens Cuming Compwite's ys'em SlawunIAlp S/oem OwwCoituj\6 unomianfis uni ss able a ptcoan* wear* and she enwnnsr,efit&IaW saFci^,* cScjnHvls oitcetwro'i.'s oarSees Cw^r.v Ccnvine iiwovwwn to W *w m ft* f* 60 years. W**5 ^ tf'Aj,lf' **'"** o System ThinkingTM: Market Development One of the most pressing priorities in the modernization of emerging global economies is the development of water transportation systems. Owens Coming's Engineered Pipe & Fabrication Systems business has utilized System Thinking to help more than 40 countries in Africa, Asia, Europe and Latin America to specify, design and Irtsfaif major systems 10 provide critical water and waste seivices to millions of people. Engineered Ripe & Fabrication Systems Is currently involved m some of the world's most important water projects including the 250 kilometer North/South Carrier in Botswana, the 70 kilometer Mutare project in Zimbabwe and the 35 kilometer JVaR project in Norway. Manufactured as a structural composite \ in diameters fborn 10 centimeters to 36G centimeters, Owens Coming pipe is strong, lightweight and . resists corrosion. The pipe is part ofa system which includes the local soil base, couplings and fittings, along with the water source Enrieere<5Vip*& tebncstrtr.Srtteins. \% respoistok tor dwctu^ in? $'0*V\ft*0ndSi 0f<*0 developing businesses and distribution infrastructure. In Botswana, the light weight pipe is made in longer 18-meier length sections (versus typical 12-meter lengths), to provide for easier transport and on-site handling, it also offers the advantage of being able to use less sections and fittings than other pipe. Combined with its weight advantages, its longer life-cycle cost benefits to the customer have made Owens Corning pipe a very competitive alternative to traditionaliron and concrete pipe. In lf&6, hew Engineered Pipe & Fabrication Systems joint-ventures in Colombia, Turkey and Egypt, were added to our global network. The Owens Coming OEM Solutions Group was formed to meet the demands of automotive, appliance, office furnishing and KVAC original equipment manufacturers for custom-engineered solutions to thermal and acoustical Insulation challenges. Tlte Group merges the resources and experience of Science & Technology's OEM and Acoustical laboratories, our Design Centerand our Fabrication Centers, with the design and fabrication capabilities of our SolEech and Fiber-Life acquisitions. This new, one-of-a-kind group now provides fully-integrated solutions which are helping the target industries weft single-source access for cost. reduction and speed-to*market. and ?asy'to-handJe. p<Esystecrs Born \ Owns Cemfig are 5infyirtg the ayialktionof infras^ntuurepresets- Hiav^^ds of fetometere of cniiwrscS pipe system a* bong iiwaJkd serosa ihe to feiiK irajo? water ttan$$et eyyems jgggsaru^.. ^"m"^a^ssSaI iIs--KfK'H.s.x.s..B...S..S..t.x..s..i ^garag_3CTf^jga;?ygCTr:lnar Tf# exp.wd* nesw* ctfgk*et pipe Beliaks and flamliiitxiis u BJuaraied along wuhoihei iniormauon on 0*ens ComrsgSuroque pip? mjterals sjsiefrs and growth The OSM ScfiuiKws Group conical a ttoarf processing and llnsrtilsig opab?5' nh expertise In maienal svsiwns <o aoJve sfcenra) and scouslica) design and manuldcta'Vg fire&knu o System Thinking for the Home"' System Vlinkingfor the Home is focused on new products. In 1996, Quierifone''' noise* educating and helping consumers understand how absorbing acoustic baits and PinkSeaT their home works and how to make it work better. expanding foam sealant were introduced. The compilation of Owens Comingb exceptional Introduced in 1994, Miraflex"' fiber enjoyed brand recognition, our extensive building-envelope added recognition for its innovation as this product portfolio and our technical expertise in past year's recipient of the National Energy thermal, acoustical and moisture-barrier systems Research Organization R&I) Award, and the translates ro lugb customer value. Popular Science "Best of Whacfc New Award." In September, Owens Coming introduced four systems designed to deliver notjust products but integrated solutions to help make homes a better place to live; Our new composite shake-style MiraVista" roofing product is otir first entry Into the $2.4 billion specialty roofing market. Expanded Sou O'Pak tackafiaw for MSKWm*" gsuSat' fcaiuringltraflpx' fit rrsfccs swage and ha v coAiymcfi * Insulating System - for total home production and geographic availability energy-efficiency and comfort for this unique residential roof Roofing System - for ultimate covering are underway following Its protection from the elements successful 1996 market introduction plus performance and aesthetics in Southern California. Sound Control System - for a Throughout 1996, Prominence far quieten more peaceful home Exterior System-for maximizing a home's teauty while minimizing In attiULnng (he srt%>dtiw buwwss ct f**ok (fu? fastitctiW iss comipwcw rtstikticn fcoliKt is* 50 ir.clurtc rrsoetal foud and Re.-ubte tan iniUaooft*vli*'* Of<fa:e si 5mpOfflttirM up ro laWDVWS'C sliingles continued as the most successful new product introduction in our iustojy. Ptnminence shingles are its maintenance time and expense. projected to generate a 65% sales increase For the majority of homeowners, in 1997. home improvement and maintenance As a whole new way of doing business, t.fihinao Vklcus (resides*, insulsiwi:. tnrjis s .'I fcoteJ opener** tyfJw "yOtoiX <rf n* tfoclnxw b*.MSS are complicated, time-consuming and cosily. They want an integrated system of products backed by useful, practical Information. System ThinkingJot the Home supports S<!0.*STOSHC! wvl nuRc the Company's professional contractor, 'J\-elocr`rit fc^taotCWnCwen;. builder and retailer customers, I'fttKlMW. Rcofui# ll will help build market Aspics Fot ^.sfiUJr'S'jl^' Jlfd demand which can increase C:M Afe*lU*OfM* Owens Coming has iotig been acknowledged as an industry leader in consumer education. To answer today's marketplace demands to their sales, anti our collective sales-per-home, in the new construction and home improvement segments. pi-odtict give consumers the dirii/KUt they the safety deesndecl by buiding rortos. simplify the process and reduce the On the strength of overall expense of home improve branding and integiating ment and maintenance, a major recent acquisitions and component ofSystem Thinking new products into Owens for the Home includes a package of homeowner information literature. A comprehensive, how-to" brochure 0*'*TM CorhUigJ. "to \ brarsd t*puriatf>. our newvwyl wliyfeift sv? sujjsyj are d^velopirig ronp?i!t*!ias sig/orapt ourt'ifcras^.-^'vgfcipe tywjoa. Coming's established distribution channels, Building Materials sales is available from our popular increased by 12 percent and earnings from I-800-OET-PINK Answer Center. ongoing operations increased 14 percent 0<er& Cornels BwMng ftfeterials portfolio for the year continues to expand wii h the introduction of T>c Syj/fi# 7htiikmpfw the fjon# totem?! sii? xfiti a fcrocftw. croillcu hwvvour Juan* worn wud Jwi t mue it wot* bcttei.* heSphecnewners pan *Rd caiq'ieip tlws'&tsiiiu^ajid rervWdjng proven SOUND CONTBO l SYSTEM /<***! System Thinking": Global Expansion The spirit of urgency and the satisfaction of closure continued to mark Ovens Coming's global growth agenda in 1996. The Coirtpw's global expansion is characterized by System Thinking with a clear balance in new geographic opportunities and a matrix ofproducts broadened by Varan KiioSo. present Suldin# Material# turope S Afra. ftaswribinei* sever# &wMivses to ox/e&H R&rJtec share a*!$r* across l'vo cwitSients acquisitions. The Owens Coming mark and the Pink panther are establishing our identity and building our global brand recognition. In 1996, the Pink Panther made its debut as Owens Coming^ "spokes* critter'' in Europe, China and Latin America to leverage the differentiation of our PINK brand signal in new geographic markets. We focus on niche UnpucedetuM pft&cal srjj eccf-cnac iMinve#unen* as thc rebate geoeraUn :rar*- RuSas S&en#s arts Car$xitet tVPofltaWrt is Cbc business tc- Hk IhPssquaSs, PfradWR. i*un inwfvca acquisitions which complement our product systems and offer immediate opporumits.es for new global sales. The success of that strategy continued to resuit in very positive growth durittg the past year. The Specially and Foam Products Business was formed by organizing several success ful acquisitions into a biisiness unit - and in 1996, Linpac and Ceifortec, former rigid foam licensees in Europe and Canada, respectively, were added. In addition, ,i mrxtff el#oen#tc expansion. retai ctenrvtf erpansfon and icqaiakiofi isdrMtejitrewth for the bunrstsses IS by terry Weiatesi, president. Specialty &M Foam Products rite business includes Owens Coaming's windows unit, also enhanced bv acquisition. Collectively, the business will contribute approximately $250 million in sales this year to Owens Comkig's growth. And, it has extended our reach into several countries and markets. Owens Coming acquired a majority interest in Acoustical fibreglass Insulation ofSouth Africa. A long-standing licensee of our technology, AFI *| facilities pn>d5jce glass 5ber building insulation, composites and rock mineral wool products. The new entity, Owens Coming South Africa, provides a market leader position to participate in the region's growth and development. The Asia Pacific region is growing at twice the rate of the world's industrial economies. And, Owens Coming has a strategic sales and manufacturing infrastructure in place to take advantage ofthe great opportunities for growth. Aggressive market development and brand building in our Asia Pacific building materials and composites businesses are expected to grow our 1996 sales of $35 million to S250 million in 1999. We will soon have four plants in China and have already been awarded Recommended Products Supplier Status by the government. We are actively developing new insulation applications by conducting country-wide Witheneruiv* GwifuuKs a&t Sullding Mite-rials expwtetc*. CutKedlwd. prwtfem,Asa. Pacific, spearheads ourefforts to ductop eiwmwas giwili r.pwiuraiks <4 the )a's bum! d>ratmc resjoa energy conferences and by helping to establish modelbudding codes. The international trade agreements being forged today are opening the markets of tomorrow for companies pursuing a strong global position, including Owens Coming. 1997 promises to be an important year for international trade issues and legislate. We encourage our employees, customers, suppliers and shareholders to join our Company In support of these critical growth activities. 0 X wwW ofnews and Btfomuoui on Owens Coitu^S gkfcalaitton are ctvadafito si the COfitcapys wofM wWe woPIniemH site By ac<*tarwg Linj-ar in E>aope and Ccifortec of Canada, former 3cen$e*s of exvudcd pctystyrcne fcain inJinolo, e havereduced tr* mk andaccelcraoa the tone to expaitf our product ponioto mto oegeographies Thenew AppkatfMS Devekipfne* Center ip Bangafcte, India, t?an*lai tfie Conifotyj gfefaf app6(**t experience to this greying regwisai nur*H anO wqsporu our nianufsc!isajcg(ii ventwe. T^e Pmi Panther is Ohms Coming* <uiA*ads ferwand grouih we expand air PKK presence snd our product marketing inihe worths entering aowwnvcs System Thinking"; Business Services To lead the markets of today and the future, Increased point-of-purcha.se merchandising, products alone are insufficient to build and sustain competitive advantage. training and traffic-building promotions, plus important infoimation"drivcn services such as White our high-quality product. systems category management and vendor managed provide a better home envelope, our menu of Inventory, provide high-value assistance to home added-value business services and resources improvement retailers for sj>ace and merchandise is also broad and deep. management, forecasthig and logistics. In 1996, Owens Coming The Customer Solutions redefined its System Center extends the non- Thinking business services product vat'ue advantages for customers in its contractor, of System Thinkiiig by bolder and retailer channels. simplifying and speeding The Seadtng-edge services cusiotner transactions and include sales, technical arid administrative activities. installation as weti The process stream as complete systems for lining of our Advantage 2000 electronic commerce and information technology informatiomririven processes. iniriative and the produc Owens Comings Contractor Success System offers remodeling Itie Safari*?? H.U!tn* is one <42* Sysim Vw <'h"S homes &>ir.| Udt ivah Scf>?a De-H&n ihrc<ig!Vot Sl-J I.' a to wokl^a sAvnss,- tor balder ani) home hujei <-.k?'3iJih tivity systems of our new World Headquarters have also increased our and specialty contractors selling, ability to satisfy our customers. Already it information, marketing and fmancing has helped us to centralize our North arrangements to help them build and American customer service function by close more sales. using its commonality and tools to The System 'Flm}di\g''BuUcter eliminate redundancy, wliite providing Vi'ih .1 lcx un hWp^ firaonier* (ncrri!*? :\'&i aksAivJ r^cJjce tfio auilnsMsteuaS Sttes ?< Dwr*uticn yiv^ng grc-vih fix our eT*xk'!i f/orJi;r S*irtfol>o iedsw C%re Riwn pr^<idsi? &iL'L4MaraS' So$ k Distribution Alliance is another comprehensive program of educational and sates tools designed to help new hone builders leverage System Thinking ro soil more homes. One of the more visible examples of System Thinking's value realtime data to speed our response. linked with System Thinking, our new business tools and work environment enhance our common, simple, global solutions. Again gs J99S. ou firiar.ditf group DavW Dowis^ure. cfii# nnaica) yfftcer. as tosoetc *ith the CrO A'avaunt UEAfH 5"*/i a* OM of ArresMi B*'-> will be seen in the 24 Scholz Design Inc. demonstration homes being built across North America. The Seholz homes feature all four of Owens Coming's bidding materials systems and preside a slsmvease for consumers and professionals to loam more about bettor constmcdon with System Thinking. Tlxr0win C0m2MarkingStffccos Cu$r u* a retail labiirawryftrdevtf&p's^lflwhasv ilsjfigpragraiia To heip our Baidas MatftiaJs cdKOTf^rs increase iaMs r'tve aignkvu ir&^erces gove-ns th^nc* business pwtese> cabled by ite cwitmirorary *wk systems of Advantage 2O' nur new Wwa Headquarters Cuatixoc? focus. Te&mu^. Ln-puiS Papvrfrw as? MoteeptilobaJ. Management's Discussion and Analysis (All per shat* vijfinnatiou WiXr <s <ni nfully diluted basis AU rtfentnc#* to results/"ww on$otng operactons exclude ti\* impact qj $)#aal stems ntponntfortli* reievatu period) Income from Ongoing Operations* (Ik titl*o'is tfa<Mtan) Net Income from Ongoing Operations* I'M <ntUims <jI) 550 *.*.?((<let !Wto tjm$ Results of Operations Net sales were 13.832 Mon for the year ended December 32,1996, reflecting a 6% increase from the 1995 level of $3,612 billion. Net sales in 1994 were $3,351 billion. Most of the 1996 growth te attributable to volume increases in the Building Materials segment, partrculariy in North America, as well as incremental sales growth resulting from 1995 and 1996 acquisitions. Please see Notes 1 and 5 to the Consolidated Financial Statements. Safes outside the US. represented 26% oftola! sales for the year ended December 31, 1996, compared to 27% and 24% for the years 1995 and 1994, respectively. The strength of US. Building Materials sales in combination with sluggish European Composites business contributed to the slightly lower percentage of sales outside the U.S. when compared to 1995. Gross margin for each of the years ended December 31,1996 and 1695 was 26%, up from 24% in 1994. Gross margin in 1996 was adversely impacted by the lower sales volume in die European Composites business. For the year ended December Si, 1996, the Company reported a net loss of $284 million, or 15.50 per sham, compared to net income of 231 million, or $4.40 per share, and net income of $159 million, or $3.35 per share, for die years encted December31,1995 and 1994, respectively The 1996 net loss reflects a net after-tax charge of $542 million, or 10.49 per share, for asbestos litigation claims that may be received alter 1999 and preba&le additional insurance recovery; after tax special charges totaling $2? million or $.52 per share including valuation adjustments associated with prior divestitures, major product line productivity initiatives and s contribution to the OwensComing Foundation; an after-tax charge of $26 million or $.50 per share for restructuring and other actions; a $27 million or $.52 per share reduction of tax reserves due to favorable legislation: and an after-tax gain of $27 million or $.52 per share from the sale of (he Company's interest in its former Japanese affiliate, Asahi Fi5>er Glass Co. Ud. 'the net loss created by the special items mentioned above caused common stock equivalents and convertible securities to be excluded from the number of fully diluted shares reported In 1996 due Co their anti-dilutive effect. For comparative purposes, these antj-dilultve shares have been included in the calculation of fully diluted net income per share from ongoing operations In 1996 and represent a difference ofS.32 per share. Net income from ongoing operations was $257 million, or 54.65 per share, for the yea? ended December 31,1996, compared lo $223 million, or $4,25 per stare in 1995, discussed befow 'die 15% increase in net income from ongoing operations in 1996 over 1995 reflects the benefits of acquisitions, strong results from Building Materials in North America, particularly in the roofing and foam businesses, and a favorable litigation settlement with a former supplier, offset in part by increased administrative costs from regional expansion into AsiaPacific and globallywithin the ergineered pipe system business. Please see Notes 8,12,18 and 21 to the Consolidated Financial Statements. Net income of $231 million, or $4.40 per share, for the year ended December 32,1995 reflects a one time gain of $8 million, or $.15 per share, resulting from a tax loss carryback. Net income from ongoing operations for the year ended December Si, I99?5, was $223 million, or$4.25 per share. Please see Note 8 to the Consolidated financial Statements. Net income of $159 million for live year ended December 31,1994 iitcluded the following special items: an after-tax*gain of $123 million, or $2.45 per share, reflecting a change to the capital method of accounting for the rebuilding of glass melting facilities; an after-tax charge of $85 million, or $2.6# per share, ibr prextoeifiy Initiatives and other actions; a non<ash, after-tax charge of $ 10 million, or $.20 per share, to reflect adoption of Statement of Financial Accounting Standards (SPAS) Wo. 106, Ffmployers'AccountingforPostretiremenl Bemefils Other Than Pensions, for plans, outside the United States; and a non-cash, after-tax charge of $28 million, or $.56 per share, to reflect adoption otSFAS No. 112, frmploycrs'A&ounlingft# fostemptopm# Benefits Please soe Notes 6,18 and 19 to the Consolidated Financial Statements. o Industry Segment Date //v -jJiwnj ofdoOnri) Net Sales $3,832 In the Building Materials segment, sales increased 12% for the year ended December 31,1996 compared to 1995, This growth reflects volume increases, particularly in North America, as well as incremental sales from 1995 aid 1996 acquisitions offset by a slight decline in prices, particularly in Canada- Income from ongoing operations /or Building Materials increased 14% from 1995 levels due to acquisitions, increased sales volumes and the improving performance in our Asia Pacific operation. M&er&is lontpoiue Aerials *2,887 $1,145 Building Materials sales in the US. increased 11% and Canada also posted improvement in 1996. This improvement in the Hath American markets is being driven by the Company's integration of its expanded product line from acquisitions and branded products into the Company's well estab lished channels of distribution. The expanded product line Includes l-uminess'` vinyl window's, Transitions* vinyi siding and FOAMULAR rigid polystyrene foam insulation. The third quarter 1996 acquisition of Celfortec, a Canadian producer of FOAMULAR* insulation, also contributed to Building Materials growth in North America. Building Materials Europe sales increased 11% over 1996, primarilyfbrrt the second qtarter )996 acquisition oithe extruded pofy'styrene fo&n business of iinpac Insulation, with production facilities in the UK. and Spain. With these acquisitions in rise extruded polystyrene foam operations in Europe and Canada and the joint venture announced in 1996 to produce foam insulation in Cliina, the Company has significantly expanded its global position in the foam insulation business as part of the Company's global building systems strategy*. Ircome from Ongoing (orations* S503 J Materictz Ccxnpxuc Ibte'tot*. 526$ 5234 vm* kw*w tt* fUiaiic.at In 1996, the Company's roofing business continued to increase sales and improve margins through volume increases and productivity initiatives. The window business also continued to experience significant sales growth and productivity improvements during the year Additionally, in second quarter 1996 the Company acquired the US. assets of Parish Insulation, a producer of rock mineral wool insulation, which has expanded the Company's insulation product offering into the high temperature insulation market. The Company further expanded its Building Materials multi" product offering in 1996 with the introduction of the branded products, Bild-R-Tape* used to seal sheathing joints and PinkSeaT foam sealant. In the Composite Materials segment, sales decreased 5% for the year ended December 31,1996. This sales decrease is primarily \hp. reskilt of sluggish European reinforcements business as well as a decline in the Canadian market, while in theU.S., composites sales remained relatively fiat. Income from ongoing operations posted a 4% increase over the prior year, reflecting improved operating performance and productivity improvements, particularly' in the U.S. In 1996, the Company announced throe new large diameter glass reinforced plastic (OR?) pipe joint'rent-ores, one in Colombia, Egypt and Turkey. GUP pipe ts used primarily in-water and wastewater systems. In addition to these ventures, the Company also fomied an application ,, development center in India anc announced plans for similar such centers in Brazuand China, to develop and promote the use of composite materials as a replacement of more traditional materials. At the end of 1996, the Company announced the acquisition of the remainder of the equity interest in Knytexf a manufacturer of specialty glass fiber ?brics. This business which knits, weaves, stitches or bonds glass fiber to provide value-added performance characteristics, will be combined with the Company's existing European specialty fabrics business to form Owens Coming Fabrics. The Company's cost of borrowed funds for the year ended December 31,1996 was 577 million. $10 million lower than 1995. The average total dan outstamiing during the year decreased substantially in 1996 compared to 1995 as the result of the mid-year 1995 conversion of $173 million of the Company's 8% convertible.junior subordinated debentures into shares of common stock, combined with the issuance of $200 million of convertible preferred securities. In 1996, the Company averaged short-term debt of $120 million, approximately $55 million lower than in 1995. The average debt reduction, together with lower average short-term Interest rates, contributed to o Geographic Segment Data (in ludhwiSQj'drtlarsi Net Sales $3,832 the lower cost of borrowed funds in 1996. Additionally, due to several large construction projects, interest capitalized In 1996 increased about S4 million over 1995. Please see Notes 2 and 3 to the Consolidated Financial Statements. At December 31,1996, certain of the Company's foreign subsidiaries and state tax jurisdictions, have combiited tax net operating loss carryforwards, the benefit of which is approximately $63 million. The Company has $580 million in net defeued tax assets at December 31,1996, all of which management expects will be realized through future income from operations. Please see Note 8 to the Consolidated Financial Statements. t*i>/d Starts S7.866 4 Kuivpc S694 Cwida atut er $272 liquidity, Capital Resources and Other Related Matters Cash flow from operations, excluding proceeds from insurance and payments for asbestos litigation claims, was $501 million for 1996, compared to $342 million for 1995. The increase in cash flow from operations in 1996 relates to an increase in accounts payable and accrued liabilities offset in part by an increase in inventory. Additionally, 1995 cash flow from operations was reduced by $64 million for the December 1995 handing of a Voluntary Employee's Beneficiary Association (VEBA) trust.. The 1996 cash flow from operations reflects the disbursements for benefits from the VEBA trust and collection of a tax receivable. Please see Note 6 to the Consolidated Financial Statements. Income from Ongoing Operations* $503 At December 31,1996, the Company's net working capital and current ratio were negative $163 million and .85, compared to negative $9 million and .99 at December 31,1995, and negative $141 million and .87 at December 31,1994, respectively. The decrease in 1996 was primarily due to increased accounts payable arsd accrued liabilities, and also a larger current astestos liability, offset somewiiat by increased inventories. Excluding the impact of short-term borrowings used to finance a $110 million UK. acquisition in June 1994, the Company's net working capital was negative $33 million and its current ratio was .97 at December 81,1994. S Cnnatlaand tiifw' $445 $67 $31 'jcti"Jn ec'yy^aic rrp*Ki<: <>[ w* r'hif I a> Oiasf/daJorf SiW'nma The Company's total borrowings at December <31,1996, were $934 million, $41 million higher than at year-end 1995, still within the Company's target debt levels. The increase in debt is primarily the result of acquisitions and increases in inventory levels. During 1995, virtually all of the Company's 5173 million issue of 8% convertible jxuilor subordinated debentures were converted. Debentures not converted were redeemed for cash. The conversion resulted in the issuance of 5.8 million new shares of common stock. Also in 1995, Owens-Coming Capital, L.L.C., a Delaware limit,od liability company, of which afl of the common limited company interests are indirectly owned by the Company, issued $200 million of 6.5% cumulative convertible preferred securities. The proceeds from the issuance were loaned to the Company and partially used to repay a short-term credit facility. Please see Note 4 to the Consolidated Financial Statements As of December 31,1996, the Company had unused lines of credit of $440 million available under long-term bank credit facilities and an additional $195 million under short-term facilities, compared to $358 million and $239 million, respectively, at year-end 1995. The net increase in unused available linos of credit reflects primarily a decrease in outstanding letters of credit supporting appeals from asbestos trials. Such letters of credit reduce credit availability under the Company'-* long-term US. credit facility. Capital spending for property, plant and equipment, excluding acquisitions, was $325 million during 1996. The Company anticipates 1997 capital spending, exclusive of acquisitions and investment in affiliates, will be approximately $210 million. The Company expects that funding for these expenditures will be from tlie Company's operations and external sources as required. Capital Spending <' niHUons<ydoUan) Total Debt (> aillums qj Gross payments for asbestos litigation claims during 1996, including $44 million in defense costs and $11 million for appeal bond and other costa, were $267 million. Proceeds from insurance were $101 million resulting in a net pretax cash outflow of $166 million, or $100 million afteMax. During 1996, the Company received approximately 36,400 new asbestos personal injury cases and closed approximately 22,700 cases. During 1997, the Company's total payments for asbestos litigation claims, including defense costs, are expected to be approximately $300 million. Proceeds from insurance of $100 million are expected to be available to cover these costs, resulting in a net pretax cash outflow of $200 million, or $120 million after-tax. Please see Note 21 to the Consolidated Financial Statements. Hie Company expects funds generated from operations, together with funds available under long and short term bank credit facilities, to be sufficient to satisfy its debt service obligations under its existing indebtedness, as well as its contingent liabilities for uninsured asbestos personal injury claims. In June 1996 the Company filed a lawsuit in federal court in New Orleans alleging a massive scheme to defraud the Company in connection with asbestos litigation cases. The suit alleges that medical test results in tens of thousands of asbestos litigation claims were falsified by the owners and operators of certain pulmonary function testing laboratories. A second lawsuit, alleging similar practices, was filed against the owner and operator of an additional testing laboratory in February 1997, The Company believes That at least 40,000 claims in its current backlog involve plaintiffs whose pulmonary function tests were improperly administered or manipulated by the testing laboratories or otherwise inconsistent with proper medical practice. The Company has been deemed by the Environmental Protection Agency (EPA) to be a potentially responsible party (PRP) with respect to certain sites under the Comprehensive Environmental Response, Compensation and liability Act (Superfund). The Company has also been deemed a PRP under similar stale or local laws, including two suite Superfund sites where the Company is the primary generator. In other Instances, other PRPs have brought suits or claims against the Company as a PRP for contribution under such federal, state or local laws. During 1996, the Company was designated as a PRP in such federal, state, local or private proceedings for five additional sites. At December 31,1996, a total of 39 such PRP designations remained unresolved by the Company, some of which designations the Company believes to be erroneous. The Company is also involved with environmental investigation or remediation at a number of other sites at which it has not been designateda PRP. The Company has established a $17 million reserve for its Superfund (and similar state, local and private action) contingent liabilities. Based upon information presently available to the Company, and without regard to the application ofinsurance, the Company believes that, considered in the aggregate, the additional costs associated with such contingent liabilities, including any related litigation costs, will not have a materially adverse effect on the Company's results of operations, financial condition or long-term liquidity. The 1990 Clean Air Act Amendments (Act) provide iliat the EPA will issue regulations on a number of air pollutants over a period ofyears. Until these regulations are developed, the Company cannot determine the extent to which the Act will affect it. The Company anticipates that its sources to be regulated will include glass fiber manufacturing and asphalt processing activities. The SPA'S announced schedule is to issue regulations covering glass fiber manufacturing by late 1997 and asphalt processing activities by late 2000, with implementation as to existing sources up to three years thereafter. Based on information now known to the Company, including the nature and limited number of regulated materials it emits, the Company does not expect the Act to have a materially adverse effect on the Company's results of operations, financial condition or long term liquidity. Ten-Year Summary of Operations (In millions ofdollars, eurepi share data) Net Sales Cost ofSales 1996* i996`u 1994^ 33,832 $3,612 $3,351 2,834 2.670 2,536 1993e" 1992"' 1991" $2,944 $2,878 $2,783 2,266 2,234 2,186 i990"> 1989"' $3,069 $2,964 2.304 2.161 1988* $2,798 1,999 1987^ $2,857 2,129 Marketing, Administrative and Other Expenses Science and 'technology Expenses Income (Loss) from Operations Cost of Borrowed Funds uia 452 518 373 366 1,171 414 323 278 258 84 78 71 69 66 54 58 48 44 43 (504) 412 226 ' 236 213 (628) 293 482 477 427 77 87 94 89 no 131 165 166 170 221 Income (I/Oss) before Provision for income Taxes {581) 325 132 147 103 (759) 128 266 301 343 Provision (Credit) for Dicoine 'l^xes 1288) 106 58 47 33 (238) 58 103 127 13fi N Income (Loss) (284) 231 159 131 73 (742) 72 172 189 200 Net income (I/oss) perSfiare (Fully Diluted) 15.50) 4.40 3 35 2.8J 187 (18.13) 173 4.08 4.51 4.81 Weight Average Number ofFully Diluted Shares Outstandir^ (m 'itu^usands} 5i722 Net Cash Flow from OperiUions 335 Capital Spending 325 Total vXssets 2913 Total Dc*l 934 Average Number of Employees (in Thousands) 19 54,106 285 276 3.261 893 17 50,025 233 258 3.274 1^12 17 49,410 253 178 3,013 1,004 1? 48,844 192 144 3,162 1,099 17 40.924 253 114 3,511 1,172 17 42.019 361 146 1307 1,300 18 42,170 395 143 1.924 1,482 20 41,856 360 145 1,596 1,444 20 41,583 290 106 1,590 1,635 21 l<s) Duung 1996. die Compo >j recorded a p'O-tax charge of SSrt millionfur rettruetunng and a netp'e-tazcharge of$d?5 millionfur asbestos litigation cla'nis o<al man be nvened after H)09and prowtN aMn nowaf ju*a nee recoi erg, a pre-tax pain CtfS3? millionfrom the Stic of the Company's oavership interest m rii Utpaiese affiliate Asahi Fiber Glass 0? Ltd. and special charges lofalt'ig S43 milhort including ioliuattm ad/ust- 1ws associated uilh priordivestitures, majorproduct lineprtdwctmty imlialue&ondo contiibmion <0 die OitenS'Conmig Fouiukmcm. (It) Dioiiig 199\ she Company recorded a we tune SB 'nillton lazaedliasa /esoll ofa tciz tossca'ryback <ej Dunng t99i, theCompany recordeda SIl? million charge ($39 million tifter-mx)forpnxiucitcity fivcticesQ'td otheractions Thr Company else worded n $10 million offerlexchargefor theadoption ofSr.AS 10$. 1 Employers'ArccrunnngforPostretiremens IkmefUS Other Than Pensions"fur its non-VS plans. *$28 miiliun affgrjaz chargefar Ihe o/topiion ofSTAS 1th ` Employers AccountingforPiurmploymeut kenefit\"anda S/23 million aftertax creditfor il\c change in acciuitting methodfor eetwtidlitQfurnaces (l) Dunr>g 1993. a<c Company rcrordett u $23 million chargeJb' tfto >vi1rdcft.nyof its European operations, on 18 w>Wj*s ohaego {S$ mtUttm oJte'VLC)J0r me x-nt^kHcn.of Us hydrocarbon ventures to their net realizable ixtlue, % $26 milium creditforthe adoption ofSEAS 109, "Acconmipfor Income flues.~and aSIA million credii forthe revaluation of ctife-rea lares (e) During 1993, (be Company recanted a 516 mdHon charge (Sit million nfcrnac) fo reorganize the Company's Buitdvtg Materials segment andto centralize the Company^ accounting itutd information system* The Company also recorded a ne* extraordinarypal* ofSI million resultingfrom the atdilation ofjarloss carryfoiwarcls, partially offcet by a loss on the*sriy lecirement ofaebl (.ODwing 199/. the Company recorxled a won-recurring S82t millioncharge ($162 nnllton afer-taxjforasbestos litigation claims and <t S3t7 nttlltcm after-tot chargeforthe adoption of$FAS !0f>. 'Employers'Accountingfb' Pastmtranctit Benefits Other Than Pensions"for h.t VS plasis fgf Duntg 1990. the Company recorded a SCf million resiruclunxa charge sxA a S24 aui/jot} pre-tax choigeJbr asbestos IlltgalWh (hi Dunng 1989. it Company nxoirtedan additional SbO mlhon in us existing asbestos-related claims resen es. a $50 million credit resultingfront asealemeni reached with the IRS. anda nssin-rfiWup charge cf $30 hi banng 1983, the Company recorded an S3 million extraordinary toss nsvlcingfixm the tarty retuement ofdebt (j) Duwiq 1937, the Company recorded 0 pata of S141 miUion resultingfivm she suieoflheAerospace and StrategicMagnate Gtoitpandadillmtttcn extraordinary loss <tsuhOtgfiom the early muremmitofdebt Price Range of Common Stock First Quarter Second Quarter 'Third Quarter Fourth Quarter 1936 High Low 46 43V* 43 43 V* 39V* 37 V* 36 36 V* 1995 High Lew 36y. 30Y* 40 34V47'4 26% 46* 40% High 46 26% 3oV. 33V* 1994 Low 33% 30% 30% 27* In June 1996. the Board of Directors of the Company approved art annual dividend policy of$25 per share ofcommon stock and declared a dividend of $.0625 per sfiare <4 common stock to stockholders of record on September 30.1996, paid on October 15,1996. The Company had not previously declared any dividends since 1980. in December 1996, the Board ofDirectors of the Company declared a dividend of $.0625 per share of common stock to stockholders of record on December 31.1996. said on January 15,1997. lb the Stockholders of Owens Coming: Report of Independent Public Accountants We have audited the accompanying consolidated balance sheet of OWENS CORNING (a Delaware corporation) and subsidiaries as of December 31,1996 and 1906, and the related consolidated statements of income, stockholders' equity and cash flows for each of the tliree years in the period ended December 31,1996, These financial statements are the responsibility ofthe Company's management. Our responsibility is to express an opinion on these financial statements based on our audits, We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable ffisurartce about whether the financial statements are free ofmaterial misstatement An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the aceountirtg principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in ail material respects, Use financial position of Owens Ccarting and subsidiaries as of December 31,1996 and 1995, and the results oftheir operations and their cash flows for each ofthe three years in the period ended December 31,1996, in conformity with generally accepted accounting principles. As discussed in Notes 6 and 19 to the consolidated financial statements, effective January 1,1994, the Company changed its methods of accounting for postretiremen?, benefits other than pensions for its non-TJ.3, plans, postemployment benefits and furnace rebuilds. (J^iZJUA^y dLLp January 18,1997 Toledo, Oluo Management's Report The financial statements of Owens Coming and subsidiaries have been prepared by management in conformity with generally accepted accounting principles. Management uses its best Informed judgments to ensure that these statements fairly reflect the Company's financial position. Financial information contained elsewhere in this annual report is consistent with the financial statements, The Company maintains a system ofinternal accounting controls designed to provide reasonable assurances that assets are protected from improper use and that transactions are properly authorized and recorded. The Board of Directors pursues its responsibility for overview of the Company's financial statements through its Audit Committee, which is comprised of directors who are not officers or employees ofthe Company. The Audit Committee meets periodically with management, the Company's internal auditors, and the independent public accountants to review and assess the activities of each in meeting their respective responsibilities. The independent public accountants and the* vice president of internal auditing have full and free access to the Audit Committee to discuss the scope and results of their audit work, the adequacy of internal accounting controls, and the qtiaSty of managements financial reporting. Glen H. Miner Cliainnan and Chief Executive Officer / 6/ David W. Devonsltire Senior Vice President and Chief Financial Officer ft Steven J. Strobed Vice President and Controller Consolidated Balance Sheet December Si. 1996 and 1995 (In mUtions ofdollars) Assets Current Cash and cash equivalents Receivables, less allowances of $17 million In 1996 and $19 million in 1996 {Note 10) Inventories (Note 11) Insurance for asbestos litigation claims - current portion (Note 21) f Deferred income taxes (Note 8) VHP *. trust (Note 6) Income tax receivable Investment in affiliate held for sale (Note 12) Other current assets Total current 1998 1995 S 45 $ 18 314 m 340 253 100 100 106 70 19 51 4 50 -- 36 30 35 858 927 Other Insurance for asbestos litigation claims (Note 21) Deferred income taxes (Note 8) Goodwill, less accumulated amortization of $26 million in i996 and $19 million In 1995 (Note 5) Investments in affiliates (Notes 5 and 12) Other noncurrent assets (Notes 6 and 7) Total other 454 474 288 64 155 1,433 330 252 249 50 M7 1028 Plant and Equipment at cost Land Buildings and leasehold improvements Machinery and equipment Construction in progress Less: Accumulated depreciation Net plant and equipment 58 614 2,384 285 3,341 (13191 1,522 52 581 2,266 168 367 0.761) 1306 Total Assets The accompanying summary ofsignificant aawnting policies and mites arc an integral pan ofihvi sialemsnL S 3313 $ 3,263 Consolidated Balance Sheet December^!, IP96 and J995 (7n mJUkms 0/dollat*) Liabilities and Stockholders' Equity C&rant Axotmis payable and acewed Mattes (Hote 13) Reserve for asbestos litigation claims - current portion (Mote 21) Short-term debt (Note 3) Long-term debt - ament portion (Note 2) Ibfa) current Long-Term Debt {Note 21 Other Reserve for asbestos litigation claims (Note 21) Other employee benefits liability (Note 6) Pension plan liability (Note 7) Other (Note 20) Tbtal other Commitments and Contingencies {Notes 15,20 and 211 Company Obligated Convertible Security of Subsidiary Holding Solely Parent Debentures {MIPS, Note 4) Minority interest Stockholders' Equity Preferred stock, no par value; authorized 8 million shares, none outstanding (Note 17) Common stock, par value $.10 per share; authorized 100 miffion shares; issued 1996 - 52.1 million and 1995 - 514 million shares fNotes 2,5 and 16) Deficit Foreign currency translation adjustments Other (Note 7} Total stockholders' equity Total Liabilities and Stockholders' Equity Consolidated Statement of Stockholders' Equity fal*e uearsendedD*yrmi#r,V. I9P<$ >05and 1994 'In mtiitms cfdotbrn:1 Common Stock Balance beginning ofvew toancrofstock for. Conversion ofdebt CNote 2) Acquisitions (Note ft) Aswtis uiKkr stiyk compensation plans (Note 36) Balwn* end ofyear Deflect Saiarioe tves&rauAgofyea; Netiftxn* (loss) C*sfc dividends ticciarW Balance end ofyear ftre^n Currency Transition Adjustments Bnlwva beginning of year 'translation adjustments Bsbs^ceendoJyear Otiter Bdian-p beginningofsw tir<ro <d*xe*) Balance endofyes* Stockholders' Etjufty tV OtwT^i>3fV?i(a TM qls^nykarti aaxmnrtni) policies a*td 'wtea arv on inxegrai pun QfViis sSQicrn&u o 1996 1995 t 706 $ 587 306 250 96 64 20 35 1,121 936 sia 794 1,670 349 63 161 2,243 887 367 75 220 1,549 194 194 21 -- 606 {1,072} (1) ______m> (464} $3,913 579 (781) 9 09} (212) $3,261 use isar> im * 579 5 -- 20 7 G06 348 t 373 42 16 579 335 ... 27 s $46 (7B13 (284) (7} (1,0721 0,012) 283 (761) (1571) 159 -- (1012) 9 Cl) m io (11 9 5 (6? (0 m os) 2 (4) (18) 3 (17) 09) 05) ft (484) $ (232) i (680) Consolidated Statement of Cash Rows Faris years ended December 31,1996,1995and 1994 (JnnMionsofdoiiars) Net Cash Flow from Operations Net income (toss) Reconciliation of net cash provided by operating activities; Noncash Items: Provision for asbestos litigation claims (Note 21) Cumulative effect ofaccounting dtanges (Notes 6 and 19) Provision for depredation and amortization Provision (credit) for deferred income taxes (Note 8) Other (Increase) decrease in receivables (Note 10) (Increase) decrease in inventories Increase (decrease) in accounts payable and accrued liabilities Disbursements (funding) of VEBA trust (Note 6) Proceeds from insurance for asbestos litigation claims (Note 21) Payments for asbestos litigation claims (Note 21) Odier Net cash flow from operations 1996 1995 1994 S 1284) $ 231 $ 159 875 132 {258) 7 20 <71) 103 45 101 {267) IBS) 335 __ -- 126 142 5 36 (15) (50) (64) 251 (308) (68) 285 -- (85) 118 59 9 21 17 53 -- 87 (215) 10 233 Net Cash Flow from Investing Additions to plant and equipment Investment in subsidiaries, net of cash acquired (Note 5) Proceeds from the sale ofaffiliate (Note 12) Other Net cash flow from investing (326) {70) 55 (20) (360) (276) (81) _ (4) (361*) (258) (120) -- 23 (355) Net Cash Flow from Financing (Notes 2,3 and 4) Net additions to long-term credit facilities. Other additions to long-term debt Other reductions to tong-teim debt Net increase (decrease) in short-term debt issuance ofpreferred stock of subsidiary, net of fees Dividends paid Other Net cash flow from financing 38 55 22 9 (43) (128) 32 (94) 194 {3> __ 3 __ 50 36 10 145 (51) 69 -- 5 178 Effect of exchange rate changes on cash Net Increase (decrease) In cash and cash equivalents Cash and cash equivalents at beginning ofyear Cash and cash equivalents at end ofyear 2 0> 27 (41) 18 59 $ 46 $ 18 $ -- 56 3 59 The accompanying summary Qfsigrstfuxvk accounting policus and notes arean mtegral pan qfihis statement Notes to Consolidated Financial Statements 1. Segment Data Ttte Company operate in two industry segments, Building Materials and Composite Materials, and reports its results in two ways: by industry segment and by geographic segment. See Note 5 for detail of 1996,1995 and 1994 acquisitions and divestitures of businesses. The industry segments are defined as follows: Building Materials Production and sale ofglass wool fibers formed into thermal and acoustical insulation and air ducts; extruded and expanded polystyrene insulation; roofing singles and asphalt materials; windows; and die branded sale of patio doors, vinyl siding and housewrap. Composfte Materials Production and sale of glass fiber yams; rovings, mats and veils; strand and reinforcement products; glass reinforced plastic pipe; and polyester and vinyl ester resins. Geographic segment reporting combines the two industry segments within the major regions: United States, Europe, and Canada and other. Intersegment sales are generally recorded at market or equivalent value. Income (loss) from operations byindustry and geographic segment consists of net sales less related costs and expenses. In computing income (loss) from operations by segment, cost of borrowed funds and other general corporate income and expenses have been excluded. Certain corporate operatic expenses directly ' traceable to industry and geographic segments tsave been allocated to those segments. Income from operations for the year ended December 31, 1996 includes a pretax charge of $43 million for restruc turing and other actions (Note 18); a net pretax charge of 5875 million for asbestos litigation claims that may be received after 1999 and probable additional insurance recovery (Note 21); a pretax gain of $37 million from the sale of the Company's interest in its former Japanese affiliate Asahi Fiber Glass Co. Ltd. (Note 12); and charges totaling $42 million including valuation adjust ments associated with prior divestitures, major product Sine productivity initiatives and a contribution to the Owens-Coming Foundation. The impact of these special items was to reduce income from operations for BuMng Materials in the United States, Europe, and Canada and other by $42 rniitton, $5 million and $3 miffion, respectively Composite Materials in the United States and Europe by $5 million and $7 million, respectively; and to increase general corporate expense by $861 million. During the first quarter of 1994, the Company recorded a $117 million pretax cllarge for productivity initiatives and other actions (Note 18). The impact of this charge was to reduce income from operations for Building Materials in the United States, and Canada and other by $50 million and $20 million, respectively. Composite Materials in the United States, Europe, and Canada and other by $6 million, $13 million, and $3 million, respectively; and to increase general corporate expense by $25 million. Identifiable assets by industry and geographic segment are those assets tiiat are used in the Company* operations in each industry and geographic segment and do not include general corporate assets. General corporate assets consist primarily of cash and cash equivalents, VEBa trust, deferred taxes, asbestos insurance, and corporate propertyand equipment. 0 1, Segment Data {Continued} Cfn millions ofdollars) 1996 Net Safes 1995 1994 Industry Segments Buiidiitg Materials United States Europe Canada and other Total Building Materials $ 2,293 294 140 $ 2.033 264 107 $ 1,952 182 139 2.687 2,404 2,273 Composite Materials United States Europe Canada and other Total Composite Materials 613 400 132 1,145 610 459 139 1.208 595 555 128 1.078 Intersegment Sales Building Materials Composite Materials Eliminations Net sales -- -- 110 96 99 (110) (96) (99) S 3.832 i 3,612 L 3/351 Geographic Segments United States Europe Canada and other Intersegment Sales United States Europe Canada and other Eliminations Net sales $ 2,866 6S4 272 3.832 s 2,643 723 246 3,612 $ 2,547 537 267 3351 98 54 37 21 81 88 {2161 063) $ 3.832 3 3.612 43 22 91 am 3,351 (In millions ofdollar*) 1996 income (Loss} from Operations 1995 1994 Industry Segments BuMng Materials United States ` Europe Canada and other Tbtal Building Materials S 193 $ 16 10 195 $ 29 13 145 26 18 219 237 189 Composite Materials United States Europe Canada and other Total Composite Materials 165 135 39 64 18 26 222 225 108 (8) 9 109 General corporate expense Income (loss) from operations (9451 (504) (50) 412 (72) 226 Cost, of borrowed frmds Income (loss) before provision for income taxes 1771 S (581) $ Geographic Segments United States S Europe Canada and other General corporate expense Income (loss) from operations Cost ofborrowed luixls Income (loss) before provision for income taxes % 353 55 28 (945) $ (504) 1771 (581) $ (87) (94) 325 6 182 **Mump 0+ 330 $ 93 39 (50) 253 18 27 (72) 412 226 (87) (94) 325 $ 132 (!rt-mUteor# 0/dottard 1996 Identifiable Assets at December 31 1996 1994 Industry Segments Building Materials United States Europe Canada and other Tbtal Building Materials $ 971 $ 239 277 893 $ 170 194 718 162 136 1/487 1,257 1,016 Composite Materials United States Europe Canada and other Total Composite Materials General corporate Investments in affiliates accounted for under the equity method Total assets 385 455 239 1,079 1283 3,849 361 326 388 335 145 160 894 _ 821 1024 3,175 1003 3,200 64 86 74 $ 3,913 $ 3.261 L 3074 eographfc Segments United States Europe Canada and other Genera corporate Investments in affiliates accounted for under the equity method Total assets --..... $ 1,356 694 516 1,283 3,849 5 1,254 558 339 1.024 3075 s 1,044 497 296 1363 3,201) 64 86 74 S 3.913 $ 3,261 $ 3*274 (in wulfww </daikf?) 1996 1995 Provision for Depreciation and Amortization 1994 Jmfi/sfry Segments Building Materials United States Europe Canada and other Tbtal Buiiding Materials S 62 $ 49 $ 48 14 U 6 68 8 72 68 62 Composite Materials United States Europe Canada and other Total Composite Materials 22 22 18 18 87 48 47 22 17 8 47 General corporate Total provision for depredation and amortization 12 S 132 10 9 125 L. 8 Geographic Segments United Stales Europe* Canada and other General corporate Toca? provision &r depredation and amortization $ 74 S 71 $ 70 32 29 23 14 15 16 12 10 9 8 132 $ 125 $ 118 1. Segment Data {Continued) (In vnlhons ofdollars) 1996 Additions to Hant and Equipment 1995 1994 Industry Segments Building Materials United States Europe Canada and other Total Building Materials Composite Materials United States Europe Canada and other Total Composite Materials General corporate Tbtal additions $ 96 $ 60 $ 10 36 96 33 85 4! 7 141 129 133 63 37 30 39 94 18 41 35 26 127 57 S 329 $ 94 53 276 $ 102 23 258 Geographic Segments United States Europe Canada and other General corporate Total additions s 158 $ 97 $ 40 75 70 51 57 53 325 $ 276 $ 126 76 33 23 258 2. Long-Term Debt (In miliums ofddla>%> 1996 Unsecured U.S. credit fedlity due in 1999, variable t Unsecured UK. credit facility due through 2001, variable Unseated European credit facilities due through 2002, variable Unsecured Canadian credit facility due in 1999, variable Guaranteed debentures due in 2001,10% Debentures due in 2002,8875% Debentures due in 2012,9.875% Guaranteed debentures due in 1998,941% Eurobonds due through 2001,9814% (Note 20) Bonds due In 2000,7.25%, payable in Deutsche marks (Note 20) Notes due through 2002,6.06% to S.50%, payable in foreign currencies Other long-term debt due through 2012, at rates from 5.375% to 12.47% Less: Current portion 35 $ 59 41 -- 150 150 150 ICQ 54 50 14 35 839 120) 1995 55 40 -- 150 150 150 100 63 50 26 45 m (35) Total long-term debt $ 818 $ 794 The U.S. credit facility has a maximum commitment of $475 million at December 31,1996, of which $109 million was used for standby letters of credit and $33i million was unused, The rate of interest is either the bank's base rate, or .9196 over the certificate of depositrate, or .5% over the London interbank OfferedRate (LIBOR). The rate of interest on this facility was 6.125% at December 31,1996. A commitment fee of 1/5 of 1% is charged on the unused portions of this facility. The UK credit facility, payable in British pounds, lias a commitment of 35 million British pounds ($59 million US. dollars) all of which was used at December 31,1996. The rate of interest on the facility was 6.61% at December 31, 1996. The comiraanera fee on any unused portion of the facility was .31% at Dumber 31,1996. The European credit facilities, payable in Belgian francs, have an aggregate commitment erf 16 billion Belgian francs ($51 million D.S. dollars) of which 300 million Belgian francs ($20 nuMon US. doDare) was unused at December 31,1996. The rate ofinterest on the facilities ranges from 3.78% to 3.89% at December 31,1996. The commitment fee on the unused portions of the facilities range from &r20 to 1/4 of 1%. 'The Canadian credit facility is paya&te in Canadian dollars andhas a maximum commitment of 135 million Canadian dollars ($99 million US. dollars), alj of which was unused at December 31,1996. The rate ofinterest is either 9% over the Canadian cost of hinds rate, or ,5% over LIBOR on US. deposits, or .8% over the Canadian bankers' acceptance rate. A commitment fee of 1/5 of 1% is charged on the unused portions of this facility. As is typical for bank credit facilities, die agreements relating to the facilities described above contain restrictive covenants, including requirements for the maintenance of working capital interest coverage, and minimum coverage of fixed charges; and limitations on the early retirement ofsubordinated debt, additional borrowings, payment of dividends, and purchase of Company stock. The agree ments include a provision which would result in all of the unpaid principal and accrued interest of the facilities becoming due immediately upon a change ofcontrol in ownership of the Company. A material adverse change in the Company^ business, assets, liabilities, financial condition or results of operations constitutes a default under the agreements. During 1995, the Company's $173 million issue of 8% convertiblejunior subordinated debentures were converted. The conversion resulted in the issuance of5.8 million new sliares ofcommon stock. In conjunction with the conversion ofthe debentures, the Company paid fees ofapproximately $$ million which are reSerled as other expenses on the Company's consolidated statement of income for the year ended December 31,1995. In November 1994, Owens-Coming Finance (U.K.) pic, a wholly-owned subsidiary of the Company, issued 5140 million ofEurobonds. These bonds are convertibleinto fixed rate preference shares of Owens-Coming Finance (U.K.) pic in November 2004 and may be redeemed at any time, at a premium, at the option of the Company. The bonds are guaranteed by the Company as to payments of principal and interest and rank similarly with all other senior unsecured debt of rite Company. In May 1995, the Company repurchased a portion of the $140 million issue of Eurobonds for $?? million. The aggregate maturities and sinking fund requirements for fill long-tern debt issues for each of the five years forming December 31,1996 are: CM nt&hcns qfdollars) ism 1998 1999 2000 2001 Credit Facilities $8 37 62 27 21 Other Longterm Debt $ 32 115 ' 22 73 171 3.Short-Term Debt (In miilkms <4dollars) Balance outstanding at December SI Weighted average interest rates on short-term debt outstanding at December 31 1996 1995 $ 96 $ 64 6.2% 7.5% In 1996 and 1995 the Company entered into two revolving credit agreements. During each qsiarter the Company may borrow up to a predetermined amount from $5 million to $6 million in 1996 and S13 million to $16 million in 1995, The amount borrowed may be repaid in U.S. dollars at less titan or equal to the original borrowing, based upon predetermined British pound or Belgian franc currency exchange rates. The agreements are in effect, through 1997 and bearinterest at market ratesin effect, at. the time of each borrowing. The Company had unused sliort-tenn lines of credit totaling $195 million and $239 million at December 31, 1996 and 1995, respectively. In May 1995 the Company repaid its unsecured, variable rate, short-tens bank credit facility that was used to finance the 1994 U.K. acquisition (Note 5). This facility had a maximum commitment of $110 million at December 31,1994 e 4. Convertible Monthly Income Preferred Securities (MIPS) In May 1995, Owens-Coming Capital, L.L.C. (KOC Capital"), a Delaware limited liability company, all of the common limited liability company interests in which are owned indirectly by the Company, completed a private offering of 4 nMon shares of Convertible Monthly Income Preferred Securities {''preferred securities"). The aggregate purchase price for the offering was S200 million. In conjunction with the offering, the Company incurred $6 million in issuance costs. Thepreferred securities are guaranteed in certain respects by the Company and are convertible, at the option of the holders, into Company common stock at the rate of 11416 shares of Company common stock for each preferred security (equivalent to a conversion price of $43.80 per common share). OC Capital cannot initiate any action relatingto conversion until afterJune 1,1996- Distributions on the preferred securities are cumulative and an? pay able at the annual rate of 6-1/2 percent of the liquidation preference of $50 per preferred security. Distributions of $13 million and $8 million have been recorded as other expenses on the Company^ consolidated statement of Income for the years ended December 31,1996 and 1995, respectively. The Company issued $200 million of 6-1/2 percent Convertible Subordinated Debentures due 2025 to OC Capital, which represents the sole asset of OC Capital, in exdiange for the proceeds of die offering. The Company used the proceeds to repay the $110 million short-term bank credit facility utilized for the 1994 UK. acquisition (Mote 5), with the balance used to reduce borrowings under tlte Company's revolving credit facilities. 5. Acquisitions and Divestitures of Businesses During 1996,1995 and 1994, the Company made several acquisitions in the Building Materials segment in the United States and Europe which were consummated through the exchange ofvarious combinations of common stock and cash. The aggregate purchase price inchiding possible subsequent contingent consideration was $89 million, $126 million and $155 million for 1996,1995 and 1994, respectively. The 1996 acquisitions exchanged 472250 shares of the Company's common stock and $69 million In cash. The 1995 acquisitions exchanged 946,922 shares of the Company's common stock and $82 million in cash of which $1 million was paid in the first quarter of 1996. The 1994 acquisitions exchanged 855,556 shares of the Company's common stock and $120 million in cash, net ofcash acquired, for all of the assets and. natalities of the companies acquired. The incremental sales from the acquisitions, in the year of acquisition, were $47 million, $41 million and $134 million for theyears ended December 31,1996,1995 and 1994, respectively. The largest of these acquisition was the $110 million 1994 acquisition of Pilkmgion Insulation Limited and Kitsons Insulation Products Limited, the United Kingdom based insulation manufacturing and industrial supply businesses of Pilkington PI-C. The initial purchase price allocations were based on preliminary estimates of fair market value and are subject to revision. The 1996 acquisitions include goodwill of $32 million. The 1995 acquisitions included goodwill of $97 million and non-competition agreements of $3 million. The 1994 acquisitions Included goodwill of $78 million and non-competition agreements of $6 million. The goodwill and non-competition agreements are being amortized on a straight-line basis over 40 years and sewn years, respectively. Ail acquisitions were accounted for under the purchase method of accounting, whereby the assets acquired and liabilities assumed have been recorded at their Mr values and the results of operations for the acquisitions have bees included in ti:e Company's consdidated financial statements subsequent to the acquisition dates. The pro forma effect ofthe acquisitions was not material to net Income for the years ended December 31,1996,1995 or 1994. On Septen&er 30,1994, the Company entered info ajoint venture with Alpha Corporation of Tennessee, whereby the two companies combined their existing resin businesses to form Alpha/Owens-Coming, L.LC., the largest manu facturer of polyester resins kt North America. Thisjoint venture Is bdng accounted for under tlie equity method. Por the nine months ended September SO, 1994 resin sales totaled $58 million and were included in the Composite Materials segment. Late in the fourth quarter of 1994, the Company completed the sale of its underground storage tank manufacturing business. Sales for litis business totaled $41 miiliari in 1004 and were included in the Building Materials segment. 6. Postemployment ami 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 in the US. are unfunded and pay either 1) stated percentages of covered medically necessary expenses, after subtracting payments by Medicare or other providers and after stated deductibles have been met, or, 2) fixed amounts of medical expense reimbtirsement Employees become eligible to participate in the health care plans upon retirement under one of the Company's pension plans ifthey Itave accumulated 10 years ofservice after age 45. Some ofcite plans are contributory, with some retiree contributions adjusted annually. The Company has reserved the right to change or eliminate these benefit plans subject to the terms of collective bargaining agreements. Effective January 1994, the Company adopted Statement of Financial Accounting Standards No. 106, Employers'Accountingfor Postretiremens Benefits Other Than Pensions for its non-US. plans. Accordingly, the projected cost ofpostretiremen! benefits is elwu&ed to expense during the years In which eligible employees render serviced The cumulative, effect o? the adoption of This standard was a charge of $10 million, or $.20 per share. (The Company adopted Statement No. 106 for its US. ptens effective January 1,1991) The following table reconciles the status of the accrued postretirejitent benefits cost liability at October 31,199$ and 1995, as reflected on the balance sheet at December ?H, 1996 and 1995: (In miliicns ofdollars) Accumulated Postretirement Benefits Obligation: Retirees Fully eligible active plan participants Ocher active pten participants Funded status Unrecognized net gain Unrecognized net reduction In prior service cost Benefit payments subsequent to the valuation date Accrued postretirement benefits cost liability (includes current liabilities of $22 million and $19 rrmen in 2996 and 3995, respectively) 1996 1995 $ (191) $ (194) (28) 158) (2771 (10) (52) (23) (54) (269) (ID cm _4 S (335) $ (349) The net postretirement benefits cost for 1996,1995 and 1994 included the following components: (in miUions ofdoiian) 1996 Service-cost % Interest cost on accumulated postretirement benefits obligation Net amortization and deferral Net postretirement. benefits cost $ 3$ 13 1201 7$ 3995 7$ 19 (24) 2$ 1994 8 19 (20) 7 For measurement purposes, a 10% annus) rate ofincrease in the per capita cost of covered health care claims whs assumed for 1997. The rate was assumed to decrease to 9.5% for 1998, then decrease gradually to 6.0% by 2005. The health cate cost trend rate assumption has a significant effect on the amounts reported Tofiltrate, inoreasi/g the assumed health care cost trend rate by one percentage point in each year would increase the accumulated post retirement benefits obligation as of October 31,1996, by $16 million and the aggregate of the service and interest cost components ofnet postretiremen? benefits cost for the year then ended by $2 million. The discount rate used in determining the accumulated postretirement benefits obligation was 78% in 1996,7.5% in 1995, and 8.6% in 1994. Effective January 1, 1994, the Company adopted Statement ofFinancial Accounting Standards No. 132, Employers' Accountingfor Postemploymeni Benefits. Tills standard requires the Company to recognize the obligation to provide benefits to former or inactive employees after employment but before retirement under certain conditions. These benefits include, but are not limited to, salary continuation, supplemental unemploy ment benefits, severance benefits, dfeabifcty-reiated benefits (including workers' compensation),job training and eounsdhig, and continuation of benefits such as health care and life insurance coverage. The cumulative effect of the adoption of tiiis standard was an (^discounted charge of $28 million, or $.56 per share, net ofrelated income taxes of $18 million, 8. Postemptoyment and Postretirement Benefits the reduction in the projected benefit obligation, reduced Other Than Pensions {Continued) service cost and reduced interest cost on the projected The following table reconciles the status of the accrued benefit obligation. The reduction in pension expense for postemployment benefits cost liability at October 31,1996 1996 and 1995 was $13 million and $4 million, respectively, arid 1995, as reflected on the balance sheet at December 31, 1996 and 1995: Pension expense for the Company's defined benefit pension plans includes the following: (In mitiorut ofdotlanO Funded status Unrecognized not gain L. Benefit payments subsequent to die valuation date Accrued postemployment benefit cost liability (includes current liabilities of $4 million in 1996 199$ % (34) $ (8) _____ -- 1995 (40) (2) 1 (hi millions ofdollars) 19% Service cost S Interest cost on projected benefit obligation Actual return on plan assets Net amortization and deferral Net pension expense 8 14 $ 62 (106) 25 (5) $ 1995 1994 20 $ 22 64 58 (114) (13) 30 J20 --$ 3 aid 1995) ^ $ (40) (41) The funded status at October 31,1996 and 1995 is as The net postemployment benefits expense was follows: S2 million, $2 million and $3 million for 1996,1995 and 1994, respectively, in December 1995, the Company established a Voluntary Employees' Beneficiary Association (VE8A) trust to cover certain employee welfare and postretiremen! benefits to (In viiUions rtfdollars) Vested benefit obligation 1998 Over Under Funded Funded 1995 Over Jnder Funded Funded 8 879 8 19 $ 359 $ 312 be paid in 1996 and early 1997. Hie funded status of the Accumulated trust at December 31,1996, is $19 million, all ofwhich is benefit obligation 8 757 S 21 $ 395 $ 355 current. At December 31,1995 the funded status of the Plan assets at trust was $64 million, ofwhich $13 million was classified as long-term. fair value Projected benefit 8 839 S 10 $ 500 $ 316 obligation 805 29 447 <365 7. Pension Plans The Company has several defined benefit pension plans covering most employees. Under the plans, pension benefits are generally based on tut employee's number of years of service. Company contributions to those pension plans are based on the calculations of independent actuaries using the projected unit credit method. Plan assets consist primarily of equity securities with the balance in fixed income investments. The unrecognized cost of retroactive amendments and actuarial gains and losses are amortized over the average future service period of plan participants expected to receive benefits. Plan assets in excess of (less than) projected benefit obligation Unrecognized loss Unrecognized prior service cost Unrecognized transition amount Adjustment to minimum liability Net pension liability (includes current 34 (19) 53 (49) 53 9 15 59 (55) 1 (30) (31) 141) MN* (35) (H) -- m-- (Tj In. August of 1995, the Company amended the pension plan for U.3. salaried employees to change from a final average pay formula to a cash balance formula. The new plan provisions became effective on January 1,1996. The change resulted in a reduction in the projected benefit obligation of $20 million The change is expected to reduce liabilities of $3 million in 1996 and $2 million in 1995 and noncuirent assets of $43 million in 1996 and $41 million in 1995) $J9) $ {14) $_____ 3 $ (39) pension expense in the future through the amortization of The 1996,5995 and 1994 primary actsiarial assumptions used for pension plans were: The reconciliation between the US. federal statutory rate and the Company's effective income tax rate is: Discount rate Expected long-term rate of return on plan assets Rate of compensation increase 1996 7.8% 9.0% 5,1% 7.5% 9.0% 51% 85% 9.5% 51% The Company also sponsors defined contribution plans available to substandaily all U,S. employees. Company contributions for the plans are based cm matching a percentage of employee savings up to a maximum savings level, The Company's contributions were $10million in 1396, $12 million in 1995, and $10 million in 1994. 8. Income Taxes (In millions ofdollars) 1996 1995 1994 Income (less) before provision (credit) for income taxes: US. $ (622) S Foreign 41 Total $_ (5811 $ 226 $ 99 325 $ 119 13 132 Provision (credit) for income taxes: Current. u.s. s (36) State and loot! (6) Foreign 12 Total current (301 Deferred us. (211) State and local (48) Foreign 1 Total deferred (258) Ibtal provision (credit) for income taxes $ (288) % % (45) $ (4) 13 <36> 113 15 14 142 106 $ (2) CO 5 (4) 51 13 (2) 62 58 1995 1994 1998 U.S. federal statutory rate State and local income taxes (35)% (6) Adjustment of tax reserves due to favorable legislation (5) Operating losses of foreign subsidiaries Utilization of research and development credits Utilization of operating loss carryforwards (1) Utilization oftax loss carryback -- Adjustment ofvaluation allowances {1) Other (2) Effective tax rate (50)% 199635% 2 ---- (3) _.... <0 1 33% 1994 35% 3 -- 7 -- (7) -- -- 6 44% As of December 31,1996, the Company has not provided for withholding or U.S. federal income taxes on approx imately $211 million of accumulated undistributed earnings of its foreign subsidiaries as they are considered by management to be permanently reinvested. If these undistributed earnings were not considered to be permanently reinvested, approximately $22 million ofdeferred income taxes would Itave been provided. During 1996 and 1995, the Company utilized tax net operating loss carryforwards for certain of its foreign subsidiaries and certain ofits state taxjurisdictions of approximately S7 million and $2 million, respectively. At December 31,1996 the Company had tax net. operating loss carryforwards for certain ofIts foreign subsidiaries and certain of its state taxjurisdictions of approximately S63 million, ofwhich $40 million expire through 2011, and the remaining $23 million of which have an indefinite carryforward. 8. Income Taxes {Continued} The cumulative temporary differences giving rise to the deferred lax assets and liabilities at December 31,1996 and 1995 are as follows: (In muttons ofdollars) 1996 1995 Deferred Deferred Deferred Deferred Tex Tex las Tax Assets liabilities Assets liabilities Asbestos litigation claims $ Other empbyee benefits Pension plans Depreciation Operating loss cany- forwards State and local taxes Other Subtotal Valuation allowances Total deferred taxes S $25 6 157 22 53 -- 140 907 (22) 885 S fMM $ -- 11 200 n 38 56 305 -- 305 $ 244 $ 160 -- 23 13 -- 169 42 ..... -- 21 102 26 571 f2N 229 -- 551 $ ^29 Management fully expects to realize its net deferred tax assets through income from future operations. 9. Science and Technology Expenses Science and technology expenses include research and development costs of $78 million in 1996, $69 million in 1995, and $64 million in 1994 In addition to research and development costs, science and technolo expenses include continuing commercial activities such as engineering and product modifications for special applications and testing. 10. Accounts Receivable Securitization In 1996 and 1995, the Company sold certain accounts receivable of its Building Materials operations to a 100% owned subsidiary, Owens-Coming Funding Corporation ("OC Funding"), in December 1994, OC Funding entered into a three-year agreement whereby it can sell, on a revolving basis, an undivided percentage ownership interest in a designated pool of accounts receivable up to a maximum of $100 million. At December 31,1996 and 1995, $100 million have been sold under this agreement and die sale has been reflected as a reduction of accounts receivable in the Compands consolidated balance sheet The discount of $6 million on the receivables sold has been recorded as other expenses on the Company's consolidated statement of income for the years ended December 31,1996 and 1995. The Company maintains an allowance for doubtful accounts based upon the expected collectibility of aB consolidated trade accounts receivable, including receivables sold by OC Funding. 11. Inventories Inventories are summarized as follows: (In wntiions ofdolhrs) Finished goods Materials and supplies FIFO inventory Less: Seduction to UFO basis 1996 1995 $ 273 $ 210 149 127 422 337 (82} ____ (84) $ 340 $ 253 Approximately $216 million and $175 million of FIFO inventories were valued using the UFO method at December 31,1996 and 1995, respectively. During 19% and 1994, certain inventories were reduced, resulting in the Uqukiation erf UFO inventory layers carried at, lower costs in prior years as compared with the current cost ofinventory. The effect of these Inventory reductions was to reduce 1995 and 1994 cost of sales by $7 million and $3 million, respectively. 12. Investments in Affiliates M December 31, 2996 and 1995, the Company's affiliates, which generally are engaged in the manufacture offibrous glass and related products for the insulation, construction, reinforcements, artd textile markets, include: AlphaOhwjs-taming, L.L.C. (USA) Amiantit Fiberglass Industries, Ltd. (Saudi Arabia) Arabian Fiberglass Insulation Company, Ltd. (Saudi Arabia) Asahi Fiber Glass Company, Ltd (Japan) Khytex Company, LUC. (USA) LG OwensOoming Corp. (Korea) OC Andercol Tuberias S.A. (Colombia) OC India (India) OC Yapa Merkezi Bom Sanayi Ve'&carei (dinkey) Owens-Coming Cafios, S.A. (Argentina) Owens-Coming Etcmii Rohre GmbH (Germany) Owens-Coming Pipe Botswana (Pty.), Ltd. (Botswana) Owens-Coming Tubs S.A (Spain) Siam Fiberglass Co., Ltd. (Thailand) V5tro-l;,ibras,S.A. (Mexico) Percent Ownership 1996 1995 50% 50% 30% 30% 49% 49% 50% 30% 50% 49% 28% 50% 31% 50% 50% 50% 50% 50% 49% 50% 17% 40% 49% 50% 20% 40% Early in 2996, the Company sold its ownership interest in irs .Japanese affiliate Asahi I:)ber Glass Co. Ltd., and recorded a pretax gain o! $3? rrSBon. Tlte following table provides summarized financial information on a combined 100% basis for ihe Company^ affiliates accounted for under the equity method: On mXMms ofdottcmO At December 31: Current assets Noncurrent assets Current liabilities Noncunent liabilities For the year: Net sales Gross margin Net income 1996 im 1.9.94 % 200 $ 338 $ 259 503 149 340 166 236 328 513 331 250 516 962 630 126 178 96 36 47 7 The Compare's equity in undistributed net income of affiliates was $3 million at December 31, 2996. 13. Accounts Payable and Accrued Liabilities (hi motion* (tfdeHart) 1996 1996 Accounts payable Payroll and vacation pay Payroll, property, and miscellaneous taxes Ollier employee benefits liability (Note 6) Other % 379 $ 302 84 87 35 39 26 181 $ 705 $ 23 136 587 14. Consolidated Statement of Cash Rows Cash payments for income taxes, net ofrefunds, and cost of borrowed funds are summarized as follows: (In miUions ofdollars) Income taxes Cost of borrowed funds 1996 2995 $ 125) ?5 (34) $ 86 94 1994 (4) 97 The- Company considers all highly liquid debt instruments purchased with a maturity of tftree months or less to be cash equivalents. See Notes 2 and 5 for supplemental disclosure of non-cash investing and financing activities. 15. Leases 'Ihe Company leases certain manufacturing equipment and office and warehouse facilities under operating leases, some ofwhich include cost escalation clauses, expiring on various dates through 2015. Total rental expense charged to operations was $6? million in 2996, $63 million in 1995, and $54 million in 1994. At December 31,1996, the minimum future rental commitments under noncancelable leases payable over the remaining lives of the leases are: (in mtfltons ofdolian) 199? 1998 1999 2000 2001 2002 through 2015 Minimum Future Rental Commitments $ 66 5? 41 28 17 10? S 316 16. Stock Compensation Plans The Company has four stock-based compensation plans. The Company's Stock Performance Incentive Plan ("SPIP") grants stock options, restricted stock, performance restricted stock and phantom performance units. The Owens-Coming 1996 Stock Plan ("95 Stock Plan") grants options and restricted stock. SFIP and tile 95 Stock Pten (collectively, the "Plans*'), permit up to two percent and one percent, respectively, of common shares outstanding at tiie beginning ofeat* calendar year to be awarded as stock options and restricted stock (with 25% ofthis amount as the maximum permitted number of restricted stock awards). The Company may carry forward, Independency for each plan, unused shares from prior years and may increase the shares available for awards in any calendar year through an advance ofup to 26% of the subseqiitentyear's allocation (determined by using 25% of the current yearb allocation). These shares are also subject to the 25% limit for restricted stock awards. During 1996 and 1995, the total number of shares available under the Plans for stock awards was 2,236,577 and 1,924,271 shares, respectively During 1995 an advance of 54,355 shares was taken from the 1996 allocation for SPIP. The following are descriptions of the awards granted under the Plans: Stock Options Under the Plans, the exercise prices of each option equal the market price of the Company's common stock on the date ofgrant and an option's maximum term is 10 years. Shares issued from the exercise of options are recorded in the common stock accounts at the option price. The awards and vesting periods of such awards are determined at the discretion of the compensation committee of the Board oTDirectors. Duriiig 1996 and 1995, respectively, i,102,510 and 1,Q06$50 stock options were awarded under the Plans. Restricted Stock Awards Under the Plans, compensation expense is measured based on the market price of the stock at the date of grant and is recognized on a straight-line basis over the vesting period, Stock restrictions lapse, subject to alternate vesting plans for death, disability, approved early retirement and involuntary termination, over various periods ending in 2006. At December 3l, 1996, the Company had 376,409 shares of restricted stock outstanding. During 1996 and 1995, 78,510 arid 148524 shares of restricted stock were granted, respectively. The weighted-average grant-date fair vahie for shares granted was $4267 and $40,78 for 1996 and 1995, respectively. Performance Restricted Stock Awards Under the Hans, certain officers are awarded performance shares. Performance shares represent the opportunity to cant up to a specified number ofshares ofy? Comptuy's common stock, if the Company achieves specified perfor mance goals during the designated performance period. Officers, other than the QuelExecutive Officer, earn any portion of their award nor earned during the performance periods:*'C-n y-ars after the end of rite performance period, iftheiremployment continues until ihat time. Compensation expense is measured based on market price ofthe Company^ common stock on the date of grant and is amortized over the performance period, approximately three years. At I>ecember Csi, 1996, the Company had 63,300 units outstanding. During 1996 and 1996, respectively, 38,200 and 27,300 performance shares were granted. The weighted-average grant-date fair value for shares granted was $43.79 and $45.00 (or 1996 and 1995, respectively. Phantom Performance Units Under the Plans, certain officers are awarded phantom performance units. Each, unit provides the holder the opportunity to earn a cash award equal Co the feir market value of the Company^ common stock upon the attainment of certain performance goals. Officers, other than the Chief Executive Officer, earn any portion oftheir award not, earned during the performance period seven years after the end of the performance period, if their emptoyme/tf continues until that stone. Compensation expense is measured based on market price of the Company's common stock and is amortized over the performance period, approximately threeyears. At December 31,1996, the Company liad 124600 units of phaatom performance units outstanding. During 1996 and 1995, 79,000 and 56,000 units, respectively, were awarded. The Company also has a plan to award stock, receipt of which may be deferred at the discretion ofthe directors, and stock options to nonemployee directors, ofwhich 70,000 shares were available for this purpose as of December 31,1996. In 1996,30,000 options and 4,000 stock awards were granted, of which 1,000 were issued in conjunction with the plan for nonemployee directors. In 1995,10,000 options and 4,000 stock awards were granted, of which 2,000 were issued in conjunction with the plan for nonemployee directors. The weighted-average grant-date lair value for shares granted was $39.63-and $35,25 for 1996 and 1995, respectively. Under a prior plan the Company had 5,41? and 7,211 deferred stock awards outstanding, at December 31,139$ and 1995, respectively. Under the terms of this plan, no further awards may be made. The Company applies Financial Accounting Standards Board Statement No. 123 (SFAS 123) In accounting for i\s stock based compensation plans. In accordance with SFAS 323 the Company applies Accounting Principles Board Opinion No, 25 and related Interpretations for expense recognition. All stock options issued by the Companyare exercisable at a price equal to the market price at the date ofgrant. Accordingly, no compensation cost has been recogn&ed farany ofthe options granted under the plans. The compensation cost that has been recorded for awards other thanoptions was 18 million and $3 million in 1996 and 1995, respectively. A summary of the status of the Company's plans that issue options as of December 31, 3996 and 1995 and changes during the years ending on those dates is presented below; Beginning ofyear Options granted Options exercised Options canceled End ofyear Exercisable Weighted-average fair-value of options granted during theyetir 1996 Number of Shares Weighted Average Exercise Price 3,943,110 1,132,510 (142,232) (38.9491 4,894439 2-872/156 3 9 S 8 S 8 33.34 42.92 30.60 41.01 38.59 32.66 8 12.50 1995 Number of Shares Weighted Average Exercise Price 3,290,454 1,016,950 (300,663) (63,631) 3943.110 2.107.427 $ $ $ $ $ $ 31.55 3746 27.18 35.67 33.34 30,97 $ 1124 The followjig table summarizes information about options outstanding at December 31,1996; Range of fixerefee Prices $ 17.66 ~ 26.875 27.00 - 31.50 31-625 - 34.875 35.00 - 40.50 40.625 - 47.00 Options Outstanding Number Outstanding ex Weighted-Average Remaining Exercise Knntractnfit Life Price 6664)35 3.8 8 23.08 584,321 5.0 8 30.63 831,006 7.0 8 32,25 1,707,092 7.3 $38.75 1.125,985 9.1 8 43.15 Options Exerctsabfe Number Exerdssble At 12/31/96 Weighted Average Exercise Price 666,036 8 23.08 561,655 8 30.62 561,350 8 32.21 1,035,088 58,028 8 39.53 8 43.95 16. Stock Compensation Plans {Continued) The fair value of each option grant is estimated on the date ofgrant using the Black-Scholes option-pricing model with the following weighted average assumptions by year: Assumptions Risk-free interest rate Expected life Expected volatility Expected dividends 1996 1995 6.04% 5.96% 5 years 5 years 24.39% 26.25% 1.43% 1.43% Had compensation cost for the Piasis been determined based on the fair value at die grant dates for awards under those plans consistent with the method described in SPAS 123,Accountingfor Stock-Based Compensalwn, the Company's net income and eamm&s pershare would have been reduced to the pro forma amounts indicated below: (In mUliens ofdo&ws excfijH pershare data) 1996 Net income As reported Proforma Primary earnings per share As reported Pro forma Fully diluted earnings per share As reported Pro forma $ 1264} $ 068) (5.50) {5,57} {5.50} {557} 1995 231 230 4.64 4.62 4.40 4.38 The Company cautions that the pro fonna net income and per share results in the initial years of adoption are overstated due to the recognition of pro forma compensation cost over the vesting period. 17. Share Purchase Rights In December 1996, the Company's Board of Directors declared a dftldend distribution ofone preferred share purchase right for each share of the Company's common stock. The new tights replaced preferred share purchase rights issued in 1986, which expired on December 30, 1996. Each outstanding share of the Company's common stock includes a preferred share purchase right. Each tight entitles the l(older to buy from the Company one onehundredth of a share of Series A Participating Preferred Stock of the Company at a price of $190. The Board of Directors has designated 750,000 shares of the Company's authorized preferred stock as Series A Participating Preferred Stock. Tijere are currently no preferred shares outstanding Rights become exercisable and detach from the common stock ten business days alter a person or group acquires, or announces a tender offer for 15% or more of the Company's outstanding shares of common stock. The rights expire on December 30,2006, unless redeemed earlier by the Company. The rights are redeemable by the Company at one cent each at any time prior to public announcement or notice So the Company that an acquiring person or group has purchased 15% or more of the Company's outstanding common stock (an "Acquisition Event"). At any time after an Acquisition Event and prior to the acquisition by such person, or group of 50% or more of the Company's outstanding common stock, the Board of Directors may exchange one share of common stock for each right outstanding, other than rights held by the acquiring person or group. At any time after an Acquisition Event and the rights become exercisable, each right, oilier than rights held by the acquiring person or group, would entitle its holderto buycommon stockofthe .Company (or, if die Company is subsequently acquired in a merger or other busiitess combination, such shares of the acquiring or surviving company) having a market value of twice the exercise price of the right. 18. Restructuring of Operations and Other Actions During the fourth quarter of 1996, Ehe Company recorded a $43 mMiion pretax charge for restructuring and other actions which Includes the costs associated with a work force realignment, a replacement of computer technology as well as asset valuations and expenses related to exited businesses. The $43 million pretax charge was comprised of a $38 million restructure charge and a $5 million dtarge related so an exited business. 'The components ofthe restructure charge include $20 million for personnel reductions, $8 million in computer technology and $10 million for asset valuations and exited businesses. The $20 million for personnel reductions represents severance costs associated with the elimination of nearly 400positions nwidwkle. Ihe primary employee group affected is manufacturing personnel. During 1994, the Company recorded a $117 million pretax charge for productivity initiatives and other actions aimed at reducing costs and enhancing the Company's speed, focus and efficiency. This $117 million pretax charge was comprised ofan $89 million charge associated with the restructuring ofthe Company's business segments, aa weB as a $28 million charge, primarily composed of costs associated with the administration ofthe Company's former commercial roofing business. The components of the $89 million restructure included; $44 million for personnel reductions, $20 million for divestiture of nonstrategie businesses and facilities, $22 million for business realignments, and $3 million for other actions. Tlte $44 million cast for personnel reductions primarily represents severance costs associated with the elimination of nearly 400 positions worldwide. The primary employee groups affected included science and technology, field sales, corporate administrative, and commercial roofing and resin tmsiness personnel. 19. Q&ss Melting furnace Rebuild* Effective January J, 1994, the Company adopted the capital method ofaccounting for the cost ofrebuildingglass melting furnaces. Under this method, costs are capitalized whervincurred and depreciated over the estimated useful lives of the rebuiltfumaces. Previously, the Company established a reserve for the future rebuilding costs of its glass melting furnaces through acharge to earnings between dares ofrebuilds. The change to the capital methodprovides a more appropriate measure ofthe Company's capital investment and is consistent with Industry practice. The cumulative effect ofthis change in accounting method in 1994 was an increase to earnings of $123 million, far $2.46 per share, net ofrelated income taxes of $54 million. The effect of t.liis change in accounting method was to increase depreciation expense and eliminate furnace rebuild provision. 29. Derivative Financial Instruments and Fair Value of Financial Instruments The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to help meet financing needs and to reduce exposure to fluctuating foreign currency excliange rates and interest rales. The Company is exposed to credit loss in the event ofnonperformance by the other parties to the financial instruments described below. However, the Company does not anticipate nonperformance by the other parties. The Company does not engage in trading activities with these financial instruments and does not generally require collateral or other security to support these financial Instruments. The notional amounts of derivatives summari2ed in the foreign exchange risk and interest rate risk management section below do not generally represent the amounts exchanged by the parties and, thus, are not a measure of the exposure of the Company through its use of derivatives. The amounts exchanged are calculated on the basis of the notional arrwunts and the other terms of the derivatives, v-Hch relate to interest rates, exchange rates, securities, prices, or financial or other indexes. O 20. Derivative financial Instruments and Pair Value of Financial Instruments {Continued) Foreign Exchange Bisk and interest Rate Risk Management The Company enters into various types of derivative financial instruments to manage its foreign exchange risk and interest rate risk, as indicated in the following table. (In vel&ions of<U*&ars) Notional Amount December 31, 1996 Forward currency exchange contracts Combined interest rate currency swaps Options purchased Currency swaps Interest rate swaps Treasury rate locks $ 128 120 22 120 60 29 Notional Amount December 31, 1995 $ 234 TO 25 120 150 The Company enters into forward currency exchange contracts to manage its exposure against foreign currency fluctuations on certain assets and liabilities denominated in foreign currencies. As ofDecember 31,1996, the Company has 31 forward currency excltange contracts maturing In 199? which exchange 3.9 billion Belgian francs, 33 million U.S. dollars, 17 million British pounds, 89 million French francs, 12 billion Italian lira, and various other currencies. As of December 31,1995, the Company had 21 forward currency exchange contracts which matured in 1996 and exchanged 2.7 billion Belgian francs, 19 million US. dollars, 11 million British pounds, 117million French francs, 17 billion Italian lira, and various other currencies. Gains and losses on these foreigi currency hedges arc included In the carrying amount of the related assets and liabilities. At December 31,1996 and 1996, deferred gains and losses on these foreign currency hedges are not material to the consolidated financial statements, The Company entered into forwaitf currency exchange contracts to hedge its equity investments in certain foreign subsidiaries and to manage its exposure against fluctuations in foreign currency rates. As of December 31,1995, the Company had two forward currency exchange contracts that matured in 1996 whk'h exchanged 1 billion Belgian francs against approximately 34 million U.S. dollars to hedge its equity investments in certain of Its European subsidiaries. At December 31,1995, losses of 54 million on hedges of net investments in foreign subsidiaries were included in stockholders' equity. The Company entered into forward currency exchange contracts to reduce its exposure to currency fluctuations on riie proceeds of the sale ofits investment in Asaftf Fiber Glass Company, Ltd. (Note 12). Gains of 84 million are Included in other income in 1996 as part of the total gain on the sale. The Compaq entered into forward currency exchange contracts to redv~- its exposure to currency fluctuations on the anticipated 1995 earnings of certain European sub sidiaries. Ihe nine forward currency exchange contracts which matured in 1995, exchanged 412 million Belgian francs and 8 million British pounds against approximately 25 million U.S. dollars. Gains and losses on these foreign currency hedges were included In income in the period in which the exchange rates changed. Gains on these forward currency exchange contracts were not material to the consolidated financial statements. The Company enters into combined interest rate currency swaps to hedge its equity investments in certain foreign subsidiaries to manage its exposure against fluctuations in foreign currency rates. As of December 31,1996, the Company has three combined interest rate currency swaps maturing in 1999 to manage this exposure. These contracts exchange 921 million Belgian francs, 50 million French francs and 57 million Dutch guilders. Gains and losses on the currency swap portions of these contracts are included in stockholders' equity 'The differential Interest to be paid or received on the interest me swap portion of these contracts is accrued as interest rates change and is recognized over the life ofthese agreements. The deferred gains aid losses on the differential interest rate changes are not material to the consoMated financial statements in 1996. The Company enters into option contracts to hedge anticipated transactions with certain of Its foreign sub sidiaries. As of December 31,1996, the Company has eight currency option contracts maturing in 1997 which hedge the 1997 royalty payments of the Company's European subsidiaries. As of December 31,1996, the currency option contracts exchanged 446 miffion Belgian francsand 5 million British pounds against approximately 22 million US. dollars. As of December 31,1995, the Company had eight currency option contracts which exchanged 526 million Belgian francs and 6 million British poinds against approximately 25 million U.S. dollars. Gains on the Company^ hedges ofthese anticipated transactiorB are Included as deferred revenue. At December 31,1996 and 1995, deferred gains on option contracts are not material co the consolidated flftanciai statements. In 1994, the Company entered into two currency swap transactions to manage Ms exposure against foreign currency fluctuations on the prindpsi amount ofits guaranteed 9.814% Eurobonds (Note 2). During 1995, the Company terminated these swaps. The termination of these swaps exchanged 140 million U.3. dollars for approximately 89 million British pounds, resulting in a gain of approximately 10 million U.S. dollars. At thattime, the Company entered into a combined interest rate currency swap and a currency swapexchangng US. dollars into British pounds tohedge the interest and principal payments of the remaining Eurobonds through 2003,. These agreements also convert part of the fixed rate interest into variable rate interest the gun on the exercised swaps is being amortized over die life ofthe original hedge. At December 31,1996 and 1995, $5 million and S7 million, respectively, ofunamortized gain cm the four cross-currency interest rate swaps is included in other liabilities. The Company has a cross-currency interest, rate conversion agreement, from Deutsche marks into U.S. dollars lo hedge the interest and principal payments ofits 7.25% Deutsche mark bonds, due in 2000. The agreement establishes a fixed interest rate of 1U%, The Company enters into interest rate swaps tomanage Us interest rale risk. As ofDecember 31,1996, the Company has one interest rate swap agreement to convert $50 million in leasepaymentsfrom a floating UBOR to a fixed rate of 5.52%. Tile differentia) interest lo be paid or received is accrued as interest, rates change and is recognized over the life ofthe agreement. As of December 31,1996, this amount was not material to the consolidated finance! statements. As ofDecember*!, .1995, the Company had four interest rate swap agreements to reduce the interest rates on its fixed rate borrowings, These agreements, which were terminated in 1996, effectively converted an aggregate principal amount of $150 million of fixed rate long-term debt into variable rate borrowings. The $8 million gain recognized from the termination of these swaps is being amortized over the remaining life of the debt. As of December 31,1996, the Company has one cashsettled treasury rate lock as a hedge against interest rate fluctuations on a lease commitment. Tliis contract effec tively locks in a treasury rate of 6.015% on a notional amount of S29 million. The differential interest to be paid or received at the contract termination date, March 1997, will be deferred and amortized over the life of the lease. Other ffrraiTera? Instruments with Off-Balance-Sheet Risk As of December 31,1996 and 1995, the Company is contingently liable for guarantees of indebtedness owed by certain unconsolidated affiliates of $57 million and $44 million, respectively. The Company is ofthe opinion that its unconsolidated affiliates will be able to perform under their respective payment obligations in connection with such guaranteed indebtedness and tfiat no payments will be required and no losses will be incurred by the Company under such guarantees. Concentrations of Credit Risk As ofDecember 31,1996 and 1995, the Company has no significant group concentrations of credit risk. Fair Value of Financial Instruments The following methods and assumptions wereused to estimate the fair value of each category of financial instruments. Cash and short-term financial Instruments `fhe carrying amount, approximates fair value due to the short maturity of these instruments. Long-term notes receivable The fair value has been estimated using the expected future cash flows discounted at market interest rates. Long-term debt The fair value of the Company's long-term debt, has been estimated based on quoted market prices for tite same or similar issues, or on the current rates offered to the Company for debt of the same remaining maturities, Foreign currency swaps and interest rate swaps The fair values of foreign currency swaps and interest rate swaps have been estimated by traded market values or by obtaining quotes from brokers e 20. Derivative Financial instruments and Fair Value of Financial Instruments (Continued) Forward currency exchange contracts, option contracts, and financial guarantees The fair values of forward currency exchange contracts, option contracts, and financial guarantees are based on fees currently charged for similar agreements or on tlte estimated cost to terminate these agreements or other wise settle the obligations with the counter parties at the reporting date. The estimated fair values of the Company's financial instruments as e* December 31,1996 and 1995, which have fair values different than their carjying amounts, are as follows: 1996 Carrying Fair (In mHkons ofdollars) Amount Value Assets Long-term notes receivable t 23 Liabilities Long-term debt 818 Off-Balance-Sheet Financial instruments - Unrealized gains Foreign currency swaps -- Interest rate swaps -- Combined interest rate currency swaps -- S 21 881 32 1 1 1995 Carrying Fair Amount Value $ 24 S 22 794 375 39 -- 14 _-- As of December 31,1996 and 1995, the Company is contingently liable for guarantees of Indebtedness owed by certain unconsolidated affiliates. There is no market for these guarantees and they were issued without explicit cost. Therefore, it is not practicable to establish their fair value. As of December 31,1996 and 1995, the Company has also entered into certain forward currency exchange option contracts and treasury rate locks, the &ir values of which are not material to the consolidated financial statements. 21. Contingent Liabilities Asbestos Liabilities The Company is a co-defendant with otherformer manufacturers, distributors and installers ofproducts containing asbestos and with miners and suppliers of asbestos fibers (collectively, the "Producers") in personal injury and property damage litigation. The personal injury claimants generally allege injuries to their health caused by inhalation ofasbestos fibers from the Company* products. Most of the claimants sedcpunitire damages as well as compensatory damages. The properly damage claims generally allege property damage to school, public and commercial buildings resulting from the presence of products containing asbestos. Virtually all of the asbestosrelated lawsuits against the Company arise out of Its manufacture, distribution, sale or installation of an asbestos-containing calcium silicate, high temperature insulation product, the manufacture of which was discontirmedin 1972, Status As of December 31,1996, approximately 157,900 asbestos personal fryuiy claims were pending against the Company, of which 36,400 were received in 1996. The Company received approximately 55,900 such claims in 1996, and 29,100 in 1994, Many of the recent claims appear to be the product of mass screening programs and not to involve malignancies or other significant asbestos related impairment. The Company believes that as many as 40,000 of the recent claims involve plaintiffs whose pulmonary function tests (PFTs) were improperiy-ajfraanister^ or manipulated by the testing laboratory or otherwise inconsistent with proper medical practice, and it is investigating a number of testing organizations and their methods. In 1996 the Company fite-d suit in federal court against the owners and operators ofcertain pulmonary function testing laboratories in the southeastern US. challenging such improper testing practices. Tlds matter is now in active pre-trial discov&iy. During 1996, the Company was engaged in discussions with a group of approximately 30 leading plaintiffs' law firms to explore approaches toward resolution ofits asbestos Mality. Tlte discussions involved the possible resolution of both pending claims aid claims that may be filed fit the future. The law firms Involved in the talks agreed to refrain from serving any further asbestos claims on the Company unless they involved malignancies. This agreement, which expired as to certain of the firms on November 1,1996, was extended until January 1,1997, by firms representing a substantial majority of the cases historically filed by the group. This agreement may have impacted the number of cases received by the Company during the second, third and fourth quarters of 1996. Through December 31,1996, the Company had resolved (by settlement or otherwise) approximately 283,300 asbestos personal injury claims, including the dismissal in May 1996, for lack of medical proof, of approximately 15,000 maritime cases which named Owens Coming as a defendant, resulting in an 11,700 case reduction in the backlog after reduction for duplicate cases and cases previ ously settled During 1994,1995, and 1996, the Company resolved approximately 60,600 asbestos personal injury daims, over 99% without trial, and incurred total indemnity payments of $636 million (an average of about $10,300 per case). The Company's indemnity payments have varied consider" ably over time and from case to ease, and are affected by a multitude of factors. These indude the type and severity of she disease sustained by the claimant (i.e., mesothelioma, lung cancer, other types of cancer, asbestosis or pleural changes); the occupation-of-the claimant; theextent f the claimant's exposure to asbestos-containing products manufactured, sold or installed by the Company; the extent of the claimant's exposure to asbestos-containing products manufactured, sold or installed by other Producers; the number and financial resources of other Producer defendants; thejurisdiction of suit; the presence or absence of other possible causes of the claimant's illness; the availability or not of legal defenses such as the statute of limitations or state of the art; whether the claim was resolved on an individual basis or as part of a group settlement; and whether the claim proceeded to an adverse verdict or judgment. Insurance As of December 31,1996, the Company had approximately $329 million in unexhausted insurance coverage (net of deductibles and self-insured retentions and excluding coverage issued byinsolvent carriers) underits liability insurance policies applicable to asbestos personal injury cfeims. This insurance, which is substantially confirmed, includes both products hazard coverage and primary level non-products coverage. Portions of this coverage are not available until 1997 and beyond under agreements with ihe earners confirming sich coverage. AI of the Company's liability insurance policies cover indemnity payments and defense fees and expenses subject to applicable policy limits. In addition to iIs confirmed primary level non-products insurance, the Company has a significant amount of unconfirmed potential non-products coverage with excess level carriers. Forpurposes of calculating ihe amount of insurance applicable to asbestos liabilities, the Company has estimated its probable recoveries in respect of this additional non-products coverage at $225 million, which amount was recorded in the second quarter of 1996. This coverage is unconfirmed and the amount and timing of recoveries from these excess level policies will depend cm subsequent negotiations or proceedings. Reserve Prior to the second quarter of 1996, the Company's financial statements included a reserve for the estimated cost associated with asbestos personal injury claims that may be received through the year 2999. Such financial -statements didnot include any provision for the cost ofunasserted claims which might be received in years subsequent to 199 because management was unable to predict the number ofsuch daims and other factors which would affect the cost of such claims. Throughout 1996, the Company continued to review the feasibility of mal-'.g provision for the cost of unassorted asbestos person-d injury daims with respect to claims which may be received by the Company during and after the year 2000. In conducting such review the Company took into account, among other things, the effect of recent federal court decisions relating to punitive damages and the certification of class actions in asbestos cases, the pendency of the discussions with the group of plaintiffs* I 21. Contingent liabilities (Continued! The Cbmi>any cautions that such feecor? as the number law firms referred to above, the results ofits continuing investigations ofmedical screening practices of the kind of future asbestos personal injury claims received by it, the me ofreceipt of such claims, and the indemnity and at issue in the federal PPT lawsuit, recent developments defense costs associated with asbestos personal Injury as to the prospects for federal and state tort reform, the continued rate of case filings at historically high levels, additional information on Slings received during the 1993-1995 period and other factors. As a resuit of the II review, the Company took a non-recurring, noncash claims, as well as the prospects for confirming additional insurance, including the additional $225 million in non products coverage referenced above, are influenced by numerous variables that are difficult to predict, and that estimates, such as the Company's, which attempt to take charge to earnings of SI.I billion in the second quarter account of such variables, are subject to considerable of 1996. This charge represented the Company* estimate uncertainty. The Company believes that its estimate of ofthe indemnifyand defense costs associated with liabilities and insurance will be sufficient to provide for unasserted asbestos personal injury chums that may be received by the Company in years subsequent to 1999. the costs ofall pending and future asbestos personal injury claims dial involve malignancies or significant asbestos- The combined effect of the $tl billion charge and the 5225 million probable additional non-products insurance recovery was an $875 million charge in the second quarter of 1996, related functional impairment. While such estimates cover unimpaired claims, the number and cost ofunimpaired claims are much harder to predict and such estimates reflect the Company* beliefthat such daims have little orno value. The Company will continue to review the adequacy The Company* estimated total liabilities in respect of indemnity and defense costs associated with pending aixi of its estimate of liabilities and insurance on a periodic basis and make such adjustments as may be appropriate. unasserted asbestos personal uyury clauns that may be received in the future, and its estimated insurance recoveries in respect of such claims are reported separately as follows: Management Opinion Although any opinion is necessarily judgmental and must be based on information now known to the Company, in the opinion of management, while any additional ( December 31, December 31. uninsured and unreserved costs which may arise out of (In milltora ofdollar*) 1996 1995 pending personal injury and property damage asbestos Reserve for asbestos claims and additional similar asbestos claims Hied in the litigation claims Current $ 300 $ 260 future may be substantial over time, management believes that any such additional costs will not impair the ability Other 1,670 887 of the Company to meet its oblations, to reinvest in its TotalReserve 1570 U37 businesses or to take *idvanxage cfattractive opportunities Insurance for asbestos for growth. litigation claims ( Current Other 100 100 Non-Asbestos Liabilities 464 330 Various other lawsuits and claims arising in the normal Tbtal insurance 554 430 course of business are pending against the Company, Net Asbestos liability $1/416 $ 707 some of which allege substantial damages. Management believes dm the outcome of these lawsuits and claims will not have a material^ adverse effect on the Company's financial position or results of operations. O 22. Quarterly Financial Information (Unaudited) (fit Tni&ions ofdotiarSi except shoredata) 1996 Net sales Cos? of sales Gross margin Net income (loss) Net income (loss} par share: Primary net income per share Fully diluted net income per share First Quarter Second Third Fourth S 849 $ 956 6 1,025 S 1,002 631 701 752 750 S 218 6 255 6 273 S 252 s 39 % (473) 6 80 s 70 s .75 9 (9.19) $ 1,53 s 1.32 s .73 $ (9,19) S 1.44 $ 1.25 1995 Net sales Cost of sales Gross margin Net income Net income per share: Primary net income per share Fully diluted net income per share $ m$ 630 t 214 $ $ 33 S 877 $ 639 238 $ 63 s 927 $ 684 243 $ 70 $ 964 71? 247 66 $ .71 $ 1.25 t 1.35 L 1.27 $ .68 $ 1.20 $ 1.28 s 1.21 Net income per share and primary and fully diluted weighted average shares are computed independently for each of the quarters presented. Therefore, the sum of the quarterly net income per share may not equal the per share total for the year. Directors Norman ft Stake, Jr. i.-'.J Claiman ol Heard, duel Executive Officer and Preside:* oniSF&G Corporation. insurance ft} Baltlsnwe. Ma^Lsjvi. Director since iWZ Birth De November 8.19-J1 Leonard S. Cotamaa, Jr. 55 president, the National l,eaguc o( Prc-fvssioisai Baseball CJuba, profeswsal starts, New York, New York Daector since 19* pinh Date1 February ST, 1949 fttffiam W. Coftflt* 1,4 Cortwlur* to and formal? Serar Vfce Pwdei*. General Ctomscl aaxd i*<retao of Owen* Coming. New fori. OV* K* Directorsince 1995. HirthDate Dwcnwr S I, SS34 John H. Daaburs 25 Prwkitf and ChiefEswuive Otecer, Northwest AiiSucs Ccj^rauwi, a uanspcmucfi company, Sc Paul Mrw**tt3 Duvctor since 1*6. SittMfeK January". 59tfi Landsn HHHard 222 Partner. Brov.ii Brothers Hsnfrw& Co, private bankers, NewYork. New fort. Lhroctor since 1989 Birth Dasr Aynj IS. 1<W9 Gkn U. Htnar 4 ClttimuJiofrl* fcisrdanfi Chief F,cuvc Ofuccr. LVf Cncufit ToktSo.Ofua Director since Wft*. Stfib l>atr 22. 19^4 Sk Tfevor Hold&wartfi 124 Forim Chairman of Nauxal ?inrei pic., an efccirtcit?* ^ereratcc evsnpofly. S-cndois England. Directorsince 1994 Rurti Date m 29, m Jon M. Huntsman, Jr. 3.45 Vice Chairman Huntsman CorporamniawfacTiwe* of porrochemksis, Sail Ute Cnj; UuhFwtmlSS ArrCussator to Singapore. Dreiser since t$3. Birth Sets March 26,190*5 Group Ctaef Ececvsnv, S*ura AshleyIsoiSings pic.. wemeitYcfeUutg and lioroe furnishings. Iv^rioti. BngSand. Duectc? since49*. Rnh Date. Primary^ S&14 Sartor Advisor. to Dillon, Bead A Co. Inc. an fovM&item banting firm, Nee York, Me* Yodc. sjW Senior Advisor to Marakon Associates. t constikng flnrv Scanted. CwihecfKui. Directorsince 1993 Bath Date Sej^rier 15.1944 Furrnim C, MosaJev, Jr, 245 ftowroc, Simpson Imestnierit Company. a holdasi? company for suOsuiane* manufcckinng wrt pulp ai*i paper produce. SeaMSe, Waih^ton Cwecwrwcri 10 Hu* Dote July 20.1934 W, Ann Reynold* S2S ChancelkcofCsty Utuv*tiisy of Net* fort. htor Mi*alton, New fort. NewYork Direcwr since 19M. Birth Dace NovanberS 1957 o Directors serve on cwromuees of the Beard as inasateS by the number* fdto*trg ihwiwene l Audit CNni?ee Norma* P, fttake, J& 2. CtshpeeaiUivi Comoatteo Undos Hi&ard Chaima/i 3 Corporate Governance Comrratee W. Walker Lewie Chiuman 4 Executive Commitsue QJeo fl. Hteer Ctokman 5 FtoiflceCofnmwee FwmasC. Moeetey,Jr. Chatman Glen H. Miner Chairman of the Board and Chief Executive Officer Charles H. Dana Executive Vice President Senior Officers BUS!MESSES David T. Brown Vice President and President, Building Materials Sales and Distribution - North America Domenico Cecere Vice President and President, Roofing'Asphalt Richard DiPasquate Vice Resident and President, Latin America Robert D. Hoddens Vice President and President, Western Fiberglass Group Carl B. Hedtund Vice President and President, Asia Pacific Warren D. Knowiton Vice President and President, Building Materials - Europe and Africa Heinz-J. Otto Vice President and President, Composites Michael H. Thaman Vice President and President, Engineered Pipe & Fabrication Systems Eftfefrntea O. VkiaWs Vice President and President, insulation Jerry L Weinstein Vice President and President, Specialty arid Foam Products PROCESSES Alan D. Booth Vice President and Process Executive, Customer Fulfillment Process Christian L. Campbell Senior Vice President, General Counsel and Corporate Secretary David W. Devonshire Senior Vice President and ChiefFinancial Officer Richard L. Hortinger Vice President and Chief Procurement Officer Robert C. Lonergan Vice President, Science & Technology Michael I. Miller Vice President and Treasurer Bradford C. Oelman Senior Vice President, Government and Public Affairs Michael D. Radcffff Vice President and Chief Information Officer Steven J. Strobel Vice President and Controller Gregory M. Thomson Senior Vice President, Human Resources System Thinking": Information Access Corporate Address Owens Coming World Headquarters One Owens Coming Parkway Toledo, Ohio US.A. 43659 419 248 8000 Shareholder Services Owens Coming maintains a Siiarehoider Services Office at World Headquarters in Toledo, Ohio, to assist shareholders. Inquiries are welcome at the World Headquarters address. Direct Stock Purchase Plan Owens Coming sliares may be purchased through the Company under the ChaseMeilon Investor Services Program by phoning 1.800.472.2210. Transfer Agent and Registrar ChaseMeilon Siiarehoider Services acts as primary Transfer Agent and Registrar for the Company. Questions on change of ownership, total shares owned, consolidation of accounts and other such matters should be sent to ChaseMeilon Shareholder Services L.L.C., Overpeck Center, 85 Challenger Road, Ridgefield Park, New Jersey 07660, or by phoning 1.800.953.2596, or at htip/Avww.cmssoniine.com. The R-M Trust Co. is a co-agent in Toronto. Auditors Arthur Andersen LLP, Tbkdo, Ohio, is the independent public accounting firm for the Company. Change of Address A change of address should be reported promptly by sending a letter to ChaseMeilon Siiarehoider Services L.L.C., Oveipeck Center, 85 Challenger Road, Ridgefield Park, New Jersey 07660; or by phoning 1800.953.2596, or at ht`p,//www.cmssonime. com Owens Coming js a proud sponsor of 0*n Your 5l&re of America. Form 10*K The Company wiil provide without charge, to any person who is a beneficial owner of its shares, a copy ofthe Company's 1996 Annual Report on Form 10-K, as filed with the Securiti* and Exchange Commission. Requests should be addressed to Owens Coming, Document Center 3, One Owens Coming Parkway. Toledo, Ohio 43659 or call 1.800GET.PINK. Annual Meeting The annual shareholders' meeting of Owens Coming will be held at the Company's World Headquarters at One Owens Corning Parkway, Toledo, Ohio, at 2 p.m. Thursday, April 17,1997. Stock Exchange Owens Coming slock is listed for trading on the New York Stock Exchange and the Toronto Stock Exchange under the symbol OWC. Toll-Free Numbers and Electronic Mail Addresses Investor Relations 419.248.8803 mvestor@owenscoming.com Product fnformationMiterature Requests 1800.GET.PINK Outside MS.: 904.636.3286 (English-Speaking) doccenter@oweascomingcom Copies of Owens Coming's recent news releases are available by fax by calling Company News On-Call at 1.800.75&5804, extension 677350. This electronic menu-driven service of PR Newswire is available 24 hours a day, seven days a week, at no charge to callers. Internet Owens Coming's Home Page and hundreds of pages of Company and product information are available at our World Wide Web Site using the following address: httpJ/www.owenscomingcom ^iem'ThiniMtgTbystmlhmldngTcff theBomer Ihiikft," QuidZonprPinkSeeJ,'' MiraQexT M&ttVisti,'' Supawntp PINKr OrowrC System`Hunking- Builder Allianceand Lumtees*" are trademarks ofOwens Coming. The colorPINK, Prominence* PINmw? Transitions* FOAMULAR* BiLEkR'TAPE*8nd Khytex* are registered trademarks ofOwens Coming The Pint Panther is aT* & of United Artas Picsures Inc. and is licensed by MGMAJA L&M. "* Used by I'ennission. AS Rights Reserved. * The Health House is a registered trademark of the American LungAssociation. t liabttat for Humanity a registered trademark of Habitat for Humanity IntoirkStioiwd. This report is primed on recycled pa**r, with vegetable oil based inks and ail pages arc recyclable. ............. :*mH^ i} Owens Cotosbng OWENS CORNING WORLD HEADQUARTERS ONE OWtNS CORNING PARKWAY TOLtiOO.OKlO. USA. 43659 ^ *ANa4**pMQ