OWENS CORNING
Pro Forma Balance Sheet
as of June 30, 1998
(UNAUDITED)
Eliminate
the Business Historical
Historical Balance Net Impact Financial
Financial Sheet of Gain on Statements
Statements (a) Sale as Adjusted
Current Assets:
Cash $ 42 $ - $ - $ 42
Receivables 597 (25) - 572
Inventories 535 (16) - 519
Insurance for asbestos
claims-current portion 125 - - 125
Deferred income taxes 137 - - 137
Income taxes receivable 27 - - 27
Other current assets 64 (1) - 63
------- ------- ------- -------
Total Current Assets 1,527 (42) - 1,485
Property, plant and equip-
ment, at cost 3,647 (265) - 3,382
Less: Accumulated
Depreciation (1,888) 147 - (1,741)
------- ------- ------ -------
Net property, plant
and equipment 1,759 (118) - 1,641
------- ------- ------ -------
Other
Insurance for asbestos
litigation claims 310 - - 310
Asbestos costs to be
reimbursed 89 - - 89
Deferred income taxes 356 - (15)(d) 341
Goodwill 788 - - 788
Investments in affiliates 50 - - 50
Other noncurrent assets 181 - - 181
------- ------ ------ -------
Total Other 1,774 - (15) 1,759
------- ------ ------ -------
Total Assets $5,060 $(160) $ (15) $ 4,885
======= ===== ====== =======
Current Liabilities:
Accounts payable and accrued
liabilities $ 793 $ (8) $ 22(d) $ 807
Reserve for asbestos claims
- current portion 325 - - 325
Short-Term Debt 119 - - 119
Current Portion LT Debt 128 - - 128
------ ----- ------ -------
Total Current Liabilities 1,365 (8) 22 1,379
------ ----- ------ -------
Long-Term Debt 1,761 - (525)(b) 1,236
------ ----- ------ -------
Other
Reserve for asbestos claims 1,121 - - 1,121
Asbestos liabilities
- Fibreboard 96 - - 96
Other employee benefits
liability 340 (10) - 330
Pension plan liability 61 (5) - 56
Other 174 - 162(d) 336
------ ----- ------ -------
Total Other 1,792 (15) 162 1,939
------ ----- ------ -------
Company obligated securities
of entities holding solely
parent debentures 503 - - 503
------ ----- ------ -------
Minority Interest 21 - - 21
------ ----- ------ -------
Stockholders' Equity
Common Stock 669 - - 669
Deficit (987) - 189(c) (798)
Accumulated other
comprehensive income (48) - - (48)
Other (16) - - (16)
------ ----- ------ -------
Total Equity (382) - 189 (193)
------ ----- ------ -------
Total Liabilities &
Stockholders' Equity $5,060 $ (23) $ (152) $ 4,885
====== ===== ====== =======
Owens Corning
Pro Forma Statement of Income
For the six months ended June 30, 1998
(UNAUDITED)
Eliminate
Historical the Business's Pro forma
Financial Operations Pro forma Financial
Statements (a) Adjustments Results
Net Sales $ 2,423 $ (140) $ 22(b) $ 2,305
Cost of Sales (Note 2) 1,923 (91) 19(b) 1,851
------- ------- ------ -------
Gross Margin 500 (49) 3 454
------- ------- ------ -------
Operating Expenses (Note 2)
Marketing and administrative
expenses 281 (4) - 277
Science and technology expenses 29 (1) - 28
Restructure costs 87 (2) - 85
Other (70) 2 - (68)
------- ------- ------ -------
Total operating expenses 327 (5) - 322
------- ------- ------ -------
Income from operations 173 (44) 3 132
Cost of borrowed funds 73 - (15)(c) 58
------- ------- ------- -------
Income before provision for taxes 100 (44) 18 74
Provision for income taxes 27 (17) 7(d) 17
------- ------- ------- -------
Income before minority interest and
equity income of affiliates 73 (27) 11 57
Minority interest (10) - - (10)
Equity in net income of affiliates 4 - -(e) 4
------- ------- ------- -------
Net Income $ 67 $ (27) $ 11 $ 51
Net Income per Common Share
Basic net income per share $ 1.25 $ 0.95
------- -------
Diluted net income per share $ 1.20 $ 0.94
Weighted average number of common
shares outstanding and common
equivalent shares during the
period (in millions)
Basic 53.5 53.5
Diluted 58.7 58.7
Owens Corning
Pro Forma Statement of Income
For the year ended December 31, 1997
(UNAUDITED)
Eliminate
Historical the Business's Pro forma
Financial Operations Pro forma Financial
Statements (a) Adjustments Results
Net Sales $ 4,373 $ (277) $ 41(b) $ 4,137
Cost of Sales (Note 2) 3,446 (182) 36(b) 3,300
Gross Margin 927 (95) 5 837
Operating Expenses (Note 2)
Marketing and administrative
expenses 580 (7) - 573
Science and technology
expenses 69 (1) - 68
Restructure costs 68 - - 68
Other 28 3 - 31
--------- ------- ------ --------
Total operating expenses 745 (5) - 740
--------- ------- ------ --------
Income from operations 182 (90) 5 97
Cost of borrowed funds 111 - (30)(c) 81
--------- ------- ------ --------
Income before provision for taxes 71 (90) 35 16
Provision for income taxes 9 (34) 13(d) (12)
--------- ------- ------ --------
Income before minority
interest and equity
income of affiliates 62 (56) 21 28
Minority interest (11) - - (11)
Equity in net income of
affiliates 11 - -(e) 11
-------- ------ ------ --------
Income before cumulative
effect of accounting
change $ 62 $ (56) $ 21 $ 28
======== ====== ====== ========
Net Income per Common
Share
Basic net income per share $ 1.18 $ 0.53
-------- --------
Diluted net income per share $ 1.17 $ 0.52
-------- --------
Weighted average number of
common shares outstanding
and common equivalent
shares during the period
(in millions)
Basic 52.9 52.9
Diluted 53.5 53.5
OWENS CORNING
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
On July 1, 1998, Owens Corning (the "Company")
contributed substantially all of the assets of its Glass
Yarns and Specialty Materials Business (the "Business")
to Advanced Glassfiber Yarns LLC, a Delaware Limited
Liability Company ("AGY"). Prior to that time, the
Business had been part of the Company's Composites
Systems Business. The Business has operations in Aiken,
South Carolina, Huntingdon, Pennsylvania and South Hill,
Virginia, and, additionally, purchases glass yarns
products from facilities in Battice, Belgium and Guelph,
Ontario that continue to be owned by subsidiaries of the
Company.
On September 30, 1998, the Company sold a 51% interest in
AGY to AGY Holdings, Inc., a Delaware corporation
("Holdings"), for aggregate consideration of $331.5
million (the "Disposition"). Holdings is a wholly-owned
subsidiary of Glass Holdings Corp., a Delaware
corporation, which itself is a wholly-owned subsidiary of
Groupe Porcher Industries, a French corporation that
(along with its affiliates) is a significant existing
customer of the Business. A wholly-owned subsidiary of
the Company, Jefferson Holdings, Inc., a Delaware
corporation ("Jefferson"), continues to hold a 49%
interest in AGY. Upon the closing of the Disposition,
AGY made a special distribution to Holdings and
Jefferson, of which Jefferson received $191.1 million
(less certain transaction expenses) (the "Distribution").
In connection with the Disposition, the Company entered
into agreements to provide various raw materials, capital
equipment and services to AGY (the "Supply Agreements")
at contractually agreed upon prices.
The pro forma consolidated statements of income for the
year ended December 31, 1997, and for the six months
ended June 30, 1998, give effect to the Disposition and
the Distribution as if they occurred as of the beginning
of the periods presented. The pro forma consolidated
statements of income include certain adjustments directly
attributable to the Disposition and Distribution but do
not reflect any non-recurring charges or credits. The
pro forma consolidated balance sheet at June 30, 1998 has
been prepared assuming the Disposition and Distribution
occurred on June 30, 1998.
The pro forma adjustments are based upon available
information and certain assumptions that the management
of the Company believes are reasonable. The pro forma
consolidated financial statements do not purport to
represent what the Company's financial position or
results of operations actually would have been had such
transactions in fact occurred on the dates indicated.
These pro forma consolidated financial statements and the
notes thereto should be read in conjunction with the
Company's 1997 consolidated financial statements and the
notes thereto.
(2) Restructuring, Other Actions and Dispositions
During 1997, the Company recorded a charge for restructuring
and other actions to close manufacturing facilities, enhance
manufacturing productivity and reduce overhead. The charge
was comprised of a $68 million pretax charge associated with
the restructuring of the Company's business segments and a
$75 million pretax charge associated with asset impairments,
including investments in certain affiliates. The impact of
these charges was to reduce income from operations for the
year ended December 31, 1997 by $143 million and to reduce
income before cumulative effect of accounting changes by
$104 million. (Please refer to the Company's previously
filed Annual report on Form 10-K for further discussion of
these items.)
During the first quarter of 1998, the Company recorded a
charge for restructuring and other actions to enhance
manufacturing productivity and reduce overhead. This charge
represented the Company's second phase of its strategic
restructuring program announced at the beginning of 1998.
The charge was comprised of an $87 million pretax charge
associated with the restructuring of the Company's business
segments, and an $8 million pretax charge associated with
other actions.
In addition, in the first quarter of 1998, the Company sold
its 50% ownership interest in Alpha/Owens-Corning, LLC.
With cash proceeds of approximately $103 million, the
Company recorded a pretax gain of approximately $84 million.
The pretax gain is recorded in other income on the
accompanying Pro Forma Statement of Income for the six
months ended June 30, 1998.
The impact of the above items was to decrease income from
operations and net income by $11 million for the six months
ended June 30, 1998. (Please refer to the Company's
previously filed Quarterly report on Form 10-Q for
further discussion of these items.)
(3) Pro Forma Adjustments - Statements of Income
The following describes the adjustments made to reflect
the transaction described above as if it had occurred at
the beginning of the periods presented, as indicated in
Note 1.
(a) Represents the elimination of the historical results of
operations of the Business, and the related provision for
income taxes at the Company's statutory rate.
(b) The following table reflects the recurring effects of
the supply agreements on net sales and cost of sales:
Net Sales Cost of Sales
--------------------------- --------------------------
Six Months Six Months
Year Ended Ended Year Ended Ended
December 31, June 30, December 31, June 30,
(In millions of dollars) 1997 1998 1997 1998
------------ ------------- ------------ ----------
Raw material supply
agreements $ 11 $ 6 $ 9 $ 5
Capital equipment
and service
agreements 4 2 2 1
Finished good
supply agreements 26 14 28 14
Employee benefits - - (3) (1)
----- ----- ----- -----
$ 41 $ 22 $ 36 $ 19
===== ===== ===== =====
Raw Material Supply Agreements
The Company had historically provided the Business
with certain raw materials, either purchased or
manufactured by the Company, at cost. Pursuant to
the terms of certain raw material supply agreements,
the Company will supply these raw materials at a
contractually agreed upon price.
Capital Equipment and Service Agreements
The Company had historically provided certain
capital equipment and fabrication services to the
Business at cost. Pursuant to the terms of certain
capital equipment and services agreements, such
equipment and related services will be provided to
AGY at contractually agreed upon prices.
Finished Good Supply Agreements
The Company will continue to manufacture certain
glass yarns products and other specialty materials
and will sell these products to AGY under finished
good supply agreements at contractually agreed upon
prices. The historical net sales and cost of sales
associated with these products were eliminated as
described in 3 (a) above and have been included in
the pro forma adjustments at the agreed upon prices.
Employee Benefits
Reflects the reduction of the net pension expense
and net postretirement benefits expense over the
amounts recorded historically, as a result of the
transfer of employees to AGY.
(c) Reflects the reduction in interest expense due to the
Company's use of the net proceeds to reduce certain
outstanding debt.
(d) Reflects the tax effects of the pro forma adjustments at
the Company's statutory tax rate.
(e) In connection with the Disposition and Distribution, AGY
made cash distributions to the Company and Glass Holdings
Corp. in excess of the total equity of AGY. As a result,
the Company will not record its equity in the net
income or loss of AGY until such time as AGY eliminates
its equity deficit. Accordingly, the pro forma Statements
of Income for the year ended December 31, 1997 and for the
six months ended June 30, 1998 do not include an adjustment
to record the Company's equity in the net income of AGY.
(4) Pro Forma Adjustments - Balance Sheet
The following adjustments reflect, among other items, the
effects of certain non-recurring items resulting from the
Disposition described in Note 1.
(a) Reflects the removal of the assets contributed to and
the liabilities assumed by AGY from the Company's historical
balance sheet.
(b) Reflects the net reduction in debt from receipt of the
Disposition and Distribution proceeds.
(c) Reflects the net of tax impact of the Disposition and
Distribution.
(d) Reflects the tax effects of the Disposition and
Distribution, the accrual of certain transaction expenses
and a contractual obligation of the Company to provide
financial support to AGY in the event that AGY is unable to
pay interest on its indebtedness for a period of three
years.