2000/10/5 Owens Corning
OWENS CORNING FILES
VOLUNTARY CHAPTER 11 PETITION TO RESOLVE ASBESTOS LIABILITY
All Operations Open and Focused on Customer Service
Owens Corning (NYSE:OWC)
today announced that, in order to address the growing demands on
its cash flow resulting from its multi-billion dollar asbestos
liability, the company has voluntarily filed for
reorganization under Chapter 11 of the U.S. Bankruptcy Code.
The filing, made today in Wilmington, Delaware, will enable Owens Corning to refocus on operating its business and serving its customers, while it develops a plan of reorganization that will resolve its asbestos and other liabilities and provide a suitable capital structure for long-term growth.
Owens Corning also announced that, in order to enhance its liquidity, it has obtained a $500 million debtor-in-possession financing commitment from Bank of America. Upon court approval, these funds will be available to the company to help meet its future needs and fulfill obligations associated with operating its business, including payment under normal terms to suppliers and vendors for all goods and services that are provided after today's filing. Employees will continue to be paid in the normal manner and their health benefits, as well as those of retirees, will not be disrupted. The company's pension plan for retirees and vested employees is fully funded and protected by federal law.
All of Owens Corning's U.S. operating subsidiaries and certain other U.S. subsidiaries filed voluntary Chapter 11 petitions today. None of the company's other subsidiaries, joint ventures and affiliates, including all operations located outside the United States, are included in the filing.
Glen H. Hiner, Chairman and Chief Executive Officer of Owens Corning, said, "We are voluntarily taking this difficult but necessary action today to resolve the company's asbestos liabilities in a manner that legally binds all existing and future claimants. With the Chapter 11 process we can finally put this difficult issue behind us in a fair and responsible manner and move forward with our resources and energies focused on competing successfully in the global marketplace."
Mr. Hiner continued, "Owens Corning today is a sound company, with over $5 billion in annual revenues and leadership positions in all of its businesses. All of our operations are open today and focused on serving our customers. The combination of our cash on hand, existing cash flow and a new $500 million financing commitment provides the company sufficient liquidity to meet all future financial obligations to employees, suppliers and vendors."
Owens Corning's cost reduction programs and System Thinking^(TM) marketing initiatives in recent years have been successful in enabling the company to enhance its competitive position. Despite this success, the increasing asbestos liabilities and difficulty of estimating its future asbestos liabilities, especially the costs of settling current and future mesothelioma claims, required the company to consider a range of strategic and financial alternatives.
Mr. Hiner said, "We have been attempting to manage this liability for more than two decades. Our goal has been to compensate fairly any individual impaired through the use of our products, while continuing to operate our business in the best interests of all of our constituencies, including customers, employees and shareholders. Until very recently, we thought Chapter 11 could be avoided. First we tried to resolve cases in individual out-of-court settlements, and then we sought legislative and judicial relief. Finally, we made substantial progress in the management of our asbestos liability with our National Settlement Program (NSP). However, the cost of resolving current and future claims, together with a flurry of recent new filings from plaintiff lawyers not participating in the NSP, led us to the conclusion that a Chapter 11 reorganization was prudent and necessary."
Owens Corning had previously noted that its ability to meet its schedule of asbestos related payments and meet its obligations to the banks under its credit agreement depended, in part, on its results from operations not deteriorating significantly. The fall in demand for building material products, which reflects in large part increased interest rates, combined with elevated energy and raw materials costs and the inability to fully recapture these costs in price adjustments, has significantly reduced the company's margins and income from operations.
The company expects to report its earnings for the third quarter of 2000 in a Form 10- Q scheduled to be filed with the Securities and Exchange Commission on November 14, 2000.
Due to the Chapter 11 filing, the company will not be making the quarterly dividend payment scheduled for October 13, 2000 to shareholders of record as of September 30, 2000. In addition, the company will not be making any interest or other payments on its unsecured debt securities or payments to asbestos claimants for the duration of the Chapter 11 proceeding.
Owens Corning's asbestos liability arises from a high-temperature pipe insulation product trade-named Kaylo, which it distributed and/or manufactured from 1952 to 1972. The company's total revenues from the sale of this product were approximately $135 million. Owens Corning is a co-defendant with other former manufacturers, distributors and installers of products containing asbestos in personal injury litigation. To date, the company has received more than 460,000 asbestos personal injury claims and has paid or agreed to pay more than $5 billion for asbestos-related awards and settlements, legal expenses and claims processing fees.
The company noted that 22 other companies involved in asbestos-related activity have commenced reorganization cases under Chapter 11 of the U.S. Bankruptcy Code. Like many of these other companies, Owens Corning intends to use the special provisions of Chapter 11 relating to the resolution of asbestos claims as a process through which all asbestos claims will be evaluated and resolved with no contingent liability remaining for the company.
Owens Corning is a world leader in building materials systems and composites systems. The company has sales of $5 billion and employs approximately 20,000 people worldwide. Additional information is available on Owens Corning's Web site at http://www.owenscorning.com or by calling the company's toll-free General Information line: 1-877-799-6904.
In August 1982,
Johns-Manville Corporation filed a petition for
reorganization under Chapter 11 of the Bankruptcy Code which automatically suspended all
personal injury lawsuits and allowed Manville Corporation
("Manville") to reorganize, thus preserving its
financial viability to compensate asbestos claimants.
In December 1986, the United States Bankruptcy Court for the Southern District of New York approved Manville's Plan of Reorganization ( the "Plan"). A cornerstone of the Plan was the creation of the Manville Personal Injury Settlement Trust (the "Trust") to compensate individuals suffering personal injury from exposure to asbestos or asbestos-containing products manufactured or sold by Manville. Following several appeals, the U.S. Court of Appeals for the Second Circuit confirmed the Plan on October 28, 1988. The Trust became operational thirty days later on November 28, 1988.
The Trust was created as an independent organization to distribute funds as equitably as possible while balancing the rights of current claimants against those of future, unknown claimants. The Trust's mission is to "enhance and preserve the Trust estate" in order to "deliver fair, adequate and equitable compensation to (claimants), whether known or unknown." The Trust was established as a negotiation based settlement organization pursuant to Plan provisions which made it clear that claimants did not need to litigate or threaten to litigate in order to negotiate a fair settlement.
Start up Operations of the Trust
Although not confirmed until October 1988, the Trust began operating in January of 1987, following the bankruptcy court's appointment of trustees. During the first seven months of 1987, several consulting organizations assisted the trustees in handling a range of complex issues and developing a strategy for responding to the impending deluge of claims. In October 1987, the trustees hired an executive director, and within six months, the Trust had hired and trained nearly ninety-five employees and was prepared to settle claims.
In May 1988, the Trust began to negotiate settlements of the cases filed against Manville before August 1982, all of which had been stayed by the bankruptcy proceeding. Upon consummation of the Plan on November 28, 1988, the Trust was authorized to begin paying these pre-bankruptcy claims, subject to certain conditions, including the receipt of an individual proof of claim form and a signed release from each claimant. As of December 31, 1988, the Trust had settled over 12,600 claims for almost $500 million and had paid 1,200 claimants over $50 million. Claims were paid 100% of settlement value in first-in, first-out (FIFO) order. By mid-1989, an additional 48,500 post-bankruptcy claim forms had been received. By January 1992 more than 190,000 claimants were seeking compensation from theTrust.
Settlement vs. Litigation
Although some litigation against the Trust was contemplated by the crafters of the Plan, it was recognized that substantial litigation against the Trust would be operationally unmanageable and financially detrimental. The Plan authors wanted the Trust to be a negotiation-based settlement organization. However, three factors led to the Trust's inundation with active litigation. The first was purely operational: the Plan permitted claimants to sue the Trust 120 days after filing their claims if they had not received a settlement offer. Because the Trust had received such an enormous volume of claims and was unable to make offers on all of them within 120 days, many claimants exercised their right to sue in order to improve their position in the FIFO queue.
The second factor influencing the volume of litigation was an acceleration in the volume of cases tried in the courts compared to the relative handful of asbestos cases that came to trial during the mid-1980s. On the 240th day after Consummation, July 28, 1989, co-defendants in the asbestos litigation were permitted to implead the Trust as a third party in the ongoing litigation. By December 1989 the Trust had been impleaded in and was forced to defend 89,000 cases nationwide. This unprecedented volume had not been anticipated, and the Plan did not allow modification of the Trust's operations to accommodate the problem.
Finally, as the Trust's initial cash funding dwindled and it became readily apparent that its assets were insufficient to pay its liabilities, the "race to the courthouse" became a stampede.
Bankruptcy Court Intervention
In July 1990, the Honorable Jack B. Weinstein, U.S. District Judge for the Eastern District of New York, was granted jurisdiction over the Trust. Judge Weinstein issued a stay on all Trust payments except exigent health and financial hardship settlements. During the next five months Manville Corporation, court-appointed representatives of current and future claimants, and the Trust, negotiated a restructured financial agreement and claims settlement process.
In November 1990, the Trust was judicially determined to be a "limited fund" and a class action designed to reorganize the Trust claims settlement and payment process was filed in the Eastern and Southern Districts of New York. A settlement of the class action was approved by Judge Weinstein in June 1991 (Findley v. Blinken, 129 B.R. 710 (E. & S.D.N.Y. 1991). In December 1992, the Second Circuit Court of Appeals vacated and remanded the case to Judge Weinstein for further negotiations (Findley v. Blinken, 928 F.2d 721; modified, 993 F.2d 7 (2nd Cir. 1993).
New Operational Mandates -- the TDP Following remand, negotiations continued through 1993 and the first half of 1994 ( the case name changed to Findley v. Falise), and in July 1994, a new settlement was reached. Fairness hearings were held during November. On January 19, 1995, Judge Weinstein approved the class action settlement which altered the Trust's claim settlement and distribution process. In re Johns-Manville Corporation, 878 F.Supp. 473 (E. & S.D.N.Y. 1995). The settlement, which included a revised Trust Distribution Process (the "TDP"), requires that the Trust's assets be distributed to qualifying claimants on a pro rata share basis computed to equalize payments to present and future claimants at an initial level of 10% of total liquidated claim value. Claims are paid on a scheduled basis in accordance with seven disease categories, but claimants can refuse the Trust's schedule-based offer and request individual evaluation and eventually ADR.
The settlement provided that the TDP would go into effect on February 21, 1995 unless the order was stayed. Though appeals were filed, no stay was granted and the Trust implemented the TDP procedures effective February 21, 1995. The Trust is still waiting for the Second Circuit to rule on the outstanding appeals, but strongly believes the settlement plan will ultimately be approved.
As of December 31, 1995, approximately 10 months following District Court approval of the class action settlement, the Trust had made offers or sent deficiency notices to 103,551 claimants, and had settled and paid over 55,000 claimants in excess of $270 million.
(As of December 31, 1995, the Trust had received over 280,000 claims. The Plan predicted the Trust would receive between 83,000 and 100,000 claims during the life of the Trust.)