oc-20230630

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-33100

Owens Corning

(Exact name of registrant as specified in its charter)

Delaware

43-2109021

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

One Owens Corning Parkway,

Toledo,

43659

(Address of principal executive offices)

(Zip Code)

(419) 248-8000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	OC	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


Large Accelerated Filer	þ	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨
Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No þ

As of July 21, 2023, 89,833,906 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

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			Contents

Cover Page			1

PART I – FINANCIAL INFORMATION (unaudited)

	Item 1.	Financial Statements
		Consolidated Statements of Earnings	4
		Consolidated Statements of Comprehensive Earnings	5
		Consolidated Balance Sheets	6
		Consolidated Statements of Stockholders’ Equity	7
		Consolidated Statements of Cash Flows	9
		Notes to Consolidated Financial Statements
		1. General	10
		2. Segment Information	12

		3. Inventories	14
		4. Derivative Financial Instruments	15
		5. Goodwill and Other Intangible Assets	17
		6. Property, Plant and Equipment	19

		7. Acquisitions	20

		8. Divestitures	21
		9. Warranties	21
		10. Restructuring, Acquisition and Divestiture-Related Costs	22
		11. Debt	24
		12. Pension Plans and Other Postretirement Benefits	27
		13. Contingent Liabilities and Other Matters	29
		14. Stock Compensation	31
		15. Earnings per Share	34
		16. Income Taxes	35
		17. Changes in Accumulated Other Comprehensive Deficit	36


	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49

	Item 4.	Controls and Procedures	49

PART II – OTHER INFORMATION

	Item 1.	Legal Proceedings	50

	Item 1A.	Risk Factors	50

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50

	Item 3.	Defaults Upon Senior Securities	50

	Item 4.	Mine Safety Disclosures	50

	Item 5.	Other Information	51

	Item 6.	Exhibits	52

		Signatures	53

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PART I

ITEM 1. FINANCIAL STATEMENTS

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(unaudited)

(in millions, except per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,

	2023		2022		2023		2022
NET SALES	$	2,563	$	2,601	$	4,894	$	4,947
COST OF SALES	1,811		1,867		3,553		3,594
Gross margin	752		734		1,341		1,353
OPERATING EXPENSES
Marketing and administrative expenses	207		201		411		385
Science and technology expenses	28		24		56		47



Gain on sale of site	—		—		(189)		—
Other expense (income), net	30		22		42		(6)
Total operating expenses	265		247		320		426
OPERATING INCOME	487		487		1,021		927
Non-operating income	—		(2)		—		(4)
EARNINGS BEFORE INTEREST AND TAXES	487		489		1,021		931
Interest expense, net	23		26		45		54

EARNINGS BEFORE TAXES	464		463		976		877
Income tax expense	121		119		251		226
Equity in net earnings (loss) of affiliates	1		(1)		1		(1)
NET EARNINGS	344		343		726		650
Net (loss) earnings attributable to non-redeemable and redeemable noncontrolling interests	(1)		—		(2)		3

NET EARNINGS ATTRIBUTABLE TO OWENS CORNING	$	345	$	343	$	728	$	647
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO OWENS CORNING COMMON STOCKHOLDERS
Basic	$	3.81	$	3.51	$	8.01	$	6.56
Diluted	$	3.78	$	3.49	$	7.94	$	6.52

WEIGHTED AVERAGE COMMON SHARES
Basic	90.5		97.6		90.9		98.6
Diluted	91.3		98.4		91.7		99.3

The accompanying Notes to the Consolidated Financial Statements are an integral part of this Statement.

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OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(unaudited)

(in millions)


		Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022		2023		2022
NET EARNINGS		$	344	$	343	$	726	$	650
Other comprehensive income (loss), net of tax:
	Currency translation adjustment (net of tax of $0 and $(1) for the three months ended June 30, 2023 and 2022, respectively, and $0 and $(1) for the six months ended June 30, 2023 and 2022, respectively)	9		(54)		40		(82)
	Pension and other postretirement adjustment (net of tax of $0 and $0 for the three months ended June 30, 2023 and 2022, respectively, and $0 and $(1) for the six months ended June 30, 2023 and 2022, respectively)	(2)		6		(3)		9
	Hedging adjustment (net of tax of $(2) and $1 for the three months ended June 30, 2023 and 2022, respectively, and $(2) and $(7) for the six months ended June 30, 2023 and 2022, respectively)	7		(1)		6		23
	Total other comprehensive income (loss), net of tax	14		(49)		43		(50)
COMPREHENSIVE EARNINGS		358		294		769		600
Comprehensive loss attributable to non-redeemable and redeemable noncontrolling interests		(2)		(2)		(3)		—

COMPREHENSIVE EARNINGS ATTRIBUTABLE TO OWENS CORNING		$	360	$	296	$	772	$	600

The accompanying Notes to the Consolidated Financial Statements are an integral part of this Statement.

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OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in millions, except per share amounts)


ASSETS	June 30, 2023		December 31, 2022
CURRENT ASSETS
Cash and cash equivalents	$	968	$	1,099
Receivables, less allowance of $13 at June 30, 2023 and $11 at December 31, 2022	1,413		961
Inventories	1,288		1,334
Assets held for sale	—		45
Other current assets	122		117
Total current assets	3,791		3,556
Property, plant and equipment, net	3,723		3,729
Operating lease right-of-use assets	224		204
Goodwill	1,387		1,383
Intangible assets	1,565		1,602
Deferred income taxes	20		16
Other non-current assets	291		262
TOTAL ASSETS	$	11,001	$	10,752
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable	$	1,201	$	1,345
Current operating lease liabilities	59		52
Other current liabilities	572		707
Total current liabilities	1,832		2,104
Long-term debt, net of current portion	3,004		2,992
Pension plan liability	76		78
Other employee benefits liability	116		118
Non-current operating lease liabilities	165		152
Deferred income taxes	438		388
Other liabilities	311		299
Total liabilities	5,942		6,131
Redeemable noncontrolling interest	25		25
OWENS CORNING STOCKHOLDERS’ EQUITY
Preferred stock, par value $0.01 per share (a)	—		—
Common stock, par value $0.01 per share (b)	1		1
Additional paid in capital	4,143		4,139
Accumulated earnings	4,427		3,794
Accumulated other comprehensive deficit	(637)		(681)
Cost of common stock in treasury (c)	(2,920)		(2,678)
Total Owens Corning stockholders’ equity	5,014		4,575
Noncontrolling interests	20		21
Total equity	5,034		4,596
TOTAL LIABILITIES AND EQUITY	$	11,001	$	10,752

(a)10 shares authorized; none issued or outstanding at June 30, 2023 and December 31, 2022

(b)400 shares authorized; 135.5 issued and 89.8 outstanding at June 30, 2023; 135.5 issued and 91.9 outstanding at December 31, 2022

The accompanying Notes to the Consolidated Financial Statements are an integral part of this Statement.

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OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(unaudited)

(in millions)


	Common Stock Outstanding			Treasury Stock			APIC (a)		Accumulated Earnings		AOCI (b)		NCI (c)		Total
	Shares	Par Value		Shares	Cost
Balance at December 31, 2022	91.9	$	1	43.6	$	(2,678)	$	4,139	$	3,794	$	(681)	$	21	$	4,596
Net earnings attributable to Owens Corning	—	—		—	—		—		383		—		—		383
Net earnings attributable to non-redeemable noncontrolling interests	—	—		—	—		—		—		—		—		—
Redeemable noncontrolling interest adjustment to redemption value	—	—		—	—		(1)		—		—		—		(1)
Currency translation adjustment	—	—		—	—		—		—		31		—		31
Pension and other postretirement adjustment (net of tax)	—	—		—	—		—		—		(1)		—		(1)
Deferred loss on hedging transactions (net of tax)	—	—		—	—		—		—		(1)		—		(1)

Issuance of common stock under share-based payment plans	0.7	—		(0.7)	23		(22)		—		—		—		1
Purchases of treasury stock	(1.8)	—		1.8	(161)		—		—		—		—		(161)
Stock-based compensation expense	—	—		—	—		13		—		—		—		13

Dividends declared (d)	—	—		—	—		—		(48)		—		—		(48)
Balance at March 31, 2023	90.8	$	1	44.7	$	(2,816)	$	4,129	$	4,129	$	(652)	$	21	$	4,812
Net earnings attributable to Owens Corning	—	—		—	—		—		345		—		—		345
Net earnings attributable to non-redeemable noncontrolling interests	—	—		—	—		—		—		—		—		—
Redeemable noncontrolling interest adjustment to redemption value	—	—		—	—		—		—		—		—		—
Currency translation adjustment	—	—		—	—		—		—		10		(1)		9
Pension and other postretirement adjustment (net of tax)	—	—		—	—		—		—		(2)		—		(2)
Deferred gain on hedging transactions (net of tax)	—	—		—	—		—		—		7		—		7

Issuance of common stock under share-based payment plans	0.1	—		(0.1)	12		—		—		—		—		12
Purchases of treasury stock	(1.1)	—		1.1	(116)		—		—		—		—		(116)
Stock-based compensation expense	—	—		—	—		14		—		—		—		14

Dividends declared (d)	—	—		—	—		—		(47)		—		—		(47)
Balance at June 30, 2023	89.8	$	1	45.7	$	(2,920)	$	4,143	$	4,427	$	(637)	$	20	$	5,034

(a)Additional Paid in Capital (“APIC”)

(b)Accumulated Other Comprehensive Earnings (Deficit) (“AOCI”)

(c)Noncontrolling Interests (“NCI”)

(d)Quarterly dividend declaration of $0.52 per share as of June 30, 2023 and March 31, 2023

The accompanying Notes to the Consolidated Financial Statements are an integral part of this Statement.

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OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(unaudited)

(in millions)


	Common Stock Outstanding			Treasury Stock			APIC (a)		Accumulated Earnings		AOCI (b)		NCI (c)		Total
	Shares	Par Value		Shares	Cost
Balance at December 31, 2021	100.4	$	1	35.1	$	(1,922)	$	4,092	$	2,706	$	(581)	$	39	$	4,335
Net earnings attributable to Owens Corning	—	—		—	—		—		304		—		—		304
Net earnings attributable to noncontrolling interests	—	—		—	—		—		—		—		3		3
Currency translation adjustment	—	—		—	—		—		—		(27)		(1)		(28)
Pension and other postretirement adjustment (net of tax)	—	—		—	—		—		—		3		—		3
Deferred gain on hedging transactions (net of tax)	—	—		—	—		—		—		24		—		24
Purchases of noncontrolling interest	—	—		—	—		8		—		—		(17)		(9)
Issuance of common stock under share-based payment plans	0.4	—		(0.4)	21		(21)		—		—		—		—
Purchases of treasury stock	(2.7)	—		2.7	(243)		—		—		—		—		(243)
Stock-based compensation expense	—	—		—	—		12		—		—		—		12

Dividends declared (d)	—	—		—	—		—		(36)		—		—		(36)
Balance at March 31, 2022	98.1	$	1	37.4	$	(2,144)	$	4,091	$	2,974	$	(581)	$	24	$	4,365
Net earnings attributable to Owens Corning	—	—		—	—		—		343		—		—		343
Net loss attributable to noncontrolling interests	—	—		—	—		—		—		—		—		—
Currency translation adjustment	—	—		—	—		—		—		(52)		(2)		(54)
Pension and other postretirement adjustment (net of tax)	—	—		—	—		—		—		6		—		6
Deferred loss on hedging transactions (net of tax)	—	—		—	—		—		—		(1)		—		(1)

Issuance of common stock under share-based payment plans	0.1	—		(0.1)	9		3		—		—		—		12
Purchases of treasury stock	(1.0)	—		1.0	(87)		—		—		—		—		(87)
Stock-based compensation expense	—	—		—	—		13		—		—		—		13

Dividends declared (d)	—	—		—	—		—		(35)		—		—		(35)
Balance at June 30, 2022	97.2	$	1	38.3	$	(2,222)	$	4,107	$	3,282	$	(628)	$	22	$	4,562

(a)Additional Paid in Capital (“APIC”)

(b)Accumulated Other Comprehensive Earnings (Deficit) (“AOCI”)

(c)Noncontrolling Interests (“NCI”)

(d)Quarterly dividend declaration of $0.35 per share as of June 30, 2022 and March 31, 2022

The accompanying Notes to the Consolidated Financial Statements are an integral part of this Statement.

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OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in millions)


	Six Months Ended June 30,
	2023		2022
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES
Net earnings	$	726	$	650
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation and amortization	286		270


Deferred income taxes	43		16
Provision for pension and other employee benefits liabilities	3		1
Stock-based compensation expense	27		25


Gains on sale of certain precious metals	(2)		(11)


Gain on sale of site	(189)		—
Other adjustments to reconcile net earnings to cash provided by operating activities	1		22
Changes in operating assets and liabilities	(559)		(330)
Pension fund contribution	(3)		(2)
Payments for other employee benefits liabilities	(6)		(5)
Other	3		(12)
Net cash flow provided by operating activities	330		624
NET CASH FLOW USED FOR INVESTING ACTIVITIES
Cash paid for property, plant, and equipment	(280)		(212)

Proceeds from the sale of assets or affiliates	189		27
Investment in subsidiaries and affiliates, net of cash acquired	—		(173)

Derivative settlements	—		20


Other	(11)		(2)
Net cash flow used for investing activities	(102)		(340)
NET CASH FLOW USED FOR FINANCING ACTIVITIES






Purchases of noncontrolling interest	—		(9)
Net decrease in short-term debt	—		(5)
Dividends paid	(95)		(70)
Purchases of treasury stock	(275)		(330)
Finance lease payments	(16)		(15)
Other	1		—
Net cash flow used for financing activities	(385)		(429)
Effect of exchange rate changes on cash	27		(4)
Net decrease in cash, cash equivalents and restricted cash	(130)		(149)
Cash, cash equivalents and restricted cash at beginning of period	1,107		966
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD	$	977	$	817

The accompanying Notes to the Consolidated Financial Statements are an integral part of this Statement.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. GENERAL

Unless the context requires otherwise, the terms “Owens Corning,” “Company,” “we” and “our” in this report refer to Owens Corning, a Delaware corporation, and its subsidiaries.

The Consolidated Financial Statements included in this report are unaudited, pursuant to certain rules and regulations of the Securities and Exchange Commission, and include, in the opinion of the Company, normal recurring adjustments necessary for a fair statement of the results for the periods indicated, which, however, are not necessarily indicative of results which may be expected for the full year. The December 31, 2022 balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States (“U.S.”). In connection with the Consolidated Financial Statements and Notes included in this report, reference is made to the Consolidated Financial Statements and Notes contained in the Company’s annual report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”). Certain reclassifications have been made to the periods presented for 2022 to conform to the classifications used in the periods presented for 2023.

Revenue Recognition

As of December 31, 2022, our contract liability balances (for extended warranties, down payments and deposits, collectively) totaled $89 million, of which $15 million was recognized as revenue in the first six months of 2023. As of June 30, 2023, our contract liability balances totaled $92 million.

As of December 31, 2021, our contract liability balances totaled $76 million, of which $15 million was recognized as revenue in the first six months of 2022. As of June 30, 2022, our contract liability balances totaled $82 million.

Cash, Cash Equivalents and Restricted Cash

On the Consolidated Statements of Cash Flows, the total of Cash, cash equivalents and restricted cash includes restricted cash of $9 million as of June 30, 2023, $8 million as of December 31, 2022, and $7 million as of June 30, 2022 and December 31, 2021. Restricted cash primarily represents amounts received from a counterparty related to its performance assurance on an executory contract, which is included in Other current assets on the Consolidated Balance Sheets. These amounts are contractually required to be set aside, and the counterparty can exchange the cash for another form of performance assurance at its discretion.

Related Party Transactions

In the first quarter of 2021, a related party relationship was established as a result of a member of the Company’s Board of Directors being named an executive officer of one of the Company’s preexisting suppliers. The related party transactions with this supplier consist of the purchase of raw materials. Purchases from the related party supplier were $29 million and $50 million for the three and six months ended June 30, 2023, respectively, and $39 million and $60 million for the three and six months ended June 30, 2022, respectively. As of June 30, 2023 and December 31, 2022, amounts due to the related party supplier were $5 million and $3 million, respectively.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

1. GENERAL (continued)

Supplier Finance Programs

We review supplier terms and conditions on an ongoing basis, and have negotiated payment terms extensions in recent years in connection with our efforts to reduce working capital and improve cash flow. Separate from those terms extension actions, certain of our subsidiaries have entered into paying agency agreements with third-party administrators. These voluntary supply chain finance programs (collectively, the “Programs”) generally give participating suppliers the ability to sell, or otherwise pledge as collateral, their receivables from the Company to the participating financial institutions, at the sole discretion of both the suppliers and financial institutions. The Company is not a party to the arrangements between the suppliers and the financial institutions. The Company’s obligations to its suppliers, including amounts due and scheduled payment dates, are not impacted by the suppliers’ decisions to sell, or otherwise pledge as collateral, amounts under these arrangements. The Company’s payment terms to the financial institutions, including the timing and amount of payments, are based on the original supplier invoices. One of the Programs includes a parent guarantee to the participating financial institution for a certain U.S. subsidiary that, at the time of the respective program’s inception in 2015, was a guarantor subsidiary of the Company’s Credit Agreement. The obligations are presented as Accounts payable within Total current liabilities on the Consolidated Balance Sheets and all activity related to the obligations is presented within operating activities on the Consolidated Statements of Cash Flow.

The Company’s confirmed outstanding obligations under the Programs totaled $219 million and $234 million as of June 30, 2023 and December 31, 2022, respectively. The amounts of invoices paid under the Programs totaled $307 million and $304 million for the six months ended June 30, 2023 and June 30, 2022, respectively.

Accounting Pronouncements

All Accounting Standards Updates (“ASUs”) recently issued by the Financial Accounting Standards Board (“FASB”) were either not applicable to the Company or their adoption did not have a material impact on the Company’s Consolidated Financial Statements.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

2. SEGMENT INFORMATION

The Company has three reportable segments: Composites, Insulation and Roofing. Accounting policies for the segments are the same as those for the Company. The Company’s three reportable segments are defined as follows:

Composites – Within our Composites segment, the Company manufactures, fabricates and sells glass reinforcements in the form of fiber. Glass reinforcement materials are also used by the Composites segment to manufacture and sell high value applications in the form of fabrics, non-wovens and other specialized products.

Insulation – Within our Insulation segment, the Company manufactures and sells thermal and acoustical batts, loosefill insulation, spray foam insulation, foam sheathing and accessories. It also manufactures and sells glass fiber pipe insulation, energy efficient flexible duct media, bonded and granulated mineral wool insulation, cellular glass insulation, and foam insulation used in above- and below-grade construction applications.

Roofing – Within our Roofing segment, the Company manufactures and sells residential roofing shingles, oxidized asphalt materials, roofing components used in residential and commercial construction and specialty applications, and synthetic packaging materials.

NET SALES

The following tables show a disaggregation of our Net sales by segment and geographic region (in millions). Corporate eliminations (shown below) largely reflect intercompany sales from Composites to Roofing. External customer sales are attributed to geographic region based upon the location from which the product is sold to the external customer.


	For the three months ended June 30, 2023
Reportable Segments	Composites		Insulation		Roofing		Eliminations		Consolidated
Disaggregation Categories
U.S. residential	$	87	$	324	$	1,054	$	(83)	$	1,382
U.S. commercial and industrial	237		223		40		(2)		498
Total United States	324		547		1,094		(85)		1,880
Europe	135		201		4		—		340
Asia-Pacific	116		41		1		—		158
Rest of world	45		116		24		—		185
NET SALES	$	620	$	905	$	1,123	$	(85)	$	2,563


	For the three months ended June 30, 2022
Reportable Segments	Composites		Insulation		Roofing		Eliminations		Consolidated
Disaggregation Categories
U.S. residential	$	94	$	374	$	932	$	(69)	$	1,331
U.S. commercial and industrial	225		202		44		—		471
Total United States	319		576		976		(69)		1,802
Europe	197		213		5		(1)		414
Asia-Pacific	145		41		2		—		188
Rest of world	58		104		35		—		197
NET SALES	$	719	$	934	$	1,018	$	(70)	$	2,601

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

2. SEGMENT INFORMATION (continued)



	For the six months ended June 30, 2023
Reportable Segments	Composites		Insulation		Roofing		Eliminations		Consolidated
Disaggregation Categories
U.S. residential	$	172	$	694	$	1,893	$	(148)	$	2,611
U.S. commercial and industrial	455		429		64		(4)		944
Total United States	627		1,123		1,957		(152)		3,555
Europe	272		395		8		(1)		674
Asia-Pacific	223		72		1		—		296
Rest of world	83		234		52		—		369
NET SALES	$	1,205	$	1,824	$	2,018	$	(153)	$	4,894



	For the six months ended June 30, 2022
Reportable Segments	Composites		Insulation		Roofing		Eliminations		Consolidated
Disaggregation Categories
U.S. residential	$	181	$	725	$	1,708	$	(129)	$	2,485
U.S. commercial and industrial	435		381		71		(3)		884
Total United States	616		1,106		1,779		(132)		3,369
Europe	402		410		11		(3)		820
Asia-Pacific	296		76		4		—		376
Rest of world	119		201		62		—		382
NET SALES	$	1,433	$	1,793	$	1,856	$	(135)	$	4,947

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

2. SEGMENT INFORMATION (continued)

EARNINGS BEFORE INTEREST AND TAXES

Earnings before interest and taxes (“EBIT”) by segment consist of net sales less related costs and expenses, and are presented on a basis that is used internally for evaluating segment performance. Certain items, such as general corporate expenses or income and certain other expense or income items, are excluded from the internal evaluation of segment performance. Accordingly, these items are not reflected in EBIT for our reportable segments and are included within Corporate, Other and Eliminations.

The following table summarizes EBIT by segment (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Reportable Segments
Composites	$	87	$	154	$	136	$	308
Insulation	163		157		319		286
Roofing	338		258		547		434
Total reportable segments	588		569		1,002		1,028
Restructuring costs	(47)		(11)		(65)		(17)
Gain on sale of Shanghai, China facility	—		—		—		27

Gain on sale of Santa Clara, California site	—		—		189		—
Gains on sale of certain precious metals	—		7		2		11



Acquisition-related costs	—		(3)		—		(3)
Impairment loss on Chambery, France assets held for sale	—		(29)		—		(29)

General corporate expense and other	(54)		(44)		(107)		(86)
Total corporate, other and eliminations	(101)		(80)		19		(97)
EBIT	$	487	$	489	$	1,021	$	931

3. INVENTORIES

Inventories consist of the following (in millions):


	June 30, 2023		December 31, 2022
Finished goods	$	804	$	843
Materials and supplies	484		491
Total inventories	$	1,288	$	1,334

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

4. DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to, among other risks, the impact of changes in commodity prices, foreign currency exchange rates, and interest rates in the normal course of business. The Company’s risk management program is designed to manage the exposure and volatility arising from these risks, and utilizes derivative financial instruments to offset a portion of these risks. The Company uses derivative financial instruments only to the extent necessary to hedge identified business risks, and does not enter into such transactions for trading purposes.

The Company generally does not require collateral or other security with counterparties to these financial instruments and is therefore subject to credit risk in the event of nonperformance; however, the Company monitors credit risk and currently does not anticipate nonperformance by other parties. Contracts with counterparties generally contain right of offset provisions. These provisions effectively reduce the Company’s exposure to credit risk in situations where the Company has gain and loss positions outstanding with a single counterparty. It is the Company’s policy to offset on the Consolidated Balance Sheets the amounts recognized for derivative instruments with any cash collateral arising from derivative instruments executed with the same counterparty under a master netting agreement. As of June 30, 2023 and December 31, 2022, the Company did not have any amounts on deposit with any of its counterparties, nor did any of its counterparties have any amounts on deposit with the Company.

Derivative Fair Values

Our derivatives consist of natural gas forward swaps and foreign exchange forward contracts, all of which are over-the-counter and not traded through an exchange. The Company uses widely accepted valuation tools to determine fair value, such as discounting cash flows to calculate a present value for the derivatives. The models use Level 2 inputs, such as forward curves and other commonly quoted observable transactions and prices. The fair value of our derivatives and hedging instruments are all classified as Level 2 investments within the three-tier hierarchy.

The following table presents the fair value of derivatives and hedging instruments and the respective location on the Consolidated Balance Sheets (in millions):


		Fair Value at
	Location	June 30, 2023		December 31, 2022
Derivative assets designated as hedging instruments:






Cash flow hedges:
Natural gas forward swaps	Other current assets	$	—	$	2


Derivative liabilities designated as hedging instruments:







Cash flow hedges:
Natural gas forward swaps	Other current liabilities	$	22	$	32


Derivative assets not designated as hedging instruments:

Foreign exchange forward contracts	Other current assets	$	1	$	1

Derivative liabilities not designated as hedging instruments:

Foreign exchange forward contracts	Other current liabilities	$	1	$	2

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

4. DERIVATIVE FINANCIAL INSTRUMENTS (continued)

Consolidated Statements of Earnings Activity

The following table presents the impact and respective location of derivative activities on the Consolidated Statements of Earnings (in millions):


		Three Months Ended June 30,				Six Months Ended June 30,
	Location	2023		2022		2023		2022
Derivative activity designated as hedging instruments:
Natural gas cash flow hedges:
Amount of loss (gain) reclassified from AOCI (as defined below) into earnings (a)	Cost of sales	$	14	$	(16)	$	32	$	(26)


Cross-currency swap net investment hedges:
Amount of gain recognized in earnings on derivative amounts excluded from effectiveness testing	Interest expense, net	$	—	$	—	$	—	$	(1)


Derivative activity not designated as hedging instruments:


Foreign currency:
Amount of (gain) loss recognized in earnings (b)	Other expense (income), net	$	(2)	$	(23)	$	4	$	(28)

(a)Accumulated Other Comprehensive Earnings (Deficit) (“AOCI”)

(b)Gains related to foreign currency derivatives were substantially offset by net revaluation impacts on foreign currency denominated balance sheet exposures, which were also recorded in Other expense (income), net. Please refer to the “Other Derivatives” section below for additional detail.

Consolidated Statements of Comprehensive Earnings Activity

The following table presents the impact of derivative activities on the Consolidated Statements of Comprehensive Earnings (in millions):


		Amount of (Gain) Loss Recognized in Comprehensive Earnings
		Three Months Ended June 30,				Six Months Ended June 30,
Hedging Type	Derivative Financial Instrument	2023		2022		2023		2022
Net investment hedge	Cross-currency swaps	$	—	$	(3)	$	—	$	(5)
Cash flow hedge	Natural gas forward swaps	$	(9)	$	10	$	(8)	$	(13)
Cash flow hedge	Treasury interest rate lock	$	—	$	(9)	$	—	$	(19)

Cash Flow Hedges

The Company uses a combination of derivative financial instruments, which qualify as cash flow hedges, and physical contracts to manage forecasted exposure to electricity and natural gas prices. As of June 30, 2023, the notional amounts of these natural gas forward swaps was 8 million MMBtu (or MMBtu equivalent) based on U.S. and European indices. The Company has designated these natural gas forward swaps as cash flow hedges, with the last hedge maturing no later than August 2024. A net unrecognized loss of $22 million related to these natural gas forward swaps was included in AOCI as of June 30, 2023, $22 million of which is expected to be reclassified into earnings within the next twelve months.

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OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

4. DERIVATIVE FINANCIAL INSTRUMENTS (continued)

In 2020, the Company entered into a $175 million forward U.S. Treasury rate lock agreement to manage the U.S. Treasury portion of its interest rate risk associated with the anticipated issuance of certain 10-year fixed rate senior notes. The Company designated this forward U.S. Treasury rate lock agreement, which expired on December 15, 2022, as a cash flow hedge. The locked fixed rate of this agreement was 0.994%. In September 2022, a gain of $6 million was recognized as a result of a change in the forecasted issuance of certain senior notes. In December 2022, the Company received cash of $37 million upon the settlement of the rate lock agreement, of which $31 million will be amortized as a component of interest expense upon the future issuance of senior notes. This unrecognized gain of $31 million was included in AOCI as of June 30, 2023.

Net Investment Hedges

The Company has translation exposure resulting from translating the financial statements of foreign subsidiaries into United States Dollars, which is recognized in Currency translation adjustment (a component of AOCI). In the second quarter of 2022, the Company terminated the remaining cross-currency forward contracts related to the hedged portions of the net investment in foreign subsidiaries, resulting in cash proceeds of $11 million.

Other Derivatives

The Company uses forward currency exchange contracts to manage existing exposures to foreign exchange risk related to assets and liabilities recorded on the Consolidated Balance Sheets. As of June 30, 2023, the Company had notional amounts of $132 million for non-designated derivative financial instruments related to foreign currency exposures in United States Dollars primarily related to the Brazilian Real, Chinese Yuan, Indian Rupee, Hong Kong Dollar, South Korean Won, and Japanese Yen. In addition, the Company had notional amounts of $32 million for non-designated derivative financial instruments related to foreign currency exposures in European Euro primarily related to the Polish Złoty and the British Pound Sterling.

5. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The Company tests goodwill and indefinite-lived intangible assets for impairment during the fourth quarter of each year, or more frequently should circumstances change or events occur that would more likely than not reduce the fair value of a reporting unit below its carrying value.

No testing was deemed necessary in the first six months of 2023. The changes in the net carrying value of goodwill by segment are as follows (in millions):


	Composites		Insulation		Roofing		Total
Gross carrying amount at December 31, 2022	$	425	$	1,499	$	394	$	2,318




Foreign currency translation	1		7