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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
or
☐ 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)
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Delaware | 43-2109021 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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One Owens Corning Parkway, | Toledo, | OH | | 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:
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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. ¨
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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| Item 1. | | |
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| Item 1A. | | |
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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 | |
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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 | |
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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 | |
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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 | |
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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.
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) | | — | |
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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.
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
(c)45.7 shares at June 30, 2023 and 43.6 shares at December 31, 2022
The accompanying Notes to the Consolidated Financial Statements are an integral part of this Statement.
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) | |
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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 | |
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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 | |
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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 | |
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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 | |
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(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.
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 | |
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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) | |
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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 | |
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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 | |
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(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.
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 | |
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Deferred income taxes | 43 | | 16 | |
Provision for pension and other employee benefits liabilities | 3 | | 1 | |
Stock-based compensation expense | 27 | | 25 | |
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Gains on sale of certain precious metals | (2) | | (11) | |
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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) | |
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Proceeds from the sale of assets or affiliates | 189 | | 27 | |
Investment in subsidiaries and affiliates, net of cash acquired | — | | (173) | |
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Derivative settlements | — | | 20 | |
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Other | (11) | | (2) | |
Net cash flow used for investing activities | (102) | | (340) | |
NET CASH FLOW USED FOR FINANCING ACTIVITIES | | |
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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.
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.
- 11 -
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.
Table of Contents
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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.
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| 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 | |
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| 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 | |
- 13 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
2. SEGMENT INFORMATION (continued)
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| 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 | |
- 14 -
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 | |
- 15 -
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 | |
- 16 -
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.
- 17 -
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 | | | |