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(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
iCommon Stock, par value $0.01 per share
iOC
iNew
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.
iYesþ
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).
iYesþ 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:
iLarge
Accelerated Filer
þ
Accelerated filer
¨
Non-accelerated filer
¨
Smaller reporting company
i¨
Emerging growth company
i¨
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. ¨
Currency translation adjustment (net of tax of $0 and $(1) for the three months ended September 30, 2022 and 2021, respectively, and $(1) and $(2) for the nine months ended September 30, 2022 and 2021, respectively)
(i161)
(i35)
(i243)
(i48)
Pension
and other postretirement adjustment (net of tax of $0 and $(10) for the three months ended September 30, 2022 and 2021, and $(1) and $(10) for the nine months ended September 30, 2022 and 2021, respectively)
i6
i33
i15
i31
Hedging
adjustment (net of tax of $(2) and $(5) for the three months ended September 30, 2022 and 2021, respectively, and $(9) and $(8) for the nine months ended September 30, 2022 and 2021, respectively)
i6
i12
i29
i22
Total
other comprehensive (loss) income, net of tax
(i149)
i10
(i199)
i5
COMPREHENSIVE
EARNINGS
i320
i269
i920
i772
Comprehensive
(loss) attributable to non-redeemable and redeemable noncontrolling interests
(i2)
(i1)
(i2)
(i1)
COMPREHENSIVE
EARNINGS ATTRIBUTABLE TO OWENS CORNING
$
i322
$
i270
$
i922
$
i773
The
accompanying Notes to the Consolidated Financial Statements are an integral part of this Statement.
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, 2021 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, 2021 (the "2021 Form 10-K"). Certain reclassifications have been made to the periods presented for 2021 to conform to the classifications used in the periods presented for 2022.
Revenue Recognition
As of December 31, 2021, our contract
liability balances (for extended warranties, down payments and deposits, collectively) totaled $i76 million, of which $i16 million
was recognized as revenue in the first nine months of 2022. As of September 30, 2022, our contract liability balances totaled $i86 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 $iiii7/// million
as of September 30, 2022, December 31, 2021, September 30, 2021 and December 31, 2020. 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 $i42 million
and $i102 million for the three and nine months ended September 30, 2022, respectively, and $i23 million
and $i70 million for the three and nine months ended September 30, 2021, respectively. As of September 30, 2022 and December 31, 2021, amounts due to the related party supplier were $i9 million
and $i1 million, respectively.
Accounting Pronouncements
The following table summarizes recent Accounting Standards Updates (ASU's) issued by the Financial Accounting Standards Board (FASB) that had an impact or could have an impact on the Company's Consolidated Financial Statements:
Standard
Description
Effective
Date for Company
Effect on the Consolidated Financial Statements
Recently issued standards:
ASU 2021-10 "Government Assistance (Topic 832)"
This standard
modifies the annual disclosure requirements for business entities that receive government assistance and use a grant or contribution accounting model by analogy to other account guidance.
We are currently assessing the impact adopting this standard will have on our Consolidated Financial Statements. The Company has adopted ASU 2021-10 for the year ending December 31, 2022 and will provide the required disclosures, if material.
We are currently assessing the impact which the adoption of this standard will have on our Consolidated Financial Statements.The Company will adopt this ASU for interim periods beginning January 1, 2023.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
2. iSEGMENT INFORMATION
The
Company has ithree reportable segments: Composites, Insulation and Roofing. Accounting policies for the segments are the same as those for the Company. The Company’s ithree
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
i
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.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
4. iDERIVATIVE 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 September 30, 2022 and December 31, 2021, 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, cross-currency swaps, foreign exchange forward contracts and U.S. treasury
rate lock agreements, 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.
i
The
following table presents the fair value of derivatives and hedging instruments and the respective location on the Consolidated Balance Sheets (in millions):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
4. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
Consolidated Statements of Earnings Activity
i
The
following table presents the impact and respective location of derivative activities on the Consolidated Statements of Earnings (in millions):
Three Months Ended September 30,
Nine Months Ended September 30,
Location
2022
2021
2022
2021
Derivative
activity designated as hedging instruments:
Natural gas cash flow hedges:
Amount of gain reclassified from AOCI (as defined below) into earnings (a)
Cost of sales
$
(i21)
$
(i4)
$
(i47)
$
(i6)
Cross-currency
swap net investment hedges:
Amount of gain recognized in earnings on derivative amounts excluded from effectiveness testing
Interest expense, net
$
i—
$
(i1)
$
(i1)
$
(i4)
Derivative
activity not designated as hedging instruments:
Foreign currency:
Amount of gain recognized in earnings (b)
Other income, net
$
(i26)
$
(i14)
$
(i54)
$
(i30)
Treasury
interest rate lock:
Amount of gain recognized in earnings
Other income, net
$
(i6)
$
i—
$
(i6)
$
i—
(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 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
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 September 30, 2022, the notional amounts of these natural gas forward swaps was i9 million
MMBtu (or MMBtu equivalent) based on U.S. and European indices.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
4. DERIVATIVE FINANCIAL INSTRUMENTS (continued)
In March
2020, the Company entered into a $i175 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 has designated this outstanding forward U.S. Treasury rate lock agreement, which expires on December 15, 2022, as a
cash flow hedge. The locked fixed rate of this agreement is i0.994%. In September 2022, the Company de-designated the instrument due to a change in the forecasted issuance of certain senior notes and re-designated the effective portion of the instrument which resulted in the recognition of a $i6 million
gain in the third quarter 2022.
In June 2021, the Company entered into five currency forward contracts with unrelated counterparties totaling $i23 million to mitigate against unwanted or anticipated moves in the European Euro exchange rate against the U.S. Dollar, pertaining to forecasted Euro denominated invoices for capital expenditures. The
Company has designated each of the individual contracts as cash flow hedges, with the last hedge maturing no later than December 2023.
Net Investment Hedges
The Company has translation exposure resulting from translating the financial statements of foreign subsidiaries into U.S. 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 $i11 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 September 30, 2022, the Company had notional amounts of $i551 million for non-designated derivative financial instruments related to foreign currency exposures in U.S. Dollars primarily related to European Euro, Indian Rupee, Brazilian Real, South Korean Won, Chinese Yuan, and Hong Kong Dollar. In addition, the
Company had notional amounts of $i19 million for non-designated derivative financial instruments related to foreign currency exposures in European Euro primarily related to the Russian Ruble, Polish Złoty, and Norwegian Krone.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
5. iGOODWILL 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 nine months of 2022. iThe changes in the net carrying value of goodwill by segment are as follows (in millions):
The Company amortizes the cost of other intangible assets over their estimated useful lives which, individually, range up to i45 years. The Company's future cash flows are not materially impacted by its ability to extend or renew agreements related to its amortizable intangible assets.
There
is ione trade name used by our European building and technical insulation business within our Insulation segment that is at an increased risk of impairment. If assumptions or estimates with respect to the Company's future performance vary from what is expected, including those assumptions relating to interest rates and economic and geopolitical uncertainty in Europe, future impairment analyses could result in a decline in fair value that may trigger a future impairment charge.
The affected asset had a carrying value of $i139 million as of September 30, 2022.
i
Other
intangible assets consist of the following (in millions):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
5. GOODWILL AND OTHER INTANGIBLE ASSETS (continued)
Amortization
expense for intangible assets for the three and nine months ended September 30, 2022 was $i14 million and $i37 million,
respectively. Amortization expense for intangible assets for the three and nine months ended September 30, 2021 was $i12 million and $i37 million,
respectively. Amortization expense for intangible assets is estimated to be $i17 million for the remainder of 2022.
i
The
estimated amortization expense for intangible assets for the next five fiscal years ended December 31 is as follows (in millions):
Period
Amortization
2023
$
i66
2024
$
i63
2025
$
i56
2026
$
i40
2027
$
i32
/
6. iPROPERTY,
PLANT AND EQUIPMENT
i
Property, plant and equipment consist of the following (in millions):
Machinery
and equipment includes certain precious metals used in our production tooling, which comprise approximately ii10/% of total
machinery and equipment as of both September 30, 2022 and December 31, 2021. Precious metals used in our production tooling are depleted as they are consumed during the production process, which typically represents an annual expense of about i3% of the outstanding carrying value.
Our production tooling needs in our Composites segment are changing in response to economic and technological factors. As a result, we exchanged
certain precious metals used in production tooling for certain other precious metals to be used in production tooling. These non-cash investing activities are not included in Net cash flow used for investing activities in the Consolidated Statements of Cash Flows. During the three and nine months ended September 30, 2022, these non-cash exchanges resulted in a net increase to Machinery and equipment of $i7 million and $i18 million,
respectively, and gains totaling $i7 million and $i18 million,
respectively. During the three and nine months ended September 30, 2021, these non-cash exchanges resulted in a net increase to Machinery and equipment of less than $i1 million and $i41 million,
respectively, and gains totaling less than $i1 million and $i41 million,
respectively. The gains are included in Other income, net on the Consolidated Statements of Earnings and are reflected in the Corporate, Other and Eliminations reporting category. We do not expect these exchanges to materially impact our current or future capital expenditure requirements or rate of depletion.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
7. iACQUISITIONS
On May 23, 2022, Owens Corning and Pultron Composites ("Pultron") formed a joint venture ("JV") to manufacture and sell fiberglass rebar. The Company contributed approximately
$i47 million to acquire a i65.5% controlling interest and has established a redeemable noncontrolling interest
related to Pultron, the minority holder. The JV expands Owens Corning’s capability to produce high-value material solutions by combining the Company’s glass-fiber material technology, channel access and extensive industry experience with Pultron’s manufacturing expertise and process efficiency. The fully consolidated operating results and a preliminary purchase price allocation for the JV have been included in the Company’s Composites segment within the Consolidated Financial Statements since the date of the formation of the JV. Subsequent to the JV formation, the JV acquired assets and technology from Pultron for approximately $i65 million.
The purchase price allocation is preliminary and resulted in the recognition of $i15 million in intangible assets, consisting of technology, with an estimated weighted average life of i15
years and $i42 million in goodwill. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the acquisition. The pro-forma effect of this acquisition on revenues and earnings was not material.
On June 1, 2022, the Company acquired all of the outstanding
assets of WearDeck®, a premium producer of composite weather-resistant decking for commercial and residential applications, for approximately $i133 million, net of cash acquired. The acquisition advances the Composites business growth strategy to focus on high-value material solutions within the building and construction industry. The operating results and a preliminary purchase price allocation for WearDeck® have been included in the Composites segment within the Consolidated Financial Statements since the date of the acquisition.
The purchase price allocation is preliminary and resulted in the recognition of $i38 million in intangible assets and $i68 million
in goodwill. The intangible assets consist of indefinite-lived trademarks of $i7 million, technology of $i10 million
with an estimated weighted average life of i11 years and customer relationships of $i21 million
with an estimated weighted average life of i15 years. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the acquisition. The pro-forma effect of this acquisition on revenues and earnings was not material.
On August 1, 2022, the
Company acquired Natural Polymers, LLC ("Natural Polymers"), an innovative manufacturer of spray polyurethane foam insulation for building and construction applications for $i111 million, net of cash acquired. The acquisition advances the Owens Corning strategy to strengthen the Company's core building and construction products and expand its addressable markets into higher-growth segments. The operating results and a preliminary purchase
price allocation for Natural Polymers have been included in the Insulation segment within the Consolidated Financial Statements since the date of the acquisition. The purchase price allocation is preliminary and resulted in the recognition of $i44 million in intangible assets and $i60 million
in goodwill. The intangible assets consist of indefinite-lived trademarks of $i5 million, technology of $i12 million
with an estimated weighted average life of i6 years and customer relationships of $i27 million
with an estimated weighted average life of i17 years. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the acquisition.The pro-forma effect of this acquisition on revenues and earnings was not material.
On September 1, 2022, the
Company acquired the remaining i50% interest in Fiberteq, LLC ("Fiberteq"), the joint venture between Owens Corning and IKO Industries, Ltd, which produces high-quality wet-formed fiberglass mat for roofing applications for $i140 million,
net of cash acquired. The acquisition advances the Composites strategy to focus on high-value material solutions and expands Owens Corning's capacity to produce non-woven mat. The Company's i50% interest in Fiberteq was accounted for as an equity-method investment and had a carrying value of $i17 million
at the acquisition date. The Company used the discounted cash flow method to remeasure the previously held equity method investment to its fair value of $i147 million, resulting in the recognition of a gain of $ii130/ million,
which is recorded in Gain on equity method investment on the Consolidated Statements of Earnings. The operating results and a preliminary purchase price allocation for Fiberteq have been included in the Composites segment within the Consolidated Financial Statements since the date of the acquisition. The purchase price allocation is preliminary and resulted in the recognition of $i62 million in intangible
assets, which primarily consists of customer relationships with an estimated weighted average life of i3 years, a $i62 million unfavorable contract
liability and $i247 million in goodwill. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the acquisition. The pro-forma effect of this acquisition on revenues and earnings was not material.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
8. iDIVESTITURES
On
July 1, 2022, the Company finalized the sale of the European portion of the dry-use chopped strands ("DUCS") product line located in Chambéry, France, within the Composite's segment. As a result of this sale, the Company received $i75 million, net of cash sold, in consideration. In the second quarter of 2022, the
Company recorded a pre-tax charge of $i29 million in Other income, net on the Consolidated Statements of Earnings to reflect fair value less cost to sell of these assets.
On September 13, 2022, the Company entered into an agreement to sell the Russian operations. The regulatory
approval process, which is not considered perfunctory, is ongoing and could result in significant changes to key terms of the agreement. As a result of this uncertainty, management determined assets held for sale treatment had not been triggered as of September 30, 2022. Net sales from our Russian operations and its associated assets represent approximately ii1/%
of annual consolidated net sales and consolidated assets, respectively.
9. iWARRANTIES
i
The
Company records a liability for warranty obligations at the date the related products are sold. Adjustments are made as new information becomes available. Please refer to Note 1 of our 2021 Form 10-K for information about our separately-priced extended warranty contracts. A reconciliation of the warranty liability is as follows (in millions):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
10. iRESTRUCTURING, ACQUISITION AND DIVESTITURE-RELATED COSTS
The
Company may incur restructuring, transaction and integration costs related to acquisitions and divestitures, and may incur restructuring and other exit costs in connection with its global cost reduction, productivity initiatives and the Company's growth strategy.
ACQUISITION AND DIVESTITURE-RELATED COSTS
During the first nine months of 2022, the Company incurred $i5 million
of transaction costs related to its announced acquisitions and divestitures. Please refer to Note 7 and Note 8 of the Consolidated Financial Statements for further information regarding these actions.
RESTRUCTURING RELATED-COSTS
Exit of DUCS Product Line
On July 1, 2022, the Company finalized the sale of the European portion of the dry-use chopped strands ("DUCS") product line located in Chambéry, France, within the Composite's segment. The Company recorded a pre-tax charge of $i29 million
in Other income, net on the Consolidated Statements of Earnings in the second quarter to reflect the fair value less cost to sell of the assets. Please refer to Note 8 of the Consolidated Financial Statements for further information. The Company also took decisions to convert the DUCS manufacturing facilities located in Anderson, South Carolina and Kimchon, Korea to produce other glass fiber products needed to support our growth strategy in building and construction applications. As a result, the Company recorded $i3 million
associated with these actions in 2022.The Company does not expect to recognize significant incremental costs related to these actions.
Roofing Restructuring Actions
In December 2021, the Company took actions to restructure operations within the Roofing segment's components product line by relocating production assets from China to India which will allow the business to optimize its manufacturing network and support a tariff mitigation strategy. During the first nine months of 2022, the Company recorded $i2 million
of charges primarily related to other exit costs. The Company expects to recognize $i4 million of incremental charges related to these actions.
Santa Clara Insulation Site
During the third quarter of 2021, the Company entered into a purchase and sale
agreement for the Company's Insulation site in Santa Clara, California. The Company expects to continue operations at this facility through early fourth quarter of 2022 and complete the transaction in the first quarter of 2023. This action is part of the Company's on-going strategy to operate a flexible, cost-efficient manufacturing network and geographically locate its assets to better service its customers. Cumulative cash pre-tax charges associated with the transaction are expected to be in the range of $i30 million
to $i40 million, primarily related to severance and one-time employee termination benefits, demolition costs, and other closing costs. In addition, cumulative non-cash charges are expected to be in the range of $i75 million
to $i85 million, primarily consisting of accelerated depreciation of property, plant and equipment and derecognition of the carrying value of land, which will offset the gross proceeds at closing.
During the first nine months of 2022, the Company recorded $i22 million
of charges, primarily related to accelerated depreciation, associated with this agreement.
2020 Insulation Restructuring Actions
During the fourth quarter of 2020, the Company took actions to avoid future capital outlays and reduce costs in its global Insulation segment, mainly through decisions to close certain manufacturing facilities in Shanghai, China and Fresno, Texas, and optimize a facility in Parainen, Finland. During the first nine months of 2022, the Company recorded $i2 million
of charges primarily related to accelerated depreciation. The Company does not expect to recognize significant incremental costs related to these actions.
In the first quarter of 2022, the Company recognized a gain of $i27 million in Other income, net on the Consolidated Statements of Earnings, associated
with the sale of the manufacturing facility in Shanghai, China.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
10. RESTRUCTURING, ACQUISITION AND DIVESTITURE-RELATED COSTS (continued)
Acquisition-Related
Restructuring
Following the acquisitions of Paroc Group Oy ("Paroc") and Pittsburgh Corning Corporation and Pittsburgh Corning Europe NV (collectively, "Pittsburgh Corning") into the Company's Insulation segment, the Company took actions to realize expected synergies from the newly acquired operations. The Company does not expect to recognize significant incremental costs related to these actions.
i
Consolidated
Statements of Earnings Classification
The following table presents the impact and respective location of total restructuring, acquisition and divestiture-related costs on the Consolidated Statements of Earnings, which are included within Corporate, Other and Eliminations (in millions):
Three Months Ended September 30,
Nine
Months Ended September 30,
Type of cost
Location
2022
2021
2022
2021
Accelerated depreciation
Cost of sales
$
i9
$
i6
$
i22
$
i8
Other
exit costs
Cost of sales
i1
i—
i4
i—
Other
exit costs
Marketing and administrative expenses
i—
i—
i—
i1
Severance
Other
income, net
i—
i12
i1
i10
Other
exit costs (gains)
Other income, net
i2
(i15)
i4
(i14)
Acquisition-related
costs
Gain on equity method investment
(i130)
i—
(i130)
i—
Acquisition-related
costs
Marketing and administrative expenses
i2
i—
i5
i—
Other
exit costs
Non-operating income
i—
i2
i—
i2
Total
restructuring, acquisition and divestiture-related (gains) costs
$
(i116)
$
i5
$
(i94)
$
i7
/
i
Summary
of Unpaid Liabilities
The following table summarizes the status of the unpaid liabilities from the Company's restructuring activities (in millions):
As
of September 30, 2022, the remaining liability balance is comprised of $i16 million of severance, which the Company expects to pay over the next twelve months.
i4.200% senior notes, net of discount and financing fees, due 2024
$
i398
i98
%
$
i397
i107
%
i3.400%
senior notes, net of discount and financing fees, due 2026
i397
i92
%
i397
i106
%
i3.950%
senior notes, net of discount and financing fees, due 2029
i446
i89
%
i446
i110
%
i3.875%
senior notes, net of discount and financing fees, due 2030
i298
i87
%
i297
i109
%
i7.000%
senior notes, net of discount and financing fees, due 2036
i368
i103
%
i368
i141
%
i4.300%
senior notes, net of discount and financing fees, due 2047
i589
i75
%
i589
i115
%
i4.400%
senior notes, net of discount and financing fees, due 2048
i390
i75
%
i390
i118
%
Various
finance leases, due through 2050 (a)
i125
i100
%
i99
i100
%
Other
i2
N/A
i2
N/A
Total
long-term debt
i3,013
N/A
i2,985
N/A
Less
– current portion (a)
i25
i100
%
i25
i100
%
Long-term
debt, net of current portion
$
i2,988
N/A
$
i2,960
N/A
/
(a)The
Company determined that the book value of the above noted long-term debt instruments approximates fair value.
The fair values of the Company's outstanding long-term debt instruments were estimated using market observable inputs, including quoted prices in active markets, market indices and interest rate measurements. Within the hierarchy of fair value measurements, these are Level 2 fair values.
Senior Notes
The Company issued $i300 million
of 2030 senior notes on May 12, 2020. Interest on the notes is payable semiannually in arrears on June 1 and December 1 each year, beginning on December 1, 2020. The proceeds from these notes were used for general corporate purposes.
The Company issued $i450 million of 2029 senior notes on August 12, 2019.
Interest on the notes is payable semiannually in arrears on February 15 and August 15 each year, beginning on February 15, 2020. The proceeds from these notes were used to repay $i416 million of our 2022 senior notes and $i34 million
of our 2036 senior notes.
The Company issued $i400 million of 2048 senior notes on January 25, 2018. Interest on the notes is payable semiannually in arrears on January 30 and July 30 each year, beginning on July 30, 2018. The proceeds from these notes were used, along with borrowings on a $i600 million
term loan commitment and borrowings on the Receivables Securitization Facility (as defined below), to fund the purchase of Paroc in the first quarter of 2018.
The Company issued $i600 million of 2047 senior notes on June 26, 2017. Interest on the notes is payable semiannually in arrears on January 15 and July 15 each year, beginning on January 15, 2018.
A portion of the proceeds from these notes was used to fund the purchase of Pittsburgh Corning in 2017 and for general corporate purposes. The remaining proceeds were used to repay $i144 million of our 2019 senior notes and $i140
million of our 2036 senior notes.
The Company issued $i400 million of 2026 senior notes on August 8, 2016. Interest on the notes is payable semiannually in arrears on February 15 and August 15 each year, beginning on February 15, 2017. A portion of the proceeds from these notes was used to repay $i158
million of our 2016 senior notes. The remaining proceeds were used to pay down portions of our Receivables Securitization Facility and for general corporate purposes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
11. DEBT (continued)
The
Company issued $i400 million of 2024 senior notes on November 12, 2014. Interest on the notes is payable semiannually in arrears on June 1 and December 1 each year, beginning on June 1, 2015. A portion of the proceeds from these notes was used to repay $i242
million of our 2016 senior notes and $i105 million of our 2019 senior notes. The remaining proceeds were used to pay down our Senior Revolving Credit Facility (as defined below), finance general working capital needs, and for general corporate purposes.
On October 31, 2006, the Company issued $i550
million of 2036 senior notes. The proceeds of these notes were used to pay certain unsecured and administrative claims, finance general working capital needs and for general corporate purposes.
Collectively, the senior notes above are referred to as the “Senior Notes.” The Senior Notes are general unsecured obligations of the Company and rank pari passu with all existing and future senior unsecured indebtedness of the Company.
The Company has the option to redeem all or part of the Senior Notes at any time at a “make-whole” redemption price. The
Company is subject to certain covenants in connection with the issuance of the Senior Notes that it believes are usual and customary. The Company was in compliance with these covenants as of September 30, 2022.
Senior Revolving Credit Facility
The Company has an $i800
million senior revolving credit facility (the "Senior Revolving Credit Facility") with a maturity date in July 2026 that includes both borrowings and letters of credit. Borrowings under the Senior Revolving Credit Facility may be used for general corporate purposes and working capital. The Company has the discretion to borrow under multiple options, which provide for varying terms and interest rates including the United States prime rate, federal funds rate plus a spread or LIBOR plus a spread. The current agreement also includes fallback language related to a benchmark reference rate replacement, when a LIBOR transition occurs.
In June 2022, the Senior Revolving Credit Facility was amended to allow the Company to continue
to operate in comprehensively sanctioned countries so long as it is not violating any sanctions.
The Senior Revolving Credit Facility contains various covenants, including a maximum allowed leverage ratio, that the Company believes are usual and customary for a senior unsecured credit agreement. The Company was in compliance with these covenants as of September 30, 2022. Please refer to the Credit Facility Utilization section below for liquidity information as of September 30, 2022.
Receivables Securitization Facility
The
Company has a Receivables Purchase Agreement ("RPA") that is accounted for as secured borrowings in accordance with ASC 860, "Accounting for Transfers and Servicing." Owens Corning Sales, LLC and Owens Corning Receivables LLC, each a subsidiary of the Company, have a $i280 million RPA with certain financial institutions. The Company has the ability to borrow at the lenders' cost of funds, which approximates
A-1/P-1 commercial paper rates vs. LIBOR, plus a fixed spread. The current agreement also includes fallback language related to a benchmark reference rate replacement, when a LIBOR transition occurs. The RPA has been amended from time to time, with a maturity date in April 2024.
The RPA contains various covenants, including a maximum allowed leverage ratio that the Company believes are usual and customary for a securitization facility. The Company was in compliance with these covenants as of September 30, 2022. Please refer to the Credit Facility Utilization section below for liquidity information as of September 30, 2022.
Owens
Corning Receivables LLC’s sole business consists of the purchase or acceptance through capital contributions of trade receivables and related rights from Owens Corning Sales, LLC and the subsequent retransfer of or granting of a security interest in such trade receivables and related rights to certain purchasers who are party to the RPA. Owens Corning Receivables LLC is a separate legal entity with its own separate creditors who will be entitled, upon its liquidation, to be satisfied out of Owens Corning Receivables LLC’s assets prior to any assets or value in Owens Corning Receivables LLC becoming available to Owens Corning Receivables LLC’s equity holders. The assets of Owens Corning Receivables LLC are not available to pay creditors of the Company or any other affiliates of the Company or Owens
Corning Sales, LLC.
Short-term borrowings were less than $i1 million and $i6 million as of September 30, 2022 and December 31,
2021, respectively. The short-term borrowings consisted of various operating lines of credit. The weighted average interest rate on all short-term borrowings was approximately i1.6% and i1.5%
as of September 30, 2022 and December 31, 2021, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
12. iPENSION
PLANS AND OTHER POSTRETIREMENT BENEFITS
Pension Plans
The Company sponsors defined benefit pension plans. Under the plans, pension benefits are based on an employees' years of service and, for certain categories of employees, qualifying compensation. Company contributions to these pension plans are determined by an independent actuary to meet or exceed minimum funding requirements. In our U.S. plans, the unrecognized cost of any retroactive amendments and actuarial gains and losses are amortized over the average remaining life expectancy of the inactive participants as substantially all of the plan participants are inactive. In our non-U.S. plans, the unrecognized cost of any retroactive amendments and actuarial gains and losses are amortized over the average future service period of plan
participants expected to receive benefits.
i
The following table provides information regarding pension expense recognized (in millions):
The
Company does not expect to contribute to the U.S. pension plans during 2022. The Company expects to contribute $i20 million in cash to non-U.S. plans during 2022. The Company made cash contributions of $i5 million
to the non-U.S. plans during the nine months ended September 30, 2022.
Postemployment and Postretirement Benefits Other than Pensions ("OPEB")
The Company maintains healthcare and life insurance benefit plans for certain retired employees and their dependents. The health care plans in the United States are non-funded and pay either (1) stated percentages of covered medically necessary expenses, after subtracting payments by Medicare or other providers and after stated deductibles have been met, or (2) fixed amounts of medical expense reimbursement.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
12. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (continued)
i
The
following table provides the components of net periodic benefit cost for aggregated U.S. and non-U.S. plans for the periods indicated (in millions):
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
13. iCONTINGENT LIABILITIES AND OTHER MATTERS
The
Company may be involved in various legal and regulatory proceedings relating to employment, antitrust, tax, product liability, environmental, contracts, intellectual property and other matters (collectively, “Proceedings”). The Company regularly reviews the status of such Proceedings along with legal counsel. Liabilities for such Proceedings are recorded when it is probable that the liability has been incurred and when the amount of the liability can be reasonably estimated. Liabilities are adjusted when additional information becomes available. Management believes that the amount of any reasonably possible losses in excess of any amounts accrued, if any, with respect to such Proceedings or any other known claim, including the matters described below under the caption Environmental
Matters (the “Environmental Matters”), are not material to the Company’s financial statements. Management believes that the ultimate disposition of the Proceedings and the Environmental Matters will not have a material adverse effect on the Company’s financial condition. While the likelihood is remote, the disposition of the Proceedings and Environmental Matters could have a material impact on the results of operations, cash flows or liquidity in any given reporting period.
Litigation and Regulatory Proceedings
The Company is involved in litigation and regulatory proceedings from time
to time in the regular course of its business. The Company believes that adequate provisions for resolution of all contingencies, claims and pending matters have been made for probable losses that are reasonably estimable.
Environmental Matters
The Company has established policies and procedures designed to ensure that its operations are conducted in compliance with all relevant laws and regulations and that enable the Company to meet its high standards for corporate sustainability and environmental stewardship. Our manufacturing facilities are subject to numerous foreign, federal,
state and local laws and regulations relating to the presence of hazardous materials, pollution and protection of the environment, including emissions to air, reductions of greenhouse gases, discharges to water, management of hazardous materials, handling and disposal of solid wastes, use of chemicals in our manufacturing processes, and remediation of contaminated sites. All Company manufacturing facilities operate using an ISO 14001 or equivalent environmental management system. The Company’s 2030 Sustainability Goals include significant global reductions in energy use, water consumption, waste to landfill, and emissions of greenhouse gases, fine particulate matter, and volatile organic air emissions, and protection of biodiversity.
Owens Corning is involved in remedial response activities and is responsible
for environmental remediation at a number of sites, including certain of its currently owned or formerly owned plants. These responsibilities arise under a number of laws, including, but not limited to, the Federal Resource Conservation and Recovery Act, and similar state or local laws pertaining to the management and remediation of hazardous materials and petroleum. The Company has also been named a potentially responsible party under the U.S. Federal Superfund law, or state equivalents, at a number of disposal sites. The Company became involved in these sites as a result of government action or in connection with business acquisitions. As of September 30, 2022, the
Company was involved with a total of i23 sites worldwide, including i10 Superfund and state equivalent sites and i13
owned or formerly owned sites. None of the liabilities for these sites are individually significant to the Company.
Remediation activities generally involve a potential range of activities and costs related to soil, groundwater, and sediment contamination. This can include pre-cleanup activities such as fact-finding and investigation, risk assessment, feasibility studies, remedial action design and implementation (where actions may range from monitoring to removal of contaminants, to installation of longer-term remediation systems). A number of factors affect the cost of environmental remediation, including the number of parties involved in a particular site, the determination of the extent of contamination, the length of time the remediation may require, the complexity of environmental regulations, variability
in clean-up standards, the need for legal action, and changes in remediation technology. Taking these factors into account, Owens Corning reasonably estimates the costs of remediation to be paid over a period of years. The Company accrues an amount on an undiscounted basis, when a liability is probable and reasonably estimable. Actual cost may differ from these estimates for the reasons mentioned above. At September 30, 2022, the Company had an accrual totaling $i5 million
for these costs, of which the current portion is $i1 million. Changes in required remediation procedures or timing of those procedures, or discovery of contamination at additional sites, could result in material increases to the Company’s environmental obligations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
14. iSTOCK COMPENSATION
Description
of the Plan
On April 18, 2019, the Company’s stockholders approved the Owens Corning 2019 Stock Plan (the “2019 Stock Plan”), which authorizes grants of stock options, stock appreciation rights, restricted stock awards, restricted stock units, bonus stock awards and performance share awards. At September 30, 2022, the number of shares remaining available under the 2019 Stock Plan for all stock awards was approximately i2.7
million.
Prior to 2019, employees were eligible to receive stock awards under the Owens Corning 2016 Stock Plan and the Owens Corning 2013 Stock Plan.
Total Stock-Based Compensation Expense
i
Stock-based compensation expense included in Marketing and administrative expenses in the accompanying
Consolidated Statements of Earnings is as follows (in millions):
The Company has granted stock options under its stockholder approved stock plans. The Company calculates a weighted-average grant-date fair value using a Black-Scholes valuation model for options granted. Compensation expense for options is measured based on the fair market value of the option on the date of grant, and is recognized on a straight-line basis over a ifour
year vesting period. In general, the exercise price of each option awarded was equal to the closing market price of the Company’s common stock on the date of grant and an option’s maximum term is i10 years. The volatility assumption was based on a benchmark study of our peers prior to 2014. Starting with the options granted in 2014, the volatility was based on the
Company’s historic volatility.
The Company has not granted stock options since the year ended December 31, 2014. As of September 30, 2022, there was ino unrecognized compensation
cost related to stock options and the range of exercise prices on outstanding stock options was $i37.65 - $i42.16.
i
The following table summarizes the Company’s stock option activity:
The Company has granted restricted stock units ("RSUs") under its stockholder approved stock plans. Compensation expense for RSUs is measured based on the closing market price of the stock at date of grant and is recognized on a straight-line basis over the vesting period, which is typically three or ifour years. The Stock Plans allow alternate vesting
schedules for death, disability, and retirement. The weighted average grant date fair value of RSUs granted in 2022 was $i90.71.
As
of September 30, 2022, there was $i39 million of total unrecognized compensation cost related to RSUs. That cost is expected to be recognized over a weighted-average period of i2.42
years. The total grant date fair value of shares vested during the nine months ended September 30, 2022 and 2021 was $i21 million and $i25 million,
respectively.
Performance Share Units
The Company has granted performance share units ("PSUs") as a part of its long-term incentive plan program. All outstanding performance grants will fully settle in stock. The amount of stock ultimately distributed from all performance shares is contingent on meeting internal Company-based metrics or an external-based stock performance metric.
In the nine months ended September 30, 2022, the Company granted both internal Company-based and external-based metric PSUs.
Internal Company-based metrics
The
internal Company-based metrics are based on various Company metrics and typically vest over a ithree-year period. The amount of stock distributed will vary from i0%
to i300% of PSUs awarded depending on each award's design and performance versus the internal Company-based metrics.
The initial fair value for all internal Company-based metric PSUs assumes that the performance goals will be achieved and is based on the grant date stock price. This assumption is monitored quarterly and if it becomes probable that such goals will not be achieved or will be exceeded, compensation expense recognized will be adjusted and previous surplus compensation expense recognized will be reversed or additional expense will be recognized.
The expected term represents the period from the grant date to the end of the vesting period. Pro-rata vesting may be utilized in the case of death, disability or approved retirement and awards, if earned, will be paid at the end of the vesting period.
External-based metrics
The external-based metrics vest after a ithree-year period. Outstanding grants are based on the
Company's total stockholder return relative to the performance of the Dow Jones U.S. Construction & Materials Index. The amount of stock distributed will vary from i0% to i200% of PSUs awarded depending on the relative
stockholder return performance. The fair value of external-based metric PSUs has been estimated at the grant date using a Monte Carlo simulation that uses various assumptions.
The following table provides a summary of the assumptions for PSUs granted in 2022:
i
Expected
volatility
i41.65%
Risk free interest rate
i1.36%
Expected
term (in years)
i2.91
Grant date fair value of units granted
$
i122.69
/
The
risk-free interest rate was based on zero-coupon United States Treasury bills at the grant date. The expected term represents the period from the grant date to the end of the ithree-year performance period.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
14. STOCK COMPENSATION (continued)
PSU Summary
As of September 30, 2022, there was $i23 million
total unrecognized compensation cost related to PSUs. That cost is expected to be recognized over a weighted-average period of i1.75 years.
iThe
following table summarizes the Company’s PSU activity:
The Owens Corning Employee Stock Purchase Plan ("ESPP") is a tax-qualified plan under Section 423 of the Internal Revenue Code. The purchase price of shares purchased under the ESPP is equal to i85% of the lower of the fair market value of shares of Owens Corning common stock at the beginning or ending of the offering period, which is a six-month period ending on May 31 and November 30 of each year. On
April 16, 2020, the Company's stockholders approved the Amended and Restated Owens Corning Employee Stock Purchase Plan, which increased the number of shares available for issuance under the plan by i4.2 million shares. As of September 30, 2022,
i3.7 million shares remain available for purchase.
Included in total stock-based compensation expense is $i1 million
and $i4 million of expense related to the Company's ESPP recognized during the three and nine months ended September 30, 2022, respectively. During the three and nine months ended September 30, 2021, the Company recognized expense of $i1 million
and $i4 million, respectively, related to the Company's ESPP. As of September 30, 2022, there was $i1 million
of total unrecognized compensation cost related to the ESPP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
15. iEARNINGS
PER SHARE
i
The following table is a reconciliation of weighted-average shares for calculating basic and diluted earnings per share (in millions, except per share amounts):
Weighted-average
number of shares outstanding used for basic earnings per share
i96.3
i103.1
i97.8
i104.4
Non-vested
restricted and performance shares
i0.8
i0.7
i0.9
i0.7
Options
to purchase common stock
i—
i0.1
i—
i0.1
Weighted-average
number of shares outstanding and common equivalent shares used for diluted earnings per share
i97.1
i103.9
i98.7
i105.2
Earnings
per common share attributable to Owens Corning common stockholders:
Basic
$
i4.88
$
i2.52
$
i11.42
$
i7.36
Diluted
$
i4.84
$
i2.50
$
i11.32
$
i7.30
/
For
the three and nine months ended September 30, 2022 and September 30, 2021, there were iiiino///
non-vested RSUs or PSUs that had an anti-dilutive effect on earnings per share.
On February 14, 2022, the Board of Directors approved a new share buy-back program under which the Company is authorized to repurchase up to i10 million shares of the
Company’s outstanding common stock (the "Repurchase Authorization"). The Repurchase Authorization enables the Company to repurchase shares through the open market, privately negotiated, or other transactions. The actual number of shares repurchased will depend on timing, market conditions and other factors and will be at the Company's discretion. The Company repurchased i6.0 million
shares of its common stock for $i521 million during the nine months ended September 30, 2022, under the Repurchase Authorization. As of September 30, 2022, i7.4
million shares remain available for repurchase under the Repurchase Authorization.
The
difference between the effective tax rate and the U.S. federal statutory tax rate of i21% for the three months ended September 30, 2022 is primarily due to U.S. state and local income tax expense, non-taxable gain on acquisition, foreign rate differential and other discrete adjustments. The difference between the effective tax rate and the U.S. federal statutory tax rate of i21%
for the nine months ended September 30, 2022 is primarily due to U.S. state and local income tax expense, non-taxable gain on acquisition, U.S. federal taxes on foreign earnings, adjustments to valuation allowances against certain deferred tax assets, excess tax benefits related to stock compensation, and other discrete adjustments.
On August 16, 2022, President Biden signed into law the “Inflation Reduction Act.”The company continues to evaluate the impact of the new law and awaits further guidance from the government.
The difference between the effective tax rate and the U.S. federal statutory tax rate of i21%
for the three months ended September 30, 2021 is primarily due to U.S. state and local income tax expense, U.S. federal taxes on foreign earnings, and other discrete adjustments. The difference between the effective tax rate and the U.S. federal statutory tax rate of i21% for the nine months ended September 30, 2021 is primarily due to U.S. state and local income tax expense, U.S. federal taxes on foreign earnings,
adjustments to valuation allowances against certain deferred tax assets, excess tax benefits related to stock compensation, and other discrete adjustments.
The Company continues to assert indefinite reinvestment in accordance with Accounting Standards Codification ("ASC") 740 based on the laws as of enactment of the tax legislation commonly known as the U.S. Tax Cuts and Jobs Act of 2017.
Net
investment hedge amounts classified into AOCI, net of tax
i—
i4
i4
i7
Loss
on foreign currency translation
(i160)
(i39)
(i243)
(i55)
Other
comprehensive (loss), net of tax
(i160)
(i35)
(i239)
(i48)
Ending
balance
$
(i518)
$
(i268)
$
(i518)
$
(i268)
Pension
and Other Postretirement Adjustment
Beginning balance
$
(i309)
$
(i374)
$
(i318)
$
(i372)
Amounts
reclassified from AOCI to net earnings, net of tax (a)
i—
i2
i2
i4
Amounts
classified into AOCI, net of tax
i6
i31
i13
i27
Other
comprehensive income, net of tax
i6
i33
i15
i31
Ending
balance
$
(i303)
$
(i341)
$
(i303)
$
(i341)
Hedging
Adjustment
Beginning balance
$
i39
$
i14
$
i16
$
i4
Amounts
reclassified from AOCI to net earnings, net of tax (b)
(i16)
(i3)
(i35)
(i5)
Amounts
classified into AOCI, net of tax
i22
i15
i64
i27
Other
comprehensive income, net of tax
i6
i12
i29
i22
Ending
balance
$
i45
$
i26
$
i45
$
i26
Total
AOCI ending balance
$
(i776)
$
(i583)
$
(i776)
$
(i583)
(a)These
AOCI components are included in the computation of total Pension and Other postretirement expense and are recorded in Non-operating income. See Note 12 for additional information.
(b)Amounts reclassified from (loss) gain on cash flow hedges are reclassified from AOCI to income when the hedged item affects earnings and is recognized in Cost of sales or Interest expense, net depending on the hedged item. See Note 4 for additional information.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis ("MD&A") is intended to help investors understand Owens Corning, our operations and our present business environment. MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying Notes thereto contained in this report. Unless the context requires otherwise, the terms “Owens Corning,”“Company,”“we” and “our” in this report refer to Owens Corning and its subsidiaries.
GENERAL
Owens
Corning is a global building and construction materials leader helping customers win in the market by providing innovative and sustainable solutions. The Company has three reporting segments: Composites, Insulation and Roofing. Through these lines of business, the Company manufactures and sells products worldwide. We maintain leading market positions in many of our major product categories.
EXECUTIVE OVERVIEW
Net earnings attributable to Owens Corning were $470 million in the third quarter of 2022, compared to $260 million in the same period of 2021. The
Company reported $610 million in earnings before interest and taxes ("EBIT") for the third quarter of 2022 compared to $394 million in the same period of 2021. The Company generated $487 million in adjusted earnings before interest and taxes (“Adjusted EBIT”) for the third quarter of 2022 compared to $400 million in the same period of 2021. See the Adjusted Earnings Before Interest and Taxes paragraph of the MD&A for further information regarding EBIT and Adjusted EBIT, including the reconciliation to net earnings attributable to Owens Corning. Third quarter of 2022 EBIT performance compared to the same period of 2021 increased $25 million, $49 million, and $17 million in our Composites, Insulation, and Roofing segments, respectively. Within our Corporate, Other and Eliminations category, General corporate expense and other increased by $4 million.
Cash
and cash equivalents were $751 million as of September 30, 2022, compared to $920 million as of September 30, 2021 as a result of increased cash outflows from investing activities, partially offset by higher earnings. In the nine months ended September 30, 2022, the Company's operating activities provided $1,085 million of cash flow, compared to $1,168 million in the same period in 2021 due to an increase in operating assets, specifically receivables and inventory, in 2022 compared to the same period of 2021.
As the Russian invasion of Ukraine evolves, we continue to closely monitor the potential impact on our businesses and our people. We believe that we have taken
the necessary steps to ensure compliance with applicable regulatory restrictions on international trade and financial transactions associated with our Russian businesses. On September 13, 2022, the Company entered into an agreement to sell its Russian operations. The regulatory approval process, which is not considered perfunctory, is ongoing and could result in significant changes to key terms of the agreement. As a result of this uncertainty, management determined assets held for sale treatment had not been triggered as of September 30, 2022. We are working to expedite our exit, while remaining committed to the safety and security of our employees in the region. Net sales from our Russian operations and its associated assets represent approximately 1% of annual consolidated net sales
and consolidated assets, respectively.
On September 1, 2022, the Company acquired the remaining 50% interest in Fiberteq, LLC ("Fiberteq"), the joint venture between Owens Corning and IKO Industries, Ltd, which produces high-quality wet-formed fiberglass mat for roofing applications for $140 million, net of cash acquired. The acquisition advances the Composites strategy to focus on high-value material solutions and expands Owens Corning's capacity to produce non-woven mat. The Company's 50% interest in Fiberteq was accounted for as an equity-method investment and had a carrying value of $17 million at the acquisition date. The
Company used the discounted cash flow method to remeasure the previously held equity method investment to its fair value of $147 million, resulting in the recognition of a gain of $130 million, which is recorded in Gain on equity method investment on the Consolidated Statements of Earnings. The operating results and a preliminary purchase price allocation for Fiberteq have been included in the Composites segment within the Consolidated Financial Statements since the date of the acquisition. The purchase price allocation is preliminary and resulted in the recognition of $247 million in goodwill. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the acquisition. The pro-forma effect of this acquisition on revenues and earnings was not material.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
On August 1, 2022, the Company acquired Natural Polymers, LLC ("Natural Polymers"), an innovative manufacturer of spray polyurethane foam insulation for building and construction applications for $111 million, net of cash acquired. The acquisition advances the Owens Corning strategy to strengthen the Company's core building and construction products and expand its addressable markets into higher-growth
segments. The operating results and a preliminary purchase price allocation for Natural Polymers have been included in the Insulation segment within the Consolidated Financial Statements since the date of the acquisition. The purchase price allocation is preliminary and resulted in the recognition of $44 million in intangible assets and $60 million in goodwill. The intangible assets consist of indefinite-lived trademarks of $5 million, technology of $12 million with an estimated weighted average life of 6 years and customer relationships of $27 million with an estimated weighted average life of 17 years. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the acquisition.The pro-forma effect of this acquisition on revenues and earnings was not material.
On July
1, 2022, the Company finalized the sale of the European portion of the dry-use chopped strands ("DUCS") product line located in Chambéry, France, within the Composite's segment. As a result of this sale, the Company received consideration of $75 million, net of cash sold. In the second quarter of 2022, the Company recorded a pre-tax charge of $29 million in Other income, net on the Consolidated Statements of Earnings to reflect fair value less cost to sell of these assets.
On June 1, 2022, the Company
acquired all of the outstanding assets of WearDeck®, a premium producer of composite weather-resistant decking for commercial and residential applications, for approximately $133 million, net of cash acquired. The acquisition advances the Composites business growth strategy to focus on high-value material solutions within the building and construction industry. The operating results and a preliminary purchase price allocation for WearDeck® have been included in the Composites segment within the Consolidated Financial Statements since the date of the acquisition. The purchase price allocation is preliminary and resulted in the recognition of $38 million in intangible assets and $68 million in goodwill. The intangible assets consist of indefinite-lived trademarks of $7 million, technology of $10 million with an estimated weighted average life of 11 years and customer relationships of $21 million with an estimated weighted average life of 15 years. The factors contributing
to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the acquisition. The pro-forma effect of this acquisition on revenues and earnings was not material.
On May 23, 2022, Owens Corning and Pultron Composites ("Pultron") formed a joint venture ("JV") to manufacture and sell fiberglass rebar. The Company contributed approximately $47 million to acquire a 65.5% controlling interest and has established a redeemable noncontrolling interest related to Pultron, the minority holder. The JV expands Owens Corning’s capability to produce high-value material solutions by combining the Company’s glass-fiber
material technology, channel access and extensive industry experience with Pultron’s manufacturing expertise and process efficiency. The fully consolidated operating results and a preliminary purchase price allocation for the JV have been included in the Company’s Composites segment within the Consolidated Financial Statements since the date of the formation of the JV. Subsequent to the JV formation, the JV acquired assets and technology from Pultron for approximately $65 million. The purchase price allocation is preliminary and resulted in the recognition of $15 million in intangible assets, consisting of technology, with an estimated weighted average life of 15 years and $42 million in goodwill. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the acquisition. The pro-forma
effect of this acquisition on revenues and earnings was not material.
On February 14, 2022, the Board of Directors approved a new share buy-back program under which the Company is authorized to repurchase up to 10 million shares of the Company’s outstanding common stock (the "Repurchase Authorization"). The Company repurchased 2.5 million shares of its common stock for $206 million in the third quarter of 2022 under the Repurchase Authorization. As of September 30, 2022, 7.4 million shares remained available for repurchase under the Repurchase Authorization.
The
Consolidated Results discussion below provides a summary of our results and the trends affecting our business, and should be read in conjunction with the more detailed Segment Results discussion that follows.
NET SALES
In the third quarter and year-to-date 2022, net sales increased $316 million and increased $1,109 million, respectively, compared to the same periods in 2021. For the third quarter and year-to-date, the increase in net sales was driven by higher selling prices and favorable customer mix which were partially offset by lower sales volumes and the unfavorable impact of translating sales denominated in foreign currencies into United States dollars.
GROSS MARGIN
In the third quarter and year-to-date 2022, gross margin increased $97 million and increased $388 million, respectively, compared
to the same periods in 2021 driven by higher selling prices, partially offset by higher input cost inflation and transportation costs in all three segments.
MARKETING AND ADMINISTRATIVE EXPENSES
In the third quarter and year-to-date 2022, marketing and administrative expenses increased $15 million and increased $38 million, respectively, compared to the same periods in 2021 driven primarily by higher general corporate expenses as business activities return to a more typical, post-pandemic level.
GAIN ON EQUITY METHOD INVESTMENT
In the third quarter and year-to-date 2022, the Company remeasured the previously held equity method investment to its fair value of $147 million, resulting in the recognition of a non-cash
gain of $130 million.
OTHER INCOME, NET
In the third quarter and year-to-date 2022, other income increased $9 million and decreased $50 million, respectively, compared to the same periods in 2021. For the third quarter, the increase was driven primarily by higher gains of the sale of certain precious metals. For year-to-date, the decrease was primarily driven by the $29 million impairment loss on the sale of our DUCS product line located in Chambery, France and $23 million in lower gains on sale of certain precious metals compared to the same period in 2021.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
INTEREST EXPENSE, NET
In the third quarter and year-to-date 2022, interest expense, net, decreased $3 million and decreased $15 million, respectively, compared to the same periods in 2021. For the third quarter, the decrease is mainly driven by higher interest income. For year-to-date 2022, the decrease was driven by lower long-term debt balances year over year due to the repayment of the senior notes due in 2022 and higher interest income.
LOSS ON EXTINGUISHMENT OF DEBT
During the third quarter of 2021, the
Company recognized a $9 million loss on extinguishment of debt in connection with the make-whole call to repay the remaining portion of its outstanding 2022 senior notes.
INCOME TAX EXPENSE
Income tax expense for the three and nine months ended September 30, 2022 was $114 million and $340 million, respectively. For the third quarter of 2022, the Company's effective tax rate was 20% and for the nine months ended September 30, 2022, the Company's effective tax rate was 23%. The difference between the effective tax rate and the U.S. federal statutory tax rate of 21% for the
three months ended September 30, 2022 is primarily due to U.S. state and local income tax expense, non-taxable gain on acquisition, foreign rate differential and other discrete adjustments. The difference between the effective tax rate and the U.S. federal statutory tax rate of 21% for the nine months ended September 30, 2022 is primarily due to U.S. state and local income tax expense, non-taxable gain on acquisition, U.S. federal taxes on foreign earnings, foreign rate differential and other discrete adjustments.
The realization of deferred tax assets depends on achieving a certain minimum level of future taxable income. Management currently believes that it is not reasonably possible that the minimum level of taxable income will be met within the next 12 months to reduce the valuation allowances of certain foreign jurisdictions.
On
August 16, 2022, President Biden signed into law the “Inflation Reduction Act.”The company continues to evaluate the impact of the new law and awaits further guidance from the government.
Income tax expense for the three and nine months ended September 30, 2021 was $94 million and $250 million, respectively. For the third quarter of 2021, the Company's effective tax rate was 27% and for the nine months ended September 30, 2021the Company's effective tax rate was 25%. The difference
between the effective tax rate and the U.S. federal statutory tax rate of 21% for the three months ended September 30, 2021 is primarily due to U.S. state and local income tax expense, U.S. federal taxes on foreign earnings and other discrete adjustments. The difference between the effective tax rate and the U.S. federal statutory tax rate of 21% for the nine months ended September 30, 2021 is primarily due to U.S. state and local income tax expense, U.S. federal taxes on foreign earnings, adjustments to valuation allowances against certain deferred tax assets, excess tax benefits related to stock compensation and other discrete adjustments.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Restructuring, Acquisition and Divestiture-Related Costs
The Company has incurred restructuring, transaction and integration costs related to acquisitions and divestitures, along with restructuring and other exit costs in connection with its global cost reduction and productivity initiatives and the Company's growth strategy. These costs are recorded within Corporate, Other and Eliminations. Please refer to Note 10
of the Consolidated Financial Statements for further information on the nature of these costs.
The following table presents the impact and respective location of these income (expense) items on the Consolidated Statements of Earnings (in millions):
Three Months Ended September 30,
Nine Months Ended
September 30,
Location
2022
2021
2022
2021
Restructuring costs
Cost of sales
$
(10)
$
(6)
$
(26)
$
(8)
Restructuring
costs
Marketing and administrative expenses
—
—
—
(1)
Severance
Other income, net
—
(12)
(1)
(10)
Other exit costs
Other
income, net
(2)
—
(2)
(1)
Gain on sale of land in India
Other income, net
—
15
—
15
Restructuring costs
Non-operating income
—
(2)
—
(2)
Acquisition-related
costs
Marketing and administrative expenses
(2)
—
(5)
—
Gain on sale of Shanghai, China facility
Other income, net
—
—
27
—
Impairment loss on Chambery, France assets
held for sale
Other income, net
—
—
(29)
—
Gain on remeasurement of Fiberteq equity investment
Gain on equity method investment
130
—
130
—
Recognition of acquisition
inventory fair value step-up
Cost of sales
—
(1)
—
(1)
Total restructuring, acquisition and divestiture-related costs
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Adjusted Earnings Before Interest and Taxes
Adjusted EBIT is a non-GAAP measure that excludes certain items that management does not allocate to our segment results because it believes they are not representative of the Company's ongoing operations. Adjusted EBIT is used internally by the Company for various purposes, including reporting results of operations to the Board of Directors of the
Company, analysis of performance and related employee compensation measures. Although management believes that these adjustments result in a measure that provides a useful representation of our operational performance, the adjusted measure should not be considered in isolation or as a substitute for Net earnings attributable to Owens Corning as prepared in accordance with accounting principles generally accepted in the United States.
Adjusting income (expense) items to EBIT are shown in the table below (in millions):
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Segment Results
EBIT by segment consists of net sales less related costs and expenses and is 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 in the Corporate, Other and Eliminations category, which is presented following the discussion of our reportable segments.
Composites
The
table below provides a summary of net sales, EBIT and depreciation and amortization expense for the Composites segment (in millions):
In our Composites segment, net sales in the third quarter of 2022 increased $47 million compared to the same period in 2021. The increase was driven by higher selling prices of $100 million, partially offset by lower sales volumes of approximately 7%.Favorable customer mix of $15 million was more than offset by the $19 million unfavorable impact of translating sales denominated in foreign currencies into United States dollars. The remaining variance was driven by the net impact of divestitures and acquisitions.
For year-to-date 2022, net sales in our Composites segment increased $338 million compared to the same period in 2021. The increase was driven by higher selling prices of $361 million, partially offset by slightly lower sales volumes. Favorable customer mix of $57 million was
largely offset by the $53 million unfavorable impact of translating sales denominated in foreign currencies into United States dollars. The remaining variance was driven by the net impact of divestitures and acquisitions.
EBIT
In our Composites segment, EBIT in the third quarter of 2022 increased $25 million compared to the same period in 2021. Higher selling prices of $100 million more than offset $60 million of input cost inflation and $11 million in higher transportation costs. Favorable customer mix was more than offset by the unfavorable impact of slightly lower sales volumes and the net impact of divestitures and acquisitions.
For the year-to-date 2022, EBIT in our Composites segment
increased $156 million compared to the same period in 2021. Higher selling prices of $361 million and favorable customer mix more than offset $163 million of input cost inflation and $35 million in higher transportation costs. The remaining variance was driven by unfavorable manufacturing performance, other one-time charges and the impact of slightly lower sales volumes.
OUTLOOK
Global glass reinforcements market demand has several economic indicators including residential, non-residential construction and manufacturing production indices, as well as global wind installations. The Company anticipates relatively stable market conditions, with increased economic uncertainty, continued input cost inflation and primary labor
availability. The Company remains focused on managing costs, capital expenditures, and working capital.
In our Insulation segment, net sales in the third quarter of 2022 increased $150 million compared to the same period in 2021. The increase was driven by higher selling prices of $179 million. Favorable customer and product mix were offset by approximately 2% lower sales volumes. The acquisition of Natural Polymers contributed $13 million to the increase. The remaining variance was driven by the $39 million unfavorable impact of translating sales denominated in foreign currencies into United States dollars.
For year-to-date 2022, net sales in our Insulation segment increased $437 million compared to the same period in 2021. The increase was driven by higher selling prices of $438 million. Favorable customer and product mix and the contribution from the acquisition of Natural Polymers were more than offset
by the $85 million unfavorable impact of translating sales denominated in foreign currencies into United States dollars.
EBIT
In our Insulation segment, EBIT in the third quarter of 2022 increased $49 million compared to the same period in 2021. Higher selling prices of $179 million more than offset $89 million of input cost inflation and $17 million in higher transportation costs. The remaining variance was driven by higher selling, general and administrative expenses, unfavorable manufacturing performance, slightly lower sales volumes and the negative impact of translating profits denominated in foreign currencies into United States dollars.
For the year-to-date 2022, EBIT in our Insulation segment increased $141 million
compared to the same period in 2021. Higher selling prices of $438 million more than offset $246 million of input cost inflation and $46 million in higher transportation costs. Higher selling, general and administrative expenses and the negative impact of translating profits denominated in foreign currencies into United States dollars more than offset favorable customer and product mix.
OUTLOOK
The outlook for Insulation demand is driven by North American new residential construction, remodeling and repair activity, as well as commercial and industrial construction activity in the United States, Canada, Europe, Asia-Pacific and Latin America. Demand in commercial and industrial insulation markets is most closely correlated to industrial production growth and overall economic activity in the global markets
we serve. Demand for residential insulation is most closely correlated to U.S. housing starts.
During the third quarter of 2022, the average Seasonally Adjusted Annual Rate (SAAR) of U.S. housing starts was approximately 1.461 million, down from an annual average of approximately 1.566 million starts in the third quarter of 2021.
The Company expects both the North American new residential construction market and global commercial and industrial construction markets to remain stable, with increased economic uncertainty, continued input cost inflation and primary labor availability. The Company remains focused on managing costs, capital
expenditures, and working capital.
In our Roofing segment, net sales in the third quarter of 2022 increased $134 million compared to the same period in 2021. Higher selling prices of $145 million and higher third-party asphalt sales of $32 million were partially offset by lower sales volumes of approximately 4% and unfavorable customer and product mix.
For year to date 2022, net sales in our Roofing segment increased $362 million compared to the same period in 2021. Higher selling prices of $418 million and higher-third party asphalt sales of $57 million were partially offset by lower sales volumes of 3.5% and unfavorable customer and product mix.
EBIT
In our Roofing segment, EBIT in the third quarter of 2022 increased
$17 million compared to the same period in 2021. Higher selling prices of $145 million more than offset input cost inflation, primarily asphalt, of $94 million and $8 million of higher transportation costs. The remaining variance was driven by the impact of lower sales volumes and unfavorable customer and product mix, as well as, unfavorable manufacturing performance and higher selling, general and administrative expenses.
For year-to-date 2022, EBIT in our Roofing segment increased $61 million compared to the same period in 2021. Higher selling prices of $418 million more than offset input cost inflation, primarily asphalt, of $255 million and $27 million of higher transportation costs. The remaining variance was driven by the impact of lower sales volumes and unfavorable manufacturing performance, as well as, unfavorable customer and product mix and higher selling, general and administrative
expenses.
OUTLOOK
In our Roofing segment, we expect the factors that have driven strong margins in recent years, such as stable remodeling demand, along with sales of roofing components, to continue to deliver profitability. Uncertainties that may impact our Roofing margins include demand from storm and other weather events, demand from new construction, competitive pricing pressure and the cost and availability of raw materials.
Despite strength in the U.S. asphalt shingle market, the Company will continue to evaluate economic factors such as input cost inflation, supply chain uncertainties and primary labor availability. The Company
remains focused on managing costs, capital expenditures, and working capital.
Impairment loss on Chambery, France assets held for sale
—
—
(29)
—
Gain on remeasurement of Fiberteq equity investment
130
—
130
—
Recognition
of acquisition inventory fair value step-up
—
(1)
—
(1)
General corporate expense and other
(41)
(37)
(127)
(108)
EBIT
$
82
$
(43)
$
(15)
$
(75)
Depreciation
and amortization
$
23
$
20
$
67
$
51
EBIT
In Corporate, Other and Eliminations, EBIT expenses for the third quarter of 2022 were lower by $125 million compared to the same period in 2021, primarily driven by the gain on remeasurement of the Fiberteq equity investment. For the year-to-date 2022, EBIT expenses in Corporate, Other and Eliminations were lower by $60 million. The gain on remeasurement of the Fiberteq
equity investment and the gain on the sale of the Shanghai, China facility were partially offset by the impairment loss on Chambéry, France assets held for sale, and the year over year increase of restructuring charges, general corporate expenses, and lower gains on sale of certain precious metals offset.
General corporate expense and other for the third quarter 2022 were higher by $4 million compared to the same period in 2021. For year-to-date, general corporate expense and other were higher by $19 million compared to the same period in 2021. For the quarter and year-to-date, the increase was primarily driven by higher general corporate expenses as business activities return to a more typical, post-pandemic level.
OUTLOOK
In 2022, we estimate general corporate expenses to be in the range of
$170 million and $180 million.
LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED MATTERS
Liquidity
The Company's primary sources of liquidity are its balance of Cash and cash equivalents of $751 million as of September 30, 2022, its Senior Revolving Credit Facility and its Receivables Securitization Facility (each as defined below).
The Company has an $800 million senior revolving credit facility (the "Senior Revolving Credit
Facility") that has been amended from time to time, which matures in July 2026.
The Company has a $280 million receivables securitization facility (the "Receivables Securitization Facility") that has been amended from time to time, which matures in April 2024.
The
Receivables Securitization Facility and Senior Revolving Credit Facility mature in 2024 and 2026, respectively. The Company has no significant debt maturities of senior notes before the fourth quarter of 2024. As of September 30, 2022, the Company had $3.0 billion of total debt and cash and cash equivalents of $751 million. The agreements governing our Senior Revolving Credit Facility and Receivables Securitization Facility contain various covenants that we believe are usual and customary. These covenants include a maximum allowed leverage ratio. We were in compliance with these covenants as of September 30, 2022.
In June 2022, the Senior Revolving Credit
Facility was amended to allow the Company to continue to operate in comprehensively sanctioned countries so long as it is not violating any sanctions.
Cash and cash equivalents held by foreign subsidiaries may be subject to foreign withholding taxes upon repatriation to the U.S. As of September 30, 2022, and December 31, 2021, the Company had $296 million and $156 million, respectively, in cash and cash equivalents in certain of our foreign subsidiaries. The
Company continues to assert indefinite reinvestment in accordance with Accounting Standards Codification (ASC) 740 based on the laws as of enactment of the tax legislation commonly known as the U.S. Tax Cuts and Jobs Act of 2017.
As a holding company, we have no operations of our own and most of our assets are held by our direct and indirect subsidiaries. Dividends and other payments or distributions from our subsidiaries will be used to meet our debt service and other obligations and to enable us to pay dividends to our stockholders. Please refer to page 16 of the Risk Factors disclosed in Item 1A of the Company's annual report on Form 10-K for the year
ended December 31, 2021 (the "2021 Form 10-K") for details on the factors that could inhibit our subsidiaries' ability to pay dividends or make other distributions to the parent company.
Material Cash Requirements
Our anticipated uses of cash include capital expenditures, working capital needs, share repurchases, meeting financial obligations, payments of any dividends authorized by our Board of Directors, acquisitions, restructuring actions and pension contributions. We expect that our cash on hand, coupled with future cash flows from operations and other available sources of liquidity, including our Senior Revolving Credit Facility and our Receivables Securitization Facility, will provide ample liquidity to enable us to meet our cash
requirements.
Please refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, included in our 2021 Form 10-K for more details on these material cash requirements. During the third quarter of 2022, there have been no material changes to our expected uses of cash and contractual obligations.
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.One
of our Programs
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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 Senior Revolving Credit Facility.
The
payables associated with suppliers choosing to voluntarily participate in the Programs were presented within Accounts payable on the Consolidated Balance Sheets, and totaled $246 million and $226 million as of September 30, 2022 and December 31, 2021, respectively. The amounts paid which are associated with suppliers once they chose to voluntarily participate in the Programs for the nine months ended September 30, 2022 and 2021 were $481 million and $373 million, respectively, with all activity related to the obligations presented within operating activities on the Consolidated Statements of Cash Flows.
The desire of suppliers and financial institutions to participate in the Programs could be negatively
impacted by, among other factors, the availability of capital committed by the participating financial institutions, the cost and availability of our suppliers’ capital, a credit rating downgrade or deteriorating financial performance of the Company or its participating subsidiaries, or other changes in financial markets beyond our control.We do not expect these risks, or potential long-term growth of our Programs, to materially affect our overall financial condition, as we expect a significant portion of our payments to continue to be made outside of the Programs.Accordingly, we do not believe the Programs have materially impacted our current period liquidity, and do not believe that the Programs
are reasonably likely to materially affect liquidity in the future.
Cash Flows
The following table presents a summary of our cash balance, cash flows, and availability on credit facilities (in millions):
Availability on the Senior Revolving Credit Facility
$
796
$
796
Availability on the Receivables Securitization Facility
$
279
$
279
Cash
and cash equivalents: Cash and cash equivalents as of September 30, 2022 decreased $169 million compared to September 30, 2021, primarily driven by increased cash outflows from investing activities.
Operating activities: For the nine months ended September 30, 2022, the Company's operating activities provided $1,085 million of cash compared to $1,168 million provided in the same period in 2021. The change in cash provided by operating activities was due to an increase in operating assets, specifically receivables and inventory, in 2022 compared to the same period of 2021.
Investing activities:
Net cash flow used for investing activities increased $331 million for the nine months ended September 30, 2022 compared to the same period of 2021, resulting from higher year-over-year spending on acquisitions.
Financing activities: Net cash used for financing activities was $675 million for the nine months ended September 30, 2022, compared to net cash used for financing activities of $716 million in the same period in 2021. The change was primarily due to increased treasury stock purchases in 2022 compared to 2021, which more than offset payments on long-term debt that occurred in 2021.
Derivatives
Please refer to Note 4 of the Consolidated Financial Statements.
Fair Value
Measurement
Please refer to Notes 4, 11, and 12 of the Consolidated Financial Statements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
SAFETY
Working safely is a condition of employment at Owens Corning.
We believe this organization-wide expectation provides for a safer work environment for employees, improves our manufacturing processes, reduces our costs and enhances our reputation. Furthermore, striving to be a world-class leader in safety provides a platform for all employees to understand and apply the resolve necessary to be a high-performing global organization. We measure our progress on safety based on Recordable Incident Rate (“RIR”) as defined by the United States Department of Labor, Bureau of Labor Statistics. For the three months ended September 30, 2022, our RIR was 0.64, consistent with the same period a year ago. For the nine months ended September 30, 2022, our RIR was 0.72 compared to 0.61 in the same period a year ago.
ACCOUNTING
PRONOUNCEMENTS
Please refer to Note 1 of the Consolidated Financial Statements.
ENVIRONMENTAL MATTERS
Please refer to Note 13 of the Consolidated Financial Statements.
Our disclosures and analysis in this report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). Forward-looking statements present our current forecasts and estimates of future events. These statements do not strictly relate to historical or current results and can be identified by words such as “anticipate,”"appear,""assume,"“believe,”“estimate,”“expect,”"forecast,"“intend,”“likely,”“may,”“plan,”“project,”"seek,""should,"“strategy,”"will" and other terms of similar meaning or import in connection with any discussion of future operating, financial or other performance. These forward-looking statements are subject to risks, uncertainties and other factors and actual results may differ materially from those results projected in the statements. These risks, uncertainties and other factors include, without limitation:
•industry and economic conditions including, but not limited to, supply chain disruptions, recessionary conditions, inflationary pressures and interest rate volatility, that affect the market and operating conditions of our customers, suppliers or lenders;
•supply constraints and increases in the cost of energy, particularly natural gas, as a result of the ongoing conflict
in Ukraine;
•availability and cost of raw materials;
•levels of residential and commercial or industrial construction activity;
•levels of global industrial production;
•competitive and pricing factors;
•demand for our products;
•relationships with key customers and customer concentration in certain areas;
•issues related to acquisitions, divestitures and joint ventures or expansions, including our proposed exit from operations in Russia;
•climate
change, weather conditions and storm activity;
•regional impact of COVID-19 on our operations, customers and suppliers, as well as related actions taken by governmental authorities and other third parties in response, each of which is uncertain, frequently changing and difficult to predict;
•legislation and related regulations or interpretations, in the United States or elsewhere;
•domestic and international economic and political conditions, policies or other governmental actions, as well as war and civil disturbance (such as Russia's invasion of Ukraine);
•changes to tariff, trade or investment policies or laws;
•uninsured losses,
including those from natural disasters, catastrophes, pandemics, theft or sabotage;
•environmental, product-related or other legal and regulatory liabilities, proceedings or actions;
•research and development activities and intellectual property protection;
•issues involving implementation and protection of information technology systems;
•our level of indebtedness;
•our liquidity and the availability and cost of credit;
•the
level of fixed costs required to run our business;
•foreign exchange and commodity price fluctuations;
•levels of goodwill or other indefinite-lived intangible assets;
•price volatility in certain wind energy markets in the U.S.;
•loss of key employees and labor disputes or shortages; and
•defined benefit plan funding obligations.
All forward-looking statements in this report should be considered in the context of the risks and other factors described herein, and in Item 1A - Risk Factors in Part I of our 2021 Form 10-K. Users of this report should
not interpret the disclosure of any risk factor to imply that the risk has not already materialized. Any forward-looking statements speak only as of the date the statement is made and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by federal securities laws. It is not possible to identify all of the risks, uncertainties and other factors that may affect future results. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report may not occur and actual results may differ materially from those anticipated or implied in the forward-looking statements. Accordingly, users of this report are cautioned not to place undue reliance on the forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in our exposure to market risk during the nine months ended September 30, 2022. Please refer to "Quantitative and Qualitative Disclosures about Market Risk" contained in Part II, Item 7A of our 2021 Form 10-K for a discussion of our exposure to market risk.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains (a) disclosure controls and procedures
(as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), and (b) internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of
the end of such period, the Company’s disclosure controls and procedures are effective.
There has been no change in the Company's internal control over financial reporting during the quarter ended September 30, 2022 that materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
Information required by this item is incorporated by reference to Note 13 of the Consolidated Financial Statements, Contingent Liabilities and Other Matters.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed in Item 1A of the
Company’s 2021 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
None.
Issuer Purchases of Equity Securities
The following table provides information about Owens Corning’s purchases of its common stock for each month during the quarterly period covered by this report:
Period
Total Number of Shares
(or Units) Purchased
Average Price Paid per Share (or Unit)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs**
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs**
July 1-31, 2022
1,002,088
$
79.03
1,000,000
8,897,220
August
1-31, 2022
786,553
85.97
786,553
8,110,667
September 1-30, 2022
713,901
83.58
713,447
7,397,220
Total
2,502,542
*
$
82.51
2,500,000
7,397,220
* The
Company retained an aggregate of 2,542 shares surrendered to satisfy tax withholding obligations in connection with the vesting of restricted shares granted to our employees.
** On February 14, 2022, the Board of Directors approved a new share buy-back program under which the Company is authorized to repurchase up to 10 million shares of the Company’s outstanding common stock (the "Repurchase Authorization"). The Repurchase Authorization enables the Company to repurchase shares through the open market, privately negotiated, or other transactions. The actual number of shares repurchased will depend on timing,
market conditions and other factors and will be at the Company's discretion. The Company repurchased 2.5 million shares of its common stock for $206 million during the three months ended September 30, 2022 under the Repurchase Authorization. As of September 30, 2022, 7.4 million shares remain available for repurchase under the Repurchase Authorization.
The following materials from the Quarterly Report on Form 10-Q for Owens Corning for the period ended September 30, 2022, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) Consolidated Statements of Earnings, (ii) Consolidated Statements
of Comprehensive Earnings; (iii) Consolidated Balance Sheets (iv) Consolidated Statements of Stockholders' Equity, (v) Consolidated Statements of Cash Flows, (vi) related notes to these financial statements and (vii) document and entity information.
104
The
cover page from this Quarterly Report on Form 10-Q, formatted as Inline XBRL.
Owens Corning agrees to furnish to the U.S. Securities and Exchange Commission, upon request, copies of all instruments defining the rights of holders of long-term debt of Owens Corning where the total amount of securities authorized under each issue does not exceed 10% of the total assets of Owens Corning and its subsidiaries on a consolidated basis.
Pursuant to the requirements of the Securities Exchange Act of 1934, Owens Corning has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
