Form 10-Q
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2013

or

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

For the transition period from             to             

Commission File Number:     1-33100

Owens Corning

(Exact name of registrant as specified in its charter)

 

Delaware   43-2109021
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
One Owens Corning Parkway, Toledo, OH   43659
(Address of principal executive offices)   (Zip Code)

(419) 248-8000

(Registrant’s telephone number, including area code)

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

Yes þ             No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes þ             No ¨

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

 

Large accelerated filer þ    Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)    Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨             No þ

As of April 15, 2013, 118,883,615 shares of registrant’s common stock, par value $0.01 per share, were outstanding.


Table of Contents

Contents

 

Cover Page

     1   
PART I – FINANCIAL INFORMATION (unaudited)   
  Item 1.   

Financial Statements

  
    

Consolidated Statements of Earnings (Loss)

     3   
    

Consolidated Statements of Comprehensive Earnings (Loss)

     4   
    

Consolidated Balance Sheets

     5   
    

Consolidated Statements of Cash Flows

     6   
    

Notes to Consolidated Financial Statements

  
    

1.   General

     7   
    

2.   Segment Information

     7   
    

3.   Inventories

     9   
    

4.   Derivative Financial Instruments

     10   
    

5.   Goodwill and Other Intangible Assets

     12   
    

6.   Property, Plant and Equipment

     13   
    

7.   Warranties

     13   
    

8.   Cost Reduction Actions

     13   
    

9.   Debt

     15   
    

10. Pension Plans and Other Postretirement Benefits

     17   
    

11. Contingent Liabilities and Other Matters

     18   
    

12. Stock Compensation

     19   
    

13. Earnings (Loss) per Share

     22   
    

14. Fair Value Measurement

     23   
    

15. Income Taxes

     25   
    

16. Subsequent Events

     25   
    

17. Accounting Pronouncements

     25   
    

18. Condensed Consolidating Financial Statements

     25   
  Item 2.   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     34   
  Item 3.   

Quantitative and Qualitative Disclosures About Market Risk

     44   
  Item 4.   

Controls and Procedures

     44   
PART II – OTHER INFORMATION   
  Item 1.   

Legal Proceedings

     45   
  Item 1A.   

Risk Factors

     45   
  Item 2.   

Unregistered Sales of Equity Securities and Use of Proceeds

     45   
  Item 3.   

Defaults Upon Senior Securities

     46   
  Item 4.   

Mine Safety Disclosures

     46   
  Item 5.   

Other Information

     46   
  Item 6.   

Exhibits

     46   
    

Signatures

     47   
    

Exhibit Index

     48   


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- 3 -

PART I

ITEM 1. FINANCIAL STATEMENTS

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

(unaudited)

(in millions, except per share amounts)

 

    

Three Months Ended

Mar. 31,

 
         2013             2012      

NET SALES

  $       1,350     $       1,346  

COST OF SALES

    1,137       1,160  

 

 

Gross margin

    213       186  

OPERATING EXPENSES

   

Marketing and administrative expenses

    133       137  

Science and technology expenses

    18       19  

Charges related to cost reduction actions

    1       34  

Other expenses

    4       8  

 

 

Total operating expenses

    156       198  

 

 

EARNINGS (LOSS) BEFORE INTEREST AND TAXES

    57       (12

Interest expense, net

    29       28  

 

 

EARNINGS (LOSS) BEFORE TAXES

    28       (40

Less: Income tax expense

    6       5  

Equity in net earnings of affiliates

    -       -  

 

 

NET EARNINGS (LOSS)

    22       (45

Less: Net earnings attributable to noncontrolling interests

    -       1  

 

 

NET EARNINGS (LOSS) ATTRIBUTABLE TO OWENS CORNING

  $ 22     $ (46

 

 

EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO OWENS CORNING COMMON STOCKHOLDERS

   

Basic

  $ 0.19     $ (0.38

Diluted

  $ 0.18     $ (0.38

WEIGHTED-AVERAGE COMMON SHARES

   

Basic

    118.5       121.1  

Diluted

    119.6       121.1  

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


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- 4 -

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)

(unaudited)

(in millions)

 

      Three Months Ended
Mar. 31,
 
          2013             2012      

NET EARNINGS (LOSS)

   $        22     $ (45

Currency translation adjustment

     (21            24  

Pension and other postretirement adjustment (net of tax of $0 and $0 for the periods ended March 31, 2013 and 2012, respectively)

     2       (1

Deferred income (loss) on hedging (net of tax of $1 and $0 for the periods ended March 31, 2013 and 2012, respectively)

     2       (2

 

 

COMPREHENSIVE EARNINGS (LOSS)

     5       (24

Less: Comprehensive earnings attributable to noncontrolling interests

     -       1  

 

 

COMPREHENSIVE EARNINGS (LOSS) ATTRIBUTABLE TO OWENS CORNING

   $ 5     $ (25

 

 

 

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


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- 5 -

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in millions)

 

ASSETS    Mar. 31,
2013
    Dec. 31,
2012
 

CURRENT ASSETS

    

Cash and cash equivalents

   $ 62     $ 55  

Receivables, less allowances of $16 at Mar. 31, 2013 and $17 at Dec. 31, 2012

     884       600  

Inventories

     776       786  

Other current assets

     195       171  

 

 

Total current assets

     1,917       1,612  

Property, plant and equipment, net

     2,865       2,903  

Goodwill

     1,143       1,143  

Intangible assets

     1,038       1,045  

Deferred income taxes

     603       604  

Other non-current assets

     251       261  

 

 

TOTAL ASSETS

   $       7,817     $       7,568  

 

 

LIABILITIES AND EQUITY

    

 

 

CURRENT LIABILITIES

    

Accounts payable and accrued liabilities

   $ 920     $ 897  

Short-term debt

     10       5  

Long-term debt – current portion

     4       4  

 

 

Total current liabilities

     934       906  

Long-term debt, net of current portion

     2,301       2,076  

Pension plan liability

     462       480  

Other employee benefits liability

     271       274  

Deferred income taxes

     36       38  

Other liabilities

     219       219  

OWENS CORNING STOCKHOLDERS’ EQUITY

    

Preferred stock, par value $0.01 per share (a)

     -       -  

Common stock, par value $0.01 per share (b)

     1       1  

Additional paid in capital

     3,941       3,925  

Accumulated earnings

     473       451  

Accumulated other comprehensive deficit

     (375     (364

Cost of common stock in treasury (c)

     (483     (475

 

 

Total Owens Corning stockholders’ equity

     3,557       3,538  

Noncontrolling interests

     37       37  

 

 

Total equity

     3,594       3,575  

 

 

TOTAL LIABILITIES AND EQUITY

   $ 7,817     $ 7,568  

 

 

 

 

  (a) 10 shares authorized; none issued or outstanding at Mar. 31, 2013 and Dec. 31, 2012
  (b) 400 shares authorized; 135.5 issued and 118.9 outstanding at Mar. 31, 2013; 135.6 issued and 118.3 outstanding at Dec. 31, 2012
  (c) 16.6 shares at Mar. 31, 2013 and 17.3 shares at Dec. 31, 2012

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


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- 6 -

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in millions)

 

      Three Months Ended
Mar. 31,
 
          2013             2012      

NET CASH FLOW USED FOR OPERATING ACTIVITIES

    

Net earnings (loss)

   $ 22     $ (45

Adjustments to reconcile net earnings to cash provided by operating activities:

  

Depreciation and amortization

     78       89  

Gain on sale of businesses and fixed assets

     -       (1

Deferred income taxes

     -       6  

Provision for pension and other employee benefits liabilities

     6       11  

Stock-based compensation expense

     7       7  

Other non-cash

     (2     (4

Change in working capital

     (271     (232

Pension fund contribution

     (12     (18

Payments for other employee benefits liabilities

     (5     (6

Other

     (2     -  

 

 

Net cash flow used for operating activities

     (179     (193

 

 

NET CASH FLOW USED FOR INVESTING ACTIVITIES

  

Additions to plant and equipment

     (45     (72

Proceeds from the sale of assets or affiliates

     -       4  

 

 

Net cash flow used for investing activities

     (45     (68

 

 

NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES

  

Proceeds from senior revolving credit and receivables securitization facilities

     558       626  

Payments on senior revolving credit and receivables securitization facilities

     (331     (352

Payments on long-term debt

     -       (2

Net increase (decrease) in short-term debt

     5       (6

Purchases of treasury stock

     (8     (5

Other

     8       5  

 

 

Net cash flow provided by financing activities

            232              266  

 

 

Effect of exchange rate changes on cash

     (1     1  

 

 

Net increase in cash and cash equivalents

     7       6  

Cash and cash equivalents at beginning of period

     55       52  

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

   $ 62     $ 58  

 

 

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


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- 7 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1. GENERAL

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

The Consolidated Financial Statements included in this report are unaudited, pursuant to certain rules and regulations of the Securities and Exchange Commission, and include, in the opinion of the Company, 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, 2012 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. 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 2012 annual report on Form 10-K. Certain reclassifications have been made to the periods presented for 2012 to conform to the classifications used in the periods presented for 2013.

 

2. SEGMENT INFORMATION

The Company has two reportable segments: Composites and Building Materials. Accounting policies for the segments are the same as those for the Company. The Company’s reportable segments are defined as follows:

Composites – comprised of our Reinforcements and Downstream businesses. Within the Reinforcements business, the Company manufactures, fabricates and sells glass reinforcements in various forms of fiber. Within the Downstream business, the Company manufactures and sells glass fiber products in the form of fabrics, mat, veil and other specialized products.

Building Materials – comprised of our Insulation and Roofing businesses. Within the Insulation business, the Company manufactures and sells fiberglass insulation into residential, commercial, industrial and other markets for both thermal and acoustical applications. It also manufactures and sells glass fiber pipe insulation, energy efficient flexible duct media and foam insulation used in above- and below-grade construction applications. Within the Roofing business, the Company manufactures and sells residential roofing shingles and oxidized asphalt materials used in residential and commercial construction and specialty applications.


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- 8 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

2. SEGMENT INFORMATION (continued)

 

NET SALES

The following table summarizes our net sales by segment and geographic region (in millions). External customer sales are attributed to geographic region based upon the location from which the product is shipped to the external customer.

 

      Three Months Ended
Mar. 31,
 
          2013             2012      

Reportable Segments

    

Composites

   $ 459     $ 476  

Building Materials

     937       919  

 

 

Total reportable segments

     1,396       1,395  

Corporate eliminations

     (46     (49

 

 

NET SALES

   $ 1,350     $ 1,346  

 

 

External Customer Sales by Geographic Region

    

United States

   $ 964     $ 945  

Europe

     138       146  

Asia Pacific

     138       148  

Other

     110       107  

 

 

NET SALES

   $ 1,350     $ 1,346  

 

 

Sales by Product Group

    

Composites

   $ 459     $ 476  

Insulation

     330       331  

Roofing

     607       588  

Corporate Eliminations

     (46     (49

 

 

NET SALES

   $       1,350     $       1,346  

 

 


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- 9 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

2. SEGMENT INFORMATION (continued)

 

EARNINGS BEFORE INTEREST AND TAXES

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

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

 

      Three Months Ended
Mar. 31,
 
          2013             2012      

Reportable Segments

    

Composites

   $ 9     $           23  

Building Materials

           98       49  

 

 

Total reportable segments

   $ 107     $ 72  

 

 

Corporate, Other and Eliminations

    

Charges related to cost reduction actions and related items (a)

   $ (9   $ (55

Losses related to Hurricane Sandy

     (11     -  

General corporate expense and other

     (30     (29

 

 

EBIT

   $ 57     $ (12

 

 

 

(a) For the three months ended March 31, 2013 and 2012, includes $1 million and $34 million, respectively, of charges related to cost reduction actions and $8 million and $21 million, respectively, of other related items.

 

3. INVENTORIES

Inventories consist of the following (in millions):

 

      Mar. 31,
2013
     Dec. 31,
2012
 

Finished goods

   $       526      $       554  

Materials and supplies

     250        232  

 

 

Total inventories

   $ 776      $ 786  

 

 


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- 10 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

4. DERIVATIVE FINANCIAL INSTRUMENTS

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

The Company generally does not require collateral or other security with counterparties to these financial instruments and is therefore subject to credit risk in the event of nonperformance; however, the Company monitors credit risk and currently does not anticipate nonperformance by other parties. Contracts with counterparties generally contain right of offset provisions. These provisions effectively reduce the Company’s exposure to credit risk in situations where the Company has gain and loss positions outstanding with a single counterparty. It is the Company’s policy to offset on the Consolidated Balance Sheets the amounts recognized for derivative instruments with any cash collateral arising from derivative instruments executed with the same counterparty under a master netting agreement. As of March 31, 2013 and December 31, 2012, 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.

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

 

              Fair Value at  
      Location      Mar. 31,
2013
     Dec. 31,
2012
 

Derivative assets designated as hedging instruments:

        

Cash flow hedges:

        

Natural gas and electricity

     Other current assets       $ 2      $ -  

Amount of gain recognized in OCI (effective portion)

     OCI       $ 2      $ -  

Derivative liabilities designated as hedging instruments:

        

Cash flow hedges:

        

Natural gas and electricity

    
 
Accounts payable and
accrued liabilities
  
  
   $ -      $ 1  

Amount of loss recognized in OCI (effective portion)

     OCI       $        -       $ 1  

Derivative assets not designated as hedging instruments:

        

Foreign exchange contracts

     Other current assets       $ 1      $ 1  

Derivative liabilities not designated as hedging instruments:

        

Foreign exchange contracts

    
 
Accounts payable and
accrued liabilities
  
  
   $ 1      $        3  

 

 


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- 11 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

4. DERIVATIVE FINANCIAL INSTRUMENTS (continued)

 

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

 

            Three Months Ended
Mar. 31,
 
     Location         2013             2012      

Derivative activity designated as hedging instruments:

     

Natural gas and electricity:

     

Amount of loss reclassified from OCI into earnings (effective portion)

    Cost of sales      $       -      $       2  

Derivative activity not designated as hedging instruments:

     

Natural gas and electricity:

     

Amount of gain recognized in earnings

    Other expenses      $ (1   $ (1

Foreign currency exchange contracts:

     

Amount of loss recognized in earnings (a)

    Other expenses      $ 8     $ 11  

 

 

 

(a) Losses related to foreign currency derivatives were substantially offset by net revaluation impacts on foreign denominated balance sheet exposures, which were also recorded in other expenses.

Cash Flow Hedges

The Company uses forward and swap contracts, which qualify as cash flow hedges, to manage forecasted exposure to commodity prices. The effective portion of the change in the fair value of cash flow hedges is deferred in accumulated OCI and is subsequently recognized in cost of sales on the Consolidated Statements of Earnings (Loss) for commodity hedges, when the hedged item impacts earnings. Changes in the fair value of derivative assets and liabilities designated as hedging instruments are shown in other within operating activities on the Consolidated Statements of Cash Flows. Any portion of the change in fair value of derivatives designated as hedging instruments that is determined to be ineffective is recorded in other expenses on the Consolidated Statements of Earnings (Loss).

The Company currently has natural gas and electricity commodity derivatives designated as hedging instruments that mature within 15 months. The Company’s policy is to hedge up to 75% of its total forecasted commodity exposures for the next two months, up to 50% of its total forecasted commodity exposures for the following four months, and lesser amounts for the remaining periods. Based on market conditions, approved variation from the standard policy may occur. The Company performs an analysis for effectiveness of its derivatives designated as hedging instruments at the end of each quarter based on the terms of the contract and the underlying item being hedged.

As of March 31, 2013, $2 million of gains included in accumulated OCI on the Consolidated Balance Sheets relate to contracts that will impact earnings during the next 12 months. Transactions and events that are expected to occur over the next 12 months that will necessitate recognizing these deferred amounts include the recognition of the hedged item through earnings.

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. Gains and losses resulting from the changes in fair value of these instruments are recorded in other expenses on the Consolidated Statements of Earnings (Loss).


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- 12 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

5. GOODWILL AND OTHER INTANGIBLE ASSETS

Intangible assets and goodwill consist of the following (in millions):

 

Mar. 31, 2013    Weighted
Average
Useful Life
     Gross
Carrying
Amount
     Accumulated
Amortization
    Net Carrying
Amount
 

Amortizable intangible assets:

          

Customer relationships

     19      $ 169      $ (60   $ 109  

Technology

     20        197        (67     130  

Franchise and other agreements

     15        36        (14     22  

Indefinite-lived intangible assets:

          

Trademarks

        777        -       777  

 

 

Total intangible assets

      $ 1,179      $ (141   $ 1,038  

 

 

Goodwill

      $ 1,143       

 

 
Dec. 31, 2012    Weighted
Average
Useful Life
     Gross
Carrying
Amount
     Accumulated
Amortization
    Net Carrying
Amount
 

Amortizable intangible assets:

          

Customer relationships

     19      $ 169      $ (58   $ 111  

Technology

     20        198        (64     134  

Franchise and other agreements

     15        37        (14     23  

Indefinite-lived intangible assets:

          

Trademarks

        777                   -       777  

 

 

Total intangible assets

      $       1,181      $ (136   $       1,045  

 

 

Goodwill

      $ 1,143       

 

 

Other Intangible Assets

The Company expects the ongoing amortization expense for amortizable intangible assets to be approximately $21 million in each of the next five fiscal 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.

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 amount. No testing was deemed necessary in the first quarter of 2013.


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- 13 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following (in millions):

 

      Mar. 31,
2013
    Dec. 31,
2012
 

Land

   $ 220     $ 222  

Buildings and leasehold improvements

     791       789  

Machinery and equipment

            3,246              3,223  

Construction in progress

     136       147  

 

 
     4,393       4,381  

Accumulated depreciation

     (1,528     (1,478

 

 

Property, plant and equipment, net

   $ 2,865     $ 2,903  

 

 

Machinery and equipment includes certain precious metals used in our production tooling, which comprise approximately 18% of total machinery and equipment as of March 31, 2013 and December 31, 2012. Precious metals used in our production tooling are depleted as they are consumed during the production process, which typically represents an annual expense of less than 3% of the outstanding carrying value.

 

7. WARRANTIES

The Company records a liability for warranty obligations at the date the related products are sold. Adjustments are made as new information becomes available. A reconciliation of the warranty liability is as follows (in millions):

 

      Three Months Ended
March 31, 2013
 

Beginning balance

   $       41  

Amounts accrued for current year

     7  

Settlements of warranty claims

     (4

 

 

Ending balance

   $ 44  

 

 

 

8. COST REDUCTION ACTIONS

2012 Cost Reduction Actions

As a result of evaluating market conditions, we took actions in 2012 to improve the competitive position of our global manufacturing network by closing certain facilities, primarily in Europe, along with other actions that align with our objectives in the region. In conjunction with these actions, the Company recorded $9 million in charges related to cost reduction actions and related items for the three months ended March 31, 2013, of which $1 million is related to severance and is included in charges related to cost reduction actions on the Consolidated Statements of Earnings (Loss) and $8 million is related to other charges. The $8 million of other charges are included in cost of sales on the Consolidated Statements of Earnings (Loss) and consist of $3 million in accelerated depreciation and $5 million in other related charges. For the three months ended March 31, 2012, we recorded $34 million related to severance and $21 million related to other charges. The $21 million of other charges consisted of $17 million in accelerated depreciation and $4 million in other related charges. Cash payments related to these activities are expected to continue through 2015.


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- 14 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

8. COST REDUCTION ACTIONS (continued)

 

Composites

The Company recorded $9 million in charges related to cost reduction actions and related items for the three months ended March 31, 2013, of which $1 million is related to severance costs and $8 million is related to other charges. The $8 million of other charges consist of $3 million in accelerated depreciation and $5 million in other related charges. For the three months ended March 31, 2012, we recorded $50 million in charges comprised of $32 million in severance and $18 million of other charges. The $18 million of other charges consist of $17 million in accelerated depreciation and $1 million in other related charges.

The Company anticipates incurring approximately $6 million in additional charges throughout 2013 related to these actions, of which approximately $1 million will be presented as charges related to cost reduction actions on the Consolidated Statements of Earnings (Loss).

Building Materials

No charges related to these actions were incurred during the three months ended March 31, 2013. For the three months ended March 31, 2012, the Company’s actions resulted in $5 million in charges, comprised of $2 million in severance costs and $3 million of other charges.

The following table summarizes the status of the unpaid liabilities from the Company’s 2012 cost reduction actions (in millions):

 

      Beginning
Balance
Dec. 31,
2012
     Costs
Incurred
     Payments      Ending
Balance
Mar. 31,
2013
     Cumulative
Charges
Incurred
 

Severance

   $       45      $       1      $       7      $       39      $       52  

 

 

Total

   $ 45      $ 1      $ 7      $ 39      $ 52  

 

 


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- 15 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

9. DEBT

Details of the Company’s outstanding long-term debt are as follows (in millions):

 

      Mar. 31,
2013
     Dec. 31,
2012
 

6.50% senior notes, net of discount, due 2016

   $ 400      $ 400  

9.00% senior notes, net of discount, due 2019

     248        247  

4.20% senior notes, net of discount, due 2022

     599        599  

7.00% senior notes, net of discount, due 2036

     540        540  

Accounts receivable securitization facility, maturing in 2014

     187        141  

Senior revolving credit facility, maturing in 2016

     254        73  

Various capital leases, due through and beyond 2050

     51        52  

Various floating rate debt, maturing through 2027

     2        2  

Fair value adjustment to debt

     24        26  

 

 

Total long-term debt

     2,305        2,080  

Less – current portion

     4        4  

 

 

Long-term debt, net of current portion

   $       2,301      $       2,076  

 

 

Senior Notes

The Company issued $600 million of senior notes on October 17, 2012, $350 million of senior notes on June 3, 2009, and $1.2 billion of senior notes on October 31, 2006, which are collectively 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 Senior Notes are fully and unconditionally guaranteed by each of the Company’s current and future domestic subsidiaries that are a borrower or guarantor under the Company’s Credit Agreement (as defined below). The guarantees are unsecured and rank equally in right of payment with all other existing and future senior unsecured indebtedness of the guarantors. The guarantees are effectively subordinated to existing and future secured debt of the guarantors to the extent of the assets securing that indebtedness.

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 March 31, 2013.

In the fourth quarter of 2011, the Company terminated all existing interest rate swaps. The swaps were carried at fair value and recorded as other assets or liabilities, with a fair value adjustment to long-term debt on the Consolidated Balance Sheets. The fair value adjustment to debt will be amortized through 2016 as a reduction to interest expense in conjunction with the maturity date of the notes.


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- 16 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

9. DEBT (continued)

 

Senior Credit Facility

In July 2011, the Company amended the credit agreement (the “Credit Agreement”) for the $800 million multi-currency senior revolving credit facility (the “Senior Revolving Credit Facility”) to extend the maturity to July 2016 and reduce the pricing. The Senior Revolving Credit Facility 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 or LIBOR plus a spread.

The Senior Revolving Credit Facility contains various covenants, including a maximum allowed leverage ratio and a minimum required interest expense coverage 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 March 31, 2013.

The Company had $4 million of letters of credit outstanding under the Senior Revolving Credit Facility at March 31, 2013 and December 31, 2012.

Receivables Securitization Facility

Included in long-term debt on the Consolidated Balance Sheets are amounts outstanding under a Receivables Purchase Agreement (the “RPA”). Owens Corning Sales, LLC and Owens Corning Receivables LLC, each a subsidiary of the Company, have a $250 million RPA with certain financial institutions. The securitization facility was amended in the fourth quarter of 2011 to extend maturity to December 2014. At March 31, 2013, the Company utilized the full amount permitted under the terms of the RPA. The Company had $38 million of letters of credit outstanding under the receivables securitization facility at March 31, 2013. There were $37 million of letters of credit outstanding under the receivables securitization facility at December 31, 2012.

The RPA contains various covenants, including a maximum allowed leverage ratio and a minimum required interest expense coverage ratio that the Company believes are usual and customary for a securitization facility. The Company was in compliance with these covenants as of March 31, 2013.

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 Debt

At March 31, 2013 and December 31, 2012, short-term borrowings were $10 million and $5 million, respectively. The short-term borrowings for both periods consisted of various operating lines of credit and working capital facilities. Certain of these borrowings are collateralized by receivables, inventories or property. The borrowing facilities are typically for one-year renewable terms. The weighted average interest rate on short-term borrowings was approximately 5% for March 31, 2013 and 4.5% for December 31, 2012.


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- 17 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

10. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

Pension Plans

The Company sponsors defined benefit pension plans. Under the plans, pension benefits are based on an employee’s 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. plan prior to 2013 and in all of 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. As of January 1, 2013, an increase in the number of inactive participants in our U.S. plan resulted in substantially all of the plan participants being inactive. Accordingly, we elected to begin amortizing the unrecognized cost of any retroactive amendments and actuarial gains and losses over the average remaining life expectancy of the inactive participants as opposed to the average remaining service period of the active participants.

The following tables provide information regarding pension expense recognized (in millions):

 

     

Three Months Ended

Mar. 31, 2013

   

Three Months Ended

Mar. 31, 2012

 
      U.S.     Non-U.S.     Total     U.S.     Non-U.S.     Total  

Components of Net Periodic Pension Cost

            

Service cost

   $ 2     $ 2     $ 4     $ 3     $ 2     $ 5  

Interest cost

           11               5             16             12               6             18  

Expected return on plan assets

     (15     (6     (21     (15     (7     (22

Amortization of actuarial loss

     4       1       5       6       1       7  

 

 

Net periodic pension cost

   $ 2     $ 2     $ 4     $ 6     $ 2     $ 8  

 

 

The Company expects to contribute approximately $20 million in cash to the United States pension plans and another $18 million to non-United States plans during 2013. The Company made cash contributions of approximately $12 million to the plans during the three months ended March 31, 2013.

Postemployment and Postretirement Benefits Other than Pension Plans

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.


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- 18 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

10. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (continued)

 

The following table provides the components of net periodic benefit cost for aggregated United States and non-United States plans for the periods indicated (in millions):

 

      Three Months Ended
Mar. 31,
 
          2013             2012      

Components of Net Periodic Benefit Cost

    

Service cost

   $ 1     $ 1  

Interest cost

            2              3  

Amortization of prior service cost

     (1     (1

 

 

Net periodic benefit cost

   $ 2     $ 3  

 

 

 

11. CONTINGENT LIABILITIES AND OTHER MATTERS

Litigation

The Company is involved in various legal proceedings relating to employment, product liability and other matters. The Company regularly reviews the status of these proceedings along with legal counsel. Liabilities for such items 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 ultimate disposition of these matters will not have a material adverse effect on the Company’s operations or financial condition taken as a whole.

Environmental Matters

We have been deemed by the Environmental Protection Agency (“EPA”) to be a Potentially Responsible Party (“PRP”) with respect to certain sites under the Comprehensive Environmental Response Compensation and Liability Act. We have also been deemed a PRP under similar state or local laws and in other instances other PRPs have brought suits against us as a PRP for contribution under such federal, state, or local laws. At March 31, 2013, we had environmental remediation liabilities as a PRP at 19 sites where we have a continuing legal obligation to either complete remedial actions or contribute to the completion of remedial actions as part of a group of PRPs. For these sites, we estimate a reserve to reflect environmental liabilities that have been asserted or are probable of assertion, in which liabilities are probable and reasonably estimable. At March 31, 2013, our estimated liability for such items was $6 million.

Kearny, New Jersey Manufacturing Facility

During the week of October 29, 2012, the Company experienced a flood at its Kearny New Jersey manufacturing facility as a result of Hurricane Sandy. This facility is insured for property damage and business interruption losses related to such events, subject to deductibles and policy limits. In the first quarter of 2013, the Company incurred an additional $11 million in losses related to clean up activities and business interruption losses which are reported in cost of sales on the Consolidated Statements of Earnings (Loss). We anticipate incurring approximately $18 million in additional charges through the first quarter of 2014 related to business interruption losses. The Company believes these costs/losses will be substantially covered by insurance. Also, the timing of any recoveries may result in expenses being taken in periods before the insurance receipts are recorded or received.


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- 19 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

12. STOCK COMPENSATION

2010 Stock Plan

On April 22, 2010, the Company’s stockholders approved the Owens Corning 2010 Stock Plan (the “2010 Stock Plan”) which replaced the Owens Corning 2006 Stock Plan (the “2006 Stock Plan”), as amended and restated. The 2010 Stock Plan authorizes grants of stock options, stock appreciation rights, stock awards, restricted stock awards, restricted stock units, bonus stock awards and performance stock awards. Such shares of common stock include shares that were available but not granted, or which were granted but were not issued or delivered due to expiration, termination, cancellation or forfeiture of such awards. At March 31, 2013, the number of shares remaining available under the 2010 Stock Plan for all stock awards was 1.9 million.

2013 Stock Plan

On April 18, 2013, the Company’s stockholders approved the Owens Corning 2013 Stock Plan (the “2013 Stock Plan”) which replaced the 2010 Stock Plan. The 2013 Stock Plan authorizes grants of stock options, stock appreciation rights, restricted stock awards, restricted stock units, bonus stock awards and performance stock awards. Under the 2013 Stock Plan, 1.5 million shares of common stock may be granted in addition to the shares of Company common stock that rolled over from the 2010 Stock Plan as of April 18, 2013. Such shares of common stock include shares that were available but not granted, or which were granted but were not issued or delivered due to expiration, termination, cancellation or forfeiture of such awards. There will be no future grants made under the 2010 Stock Plan.

Stock Options

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 four year vesting period. In general, the exercise price of each option awarded was equal to the market price of the Company’s common stock on the date of grant and an option’s maximum term is 10 years. The volatility assumption was based on a benchmark study of our peers.

During the three months ended March 31, 2013, 327,000 stock options were granted with a weighted-average grant date fair value of $18.94. Assumptions used in the Company’s Black-Scholes valuation model to estimate the grant date fair value were expected volatility of 45.28%, expected dividends of 0%, expected term of 6.25 years and a risk-free interest rate of 1.2%.

During each three month period ended March 31, 2013 and 2012, the Company recognized expense of $1 million related to the Company’s stock options. As of March 31, 2013, there was $12 million of total unrecognized compensation cost related to stock options. That cost is expected to be recognized over a weighted-average period of 3.06 years. The total aggregate intrinsic value of options outstanding as of each three month period ended March 31, 2013 and 2012 was $31 million.


Table of Contents

 

- 20 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

12. STOCK COMPENSATION (contiuned)

 

The following table summarizes the Company’s stock option activity for the three months ended Mar. 31, 2013:

 

        Three Months Ended Mar. 31, 2013  
        Number of Options      Weighted-Average
Exercise Price
 

Beginning Balance

       3,025,220      $ 27.78  

Granted

       327,000        42.16  

Exercised

       (342,897      27.68  

Forfeited

       (33,875      33.98  

 

 

Ending Balance

       2,975,448      $ 29.30  

 

 

The following table summarizes information about the Company’s options outstanding and exercisable:

 

      Options Outstanding      Options Exercisable  
     Options
Outstanding
     Weighted-Average     

Number
Exercisable at
Mar. 31, 2013

     Weighted-Average  
Range of Exercise Prices       Remaining
Contractual Life
     Exercise
Price
        Remaining
Contractual Life
     Exercise
Price
 

 

 

$7.57- $42.16

     2,975,448        6.01      $       29.30        2,146,048        4.92      $       26.64  

 

 

Restricted Stock Awards and Restricted Stock Units

The Company has granted restricted stock awards and restricted stock units (collectively referred to as “restricted stock”) under its stockholder approved stock plans. Compensation expense for restricted stock is measured based on the market price of the stock at date of grant and is recognized on a straight-line basis over the four year vesting period. Stock restrictions are subject to alternate vesting plans for death, disability, approved early retirement and involuntary termination, over various periods ending in 2017.

During each three month period ended March 31, 2013 and 2012, the Company recognized expense of $4 million related to the Company’s restricted stock. As of March 31, 2013, there was $33 million of total unrecognized compensation cost related to restricted stock. That cost is expected to be recognized over a weighted-average period of 3.09 years. The total fair value of shares vested during the three months ended March 31, 2013 and 2012 was $13 million and $10 million, respectively.


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- 21 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

12. STOCK COMPENSATION (contiuned)

 

A summary of the status of the Company’s plans that had restricted stock issued as of March 31, 2013 and changes during the three months ended March 31, 2013 are presented below. The weighted-average grant-date fair value of the restricted stock granted during the three months ended March 31, 2012 was $33.63.

 

      Three Months Ended Mar. 31, 2013  
      Number of Shares    

Weighted-Average
Grant-Date

Fair Value

 

Beginning Balance

     1,875,065     $ 27.14  

Granted

     430,558       40.97  

Vested

     (528,962     25.47  

Forfeited

     (37,052     33.37  

 

 

Ending Balance

     1,739,609     $       30.94  

 

 

Performance Stock Awards and Performance Stock Units

The Company has granted performance stock awards and performance stock units (collectively referred to as “PSUs”) as a part of its long-term incentive plan. Outstanding grants issued in 2013 will be fully settled in stock and outstanding grants issued in 2011 and 2012 will be settled 50 percent in stock and 50 percent in cash. The amount of the stock and/or cash ultimately distributed is contingent on meeting various company or stockholder return goals.

Compensation expense for PSUs settled in stock is measured based on the grant date fair value and is recognized on a straight-line basis over the vesting period. Compensation expense for PSUs settled in cash is measured based on the fair value at the end of each quarter and is recognized on a straight-line basis over the vesting period. Vesting will be accelerated in the case of death or disability, and awards earned will be paid at the end of the three-year period.

In the first three months of 2013, the Company granted PSUs. The 2013 grants vest after a three-year period based on the Company’s total stockholder return relative to the performance of the companies in the S&P 500 Index for the respective three-year period. The amount of stock distributed will vary from 0% to 200% of PSUs awarded depending on the relative stockholder return performance.

For all PSUs, respectively, during the three months ended March 31, 2013 and 2012, the Company recognized expense of $4 million and $8 million. As of March 31, 2013, there was $16 million of total unrecognized compensation cost related to PSUs. That cost is expected to be recognized over a weighted-average period of 2.16 years.

For the 2013 grants, the fair value of the PSUs settled in stock was estimated at the grant date using a Monte Carlo simulation that used various assumptions that include expected volatility of 36.7%, a risk free interest rate of 0.4% and an expected term of 2.9 years. Expected volatility was based on a benchmark study of our peers. 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 three-year performance period.


Table of Contents

 

- 22 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

12. STOCK COMPENSATION (contiuned)

 

A summary of the status of the Company’s plans that had issued PSUs as of March 31, 2013, and changes during the three months ended March 31, 2013, are presented below:

 

      Three Months Ended Mar. 31, 2013  
     

Number

of PSUs

   

Weighted-Average
Grant-Date

Fair Value

 

Beginning Balance

     412,910      $ 49.14  

Granted

     206,150        56.71  

Vested

     -        -   

Forfeited

     (18,550     49.65  

 

 

Ending Balance

     600,510      $       51.72  

 

 

2013 Employee Stock Purchase Plan

On April 18, 2013, the Company’s stockholders approved the Owens Corning Employee Stock Purchase Plan (“ESPP”). The 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 85% 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. There are 2 million shares available for purchase under the ESPP as of its approval date.

 

13. EARNINGS (LOSS) PER SHARE

The following table summarizes the number of shares outstanding as well as our basic and diluted earnings (loss) per share (in millions, except per share amounts):

 

      Three Months Ended
Mar. 31,
 
          2013              2012      

Net earnings (loss) attributable to Owens Corning

   $ 22      $ (46

 

 

Weighted-average number of shares outstanding used for basic earnings per share

           118.5              121.1  

Non-vested restricted and performance shares

     0.6        -   

Options to purchase common stock

     0.5        -   

 

 

Weighted-average number of shares outstanding and common equivalent shares used for diluted earnings per share

     119.6        121.1  

 

 

Earnings (loss) per common share attributable to Owens Corning common stockholders:

     

 

 

Basic

   $ 0.19      $ (0.38

Diluted

   $ 0.18      $ (0.38

 

 

Basic earnings (loss) per share is calculated by dividing earnings (loss) attributable to Owens Corning by the weighted-average number of shares of the Company’s common stock outstanding during the period. Outstanding shares consist of issued shares less treasury stock.


Table of Contents

 

- 23 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

13. EARNINGS (LOSS) PER SHARE (contiuned)

 

On April 25, 2012, the Company announced 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 “2012 Repurchase Program”). The 2012 Repurchase Program is in addition to the share buy-back program announced August 4, 2010 (the “2010 Repurchase Program” and collectively with the 2012 Repurchase Program, the “Repurchase Programs”). The Repurchase Programs authorize the Company to repurchase shares through 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. During the three months ended March 31, 2013, no shares were repurchased under the Repurchase Programs. As of March 31, 2013, 10 million shares remain available for repurchase under the Repurchase Programs.

For the three months ended March 31, 2013, the number of shares used in the calculation of diluted earnings per share did not include 0.2 million non-vested restricted shares, 0.2 million options to purchase common stock, 17.5 million common equivalent shares from Series A Warrants or 7.8 million common equivalent shares from Series B Warrants due to their anti-dilutive effect.

For the three months ended March 31, 2012, the number of shares used in the calculation of diluted loss per share did not include 0.7 million non-vested restricted shares, 0.6 million options to purchase common stock, 17.5 million common equivalent shares from Series A Warrants or 7.8 million common equivalent shares from Series B Warrants due to their anti-dilutive effect.

 

14. FAIR VALUE MEASUREMENT

Items Measured at Fair Value

The Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

The following table summarizes the fair values, and levels within the fair value hierarchy in which the fair value measurements fall, for assets and liabilities measured on a recurring basis as of March 31, 2013 (in millions):

 

      Total
Measured at
Fair Value
   

Quoted Prices
in Active
Markets for
Identical
Assets

(Level 1)

     Significant
Other
Observable
Inputs
(Level 2)
   

Significant
Unobservable
Inputs

(Level 3)

 

Assets:

         

Cash equivalents

   $ 17     $ 17      $ -      $ -   

Term deposits

     1       1        -     

Derivative assets

     3       -         3       -   

 

 

Total assets

   $       21     $       18      $       3     $       -   

 

 

Liabilities:

         

Derivative liabilities

   $ (1   $ -       $ (1   $ -   

 

 

Total liabilities

   $ (1   $ -       $ (1   $ -   

 

 


Table of Contents

 

- 24 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

14. FAIR VALUE MEASUREMENT (continued)

 

The following table summarizes the fair values, and levels within the fair value hierarchy in which the fair value measurements fall, for assets and liabilities measured on a recurring basis as of December 31, 2012 (in millions):

 

      Total
Measured at
Fair Value
   

Quoted Prices
in Active
Markets for
Identical
Assets

(Level 1)

     Significant
Other
Observable
Inputs
(Level 2)
   

Significant
Unobservable
Inputs

(Level 3)

 

Assets:

         

Cash equivalents

   $ 1     $ 1      $ -      $ -   

Term deposits

     1       1       

Derivative assets

     1       -         1       -   

 

 

Total assets

   $       3     $       2      $       1     $       -   

 

 

Liabilities:

         

Derivative liabilities

   $ (4   $ -       $ (4   $ -   

 

 

Total liabilities

   $ (4   $ -       $ (4   $ -   

 

 

Cash equivalents, by their nature, utilize Level 1 inputs in determining fair value. The Company measures the value of its natural gas hedge contracts and foreign currency forward contracts using Level 2 inputs. The fair value of the Company’s natural gas hedges is determined by a mark to market valuation based on forward curves using observable market prices and the fair value of its foreign currency forward contracts is determined using observable market transactions in over-the-counter markets.

Items Disclosed at Fair Value

Long-term notes receivable

The fair value has been calculated using the expected future cash flows discounted at market interest rates. The Company believes that the carrying amounts reasonably approximate the fair values of long-term notes receivable. Long-term notes receivable were $53 million as of March 31, 2013 and December 31, 2012.

Long-term debt

The fair value of the Company’s long-term debt has been calculated based on quoted market prices for the same or similar issues, or on the current rates offered to the Company for debt of the same remaining maturities.

As of March 31, 2013 and December 31, 2012 respectively, the Company’s 6.50% senior notes due 2016 were trading at approximately 112% of par value, the 9.00% senior notes due 2019 were trading at approximately 130% and 127% of par value, the 4.20% senior notes due 2022 were trading at approximately 103% and 102% of par value, and the 7.00% senior notes due 2036 were trading at approximately 114% and 109% of par value.

At March 31, 2013 and December 31, 2012, the Company determined that the book value of the remaining long-term debt instruments approximates market value. This approach, using Level 1 inputs and utilizing indicative market rates for a new debt issuance, approximated the fair value of the remaining long-term debt at $494 million and $268 million, respectively.


Table of Contents

 

- 25 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

15. INCOME TAXES

Income tax expense for the three months ended March 31, 2013 was $6 million. The Company’s effective tax rate was 21 percent. The difference between the first quarter effective tax rate and the statutory rate of 35 percent is primarily attributable to the American Taxpayer Relief Act of 2012 (the “Act”) which was signed into law on January 2, 2013. The Act retroactively restored the research and experimentation credit and the Subpart F controlled foreign corporation look-through exception for 2012 and extends these provisions through the end of 2013. The retroactive effect of the Act on the Company’s U.S. federal taxes for 2012 of approximately $8 million was recognized in the quarter. The remaining differences relate to the accounting treatment of various locations which are currently in a loss position in the first quarter 2013.

Income tax expense for the three months ended March 31, 2012 was $5 million. The Company’s effective tax rate was negative 13 percent. The difference between the first quarter effective tax rate and the statutory rate of 35 percent is primarily attributable to the tax accounting treatment related to various locations which are currently in a loss position in the first quarter 2012.

 

16. SUBSEQUENT EVENTS

On April 18, 2013, the Company’s stockholders approved the Owens Corning 2013 Stock Plan and the Owens Corning Employee Stock Purchase Plan. Please see additional details related to these plans in Note 12.

 

17. ACCOUNTING PRONOUNCEMENTS

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Updated 2013-02 “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”). ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. The ASU is effective for annual periods and interim periods within those periods beginning after December 15, 2012. For the three months ended March 31, 2013, the amounts reclassified out of accumulated other comprehensive income were not material.

 

18. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The following Condensed Consolidating Financial Statements present the financial information required with respect to those entities which guarantee certain of the Company’s debt. The Condensed Consolidating Financial Statements are presented on the equity method. Under this method, the investments in subsidiaries are recorded at cost and adjusted for the Company’s share of the subsidiaries’ cumulative results of operations, capital contributions, distributions and other equity changes. The principal elimination entries eliminate investment in subsidiaries and intercompany balances and transactions.

Guarantor and Nonguarantor Financial Statements

The Senior Notes and the Senior Revolving Credit Facility are guaranteed, fully, unconditionally and jointly and severally, by each of Owens Corning’s current and future 100% owned material domestic subsidiaries that is a borrower or a guarantor under Owens Corning’s Credit Agreement, which permits changes to the named guarantors in certain situations (collectively, the “Guarantor Subsidiaries”). The remaining subsidiaries have not guaranteed the Senior Notes and the Senior Revolving Credit Facility (collectively, the “Nonguarantor Subsidiaries”).


Table of Contents

 

- 26 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

18. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

 

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF EARNINGS (LOSS)

FOR THE THREE MONTHS ENDED MARCH 31, 2013

(in millions)

 

      Parent     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Eliminations     Consolidated  

NET SALES

   $ -     $ 994      $ 453      $ (97   $ 1,350  

COST OF SALES

     (2     833        403        (97     1,137  

 

 

Gross margin

     2       161        50        -       213  

OPERATING EXPENSES

            

Marketing and administrative expenses

     33       67        33        -       133  

Science and technology expenses

     -       14        4        -       18  

Charges related to cost reduction actions

     -       -        1        -       1  

Other expenses

     (1     4        1        -       4  

 

 

Total operating expenses

     32       85        39        -       156  

 

 

EARNINGS (LOSS) BEFORE INTEREST AND TAXES

     (30     76        11        -       57  

Interest expense, net

     27       -        2        -       29  

 

 

EARNINGS (LOSS) BEFORE TAXES

     (57     76        9        -       28  

Less: Income tax expense

     (22     19        9        -       6  

Equity in net earnings (loss) of subsidiaries

     57       -        -        (57     -  

Equity in net earnings of affiliates

     -       -        -        -       -  

 

 

NET EARNINGS (LOSS)

     22       57        -        (57     22  

Less: Net earnings attributable to noncontrolling interest

            -              -                 -               -                -  

 

 

NET EARNINGS (LOSS) ATTRIBUTABLE TO OWENS CORNING

   $ 22     $ 57      $ -      $ (57   $ 22  

 

 


Table of Contents

 

- 27 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

18. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

 

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF EARNINGS (LOSS)

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(in millions)

 

      Parent     Guarantor
Subsidiaries
   

Non-

Guarantor
Subsidiaries

    Eliminations     Consolidated  

NET SALES

   $          -      $ 962     $ 468     $ (84   $ 1,346  

COST OF SALES

     2        820       422       (84     1,160  

 

 

Gross margin

     (2     142       46                -        186  

OPERATING EXPENSES

          

Marketing and administrative expenses

     34        68       35       -        137  

Science and technology expenses

     -        15       4       -        19  

Charges related to cost reduction actions

     -                 -        34       -        34  

Other expenses

     (8     8       8       -        8  

 

 

Total operating expenses

     26        91       81       -        198  

 

 

EARNINGS (LOSS) BEFORE INTEREST AND TAXES

     (28     51       (35     -        (12

Interest expense, net

     25        -        3       -        28  

 

 

EARNINGS (LOSS) BEFORE TAXES

     (53     51       (38     -        (40

Less: Income tax expense

     (19     12       12       -        5  

Equity in net earnings (loss) of subsidiaries

     (12     (51              -        63                -   

Equity in net earnings of affiliates

     -        -        -        -        -   

 

 

NET EARNINGS (LOSS)

     (46     (12     (50     63       (45

Less: Net earnings attributable to noncontrolling interest

     -        -        1       -        1  

 

 

NET EARNINGS (LOSS) ATTRIBUTABLE TO OWENS CORNING

   $ (46   $ (12   $ (51   $ 63     $
(46

 

 


Table of Contents

 

- 28 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

18. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

 

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF COMPREHENSIVE EARNINGS (LOSS)

FOR THE THREE MONTHS ENDED MARCH 31, 2013

(in millions)

 

     Parent     Guarantor
Subsidiaries
   

Non-

Guarantor
Subsidiaries

    Eliminations     Consolidated  

NET EARNINGS (LOSS)

  $       22      $       57     $       -      $ (57   $       22  

Currency translation adjustment

    (21     -        -                 -        (21

Pension and other postretirement adjustment (net of tax)

    2        -        -        -        2  

Deferred income (loss) on hedging (net of tax)

    2        -        -        -        2  

 

 

COMPREHENSIVE EARNINGS (LOSS)

    5        57       -        (57     5  

Less: Comprehensive earnings attributable to noncontrolling interests

    -        -        -        -        -   

 

 

COMPREHENSIVE EARNINGS (LOSS) ATTRIBUTABLE TO OWENS CORNING

  $ 5      $ 57     $ -      $ (57   $ 5  

 

 


Table of Contents

 

- 29 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

18. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

 

OWENS CORNING AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF COMPREHENSIVE EARNINGS (LOSS)

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(in millions)

 

     Parent     Guarantor
Subsidiaries
   

Non-

Guarantor
Subsidiaries

    Eliminations     Consolidated  

NET EARNINGS (LOSS)

  $ (46   $ (12   $ (50   $     63     $ (45

Currency translation adjustment

    24       -        -        -        24  

Pension and postretirement adjustment (net of tax)

    (1     -       -        -        (1

Deferred income (loss) on hedging (net of tax)

    (2     -               -              -        (2

 

 

COMPREHENSIVE EARNINGS (LOSS)

    (25     (12     (50     63       (24

Less: Comprehensive earnings attributable to noncontrolling interests

             -                 -        1       -              1  

 

 

COMPREHENSIVE EARNINGS (LOSS) ATTRIBUTABLE TO OWENS CORNING

  $ (25   $ (12   $ (51   $ 63     $ (25

 

 


Table of Contents

 

- 30 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

18. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

 

OWENS CORNING AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF MARCH 31, 2013

(in millions)

 

ASSETS   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

CURRENT ASSETS

         

Cash and cash equivalents

  $ -      $ 2     $ 60     $ -      $ 62  

Receivables, less allowances

    -        -        884       -        884  

Due from affiliates

    -        2,485       -        (2,485     -   

Inventories

    -        456       320       -        776  

Other current assets

    29        75       91       -        195  

 

 

Total current assets

    29        3,018       1,355       (2,485     1,917  

Investment in subsidiaries and loans

    6,917        2,457       558       (9,932     -   

Due from affiliates

    -        62       1,017       (1,079     -   

Property, plant and equipment, net

    374        1,284       1,207       -        2,865  

Goodwill

    -        1,068       75       -        1,143  

Intangible assets

    -        934       290       (186     1,038  

Deferred income taxes

    54        521       28       -        603  

Other non-current assets

    64        72       115       -        251  

 

 

TOTAL ASSETS

  $ 7,438      $ 9,416     $ 4,645     $ (13,682   $ 7,817  

 

 

LIABILITIES AND EQUITY

         

 

 

CURRENT LIABILITIES

         

Accounts payable and accrued liabilities

  $ 33      $ 462     $ 425     $ -      $ 920  

Due to affiliates

    1,277        -        1,208       (2,485     -   

Short-term debt

    -        -        10       -        10  

Long-term debt – current portion

    -        2       2       -        4  

Total current liabilities

    1,310        464       1,645       (2,485     934  

Long-term debt, net of current portion

    2,064        28       209       -        2,301  

Due to affiliates

    -        1,017       62       (1,079     -   

Pension plan liability

    325        -        137       -        462  

Other employee benefits liability

    -        252       19       -        271  

Deferred income taxes

    -        -        36       -        36  

Other liabilities

    182        180       43       (186     219  

OWENS CORNING STOCKHOLDERS’ EQUITY

         

Preferred stock

    -        -        -        -        -   

Common stock

    1        -        -        -        1  

Additional paid in capital

    3,941        6,526       2,030       (8,556     3,941  

Accumulated earnings

    473        949       427       (1,376     473  

Accumulated other comprehensive deficit

    (375     -        -        -        (375

Cost of common stock in treasury

    (483     -        -        -        (483

 

 

Total Owens Corning stockholders’ equity

    3,557        7,475       2,457       (9,932     3,557  

Noncontrolling interests

    -        -        37                       -        37  

 

 

Total equity

    3,557        7,475       2,494       (9,932     3,594  

 

 

TOTAL LIABILITIES AND EQUITY

  $       7,438      $       9,416     $       4,645     $ (13,682   $       7,817  

 

 


Table of Contents

 

- 31 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

18. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

 

OWENS CORNING AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31, 2012

(in millions)

 

ASSETS   Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Consolidated  

CURRENT ASSETS

         

Cash and cash equivalents

  $ -      $ 3     $ 52     $ -      $ 55  

Receivables, less allowances

    -        -        600       -        600  

Due from affiliates

    -        2,528       -        (2,528     -   

Inventories

    -        473       313       -        786  

Other current assets

    -        75       96       -        171  

 

 

Total current assets

    -        3,079       1,061       (2,528     1,612  

Investment in subsidiaries

    6,877        2,489       558       (9,924     -   

Due from affiliates

    -        65       1,022       (1,087     -   

Property, plant and equipment, net

    374        1,294       1,235       -        2,903  

Goodwill

    -        1,068       75       -        1,143  

Intangible assets

    -        939       302       (196     1,045  

Deferred income taxes

    54        525       25       -        604  

Other non-current assets

    67        74       120       -        261  

 

 

TOTAL ASSETS

  $ 7,372      $ 9,533     $ 4,398     $ (13,735   $ 7,568  

 

 

LIABILITIES AND EQUITY

         

 

 

CURRENT LIABILITIES

         

Accounts payable and accrued liabilities

  $ 8      $ 610     $ 279     $ -      $ 897  

Due to affiliates

    1,419        -        1,109       (2,528     -   

Short-term debt

    -        -        5       -        5  

Long-term debt – current portion

    -        2       2       -        4  

Total current liabilities

    1,427        612       1,395       (2,528     906  

Long-term debt, net of current portion

    1,884        28       164       -        2,076  

Due to affiliates

    -        1,022       65       (1,087     -   

Pension plan liability

    331        -        149       -        480  

Other employee benefits liability

    -        254       20       -        274  

Deferred income taxes

    -        -        38       -        38  

Other liabilities

    192        182       41       (196     219  

OWENS CORNING STOCKHOLDERS’ EQUITY

         

Preferred stock

    -        -        -        -        -   

Common stock

    1        -        -        -        1  

Additional paid in capital

    3,925        6,541       2,062       (8,603     3,925  

Accumulated earnings

    451        894       427       (1,321     451  

Accumulated other comprehensive deficit

    (364     -        -        -        (364

Cost of common stock in treasury

    (475     -        -        -        (475

 

 

Total Owens Corning stockholders’ equity

    3,538        7,435       2,489       (9,924     3,538  

Noncontrolling interests

    -        -        37                     -        37  

 

 

Total equity

    3,538        7,435       2,526       (9,924     3,575  

 

 

TOTAL LIABILITIES AND EQUITY

  $       7,372      $       9,533     $       4,398     $ (13,735   $       7,568  

 

 


Table of Contents

 

- 32 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

18. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

 

OWENS CORNING AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2013

(in millions)

 

      Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations      Consolidated  

NET CASH FLOW USED FOR OPERATING ACTIVITIES

   $ (1   $ (199   $ 21     $ -       $ (179

NET CASH FLOW (USED FOR) PROVIDED BY INVESTING ACTIVITIES

           

Additions to plant and equipment

     (2     (26     (17     -         (45

Proceeds from the sale of assets or affiliates

     -        -        -        -         -   

 

 

Net cash flow used for investing activities

     (2     (26     (17     -         (45

 

 

NET CASH FLOW PROVIDED BY

           

FINANCING ACTIVITIES

           

Proceeds from senior revolving credit and receivables securitization facilities

     485        -        73       -         558  

Payments on senior revolving credit and receivables securitization facilities

     (304     -        (27     -         (331

Payments on long-term debt

     -        -        -        -         -   

Net increase (decrease) in short-term debt

     -        -        5       -         5  

Purchases of treasury stock

     (8     -        -        -         (8

Parent loans and advances

     (178     224       (46     -         -   

Other

     8        -        -        -         8  

 

 

Net cash flow provided by financing activities

            3               224       5       -         232  

 

 

Effect of exchange rate changes on cash

     -        -        (1     -         (1

 

 

Net increase in cash and cash equivalents

     -        (1     8       -         7  

Cash and cash equivalents at beginning of period

     -        3              52       -                55  

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

   $ -      $ 2     $ 60     $       -       $ 62  

 

 


Table of Contents

 

- 33 -

OWENS CORNING AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

18. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (continued)

 

OWENS CORNING AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(in millions)

 

      Parent     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations      Consolidated  

NET CASH FLOW USED FOR OPERATING ACTIVITIES

   $ (2   $ (217   $ 26     $ -       $ (193

NET CASH FLOW USED FOR INVESTING ACTIVITIES

           

Additions to plant and equipment

     (4     (37     (31     -         (72

Proceeds from the sale of assets or affiliates

     -        -        4       -         4  

 

 

Net cash flow used for investing activities

     (4     (37     (27     -         (68

 

 

NET CASH FLOW PROVIDED BY

           

FINANCING ACTIVITIES

           

Proceeds from senior revolving credit and receivables securitization facilities

     558       -        68       -         626  

Payments on senior revolving credit and receivables securitization facilities

     (303     -        (49     -         (352

Payments on long-term debt

     (1     -        (1     -         (2

Net increase (decrease) in short-term debt

     (8     -        2       -         (6

Purchases of treasury stock

     (5     -        -        -         (5

Parent loans and advances

     (239     258       (19     -         -   

Other

     5       -        -        -         5  

 

 

Net cash flow provided by financing activities

     7              258       1       -         266  

 

 

Effect of exchange rate changes on cash

     -        -        1       -         1  

 

 

Net increase in cash and cash equivalents

            1       4       1       -         6  

Cash and cash equivalents at beginning of period

     -        -               52       -                52  

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

   $ 1     $ 4     $ 53     $       -       $ 58  

 

 


Table of Contents

 

- 34 -

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 the reader 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 leading global producer of glass fiber reinforcements and other materials for composites and of residential and commercial building materials. The Company’s business operations fall within two reportable segments, Composites and Building Materials. Composites includes our Reinforcements and Downstream businesses. Building Materials includes our Insulation and Roofing businesses. Through these lines of business, we manufacture and sell products worldwide. We maintain leading market positions in many of our major product categories.

EXECUTIVE OVERVIEW

We reported $57 million in earnings before interest and taxes (“EBIT”) for the first quarter 2013. We generated $77 million in adjusted earnings before interest and taxes (“Adjusted EBIT”) for the first quarter 2013. First quarter EBIT in our Building Materials segment increased by $49 million and first quarter EBIT in our Composites segment declined by $14 million compared to the same period in 2012.

Restructuring actions initiated in 2012 represented $9 million of the amount adjusted out of reported EBIT to arrive at Adjusted EBIT, with the majority of the charges related to the repositioning of our European assets in our Composites business. We have also adjusted out $11 million of losses related to a flood that occurred during October of 2012 in our Kearny, New Jersey roofing manufacturing facility as a result of Hurricane Sandy. The Company believes related costs and business interruption losses will be substantially covered by insurance. There has been little impact to our customers as we continue to service all customers through our regional manufacturing network. See below for further information regarding Adjusted EBIT, including the reconciliation to net earnings attributable to Owens Corning.

In our Composites segment, EBIT in the first quarter 2013 was $9 million compared to $23 million in the same period of 2012. The decline was driven primarily by unfavorable capacity utilization and inflation.

In our Building Materials segment, our Roofing business delivered EBIT in the first quarter 2013 of $119 million, up approximately 45 percent from the same period of 2012 driven by effective price execution. Our Insulation business narrowed EBIT losses in the first quarter 2013 by $13 million compared to the same period in 2012 due primarily to higher selling prices.

We maintain a strong balance sheet with ample liquidity. We have access to an $800 million senior revolving credit facility with a July 2016 maturity date and a $250 million receivables securitization facility with a December 2014 maturity date. We have no other significant debt maturities before 2016.

Due to the normal seasonality of our business, we typically have negative cash flow from operations in the first half of the year. During the first quarter 2013, we used $179 million in cash flow from operating activities compared to a use of $193 million in the first quarter 2012. This improvement resulted primarily from higher cash earnings from operations and lower contributions to our pension plans.


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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

RESULTS OF OPERATIONS

Consolidated Results (in millions)

 

      Three Months Ended
Mar. 31,
 
          2013             2012      

Net sales

   $       1,350     $       1,346  

Gross margin

   $ 213     $ 186  

% of net sales

     16     14

Charges related to cost reduction actions

   $ 1     $ 34  

Earnings (loss) before interest and taxes

   $ 57     $ (12

Interest expense, net

   $ 29     $ 28  

Income tax expense

   $ 6     $ 5  

Net earnings (loss) attributable to Owens Corning

   $ 22     $ (46

 

 

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

Net sales were $4 million higher in the first quarter 2013 compared to the same period in 2012 driven primarily by higher selling prices in our Building Materials segment, partially offset by lower Composites net sales.

GROSS MARGIN

Gross margin as a percentage of sales was higher in the first quarter 2013 as compared to the first quarter 2012 due primarily to higher roofing and insulation contribution margins, partially offset by unfavorable operating leverage and inflation in our composites business. In addition, gross margin included $19 million of charges in the first quarter 2013 resulting from 2012 restructuring actions and losses related to Hurricane Sandy compared to $21 million in the same period a year ago due primarily to our European restructuring actions.

CHARGES RELATED TO COST REDUCTION ACTIONS

During the first quarter of 2012, we took actions to improve the competitive position of our global manufacturing network through the closure or optimization of certain facilities in Europe. As a result of these actions, in addition to the charges recorded in cost of sales, we recognized $1 million in severance charges in the first quarter 2013 compared to $34 million during the same period a year ago. The total charges related to the cost reduction actions and related items in the first quarter 2013 and 2012 were $9 million and $55 million, respectively.

EARNINGS (LOSS) BEFORE INTEREST AND TAXES

EBIT increased by $69 million for the first quarter 2013 compared to the same period in 2012. First quarter EBIT in our Building Materials segment increased by $49 million and first quarter EBIT in our Composites segment decreased by $14 million compared to the same period in 2012. Corporate EBIT losses for the first quarter decreased by $34 million, due to the lower cost reduction actions discussed above, compared to the same period in 2012.

INTEREST EXPENSE, NET

Interest expense in the first quarter 2013 was higher than in the first quarter 2012 due primarily to higher borrowing levels.

INCOME TAX EXPENSE

The effective tax rate for the three months ended March 31, 2013 was 21 percent. The difference between the first quarter effective tax rate and the statutory rate of 35 percent is primarily attributable to the American Taxpayer Relief Act of 2012 (the “Act”) which was signed into law on January 2, 2013. The Act retroactively restored the research and experimentation credit and the Subpart F controlled foreign corporation look-through exception for 2012 and extends these provisions through


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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

the end of 2013. The retroactive effect of the Act on the Company’s U.S. federal taxes for 2012 of approximately $8 million was recognized in the quarter. The remaining differences relate to the accounting treatment of various locations which are currently in a loss position in the first quarter 2013.

We estimate that the effective tax rate on adjusted earnings for the full year 2013 will be about 25 to 28 percent. The difference between the effective tax rate of 25 to 28 percent and the statutory rate of 35 percent is primarily attributable to lower foreign tax rates and various tax planning initiatives.

Adjusted Earnings (Loss) Before Interest and Taxes (“Adjusted EBIT”)

Adjusted EBIT excludes certain items that management does not allocate to our segment results because it believes they are not a result of the Company’s current 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 (loss) attributable to Owens Corning as prepared in accordance with accounting principles generally accepted in the United States.

Adjusting items are shown in the table below (in millions):

 

      Three Months Ended
March 31,
 
          2013              2012      

Charges related to cost reduction actions and related items

   $       (9)       $ (55

Losses related to Hurricane Sandy

     (11)                  -   

 

 

Total adjusting items

   $ (20)       $ (55

 

 

 

      Three Months Ended
March 31,
 
          2013             2012      

NET EARNINGS (LOSS) ATTRIBUTABLE TO OWENS CORNING

   $       22     $ (46

Less: Net earnings attributable to noncontrolling interests

     -                 1  

 

 

NET EARNINGS (LOSS)

     22       (45

Income tax expense

     6       5  

 

 

EARNINGS (LOSS) BEFORE TAXES

     28       (40

Interest expense, net

     29       28  

 

 

EARNINGS (LOSS) BEFORE INTEREST AND TAXES

     57       (12

Less: adjusting items from above

     (20     (55

 

 

ADJUSTED EBIT

   $ 77     $ 43  

 

 

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.


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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Composites

The table below provides a summary of net sales, EBIT and depreciation and amortization expense for the Composites segment (in millions):

 

      Three Months Ended
Mar. 31,
 
          2013             2012      

Net sales

   $       459     $       476  

% change from prior year

     -4     -3

EBIT

   $ 9     $ 23  

EBIT as a % of net sales

     2     5

Depreciation and amortization expense

   $ 32     $ 30  

 

 

NET SALES

Net sales in our Composites business decreased $17 million for the three months ended March 31, 2013 compared to the same period in 2012. The decline in sales was driven by unfavorable mix and the impact of translating sales denominated in foreign currencies into United States dollars. Glass reinforcements volume was up 1% supported by growth in industrial production; however, this growth was offset by slightly lower selling prices.

EBIT

EBIT in our Composites business decreased $14 million for the first quarter 2013 compared to the same period in 2012. Approximately half of the decline was a result of unfavorable capacity utilization compared to the same period one year ago. The remaining variance was driven about equally by inflation and slightly lower selling prices.

OUTLOOK

Global glass reinforcements market demand has grown on average with global industrial production and we believe this relationship will continue. In the first quarter, global glass reinforcements market demand continued to grow less than the historical average of five percent. Based on the outlook for global industrial production, we expect the market will continue to grow for the remainder of 2013 although again at a rate below the five percent historical average. With our asset ramp-up complete at the end of the first quarter 2013, we expect our margins to benefit from improved leverage and the asset repositioning we executed in 2012.


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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Building Materials

The table below provides a summary of net sales, EBIT and depreciation and amortization expense (in millions) for the Building Materials segment and our businesses within this segment (in millions):

 

      Three Months Ended
Mar. 31,
 
          2013             2012      

Net sales

  

 

Insulation

   $       330     $       331  

Roofing

     607       588  

 

 

Total Building Materials

   $ 937     $ 919  

% change from prior year

     2     17

EBIT

    

Insulation

   $ (21   $ (34

Roofing

     119       83  

 

 

Total Building Materials

   $ 98     $ 49  

EBIT as a % of net sales

     10     5

Depreciation and amortization expense

    

Insulation

   $ 26     $ 25  

Roofing

     10       9  

 

 

Total Building Materials

   $ 36     $ 34  

 

 

NET SALES

Net sales in our Building Materials segment were $18 million higher in the first quarter 2013 compared to the same period in 2012. This increase was primarily related to higher selling prices within both our Roofing and Insulation businesses.

In our Roofing business, net sales were $19 million higher for the three months ended March 31, 2013 compared to the same period in 2012 due to favorable price partially offset by lower sales volumes.

In our Insulation business, net sales were $1 million lower for the three months ended March 31, 2013 compared to the same period in 2012. Price improvement contributed to a 5 percent increase in revenue on average across the business. This revenue increase was offset equally by lower international sales and the unfavorable impact on comparability as a result of the April and December 2012 U.S. residential price increases. The April 2012 price increase pulled volumes into the first quarter of 2012; while the December 2012 price increase pulled volumes out of the first quarter of 2013 and into the fourth quarter of 2012.

EBIT

EBIT for our Building Materials segment was $49 million higher in the first quarter 2013 compared to the same period in 2012. This increase was related to improved pricing as productivity across all of our building materials businesses was offset by lower volume.

In our Roofing business, EBIT was $36 million higher for the three months ended March 31, 2013 compared to the same period in 2012. Substantially all of the increase was driven by the impact of improved pricing. The remaining improvement quarter over quarter was driven equally by lower production costs and reduced operating expenses; however, this benefit was partially offset by lower sales volumes.

In our Insulation business, we narrowed EBIT losses by $13 million for the three months ended March 31, 2013 compared to the same period in 2012. Higher selling prices and improved manufacturing productivity represented approximately $25 million in EBIT improvement partially offset, equally, by lower volumes and raw material inflation.


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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

OUTLOOK

During the first quarter of 2013, the average Seasonally Adjusted Annual Rate (“SAAR”) of United States housing starts rose to approximately 915,000 starts versus a first quarter average in 2012 of approximately 715,000 starts. While the recent information on United States housing starts has been positive, the timing and pace of recovery of the United States housing market remains uncertain.

In our Roofing business, we expect the factors that have driven margins in recent years will continue to deliver profitability. Uncertainties that may impact our Roofing margins include competitive pricing pressure and the cost and availability of raw materials, particularly asphalt.

The Company expects our Insulation business to benefit from an improving U.S. housing market, improved pricing, and continued operating leverage. We narrowed losses in the first quarter of 2013 and we expect a return to full year profitability in 2013. We believe the geographic, product and channel mix of our portfolio may continue to moderate the impact of any demand-driven variability associated with United States new construction.

Corporate, Other and Eliminations

The table below provides a summary of EBIT and depreciation and amortization expense for the Corporate, Other and Eliminations category (in millions):

 

      Three Months Ended
Mar. 31,
 
          2013             2012      

Charges related to cost reduction actions and related items

   $ (9   $ (55

Losses related to Hurricane Sandy

     (11     -   

General corporate expense and other

     (30     (29

 

 

EBIT

   $ (50   $ (84

 

 

Depreciation and amortization

   $        10     $        25  

 

 

EBIT

In Corporate, Other and Eliminations, EBIT losses for the three months ended March 31, 2013 were $34 million lower compared to the same period in 2012. In the first quarter, we recorded an additional $11 million in property damage and related charges as a result of Hurricane Sandy’s impact on our Roofing facility in Kearny, New Jersey. We also incurred an additional $9 million in charges related to cost reduction actions and related items, primarily to improve our competitive position in Europe. These charges consist primarily of other related charges and accelerated depreciation charges.

For the first quarter 2013, general corporate expense increased $1 million compared to the same period in 2012. Overall compensation and other general expense increases were offset by a decrease in non-service pension costs.

Depreciation and amortization for the first quarter 2013 was $10 million compared to $25 million for the same period in 2012. The decrease was primarily due to including $3 million of accelerated depreciation in the first quarter of 2013 related to our European restructuring plan initiated during the first quarter of 2012 compared to $17 million in the same period a year ago.

LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED MATTERS

Liquidity

We have an $800 million senior revolving credit facility and a $250 million receivables securitization facility that serve as our primary sources of liquidity. Our senior revolving credit facility matures in July 2016, and our receivables securitization facility matures in December 2014. We have no other significant debt maturities before 2016. As of March 31, 2013, the receivables securitization facility was fully utilized and we had $542 million available on the senior revolving credit facility. As of March 31, 2013, we had $ 2.3 billion of total debt and cash-on-hand of $62 million.


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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Cash and cash equivalents held by foreign subsidiaries may be subject to U.S. income taxation upon repatriation to the U.S. We do not provide for U.S. income taxes on the undistributed earnings of these subsidiaries as earnings are reinvested and, in the opinion of management, will continue to be reinvested indefinitely outside of the U.S. As of March 31, 2013 and December 31, 2012, we had approximately $54 million and $41 million, respectively, in cash and cash equivalents in certain of our foreign subsidiaries where we consider undistributed earnings for these foreign subsidiaries to be permanently reinvested.

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, will provide ample liquidity to enable us to meet our cash requirements. Our anticipated uses of cash include capital expenditures, working capital needs, pension contributions, meeting financial obligations and reducing outstanding amounts under the senior revolving credit facility and receivables securitization facility. We have outstanding share repurchase authorizations and will evaluate and consider repurchasing shares of our common stock, as well as strategic acquisitions, divestitures, joint ventures and other transactions to create stockholder value and enhance financial performance. Such transactions may require cash expenditures beyond current sources of liquidity or generate proceeds.

We are closely monitoring the economic environment for the potential impact of changes in the operating conditions of our customers on our operating results. To date, changes in the operating conditions of our customers have not had a material adverse impact on our operating results; however, it is possible that we could experience material losses in the future if current economic conditions worsen.

The agreements applicable to our senior revolving credit facility and the receivables securitization facility contain various covenants that we believe are usual and customary for agreements of these types. The senior revolving credit facility and the securitization facility each include a maximum allowed leverage ratio and a minimum required interest expense coverage ratio. We were in compliance with these covenants as of March 31, 2013.

Cash Flows

The following table presents a summary of our cash balance and cash flows (in millions):

 

      Three Months Ended
Mar. 31,
 
          2013             2012      

Cash balance

   $       62     $       58  

Cash used for operating activities

   $ (179   $ (193

Cash used for investing activities

   $ (45   $ (68

Cash provided by financing activities

   $ 232     $ 266  

Unused committed credit lines

   $ 542     $ 397  

 

 

Operating activities: For the first quarter 2013, we used $179 million of cash from operations compared to $193 million in the same period in 2012. Our pension contributions were $6 million lower in the first quarter 2013 than in the first quarter 2012.

Investing activities: The $23 million decrease in cash flow used for investing activities in the three months ended March 31, 2013 compared to the first three months in 2012 was primarily the result of fewer additions to plant and equipment.

Financing activities: Cash provided by financing activities was $34 million lower for the three months ended March 31, 2013 compared to the first three months of 2012 due primarily to our cash needs for working capital and investing activities.

2013 Investments

Capital Expenditures: The Company will continue a balanced approach to the use of its cash flow. Operational cash flow will be used to fund the Company’s growth and innovation. Capital expenditures in 2013 are expected to be slightly higher than depreciation and amortization, excluding the investment required to rebuild our Kearny roofing plant (resulting from damage sustained from Hurricane Sandy). The Company will also continue to evaluate projects and acquisitions that provide opportunities for growth in our businesses, and invest in them when they meet our strategic and financial criteria.


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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Tax Net Operating Losses

Upon emergence and subsequent distribution of contingent stock and cash in January 2007, we generated a significant United States federal tax net operating loss of approximately $3.0 billion. As of March 31, 2013, our federal tax net operating losses remaining were $2.3 billion. Our net operating losses are subject to the limitations imposed under section 382 of the Internal Revenue Code. These limits are triggered when a change in control occurs, and are computed based upon several variable factors including the share price of the Company’s common stock on the date of the change in control. A change in control is generally defined as a cumulative change of 50% or more in the ownership positions of certain stockholders during a rolling three year period. Our initial three year period for measuring an ownership change started at October 31, 2006.

In addition to the United States net operating losses described above, we have net operating losses in various state and foreign jurisdictions, which totaled $3.3 billion and $807 million as of December 31, 2012, respectively. Our ability to utilize these net operating losses may be limited as a result of certain events, such as insufficient future taxable income prior to expiration of the net operating losses or changes in tax legislation. Should we determine that it is likely that our recorded net operating loss benefits are not realizable, we would be required to reduce the net operating loss tax benefits reflected on our Consolidated Financial Statements to the net realizable amount by establishing an accounting valuation allowance and recording a corresponding charge to current earnings. To date, we have recorded valuation allowances against certain of these deferred tax assets.

Pension Contributions

The Company has several defined benefit pension plans. The Company made cash contributions of approximately $12 million and $18 million to the plans during the three months ended March 31, 2013 and 2012, respectively. The Company expects to contribute $38 million in cash to its global pension plans during 2013. Actual contributions to the plans may change as a result of a variety of factors, including changes in laws that impact funding requirements. The ultimate cash flow impact to the Company, if any, of the pension plan liability and the timing of any such impact will depend on numerous variables, including future changes in actuarial assumptions, legislative changes to pension funding laws, and market conditions.

Derivatives

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. To mitigate some of the near-term volatility in our earnings and cash flows, we use financial and derivative instruments to hedge certain exposures, principally currency- and energy-related. The Company does not enter into such transactions for trading purposes. Our current hedging practice is to hedge a variable percentage of certain energy and energy-related exposures. Going forward, the results of our hedging practice could be positive, neutral or negative in any period depending on price changes in the hedged exposures, and will tend to mitigate near-term volatility in the exposures hedged. The practice is neither intended nor expected to mitigate longer term exposures. See Note 4 to the Consolidated Financial Statements for further discussion.

Our current practice is to manage our interest rate exposure by balancing the mixture of our fixed and variable rate instruments. We utilize, among other strategies, interest rate swaps to achieve this balance in interest rate exposures. There are currently no derivatives outstanding which are related to balancing our fixed and variable rate instruments.

Fair Value Measurement

Items Measured at Fair Value

The Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.


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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

 

Off Balance Sheet Arrangements

The Company has entered into limited off balance sheet arrangements, as defined under Securities and Exchange Commission rules, in the ordinary course of business. The Company does not believe these arrangements will have a material effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations

In the normal course of business, we enter into contractual obligations to make payments to third parties. During the three months ended March 31, 2013, there were no material changes to such contractual obligations outside the ordinary course of our business.

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 Incidence Rate (“RIR”) as defined by the United States Department of Labor, Bureau of Labor Statistics. For the three months ended March 31, 2013 our RIR was 0.64 as compared to 0.37 in the same period a year ago.

ADOPTION OF NEW ACCOUNTING STANDARDS

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Updated 2013-02 “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”). ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. The ASU is effective for annual periods and interim periods within those periods beginning after December 15, 2012. The ASU is not expected to have a material impact on our Consolidated Financial Statements and we have complied with the disclosure in the accompanying Notes to the Consolidated Financial Statements contained in this report.

ENVIRONMENTAL MATTERS

We have been deemed by the Environmental Protection Agency (“EPA”) to be a Potentially Responsible Party (“PRP”) with respect to certain sites under the Comprehensive Environmental Response Compensation and Liability Act. We have also been deemed a PRP under similar state or local laws and in other instances other PRPs have brought suits against us as a PRP for contribution under such federal, state, or local laws. At March 31, 2013, we had environmental remediation liabilities as a PRP at 19 sites where we have a continuing legal obligation to either complete remedial actions or contribute to the completion of remedial actions as part of a group of PRPs. For these sites we estimate a reserve to reflect environmental liabilities that have been asserted or are probable of assertion, in which liabilities are probable and reasonably estimable. At March 31, 2013, our reserve for such liabilities was $6 million.


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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING 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. 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,” “believe,” “estimate,” “expect,” “intend,” “likely,” “may,” “plan,” “project,” “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 that could cause actual results to differ materially from those projected in the statements. These risks, uncertainties and other factors include, without limitation:

 

   

economic and political conditions, including new legislation or other governmental actions;

 

   

levels of residential and commercial construction activity;

 

   

competitive factors;

 

   

pricing factors;

 

   

weather conditions;

 

   

our level of indebtedness;

 

   

industry and economic conditions that affect the market and operating conditions of our customers, suppliers or lenders;

 

   

availability and cost of raw materials;

 

   

availability and cost of credit;

 

   

interest rate movements;

 

   

issues related to expansion of our production capacity;

 

   

issues related to acquisitions, divestitures and joint ventures;

 

   

our ability to utilize our net operating loss carryforwards;

 

   

achievement of expected synergies, cost reductions and/or productivity improvements;

 

   

issues involving implementation of new business systems;

 

   

foreign exchange fluctuations;

 

   

research and development activities;

 

   

difficulties in managing production capacity; and

 

   

labor disputes.

All forward-looking statements in this report should be considered in the context of the risk and other factors described above and as detailed from time to time in the Company’s Securities and Exchange Commission filings. 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. 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 could 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.


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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Please refer to the Company’s 2012 annual report on Form 10-K for the Company’s quantitative and qualitative disclosures about 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 Securities Exchange Act of 1934, (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 have not been any changes in the Company’s internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


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PART II

 

ITEM 1. LEGAL PROCEEDINGS

The Company has nothing to report under this Item.

 

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors as disclosed in the Company’s annual report on Form 10-K for the year ended December 31, 2012.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

The Company has nothing to report under this Item.

Issuer Purchases of Equity Securities

The following table provides information about Owens Corning’s purchases of its common stock during 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**
 

January 1-31, 2013

     983     $ 36.99        -        10,000,000  

February 1-28, 2013

     179,923       41.45        -        10,000,000  

March 1-31, 2013

     19,972       39.21        -        10,000,000  

 

 

Total

     200,878   $       41.21        -     

 

 

 

* The Company retained 200,878 shares surrendered to satisfy tax withholding obligations in connection with the vesting of restricted shares granted to our employees.

 

** On April 25, 2012, the Company announced a share buy-back program under which the Company is authorized to repurchase up to 10 million shares of Owens Corning’s outstanding common stock. Under the buy-back program, shares may be repurchased through open market, privately negotiated, or other transactions. The timing and actual number of shares repurchased will depend on market conditions and other factors and will be at the Company’s discretion.


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- 46 -

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

The Company has nothing to report under this Item.

 

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

 

ITEM 5. OTHER INFORMATION

The Company has nothing to report under this Item.

 

ITEM 6. EXHIBITS

See Exhibit Index below, which is incorporated herein by reference.


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- 47 -

SIGNATURES

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, hereunto duly authorized.

 

            OWENS CORNING
      Registrant

Date:

 

April 24, 2013

  By:  

/s/ Michael C. McMurray

     

Michael C. McMurray

     

Senior Vice President and

     

Chief Financial Officer

     

(as duly authorized officer)

Date:

 

April 24, 2013

  By:  

/s/ Kelly J. Schmidt

     

Kelly J. Schmidt

     

Vice President and

     

Controller


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- 48 -

EXHIBIT INDEX

 

Exhibit
Number

  

Description

31.1    Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) (filed herewith).
31.2    Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) (filed herewith).
32.1    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (filed herewith).
32.2    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (filed herewith).
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema
101.CAL    XBRL Taxonomy Extension Calculation Linkbase
101.DEF    XBRL Taxonomy Extension Definition Linkbase
101.LAB    XBRL Taxonomy Extension Label Linkbase
101.PRE    XBRL Taxonomy Extension Presentation Linkbase