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 June 30, 2009
or
¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from to
Commission File Number: 1-33100
Owens Corning
(Exact name of
registrant as specified in its charter)
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|
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Delaware
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43-2109021
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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One Owens Corning Parkway, Toledo, OH
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43659
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(Address of principal executive offices)
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(Zip Code)
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(419) 248-8000
(Registrants 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
¨
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):
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Large accelerated filer
þ
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Accelerated filer
¨
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Non-accelerated filer
¨
(Do not check if a smaller reporting company)
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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
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes
þ
No
¨
As of July 15, 2009, 127,856,221 shares of registrants common stock, par value $0.01 per share, were outstanding.
- 3 -
PART I
ITEM 1. FINANCIAL STATEMENTS
OWENS CORNING
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
(in millions, except per share amounts)
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Three Months Ended
June 30,
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Six Months Ended
June 30,
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2009
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2008
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2009
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2008
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NET SALES
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$
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1,219
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|
$
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1,574
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|
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$
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2,293
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$
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2,927
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COST OF SALES
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969
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1,317
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1,885
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2,476
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Gross margin
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250
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257
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|
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|
408
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451
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OPERATING EXPENSES
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|
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Marketing and administrative expenses
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128
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165
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|
|
|
252
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|
|
307
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Science and technology expenses
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15
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17
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|
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30
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|
36
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Charges related to cost reduction actions
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8
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4
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30
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|
|
6
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Employee emergence equity program expense
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6
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|
7
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12
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|
|
14
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|
Other (income) expenses
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5
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(10
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)
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14
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|
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(7
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)
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Total operating expenses
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162
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183
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|
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338
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356
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EARNINGS BEFORE INTEREST AND TAXES
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88
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|
74
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|
70
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95
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Interest expense, net
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26
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|
|
29
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|
|
|
51
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|
|
61
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EARNINGS BEFORE TAXES
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62
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|
|
45
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|
|
|
19
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34
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Income tax expense
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|
29
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|
|
2
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|
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|
15
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4
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EARNINGS BEFORE EQUITY IN NET EARNINGS (LOSS) OF AFFILIATES
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33
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43
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4
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30
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Equity in net earnings (loss) of affiliates
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-
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(1
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)
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1
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(1
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)
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NET EARNINGS
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33
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|
42
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|
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|
5
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29
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Less: Net earnings attributable to noncontrolling interests
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-
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1
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-
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1
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NET EARNINGS ATTRIBUTABLE TO OWENS CORNING
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$
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33
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$
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41
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$
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5
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$
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28
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|
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EARNINGS PER COMMON SHARE ATTRIBUTABLE TO OWENS CORNING COMMON STOCKHOLDERS
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Basic
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$
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0.27
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|
$
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0.32
|
|
|
$
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0.04
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$
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0.22
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Diluted
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$
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0.26
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$
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0.32
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$
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0.04
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$
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0.22
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WEIGHTED AVERAGE COMMON SHARES
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Basic
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124.5
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128.8
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124.4
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128.8
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Diluted
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126.1
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129.8
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125.9
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129.7
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The accompanying notes to consolidated financial statements are an integral part of this
statement.
- 4 -
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in millions)
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ASSETS
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June 30,
2009
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December 31,
2008
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CURRENT ASSETS
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Cash and cash equivalents
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$
|
110
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|
|
$
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236
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|
Receivables, less allowances of $22 at June 30, 2009 and $21 at December 31, 2008
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684
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576
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Inventories
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|
827
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|
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|
899
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Restricted cash disputed distribution reserve
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30
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|
31
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Assets held for sale current
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|
-
|
|
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|
13
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|
Other current assets
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|
105
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|
|
|
102
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|
Total current assets
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1,756
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|
|
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1,857
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Property, plant and equipment, net
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2,781
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|
|
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2,819
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Goodwill
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|
1,124
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|
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|
1,124
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Intangible assets
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|
|
1,181
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|
|
|
1,190
|
|
Deferred income taxes
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|
|
28
|
|
|
|
42
|
|
Assets held for sale non-current
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|
|
-
|
|
|
|
3
|
|
Other non-current assets
|
|
|
195
|
|
|
|
187
|
|
TOTAL ASSETS
|
|
$
|
7,065
|
|
|
$
|
7,222
|
|
|
|
|
|
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LIABILITIES AND EQUITY
|
|
|
|
|
|
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CURRENT LIABILITIES
|
|
|
|
|
|
|
|
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Accounts payable and accrued liabilities
|
|
$
|
876
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|
|
$
|
1,112
|
|
Accrued interest
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|
|
10
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|
|
|
9
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|
Short-term debt
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|
|
9
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|
|
|
30
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|
Long-term debt current portion
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|
11
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|
|
|
16
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|
Liabilities held for sale current
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|
-
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|
8
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|
Total current liabilities
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|
906
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|
|
|
1,175
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Long-term debt, net of current portion
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|
2,249
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|
|
|
2,172
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|
Pension plan liability
|
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|
300
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|
|
|
308
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|
Other employee benefits liability
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|
|
271
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|
|
|
270
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|
Deferred income taxes
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|
|
406
|
|
|
|
400
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|
Other liabilities
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|
|
121
|
|
|
|
117
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|
Commitments and contingencies
|
|
|
|
|
|
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|
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Mandatorily redeemable noncontrolling interest
|
|
|
30
|
|
|
|
-
|
|
OWENS CORNING STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01 per share (a)
|
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|
-
|
|
|
|
-
|
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Common stock, par value $0.01 per share (b)
|
|
|
1
|
|
|
|
1
|
|
Additional paid in capital
|
|
|
3,820
|
|
|
|
3,824
|
|
Accumulated deficit
|
|
|
(798
|
)
|
|
|
(803
|
)
|
Accumulated other comprehensive deficit
|
|
|
(172
|
)
|
|
|
(183
|
)
|
Cost of common stock in treasury (c)
|
|
|
(101
|
)
|
|
|
(101
|
)
|
Total Owens Corning stockholders equity
|
|
|
2,750
|
|
|
|
2,738
|
|
Noncontrolling interest
|
|
|
32
|
|
|
|
42
|
|
Total Equity
|
|
|
2,782
|
|
|
|
2,780
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
7,065
|
|
|
$
|
7,222
|
|
|
|
(a)
|
10 shares authorized; none issued or outstanding at June 30, 2009 and December 31, 2008
|
(b)
|
400 shares authorized; 132.5 issued and 127.8 outstanding at June 30, 2009; 131.7 issued and 127.0 outstanding at December 31, 2008
|
(c)
|
4.7 shares at June 30, 2009 and December 31, 2008, respectively
|
The accompanying notes to consolidated financial statements are an integral part of this statement.
- 5 -
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in millions)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
NET CASH FLOW USED FOR OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
5
|
|
|
$
|
29
|
|
Adjustments to reconcile net earnings to cash used for operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
158
|
|
|
|
156
|
|
Gain on sale of businesses and fixed assets
|
|
|
(5
|
)
|
|
|
(22
|
)
|
Impairment of long-term assets
|
|
|
2
|
|
|
|
11
|
|
Deferred income taxes
|
|
|
13
|
|
|
|
(26
|
)
|
Provision for pension and other employee benefits liabilities
|
|
|
22
|
|
|
|
22
|
|
Employee emergence equity program expense
|
|
|
12
|
|
|
|
14
|
|
Stock-based compensation expense
|
|
|
6
|
|
|
|
11
|
|
Increase in receivables
|
|
|
(108
|
)
|
|
|
(246
|
)
|
(Increase) decrease in inventories
|
|
|
90
|
|
|
|
(24
|
)
|
Increase in prepaid assets
|
|
|
(1
|
)
|
|
|
(25
|
)
|
Increase (decrease) in accounts payable and accrued liabilities
|
|
|
(235
|
)
|
|
|
13
|
|
Pension fund contribution
|
|
|
(23
|
)
|
|
|
(37
|
)
|
Payments for other employee benefits liabilities
|
|
|
(14
|
)
|
|
|
(14
|
)
|
Other
|
|
|
(20
|
)
|
|
|
13
|
|
Net cash flow used for operating activities
|
|
|
(98
|
)
|
|
|
(125
|
)
|
NET CASH FLOW PROVIDED BY (USED FOR) INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Additions to plant and equipment
|
|
|
(95
|
)
|
|
|
(147
|
)
|
Proceeds from the sale of assets or affiliates
|
|
|
20
|
|
|
|
225
|
|
Net cash flow provided by (used for) investing activities
|
|
|
(75
|
)
|
|
|
78
|
|
NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from issuance of senior notes
|
|
|
344
|
|
|
|
-
|
|
Proceeds from senior revolving credit facility
|
|
|
259
|
|
|
|
275
|
|
Payments on senior revolving credit facility
|
|
|
(527
|
)
|
|
|
(230
|
)
|
Proceeds from long-term debt
|
|
|
1
|
|
|
|
12
|
|
Payments on long-term debt
|
|
|
(11
|
)
|
|
|
(6
|
)
|
Net decrease in short-term debt
|
|
|
(21
|
)
|
|
|
(5
|
)
|
Purchase of treasury stock
|
|
|
-
|
|
|
|
(19
|
)
|
Net cash flow provided by financing activities
|
|
|
45
|
|
|
|
27
|
|
Effect of exchange rate changes on cash
|
|
|
2
|
|
|
|
6
|
|
Net decrease in cash and cash equivalents
|
|
|
(126
|
)
|
|
|
(14
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
236
|
|
|
|
135
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
110
|
|
|
$
|
121
|
|
|
|
The accompanying notes to consolidated financial statements are an integral part of this statement.
- 6 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Unless the
context requires otherwise, the terms Owens Corning, Company, we and our in this report refer to Owens Corning 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 presentation 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, 2008 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. During the three months and six months ended June 30, 2009, the Company recorded
additional pre-tax expense of $4 million ($5 million after tax expense) and $5 million ($1 million after tax income), respectively, related to prior periods. The effects were not material to the previously issued financial statements. The Company
has assessed subsequent events through the date of issuance, August 5, 2009, and has determined no material subsequent events occurred after the balance sheet date but prior to the issuance date. Certain reclassifications have been made to the
periods presented for 2008 to conform to the classifications used in the period presented for 2009.
The
Company discloses its segments in accordance with Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (FAS 131). In the first quarter of 2009, the
Companys Chief Operating Decision Maker (CODM) fully implemented the structure of assessing performance and allocating resources based on two operating segments, Composites and Building Materials. Beginning in the second half of
2008, certain organizational structure and other changes were made by the CODM to facilitate managing the business from two operating segments. These changes, which became fully functional in the first quarter 2009, included the hiring of a Building
Materials Group President, restructuring the Companys incentive compensation plan for 2009, and changing the reporting structure of the CODMs leadership team.
The Companys two operating segments do not meet the aggregation criteria of FAS 131. Therefore, the Companys reportable segments are Composites and Building Materials. Accounting policies for the segments
are the same as those for the Company.
The Companys two 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 the form 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, Roofing, and Other businesses. Within the Insulation business, the Company manufactures and
sells fiberglass insulation into residential, commercial and industrial 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. Our Other businesses include Masonry Products, which manufactures and sells stone veneer building products and Construction Services, which provides franchise opportunities for the home remodeling and new construction industries.
- 7 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NET SALES
The following table summarizes our
net sales by segment and geographic region for the three and six months ended June 30, 2009 and 2008 (in millions). External customer sales are attributed to geographic region based upon the location from which the product is shipped to the
external customer. Prior periods have been adjusted to reflect the change to two reportable segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Reportable Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composites
|
|
$
|
391
|
|
|
$
|
660
|
|
|
$
|
736
|
|
|
$
|
1,326
|
|
Building Materials
|
|
|
865
|
|
|
|
953
|
|
|
|
1,631
|
|
|
|
1,682
|
|
Total reportable segments
|
|
|
1,256
|
|
|
|
1,613
|
|
|
|
2,367
|
|
|
|
3,008
|
|
Corporate eliminations
|
|
|
(37
|
)
|
|
|
(39
|
)
|
|
|
(74
|
)
|
|
|
(81
|
)
|
Consolidated net sales
|
|
$
|
1,219
|
|
|
$
|
1,574
|
|
|
$
|
2,293
|
|
|
$
|
2,927
|
|
|
|
External Customer Sales by Geographic Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
855
|
|
|
$
|
971
|
|
|
$
|
1,625
|
|
|
$
|
1,742
|
|
Europe
|
|
|
130
|
|
|
|
275
|
|
|
|
248
|
|
|
|
574
|
|
Asia Pacific
|
|
|
145
|
|
|
|
184
|
|
|
|
248
|
|
|
|
348
|
|
Other
|
|
|
89
|
|
|
|
144
|
|
|
|
172
|
|
|
|
263
|
|
NET SALES
|
|
$
|
1,219
|
|
|
$
|
1,574
|
|
|
$
|
2,293
|
|
|
$
|
2,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) BEFORE INTEREST AND TAXES
Earnings (loss) before interest and taxes (EBIT) by segment consists 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. Prior periods have been adjusted to reflect the change to two reportable segments.
- 8 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following table summarizes EBIT by segment for the three and six months ended June 30, 2009 and 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Reportable Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composites
|
|
$
|
(19
|
)
|
|
$
|
71
|
|
|
$
|
(37
|
)
|
|
$
|
135
|
|
Building Materials
|
|
|
143
|
|
|
|
39
|
|
|
|
196
|
|
|
|
35
|
|
Total reportable segments
|
|
$
|
124
|
|
|
$
|
110
|
|
|
$
|
159
|
|
|
$
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate, Other and Eliminations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net precious metal lease expense
|
|
$
|
-
|
|
|
$
|
(2
|
)
|
|
$
|
(1
|
)
|
|
$
|
(6
|
)
|
Charges related to cost reduction actions and related items
|
|
|
(11
|
)
|
|
|
(4
|
)
|
|
|
(41
|
)
|
|
|
(6
|
)
|
Acquisition integration and transaction costs
|
|
|
(8
|
)
|
|
|
(20
|
)
|
|
|
(14
|
)
|
|
|
(32
|
)
|
Gains (losses) on sales of assets and other
|
|
|
5
|
|
|
|
20
|
|
|
|
(2
|
)
|
|
|
20
|
|
Employee emergence equity program expense
|
|
|
(6
|
)
|
|
|
(7
|
)
|
|
|
(12
|
)
|
|
|
(14
|
)
|
Asset impairments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10
|
)
|
General corporate expense
|
|
|
(16
|
)
|
|
|
(23
|
)
|
|
|
(19
|
)
|
|
|
(27
|
)
|
CONSOLIDATED EBIT
|
|
$
|
88
|
|
|
$
|
74
|
|
|
$
|
70
|
|
|
$
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
consist of the following (in millions):
|
|
|
|
|
|
|
|
|
June 30,
2009
|
|
December 31,
2008
|
Finished goods
|
|
$
|
614
|
|
$
|
656
|
Materials and supplies
|
|
|
213
|
|
|
243
|
Total inventories
|
|
$
|
827
|
|
$
|
899
|
|
|
|
|
|
|
|
Prior to the first quarter of 2009, the Company valued its inventories in the United States under
the last-in, first-out (LIFO) cost method. These inventories represented approximately 50% of the Companys total inventory balance as of December 31, 2008. As of January 1, 2009, the Company changed its method of
accounting for these inventories from the LIFO method to the first-in, first-out (FIFO) method. Use of FIFO provides better comparability to our peers, conforms the Companys worldwide inventories to a consistent inventory costing
method, and provides better matching of the Companys expenses with its revenues. This change in accounting principle was applied retrospectively to all prior periods presented herein in accordance with Statement of Financial Accounting
Standards No. 154, Accounting Changes and Error Corrections.
- 9 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following table shows the effects of the change in the Companys inventory cost method (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Earnings
|
|
Three Months Ended
June 30, 2009
|
|
Three Months Ended
June 30, 2008
|
|
|
Computed
under Prior
Method
|
|
Effect of
Change
|
|
As
Reported
|
|
Originally
Reported
|
|
Effect of
Change
|
|
As
Adjusted
|
Earnings before interest and taxes
|
|
$
|
83
|
|
$
|
5
|
|
$
|
88
|
|
$
|
64
|
|
$
|
10
|
|
$
|
74
|
Net earnings attributable to Owens Corning
|
|
$
|
28
|
|
$
|
5
|
|
$
|
33
|
|
$
|
31
|
|
$
|
10
|
|
$
|
41
|
Basic earnings per common share attributable to Owens Corning common stockholders
|
|
$
|
0.23
|
|
$
|
0.04
|
|
$
|
0.27
|
|
$
|
0.24
|
|
$
|
0.08
|
|
$
|
0.32
|
Diluted earnings per common share attributable to Owens Corning common stockholders
|
|
$
|
0.22
|
|
$
|
0.04
|
|
$
|
0.26
|
|
$
|
0.24
|
|
$
|
0.08
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Earnings
|
|
Six Months Ended
June 30, 2009
|
|
Six Months Ended
June 30, 2008
|
|
|
Computed
under Prior
Method
|
|
|
Effect of
Change
|
|
As
Reported
|
|
Originally
Reported
|
|
Effect of
Change
|
|
As
Adjusted
|
Earnings before interest and taxes
|
|
$
|
64
|
|
|
$
|
6
|
|
$
|
70
|
|
$
|
83
|
|
$
|
12
|
|
$
|
95
|
Net earnings attributable to Owens Corning
|
|
$
|
(1
|
)
|
|
$
|
6
|
|
$
|
5
|
|
$
|
16
|
|
$
|
12
|
|
$
|
28
|
Basic earnings per common share attributable to Owens Corning common stockholders
|
|
$
|
(0.01
|
)
|
|
$
|
0.05
|
|
$
|
0.04
|
|
$
|
0.12
|
|
$
|
0.10
|
|
$
|
0.22
|
Diluted earnings per common share attributable to Owens Corning common stockholders
|
|
$
|
(0.01
|
)
|
|
$
|
0.05
|
|
$
|
0.04
|
|
$
|
0.12
|
|
$
|
0.10
|
|
$
|
0.22
|
4.
|
DERIVATIVE FINANCIAL INSTRUMENTS
|
The Company is exposed to the impact of changes in commodity prices, foreign currency exchange rates, interest rates, and precious metals lease rates in the normal course of business. The Companys 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 setoff provisions. These provisions effectively reduce the Companys
- 10 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4.
|
DERIVATIVE FINANCIAL INSTRUMENTS
|
exposure to credit risk in situations where the Company has gain and loss positions outstanding with a single counterparty. Positions under such provisions
are reported on a net basis in the Consolidated Balance Sheets. It is the Companys policy to offset the fair value amounts recognized for derivative instruments and fair value amounts recognized for cash collateral arising from derivative
instruments executed with the same counterparty under a master netting agreement. As of June 30, 2009, 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. As of December 31, 2008, the Company had $3 million on deposit with one of its counterparties, which is netted on the Consolidated Balance Sheets.
Assets and liabilities designated as hedged items are assessed for impairment or for the need to recognize an increased obligation, respectively, according to accounting principles generally accepted in the United
States that apply to those assets or liabilities. Such assessments are made after hedge accounting has been applied to the asset or liability and exclude a consideration of (1) any anticipated effects of hedge accounting and (2) the fair
value of any related hedging instrument that is recognized as a separate asset or liability. The assessment for an impairment of an asset, however, includes a consideration of the losses that have been deferred in other comprehensive deficit
(OCI) as a result of a cash flow hedge of that asset.
Cash Flow Hedges
The Company uses forward and swap contracts, which qualify as cash flow hedges, to manage forecasted exposure to natural gas price and foreign exchange risk. The effective portion of the change
in the fair value of cash flow hedges is deferred in accumulated OCI and is subsequently recognized in other (income) expenses on the Consolidated Statements of Earnings for foreign exchange hedges, and in cost of sales on the Consolidated
Statements of Earnings for commodity hedges, when the hedged item impacts earnings. Cash flow hedges related to foreign exchange risk were immaterial for both the three and six months ended June 30, 2009 and 2008. Changes in the fair value of
derivative assets and liabilities are shown as Other on the Consolidated Statement of Cash Flows.
It is the Companys policy to enter
into natural gas hedge instruments that mature within 36 months. The Companys policy is to hedge up to 75% of its total forecasted natural gas exposures for the next 2 months, up to 50% of its total forecasted natural gas exposures for the
following four months, and lesser amounts for the remaining periods. The Company performs an analysis for effectiveness of its derivative financial instruments at the end of each quarter based on the terms of the contract and the underlying item
being hedged. The effective portion of the change in the fair value of cash flow hedges is deferred in accumulated OCI. Any portion of the change in fair value of the derivative that is determined to be ineffective is recorded in other (income)
expenses on the Consolidated Statements of Earnings.
As of June 30, 2009, $13 million of losses included in accumulated OCI on the
Consolidated Balance Sheets relate to contracts that will impact earnings during the next twelve months. Transactions and events that are expected to occur over the next twelve months that will necessitate recognizing these deferred losses include
the recognition of the hedged item through earnings.
- 11 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4.
|
DERIVATIVE FINANCIAL INSTRUMENTS
|
The following table presents the fair value of derivative contracts designated as hedging instruments under FAS 133 and the respective location on the
Consolidated Balance Sheets (in millions). The $3 million Owens Corning had on deposit with one of its counterparties as of December 31, 2008 is netted against the derivative liability designated as hedging instruments to conform with the
presentation on the Consolidated Balance Sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
|
Location
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Derivative Assets:
|
|
|
|
|
|
|
|
|
|
|
Natural gas contracts
|
|
Other current assets
|
|
$
|
1
|
|
|
$
|
1
|
|
Amount of gain recognized in OCI (effective portion)
|
|
OCI
|
|
$
|
(1
|
)
|
|
$
|
-
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Natural gas contracts
|
|
Accounts payable and accrued liabilities
|
|
$
|
(16
|
)
|
|
$
|
(21
|
)
|
Amount of loss recognized in OCI (effective portion)
|
|
OCI
|
|
$
|
16
|
|
|
$
|
22
|
|
The following table presents the impact and respective location of hedging activities on the
Consolidated Statement of Earnings (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas
|
|
|
|
Location
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Amount of (gain) or loss reclassified from OCI into earnings (effective portion)
|
|
Cost of sales
|
|
$
|
11
|
|
|
$
|
(6
|
)
|
|
$
|
21
|
|
|
$
|
(4
|
)
|
Amount of (gain) or loss recognized in earnings (ineffective portion)
|
|
Other (income) expenses
|
|
$
|
(1
|
)
|
|
$
|
-
|
|
|
$
|
(1
|
)
|
|
$
|
-
|
|
Fair Value Hedges
The Company uses forward currency exchange contracts, which qualify as fair value hedges, to manage existing exposures to foreign exchange risk related to assets and liabilities recorded in the Consolidated Balance
Sheets. Gains and losses resulting from the changes in fair value of these instruments are recorded in other (income) expenses on the Consolidated Statements of Earnings, the effect of which was not material in any period presented. The fair value
of these instruments, which are recorded in other current assets on the Consolidated Balance Sheets, was not material for any dates presented.
Other
Derivatives
The Company has entered into several energy supply contracts to fix energy costs at certain facilities. Prior to the
first quarter of 2009, none of these contracts were required to be accounted for as a derivative because they met the criteria of the normal purchase scope exception as defined by Statement of Financial Accounting Standards No. 133
Accounting for Derivatives (FAS 133). As a result of first quarter 2009 capacity curtailments taken at certain facilities, the normal purchase scope exception is no longer met for one of these supply contracts. The contract
is now required to be marked to market each quarter. As of June 30, 2009, $3 million is recorded in
- 12 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4.
|
DERIVATIVE FINANCIAL INSTRUMENTS
|
accounts payable and accrued liabilities on the Consolidated Balance Sheets. In the three and six months ended June 30, 2009, the company recorded a $3
million credit and a $3 million charge, respectively in other (income) expenses on the Consolidated Statements of Earnings. Going forward, the impact of this contract could be positive, neutral or negative in any period depending on market
fluctuations.
5.
|
GOODWILL AND OTHER INTANGIBLE ASSETS
|
Intangible assets and goodwill consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
Weighted
Average
Useful
Life
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Amount
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
19
|
|
$
|
168
|
|
$
|
(24
|
)
|
|
$
|
144
|
Technology
|
|
20
|
|
|
203
|
|
|
(31
|
)
|
|
|
172
|
Franchise and other agreements
|
|
15
|
|
|
33
|
|
|
(6
|
)
|
|
|
27
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
|
|
838
|
|
|
-
|
|
|
|
838
|
Total intangible assets
|
|
|
|
$
|
1,242
|
|
$
|
(61
|
)
|
|
$
|
1,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
$
|
1,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
Weighted
Average
Useful
Life
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Amount
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
19
|
|
$
|
168
|
|
$
|
(19
|
)
|
|
$
|
149
|
Technology
|
|
20
|
|
|
203
|
|
|
(28
|
)
|
|
|
175
|
Franchise and other agreements
|
|
15
|
|
|
33
|
|
|
(5
|
)
|
|
|
28
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
|
|
838
|
|
|
-
|
|
|
|
838
|
Total intangible assets
|
|
|
|
$
|
1,242
|
|
$
|
(52
|
)
|
|
$
|
1,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
$
|
1,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Companys future cash flows
are not materially impacted by its ability to extend or renew agreements related to our amortizable intangible assets. Amortization of intangible assets related to manufacturing facilities is recorded to cost of sales on the Consolidated Statements
of Earnings.
- 13 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
5.
|
GOODWILL AND OTHER INTANGIBLE ASSETS
|
Goodwill
The Company has elected the fourth
quarter to perform its annual testing for goodwill and indefinite-lived intangible asset impairment. 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, as required in Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets. No testing was deemed necessary in the second quarter of 2009.
6.
|
PROPERTY, PLANT AND EQUIPMENT
|
Property, plant and equipment consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
June 30,
2009
|
|
|
December 31,
2008
|
|
Land
|
|
$
|
218
|
|
|
$
|
210
|
|
Buildings and leasehold improvements
|
|
|
615
|
|
|
|
581
|
|
Machinery and equipment
|
|
|
2,427
|
|
|
|
2,305
|
|
Construction in progress
|
|
|
198
|
|
|
|
272
|
|
|
|
|
3,458
|
|
|
|
3,368
|
|
Accumulated depreciation
|
|
|
(677
|
)
|
|
|
(549
|
)
|
Property, plant and equipment, net
|
|
$
|
2,781
|
|
|
$
|
2,819
|
|
|
|
|
|
|
|
|
|
|
In the first quarter of 2008, the Company recorded an impairment loss of $10 million as a
corporate charge to cost of sales on the Consolidated Statements of Earnings to write the property, plant and equipment of the facilities in Battice, Belgium and Birkeland, Norway down to fair value less costs to sell. Depreciation of plant and
equipment related to manufacturing facilities is recorded to cost of sales on the Consolidated Statements of Earnings.
- 14 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
7.
|
NONCONTROLLING INTEREST
|
In the second quarter 2009, the Company executed an amended shareholder agreement with the noncontrolling interest of Owens Corning India Limited (OCIL), one of the Companys consolidated subsidiaries. This agreement
provides for a put/call provision that becomes redeemable/exercisable beginning May 31, 2010. The noncontrolling interest may put their interest in OCIL to the Company at the greater of $30 million or the then-determined fair market value.
Alternatively, the Company may call the noncontrolling interest at a 10 percent premium on the greater of $30 million or the then-determined fair market value. Since the exercise of the put option is outside the control of the Company, the carrying
value of the noncontrolling interest was reclassified out of permanent equity and recorded in temporary equity as a mandatorily redeemable noncontrolling interest.
The following table discloses the changes in noncontrolling interests on Owens Corning stockholders equity and effects on net earnings attributable to Owens Corning (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
|
2008
|
Net earnings attributable to Owens Corning
|
|
$
|
33
|
|
$
|
41
|
|
$
|
5
|
|
|
$
|
28
|
Decrease in Owens Corning additional paid in capital for OCIL shareholder amendment
|
|
|
21
|
|
|
-
|
|
|
21
|
|
|
|
-
|
Change from net earnings attributable to Owens Corning and change in noncontrolling interests
|
|
$
|
12
|
|
$
|
41
|
|
$
|
(16
|
)
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In May 2009,
the Company completed the sale of the assets and liabilities at certain European distribution centers within the Composites segment for cash proceeds of $9 million. These facilities were sold as a result of the integration of the 2007 acquisition of
Saint-Gobains reinforcements and composite fabrics businesses (the 2007 Acquisition). In the second quarter of 2009, the Company recorded a gain of $1 million on the sale of these facilities which is included in other (income)
expenses on the Consolidated Statements of Earnings.
9.
|
ASSETS AND LIABILITIES HELD FOR SALE
|
At June 30, 2009, there were no assets or liabilities held for sale. During 2008, the Company committed to plans to sell the assets and liabilities of certain facilities as a result of the integration of the 2007
Acquisition. The assets and liabilities held for sale as of December 31, 2008 consisted of the following (in millions):
|
|
|
|
|
|
December 31,
2008
|
Current assets
|
|
|
|
Receivables, less allowances
|
|
$
|
5
|
Inventories
|
|
|
8
|
Total current assets
|
|
|
13
|
Property, plant and equipment, net
|
|
|
3
|
Total assets
|
|
$
|
16
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
8
|
Total current liabilities
|
|
|
8
|
Total liabilities
|
|
$
|
8
|
|
|
|
|
- 15 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 liabilities is as follows (in millions):
|
|
|
|
|
|
|
Six Months
Ended
June 30,
2009
|
|
Beginning balance
|
|
$
|
37
|
|
Amounts accrued for current year
|
|
|
9
|
|
Settlements of warranty claims
|
|
|
(8
|
)
|
Fresh-start present value adjustment
|
|
|
1
|
|
Ending balance
|
|
$
|
39
|
|
|
|
|
|
|
11.
|
COST REDUCTION ACTIONS
|
2009 Cost
Reduction Actions
As a result of evaluating market conditions, the Company took actions in the first half of 2009 to curtail
production and reduce operating costs. During the three and six months ended June 30, 2009, the Company recorded $11 million and $41 million, respectively, in charges related to these cost reduction actions and related items, and anticipates
incurring an additional $8 million of charges throughout the remainder of 2009. Of the charges noted above, $8 million and $30 million, respectively, are related to Statement of Financial Accounting Standards No. 112,
Employers Accounting for Postemployment Benefits severance and is presented in charges related to cost reduction actions on the Consolidated Statements of Earnings. Payments related to these activities will continue into 2010.
Corporate
In the first quarter of
2009, the Companys actions resulted in $4 million in charges related to cost reduction actions and related items, which comprised of $2 million in severance costs due to workforce reductions for corporate employees and equity awards costs for
all employees terminated as part of the actions and $2 million of other charges related to an impairment of an asset. No additional charges were incurred in the second quarter of 2009.
Composites
In the first quarter of 2009, the Companys actions resulted in $18 million in
charges related to cost reduction actions and related items, comprised of $12 million in severance costs due to workforce reduction and production curtailment and $6 million of other charges. The $6 million of other charges consists of $5 million in
accelerated depreciation related to production curtailments and $1 million related to other costs.
In the second quarter of 2009,
additional charges of $6 million were recorded, which comprised of $3 million in severance costs due to workforce reduction and production curtailment and $3 million of other charges. The $3 million of other charges consists of $2 million in
accelerated depreciation related to production curtailments and $1 million related to other costs.
- 16 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
11.
|
COST REDUCTION ACTIONS
|
Building Materials
In the first quarter of 2009, the
Companys actions resulted in $8 million in charges related to cost reduction actions for severance due to work force reduction and production curtailment. Additional severance charges of $5 million were incurred in the three months ended
June 30, 2009.
The following table summarizes the status of the unpaid liabilities from the Companys 2009 cost reduction
actions (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
December 31,
2008
|
|
Costs
Incurred
|
|
Payments
|
|
|
Ending
Balance
June 30,
2009
|
|
Cumulative
Charges
Incurred
|
Severance
|
|
$
|
-
|
|
$
|
30
|
|
$
|
(10
|
)
|
|
$
|
20
|
|
$
|
30
|
Total
|
|
$
|
-
|
|
$
|
30
|
|
$
|
(10
|
)
|
|
$
|
20
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Cost Reduction Actions
As of June 30, 2009, $3 million of charges related to the 2007 cost reduction actions is included in accrued liabilities. This balance relates to severance costs that were incurred but have
not yet been paid.
Details of the
Companys outstanding long-term debt at June 30, 2009 and December 31, 2008 are as follows (in millions):
|
|
|
|
|
|
|
|
|
June 30,
2009
|
|
December 31,
2008
|
6.50% senior notes, net of discount, due 2016
|
|
$
|
649
|
|
$
|
648
|
7.00% senior notes, net of discount, due 2036
|
|
|
539
|
|
|
539
|
9.00% senior notes, net of discount, due 2019
|
|
|
344
|
|
|
-
|
Senior term loan facility, maturing in 2011
|
|
|
600
|
|
|
600
|
Senior revolving credit facility, maturing in 2011
|
|
|
56
|
|
|
320
|
Various capital leases, due through and beyond 2050
|
|
|
46
|
|
|
47
|
Various floating rate debt, maturing through 2027
|
|
|
21
|
|
|
29
|
Other fixed rate debt, with maturities up to 2022, at rates up to 11%
|
|
|
5
|
|
|
5
|
Total long-term debt
|
|
|
2,260
|
|
|
2,188
|
Less current portion
|
|
|
11
|
|
|
16
|
Long-term debt, net of current portion
|
|
$
|
2,249
|
|
$
|
2,172
|
|
|
|
|
|
|
|
Senior Notes
On June 3, 2009, the Company issued $350 million of senior notes at 98% to refinance a portion of our senior revolving credit facility (defined below). Interest on the notes is payable semiannually in arrears on
June 15 and December 15 each year, beginning on December 15, 2009. The notes will mature on June 15, 2019.
- 17 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company issued $1.2 billion of senior notes on October 31, 2006. The proceeds of these notes were used to pay certain unsecured and
administrative claims, finance general working capital needs and for general corporate purposes.
The senior notes described above 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 notes will be fully
and unconditionally guaranteed by each of our current and future domestic subsidiaries that is a borrower or guarantor under our Credit Agreement. The guarantees will be unsecured and will rank equally in right of payment with all other existing and
future senior unsecured indebtedness of the guarantors. The guarantees will be 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 well within compliance with these covenants as of June 30, 2009.
Senior Credit Facilities
On October 31,
2006, the Company entered into a credit agreement (the Credit Agreement) with Citibank, N.A., as administrative agent and various lenders, which are parties thereto. The Credit Agreement created two credit facilities (the Senior
Credit Facilities), consisting of:
|
|
|
a $1.0 billion multi-currency senior revolving credit facility; and
|
|
|
|
a $600 million delayed-draw senior term loan facility
|
The Senior Credit Facilities each have a five-year maturity. Proceeds from the senior revolving credit facility are available for general working capital needs and for other general corporate purposes. The senior
revolving credit facility is comprised of a United States facility, a Canadian facility and a European facility. The Credit Agreement allows the Company to borrow under multiple options, which provide for varying terms and interest rates including
the United States prime rate or LIBOR plus a spread, at the Companys discretion.
The Company had $55 million and $65 million of
letters of credit outstanding under the senior revolving credit facility at June 30, 2009 and December 31, 2008, respectively. The Credit Agreement contains various covenants, including a maximum allowed leverage ratio and a minimum
required interest expense coverage ratio, that are usual and customary for a senior unsecured credit agreement. The Company was well within compliance with these covenants as of June 30, 2009.
Short-Term Debt
At June 30, 2009 and
December 31, 2008, short-term borrowings were $9 million and $30 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 5.9% and 5.5% at June 30, 2009 and
December 31, 2008, respectively.
- 18 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
13.
|
PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
|
Pension Plans
The Company sponsors defined benefit pension plans covering most employees. Under the plans, pension
benefits are based on an employees years of service and, for certain categories of employees, qualifying compensation. Company contributions to these pension plans are determined by an independent actuary to meet or exceed minimum funding
requirements. The unrecognized cost of retroactive amendments and actuarial gains and losses are amortized over the average future service period of plan participants expected to receive benefits.
The following tables provide information regarding pension expense recognized during the year (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, 2009
|
|
|
Three Months Ended
June 30, 2008
|
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
Total
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
Total
|
|
Components of Net Periodic Pension Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
5
|
|
|
$
|
1
|
|
|
$
|
6
|
|
|
$
|
5
|
|
|
$
|
1
|
|
|
$
|
6
|
|
Interest cost
|
|
|
15
|
|
|
|
7
|
|
|
|
22
|
|
|
|
15
|
|
|
|
7
|
|
|
|
22
|
|
Expected return on plan assets
|
|
|
(18
|
)
|
|
|
(6
|
)
|
|
|
(24
|
)
|
|
|
(18
|
)
|
|
|
(8
|
)
|
|
|
(26
|
)
|
Net periodic pension cost
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
2
|
|
|
$
|
-
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2009
|
|
|
Six Months Ended
June 30, 2008
|
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
Total
|
|
|
U.S.
|
|
|
Non-U.S.
|
|
|
Total
|
|
Components of Net Periodic Pension Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
9
|
|
|
$
|
2
|
|
|
$
|
11
|
|
|
$
|
10
|
|
|
$
|
3
|
|
|
$
|
13
|
|
Interest cost
|
|
|
30
|
|
|
|
12
|
|
|
|
42
|
|
|
|
30
|
|
|
|
14
|
|
|
|
44
|
|
Expected return on plan assets
|
|
|
(35
|
)
|
|
|
(10
|
)
|
|
|
(45
|
)
|
|
|
(36
|
)
|
|
|
(16
|
)
|
|
|
(52
|
)
|
Net periodic pension cost
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
8
|
|
|
$
|
4
|
|
|
$
|
1
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company expects to contribute approximately $26 million in cash to the United States pension
plans and approximately $15 million to non-United States plans during 2009. The Company made cash contributions of approximately $23 million to the plans during the six months ended June 30, 2009.
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.
- 19 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
13.
|
PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
|
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
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
|
2008
|
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
1
|
|
$
|
1
|
|
$
|
2
|
|
|
$
|
2
|
Interest cost
|
|
|
4
|
|
|
4
|
|
|
9
|
|
|
|
8
|
Amortization of actuarial gain
|
|
|
-
|
|
|
-
|
|
|
(1
|
)
|
|
|
-
|
Net periodic benefit cost
|
|
$
|
5
|
|
$
|
5
|
|
$
|
10
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.
|
CONTINGENT LIABILITIES AND OTHER MATTERS
|
Disputed Distribution Reserve
As discussed more fully in Note 20, in connection with the emergence of the Debtors (as
defined in Note 20) from Chapter 11 bankruptcy proceedings, the Company established a Disputed Distribution Reserve funded in the initial amount of approximately $85 million for the potential payment of certain non-tax claims against the Debtors
that were disputed as of the Effective Date (as defined in Note 20). The remaining reserve, in the amount of $30 million, is reflected as restricted cash on the Consolidated Balance Sheets as of June 30, 2009.
Litigation
On September 1, 2006, various
members of the Investment Review Committee of the Predecessor (as defined in Note 20) were named as defendants in a lawsuit captioned Brown v. Owens Corning Investment Review Committee, et al., in the United States District Court for the Northern
District of Ohio (Western Division). Neither the Company nor the Predecessor is named in the lawsuit but such individuals would have a contingent indemnification claim against the Predecessor. The suit, brought by former employees of the
Predecessor, was brought under ERISA alleging that the defendants breached their fiduciary duties to certain pension benefit plans and to class members in connection with the investments in a Predecessor company common stock fund. A motion to
dismiss was filed on behalf of the defendants on March 5, 2007. Subsequently, the court converted the Motion to Dismiss to a Motion for Summary Judgment. On March 31, 2008, the court denied the defendants Motion for Summary Judgment.
On April 15, 2008, the defendants filed a Motion for Reconsideration. On December 24, 2008, the court granted the defendants Motion for Reconsideration and dismissed the action. On January 9, 2009, the plaintiffs filed a Motion
to Amend Judgment. On February 6, 2009, the defendants filed an Opposition to Plaintiffs Motion to Amend Opinion and Order of Judgment. On June 3, 2009, the plaintiffs filed a Notice of Appeal in the United States Court of Appeals
for the Sixth Circuit.
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 June 30,
- 20 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
14.
|
CONTINGENT LIABILITIES AND OTHER MATTERS
|
2009, we had environmental remediation liabilities as a PRP at 39 sites. Our environmental liabilities at 20 of these sites will be paid out of the Disputed
Distribution Reserve (as defined in Note 20). At the other 19 sites, 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 in accordance with accounting principles generally accepted in the United States to reflect environmental liabilities that have been asserted or are probable of assertion, in which liabilities are probable and reasonably
estimable. At June 30, 2009, our reserve for such liabilities was $10 million, of which $4 million is recorded in the Disputed Distribution Reserve. We will continue to review our environmental reserve and make such adjustments as appropriate.
2006 Stock Plan
In December 2007, the stockholders approved the Owens Corning 2006 Stock Plan, as amended and restated (the 2006 Stock
Plan). The 2006 Stock Plan authorizes grants of stock options, stock appreciation rights, restricted stock awards, restricted stock units, bonus stock awards and performance stock awards. At June 30, 2009, the maximum number of shares
remaining available under the 2006 Stock Plan for all stock awards was 3,846,639.
Stock Options
The Company has granted stock options under its employee emergence equity program, its officer appointment programs and its long-term incentive plans
(LTIP). The Company calculated 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 the vesting period. In general, the exercise price of each option awarded under the 2006 Stock Plan was equal to the market price of the Companys common stock on the date of grant, and an
options maximum term is 10 years. The volatility assumption was based on a benchmark study of our peers.
Shares issued from the
exercise of options will be recorded in the common stock accounts at the option price. The number of awards and vesting periods of such awards are determined at the discretion of the Compensation Committee of the Board of Directors (the
Committee).
In the first quarter of 2009, 907,300 stock options were granted with a weighted-average grant date fair value of
$5.51. Assumptions used in the Companys Black Scholes valuation model to estimate the grant date fair value were expected volatility of 37.4%, expected dividends of 0%, expected term of 6.25 years and a risk-free rate of 2.2%.
During the three and six months ended June 30, 2009, the Company recognized expense of $2 million and $3 million respectively, related to the
Companys stock options, which was recorded under the caption of employee emergence equity program expense on the Consolidated Statements of Earnings. During the three and six months ended June 30, 2008, the Company recognized expense of
$2 million and $3 million, respectively, related to the Companys stock options, which was recorded under the caption employee emergence equity program expense on the Consolidated Statements of Earnings. As of June 30, 2009 there was $6
million of total unrecognized compensation cost related to stock options. That cost is expected to be recognized over a weighted-average period of 1.91 years. The total aggregate intrinsic value of options outstanding as of both June 30, 2009
and 2008 was less than $1 million.
- 21 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following table summarizes our stock option activity during the six months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2009
|
|
|
Number of
Options
|
|
|
Weighted-
Average
Exercise Price
|
Beginning Balance
|
|
2,098,370
|
|
|
$
|
29.90
|
Granted
|
|
907,300
|
|
|
|
13.64
|
Forfeited
|
|
(5,400
|
)
|
|
|
30.00
|
Ending Balance
|
|
3,000,270
|
|
|
$
|
24.98
|
|
|
|
|
|
|
|
The following table summarizes information about options outstanding and exercisable at
June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
Weighted-Average
|
|
|
|
|
Range of Exercise Prices
|
|
Options
Outstanding
|
|
Remaining
Contractual
Life
|
|
Exercise Price
|
|
Number
Exercisable at
June 30, 2009
|
|
Weighted-
Average
Exercise Price
|
$7.57 - $30.00
|
|
3,000,270
|
|
8.04
|
|
$
|
24.98
|
|
-
|
|
$
|
-
|
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 employee emergence equity program, Board of
Director compensation plan, LTIP and officer appointment program. Compensation expense for restricted stock awards and units is measured based on the market price of the stock at date of grant and is recognized on a straight-line basis over the
vesting period. Stock restrictions are subject to alternate vesting plans for death, disability, approved early retirement and involuntary termination, over various periods ending in 2013.
During the three and six months ended June 30, 2009, the Company recognized expense of $7 million and $15 million respectively, related to the Companys stock awards, of which $4
million and $9 million was recorded under the caption of employee emergence equity program expense on the Consolidated Statements of Earnings. During the three and six months ended June 30, 2008, the Company recognized expense of $8 million and
$17 million, respectively, related to the Companys restricted stock awards, of which $5 million and $11 million, respectively, was recorded as employee emergence equity program expense on the Consolidated Statements of Earnings. As of
June 30, 2009 there was $25 million of total unrecognized compensation cost related to restricted stock. That cost is expected to be recognized over a weighted-average period of 1.99 years. The total fair value of shares vested during the six
months ended June 30, 2009 and 2008 was less than $1 million in each period.
- 22 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A summary of the status of the Companys plans that had restricted stock issued as of June 30, 2009 and changes during the six months ended
June 30, 2009 are presented below. The weighted-average grant-date fair value of the restricted stock granted during the six months ended June 30, 2008 was $19.80.
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2009
|
|
|
Number of
Shares
|
|
|
Weighted-
Average
Grant-Date
Fair Value
|
Beginning Balance
|
|
3,977,382
|
|
|
$
|
27.75
|
Granted
|
|
1,072,520
|
|
|
|
13.34
|
Vested
|
|
(800
|
)
|
|
|
30.00
|
Forfeited
|
|
(71,478
|
)
|
|
|
22.56
|
Ending Balance
|
|
4,977,624
|
|
|
$
|
24.72
|
|
|
|
|
|
|
|
Performance Stock Awards and Performance Stock Units
The Company has granted performance stock awards and performance stock units (collectively referred to as performance stock) as a part of its
LTIP, of which 50 percent will be settled in stock and 50 percent will be settled in cash. The amount of the performance stock ultimately distributed is contingent on meeting various company or shareholder return goals.
Compensation expense for performance stock 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 performance stock 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 pro-rated based on
the number of full months employed during the performance period in the case of death, disability, retirement, change in control or involuntary termination, and pro-rated awards earned will be paid at the end of the three-year period.
2009 Grant
In the first quarter of 2009, the
Company granted performance stock. This grant vests after a three-year period based on the Companys total stockholder return relative to the performance of the components of the S&P 500 Index for the same three-year period. The amount of
performance stock earned will vary from 0% to 200% of performance stock awarded depending on the relative stockholder return performance.
For the 2009 grant, the portion of the performance stock settled in cash will be revalued every reporting period until the award is fully vested. As a result, compensation expense recognized will be adjusted and previous surplus
compensation expense recognized will be reversed or additional expense will be recognized. For the period ended June 30, 2009, the Company estimated the fair value of the performance stock granted using a Monte Carlo simulation that used
various assumptions that include expected volatility of 58.7%, a risk free rate of 1.4% and an expected term of 2.51 years. Expected volatility was based on a benchmark study of our peers. The risk-free rate was based on zero coupon United States
Treasury bills at the time of revaluation. The expected term represents the period beginning June 30, 2009 to the end of the three-year performance period.
- 23 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
For the 2009 grant, the fair value of the portion of performance stock settled in stock was estimated at the grant date using a Monte Carlo simulation
that used various assumptions that include expected volatility of 51.6%, a risk free rate of 1.2% and an expected term of 2.9 years. Expected volatility was based on a benchmark study of our peers. The risk-free 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.
2008 Grant
In the first quarter of 2008, the Company granted performance stock. This grant vests after a three-year
period based on meeting various company-wide performance goals. The amount of performance stock earned will vary from 0% to 200% of performance stock awarded depending on performance versus company-wide performance goals.
For the 2008 grant, the initial valuation of all performance stock granted assumes that performance goals will be achieved. This assumption is monitored
each quarter and if it becomes probable that such goals will not be achieved or will be exceeded, compensation expense recognized will be adjusted and previous surplus compensation expense recognized will be reversed or additional expense will be
recognized. This assumption has been adjusted during various quarters due to changes in expected market conditions.
For all performance
stock during the three and six months ended June 30, 2009, the Company recognized expense of $4 million and income of less than $1 million, respectively, related to the Companys performance stock. During the three and six months ended
June 30, 2008, the Company recognized expense of $4 million and $6 million, respectively. As of June 30, 2009, there was $9 million of total unrecognized compensation cost related to performance stock. That cost is expected to be
recognized over a weighted-average period of 1.88 years.
A summary of the status of the Companys plans that had performance stock
issued as of June 30, 2009, and changes during the six months ended June 30, 2009 are presented below:
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30, 2009
|
|
|
Number of
Shares
|
|
|
Weighted-
Average
Grant-Date
Fair Value
|
Beginning Balance
|
|
688,864
|
|
|
$
|
22.42
|
Granted
|
|
499,000
|
|
|
|
14.62
|
Forfeited
|
|
(46,482
|
)
|
|
|
17.55
|
Ending Balance
|
|
1,141,382
|
|
|
$
|
16.21
|
|
|
|
|
|
|
|
Stock Appreciation Rights (SARs)
SARs represent the opportunity to receive stock or cash or a combination thereof granted by the Committee. The SAR can be issued in tandem with incentive stock options or free-standing. If the
SAR is issued in tandem, then the base price shall be the purchase price per share of common stock of the related option. If the SAR is issued free-standing, then the base price shall be determined by the Committee. As of June 30, 2009 no SARs
have been granted.
- 24 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Bonus Stock Awards
Bonus stock is a reward granted
by the Committee that is not subject to performance measures or restriction periods. The stock is issued at the fair value of the Companys common stock on the grant date. During the first quarter of 2008, the Company granted bonus stock awards
resulting in expense of less than $1 million. No bonus stock awards were granted during the six month period ended June 30, 2009.
The
following table summarizes the number of shares outstanding as well as our basic and diluted earnings per share for the three and six months ended June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
Net earnings attributable to Owens Corning
|
|
$
|
33
|
|
$
|
41
|
|
$
|
5
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding used for basic earnings per share
|
|
|
124.5
|
|
|
128.8
|
|
|
124.4
|
|
|
128.8
|
Non-vested restricted shares
|
|
|
1.6
|
|
|
1.0
|
|
|
1.5
|
|
|
0.9
|
Weighted-average number of shares outstanding and common equivalent shares used for diluted earnings per share
|
|
|
126.1
|
|
|
129.8
|
|
|
125.9
|
|
|
129.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share attributable to Owens Corning common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.27
|
|
$
|
0.32
|
|
$
|
0.04
|
|
$
|
0.22
|
Diluted
|
|
$
|
0.26
|
|
$
|
0.32
|
|
$
|
0.04
|
|
$
|
0.22
|
Basic earnings per share is calculated by dividing Net earnings attributable to Owens Corning by
the weighted-average number of shares of the Companys common stock outstanding during the period. Outstanding shares consist of issued shares less treasury stock. On February 21, 2007, the Company announced a share buy-back program under
which the Company is authorized to repurchase up to 5% of the Companys outstanding common stock. The share buy-back program authorizes the Company to repurchase shares through open market, privately negotiated, or other transactions. The
timing and actual number of shares of common stock repurchased will depend on market conditions and other factors and will be at our discretion. During the six months ended June 30, 2009, no such repurchases were made. As of June 30, 2009,
there were approximately 1.9 million shares remaining available for repurchase under the share buy-back program.
For the three and
six months ended June 30, 2009, the number of shares used in the calculation of diluted earnings per share did not include 3.0 million common equivalent shares of deferred awards, 17.5 million common equivalent shares from Series A
Warrants and 7.8 million common equivalent shares from Series B Warrants due to their anti-dilutive effect.
For the three and six
months ended June 30, 2008, the number of shares used in the calculation of diluted earnings per share did not include 2.1 million common equivalent shares of deferred awards, 17.5 million common equivalent shares from Series A
Warrants and 7.8 million common equivalent shares from Series B Warrants due to their anti-dilutive effect.
- 25 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
17.
|
COMPREHENSIVE EARNINGS
|
The following table presents the comprehensive earnings attributable to Owens Corning (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2009
|
|
2008
|
|
|
2009
|
|
2008
|
|
Net earnings
|
|
$
|
33
|
|
$
|
42
|
|
|
$
|
5
|
|
$
|
29
|
|
Currency translation adjustment
|
|
|
58
|
|
|
(6
|
)
|
|
|
3
|
|
|
38
|
|
Pension and other postretirement adjustment
|
|
|
1
|
|
|
-
|
|
|
|
1
|
|
|
-
|
|
Deferred income on hedging
|
|
|
8
|
|
|
4
|
|
|
|
7
|
|
|
11
|
|
Comprehensive earnings
|
|
|
100
|
|
|
40
|
|
|
|
16
|
|
|
78
|
|
Less: Comprehensive earnings attributable to noncontrolling interests
|
|
|
1
|
|
|
-
|
|
|
|
-
|
|
|
(1
|
)
|
Comprehensive earnings attributable to Owens Corning
|
|
$
|
99
|
|
$
|
40
|
|
|
$
|
16
|
|
$
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18.
|
FAIR VALUE MEASUREMENT
|
In
September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157). This statement defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. The statement became effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within that fiscal year. On February 12, 2008 the FASB issued
FASB Staff Position (FSP) FAS 157-2 which permitted a delay in the effective date of FAS 157 to fiscal years beginning after November 15, 2008, for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at least annually). The Company adopted this statement for financial assets and financial liabilities and nonfinancial assets and nonfinancial liabilities recognized or
disclosed at fair value on a recurring basis as of January 1, 2008. The Company adopted this statement for nonfinancial assets and nonfinancial liabilities recognized or disclosed at fair value on a nonrecurring basis as of January 1,
2009. The effect of the adoption of this statement was not material, resulting only in additional disclosures.
FAS 157 requires that
assets and liabilities carried at fair value be classified and disclosed 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.
- 26 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
18.
|
FAIR VALUE MEASUREMENT
|
Items Measured at Fair Value on a Recurring Basis
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 June 30, 2009 (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
|
|
$
|
65
|
|
|
$
|
65
|
|
$
|
-
|
|
|
$
|
-
|
|
Derivative assets
|
|
|
1
|
|
|
|
-
|
|
|
1
|
|
|
|
-
|
|
Total assets
|
|
$
|
66
|
|
|
$
|
65
|
|
$
|
1
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
(19
|
)
|
|
$
|
-
|
|
$
|
(16
|
)
|
|
$
|
(3
|
)
|
Total liabilities
|
|
$
|
(19
|
)
|
|
$
|
-
|
|
$
|
(16
|
)
|
|
$
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 as defined by FAS 157. The fair value of the Companys 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. A significant portion of the value of the Companys
energy supply derivative contract uses Level 3 inputs as defined by FAS 157. The fair value of the Companys energy supply derivative contract is determined by a mark to market valuation based on forward curves and on broker quotes.
The following table provides a rollforward of assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs
(Level 3) (in millions):
|
|
|
|
|
|
|
Fair Value
Measurements Using
Significant
Unobservable Inputs
(Level 3)
|
|
|
|
Derivatives
|
|
December 31, 2008
|
|
$
|
-
|
|
Total losses included in net earnings attributable to Owens Corning
|
|
|
(3
|
)
|
June 30, 2009
|
|
$
|
(3
|
)
|
|
|
|
|
|
Losses on derivatives are included in other (income) expenses on the Consolidated Statements of Earnings.
- 27 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
18.
|
FAIR VALUE MEASUREMENT
|
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-tem notes receivable were $15 million as of June 30, 2009.
Long-term debt
The fair value of the Companys 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 June 30,
2009, the Companys 6.50% senior notes due 2016 were trading at approximately 91% of par value; the 7.00% senior notes due 2036 were trading at approximately 64% of par value; the 9.00% senior notes due 2019 were trading at 98% of par value.
At June 30, 2009, the Company used a market participant approach to value the remaining long-term debt instruments. This approach,
which utilized indicative market rates for a new debt issuance, approximated the fair value of the remaining long-term debt at $682 million.
Income tax
expense for the three and six months ended June 30, 2009 was $29 million and $15 million, respectively. For the second quarter, excluding charges related to valuation allowances in foreign locations of approximately $15 million and other
various discrete tax items of approximately $5 million that were incurred during the quarter, our effective tax rate would have been 15%. For the first half of 2009, excluding charges related to valuation allowances in foreign locations of
approximately $15 million and other various discrete tax items that reduced income tax expense by approximately $3 million, our effective tax rate would have been 16%. The difference between the effective tax rates during these periods and the
statutory tax rate of 35% was primarily attributable to various tax planning initiatives implemented in 2007 and 2008, which have significantly reduced our cash taxes and tax provision related to our international operations.
20.
|
EMERGENCE FROM CHAPTER 11 PROCEEDINGS
|
Owens Corning (formerly known as Owens Corning (Reorganized) Inc.) was initially formed on July 21, 2006 as a wholly-owned subsidiary of Owens Corning Sales, LLC (formerly known as Owens Corning (the
Predecessor) and did not conduct significant operations prior to October 31, 2006 (the Effective Date), when the Predecessor and 17 of its subsidiaries (collectively with the Predecessor, the Debtors) emerged
from Chapter 11 bankruptcy proceedings. The Debtors filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code to address the growing demands on cash flow resulting from the multi-billion dollars of asbestos personal
injury claims that had been asserted against the Predecessor and Fibreboard Corporation (Fibreboard). Under the terms of the plan of reorganization confirmed in the bankruptcy proceedings (the Plan), all asbestos claims
against the Predecessor or Fibreboard either (i) have been resolved, or (ii) are barred pursuant to the Plan and Confirmation Order. Accordingly, the Company has no further asbestos liabilities.
- 28 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
20.
|
EMERGENCE FROM CHAPTER 11 PROCEEDINGS
|
Pursuant to the terms of the Plan, the Company is obligated to make certain additional payments to certain creditors. The Company had reserved
approximately $30 million as of June 30, 2009 to pay remaining claims in the bankruptcy (the Disputed Distribution Reserve). The Disputed Distribution Reserve is reflected as Restricted cash on the Consolidated Balance Sheets.
21.
|
ACCOUNTING PRONOUNCEMENTS
|
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, (FAS 168). While FAS
168 is not intended to change accounting principles generally accepted in the United States, it will change the way the Company references these accounting principles in its Consolidated Financial Statements and Notes. FAS 168 is effective for
interim or annual reporting periods ending after September 15, 2009. The adoption of FAS 168 will change the Companys disclosures.
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R), (FAS 167). This statement amends the timing, and considerations, of analyses
performed to determine if the Companys variable interests give it a controlling financial interest in a variable interest entity, as well as requires additional disclosures. FAS 167 is effective as of the first annual reporting period
beginning after November 15, 2009, for interim periods within the first annual reporting period and thereafter. The Company is currently evaluating the impact of adopting FAS 167.
In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, Subsequent Events, (FAS 165). FAS 165 establishes general standards of accounting
and disclosures for events that occur after the balance sheet date, but before financial statements are issued. Application of FAS 165 is required for interim or annual financial periods ending after June 15, 2009. The Companys adoption
of FAS 165 resulted in additional disclosures.
In April 2009, the FASB issued FASB Staff Position no. FAS 107-1, Interim Disclosures
about Fair Value of Financial Instruments, (FSP 107-1). FSP 107-1 amends Financial Accounting Standards No. 107, Disclosures about Fair Value of Financial Instruments, and requires disclosures about fair value of
financial instruments for interim and annual reporting periods. FSP 107-1 is effective for interim reporting periods ending after June 15, 2009. The Companys adoption of FSP 107-1 resulted in additional disclosures.
In December 2008, the FASB issued FASB Staff Position (FSP) No. FAS 132(R)-1, Employers Disclosure about Postretirement Benefit Plan
Assets, (FSP 132(R)-1). FSP 132(R)-1 provides guidance on an employers disclosure about plan assets of a defined benefit pension or other postretirement plan. FSP 132(R)-1 is effective for fiscal years ending after
December 15, 2009 with early application permitted. Upon initial application, the provisions of FSP 132(R)-1 are not required for earlier periods that are presented for comparative periods. The Company is currently evaluating the impact of
adopting this statement on its disclosures.
- 29 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
22.
|
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 Companys 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 Companys 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
As described in Note 12, Owens Corning has
issued $1.5 billion aggregate principal amount of Senior Notes. The Senior Notes and the Senior Credit Facilities are guaranteed, fully, unconditionally and jointly and severally, by each of Owens Cornings current and future 100% owned
material domestic subsidiaries that is a borrower or a guarantor under Owens Cornings 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 Credit Facilities (collectively, the Nonguarantor Subsidiaries).
- 30 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
22.
|
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
|
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS (LOSS)
FOR THE THREE MONTHS ENDED JUNE 30, 2009
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
NET SALES
|
|
$
|
-
|
|
|
$
|
875
|
|
|
$
|
397
|
|
|
$
|
(53
|
)
|
|
$
|
1,219
|
COST OF SALES
|
|
|
(2
|
)
|
|
|
680
|
|
|
|
344
|
|
|
|
(53
|
)
|
|
|
969
|
Gross margin
|
|
|
2
|
|
|
|
195
|
|
|
|
53
|
|
|
|
-
|
|
|
|
250
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and administrative expenses
|
|
|
21
|
|
|
|
72
|
|
|
|
35
|
|
|
|
-
|
|
|
|
128
|
Science and technology expenses
|
|
|
-
|
|
|
|
12
|
|
|
|
3
|
|
|
|
-
|
|
|
|
15
|
Charges related to cost reduction actions
|
|
|
-
|
|
|
|
1
|
|
|
|
7
|
|
|
|
-
|
|
|
|
8
|
Employee emergence equity program expense
|
|
|
-
|
|
|
|
4
|
|
|
|
2
|
|
|
|
-
|
|
|
|
6
|
Other
|
|
|
(41
|
)
|
|
|
18
|
|
|
|
28
|
|
|
|
-
|
|
|
|
5
|
Total operating expenses
|
|
|
(20
|
)
|
|
|
107
|
|
|
|
75
|
|
|
|
-
|
|
|
|
162
|
EARNINGS (LOSS) BEFORE INTEREST AND TAXES
|
|
|
22
|
|
|
|
88
|
|
|
|
(22
|
)
|
|
|
-
|
|
|
|
88
|
Interest expense, net
|
|
|
26
|
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
-
|
|
|
|
26
|
EARNINGS (LOSS) BEFORE TAXES
|
|
|
(4
|
)
|
|
|
90
|
|
|
|
(24
|
)
|
|
|
-
|
|
|
|
62
|
Income tax expense
|
|
|
-
|
|
|
|
2
|
|
|
|
27
|
|
|
|
-
|
|
|
|
29
|
EARNINGS (LOSS) BEFORE EQUITY IN NET EARNINGS (LOSS) OF AFFILIATES
|
|
|
(4
|
)
|
|
|
88
|
|
|
|
(51
|
)
|
|
|
-
|
|
|
|
33
|
Equity in net earnings (loss) of subsidiaries
|
|
|
37
|
|
|
|
(51
|
)
|
|
|
-
|
|
|
|
14
|
|
|
|
-
|
NET EARNINGS (LOSS) ATTRIBUTABLE TO OWENS CORNING
|
|
$
|
33
|
|
|
$
|
37
|
|
|
$
|
(51
|
)
|
|
$
|
14
|
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 31 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
22.
|
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
|
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS (LOSS)
FOR THE THREE MONTHS ENDED JUNE 30, 2008
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
NET SALES
|
|
$
|
-
|
|
|
$
|
991
|
|
|
$
|
647
|
|
|
$
|
(64
|
)
|
|
$
|
1,574
|
|
COST OF SALES
|
|
|
(18
|
)
|
|
|
882
|
|
|
|
517
|
|
|
|
(64
|
)
|
|
|
1,317
|
|
Gross margin
|
|
|
18
|
|
|
|
109
|
|
|
|
130
|
|
|
|
-
|
|
|
|
257
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and administrative expenses
|
|
|
33
|
|
|
|
92
|
|
|
|
40
|
|
|
|
-
|
|
|
|
165
|
|
Science and technology expenses
|
|
|
-
|
|
|
|
12
|
|
|
|
5
|
|
|
|
-
|
|
|
|
17
|
|
Charges (credits) related to cost reduction actions
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
5
|
|
|
|
-
|
|
|
|
4
|
|
Employee emergence equity program expense
|
|
|
-
|
|
|
|
5
|
|
|
|
2
|
|
|
|
-
|
|
|
|
7
|
|
Other (income) expenses
|
|
|
19
|
|
|
|
45
|
|
|
|
(74
|
)
|
|
|
-
|
|
|
|
(10
|
)
|
Total operating expenses
|
|
|
52
|
|
|
|
153
|
|
|
|
(22
|
)
|
|
|
-
|
|
|
|
183
|
|
EARNINGS (LOSS) BEFORE INTEREST AND TAXES
|
|
|
(34
|
)
|
|
|
(44
|
)
|
|
|
152
|
|
|
|
-
|
|
|
|
74
|
|
Interest expense, net
|
|
|
29
|
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
-
|
|
|
|
29
|
|
EARNINGS (LOSS) BEFORE TAXES
|
|
|
(63
|
)
|
|
|
(42
|
)
|
|
|
150
|
|
|
|
-
|
|
|
|
45
|
|
Income tax expense (benefit)
|
|
|
(5
|
)
|
|
|
(15
|
)
|
|
|
22
|
|
|
|
-
|
|
|
|
2
|
|
EARNINGS (LOSS) BEFORE EQUITY IN NET EARNINGS (LOSS) OF AFFILIATES
|
|
|
(58
|
)
|
|
|
(27
|
)
|
|
|
128
|
|
|
|
-
|
|
|
|
43
|
|
Equity in net earnings of subsidiaries
|
|
|
99
|
|
|
|
127
|
|
|
|
-
|
|
|
|
(226
|
)
|
|
|
-
|
|
Equity in net loss of affiliates
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
NET EARNINGS
|
|
|
41
|
|
|
|
99
|
|
|
|
128
|
|
|
|
(226
|
)
|
|
|
42
|
|
Less: Net earnings attributable to noncontrolling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
NET EARNINGS ATTRIBUTABLE TO OWENS CORNING
|
|
$
|
41
|
|
|
$
|
99
|
|
|
$
|
127
|
|
|
$
|
(226
|
)
|
|
$
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 32 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
22.
|
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
|
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 2009
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
NET SALES
|
|
$
|
-
|
|
|
$
|
1,654
|
|
|
$
|
744
|
|
|
$
|
(105
|
)
|
|
$
|
2,293
|
COST OF SALES
|
|
|
(4
|
)
|
|
|
1,349
|
|
|
|
645
|
|
|
|
(105
|
)
|
|
|
1,885
|
Gross margin
|
|
|
4
|
|
|
|
305
|
|
|
|
99
|
|
|
|
-
|
|
|
|
408
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and administrative expenses
|
|
|
36
|
|
|
|
146
|
|
|
|
70
|
|
|
|
-
|
|
|
|
252
|
Science and technology expenses
|
|
|
-
|
|
|
|
23
|
|
|
|
7
|
|
|
|
-
|
|
|
|
30
|
Charges related to cost reduction actions
|
|
|
1
|
|
|
|
15
|
|
|
|
14
|
|
|
|
-
|
|
|
|
30
|
Employee emergence equity program expense
|
|
|
-
|
|
|
|
9
|
|
|
|
3
|
|
|
|
-
|
|
|
|
12
|
Other (income) expenses
|
|
|
(59
|
)
|
|
|
37
|
|
|
|
36
|
|
|
|
-
|
|
|
|
14
|
Total operating expenses
|
|
|
(22
|
)
|
|
|
230
|
|
|
|
130
|
|
|
|
-
|
|
|
|
338
|
EARNINGS (LOSS) BEFORE INTEREST AND TAXES
|
|
|
26
|
|
|
|
75
|
|
|
|
(31
|
)
|
|
|
-
|
|
|
|
70
|
Interest expense, net
|
|
|
51
|
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
-
|
|
|
|
51
|
EARNINGS (LOSS) BEFORE TAXES
|
|
|
(25
|
)
|
|
|
78
|
|
|
|
(34
|
)
|
|
|
-
|
|
|
|
19
|
Income tax expense (benefit)
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
18
|
|
|
|
-
|
|
|
|
15
|
EARNINGS (LOSS) BEFORE EQUITY IN NET EARNINGS (LOSS) OF AFFILIATES
|
|
|
(25
|
)
|
|
|
81
|
|
|
|
(52
|
)
|
|
|
-
|
|
|
|
4
|
Equity in net earnings (loss) of subsidiaries
|
|
|
30
|
|
|
|
(51
|
)
|
|
|
-
|
|
|
|
21
|
|
|
|
-
|
Equity in net earnings of affiliates
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
NET EARNINGS (LOSS) ATTRIBUTABLE TO OWENS CORNING
|
|
$
|
5
|
|
|
$
|
30
|
|
|
$
|
(51
|
)
|
|
$
|
21
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 33 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
22.
|
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
|
OWENS CORNING AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 2008
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
NET SALES
|
|
$
|
-
|
|
|
$
|
1,784
|
|
|
$
|
1,276
|
|
|
$
|
(133
|
)
|
|
$
|
2,927
|
|
COST OF SALES
|
|
|
(32
|
)
|
|
|
1,598
|
|
|
|
1,043
|
|
|
|
(133
|
)
|
|
|
2,476
|
|
Gross margin
|
|
|
32
|
|
|
|
186
|
|
|
|
233
|
|
|
|
-
|
|
|
|
451
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and administrative expenses
|
|
|
69
|
|
|
|
155
|
|
|
|
83
|
|
|
|
-
|
|
|
|
307
|
|
Science and technology expenses
|
|
|
-
|
|
|
|
24
|
|
|
|
12
|
|
|
|
-
|
|
|
|
36
|
|
Charges related to cost reduction actions
|
|
|
-
|
|
|
|
1
|
|
|
|
5
|
|
|
|
-
|
|
|
|
6
|
|
Employee emergence equity program expense
|
|
|
-
|
|
|
|
10
|
|
|
|
4
|
|
|
|
-
|
|
|
|
14
|
|
Other (income) expenses
|
|
|
(20
|
)
|
|
|
79
|
|
|
|
(66
|
)
|
|
|
-
|
|
|
|
(7
|
)
|
Total operating expenses
|
|
|
49
|
|
|
|
269
|
|
|
|
38
|
|
|
|
-
|
|
|
|
356
|
|
EARNINGS (LOSS) BEFORE INTEREST AND TAXES
|
|
|
(17
|
)
|
|
|
(83
|
)
|
|
|
195
|
|
|
|
-
|
|
|
|
95
|
|
Interest expense, net
|
|
|
60
|
|
|
|
(3
|
)
|
|
|
4
|
|
|
|
-
|
|
|
|
61
|
|
EARNINGS (LOSS) BEFORE TAXES
|
|
|
(77
|
)
|
|
|
(80
|
)
|
|
|
191
|
|
|
|
-
|
|
|
|
34
|
|
Income tax expense (benefit)
|
|
|
(8
|
)
|
|
|
(19
|
)
|
|
|
31
|
|
|
|
-
|
|
|
|
4
|
|
EARNINGS (LOSS) BEFORE EQUITY IN NET EARNINGS (LOSS) OF AFFILIATES
|
|
|
(69
|
)
|
|
|
(61
|
)
|
|
|
160
|
|
|
|
-
|
|
|
|
30
|
|
Equity in net earnings of subsidiaries
|
|
|
97
|
|
|
|
159
|
|
|
|
-
|
|
|
|
(256
|
)
|
|
|
-
|
|
Equity in net loss of affiliates
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
NET EARNINGS
|
|
|
28
|
|
|
|
97
|
|
|
|
160
|
|
|
|
(256
|
)
|
|
|
29
|
|
Less: Net earnings attributable to noncontrolling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
NET EARNINGS ATTRIBUTABLE TO OWENS CORNING
|
|
$
|
28
|
|
|
$
|
97
|
|
|
$
|
159
|
|
|
$
|
(256
|
)
|
|
$
|
28
|
|
|
|
- 34 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
22.
|
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
|
OWENS CORNING AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2009
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
61
|
|
|
$
|
-
|
|
|
$
|
49
|
|
|
$
|
-
|
|
|
$
|
110
|
|
Receivables, net
|
|
|
-
|
|
|
|
375
|
|
|
|
309
|
|
|
|
-
|
|
|
|
684
|
|
Due from affiliates
|
|
|
828
|
|
|
|
746
|
|
|
|
91
|
|
|
|
(1,665
|
)
|
|
|
-
|
|
Inventories
|
|
|
-
|
|
|
|
475
|
|
|
|
352
|
|
|
|
-
|
|
|
|
827
|
|
Restricted cash disputed distribution reserve
|
|
|
-
|
|
|
|
30
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30
|
|
Other current assets
|
|
|
3
|
|
|
|
20
|
|
|
|
82
|
|
|
|
-
|
|
|
|
105
|
|
Total current assets
|
|
|
892
|
|
|
|
1,646
|
|
|
|
883
|
|
|
|
(1,665
|
)
|
|
|
1,756
|
|
Investment in subsidiaries
|
|
|
4,873
|
|
|
|
1,328
|
|
|
|
-
|
|
|
|
(6,201
|
)
|
|
|
-
|
|
Property, plant and equipment, net
|
|
|
466
|
|
|
|
1,243
|
|
|
|
1,072
|
|
|
|
-
|
|
|
|
2,781
|
|
Goodwill
|
|
|
-
|
|
|
|
1,094
|
|
|
|
30
|
|
|
|
-
|
|
|
|
1,124
|
|
Intangible assets
|
|
|
-
|
|
|
|
1,066
|
|
|
|
523
|
|
|
|
(408
|
)
|
|
|
1,181
|
|
Deferred income taxes
|
|
|
-
|
|
|
|
81
|
|
|
|
(53
|
)
|
|
|
-
|
|
|
|
28
|
|
Other non-current assets
|
|
|
23
|
|
|
|
72
|
|
|
|
100
|
|
|
|
-
|
|
|
|
195
|
|
TOTAL ASSETS
|
|
$
|
6,254
|
|
|
$
|
6,530
|
|
|
$
|
2,555
|
|
|
$
|
(8,274
|
)
|
|
$
|
7,065
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
-
|
|
|
$
|
460
|
|
|
$
|
416
|
|
|
$
|
-
|
|
|
$
|
876
|
|
Due to affiliates
|
|
|
957
|
|
|
|
201
|
|
|
|
507
|
|
|
|
(1,665
|
)
|
|
|
-
|
|
Accrued interest
|
|
|
9
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
10
|
|
Short-term debt
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
|
|
-
|
|
|
|
9
|
|
Long-term debt current portion
|
|
|
-
|
|
|
|
3
|
|
|
|
8
|
|
|
|
-
|
|
|
|
11
|
|
Total current liabilities
|
|
|
966
|
|
|
|
664
|
|
|
|
941
|
|
|
|
(1,665
|
)
|
|
|
906
|
|
Long-term debt, net of current portion
|
|
|
2,132
|
|
|
|
32
|
|
|
|
85
|
|
|
|
-
|
|
|
|
2,249
|
|
Pension plan liability
|
|
|
-
|
|
|
|
207
|
|
|
|
93
|
|
|
|
-
|
|
|
|
300
|
|
Other employee benefits liability
|
|
|
-
|
|
|
|
253
|
|
|
|
18
|
|
|
|
-
|
|
|
|
271
|
|
Deferred income taxes
|
|
|
-
|
|
|
|
406
|
|
|
|
-
|
|
|
|
-
|
|
|
|
406
|
|
Other liabilities
|
|
|
406
|
|
|
|
95
|
|
|
|
28
|
|
|
|
(408
|
)
|
|
|
121
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mandatorily redeemable noncontrolling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
30
|
|
|
|
-
|
|
|
|
30
|
|
OWENS CORNING STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common stock
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Additional paid in capital
|
|
|
3,820
|
|
|
|
5,434
|
|
|
|
1,063
|
|
|
|
(6,497
|
)
|
|
|
3,820
|
|
Accumulated earnings (deficit)
|
|
|
(798
|
)
|
|
|
(561
|
)
|
|
|
265
|
|
|
|
296
|
|
|
|
(798
|
)
|
Accumulated other comprehensive deficit
|
|
|
(172
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(172
|
)
|
Cost of common stock in treasury
|
|
|
(101
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(101
|
)
|
Total Owens Corning stockholders equity
|
|
|
2,750
|
|
|
|
4,873
|
|
|
|
1,328
|
|
|
|
(6,201
|
)
|
|
|
2,750
|
|
Noncontrolling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
32
|
|
|
|
-
|
|
|
|
32
|
|
Total Equity
|
|
|
2,750
|
|
|
|
4,873
|
|
|
|
1,360
|
|
|
|
(6,201
|
)
|
|
|
2,782
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
6,254
|
|
|
$
|
6,530
|
|
|
$
|
2,555
|
|
|
$
|
(8,274
|
)
|
|
$
|
7,065
|
|
|
|
- 35 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
22.
|
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
|
OWENS CORNING AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2008
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
163
|
|
|
$
|
14
|
|
|
$
|
59
|
|
|
$
|
-
|
|
|
$
|
236
|
|
Receivables, net
|
|
|
-
|
|
|
|
239
|
|
|
|
337
|
|
|
|
-
|
|
|
|
576
|
|
Due from affiliates
|
|
|
662
|
|
|
|
671
|
|
|
|
135
|
|
|
|
(1,468
|
)
|
|
|
-
|
|
Inventories
|
|
|
-
|
|
|
|
546
|
|
|
|
353
|
|
|
|
-
|
|
|
|
899
|
|
Restricted cash disputed distribution reserve
|
|
|
-
|
|
|
|
31
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31
|
|
Assets held for sale current
|
|
|
-
|
|
|
|
-
|
|
|
|
13
|
|
|
|
-
|
|
|
|
13
|
|
Other current assets
|
|
|
3
|
|
|
|
22
|
|
|
|
77
|
|
|
|
-
|
|
|
|
102
|
|
Total current assets
|
|
|
828
|
|
|
|
1,523
|
|
|
|
974
|
|
|
|
(1,468
|
)
|
|
|
1,857
|
|
Investment in subsidiaries
|
|
|
4,975
|
|
|
|
1,383
|
|
|
|
-
|
|
|
|
(6,358
|
)
|
|
|
-
|
|
Property, plant and equipment, net
|
|
|
456
|
|
|
|
1,279
|
|
|
|
1,084
|
|
|
|
-
|
|
|
|
2,819
|
|
Goodwill
|
|
|
-
|
|
|
|
1,094
|
|
|
|
30
|
|
|
|
-
|
|
|
|
1,124
|
|
Intangible assets
|
|
|
-
|
|
|
|
1,076
|
|
|
|
543
|
|
|
|
(429
|
)
|
|
|
1,190
|
|
Deferred income taxes
|
|
|
-
|
|
|
|
110
|
|
|
|
(68
|
)
|
|
|
-
|
|
|
|
42
|
|
Assets held for sale non-current
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
Other non-current assets
|
|
|
23
|
|
|
|
74
|
|
|
|
90
|
|
|
|
-
|
|
|
|
187
|
|
TOTAL ASSETS
|
|
$
|
6,282
|
|
|
$
|
6,542
|
|
|
$
|
2,653
|
|
|
$
|
(8,255
|
)
|
|
$
|
7,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
101
|
|
|
$
|
498
|
|
|
$
|
513
|
|
|
$
|
-
|
|
|
$
|
1,112
|
|
Due to affiliates
|
|
|
898
|
|
|
|
78
|
|
|
|
492
|
|
|
|
(1,468
|
)
|
|
|
-
|
|
Accrued interest
|
|
|
9
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
Short-term debt
|
|
|
-
|
|
|
|
-
|
|
|
|
30
|
|
|
|
-
|
|
|
|
30
|
|
Long-term debt current portion
|
|
|
-
|
|
|
|
3
|
|
|
|
13
|
|
|
|
-
|
|
|
|
16
|
|
Liabilities held for sale current
|
|
|
-
|
|
|
|
-
|
|
|
|
8
|
|
|
|
-
|
|
|
|
8
|
|
Total current liabilities
|
|
|
1,008
|
|
|
|
579
|
|
|
|
1,056
|
|
|
|
(1,468
|
)
|
|
|
1,175
|
|
Long-term debt, net of current portion
|
|
|
2,108
|
|
|
|
33
|
|
|
|
31
|
|
|
|
-
|
|
|
|
2,172
|
|
Pension plan liability
|
|
|
-
|
|
|
|
212
|
|
|
|
96
|
|
|
|
-
|
|
|
|
308
|
|
Other employee benefits liability
|
|
|
-
|
|
|
|
252
|
|
|
|
18
|
|
|
|
-
|
|
|
|
270
|
|
Deferred income taxes
|
|
|
-
|
|
|
|
400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
400
|
|
Other liabilities
|
|
|
428
|
|
|
|
91
|
|
|
|
27
|
|
|
|
(429
|
)
|
|
|
117
|
|
OWENS CORNING STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common stock
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Additional paid in capital
|
|
|
3,824
|
|
|
|
5,567
|
|
|
|
1,067
|
|
|
|
(6,634
|
)
|
|
|
3,824
|
|
Accumulated earnings (deficit)
|
|
|
(803
|
)
|
|
|
(592
|
)
|
|
|
316
|
|
|
|
276
|
|
|
|
(803
|
)
|
Accumulated other comprehensive deficit
|
|
|
(183
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(183
|
)
|
Cost of common stock in treasury
|
|
|
(101
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(101
|
)
|
Total Owens Corning stockholders equity
|
|
|
2,738
|
|
|
|
4,975
|
|
|
|
1,383
|
|
|
|
(6,358
|
)
|
|
|
2,738
|
|
Noncontrolling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
42
|
|
|
|
-
|
|
|
|
42
|
|
Total Equity
|
|
|
2,738
|
|
|
|
4,975
|
|
|
|
1,425
|
|
|
|
(6,358
|
)
|
|
|
2,780
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
6,282
|
|
|
$
|
6,542
|
|
|
$
|
2,653
|
|
|
$
|
(8,255
|
)
|
|
$
|
7,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 36 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
22.
|
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
|
OWENS CORNING AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2009
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
Consolidated
|
|
NET CASH FLOW USED FOR OPERATING ACTIVITIES
|
|
$
|
-
|
|
|
$
|
(93
|
)
|
|
$
|
(5
|
)
|
|
$
|
-
|
|
$
|
(98
|
)
|
NET CASH FLOW USED FOR INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to plant and equipment
|
|
|
(3
|
)
|
|
|
(53
|
)
|
|
|
(39
|
)
|
|
|
-
|
|
|
(95
|
)
|
Proceeds from the sale of assets or affiliates
|
|
|
3
|
|
|
|
7
|
|
|
|
10
|
|
|
|
-
|
|
|
20
|
|
Net cash flow used for investing activities
|
|
|
-
|
|
|
|
(46
|
)
|
|
|
(29
|
)
|
|
|
-
|
|
|
(75
|
)
|
NET CASH FLOW PROVIDED BY (USED FOR) FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of senior notes
|
|
|
344
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
344
|
|
Proceeds from senior revolving credit facility
|
|
|
160
|
|
|
|
-
|
|
|
|
99
|
|
|
|
-
|
|
|
259
|
|
Payments on senior revolving credit facility
|
|
|
(480
|
)
|
|
|
-
|
|
|
|
(47
|
)
|
|
|
-
|
|
|
(527
|
)
|
Proceeds from long-term debt
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
1
|
|
Payments on long-term debt
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
(10
|
)
|
|
|
-
|
|
|
(11
|
)
|
Net decrease in short-term debt
|
|
|
-
|
|
|
|
-
|
|
|
|
(21
|
)
|
|
|
-
|
|
|
(21
|
)
|
Parent loans and advances
|
|
|
(126
|
)
|
|
|
126
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
Net cash flow provided by (used for) financing activities
|
|
|
(102
|
)
|
|
|
125
|
|
|
|
22
|
|
|
|
-
|
|
|
45
|
|
Effect of exchange rate changes on cash
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
2
|
|
Net decrease in cash and cash equivalents
|
|
|
(102
|
)
|
|
|
(14
|
)
|
|
|
(10
|
)
|
|
|
-
|
|
|
(126
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
163
|
|
|
|
14
|
|
|
|
59
|
|
|
|
-
|
|
|
236
|
|
CASH AND CASH EQUIVALENTS AT END OF
PERIOD
|
|
$
|
61
|
|
|
$
|
-
|
|
|
$
|
49
|
|
|
$
|
-
|
|
$
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 37 -
OWENS CORNING AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
22.
|
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
|
OWENS CORNING AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2008
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
Consolidated
|
|
NET CASH FLOW PROVIDED BY (USED FOR) OPERATING ACTIVITIES
|
|
$
|
-
|
|
|
$
|
99
|
|
|
$
|
(224
|
)
|
|
$
|
-
|
|
$
|
(125
|
)
|
NET CASH FLOW PROVIDED BY (USED FOR) INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to plant and equipment
|
|
|
(21
|
)
|
|
|
(90
|
)
|
|
|
(36
|
)
|
|
|
-
|
|
|
(147
|
)
|
Proceeds from the sale of assets or affiliates
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
228
|
|
|
|
-
|
|
|
225
|
|
Net cash flow provided by (used for) investing activities
|
|
|
(21
|
)
|
|
|
(93
|
)
|
|
|
192
|
|
|
|
-
|
|
|
78
|
|
NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from senior revolving credit facility
|
|
|
275
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
275
|
|
Payments on senior revolving credit facility
|
|
|
(230
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
(230
|
)
|
Proceeds from long-term debt
|
|
|
-
|
|
|
|
-
|
|
|
|
12
|
|
|
|
-
|
|
|
12
|
|
Payments on long-term debt
|
|
|
-
|
|
|
|
-
|
|
|
|
(6
|
)
|
|
|
-
|
|
|
(6
|
)
|
Net decrease in short-term debt
|
|
|
-
|
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
-
|
|
|
(5
|
)
|
Purchase of treasury stock
|
|
|
(19
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
(19
|
)
|
Parent loans and advances
|
|
|
(5
|
)
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
Net cash flow provided by financing activities
|
|
|
21
|
|
|
|
5
|
|
|
|
1
|
|
|
|
-
|
|
|
27
|
|
Effect of exchange rate changes on cash
|
|
|
-
|
|
|
|
-
|
|
|
|
6
|
|
|
|
-
|
|
|
6
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
-
|
|
|
|
11
|
|
|
|
(25
|
)
|
|
|
-
|
|
|
(14
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
-
|
|
|
|
40
|
|
|
|
95
|
|
|
|
-
|
|
|
135
|
|
CASH AND CASH EQUIVALENTS AT END OF
PERIOD
|
|
$
|
-
|
|
|
$
|
51
|
|
|
$
|
70
|
|
|
$
|
-
|
|
$
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 38 -
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
This Managements 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.
GENERAL
Headquartered in Toledo, Ohio, Owens Corning is a leading global producer of glass fiber reinforcements and other
materials for composites and of residential and commercial building materials. The Companys business operations fall within two reportable segments, Composites and Building Materials. Composites includes our Reinforcements and Downstream
businesses. Building Materials includes our Insulation, Roofing and Other 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
Our businesses
continued to face demand weakness through the second quarter 2009 as the downturns in the United States housing market and the global economy persisted. Despite these conditions, the diversity of our portfolio of businesses served us well. We
delivered $140 million in Adjusted EBIT for the first half 2009 as strong results in our Roofing business more than offset weak results in our other businesses (see below for further information regarding Adjusted EBIT, including a reconciliation to
net earnings attributable to Owens Corning).
First half 2009 earnings before interest and taxes in our Roofing business improved $261
million over the first half 2008. Selling prices and actions we have taken to improve our cost and product mix drove this increase.
Demand
in all of our businesses was lower in the first half of 2009 compared to 2008, with the weakness most pronounced in our Insulation and Reinforcements businesses. However, we did see some continued improvement in demand in our Reinforcements business
in the second quarter 2009 compared to the first quarter 2009.
Demand weakness resulted in underutilization of our production capacity,
particularly in our Composites segment and in our Insulation business. We are continuing to respond to the current environment by reducing our cost structure across the Company. Since the second half of 2008, we have taken various cost-reduction
actions including curtailing significant capacity, extending furnace downtimes for rebuilds, reducing headcount and delaying capital projects. We anticipate that these actions will contribute to annual cost savings of about $160 million in 2009 as
compared to 2008.
We continue our focus on generating cash and maintaining a strong balance sheet with ample liquidity. Due to the
seasonality of our business, we typically have negative cash flow from operations in the first half of the year. During the first half of 2009, we used $27 million less cash in our operations than we did in the first half of 2008. We further
strengthened our liquidity position in the second quarter with the issuance of $350 million of 9.0% senior notes due 2019. Proceeds from this issuance were used to reduce outstanding amounts under our senior revolving credit facility, which matures
in 2011. At the end of the second quarter 2009, we had $889 million available on our $1 billion senior revolving credit facility, and cash on hand of $110 million. The Company has no significant debt maturities until the fourth quarter 2011.
- 39 -
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
RESULTS OF OPERATIONS
Our results of operations for all periods presented have been retrospectively adjusted for our change in the first quarter 2009 from the last-in, first-out method of inventory accounting to the
first-in, first-out method. See Note 3 to the Consolidated Financial Statements for additional information regarding this change in accounting principle.
Consolidated Results (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
Net sales
|
|
$
|
1,219
|
|
$
|
1,574
|
|
$
|
2,293
|
|
$
|
2,927
|
Gross margin
|
|
$
|
250
|
|
$
|
257
|
|
$
|
408
|
|
$
|
451
|
% of net sales
|
|
|
21%
|
|
|
16%
|
|
|
18%
|
|
|
15%
|
Marketing and administrative expenses
|
|
$
|
128
|
|
$
|
165
|
|
$
|
252
|
|
$
|
307
|
% of net sales
|
|
|
11%
|
|
|
10%
|
|
|
11%
|
|
|
10%
|
Charges related to cost reduction actions
|
|
$
|
8
|
|
$
|
4
|
|
$
|
30
|
|
$
|
6
|
Earnings before interest and taxes
|
|
$
|
88
|
|
$
|
74
|
|
$
|
70
|
|
$
|
95
|
Interest expense, net
|
|
$
|
26
|
|
$
|
29
|
|
$
|
51
|
|
$
|
61
|
Income tax expense
|
|
$
|
29
|
|
$
|
2
|
|
$
|
15
|
|
$
|
4
|
Net earnings attributable to Owens Corning
|
|
$
|
33
|
|
$
|
41
|
|
$
|
5
|
|
$
|
28
|
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
The decrease in net sales for the second quarter and year-to-date 2009 compared to the same periods in 2008 was driven by lower net sales in our
Insulation and Other businesses within our Building Materials segment and lower net sales in our Composites segment. Partially offsetting these declines were significantly higher net sales in our Roofing business.
GROSS MARGIN
Gross margin as a percentage of sales
improved in the second quarter and year-to-date period in 2009 compared to the same periods in 2008. This improvement was primarily the result of significant gross margin improvements in our Roofing business, and our Roofing business representing a
greater proportion of gross margin in the 2009 periods. The overall increase in gross margin as a percentage of sales was tempered by margin declines in our Insulation, Reinforcements and Downstream businesses.
Certain items are excluded from managements internal view of segment performance and, therefore, are excluded from the segment gross margin
discussion above, and are included in our Corporate, Other and Eliminations category. For the 2009 periods compared to the 2008 periods, the net impact of these items was not material to gross margin.
- 40 -
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
MARKETING AND ADMINISTRATIVE EXPENSES
Marketing and administrative expenses were lower in the second quarter and year-to-date period 2009 compared to the same periods in 2008. This was
primarily the result of cost savings from synergies realized from our acquisition of Saint-Gobains reinforcements and composite fabrics businesses (the 2007 Acquisition) and our various cost reduction actions taken throughout 2008
and the first half of 2009. Additionally, acquisition integration and transaction costs and performance-based compensation expense were lower in the 2009 periods as compared to the 2008 periods. Acquisition integration and transaction costs
impacting marketing and administrative expenses decreased by $14 million in the second quarter 2009 and $19 million for the first half 2009, as compared to the same periods in the prior year. Performance-based compensation expense decreased $1
million in the second quarter 2009 and $5 million for the first half 2009, as compared to the same periods in the prior year.
CHARGES RELATED TO COST
REDUCTION ACTIONS
As a result of evaluating market conditions, the Company took actions in the first half of 2009 to curtail production
and reduce operating costs. During the three and six months ended June 30, 2009, the Company recorded $11 million and $41 million, respectively, in charges related to these cost reduction actions and related items, and anticipates incurring an
additional $8 million of charges throughout the remainder of 2009. Of the charges noted above, $8 million and $30 million, respectively, are related to Statement of Financial Accounting Standards No. 112, Employers
Accounting for Postemployment Benefits severance and is presented in charges related to cost reduction actions on the Consolidated Statements of Earnings. Payments related to these activities will continue into 2010.
EARNINGS BEFORE INTEREST AND TAXES
In addition to the items noted above,
earnings before interest and taxes comparability was impacted by the following:
|
|
|
In the second quarter and the first six months of 2009, we incurred a $3 million credit and a $3 million charge, respectively, to mark to market a derivative
contract related to an electricity supply agreement. These amounts are included in other (income) expenses on the Consolidated Statements of Earnings. No such items were recorded in 2008.
|
|
|
|
In the second quarter 2008, we recorded a $22 million gain on the sale of certain precious metals used in production tooling to other (income) expense on the
Consolidated Statements of Earnings. No such sales occurred during other periods in this report.
|
INTEREST EXPENSE, NET
Higher average borrowing levels in the second quarter and first six months of 2009 compared to the same periods in 2008 were more than offset by lower
weighted-average variable interest rates, resulting in lower interest expense in the 2009 periods.
INCOME TAX EXPENSE
Income tax expense for the three and six months ended June 30, 2009 was $29 million and $15 million, respectively. For the second quarter, excluding
charges related to valuation allowances in foreign locations of approximately $15 million and other various discrete tax items of approximately $5 million that were incurred
- 41 -
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
during the quarter, our effective tax rate would have been 15%. For the first half of 2009, excluding charges related to valuation allowances in foreign
locations of approximately $15 million and other various discrete tax items that reduced income tax expense by approximately $3 million, our effective tax rate would have been 16%. The difference between the effective tax rates during these periods
and the statutory tax rate of 35% was primarily attributable to various tax planning initiatives implemented in 2007 and 2008, which have significantly reduced our cash taxes and tax provision related to our international operations.
Adjusted Earnings 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 Companys current operations. Additionally, management views net
precious metal lease expense as a financing item included in net interest expense rather than as a product cost included in cost of sales. 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 it a useful representation of our
operational performance, the adjusted measure should not be considered in isolation or as a substitute for net earnings 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
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net precious metal lease expense
|
|
$
|
-
|
|
|
$
|
(2
|
)
|
|
$
|
(1
|
)
|
|
$
|
(6
|
)
|
Charges related to cost reduction actions and related items
|
|
|
(11
|
)
|
|
|
(4
|
)
|
|
|
(41
|
)
|
|
|
(6
|
)
|
Acquisition integration and transaction costs
|
|
|
(8
|
)
|
|
|
(20
|
)
|
|
|
(14
|
)
|
|
|
(32
|
)
|
Gains (losses) on sales of assets and other
|
|
|
5
|
|
|
|
20
|
|
|
|
(2
|
)
|
|
|
20
|
|
Employee emergence equity program expense
|
|
|
(6
|
)
|
|
|
(7
|
)
|
|
|
(12
|
)
|
|
|
(14
|
)
|
Asset impairments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10
|
)
|
Total adjusting items
|
|
$
|
(20
|
)
|
|
$
|
(13
|
)
|
|
$
|
(70
|
)
|
|
$
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 42 -
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The reconciliation from net earnings attributable to Owens Corning to
Adjusted EBIT is shown in the table below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
NET EARNINGS ATTRIBUTABLE TO OWENS CORNING
|
|
$
|
33
|
|
|
$
|
41
|
|
|
$
|
5
|
|
|
$
|
28
|
|
Less: Net earnings attributable to noncontrolling interests
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
NET EARNINGS
|
|
|
33
|
|
|
|
42
|
|
|
|
5
|
|
|
|
29
|
|
Equity in net earnings (loss) of affiliates
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
EARNINGS BEFORE EQUITY IN NET EARNINGS (LOSS) OF AFFILIATES
|
|
|
33
|
|
|
|
43
|
|
|
|
4
|
|
|
|
30
|
|
Income tax expense
|
|
|
29
|
|
|
|
2
|
|
|
|
15
|
|
|
|
4
|
|
EARNINGS BEFORE TAXES
|
|
|
62
|
|
|
|
45
|
|
|
|
19
|
|
|
|
34
|
|
Interest expense, net
|
|
|
26
|
|
|
|
29
|
|
|
|
51
|
|
|
|
61
|
|
EARNINGS BEFORE INTEREST AND TAXES
|
|
|
88
|
|
|
|
74
|
|
|
|
70
|
|
|
|
95
|
|
Less: adjusting items from above
|
|
|
(20
|
)
|
|
|
(13
|
)
|
|
|
(70
|
)
|
|
|
(48
|
)
|
ADJUSTED EBIT
|
|
$
|
108
|
|
|
$
|
87
|
|
|
$
|
140
|
|
|
$
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Results
The Company discloses its segments in accordance with Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (FAS 131). In
the first quarter of 2009, the Companys Chief Operating Decision Maker (CODM) fully implemented the structure of assessing performance and allocating resources based on two operating segments, Composites and Building Materials.
Beginning in the second half of 2008, certain organizational structure and other changes were made by the CODM to facilitate managing the business from two operating segments. These changes, which became fully functional in the first quarter 2009,
included the hiring of a Building Materials Group President, restructuring the Companys incentive compensation plan for 2009, and changing the reporting structure of the CODMs leadership team.
Earnings (loss) before interest and taxes (EBIT) by segment consists 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, which is presented following the discussion of our reportable segments.
- 43 -
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Composites
The table below provides a summary of net sales, EBIT and depreciation and amortization expense for the Composites segment (in millions). Prior periods have been adjusted to reflect the change to
two reportable segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2009
|
|
|
2008
|
|
2009
|
|
|
2008
|
Net sales
|
|
$
|
391
|
|
|
$
|
660
|
|
$
|
736
|
|
|
$
|
1,326
|
% change from prior year
|
|
|
-41%
|
|
|
|
70%
|
|
|
-44%
|
|
|
|
76%
|
|
|
|
|
|
EBIT
|
|
$
|
(19
|
)
|
|
$
|
71
|
|
$
|
(37
|
)
|
|
$
|
135
|
EBIT as a % of net sales
|
|
|
-5%
|
|
|
|
11%
|
|
|
-5%
|
|
|
|
10%
|
|
|
|
|
|
Depreciation and amortization expense
|
|
$
|
26
|
|
|
$
|
34
|
|
$
|
61
|
|
|
$
|
64
|
NET SALES
The rapid and significant global economic slow-down that began in the fourth quarter 2008 has reduced overall demand for composite materials. This has led to lower sales volumes in both our Reinforcements and Downstream businesses for the
three and six month periods ended June 30, 2009 as compared to the same periods in the prior year. These declines represented approximately two-thirds of the decrease in net sales for each of the three and six months ended June 30, 2009 as
compared to the same period in the prior year. The favorable trend in demand for Reinforcements that began in the first quarter 2009 continued throughout the second quarter. For each comparative period, the remainder of the decrease in net sales was
primarily a result of an unfavorable currency impact ($48 million for the second quarter comparison and $89 million for the first half comparison) and of the May 2008 divestiture of two composite manufacturing plants in Battice, Belgium and
Birkeland, Norway (the May 2008 Divestiture).
EBIT
EBIT was significantly lower in the second quarter and first half 2009 compared to the same periods in 2008. Substantially all of the segments decrease in EBIT was the result of lower sales volumes, including
the impact of underutilization of our production capacity. We took aggressive actions in this segment beginning in the first quarter 2009 and continuing through the second quarter to reduce inventories and operating costs by decreasing production to
levels below current demand. These lower production levels, achieved through idling and shutting down production lines, coupled with headcount reductions have reduced our operating costs in this segment. Also impacting EBIT comparability for the six
months ended June 30, 2009 was the inclusion in 2008 of EBIT from the manufacturing plants divested in May 2008.
OUTLOOK
We will continue to realize the benefits of additional synergies from the 2007 Acquisition and our various cost reduction actions taken in 2008 and 2009.
Based on the first half 2009 sales trend within our Reinforcements business, we believe that incremental demand improvement will continue in the third and fourth quarters of 2009, and that we will maintain production near current levels until demand
supports higher production. Considerable uncertainties remain in our global markets, including the pace of any demand improvement and competitive pressures.
- 44 -
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Building Materials
The table below provides a summary of net sales, EBIT and depreciation and amortization expense for the Building Materials segment and our businesses within this segment (in millions). Prior
periods have been adjusted to reflect the change to two reportable segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insulation
|
|
$
|
284
|
|
|
$
|
413
|
|
|
$
|
566
|
|
|
$
|
786
|
|
Roofing
|
|
|
542
|
|
|
|
475
|
|
|
|
999
|
|
|
|
782
|
|
Other
|
|
|
42
|
|
|
|
69
|
|
|
|
72
|
|
|
|
122
|
|
Eliminations
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
(6
|
)
|
|
|
(8
|
)
|
Total Building Materials
|
|
$
|
865
|
|
|
$
|
953
|
|
|
$
|
1,631
|
|
|
$
|
1,682
|
|
% change from prior year
|
|
|
-9%
|
|
|
|
1%
|
|
|
|
-3%
|
|
|
|
-3%
|
|
|
|
|
|
|
EBIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insulation
|
|
$
|
(28
|
)
|
|
$
|
7
|
|
|
$
|
(67
|
)
|
|
$
|
23
|
|
Roofing
|
|
|
182
|
|
|
|
37
|
|
|
|
281
|
|
|
|
20
|
|
Other
|
|
|
(11
|
)
|
|
|
(5
|
)
|
|
|
(18
|
)
|
|
|
(8
|
)
|
Total Building Materials
|
|
$
|
143
|
|
|
$
|
39
|
|
|
$
|
196
|
|
|
$
|
35
|
|
EBIT as a % of net sales
|
|
|
17%
|
|
|
|
4%
|
|
|
|
12%
|
|
|
|
2%
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insulation
|
|
$
|
29
|
|
|
$
|
28
|
|
|
$
|
59
|
|
|
$
|
58
|
|
Roofing
|
|
|
11
|
|
|
|
9
|
|
|
|
22
|
|
|
|
19
|
|
Other
|
|
|
4
|
|
|
|
3
|
|
|
|
7
|
|
|
|
6
|
|
Total Building Materials
|
|
$
|
44
|
|
|
$
|
40
|
|
|
$
|
88
|
|
|
$
|
83
|
|
NET SALES
Despite the significant and continued downturn in the United States housing market, net sales in our Building Materials segment have decreased only 9% and 3% for the three and six months ended June 30, 2009, respectively, as compared
to the same periods in 2008. Within our Building Materials segment, net sales decreased in our Insulation business, while net sales increased in our Roofing business.
In Roofing, selling prices have been stable since the beginning of the fourth quarter 2008. Leading up to the fourth quarter 2008, our selling prices had been increasing to recover inflation in raw material costs,
particularly asphalt. The 2009 level of selling prices led to increased net sales of more than 25% in the second quarter and the first half compared to the same periods in 2008. These increases were partially offset by lower sales volumes, which
were a result of lower residential construction activity in the United States and reduced storm-related demand.
In Insulation, declining
demand primarily related to the lower level of United States housing starts, drove the decreases in net sales. We estimate that residential insulation demand lags the start of new residential construction by approximately three months. First quarter
2009 United States housing starts were 50% lower than those in the first quarter 2008 according to data reported by the United States Census Bureau. Our Insulation
- 45 -
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
business includes a diversified portfolio that softened the impact of the United States housing decline on our sales. This portfolio includes a geographic
mix with Canada, Asia-Pacific and Latin America, as well as a market mix that includes commercial, industrial and other non-residential markets. We have been seeing some weakness in many of these markets, which became more pronounced in the second
quarter 2009.
EBIT
The significant increase
in EBIT for each year-over-year period was driven by unit margin improvements in our Roofing business. Roofing unit margins began improving in the second quarter 2008 as selling price increases outpaced inflation. These improvements accounted for
substantially all of the increase in Roofing EBIT for the three and six months ended June 30, 2009 as compared to the same periods in 2008.
Partially offsetting the EBIT improvements noted above was the impact of lower sales volumes on our Insulation business, including the impact of underutilization of our production capacity. These lower sales volumes accounted for
substantially all of the decrease in Insulation EBIT for the three and six months ended June 30, 2009 as compared to the same periods in 2008.
In response to the continued weak United States housing market, we took actions across our Building Materials segment throughout 2008 and into the first half 2009 to reduce our production capacity and align our cost structure with market
demand.
OUTLOOK
We expect continued
weakness in the United States housing industry to negatively affect demand in our Building Materials segment throughout 2009. In our Insulation business, despite our significant cost and capacity actions, we do not expect the cost savings associated
with these actions to offset the impact of continued demand-driven weakness. Assuming sustained gross margins in our Roofing business, Roofing performance will continue to more than offset weakness in our Insulation and Other businesses.
Uncertainties that may impact our Roofing gross margins include competitive pricing pressure and the cost and availability of raw materials, particularly asphalt. In Insulation and Other, we are prepared to take further actions to reduce our
capacity and lower our cost structure if further weakening occurs. Conversely, we are prepared to respond to increased demand by bringing additional production capacity back on-line.
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
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net precious metal lease expense
|
|
$
|
-
|
|
|
$
|
(2
|
)
|
|
$
|
(1
|
)
|
|
$
|
(6
|
)
|
Charges related to cost reduction actions and related items
|
|
|
(11
|
)
|
|
|
(4
|
)
|
|
|
(41
|
)
|
|
|
(6
|
)
|
Acquisition integration and transaction costs
|
|
|
(8
|
)
|
|
|
(20
|
)
|
|
|
(14
|
)
|
|
|
(32
|
)
|
Gains (losses) on sales of assets and other
|
|
|
5
|
|
|
|
20
|
|
|
|
(2
|
)
|
|
|
20
|
|
Employee emergence equity program expense
|
|
|
(6
|
)
|
|
|
(7
|
)
|
|
|
(12
|
)
|
|
|
(14
|
)
|
Asset impairments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10
|
)
|
General corporate expense
|
|
|
(16
|
)
|
|
|
(23
|
)
|
|
|
(19
|
)
|
|
|
(27
|
)
|
EBIT
|
|
$
|
(36
|
)
|
|
$
|
(36
|
)
|
|
$
|
(89
|
)
|
|
$
|
(75
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
4
|
|
|
$
|
5
|
|
|
$
|
9
|
|
|
$
|
9
|
|
- 46 -
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
EBIT
Charges related to cost reduction actions and related items were greater in the current year periods as a result of significant actions we took beginning in the first quarter 2009 to reset our cost structure across
the Company. Acquisition integration and transaction costs are costs incurred related to the integration of our 2007 Acquisition. These costs decreased by $12 million and $18 million, respectively, for the three and six months ended June 30,
2009. Gains (losses) on sales of assets and other for the 2008 periods include a $22 gain on the sale of certain precious metals. In the three and six months ended June 30, 2009, we recorded a $3 million credit and a $3 million charge,
respectively, to gains (losses) on sales of assets and other to mark-to-market an energy supply derivative contract. In the first quarter of 2008, the Company recorded an impairment loss of $10 million as a corporate charge to cost of sales on the
Consolidated Statements of Earnings to write the property, plant and equipment of the facilities in Battice, Belgium and Birkeland, Norway down to fair value less costs to sell.
LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED MATTERS
Liquidity
Since 2008, worldwide capital and credit markets have seen unprecedented volatility. While market conditions have stabilized and improved somewhat, we
are still closely monitoring the potential impact on our liquidity. To date, these market conditions have not had any material adverse impact on our liquidity. The Company has no significant debt maturities coming due until the fourth quarter 2011
when the senior revolving credit facility and the senior term loan facility mature. We have been diligent in our efforts to ensure we have adequate availability on our senior revolving credit facility. In the second quarter 2009, we issued $350
million of senior notes maturing in 2019 and used the proceeds to reduce outstanding amounts under our senior revolving credit facility.
We are also closely monitoring 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 continue or worsen.
Notwithstanding the above, 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 allow our Company to meet our cash requirements. Our anticipated uses of cash include capital expenditures, working capital needs, pension contributions and financial obligations. On an ongoing basis, we 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 or generate
proceeds.
The Credit Agreement applicable to our senior revolving credit facility and our senior term loan facility contains various
covenants, including a maximum allowed leverage ratio and a minimum required interest expense coverage ratio, that are usual and customary for a senior unsecured credit agreement. We were well within compliance with these covenants as of
June 30, 2009. At June 30, 2009, we had $ 2.3 billion of short- and long-term debt and cash-on-hand of $110 million. During the second quarter 2009, both credit rating agencies reaffirmed our prior credit ratings. As of June 30, 2009,
we had a credit rating of BBB- with a negative outlook from Standard & Poors Ratings Services and a rating of Ba1 with a negative outlook from Moodys Investors Service.
- 47 -
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Cash flows
The following table presents a summary of our cash balance and cash flows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Cash balance
|
|
$
|
110
|
|
|
$
|
121
|
|
|
$
|
110
|
|
|
$
|
121
|
|
Cash provided by (used for) operating activities
|
|
$
|
190
|
|
|
$
|
(18
|
)
|
|
$
|
(98
|
)
|
|
$
|
(125
|
)
|
Cash provided by (used for) investing activities
|
|
$
|
(38
|
)
|
|
$
|
128
|
|
|
$
|
(75
|
)
|
|
$
|
78
|
|
Cash provided by (used for) financing activities
|
|
$
|
(136
|
)
|
|
$
|
(101
|
)
|
|
$
|
45
|
|
|
$
|
27
|
|
Unused committed credit lines
|
|
$
|
889
|
|
|
$
|
748
|
|
|
$
|
889
|
|
|
$
|
748
|
|
Operating activities:
In the second quarter 2009, we generated $190 million of cash flow
from operating activities, while in the second quarter 2008, we used $18 million in cash for our operating activities. This change was driven by a significant improvement in working capital, with $69 million of cash generated through working capital
reductions in the second quarter 2009 compared to $103 million of cash used for working capital in the second quarter 2008. The reduction in working capital in the second quarter 2009 was a result of production curtailments as part of our cost
reduction actions.
Investing activities:
The increase in cash flow used for investing activities is primarily the result of
significantly less proceeds from the sales of assets or affiliates, partially offset by decreased additions to plant and equipment. Proceeds from the sales of assets in 2008 were primarily related to the 2008 Divestiture and the sale of certain
precious metals used in production tooling. Additions to plant and equipment were $55 million and $95 million in the second quarter and first half of 2009, respectively, compared to $95 million and $147 million in the second quarter and first half
of 2008, respectively. As part of our cost reduction actions and focus on cash, we have reduced our forecasted capital expenditures for 2009.
Financing activities:
The $18 million increase in cash provided by financing activities in the six months ended June 30, 2009 was primarily the result of the purchases of treasury stock totaling $19 million in the first half
2008.
2009 Investments
Capital Expenditures:
The Company will continue a balanced approach to the use of free cash flow. Operational cash flow will be used to fund the Companys growth and innovation. Capital expenditures are expected to be less than
$230 million in 2009, excluding the purchase of precious metals. 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.
Share Buy-back Program:
On February 21, 2007, the Company announced a share buy-back program under which
the Company is authorized to repurchase up to 5% of the Companys outstanding common stock. The share buy-back program authorizes the Company to repurchase shares through open market, privately negotiated, or other transactions. The timing and
actual number of shares of common stock repurchased will depend on market conditions and other factors and will be at our discretion. During the six months ended June 30, 2008, we repurchased approximately 1.0 million shares of our common
stock for an average price paid per share of $23.55. The cost of these treasury shares is shown as a reduction of stockholders equity on the Consolidated Balance Sheets. No such repurchases were made during the six months ended June 30,
2009. At June 30, 2009, there were approximately 1.9 million shares remaining available for repurchase under the share buy-back program.
- 48 -
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Tax Net Operating Losses
Upon emergence and subsequent distribution of contingent stock and cash to the 524(g) Trust in January 2007, we generated a significant United States
federal tax net operating loss of approximately $3.0 billion. As of June 30, 2009 our federal tax net operating losses remaining were $2.6 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 Companys 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 2008, we recorded an accounting valuation allowance against our United States deferred tax assets related to our net operating
losses. Recording this accounting valuation allowance will have no impact on our ability to utilize our United States net operating losses to offset future United States profits. We continue to believe that we ultimately will have sufficient United
States profitability during the remaining tax loss carryforward period to utilize substantially all of the net operating losses before they expire. Recording the accounting valuation allowance had no impact on our cash flow or liquidity, and we
remain well within the levels required to comply with the financial covenants in the Companys senior revolving credit facility and senior term loan facility.
In addition to the United States net operating losses described above, we have deferred tax assets related to net operating losses in various foreign jurisdictions, which totaled $341 million as of December 31,
2008. 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. 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 $23 million and $37 million to the plans during the six months ended June 30, 2009 and 2008, respectively. The Company expects to contribute approximately $41 million in cash to its pension plans during 2009. 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
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. Our current hedging practice has been to hedge a variable percentage of certain energy and energy-related exposures on a rolling forward basis up to 36
months out. 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.
- 49 -
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Fair Value Measurement
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157). This statement defines fair value,
establishes a framework for measuring fair value and expands disclosures about fair value measurements. The statement became effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within
that fiscal year. On February 12, 2008 the FASB issued FASB Staff Position (FSP) FAS 157-2 which permitted a delay in the effective date of FAS 157 to fiscal years beginning after November 15, 2008, for nonfinancial assets and nonfinancial
liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The Company adopted this statement for financial assets and financial liabilities and nonfinancial
assets and nonfinancial liabilities recognized or disclosed at fair value on a recurring basis as of January 1, 2008. The Company adopted this statement for nonfinancial assets and nonfinancial liabilities recognized or disclosed at fair value
on a nonrecurring basis as of January 1, 2009. The effect of the adoption of this statement was not material, resulting only in additional disclosures.
FAS 157 requires that assets and liabilities carried at fair value be classified and disclosed 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.
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. These arrangements include a limited amount of unrecorded contingent payment obligations under
acquisition purchase agreements which are not material. The Company does not believe these arrangements will have a material effect on the Companys 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. Other than the issuance of the $350 million
senior notes and the reduction of our senior revolving credit facility previously discussed, during the first six months of 2009, 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. In the six months ended June 30, 2009, our RIR improved approximately 15% over our performance throughout 2008.
- 50 -
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
ADOPTION OF NEW ACCOUNTING STANDARDS
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, (FAS 168). While FAS 168 is not intended to change accounting principles generally accepted in the United States, it will change the way the Company references these accounting
principles in its Consolidated Financial Statements and Notes. FAS 168 is effective for interim or annual reporting periods ending after September 15, 2009. The adoption of FAS 168 will change the Companys disclosures.
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R),
(FAS 167). This statement amends the timing, and considerations, of analyses performed to determine if the Companys variable interests give it a controlling financial interest in a variable interest entity, as well as requires
additional disclosures. FAS 167 is effective as of the first annual reporting period beginning after November 15, 2009, for interim periods within the first annual reporting period and thereafter. The Company is currently evaluating the impact
of adopting FAS 167.
In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, Subsequent Events,
(FAS 165). FAS 165 establishes general standards of accounting and disclosures for events that occur after the balance sheet date, but before financial statements are issued. Application of FAS 165 is required for interim or annual
financial periods ending after June 15, 2009. The Companys adoption of FAS 165 resulted in additional disclosures.
In April
2009, the FASB issued FASB Staff Position no. FAS 107-1, Interim Disclosures about Fair Value of Financial Instruments, (FSP 107-1). FSP 107-1 amends Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, and requires disclosures about fair value of financial instruments for interim and annual reporting periods. FSP 107-1 is effective for interim reporting periods ending after June 15, 2009. The
Companys adoption of FSP 107-1 resulted in additional disclosures.
In December 2008, the FASB issued FASB Staff Position (FSP) No.
FAS 132(R)-1, Employers Disclosure about Postretirement Benefit Plan Assets, (FSP 132(R)-1). FSP 132(R)-1 provides guidance on an employers disclosure about plan assets of a defined benefit pension or other
postretirement plan. FSP 132(R)-1 is effective for fiscal years ending after December 15, 2009 with early application permitted. Upon initial application, the provisions of FSP 132(R)-1 are not required for earlier periods that are presented
for comparative periods. The Company is currently evaluating the impact of adopting this statement on its disclosures.
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 June 30, 2009, we had environmental remediation liabilities as a PRP at 39 sites. Our environmental liabilities at 20 of these sites will be paid out of the Disputed Distribution
Reserve (as defined in Note 20). At the other 19 sites, 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
in accordance with accounting principles generally accepted in the United States to reflect environmental liabilities that have been asserted or are probable of assertion, in which liabilities are probable and reasonably estimable. At June 30,
2009, our reserve for such liabilities was $10 million, of which $4 million is recorded in the Disputed Distribution Reserve. We will continue to review our environmental reserve and make such adjustments as appropriate.
- 51 -
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this report, including Managements 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;
|
|
|
our level of indebtedness;
|
|
|
industry and economic conditions that adversely 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 involving implementation of 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;
|
|
|
the success of research and development activities;
|
|
|
difficulties in managing production capacity; and
|
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 Companys 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.
- 52 -
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Please refer to the Companys 2008 annual report on Form 10-K for the Companys 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 Companys management, with the participation of the
Companys Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the
Companys Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Companys disclosure controls and procedures are effective.
There have not been any changes in the Companys 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 Companys internal control over financial reporting.
- 53 -
PART II
ITEM 1.
|
LEGAL PROCEEDINGS
|
Securities and Certain Other Litigation
On September 1, 2006, various members of the Investment Review Committee of the Predecessor (as defined in Note 20) were named as
defendants in a lawsuit captioned Brown v. Owens Corning Investment Review Committee, et al., in the United States District Court for the Northern District of Ohio (Western Division). Neither the Company nor the Predecessor is named in the lawsuit
but such individuals would have a contingent indemnification claim against the Predecessor. The suit, brought by former employees of the Predecessor, was brought under ERISA alleging that the defendants breached their fiduciary duties to certain
pension benefit plans and to class members in connection with the investments in a Predecessor company common stock fund. A motion to dismiss was filed on behalf of the defendants on March 5, 2007. Subsequently, the court converted the Motion
to Dismiss to a Motion for Summary Judgment. On March 31, 2008, the court denied the defendants Motion for Summary Judgment. On April 15, 2008, the defendants filed a Motion for Reconsideration. On December 24, 2008, the court
granted the defendants Motion for Reconsideration and dismissed the action. On January 9, 2009, the plaintiffs filed a Motion to Amend Judgment. On February 6, 2009, the defendants filed an Opposition to Plaintiffs Motion to
Amend Opinion and Order of Judgment. On June 3, 2009, the plaintiffs filed a Notice of Appeal in the United States Court of Appeals for the Sixth Circuit.
Certain of the defendants in the lawsuit described above are officers or directors of the Company.
There have been no material changes
to the risk factors as disclosed in the Companys annual report on Form 10-K for the year ended December 31, 2008.
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
Owens Corning has nothing to report under this Item.
Issuer Purchases of Equity Securities
The following table provides information about Owens Cornings 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**
|
April 1-30, 2009
|
|
21
|
|
|
$
|
10.43
|
|
-
|
|
1,885,626
|
May 1-31, 2009
|
|
21
|
|
|
|
15.25
|
|
-
|
|
1,885,626
|
June 1-30, 2009
|
|
-
|
|
|
|
-
|
|
-
|
|
1,885,626
|
Total
|
|
42
|
*
|
|
$
|
13.48
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
The Company retained 42 shares surrendered to satisfy tax withholding obligations in connection with the vesting of restricted shares granted to our employees.
|
- 54 -
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
**
|
On February 21, 2007, the Company announced a share buy-back program under which the Company is authorized to repurchase up to 5% of the Companys
outstanding common stock. The share buy-back program authorizes the Company to repurchase shares 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 Companys discretion.
|
ITEM 3.
|
DEFAULTS UPON SENIOR SECURITIES
|
The Company has nothing to report
under this Item.
ITEM 4.
|
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matter was
submitted to a vote of security holders during the quarter ended June 30, 2009.
ITEM 5.
|
OTHER INFORMATION
|
The Company has nothing to report under this
Item.
See Exhibit Index below, which is incorporated here by
reference.
- 55 -
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, thereunto duly authorized.
OWENS CORNING
Registrant
|
|
|
|
|
|
|
|
|
Date:
|
|
August 5, 2009
|
|
|
|
By:
|
|
/s/ Duncan J. Palmer
|
|
|
|
|
|
|
|
|
Duncan J. Palmer
|
|
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|
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|
|
|
Senior Vice President and
Chief Financial Officer
(as duly authorized officer)
|
|
|
|
|
|
Date:
|
|
August 5, 2009
|
|
|
|
By:
|
|
/s/ Mark W. Mayer
|
|
|
|
|
|
|
|
|
Mark W. Mayer
|
|
|
|
|
|
|
|
|
Vice President and
Chief Accounting Officer
|
- 56 -
EXHIBIT INDEX
|
|
|
Exhibit
Number
|
|
Description
|
4.1
|
|
Indenture, dated as of June 2, 2009, between Owens Corning, certain of Owens Cornings subsidiaries and Wells Fargo Bank, National Association, as trustee (incorporated
by reference to Exhibit 4.1 to Owens Cornings Registration Statement on Form S-3 (File No. 333-159689), filed June 3, 2009).
|
4.2
|
|
Supplemental Indenture, dated June 8, 2009, between Owens Corning, the guarantors named therein and Wells Fargo Bank, National Association, as trustee (incorporated by
reference to Exhibit 4.1 to Owens Cornings Current Report on Form 8-K (File No. 1-33100), filed June 8, 2009).
|
4.3
|
|
Form of 9.000% Senior Notes due 2019 (incorporated by reference to Exhibit 4.2 to Owens Cornings Current Report on Form 8-K (File No. 1-33100), filed June 8,
2009).
|
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).
|
99.1
|
|
Subsidiaries of Owens Corning (filed herewith).
|
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