Business Wire | Jul 29, 2020 06:00AM EDT

Owens Corning Reports Second-Quarter 2020 Results

Jul. 29, 2020

TOLEDO, Ohio--(BUSINESS WIRE)--Jul. 29, 2020--Owens Corning (NYSE: OC) today reported consolidated net sales of $1.6 billion in second-quarter 2020, compared with $1.9 billion in second-quarter 2019, a decrease of 15%.

Second-quarter 2020 net earnings attributable to Owens Corning were $96 million, or $0.88 per diluted share, compared with $138 million, or $1.26 per diluted share, in second-quarter 2019.

Second-quarter 2020 adjusted earnings were $96 million, or $0.88 per diluted share, compared with $141 million, or $1.29 per diluted share, during the same period one year ago. Second-quarter 2020 adjusted EBIT was $167 million, compared with $231 million in 2019. (See Use of Non-GAAP Measures, See Tables 2 and 3.)

"Our team continued to execute well, while adapting to dynamic market conditions and working hard to meet the needs of our customers. We've further strengthened our balance sheet and available liquidity, which enables our company to better manage uncertainties associated with the pandemic," said Chairman and Chief Executive Officer Brian Chambers. "I'm encouraged by the positive momentum we are beginning to see in some of our key markets and believe we are well positioned to capitalize on near-term opportunities and to execute on our longer-term growth priorities."

Return of Capital and Liquidity

* In June, Owens Corning announced that its Board of Directors has declared a quarterly cash dividend of $0.24 per common share. The dividend will be payable on August 7, 2020, to shareholders of record as of July 16, 2020. Through June 2020, the company returned $133 million to shareholders in share repurchases and dividends. As of the end of the quarter, 2.3 million shares were available for repurchase under the current authorization.

* In May, Owens Corning issued $300 million of unsecured 3.875% senior notes due in 2030. The company intends to use the net proceeds of the offering for general corporate purposes.

* Owens Corning maintains a strong balance sheet, access to liquidity, and a well-structured debt maturity profile. The company finished second-quarter 2020 with about $1.5 billion of available liquidity, inclusive of $582 million in cash. During the quarter, the company repaid $210 million on its existing revolving credit facility. The company's only near-term debt maturity is the remaining $150 million from its term loan due in February 2021.

Other Highlights

* Owens Corning sustained a high level of safety performance in second-quarter 2020, with a recordable incident rate of 0.69, a slight improvement over second-quarter 2019.

* In June, Owens Corning ranked No. 1 on the 100 Best Corporate Citizens list for 2020 for the second consecutive year. This is the sixth year the company has been named to the list which recognizes standout global environmental, social and governance (ESG) performances of the largest U.S.-based public companies.

2020 Outlook

* The key economic factors that continue to impact the company's businesses are global industrial production, U.S. housing starts, and global commercial and industrial construction activity.

* The company expects the COVID-19 pandemic will continue to create uncertainty in its end markets. The magnitude of the impact will depend on the depth and duration of the crisis, as well as the timing of the recovery in the markets served by the company.

* The company expects to capitalize on near-term market demand, control costs, and sustain strong conversion of adjusted earnings into free cash flow as residential, commercial, and industrial markets continue to recover.

* General corporate expenses are estimated to be between $105 million and $115 million, and capital additions are estimated to be between $250 million and $300 million, both in line with the company's prior guidance.

* Interest expense is currently estimated to be between $125 million to $130 million, compared with its previous estimate of $120 million to $125 million.

* The company estimates an effective tax rate of 26% to 28%, and a cash tax rate of 10% to 12% on adjusted pre-tax earnings, which is due to the company's foreign tax credit carryforwards.

Second-Quarter 2020 Conference Call and Presentation

Wednesday, July 29, 2020 9 a.m. Eastern Time

All Callers

* Live dial-in telephone number: U.S. 1.888.317.6003; Canada 1.866.284.3684; and other international +1.412.317.6061. * Entry number: 5315062 (Please dial in 10-15 minutes before conference call start time) * Live webcast: https://services.choruscall.com/links/oc200729.html

Telephone and Webcast Replay

* Telephone replay will be available one hour after the end of the call through August 5, 2020. In the U.S., call 1.877.344.7529. In Canada, call 1.855.669.9658. In other international locations, call +1.412.317.0088. * Conference replay number: 10145599 * Replay available at https://services.choruscall.com/links/oc200729.html * Webcast replay available until July 29, 2021.

About Owens Corning

Owens Corning is a global building and industrial materials leader. The company's three integrated businesses are dedicated to the manufacture and advancement of a broad range of insulation, roofing and fiberglass composite materials. Leveraging the talents of 19,000 employees in 33 countries, Owens Corning provides innovative products and sustainable solutions that address energy efficiency, product safety, renewable energy, durable infrastructure, and labor productivity. These solutions provide a material difference to the company's customers and make the world a better place. Based in Toledo, Ohio, USA, the company posted 2019 sales of $7.2 billion. Founded in 1938, it has been a Fortune 500(r) company for 66 consecutive years. For more information, please visit www.owenscorning.com.

Use of Non-GAAP Measures

Owens Corning uses non-GAAP measures in its earnings press release that are intended to supplement investors' understanding of the company's financial information. These non-GAAP measures include EBIT, adjusted EBIT, adjusted earnings, adjusted diluted earnings per share attributable to Owens Corning common stockholders ("adjusted EPS"), adjusted pre-tax earnings, free cash flow and free cash flow conversion. When used to report historical financial information, reconciliations of these non-GAAP measures to the corresponding GAAP measures are included in the financial tables of this press release. Specifically, see Table 2 for EBIT and adjusted EBIT, Table 3 for adjusted earnings and adjusted EPS, and Table 8 for free cash flow.

For purposes of internal review of Owens Corning's year-over-year operational performance, management excludes from net earnings attributable to Owens Corning certain items it believes are not representative of ongoing operations. The non-GAAP financial measures resulting from these adjustments (including adjusted EBIT, adjusted earnings, adjusted EPS and adjusted pre-tax earnings) are used internally by Owens Corning for various purposes, including reporting results of operations to the Board of Directors, analysis of performance, and related employee compensation measures. Management believes that these adjustments result in a measure that provides a useful representation of its operational performance; however, the adjusted measures should not be considered in isolation or as a substitute for net earnings attributable to Owens Corning as prepared in accordance with GAAP.

Free cash flow is a non-GAAP liquidity measure used by investors, financial analysts and management to help evaluate the company's ability to generate cash to pursue opportunities that enhance shareholder value. Free cash flow is not a measure of residual cash flow available for discretionary expenditures due to the company's mandatory debt service requirements. As a conversion ratio, free cash flow is compared to adjusted earnings. Free cash flow and free cash flow conversion are used internally by the company for various purposes, including reporting results of operations to the Board of Directors of the company and analysis of performance. Management believes that these measures provide a useful representation of our operational performance and liquidity; however, the measures should not be considered in isolation or as a substitute for net cash flow provided by operating activities or net earnings attributable to Owens Corning as prepared in accordance with GAAP.

When the company provides forward-looking expectations for non-GAAP measures, the most comparable GAAP measures and a reconciliation between the non-GAAP expectations and the corresponding GAAP measures are generally not available without unreasonable effort due to the variability, complexity and limited visibility of the adjusting items that would be excluded from the non-GAAP measures in future periods. The variability in timing and amount of adjusting items could have significant and unpredictable effect on our future GAAP results.

Forward-Looking Statements

This news release contains 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. These forward-looking statements are subject to risks, uncertainties and other factors and actual results may differ materially from any results projected in the statements. These risks, uncertainties and other factors include, without limitation: the severity and duration of the current COVID-19 pandemic on our operations, customers and suppliers, as well as related actions taken by governmental authorities and other third parties in response, each of which is uncertain, rapidly changing and difficult to predict; levels of residential, commercial and industrial construction activity; levels of global industrial production; competitive and pricing factors; demand for our products; relationships with key customers; industry and economic conditions that affect the market and operating conditions of our customers, suppliers or lenders; domestic and international economic and political conditions, including new legislation, policies or other governmental actions in the U.S. or elsewhere; changes to tariff, trade or investment policies or laws; uninsured losses, including those from natural disasters, pandemics, catastrophe, theft or sabotage; climate change, weather conditions and storm activity; availability and cost of energy, transportation, raw materials or other inputs; legal and regulatory proceedings, including litigation and environmental actions; research and development activities and intellectual property protection; issues involving implementation and protection of Information technology systems; our level of indebtedness; our liquidity and the availability and cost of credit; levels of goodwill or other indefinite-lived intangible assets; achievement of expected synergies, cost reductions and/or productivity improvements; the level of fixed costs required to run our business; our ability to utilize net operating loss carry-forwards and foreign tax credits; issues related to acquisitions, divestitures, joint ventures or expansions; foreign exchange and commodity price fluctuations; price volatility in certain wind energy markets in the U.S.; loss of key employees, labor disputes or shortages; defined benefit plan funding obligations; and factors detailed from time to time in the company's Securities and Exchange Commission filings. The information in this news release speaks as of July 29, 2020, and is subject to change. The company does not undertake any duty to update or revise forward-looking statements except as required by federal securities laws. Any distribution of this news release after that date is not intended and should not be construed as updating or confirming such information.

Owens Corning Investor Relations News

Table 1Owens Corning and SubsidiariesConsolidated Statements of Earnings (Loss)(unaudited)(in millions, except per share amounts)

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

2020 2019 2020 2019

NET SALES $ 1,625 $ 1,918 $ 3,226 $ 3,585

COST OF SALES 1,282 1,478 2,577 2,820

Gross margin 343 440 649 765

OPERATING EXPENSES

Marketing and administrative 151 181 330 363 expenses

Science and technology expenses 18 22 39 44

Goodwill impairment charge - - 944 -

Other expenses, net 6 10 38 15

Total operating expenses 175 213 1,351 422

OPERATING INCOME (LOSS) 168 227 (702 ) 343

Non-operating income (3 ) (3 ) (7 ) (5 )

EARNINGS (LOSS) BEFORE INTEREST 171 230 (695 ) 348 AND TAXES

Interest expense, net 36 32 63 68

EARNINGS (LOSS) BEFORE TAXES 135 198 (758 ) 280

Income tax expense 39 59 63 98

Equity in net loss of (1 ) (1 ) - - affiliates

NET EARNINGS (LOSS) 95 138 (821 ) 182

Net loss attributable to (1 ) - - - noncontrolling interests

NET EARNINGS (LOSS) $ 96 $ 138 $ (821 ) $ 182 ATTRIBUTABLE TO OWENS CORNING

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

Basic $ 0.88 $ 1.27 $ (7.55 ) $ 1.67

Diluted $ 0.88 $ 1.26 $ (7.55 ) $ 1.66

WEIGHTED AVERAGE COMMON SHARES

Basic 108.6 109.0 108.7 109.3

Diluted 108.9 109.5 108.7 109.8



Table 2 Owens Corning and Subsidiaries EBIT Reconciliation Schedules (unaudited)

Adjusting income (expense) items to EBIT are shown in the table below (in millions):

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

2020 2019 2020 2019

Restructuring (costs) / gains $ (5 ) $ (1 ) $ (10 ) $ 1

Gains on sale of certain precious metals 9 - 19 -

Goodwill impairment charge - - (944 ) -

Intangible assets impairment charge - - (43 ) -

Total adjusting items $ 4 $ (1 ) $ (978 ) $ 1

The reconciliation from Net earnings (loss) attributable to Owens Corning to EBIT and to Adjusted EBIT is shown in the table below (in millions):

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

2020 2019 2020 2019

NET EARNINGS (LOSS) ATTRIBUTABLE TO OWENS $ 96 $ 138 $ (821 ) $ 182 CORNING

Net loss attributable to noncontrolling (1 ) - - - interests

NET EARNINGS (LOSS) 95 138 (821 ) 182

Equity in net loss of affiliates (1 ) (1 ) - -

Income tax expense 39 59 63 98

EARNINGS (LOSS) BEFORE TAXES 135 198 (758 ) 280

Interest expense, net 36 32 63 68

EARNINGS (LOSS) BEFORE INTEREST AND TAXES 171 230 (695 ) 348

Adjusting items from above 4 (1 ) (978 ) 1

ADJUSTED EBIT $ 167 $ 231 $ 283 $ 347



Table 3 Owens Corning and Subsidiaries EPS Reconciliation Schedules (unaudited) (in millions, except per share data)

A reconciliation from Net earnings (loss) attributable to Owens Corning to adjusted earnings and a reconciliation from diluted earnings (loss) per share to adjusted diluted earnings per share are shown in the tables below:

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

2020 2019 2020 2019

RECONCILIATION TO ADJUSTED EARNINGS

NET EARNINGS (LOSS) ATTRIBUTABLE $ 96 $ 138 $ (821 ) $ 182 TO OWENS CORNING

Adjustment to remove adjusting (4 ) 1 978 (1 ) items (a)

Adjustment to remove tax expense/ 2 (1 ) (16 ) - (benefit) on adjusting items (b)

Adjustment to remove significant - - 18 12 tax items (c)

Adjustment to tax expense to 2 3 2 6 reflect pro forma tax rate (c)

ADJUSTED EARNINGS $ 96 $ 141 $ 161 $ 199



RECONCILIATION TO ADJUSTED DILUTEDEARNINGS PER SHARE ATTRIBUTABLE TO OWENS CORNING COMMON STOCKHOLDERS

DILUTED EARNINGS (LOSS) PER COMMONSHARE ATTRIBUTABLE TO OWENS $ 0.88 $ 1.26 $ (7.55 ) $ 1.66 CORNING COMMON STOCKHOLDERS

Adjustment to remove adjusting (0.04 ) 0.01 9.00 (0.01 ) items (a)

Adjustment to remove tax expense/ 0.02 (0.01 ) (0.15 ) - (benefit) on adjusting items (b)

Adjustment to remove significant - - 0.17 0.11 tax items (c)

Adjustment to tax expense to 0.02 0.03 0.01 0.05 reflect pro forma tax rate (c)

ADJUSTED DILUTED EARNINGS PERSHARE ATTRIBUTABLE TO OWENS $ 0.88 $ 1.29 $ 1.48 $ 1.81 CORNING COMMON STOCKHOLDERS



RECONCILIATION TO DILUTED SHARES OUTSTANDING

Weighted-average number of sharesoutstanding used for basic 108.6 109.0 108.7 109.3 earnings per share

Non-vested restricted and 0.2 0.4 - 0.4 performance shares

Options to purchase common stock 0.1 0.1 - 0.1

Weighted-average number of sharesoutstanding and common equivalent 108.9 109.5 108.7 109.8 shares used for diluted earnings(loss) per share

(a) Please refer to Table 2 "EBIT Reconciliation Schedules" for additional information on adjusting items.

(b) The tax impact of adjusting items is based on our expected tax accounting treatment and rate for the jurisdiction of each adjusting item.

To compute adjusted earnings, we apply a full year pro forma effective tax rate to each quarter presented. For 2020, we have used a full year pro forma effective tax rate of 27%, which is the mid-point of our 2020 effective tax rate guidance of 26% to 28%, excluding the adjusting items referenced in (a) and (b) and excluding the impact of a change in valuation(c) allowances recorded against certain deferred tax assets. For comparability, in 2019, we have used an effective tax rate of 28%, which was our 2019 effective tax rate excluding the impact of a change in estimate related to proposed regulations on global intangible low-taxes income (GILTI), part of the U.S. Tax Cuts and Jobs Act of 2017, the tax impact of adjusting items and other significant tax items.

Table 4Owens Corning and SubsidiariesConsolidated Balance Sheets(unaudited)(in millions, except per share data)

ASSETS June 30, December 31, 2020 2019

CURRENT ASSETS

Cash and cash equivalents $ 582 $ 172

Receivables, less allowances of $10 at June 30, 2020 and 986 770 $11 at December 31, 2019

Inventories 951 1,033

Other current assets 85 86

Total current assets 2,604 2,061

Property, plant and equipment, net 3,716 3,855

Operating lease right-of-use assets 168 203

Goodwill 966 1,932

Intangible assets 1,650 1,721

Deferred income taxes 32 46

Other non-current assets 234 188

TOTAL ASSETS $ 9,370 $ 10,006

LIABILITIES AND EQUITY

Current liabilities $ 1,393 $ 1,329

Long-term debt, net of current portion 3,314 2,986

Pension plan liability 208 231

Other employee benefits liability 173 179

Non-current operating lease liabilities 111 138

Deferred income taxes 304 272

Other liabilities 204 200

OWENS CORNING STOCKHOLDERS' EQUITY

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

Common stock, par value $0.01 per share (b) 1 1

Additional paid in capital 4,054 4,051

Accumulated earnings 1,445 2,319

Accumulated other comprehensive deficit (675 ) (610 )

Cost of common stock in treasury (c) (1,201 ) (1,130 )

Total Owens Corning stockholders' equity 3,624 4,631

Noncontrolling interests 39 40

Total equity 3,663 4,671

TOTAL LIABILITIES AND EQUITY $ 9,370 $ 10,006

(a) 10 shares authorized; none issued or outstanding at June 30, 2020, and December 31, 2019

(b) 400 shares authorized; 135.5 issued and 108.0 outstanding at June 30, 2020; 135.5 issued and 109.0 outstanding at December 31, 2019

(c) 27.5 shares at June 30, 2020, and 26.5 shares at December 31, 2019



Table 5Owens Corning and SubsidiariesConsolidated Statements of Cash Flows(unaudited)(in millions)

Six Months Ended June 30,

2020 2019

NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES

Net earnings (loss) $ (821 ) $ 182

Adjustments to reconcile net earnings (loss) to cash provided by operating activities:

Depreciation and amortization 232 225

Deferred income taxes 48 65

Provision for pension and other employee benefits (1 ) - liabilities

Stock-based compensation expense 20 21

Goodwill impairment charge 944 -

Intangible assets impairment charge 43 -

Other adjustments to reconcile net earnings (loss) to cash (20 ) 5 provided by operating activities

Changes in operating assets and liabilities (191 ) (191 )

Pension fund contribution (12 ) (9 )

Payments for other employee benefits liabilities (7 ) (9 )

Other (6 ) (2 )

Net cash flow provided by operating activities 229 287

NET CASH FLOW USED FOR INVESTING ACTIVITIES

Cash paid for property, plant, and equipment (140 ) (213 )

Proceeds from the sale of assets or affiliates 38 3

Derivative settlements 48 8

Net cash flow used for investing activities (54 ) (202 )

NET CASH FLOW PROVIDED BY (USED FOR) FINANCING ACTIVITIES

Proceeds from long-term debt 297 -

Proceeds from senior revolving credit and receivables 736 946 securitization facilities

Payments on senior revolving credit and receivables (546 ) (808 ) securitization facilities

Payments on term loan borrowing (50 ) (100 )

Net decrease in short-term debt (17 ) (10 )

Dividends paid (52 ) (48 )

Purchases of treasury stock (96 ) (61 )

Other (7 ) (1 )

Net cash flow provided by (used for) financing activities 265 (82 )

Effect of exchange rate changes on cash (30 ) 12

Net increase in cash, cash equivalents, and restricted cash 410 15

Cash, cash equivalents and restricted cash at beginning of 179 85 period

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD $ 589 $ 100



Table 6 Owens Corning and Subsidiaries Segment Information (unaudited)

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

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

2020 2019 2020 2019

Net sales $ 398 $ 535 $ 892 $ 1,048

% change from prior year -26 % -1 % -15 % - %

EBIT $ 6 $ 67 $ 50 $ 124

EBIT as a % of net sales 2 % 13 % 6 % 12 %

Depreciation and amortization expense $ 39 $ 38 $ 77 $ 77

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

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

2020 2019 2020 2019

Net sales $ 595 $ 661 $ 1,198 $ 1,252

% change from prior year -10 % -3 % -4 % -2 %

EBIT $ 32 $ 42 $ 71 $ 57

EBIT as a % of net sales 5 % 6 % 6 % 5 %

Depreciation and amortization expense $ 49 $ 49 $ 98 $ 98

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

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

2020 2019 2020 2019

Net sales $ 677 $ 778 $ 1,232 $ 1,392

% change from prior year -13 % 18 % -11 % 7 %

EBIT $ 148 $ 151 $ 212 $ 225

EBIT as a % of net sales 22 % 19 % 17 % 16 %

Depreciation and amortization expense $ 15 $ 13 $ 29 $ 26



Table 7 Owens Corning and Subsidiaries Corporate, Other and Eliminations (unaudited)

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

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

2020 2019 2020 2019

Restructuring (costs) / gains $ (5 ) $ (1 ) $ (10 ) $ 1

Gains on sale of certain precious 9 - 19 - metals

Goodwill impairment charge - - (944 ) -

Intangible assets impairment charge - - (43 ) -

General corporate expense and other (19 ) (29 ) (50 ) (59 )

EBIT $ (15 ) $ (30 ) $ (1,028 ) $ (58 )

Depreciation and amortization $ 13 $ 12 $ 28 $ 24



Table 8 Owens Corning and Subsidiaries Free Cash Flow Reconciliation Schedule (unaudited)

The reconciliation from net cash flow provided by operating activities to free cash flow is shown in the table below (in millions):

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

2020 2019 2020 2019

NET CASH FLOW PROVIDED BY OPERATING $ 281 $ 438 $ 229 $ 287 ACTIVITIES

Less: Cash paid for property, plant and (48) (115) (140) (213) equipment

FREE CASH FLOW $ 233 $ 323 $ 89 $ 74

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