# Owens Corning (OC) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Owens Corning's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1370946/000137094622000010/oc-20211231.htm
Accession: 0001370946-22-000010
Filing date: 2022-02-16
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/OC/
All MD&A years: /company/OC/mda/
Next year: /company/OC/mda/fy2022/ (FY 2022)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis (MD&A) is intended to help investors understand Owens Corning, our operations and our present business environment. MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying Notes thereto contained in this report. Unless the context requires otherwise, the terms “Owens Corning,” “Company,” “we,” "its," and “our” in this report refer to Owens Corning and its subsidiaries.

This section of this Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

GENERAL

Owens Corning is a global building and construction materials leader helping customers win in the market by providing innovative and sustainable solutions. The Company has three reporting segments: Composites, Insulation and Roofing. Through these lines of business, the Company manufactures and sells products worldwide. We maintain leading market positions in many of our major product categories.

EXECUTIVE OVERVIEW

Throughout 2021, the impact of the COVID-19 pandemic on our operations continued to wane due to the resumption of widespread economic activity and ensuing recovery in many of the markets we serve globally. Despite the market recovery, we continue to monitor the impacts the pandemic has had on our businesses such as input cost inflation, supply chain challenges and primary labor availability, and take precautions to provide a safe environment for our employees and customers. The COVID-19 pandemic initially caused an economic downturn on a global scale, the impact of which is reflected in our financial results for 2020, which serve as the basis for comparison in the paragraphs below.

Net earnings attributable to Owens Corning were $995 million in 2021, compared to a net loss attributable to Owens Corning of $383 million in 2020. The Company reported $1,448 million in earnings before interest and taxes (EBIT) in 2021 compared to a loss of $124 million in 2020. The Company generated $1,415 million in adjusted earnings before interest and taxes (“Adjusted EBIT”) in 2021 compared to $878 million in 2020. See the Adjusted Earnings Before Interest and Taxes paragraph of MD&A for further information regarding EBIT and Adjusted EBIT, including the reconciliation to net earnings (loss) attributable to Owens Corning. Segment EBIT performance compared to 2020 increased $211 million in our Composites segment, increased $196 million in our Insulation segment, and increased $162 million in our Roofing segment. Within our Corporate, Other and Eliminations category, General corporate expenses and other increased by $32 million.

Cash and cash equivalents were $959 million as of December 31, 2021, compared to $717 million as of December 31, 2020, as a result of strong cash flow provided by operating activities. In 2021, the Company's operating activities provided $1,503 million of cash flow, compared to $1,135 million in 2020. The change was primarily driven by higher earnings and an increase in accounts payable and accrued liabilities, partially offset by higher inventories.

On August 19, 2021, the Company issued a make-whole call to repay the remaining portion of its outstanding 2022 senior notes, and the redemption was completed in the third quarter of 2021. The Company recognized $9 million of loss on extinguishment of debt in the third quarter of 2021 associated with these actions.

On July 28, 2021, the Company entered into a purchase and sale agreement for the Company’s Insulation site in Santa Clara, California to commercial real estate developer Panattoni for expected gross proceeds of approximately $240 million, including a non-refundable deposit of $50 million received at signing. The Company expects to continue operations at this facility into the second half of 2022 and complete the transaction in first-quarter 2023. This action is part of the Company’s on-going strategy to operate a flexible, cost-efficient manufacturing network and geographically locate its assets to better service its customers. Cumulative cash pre-tax charges associated with the transaction are expected to be in the range of $30 million to $40 million, primarily related to severance and one-time employee termination benefits, demolition costs, and other closing costs. In addition, cumulative non-cash charges are expected to be in the range of $75 million to $85 million, primarily consisting of accelerated depreciation of property, plant and equipment and derecognition of the carrying value of land, which will offset the gross proceeds at closing.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

On July 13, 2021, the Company acquired vliepa GmbH ("vliepa"), which specializes in the coating, printing, and finishing of nonwovens, paper, and film for the building materials industry in Europe, for $42 million, net of cash acquired. The acquisition broadens the Company’s global nonwovens portfolio to better serve European customers and accelerate growth of building and construction market applications in the region. Operating results of the acquisition and a preliminary purchase price allocation have been included in the Company’s Composites segment within the Consolidated Financial Statements beginning July 13, 2021.

In 2021, the Company repurchased 6.1 million shares of the Company’s common stock for $557 million under a previously announced repurchase authorization. As of December 31, 2021, 3.4 million shares remained available for repurchase under the previously announced repurchase authorization. On February 14, 2022 the Company's Board of Directors approved an additional 10 million share repurchase authorization.

RESULTS OF OPERATIONS

Consolidated Results (in millions)

[[GREPCENT_TABLE]]
[["","Twelve Months Ended December 31,"],["","2021","","2020","","2019"],["Net sales","$","8,498","","","$","7,055","","","$","7,160"],["Gross margin","$","2,217","","","$","1,610","","","$","1,609"],["% of net sales","26","%","","23","%","","22","%"],["Marketing and administrative expenses","$","757","","","$","664","","","$","698"],["Goodwill impairment charge","$","\u2014","","","$","944","","","$","\u2014"],["Other (income) expenses, net","$","(69)","","","$","58","","","$","37"],["Earnings (loss) before interest and taxes","$","1,448","","","$","(124)","","","$","753"],["Interest expense, net","$","126","","","$","132","","","$","131"],["Loss on extinguishment of debt","$","9","","","$","\u2014","","","$","32"],["Income tax expense","$","319","","","$","129","","","$","186"],["Net earnings (loss) attributable to Owens Corning","$","995","","","$","(383)","","","$","405"]]
[[/GREPCENT_TABLE]]

The Consolidated Results discussion below provides a summary of our results and the trends affecting our business, and should be read in conjunction with the more detailed Segment Results discussion that follows.

NET SALES

Net sales increased $1,443 million in 2021 compared to 2020. The increase in net sales was primarily driven by higher sales volumes and higher selling prices across all three segments. Favorable customer mix in Composites and the favorable impact of translating sales denominated in foreign currencies into United States dollars also contributed to the increase.

GROSS MARGIN

Gross margin increased $607 million in 2021 compared to 2020. The increase in gross margin was driven by higher sales volumes in all three segments. The impact of higher selling prices in all three segments more than offset higher input cost inflation and higher transportation costs. The increase was also driven by favorable manufacturing performance in all three segments and the favorable comparison year-over-year to curtailment costs in our Composites and Insulation segments in 2020.

MARKETING AND ADMINISTRATIVE EXPENSES

Marketing and administrative expenses increased $93 million in 2021 compared to 2020. The increase was primarily driven by higher performance-based compensation, higher general corporate expenses as business activities returned to a more typical, post-pandemic level and higher wages.

GOODWILL IMPAIRMENT CHARGE

The Company recorded a non-cash impairment charge of $944 million in the first quarter of 2020 related to the Insulation reporting unit, which was equal to the excess of the reporting unit's carrying value over its fair value.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

OTHER (INCOME) EXPENSES, NET

Other (income) expenses, net decreased $127 million in 2021 compared to 2020. The decrease was primarily driven by the favorable comparison year-over-year to intangible asset impairment charges of $43 million recognized in 2020. The remaining difference was driven by $27 million of higher gains on sale of precious metals, $25 million of gain on settlements from contracts to purchase and sell wind-generated electricity and the $15 million gain on sale of land in India.

INTEREST EXPENSE, NET

Interest expense, net decreased $6 million in 2021 compared to 2020. The decrease was driven by lower borrowings on the Senior Revolving Credit Facility, higher interest capitalized and the repayment of the term loan.

LOSS ON EXTINGUISHMENT OF DEBT

For the year ended December 31, 2021, the Company recognized a $9 million loss on extinguishment of debt in connection with the repayment of the remaining portion of its outstanding 2022 senior notes. During 2020, there were no extinguishments of debt.

INCOME TAX EXPENSE

Income tax expense for 2021 was $319 million compared to $129 million in 2020. The Company’s effective tax rate for 2021 was 24% on pre-tax income of $1,313 million.  The difference between the 24% effective tax rate and the U.S. federal statutory tax rate of 21% is primarily due to U.S. state and local income tax expense, adjustments to foreign tax credits, and other discrete adjustments.

The realization of deferred tax assets depends on achieving a certain minimum level of future taxable income. Management currently believes that it is at least reasonably possible that the minimum level of taxable income will be met within the next 12 months to reduce the valuation allowances of certain foreign jurisdictions by a range of zero to $3 million.

The Company’s effective tax rate for 2020 was (50)% on pre-tax losses of $256 million. The difference between the (50)% effective tax rate and the U.S. federal statutory tax rate of 21% is primarily attributable to charges related to the impairment of goodwill and certain other indefinite-lived intangible assets recorded in the first quarter of 2020, which were largely non-deductible. In addition, non-cash charges were recorded related to adjustments to valuation allowances against certain deferred tax assets. The company also recorded an amortizable asset in the US related to its transfer of economic rights of its non-US based Intellectual Property to the U.S., as further discussed in the following paragraph.

In December 2020, the Company completed an intercompany restructuring that resulted in the transfer of certain intellectual property rights held by wholly owned foreign subsidiaries to the U.S. The intellectual property rights transferred to the U.S. resulted in a step-up in the tax basis for U.S. tax purposes resulting in the Company recognizing a deferred tax asset of $37 million and tax expense of $5 million for 2020. The recognized tax benefit of $37 million is amortizable for U.S. tax purposes over a fifteen-year period.

On July 20, 2020 the Internal Revenue Service (IRS) issued final regulations under IRC Section 951A permitting a taxpayer to elect to exclude from its inclusion of global intangible low-taxed income (GILTI), income subject to a high foreign effective tax rate. As a result of the final regulations, the Company recorded a net non-cash income tax benefit of $13 million in the third quarter of 2020 relating to the 2018 and 2019 tax years.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Restructuring and Acquisition-Related Costs

The Company has incurred restructuring, transaction and integration costs related to acquisitions, along with restructuring costs in connection with its global cost reduction and productivity initiatives. These costs are recorded in the Corporate, Other and Eliminations category. Please refer to Note 11 of the Consolidated Financial Statements for further information on the nature of these costs.

The following table presents the impact and respective location of these income (expense) items on the Consolidated Statements of Earnings (Loss) (in millions):

[[GREPCENT_TABLE]]
[["","","","Twelve Months Ended December 31,"],["","Location","","2021","","2020","","2019"],["Restructuring costs","Cost of sales","","$","(14)","","","$","(26)","","","$","(15)"],["Restructuring costs","Marketing and administrative expenses","","(2)","","","\u2014","","","\u2014"],["Severance","Other (income) expenses, net","","(11)","","","(13)","","","(13)"],["Other exit gains/(costs)","Other (income) expenses, net","","(5)","","","(2)","","","1"],["Gain on sale of land in India","Other (income) expenses, net","","15","","","\u2014","","","\u2014"],["Restructuring costs","Non-operating (income) expense","","(2)","","","\u2014","","","(1)"],["Recognition of acquisition inventory fair value step-up","Cost of sales","","(1)","","","\u2014","","","\u2014"],["Total restructuring, acquisition and integration-related costs","","","$","(20)","","","$","(41)","","","$","(28)"]]
[[/GREPCENT_TABLE]]

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

Adjusted EBIT is a non-GAAP measure that excludes certain items that management does not allocate to our segment results because it believes they are not representative of the Company’s ongoing operations. Adjusted EBIT is used internally by the Company for various purposes, including reporting results of operations to the Board of Directors of the Company, analysis of performance and related employee compensation measures. Although management believes that these adjustments result in a measure that provides a useful representation of our operational performance, the adjusted measure should not be considered in isolation or as a substitute for Net earnings (loss) attributable to Owens Corning as prepared in accordance with accounting principles generally accepted in the United States.

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

[[GREPCENT_TABLE]]
[["","Twelve Months Ended December 31,"],["","2021","","2020","","2019"],["Restructuring costs","$","(34)","","","$","(41)","","","$","(28)"],["Gain on sale of land in India","15","","","\u2014","","","\u2014"],["Gains on sale of certain precious metals","53","","","26","","","\u2014"],["Goodwill impairment charge","\u2014","","","(944)","","","\u2014"],["Intangible assets impairment charge","\u2014","","","(43)","","","\u2014"],["Recognition of acquisition inventory fair value step-up","(1)","","","\u2014","","","\u2014"],["Pension settlement losses","\u2014","","","\u2014","","","(43)"],["Environmental liability charges","\u2014","","","\u2014","","","(4)"],["Total adjusting items","$","33","","","$","(1,002)","","","$","(75)"]]
[[/GREPCENT_TABLE]]

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

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

[[GREPCENT_TABLE]]
[["","Twelve Months Ended December 31,"],["","2021","","2020","","2019"],["NET EARNINGS (LOSS) ATTRIBUTABLE TO OWENS CORNING","$","995","","","$","(383)","","","$","405"],["Net loss attributable to noncontrolling interests","\u2014","","","(2)","","","\u2014"],["NET EARNINGS (LOSS)","995","","","(385)","","","405"],["Equity in net earnings of affiliates","1","","","\u2014","","","1"],["Income tax expense","319","","","129","","","186"],["EARNINGS (LOSS) BEFORE TAXES","1,313","","","(256)","","","590"],["Interest expense, net","126","","","132","","","131"],["Loss on extinguishment of debt","9","","","\u2014","","","32"],["EARNINGS (LOSS) BEFORE INTEREST AND TAXES","1,448","","","(124)","","","753"],["Adjusting items from above","33","","","(1,002)","","","(75)"],["ADJUSTED EBIT","$","1,415","","","$","878","","","$","828"]]
[[/GREPCENT_TABLE]]

Segment Results

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

Composites

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

[[GREPCENT_TABLE]]
[["","Twelve Months Ended December 31,"],["","2021","","2020","","2019"],["Net sales","$","2,341","","","$","1,960","","","$","2,059"],["% change from prior year","19","%","","-5","%","","1","%"],["EBIT","$","376","","","$","165","","","$","247"],["EBIT as a % of net sales","16","%","","8","%","","12","%"],["Depreciation and amortization expense","$","162","","","$","159","","","$","154"]]
[[/GREPCENT_TABLE]]

NET SALES

Net sales in our Composites segment increased $381 million in 2021 compared to 2020. The increase was due to the favorable impact of customer mix, higher selling prices of $108 million, and higher sales volumes of 5%. The remaining improvement was driven by the favorable impact of $25 million from translating sales denominated in foreign currencies into United States Dollars and the acquisition of vliepa.

EBIT

EBIT in our Composites segment increased $211 million in 2021 compared to 2020. Higher selling prices of $108 million more than offset $74 million of input cost inflation and $28 million in higher transportation costs. The favorable year-over-year comparison to curtailments costs incurred in 2020 contributed $84 million of the improvement. The remaining increase was driven about evenly by the impact of favorable customer mix, improved manufacturing performance and higher sales volumes.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

OUTLOOK

Global glass reinforcements market demand has several economic indicators including residential, non-residential construction and manufacturing production indices, as well as global wind installations. The Company anticipates continued strong market conditions, while monitoring economic factors such as high input cost inflation, supply chain uncertainties and primary labor availability. The Company will continue to focus on managing costs, capital expenditures, and working capital.

Insulation

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

[[GREPCENT_TABLE]]
[["","Twelve Months Ended December 31,"],["","2021","","2020","","2019"],["Net sales","$","3,184","","","$","2,607","","","$","2,668"],["% change from prior year","22","%","","-2","%","","-2","%"],["EBIT","$","446","","","$","250","","","$","230"],["EBIT as a % of net sales","14","%","","10","%","","9","%"],["Depreciation and amortization expense","$","208","","","$","201","","","$","194"]]
[[/GREPCENT_TABLE]]

NET SALES

In our Insulation segment, 2021 net sales increased $577 million compared to 2020. The increase was due to higher sales volumes of approximately 12%, higher selling prices of $188 million, and the favorable impact of translating sales denominated in foreign currencies into United States dollars of $66 million.

EBIT

In our Insulation segment, EBIT increased $196 million in 2021 compared to 2020. Higher selling prices of $188 million more

than offset $122 million of input cost inflation and $43 million in higher transportation costs. The impact of higher sales volumes and the $73 million benefit of fixed cost absorption on higher production volumes drove the favorable comparison year-over-year. The remaining improvement was driven by favorable manufacturing performance which was offset by higher selling, general, and administrative expenses.

OUTLOOK

The outlook for Insulation demand is driven by North American new residential construction, remodeling and repair activity, as well as commercial and industrial construction activity in the United States, Canada, Europe, Asia-Pacific and Latin America. Demand in commercial and industrial insulation markets is most closely correlated to industrial production growth and overall economic activity in the global markets we serve. Demand for residential insulation is most closely correlated to U.S. housing starts.

During the fourth quarter of 2021, the average Seasonally Adjusted Annual Rate (SAAR) of U.S. housing starts was approximately 1.644 million starts, which was up from 1.575 million starts in the fourth quarter of 2020.

The Company expects continued strength in both the North American new residential construction market and global commercial and industrial construction markets, while monitoring economic factors such as high input cost inflation, supply chain uncertainties and primary labor availability. The Company will continue to focus on managing costs, capital expenditures, and working capital.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Roofing

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

[[GREPCENT_TABLE]]
[["","Twelve Months Ended December 31,"],["","2021","","2020","","2019"],["Net sales","$","3,209","","","$","2,695","","","$","2,634"],["% change from prior year","19","%","","2","%","","6","%"],["EBIT","$","753","","","$","591","","","$","455"],["EBIT as a % of net sales","23","%","","22","%","","17","%"],["Depreciation and amortization expense","$","59","","","$","59","","","$","54"]]
[[/GREPCENT_TABLE]]

NET SALES

In our Roofing segment, net sales increased $514 million in 2021 compared to 2020. The increase was driven by higher selling prices of $325 million and higher shingle and components sales volumes of approximately 8%, slightly offset by unfavorable product mix.

EBIT

In our Roofing segment, EBIT increased $162 million in 2021 compared to 2020. Higher selling prices of $325 million more

than offset input cost inflation, primarily asphalt and other petroleum-based products, of $176 million and $47 million of higher transportation costs. The impact of unfavorable product and customer mix were nearly offset by favorable manufacturing performance. The impact of higher sales volumes drove the remaining year over year improvement.

OUTLOOK

In our Roofing segment, we expect the factors that have driven strong margins in recent years, such as growth from remodeling demand, along with higher sales of roofing components, to continue to deliver profitability. Uncertainties that may impact our Roofing margins include demand from storm and other weather events, demand from new construction, competitive pricing pressure and the cost and availability of raw materials, particularly asphalt.

Despite strength in the U.S. asphalt shingle market, the Company will continue to monitor economic factors such as high input cost inflation, supply chain uncertainties and primary labor availability. The Company will continue to focus on managing costs, capital expenditures, and working capital.

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):

[[GREPCENT_TABLE]]
[["","Twelve Months Ended December 31,"],["","2021","","2020","","2019"],["Restructuring costs","$","(34)","","","$","(41)","","","$","(28)"],["Gain on sale of land in India","15","","","\u2014","","","\u2014"],["Gains on sale of certain precious metals","53","","","26","","","\u2014"],["Goodwill impairment charge","\u2014","","","(944)","","","\u2014"],["Intangible assets impairment charge","\u2014","","","(43)","","","\u2014"],["Recognition of acquisition inventory fair value step-up","(1)","","","\u2014","","","\u2014"],["Pension settlement losses","\u2014","","","\u2014","","","(43)"],["Environmental liability charges","\u2014","","","\u2014","","","(4)"],["General corporate expense and other","(160)","","","(128)","","","(104)"],["EBIT","$","(127)","","","$","(1,130)","","","$","(179)"],["Depreciation and amortization","$","73","","","$","74","","","$","55"]]
[[/GREPCENT_TABLE]]

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

EBIT

In Corporate, Other and Eliminations, EBIT losses in 2021 were $1,003 million lower compared to 2020, primarily due to the $944 million goodwill impairment charge and $43 million of intangible assets impairment charge recorded in the first quarter of 2020. Additional details of this charge are further explained in Note 5. Gains on the sale of certain precious metals and the sale of land in India slightly offset these impairment charges.

General corporate expense and other in 2021 was $32 million higher than in 2020, driven primarily by higher performance-based compensation associated with improved Adjusted EBIT results for 2021 and higher general corporate expenses as business activities return to a more typical, post-pandemic level.

OUTLOOK

In 2022, we expect general corporate expenses to range between $160 and $170 million.

LIQUIDITY, CAPITAL RESOURCES AND OTHER RELATED MATTERS

Liquidity

The Company's primary sources of liquidity are its balance of Cash and cash equivalents of $959 million as of December 31, 2021, its Senior Revolving Credit Facility and its Receivables Securitization Facility (each as defined below).

The Company has an $800 million senior revolving credit facility (the "Senior Revolving Credit Facility") that has been amended from time to time, which matures in July 2026.

The Company has a $280 million securitization facility (the "Receivables Securitization Facility") that has been amended from time to time, which matures in April 2024.

The following table shows how the Company utilized its primary sources of liquidity (in millions):

[[GREPCENT_TABLE]]
[["","","As of December 31, 2021"],["","","Senior Revolving Credit Facility","Receivables Securitization Facility"],["Facility size","","$","800","","$","280"],["Collateral capacity limitation on availability","","n/a","\u2014"],["Outstanding borrowings","","\u2014","","\u2014"],["Outstanding letters of credit","","4","","1"],["Availability on facility","","$","796","","$","279"]]
[[/GREPCENT_TABLE]]

On August 19, 2021, the Company issued a make-whole call to repay the remaining portion of its outstanding 2022 senior notes, and the redemption was completed in the third quarter of 2021. The Company recognized approximately $9 million of loss on extinguishment of debt in the third quarter of 2021 associated with these actions.

The Company issued $300 million of 2030 senior notes on May 12, 2020. Interest on the notes is payable semiannually in arrears on June 1 and December 1 each year, beginning on December 1, 2020. The proceeds from these notes were used for general corporate purposes.

The Company obtained a term loan commitment on October 27, 2017 for $600 million (the "Term Loan"). The Company entered into the Term Loan, in part, to pay a portion of the purchase price of the Paroc acquisition. The Term Loan contained quarterly principal repayments and full repayment by February 2021. In the third quarter of 2020, the Company repaid all outstanding borrowings on the Term Loan.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

The Receivables Securitization Facility and Senior Revolving Credit Facility mature in 2024 and 2026, respectively. The Company has no significant debt maturities of senior notes before the fourth quarter of 2024. As of December 31, 2021, the Company had $3 billion of total debt and cash and cash equivalents of $959 million. The agreements governing our Senior Revolving Credit Facility and Receivables Securitization Facility contain various covenants that we believe are usual and customary. These covenants include a maximum allowed leverage ratio. We were in compliance with these covenants as of December 31, 2021.

Cash and cash equivalents held by foreign subsidiaries may be subject to foreign withholding taxes upon repatriation to the U.S. As of December 31, 2021 and December 31, 2020, the Company had $156 million and $71 million, respectively, in cash and cash equivalents in certain of its foreign subsidiaries. The Company continues to assert indefinite reinvestment in accordance with Accounting Standards Codification (ASC) 740 based on the laws as of enactment of the tax legislation commonly known as the U.S. Tax Cuts and Jobs Act of 2017.

As a holding company, we have no operations of our own and most of our assets are held by our direct and indirect subsidiaries. Dividends and other payments or distributions from our subsidiaries will be used to meet our debt service and other obligations and to enable us to pay dividends to our stockholders. Please refer to the Risk Factors disclosed in Item 1A of this Form 10-K for details on the factors that could inhibit our subsidiaries' abilities to pay dividends or make other distributions to the parent company.

We have no material off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity, capital expenditures or other resources.

Material Cash Requirements

Our anticipated uses of cash include capital expenditures, working capital needs, share repurchases, meeting financial obligations, payments of any dividends authorized by our Board of Directors, acquisitions, restructuring actions and pension contributions. We expect that our cash on hand, coupled with future cash flows from operations and other available sources of liquidity, including our Senior Revolving Credit Facility and our Receivables Securitization Facility, will provide ample liquidity to enable us to meet our cash requirements.

The following discussion of material cash requirements evaluates known contractual and other obligations, but does not include amounts that are contingent on events or other factors that are uncertain or unknown at this time including legal contingencies, and uncertain tax positions among others. The amounts presented are based on various estimates, including estimates regarding the timing of payments, prevailing interest rates, the occurrence of certain events and other factors. Actual results may vary materially from the amounts discussed below.

Capital Expenditures: Our capital expenditures are primarily related to the maintenance and rebuild of our long-term assets, as well as investing in projects that support growth and innovation to further our enterprise strategy. Our capital expenditures on an accrual basis were $468 million in 2021. We expect to have capital expenditures on an accrual basis of approximately $480 million in 2022. The projected increase in capital expenditures in 2022 is primarily driven by capacity expansion in our Composites and Insulation segments. We expect that capital expenditures will be funded through cash flows from operations. See Note 2 and Note 6 of the Consolidated Financial Statements for additional information on property, plant and equipment.

Long-term debt obligations: As of December 31, 2021, total long-term debt of $3.0 billion primarily consists of various outstanding Senior Notes with scheduled maturities starting in 2024. Further discussion of the amount and timing of the future scheduled maturities of these Senior Notes can be found in Note 12 of the Consolidated Financial Statements. There were no borrowings on our Senior Revolving Credit Facility or our Receivables Securitization Facility as of December 31, 2021.

Interest on debt: We are obligated to make periodic interest payments at fixed rates, depending on the terms of the applicable debt agreements. Based on interest rates and scheduled maturities as of December 31, 2021, these interest obligations range from $113 million to $130 million annually over the next five years.

Finance lease obligations: Our finance lease obligations primarily consist of real estate and material handling equipment. As of December 31, 2021 we had a total of $116 million of minimum finance lease payments. Further discussion of the future maturities of these lease liabilities can be found in Note 8 of the Consolidated Financial Statements.

Operating lease obligations: Our operating lease obligations primarily consist of office equipment and fleet vehicles. As of December 31, 2021, we had a total of $174 million of minimum operating lease payments. Further discussion of the future maturities of these lease liabilities can be found in Note 8 of the Consolidated Financial Statements.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Purchase obligations: Purchase obligations are commitments to suppliers to purchase goods or services, and include take-or-pay arrangements, capital expenditures, and contractual commitments to purchase equipment. As of December 31, 2021, the total of these obligations was $438 million, inclusive of $280 million payable in the next 12 months. The Company did not include ordinary course of business purchase orders in this amount as the majority of such purchase orders may be canceled and are reflected in historical operating cash flow trends. The Company does not believe such purchase orders will adversely affect our liquidity position.

Pension Contributions: The Company has several defined benefit pension plans. The Company made cash contributions of $21 million and $122 million to the plans during the twelve months ended December 31, 2021 and 2020, respectively. The Company expects to contribute $25 million in cash to its pension plans during 2022. Actual contributions to the plans may change as a result of several 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. Further discussion of the Company's defined benefit pension plans can be found in Note 13 of the Consolidated Financial Statements.

Other Strategic Uses of Cash: We have outstanding share repurchase authorizations and will evaluate and consider repurchasing shares of our common stock, as well as payments of any dividends authorized by our Board of Directors, strategic acquisitions, divestitures, joint ventures and other transactions to create stockholder value and enhance financial performance. Such transactions may require cash expenditures beyond current sources of liquidity or generated proceeds.

Supplier Finance Programs

We review supplier terms and conditions on an ongoing basis, and have negotiated payment terms extensions in recent years in connection with our efforts to reduce working capital and improve cash flow. Separate from those terms extension actions, certain of our subsidiaries have entered into paying agency agreements with third-party administrators. These voluntary supply chain finance programs (collectively, the “Programs”) generally give participating suppliers the ability to sell, or otherwise pledge as collateral, their receivables from the Company to the participating financial institutions, at the sole discretion of both the suppliers and financial institutions. The Company is not a party to the arrangements between the suppliers and the financial institutions. The Company’s obligations to its suppliers, including amounts due and scheduled payment dates, are not impacted by the suppliers’ decisions to sell, or otherwise pledge as collateral, amounts under these arrangements. One of our programs includes a parent guarantee to the participating financial institution for a certain U.S. subsidiary that, at the time of the respective program’s inception in 2015, was a guarantor subsidiary of the Company’s Credit Agreement.

The payables associated with suppliers choosing to voluntarily participate in the Programs were presented as accounts payable within Total current liabilities on the Consolidated Balance Sheets, and totaled $226 million and $170 million as of December 31, 2021 and 2020, respectively. The amounts paid that are associated with suppliers once they chose to voluntarily participate in the Programs for the twelve months ended December 31, 2021, 2020 and 2019 were $531 million, $375 million and $344 million, respectively, with all activity related to the obligations presented within operating activities on the Consolidated Statements of Cash Flows.

The desire of suppliers and financial institutions to participate in the Programs could be negatively impacted by, among other factors, the availability of capital committed by the participating financial institutions, the cost and availability of our suppliers’ capital, a credit rating downgrade or deteriorating financial performance of the Company or its participating subsidiaries, or other changes in financial markets beyond our control. We do not expect these risks, or potential long-term growth of our programs, to materially affect our overall financial condition, as we expect a significant portion of our payments to continue to be made outside of the Programs. Accordingly, we do not believe the programs have materially impacted our current period liquidity, and do not believe that the programs are reasonably likely to materially affect liquidity in the future.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Cash Flows

The following table presents a summary of our cash balance, cash flows, and availability on credit facilities (in millions):

[[GREPCENT_TABLE]]
[["","Twelve Months Ended December 31,"],["","2021","","2020","","2019"],["Cash and cash equivalents","$","959","","","$","717","","","$","172"],["Net cash flow provided by operating activities","$","1,503","","","$","1,135","","","$","1,037"],["Net cash flow used for investing activities","$","(377)","","","$","(205)","","","$","(394)"],["Net cash flow used for financing activities","$","(881)","","","$","(358)","","","$","(573)"],["Availability on the Senior Revolving Credit Facility","$","796","","","$","796","","","$","796"],["Availability on the Receivables Securitization Facility","$","279","","","$","279","","","$","278"]]
[[/GREPCENT_TABLE]]

Cash and cash equivalents: Cash and cash equivalents as of December 31, 2021 increased $242 million compared to December 31, 2020, primarily due to higher cash flow provided by operating activities.

Operating activities: In 2021, the Company generated $1,503 million of cash from operating activities compared to $1,135 million in 2020. The change in cash provided by operating activities was primarily due to higher earnings. Higher accounts payable and accrued liabilities were driven by increased production and inflation, partially offset by higher inventory levels.

Investing activities: The $172 million increase in cash used for investing activities in 2021 compared to 2020 was primarily driven by higher cash paid for property, plant and equipment and higher spending on acquisitions (See Note 7 of the Consolidated Financial Statements for further discussion of our acquisition in 2021).

Financing activities: Net cash used for financing activities in 2021 was $881 million compared to $358 million in 2020. The change year-over-year was primarily due to higher purchases on treasury stock and repayment of the remaining portion of outstanding 2022 senior notes (see Note 12 of the Consolidated Financial Statements and the Liquidity section above for further discussion of activities related to debt).

Derivatives

Please refer to Note 4 of the Consolidated Financial Statements.

Fair Value Measurement

Please refer to Notes 1, 4, 12 and 13 of the Consolidated Financial Statements.

CRITICAL ACCOUNTING ESTIMATES

Our discussion and analysis of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments related to these assets, liabilities, revenues and expenses. We believe these estimates to be reasonable under the circumstances. Management bases its estimates and judgments on historical experience, expected future outcomes, and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The Company believes that the following accounting estimates are critical to our financial results:

Tax Estimates. The determination of our tax provision is complex due to operations in several tax jurisdictions outside the United States. We apply a more-likely-than-not recognition threshold for all tax uncertainties. Such uncertainties include any claims by the Internal Revenue Service for income taxes, interest, and penalties attributable to audits of open tax years.

In addition, we record a valuation allowance to reduce our deferred tax assets to the amount that we believe is more likely than not to be realized. We estimate future taxable income and the effect of tax planning strategies in our consideration of whether deferred tax assets will more likely than not be realized. In the event we were to determine that we would not be able to realize

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

all or part of our net deferred tax assets in the future, an adjustment to reduce the net deferred tax assets would be charged to earnings in the period such determination was made. Conversely, if we were to determine that we would be able to realize our net deferred tax assets in the future in excess of their currently recorded amount, an adjustment to increase the net deferred tax assets would be credited to earnings in the period such determination was made.

Impairment of Assets. The Company exercises judgment in evaluating assets for impairment. Goodwill and other indefinite-lived intangible assets are tested for impairment annually, or when circumstances arise which indicate there may be an impairment. Long-lived assets are tested for impairment when economic conditions or management decisions indicate an impairment may exist. These tests require comparing recorded values to estimated fair values for the assets under review.

The Company has recorded its goodwill and conducted testing for potential goodwill impairment at a reporting unit level. Our reporting units represent a business for which discrete financial information is available and segment management regularly reviews the operating results. The Company has three reporting units: Composites, Insulation and Roofing.

2021 Annual Goodwill Impairment Assessment

Goodwill is an intangible asset that is not subject to amortization; however, annual tests are required to be performed to determine whether impairment exists. Prior to performing the impairment testing process described in ASC 350-20, the guidance permits companies to assess qualitative factors to determine if it is more likely than not that a reporting unit’s fair value is less than its carrying value. If, based on the review of the qualitative factors, we determine it is not more likely than not that the fair value of a reporting unit is less than its carrying value, we would bypass the step one impairment test. Events and circumstances we consider in performing the qualitative assessment include macro-economic conditions, market and industry conditions, internal cost factors, and the operational stability and the overall financial performance of the reporting units. If it is more likely than not that a reporting unit’s fair value is less than or close to its carrying value, then the step one quantitative impairment test must be performed to determine if impairment is required.

When it is determined necessary for the Company to perform the quantitative impairment process for goodwill, we estimate fair values using a discounted cash flow approach from the perspective of a market participant. Significant assumptions used in the discounted cash flow approach are revenue growth rates and EBIT margins used in estimating discrete period cash flow forecasts of the reporting unit, the discount rate, and the long-term revenue growth rate and EBIT margins used in estimating the terminal business value. The cash flow forecasts of the reporting unit are based upon management’s long-term view of our markets and are the forecasts that are used by senior management and the Board of Directors to evaluate operating performance. The discount rate utilized is management’s estimate of what the market’s weighted average cost of capital is for a company with a similar debt rating and stock volatility, as measured by beta. The terminal business value is determined by applying the long-term growth rate to the latest year for which a forecast exists. As part of our goodwill quantitative testing process, the Company evaluates whether there are reasonably likely changes to management’s estimates that would have a material impact on the results of the goodwill impairment testing.

Our annual test of goodwill for impairment was conducted as of October 1, 2021. The Company has elected to perform the qualitative approach on all of its reporting units: Composites, Insulation and Roofing. After evaluating and weighing all relevant events and circumstances, we concluded that it is not more likely than not that the fair value of the reporting units was less than their carrying amounts. Consequently, we did not perform a step one quantitative analysis for the reporting units and determined goodwill was not impaired for 2021.

The following table summarizes the segment allocation of recorded goodwill on our Consolidated Balance Sheet as of December 31, 2021 (in millions):

[[GREPCENT_TABLE]]
[["Segment","December 31, 2021","Percent of Total"],["Composites","$","75","","8","%"],["Insulation","518","","52","%"],["Roofing","397","","40","%"],["Total goodwill","$","990","","100","%"]]
[[/GREPCENT_TABLE]]

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Annual 2021 Indefinite-lived Intangible Asset Impairment Assessment

Fair values used in testing for potential impairment of our trademarks and trade names are calculated by applying an estimated market value royalty rate to the forecasted revenues of the businesses that utilize those assets. The assumed cash flows from this calculation are discounted at a rate based on a market participant discount rate. Our annual test of indefinite-lived intangibles was conducted as of October 1, 2021. The fair value of each of our indefinite-lived intangible assets was in excess of its carrying value and thus, no impairment exists. The fair value of these assets substantially exceeded the carrying value as of the date of our assessment.

Long-lived Asset Recoverability Assessment

Fair values for long-lived asset testing are calculated by estimating the undiscounted cash flows from the use and ultimate disposition of the asset or by estimating the amount that a willing third party would pay. For impairment testing, long-lived assets are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. The Company groups long-lived assets based on manufacturing facilities that produce similar products either globally or within a geographic region. Management tests asset groups for potential impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We evaluated and concluded that there are not any reasonably likely changes to management’s estimates that would indicate that the carrying value of our long-lived assets is unrecoverable.

However, changes in management intentions, market conditions, operating performance and other similar circumstances could affect the assumptions used in these impairment tests. Changes in the assumptions could result in impairment charges that could be material to our Consolidated Financial Statements in any given period.

Pensions and Other Postretirement Benefits. Accounting for pensions and other postretirement benefits involves estimating the cost of benefits to be provided well into the future and attributing that cost over the time period each employee works. To accomplish this, extensive use is made of assumptions about investment returns, discount rates, inflation, mortality, turnover, and medical costs. Changes in assumptions used could result in a material impact to our Consolidated Financial Statements in any given period.

Two key assumptions that could have a significant impact on the measurement of pension liabilities and pension expense are the discount rate and the expected return on plan assets. For our largest plan, the United States plan, the discount rate used for the December 31, 2021 measurement date is based on a yield curve approach where the expected future benefit payments are matched with a yield curve derived from certain AA-rated corporate bonds.

The result supported a discount rate of 2.85% at December 31, 2021 compared to 2.50% at December 31, 2020. A 25 basis point increase (decrease) in the discount rate would decrease (increase) the December 31, 2021 projected benefit obligation for the United States pension plan by approximately $22 million. A 25 basis point increase (decrease) in the discount rate would decrease (increase) 2022 net periodic pension cost by less than $1 million.

The expected return on plan assets in the United States was derived by taking into consideration the target plan asset allocation, historical rates of return on those assets, projected future asset class returns and net outperformance of the market by active investment managers and plan related and investment related expenses paid from the plan trust. The Company uses the target plan asset allocation because we rebalance our portfolio to target on a quarterly basis. An asset return model was used to develop an expected range of returns on plan investments over a 20-year period, with the expected rate of return selected from a best estimate range within the total range of projected results. This process resulted in the selection of an expected return of 4.75% at the December 31, 2021 measurement date, which is used to determine net periodic pension cost for the year 2022. This assumption is consistent with the 4.75% return selected at the December 31, 2020 measurement date. A 25 basis point increase (decrease) in return on plan assets assumption would result in a respective decrease (increase) of 2022 net periodic pension cost by approximately $2 million.

The discount rate for our United States postretirement plan was selected using the same method as described for the pension plan. The result supported a discount rate of 2.70% at December 31, 2021 compared to 2.25% at December 31, 2020. A 25 basis point increase (decrease) in the discount rate would decrease (increase) the United States postretirement benefit obligation by approximately $3 million and decrease (increase) 2022 net periodic postretirement benefit cost by less than $1 million.

The methods corresponding to those described above are used to determine the discount rate and expected return on assets for non-U.S. pension and postretirement plans, to the extent applicable.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

RECENT ACCOUNTING PRONOUNCEMENTS

Please refer to Note 1 of the Consolidated Financial Statements.

ENVIRONMENTAL MATTERS

Please refer to Note 15 of the Consolidated Financial Statements.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Our disclosures and analysis in this report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). Forward-looking statements present our current forecasts and estimates of future events. These statements do not strictly relate to historical or current results and can be identified by words such as “anticipate,” "appear," "assume," “believe,” “estimate,” “expect,” "forecast," “intend,” “likely,” “may,” “plan,” “project,” "seek," "should," “strategy,” "will" and other terms of similar meaning or import in connection with any discussion of future operating, financial or other performance. These forward-looking statements are subject to risks, uncertainties and other factors and actual results may differ materially from those results projected in the statements. These risks, uncertainties and other factors include, without limitation:

•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 and commercial or industrial construction activity;

•levels of global industrial production;

•competitive and pricing factors;

•demand for our products;

•relationships with key customers and customer concentration in certain areas;

•industry and economic conditions, including but not limited to, supply chain disruptions, inflationary pressures and interest rate volatility, that affect the market and operating conditions of our customers, suppliers or lenders;

•availability and cost of energy and raw materials;

•issues related to acquisitions, divestitures and joint ventures or expansions;

•climate change, weather conditions and storm activity;

•legislation and related regulations or interpretations, in the United States or elsewhere;

•domestic and international economic and political conditions, policies or other governmental actions;

•changes to tariff, trade or investment policies or laws;

•uninsured losses, including those from natural disasters, catastrophes, pandemics, theft or sabotage;

•environmental, product-related or other legal and regulatory liabilities, proceedings or, actions;

•research and development activities and intellectual property protection;

•issues involving implementation and protection of information technology systems;

•our level of indebtedness;

•our liquidity and the availability and cost of credit;

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

•the level of fixed costs required to run our business;

•price volatility in certain wind energy markets;

•foreign exchange and commodity price fluctuations;

•levels of goodwill or other indefinite-lived intangible assets;

•loss of key employees, labor disputes or shortages; and

•defined benefit plan funding obligations

All forward-looking statements in this report should be considered in the context of the risks and other factors described herein, and in Item 1A above, and as detailed from time to time in the Company’s filings with the U.S. Securities and Exchange Commission. Users of this report should not interpret the disclosure of any risk factor to imply that the risk has not already materialized. Any forward-looking statements speak only as of the date the statement is made and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by federal securities laws. It is not possible to identify all of the risks, uncertainties and other factors that may affect future results. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report may not occur and actual results may differ materially from those anticipated or implied in the forward-looking statements. Accordingly, users of this report are cautioned not to place undue reliance on the forward-looking statements.

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