Owens Corning Reports First-Quarter 2014 Results

Table 1

Owens Corning and Subsidiaries

Consolidated Statements of Earnings

(unaudited)

(in millions, except per share amounts)

Three Months Ended

Mar. 31,  

2014

2013

NET SALES

$

1,278

$

1,350

COST OF SALES

1,044

1,137

Gross margin

234

213

OPERATING EXPENSES

Marketing and administrative expenses

132

133

Science and technology expenses

19

18

Charges related to cost reduction actions

12

1

Other (income) expenses, net

(37)

4

Total operating expenses

126

156

EARNINGS BEFORE INTEREST AND TAXES

108

57

Interest expense, net

27

29

EARNINGS BEFORE TAXES

81

28

Less: Income tax expense (benefit)

(39)

6

Equity in net earnings of affiliates

-

-

NET EARNINGS

120

22

Less: Net earnings attributable to noncontrolling interests

-

-

NET EARNINGS ATTRIBUTABLE TO OWENS CORNING

$

120

$

22

EARNINGS AND DIVIDEND PER COMMON SHARE ATTRIBUTABLE TO

OWENS CORNING COMMON STOCKHOLDERS

Basic

$

1.02

$

0.19

Diluted

$

1.01

$

0.18

Dividend

$

0.16

$

-

WEIGHTED AVERAGE COMMON SHARES

Basic

117.8

118.5

Diluted

118.7

119.6

Table 2

Owens Corning and Subsidiaries

EBIT Reconciliation Schedules

(unaudited)

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 the result of current operations. The adjusted financial measure resulting from these adjustments is 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. Although management believes that these adjustments result in a measure that provides it a useful representation of its operational performance, the adjusted measure should not be considered in isolation or as a substitute for net earnings attributable to Owens Corning as prepared in accordance with accounting principles generally accepted in the United States.

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

Three Months Ended

Mar. 31,

2014

2013

Gain on sale of Hangzhou, China facility

$

45

$

-

Charges related to cost reduction actions and related items

(12)

(9)

Net loss related to Hurricane Sandy

(2)

(11)

$

31

$

(20)

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

Three Months Ended

Mar. 31,

2014

2013

NET EARNINGS ATTRIBUTABLE TO

OWENS CORNING

$

120

$

22

Less: Net earnings attributable to noncontrolling interests

-

-

NET EARNINGS

120

22

Income tax expense (benefit)

(39)

6

EARNINGS BEFORE TAXES

81

28

Interest expense, net

27

29

EARNINGS BEFORE INTEREST AND TAXES

108

57

Adjusting items from above gain (loss)

31

(20)

ADJUSTED EBIT

$

77

$

77

Table 3

Owens Corning and Subsidiaries

EPS Reconciliation Schedules

(unaudited)

(in millions, except per share data)

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 the result of current operations. The adjusted financial measures resulting from these adjustments 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. Although management believes that these adjustments result in measures that provide it a useful representation of its operational performance, 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 accounting principles generally accepted in the United States.

A reconciliation from net earnings attributable to Owens Corning to Adjusted Earnings and a reconciliation from diluted earnings per share to adjusted diluted earnings per share are shown in the tables below:

Three Months Ended

March 31,

2014

2013

RECONCILIATION TO ADJUSTED EARNINGS

Net earnings attributable to Owens Corning

$

120

$

22

Adjustment to remove adjusting items net of tax

(22)

15

Adjustment to remove significant tax reserve reversals

(74)

-

Adjustment to tax expense to reflect pro forma tax rate*

11

(2)

ADJUSTED EARNINGS

$

35

$

35

RECONCILIATION TO ADJUSTED DILUTED EARNINGS PER SHARE

ATTRIBUTABLE TO OWENS CORNING COMMON STOCKHOLDERS

DILUTED EARNINGS PER COMMON SHARE ATTRIBUTABLE

TO OWENS CORNING COMMON STOCKHOLDERS

$

1.01

$

0.18

Adjustment to remove adjusting items net of tax

(0.19)

0.13

Adjustment to remove significant tax reserve reversals

(0.62)

-

Adjustment to tax expense to reflect a pro forma tax rate*

0.09

(0.02)

ADJUSTED DILUTED EARNINGS PER SHARE

ATTRIBUTABLE TO OWENS CORNING COMMON STOCKHOLDERS

$

0.29

$

0.29

RECONCILIATION TO DILUTED SHARES OUTSTANDING

Weighted-average shares outstanding

used for basic earnings per share

117.8

118.5

Non-vested restricted shares

0.4

0.6

Options to purchase common stock

0.5

0.5

Diluted shares outstanding

118.7

119.6

* For comparability, in 2014, we have used a pro-forma effective tax rate of 29% (midpoint of guidance) that excludes the resolution of a significant uncertain tax position and the reversal of a valuation allowance recorded in prior years against certain European net deferred tax assets. In 2013 we have used an effective tax rate of 27% as this was the effective tax rate of the Company's 2013 adjusted earnings.

Table 4

Owens Corning and Subsidiaries

Consolidated Balance Sheets

(unaudited)

(in millions)

Mar. 31,

Dec. 31,

2014

2013

CURRENT ASSETS

Cash and cash equivalents

$

65

$

57

Receivables, less allowances of $14 at Mar. 31, 2014, and $14 at Dec. 31, 2013

942

683

Inventories

910

810

Assets held for sale - current

8

29

Other current assets

298

269

Total current assets

2,223

1,848

Property, plant and equipment, net

2,898

2,932

Goodwill

1,166

1,166

Intangible assets

1,039

1,040

Deferred income taxes

420

436

Other non-current assets

220

225

TOTAL ASSETS

$

7,966

$

7,647

LIABILITIES AND EQUITY

CURRENT LIABILITIES

Accounts payable and accrued liabilities

$

957

$

988

Short-term debt

25

1

Long-term debt – current portion

4

3

Total current liabilities

986

992

Long-term debt, net of current portion

2,358

2,024

Pension plan liability

324

336

Other employee benefits liability

238

242

Deferred income taxes

27

23

Other liabilities

134

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

3,936

3,938

Accumulated earnings

756

655

Accumulated other comprehensive deficit

(310)

(297)

Cost of common stock in treasury (c)

(521)

(504)

Total Owens Corning stockholders' equity

3,862

3,793

Noncontrolling interests

37

37

Total equity

3,899

3,830

TOTAL LIABILITIES AND EQUITY

$

7,966

$

7,647

(a)

10 shares authorized; none issued or outstanding at Mar. 31, 2014, and Dec. 31, 2013

(b)

400 shares authorized; 135.5 issued and 117.7 outstanding at Mar. 31, 2014; 135.5 issued and 117.8 outstanding at Dec. 31, 2013

(c)

17.8 shares at Mar. 31, 2014, and 17.7 shares at Dec. 31, 2013

Table 5

Owens Corning and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)

(in millions)

Three Months Ended

Mar. 31,

2014

2013

NET CASH FLOW USED FOR OPERATING ACTIVITIES

Net earnings

$ 120

$ 22

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

Depreciation and amortization

76

78

Gain on sale of fixed assets

(45)

-

Deferred income taxes

(45)

-

Provision for pension and other employee benefits liabilities

5

6

Stock-based compensation expense

8

7

Other non-cash

(1)

(2)

Change in working capital

(377)

(271)

Pension fund contribution

(14)

(12)

Payments for other employee benefits liabilities

(6)

(5)

Other

7

(2)

Net cash flow used for operating activities

(272)

(179)

NET CASH FLOW USED FOR INVESTING ACTIVITIES

Additions to plant and equipment (including alloy)

(51)

(45)

Closing costs related to sale of Hangzhou, China facility

(3)

-

(54)

(45)

NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES

Proceeds from senior revolving credit and receivables securitization facilities

484

558

Payments on senior revolving credit and receivables securitization facilities

(149)

(331)

Net increase in short-term debt

24

5

Purchases of treasury stock

(29)

(8)

Other

5

8

Net cash flow provided by financing activities

335

232

Effect of exchange rate changes on cash

(1)

(1)

Net increase in cash and cash equivalents

8

7

Cash and cash equivalents at beginning of period

57

55

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$ 65

$ 62

Table 6

Owens Corning and Subsidiaries

Segment and Business Information

(unaudited)

Composites

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

Three Months Ended

Mar. 31,

2014

2013

Net sales

$

477

$

459

     % change from prior year

4%

-4%

EBIT

$

27

$

9

     EBIT as a % of net sales

6%

2%

Depreciation and amortization expense

$

34

$

32

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):

Three Months Ended

Mar. 31,

2014

2013

Net sales

Insulation

$

355

$

330

Roofing

497

607

Total Building Materials

$

852

$

937

     % change from prior year

-9%

2%

EBIT

Insulation

$

1

$

(21)

Roofing

80

119

Total Building Materials

$

81

$

98

     EBIT as a % of net sales

10%

10%

Depreciation and amortization expense

Insulation

$

25

$

26

Roofing

9

10

Total Building Materials

$

34

$

36

Table 7

Owens Corning and Subsidiaries

Corporate, Other and Eliminations

(unaudited)

Corporate, Other and Eliminations

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

Three Months Ended

Mar. 31,

2014

2013

Gain on sale of Hangzhou manufacturing facility

$

45

$

-

Charges related to cost reduction actions and related items

(12)

(9)

Net loss related to Hurricane Sandy

(2)

(11)

General corporate expense and other

(31)

(30)

EBIT

$

-

$

(50)

Depreciation and amortization

$

8

$

10