Owens Corning Reports Fourth-Quarter and Full-Year 2014 Results

Table 1

Owens Corning and Subsidiaries

Consolidated Statements of Earnings

(unaudited)

(in millions, except per share amounts)

Three Months Ended December 31,

Twelve Months Ended December 31,

2014

2013

2014

2013

NET SALES

$

1,261

$

1,278

$

5,276

$

5,295

COST OF SALES

1,018

1,045

4,300

4,329

Gross margin

243

233

976

966

OPERATING EXPENSES

Marketing and administrative expenses

115

135

487

530

Science and technology expenses

19

20

76

77

Charges related to cost reduction actions

6

—

37

8

Other (income) expenses, net

(1)

(26)

(16)

(34)

Total operating expenses

139

129

584

581

EARNINGS BEFORE INTEREST AND TAXES

104

104

392

385

Interest expense, net

28

25

114

112

Loss on extinguishment of debt

46

—

46

—

EARNINGS BEFORE TAXES

30

79

232

273

Less: Income tax (benefit) expense

(4)

(3)

5

68

Equity in net earnings of affiliates

—

—

1

—

NET EARNINGS

34

82

228

205

Less: Net earnings attributable to noncontrolling interests

1

—

2

1

NET EARNINGS ATTRIBUTABLE TO OWENS 
     CORNING

$

33

$

82

$

226

$

204

EARNINGS PER COMMON SHARE ATTRIBUTABLE 
     TO OWENS CORNING COMMON 
     STOCKHOLDERS

Basic

$

0.28

$

0.70

$

1.92

$

1.73

Diluted

$

0.28

$

0.69

$

1.91

$

1.71

Dividend

$

0.16

$

—

$

0.64

$

—

WEIGHTED AVERAGE COMMON SHARES

Basic

117.5

117.6

117.5

118.2

Diluted

118.1

118.5

118.3

119.1

Table 2

Owens Corning and Subsidiaries

EBIT Reconciliation Schedules

(unaudited)

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

Three Months Ended December 31,

Twelve Months Ended December 31,

2014

2013

2014

2013

Charges related to cost reduction actions

$

(6)

$

—

$

(37)

$

(8)

Other items related to cost reduction actions

3

(3)

1

(18)

Net loss on sale of European Stone Business

—

—

(20)

—

Impairment loss on Alcala, Spain facility held for sale

—

—

(3)

—

Gain on sale of Hangzhou, China facility

—

—

45

—

Net gain (loss) related to Hurricane Sandy insurance activity

—

31

(6)

15

Accelerated depreciation related to a change in the 
     useful life of assets in Cordele, Georgia facility

—

(20)

—

(20)

$

(3)

$

8

$

(20)

$

(31)

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

Three Months Ended December 31,

Twelve Months Ended December 31,

2014

2013

2014

2013

NET EARNINGS ATTRIBUTABLE TO OWENS 
     CORNING

$

33

$

82

$

226

$

204

Less: Net earnings attributable to 
     noncontrolling interests

1

—

2

1

NET EARNINGS

34

82

228

205

Equity in net earnings of affiliates

—

—

1

—

Income tax (benefit) expense

(4)

(3)

5

68

EARNINGS BEFORE TAXES

30

79

232

273

Interest expense, net

28

25

114

112

Loss on extinguishment of debt

46

—

46

—

EARNINGS BEFORE INTEREST AND TAXES            

104

104

392

385

Less: adjusting items from above

(3)

8

(20)

(31)

ADJUSTED EBIT

$

107

$

96

$

412

$

416

Table 3

Owens Corning and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)

(in millions)

Twelve Months Ended December 31,

2014

2013

2012

NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES

Net earnings (loss)

$

228

$

205

$

(16)

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

Depreciation and amortization

304

332

349

Gain on sale of assets or affiliates

(55)

(6)

(17)

Impairment of European Stone Business

20

—

—

Proceeds from Hurricane Sandy insurance claims

—

(58)

(20)

Deferred income taxes

(15)

54

(59)

Provision for pension and other employee benefits liabilities

18

23

36

Stock-based compensation expense

29

28

24

Other non-cash

(30)

(18)

(14)

Loss on extinguishment of debt

46

—

74

Change in working capital accounts:

Changes in receivables, net

(10)

(77)

24

Changes in inventories

(29)

(27)

(4)

Changes in accounts payable and accrued liabilities

(8)

46

23

Changes in other current assets

(3)

4

(39)

Other

—

—

2

Pension fund contribution

(52)

(39)

(50)

Payments for other employee benefits liabilities

(22)

(22)

(22)

Other

20

(38)

39

Net cash flow provided by operating activities

441

407

330

NET CASH FLOW USED FOR INVESTING ACTIVITIES

Additions to plant and equipment

(363)

(335)

(304)

Derivative settlements

5

—

—

Proceeds from the sale of assets or affiliates

65

—

10

Investment in subsidiaries and affiliates, net of cash acquired

(12)

(62)

—

Proceeds from Hurricane Sandy insurance claims

—

58

20

Deposit related to sale of Hangzhou, China plant

—

34

—

Purchases of alloy

(28)

(18)

(28)

Proceeds from sale of alloy

47

16

49

Net cash flow used for investing activities

(286)

(307)

(253)

NET CASH FLOW USED FOR FINANCING ACTIVITIES

Proceeds from senior revolving credit and receivables securitization facilities

1,276

1,063

1,877

Payments on senior revolving credit and receivables securitization facilities

(1,344)

(1,103)

(1,957)

Proceeds from long-term debt

390

—

599

Payments on long-term debt

(402)

(2)

(441)

Purchase of noncontrolling interest

—

—

(22)

Dividends paid

(56)

—

—

Net increase (decrease) in short-term debt

30

(4)

(23)

Purchases of treasury stock

(44)

(63)

(113)

Other

8

13

4

Net cash flow used for financing activities

(142)

(96)

(76)

Effect of exchange rate changes on cash

(3)

(2)

2

Net increase in cash and cash equivalents

10

2

3

Cash and cash equivalents at beginning of period

57

55

52

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

67

$

57

$

55

DISCLOSURE OF CASH FLOW INFORMATION

Cash paid during the year for income taxes

$

19

$

29

$

30

Cash paid during the year for interest

$

122

$

126

$

122

Table 4

Owens Corning and Subsidiaries

Consolidated Balance Sheets

(unaudited)

(in millions, except per share data)

December 31,

December 31,

2014

2013

ASSETS

CURRENT ASSETS

Cash and cash equivalents

$

67

$

57

Receivables, less allowances of $10 at December 31, 2014 and $14 at December 31, 2013

674

683

Inventories

817

810

Assets held for sale – current

16

29

Other current assets

233

269

Total current assets

1,807

1,848

Property, plant and equipment, net

2,899

2,932

Goodwill

1,168

1,166

Intangible assets

1,017

1,040

Deferred income taxes

444

436

Other non-current assets

220

225

TOTAL ASSETS

$

7,555

$

7,647

LIABILITIES AND EQUITY

CURRENT LIABILITIES

Accounts payable and accrued liabilities

$

949

$

988

Short-term debt

31

1

Long-term debt – current portion

3

3

Total current liabilities

983

992

Long-term debt, net of current portion

1,991

2,024

Pension plan liability

447

336

Other employee benefits liability

252

242

Deferred income taxes

22

23

Other liabilities

130

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

3,954

3,938

Accumulated earnings

805

655

Accumulated other comprehensive deficit

(550)

(297)

Cost of common stock in treasury (c)

(518)

(504)

Total Owens Corning stockholders' equity

3,692

3,793

Noncontrolling interests

38

37

Total equity

3,730

3,830

TOTAL LIABILITIES AND EQUITY

$

7,555

$

7,647

Table 5

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
December 31,

Twelve Months Ended
December 31,

2014

2013

2014

2013

Net sales

$

464

$

461

$

1,935

$

1,845

% change from prior year

1

%

8

%

5

%

-1

%

EBIT

$

53

$

36

$

149

$

98

EBIT as a % of net sales

11

%

8

%

8

%

5

%

Depreciation and amortization expense

$

30

$

31

$

129

$

130

Insulation

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

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2014

2013

2014

2013

Net sales

$

490

$

466

$

1,746

$

1,642

% change from prior year

5

%

13

%

6

%

12

%

EBIT

$

46

$

39

$

108

$

40

EBIT as a % of net sales

9

%

8

%

6

%

2

%

Depreciation and amortization expense

$

25

$

25

$

101

$

104

Roofing

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

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2014

2013

2014

2013

Net sales

$

340

$

381

$

1,748

$

1,967

% change from prior year

-11

%

9

%

-11

%

-2

%

EBIT

$

32

$

55

$

232

$

386

EBIT as a % of net sales

9

%

14

%

13

%

20

%

Depreciation and amortization expense

$

9

$

10

$

39

$

38

Table 5

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 December 31,

Twelve Months Ended December 31,

2014

2013

2014

2013

Charges related to cost reduction actions

$

(6)

$

—

$

(37)

$

(8)

Other items related to cost reduction actions

3

(3)

1

(18)

Net loss on sale of  European Stone Business

—

—

(20)

—

Impairment loss on Alcala, Spain facility held for sale

—

—

(3)

—

Gain on sale of Hangzhou, China facility

—

—

45

—

Net gain (loss) related to Hurricane Sandy

—

31

(6)

15

Accelerated depreciation related to a change in the 
     useful life of assets in Cordele, Georgia facility

—

(20)

—

(20)

General corporate expense and other

(24)

(34)

(77)

(108)

EBIT

$

(27)

$

(26)

$

(97)

$

(139)

Depreciation and amortization

$

11

$

31

$

35

$

60

Table 6

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

Twelve Months Ended

March 31,

June 30,

September 30,

 December 31,

December 31,

2014

2013

2014

2013

2014

2013

2014

2013

2014

2013

RECONCILIATION TO ADJUSTED 
     EARNINGS

Net earnings attributable to Owens 
     Corning

$

120

$

22

$

21

$

49

$

52

$

51

$

33

$

82

$

226

$

204

Adjustment to remove adjusting items, 
     net of tax**

(22)

15

21

4

18

9

31

(11)

48

17

Adjustment to remove significant tax 
     reserve reversals*

(74)

—

—

—

—

—

8

—

(66)

—

Adjustment to tax expense (benefit) to 
     reflect pro forma tax rate*

11

(2)

3

15

3

6

(17)

(19)

—

—

ADJUSTED EARNINGS

$

35

$

35

$

45

$

68

$

73

$

66

$

55

$

52

$

208

$

221

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

$

0.18

$

0.41

$

0.44

$

0.43

$

0.28

$

0.69

$

1.91

$

1.71

Adjustment to remove adjusting items, 
     net of tax**

(0.19)

0.13

0.18

0.03

0.15

0.08

0.26

(0.09)

0.40

0.15

Adjustment to remove significant tax 
     reserve reversals*

(0.62)

—

—

—

—

—

0.07

—

(0.55)

—

Adjustment to tax expense (benefit) to 
     reflect pro forma tax rate*

0.09

(0.02)

0.02

0.13

0.03

0.05

(0.14)

(0.16)

—

—

ADJUSTED DILUTED EARNINGS PER 
          SHARE ATTRIBUTABLE TO 
          OWENS CORNING COMMON 
          STOCKHOLDERS

$

0.29

$

0.29

$

0.38

$

0.56

$

0.62

$

0.56

$

0.47

$

0.44

$

1.76

$

1.86

RECONCILIATION TO DILUTED SHARES OUTSTANDING

Weighted average shares outstanding 
     used for basic earnings per share

117.8

118.5

117.4

119.1

117.4

118.0

117.5

117.6

117.5

118.2

Non-vested restricted shares and 
     performance shares

0.4

0.6

0.4

0.7

0.4

0.4

0.4

0.5

0.4

0.4

Options to purchase common stock

0.5

0.5

0.5

0.6

0.3

0.4

0.2

0.4

0.4

0.5

Diluted shares outstanding

118.7

119.6

118.3

120.4

118.1

118.8

118.1

118.5

118.3

119.1

*

For comparability, in 2014, we have used an effective tax rate of 30% 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 in 2013.

**

Adjusting items include extinguishment of debt.