Owens Corning Reports Second-Quarter 2014 Results

Table 1

Owens Corning and Subsidiaries

Consolidated Statements of Earnings

 (unaudited)

(in millions, except per share amounts)

Three Months Ended

Six Months Ended

June 30,

June 30,

2014

2013

2014

2013

NET SALES

$

1,355

$

1,347

$

2,633

$

2,697

COST OF SALES

1,107

1,080

2,151

2,217

Gross margin

248

267

482

480

OPERATING EXPENSES

Marketing and administrative expenses

130

134

262

267

Science and technology expenses

20

20

39

38

Charges related to cost reduction actions

-

1

12

2

Other (income) expenses, net

25

(6)

(12)

(2)

Total operating expenses

175

149

301

305

EARNINGS BEFORE INTEREST AND TAXES

73

118

181

175

Interest expense, net

31

29

58

58

EARNINGS BEFORE TAXES

42

89

123

117

Less: Income tax expense (benefit)

21

39

(18)

45

Equity in net earnings of affiliates

1

-

1

-

NET EARNINGS

22

50

142

72

Less: Net earnings attributable to noncontrolling interests

1

1

1

1

NET EARNINGS ATTRIBUTABLE TO OWENS CORNING

$

21

$

49

$

141

$

71

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO

OWENS CORNING COMMON STOCKHOLDERS

Basic

$

0.18

$

0.41

$

1.20

$

0.60

Diluted

$

0.18

$

0.41

$

1.19

$

0.59

Dividend

$

0.16

$

-

$

0.32

$

-

WEIGHTED AVERAGE COMMON SHARES

Basic

117.4

119.1

117.6

118.8

Diluted

118.3

120.4

118.5

119.9

Owens Corning follows the authoritative guidance referring to "Noncontrolling Interest in Consolidated Financial Statements," effective January 1, 2009, which, among other things, changed the presentation format and certain captions of the Consolidated Statements of Earnings and Consolidated Balance Sheets. Owens Corning uses the captions recommended by this standard in its Consolidated Financial Statements such as net earnings attributable to Owens Corning and diluted earnings per common share attributable to Owens Corning common stockholders. However, in the preceding release Owens Corning has shortened this language to net earnings and earnings per share (or a slight variation thereof), respectively.

Table 2

Owens Corning and Subsidiaries

EBIT Reconciliation Schedules
(unaudited)

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

Three Months Ended

Six Months Ended

June 30,

June 30,

2014

2013

2014

2013

Impairment loss on European Stone Business

$

(19)

$

-

$

(19)

$

-

Gain on sale of Hangzhou, China Facility

-

-

45

-

Net loss related to Hurricane Sandy

(4)

(3)

(6)

(14)

Charges related to cost reduction actions and related items

-

(3)

(12)

(12)

$

(23)

$

(6)

$

8

$

(26)

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

Three Months Ended

Six Months Ended

June 30,

June 30,

2014

2013

2014

2013

NET EARNINGS ATTRIBUTABLE TO

OWENS CORNING

$

21

$

49

$

141

$

71

Less: Net earnings attributable to noncontrolling interests

1

1

1

1

NET EARNINGS

22

50

142

72

Equity in net earnings of affiliates

1

-

1

-

Income tax expense

21

39

(18)

45

EARNINGS BEFORE TAXES

42

89

123

117

Interest expense, net

31

29

58

58

EARNINGS BEFORE INTEREST AND TAXES

73

118

181

175

Less: adjusting items from above

(23)

(6)

8

(26)

ADJUSTED EBIT

$

96

$

124

$

173

$

201

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

Six  Months Ended

June 30, 

June 30, 

2014

2013

2014

2013

RECONCILIATION TO ADJUSTED EARNINGS

Net earnings attributable to Owens Corning

$

21

$

49

$

141

$

71

Adjustment to remove adjusting items, net of tax

21

4

-

19

Adjustment to remove significant tax reserve reversals*

-

-

(74)

-

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

3

15

13

13

ADJUSTED EARNINGS

$

45

$

68

$

80

$

103

RECONCILIATION TO ADJUSTED DILUTED EARNINGS PER SHARE

ATTRIBUTABLE TO OWENS CORNING COMMON STOCKHOLDERS

DILUTED EARNINGS PER COMMON SHARE ATTRIBUTABLE

TO OWENS CORNING COMMON STOCKHOLDERS

$

0.18

$

0.41

$

1.19

$

0.59

Adjustment to remove adjusting items, net of tax

0.18

0.03

-

0.16

Adjustment to remove significant tax reserve reversals*

-

-

(0.62)

-

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

0.02

0.12

0.11

0.11

ADJUSTED DILUTED EARNINGS PER SHARE

ATTRIBUTABLE TO OWENS CORNING COMMON STOCKHOLDERS

$

0.38

$

0.56

$

0.68

$

0.86

RECONCILIATION TO DILUTED SHARES OUTSTANDING

Weighted average shares outstanding

used for basic earnings per share

117.4

119.1

117.6

118.8

Non-vested restricted shares

0.4

0.7

0.4

0.6

Options to purchase common stock

0.5

0.6

0.5

0.5

Diluted shares outstanding

118.3

120.4

118.5

119.9

* 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 in 2013.

Table 4

Owens Corning and Subsidiaries

Consolidated Balance Sheets

(unaudited)
(in millions)

June 30,

Dec. 31,

2014

2013

CURRENT ASSETS

Cash and cash equivalents

$

81

$

57

Receivables, less allowances of $13 at June 30, 2014, and $14 at Dec. 31, 2013

848

683

Inventories

886

810

Assets held for sale - current

14

29

Other current assets

231

269

Total current assets

2,060

1,848

Property, plant and equipment, net

2,913

2,932

Goodwill

1,166

1,166

Intangible assets

1,026

1,040

Deferred income taxes

406

436

Other non-current assets

225

225

TOTAL ASSETS

$

7,796

$

7,647

LIABILITIES AND EQUITY

CURRENT LIABILITIES

Accounts payable and accrued liabilities

$

880

$

988

Short-term debt

17

1

Liabilities held for sale - current

4

-

Long-term debt – current portion

4

3

Total current liabilities

905

992

Long-term debt, net of current portion

2,271

2,024

Pension plan liability

316

336

Other employee benefits liability

234

242

Deferred income taxes

28

23

Other liabilities

131

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

3,939

3,938

Accumulated earnings

758

655

Accumulated other comprehensive deficit

(301)

(297)

Cost of common stock in treasury (c)

(524)

(504)

Total Owens Corning stockholders' equity

3,873

3,793

Noncontrolling interests

38

37

Total equity

3,911

3,830

TOTAL LIABILITIES AND EQUITY

$

7,796

$

7,647

(a)

10 shares authorized; none issued or outstanding at June 30, 2014, and Dec. 31, 2013

400 shares authorized; 135.5 issued and 117.6 outstanding at June 30, 2014; 135.5 issued and 117.8 outstanding at Dec. 31, 2013

(c)

17.9 shares at June 30, 2014, and 17.7 shares at Dec. 31, 2013

Table 5

Owens Corning and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)
(in millions)

Six Months Ended

June 30,

2014

2013

NET CASH FLOW USED FOR OPERATING ACTIVITIES

Net earnings

$

142

$

72

Adjustments to reconcile net earnings to cash used for operating activities:

Depreciation and amortization

154

157

Gain on sale of fixed assets

(47)

-

Impairment loss on European Stone Business

19

-

Deferred income taxes

(29)

37

Provision for pension and other employee benefits liabilities

9

18

Stock-based compensation expense

14

14

Other non-cash

(13)

(12)

Change in working capital

(336)

(254)

Pension fund contribution

(24)

(20)

Payments for other employee benefits liabilities

(12)

(11)

Other

6

(16)

Net cash flow used for operating activities

(117)

(15)

NET CASH FLOW USED FOR INVESTING ACTIVITIES

Additions to plant and equipment (including alloy)

(142)

(125)

Proceeds from the sale of assets (including alloy) or affiliates, net

77

-

Investment in subsidiaries and affiliates, net of cash acquired

-

(52)

Proceeds from Hurricane Sandy insurance claims

-

15

(65)

(162)

NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES

Proceeds from senior revolving credit and receivables securitization facilities

769

799

Payments on senior revolving credit and receivables securitization facilities

(522)

(621)

Payments on long-term debt

(1)

(1)

Net increase in short-term debt

16

15

Cash dividends paid

(19)

-

Purchases of treasury stock

(44)

(9)

Other

7

14

Net cash flow provided by financing activities

206

197

Effect of exchange rate changes on cash

-

(3)

Net increase in cash and cash equivalents

24

17

Cash and cash equivalents at beginning of period

57

55

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

81

$

72

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

Six Months Ended

June 30,

June 30,

2014

2013

2014

2013

Net sales

$

505

$

472

$

982

$

931

     % change from prior year

7%

-5%

5%

-4%

EBIT

$

37

$

32

$

64

$

41

     EBIT as a % of net sales

7%

7%

7%

4%

Depreciation and amortization expense

$

34

$

34

$

68

$

66

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

Six Months Ended

June 30,

June 30,

2014

2013

2014

2013

Net sales

Insulation

$

447

$

415

$

802

$

745

Roofing

437

508

934

1,115

Total Building Materials

$

884

$

923

$

1,736

$

1,860

     % change from prior year

-4%

-2%

-7%

0%

EBIT

Insulation

$

18

$

4

$

19

$

(17)

Roofing

62

116

142

235

Total Building Materials

$

80

$

120

$

161

$

218

     EBIT as a % of net sales

9%

13%

9%

12%

Depreciation and amortization expense

Insulation

$

26

$

27

$

51

$

53

Roofing

10

9

19

19

Total Building Materials

$

36

$

36

$

70

$

72

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

Six Months Ended

June 30,

June 30,

2014

2013

2014

2013

Impairment loss on European Stone Business

$

(19)

$

-

$

(19)

$

-

Net loss related to Hurricane Sandy

(4)

(3)

(6)

(14)

Gain on sale of Hangzhou, China facility

-

-

45

-

Charges related to cost reduction actions and related items

-

(3)

(12)

(12)

General corporate expense and other

(21)

(28)

(52)

(58)

EBIT

$

(44)

$

(34)

$

(44)

$

(84)

Depreciation and amortization

$

8

$

9

$

16

$

19