USG CORP - FORM 8-K - EX-99.2 - EXHIBIT 99.2 - November 1, 2016

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8-K - FORM 8-K - USG CORPusg8-kx1112016.htm
EX-99.1 - EXHIBIT 99.1 - USG CORPex_991x1112016x8-k.htm
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EXHIBIT 99.2

USG CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

On October 31, 2016, USG Corporation, or USG or the Company, completed the previously announced sale of L&W Supply Corporation, or L&W, to American Builders & Contractors Supply Co., Inc., or ABC Supply, for $668 million, which includes $2 million for an estimated working capital adjustment. In the third quarter of 2016, L&W was reflected as discontinued operations in the financial statements of USG.
    
The following unaudited pro forma condensed consolidated statements of income of USG for the nine months ended September 30, 2016 and for each of the years ended December 31, 2015, 2014, and 2013 reflect the presentation of L&W as discontinued operations in USG’s results of operations. Additionally, the following unaudited pro forma condensed consolidated statements of income of USG for the nine months ended September 30, 2016 and for the year ended December 31, 2015 reflect incremental pro forma adjustments in USG’s results of operations as if the sale of L&W had occurred on January 1, 2015. The following unaudited pro forma condensed consolidated balance sheet of USG as of September 30, 2016 assumes that the sale of L&W occurred on that date.

The unaudited pro forma condensed consolidated financial statements of USG have been derived from its historical financial statements and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and the Company’s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2016 filed on February 10, 2016 and October 25, 2016, respectively.

The pro forma adjustments are based on available information and certain assumptions that the Company believes are reasonable, that reflects the impacts of events directly attributable to the sale of L&W and related transaction agreements that are factually supportable, and for the purposes of the statement of income, are expected to have a continuing impact on USG.

The unaudited pro forma condensed consolidated financial statements are presented for informational purposes and are not intended to represent what USG’s actual consolidated results of operations or consolidated financial condition would have been had the sale of L&W actually occurred on the dates indicated. Additionally, the unaudited pro forma condensed consolidated financial statements are not necessarily indicative of USG’s consolidated results of operations or consolidated financial condition for any future period or as of any future date.

1

USG CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Nine Months Ended September 30, 2016
(millions, except share and per-share data)
Historical
 
Pro Forma Adjustments
 
Pro Forma Continuing Operations
Net sales
2,283

 
—

 
2,283

Cost of products sold
1,728

 
—

 
1,728

Gross profit
555

 
—

 
555

Selling and administrative expenses
213

 
—

 
213

Long-lived asset impairment charges
10

 
—

 
10

Recovery of receivable
(3
)
 
—

 
(3
)
Operating profit
335

 
—

 
335

Income from equity method investments
37

 
—

 
37

Interest expense
(115
)
 
10

(a)
(105
)
Interest income
3

 
—

 
3

Loss on extinguishment of debt
(5
)
 
—

 
(5
)
Other income, net
6

 
—

 
6

Income from continuing operations before income taxes
261

 
10

 
271

Income tax expense
(78
)
 
(4
)
(b)
(82
)
Income from continuing operations
183

 
6

 
189

 
 
 
 
 
 
Basic earnings per share - continuing operations
1.26

 
 
 
1.30

Diluted earnings per share - continuing operations
1.25

 
 
 
1.28

 
 
 
 
 
 
Average common shares
145,892,390

 
 
 
145,892,390

Average diluted common shares
147,520,891

 
 
 
147,520,891



2

USG CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 2015
(millions, except share and per-share data)
Historical
 
Discontinued Operations (c)
 
Pro Forma Continuing Operations
Net sales
3,776

 
(863
)
 
2,913

Cost of products sold
3,085

 
(822
)
 
2,263

Gross profit
691

 
(41
)
 
650

Selling and administrative expenses
317

 
(15
)
 
302

Recovery of receivable
(6
)
 
—

 
(6
)
Gain on disposal of shipping operations, net
(1
)
 
—

 
(1
)
Operating profit
381

 
(26
)
 
355

Income from equity method investments
48

 
—

 
48

Interest expense
(163
)
 
—

 
(163
)
Interest income
2

 
—

 
2

Income and gain from the sale of equity method investment to related party
13

 
—

 
13

Loss on extinguishment of debt
(19
)
 
—

 
(19
)
Income from continuing operations before income taxes
262

 
(26
)
 
236

Income tax benefit
729

 
11

 
740

Income from continuing operations
991

 
(15
)
 
976

 
 
 
 
 
 
Basic earnings per share - continuing operations
6.81

 
 
 
6.70

Diluted earnings per share - continuing operations
6.73

 
 
 
6.62

 
 
 
 
 
 
Average common shares
145,457,208

 
 
 
145,457,208

Average diluted common shares
147,246,600

 
 
 
147,246,600



3

USG CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 2014
(millions, except share and per-share data)
Historical
 
Discontinued Operations (c)
 
Pro Forma Continuing Operations
Net sales
3,724

 
(820
)
 
2,904

Cost of products sold
3,070

 
(791
)
 
2,279

Gross profit
654

 
(29
)
 
625

Selling and administrative expenses
339

 
(16
)
 
323

Litigation settlement charge
48

 
—

 
48

Long-lived asset impairment charges
90

 
—

 
90

Contract termination charge and loss on receivable
15

 
—

 
15

Operating profit
162

 
(13
)
 
149

Income from equity method investments
33

 
—

 
33

Interest expense
(179
)
 
—

 
(179
)
Interest income
1

 
—

 
1

Income from equity method investment with related party
2

 
—

 
2

Gain on deconsolidation of subsidiaries and consolidated joint ventures
27

 
—

 
27

Income from continuing operations before income taxes
46

 
(13
)
 
33

Income tax expense
(7
)
 
—

 
(7
)
Income from continuing operations
39

 
(13
)
 
26

 
 
 
 
 
 
Basic earnings per share - continuing operations
0.27

 
 
 
0.18

Diluted earnings per share - continuing operations
0.26

 
 
 
0.17

 
 
 
 
 
 
Average common shares
141,722,616

 
 
 
141,722,616

Average diluted common shares
144,296,316

 
 
 
144,296,316



4

USG CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 2013
(millions, except share and per-share data)
Historical
 
Discontinued Operations (c)
 
Pro Forma Continuing Operations
Net sales
3,570

 
(778
)
 
2,792

Cost of products sold
2,989

 
(757
)
 
2,232

Gross profit
581

 
(21
)
 
560

Selling and administrative expenses
320

 
(18
)
 
302

Restructuring charges
3

 
1

 
4

Operating profit
258

 
(4
)
 
254

Loss from equity method investments
(1
)
 
—

 
(1
)
Interest expense
(203
)
 
—

 
(203
)
Interest income
3

 
—

 
3

Income from equity method investment with related party
2

 
—

 
2

Income from continuing operations before income taxes
59

 
(4
)
 
55

Income tax expense
(11
)
 
—

 
(11
)
Income from continuing operations
48

 
(4
)
 
44

 
 
 
 
 
 
Basic earnings per share - continuing operations
0.45

 
 
 
0.40

Diluted earnings per share - continuing operations
0.44

 
 
 
0.39

 
 
 
 
 
 
Average common shares
108,891,703

 
 
 
108,891,703

Average diluted common shares
111,434,543

 
 
 
111,434,543



5

USG CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of September 30, 2016
 
 
 
Discontinued Operations (c)
 
Pro Forma Adjustments
 
Pro Forma Continuing Operations
(in millions)
Historical
 
 
 
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
634

 
—

 
398

(e)(f)
1,032

Short-term marketable securities
102

 
—

 
—

 
102

Receivables
197

 
—

 
30

(g)
227

Inventories
228

 
—

 
—

 
228

Income taxes receivable
4

 
—

 
—

 
4

Other current assets
37

 
—

 
—

 
37

Assets related to discontinued operations
385

 
(385
)
 
—

 
—

Total current assets
1,587

 
(385
)
 
428

 
1,630

Property, plant and equipment
1,700

 
—

 
—

 
1,700

Deferred income taxes
636

 
—

 
(151
)
(d)
485

Equity method investments
674

 
—

 
—

 
674

Other assets
64

 
—

 
—

 
64

Total assets
4,661

 
(385
)
 
277

 
4,553

 
 
 
 
 
 
 
 
Liabilities and Stockholders’ Equity
 
 
—

 
 
 
 
Accounts payable
222

 
—

 
—

 
222

Accrued expenses
165

 
—

 
—

 
165

Current portion of long-term debt
300

 
—

 
—

 
300

Income taxes payable
7

 
—

 
—

 
7

Liabilities related to discontinued operations
118

 
(118
)
 
—

 
—

Total current liabilities
812

 
(118
)
 
—

 
694

Long-term debt
1,677

 
—

 
(248
)
(f)
1,429

Deferred income taxes
3

 
—

 
—

 
3

Pension and other postretirement benefits
357

 
—

 
—

 
357

Other liabilities
183

 
—

 
—

 
183

Total liabilities
3,032

 
(118
)
 
(248
)
 
2,666

Common stock
15

 
—

 
—

 
15

Additional paid-in capital
3,034

 
—

 
—

 
3,034

Accumulated other comprehensive loss
(331
)
 
—

 
—

 
(331
)
Retained earnings (accumulated deficit)
(1,089
)
 
—

 
258

(d)(f)(g)
(831
)
Total stockholders’ equity
1,629

 
—

 
258

 
1,887

Total liabilities and stockholders’ equity
4,661

 
(118
)
 
10

 
4,553


6

Notes to the Unaudited Condensed Pro Forma Financial Statements

(a)
Reflects the estimated reduction in interest expense for the period of April 1, 2016 through September 30, 2016 related to the $250 million of 7.875% senior notes due 2020 that became callable on March 30, 2016.

(b)
Reflects the income tax effects of the pro forma adjustment at the Company's effective tax rate.

(c)
Reflects the adjustments to remove the historical balances and results of operations of L&W. Balances are net of intercompany transactions.

(d)
The following reflects the estimated gain on sale of our L&W business if we had completed the sale on September 30, 2016:
 
Pro Forma Adjustment
Net cash proceeds from sale of L&W (e)
$
658

Less: Net assets sold
267

Less: Tax expense
151

Gain on sale, net
$
240

The gain on sale excludes additional estimated expenses and gains incurred as a result of the disposition of L&W including the curtailment gain of the U.S. postretirement medical plan.

(e)
Reflects the use of the net cash proceeds of a $670 million sale price less a $2 million working capital adjustment and $10 million in transaction fees:
 
Pro Forma Adjustment
Net cash proceeds from sale of L&W
658

Less: Repayment of 7.875% senior notes and premiums (f)
260

Total pro forma adjustment to cash
398


(f)
Reflects the repayment of $250 million 7.875% senior notes due 2020 and the write-off of corresponding deferred financing fees of $2 million. The debt repayment assumes premiums paid of $10 million for aggregate consideration of $260 million.

(g)
Adjustment to reflect the L&W trade receivable owed to United States Gypsum Company and USG Interiors, LLC at the time of sale.




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