USG Corporation (NYSE:USG), a leading building products company, today reported results for the fourth quarter and full year of 2015. "We finished 2015 on a strong note by achieving impressive margin expansion in our Gypsum and Ceilings businesses," said James S. Metcalf, Chairman, President, and CEO. "Improved pricing in both businesses, coupled with our cost discipline, drove this increased performance."

On a consolidated basis in the fourth quarter of 2015, net sales were $925 million, compared to $954 million in the fourth quarter of 2014. Foreign currency unfavorably impacted net sales by $18 million in the fourth quarter of 2015.

USG generated $812 million in net income and $5.51 per diluted share in the fourth quarter of 2015, $731 million and $4.96 of which was driven by the release of an income tax valuation allowance. This compares to a net loss of $53 million and $0.36 loss per diluted share in the fourth quarter of 2014. On an adjusted basis, net income of $62 million and diluted earnings per share of $0.42 in the fourth quarter of 2015 increased from $31 million and $0.21, respectively, in the fourth quarter of 2014. Foreign currency unfavorably impacted consolidated net income by $8 million in the fourth quarter of 2015. A full reconciliation of GAAP to adjusted metrics is set forth on a schedule attached hereto.

The corporation's Gypsum segment generated $93 million of operating profit in the fourth quarter of 2015. On an adjusted basis, operating profit of $77 million in the Gypsum segment improved by $9 million over the fourth quarter of 2014, led by the US Gypsum business which realized 240 basis points of improved operating margins. The wallboard business provided $1 million of this improvement, while the surfaces and substrates business drove $5 million of improved profit and lower SG&A spending contributed $6 million in incremental profit. Improved operating performance of $3 million in Canada and Mexico was more than offset by the impact of $6 million of unfavorable foreign currency.

The Ceilings segment earned $19 million of operating profit in the fourth quarter of 2015 compared to $18 million of operating profit in the fourth quarter of 2014. Stronger pricing in all tile categories was the primary driver of record fourth quarter margins of 16.7% in the US Ceiling business. The impact of an improved cost position in ceilings products was offset by lower volumes.

The Distribution segment earned $5 million of operating profit in the fourth quarter of 2015 compared to $7 million of operating profit in the fourth quarter of 2014. Same store sales increased 3%. Improved volumes were more than offset by higher costs.

The USG Boral business generated $15 million of adjusted equity method income in the fourth quarter of 2015 compared to $14 million in the fourth quarter of 2014. This $1 million of improved performance was driven by $6 million of operational improvement offset by the impact of $2 million of unfavorable foreign currency and the absence of a $3 million insurance recovery recorded in the fourth quarter of 2014.

USG recorded full year 2015 net sales of $3.8 billion, net income of $991 million, and diluted earnings per share of $6.73. On an adjusted basis, the corporation generated full year 2015 net sales of $3.8 billion, net income of $259 million, and diluted earnings per share of $1.76. For comparative purposes, on an adjusted basis, USG recorded net sales of $3.6 billion, net income of $146 million, and diluted earnings per share of $1.00 for the full year of 2014. 2015 sales and adjusted net income include the unfavorable impact of foreign currency of $65 million and $28 million, respectively.

"In 2015, we realized operating margin expansion in all of our businesses and generated the most earnings since 2006 when demand was fifty percent higher," Mr. Metcalf said. "With growth expected in every market that we serve, a continued focus on controlling costs, and our commitment to innovative new products, I'm excited for what lies ahead in 2016."

A conference call is being held today at 8:00 A.M. Central Time during which USG senior management will discuss the corporation's operating results. The conference call will be webcast on the USG website, www.usg.com, in the Investor Relations section. The dial-in number for the conference call is 1-800-315-2944 in the United States and Canada (1-847-413-2929 for other international callers), and the pass code is 41308777. After the live webcast, a replay of the webcast will be available on the USG website. In addition, a telephonic replay of the call will be available until Friday, February 19, 2016. The replay dial-in number is 1-888-843-7419 (1-630-652-3042 for international callers), and the pass code is 41308777.

USG Corporation

USG Corporation is a manufacturer and distributor of innovative, high-performance building systems through its United States Gypsum Company, USG Interiors, LLC, and L&W Supply Corporation subsidiaries and its USG Boral Building Products joint venture. Headquartered in Chicago, USG's worldwide operations serve the commercial, residential, and repair and remodel construction markets, enabling our customers to build the outstanding spaces where people live, work and play. USG wall, ceiling, exterior sheathing, flooring underlayment and roofing systems provide leading-edge building solutions, while L&W Supply branch locations efficiently stock and deliver building materials throughout the United States. USG Boral Building Products is a leading plasterboard & ceilings joint venture across Asia, Australasia, and the Middle East. USG and its subsidiaries are proud sponsors of the U.S. Olympic and Paralympic teams and the Canadian Olympic team. For additional information, visit www.usg.com.

Non-GAAP Financial Measures

In this press release, the corporation's financial results are provided both in accordance with accounting principles generally accepted in the United States of America (GAAP) and using certain non-GAAP financial measures. In particular, the corporation presents the non-GAAP financial measures adjusted operating profit, adjusted equity income from USG Boral Building Products, impacts of foreign currency on current period results using prior period translation rates, adjusted net income, adjusted net sales, and adjusted earnings per diluted share, which exclude certain items. The non-GAAP financial measures are included as a complement to results provided in accordance with GAAP because management believes these non-GAAP financial measures help investors' ability to analyze underlying trends in the corporation's business, evaluate its performance relative to other companies in its industry and provide useful information to both management and investors by excluding certain items that may not be indicative of the corporation's core operating results. In addition, adjusted operating profit includes the income from the corporation's equity method investments, including USG Boral Building Products, because management views the joint ventures as a business unit, even though the corporation's share of the joint venture is 50%. In addition, the corporation uses adjusted operating profit and adjusted net income as components in the measurement of incentive compensation. Adjusted results also exclude results from Gypsum Transportation Limited (GTL), a shipping operation that the corporation has exited. The non-GAAP measures should not be considered a substitute for or superior to GAAP results and may vary from others in the industry. For further information related to the corporation's use of non-GAAP financial measures, and reconciliations to the nearest GAAP measures, see the schedules attached hereto.

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 related to management's expectations about future conditions, including but not limited to, management's expectation about expected growth in 2016. Actual business, market or other conditions may differ materially from management's expectations and, accordingly, may affect our sales and profitability or other results and liquidity. Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Actual results may differ materially due to various other factors, including: economic conditions, such as the levels of new home and other construction activity, employment levels, the availability of mortgage, construction and other financing, mortgage and other interest rates, housing affordability and supply, the levels of foreclosures and home resales, currency exchange rates and consumer confidence; our ability to maintain or achieve price increases; our substantial indebtedness and our ability to incur substantial additional indebtedness; capital markets conditions and the availability of borrowings under our credit agreement or other financings; competitive conditions, such as price, service and product competition; certain of our customers having significant buying power; the loss of one or more major customers and our customers' ability to meet their financial obligations to us; shortages in raw materials or changes in raw material and energy costs; our ability to successfully operate the joint venture with Boral Limited, including risks that our joint venture partner, Boral Limited, may not fulfill its obligations as an investor or may take actions that are inconsistent with our objectives; volatility in the assumptions used to determine the funded status of our pension plans; our ability to protect our intellectual property and other proprietary rights; a security breach of company information; changes in laws or regulations, including environmental and safety regulations; the outcome in legal and governmental proceedings; the occurrence of an "ownership change" within the meaning of the Internal Revenue Code; the effects of acts of terrorism or war upon domestic and international economies and financial markets; and acts of God. We assume no obligation to update any forward-looking information contained in this press release. Additional information concerning these and other factors may be found in our filings with the Securities and Exchange Commission, including the "Risk Factors" in our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the quarter ended June 30, 2015.

 
USG CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in millions, except share and per share data)
(Unaudited)
 
    Three months ended     Twelve months ended
December 31, December 31,
2015   2014 2015   2014
Net sales $ 925 $ 954 $ 3,776 $ 3,724
Cost of products sold 753   794   3,085   3,070  
Gross profit 172 160 691 654
 
Selling and administrative expenses 80 109 317 339
Litigation settlement charge 48
Long-lived asset impairment charges 60 90
Contract termination charge and (recovery) loss on receivable (6 ) 15 (6 ) 15
Gain on disposal of shipping operations, net     (1 )  
Operating profit (loss) 98 (24 ) 381 162
 
Income from equity method investments 15 14 48 33
Interest expense (40 ) (44 ) (163 ) (179 )
Interest income 1 2 1
Income and gain from the sale of equity method investment to related party 11 1 13 2
Gain on deconsolidation of subsidiaries and consolidated joint ventures 27
Loss on extinguishment of debt     (19 )  
Income (loss) from continuing operations before income taxes 85 (53 ) 262 46
 
Income tax benefit (expense) 727     729   (7 )
Income (loss) from continuing operations 812 (53 ) 991 39
 
Loss from discontinued operations, net of tax       (1 )
Net income (loss) 812 (53 ) 991 38
 
Less: Net income attributable to noncontrolling interest       1  
 
Net income (loss) attributable to USG $ 812   $ (53 ) $ 991   $ 37  
 
Earnings (loss) per common share - basic:
Income (loss) from continuing operations $ 5.58 $ (0.36 ) $ 6.81 $ 0.27
Loss from discontinued operations       (0.01 )
Basic earnings (loss) per common share $ 5.58   $ (0.36 ) $ 6.81   $ 0.26  
 
Earnings (loss) per common share - diluted:
Income (loss) from continuing operations $ 5.51 $ (0.36 ) $ 6.73 $ 0.26
Loss from discontinued operations       (0.01 )
Diluted earnings (loss) per common share $ 5.51   $ (0.36 ) $ 6.73   $ 0.25  
 
Average common shares 145,672,636 144,837,591 145,457,208 141,722,616
Average diluted common shares 147,263,303 144,837,591 147,246,600 144,296,316
 

USG CORPORATION
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
(Unaudited)
    As of     As of
December 31, 2015 December 31, 2014
 
Assets
Cash and cash equivalents $ 442 $ 228
Short-term marketable securities 194 96
Restricted cash 9 1
Receivables (net of reserves - $14 and $22) 391 404
Inventories 314 329
Income taxes receivable 5 3
Other current assets 45   48  
Total current assets 1,400 1,109
Long-term marketable securities 36 58
Property, plant and equipment (net of accumulated
depreciation and depletion - $1,936 and $1,885) 1,788 1,908
Deferred income taxes 728 18
Equity method investments 682 735
Other assets 102   108  
Total assets $ 4,736   $ 3,936  
 
Liabilities and Stockholders' Equity
Accounts payable $ 259 $ 290
Accrued expenses 214 220
Current portion of long-term debt 500 4
Income taxes payable 9 1
Litigation settlement accrual 9   48  
Total current liabilities 991 563
 
Long-term debt 1,675 2,191
Deferred income taxes 5 17
Pension and other postretirement benefits 392 491
Other liabilities 237   266  
Total liabilities 3,300 3,528
Stockholders' Equity:
Preferred stock
Common stock 15 14
Additional paid-in capital 3,027 3,014
Accumulated other comprehensive loss (314 ) (338 )
Retained earnings (accumulated deficit) (1,292 ) (2,283 )
Stockholders' equity of parent 1,436 407
Noncontrolling interest   1  
Total stockholders' equity including noncontrolling interest 1,436   408  
Total liabilities and stockholders' equity $ 4,736   $ 3,936  
             
Other Information:
Total cash and cash equivalents and marketable securities $ 672 $ 382
Borrowing availability under existing credit facilities 295   291  
Total Liquidity     $ 967       $ 673  
 

USG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
(Unaudited)
    Twelve months ended December 31,
2015     2014
Operating Activities
Net income $ 991 $ 38
Less: Loss from discontinued operations, net of tax   (1 )
Income from continuing operations 991 39
 
Adjustments to reconcile income from continuing operations to net cash:
Depreciation, depletion and amortization 142 154
Loss on extinguishment of debt 19
Litigation settlement charge 48
Long-lived asset impairment charges 90
Contract termination charge and (recovery) loss on receivable (6 ) 15
Share-based compensation expense 15 21
Deferred income taxes (731 ) 4
Provision for bad debt 1
Gain on asset dispositions (15 ) (12 )
Gain from the sale of equity method investment to related party (6 )
Income from equity method investments (50 ) (35 )
Dividends received from equity method investments 38
Pension settlement 1 13
Gain on deconsolidation of subsidiaries and consolidated joint ventures (27 )
(Increase) decrease in working capital, net of deconsolidation of subsidiaries and consolidated joint ventures:
Receivables 10 (49 )
Income taxes receivable (3 ) 3
Inventories 14 (9 )
Other current assets 2 2
Payables (15 ) 10
Accrued expenses (60 ) (12 )
Decrease in other assets 5 3
Decrease in pension and other postretirement benefits (28 ) (55 )
Decrease in other liabilities (12 ) (13 )
Other, net 20   (18 )
Net cash provided by operating activities $ 331   $ 173  
 
Investing Activities
Purchases of marketable securities (246 ) (204 )
Sales or maturities of marketable securities 170 190
Capital expenditures (94 ) (132 )
Net proceeds from asset dispositions 61 16
Net proceeds from the sale of equity method investment to related party 52
Investment in joint ventures, including $23 of cash of contributed subsidiaries in 2014 (560 )
Insurance proceeds 2 3
Return (deposit) of restricted cash (8 ) 4  
Net cash used for investing activities $ (63 ) $ (683 )
 
(continued)
 
USG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(dollars in millions)
(Unaudited)
Twelve months ended December 31,
2015 2014
Financing Activities
Issuance of debt 350 3
Repayment of debt (386 ) (63 )
Payment of debt issuance fees (6 ) (3 )
Issuance of common stock 6 4
Repurchases of common stock to satisfy employee tax withholding obligations (8 ) (7 )
Net cash used for financing activities $ (44 ) $ (66 )
 
Effect of exchange rate changes on cash (10 ) (5 )
 
Net cash used for operating activities - discontinued operations   (1 )
 
Net increase (decrease) in cash and cash equivalents $ 214 $ (582 )
Cash and cash equivalents at beginning of period 228   810  
Cash and cash equivalents at end of period $ 442   $ 228  
 
Supplemental Cash Flow Disclosures:
Interest paid, net of interest capitalized $ 158 $ 172
Income taxes paid, net of refunds received 7
 
Noncash Investing and Financing Activities:
Amount in accounts payable for capital expenditures 5 15
Contribution of wholly-owned subsidiaries and joint venture investments as consideration for investment in USG Boral Building Products 121
Conversion of 10% convertible senior notes due 2018, net of discount (73 )
Issuance of common stock upon conversion of debt 75
Accrued interest on debt conversion (2 )
 

USG CORPORATION
CORE BUSINESS RESULTS
(dollars in millions)
(Unaudited)
 
    Three months ended December 31,     Twelve months ended December 31,
2015   2014 2015   2014
Net Sales:
Gypsum:
United States $ 502 $ 506 $ 2,012 $ 1,920
Canada 79 88 321 344
Mexico / Latin America 45 49 187 195
Gypsum Transportation Limited 19 10 81
Canadian Mining 2 2 6 5
Eliminations (35 ) (39 ) (139 ) (142 )
Total 593   625   2,397   2,403  
Ceilings:
United States 108 111 467 464
USG International 7
Canada 10 14 51 57
Mexico / Latin America 10 12 36 39
Eliminations (13 ) (16 ) (55 ) (54 )
Total 115   121   499   513  
Distribution:
L&W Supply 352 342 1,428 1,345
Eliminations (135 ) (134 ) (548 ) (537 )
Total USG Corporation Net Sales (a) $ 925   $ 954   $ 3,776   $ 3,724  
 

Operating Profit (Loss):
Gypsum:
United States $ 75 $ 63 $ 316 $ 192
Canada 7 13
Mexico / Latin America 12 6 24 19
Gypsum Transportation Limited 6 (71 ) 7 (52 )
Canadian Mining   (1 ) (6 ) (3 )
Total 93   (3 ) 348   169  
Ceilings:
United States 18 16 81 74
USG International
Canada 3 6
Mexico / Latin America 1   2   5   7  
Total 19   18   89   87  
Distribution:
L&W Supply 5 7 27 16
Corporate (23 ) (44 ) (95 ) (109 )
Eliminations 4   (2 ) 12   (1 )
Total USG Corporation Operating Profit $ 98   $ (24 ) $ 381   $ 162  
 
USG Boral Building Products (UBBP):
Net sales $ 261 $ 272 $ 1,003 $ 927
Operating profit 37 38 124 95
Net income attributable to UBBP 30 28 96 67
USG share of income from UBBP 15 14 48 33
(a)   Foreign currency unfavorably impacted net sales by $18 million and $65 million for the three months and twelve months ended December 31, 2015.
 

USG CORPORATION
ROLLFORWARD OF QUARTERLY AND ANNUAL ADJUSTED OPERATING PROFIT
(dollars in millions)
(Unaudited)
       
 
 
Adjusted operating profit - Non-GAAP measure - Three months ended December 31, 2014 $ 75
US Wallboard 1
US Surfaces and Substrates 5
US Gypsum Selling, General, and Administrative Expenses 6
US Tile and Grid 2
Distribution (2 )
Corporate and Eliminations 14
Canada, Mexico, Mining (4 )
Adjusted operating profit - Non-GAAP measure - Three months ended December 31, 2015 $ 97  
 
 
Adjusted operating profit - Non-GAAP measure - Twelve months ended December 31, 2014 330
US Wallboard 35
US Surfaces and Substrates 25
US Gypsum Selling, General, and Administrative Expenses (2 )
US Tile and Grid 5
US Ceiling Selling, General, and Administrative Expenses 2
Distribution 11
Income from Equity Method Investments 15
Q2 2014 USG Share of USG-Boral Restructuring Charges, Net of Tax (2 )
Q1 2014 Asset Retirement Obligation Adjustment (7 )
Corporate and Eliminations 14
Canada, Mexico, Mining (12 )
Adjusted operating profit - Non-GAAP measure - Twelve months ended December 31, 2015 414  
 

USG CORPORATION
RECONCILIATION OF NON-GAAP MEASURES TO GAAP MEASURES
(dollars in millions, except share and per share data)
(Unaudited)
       
Three months ended Twelve months ended
December 31, December 31,
2015   2014 2015   2014
Income from equity method investments - GAAP measure $ 15 $ 15 $ 50 $ 35
Less: Income from equity method investments - Other joint ventures 1 2 2
USG's share of UBBP restructuring charges, net of tax       2  
Adjusted equity income from UBBP - Non-GAAP measure $ 15   $ 14   $ 48   $ 35  
 
Gypsum operating profit - GAAP measure $ 93 $ (3 ) $ 348 $ 169
Gain on sale of surplus property (10 ) (10 ) (12 )
Litigation settlement charge (US Gypsum) 48
Long-lived asset impairment charges 60 90
Contract termination charge and (recovery) loss of receivable (6 ) 15 (6 ) 15
GTL - Shipping operations (a)     (4 )     (1 )   (23 )
Gypsum adjusted operating profit - Non-GAAP measure $ 77     $ 68       $ 331     $ 287  
 
Net sales - GAAP measure $ 925 $ 954 $ 3,776 $ 3,724
GTL - Shipping operations   (19 ) (10 ) (81 )
Adjusted net sales - Non-GAAP measure $ 925   $ 935   $ 3,766   $ 3,643  
 
Operating profit - GAAP measure $ 98 $ (24 ) $ 381 $ 162
Gain on sale of surplus property (10 ) (10 ) (12 )
Litigation settlement charge (US Gypsum) 48
Long-lived asset impairment charges 60 90
Contract termination charge and (recovery) loss on receivable (6 ) 15 (6 ) 15
GTL - Shipping operations (a) (4 ) (1 ) (23 )
Income from equity method investments 15 15 50 35
USG's share of UBBP restructuring charges, net of tax 2
Pension settlement charges   13     13  
Adjusted operating profit - Non-GAAP measure $ 97   $ 75   $ 414   $ 330  

Currency impacts on consolidated and segment results have been derived by translating current period results at the quarter-to-date and year-to-date average foreign currency rates for the period ending December 31, 2014, as applicable.
 
USG CORPORATION
RECONCILIATION OF NON-GAAP MEASURES TO GAAP MEASURES
(dollars in millions, except share and per share data)
(Unaudited)
           
Three months ended Twelve months ended
December 31, December 31,
2015 2014 2015 2014
Net income (loss) attributable to USG - GAAP measure $ 812 $ (53 ) $ 991 $ 37
Loss from discontinued operations 1
Gain on sale of surplus property, net of tax (7 ) (7 ) (12
Gain on sale of equity method investment, net of tax (6 ) (6 )
Litigation settlement charge 48
Long-lived asset impairment charges 60 90
Contract termination charge and (recovery) loss on receivable (6 ) 15 (6 ) 15
GTL - Shipping operations (a) (4 ) (1 ) (22
USG's share of UBBP restructuring charges, net of tax 2
Pension settlement charge 13 13
Gain on deconsolidation of subsidiaries and consolidated joint ventures (27
Withholding tax on property contributed to USG Boral joint venture 1
Reduction in valuation allowance for deferred tax assets (731 ) (731 )
Loss on extinguishment of debt     19  
Adjusted net income attributable to USG - Non-GAAP measure $ 62   $ 31   $ 259   $ 146
 
Earnings (loss) per average diluted common share - GAAP measure $ 5.51 $ (0.36 ) $ 6.73 $ 0.25
Adjustments per average diluted common share:
Loss from discontinued operations 0.01
Gain on sale of surplus property, net of tax (0.05 ) (0.05 ) (0.08
Gain on sale of equity method investment, net of tax (0.04 ) (0.04 )
Litigation settlement charge 0.33
Long-lived asset impairment charges 0.41 0.61
Contract termination charge and (recovery) loss on receivable (0.04 ) 0.10 (0.04 ) 0.10
GTL - Shipping operations (a) (0.03 ) (0.01 ) (0.15
USG's share of UBBP restructuring charges, net of tax 0.01
Pension settlement charge 0.09 0.09
Gain on deconsolidation of subsidiaries and consolidated joint ventures (0.18
Withholding tax on property contributed to USG Boral joint venture 0.01
Reduction in valuation allowance for deferred tax assets (4.96 ) (4.96 )
Loss on extinguishment of debt     0.13  
Adjusted earnings per adjusted average diluted common share - Non-GAAP measure $ 0.42   $ 0.21   $ 1.76   $ 1.00
Average diluted common shares - GAAP 147,263,303 144,837,591 147,246,600 144,296,316
Adjustment to add common shares that would be dilutive based on adjusted net income   2,355,825     2,797,618
Adjusted average diluted common shares - Non-GAAP 147,263,303   147,193,416   147,246,600   147,093,934
(a)   Adjusted results for both the quarter and the twelve months ended December 31, 2014 have been adjusted to exclude the results from GTL.

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