Owens Corning : UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION - Form 8-K

Owens Corning's Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 14, 2024; and

Masonite's Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 29, 2024 (the "Masonite 2023 Form 10-K").

ASSETS

Cash and cash equivalents

Receivables, net

Inventories

Other current assets

Total current assets

Property, plant and equipment, net

Operating lease right-of-use assets

Goodwill

Intangible assets, net

Deferred income taxes

Other non-current assets

TOTAL ASSETS

LIABILITIES AND EQUITY

CURRENT LIABILITIES

Accounts payable

Current operating lease liabilities

Short-term debt

Long-term debt - current portion

Other current liabilities

Total current liabilities

Long-term debt, net of current portion

Pension plan liability

Other employee benefits liability

Non-current operating lease liabilities

Deferred income taxes

Other liabilities

Total liabilities

Redeemable noncontrolling interest

STOCKHOLDERS' EQUITY

Preferred stock, par value $0.01 per share (a)

Common stock, par value $0.01 per share (b)

Additional paid in capital

Accumulated earnings

Accumulated other comprehensive deficit

Cost of common stock in treasury (c)

Total stockholders' equity

Noncontrolling interests

Total equity

TOTAL LIABILITIES AND EQUITY

10 shares authorized; none issued or outstanding at December 31, 2023

400 shares authorized; 135.5 issued and 87.2 outstanding at December 31, 2023

48.3 shares at December 31, 2023

NET SALES

COST OF SALES

Gross margin

OPERATING EXPENSES

Marketing and administrative expenses

Science and technology expenses

Gain on sale of site

Other expense, net

Total operating expenses

OPERATING INCOME

Non-operating expense (income), net

EARNINGS (LOSS) BEFORE INTEREST AND TAXES

Interest expense, net

EARNINGS (LOSS) BEFORE TAXES

Income tax expense

Equity in net earnings of affiliates

NET EARNINGS (LOSS)

Net (loss) earnings attributable to non-redeemable and redeemable noncontrolling interests

NET EARNINGS (LOSS) ATTRIBUTABLE TO STOCKHOLDERS

EARNINGS (LOSS) PER COMMON SHARE ATTRIBUTABLE TO OWENS CORNING COMMON STOCKHOLDERS

Basic

Diluted

WEIGHTED AVERAGE SHARES OF COMMON STOCK

Basic

Diluted

Masonite historically classified Research and Development ("R&D") costs as part of Cost of Sales in the Statement of Earnings, while Owens Corning classifies them as Operating Expenses.

Financial Statement Line

Restricted cash

Prepaid expenses and other assets

Income taxes receivable

Other current assets

Investment in equity investees

Other non-current assets (1)

Accrued expenses (1)

Income taxes payable

Current operating lease liabilities

Other current liabilities

Pension plan liability

Other liabilities

Share capital

Cost of common stock in treasury

This number has been rounded as a result of the conversion from thousands to millions.

Represents the reclassification of $12 million from Restricted cash to Other current assets.

Represents the reclassification of $60 million from Prepaid expenses and other assets to Other current assets.

Represents the reclassification of $27 million from Income taxes receivable to Other current assets.

Represents the reclassification of $20 million from Investment in equity investees to Other non-current assets.

Represents the reclassification of $32 million from Accrued expenses to Current operating lease liabilities.

Represents the reclassification of $209 million from Accrued expenses to Other current liabilities.

Represents the reclassification of $3 million from Income taxes payable to Other current liabilities.

Represents the reclassification of $21 million from Other liabilities to Pension plan liability.

Represents the reclassification of $525 million from Share capital to Cost of common stock in treasury.

Financial Statement Line

Cost of Sales

Science and technology expenses

Restructuring costs

Asset impairment

Other expense, net

Represents the reclassification of R&D costs in the amount of $28 million from Cost of Sales to Science and technology expenses. This reclassification has been done to align Masonite's presentation to Owens Corning's accounting policies.

Represents the reclassification of $10 million from Restructuring costs to Other expense, net.

Represents the reclassification of $33 million from Asset impairment to Other expense, net.

Closing cash consideration

Fair value of Masonite outstanding equity awards converted to Owens Corning time vesting RSUs

Vested SARS and Board of Director RSUs

Repayment of Masonite term loan facility (a)

Total preliminary estimated transaction consideration

The amount of the Masonite term loan facility was obtained from the Masonite 2023 Form 10-K. The amount outstanding on the Masonite term loan facility is as of December 31, 2023 and could vary materially based on the actual amount outstanding at the close of the Transaction.

Number of Masonite stock awards outstanding (a)

Exchange ratio (b)

Owens Corning equity awards issued for Masonite outstanding equity awards

10-day weighted average closing share price of Owens Corning common stock (c)

Fair value of Owens Corning time vesting RSUs issued for Masonite outstanding equity awards

Less: Estimated fair value allocated to post-transaction compensation expense

Fair value of awards included in preliminary estimated consideration

Represents the Masonite stock awards that will be converted into Owens Corning equity awards upon completion of the Transaction, based on awards outstanding at December 31, 2023. Masonite equity awards include awards issued under various stock incentive plans of Masonite.

The exchange rate was determined by the consideration amount divided by the volume weighted average closing sale price of one share of Owens Corning common stock for the ten consecutive trading days ended December 29, 2023, in accordance with the terms of the Arrangement Agreement. The exchange rate is preliminary and could vary materially at the close of the Transaction.

The ten-day weighted average was calculated for the ten consecutive trading days ended December 29, 2023.

Cash and cash equivalents

Accounts receivable, net

Inventories

Other current assets

Property, plant and equipment, net

Operating lease right-of-use assets

Intangible assets. net

Deferred income taxes

Other non-current assets

Total assets

Accounts payable

Current operating lease liabilities

Other current liabilities

Long-term debt, net of current portion

Non-current operating lease liabilities

Deferred income taxes

Pension plan liability

Other non-current liabilities

Net assets acquired

Non-controlling interest

Goodwill

Total preliminary estimated consideration

Reflects cash paid as part of total preliminary estimated consideration, summarized in the following table:

Closing cash consideration

Vested SARS and Board of Director RSUs

Adjustment to Cash and cash equivalents

Reflects the adjustment to Masonite's inventory to step up to fair value. The fair value of inventory is preliminary and subject to change. The preliminary estimated fair value was determined based on the estimated selling price of the inventory, less the remaining manufacturing and selling costs and a normal profit margin on those manufacturing and selling efforts.

Inventory

Less: Masonite's historical inventories, net

Adjustment to Inventories

Represents the preliminary estimated fair value adjustment to Property, plant and equipment, net acquired. A benchmarking analysis was performed to estimate the fair value of Property, plant and equipment, net; refer to Note 3 for more detail. The estimated fair values and estimated useful lives are preliminary and subject to change once Owens Corning has sufficient information as to the specific types, nature, age, condition and location of Masonite's property, plant and equipment. The completion of the detailed valuation work could have a material impact on the valuation of property, plant and equipment as well as the purchase price allocation.

Land

Buildings

Machinery and equipment

Total Property, plant and equipment

Less: Masonite's historical Property, plant and equipment, net

Adjustment to Property, plant and equipment, net

Reflects the estimated value of goodwill recorded as part of the total preliminary estimated consideration. Goodwill arising from the transaction will not be tax deductible. The estimated value of goodwill is subject to change.

Goodwill

Less: Masonite historical goodwill

Adjustment to Goodwill

Reflects the preliminary estimated fair value of the identifiable intangible assets acquired. A benchmarking analysis was performed to estimate the fair value of identified intangibles, refer to Note 3 for more detail. The estimated fair value and useful lives of intangible assets are preliminary and subject to change.

Customer Relationships

Patents

System software development

Trademarks and trade names (indefinite lived)

Trademarks and trade names

License rights and other

Identifiable intangible assets, net

Less: Masonite's historical intangible assets, net

Adjustment to Intangible assets, net

Reflects the preliminary estimated $43 million for nonrecurring Transaction-related expenses expected to be incurred by Owens Corning. These expenses include costs that will be incurred between signing and closing of the Transaction for external advisory services.

Reflects the impact related to the assumption of Masonite's debt at fair value. The estimated fair value of Masonite's debt is calculated as follows. As disclosed in the Masonite 2023 Form 10-K, the fair value was determined by estimates based on market quotes and calculations based on current market rates available to Masonite and are categorized as having Level 2 valuation inputs as established by the Financial Accounting Standards Board's Fair Value Framework. Market quotes used in these calculations are based on bid prices for Masonite debt instruments and are obtained from and corroborated with multiple independent sources. The market quotes obtained from independent sources are within the range of management's expectations. The fair value of the debt assumed is preliminary and subject to change.

3.50 % senior unsecured notes due 2030

5.375% senior unsecured notes due 2028

Fair value of debt assumed

Less: Masonite historical value

Adjustment to Long-term debt, net of current portion

Represents the adjustment of $233 million to the deferred tax asset and the deferred tax liability balances associated with the incremental differences in the book and tax basis created from the preliminary purchase price allocation, primarily resulting from the closing date value of intangible assets. Deferred taxes are established based on a statutory tax rate based on jurisdictions where it is anticipated purchase price allocations will be recorded. The effective tax rate of Owens Corning following the Transaction could be significantly different (either higher or lower) depending on the post-Transaction activities, including legal entity restructuring, and the geographical mix of income. This determination is preliminary and subject to change based upon the final determination of the fair value of the assets and liabilities.

Reflects the elimination of Masonite's historical equity.

Reflects $46 million of preliminary estimated consideration related to the pre-combination vesting period for Masonite RSUs and PRSUs that will convert to Owens Corning time vesting RSUs at the date of close.

Reflects the impact of new financing and the related transaction costs, net of repayment of Masonite's historical debt and impact of the unamortized debt issuance costs.

Proceeds from 364-day term loan facility (a)

Repayment of Masonite's historical debt (b)

New deferred debt issuance costs (c)

Adjustment to Unaudited Pro Forma Combined Balance Sheet

Represents the 364-day term loan facility entered into in connection with the execution of the Transaction with the assumption that Owens Corning will utilize the entire available amount. The actual amount drawn may vary based on available cash balances on the closing date of the Transaction.

Represents the repayment of the Masonite term loan facility, which is included in the calculation of consideration as disclosed in Note 3 above.

Represents the debt issuance costs incurred for the 364-day term loan facility.

Reflects the $19 million step up in fair value to Masonite's inventory to approximately $410 million. The fair value of inventory is preliminary and subject to change. The preliminary estimated fair value was determined based on the estimated selling price of the inventory, less the remaining manufacturing and selling costs and a normal profit margin on those manufacturing and selling efforts. The Unaudited Pro Forma Combined Statement of Earnings for the year ended December 31, 2023 is also adjusted to increase Cost of Sales by the same amount as the inventory that is expected to be sold within one year of the Transaction date.

Reflects the change in depreciation expense included in Cost of Sales, related to step-up in value of Property, plant and equipment, net acquired. This expense is subject to change dependent on the final valuation of Property, plant and equipment, net and final estimated useful lives assigned.

Land

Buildings

Machinery and equipment

Total Property, plant and equipment, net

Less: Historical depreciation expense

Net impact, recorded in Cost of Sales

Reflects incremental amortization expense, included in Marketing and administrative expenses related to the fair value of identifiable intangible assets acquired. This expense is subject to change dependent on the final list of intangible assets identified, the useful lives assigned and the final valuation of those intangibles. If the amount of consideration assigned to customer relationships increased(decreased) by $50 million, amortization would increase(decrease) by $3 million. If the estimated useful life were to increase(decrease) by 5 years, amortization would increase(decrease) by $13 million and $(25) million, respectively.

Customer Relationships

Patents

System software development

Trademarks and trade names (indefinite lived)

Trademarks and trade names

License rights and other

Identifiable intangible assets, net

Less: Historical amortization expense

Net impact, recorded in Marketing and administrative expenses

Reflects the preliminary estimated $43 million of nonrecurring Transaction-related expenses expected to be incurred by Owens Corning. These expenses include costs that will be incurred between signing and closing of the Transaction for external advisory services. These nonrecurring expenses are not expected to affect the Statement of Earnings beyond twelve months after the Transaction date.

Reflects the preliminary estimated $20 million income tax impact related to the unaudited pro forma Masonite acquisition adjustments and $52 million income tax impact related to the unaudited pro forma financing adjustments estimated to be tax deductible, based on a blended federal and state statutory rate of approximately 25%. The effective tax rate of the combined company could be materially different than what is presented in this unaudited pro forma combined financial information depending on post-Transaction activities, including legal entity restructuring, repatriation decisions, and the geographical mix of taxable income. A statutory rate was applied based on jurisdictions where it is anticipated purchase price adjustments will be recorded and incremental financing incurred. The statutory tax rate is not necessarily indicative of the effective tax rate of Owens Corning following the close of the Transaction, which could be materially different depending on post-Transaction activities, including legal entity restructuring and the geographical mix of income.

The following adjustments to interest expense reflect the estimated interest expense and financing costs amortization to be incurred by Owens Corning as a result of the financing activities noted in adjustment K.

364-day term loan facility (excluding amortization of debt issuance costs) (a)

Accretion of Masonite 2030 & 2028 notes to face value (b)

Amortization of debt issuance costs related to 364 day term loan facility (c)

Total

Less: Masonite's historical interest expense (d)

Net impact, recorded in Interest expense, net

Represents interest expense for one year on the 364-day term loan facility entered into in connection with the execution of the Transaction at an interest rate of SOFR plus 1.25% applicable margin. The SOFR rate at December 29, 2023, 5.38%, was used to calculate interest expense. An interest expense increase (decrease) of 0.125% would increase (decrease) the amount of interest expense incurred by $4 million. This assumes that the entire amount is drawn. The final amount drawn will depend on cash balances available at the closing date.

Represents the annual amount of accretion of the Masonite 2030 3.50% notes (the "Masonite 2030 notes") and the Masonite 2028 5.375% notes (the "Masonite 2028 notes") to face value, for the pro forma period presented.

Represents the debt issuance costs for the 364-day term loan facility entered into in connection with the execution of the Transaction.

Represents the interest expense that would not be incurred on the Masonite term loan facility as it is to be paid off as part of the Transaction.

Pro Forma net income attributable to common stockholders

Denominator:

Weighted average number of common shares outstanding (Basic) (a)

Weighted average number of common shares outstanding (Diluted) (b)

Pro Forma net earnings per share:

Basic

Diluted

Weighted average outstanding shares are not impacted by the Transaction as consideration is paid in cash.

This calculation assumes that all unvested Masonite RSUs and PRSUs as of December 31, 2023 convert to Owens Corning time vesting RSUs at the closing date in accordance with the terms of the Arrangement Agreement. These unvested shares have been deemed to be dilutive based on the definition of diluted earnings per share noted above.