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Form 10-Q USG CORP For: Sep 30

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October 22, 2015 11:51 AM EDT

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
OR
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 1-8864
USG CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
36-3329400
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
550 West Adams Street, Chicago, Illinois
 
60661-3676
(Address of principal executive offices)
 
(Zip code)
Registrant’s telephone number, including area code (312) 436-4000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer þ
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
The number of shares of the registrant’s common stock outstanding as of September 30, 2015 was 145,645,279.


Table of Contents
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
USG CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(millions, except per-share and share data)
Three months ended September 30,
 
Nine months ended September 30,
 
2015
 
2014
 
2015
 
2014
Net sales
$
972

 
$
972

 
$
2,851

 
$
2,770

Cost of products sold
789

 
796

 
2,332

 
2,276

Gross profit
183

 
176

 
519

 
494

Selling and administrative expenses
81

 
76

 
237

 
230

Litigation settlement charge
—

 
48

 
—

 
48

Long-lived asset impairment charges
—

 
30

 
—

 
30

Gain on disposal of shipping operations, net
—

 
—

 
(1
)
 
—

Operating profit
102

 
22

 
283

 
186

Income from equity method investments
13

 
12

 
35

 
20

Interest expense
(40
)
 
(43
)
 
(123
)
 
(135
)
Interest income
—

 
—

 
1

 
1

Loss on extinguishment of debt
—

 
—

 
(19
)
 
—

Gain on deconsolidation of subsidiaries and consolidated joint ventures
—

 
—

 
—

 
27

Income (loss) from continuing operations before income taxes
75

 
(9
)
 
177

 
99

Income tax benefit (expense)
1

 
(2
)
 
2

 
(7
)
Income (loss) from continuing operations
76

 
(11
)
 
179

 
92

Loss from discontinued operations, net of tax
—

 
—

 
—

 
(1
)
Net income (loss)
76

 
(11
)
 
179

 
91

Less: Net income attributable to noncontrolling interest
—

 
1

 
—

 
1

Net income (loss) attributable to USG
$
76

 
$
(12
)
 
$
179

 
$
90

 
 
 
 
 
 
 
 
Earnings (loss) per common share - basic:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.52

 
$
(0.09
)
 
$
1.23

 
$
0.65

Loss from discontinued operations
—

 
—

 
—

 
(0.01
)
Net income (loss)
$
0.52

 
$
(0.09
)
 
$
1.23

 
$
0.64

 
 
 
 
 
 
 
 
Earnings (loss) per common share - diluted:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
0.52

 
$
(0.09
)
 
$
1.21

 
$
0.63

Loss from discontinued operations
—

 
—

 
—

 
(0.01
)
Net income (loss)
$
0.52

 
$
(0.09
)
 
$
1.21

 
$
0.62

 
 
 
 
 
 
 
 
Average common shares
145,569,692

 
144,646,284

 
145,421,798

 
140,944,207

Average diluted common shares
147,534,779

 
144,646,284

 
147,223,897

 
147,087,399

See accompanying Notes to Consolidated Financial Statements.


3

USG CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)

 
Three months ended September 30,
 
Nine months ended September 30,
(millions)
 
 
2015
 
2014
 
2015
 
2014
Net income (loss)
$
76

 
$
(11
)
 
$
179

 
$
91

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Derivatives qualifying as cash flow hedges:
 
 
 
 
 
 
 
Gain/(loss) on derivatives qualifying as cash flow hedges, net of tax of $1, $1, $1, and $1, respectively
—

 
(1
)
 
(1
)
 
1

Less: Reclassification adjustment for gain (loss) on derivatives included in net income, net of tax of $0 in all periods
(2
)
 
1

 
(7
)
 
4

Net derivatives qualifying as cash flow hedges
2

 
(2
)
 
6

 
(3
)
 
 
 
 
 
 
 
 
Pension and postretirement benefits:
 
 
 
 
 
 
 
Changes in pension and postretirement benefits, net of tax of $1, $1, $2 and $2, respectively
4

 
3

 
2

 
(6
)
Less: Amortization of prior service credit (cost) included in net periodic pension cost, net of tax (benefit) of $0, $0, ($1) and ($1), respectively
(3
)
 
3

 
(6
)
 
9

Net pension and postretirement benefits
7

 
—

 
8

 
(15
)
 
 
 
 
 
 
 
 
Foreign currency translation:
 
 
 
 
 
 
 
Changes in foreign currency translation, net of tax of $0 in all periods
(52
)
 
(39
)
 
(91
)
 
(28
)
Less: Translation gains realized upon the deconsolidation of foreign subsidiaries, net of tax of $0 in all periods
—

 
—

 
—

 
5

Net foreign currency translation
(52
)
 
(39
)
 
(91
)
 
(33
)
 
 
 
 
 
 
 
 
Other comprehensive loss, net of tax
$
(43
)
 
$
(41
)
 
$
(77
)
 
$
(51
)
 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
33

 
$
(52
)
 
$
102

 
$
40


See accompanying Notes to Consolidated Financial Statements.


4

USG CORPORATION
CONSOLIDATED BALANCE SHEETS

(millions, except share and per share data)
September 30, 2015
 
December 31, 2014
 
(Unaudited)
 
 
Assets
 
 
 
Cash and cash equivalents
$
333

 
$
228

Short-term marketable securities
89

 
96

Restricted cash
9

 
1

Receivables (net of reserves - $21 and $22)
432

 
404

Inventories
316

 
329

Income taxes receivable
5

 
3

Deferred income taxes
43

 
43

Other current assets
86

 
48

Total current assets
1,313

 
1,152

Long-term marketable securities
28

 
58

Property, plant and equipment (net of accumulated depreciation and depletion - $1,944 and $1,885)
1,806

 
1,908

Deferred income taxes
15

 
19

Equity method investments
657

 
735

Other assets
118

 
122

Total assets
$
3,937

 
$
3,994

Liabilities and Stockholders’ Equity
 
 
 
Accounts payable
$
251

 
$
290

Accrued expenses
207

 
220

Current portion of long-term debt
—

 
4

Deferred income taxes
2

 
—

Income taxes payable
3

 
1

Litigation settlement accrual
9

 
48

Total current liabilities
472

 
563

Long-term debt
2,188

 
2,205

Deferred income taxes
60

 
61

Pension and other postretirement benefits
453

 
491

Other liabilities
248

 
266

Total liabilities
3,421

 
3,586

Preferred stock – $1 par value, authorized 36,000,000 shares; outstanding - none
—

 
—

Common stock – $0.10 par value; authorized 200,000,000 shares; issued: 2015 - 145,645,000 shares; 2014 - 144,768,000 shares
15

 
14

Additional paid-in capital
3,022

 
3,014

Accumulated other comprehensive loss
(415
)
 
(338
)
Retained earnings (accumulated deficit)
(2,106
)
 
(2,283
)
Stockholders’ equity of parent
516

 
407

Noncontrolling interest
—

 
1

Total stockholders’ equity including noncontrolling interest
516

 
408

Total liabilities and stockholders’ equity
$
3,937

 
$
3,994

See accompanying Notes to Consolidated Financial Statements.

5

USG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


(millions)
Nine months ended September 30,
 
2015
 
2014
Operating Activities
 
 
 
Net income
$
179

 
$
91

Less: Loss from discontinued operations, net of tax
—

 
(1
)
Income from continuing operations
179

 
92

 
 
 
 
Adjustments to reconcile net income to net cash:
 
 
 
Depreciation, depletion and amortization
108

 
115

Loss on extinguishment of debt
19

 
—

Litigation settlement charge
—

 
48

Long-lived asset impairment charges
—

 
30

Share-based compensation expense
10

 
16

Deferred income taxes
1

 
4

Gain on asset dispositions
(7
)
 
(12
)
Income from equity method investments
(35
)
 
(20
)
Dividends received from equity method investments
18

 
—

Pension settlement
(1
)
 
—

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
(35
)
 
(70
)
Income taxes receivable
(3
)
 
(1
)
Inventories
13

 
(6
)
Other current assets
2

 
(1
)
Payables
(25
)
 
(16
)
Accrued expenses
(65
)
 
(6
)
Decrease in other assets
4

 
—

Decrease in pension and other postretirement benefits
(33
)
 
(48
)
Decrease in other liabilities
(10
)
 
(12
)
Other, net
13

 
(6
)
Net cash provided by operating activities
$
153

 
$
80

 
 
 
 
Investing Activities
 
 
 
Purchases of marketable securities
(96
)
 
(126
)
Sales or maturities of marketable securities
132

 
166

Capital expenditures
(72
)
 
(88
)
Net proceeds from asset dispositions
45

 
14

Investment in joint ventures, including $23 of cash of contributed subsidiaries in 2014
—

 
(558
)
Insurance proceeds
2

 
3

Return (deposit) of restricted cash
(8
)
 
4

Net cash provided by (used for) investing activities
$
3

 
$
(585
)
 
 
 
 
Financing Activities
 
 
 
Issuance of debt
350

 
3

Repayment of debt
(386
)
 
(62
)
Payment of debt issuance fees
(6
)
 
—

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
)
 
$
(62
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash
(7
)
 
(2
)
Net cash used for operating activities - discontinued operations
—

 
(1
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
$
105

 
$
(570
)
Cash and cash equivalents at beginning of period
228

 
810

Cash and cash equivalents at end of period
$
333

 
$
240

 
 
 
 
Supplemental Cash Flow Disclosures:
 
 
 
Interest paid, net of capitalized interest
$
128

 
$
127

Income taxes paid, net
2

 
9

 
 
 
 
Noncash Investing and Financing Activities:
 
 
 
Amount in accounts payable for capital expenditures
6

 
7

Contribution of wholly-owned subsidiaries and joint venture investments as consideration for investment in USG Boral Building Products
—

 
121

Conversion of $75 million 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
)
See accompanying Notes to Consolidated Financial Statements.

6

USG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In the following Notes to Consolidated Financial Statements, “USG,” “we,” “our” and “us” refer to USG Corporation, a Delaware corporation, and its subsidiaries included in the consolidated financial statements, except as otherwise indicated or as the context otherwise requires.
1.
Organization, Consolidation and Presentation of Financial Statements

PREPARATION OF FINANCIAL STATEMENTS
We prepared the accompanying unaudited consolidated financial statements of USG Corporation in accordance with applicable United States Securities and Exchange Commission, or SEC, guidelines pertaining to interim financial information. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ materially from those estimates. In the opinion of our management, the financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of our financial results for the interim periods. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the results of operations to be expected for the entire year.
Our investments with Boral Limited in the 50/50 joint ventures, USG Boral Building Products or UBBP, commenced on February 27, 2014, and as a result, seven months of results of UBBP were recorded in our accompanying consolidated statement of operations for the nine months ended September 30, 2014. See Note 2 for further description of our investment in UBBP.
Our segments are structured around our key products and business units: Gypsum, Ceilings, Distribution and UBBP.
Our Gypsum reportable segment is an aggregation of the operating segments of the gypsum businesses in the United States, Canada, Mexico, and Latin America, our mining operation in Little Narrows, Nova Scotia, Canada, and our shipping company, which we have exited. Gypsum manufactures products throughout the United States, Canada, and Mexico. These products include USG Sheetrock® brand gypsum wallboard and related products including Sheetrock® brand joint compound, Durock® brand cement board, Levelrock® brand gypsum underlayment, Fiberock® brand gypsum fiber panels, and Securock® brand glass mat sheathing used for building exteriors and gypsum fiber and glass mat panels used as roof cover board.
Our Ceilings reportable segment is an aggregation of the operating segments of the ceilings businesses in the United States, Canada, Mexico, Latin America and, through February 27, 2014, the businesses in the Asia-Pacific region. Ceilings manufactures ceiling tile in the United States and ceiling grid in the United States, Canada and, through February 27, 2014, the Asia-Pacific region.
Distribution delivers gypsum wallboard, drywall metal, ceilings products, joint compound and other building products throughout the United States.
UBBP manufactures, distributes and sells certain building products, mines raw gypsum and sells natural and synthetic gypsum throughout Asia, Australasia and the Middle East.
These financial statements and notes are to be read in conjunction with the financial statements and notes included in USG’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which we filed with the SEC on February 12, 2015.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July 2015, the Financial Accounting Standards Board, or FASB, issued Accounting Standard Update, or ASU, 2015-11, "Simplifying the Measurement of Inventory", which changes the measurement principle for inventory from the lower of cost or market to the lower of cost or net realizable value for entities that measure inventory using the first-in, first-out (FIFO) or average cost method. The ASU defines net realizable value as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The standard will be effective for us in the first quarter of 2017, with early adoption permitted. We are evaluating the effect of adopting this standard, but we do not expect the adoption of ASU 2015-11 will have a significant impact to our consolidated financial statements or disclosures.
In May 2015, the FASB issued ASU 2015-07, "Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)," which updates the disclosure requirements for investments that are measured at net asset value using the practical expedient. These investments are to be removed from the fair value hierarchy and shown as a

7

reconciling item. The standard will be effective for us in the first quarter of 2016, with early adoption permitted. We do not expect that the adoption of ASU 2015-07 will have a significant impact to our consolidated financial statements or disclosures.
In April 2015, the FASB issued ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs", which requires costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the debt liability rather than as an asset. In August 2015, the FASB issued ASU 2015-15, "Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements", which clarifies that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset, regardless of whether there are any outstanding borrowings on the line-of-credit. The standards will be effective for us in the first quarter of 2016, with early adoption permitted. We plan to early adopt the standards as of December 31, 2015. Upon adoption, we would reclassify our deferred debt issuance costs associated with our long-term debt other than our line-of-credit from other assets to long term debt. If adopted as of September 30, 2015, we would have recorded a reduction in both other assets and long-term debt of $14 million and would have provided additional disclosure.
In August 2014, the FASB issued ASU 2014-15, "Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern," which requires management to assess, at each annual and interim reporting period, the entity's ability to continue as a going concern within one year of date of the financial statements are issued and provide related disclosures. The new standard will be effective for us for the year ended December 31, 2016, with early adoption permitted. We do not expect that the adoption of ASU 2014-15 will have a significant impact to our consolidated financial statements or disclosures.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605),” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. There are two transition methods available under the new standard, either cumulative effect or retrospective. In August 2015, the FASB issued ASU 2015-14 which defers the mandatory effective date by one year. The standard will be effective for us in the first quarter of 2018, with early adoption permitted, but not before the original effective date. We will adopt the new standard using the modified retrospective approach, which requires the standard be applied only to the most current period presented, with the cumulative effect of initially applying the standard recognized at the date of initial application. We do not expect that the adoption of ASU 2014-09 will have a significant impact to our consolidated financial statements or disclosures.
2.    Equity Method Investments

Equity method investments as of September 30, 2015 and December 31, 2014, were as follows:
 
 
September 30, 2015
 
December 31, 2014
(dollars in millions)
 
Carrying Value
 
Ownership Percentage
 
Carrying Value
 
Ownership Percentage
USG Boral Building Products
 
$
650

 
50%
 
$
689

 
50%
Other equity method investments (a)
 
44

 
33% - 50%
 
46

 
33% - 50%
     Total equity method investments
 
$
694

 
 
 
$
735

 
 
(a)
This amount includes our investment in Knauf-USG of $37 million which as of September 30, 2015 is classified as assets held for sale and is included in other current assets.

Investment in USG Boral Building Products ("UBBP")
On February 27, 2014, we formed the 50/50 joint ventures, USG Boral Building Products Pte. Limited, a company organized under the laws of Singapore, and USG Boral Building Products Pty Limited, a company organized under the laws of Australia, with Boral Limited ("Boral"). These joint ventures are herein referred to as USG Boral Building Products, or UBBP. UBBP manufactures, distributes and sells certain building products, mines raw gypsum and sells natural and synthetic gypsum throughout Asia, Australasia and the Middle East (the "Territory"). The products that UBBP manufactures and distributes include products for wall, ceiling, floor lining and exterior systems that utilize gypsum, wallboard, referred to as plasterboard in the Territory, mineral fiber ceiling tiles, steel grid and studs and joint compound.
As consideration for our 50% ownership in UBBP, we (i) made a cash payment of $515 million to Boral, which includes a $500 million base price and $15 million of customary estimated working capital and net debt adjustments, (ii) contributed to UBBP our subsidiaries and joint venture investments in China, Singapore, India, Malaysia, New Zealand, Australia, the Middle East and Oman, see Note 15, and (iii) granted to UBBP licenses to use certain of our intellectual property rights in the Territory.

8

We funded our cash payments with the net proceeds from our October 2013 issuance of $350 million of 5.875% senior notes and cash on hand.
In the event certain performance targets are satisfied by UBBP, we will be obligated to pay Boral scheduled earnout payments in an aggregate amount up to $75 million, comprised first of $25 million based on performance during the first three years after closing and then up to $50 million based on performance during the first five years after closing. We recorded a liability representing the present value of the first earnout payment. We have not recorded a liability for the second earnout payment as we have concluded that it is currently not probable that the five-year performance target will be achieved. If our conclusion on the probability of achievement were to change, we will record a liability representing the present value of the second earnout payment with a corresponding increase to our investment. As of September 30, 2015 and December 31, 2014, our liability for the earnout payments totaled $24 million and $23 million, respectively, and is included in other liabilities on our accompanying consolidated balance sheets.
We account for our 50% investment in UBBP using the equity method of accounting, and we initially measured its carrying value at cost of approximately $676 million as of February 27, 2014. Our existing wholly-owned subsidiaries and consolidated variable interest entities that were contributed into the joint ventures were deconsolidated resulting in a gain of $27 million, which is included in our consolidated statement of operations for the nine months ended September 30, 2014. Approximately $11 million of the gain relates to the remeasurement of our retained investment in the contributed subsidiaries to a fair value, determined using a discounted cash flow model with several inputs, including a weighted-average discount rate of approximately 11% and a weighted-average long-term growth rate of approximately 2%.
All of our investments accounted for under the equity method of accounting are initially recorded at cost, and subsequently adjusted for our share of the net income or loss and cash contributions and distributions to or from these entities. Because the underlying net assets in our investments are denominated in a foreign currency, translation gains or losses will impact the recorded value of our investments. Translation gains or losses recorded in other comprehensive income were as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions)
2015
 
2014
 
2015
 
2014
Translation loss
$
(35
)
 
$
(24
)
 
$
(54
)
 
$
(13
)
During the second quarter of 2015, UBBP's Board of Directors declared and UBBP paid cash dividends on earnings through March 2015 of which our 50% share totaled $18 million. We recorded the cash dividend in operating activities on our cash flow and intend to use the cash dividends to fund the first earnout payment described above. As of September 30, 2015, the amount of consolidated retained earnings which represents undistributed earnings from UBBP is $48 million.
Summarized financial information for our equity method investments is as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
(in millions)
2015
 
2014
 
2015
 
2014 (a)
USG Boral Building Products:
 
 
 
 
 
 
 
Net sales
$
250

 
$
286

 
$
742

 
$
655

Gross profit
69

 
77

 
200

 
179

Operating profit
30

 
31

 
87

 
57

Income from continuing operations
25

 
25

 
71

 
42

Net income
25

 
25

 
71

 
42

Net income attributable to USG Boral Building Products
24

 
24

 
66

 
39

USG share of income from investment accounted for using the equity method
12

 
12

 
33

 
19

Other equity method investments:
 
 
 
 
 
 
 
USG share of income from investments accounted for using the equity method
1

 
—

 
2

 
1

 
 
 
 
 
 
 
 
Total income from equity method investments
13

 
12

 
35

 
20

(a)
Operating results are presented for UBBP for the seven months ended September 30, 2014.
Investment in Knauf-USG
On September 15, 2015, we entered into an agreement to sell our 50% interest in the Knauf-USG joint venture to our 50/50 joint venture partner, Knauf Aquapanel GmbH, a subsidiary of Gebr. Knauf Verwaltungsgesellschaft KG (Knauf) for

9

€48 million in cash, approximately $54 million (as calculated using the exchange rate as of September 30, 2015). The Knauf-USG joint venture manufactures and distributes Aquapanel® brand cement-based panels in Europe (excluding Turkey) and all countries that were part of the former Soviet Union. Affiliates of Knauf are the beneficial owners of approximately 10% of USG's outstanding shares of common stock.
The sale is expected to close in the fourth quarter of 2015 pending regulatory approval. Upon close of the sale, we anticipate recording a net gain in the range of $3 million to $7 million on disposition.
During the second quarter of 2015, our investment in the Knauf-USG joint venture met the criteria for asset held for sale. Accordingly, we have recorded our investment of $37 million as asset held for sale in other current assets on the consolidated balance sheet as of September 30, 2015. Our equity method income in the Knauf-USG joint venture was $2 million for both the nine months ended September 30, 2015 and 2014, respectively.
3.    Long-Lived Asset Impairment Charges
Since 2007, we have continuously evaluated our manufacturing needs by considering the capacity of existing and idled plants and production lines, as well as capital projects for manufacturing facilities, relative to the demand assumptions included in our long-range plan. Although industry and economic factors have improved and we believe that the overall economic recovery is intact, they are improving at a slower pace than expected, requiring us to reconsider the future utilization of idled plants and production lines, and capital projects for manufacturing facilities. As a result, in the third quarter of 2014, we recorded asset impairment charges totaling $30 million, which includes the following:
(a) $16 million related to the carrying values of machinery, equipment and buildings at our temporarily idled gypsum quarry and wallboard production facility in Empire, Nevada and at our previously idled and now permanently closed gypsum wallboard line in New Orleans, Louisiana. In addition, in the third quarter 2014 we permanently closed our wallboard line in Detroit, Michigan. No impairment charge was recorded with respect to our wallboard line in Detroit, Michigan, as these assets were previously impaired at the time the plant was originally idled.
(b) $12 million related to previously incurred and capitalized costs for the construction of two future facilities which we do not anticipate will be built within our planning horizon.
(c) $2 million related to the carrying values of machinery, equipment and buildings at our previously idled and now permanently closed paper production line in Gypsum, Ohio.
The carrying values of the machinery, equipment and buildings at our temporarily idled facility in Empire, Nevada exceeded the estimated future undiscounted cash flows for the remaining useful lives of the assets due to slower than expected acceleration in the markets served by this facility and our forecasts regarding the timing and future rate of recovery in those markets. Based on these conditions, we do not anticipate that the carrying values of the assets at this facility would be recovered prior to end of the assets’ useful lives, and therefore fully impaired these assets. For the production line in Gypsum, Ohio that we deemed to be permanently closed, we fully impaired the long-lived assets specific to those lines.
The long-lived asset impairment charges relate solely to our Gypsum segment.

10

4.     Segments
Our operations are organized into four reportable segments: Gypsum, Ceilings, Distribution and UBBP. See Note 2 for segment results for UBBP. Segment results for our Gypsum, Ceilings and Distribution segments were as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
(millions)
2015
 
2014
 
2015
 
2014 (c)
Net Sales:
 
 
 
 
 
 
 
Gypsum
$
610

 
$
621

 
$
1,804

 
$
1,778

Ceilings (a)
130

 
137

 
384

 
392

Distribution
378

 
359

 
1,076

 
1,003

Eliminations
(146
)
 
(145
)
 
(413
)
 
(403
)
Total
$
972

 
$
972

 
$
2,851

 
$
2,770

 
 
 
 
 
 
 
 
Operating Profit (Loss):
 
 
 
 
 
 
 
Gypsum (b)
$
89

 
$
12

 
$
255

 
$
172

Ceilings (a)
24

 
30

 
70

 
69

Distribution
9

 
4

 
22

 
9

Corporate
(25
)
 
(23
)
 
(72
)
 
(65
)
Eliminations
5

 
(1
)
 
8

 
1

Total
$
102

 
$
22

 
$
283

 
$
186

(a)
Ceilings' net sales and operating profit for the nine months ended September 30, 2014 includes the results, through February 27, 2014, of our wholly-owned subsidiaries and consolidated joint ventures that were contributed to UBBP.
(b)
Gypsum's operating profit for both the three and nine months ended September 30, 2014 included long-lived asset impairment charges of $30 million and a litigation settlement charge of $48 million. See notes 3 and 17, respectively.
(c)
Net sales and operating profit (loss) have been recast for the periods prior to April 1, 2014 to conform with the new presentation of reportable segments.

11

5.
Earnings (Loss) Per Share
Basic earnings (loss) per share is based on the weighted average number of common shares outstanding. Diluted earnings (loss) per share is based on the weighted average number of common shares outstanding plus the dilutive effect, if any, of market share units, or MSUs, performance shares, restricted stock units, or RSUs, stock options, deferred shares associated with our deferred compensation program for non-employee directors and, for the applicable periods, the potential conversion of our 10% convertible senior notes due 2018, which were converted into common stock in April 2014.
The reconciliation of basic earnings (loss) per share to diluted earnings (loss) per share is shown in the following table.
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
(millions, except per-share data)
2015
 
2014
 
2015
 
2014
Income (loss) from continuing operations
$
76

 
$
(11
)
 
$
179

 
$
92

Less: Net income attributable to noncontrolling interest
—

 
1

 
—

 
1

Income (loss) from continuing operations attributable to USG
76

 
(12
)
 
179

 
91

Loss from discontinued operations
—

 
—

 
—

 
(1
)
Net income (loss) attributable to USG
76

 
(12
)
 
179

 
90

Effect of dilutive securities - 10% convertible senior notes
—

 
—

 
—

 
2

Income (loss) available to shareholders
$
76

 
$
(12
)
 
$
179

 
$
92

 
 
 
 
 
 
 
 
Average common shares
145.6

 
144.6

 
145.4

 
140.9

Dilutive RSUs, MSUs, performance shares and stock options
1.8

 
—

 
1.6

 
2.5

Common shares issuable upon conversion of our 10% convertible senior notes
—

 
—

 
—

 
3.5

Deferred shares associated with a deferred compensation program for non-employee directors
0.1

 
—

 
0.2

 
0.2

Average diluted common shares
147.5

 
144.6

 
147.2

 
147.1

 
 
 
 
 
 
 
 
Earnings (loss) per average common share:
 
 
 
 
 
 
 
     Income (loss) from continuing operations
$
0.52

 
$
(0.09
)
 
$
1.23

 
$
0.65

     Loss from discontinued operations
—

 
—

 
—

 
(0.01
)
Earnings (loss) per average common share
$
0.52

 
$
(0.09
)
 
$
1.23

 
$
0.64

 
 
 
 
 
 
 
 
Diluted earnings (loss) per average common share:
 
 
 
 
 
 
 
     Income (loss) from continuing operations
$
0.52

 
$
(0.09
)
 
$
1.21

 
$
0.63

     Loss from discontinued operations
—

 
—

 
—

 
(0.01
)
Earnings (loss) per average diluted common share
$
0.52

 
$
(0.09
)
 
$
1.21

 
$
0.62

MSUs, performance shares, RSUs, and stock options and deferred shares associated with our deferred compensation program for non-employee directors that were not included in the computation of diluted earnings (loss) per share for those periods because their inclusion would be anti-dilutive were as follows:
 
Three months ended September 30,
 
Nine months ended September 30,
(millions, common shares)
2015
 
2014
 
2015
 
2014
MSUs, performance shares, RSUs and stock options
1.8

 
5.6

 
1.9

 
2.7

Deferred shares associated with a deferred compensation program for non-employee directors
—

 
0.1

 
—

 
—


12

6.
Marketable Securities
Marketable securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in accumulated other comprehensive loss on our accompanying consolidated balance sheets. Proceeds received from sales and maturities of marketable securities were $132 million for the nine months ended September 30, 2015. Our investments in marketable securities consisted of the following:
 
As of September 30, 2015
 
As of December 31, 2014
(millions)
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Corporate debt securities
$
79

 
$
79

 
$
93

 
$
93

U.S. government and agency debt securities
9

 
9

 
22

 
22

Asset-backed debt securities
15

 
15

 
17

 
17

Certificates of deposit
11

 
11

 
18

 
18

Municipal debt securities
3

 
3

 
4

 
4

Total marketable securities
$
117

 
$
117

 
$
154

 
$
154

The realized and unrealized gains and losses for the three and nine months ended September 30, 2015 and 2014 were immaterial. Cost basis for securities sold are determined on a first-in-first-out basis.
Contractual maturities of marketable securities as of September 30, 2015 were as follows:
(millions)
Amortized
Cost
 
Fair
Value
Due in 1 year or less
$
89

 
$
89

Due in 1-5 years
28

 
28

Total marketable securities
$
117

 
$
117

Actual maturities may differ from the contractual maturities because issuers of the securities may have the right to prepay them.
7.    Intangible Assets
Intangible assets are included in other assets on our accompanying consolidated balance sheets. Intangible assets with definite lives are amortized. These assets are summarized as follows:
 
As of September 30, 2015
 
As of December 31, 2014
(millions)
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Intangible Assets with Definite Lives:
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
$
70

 
$
(60
)
 
$
10

 
$
70

 
$
(54
)
 
$
16

Other
9

 
(7
)
 
2

 
9

 
(7
)
 
2

Total
$
79

 
$
(67
)
 
$
12

 
$
79

 
$
(61
)
 
$
18

Total amortization expense was $2 million and $6 million for the three and nine months ended September 30, 2015 and 2014, respectively. Estimated amortization expense for the remainder of 2015 and for future years is as follows:
(millions)
2015
 
2016
 
2017
 
2018 and thereafter
Estimated future amortization expense
$
2

 
$
7

 
$
2

 
$
1


13

Intangible assets with indefinite lives are not amortized. These assets are summarized as follows:
 
As of September 30, 2015
 
As of December 31, 2014
(millions)
Gross
Carrying
Amount
 
Accumulated Impairment Charges
 
Net
 
Gross
Carrying
Amount
 
Accumulated Impairment Charges
 
Net
Intangible Assets with Indefinite Lives:
 
 
 
 
 
 
 
 
 
 
 
Trade names
$
22

 
$
—

 
$
22

 
$
22

 
$
—

 
$
22

Other
9

 
(1
)
 
8

 
9

 
(1
)
 
8

Total
$
31

 
$
(1
)
 
$
30

 
$
31

 
$
(1
)
 
$
30

As of December 31, 2014, approximately $5 million of other indefinite-lived intangible assets met the criteria to be classified as held for sale and therefore were included in other current assets on our accompanying consolidated balance sheet. As of September 30, 2015, these indefinite-lived intangible assets were no longer recorded as held for sale.
8.     Debt
Total debt, including the current portion of long-term debt, consisted of the following:
(millions)
September 30,
2015
 
December 31,
2014
5.5% senior notes due 2025
$
350

 
$
—

5.875% senior notes due 2021
350

 
350

6.3% senior notes due 2016
500

 
500

7.75% senior notes due 2018, net of discount
500

 
500

7.875% senior notes due 2020, net of discount
249

 
249

8.375% senior notes due 2018
—

 
350

Ship mortgage facility (includes current portion of long-term debt: 2015 - $0, 2014 - $4)
—

 
21

Industrial revenue bonds (due 2028 through 2034)
239

 
239

Total
$
2,188

 
$
2,209


REPURCHASE OF SENIOR NOTES
In the first quarter of 2015, we repurchased $350 million of our 8.375% Senior Notes due in 2018, or the 2018 Senior Notes, through both a cash tender offer and a subsequent notice of redemption of the remaining 2018 Senior Notes. On February 24, 2015, we completed a cash tender offer pursuant to which we repurchased $126 million of the 2018 Senior Notes for aggregate consideration, including tender offer premium and accrued and unpaid interest, of $135 million. On March 26, 2015, we repurchased the remaining $224 million of the 2018 Senior Notes for aggregate consideration, including premiums and accrued and unpaid interest, of $242 million. As a result of the repurchases, we recorded a loss on early extinguishment of debt of $19 million including premiums and write-off of deferred financing fees.
ISSUANCE OF SENIOR NOTES
On February 24, 2015 we issued $350 million of 5.5% senior notes due March 1, 2025, or the 2025 Senior Notes. The net proceeds from the issuance of the 2025 Senior Notes and cash on hand were used to fund the repurchases of the 2018 Senior Notes and all related costs and expenses.
The 2025 Senior Notes were recorded on the accompanying consolidated balance sheets at $350 million. We deferred approximately $6 million of financing costs that are being amortized to interest expense over the term of the notes. Our obligations under the 2025 Senior Notes are guaranteed on a senior unsecured basis by certain of our domestic subsidiaries. The notes are redeemable at any time, or in part from time to time, at our option on or after March 1, 2020 at stated redemption prices, plus any accrued and unpaid interest to the redemption date. In addition, we may redeem the notes at our option at any time prior to March 1, 2020, in whole or in part, at a redemption price equal to 100% of the principal amount of the notes being redeemed plus the applicable premium as of, and any accrued and unpaid interest on the principal amount being redeemed to, the redemption date.
The 2025 Senior Notes contain a provision the same as or similar to the provision in our other senior notes that requires us to offer to purchase those notes at 101% of their principal amount (plus accrued and unpaid interest) in the event of a change in control.

14

The indenture governing the 2025 Senior Notes contains events of default, covenants and restrictions that are substantially the same as those governing our other senior notes, including a limitation on our ability and the ability of certain of our subsidiaries to create or incur secured indebtedness.
SHIP MORTGAGE FACILITY
In February 2015, as consideration for the consent of DVB Bank SE, as lender, agent and security trustee of the secured loan facility agreement, to allow Gypsum Transportation Limited, or GTL, to enter into certain future contracts of affreightment, GTL voluntarily repaid $2 million of the outstanding loan balance under its secured loan facility. The repayment provisions of the secured loan facility were not otherwise modified. The voluntary payment was not classified in the current portion of long-term debt on our accompanying consolidated balance sheet as of December 31, 2014. GTL also repaid $1 million in the first quarter of 2015 in accordance with the terms of the original loan facility agreement. In April 2015, in connection with the sale of two self-unloading vessels, GTL repaid the outstanding loan balance of $18 million. See Note 18 for discussion of GTL.
CREDIT FACILITY
Taking into account the most recent borrowing base calculation delivered under the credit facility, which reflects trade receivables and inventory as of September 30, 2015, and outstanding letters of credit, borrowings available under the credit facility were approximately $335 million, including $50 million for CGC. As of September 30, 2015 and during the quarter then-ended, there were no borrowings under the facility. Had there been any borrowings as of that date, the applicable interest rate would have been 2.08% for loans in the US and 2.54% for loans in Canada. Outstanding letters of credit totaled $49 million as of September 30, 2015.
The fair value of our debt was approximately $2.293 billion as of September 30, 2015 and $2.338 billion as of December 31, 2014. The fair values were based on quoted prices for identical or similar liabilities in markets that are not active or valuation models in which all significant inputs and value drivers are observable and, as a result, are classified as Level 2 inputs. See Note 10 for further discussion on fair value measurements and classifications.
As of September 30, 2015, we were in compliance with the covenants contained in our credit facilities.
9.
Derivative Instruments
We use derivative instruments to manage selected commodity price and foreign currency exposures as described below. We do not use derivative instruments for speculative trading purposes, and we typically do not hedge beyond three years. Cash flows from derivative instruments are included in net cash provided by operating activities in the consolidated statements of cash flows.
COMMODITY DERIVATIVE INSTRUMENTS
As of September 30, 2015, we had 25 million mmBTUs (millions of British Thermal Units) in aggregate notional amount of outstanding natural gas swap contracts to hedge forecasted purchases. All of these contracts mature by December 31, 2017. For contracts designated as cash flow hedges, the net unrealized loss that remained in accumulated other comprehensive income (loss), or AOCI, as of September 30, 2015 was $18 million and as of December 31, 2014 was $20 million. No ineffectiveness was recorded on contracts designated as cash flow hedges in the first nine months of both 2015 and 2014. Gains and losses on contracts designated as cash flow hedges are reclassified into earnings when the underlying forecasted transactions affect earnings. For contracts designated as cash flow hedges, we reassess the probability of the underlying forecasted transactions occurring on a quarterly basis. Changes in fair value on contracts not designated as cash flow hedges are recorded to earnings. The fair value of those contracts not designated as cash flow hedges was a $3 million unrealized loss as of September 30, 2015 and a $5 million unrealized loss as of December 31, 2014.
FOREIGN EXCHANGE DERIVATIVE INSTRUMENTS
We have foreign exchange forward contracts to hedge forecasted purchases of products and services denominated in foreign currencies. The notional amount of these contracts was $118 million as of September 30, 2015, and they mature by December 23, 2016. These forward contracts are designated as cash flow hedges and no ineffectiveness was recorded in the first nine months of both 2015 and 2014. Gains and losses on the contracts are reclassified into earnings when the underlying transactions affect earnings. The fair value of these contracts that remained in AOCI was an unrealized gain of $8 million and $3 million as of September 30, 2015 and December 31, 2014, respectively.
In the third quarter of 2015, we entered into foreign exchange forward contracts to hedge a portion of our net investment in our Knauf-USG joint venture. The notional amount of these contracts was $35 million as of September 30, 2015, and they mature on November 16, 2015. These forward contracts are designated as net investment hedges and no ineffectiveness was recorded in the third quarter of 2015. Gains and losses on derivatives designated as net investment hedges, to the extent they

15

are effective as hedges, remain in AOCI until such point when the investment is either sold or liquidated. The fair value of these contracts that remained in AOCI was an immaterial gain as of September 30, 2015.
COUNTERPARTY RISK, MASTER NETTING ARRANGEMENTS AND BALANCE SHEET OFFSETTING
We are exposed to credit losses in the event of nonperformance by the counterparties to our derivative instruments. As of September 30, 2015, our derivatives were in a $12 million net liability position. All of our counterparties have investment grade credit ratings; accordingly, we anticipate that they will be able to fully satisfy their obligations under the contracts.
All of our derivative contracts are governed by master netting agreements negotiated between us and the counterparties that reduce our counterparty credit exposure. The agreements outline the conditions (such as credit ratings and net derivative fair values) upon which we, or the counterparties, are required to post collateral. As required by certain of our agreements, we had $18 million of collateral posted with our counterparties related to our derivatives as of September 30, 2015. Amounts paid as cash collateral are included in receivables on our accompanying consolidated balance sheet.
We have not adopted an accounting policy to offset fair value amounts related to derivative contracts under our master netting arrangements; therefore, individual derivative contracts are reflected on a gross basis, as either assets or liabilities, on our consolidated balance sheets, based on their fair value as of the balance sheet date.
FINANCIAL STATEMENT INFORMATION
The following are the pretax effects of derivative instruments on the consolidated statements of operations for the three months ended September 30, 2015 and 2014.
 
 
 
 
 
 
 
 
 
 
 
Amount of Gain or (Loss)
Recognized in
Other Comprehensive Income on Derivatives (Effective Portion)
 
Location of Gain or (Loss)
 Reclassified from
AOCI into Income
(Effective Portion)
 
Amount of Gain or (Loss) Reclassified from
AOCI into Income
(Effective Portion)
(millions)
2015
 
2014
 
 
 
2015
 
2014
Derivatives in Cash Flow Hedging Relationships
 
 
 
 
 
 
 
 
 
Commodity contracts
$
(5
)
 
$
(3
)
 
Cost of products sold
 
$
(4
)
 
$
—

Foreign exchange contracts
6

 
3

 
Cost of products sold
 
2

 
1

 
 
 
 
 
 
 
 
 
 
Derivatives in Net Investment Hedging Relationships
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
—

 
—

 
Other income, net
 
—

 
—

Total
$
1

 
$
—

 
 
 
$
(2
)
 
$
1

 
 
 
 
 
 
 
 
 
Location of Gain or (Loss)
Recognized in Income
on Derivatives
 
Amount of Gain or (Loss) Recognized in Income
on Derivatives
(millions)
 
 
 
2015
 
2014
Derivatives Not Designated as Hedging Instruments
 
 
 
 
 
 
Commodity contracts
 
Cost of products sold
 
$
(1
)
 
$
(1
)
Total
 
 
 
$
(1
)
 
$
(1
)

16

The following are the pretax effects of derivative instruments on the consolidated statements of operations for the nine months ended September 30, 2015 and 2014.
 
 
 
 
 
 
 
 
 
 
 
Amount of Gain or (Loss)
Recognized in
Other Comprehensive Income on Derivatives (Effective Portion)
 
Location of Gain or (Loss)
 Reclassified from
AOCI into Income
(Effective Portion)
 
Amount of Gain or (Loss) Reclassified from
AOCI into Income
(Effective Portion)
(millions)
2015
 
2014
 
 
 
2015
 
2014
Derivatives in Cash Flow Hedging Relationships
 
 
 
 
 
 
 
 
 
Commodity contracts
$
(9
)
 
$
(1
)
 
Cost of products sold
 
$
(11
)
 
$
2

Foreign exchange contracts
9

 
3

 
Cost of products sold
 
4

 
2

 
 
 
 
 
 
 
 
 
 
Derivatives in Net Investment Hedging Relationships
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
—

 
—

 
Other income, net
 
—

 
—

Total
$
—

 
$
2

 
 
 
$
(7
)
 
$
4

 
 
 
 
 
 
 
 
 
Location of Gain or (Loss)
 Recognized in Income
on Derivatives
 
Amount of Gain or (Loss) Recognized in Income
on Derivatives
(millions)
 
 
 
2015
 
2014
Derivatives Not Designated as Hedging Instruments
 
 
 
 
 
 
Commodity contracts
 
Cost of products sold
 
$
(1
)
 
$
—

Total
 
 
 
$
(1
)
 
$
—

The following are the fair values of derivative instruments and the location on our accompanying consolidated balance sheets as of September 30, 2015 and December 31, 2014.
 
Balance Sheet
Location
Fair Value
 
Balance Sheet
Location
Fair Value
 
 
(millions)
 
9/30/15
 
12/31/14
 
 
9/30/15
 
12/31/14
Derivatives in Cash Flow Hedging Relationships
 
 
 
 
 
 
 
 
 
Commodity contracts
Other current assets
$
1

 
$
1

 
Accrued expenses
$
13

 
$
14

Commodity contracts
Other assets
1

 
—

 
Other liabilities
6

 
7

Foreign exchange contracts
Other current assets
7

 
3

 
Accrued expenses
—

 
—

   Foreign exchange contracts
Other assets
1

 
—

 
Other liabilities
—

 
—

Total derivatives in cash flow hedging relationships
 
$
10

 
$
4

 
 
$
19

 
$
21

Derivatives Not Designated as Hedging Instruments
 
 
 
 
 
 
 
 
 
Commodity contracts
Other current assets
$
—

 
$
—

 
Accrued expenses
$
3

 
$
4

Commodity contracts
Other assets
—

 
—

 
Other liabilities
—

 
1

Total derivatives not designated as hedging instruments
 
$
—

 
$
—

 
 
$
3

 
$
5

 
 
 
 
 
 
 
 
 
 
Total derivatives
Total assets
$
10

 
$
4

 
Total liabilities
$
22

 
$
26

As of September 30, 2015, we had no derivatives designated as fair value hedges.

17

10.     Fair Value Measurements
Certain assets and liabilities are required to be recorded at fair value. There are three levels of inputs that may be used to measure fair value. Level 1 is defined as quoted prices for identical assets and liabilities in active markets. Level 2 is defined as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 3 is defined as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Certain assets and liabilities are measured at fair value on a nonrecurring basis rather than on an ongoing basis, but are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment or when a new liability is being established that requires fair value measurement.
The cash equivalents shown in the table below primarily consist of money market funds that are valued based on quoted prices in active markets and, as a result, are classified as Level 1. Equity mutual funds are valued based on quoted markets in active markets and, as a result, are classified as Level 1. We use quoted prices, other readily observable market data and internally developed valuation models when valuing our marketable securities and derivatives and have classified them as Level 2. Marketable securities are valued using income and market value approaches and values are based on quoted prices or other observable market inputs received from data providers. The valuation process may include pricing matrices, or prices based upon yields, credit spreads or prices of securities of comparable quality, coupon, maturity and type. Derivatives are valued using the income approach including discounted-cash-flow models or a Black-Scholes option pricing model and readily observable market data. The inputs for the valuation models are obtained from data providers and include end-of-period spot and forward natural gas prices, foreign currency exchange rates, natural gas price volatility and LIBOR and swap rates for discounting the cash flows implied from the derivative contracts.
Our assets and liabilities measured at fair value on a recurring basis were as follows:
 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
(millions)
9/30/15
 
12/31/14
 
9/30/15
 
12/31/14
 
9/30/15
 
12/31/14
 
9/30/15
 
12/31/14
Cash equivalents
$
211

 
$
93

 
$
22

 
$
32

 
$
—

 
$
—

 
$
233

 
$
125

Equity mutual funds
4

 
4

 
—

 
—

 
—

 
—

 
4

 
4

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities
—

 
—

 
79

 
93

 
—

 
—

 
79

 
93

U.S. government and agency debt securities
—

 
—

 
9

 
22

 
—

 
—

 
9

 
22

Asset-backed debt securities
—

 
—

 
15

 
17

 
—

 
—

 
15

 
17

Certificates of deposit
—

 
—

 
11

 
18

 
—

 
—

 
11

 
18

Municipal debt securities
—

 
—

 
3

 
4

 
—

 
—

 
3

 
4

Derivative assets
—

 
—

 
10

 
4

 
—

 
—

 
10

 
4

Derivative liabilities
—

 
—

 
(22
)
 
(26
)
 
—

 
—

 
(22
)
 
(26
)
During the third quarter of 2014, we reviewed our property, plant and equipment for potential impairment by comparing the carrying values of those assets with their fair values as estimated using the future undiscounted cash flows for their remaining useful lives. As disclosed in Note 3, we recorded long-lived asset impairment charges of $30 million for the third quarter of 2014. We measured the fair value of the machinery, equipment and buildings as of September 30, 2014 using measurements classified as Level 3.

18

11.    Employee Retirement Plans
The components of net pension and postretirement benefits costs are summarized in the following table:
 
Three months ended September 30,
 
Nine months ended September 30,
(millions)
2015
 
2014
 
2015
 
2014
Pension:
 
 
 
 
 
 
 
Service cost of benefits earned
$
12

 
$
9

 
$
37

 
$
27

Interest cost on projected benefit obligation
16

 
16

 
50

 
49

Expected return on plan assets
(20
)
 
(20
)
 
(62
)
 
(60
)
Settlement
1

 
—

 
1

 
—

Net amortization
10

 
7

 
29

 
19

     Net pension cost
$
19

 
$
12

 
$
55

 
$
35

Postretirement:
 
 
 
 
 
 
 
Service cost of benefits earned
$
1

 
$
1

 
$
2

 
$
2

Interest cost on projected benefit obligation
1

 
1

 
4

 
5

Net amortization
(8
)
 
(8
)
 
(24
)
 
(26
)
     Net postretirement benefit
$
(6
)
 
$
(6
)
 
$
(18
)
 
$
(19
)
During the first nine months of 2015, we made cash contributions of $50 million to the USG Corporation Retirement Plan Trust, $6 million to our pension plan in Canada, and $4 million, in aggregate, to certain other domestic pension plans. We expect to make total contributions to our pension plans in 2015 of approximately $62 million.
12.    Share-Based Compensation
During the first nine months of 2015, we granted share-based compensation in the form of market share units, or MSUs, performance shares, and restricted stock units, or RSUs, to eligible participants under our Long-Term Incentive Plan. We recognize expense on all share-based grants over the service period, which is the shorter of the period until the employees’ retirement eligibility dates and the service period of the award for awards expected to vest. Expense is generally reduced for estimated forfeitures. Awards granted during the first nine months of 2015 and assumptions used to determine fair value were as follows:
 
MSUs
 
Performance Shares
 
RSUs
Awards granted
473,728

 
147,290

 
92,000

Weighted average fair value
$
30.06

 
$
30.63

 
$
28.66

Expected volatility
42.70
%
 
42.70
%
 
N/A

Risk-free rate (a)
1.09
%
 
1.09
%
 
N/A

Expected term (in years) (b)
2.95

 
2.95

 
N/A

Expected dividends
—

 
—

 
N/A

(a)
The risk-free rate was based on zero coupon U.S. government issues at the time of grant.
(b)
The expected term represents the period from the valuation date to the end of the performance period.

MARKET SHARE UNITS
The MSUs granted during the first nine months of 2015 generally vest after a three-year period based on our actual stock price performance during such period. The number of MSUs earned will vary from zero to 150% of the number of MSUs awarded depending on the actual performance of our stock price. In the case of termination of employment due to death, disability or retirement during the performance period, vesting will be pro-rated based on the number of full months employed in 2015. Awards earned will be issued at the end of the three-year period. MSUs may vest earlier in the case of a change in control in most circumstances only if there is also a related loss of employment or diminution of duties. Each MSU earned will be settled in common stock.
We estimated the fair value of each MSU granted on the date of grant using a Monte Carlo simulation that used the assumptions noted in the table above. Volatility was based on stock price history immediately prior to grant for a period commensurate with the remaining life of the plan.

19

PERFORMANCE SHARES
The performance shares granted during the first nine months of 2015 generally vest after a three-year period based on our total stockholder return relative to the performance of the Dow Jones U.S. Construction and Materials Index, with adjustments to that index in certain circumstances, for the three-year period. The number of performance shares earned will vary from zero to 200% of the number awarded depending on that relative performance. Generally, vesting will be pro-rated based on the number of full months employed during the performance period in the case of death, disability, or retirement, and pro-rated awards earned will be issued at the end of the three-year period. Each performance share earned will be settled in common stock.
We estimated the fair value of each performance share granted on the date of grant using a Monte Carlo simulation that used the assumptions noted in the table above. Volatility was based on stock price history immediately prior to grant for a period commensurate with the remaining life of the plan.
RESTRICTED STOCK UNITS
The RSUs granted during the first nine months of 2015 vest after a specified number of years from the date of grant or at a specified date. Generally, RSUs may vest earlier in the case of death, disability, or a change in control, provided that RSUs granted after 2012 will vest upon a change in control in most circumstances only if there is also a related loss of employment or diminution of duties. Each RSU is settled in a share of our common stock after the vesting period. The fair value of each RSU granted is equal to the closing price of our common stock on the date of grant.
13.    Supplemental Balance Sheet Information
INVENTORIES
Total inventories consisted of the following:
(millions)
September 30, 2015
 
December 31, 2014
Finished goods
$
216

 
$
232

Work in progress
35

 
35

Raw materials
65

 
62

Total
$
316

 
$
329

ASSET RETIREMENT OBLIGATIONS
Changes in the liability for asset retirement obligations consisted of the following:
 
Nine months ended September 30,
(millions)
2015
 
2014
Balance as of January 1
$
123

 
$
132

Accretion expense
6

 
6

Liabilities incurred
1

 
1

Changes in estimated cash flows (a)
(4
)
 
(13
)
Liabilities settled
(2
)
 
(2
)
Foreign currency translation
(4
)
 
(2
)
Balance as of September 30
$
120

 
$
122

(a)
Changes in estimated cash flows for the nine months ended September 30, 2014 included changes in estimates primarily for our gypsum quarry and ship loading facility in Windsor, Nova Scotia, Canada, which we permanently closed during the third quarter of 2011, and our mining operation in Little Narrows, Nova Scotia, Canada as a result of receiving regulatory approval of a revised reclamation plan in 2014.
ACCRUED INTEREST
Interest accrued on our debt as of September 30, 2015 and December 31, 2014 was $36 million and $45 million, respectively, and is included in accrued expenses on our accompanying consolidated balance sheets.
ASSETS HELD FOR SALE
As of September 30, 2015, assets held for sale totaled $41 million, which included port facilities in Mexico and our investment in the Knauf-USG joint venture. We anticipate recording a net gain in the range of $6 million to $8 million on the sale of the port facilities, which is expected to close in the fourth quarter of 2015 pending regulatory approval. See Note 2 for additional discussion over the sale of our investment in the Knauf-USG joint venture. As of December 31, 2014, assets held for sale totaled $5 million, which reflected other indefinite-lived intangible assets. Assets held for sale are classified as other current assets in our accompanying consolidated balance sheets.
In June 2014, we sold surplus property for a gain of $12 million which is included in cost of products sold in our statement of operations.

20

14.    Accumulated Other Comprehensive Income (Loss)
Changes in the balances of each component of AOCI for the nine months ended September 30, 2015 and 2014 were as follows:
 
Derivatives
 
Defined Benefit Plans
 
Foreign
Currency Translation
 
AOCI
(millions)
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Balance as of January 1
$
16

 
$
35

 
$
(302
)
 
$
(32
)
 
$
(52
)
 
$
21

 
$
(338
)
 
$
24

Other comprehensive income (loss) before reclassifications, net of tax
(1
)
 
1

 
2

 
(6
)
 
(91
)
 
(28
)
 
(90
)
 
(33
)
Less: Amounts reclassified from AOCI, net of tax
(7
)
 
4

 
(6
)
 
9

 
—

 
5

 
(13
)
 
18

Net other comprehensive income (loss)
6

 
(3
)
 
8

 
(15
)
 
(91
)
 
(33
)
 
(77
)
 
(51
)
Balance as of September 30
$
22

 
$
32

 
$
(294
)
 
$
(47
)
 
$
(143
)
 
$
(12
)
 
$
(415
)
 
$
(27
)

Amounts reclassified from AOCI, net of tax, for the three months and nine months ended September 30, 2015 and 2014, were as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(millions)
 
2015
 
2014
 
2015
 
2014
Derivatives
 
 
 
 
 
 
 
 
Net reclassification from AOCI for cash flow hedges included in cost of products sold
 
$
(2
)
 
$
1

 
$
(7
)
 
$
4

Less: Income tax expense on reclassification from AOCI included in income tax expense (benefit)
 
—

 
—

 
—

 
—

Net amount reclassified from AOCI
 
$
(2
)
 
$
1

 
$
(7
)
 
$
4

 
 
 
 
 
 
 
 
 
Defined Benefit Plans
 
 
 
 
 
 
 
 
Net reclassification from AOCI for amortization of prior service cost included in cost of products sold
 
$
(1
)
 
$
2

 
$
(3
)
 
$
5

Net reclassification from AOCI for amortization of prior service cost included in selling and administrative expenses
 
(2
)
 
1

 
(4
)
 
3

Less: Income tax expense on reclassification from AOCI included in income tax expense (benefit)
 
—

 
—

 
(1
)
 
(1
)
Net amount reclassified from AOCI
 
$
(3
)
 
$
3

 
$
(6
)
 
$
9

 
 
 
 
 
 
 
 
 
Foreign Currency Translation
 
 
 
 
 
 
 
 
Net reclassification from AOCI for translation gains realized upon the deconsolidation of foreign subsidiaries included in selling and administrative expenses
 
$
—

 
$
—

 
$
—

 
$
5

Less: Income tax expense on reclassification from AOCI included in income tax expense (benefit)
 
—

 
—

 
—

 
—

Net amount reclassified from AOCI
 
$
—

 
$
—

 
$
—

 
$
5


We estimate that we will reclassify a net $7 million after-tax loss on derivatives from AOCI to earnings within the next 12 months.

21

15.
Oman Investment
In June of 2012, we entered into a strategic partnership with the Zawawi Group in Oman to establish a mining operation by acquiring 55% of Zawawi Gypsum LLC, or ZGL, which holds the mining rights to a gypsum quarry in Salalah, Oman. Quarry mining operations commenced in October 2013. The second phase of the partnership is a 50/50 manufacturing venture, USG-Zawawi Drywall LLC, or ZDL, that now operates a low cost wallboard plant in Oman.
We accounted for the acquisition of the mining rights as an asset acquisition and measured our interest in the mining rights at our cost. We determined that both entities were variable interest entities (VIEs), and, as such, we consolidated the VIEs through February 27, 2014 when our interests in ZGL and ZDL were contributed to UBBP. See Note 2, Equity Method Investments.
16. Income Taxes
In the third quarter of 2015, we recorded an income tax benefit of approximately $1 million. In the United States, we are in a net operating loss carryforward position and our deferred income tax assets are subject to a valuation allowance. Therefore, any domestic income or loss before income taxes does not generate a corresponding income tax expense or benefit.
In the nine months ended September 30, 2015, we recorded an income tax benefit of approximately $2 million. The income tax benefit for the nine months reflects audit closures in certain foreign jurisdictions and the refundable credit for the alternative minimum tax (AMT) credit carryforward utilized on the federal income tax return, offset by state and local and foreign jurisdiction tax expense.
As of September 30, 2015, we had federal net operating loss, or NOL, carryforwards of approximately $1.790 billion that are available to offset future federal taxable income and will expire in the years 2026 through 2032, none of which are subject to Internal Revenue Code limitations under Section 382. In addition, as of that date, we had federal AMT credit carryforwards of approximately $43 million that are available to reduce future regular federal income taxes over an indefinite period. In order to fully realize these U.S. federal net deferred tax assets, taxable income of approximately $1.913 billion would need to be generated during the period before their expiration. In addition, we have federal foreign tax credit carryforwards of $8 million that will expire if unused in 2015.
As of September 30, 2015, we had a gross deferred tax asset related to our state NOLs and tax credit carryforwards of $238 million, of which $1 million will expire in 2015. The remainder will expire if unused in years 2016 through 2033. We also had NOL and tax credit carryforwards in various foreign jurisdictions in the amount of $1 million as of September 30, 2015, against which we have maintained a valuation allowance.
During periods prior to 2015, we established a valuation allowance against our deferred tax assets totaling $1.023 billion. During the first nine months of 2015, we recorded a decrease in the valuation allowance against our deferred tax assets of $75 million resulting in a deferred tax asset valuation allowance of $948 million as of September 30, 2015. The decrease in the valuation allowance primarily related to a decrease in composition of the underlying deferred tax assets based on year-to-date earnings, the use of NOL carryforwards offsetting those earnings, and the planned repatriation of undistributed foreign earnings for our shipping operations and equity method investment in Knauf-USG.
In assessing the requirement for, and amount of, a valuation allowance in accordance with the more-likely-than-not standard, we give appropriate consideration to all positive and negative evidence related to the realization of the deferred tax assets. During the fourth quarter of 2015, we may realize a four year cumulative accounting profit in the U.S. If this occurs, we will also consider all other positive and negative evidence to determine the realizability of our deferred tax assets and the need for a full, or partial, valuation allowance. Any reversal of our valuation allowance will favorably impact our results of operations in the period of reversal.
The Internal Revenue Code imposes limitations on a corporation’s ability to utilize NOLs if it experiences an “ownership change.” In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. If we were to experience an ownership change, utilization of our NOLs would be subject to an annual limitation determined by multiplying the market value of our outstanding shares of stock at the time of the ownership change by the applicable long-term tax-exempt rate, which was 2.82% for September 2015. Any unused annual limitation may be carried over to later years within the allowed NOL carryforward period. The amount of the limitation may, under certain circumstances, be increased or decreased by built-in gains or losses held by us at the time of the change that are recognized in the five-year period after the change. Many states have similar limitations. If an ownership change had occurred as of September 30, 2015, our annual U.S. federal NOL utilization would have been limited to approximately $109 million per year.

22

17. Litigation
WALLBOARD PRICING CLASS ACTION LAWSUITS
In late 2012, USG Corporation and United States Gypsum Company were named as defendants in putative class action lawsuits alleging that since at least September 2011, U.S. wallboard manufacturers conspired to fix and raise the price of gypsum wallboard sold in the United States and to effectuate the alleged conspiracy by ending the practice of providing job quotes on wallboard. These lawsuits are consolidated for pretrial proceedings in multi-district litigation in the United States District Court for the Eastern District of Pennsylvania, under the title In re: Domestic Drywall Antitrust Litigation, MDL No. 2437. One group of plaintiffs brings their claims on behalf of a class of entities that purchased gypsum wallboard in the United States directly from any of the defendants or their affiliates from January 1, 2012 to the present. The second group of plaintiffs brings their claims on behalf of indirect purchasers of gypsum wallboard who from January 1, 2012 through the present indirectly purchased wallboard in the United States from the defendants or their affiliates for end use and not for resale. Similar lawsuits have been filed in Quebec, Ontario and British Columbia courts on behalf of purchasers of wallboard in Canada. The Canadian lawsuits also name as defendants CGC Inc., our Canadian operating subsidiary, as well as other Canadian and U.S. wallboard manufacturers.
USG has denied the allegations made in these wallboard pricing lawsuits, believes these cases are without merit, and that USG’s pricing and selling policies were and are made independently and in full compliance with the law. Class action antitrust litigation in the United States, however, is expensive, protracted, and carries the risk of triple damages and joint and several liability. To avoid the expense, risk and further distraction of management, in late 2014, we agreed to a settlement of the U.S. direct and indirect purchaser plaintiff class actions and in the third quarter of 2014, we recorded a $48 million charge for the settlements ($39.25 million for the direct purchaser settlement and $8.75 million for the indirect purchaser settlement). On August 20, 2015, the court entered final judgment orders approving both the direct and indirect purchaser settlements. No member of the direct purchaser class appealed from the final judgment order approving the direct purchaser settlement, and therefore, that settlement should be final. One person appealed from the final judgment order approving the indirect purchaser settlement, and therefore that settlement is not yet final. We believe that the appeal is without merit and that the indirect purchaser settlement order will be affirmed on appeal, but the indirect purchaser settlement will not become final unless and until the appeal is favorably resolved.
The settlement of the U.S. class action lawsuits described above does not include the Canadian lawsuits. At this stage of the Canadian lawsuits, we are not able to estimate the amount, if any, of any reasonably possible loss or range of reasonably possible losses. We believe, however, that these Canadian lawsuits will not have a material effect on our business, financial condition, operating results or cash flows.
In addition to the class action lawsuits, in the first quarter of 2015, USG and seven other wallboard manufacturers were named as defendants in a lawsuit filed in federal court in California by twelve homebuilders asserting individual claims similar to the claims asserted in the U.S. class action lawsuits. These homebuilders opted out of the class action settlements, and their lawsuit has been transferred to the United States District Court for the Eastern District of Pennsylvania that is presiding over the U.S. class action lawsuits. We believe that the cost, if any, of resolving these homebuilders’ claims will not materially increase our exposure above the $48 million agreed to in the U.S. class action settlements.
ENVIRONMENTAL LITIGATION
We have been notified by state and federal environmental protection agencies of possible involvement as one of numerous “potentially responsible parties” in a number of Superfund sites in the United States. As a potentially responsible party, we may be responsible to pay for some part of the cleanup of hazardous waste at those sites. In most of these sites, our involvement is expected to be minimal. In addition, we are involved in environmental cleanups of other property that we own or owned. As of both September 30, 2015 and December 31, 2014, we had an accrual of $16 million for our probable and reasonably estimable liability in connection with these matters. Our accruals take into account all known or estimated undiscounted costs associated with these sites, including site investigations and feasibility costs, site cleanup and remediation, certain legal costs, and fines and penalties, if any. However, we continue to review these accruals as additional information becomes available and revise them as appropriate. Based on the information known to us, we believe these environmental matters will not have a material effect on our business, financial condition, operating results or cash flows.

23

OTHER LITIGATION
We are named as defendants in other claims and lawsuits arising from our operations, including claims and lawsuits arising from the operation of our vehicles, product performance or warranties, personal injury and commercial disputes. We believe that we have properly accrued for our probable liability in connection with these claims and suits, taking into account the probability of liability, whether our exposure can be reasonably estimated and, if so, our estimate of our liability or the range of our liability. We do not expect these or any other litigation matters involving USG to have a material effect on our business, financial condition, operating results or cash flows.
18. Gypsum Transportation Limited
In April 2015, we completed the sale of our two self-unloading ocean vessels owned by Gypsum Transportation Limited, or GTL, for $42 million and recorded a gain of $7 million on the disposition. With a portion of the proceeds from the sale, GTL repaid the outstanding loan balance of $18 million under GTL’s secured loan facility agreement with DVB Bank SE and paid applicable selling costs. Additionally, we returned the third vessel leased by GTL and paid $7 million of early termination costs which were previously accrued for in the fourth quarter of 2014. In the second quarter 2015, GTL incurred charges of $6 million to exit our shipping operations.
The net impact of the gain on the sale of the vessels and charges incurred to wind down the shipping operations of $1 million is recorded in “Gain on disposal of shipping operations, net” on the consolidated statement of operations.
GTL recorded operating profit of $0 million and $1 million for the three and nine months ended September 30, 2015, respectively, compared with operating profit of $5 million and $19 million for the three and nine months ended September 30, 2014, respectively.


24

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the following Management’s Discussion and Analysis of Financial Condition and Results of Operations, “USG,” “we,” “our” and “us” refer to USG Corporation, a Delaware corporation, and its subsidiaries included in the consolidated financial statements, except as otherwise indicated or as the context otherwise requires.
Overview
We are a leading manufacturer and distributor of building materials. We produce a wide range of products for use in new residential, new nonresidential, and residential and nonresidential repair and remodel construction as well as products used in certain industrial processes. We estimate that during the first nine months of 2015:
•
residential and nonresidential repair and remodel activity accounted for approximately 53% of our net sales,
•
new residential construction accounted for approximately 18% of our net sales,
•
new nonresidential construction accounted for approximately 24% of our net sales, and
•
other activities accounted for approximately 5% of our net sales.
SEGMENTS
Our operations are organized into four segments: Gypsum, Ceilings, Distribution and USG Boral Building Products, or UBBP.
Gypsum: Our Gypsum segment manufactures and markets gypsum and related products in the United States, Canada, Mexico and Latin America. It includes United States Gypsum Company, or U.S. Gypsum, in the United States, the gypsum business of CGC Inc., or CGC, in Canada, USG Mexico, S.A. de C.V., or USG Mexico, and Latin America. Gypsum’s products are used in a variety of building applications to finish the walls, ceilings and floors in residential, commercial and institutional construction and in certain industrial applications. The major product lines within the Gypsum segment are:
Wallboard
Sheetrock® brand gypsum wallboard portfolio and Securock® glass mat sheathing
Surfaces
Sheetrock® brand joint compound, corner bead, joint tape, plaster
Substrates
Durock® cement backerboard, Fiberock® backerboard, Levelrock® flooring, Securock® glass mat roofing and commercial roof board, and industrial gypsum
Ceilings: Our Ceilings segment manufactures and markets interior systems products in the United States, Canada, Mexico and Latin America. Ceilings includes USG Interiors, LLC, or USG Interiors, the ceilings business of CGC, USG Mexico and Latin America. In addition, through February 27, 2014, it also included our businesses in the Asia-Pacific region (see paragraph below regarding UBBP), which were included in USG International. Ceilings is a leading supplier of interior ceilings products used primarily in commercial applications. Ceilings manufactures ceiling tile in the United States and ceiling grid in the United States, Canada and, through February 27, 2014, in the Asia-Pacific region. It markets ceiling tile and ceiling grid in the United States, Canada, Mexico, Latin America and, through February 27, 2014, in the Asia-Pacific region.
As discussed below under USG Boral Building Products, or UBBP, on February 27, 2014, we invested with Boral Limited, or Boral, in UBBP, and in connection therewith contributed to UBBP our operations in the Asia-Pacific region. As such, Ceilings includes the results and activities of our subsidiaries in the Asia-Pacific region only through February 27, 2014.
Distribution: Our Distribution segment consists of L&W Supply Corporation and its subsidiaries, or L&W Supply, a leading distributor of gypsum wallboard and other building materials in the United States. It is a service-oriented business that stocks a wide range of construction materials. It delivers less-than-truckload quantities of construction materials to job sites and places them in areas where work is being done, thereby reducing the need for handling by contractors.
USG Boral Building Products (UBBP): On February 27, 2014, we and certain of our subsidiaries formed the 50/50 joint ventures, USG Boral Building Products Pte. Limited, a company organized under the laws of Singapore, and USG Boral Building Products Pty Limited, a company organized under the laws of Australia, with Boral. These joint ventures are herein referred to as USG Boral Building Products. UBBP manufactures, distributes and sells certain building products, mines raw gypsum and sells natural and synthetic gypsum throughout Asia, Australasia and the Middle East (the "Territory"). UBBP

25

manufactures and distributes products for wall, ceiling, floor lining and exterior systems that utilize gypsum, wallboard, referred to as plasterboard in the Territory, mineral fiber ceiling tiles, steel grid and studs and joint compound.
As consideration for our 50% ownership in UBBP, we (i) made a $515 million cash payment to Boral, which included a $500 million base price and $15 million of customary estimated working capital and net debt adjustments, (ii) contributed to UBBP our subsidiaries and joint venture investments in China, Singapore, India, Malaysia, New Zealand, Australia, the Middle East and Oman, and (iii) granted to UBBP licenses to use certain of our intellectual property rights in the Territory. In the event certain performance targets are satisfied by UBBP, we will be obligated to pay Boral scheduled earnout payments in an aggregate amount up to $75 million, comprised of $25 million based on performance during the first three years after closing and up to $50 million based on performance during the first five years after closing. We recorded a liability representing the present value of the first earnout payment. We have not recorded a liability for the second earnout payment as we have concluded that it is currently not probable that the five-year performance target will be achieved. If our conclusion on the probability of achievement were to change, we will record a liability representing the present value of the second earnout payment with a corresponding increase to our investment. As of September 30, 2015 and December 31, 2014, this liability totaled $24 million and $23 million, respectively, and is included in other liabilities on our accompanying consolidated balance sheets.
UBBP is currently targeting the distribution of at least 50% of combined after tax profits to USG and Boral in proportion to the respective ownership interests; provided, however, that UBBP will not pay dividends if such payments are, among other things, restricted pursuant to the terms of the credit facilities maintained by UBBP, inconsistent with the then-applicable strategic plan, or illegal. Through September 30, 2015, cash dividends of $36 million have been declared by UBBP's Board of Directors and paid by UBBP. Our share of these dividends is $18 million, which we intend to use to pay the first earnout payment described above.
Since formation, UBBP has been funded from its net cash flows from operations and third-party financing, and it is our intent that as an ongoing operation, UBBP will continue to self-fund.
As a result of the contribution of our wholly-owned subsidiaries in Singapore, India, Malaysia, New Zealand and Australia and our consolidated joint ventures in Oman, the net sales and operating profit attributable to these entities are no longer included in those corresponding line items on our consolidated statement of operations subsequent to February 27, 2014. Instead, our share of the equity income from UBBP is shown within income from equity method investments.
Our investments in UBBP are accounted for as equity method investments and were initially measured at cost. Our existing wholly-owned subsidiaries and consolidated variable interest entities that were contributed into the joint ventures were deconsolidated, which resulted in a gain of $27 million during the first quarter of 2014. Our investments in UBBP consummated on February 27, 2014, and as a result, only seven months of our share of equity income from UBBP is reflected in income from equity method investments for the nine months ended September 30, 2014.
Geographic Information: For the first nine months of 2015, we recorded $2.851 billion of net sales in our consolidated statement of operations, of which approximately 85% were attributable to the United States, approximately 10% were attributable to Canada and other foreign countries accounted for the remaining 5%. Net sales for UBBP for the first nine months of 2015 were $742 million, which were comprised of 34% to Australia, 20% to South Korea, 12% to China, 15% to Thailand, with other foreign countries accounted for the remaining 19%.
MARKET CONDITIONS AND OUTLOOK
Our businesses are cyclical in nature and sensitive to changes in general economic conditions, including conditions in the North American housing and construction-based markets and the markets in Asia and Australasia, which are our most significant markets. Our expansion via UBBP into the markets of Asia, Australasia, and the Middle East has significantly increased our exposure to the economic conditions in those areas. The markets we serve can be broadly categorized as new residential construction, new nonresidential construction and repair and remodel activity, which includes both residential and nonresidential construction.
For the new residential construction market in the United States, housing starts are a very good indicator of demand for our gypsum products. Installation of our gypsum products typically follows a housing start by 90 to 120 days. In September 2015, the seasonally-adjusted annualized rate of housing starts reported by the U.S. Census Bureau was 1,206,000 units, an increase from both 1,132,000 units reported for August 2015 and 1,152,000 units reported for July 2015. In comparison, housing starts for all of 2014 were 1,003,000 units. Most industry analysts believe that the recovery in new residential construction will continue, although the recovery over the next few years may be uneven and modest, and that over the longer term housing starts will begin to reach historical averages. Industry analysts’ forecasts for 2015 housing starts in the United States included in the most recent Blue Chip Economic Indicators are 1,100,000 to 1,160,000 units, based on the average of the

26

bottom ten and top ten forecasts included in the report, respectively. We currently estimate that 2015 housing starts in the United States will be in the middle of the range of 1,000,000 to 1,200,000.
Demand for our products from new nonresidential construction is determined by floor space for which contracts are signed. Installation of gypsum and ceilings products typically follows signing of construction contracts by about 12 to 18 months. According to the most recent construction market forecast from Dodge Data & Analytics (formerly known as McGraw-Hill Construction), total floor space for which new nonresidential construction contracts were signed in the United States increased 12% in 2014 compared with 2013. This followed a 12% increase in 2013 compared with 2012 and an 11% increase in 2012 compared with 2011. Dodge Data & Analytics forecasts that total floor space for which new nonresidential construction contracts in the United States are signed will increase approximately 5% in 2015 from the 2014 level. We anticipate new nonresidential construction growth in our business sectors in 2015 compared to 2014 will be in the mid-single digits.
The repair and remodel market includes renovation of both residential and nonresidential buildings. As a result of the low levels of new home construction in recent years, this market currently accounts for the largest portion of our sales. Many buyers begin to remodel an existing home within two years of purchase. According to the National Association of Realtors, sales of existing homes in the United States were approximately 4.93 million units in 2014, reflecting a 3% decrease from the 2013 level of 5.09 million units. The seasonally adjusted annual rate of existing home sales was 5.55 million units in September 2015, which is second to the rate in July 2015 of 5.58 million as the highest level since February 2007. The September 2015 rate was 5% higher than the August 2015 rate of 5.30 million units, and 9% higher than the September 2014 revised rate of 5.10 million units. Existing home sales have increased year-over-year for twelve consecutive months. The generally rising levels of existing home sales and home resale values in recent years have contributed to an increase in demand for our products from the residential repair and remodel market. We currently estimate that overall repair and remodel spending growth in 2015, compared to 2014, will be in the low- to mid-single digits.
The rate of recovery in the new residential construction market, new nonresidential construction market and the repair and remodel market still remains uncertain and will depend on broader economic issues such as employment, household formation, housing price trends, availability of mortgage financing, interest rates, consumer confidence, job growth and discretionary business investment.
We expect modest improvement over the next twelve months in the construction industries of Canada and Mexico. Emerging markets, including those that are within the UBBP territory, provide opportunities for our operations to serve the increasing demand for products in these regions. Several market forecasters have predicted that China will lead construction materials demand growth over the next several years. Several other countries, including South Korea and Australia, are forecasted to experience steady growth as well. Although the rate of growth in certain emerging markets has slowed, we expect the growth in these markets to exceed the improvements in North America. We anticipate that the results from UBBP will enable us to dampen some of the future cyclicality in our business.
The housing and construction-based markets we serve are affected by broader economic issues such as employment, the availability of credit, lending practices, interest rates, availability of mortgage financing, income tax policy and consumer confidence and preference. An increase in levels of unemployment, restrictive lending practices, a decrease in consumer confidence or other economic conditions could have a material effect on our business, financial condition, operating results and cash flows. Our businesses are also affected by a variety of other factors beyond our control, including the inventory of unsold homes, the level of foreclosures, home resale rates, housing affordability, office and retail vacancy rates and foreign currency exchange rates. Since we operate in a variety of geographic markets, our businesses are subject to the economic conditions in each of these geographic markets. General economic downturns or localized downturns or financial concerns in the regions where we have operations may have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our Gypsum segment has improved with the modest recovery in residential housing over the last three years although, it continues to be adversely affected by the low level of residential and other construction activity compared to historical averages. Our Distribution segment, which serves the residential and commercial markets, and our Ceilings segment, which primarily serves the commercial markets, have both showed some improvements. However, they continue to be adversely affected by the low levels of new commercial construction activity.
Industry shipments of gypsum board in the United States (including gypsum wallboard, other gypsum-related paneling products and imports), as reported by the Gypsum Association, were an estimated 16.4 billion square feet in the first nine months of 2015, up approximately 4% compared with 15.7 billion square feet in the first nine months of 2014. We estimate that industry shipments in the United States for all of 2015 will be approximately 22.3 billion square feet, up approximately 2% from 21.8 billion square feet in 2014.

27

There is excess wallboard production capacity industry-wide in the United States. Industry capacity in the United States was approximately 32.8 billion square feet as of January 1, 2015. We estimate that the industry capacity utilization rate was approximately 67% and 63% during the first nine months of 2015 and 2014, respectively. Based on current industry trends and forecasts, demand for gypsum wallboard is expected to increase in 2015, but the magnitude of any increase will depend on the levels of housing starts and repair and remodel activity. We project that the industry capacity utilization rate will experience a modest increase in 2015 compared to 2014. Despite our realization of improvement in our average wallboard selling price, we could experience pressure on gypsum wallboard selling prices and our gross margins at such low levels of capacity utilization. U.S. Gypsum implemented a price increase for wallboard with the new not to exceed price beginning January 1, 2015 through October 31, 2015, which has since been extended. However, it is uncertain that we will be able to maintain the increase in our gypsum wallboard selling prices. If we are unable to maintain our price increases, our net sales and operating profit may be materially and adversely impacted.

28

Consolidated Results of Operations
(dollars in millions, except per-share data)
2015
 
2014
 
$ Favorable (Unfavorable)
 
% Favorable (Unfavorable)
Three months ended September 30:
 
 
 
 
 
 
 
Net sales
$
972

 
$
972

 
$
—

 
—
 %
Cost of products sold
789

 
796

 
7

 
1
 %
Gross profit
183

 
176

 
7

 
4
 %
Selling and administrative expenses
81

 
76

 
(5
)
 
(7
)%
Litigation settlement charge
—

 
48

 
48

 
100
 %
Long-lived asset impairment charges
—

 
30

 
30

 
100
 %
Operating profit
102

 
22

 
80

 
*

Income from equity method investments
13

 
12

 
1

 
8
 %
Interest expense
(40
)
 
(43
)
 
3

 
7
 %
Income (loss) from continuing operations before income taxes
75

 
(9
)
 
84

 
*

Income tax benefit (expense)
1

 
(2
)
 
3

 
*

Net income (loss)
$
76

 
$
(11
)
 
$
87

 
*

Less: Net income attributable to noncontrolling interest
—

 
1

 
(1
)
 
(100
)%
Net income (loss) attributable to USG
$
76

 
$
(12
)
 
$
88

 
*

Diluted earnings (loss) per share
$
0.52

 
$
(0.09
)
 
$
0.61

 
*

 
 
 
 
 
 
 
 
Nine months ended September 30:
 
 
 
 
 
 
 
Net sales
$
2,851

 
$
2,770

 
$
81

 
3
 %
Cost of products sold
2,332

 
2,276

 
(56
)
 
(2
%)
Gross profit
519

 
494

 
25

 
5
 %
Selling and administrative expenses
237

 
230

 
(7
)
 
(3
)%
Litigation settlement charge
—

 
48

 
48

 
100
 %
Long-lived asset impairment charges
—

 
30

 
30

 
100
 %
Gain on disposition of shipping operations, net
(1
)
 
—

 
1

 
*

Operating profit
283

 
186

 
97

 
52
 %
Income from equity method investments
35

 
20

 
15

 
75
 %
Interest expense
(123
)
 
(135
)
 
12

 
9
 %
Interest income
1

 
1

 
—

 
—
 %
Loss on extinguishment of debt
(19
)
 
—

 
(19
)
 
*

Gain on deconsolidation of subsidiaries and consolidated joint ventures
—

 
27

 
(27
)
 
(100
)%
Income from continuing operations before income taxes
177

 
99

 
78

 
79
%
Income tax benefit (expense)
2

 
(7
)
 
9

 
*

Income from continuing operations
179

 
92

 
87

 
95
 %
Loss from discontinued operations, net of tax
—

 
(1
)
 
1

 
100
 %
Net income
$
179

 
$
91

 
$
88

 
97
%
Less: Net income attributable to noncontrolling interest
—

 
1

 
(1
)
 
(100
)%
Net income attributable to USG
$
179

 
$
90

 
$
89

 
99
 %
Diluted earnings per share
$
1.21

 
$
0.62

 
$
0.59

 
95
%
 
 
 
 
 
 
 
 
*not meaningful
 
 
 
 
 
 
 
NET SALES
Consolidated net sales for the third quarter of 2015 were flat compared with the third quarter of 2014. This reflects higher net sales for the Distribution segment of 5% offset by lower net sales at our Gypsum and Ceilings segments of 2% and 5%, respectively. The increased sales for our Distribution segment were due to higher volumes and selling prices. The lower levels of net sales for our Gypsum segment reflected lower sales in Canada and Mexico/Latin America which were unfavorably impacted by currency translation of $15 million and $8 million, respectively, and a decrease in sales by GTL of $20 million and related intra-segment eliminations of $1 million offset by higher sales due to higher volume and higher prices in U.S. Gypsum.

29

The decrease in our Ceilings segment net sales reflect lower volume and price in the United States and the unfavorable impact of currency translation of $3 million.
Consolidated net sales for the first nine months of 2015 increased $81 million, or 3%, compared with the first nine months of 2014. The increase reflects higher sales for our Gypsum and Distribution segments of 1% and 7%, respectively. This is offset by a decrease in sales for our Ceilings segment of 2%. The higher levels of net sales for our Gypsum segment reflected higher volume and, to a lesser extent, higher selling prices, offset by a decrease in sales by GTL of $52 million and related intra-segment eliminations of $3 million and unfavorable currency translation of $49 million. The increased sales for our Distribution segment were due to higher volume and, to a lesser extent, higher selling prices. Net sales in 2014 for our Ceilings segment included $7 million in sales for our subsidiaries in Asia-Pacific, India and Oman that were contributed to UBBP on February 27, 2014. Excluding that impact, net sales for our Ceilings were flat over the comparative period, which reflected higher volume and price offset by unfavorable currency translation of $9 million.
GROSS PROFIT
Gross profit for the third quarter of 2015 increased $7 million, or 4%, compared with the third quarter of 2014. Gross profit as a percentage of net sales was 18.8% for the third quarter of 2015, compared with 18.1% for the third quarter of 2014. Gross profit in the third quarter of 2014 included $6 million of higher gross profit for GTL. Excluding this amount, gross profit increased $13 million, which was due to higher volume and selling prices and lower cost for U.S. Gypsum’s Sheetrock® brand gypsum wallboard, higher volumes for U.S. Gypsum’s Sheetrock® brand joint compound and higher gross profit for substrates products offset by lower volumes and selling prices and higher cost for ceiling tile and lower prices for ceiling grid.
Gross profit for the first nine months of 2015 increased $25 million, or 5%, compared with the first nine months of 2014. Gross profit as a percentage of net sales was 18.2% for the first nine months of 2015, compared with 17.8% for the first nine months of 2014. Gross profit in the first nine months of 2014 included a $12 million gain for the sale of surplus property, a $7 million noncash reversal of an asset retirement obligation and $21 million of higher gross profit for GTL. Excluding these amounts, gross profit increased $65 million due to higher volume and selling prices and lower cost for U.S. Gypsum’s Sheetrock® brand gypsum wallboard and joint compound, higher gross profit for substrates products, higher selling prices and lower cost for ceiling tile, and higher volume for ceiling grid.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses totaled $81 million in the third quarter of 2015 compared to $76 million in the third quarter of 2014. As a percentage of net sales, selling and administrative expenses increased to 8.3% for the third quarter of 2015 from 7.8% for the third quarter of 2014. The increase reflects higher compensation costs and higher sales commission expense partially offset by lower discretionary spend.
Selling and administrative expenses totaled $237 million in the first nine months of 2015 compared to $230 million in the first nine months of 2014. As a percentage of net sales, selling and administrative expenses remained unchanged at 8.3% for each of the comparative periods.
LITIGATION SETTLEMENT CHARGE
In the third quarter of 2014, we recorded a litigation settlement of $48 million related to settlement in principal of the U.S. wallboard pricing class action lawsuits. See Note 17 to our consolidated financial statements included in this report for additional detail.
LONG-LIVED ASSET IMPAIRMENT CHARGES
In the third quarter of 2014, we recorded asset impairment charges of $30 million related to certain manufacturing facilities and capitalized costs for the construction of future facilities, which we do not anticipate will be built within our planning horizon. See Note 3 to our consolidated financial statements included in this report for additional detail.
GAIN ON DISPOSAL OF SHIPPING OPERATIONS, NET
During the second quarter of 2015, we recorded a net gain on the disposal of our shipping operations of $1 million. This reflects a gain on sale of our two self-unloading vessels of $7 million and charges to wind down our shipping operations of $6 million. We do not expect GTL to have a financial impact going forward.
INCOME FROM EQUITY METHOD INVESTMENTS
Income from equity method investments in the third quarter of 2015 was $13 million, an increase of $1 million from the third quarter of 2014. We recorded $12 million of equity income from UBBP in both the third quarter of 2015 and 2014. The results from the joint venture reflect an improvement in operating profit as a result of higher volumes of ready-mix compound,

30

increased conversion to NextGen cement board, decrease in variable costs due to lower gypsum, energy and metal costs, and lower advertising and administrative expenses offset by an unfavorable impact of foreign currency of $3 million.
Income from equity method investments in the first nine months of 2015 was $35 million, an increase of $15 million from the first nine months of 2014. The results for the nine months ended September 30, 2015 include nine months of activity while the results for the nine months ended September 30, 2014 included seven months of activity, as the joint ventures with Boral did not commence until February 27, 2014. The improved results for the joint venture for the year-to-date period are reflective of the improvements discussed above as well as continued progress on realizing targeted synergy savings and improved market adoption rate of lightweight products offset by an unfavorable impact of foreign currency of $6 million. Further contributing to the increase is the absence of our share of both $5 million, net of tax, of restructuring charges and $3 million, net of tax, of facility damage costs incurred in the second quarter of 2014.
INTEREST EXPENSE
Interest expense was $40 million in the third quarter of 2015, down $3 million, or 7%, from the third quarter of 2014 and was $123 million in the first nine months of 2015, down $12 million, or 9%, from the first nine months of 2014. The decrease in interest expense for both comparative periods primarily reflects lower debt levels and lower interest rates on our outstanding debt. The decline in both periods was driven by the conversion of $75 million of our 10% convertible senior notes into common stock in April 2014, the August 2014 repayment of $59 million of our 9.75% Senior Notes, the February 2015 repurchase of our 8.375% Senior Notes due 2018 and issuance of our 5.5% Senior Notes, the 2015 repayment of our ship mortgage facility and lower amortization of deferred administrative fees and debt discounts.
LOSS ON EXTINGUISHMENT OF DEBT
In the first quarter of 2015, we recorded a $19 million loss on the extinguishment of debt, including premiums and write-off of deferred financing fees, in connection with the tender offer and repurchase of our 8.375% Senior Notes due 2018.
GAIN ON DECONSOLIDATION OF SUBSIDIARIES
In the first quarter of 2014, we recognized a gain on the deconsolidation of subsidiaries of $27 million as a result of our contribution of our wholly-owned subsidiaries in Singapore, India, Malaysia, New Zealand and Australia and our consolidated joint ventures in Oman into UBBP.
INCOME TAX EXPENSE / (BENEFIT)
We recorded an income tax benefit of $1 million in the third quarter of 2015 from foreign, state and local jurisdictions compared to an income tax expense of $2 million for the third quarter of 2014. We recorded an income tax benefit of $2 million in the first nine months of 2015. The income tax benefit for the first nine months of 2015 reflects audit closures in certain foreign jurisdictions and the refundable credit for the alternative minimum tax credit carryforward utilized on the federal income tax return, offset slightly by state and local and foreign jurisdiction tax expense. Income tax expense in the first nine months of 2014 of $7 million reflects income taxes for certain foreign, state and local jurisdictions, including approximately$1 million of withholding taxes on property contributed to UBBP. 

31

Segment Results of Operations
GYPSUM
Net sales and operating profit (loss) for the businesses comprising our Gypsum segment were as follows:
 
Three months ended September 30:
 
Nine months ended September 30:
 
 
 
 
 
Favorable (Unfavorable)
 
 
 
 
 
Favorable (Unfavorable)
(millions)
2015
 
2014(a)
 
$
 
%
 
2015
 
2014(a)(b)
 
$
 
%
Net sales:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
$
517

 
$
494

 
$
23

 
5
 %
 
$
1,510

 
$
1,414

 
$
96

 
7
 %
Canada
79

 
90

 
(11
)
 
(12
)%
 
242

 
256

 
(14
)
 
(5
)%
Mexico / Latin America
46

 
51

 
(5
)
 
(10
)%
 
142

 
146

 
(4
)
 
(3
)%
Gypsum Transportation Limited
—

 
20

 
(20
)
 
(100
)%
 
10

 
62

 
(52
)
 
(84
)%
Canadian Mining
2

 
2

 
—

 
—
 %
 
4

 
3

 
1

 
33
 %
Eliminations
(34
)
 
(36
)
 
2

 
6
 %
 
(104
)
 
(103
)
 
(1
)
 
(1
)%
Total
$
610

 
$
621

 
$
(11
)
 
(2
)%
 
$
1,804

 
$
1,778

 
$
26

 
1
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating profit (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
$
84

 
$
(2
)
 
$
86

 
*

 
$
241

 
$
129

 
$
112

 
87
 %
Canada
3

 
5

 
(2
)
 
(40
)%
 
7

 
13

 
(6
)
 
(46
)%
Mexico / Latin America
3

 
5

 
(2
)
 
(40
)%
 
12

 
13

 
(1
)
 
(8
)%
Gypsum Transportation Limited
—

 
5

 
(5
)
 
(100
)%
 
1

 
19

 
(18
)
 
(95
)%
Canadian Mining
(1
)
 
(1
)
 
—

 
—
 %
 
(6
)
 
(2
)
 
(4
)
 
*

Total
$
89

 
$
12

 
$
77

 
*

 
$
255

 
$
172

 
$
83

 
48
 %
* Not meaningful
(a)
Operating profit (loss) for 2014 included long-lived asset impairment charges of $30 million and a litigation settlement charge of $48 million, for both the three and nine months of 2014. See Note 3 and 17, respectively.
(b)
Results for the first three months of 2014 have been recast to reflect our change in segments.


32

United States: Net sales in the third quarter of 2015 were $517 million, up $23 million, or 5%, compared with the third quarter of 2014. The increase in net sales was due to the following:
 
Sales
 
Volume
 
Price
(millions)
$
%
 
$
%
 
$
%
Change to Q3 2015 from Q3 2014
 
 
 
 
 
 
 
 
Sheetrock® brand gypsum wallboard
7

3
%
 
4

2
%
 
3

1
%
Sheetrock® brand joint compound
5

6
%
 
5

6
%
 
—

—
%
Durock® brand cement board
4

13
%
 
2

5
%
 
2

8
%
Roof board
1

9
%
 
1

9
%
 
—

—
%
Other
6

 
 
 
 
 
 
 
Total increase in net sales
$
23

5
%
 
 
 
 
 
 
The increase of $7 million from the third quarter of 2014 to the third quarter of 2015 in Sheetrock® brand gypsum wallboard reflected increases in both shipments and average selling prices. The increased shipments reflect greater demand from big box retailers and specialty dealers. Our premium Sheetrock® Brand UltraLight Panels accounted for 65% of all of our wallboard shipments during the third quarter of 2015, compared to 63% in the third quarter of 2014.
Sales of Sheetrock® brand joint compound increased $5 million on increased volume. Sales of Durock® brand cement backerboard increased $4 million which reflected both higher volumes and average selling price. Sales of roof board increased $1 million which reflected higher volume of Gyp-Fiber roof boards and Glass-Mat roof boards. The increase in Other reflected higher sales of other products of $6 million, which was due to product mix, and reflected higher sales of substrates products, none of which were individually significant.
Operating profit of $84 million was recorded in the third quarter of 2015 compared with operating loss of $2 million in the third quarter of 2014. The increase of $86 million in operating profit reflected the following:
 
Operating Profit
 
Volume
 
Price
 
Cost
(millions)
$
 
$
 
$
 
$
Change to Q3 2015 from Q3 2014
 
 
 
 
 
 
 
Sheetrock® brand gypsum wallboard
$
7

 
$
2

 
$
3

 
$
2

Sheetrock® brand joint compound
1

 
1

 
—

 
—

Durock® brand cement board
1

 
—

 
2

 
(1
)
Roof board
1

 
—

 
—

 
1

Other
76

 
 
 
 
 
 
Total increase in operating profit
$
86

 
 
 
 
 
 
The increase in operating profit reflected gross profit improvement for Sheetrock® brand gypsum wallboard, Sheetrock® brand joint compound, Durock® brand cement board and Gyp-Fiber and Glass-Mat roof board. The increased gross profit for Sheetrock® brand gypsum wallboard reflected higher shipments and higher gross margin due to the January 1, 2015 price increase and increased sales of higher margin Sheetrock® brand UltraLight Panel products. The decrease in cost of $2 million also contributed to the operating profit improvement and reflected a $1 million gain for asset retirement obligations and a $1 million decline in other costs. The per unit cost for U.S. Gypsum’s Sheetrock® brand gypsum wallboard in the third quarter of 2015 as compared with the third quarter of 2014 included a per unit cost increase of 3% for raw materials, including paper and rock, and a per unit cost increase of 7% for fixed costs, including labor inflation, offset by a per unit cost decrease of 10% for energy costs, primarily due to natural gas.
The increase in other reflected the absence of a litigation settlement charge of $48 million and long-lived asset impairment charges of $30 million recorded in the third quarter of 2014. Other also included an increase in selling and administrative costs of $5 million partially offset by improved profitability of our substrates products of $3 million. The increase in selling and administrative costs was driven primarily by higher compensation costs offset by lower services and fees and marketing expenses.

33

Canada: Net sales in the third quarter of 2015 were $79 million, a decrease of $11 million from $90 million in the third quarter of 2014. The change in sales reflects an increase in gypsum wallboard of $4 million offset by an unfavorable impact of currency translation of $15 million. Driving the increase in wallboard was an increase of 2% in volume and an increase of 8% in average selling prices. Operating profit in the third quarter of 2015 was $3 million, a decrease of $2 million from the third quarter of 2014. The decrease reflects an unfavorable impact of fluctuations in foreign currency of $3 million offset by higher average selling prices on gypsum wallboard. Lower margins on products other than gypsum wallboard, including joint treatment, further contributed to the decrease in operating profit.
Mexico / Latin America: Net sales for our gypsum businesses in Mexico and Latin America were $46 million for the third quarter of 2015, a decrease of $5 million from the third quarter of 2014. Mexico's net sales were negatively impacted by foreign currency translation of $8 million which was offset by increases in sales of gypsum wallboard of $2 million and Durock® brand cement board of $1 million. Operating profit decreased to $3 million in the third quarter of 2015 from $5 million in the third quarter of 2014. The decrease reflected the negative impact of currency of $1 million and an increased miscellaneous costs of $3 million offset by higher margins on gypsum wallboard of $1 million and Durock® brand cement board of $1 million.
Gypsum Transportation Limited: There were no sales for our shipping company, Gypsum Transportation Limited, or GTL, for the third quarter of 2015 compared to $20 million in the third quarter of 2014. Operating profit was $0 million in the third quarter of 2015 compared to an operating profit of $5 million in the third quarter of 2014. The decrease in both net sales and operating profit reflected the cessation of shipping activity under a long-term shipping contract in the fourth quarter of 2014. No sales were recorded in the third quarter of 2015 as our short-term shipping contract ended in March 2015 and we sold our two self-unloading vessels in April 2015.
Canadian Mining: Net sales for our mining operation in Little Narrows, Nova Scotia, Canada, were $2 million for the third quarter of 2015 and $2 million for the third quarter of 2014. Operating loss was $1 million in both the third quarter of 2015 and of 2014.
CEILINGS
Net sales and operating profit for the businesses comprising our Ceilings segment were as follows:
 
Three months ended September 30:
 
Nine months ended September 30:
 
 
 
 
 
Favorable (Unfavorable)
 
 
 
 
 
Favorable (Unfavorable)
(millions)
2015
 
2014
 
$
 
%
 
2015
 
2014(a)(b)
 
$
 
%
Net sales:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
$
123

 
$
125

 
$
(2
)
 
(2
)%
 
$
359

 
$
353

 
$
6

 
2
 %
USG International (a)
—

 
—

 
—

 
—
 %
 
—

 
7

 
(7
)
 
(100
)%
Canada
13

 
15

 
(2
)
 
(13
)%
 
41

 
43

 
(2
)
 
(5
)%
Mexico / Latin America
9

 
10

 
(1
)
 
(10
)%
 
26

 
27

 
(1
)
 
(4
)%
Eliminations
(15
)
 
(13
)
 
(2
)
 
(15
)%
 
(42
)
 
(38
)
 
(4
)
 
(11
)%
Total
$
130

 
$
137

 
$
(7
)
 
(5
)%
 
$
384

 
$
392

 
$
(8
)
 
(2
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating profit:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
$
21

 
$
26

 
$
(5
)
 
(19
)%
 
$
63

 
$
58

 
$
5

 
9
 %
USG International (a)
—

 
—

 
—

 
—
 %
 
—

 
—

 
—

 
—
 %
Canada
1

 
2

 
(1
)
 
(50
)%
 
3

 
6

 
(3
)
 
(50
)%
Mexico / Latin America
2

 
2

 
—

 
—
 %
 
4

 
5

 
(1
)
 
(20
)%
Total
$
24

 
$
30

 
$
(6
)
 
(20
)%
 
$
70

 
$
69

 
$
1

 
1
 %
(a)
USG International’s net sales and operating profit for the nine months ended September 30, 2014 include the results of our wholly-owned subsidiaries and consolidated joint ventures that were contributed to UBBP on February 27, 2014.
(b)
Results for the first three months of 2014 have been recast to reflect our change in segments.

34

United States: Net sales for our domestic ceilings business in the third quarter of 2015 were $123 million, a decrease of$2 million, or 2%, from the third quarter of 2014. The decrease reflected the following:
 
Sales
 
Volume
 
Price
(millions)
$
%
 
$
%
 
$
%
Change to Q3 2015 from Q3 2014
 
 
 
 
 
 
 
 
Ceiling grid
$
(1
)
(2
)%
 
$
—

—
 %
 
$
(1
)
(2
)%
Ceiling tile
(2
)
(3
)%
 
(1
)
(2
)%
 
(1
)
(1
)%
Other products
1

 
 
 
 
 
 
 
Total decrease in net sales
$
(2
)
(2
)%
 
 
 
 
 
 
The decrease of $1 million in sales of ceiling grid reflected lower average selling price. The decrease of $2 million in ceiling tile reflected decreases in both volume and average selling price.
Operating profit was $21 million for the third quarter of 2015, a decrease of $5 million, or 19%, from the third quarter of 2014. The increase reflected the following:
 
Operating Profit
 
Volume
 
Price
 
Cost
(millions)
$
 
$
 
$
 
$
Change to Q3 2015 from Q3 2014
 
 
 
 
 
 
 
Ceiling grid
$
(1
)
 
$
—

 
$
(1
)
 
$
—

Ceiling tile
(4
)
 
(1
)
 
(1
)
 
(2
)
Total decrease in operating profit
$
(5
)
 
 
 
 
 
 
The decrease in operating profit reflects a decrease in gross profit for both ceiling grid and ceiling tile. The increase in cost for ceiling tile reflected higher per unit costs driven by a per unit cost increase of 10% in conversion costs primarily due to maintenance and 7% in fixed costs reflecting lower volumes offset by a per unit cost decrease of 9% in energy costs due to natural gas. Additionally, operating profit for the third quarter of 2014 was the strongest quarter in the history of the business.
USG International: As a result of our change in segments, USG International consists only of the results of our wholly-owned subsidiaries in the Asia-Pacific region and India and our consolidated joint ventures in Oman that were contributed in February 2014 as part of our investment in UBBP; therefore, results for USG International in the nine months ended September 30, 2014 represent the net sales and operating profit (loss) for those entities. Results for our Latin America businesses, previously included within USG International, are now included in "Mexico / Latin America" within Gypsum or Ceilings, as applicable.
Canada:  Net sales of $13 million for the third quarter of 2015 decreased $2 million compared to the third quarter of 2014. The decrease reflected an unfavorable impact of currency translation of $2 million. Operating profit of $1 million decreased $1 million compared to the third quarter of 2014 primarily reflecting the impact of fluctuations in foreign currency and lower margins on ceiling tile.
Mexico / Latin America: Net sales of $9 million for the third quarter of 2015 decreased $1 million compared to the third quarter of 2014. The decrease reflects unfavorable impact of foreign currency translation of $1 million in Mexico. Operating profit of $2 million remained unchanged from the third quarter of 2014.

35

DISTRIBUTION
Net sales and operating profit for our Distribution segment, which consists of L&W Supply, were as follows:
 
Three months ended September 30:
 
Nine months ended September 30:
 
 
 
 
 
Favorable (Unfavorable)
 
 
 
 
 
Favorable (Unfavorable)
(millions)
2015
 
2014
 
$
 
%
 
2015
 
2014
 
$
 
%
Net sales
$
378

 
$
359

 
$
19

 
5
%
 
$
1,076

 
$
1,003

 
$
73

 
7
%
Operating profit
9

 
4

 
5

 
*

 
22

 
9

 
13

 
*

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
*not meaningful
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

L&W Supply’s net sales in the third quarter of 2015 were $378 million, up $19 million or 5%, compared with the third quarter of 2014. Same store net sales for the third quarter of 2015 were up 5% compared with the third quarter of 2014. Net sales of gypsum wallboard increased $7 million, or 5%, reflecting an increase in gypsum wallboard volume and price. Net sales of metal products increased $4 million and net sales of all other products increased $8 million.
Operating profit was $9 million in the third quarter of 2015 compared with $4 million in the third quarter of 2014. The $5 million increase in operating profit was attributable to increased gross profit of $6 million on gypsum wallboard driven by increases in volume and margin of 3% and 7%, respectively, and increased gross profit of $4 million for ceilings and other products. Offsetting the improved gross profit is an increase of $3 million of selling and administrative expenses due to timing and an increase of $2 million of delivery expenses due to higher sales.
L&W Supply served its customers from 144 distribution branches in the United States as of September 30, 2015. In the third quarter of 2015, L&W closed two under performing branches in areas that are served by multiple branches.
USG BORAL BUILDING PRODUCTS
Net sales and operating profit for UBBP and our share of the net income of UBBP were as follows:
 
Three months ended September 30:
 
Nine months ended September 30:
 
 
 
 
 
Favorable (Unfavorable)
 
 
 
 
 
Favorable (Unfavorable)
(millions)
2015
 
2014
 
$
 
%
 
2015
 
2014
 
$
 
%
Net sales
$
250

 
$
286

 
$
(36
)
 
(13
)%
 
$
742

 
$
655

 
$
87

 
13
%
Operating profit
30

 
31

 
(1
)
 
(3
)%
 
87

 
57

 
30

 
53
%
Income from equity method investments - UBBP
12

 
12

 
—

 
*

 
33

 
19

 
14

 
74
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
*not meaningful
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UBBP is our 50/50 joint ventures with Boral and are accounted for as equity method investments. Our share of the net income of UBBP recorded in income from equity method investments in our consolidated statement of operations was $12 million for both the third quarter of 2015 and 2014.
The following is a discussion of UBBP's consolidated results for the third quarter of 2015 as compared to the third quarter of 2014.
Net sales for UBBP were $250 million in the third quarter of 2015 compared to $286 million for the third quarter of 2014. The decrease of $36 million reflects the unfavorable impact of currency translation of $42 million as well as normalization of plasterboard shipments in Korea and weakening economies in China, Indonesia and Thailand. Plasterboard shipments decreased to 1.13 billion square feet for the third quarter of 2015 from 1.14 billion square feet for the third quarter of 2014. Operating profit was $30 million in the third quarter of 2015 compared to $31 million for the third quarter of 2014. The decrease of $1 million in operating profit reflected lower sales discussed above and an unfavorable impact of foreign currency of $6 million offset by improved gross margins in Korea and Thailand. Also offsetting the decrease in operating profit was a decrease in variable costs and administrative expenses. Additionally, the joint venture experienced synergy savings and improved market performance of lightweight products.
Net sales in Asia and Australasia made up approximately 65% and 35%, respectively, of total net sales for UBBP. Net sales in South Korea, China, Thailand and Indonesia represented approximately 76% of Asia's net sales and plasterboard revenue accounted for approximately 70% of Asia's net sales.

36

CORPORATE
The operating loss for Corporate increased to $25 million in the third quarter of 2015 compared with $23 million in the third quarter of 2014 primarily due to an increase in incentive compensation.
Liquidity and Capital Resources
As of September 30, 2015, we had $450 million of cash and cash equivalents and marketable securities compared with $382 million as of December 31, 2014. See discussion below under Cash Flows for explanation of the change in cash and cash equivalents. Our total liquidity as of September 30, 2015 was $785 million (including $335 million of borrowing availability under our credit facilities) compared to $673 million as of December 31, 2014 (including $291 million of borrowing availability under our credit facilities). The change in availability under our credit facilities was primarily due to higher accounts receivable balances.
Our cash is invested in cash equivalents and marketable securities pursuant to an investment policy that has preservation of principal as its primary objective. The policy includes provisions regarding diversification, credit quality and maturity profile that are designed to minimize the overall risk profile of our investment portfolio. The securities in the portfolio are subject to normal market fluctuations. See Note 6 to the consolidated financial statements for additional information regarding our investments in marketable securities.
Total debt, consisting of senior notes and industrial revenue bonds amounted to $2.188 billion ($2.189 billion in aggregate principal amount less $1 million of unamortized original issue discount) as of September 30, 2015 and $2.209 billion ($2.210 billion in aggregate principal amount less $1 million of unamortized original issue discount) as of December 31, 2014. As of September 30, 2015 and during the nine months then ended, there were no borrowings under our revolving credit facility and no borrowings outstanding.
Our obligations under our credit facility are guaranteed by USG and its significant domestic subsidiaries and secured by their and USG’s trade receivables and inventory. CGC's obligations under the credit facility are secured by trade receivables and inventory of certain subsidiaries. The credit facility matures in October 2019. The credit facility is available to fund working capital needs and for other general corporate purposes.
The credit agreement allows for the borrowing of revolving loans and issuance of letters of credit (up to a maximum of $200 million at any time outstanding, in aggregate) to USG and its subsidiaries. The maximum principal amount of revolving loans and letters of credit that may be borrowed by USG may not exceed the lesser of (1) $450 million less the amount of outstanding loans and letters of credit owed by CGC and (2) the excess of (a) the domestic borrowing base determined by reference to the trade receivables and inventory of USG and its significant domestic subsidiaries minus (b) the amount, if any, by which of the outstanding balance of loans and letters of credit owed by CGC exceeds the CGC borrowing base determined by reference to the trade receivables and inventory of CGC and certain Canadian subsidiaries at such time. The maximum principal amount of revolving loans and letters of credit that may be borrowed by CGC at any time may not exceed the lesser of (1) $50 million and (2) the sum of the CGC borrowing base determined by reference to the trade receivables and inventory of CGC and certain Canadian subsidiaries, plus the domestic borrowing base determined by reference to the trade receivables and inventory of USG and its significant domestic subsidiaries, minus the amount of outstanding loans and letters of credit owed by USG at such time.
The credit agreement contains a financial covenant that would require us to maintain a minimum fixed charge coverage ratio of not less than 1.0 to 1.0 if the excess of the availability (as defined in the credit agreement) is less than an amount equal to 10% of the lesser of (a) the aggregate revolving commitment at such time and (b) the aggregate borrowing base at such time. As of September 30, 2015, our fixed charge coverage ratio was 1.66-to-1.0. Because we currently satisfy the required fixed charge coverage ratio, we are not required to maintain a minimum borrowing availability under the credit facility. Taking into account the most recent borrowing base calculation, borrowings available under the credit facility were approximately $335 million.
In the first quarter of 2015, we repurchased $350 million of our 8.375% Senior Notes due in 2018, or the 2018 Senior Notes, through both a cash tender offer and a subsequent redemption of the remaining 2018 Senior Notes. On February 24, 2015, we completed a cash tender offer pursuant to which we repurchased $126 million of the 2018 Senior Notes for aggregate consideration, including tender offer premium and accrued and unpaid interest, of $135 million. On March 26, 2015, we repurchased the remaining $224 million of the 2018 Senior Notes for aggregate consideration, including premium and accrued and unpaid interest, of $242 million. These repurchases and all related costs were funded with cash on hand and the first quarter 2015 issuance of $350 million of 5.50% Senior Notes due 2025.

37

In the second quarter of 2015, we repaid the outstanding balance on our ship mortgage facility of $18 million with the proceeds from the sale of our two self-unloading vessels. We repaid $3 million of this facility in the first quarter of 2015 with cash on hand.
Our undistributed foreign earnings as of September 30, 2015 are considered permanently reinvested with the exception of earnings associated with our shipping operations and those associated with our equity method investment in Knauf-USG. The amount of cash and cash equivalents held by our foreign subsidiaries was $78 million as of September 30, 2015. Any repatriation of these funds to the U.S. would have an immaterial impact on our current tax rate due to our substantial net operating loss, or NOL, carryforwards and related valuation allowance.
CASH FLOWS
The following table presents a summary of our cash flows:
 
Nine months ended September 30,
(millions)
2015
 
2014
Net cash provided by (used for):
 
 
 
Operating activities
$
153

 
$
80

Investing activities
3

 
(585
)
Financing activities
(44
)
 
(62
)
Discontinued operations
—

 
(1
)
Effect of exchange rate changes on cash
(7
)
 
(2
)
Net increase (decrease) in cash and cash equivalents
$
105

 
$
(570
)
Operating Activities: The increase in net cash provided by operating activities for the first nine months of 2015 compared to the first nine months of 2014 reflected improved profitability and the receipt of a cash dividend of $18 million from UBBP for earnings through March 2015. This is offset by a payment of $39 million pursuant to the settlement agreement with the direct purchaser class settlement, which was deposited into settlement fund escrow accounts pursuant to the settlement agreements in the first quarter of 2015 and was released upon final approval of the settlement agreement in the third quarter of 2015. This payment is reflected in the change of accrued expenses. Excluding this payment, our net cash outflow for accounts receivable and inventories, accounts payable and accrued expenses was lower in 2015 compared to 2014.
As of September 30, 2015, working capital (current assets less current liabilities) amounted to $841 million, and the ratio of current assets to current liabilities was 2.78-to-1. As of December 31, 2014, working capital amounted to $589 million, and the ratio of current assets to current liabilities was 2.05-to-1.
Investing Activities: Net cash provided by investing activities during the first nine months of 2015 was $3 million compared to net cash used for investing activities of $585 million during the first nine months of 2014. The change reflects a cash outflow in 2014 of $558 million for our investment in UBBP, consisting of a $500 million base purchase price, $15 million of customary estimated working capital and net debt adjustments, $22 million of transaction costs and $23 million of cash held by the wholly-owned subsidiaries that we contributed to UBBP.
Additionally, in the first half of 2015, we deposited $48 million into settlement fund escrow accounts pursuant to the settlement agreements with the direct and indirect purchaser class settlements. In the third quarter of 2015, the payment for the direct purchaser class settlement was released from escrow and recorded in operating activities as discussed above. The remaining $9 million in the escrow account for the indirect purchaser settlement was recorded as a cash outflow in investing activities for the nine months ended September 30, 2015.
The net activity of purchases and sales or maturities for marketable securities decreased to a cash inflow of $36 million for the nine months ended September 30, 2015 from a cash inflow of $40 million for the nine months ended September 30, 2014. Capital expenditures amounted to $72 million in the first nine months of 2015 compared with $88 million in the first nine months of 2014.
Approved capital expenditures for the replacement, modernization and expansion of operations totaled $46 million as of September 30, 2015 compared with $96 million as of December 31, 2014.

38

Financing Activities: Net cash used for financing activities for the first nine months of 2015 was $44 million compared to $62 million in the first nine months of 2014. The decrease reflected $365 million paid to repurchase $350 million of our 8.375% Senior Notes due 2018 plus tender premium offset by the $344 million of proceeds received from the issuance of $350 million of 5.50% Senior Notes, net of debt issuance fees and $21 million used to repay our ship mortgage facility.
DEFINED BENEFIT PLANS
During the first nine months of 2015, we made cash contributions of $50 million to the USG Corporation Retirement Plan Trust, $6 million to our pension plan in Canada, and $4 million, in aggregate, to certain other domestic plans. We expect to make total contributions to our pension plans in 2015 of approximately $62 million.
LIQUIDITY OUTLOOK
In the first nine months of 2015, our investing cash outflows included $72 million of capital expenditures. In total for 2015, we plan to spend approximately $100 million on capital expenditures in the normal course of business. We expect to fund these expenditures with cash from operations or cash on hand.
Interest payments, based on our current level of outstanding debt, are expected to decrease to approximately $159 million in 2015 compared with $175 million in 2014 primarily due to the conversion of the remaining $75 million of our 10% convertible senior notes in April 2014, the repayment of our 9.75% senior notes in August 2014, the repurchase of our 2018 Senior Notes in February 2015, the issuance of our 5.50% Senior Notes in the first quarter of 2015, and the repayment of our ship mortgage facility in the second quarter of 2015.
Since formation, UBBP was funded from its net cash flow from operations and third-party financing, and it is our intent that as an ongoing operation, UBBP will continue to self-fund. During the second quarter of 2015, UBBP's Board of Directors declared and UBBP paid cash dividends on earnings through March 2015 of $36 million. Our share of these dividends is $18 million. We intend to use the dividends received to pay the earnout payment described in Note 2 to the consolidated financial statements.
In the third quarter of 2014, we recorded a $48 million accrual related to the settlement of the U.S. wallboard pricing class action lawsuit. In the first half of 2015, we paid $48 million, of which $9 million remains in escrow and was recorded as restricted cash as of September 30, 2015 on our accompanying consolidated balance sheet.
We believe that cash on hand, including cash equivalents and marketable securities, cash available from future operations and our credit facilities will provide sufficient liquidity to fund our operations for at least the next 12 months. Cash requirements include, among other things, capital expenditures, working capital needs, employee retirement plans funding, debt repayment and amortization and other contractual obligations.
Realization of Deferred Tax Asset
As of September 30, 2015, we had federal NOL carryforwards of approximately $1.790 billion that are available to offset future federal taxable income and will expire in the years 2026 through 2032. In addition, as of that date, we had federal AMT credit carryforwards of approximately $43 million that are available to reduce future regular federal income taxes over an indefinite period. In addition, we have federal foreign tax credit carryforwards of $8 million that will expire if unused in 2015.
As of September 30, 2015, we had a gross deferred tax asset related to our state NOLs and tax credit carryforwards of $238 million, of which $1 million will expire in 2015. The remainder will expire if unused in years 2016 through 2033. We also had NOL and tax credit carryforwards in various foreign jurisdictions in the amount of $1 million as of September 30, 2015, against which we have maintained a valuation allowance.
For the nine months ended September 30, 2015, we decreased our valuation allowance by $75 million which resulted in a deferred tax asset valuation allowance of $948 million as of September 30, 2015. The decrease in the valuation allowance primarily related to a decrease in composition of the underlying deferred tax assets based on year-to-date earnings, the use of NOL carryforwards offsetting those earnings and the planned repatriation of undistributed foreign earnings for our shipping operations and the equity method investment in Knauf-USG. Changes in the valuation allowance will have no impact on our ability to utilize our U.S. federal and state NOL and tax credit carryforwards to offset future U.S. profits. We continue to believe that we ultimately will have sufficient U.S. profitability during the remaining NOL and tax credit carryforward periods to realize substantially all of the economic value of the federal NOLs and some of the state NOLs before they expire.
We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the available evidence, it is more likely than not that such assets will not be realized. The need to establish valuation allowances for deferred tax assets is

39

assessed periodically. In assessing the requirement for, and amount of, a valuation allowance in accordance with the more likely-than-not standard, we give appropriate consideration to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, our experience with operating loss and tax credit carryforwards not expiring unused and tax planning alternatives. A history of cumulative losses for a certain threshold period is a significant form of negative evidence used in our assessment. Consistent with practices in the home building and related industries, we have a policy of four years as our threshold period for cumulative losses.
We consider all positive and negative evidence to determine the realizability of our deferred tax assets and the need for a full, or partial, valuation allowance. A significant form of positive evidence is the realization of a four year cumulative accounting profit in the U.S. Another form of positive evidence would be our recent U.S. operating profit used in conjunction with the key indicators of demand of our products as discussed in Market Conditions and Outlook. Specifically, our outlook on residential, commercial and repair and remodel construction over our planning horizon is considered in calculating our projected taxable income necessary to realize our deferred tax assets. Additional positive evidence considered is our use of net operating loss carryforwards prior to expiration. The vast majority of these net operating losses have a statutory carryforward period of 15 – 20 years. We do not currently have any tax planning strategies that are used to support our estimates of future taxable income. Based upon these factors, we expect we may release the majority of our domestic valuation allowance by the end of 2015. Any reversal of our valuation allowance will favorably impact our results of operations in the period of reversal.
See Note 16 to the consolidated financial statements for additional information regarding income tax matters.

Recently Issued Accounting Pronouncements
See Part 1, Item 1, Note 1 to the consolidated financial statements for information related to new accounting standards.

40

Legal Contingencies
We are named as defendants in litigation arising from our operations, including lawsuits arising from the operation of our vehicles and lawsuits arising from product performance or warranties, personal injury, and commercial disputes. USG Corporation, United States Gypsum Company and CGC Inc. have been named as defendants in class action lawsuits alleging that North American wallboard manufacturers conspired to fix the price of wallboard sold in the United States and Canada. We entered into settlement agreements with attorneys representing the direct and indirect purchaser plaintiff classes in the U.S. wallboard pricing lawsuits, for which USG recorded a $48 million charge in the third quarter of 2014 ($39.25 million for the direct purchaser class settlement and $8.75 million for the indirect purchaser class settlement). On August 20, 2015, the court entered final judgment orders approving both the direct and indirect purchaser settlements. No member of the direct purchaser class appealed from the final judgment order approving the direct purchaser settlement, and therefore, that settlement should be final. One person appealed from the final judgment order approving the indirect purchaser settlement, and therefore that settlement is not yet final. We believe that the appeal is without merit and that the indirect purchaser settlement order will be affirmed on appeal, but the indirect purchaser settlement will not become final unless and until the appeal is favorably resolved.
The settlements do not include the Canadian lawsuits to which CGC is a party. At this stage of the Canadian lawsuits, we are not able to estimate the amount, if any, of any reasonably possible loss or range of reasonably possible losses. We believe, however, that these Canadian lawsuits will not have a material effect on our results of operations, financial position, or cash flows.
In addition to the class action lawsuits, in the first quarter of 2015, USG and seven other wallboard manufacturers were named as defendants in a lawsuit filed by twelve homebuilders asserting individual claims similar to the claims asserted in the U.S. class action lawsuits. We believe that the cost, if any, of resolving these homebuilders’ claims will not materially increase our exposure above the $48 million agreed to in the U.S. class action settlements.
In the third quarter of 2015 United States Gypsum Company was served with a federal grand jury subpoena requesting the production of company records in connection with a federal investigation of the gypsum drywall industry. We believe the investigation, although a separate proceeding, is related to the same events at issue in the litigation discussed above. We intend to fully cooperate with the grand jury investigation   We believe we acted in full compliance with the law, and we do not expect the resolution of this matter to result in any material adverse effect on our business, financial position, liquidity or results of operations; however, we can provide no assurances as to the scope, timing, or outcome of any such investigation. 
See Note 17 to the consolidated financial statements for further information regarding the foregoing lawsuits and other legal matters.

41

Critical Accounting Policies
The preparation of our financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the periods presented. Our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which we filed with the Securities and Exchange Commission on February 12, 2015, includes a summary of the critical accounting policies we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting policies that have had a material impact on our reported amounts of assets, liabilities, revenues or expenses during the first nine months of 2015.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 related to management’s expectations about future conditions. 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. 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;
•
capital markets conditions and the availability of borrowings under our credit agreement or other financings;
•
our substantial indebtedness and our ability to incur substantial additional indebtedness;
•
competitive conditions, such as price, service and product competition;
•
shortages in raw materials;
•
changes in raw material and energy costs;
•
volatility in the assumptions used to determine the funded status of our pension plans;
•
the loss of one or more major customers and our customers’ ability to meet their financial obligations to us;
•
capacity utilization rates for us and the industry;
•
our ability to expand into new geographic markets and the stability of such markets;
•
our ability to successfully operate USG Boral Building Products, including risks that our joint ventures partner, Boral, may not fulfill its obligations as an investor or may take actions that are inconsistent with our objectives;
•
our ability to protect our intellectual property and other proprietary rights;
•
changes in laws or regulations, including environmental and safety regulations;
•
the satisfactory performance of certain business functions by third party service providers;
•
our ability to achieve anticipated savings from cost reduction programs;
•
the outcome in contested litigation matters;
•
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 report.
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 our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015.

42

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We use derivative instruments to manage certain commodity price and foreign currency exposures. We do not use derivative instruments for speculative trading purposes, and we typically do not hedge beyond three years. See Note 9 to the consolidated financial statements for additional information regarding our financial exposures.
COMMODITY PRICE RISK
We use natural gas swaps and options contracts to manage our exposure to fluctuations in commodity prices associated with anticipated purchases of natural gas. Currently, a significant portion of our anticipated purchases of natural gas for 2015 and 2016 is hedged as well as a portion of our anticipated purchases of natural gas for 2017. The aggregate notional amount of these hedge contracts in place as of September 30, 2015 was 25 million mmBTUs (millions of British Thermal Units). We review our positions regularly and make adjustments as market and business conditions warrant. The fair value of these contracts was an unrealized loss of $20 million as of September 30, 2015. A sensitivity analysis was prepared to estimate the potential change in the fair value of our natural gas hedge contracts assuming a hypothetical 10% change in market prices. Based on the results of this analysis, which may differ from actual results, the potential change in the fair value of our natural gas hedge contracts as of September 30, 2015 was $8 million. This analysis does not consider the underlying exposure.
FOREIGN CURRENCY EXCHANGE RISK
We have foreign exchange forward contracts to hedge forecasted purchases of products and services denominated in foreign currencies. The notional amount of these contracts was $118 million as of September 30, 2015, and they mature by December 23, 2016. The fair value of these contracts was a $8 million unrealized gain as of September 30, 2015.
A sensitivity analysis was prepared to estimate the potential change in the fair value of our foreign exchange forward contracts assuming a hypothetical 10% change in foreign exchange rates. Based on the results of this analysis, which may differ from actual results, the potential change in the fair value of our foreign exchange forward contracts as of September 30, 2015 was $12 million. This analysis does not consider the underlying exposure.
    

43

ITEM 4. CONTROLS AND PROCEDURES
(a)
Evaluation of disclosure controls and procedures.
Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, or the Act), have concluded that, as of the end of the quarter covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
(b)
Changes in internal control over financial reporting.
There were no changes in our “internal control over financial reporting” (as defined in Rule 13a-15(f) promulgated under the Act) identified in connection with the evaluation required by Rule 13a-15(d) promulgated under the Act that occurred during the fiscal quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


44

PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part I, Item 1, Note 17 to the consolidated financial statements for additional information regarding legal proceedings.
ITEM 1A. RISK FACTORS
There is no material change in the information reported under "Part I-Item 1A-Risk Factors" contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 except for the Risk Factor set forth in "Item 1A. Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Pursuant to our Deferred Compensation Program for Non-Employee Directors, one of our non-employee directors deferred his quarterly retainer for service as a director that was payable on September 30, 2015 into a total of approximately 1,044 deferred stock units. These units will increase or decrease in value in direct proportion to the market value of our common stock and will be paid in cash or shares of common stock, at the director’s option, following termination of service as a director. The issuance of these deferred stock units was effected through a private placement under Section 4(2) of the Securities Act of 1933, as amended, and was exempt from registration under Section 5 of that Act.
ITEM 4. MINE SAFETY DISCLOSURES
The information concerning mine safety violations or regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K promulgated by the SEC is included in Exhibit 95 to this report.

45

ITEM 6. EXHIBITS
10.1
Form of Change in Control Severance Agreement (form used since August 1, 2015) *
 
 
10.2
Interest and Share Purchase Agreement, dated as of September 15, 2015, by and among USG Corporation, USG Ventures-Europe GmbH, Knauf Aquapanel GmbH, Knauf/USG Verwaltungs GmbH and Knauf/USG Systems GmbH & Co. KG *
 
 
10.3
Agreement and General Release, dated as of August 4, 2015, by and between USG Corporation and Christopher R. Griffin *
 
 
31.1
Rule 13a-14(a) Certifications of USG Corporation’s Chief Executive Officer *
 
 
31.2
Rule 13a-14(a) Certifications of USG Corporation’s Chief Financial Officer *
 
 
32.1
Section 1350 Certifications of USG Corporation’s Chief Executive Officer *
 
 
32.2
Section 1350 Certifications of USG Corporation’s Chief Financial Officer *
 
 
95
Mine Safety Disclosures *
 
 
101
The following financial information from USG Corporation’s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2015, formatted in XBRL (Extensible Business Reporting Language): (1) the consolidated statements of operations for the three and nine months ended September 30, 2015 and 2014, (2) the consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2015 and 2014, (3) the consolidated balance sheets as of September 30, 2015 and December 31, 2014, (4) the consolidated statements of cash flows for the nine months ended September 30, 2015 and 2014 and (5) notes to the consolidated financial statements. *
*
 
Filed or furnished herewith



46

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
USG CORPORATION
 
 
By
 
/s/ James S. Metcalf
 
 
 
 
James S. Metcalf,
 
 
 
 
Chairman, President and Chief Executive Officer
 
 
 
 
 
 
 
By
 
/s/ Matthew F. Hilzinger
 
 
 
 
 
Matthew F. Hilzinger,
 
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
 
 
 
 
By
 
/s/ Jeanette A. Press 
 
 
 
 
Jeanette A. Press,
 
 
 
 
Vice President, Controller and Principal Accounting Officer
 
 
 
 
 
October 22, 2015
 
 
 
 
 
 
 
 
 

47

EXHIBIT INDEX
 
 
Exhibit
Number
Exhibit
10.1
Form of Change in Control Severance Agreement (form used since August 1, 2015) *
 
 
10.2
Interest and Share Purchase Agreement, dated as of September 15, 2015, by and among USG Corporation, USG Ventures-Europe GmbH, Knauf Aquapanel GmbH, Knauf/USG Verwaltungs GmbH and Knauf/USG Systems GmbH & Co. KG *
 
 
10.3
Agreement and General Release, dated as of August 4, 2015, by and between USG Corporation and Christopher R. Griffin *
 
 
31.1
Rule 13a-14(a) Certifications of USG Corporation’s Chief Executive Officer *
 
 
31.2
Rule 13a-14(a) Certifications of USG Corporation’s Chief Financial Officer *
 
 
32.1
Section 1350 Certifications of USG Corporation’s Chief Executive Officer *
 
 
32.2
Section 1350 Certifications of USG Corporation’s Chief Financial Officer *
 
 
95
Mine Safety Disclosures *
 
 
101
The following financial information from USG Corporation’s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2015, formatted in XBRL (Extensible Business Reporting Language): (1) the consolidated statements of operations for the three and nine months ended September 30, 2015 and 2014, (2) the consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2015 and 2014, (3) the consolidated balance sheets as of September 30, 2015 and December 31, 2014, (4) the consolidated statements of cash flows for the nine months ended September 30, 2015 and 2014 and (5) notes to the consolidated financial statements. *
*
 
Filed or furnished herewith


EXHIBIT 10.1
USG CORPORATION
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (this “Agreement”), dated as of _________________, is made and entered into by and between USG Corporation, a Delaware corporation (the “Company”), and _________________ (the “Executive”).
RECITALS:
I.    The Executive is a senior executive of the Company or a Subsidiary and has made and is expected to continue to make major contributions to the growth and financial strength of the Company;
II.    The Company recognizes that the possibility of a Change in Control (as defined below) exists and that such possibility, and the uncertainty it may create among management, may result in the distraction or departure of management personnel, to the detriment of the Company and its stockholders;
III.    The Company desires to assure itself of the continuity of management and desires to establish certain minimum severance benefits for certain of its senior executives, including the Executive, applicable in the event of a Change in Control;
IV.    The Company wishes to ensure that its senior executives are not unduly distracted by the circumstances attendant to the possibility of a Change in Control and to encourage the continued attention and dedication of such executives, including the Executive, to their assigned duties with the Company; and
V.    The Company desires to provide additional inducement for the Executive to continue to remain in the employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as follows:
1.
Certain Defined Terms. In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement with initial capital letters:
(a)
“Base Pay” means the Executive’s annual base salary rate as in effect from time to time.
(b)
“Board” means the Board of Directors of the Company.
(c)
“Cause” means that, prior to any termination pursuant to Section 3(b), the Executive shall have:
(i)
been convicted of a criminal violation involving fraud, embezzlement or theft in connection with the Executive’s duties or in the course of the Executive’s employment with the Company or any Subsidiary;

    

(ii)
committed intentional wrongful damage to tangible or intangible property of the Company or any Subsidiary; or
(iii)
committed intentional wrongful disclosure of secret processes or confidential information of the Company or any Subsidiary.
For purposes of this Agreement, no act or failure to act on the part of the Executive will be deemed “intentional” if it was due primarily to an error in judgment or negligence, but will be deemed “intentional” only if done or omitted to be done by the Executive not in good faith and without reasonable belief that the Executive’s action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive will not be deemed to have been terminated for “Cause” hereunder unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the Board then in office (excluding the Executive if the Executive is then a member of the Board) at a meeting of the Board called and held for such purpose, after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive’s counsel (if the Executive chooses to have counsel present at such meeting), to be heard before the Board, finding that, in the good faith opinion of the Board, the Executive had committed an act constituting “Cause” as herein defined and specifying the particulars thereof in reasonable detail. Nothing herein will limit the right of the Executive or the Executive’s beneficiaries to contest the validity or propriety of any such determination.

(d)
“Change in Control” means the occurrence during the Term of any of the following events:
(i)
any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) is or becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the combined voting power of the then-outstanding Voting Stock of the Company; provided, however, that:
(1)
for purposes of this Section 1(d), the following acquisitions shall not constitute a Change in Control: (A) any acquisition of Voting Stock of the Company directly from the Company that is approved by a majority of the Incumbent Directors, (B) any acquisition of Voting Stock of the Company by the Company or any Subsidiary, (C) any acquisition of Voting Stock of the Company by the trustee or other fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, and (D) any acquisition of Voting Stock of the Company by any Person pursuant to a Business Transaction that complies with clauses (A), (B) and (C) of Section 1(d)(iii) below;


2

(2)
if any Person is or becomes the beneficial owner of 20% or more of combined voting power of the then-outstanding Voting Stock of the Company as a result of a transaction described in clause (A) of Section 1(d)(i)(1) above and such Person thereafter becomes the beneficial owner of any additional shares of Voting Stock of the Company representing 1% or more of the then-outstanding Voting Stock of the Company, other than in an acquisition directly from the Company that is approved by a majority of the Incumbent Directors or other than as a result of a stock dividend, stock split or similar transaction effected by the Company in which all holders of Voting Stock are treated equally, such subsequent acquisition shall be treated as a Change in Control;
(3)
a Change in Control will not be deemed to have occurred if a Person is or becomes the beneficial owner of 20% or more of the Voting Stock of the Company as a result of a reduction in the number of shares of Voting Stock of the Company outstanding pursuant to a transaction or series of transactions that is approved by a majority of the Incumbent Directors unless and until such Person thereafter becomes the beneficial owner of any additional shares of Voting Stock of the Company representing 1% or more of the then-outstanding Voting Stock of the Company, other than as a result of a stock dividend, stock split or similar transaction effected by the Company in which all holders of Voting Stock are treated equally; and
(4)
if at least a majority of the Incumbent Directors determine in good faith that a Person has acquired beneficial ownership of 20% or more of the Voting Stock of the Company inadvertently, and such Person divests as promptly as practicable but no later than the date, if any, set by the Incumbent Board a sufficient number of shares so that such Person beneficially owns less than 20% of the Voting Stock of the Company, then no Change in Control shall have occurred as a result of such Person’s acquisition; or
(ii)
a majority of the Board ceases to be comprised of Incumbent Directors; or
(iii)
the consummation of a reorganization, merger or consolidation, or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of the stock or assets of another corporation, or other transaction (each, a “Business Transaction”), unless, in each case, immediately following such Business Transaction (A) the Voting Stock of the Company outstanding immediately prior to such Business Transaction continues to represent (either by remaining outstanding or by being converted into Voting Stock of the surviving entity or any parent thereof), more than 60% of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business

3

Transaction (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), (B) no Person (other than the Company, such entity resulting from such Business Transaction, or any employee benefit plan (or related trust) sponsored or maintained by the Company, any Subsidiary or such entity resulting from such Business Transaction) beneficially owns, directly or indirectly, 20% or more of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such Business Transaction, and (C) at least a majority of the members of the Board of Directors of the entity resulting from such Business Transaction were Incumbent Directors at the time of the execution of the initial agreement or of the action of the Board providing for such Business Transaction; or
(iv)
approval by the stockholders of the Company of a complete liquidation or dissolution of the Company, except pursuant to a Business Transaction that complies with clauses (A), (B) and (C) of Section 1(d)(iii).
Notwithstanding anything in this Agreement to the contrary, a Change in Control shall not be deemed to have occurred as a result of an acquisition or the holding of Voting Stock of the Company permitted by Section 2(a) of the Shareholder’s Agreement entered into as of January 30, 2006, by and between the Company and Berkshire Hathaway, Inc.
(e)
“Code” means the Internal Revenue Code of 1986, as amended.
(f)
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
(g)
“Good Reason” means the failure of the Company to remedy any of the following within 10 calendar days after receipt by the Company of written notice thereof from the Executive:
(i)
a material diminution in the Executive’s normal duties and responsibilities, including, but not limited to, the assignment without the Executive’s written consent of any diminished duties and responsibilities which are inconsistent with the Executive’s positions, duties and responsibilities with the Company immediately prior to a Change in Control, or a materially adverse change in the Executive’s reporting responsibilities or titles as in effect immediately prior to the Change in Control, whether or not resulting from an act of the Company or otherwise, or any removal of the Executive from or any failure to re-elect the Executive to any of such positions, except in connection with the termination of the Executive’s employment for disability, retirement, or Cause or as a result of the Executive’s death or by the Executive other than for Good Reason;


4

(ii)
a reduction by the Company in the Executive’s Base Pay as in effect on the date hereof or as the same may be increased from time to time;
(iii)
a change in the Executive’s Target Direct Annual Compensation that results in an aggregate decrease in such Target Direct Annual Compensation in excess of ten percent (10%);
(iv)
the Company’s requiring the Executive, without the Executive’s written consent, to be based anywhere other than within fifty (50) miles of the Executive’s office location immediately prior to the Change in Control, except for required travel on the Company’s business to an extent substantially consistent with business travel obligations immediately prior to the Change in Control;
(v)
the failure by the Company to continue in effect any investment plan, retirement plan, savings plan, supplemental retirement plan, deferred compensation plan, supplemental investment plan, life insurance plan, health and accident plan, disability plan or other welfare benefit plan in which the Executive was participating at the time of the Change in Control (or plans providing the Executive with substantially similar benefits), the taking of any action by the Company which would adversely affect the Executive’s participation or materially reduce the Executive’s benefits or value under any of such plans or deprive the Executive of any material fringe benefit enjoyed by the Executive at the time of the Change in Control, or the failure by the Company to provide the Executive with the number of paid vacation days to which the Executive was then entitled in accordance with the Company’s normal vacation policy in effect on the date of the Change in Control; or
(vi)
the failure by the Company to obtain the assumption of the obligation to perform this Agreement by any successor as contemplated in Section 11 hereof.
(h)
“Incumbent Directors” means the individuals who, as of the date of this Agreement, are Directors of the Company and any individual becoming a Director subsequent to the date of this Agreement whose election, nomination for election by the Company’s stockholders, or appointment, was approved by a vote of at least two-thirds of the then Incumbent Directors (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination); provided, however, that an individual shall not be an Incumbent Director if such individual’s election or appointment to the Board occurs as a result of an actual or threatened election contest (as described in Rule 14a‑12(c) of the Exchange Act) with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board.

5

(i)
“Release Agreement” means an agreement, in substantially the form customarily used by the Company for similarly situated executives of the Company in similar instances, pursuant to which the Executive releases, to the extent permitted by law, all current or future claims, known or unknown, arising on or before the date of the release against the Company, its subsidiaries and its officers.
(j)
“Severance Period” means the period of time commencing on the date of the first occurrence of a Change in Control and continuing until the earlier of (i) the second anniversary of the occurrence of the Change in Control, or (ii) the Executive’s death.
(k)
“Subsidiary” means a corporation, company or other entity (i) at least 50 percent of whose outstanding shares or securities (representing the right to vote for the election of directors or other managing authority) are, or (ii) which does not have outstanding shares or securities (as may be the case in a partnership, joint venture or unincorporated association), but at least 50 percent of whose ownership interest representing the right generally to make decisions for such other entity is, now or hereafter, owned or controlled, directly or indirectly, by the Company.
(l)
“Target Annual Direct Compensation” means the sum of the Executive’s Base Pay, target annual incentive opportunity, and the annualized value of the most recent long-term incentive award approved by the Compensation and Organization Committee of the Board. For purposes of measuring annualized long-term incentives, the awards shall be measured on their date of grant using reasonable assumptions, including, but not limited to, fair value principles such as those identified in Statement of Financial Accounting Standards No. 123, Share-Based Payment; the value of such awards shall be annualized over the frequency of their grant.
(m)
“Term” means the period commencing as of the date hereof and expiring on January 1, 2018, with automatic one-year renewals thereafter unless either party notifies the other at least 120 days before the scheduled expiration date that the Term is not to renew; provided, however, that (i) if a Change in Control occurs during the Term, the Term will expire on, and no sooner than, the last day of the Severance Period; and (ii) subject to Section 3(c), if, prior to a Change in Control, the Executive ceases for any reason to be an officer of the Company or an employee of the Company or any Subsidiary, thereupon without further action the Term shall be deemed to have expired and this Agreement will immediately terminate and be of no further effect. For purposes of this Section 1(m), the Executive shall not be deemed to have ceased to be an employee of the Company and any Subsidiary by reason of the transfer of the Executive’s employment between the Company and any Subsidiary, or among Subsidiaries.
(n)
“Termination Date” means (i) the date on which the Executive’s employment is terminated by the Company or any Subsidiary or (ii) the date on which the Executive terminates his or her employment pursuant to Section 3(b).

6

(o)
“Voting Stock” means at any time, the then-outstanding securities entitled to vote generally in the election of directors of the Company.
2.
Operation of Agreement. This Agreement will be effective and binding immediately upon its execution, but, anything in this Agreement to the contrary notwithstanding, except as provided in Section 3(c), the payments and benefits provided under this Agreement will not be payable unless and until a Change in Control occurs. Upon the occurrence of a Change in Control at any time during the Term, without further action, this Agreement will become immediately operative.
3.
Termination Following a Change in Control.
(a)
If a Change in Control occurs and the Executive’s employment is terminated by the Company or a Subsidiary during the Severance Period (or pursuant to Section 3(c)), the Executive will be entitled to the benefits provided by Section 4 unless such termination is the result of the occurrence of one or more of the following events:
(i)
The Executive’s death;
(ii)
The Executive’s having become unable (as determined by the Board in good faith), with or without reasonable accommodations, to regularly perform the Executive’s duties by reason of illness or incapacity; or
(iii)
Cause.
(b)
In the event of the occurrence of a Change in Control, the Executive may terminate employment with the Company and any Subsidiary during the Severance Period for Good Reason with the right to severance compensation as provided in Section 4 regardless of whether any other reason, other than Cause, for such termination exists or has occurred, including, without limitation, other employment.
(c)
Anything in this Agreement to the contrary notwithstanding, if a Change in Control occurs and not more than 120 days prior to the date on which the Change in Control occurs, the Executive’s employment with the Company is terminated by the Company other than as described in Section 3(a)(i), 3(a)(ii) or 3(a)(iii), such termination of employment will be deemed to be a termination of employment after a Change in Control for purposes of this Agreement and, in addition, the Company will be required to pay to the Executive in a lump sum in cash within ten (10) business days after such Change in Control (subject to Section 4(b)), the sum of: (1) the difference between the fair market value of a common share of the Company and the exercise price of each outstanding stock option held by the Executive that was forfeited as a result of the Executive’s termination of employment, multiplied by the number of shares underlying each stock option held by the Executive that was forfeited as a result of the Executive’s termination of employment and (2) the fair market value of a common share of the Company multiplied by the number of shares underlying each share of

7

restricted stock and each performance share and other equity award held by the Executive that was forfeited as a result of the Executive’s termination of employment. For this purpose, the “fair market value of a common share of the Company” shall be deemed to be the price per share paid in connection with the Change in Control.
(d)
A termination of employment pursuant to Section 3(a), 3(b) or 3(c) will not affect any rights that the Executive may have pursuant to any agreement, policy, plan, program or arrangement of the Company or any Subsidiary providing employee benefits, which rights will be governed by the terms thereof; provided, however, that if upon termination of employment, the Executive is entitled to severance compensation or benefits under this Agreement and pursuant to any employment or severance agreement or employee plan (an “Employment Agreement”), the Executive will be entitled to severance benefits under either this Agreement or such Employment Agreement, whichever agreement provides for greater benefits, but will not be entitled to benefits under both agreements.
4.
Severance Compensation.
(a)
If, following the occurrence of a Change in Control, the Company or a Subsidiary of the Company terminates the Executive’s employment during the Severance Period other than as described in Section 3(a)(i), 3(a)(ii) or 3(a)(iii), or because the Executive terminates the Executive’s employment pursuant to Section 3(b), subject to Section 4(b), the Company will be obligated to make the following payments and provide the following benefits to the Executive; provided that if payment to the Executive of any amount pursuant to this Section 4(a) would constitute a “deferral of compensation” under Section 409A of the Code and if the Executive’s termination does not constitute a “separation from service” with the Company and its Subsidiaries within the meaning of Section 409A(a)(2)(A)(i) of the Code, then payment of such amount shall be made, to the extent necessary to comply with Section 409A of the Code and subject to Section 4(b), to the Executive on the later of (i) the payment date identified below in the applicable paragraph of this Section 4(a) or (ii) on the earlier of (A) the Executive’s “separation from service” with the Company and its Subsidiaries within the meaning of Section 409A(a)(2)(A)(i) of the Code, (B) the Executive’s disability (within the meaning of Section 409A of the Code), (C) a change in control of the Company within the meaning of Section 409A of the Code or (D) the Executive’s death.
(i)
The Executive will be entitled to receive: (I) on the sixty-first (61st) day after the Termination Date (subject to Sections 4(a) and 4(b)), any Base Pay which has accrued but is unpaid and any reimbursable expenses which have been incurred but are unpaid, (II) on the first payroll date following the Termination Date (subject to Sections 4(a) and 4(b)), payment for any unexpired vacation days which have accrued under the Company’s or a Subsidiary’s vacation policy but are unused, as of the date of termination of the Executive’s employment, (III) any plan benefits which by their

8

terms extend beyond termination of the Executive’s employment (but only to the extent provided in any such benefit plan in which the Executive has participated as an employee of the Company or a Subsidiary and excluding, except as hereinafter provided in this Section 4, any severance pay program or policy of the Company or a Subsidiary), and (IV) subject to Section 4(a)(ii) below, payments or benefits payable pursuant to the terms of any annual and/or long-term incentive plan of the Company or a Subsidiary in accordance with the terms thereof. In addition, the Executive shall be entitled to the additional benefits and amounts described in the succeeding subsections of this Section 4, in the circumstances described in such subsections.
(ii)
On the sixty-first (61st) day after the Termination Date (subject to Sections 4(a) and 4(b)), the Executive will be entitled to receive a lump sum cash payment in an amount equal to the greater of (A) the Executive’s target or par annual bonus for the fiscal year in which the Termination Date occurs or (B) the Executive’s target or par annual bonus for the fiscal year in which the Change in Control occurs, pro-rated for the number of full months that the Executive was employed during such fiscal year (i.e., the annual bonus shall be multiplied by a fraction, the numerator of which is the number of full months during which the Executive was actively employed by the Company in the relevant fiscal year and the denominator of which is 12).
(iii)
On the sixty-first (61st) day after the Termination Date (subject to Sections 4(a) and 4(b)), the Executive will be entitled to receive a lump sum cash payment in an amount equal to two (2) times the sum of (A) Base Pay (at the highest rate in effect for any period within three years prior to the Termination Date), plus (B) annual bonus (in an amount equal to the greater of the Executive’s target or par annual bonus for the year in which the Termination Date occurs or for the year in which the Change in Control occurs, whichever is greater).
(iv)
For a period of eighteen (18) months following the Termination Date (the “Continuation Period”), the Executive will be entitled to continued participation in the Company’s medical, dental, vision, long-term disability and life insurance plans (excluding benefits under the executive death benefit plan) (the “Benefit Plans”), subject to the terms and conditions of the Benefit Plans, including, but not limited to, timely payment of any employee contributions necessary to maintain participation; provided, however, that (A) such coverage shall be provided only to the extent that such coverage would not be considered “deferred compensation” subject to the requirements of Section 409A of the Code; and (B) the Executive’s continued participation in the Benefit Plans during the Continuation Period shall satisfy the Benefit Plans’ obligation, if any, to provide the Executive the right to continuation coverage under the Benefit Plans pursuant to the Consolidated Omnibus Budget Re

9

conciliation Act of 1986, as amended. If any benefit described in this Section 4(a)(iv) is subject to tax, the Company will pay to the Executive on the sixty-first (61st) day after the Termination Date (subject to Sections 4(a) and 4(b)) an additional amount such that after payment by the Executive or the Executive’s dependents or beneficiaries, as the case may be, of all taxes (including any income or social security tax) imposed on the benefits described in this Section 4(a)(iv) and any such additional payment by the Company, the recipient retains an amount equal to such taxes.
(v)
On the sixty-first (61st) day after the Termination Date (subject to Sections 4(a) and 4(b)), the Executive will be entitled to receive a lump sum cash payment in an amount equal to the present value of continued participation in the Benefit Plans for an additional six (6) months. If any benefit described in this Section 4(a)(v) is subject to tax, the Company will pay to the Executive an additional amount such that after payment by the Executive or the Executive’s dependents or beneficiaries, as the case may be, of all taxes (including any income or social security tax) imposed on the benefits described in this Section 4(a)(v) and any such additional payment by the Company, the recipient retains an amount equal to such taxes.
(vi)
The Executive shall be entitled to outplacement services for a time period (not less than six (6) months) established by the Company, by a firm selected by the Company in its sole discretion, and at the expense of the Company; provided, however, that all such outplacement services must be completed by December 31 of the second calendar year following the calendar year in which the Termination Date occurs and the Company will be required to make all payments to the Executive for such outplacement services by December 31 of the third calendar year following the calendar year in which the Termination Date occurs.
(vii)
Section 4(a)(i)(III) to the contrary notwithstanding, the Executive shall be entitled to all benefits under the applicable equity or other long-term incentive awards applicable on a termination of employment due to retirement, to the extent that such benefits are more favorable to the Executive than applies upon a termination pursuant to this Section 4(a)(other than this paragraph (vii)).
(b)
Notwithstanding anything to the contrary contained in this Agreement, if any payment, reimbursement, or the provision of any benefit under this Agreement that is paid or provided upon the Executive’s “separation from service” with the Company and its Subsidiaries within the meaning of Section 409A(a)(2)(A)(i) of the Code would constitute a “deferral of compensation” under Section 409A of the Code and the Executive is a “specified employee” (as determined pursuant to procedures adopted by the Company in compliance with Section 409A of the Code) on the date of the Executive’s “separation from service” with the Company

10

and its Subsidiaries within the meaning of Section 409A(a)(2)(A)(i) of the Code, the Executive (or the Executive’s beneficiary) will receive payment or reimbursement of such amounts or the provision of such benefits upon the earlier of (i) the first day of the seventh month following the date of the Executive’s “separation from service” with the Company and its Subsidiaries within the meaning of Section 409A(a)(2)(A)(i) of the Code or (ii) the Executive’s death.
(c)
Without limiting the rights of the Executive at law or in equity, if the Company fails to make any payment or provide any benefit required to be made or provided hereunder on a timely basis, the Company will pay interest on the amount or value thereof at an annualized rate of interest equal to the “prime rate” as set forth from time to time during the relevant period in The Wall Street Journal “Money Rates” column. Such interest will be payable as it accrues on demand. Any change in such prime rate will be effective on and as of the date of such change.
5.
Section 280G. The amounts payable to the Executive under Section 4 may be adjusted as set forth in this Section 5 if the sum (the “combined amount”) of the amounts payable under Section 4 and all other payments or benefits which the Executive has received or has the right to receive from the Company which are defined in Section 280G(b)(2)(A)(i) of the Code, would, but for the application of this Section 5, constitute a “parachute payment” (as defined in Section 280G(b)(2) of the Code). In such event, the combined amount shall be reduced to the minimum extent necessary (but in no event to less than zero) so that no portion of any such payment or benefit, as so reduced, constitutes a parachute payment; provided, however, that the foregoing reduction shall be made only if and to the extent that such reduction would result in an increase in the aggregate payments and benefits to be provided to the Executive, determined on an after-tax basis (taking into account the excise tax imposed pursuant to Section 4999 of the Code, or any successor provision thereto, any tax imposed by any comparable provision of state law, and any applicable federal, state and local income taxes). To the extent the reduction referred to in the second sentence of this Section 5 applies, such reduction shall be made to the combined amount by reduction of the aggregate amount of the lump sum payments described in Sections 4(a)(ii), 4(a)(iii) and 4(a)(v) of this Agreement and, to the extent further reductions are required, in such payments due to the Executive as the Company may determine. Any determinations required to be made under this Section 5 shall be made by the Company’s independent accountants, which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the date of termination or such earlier time as is requested by the Company, and shall be made at the expense of the Company. The fact that the Executive’s right to payments or benefits may be reduced by reason of the limitations contained in this Section 5 shall not of itself limit or otherwise affect any other rights of the Executive under this Agreement.
6.
No Mitigation Obligation. The Company hereby acknowledges that it will be difficult and may be impossible for the Executive to find reasonably comparable employment following the Termination Date. Accordingly, the payment of the severance compensation by the Company to the Executive in accordance with the terms of this Agreement is hereby acknowledged by the Company to be reasonable, and the Executive

11

will not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor will any profits, income, earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or any other obligation on the part of the Executive hereunder or otherwise.
7.
Legal Fees and Expenses.
(a)
If it should appear to the Executive that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any proceeding designed to deny, or to recover from, the Executive the benefits provided or intended to be provided to the Executive hereunder, the Company irrevocably authorizes the Executive from time to time to retain counsel of the Executive’s choice, at the expense of the Company as hereafter provided, to advise and represent the Executive in connection with any such dispute or proceeding. Without respect to whether the Executive prevails, in whole or in part, in connection with any of the foregoing, the Company will pay to the Executive and be financially responsible for reasonable attorneys’ and related fees and expenses incurred by the Executive in connection with claims made in good faith but only if, and to the extent and at the earliest date(s) that, such actions are determined to be permitted without violating Section 409A of the Code. Such payments will be made after delivery of the Executive’s written requests for payment, accompanied by such evidence of fees and expenses incurred as the Company may reasonably require. Notwithstanding the foregoing, any such reimbursement shall be for expenses incurred during the Executive’s lifetime and shall be made no later than the last day of the Executive’s tax year following the tax year in which the Executive incurs the expense. In no event will the amount of expenses eligible for reimbursement by the Company in one year affect the amount of expenses eligible for reimbursement to be provided in any other taxable year.
(b)
Without limiting the obligations of the Company pursuant to Section 7(a), in the event that (i) the Executive is entitled to benefits hereunder and (ii) payments to the Executive would be required to be delayed by more than 20 business days due to Section 409A of the Code or otherwise, the performance of the Company’s obligations under Section 4 and this Section 7 will be secured by amounts deposited or to be deposited in a grantor trust pursuant to certain trust agreements to which the Company will be a party providing that the benefits to be paid pursuant to Section 4 and the reasonable fees and expenses of counsel selected from time to time by the Executive pursuant to Section 7(a) will be paid, or reimbursed to the Executive if paid by the Executive, either in accordance with the terms of such trust agreements, or, if not so provided, on a regular, periodic basis upon presentation by the Executive to the trustee of a statement or statements prepared by such counsel in accordance with its customary practices. Any failure by the Company to satisfy any of its obligations under this Section 7(b) will not limit the rights of the Executive hereunder. Subject to the foregoing, the Executive will have the status of a general unsecured creditor of the Company

12

and will have no right to, or security interest in, any assets of the Company or any Subsidiary. Notwithstanding anything contained in this Agreement to the contrary, in no event shall any amount be transferred to a trust described in this Section 7(b) if, pursuant to Section 409A(b)(3)(A) of the Code, such amount would, for purposes of Section 83 of the Code, be treated as property transferred in connection with the performance of services.
8.
Competitive Activity; Confidentiality; Nonsolicitation.
(a)
Acknowledgements and Agreements. The Executive hereby acknowledges and agrees that in the performance of the Executive’s duties for the Company during the Executive’s employment, the Executive will be brought into frequent contact, either in person, by telephone or through the mails, with existing and potential customers of the Company throughout the United States. The Executive also agrees that trade secrets and confidential information of the Company, more fully described in Section 8(i) of this Agreement, gained by the Executive during the Executive’s association with the Company, have been developed by the Company through substantial expenditures of time, effort and money and constitute valuable and unique property of the Company. The Executive further understands and agrees that the foregoing makes it necessary for the protection of the business of the Company that the Executive not compete with the Company during the Executive’s employment and not compete with the Company for a reasonable period thereafter, as further provided in the following subsections.
(b)
Covenants During Employment. During the Executive’s employment, the Executive will not compete with the Company anywhere that the Company conducts its business. In accordance with this restriction, but without limiting its terms, during the Executive’s employment, the Executive will not:
(i)
enter into or engage in any business which competes with the business of the Company;
(ii)
solicit customers, business, patronage or orders for, or sell, any products and services in competition with, or for any business that competes with, the business of the Company;
(iii)
divert, entice or otherwise take away any customers, business, patronage or orders of the Company or attempt to do so; or
(iv)
promote or assist, financially or otherwise, any person, firm, association, partnership, corporation or other entity engaged in any business which competes with the business of the Company.
(c)
Covenants Following Termination. If, during the Severance Period, the Executive’s employment is terminated entitling the Executive to payments and benefits under Section 4 of this Agreement, for a period of one (1) year following the termination of the Executive’s employment, the Executive will not:

13

(i)
enter into or engage in any business which competes with the Company’s business within the United States;
(ii)
solicit customers, business, patronage or orders for, or sell, any products and services in competition with, or for any business, wherever located, that competes with, the Company’s business within the United States;
(iii)
divert, entice or otherwise take away any customers, business, patronage or orders of the Company within the United States, or attempt to do so; or
(iv)
promote or assist, financially or otherwise, any person, firm, association, partnership, corporation or other entity engaged in any business which competes with the Company’s business within the United States.
(d)
Indirect Competition. For the purposes of Sections 8(b) and 8(c), but without limitation thereof, the Executive will be in violation thereof if the Executive engages in any or all of the activities set forth therein directly as an individual on the Executive’s own account, or indirectly as a general partner, joint venturer, employee, agent, salesperson, consultant, officer and/or director of any firm, association, partnership, corporation or other entity, or as a limited partner, member or stockholder of any limited partnership, limited liability company, or corporation in which the Executive or the Executive’s spouse, child or parent owns, directly or indirectly, individually or in the aggregate, more than five percent (5%) of the limited partnership interests, limited liability company interests or outstanding stock, as the case may be.
(e)
The Company. For purposes of this Section 8, the Company shall include any and all Subsidiaries.
(f)
The Company’s Business. For the purposes of Sections 8(b), 8(c), 8(j) and 8(k), the Company’s business is defined to be the manufacture and distribution of gypsum wallboard, joint compound and related gypsum products, cement board, gypsum fiber panels, ceiling panels and grid, the distribution of building products and any future businesses that the Company may enter, as further described in any and all manufacturing, marketing and sales manuals and materials of the Company as the same may be altered, amended, supplemented or otherwise changed from time to time, or of any other products or services substantially similar to or readily substitutable for any such described products and services.
(g)
Extension. If it shall be judicially determined that the Executive has violated any of the Executive’s obligations under Section 8(c), then the period applicable to each obligation that the Executive shall have been determined to have violated shall automatically be extended by a period of time equal in length to the period during which such violation(s) occurred.
(h)
Non-Solicitation. Until the expiration of two (2) years following the Termination Date, the Executive will not directly or indirectly at any time solicit or induce or attempt to solicit or induce any employee(s), sales representative(s), agent(s) or

14

consultant(s) of the Company and/or of its Subsidiaries to terminate their employment, representation or other association with the Company and/or its Subsidiaries.
(i)    Further Covenants.
(i)
The Executive will keep in strict confidence, and will not, without the prior written consent of the Company or as may otherwise be required by law or legal process, directly or indirectly, at any time during or after the Executive’s employment with the Company, disclose, furnish, disseminate, make available or, except in the course of performing the Executive’s duties of employment, use any trade secrets or non-public confidential business and technical information of the Company or its customers or vendors, including without limitation as to when or how the Executive may have acquired such information before or during employment. Such confidential information shall include, without limitation, the Company’s unique non-public confidential selling, manufacturing and servicing methods and business techniques, training, service and business manuals, promotional materials, training courses and other training and instructional materials, vendor and product information, customer and prospective customer lists, other customer and prospective customer information and other business information. The Executive specifically acknowledges that all such non-public confidential information, whether reduced to writing, maintained on any form of electronic media, or maintained in the Executive’s mind or memory and whether compiled by the Company and/or the Executive, derives independent economic value from not being readily known to or ascertainable by proper means by others who can obtain economic value from its disclosure or use, that reasonable efforts have been made by the Company to maintain the secrecy of such information, that such information is the sole property of the Company and that any retention and use of such information by the Executive during the Executive’s employment with the Company (except in the course of performing the Executive’s duties and obligations to the Company) or after the termination of the Executive’s employment shall constitute a misappropriation of the Company’s trade secrets.
(ii)
The Executive agrees that upon termination of the Executive’s employment with the Company, for any reason, the Executive shall return to the Company, in good condition, all property of the Company, including without limitation, the originals and all copies of any materials which contain, reflect, summarize, describe, analyze or refer or relate to any items of information listed in Section 8(i)(i) of this Agreement. In the event that such items are not so returned, the Company will have the right to charge the Executive for all reasonable damages, costs, attorneys’ fees and other expenses incurred in searching for, taking, removing and/or recovering such property.

15

(j)    Discoveries and Inventions; Work Made for Hire.
(i)
The Executive hereby assigns and agrees to assign to the Company, its successors, assigns or nominees, all of the Executive’s rights to any discoveries, inventions and improvements, whether patentable or not, made, conceived or suggested, either solely or jointly with others, by the Executive while in the Company’s employ with the use of the Company’s time, material or facilities or in any way within or related to the existing or contemplated scope of the Company’s business. Any discovery, invention or improvement relating to any subject matter with which the Company was concerned during the Executive’s employment and made, conceived or suggested by the Executive, either solely or jointly with others, within one (1) year following termination of the Executive’s employment under this Agreement or any successor agreements shall be irrebuttably presumed to have been so made, conceived or suggested in the course of such employment with the use of the Company’s time, materials or facilities. Upon request by the Company with respect to any such discoveries, inventions or improvements, the Executive will execute and deliver to the Company, at any time during or after the Executive’s employment, all appropriate documents for use in applying for, obtaining and maintaining such domestic and foreign patents as the Company may desire, and all proper assignments therefor, when so requested, at the expense of the Company, but without further or additional consideration.
(ii)
Executive acknowledges that, to the extent permitted by law, all work papers, reports, documentation, drawings, photographs, negatives, tapes and masters therefor, prototypes and other materials (hereinafter, “items”), including without limitation, any and all such items generated and maintained on any form of electronic media, generated by the Executive during the Executive’s employment with the Company shall be considered a “work made for hire” and that ownership of any and all copyrights in any and all such items shall belong to the Company. The item will recognize the Company as the copyright owner, will contain all proper copyright notices, e.g., “(creation date) USG Corporation, All Rights Reserved,” and will be in condition to be registered or otherwise placed in compliance with registration or other statutory requirements throughout the world.
(k)
Communication of Contents of Agreement. During the Executive’s employment and for one (1) year thereafter, the Executive will communicate the contents of this Agreement to any person, firm, association, partnership, corporation or other entity which the Executive intends to be employed by, associated with, or represent and which is engaged in a business that is competitive to the business of the Company.
(l)
Relief. The Executive acknowledges and agrees that the remedy at law available to the Company for breach of any of the Executive’s obligations under this

16

Agreement would be inadequate. The Executive therefore agrees that, in addition to any other rights or remedies that the Company may have at law or in equity, temporary and permanent injunctive relief may be granted in any proceeding which may be brought to enforce any provision contained in Sections 8(b), 8(c), 8(h), 8(i), 8(j) and 8(k) of this Agreement, without the necessity of proof of actual damage.
(m)
Reasonableness. The Executive acknowledges that the Executive’s obligations under this Section 8 are reasonable in the context of the nature of the Company’s business and the competitive injuries likely to be sustained by the Company if the Executive was to violate such obligations. The Executive further acknowledges that this Agreement is made in consideration of, and is adequately supported by, the agreement of the Company to perform its obligations under this Agreement and by other consideration, which the Executive acknowledges constitutes good, valuable and sufficient consideration.
9.
Employment Rights. Nothing expressed or implied in this Agreement will create any right or duty on the part of the Company or the Executive to have the Executive remain in the employment of the Company or any Subsidiary prior to or following any Change in Control.
10.
Withholding of Taxes. The Company may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as the Company is required to withhold pursuant to any applicable law, regulation or ruling.
11.
Successors and Binding Agreement.
(a)
The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance reasonably satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement will be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor will thereafter be deemed the “Company” for the purposes of this Agreement), but will not otherwise be assignable, transferable or delegable by the Company.
(b)
This Agreement will inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees and legatees.
(c)
This Agreement is personal in nature and neither of the parties hereto will, without the consent of the other, assign, transfer or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 11(a) and

17

11(b). Without limiting the generality or effect of the foregoing, the Executive’s right to receive payments hereunder will not be assignable, transferable or delegable, whether by pledge, creation of a security interest, or otherwise, other than by a transfer by the Executive’s will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 11(c), the Company will have no liability to pay any amount so attempted to be assigned, transferred or delegated.
12.
Notices. For all purposes of this Agreement, all communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder will be in writing and will be deemed to have been duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof orally confirmed), or five business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three business days after having been sent by a nationally recognized overnight courier service such as FedEx or UPS, addressed to the Company (to the attention of the Secretary of the Company) at its principal executive office and to the Executive at the Executive’s principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of changes of address will be effective only upon receipt.
13.
Governing Law. The validity, interpretation, construction and performance of this Agreement will be governed by and construed in accordance with the substantive laws of the State of Delaware and federal law, without giving effect to the principles of conflict of laws of such State, except as expressly provided herein.
14.
Validity. If any provision of this Agreement or the application of any provision hereof to any person or circumstance is held invalid or otherwise unenforceable, the remainder of this Agreement and the application of such provision to any other person or circumstance will not be affected, and the provision so held to be invalid or otherwise unenforceable will be reformed to the extent (and only to the extent) necessary to make it enforceable or valid.
15.
Miscellaneous.
(a)
No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party that are not set forth expressly in this Agreement.
(b)
Subject to Section 3(d), this Agreement supersedes, as of the date first above written, any prior agreements providing for severance payments and benefits

18

following a Change in Control (the “Prior Agreements”). The Executive agrees that he or she has no further rights under the Prior Agreements.
(c)
The headings used in this Agreement are intended for convenience or reference only and will not in any manner amplify, limit, modify or otherwise be used in the construction or interpretation of any provision of this Agreement. References to Sections are to Sections of this Agreement. Any reference in this Agreement to a provision of a statute, rule or regulation will also include any successor provision thereto.
16.
Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid or unenforceable provision had never been contained herein.
17.
Survival. Notwithstanding any provision of this Agreement to the contrary, the parties’ respective rights and obligations under Sections 3(d), 4, 5, 7, 8, 10, 11(b), 16 and 17 will survive any termination or expiration of this Agreement or the termination of the Executive’s employment following a Change in Control for any reason whatsoever.
18.
Beneficiaries. The Executive will be entitled to select (and change, to the extent permitted under any applicable law) a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Executive’s death, and may change such election, in either case by giving the Company written notice thereof in accordance with Section 12. In the event of the Executive’s death or a judicial determination of the Executive’s incompetence, reference in this Agreement to the “Executive” will be deemed, where appropriate, to the Executive’s beneficiary, estate or other legal representative.
19.
Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original but all of which together will constitute one and the same agreement.
20.
Release Agreement. No payments shall be made under Section 3(c) and Section 4 hereof (other than Section 4(a)(i)) unless the Executive, on or before the 60th day following the Executive’s Termination Date, (a) signs and returns a Release Agreement within the number of days that the Company determines is required under applicable law, but in no event more than forty-five (45) days after the Company delivers the Release Agreement to the Executive and (b) does not revoke such Release Agreement within the time period provided therein, such time period not to exceed seven (7) days. If the Executive becomes entitled to payments under Section 4 hereof (other than Section 4(a)(i)), the Company shall deliver to the Executive a copy of the Company’s standard form of Release Agreement within seven (7) days of the Executive’s Termination Date.

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21.
Representations. The Executive represents and warrants to the Company that upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of the Executive, enforceable in accordance with its terms. The Company represents and warrants to the Executive that upon the execution and delivery of this Agreement by the Executive, this Agreement shall be the valid and binding obligation of the Company, enforceable in accordance with its terms.
22.
Section 409A of the Code. Each payment or reimbursement and the provision of each benefit under this Agreement shall be considered to be a separate payment and not one of a series of payments for purposes of Section 409A of the Code. To the extent applicable, it is intended that this Agreement comply with the provisions of Section 409A of the Code, so that the income inclusion provisions of Section 409A(a)(1) of the Code do not apply to the Executive. This Agreement shall be administered in a manner consistent with this intent. Reference to Section 409A of the Code is to Section 409A of the Internal Revenue Code of 1986, as amended, and will also include any regulations or any other formal guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

USG CORPORATION

By:                                                                             
Name:
Title:
 
                                                                                   
Executive



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EXHIBIT 10.2
UR NR. 1059/2015 
Anteilskaufvertrag 
verhandelt zu Dortmund,
am 15. September.2015
 
DEED NO. 1059/2015 
Interest and Share Purchase Agreement 
recorded in Dortmund,
on 15/September/2015
Vor mir, dem unterzeichnenden Notar Dr. Detlef Götz mit dem Amtssitz in Dortmund
erschienen:
 
Before me, the undersigned Notary Dr. Detlef Götz with office in Dortmund
appeared:
1. Frau Adriane Sturm, geboren am 15. August 1967, geschäftsansässig in Prinzregentenstraße 11, 80538 München, hier nicht handelnd im eigenen Namen, sondern sowohl
 
1. Mrs. Adriane Sturm, born on 15 August 1967, with business address at Prinzregentenstraße 11, 80538 Munich, not acting on her own behalf but

(i) aufgrund der im Original vorgelegten Vollmacht vom 08.09.2015, die dieser Urkunde als beglaubigte Kopie beigefügt ist, als Vertreterin der im Handelsregister des Amtsgerichts Mönchengladbach unter HRB 10524 eingetragenen USG Ventures-Europe GmbH mit Sitz in Viersen (nachfolgend „Verkäuferin“), als auch
 
(i) by virtue of the power of attorney 08.09.2015 presented as an original, a certified copy of which is attached to this deed as attorney-in-fact of USG Ventures-Europe GmbH, this entity being registered in the commercial register (Handelsregister) held at the local court (Amtsgericht) of Mönchengladbach under reg. no. HRB 10524 and having its registered seat in Viersen (hereinafter the “Seller”), and
(ii) aufgrund der im Original vorgelegten Vollmacht vom 08.09.2015, die dieser Urkunde als beglaubigte Kopie beigefügt ist, als Vertreterin der nach dem Recht des Staates Delaware, Vereinigte Staaten von Amerika, gegründeten USG Corporation mit Sitz in Chicago, Illinois, Vereinigte Staaten von Amerika (nachfolgend „USG Corporation“);
 
(ii) by virtue of the power of attorney 08.09.2015 presented as an original, a certified copy of which is attached to this deed as attorney-in-fact of USG Corporation, this entity being incorporated under the laws of the state of Delaware, United States of America, and having its registered seat in Chicago, Illinois, United States of America (hereinafter the “USG Corporation”);
2. Herr Dr. Thomas Koslowski, geboren am 24. Oktober 1952, geschäftsansässig in Kipperstraße 19, 44147 Dortmund, hier nicht handelnd in eigenem Namen,
 
2. Dr Thomas Koslowski, born on 24 October 1952, with business address at Kipperstraße 19, 44147 Dortmund, not acting on his own behalf,
3. Herr Holger Hoffmann, geboren am 1. Oktober 1972, geschäftsansässig in Kipperstraße 19, 44147 Dortmund, hier nicht handelnd in eigenem Namen, sondern
 
3. Herr Holger Hoffmann, born on 1 October 1972, with business address at Kipperstraße 19, 44147 Dortmund, not acting on his own behalf, but

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(i) die Erschienen zu 2 und 3 handelnd gemeinsam

als zur Vertretung berechtigte Vertreter der im Handelsregister des Amtsgerichts Dortmund unter HRB 2156 eingetragenen Knauf Aquapanel GmbH (vormals als Knauf Perlite GmbH und davor als Deutsche Perlite GmbH firmierend) mit Sitz in Dortmund (nachfolgend „Käuferin“) als auch

 
(i) the individuals appearing under 2 and 3 acting together

as attorneys-in-fact of Knauf Aquapanel GmbH, with power to represent this entity this entity being registered in the commercial register (Handelsregister) held at the local court (Amtsgericht) of Dortmund under reg. no. HRB 2156 (having previously traded under the name Knauf Perlite GmbH and prior to that, the name Deutsche Perlite GmbH) and having its registered seat in Dortmund (hereinafter the “Buyer”) and
(ii) der Erschienene zu 2 handelnd

   als zur alleinigen Vertretung berechtigter und von den Beschränkungen des § 181 BGB befreiter Geschäftsführer der im Handelsregister des Amtsgerichts Iserlohn unter HRB 2548 eingetragenen Knauf/USG Verwaltungs GmbH mit Sitz in Iserlohn (nachfolgend „Komplementär GmbH“), handelnd (A) für die Komplementär GmbH sowie (B) für die von dieser vertretenen Knauf/USG Systems GmbH & Co. KG.
 
(ii) the individual appearing under 2 acting

in his capacity as managing director of Knauf/USG Verwaltungs GmbH with power to represent this entity alone and being exempted from the restrictions set forth in § 181 BGB; this entity being registered in the commercial register (Handelsregister) held at the local court (Amtsgericht) of Iserlohn under reg. no. HRB 2548 and with registered seat in Iserlohn (hereinafter “General Partner”), acting (A) on behalf of the General Partner, and (B) on behalf of the General Partner as the representative of Knauf/USG Systems GmbH & Co. KG.

Verkäuferin und Käuferin werden im Folgenden auch als „Partei“ oder als „Parteien“ bezeichnet.

 
The Seller and Buyer are also referred to below as a “Party” or the „Parties”.
Die Erschienenen wiesen sich aus durch Vorlage ihrer amtlichen Ausweise mit Lichtbild.
 
The individuals appearing identified themselves through the presentation of official photographic identification.


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Die Erschienenen vereinbarten und erklärten sodann zur Beurkundung folgendenVertrag über den Verkauf und die Abtretung eines Kommandit- und eines Geschäftsanteils



 
The individuals appearing then entered into the following

 
Agreement on the Sale and Assignment of a Limited Partner’s Interest and of a Share in a Limited Liability Company

which they requested be notarised

1. Vorbemerkung
 
1. Recitals
1.1. Die Kommanditgesellschaft Knauf/USG Systems GmbH & Co. KG ist im Handelsregister des Amtsgerichts Iserlohn unter HRA 2165 eingetragen und hat ihren Sitz in Iserlohn (nachfolgend „Gesellschaft“).
 
1.1. The limited partnership (Kommanditgesellschaft) trading as Knauf/USG Systems GmbH & Co. KG is registered in the Commercial Register of the local court (Amtsgericht) of Iserlohn under reg. no. HRA 2165, with its registered seat in Iserlohn (hereinafter the “Limited Partnership”).

1.2. Das Kommanditkapital (Haftkapital) der Gesellschaft in Höhe von 4.400.000 EUR ist voll eingezahlt. Es ist weder durch Verluste noch durch Entnahmen gemindert.
 
1.2. The Limited Partnership’s limited partnership capital (liable capital) of EUR 4,400,000 has been fully paid in. It is not reduced by losses or withdrawals.
1.3. Verkäuferin und Käuferin sind jeweils mit einem Kommanditanteil (Hafteinlage) in Höhe von 2.200.000 EUR (= 50%) an dem Kommanditkapital (Haftkapital) der Gesellschaft beteiligt.
 
1.3. Each of the Seller and the Buyer hold a limited partner’s interest (capital contribution) in the Limited Partnership’s limited partnership capital (liable capital) in the amount of EUR 2,200,000 (= 50%).
1.4. Alleinige persönlich haftende Gesellschafterin der Gesellschaft ohne Kapitaleinlage ist die Komplementär GmbH.

 
1.4. The Limited Partnership’s sole personally liable (general) partner without capital contribution is the General Partner.
   Das Stammkapital der Komplementär GmbH beträgt 25.000 EUR.

 
   The registered share capital of the General Partner is EUR 25,000.

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1.5. An dem Stammkapital der Komplementär GmbH sind die Verkäuferin und die Käuferin jeweils mit einem Geschäftsanteil in Höhe von 12.500 EUR (= 50%) beteiligt.

 
1.5. Each of the Seller and the Buyer each hold a share in the registered share capital of the General Partner in the amount of EUR 12,500 (= 50%).
1.6. Die Gesellschaft ist jeweils zu 100% beteiligt an der Knauf USG Building Systems A.B.E.E. (Griechenland) und der OOO Knauf USG Systems (Russland).
 
1.6. The Limited Partnership holds a 100% interest in Knauf USG Building Systems A.B.E.E. (Greece) and in OOO Knauf USG Systems (Russia).
1.7. Die Gesellschaft hat Grundbesitz.
 
1.7. The Limited Partnership’s assets include land.
2. Kauf
 
2. Purchase
2.1. Die Verkäuferin verkauft hiermit der Käuferin

 
2.1. The Seller hereby sells to the Buyer
-ihren Kommanditanteil an der Gesellschaft im Nennbetrag von 2.200.000 EUR (nachfolgend der „verkaufte Kommanditanteil") und
 
-its limited partner’s interest in the Limited Partnership with a nominal value (Nennbetrag) of EUR 2,200,000 (hereinafter the "Limited Partner’s Interest"), and
-ihren Geschäftsanteil an der Komplementär GmbH im Nennbetrag von 12.500 EUR (nachfolgend der „verkaufte Geschäftsanteil").
 
-its share in the General Partner and with a nominal value (Nennbetrag) of EUR 12,500 (hereinafter the "Company Share").
2.2. Mit verkauft sind sämtliche mit dem verkauften Kommanditanteil und dem verkauften Geschäftsanteil verbundene Nebenrechte, Gewinnbezugsrechte und Guthaben auf den gem. Art. 4 des Gesellschaftsvertrags der Gesellschaft eingerichteten Gesellschafterkonten einschließlich der in der Bilanz als Verbindlichkeit gegenüber der Verkäuferin ausgewiesenen Beträge, auch soweit diese sich auf frühere Geschäftsjahre beziehen.
 
2.2. The sale of the above also includes the sale of any and all ancillary rights, rights to (a share of) profits and the credit balances on the partner’s accounts opened pursuant to Art. 4 of the Limited Partnership’s partnership agreement, in connection with the Limited Partner’s Interest and the Company Share being sold, including the amount of liabilities towards the Seller as indicated on the balance sheet, even if the foregoing relates to previous financial years of the relevant entities.

 
 
 
 
 
 

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2.3. Die Käuferin nimmt diesen Verkauf an.
 
2.3. The Buyer hereby accepts this sale.
3. Abtretung
 
3. Assignment
3.1. Die Verkäuferin tritt hiermit den verkauften Kommanditanteil und den verkauften Geschäftsanteil an die Käuferin mit Wirkung zum Tag der Eintragung der Käuferin als Kommanditistin mit der von der Verkäuferin übernommenen weiteren Hafteinlage von 2.200.000 EUR kraft Sonderrechtsnachfolge im Handelsregister der Gesellschaft ab. Der Tag, an dem die Änderung gem. Satz 1 in das Handelsregister eingetragen wird, wird als „Vollzugstag“ bezeichnet. Die Käuferin nimmt diese Abtretung an.
 
3.1. The Seller hereby assigns its Limited Partner’s Interest and the Company Share to the Buyer effective as of the date the Buyer is registered as the limited partner of the Limited Partnership with the additional capital contribution of EUR 2,200,000 acquired from the Seller by way of succession to specific rights and obligations (Sonderrechtsnachfolge) in the Commercial Register applicable to the Limited Partnership. The day on which the amendment pursuant to sentence 1 above is registered in the Commercial Register is referred to as “Closing Date”. The Buyer hereby accepts such assignment.
3.2. Die nicht ausgeschütteten Ergebnisse der Gesellschaft und der Komplementär GmbH im Geschäftsjahr 2015 stehen in voller Höhe der Käuferin zu. Die Verkäuferin wird keine Ansprüche auf bis zum Vollzugstag nicht ausgeschüttete Ergebnisse der Gesellschaft und der Komplementär GmbH geltend machen.
 
3.2. The entire amount of the undistributed earnings of the Limited Partnership and of the General Partner of the year 2015 shall accrue to the Buyer. The Seller will make no claim to the amounts of the undistributed earnings of the Limited Partnership or of the General Partner accrued through the Closing Date.
3.3. Ist die Eintragung im Handelsregister gem. Ziffer 3.1. nicht bis zum 31. März 2016 erfolgt, kann jede Partei durch schriftliche Erklärung gegenüber der anderen Partei von diesem Anteilskaufvertrag zurücktreten. In diesem Fall erlöschen sämtliche Rechte und Pflichten aus diesem Vertrag mit Ausnahme der Verpflichtungen aus Ziffer 9 (Geheimhaltung), Ziffer 14 (Kosten) sowie Ziffer 15.2. (Presseerklärung) und keine Partei kann wegen des Rücktritts irgendwelche Ansprüche – gleich aus welchem Rechtsgrund – gegen die andere Partei geltend machen.
 
3.3. If the registration of the Buyer with the commercial register as set forth under clause 3.1. has not occurred by 31 March 2016, then either of the Parties can revoke this Agreement by notifying the other Party of the revocation in writing. In such a case, all rights and duties arising under this Agreement, except for the obligations under clause 9 (Confidentiality), clause 14 (Costs) and clause 15.2. (Press Statement) shall expire and neither Party can assert any claims against the other Party –regardless of their legal basis – as a result of the revocation.


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Ein Recht zum Rücktritt besteht nicht, wenn die Partei, die den Rücktritt erklärt, die Erfüllung einer oder mehrerer Fälligkeitsbedingungen gem. Ziffern 4.4.1. – 4.4.5. wider Treu und Glauben verhindert hat.

 
   Neither Party shall have the right to rescind this Agreement if it prevented the fulfilment of one or more Conditions Precedent under clauses 4.4.1. – 4.4.5. invoked as reason for the rescission acting without good faith.
4. Kaufpreis
 
4. Purchase Price
4.1. Der Kaufpreis für den verkauften Kommanditanteil beträgt 47.987.500 EUR (in Worten: siebenundvierzig Millionen neunhundert siebenundachtzigtausend fünf hundert Euro).
 
4.1. The purchase price for the Limited Partner’s Interest is EUR 47,987,500 (in words: forty-seven million, nine hundred and eighty-seven thousand, five hundred euros).
4.2. Der Kaufpreis für den verkauften Geschäftsanteil beträgt 12.500 EUR (in Worten: zwölftausend fünf hundert Euro).
 
4.2. The purchase price for the Company Share is EUR 12,500 (in words: twelve thousand, five hundred euros).
4.3. Die Parteien gehen gemeinsam davon aus, dass die von diesem Vertrag erfassten Transaktionen entweder nicht umsatzsteuerbar oder von der Umsatzsteuer befreit sind. Die Verkäuferin wird ein eventuell bestehendes Optionsrecht zur Umsatzsteuerpflicht nicht ausüben. Soweit die Finanzbehörden von einer Umsatzsteuerpflicht einer der von diesem Vertrag erfassten Transaktionen ausgehen sollten, verstehen sich die in den Ziffern 4.1. und 4.2. aufgeführten Kaufpreise als Nettokaufpreise ohne die gesetzlich geschuldete Umsatzsteuer. Die Verkäuferin ist in diesem Fall verpflichtet, der Käuferin eine den gesetzlichen Vorgaben entsprechende Rechnung zu erstellen, und die Käuferin wird die gesetzliche Umsatzsteuer unverzüglich bezahlen.

 
4.3. Both Parties expect that the transactions under this Agreement will not be subject to value added tax or exempt from value added tax. The Seller shall not opt for value added tax, if such option was available. To the extent the tax authorities consider any of the transactions under this Agreement subject to VAT, the purchase prices set out in clauses 4.1. and 4.2. are deemed net of VAT. In this case, the Seller is shall issue an invoice to the Buyer in accordance with statutory provisions, and the Buyer shall pay the applicable VAT without undue delay.

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4.4. Die Kaufpreise für den verkauften Kommanditanteil und den verkauften Geschäftsanteil gem. Ziffer 4.1. und 4.2. werden nach Erfüllung von oder Verzicht auf die folgenden aufschiebenden Bedingungen („Fälligkeitsbedingungen“) fällig:

 
4.4. The purchase price for the Limited Partner’s Interest and the Company Share under clause 4.1. and 4.2. are payable upon satisfaction or waiver of the following conditions precedent (“Conditions Precedent”):

4.4.1. Freigabe des in diesem Vertrag vereinbarten Anteilskaufs durch die zuständigen Kartellbehörden in Deutschland, Österreich, Russland, Ukraine und Mazedonien entweder durch Ablauf der für eine Untersagung des vereinbarten Anteilskaufs geltenden Fristen oder durch Erklärung der zuständigen Kartellbehörden, dass die Voraussetzungen für eine Untersagung des in diesem Vertrag vereinbarten Anteilskaufs nicht vorliegen;
 
4.4.1. Clearance by the competition authorities in Germany, Austria, Russia, Ukraine and Macedonia of the sale of the interest and share as contemplated by this Agreement either by virtue of the expiry of the relevant deadlines applicable for imposing a prohibition of the agreed sale of the interest and share or by means of a declaration by the relevant competition authorities that there are no prerequisites for imposing a prohibition of the sale of the interest and the share as contemplated by this Agreement;

4.4.2. Abschluss des in Ziffer 7.2 näher beschriebenen Trade Secret Cross License Agreement zwischen der Gesellschaft, der Käuferin und der Verkäuferin;
 
4.4.2. The Limited Partnership, the Buyer and the Seller entered into the Trade Secret Cross License Agreement as set out in more detail in clause 7.2;

4.4.3. Genehmigung dieses Anteilskaufvertrages durch die Gesellschafterversammlung der Verkäuferin;

 
4.4.3. The shareholders’ meeting of the Seller approved this Agreement;
4.4.4. Rücktritt oder Abberufung zum Vollzugstag von Jennifer Flynn Scanlon und Dominic Dannessa als Mitglieder des Beirats der Gesellschaft sowie der Tochtergesellschaften Knauf USG Systems OOO in der Russischen Förderation und Knauf USG Building Systems ABEE in Griechenland;
 
4.4.4. Jennifer Flynn Scanlon and Dominic Dannessa have resigned or have been removed as members of the advisory board (Beirat) of the Limited Partnership as well as its subsidiaries Knauf USG Systems OOO in Russia and Knauf USG Building Systems ABEE in Greece as of the Closing Date;


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4.4.5. Notarielle Beglaubigung der Anmeldung zur Eintragung der Käuferin als Kommanditistin der Gesellschaft mit der übernommenen weiteren Hafteinlage von 2.200.000 EUR kraft Sonderrechtsnachfolge im Handelsregister der Gesellschaft und Übergabe der beurkundeten Anmeldung an den beurkundenden Notar zur Handhabung gem. Ziffer 4.6.
 
4.4.5. The application for registration of the Buyer as Limited Partner with the additional capital contribution of EUR 2,200,000 acquired from the Seller by way of succession to specific rights and obligations (Sonderrechtsnachfolge) in the Commercial Register applicable to the Limited Partnership has been notarially certified and provided to the officiating Notary for further handling as provided in clause 4.6. hereof.
4.5. Die Parteien können, soweit rechtlich zulässig, auf den Eintritt einer oder mehrerer Fälligkeitsbedingungen verzichten. Der Verzicht muss von beiden Parteien erklärt werden, mit Ausnahme der Fälligkeitsbedingung gem. Ziffer 4.4.4., auf dessen Eintritt die Käuferin allein verzichten kann.
 
4.5. The Parties may, to the extent legally permitted, waive one or more Conditions Precedent. The waiver must be declared by both Parties, with the exception of the Condition Precedent under clause 4.4.4., which may be waived by the Buyer alone.
4.6. Der beurkundende Notar wird von den Parteien gemeinsam und unwiderruflich beauftragt, die Anmeldung zum Handelsregister gem. Ziffer 4.4.5. treuhänderisch aufzubewahren und unverzüglich, nachdem die Käuferin den Eingang des Kaufpreises schriftlich bestätigt hat, beim Handelsregister einzureichen. Die Parteien werden sich gegenseitig sowie den beurkundenden Notar unverzüglich über den Eintritt jeder einzelnen der Fälligkeitsbedingungen oder auf deren Verzicht schriftlich unterrichten. Soweit die Parteien den beurkundenden Notar schriftlich über den Eintritt aller Fälligkeitsbedingungen oder den Verzicht auf deren Eintritt gem. Ziffer 4.5. unterrichtet haben, wird der Notar den Parteien den Eintritt der bzw. den Verzicht auf die Fälligkeitsbedingungen schriftlich bestätigen (diese Mitteilung im Folgenden die „Bedingungseintrittsbestätigung“).
 
4.6. The officiating Notary is hereby jointly by the Parties and irrevocably instructed to hold in trust the notification to the Commercial Register contemplated by clause 4.4.5. and file such application immediately upon having received the Seller’s written confirmation that the purchase price has been paid. The Parties shall provide each other and to the officiating Notary written notification as regards the occurrence or waiver of each of the Conditions Precedent without undue delay. If and when the officiating Notary is notified in writing that all Conditions Precedent are fulfilled or, waived by both Parties in accordance with clause 4.5., the officiating Notary shall notify the Parties in writing as regards fulfilment or waiver of the Conditions Precedent (such notification, the “Conditions Confirmation”).


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4.7. Die Kaufpreise sind fünf (5) Tage nach Eingang der Bedingungseintrittsbestätigung bei der Käuferin zur Zahlung fällig. Die Zahlung der Kaufpreise erfolgt durch Überweisung auf ein von der Verkäuferin vor dem Vollzugstag zu benennendes Bankkonto. Zahlt die Käuferin bei Fälligkeit nicht, ist der geschuldete Kaufpreis ab Fälligkeit mit 5% per annum bis zur Zahlung zu verzinsen.
 
4.7. The purchase prices shall be due within five (5) days following receipt of the Conditions Confirmation by the Buyer. The payment of the purchase prices shall be made by bank transfer to a bank account to be named by the Seller before the Closing Date. If the Buyer does not pay the purchase prices when due, an interest of 5% per annum shall be applicable from the due date until payment.

4.8. Die Parteien bestätigen sich, dass das Joint Venture Agreement zwischen der Verkäuferin und der Käuferin bezüglich der Gesellschaft vom 12. Juli 2001 (geändert und neu gefasst am 18. Oktober 2001) (nachfolgend „Joint Venture Agreement“) im Einklang mit dessen Ziffer 8.1. am Vollzugstag erlischt. Ferner (i) sind sich die Parteien einig und bestätigen, dass (A) keine der Parteien wie auch immer geartete Ansprüche gegen die jeweils andere Partei, und (B) der Verkäuferin keinerlei Ansprüche gegen die Gesellschaft und die Komplementär GmbH aus der Veräußerung der in dieser Urkunde übertragenen Beteiligungen sowie aus oder in Verbindung mit dem Joint Venture Agreement zustehen und (ii) jede Partei hiermit ausdrücklich auf die Geltendmachung jedweder solcher Ansprüche, ob bekannt oder unbekannt, verzichtet.
 
4.8. The Parties confirm that the Joint Venture Agreement entered into between the Seller and the Buyer in relation to the Limited Partnership dated 12 July 2001 (as amended and restated on 18 October 2001) (hereinafter the “Joint Venture Agreement”) terminates on the Closing Date as contemplated by its Section 8.1. Further, the Parties (ii) agree and confirm that (A) neither Party has any claims whatsoever against the respective other Party, and (B) the Seller has no further claims against the Limited Partnership or the General Partner, and (ii) each Party hereby explicitly waives any claims whatsoever, known or unknown, resulting from or under the Joint Venture Agreement or the disposal of the interest and share being transferred under this deed.

5. Steuern
 
5. Tax
5.1. Vorbehaltlich der Regelung in § 5.2 und § 5.3 dieses Vertrages tragen die Käuferin und die Verkäuferin die auf ihren Anteil am Gesamtgewinn der Mitunternehmerschaft jeweils entfallenden Ertragsteuern selbst.
 
5.1. Subject to the provisions of Sec. 5.2 and Sec. 5.3 of this Agreement, Seller and Buyer shall each bear their respective income Taxes (Ertragsteuern) relating to their respective share in the overall profit for taxation purposes of the co-entrepreneurship (Anteil am Gesamtgewinn der Mitunternehmerschaft).


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5.2. Gewerbesteuer, die bei der Gesellschaft festgesetzt wird, ist der Käuferin oder, nach freier Entscheidung der Käuferin, der Gesellschaft von der Verkäuferin zu erstatten, wenn und soweit sie (i) auf den Veräußerungsgewinn der Verkäuferin aus der Veräußerung der verkauften Kommandit- und Geschäftsanteile entfällt oder (ii) den anteiligen laufenden Gewinn der Gesellschaft des Jahres 2015 bis zum Vollzugsstichtag oder (iii) den anteiligen laufenden Gewinn der Gesellschaft früherer Veranlagungszeiträume betrifft, letztere unter (iii) bezeichnete Steuern allerdings nur, soweit diese noch nicht gezahlt worden sind und nicht auf nach einer Betriebsprüfung geänderten Steuerbescheiden beruhen.
 
5.2. Trade Tax (Gewerbesteuer) assessed against the Limited Partnership is to be reimbursed by the Seller to the Buyer or, at the discretion of the Buyer, to the Limited Partnership, if and to the extent the Trade Tax relates to (i) the capital gain of the Seller resulting from the disposal of the Limited Partner’s Interest and the Company Share or (ii) the pro-rata profit of the company for 2015 until Closing Date or (iii) the pro-rata profit of the company for previous fiscal years, but the latter Taxes as described under (iii) only to the extent such Taxes have not yet been paid by the Company and do not result from amended Tax assessments after a Tax audit.
 
 
 
5.3 Die Käuferin stellt die Verkäuferin frei, und hält sie schadlos von jeder Verpflichtung zur Tragung von Ertragsteuern, soweit diese Ertragsteuern (i) nicht im Zusammenhang mit dem Veräußerungsgewinn der Verkäuferin aus der Veräußerung der verkauften Kommandit- und Geschäftsanteile stehen, (ii) von der Verkäuferin für Zeiträume geschuldet werden, die am oder vor dem Vollzugsstichtag enden und noch nicht gezahlt worden sind, (iii) auf nach einer Betriebsprüfung geänderten Steuerbescheiden beruhen und (iv) aus der Beteiligung der Verkäuferin an der Gesellschaft resultieren und auf den Anteil der Verkäuferin am Gesamtgewinn der Mitunternehmerschaft entfallen, jedoch mit Ausnahme von solchen Steuern, für die § 5.1 und § 5.2 dieses Vertrages gilt.
 
5.3. Buyer shall indemnify and hold harmless Seller from and against any duty to bear Taxes on income (Ertragssteuern), to the extent that such Taxes on income (i) do not relate to the the disposal of the Limited Partner’s Interest and the Company Share by Seller, (ii) are owed by Seller for any period ending on or prior to the Closing Date and have not yet been paid (iii) are based on amended tax assessments after a Tax audit, (iv) result from the interest of the Seller in the Partnership and the share of the Seller in the overall profit for taxation purposes of the co-entrepreneurship (Anteil am Gesamtgewinn der Mitunternehmerschaft), except for any Taxes covered by Section 5.1 or Section 5.2 above.
 
 
 

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5.4. Grunderwerbsteuer, die im Zusammenhang mit der Veräußerung oder durch die Übertragung der verkauften Kommandit- und Geschäftsanteile fällig wird, trägt die Käuferin.
 
5.4. Real estate transfer tax (Grunderwerbsteuer) payable as a result of the sale or the transfer of the Limited Partner’s Interest and of the Company Share shall be borne by the Buyer.
5.5 Der Begriff "Steuern" erfasst alle Steuern i.S.d. § 3 AO. Dies gilt auch, wenn der Begriff "Steuern" im Begriff Ertragsteuern aufgeht.
 
5.5. The term "Taxes" means any taxes within the meaning of § 3 of the German General Tax Code. This shall also apply if the term "Taxes" is specified with the term income (income Taxes).
6. Gewährleistung
 
6. Warranties
6.1. Die Verkäuferin erklärt gegenüber der Käuferin in Form selbständiger Garantieversprechen gem. § 311 Abs. 1 BGB, dass
 
6.1. The Seller warrants to the Buyer by way of independent guarantees pursuant to § 311 (1) BGB that
-sie mit einem Kommanditanteil (Hafteinlage) in Höhe von 2.200.000 EUR an dem Kommanditkapital (Haftkapital) der Gesellschaft und mit einem Geschäftsanteil in Höhe von 12.500 EUR an dem Stammkapital der Komplementär GmbH beteiligt ist; und
 
-it holds a limited partner’s interest (capital contribution) in the Limited Partnership’s limited partnership capital (liable capital) in the amount of EUR 2,200,000 and a share in the registered share capital of the General Partner in the amount of EUR 12,500; and
         -das auf den verkauften Kommanditanteil entfallene Kommanditkapital (Haftkapital) der Gesellschaft in Höhe von 2.200.000 EUR voll eingezahlt und weder durch Verluste noch durch Entnahmen gemindert ist; und
 
    -the Limited Partnership’s limited partnership capital (liable capital) corresponding to the Limited Partner’s Interest in an amount of EUR 2,200,000 has been fully paid in and is not reduced by losses or withdrawals; and
 
 
 
      -die verkauften Kommandit- und Geschäftsanteile nicht mit Rechten Dritter belastet sind; und
 
-the Limited Partner’s Interest and the Company Share are not encumbered by any rights of third parties; and
-sie über die verkauften Kommandit- und Geschäftsanteile – vorbehaltlich des Zustimmungserfordernisses gem. Ziffer 4.4.3. – frei verfügen kann.
 
   -the Seller is free to dispose of the Limited Partner’s Interest and the Company Share – subject to the approval requirement under clause 4.4.3.

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6.2. Im Übrigen wird jede Sach- oder Rechtsmängelhaftung ausgeschlossen. Die Verkäuferin haftet also insbesondere nicht für Wert oder Ertragsfähigkeit der verkauften Kommandit- und Geschäftsanteile, für Umfang und Eigenschaften der zum Vermögen der Gesellschaft oder der Komplementär GmbH gehörenden Gegenstände oder in Verbindung mit Verbindlichkeiten der Gesellschaft oder der Komplementär-GmbH, einschließlich Steuerverbindlichkeiten, sofern in diesem Vertrag nicht ausdrücklich etwas anderes geregelt ist.
 
6.2. In all other respects, any liability for defects in quality or title is hereby excluded. Thus, the Seller is in particular not liable for the value or earning capacity of the Limited Partner’s Interest and the Company Share, for the quantity, quality or characteristics of the Limited Partnership’s or the General Partner’s assets or in connection with any liabilities of the Company or of the General Partner, including Tax liabilities, unless otherwise provided in this Agreement.
7. Lizenzverträge
 
7. Licensing agreements
7.1. Die Parteien, die Gesellschaft und die Komplementär GmbH sind sich einig darüber, dass das Trademark Agreement/Sublicense „Durock“ und das Cement Board Technology Use Confidentiality and Assistance Agreement jeweils vom 18. Oktober 2001 einschließlich aller schriftlichen und mündlichen Nachträge mit Wirkung zum Vollzugstag aufgehoben werden, ohne dass den Parteien dieser beiden Lizenzverträge untereinander irgendwelche Ansprüche aus oder im Zusammenhang mit diesen beiden Lizenzverträgen und ihren Nachträgen oder seiner Aufhebung zustehen.
 
7.1. All of the Parties, the Limited Partnership and the General Partner agree that the Trademark Agreement/Sublicense “Durock” and the Cement Board Technology Use Confidentiality and Assistance Agreement, each dated 18 October 2001, including all written and oral amendments thereto, are terminated with effect as of the Closing Date, without any claims or rights accruing to either party thereto as a result of, or in connection with, these two agreements, as amended, or their termination.
7.2. Anstelle der in Ziffer 7.1. aufgehobenen Lizenzverträge werden die Verkäuferin, die Käuferin und die Gesellschaft mit Wirkung zum Vollzugstag einen dem als Anlage 1 beigefügten Trade Secret Cross License Agreement entsprechenden Vertrag vereinbaren.
 
7.2. In order to replace the licensing agreements referred to in clause 7.1. above, the Seller, the Buyer and the Limited Partnership will enter effective as of the Closing Date into a Trade Secret Cross License Agreement substantially in the form attached as an Exhibit 1 to this Agreement.

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8. Wettbewerbsverbot
 
8. Non-competition
8.1. Die Verkäuferin verpflichtet sich, innerhalb eines Zeitraums von drei (3) Jahren nach dem Vollzugstag weder direkt noch durch mit ihr Verbundene Unternehmen, als Inhaberin, Gesellschafterin oder unabhängiger Vertragspartnerin eine Konkurrierende Geschäftstätigkeit auszuüben. "Konkurrierende Geschäftstätigkeit" umfasst die Herstellung, den Vertrieb und den Verkauf in Europa (ausgenommen die Türkei) sowie den Ländern der ehemaligen Sowjetunion (CIS) von (i) Zementbauplatten und (ii) zugehörigen, für den Gebrauch mit Zementbauplatten vorgesehenen Produkten wie von der Gesellschaft derzeit hergestellt, verkauft und vertrieben und in Anlage 8.1 gelistet. "Verbundene Unternehmen" sind verbundene Unternehmen im Sinne von §§ 15 ff. AktG.
 
8.1. The Seller agrees not to engage, directly or through any of its Affiliates, as a proprietor, shareholder, or independent contractor in any Competing Business for a time period of three (3) years following the Closing Date. “Competing Business” shall be the manufacturing, supplying and selling in Europe (except Turkey) and the countries of the former Soviet Union (CIS) of (i) cement boards and (ii) related products designed to be used with cement boards, currently manufactured and sold by the Limited Partnership, a list of which is attached as Exhibit 8.1. “Affiliates” has the meaning set forth in §§ 15 et seq. of the German Stock Corporation Act (AktG).
8.1.1. Als eine Verletzung der oder ein Verzug mit den Handlungspflichten unter dieser Ziffer 8.1. durch die Verkäuferin wird es nicht angesehen, wenn die Verkäuferin eine Beteiligung von 15% oder weniger am Kapital, den Eigentums- oder den Stimmrechten an einer Person hält oder erwirbt, welche eine Konkurrierende Geschäftstätigkeit ausübt. "Person" bedeutet jegliches Individuum, jede Gesellschaft, jede Partnerschaft, jedes Joint Venture, jede Vereinigung und jede andere Organisation.
 
8.1.1. The Seller shall not be deemed to violate or be in default under the covenant in this Section 8.1. as a result of any holding or acquisition of an investment of fifteen percent (15%) or less of the capital, the ownership interests or the voting rights in any Person engaged in a Competing Business. “Person” shall mean any individual, corporation, partnership, joint venture, association or any other entity.

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8.1.2. Diese Ziffer 8.1. soll nicht in einer Weise ausgelegt werden, dass sie den Erwerb oder das Halten von Beteiligungen durch die Verkäuferin oder mit ihr Verbundenen Unternehmen untersagt, welche im Zusammenhang mit einem Erwerb von Beteiligungen, einer Verschmelzung, einem Joint Venture, einem Erwerb von Vermögenswerten oder einem sonstigen Unternehmenszusammenschluss an oder mit einer Person steht, welche weniger als fünfundzwanzig Prozent (25%) ihrer konsolidierten Umsätze im letzten Geschäftsjahr mit einer Konkurrierenden Geschäftstätigkeit erzielt hat.
 
8.1.2. This Section 8.1. shall not be construed to prohibit the acquisition or holding by the Seller or any of its Affiliates, in the context of any acquisition of shares, merger, joint venture, asset purchase, or any other business combination in or with a Person which derives less than twenty-five percent (25%) of its consolidated revenues in its most recent fiscal year from a Competing Business.
8.1.3. Diese Ziffer 8.1. soll nicht in einer Weise ausgelegt werden, dass sie einen Erwerb oder das Halten einer Beteiligung an einer Gesellschaft untersagt, welche eine Konkurrierende Geschäftstätigkeit betreibt, sofern diese Beteiligung ausschließlich aus Gründen der Kapitalanlage im Rahmen von Arbeitnehmer-Spar-, Pensions- oder ähnlichen Fonds bzw. Plänen der Verkäuferin oder mit ihr Verbundener Unternehmen erfolgt; vorausgesetzt, dass die Investitionsentscheidung eines solchen Fonds oder nach einem Plan von unabhängigen Treuhändern oder unabhängigen Managern getroffen wird.
 
8.1.3. This Section 8.1. shall not be construed to prohibit the acquisition or ownership, for investment purposes only, by any employee savings, retirement, or similar benefit fund or plan of any of the Seller or any if its Affiliates, of any ownership in any company engaged in a Competing Business; provided, however, that the investment decisions of such fund or plan shall be made by independent trustees or independent managers.
8.2. Die Verkäuferin wird weiterhin sicherstellen und haftet dafür, dass auch alle mit ihr Verbundenen Unternehmen dieses Verbot einhalten wie die Verkäuferin.
 
8.2. Furthermore, the Seller shall ensure that its Affiliates comply with this non-competition restriction in the same manner as the Seller, the Seller bearing liability for same.

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9. Geheimhaltung
 
9. Confidentiality
9.1. Außer soweit im Trade Secret Cross License Agreement anderes geregelt, verpflichtet sich die Verkäuferin dazu, nach dem Vollzugstag alle ihr bekannten Angelegenheiten, insbesondere Betriebs- und Geschäftsgeheimnisse der Gesellschaft, der Komplementär GmbH und der Käuferin sowie deren Verbundenen Unternehmen („Vertrauliche Informationen“) keinem Dritten zu offenbaren. Dies gilt nicht für Vertrauliche Informationen, die (i) der Verkäuferin bereits vor deren Überlassung ohne Verpflichtung zur Geheimhaltung rechtmäßig bekannt waren, (ii) öffentlich zugänglich sind oder werden, ohne dass dies die Verkäuferin zu vertreten hat, (iii) der Verkäuferin von einem Dritten rechtmäßig und ohne Geheimhaltungsverpflichtung mitgeteilt bzw. überlassen wurden, vorausgesetzt, der Dritte verletzt bei Übergabe der Vertraulichen Informationen keine eigene Geheimhaltungsverpflichtung, (iv) von der Verkäuferin unabhängig und ohne Rückgriff auf Vertrauliche Informationen entwickelt worden sind, (v) aufgrund einer bindenden behördlichen oder richterlichen Anordnung oder zwingender rechtlicher Vorschriften zu offenbaren sind, vorausgesetzt, dass die Käuferin im Voraus über die Offenbarung schriftlich informiert wurde; oder (vi) von der Käuferin schriftlich freigegeben worden sind.
 
9.1. Except as may be permitted under the Trade Secret Cross License Agreement, after the Closing Date, the Seller shall maintain strict confidence regarding all matters and affairs, in particular the trade and business secrets, of the Limited Partnership, the General Partner, the Buyer and its other Affiliates (“Confidential Information”, and not disclose any such Confidential Information to any third parties. This obligation shall not apply to Confidential Information that (i) became legally known to the Seller prior to the information becoming confidential, provided that the Confidential Information was obtained observing all applicable laws, (ii) is or shall become publicly accessible without the Seller being responsible for the release; provided, however, that such Confidential Information is not deemed to have become publicly accessible merely because portions of it are or will become publicly accessible, (iii) has been communicated to the Seller by a third party observing applicable laws and without being subject to a confidentiality obligation; provided, however, that the third party did not infringe any confidentiality obligation, (iv) was developed by the Seller independent of, and without recourse to, Confidential Information, (v) must be disclosed pursuant to a binding decision of a public authority, a judgment or a mandatory statutory regulation; provided, however, that the Buyer has been informed in advance in writing with respect to the disclosure; or (vi) was confirmed by the Buyer in writing as not being confidential.

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9.2. Die Verkäuferin verpflichtet sich ferner, auch mit Wirkung für ihre Verbundenen Unternehmen bis zum Ablauf von einem Jahr nach dem Vollzugstag ohne vorherige schriftliche Zustimmung der Käuferin keinen Mitarbeiter der Gesellschaft, der zum Vollzugstag bei der Gesellschaft angestellt ist, einzustellen oder abzuwerben. Das Verbot gilt nicht, wenn: (i) dieser Mitarbeiter sich aufgrund einer allgemeinen Stellenausschreibung bei der Verkäuferin oder einem mit ihr Verbundenen Unternehmen bewirbt, (ii) dieser Mitarbeiter von einem unabhängigen Personalvermittler zuvor kontaktiert wurde, vorausgesetzt, dass weder die Verkäuferin noch ein mit ihr Verbundenes Unternehmen diesen Personalvermittler explizit mit der Vermittlung dieses Mitarbeiters beauftragt hat; oder (iii) dieser Mitarbeiter sich eigeninitiativ beworben hat, ohne dass die Verkäuferin oder ein mit ihr Verbundenes Unternehmen hierzu Veranlassung gegeben hätten (außer durch eine allgemeine Stellenausschreibung).
 
9.2. In addition, the Seller undertakes itself and on behalf of its Affiliates for a time period of one (1) year after the Closing Date not to hire or entice away, without the Buyer’s prior written consent, any members of staff of the Limited Partnership employed by the Limited Partnership as of the Closing Date. The prohibition to employ such an employee does not apply if (i) such employee applies to the Seller or any of its Affiliates on the basis of a general job advertisement, (ii) such employee was previously contacted by an independent recruiter, provided that neither the Seller nor any of its Affiliates explicitly instructed this recruiter to contact such employee; or (iii) such employee applied on his or her own initiative, without the Seller or any of its Affiliates having caused the application (other than by a general job advertisement).
 
 
 
 
 
 
 
 
 

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10. Keine weiteren Rechte
 
10. Sole remedies
10.1. Die ausdrücklich in diesem Vertrag vorgesehenen Gewährleistungen, Garantien, Rechte und Ansprüche der Käuferin sind die einzigen und ausschließlichen Gewährleistungen, Garantien, Rechte und Ansprüche der Käuferin aufgrund dieses Vertrages. Außer im Falle von arglistiger Täuschung oder Vorsatz stehen der Käuferin darüber hinaus keinerlei weiteren Ansprüche oder Rechte zu, weder Ansprüche in Verbindung mit Verbindlichkeiten der Gesellschaft oder der Komplementär GmbH, noch ein Rücktrittsrecht, ein Recht auf Rückabwicklung oder Anpassung der Geschäftsgrundlage wegen Störung oder Wegfall der Geschäftsgrundlage, Ansprüche aus culpa in contrahendo oder positiver Forderungsverletzung oder Schadensersatzansprüche, diese sind ausdrücklich ausgeschlossen und die Käuferin verzichtet hiermit, soweit gesetzlich zulässig, auf weitere Ansprüche.
 
10.1. The warranties, guarantees, rights and claims of the Buyer explicitly provided in this Agreement are sole and exclusive warranties, guarantees, rights and remedies of the Buyer under this Agreement. Other than explicitly provided herein, any other claims or remedies, including claims relating to any liabilities of the Limited Partnership or the General Partner, the right to withdraw (zurücktreten) from this Agreement or to require the winding up (Rückabwicklung) or the alteration (Anpassung) of the transactions contemplated hereunder (e.g., by way of Störung oder Wegfall der Geschäftsgrundlage), any claims for breach of pre-contractual obligations (culpa in contrahendo) or ancillary obligations (positive Forderungsverletzung) or damages (Schadensersatz) other than expressly provided under this Agreement, except claims for willful deceit (arglistige Täuschung) and damages based on intent (Vorsatz), are hereby expressly excluded and waived by the Buyer to the extent legally permitted.

10.2. Zahlungen unter Freistellungen nach diesem Vertrag gelten als Kaufpreisanpassung.
 
10.2. Any indemnification payment under this Agreement are deemed to be an adjustment of the purchase price.
11. Namensänderung
 
11. Change of name
11.1. Die Käuferin wird Sorge dafür tragen, dass die Firma der Gesellschaft innerhalb von vier (4) Wochen nach dem Vollzugstag geändert und der Namenszusatz „USG“ aus der Firma gestrichen wird.
 
11.1. The Buyer shall ensure that the name of the Limited Partnership is changed within four (4) weeks after the Closing Date and the “USG” element is no longer part of the trade name.

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11.2. Der Gesellschaft und der Komplementär GmbH wird von der Verkäuferin darüber hinaus eine „Aufbrauchfrist“ von sechs (6) Monaten ab dem Vollzugstag eingeräumt, innerhalb derer die Gesellschaft und die Komplementär GmbH noch Produkte, Briefpapier, Prospekte, Werbematerial etc. mit der Aufschrift „USG“, welche zum Vollzugstag noch im Bestand vorhanden sind, in Umlauf bringen darf, um Restbestände aufzubrauchen. Dabei wird die Käuferin Sorge tragen, dass weder sie selbst, noch die Gesellschaft oder andere mit ihr verbundene Unternehmen Produkte, Unterlagen oder sonstige Gegenstände mit der Aufschrift „USG“ in Verbindung mit jedweden Aktivitäten mit oder in Ländern benutzen, die von den Vereinigten Staaten von Amerika mit Embargo belegt sind, oder solche Produkte, Unterlagen oder sonstige Gegenstände in solche Länder verbringen. Eine Haftung für ein entsprechendes Verhalten Dritter (d.h. von Personen, die nicht Verbundenes Unternehmen der Käuferin oder der Gesellschaft sind) ist ausgeschlossen.
 
11.2. In addition, the Seller grants the Limited Partnership and the General Partner a “phasing-out period” of six (6) months starting from the Closing Date, during which the Limited Partnership and the General Partner shall be permitted to circulate products, letter headed paper, brochures, marketing and advertising material etc. existing as of the Closing Date and bearing the “USG” element, in order to enable them to use up and phase out any remaining supplies; provided, however, that neither the Buyer nor the Company or any of its other Affiliates (which shall be procured by the Buyer) shall use any kind of product, paper or other asset bearing the name “USG” in connection with any business activities with countries subject to embargo by the United States of America or ship those products, paper or other assets to any of these countries. Any liability for such conduct of a third party (meaning a person that is not an Affiliate of Buyer or the Company) is excluded.

11.3. Nach Ablauf der Aufbrauchfrist wird weder die Käuferin noch die Gesellschaft oder die Komplementär GmbH den Zusatz „USG“ in ihrem jeweiligen Geschäftsbetrieb verwenden, soweit dies nicht ausdrücklich von der Verkäuferin vorher schriftlich genehmigt wird.
 
11.3. Upon expiry of the phasing-out period, neither the Buyer nor the Limited Partnership or the General Partner shall be permitted to use the “USG” element in the course of their business, unless the Seller has provided its prior express written consent.
 
 
 
 
 
 

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12. Zustimmung, Umfirmierung und Anmeldung bei der Gesellschaft
 
12. Approval, name change, and notification of the Limited Partnership
12.1. Komplementär GmbH
 
12.1 General Partner
Die Verkäuferin und die Käuferin treten hiermit als alleinige Gesellschafter der Komplementär GmbH unter Verzicht auf alle satzungsgemäßen und gesetzlichen Form- und Fristvorschriften zu einer außerordentlichen Gesellschafterversammlung zusammen und beschließen einstimmig:
 
As the sole shareholders of General Partner, the Seller and the Buyer hereby convene for an extraordinary general meeting, waiving any formal and timing requirements under the articles of association and under statute, and unanimously pass the following resolution:

12.1.1. Dem Verkauf und der Abtretung des verkauften Geschäftsanteils, wie vorstehend unter Ziffern 2 und 3 beschrieben, wird zugestimmt.
 
12.1.1. Approval is hereby granted to the sale and assignment of the Company Share, as set out under clauses 2 and 3 above.

12.1.2. Die Firma der Gesellschaft wird geändert von „Knauf/USG Verwaltungs GmbH“ in „Knauf Verwaltungs GmbH“ und § 1 Abs. 1 der Satzung dieser Gesellschaft wird entsprechend geändert.
 
12.1.2. The name of the Limited Partnership is changed from “Knauf/USG Verwaltungs GmbH” to “Knauf Verwaltungs GmbH” and § 1 para. 1 of the articles of association of this company is changed accordingly.

12.1.3. Verkauf und Abtretung des verkauften Geschäftsanteils sowie der Umfirmierung sind hiermit der Geschäftsführung angezeigt. Herr Dr. Koslowski nimmt insoweit als alleiniger Geschäftsführer der Komplementär GmbH von der Abtretung des verkauften Geschäftsanteils Kenntnis.
 
12.1.3. The sale and assignment of the Company Share and the change of name have thus been hereby notified to the company’s management. As sole managing director (Geschäftsführer) of the General Partner, Dr Koslowski thus takes due note of the assignment of the Company Share being sold.

12.2. Gesellschaft
 
12.2. Limited Partnership
Die Verkäuferin, die Käuferin und die Komplementär GmbH als alleinige Gesellschafter der Gesellschaft sind über die Veräußerung und Abtretung des verkauften Kommanditanteils an der Gesellschaft einig und stimmen der Veräußerung und Abtretung wie unter Ziffern 2 und 3 beschrieben vollinhaltlich zu.
 
   As the only partners of the Limited Partnership, the Seller, the Buyer and the General Partner are in agreement on the disposal and assignment of the Limited Partner’s Interest in the Limited Partnership and hereby provide their full and complete approval for the disposal and assignment, as described under clauses 2 and 3.


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12.3. Somit ist die Käuferin künftig alleinige Kommanditistin der Gesellschaft mit einer Kommanditeinlage in Höhe von 4.400.000 EUR und alleinige Gesellschafterin der Komplementär GmbH mit zwei Geschäftsanteilen in Höhe von jeweils 12.500 EUR (zusammen 25.000 EUR).
 
12.3. Therefore, in future, the Buyer shall be the Limited Partnership’s sole limited partner with a limited partner’s contribution amounting to EUR 4,400,000 and the sole shareholder of the General Partner with two company shares, each amounting to EUR 12,500 (EUR 25,000 in total).
13. Vollmachten
 
13. Powers of attorney
13.1. Die Parteien und die Komplementär GmbH beauftragen und bevollmächtigen hiermit den beurkundenden Notar und dessen amtlich bestellten Vertreter, alle zur Rechtswirksamkeit und zum Vollzug dieses Vertrages erforderlichen und zweckdienlichen Erklärungen und Genehmigungen (einschließlich der unter Ziffer 13.4. genannten) einzuholen und entgegenzunehmen.
 
13.1. The Parties and the General Partner hereby instruct and authorise, by the grant of power of attorney, the officiating Notary and the officially appointed representatives of the Notary to obtain and accept all statements, declarations, consent and approval (including those referred to in clause 13.4.) required and appropriate for legal validity and for execution of this Agreement.

13.2. Genehmigungen sollen mit dem Eingang in den Amtsräumen des Notars allen Parteien gegenüber als mitgeteilt gelten und rechtswirksam sein.
 
13.2. Any and all consent and approval shall be deemed to have been communicated to all Parties and to have legal effect upon receipt at the offices of the Notary.

13.3. Der beurkundende Notar wird zum Vollzug der einzelnen Anmeldungen ausdrücklich ermächtigt.
 
13.3. The officiating Notary is expressly empowered to complete all relevant registrations.


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13.4. Zum Zweck der Eintragung der Abtretung des verkauften Kommanditanteils und der Anzeige der Abtretung des verkauften Geschäftsanteils bevollmächtigt die Verkäuferin die Käuferin, insbesondere die zur Eintragung der Abtretung des verkauften Kommanditanteils in das Handelsregister etwa noch erforderlichen oder zweckdienlichen Erklärungen, Änderungen und Ergänzungen abzugeben und zu erklären und beurkunden zu lassen sowie die entsprechenden Handelsregisteranmeldungen vorzunehmen.
 
13.4. For the purposes of registration of the assignment of the Limited Partner’s Interest and of notification of the assignment of the Company Share, the Seller authorises the Buyer, by the grant of power of attorney, to submit and make any statements, declarations, changes and additions that remain necessary or appropriate for the registration of the assignment of the Limited Partner’s Interest in the Commercial Register and to have them notarised or certified and also to carry out the relevant registrations in the Commercial Register.

14. Kosten
 
14. Costs
14.1. Jede Partei trägt ihre eigenen Kosten und Auslagen im Zusammenhang mit der Vorbereitung, Verhandlung und Durchführung dieses Vertrages, einschließlich der Honorare, Kosten und Auslagen ihrer Berater.
 
14.1. Each Party bears its own costs and expenses in connection with the preparation, negotiation and implementation of this Agreement, including also the fees, costs and expenses of their advisors.
14.2. Die Kosten der notariellen Beurkundung dieses Vertrages und die Gebühren der zuständigen Kartellbehörden tragen die Verkäuferin und die Käuferin jeweils zur Hälfte. Die Kosten der Eintragung im Handelsregister trägt die Gesellschaft.
 
14.2. Each of the Seller and the Buyer shall bear half of the costs of the notarisation of this Agreement and the fees charged by the competent cartel authorities. The Limited Partnership shall bear the cost of the registration in the Commercial Register.
 
 
 

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15. Sonstiges
 
15. Miscellaneous
15.1. Sollte eine Bestimmung dieses Vertrages ganz oder teilweise nichtig, unwirksam oder undurchsetzbar sein oder werden, bleiben die übrigen Bestimmungen dieses Vertrages wirksam. Die nichtige, unwirksame oder undurchsetzbare Bestimmung ist, soweit gesetzlich zulässig, als durch diejenige wirksame und durchsetzbare Bestimmung ersetzt anzusehen, die dem mit der nichtigen, unwirksamen oder nicht durchsetzbaren Bestimmung verfolgten wirtschaftlichen Zweck nach Gegenstand, Maß, Zeit, Ort und Geltungsbereich am nächsten kommt. Entsprechendes gilt für die Füllung etwaiger Lücken in diesem Vertrag.
 
15.1. If any provision of this Agreement should be or become invalid, ineffective or unenforceable in whole or in part, then the remaining provisions of this Agreement shall remain valid and effective. Any such invalid, ineffective or unenforceable provision shall be deemed to be replaced, to the extent legally permitted, by such effective and enforceable provision which, by subject-matter, extent, time, place and scope of application, comes as close as possible to the economic purpose pursued with the invalid, ineffective and unenforceable provision. The same applies to any gapes in this Agreement.
15.2. Keine Partei wird eine Presseerklärung oder ähnliche Verlautbarung in Bezug auf die in diesem Vertrag vereinbarten Rechtsgeschäfte ohne ausdrückliche vorherige Genehmigung durch die jeweils andere Partei herausgeben. Als einzige Ausnahme sind Erklärungen zulässig, wenn und soweit dies gemäß anwendbarer Gesetze oder kapitalmarktbezogener Regularien vorgeschrieben oder auf deren Grundlage nach dem Ermessen der Geschäftsführung empfehlenswert ist (einschließlich gemäß anwendbarerer Regelungen der Securities and Exchange Commission oder anderer in- und ausländischen für den Wertpapierhandel zuständigen Behörden mit Zuständigkeit für die Märkte an denen Wertpapiere der Verkäuferin gehandelt werden). In diesen Fällen wird die Verkäuferin der Käuferin vor Veröffentlichung eine Kopie der Erklärung zukommen lassen.
 
15.2. Neither Party shall release a press statement or make a similar announcement or statement in relation to the legal transactions agreed under this Agreement without the prior express consent of the other Party. As the only exception to the foregoing, disclosure of any of the foregoing may be made as and to the extent required by, or deemed advisable by the management based on, law or capital market regulations (which shall include any applicable requirements of the Securities and Exchange Commission or any other domestic or foreign governmental agency responsible for securities law regulation and compliance or any stock market/stock exchange on which the Seller’s securities are listed). The Seller shall provide the Buyer prior to any announcement a written copy of such announcement.


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15.3. USG Corporation erklärt gegenüber der Käuferin in Form eines selbstständigen Garantieversprechens gem. § 311 Abs. 1 BGB, dass USG Corporation dafür einsteht und haftet, dass sämtliche Verpflichtungen der Verkäuferin aus diesem Vertrag (namentlich z.B. Ansprüche aus Ziffer 5 (Steuern), der Verletzung der Gewährleistungen in Ziffer 6, oder bezüglich des Wettbewerbsverbots nach Ziffer 8), erfüllt werden. USG Corporation wird sicherstellen, dass die Gesellschafterversammlung der Verkäuferin diesen Vertrag nach der Beurkundung unverzüglich genehmigt.
 
15.3. USG Corporation hereby warrants to the Buyer by way of an independent guarantee pursuant to § 311 (1) BGB that USG Corporation guarantees and is liable to ensure that all obligations the Seller has under this Agreement (including, in particular, any claims resulting under clause 5 (taxes), from an infringement of the guarantees under clause 6 or in relation to the non-competition provisions under clause 8) are fulfilled. USG Corporation will ensure that the shareholders’ meeting of the Seller will approve this Agreement without undue delay after notarisation of the same.
15.4. Falls es einen Unterschied zwischen der englischen und der deutschen Fassung dieses Vertrags gibt, dann geht die deutsche Fassung vor.
 
15.4. In case of any discrepancy between the English and the German version of this agreement, the German version shall prevail.
15.5. Alle rechtsgeschäftlichen Erklärungen und Mitteilungen im Zusammenhang mit diesem Vertrag bedürfen der Schriftform, soweit nicht notarielle Beurkundung oder eine andere Form durch zwingendes Recht vorgeschrieben ist. Der Schriftform genügt eine Übermittlung per Telefax oder ein Briefwechsel, nicht aber eine sonstige telekommunikative Übermittlung. Die elektronische Form (z. B. E-Mail) ersetzt die Schriftform nicht.
 
15.5. Any contractual declarations, statements or notifications made in connection with this Agreement require written form to be effective, unless their notarisation or another form is required by mandatory provisions of law. A transmission by fax or by mail is deemed to be sufficient to comply with this requirement of written form, while other forms of telecommunication are so not deemed to be sufficient. Electronic format (e.g. e-mail) is not deemed to fulfil the requirement of written form.
15.6. Dieser Vertrag und jede sich hieraus ergebenden Streitigkeiten werden ausschließlich nach dem Recht der Bundesrepublik Deutschland entschieden, unter Ausschluss der Regelungen des Internationalen Privatrechts.
 
15.6. This Agreement and any dispute connected herewith shall be exclusively governed and construed in accordance with the laws of the Federal Republic of Germany without giving effect to its conflict of law provisions.


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15.7. Ansprüche der Parteien aus diesem Vertrag verjähren wie folgt:
 
15.7. Any claims of the Parties arising out of this Agreement shall expire as follows:

- Ansprüche auf Übertragung des verkauften Geschäftsanteils und des verkauften Kommanditanteils zehn (10) Jahre nach dem Vollzugstag;
 
- claims regarding to the transfer of title to the Company Share and the Limited Partner’s Interest on the tenth (10) anniversary of the Closing Date;
- Ansprüche aus Ziffer 5 dieses Vertrages sechs (6) Monate nach Festsetzungsverjährung der entsprechenden Steuern;
 
- claims arising out of Section 5 hereof six (6) months after the applicable limitation period of the relevant Tax has elapsed (Festsetzungsverjährung);
- Ansprüche aus der Verletzung der Verpflichtungen gemäß Ziffer 8 vier (4) Jahre nach dem Vollzugstag;
 
- claims in connection with a breach of the obligations pursuant to Section 8 on the fourth (4) anniversary of the Closing Date; and
- alle anderen Ansprüche der Käuferin oder der Verkäuferin vierundzwanzig (24) Monate nach dem Vollzugstag.
 
- any other claims of the Buyer or the Seller shall expire twenty-four months after the Closing Date.
15.8. Alle Mitteilungen an die Verkäuferin im Zusammenhang mit diesem Vertrag sind zu richten an:
 
15.8. Any notifications to the Seller in connection with this Agreement must be addressed to:

USG Ventures-Europe GmbH
c/o USG Corporation
Attention: General Counsel
550 West Adams Street
Chicago, IL 60661-3676
United States of America
Facsimile No: + 1 312 672 7745

sowie nachrichtlich an ihre Berater:
 
and, for information, to their advisors:

Jones Day
Attention: Adriane U. Sturm
Prinzregentenstrasse 11
80538 München
Deutschland
Facsimile No: +49 89 20 60 42 293

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15.9. Alle Mitteilungen an die Käuferin im Zusammenhang mit diesem Vertrag sind zu richten an:
 
15.9. Any notifications to the Buyer in connection with this Agreement must be addressed to:

Knauf Aquapanel GmbH
z.H. Jörg Schanow
Am Bahnhof 7, 97346 Iphofen, GERMANY
Fax: +49 9323-31-470
sowie nachrichtlich an ihre Berater:
 
and, for information, to their advisors:

Freshfields Bruckhaus Deringer LLP
z.H. Dr. Christoph Nawroth
Feldmühleplatz 1
Fax: +49 211497965245
15.10. Von dieser Urkunde erhalten:
 
15.10. Of this deed, the following copies shall be sent to the persons stated thereafter:
-Ausfertigungen:
Verkäuferin und Käuferin jeweils eine
-
    Beglaubigte bzw. einfache Abschriften:
(i) die Gesellschaft, (ii) das Finanzamt – Körperschaftssteuerstelle – sowie (iii) das Registergericht


Vorstehende Niederschrift nebst Anlagen wurde von dem Notar in deutscher Sprache, die Anlagen auf Wunsch der Erschienenen in englischer Sprache vorgelesen, von den Erschienenen genehmigt und eigenhändig, wie folgt, unterschrieben:
 
- Authentic copies:
Seller and Buyer (one each)
- Certified and non-certified copies:
(i) the Limited Partnership, (ii) the Tax Office - Corporation Tax Department - and (iii) the Registry Court



This deed was read to the individuals by the Notary in German, the Exhibit – as requested by the individuals appearing – in English, and then approved and signed by the individuals appearing by their own hands as follows:

/s/     Adriane Sturm

/s/    Thomas Koslowski

/s/    Holger Hoffmann

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EXHIBIT 10.3
AGREEMENT AND GENERAL RELEASE

USG Corporation (hereinafter “USG” or the “Company”) and Christopher R. Griffin (“Employee”), collectively referred to as the “Parties”, agree that the following sets out their complete agreement and understanding regarding Employee's termination of employment. The Parties agree that all references to USG, in this Agreement and General Release (“Agreement”), shall include USG Corporation, any subsidiary, affiliated or related Company.

1.
TERMINATION DATE
USG and Employee agree that Employee’s last date of work was July 31, 2015. The Parties further agree the separation constitutes an involuntary termination without cause.

2.
EMPLOYER CONSIDERATION: SEPARATION PAYMENT
In consideration for the promises made by Employee in paragraph 3 below and following the unrevoked receipt by USG of this signed Agreement and General Release (hereinafter “Agreement”), USG agrees to provide to Employee all payments and benefits to which he is entitled pursuant to the “Termination without Cause” provisions of the Employment Agreement executed between the parties on October 1, 2008 (“Employment Agreement”). A summary of those payments and benefits is attached and incorporated into this Agreement. USG’s providing of these payments and benefits under the Employment Agreement is conditional upon Employee’s execution of this Agreement and General Release.

As further consideration for Employee’s additional promises in Paragraph 3 of this Agreement, the Company will provide Employee a lump-sum payment of $150,000, payable to Employee within fourteen (14) days following the seven-day revocation period referenced in Paragraph 9. This is a gross payment subject to taxation. This payment is an integral part of this Agreement.

Employee acknowledges that a final business expense report and all receipts must be submitted to the Company by August 15, 2015. Employee understands and agrees that USG will deduct the amount of personal expenses charged on the American Express Corporate credit card from the separation payment.

The foregoing consideration will not be provided to Employee if Employee revokes this Agreement pursuant to Paragraph 9 below. Employee acknowledges the consideration described above exceeds the value of anything to which Employee is entitled absent the signing of this Agreement.

Employee will be paid for all unused 2015 vacation days whether or not Employee signs this Agreement.

A summary of Employee’s currently vested and unvested stock rights under the USG Long Term Incentive Plan is also attached as Attachment A. These rights are governed by the applicable Long Term Incentive Plan documents and vesting of rights is governed by the terms and conditions of the plan documents and is unaffected regardless of whether or not Employee signs this Agreement.

3.
EMPLOYEE CONSIDERATION: FULL RELEASE OF ALL CLAIMS AGAINST USG
Employee, in consideration of USG’s promises in Paragraph 2, hereby to the fullest extent allowed by law, releases, waives, acquits and forever discharges USG, its employees, officers, directors, agents, partners, successors and assigns, and the Company’s affiliated and related companies and entities, their employees, officers, directors, agents, successors and assigns, from all liabilities, actions, claims, demands, damages and causes of action of any and every kind and nature, and also including but not limited to any action or claim brought under color of any federal, state or local statute, law, ordinance or regulation, or under any common law theory of recovery, including

1


but not limited to claims under the Age Discrimination in Employment Act , 29 USC. §§ 621 et. seq., as amended, Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et. seq., as amended, the Civil Rights Act of 1991, 42 U.S.C. §1981, 42 U.S.C. §1985, 42 U.S.C. §1986, the Equal Pay Act, 29 U.S.C. § 206(d), the Americans with Disabilities Act, 42 U.S.C. §§12101 et. seq., the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §2101 et. seq., intentional or negligent infliction of emotional distress and other tort claims, breach of express or implied contract claims, promissory estoppel claims, retaliatory discharge claims, wrongful discharge claims, breach of the express or implied covenant of good faith and fair dealing, constructive discharge, and any other legal and/or equitable claim(s) regarding Employee’s employment or the termination of employment.

Also, in consideration of USG’s additional promises in paragraph 2, Employee agrees to voluntarily resign from all corporate offices, directorships and any other fiduciary positions Employee currently holds at the Company and any direct and indirect subsidiaries of the Company. Employee agrees to execute resignations prepared by the Company to facilitate this action.

Further, to the fullest extent allowed by law, Employee specifically waives any right to, and will not accept, any monetary damages or any other relief personal to the Employee obtained through the filing of any charge or claim with any federal, state or local agency relating to Employee’s employment with, or separation of employment from, the Company.

This Agreement does not preclude any claim for unemployment compensation or workers’ compensation benefits to which Employee may be entitled, nor does it preclude claims arising after the execution of the Agreement.

4.
REFERENCES
All requests for references received by USG regarding Employee’s employment at USG will be directed to Brian J. Cook, Senior Vice President, Human Resources and Communications, either by phone at 312.436.3997, email at [email protected], or mailing address at “Brian J. Cook, Senior Vice President, Human Resources and Communications, USG, 550 West Adams Street, Chicago, IL 60661-3676.” In response to such request, Brian Cook, his successor, or his designee will provide only Employee’s dates of employment and job title and will further state that it is the policy of USG to provide only such information.

5.
CONFIDENTIALITY
Employee understands and agrees that the existence and terms of this Agreement are confidential and to the fullest extent allowed by law shall not be disclosed to any third party (except Employee's legal and financial counselor, or Employee's immediate family) without the written consent of USG or as may be required by law.

6.
NO ADMISSION OF LIABILITY
USG denies any liability to Employee in any amount, for any reason. The existence and execution of this Agreement shall not be considered, and shall not be admissible in any proceeding, as an admission by USG, or its agents or employees, of any liability, or unlawful conduct.

7.
AGREEMENT FINAL AND BINDING
This Agreement is a contract binding upon USG and Employee, as well as all those who may attempt to make claims on Employee's behalf. This Agreement cannot be changed except in writing and said writing must be signed by the Parties. This Agreement constitutes the entire agreement concerning Employee's employment with the Company and all other subjects addressed herein. This Agreement supersedes all prior negotiations and agreements, whether written or oral, concerning the subject covered herein, except as stated below. Employee agrees that if Employee
violates this Agreement by filing suit against the Company, Employee will pay all costs and expenses

2


incurred by USG in defending against the suit, including reasonable attorney's fees.

Employee understands and agrees that any post-employment obligations of his pursuant to his October 1, 2008 Employment Agreement, including the Competitive Activity, Confidentiality and Nonsolicitation provisions (Paragraphs 6d, 7a through 7n), remain in effect pursuant to their terms and are not affected by this Agreement and General Release.

8.
CONSULTATION WITH ATTORNEY
Employee acknowledges that before signing this Agreement, Employee was advised in writing through this Agreement to seek advice of legal counsel before signing this Agreement. Employee further acknowledges that Employee had at least twenty-one (21) days to consider signing this Agreement.

9.
REVOCATION OF AGREEMENT
After executing the Agreement, Employee understands that Employee has seven (7) days following the execution of this Agreement in which to revoke this Agreement. The notice of revocation should be in writing and delivered to Brian Cook, Dept. 158 before the 7-day revocation period expires. In the event the Agreement is revoked, it shall not be effective and Employee will not receive the payments and benefits under the Employment Agreement set out in Paragraph 2 above. Employee also understands that Employee will not receive any payments and benefits under the Employment Agreement set out in Paragraph 2 until the revocation period expires.

10.
NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
To the fullest extent allowed by law, Employee will not, directly or indirectly, at any time before, on, or after the Termination Date, use for Employee or others, or disclose to others, any Confidential Information of USG, whether or not developed or perfected by Employee, unless Employee first secures the written consent of USG to such disclosure or use, or until such information shall have become a matter of public knowledge through no fault of Employee.

The term “Confidential Information” is defined as, and shall include, any trade secret or any proprietary information maintained in confidence by USG that was disclosed to Employee in trust or to which Employee had access by virtue of the trust and confidence reposed in Employee during the course of Employee’s term of employment with USG. Such Confidential Information comprises, for example and without limitation confidential or proprietary computer programs and data bases; records of research and technical data; formulas; processes, inventions; patent applications; machine, equipment and process designs including any drawings and descriptions thereof; operating instructions; training manuals; production and development processes; production schedules; procedures; business and financial information; customer and vendor lists; customer buying records; product sales records; territory listings; market surveys; marketing plans; long range plans; salary information; contracts; and correspondence and other confidential or proprietary information of USG, or of other parties doing business with the USG.

Such Confidential Information may be in written, electronic, visual or oral form. Such Confidential Information is expressly distinguished from general information and knowledge inherently available in any employment.

11.
LIMITED SCOPE OF AGREEMENT.
Nothing in this Agreement is intended to or will be applied in such a way as to interfere with those rights under federal, state or local employment discrimination laws which cannot be released. These rights include but are not limited to Employee’s right to file or otherwise pursue a charge that one or more of these laws has been violated, Employee’s right to participate in a proceeding with any appropriate federal, state or local government agency enforcing these laws, and Employee’s right to cooperate with any such agency in its investigation of a charge, none of which

3


will constitute a breach of this Agreement.


12.
RETURN OF DOCUMENTS AND TANGIBLE ITEMS
Before or by August 26, 2015, Employee will return to USG all USG property in Employee’s possession, including but not limited to any and all documents, including but not limited to memoranda, drawings, graphs, records, notes, minutes, logs, data compilations, surveys, calendars, e-mails, files and copies of the foregoing, as well as any audio recordings, tape recordings or videotaped items of anything that took place at USG or their related or affiliated entities as defined above, whether taken by Employee or others, except for personal folders, contact lists and calendars that have been downloaded by other authorized personnel to a zip drive. Such documents may be in written, electronic, CD-ROM or any other form. Employee shall also return any and all tangible property belonging to USG, including but not limited to credit card(s), key(s), lap top computer(s), electronic memory devices (such as hard drives and memory sticks) , I- Pad(s) and any other property of USG. These documents and tangible items include any and all document(s) and/or tangible item(s) related to Inventions and to Confidential Information, in whatever form they may exist, and by whoever prepared, which were in Employee’s custody, possession or control.

13.
INJUNCTIVE REMEDY
Employee acknowledges that breach of any material provision of this Agreement will cause irreparable damage to USG, and agrees that an injunction may be obtained restraining such breach as a matter of course in any action instituted for that purpose, without limitation on any additional remedies which USG may seek against Employee to protect such Confidential Information or its rights with respect to such Inventions.

14.
AFFILIATED EMPLOYMENT OR TRANSFER
For the purposes of this Agreement, this Agreement applies to any and all periods of employment with any subsidiary, affiliate or related company of USG.

15.
GOVERNING LAW
This Agreement shall be interpreted and given effect in accordance with the laws of the State of Illinois.

16.
IRS CODE SECTION 409A
To the extent applicable, it is intended that this Agreement and attachment shall comply with the provisions of Section 409A of the Code. Consideration under this agreement shall be administered in a manner consistent with this intent. Employee understands and acknowledges that consistent with the Code, select payments will be delayed six months.

17.
SEVERABILITY OF THE AGREEMENT
If any provision of this Agreement is declared illegal or unenforceable by any court of competent jurisdiction, and cannot be modified to be enforceable, that provision will become void, leaving the remainder of this Agreement in full force and effect.

18.
COUNTERPARTS
This Agreement may be executed in several counterparts, each of which shall be deemed as an original, but all of which together shall constitute one and the same instrument; signed copies of this Agreement may be delivered in PDF format by e-mail, or by fax, and each such copy shall be accepted as an original.

4



19.
VOLUNTARY AND KNOWING RELEASE
Employee acknowledges that Employee has carefully read this Agreement and General Release and Employee fully understands and voluntarily agrees to its terms. Employee acknowledges that Employee has not relied upon any representation or statement, written or oral, which is not set forth in this Agreement and General Release. Employee acknowledges that this Agreement and General Release is entered into without duress or coercion of any kind.



   /s/ Christopher R. Griffin
 
  August 4, 2015
Christopher R. Griffin
 
Date
 
 
 


USG CORPORATION
 
  August 10, 2015
 
 
Date
By /s/ Brian Cook
 
 
Its Senior Vice President, Human Resources and
 
 
Communications
 
 


5


EXHIBIT 31.1
CERTIFICATIONS
I, James S. Metcalf, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of USG Corporation (the “Corporation”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Corporation as of, and for, the periods presented in this report;
4.
The Corporation’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15(d)-15(f)) for the Corporation and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Corporation, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the Corporation’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the Corporation’s internal control over financial reporting that occurred during the Corporation’s most recent fiscal quarter (the Corporation’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting; and
5.
The Corporation’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Corporation’s auditors and the audit committee of the Corporation’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Corporation’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Corporation’s internal control over financial reporting.

10/22/2015
/s/ James S. Metcalf
 
James S. Metcalf
 
Chairman, President and Chief Executive Officer




EXHIBIT 31.2
CERTIFICATIONS
I, Matthew F. Hilzinger, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of USG Corporation (the “Corporation”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Corporation as of, and for, the periods presented in this report;
4.
The Corporation’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15(d)-15(f)) for the Corporation and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Corporation, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the Corporation’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the Corporation’s internal control over financial reporting that occurred during the Corporation’s most recent fiscal quarter (the Corporation’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting; and
5.
The Corporation’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Corporation’s auditors and the audit committee of the Corporation’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Corporation’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Corporation’s internal control over financial reporting.

10/22/2015
/s/ Matthew F. Hilzinger
 
Matthew F. Hilzinger
 
Executive Vice President and Chief Financial Officer




EXHIBIT 32.1
SECTION 1350 CERTIFICATIONS
In connection with the Quarterly Report of USG Corporation (the “Corporation”) on Form 10-Q, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James S. Metcalf, Chairman, President and Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

10/22/2015
/s/ James S. Metcalf
 
James S. Metcalf
 
Chairman, President and Chief Executive Officer




EXHIBIT 32.2
SECTION 1350 CERTIFICATIONS
In connection with the Quarterly Report of USG Corporation (the “Corporation”) on Form 10-Q, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matthew F. Hilzinger, Executive Vice President and Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

10/22/2015
/s/ Matthew F. Hilzinger
 
Matthew F. Hilzinger
 
Executive Vice President and Chief Financial Officer




EXHIBIT 95
Mine Safety Disclosures

The operation of our ten mines and quarries in the United States is subject to regulation and inspection under the Federal Mine Safety and Health Act of 1977, or Safety Act. From time to time, inspection of our mines and quarries and their operation results in our receipt of citations or orders alleging violations of health or safety standards or other violations under the Safety Act. We are usually able to resolve the matters identified in the citations or orders with little or no assessments or penalties.
Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and rules promulgated by the Securities and Exchange Commission, or SEC, to implement that Section require that we disclose specified information about mine health and safety in our periodic reports filed with the SEC. The disclosure requirements set forth in Section 1503 and the SEC rules refer to, and are based on, the safety and health requirements applicable to mines under the Safety Act which is administered by the U.S. Labor Department's Mine Safety and Health Administration, or MSHA. Under the Safety Act, MSHA is required to inspect surface mines at least twice a year and underground mines at least four times a year to determine whether there is compliance with health and safety standards or with any citation, order or decision issued under the Safety Act and whether an imminent danger exists. MSHA also conducts spot inspections and inspections pursuant to miners' complaints.
If violations of safety or health standards are found, MSHA inspectors will issue citations to the mine operators. Among other activities under the Safety Act, MSHA also assesses and collects civil monetary penalties for violations of mine safety and health standards.
In addition, an independent adjudicative agency, the Federal Mine Safety and Health Review Commission, or FMSHRC, provides administrative trial and appellate review of legal disputes arising under the Safety Act. Most cases deal with civil penalties proposed by MSHA to be assessed against mine operators and address whether the alleged safety and health violations occurred, as well as the appropriateness of proposed penalties.
During the quarter ended September 30, 2015, we received 2 citations alleging health and safety violations that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard under the Safety Act, or S&S violations, and 16 citations alleging other health and safety violations. No assessments have yet been made by MSHA with respect to the 18 citations. Set forth below is information with respect to the gypsum mines for which citations were received during the quarter ended September 30, 2015:
Location of Mines/Quarries
Number of Citations for S&S Violations
Number of Citations for Non S&S Violations
Total Proposed Assessments
Alabaster, Michigan
—
—
$—
Empire, Nevada
—
1
—
Fort Dodge, Iowa
—
—
—
Plaster City, California
—
3
—
Shoals, Indiana
1
2
—
Sigurd, Utah
—
—
—
Southard, Oklahoma
—
—
—
Sperry, Iowa
—
7
—
Spruce Pine, North Carolina
—
1
—
Sweetwater, Texas
1
2
—
Totals
2
16
$—
We did not receive any citations or orders for unwarrantable failure to comply with mandatory health and safety standards under the Safety Act, any orders under the Safety Act regarding withdrawal from a mine as a result of failure to abate in a timely manner a health and safety violation for which a citation was issued, any imminent danger orders under the Safety Act, any written notice from MSHA of a pattern of violations of mandatory health or safety standards that are of such a nature as could significantly and substantially contribute to the cause and effect of mine health and safety hazards under the Safety Act or any written notice from MSHA of the potential to have such a pattern during the quarter ended September 30, 2015. Also, there were no flagrant violations under the Safety Act and no mining-related fatalities during the quarter ended September 30, 2015, and no legal actions before the FMSHRC were instituted during the quarter ended September 30, 2015 or pending as of September 30, 2015.



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