Equity method investments

Equity method investments as of June 30, 2014 and December 31, 2013, were as follows:



	June 30, 2014			December 31, 2013
(dollars in millions)	Carrying Value		Ownership Percentage	Carrying Value		Ownership Percentage
USG Boral Building Products (a)	704		50%	N/A		N/A
Other equity method investments	51		33% - 50%	$	73	33% - 50%
Total equity method investments	$	755		$	73

(a) The carrying value of our investment in UBBP as of June 30, 2014, includes transaction costs of approximately $31 million incurred in the fourth quarter of 2013 and first six months of 2014.

Investment in USG Boral Building Products ("UBBP")

On February 27, 2014, we formed a 50/50 joint venture, USG Boral Building Products ("UBBP"), with Boral Limited ("Boral") and certain of its subsidiaries. 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 region, mineral fiber ceiling tiles, steel grid and studs and joint compound.

On February 27, 2014, as consideration for our 50% ownership in UBBP, we (i) made a cash payment of $513 million to Boral, which includes a $500 million base price and $13 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 14, and (iii) granted to UBBP licenses to use certain of our intellectual property rights in the Territory. We funded our cash payment 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. The cash portion of the consideration paid to Boral is subject to customary post-closing adjustments.

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 venture were deconsolidated resulting in a gain of $27 million, which is included in our Consolidated Statement of Operations for the six months ended June 30, 2014. Approximately $11 million of the gain relates to the remeasurement of our retained investment in the contributed subsidiaries to a preliminary 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%. Additionally, we recorded a liability of $23 million representing the present value of the first earnout payment, which is included in other liabilities on our accompanying Consolidated Balance Sheet as of June 30, 2014. We are not currently required under applicable accounting guidance to record a liability for the second earnout payment, as such, a liability has not been recorded on our Consolidated Balance Sheet as of June 30, 2014.

All of our investments accounted for under the equity method 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 UBBP are denominated in a foreign currency, translation gains or losses will impact the recorded value of our investment and, for the four months ended June 30, 2014, resulted in a net gain of $11 million. For the six months ended June 30, 2014, our accompanying Consolidated Statement of Operations includes $7 million of equity income, representing our share of four months of results of UBBP.

Summarized financial information for our equity method investments is as follows:



	Three months ended June 30,			Six months ended June 30,
(in millions)	2014		2013	2014 (a)		2013
USG Boral Building Products:
Net sales	$	280	N/A	$	369	N/A
Gross profit	80		N/A	102		N/A
Operating profit	16		N/A	26		N/A
Net income	10		N/A	17		N/A
Net income attributable to USG Boral Building Products	9		N/A	15		N/A
USG share of income from investment accounted for using the equity method	4		N/A	7		N/A
Other equity method investments^(b):
USG share of income from investments accounted for using the equity method	1		1	1		1


(a)	Operating results are presented for UBBP for the four months ended June 30, 2014.


(b)	Amounts represent our share of income or loss from all equity method investments, other than UBBP. For the six months ended June 30, 2014, the amount reflected includes two months of our share of equity method earnings from the joint ventures which we had accounted for as equity method investments prior to being contributed to UBBP on February 27, 2014.