DE | 1-33100 | 43-2109021 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
One Owens Corning Parkway Toledo, OH | 43659 |
(Address of principal executive offices) | (Zip Code) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
o | Emerging growth company |
Item 2.02 | Results of Operations and Financial Condition |
Item 9.01 | Financial Statements and Exhibits |
Exhibit No. | Description |
99.1 |
Owens Corning | ||
April 25, 2018 | By: | /s/ Ava Harter |
Ava Harter | ||
Senior Vice President, General Counsel and Secretary |
Exhibit No. | Description |
99.1 |
Media Inquiries: | Investor Inquiries: | |||
Chuck Hartlage | Thierry Denis | |||
419.248.5395 | 419.248.5748 |
▪ | Insulation grew EBIT by $27 million on strong price execution and contribution from acquisitions |
▪ | Roofing reported 15% EBIT margins as material and transportation inflation outpaced positive pricing |
▪ | Composites delivered flat revenue versus a strong prior year comparison |
▪ | Integration of Paroc on-track |
• | Owens Corning sustained a high level of safety performance in first-quarter 2018, with a recordable incident rate of 0.46, compared with 0.49 in first-quarter 2017, representing a 6% reduction. |
• | Reported earnings before interest and taxes (EBIT) for first-quarter 2018 were $131 million, compared with $170 million during the same period in 2017. Adjusted EBIT in first-quarter 2018 was $152 million, down from $171 million in 2017 (See Table 2). |
• | During first-quarter 2018, Owens Corning repurchased 1.0 million shares of its common stock for $83 million. As of the end of the quarter, 6.5 million shares were available for repurchase under the current authorization. |
• | On February 5, 2018, the company completed the acquisition of Paroc Group, a leading producer of mineral wool insulation in Europe, further broadening the product portfolio and expanding the geographic footprint of the Insulation business. The company issued $400 million of 30-year notes at 4.4% on January 25, 2018 in association with this transaction. |
• | The company expects an environment consistent with consensus expectations for U.S. housing starts and global industrial production growth. |
• | In Roofing, the company expects growth in both the new construction and remodeling markets. Storm demand at historical averages would result in a mid-single digit decline of the overall asphalt shingle market. The components business is expected to grow at a double-digit rate. The company continues to expect to achieve sufficient pricing in the year to overcome the impact of asphalt and transportation cost inflation. |
• | In Composites, the company expects continued growth in the glass fiber market, driven by global industrial production growth. Despite higher than anticipated inflation in the first quarter, the company continues to target an EBIT improvement of about $20 million, with the benefit of market growth and improved pricing partly offset by accelerated inflation and higher rebuild costs. |
• | In Insulation, the company continues to expect to deliver EBIT growth of $150 million. First-quarter price realization is ahead of the previously disclosed expectation, but the additional progress is anticipated to be offset by transportation inflation in 2018. The current EBIT outlook does not include the potential benefit of future price activity, primarily in the U.S. residential new construction business. |
• | The company estimates an effective tax rate of 26 percent to 28 percent. The company also continues to expect a cash tax rate of 10 percent to 12 percent on adjusted pre-tax earnings, due to the company’s U.S. tax net operating loss and foreign tax credit carryforwards. |
• | The company expects general corporate expenses to be between $140 million and $150 million in 2018. Capital additions in 2018 are expected to total approximately $500 million. Interest expense is expected to be between $125 million and $130 million. |
• | For full-year 2018, the company expects to convert adjusted earnings into free cash flow at about 100%. |
Three Months Ended March 31, | ||||||
2018 | 2017 | |||||
NET SALES | $ | 1,691 | $ | 1,478 | ||
COST OF SALES | 1,336 | 1,136 | ||||
Gross margin | 355 | 342 | ||||
OPERATING EXPENSES | ||||||
Marketing and administrative expenses | 185 | 142 | ||||
Science and technology expenses | 23 | 21 | ||||
Other expenses, net | 20 | 11 | ||||
Total operating expenses | 228 | 174 | ||||
OPERATING INCOME | 127 | 168 | ||||
Non-operating income | (4 | ) | (2 | ) | ||
EARNINGS BEFORE INTEREST AND TAXES | 131 | 170 | ||||
Interest expense, net | 28 | 26 | ||||
EARNINGS BEFORE TAXES | 103 | 144 | ||||
Income tax expense | 11 | 43 | ||||
NET EARNINGS | 92 | 101 | ||||
Net earnings attributable to noncontrolling interests | — | — | ||||
NET EARNINGS ATTRIBUTABLE TO OWENS CORNING | $ | 92 | $ | 101 | ||
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO OWENS CORNING COMMON STOCKHOLDERS | ||||||
Basic | $ | 0.83 | $ | 0.90 | ||
Diluted | $ | 0.82 | $ | 0.89 | ||
Dividend | $ | 0.21 | $ | 0.20 | ||
WEIGHTED AVERAGE COMMON SHARES | ||||||
Basic | 111.5 | 112.3 | ||||
Diluted | 112.8 | 113.5 |
Three Months Ended March 31, | ||||||
2018 | 2017 | |||||
Restructuring costs | $ | (5 | ) | $ | — | |
Acquisition-related costs | (14 | ) | (1 | ) | ||
Recognition of acquisition inventory fair value step-up | (2 | ) | — | |||
Total adjusting items | $ | (21 | ) | $ | (1 | ) |
Three Months Ended March 31, | ||||||
2018 | 2017 | |||||
NET EARNINGS ATTRIBUTABLE TO OWENS CORNING | $ | 92 | $ | 101 | ||
Net earnings attributable to noncontrolling interests | — | — | ||||
NET EARNINGS | 92 | 101 | ||||
Income tax expense | 11 | 43 | ||||
EARNINGS BEFORE TAXES | 103 | 144 | ||||
Interest expense, net | 28 | 26 | ||||
EARNINGS BEFORE INTEREST AND TAXES | 131 | 170 | ||||
Adjusting items from above | (21 | ) | (1 | ) | ||
ADJUSTED EBIT | $ | 152 | $ | 171 |
Three Months Ended March 31, | ||||||
2018 | 2017 | |||||
RECONCILIATION TO ADJUSTED EARNINGS | ||||||
NET EARNINGS ATTRIBUTABLE TO OWENS CORNING | $ | 92 | $ | 101 | ||
Adjustment to remove adjusting items (a) | 21 | 1 | ||||
Adjustment to remove tax benefit on adjusting items (b) | (7 | ) | — | |||
Adjustment to tax expense to reflect pro forma tax rate (c) | (16 | ) | (5 | ) | ||
ADJUSTED EARNINGS | $ | 90 | $ | 97 | ||
RECONCILIATION TO ADJUSTED DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO OWENS CORNING COMMON STOCKHOLDERS | ||||||
DILUTED EARNINGS PER COMMON SHARE ATTRIBUTABLE TO OWENS CORNING COMMON STOCKHOLDERS | $ | 0.82 | $ | 0.89 | ||
Adjustment to remove adjusting items (a) | 0.19 | 0.01 | ||||
Adjustment to remove tax benefit on adjusting items (b) | (0.06 | ) | — | |||
Adjustment to tax expense to reflect pro forma tax rate (c) | (0.15 | ) | (0.05 | ) | ||
ADJUSTED DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO OWENS CORNING COMMON STOCKHOLDERS | $ | 0.80 | $ | 0.85 | ||
RECONCILIATION TO DILUTED SHARES OUTSTANDING | ||||||
Weighted-average number of shares outstanding used for basic earnings per share | 111.5 | 112.3 | ||||
Non-vested restricted and performance shares | 1.0 | 0.9 | ||||
Options to purchase common stock | 0.3 | 0.3 | ||||
Weighted-average number of shares outstanding and common equivalent shares used for diluted earnings per share | 112.8 | 113.5 |
(a) | Please refer to Table 2 "EBIT Reconciliation Schedules" for additional information on adjusting items. |
(b) | The tax impact of adjusting items is based on our expected tax accounting treatment and rate for the jurisdiction of each adjusting item. |
(c) | To compute adjusted earnings, we apply a full year pro forma effective tax rate to each quarter presented. For 2018, we have used a full year pro forma effective tax rate of 27%, which is the mid-point of our 2018 effective tax rate guidance of 26% to 28%. For comparability, in 2017, we have used an effective tax rate of 33%, which was our 2017 effective tax rate excluding the impact of our fourth quarter 2017 net charge related to the U.S. Tax Cuts and Jobs Act of 2017. |
ASSETS | March 31, 2018 | December 31, 2017 | ||||
CURRENT ASSETS | ||||||
Cash and cash equivalents | $ | 140 | $ | 246 | ||
Receivables, less allowances of $21 at March 31, 2018 and $19 at December 31, 2017 | 1,061 | 806 | ||||
Inventories | 943 | 841 | ||||
Assets held for sale | 3 | 12 | ||||
Other current assets | 81 | 80 | ||||
Total current assets | 2,228 | 1,985 | ||||
Property, plant and equipment, net | 3,755 | 3,425 | ||||
Goodwill | 1,962 | 1,507 | ||||
Intangible assets, net | 1,872 | 1,360 | ||||
Deferred income taxes | 155 | 144 | ||||
Other non-current assets | 241 | 211 | ||||
TOTAL ASSETS | $ | 10,213 | $ | 8,632 | ||
LIABILITIES AND EQUITY | ||||||
CURRENT LIABILITIES | ||||||
Accounts payable and accrued liabilities | $ | 1,379 | $ | 1,277 | ||
Short-term debt | 1 | 1 | ||||
Long-term debt – current portion | 4 | 4 | ||||
Total current liabilities | 1,384 | 1,282 | ||||
Long-term debt, net of current portion | 3,762 | 2,405 | ||||
Pension plan liability | 260 | 256 | ||||
Other employee benefits liability | 222 | 225 | ||||
Deferred income taxes | 143 | 37 | ||||
Other liabilities | 301 | 223 | ||||
OWENS CORNING STOCKHOLDERS’ EQUITY | ||||||
Preferred stock, par value $0.01 per share (a) | — | — | ||||
Common stock, par value $0.01 per share (b) | 1 | 1 | ||||
Additional paid in capital | 3,999 | 4,011 | ||||
Accumulated earnings | 1,631 | 1,575 | ||||
Accumulated other comprehensive deficit | (530 | ) | (514 | ) | ||
Cost of common stock in treasury (c) | (1,003 | ) | (911 | ) | ||
Total Owens Corning stockholders’ equity | 4,098 | 4,162 | ||||
Noncontrolling interests | 43 | 42 | ||||
Total equity | 4,141 | 4,204 | ||||
TOTAL LIABILITIES AND EQUITY | $ | 10,213 | $ | 8,632 |
Three Months Ended March 31, | ||||||
2018 | 2017 | |||||
NET CASH FLOW (USED FOR) PROVIDED BY OPERATING ACTIVITIES | ||||||
Net earnings | $ | 92 | $ | 101 | ||
Adjustments to reconcile net earnings to cash (used for) provided by operating activities: | ||||||
Depreciation and amortization | 109 | 84 | ||||
Deferred income taxes | 1 | 27 | ||||
Provision for pension and other employee benefits liabilities | — | 2 | ||||
Stock-based compensation expense | 9 | 10 | ||||
Other non-cash | (1 | ) | 6 | |||
Changes in operating assets and liabilities | (284 | ) | (204 | ) | ||
Pension fund contributions | (6 | ) | (6 | ) | ||
Payments for other employee benefits liabilities | (6 | ) | (8 | ) | ||
Other | (4 | ) | (5 | ) | ||
Net cash flow (used for) provided by operating activities | (90 | ) | 7 | |||
NET CASH FLOW USED FOR INVESTING ACTIVITIES | ||||||
Cash paid for property, plant and equipment | (101 | ) | (67 | ) | ||
Proceeds from the sale of assets or affiliates | 14 | — | ||||
Investment in subsidiaries and affiliates, net of cash acquired | (1,121 | ) | — | |||
Other | 1 | — | ||||
Net cash flow used for investing activities | (1,207 | ) | (67 | ) | ||
NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES | ||||||
Proceeds from long-term debt | 389 | — | ||||
Proceeds from senior revolving credit and receivables securitization facilities | 565 | 194 | ||||
Proceeds from term loan borrowing | 600 | — | ||||
Payments on senior revolving credit and receivables securitization facilities | (197 | ) | (37 | ) | ||
Dividends paid | (46 | ) | (45 | ) | ||
Purchases of treasury stock | (111 | ) | (72 | ) | ||
Other | 1 | 3 | ||||
Net cash flow provided by financing activities | 1,201 | 43 | ||||
Effect of exchange rate changes on cash | (10 | ) | 6 | |||
Net decrease in cash, cash equivalents and restricted cash | (106 | ) | (11 | ) | ||
Cash, cash equivalents and restricted cash at beginning of period | 253 | 118 | ||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | $ | 147 | $ | 107 |
Three Months Ended March 31, | ||||||
2018 | 2017 | |||||
Net sales | $ | 511 | $ | 511 | ||
% change from prior year | — | % | 8 | % | ||
EBIT | $ | 60 | $ | 71 | ||
EBIT as a % of net sales | 12 | % | 14 | % | ||
Depreciation and amortization expense | $ | 37 | $ | 36 |
Three Months Ended March 31, | ||||||
2018 | 2017 | |||||
Net sales | $ | 596 | $ | 399 | ||
% change from prior year | 49 | % | 4 | % | ||
EBIT | $ | 32 | $ | 5 | ||
EBIT as a % of net sales | 5 | % | 1 | % | ||
Depreciation and amortization expense | $ | 45 | $ | 26 |
Three Months Ended March 31, | ||||||
2018 | 2017 | |||||
Net sales | $ | 642 | $ | 627 | ||
% change from prior year | 2 | % | 46 | % | ||
EBIT | $ | 97 | $ | 125 | ||
EBIT as a % of net sales | 15 | % | 20 | % | ||
Depreciation and amortization expense | $ | 12 | $ | 12 |
Three Months Ended March 31, | ||||||
2018 | 2017 | |||||
Restructuring costs | $ | (5 | ) | $ | — | |
Acquisition-related costs | (14 | ) | (1 | ) | ||
Recognition of acquisition inventory fair value step-up | (2 | ) | — | |||
General corporate expense and other | (37 | ) | (30 | ) | ||
EBIT | $ | (58 | ) | $ | (31 | ) |
Depreciation and amortization | $ | 15 | $ | 10 |
Three Months Ended March 31, | ||||||
2018 | 2017 | |||||
NET CASH FLOW (USED FOR) PROVIDED BY OPERATING ACTIVITIES | $ | (90 | ) | $ | 7 | |
Less: Cash paid for property, plant and equipment | (101 | ) | (67 | ) | ||
FREE CASH FLOW | $ | (191 | ) | $ | (60 | ) |
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