Building On The Recovery

Transcription

1 Building On The Recovery April 2013

2 CAUTIONARY STATEMENTS This presentation 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; 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; 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 forwardlooking information contained in this press release. 1

3 DISCUSSION POINTS USG Overview Market Commentary Strategic Growth Financial Update Appendix 2

4 USG PROFILE FOUNDED: NYSE: LISTED: 1902 USG 1931 Industry Leader #1 or #2 in all Core Businesses $3.2 Billion 2012 Sales Vertically Integrated Over 75 Production Facilities Over 140 Distribution Branches in 36 states 3

5 USG AT HOME 4

6 USG AT WORK 5

7 USG OVERVIEW Building Products Manufacturing Specialty Distribution North American Gypsum United States Gypsum Co. CGC Gypsum (Canada) USG Mexico Worldwide Ceilings USG Interiors, LLC USG International CGC Ceilings (Canada) Building Products Distribution L&W Supply Net Sales* $Billions Market Position $2.0 #1 $0.6 #2 Geographic Scope U.S. Canada Mexico North America and International $1.1 #1 U.S. Net Sales Split* 31% Specialty Distribution 20% Rest of World Building Products Manufacturing 69% United States 80% * Four quarters 2012, before inter-segment eliminations of $484 million 6

8 NORTH AMERICAN GYPSUM Wallboard North American wallboard leader Leader in Quality, Service and Innovation SHEETROCK is the most recognized, trusted and specified wallboard brand Most extensive portfolio of commercial and residential products Committed to Innovation Leading manufacturing process technologies Creating solutions for emerging building trends Low Delivered Cost World class logistics model Most modern network of high speed plants Partnered with Channel Leaders L&W Supply Home Depot Independent specialty and pro dealers SHEETROCK Brand UltraLight Panels Portfolio of commercial & residential lightweight panels Contractor preferred 7

9 NORTH AMERICAN GYPSUM Performance Surfaces Profitable business with stable margins through the cycle Only manufacturer with a nationwide footprint of plants Contractor focus Key to success Innovative focus across the portfolio Joint Compound Focus on innovation Contractor preferred brand and products Broadest distribution network Corner Bead Key growth opportunity Leverage SHEETROCK brand Plastic innovation is the next growth platform Plaster and Decorative Finishes Industry leader Consistent margin Excellent cash generation Partnered with Channel Leaders L&W Supply Home Depot Lowes Menards 8

10 NORTH AMERICAN GYPSUM Performance Substrates Diverse portfolio of products with multiple uses and markets Innovative focus across the portfolio Profitable business with stable margins through the cycle First or second market share in all core products Performance Flooring Tile and Flooring Premier Brands; DUROCK & FIBEROCK LEVELROCK STRUCTO-CRETE Industrial Products Specialty applications Raw material focus 30+ varied markets Stable markets Commercial Roof Boards SECUROCK Brand Roof Board & Exterior Sheathing Gypsum-fiber, Glass-mat and Cement solutions Re-roof market currently dominates the available opportunity Adjacencies Growth opportunities Building envelope and exterior systems development Innovative and sustainable product solutions Business incubator 9

11 NORTH AMERICAN GYPSUM Q Highlights Highest 1 st quarter Operating Profit since 2007 Successfully implemented wallboard pricing strategy with positive results in all channels Price improvement in all key product lines Q Operating Profit $32 US Wallboard Price $25 US Wallboard Cost ($3) US Wallboard Volume ($2) Joint Treatment Cost ($2) Restructuring/Other ($4) Q Operating Profit $46 $ Millions Q Q1 2012* Variance Net Sales $509 $486 $23 Revenue $ Millions $600 Operating Profit $ Millions $60 Operating Profit $46 $32 $14 $450 $40 Restructuring/ Impairment Adjusted Operating Profit* $1 $2 ($1) $47 $34 $13 $300 $150 $20 DD&A $28 $28 - $0 Q Q Q Q Q $0 Revenue Profit * See reconciliation to GAAP operating profit/(loss) on slide 38 10

12 WORLDWIDE CEILINGS #2 Position in consolidated industry with leading brands International manufacturing and market coverage Profitable business with stable margins through the cycle Solutions focused on performance, sustainability, and aesthetics Acoustical Tile Full line offering Sustainable solutions Specification focused Specialty Solutions Innovator Leading brands End user focused Suspension Systems Global brand: DONN grid World class manufacturing Complete code approvals Partnered with GE for integrated lighting solution Commercial Segments Specialty distribution Architect and designer Strategic owner accounts Strong in all key end use segments Extensive retail presence 11

13 WORLDWIDE CEILINGS Q Highlights Highest Operating Profit on record despite lower volumes in a soft market Margin improvement in nearly every line of the business Operating Profit up 93% from 4 th quarter Q Operating Profit $26 Tile & Grid Volume ($2) Tile and Grid Price $2 Other $1 Q Operating Profit $27 $ Millions Q Q1 2012* 1 Variance Net Sales $153 $154 ($1) Operating Profit/(Loss) Restructuring/ Impairment Adjusted Operating Profit $27 $26 $1 $27 $26 $1 DD&A $4 $4 Revenue $ Millions $225 Operating Profit $ Millions $150 $20 $75 $10 $0 $0 Q Q Q Q Q Revenue Profit $30 * See reconciliation to GAAP operating profit/(loss) on slide 38 1 Prior period amounts have been adjusted to reflect our former European operations as discounted operations 12

14 BUILDING PRODUCTS DISTRIBUTION Building Materials Wholesaler with industry leading service, a broad portfolio of high performance products and a wide array of business solutions Last mile logistics safely to the jobsite Focused on making our +30,000 contractor customers successful everyday 70% of revenue from core products beyond wallboard Share-of-wallet focus across 7 core product categories Two-thirds of revenue is from commercial construction (new and tenant improvement) 13

15 BUILDING PRODUCTS DISTRIBUTION Q Highlights Strong improvement in wallboard margins Improved margins in joint treatment and steel Our value proposition is well-positioned for improving velocity as commercial rebounds Q Operating Loss ($6) Wallboard Margin $ 5 Operating Expenses ($1) Q Operating Loss ($2) $ Millions Q Q1 2012* Variance Net Sales $281 $270 $11 Operating Profit/(Loss) Restructuring/ Impairment Adjusted Operating Loss ($2) ($6) $4 ($2) ($6) $4 DD&A $3 $3 * See reconciliation to GAAP operating profit/(loss) on slide 38 Revenue $ Millions $400 $300 $200 $100 $0 Q Q Q Q Q Revenue Profit * See reconciliation to GAAP operating profit/(loss) on slide 14 Operating Profit $ Millions $20 $10 $0 ($10) ($20) 14

16 DISCUSSION POINTS USG Overview Market Commentary Strategic Growth Financial Update Appendix 15

17 COMMERCIAL CONSTRUCTION Key Commercial Construction Drivers Economic Growth Demographics Commercial Building Type Commercial Construction Starts Millions of square feet 1,667 1,379 Age of Building Stock Government Spending Building Turnover Other Non-Focus Other Focus Healthcare Education Hotel Office Retail A 2008A 2009A 2010A 2011A 2012A 2013E 2014E 2015E 2016E Source: McGraw Hill Construction ,166 1,266 Architectural Billings Index USG products ship approximately months after a commercial start Nonresidential construction growth influenced by fiscal policies, business investment and hiring Commercial segments retail, office and hotels expected to improve first, reflecting more private sector funding and supporting residential construction activity Institutional categories education and healthcare tied to financial health of federal, state and local governments Demographics support need for more healthcare services As in past recoveries, nonresidential construction is projected to improve following more favorable residential activity J M S J M S J M S J M S J M S J M S J M Note: Index higher than 50 reflects growth Source: American Institute of Architects S 16

18 RESIDENTIAL CONSTRUCTION Key Residential Construction Drivers Economic Growth Mortgage Rates Demographics Inventory of Homes Employment Situation Affordability Residential Housing Starts (Seasonally Adjusted Annual Rate) Thousands 2,500 2,000 1,500 NAHB/First American Improving Markets Index (IMI) 1, Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Source: U.S. Census Bureau After slight improvement over the prior two years, housing starts gained modest momentum in 2012 Residential activity improvements seen in all regions Builders confidence at highest level since Spring 2006 Inventory of newly constructed and move-in ready homes at historically low level Household formations reverting to more normal levels Residential construction is trending positively throughout more areas of the country. USG is well positioned to take advantage of this recovery. 17

19 REPAIR & REMODEL Repair and Remodel Drivers Average age of US housing stock is 38 years old NAHB Remodeler Index in Q rises to highest level since early 2004 Lenders and new owners are rehabilitating millions of foreclosed properties Baby boomers undertake home modifications to age-inplace U.S. Industry Wallboard Market Repair and Remodel Activity All signs point to a strong rebound for home improvement activity in Robust spending in the second half of 2012 suggests the remodeling recovery is already underway Joint Center for Housing Studies of Harvard University Leading Indicator of Remodeling Activity (LIRA) January 2013 Remodelers are optimistic about the outlook for slow and steady market growth in the new year. National Association of Home Builders Remodeling Market Index (RMI) January Total Industry Shipments (BSF) Residential Non-Residential Repair and Remodel Other - Gypsum Association, Company Estimates 18

20 MOVING TOWARD THE MEAN Housing Annual starts (M Units) Commercial Annual starts (BSF) R&R Home Improvement* ILLUSTRATIVE 1, % % 2.4% Long-Term Mean** Long-Term Mean*** Long-Term Mean Demographics GDP Growth Aging Stock Turnover * Private residential fixed investment as a percent of GDP since 1950 ** Since 1959 *** Since

21 2012 AVERAGE U.S. MARKET SHARE Wallboard & Gypsum Panels Industry participant undergoing corporate change Eagle Materials Lafarge 10% 10% PABCO 4% 26% USG Industry Capacity (BSF) Saint Gobain 13% 21% Georgia- Pacific* 16% National *Subject to Georgia Pacific acquisition of International Paper wallboard assets being consummated in 2013 Source: Gypsum Association, Company Sources 20

22 DISCUSSION POINTS USG Overview Market Commentary Strategic Growth Financial Update Appendix 21

23 STRATEGIC PRIORITIES Strengthen our core businesses Diversify the sources of our earnings Select emerging markets Adjacent products/systems Differentiate through innovation 22

24 STRENGTHEN THE CORE Streamlining Operations 2007 CREATING OUR OWN RECOVERY 2013 Manufacturing Distribution Mining/Shipping Workforce 3.8 BSF capacity reduction 14 wallboard lines idled 4 paper mills idled Focus on Lean Six Sigma to lower cost Record levels of safety and quality Closed over 125 L&W Supply branches Structure of organization better aligned with customer needs Leveraged nationwide strength in sourcing Increased focus on non-wallboard products Idled/closed 3 quarries Repurposed ships to generate revenue Reduction of 4,830 positions Changed retiree medical benefit Outsourcing functions to lower cost Align organization structure with strategy $516MM in cost reductions SG&A at 2002 levels 23

25 STRENGTHEN THE CORE Accelerating Growth Increased our industry-leading OSHA Star participation Sustainability focus drives a 10% reduction in energy usage per sq ft of product since 2008 Normalized energy usage (2008 = 100) Lean Six Sigma efforts produce $13MM+ in scalable cost savings First company to implement UL s sustainable wallboard certification Black belts are working in all USG facilities and in the corporate office Plan to increase savings in 2013 Benefits will grow substantially as volumes return Lean principles are being rolled out across the enterprise 24

26 STRENGTHEN THE CORE Synthetic Gypsum Synthetic Gypsum provides strategic value for USG 38% of USG s total 2012 gypsum usage was synthetic gypsum USG s rock reserves among the largest in the industry 7 of 19 wallboard plants use synthetic gypsum for all of their needs, 5 additional use it for some production Synthetic gypsum contracts are of varying durations, up to 20+ years Financial assurances from utilities exist in most of our major agreements for a steady supply Most plants are located near rail or waterways to allow for supply from multiple sources Utilities are switching to lower cost, higher sulfur coal and running their higher efficiency plants with scrubbers more; this drives more synthetic gypsum production 25

27 DIVERSIFY EARNINGS Adjacencies Select International Growth SECUROCK cement roof board SECUROCK gypsum-fiber roof board DUROCK Self-Leveling Underlayment L&W Supply core product strategy Oman/India Joint Ventures Secures strategic rock asset in emerging market Fastest entry to Indian wallboard market - ~2 BSF in 2020 Sell rock to established cement industry in India Approximately $60 million in total investment over two years Quarry targeted to be operational in late 2013, USG emerging market plant targeted

28 DIFFERENTIATE THROUGH INNOVATION Sheetrock Sheetrock Gypsum Panels Pyrobar Gypsum Partition Tile Acoustone Rocklath Gyplap Gypsum Sheathing Rocklath Gypsum Lath Acoustone Ceiling Tiles Perf-A-Tape Joint Reinforcement Pyrofill Firecode Structo-Gauge Gauging Plaster Pyrofill Poured Gypsum Roof Deck Water Repellent Wallboard Structo-Lite Perlited Plaster Sheetrock Firecode Core (Type X) Tapered Edge Panels Ready-Mixed Joint Compound 2" Solid Gypsum Wall Board System USG has led every major industry innovation Ultrawall Structocore Structocore Wall System First Metal Stud Drywall System RC-1 Channel Sheetrock WR Gypsum Panels Chemically Hardening Joint Compound SW Gypsum Panels Blendtex Gypsum Panels Exterior Ceiling Board Ultrawall Relocatable Wall System USG Shaft Wall System Textone SW Gypsum Panels Area Separation Wall System Light Steel Framing Durock Fiberock Structocore Security System Durock Cement Board Sheetrock Plus 3 Joint Compound X-Technology Ceiling Panels Firecode Compound 3/4" Ultracode Core Gypsum Panels Compässo Suspension Trim Quick Release II Clip Cuvatura 3-D System Radar ClimaPlus Ceiling Panels Fiberock Panels USG Drywall Suspension System Humitek Levelrock Next Generation Gypsum Panels Levelrock Floor Underlayment System USG Decorative Interior Finish System Geometrix Metal Ceiling Panels Astro ClimaPlus Ceiling Panels Translucents Luminous Panels Topo 3-D Ceiling Panels Humitek Gypsum Panels Securock Roof Board Sheetrock All Purpose Joint Compound with Dust Control Sheetrock Mold-Tough panels Zero-emitting ceiling tiles High Recycled Content Suspension Systems True Wood Ceiling Panels Securock Glass-Mat Sheathing Securock Glass-Mat Liner Panels Sheetrock Brand UltraLight Panel Securock Glass- Mat Roof Board : 1,100+ Patents 27

29 DIFFERENTIATE THROUGH INNOVATION Leader in Lightweight Innovation DUROCK Next Gen Cement Board ½ SHEETROCK UltraLight Panels ⅝ SHEETROCK UltraLight Firecode 30 ⅝ SHEETROCK UltraLight Firecode X SHEETROCK Ultra Lightweight All Purpose ½ SHEETROCK UltraLight Mold Tough Panels Up to 25% Lighter Up to 30% Lighter Up to 30% Lighter Up to 15% Lighter Up to 40% Lighter Up to 20% Lighter 5 Years of Lightweight Product Launches 28

30 DISCUSSION POINTS USG Overview Market Commentary Strategic Growth Financial Update Appendix 29

31 Q CONSOLIDATED FINANCIAL RESULTS $ Millions (except EPS) Q Q Net Sales $814 $783 Gross Profit $124 $102 % of Net Sales 15% 13% SG&A $73 $76 Operating Profit $49 $24 Interest Expense $50 $52 Net Income/(Loss) $2 ($27) Diluted EPS 0.02 (0.26) Restructuring and Impairment Charges $2 $2 Adjusted Net Income/(Loss)* $1 ($27) 1 Prior period amounts have been adjusted to reflect our former European operations as discontinued operations * See reconciliation to GAAP operating profit/(loss) on slide

32 FY 2012 CONSOLIDATED FINANCIAL RESULTS $ Millions (except EPS) FY 2012 FY 2011 Net Sales 1 $3,224 $2,910 Gross Profit 1 $395 $158 % of Net Sales 1 12% 5% SG&A 1 $304 $289 Operating Profit (Loss) 1 $73 ($206) Interest Expense 1 $206 $211 Net Loss 2 ($126) ($390) Diluted EPS 2 (1.19) (3.76) Restructuring and Impairment Charges 1 $18 $75 Adjusted Operating Profit (Loss)* 1 $91 ($131) 1 Results from continuing operations 2 Results from continuing and discontinued operations * See reconciliation to GAAP operating profit/(loss) on slide 39 1 Results from continuing operations 2 Results from continuing and discontinued operations 31 31

33 Q CONSOLIDATED FINANCIAL RESULTS $ Millions 3 months ending March 31, months ending March 31, 2012 Cash flow provided by (used for) operations ($100) ($32) Capital Expenditures ($25) ($13) Investments and Loans to JVs ($7) Acquisition of Mining Rights ($17) Other $10 Adjusted cash flow (used for) investment activities* ($42) ($10) Cash flow (used for) financing activities ($7) ($4) Effect of exchange rate on cash ($1) $4 Adjusted increase/(decrease) in cash and cash equivalents* ($150) ($42) March 31, 2013 March 31, 2012 Cash and cash equivalents and marketable securities $526 $608 Total liquidity $767 $827 Total debt $2,309 $2,303 * US GAAP measure of net cash provided by (used for) investing * $73MM activities in 2012 was from ($43MM) sale of in European 2013 and operations $137MM in 2012 and includes net (purchases)/sales of marketable securities of ($1MM) in 2013 and $147MM in 2012 ** US GAAP measure of net cash provided by (used for) investing activities was $138MM in 2012 and ($55MM) in 2011 and includes net (purchases)/sales of marketable securities of $154MM in 2012 and ($10MM) in

34 U.S. GYPSUM CO. OPERATING LEVERAGE Incremental Operating Profit Margin After a Trough 56% 35% 33% Incremental Operating Profit Margin for USG Corporation was 71% 33

35 FINANCIAL FLEXIBILITY $874 million of liquidity as of 12/31/12 ($834MM on 12/31/11) $440 million U.S. and Canadian revolving credit facilities in place Capital spending, investments in and loans to joint ventures, including Oman capex, expected to be $175MM in 2013 $2.1B U.S. Tax Loss Carryforward Senior Note Maturities $ Millions Senior notes callable in 2016 Senior notes callable in 2014 Convertible notes callable in 2013 Bullet $1,400 $1,200 $1,000 $800 $600 $400 $200 $

36 SUMMARY We are creating our own recovery by: Continuing to strengthen our core businesses Diversifying earnings through select emerging market and product adjacencies Differentiating through innovation Creating financial flexibility 35

37 DISCUSSION POINTS USG Overview Market Commentary Strategic Growth Financial Update Appendix 36

38 TAX LOSS CARRYFORWARD USG s current Federal Tax Loss Carryforward is $2.1B The Tax Loss Carryforward will shelter the first $2.1B of USG s U.S. domestic earnings in the recovery Due to cumulative losses, USG has a deferred tax valuation allowance for accounting purposes As a result, our book tax rate only reflects state and foreign taxes We are estimating total cash tax payments of $8-12MM in

39 ADJUSTED OPERATING PROFIT/(LOSS) RECONCILED TO GAAP OPERATING PROFIT/(LOSS)* $ Millions Q Q Change Adjusted Operating Profit (Loss) North American Gypsum $47 $34 $13 Worldwide Ceilings $27 $26 $1 Building Products Distribution ($2) ($6) $4 Corporate & Eliminations ($21) ($28) $7 TOTAL $51 $26 $25 Restructuring and Asset Impairment Charges North American Gypsum $1 $2 ($1) Worldwide Ceilings Building Products Distribution Corporate & Eliminations $1 $1 TOTAL $2 $2 Reported GAAP Operating Profit (Loss) North American Gypsum $46 $32 $14 Worldwide Ceilings $27 $26 $1 Building Products Distribution ($2) ($6) $4 Corporate & Eliminations ($22) ($28) $6 TOTAL $49 $24 $25 * All results from continuing operations * References to Adjusted Operating Profit (Loss) are non-gaap measures. Management believes this information provides investors with a more useful comparison of the corporation s ongoing business performance. 1 Prior period amounts have been adjusted to reflect our former European operations as discontinued operations 38

40 ADJUSTED OPERATING PROFIT/(LOSS) RECONCILED TO GAAP OPERATING PROFIT/(LOSS)* $ Millions Q Q Change New Income/(Loss) GAAP Measure 2 (27) 29 Less: Income from discontinued operations, net of tax (2) 2 Reduction in valuation allowance for deferred (3) (3) tax assets Add Back: Restructuring Charges 2 2 Adjusted Net Income/(Loss) Non-GAAP Measure 1 (27) 28 * Adjusted Net Income (Loss) is a non-gaap financial measure. We present Adjusted Net Income (Loss) to provide additional information regarding our current financial and operating performance because the measure excludes certain items that may not be indicative of the company's core operating results. In addition, Adjusted Net Income (Loss) is utilized by the company in evaluating operating performance. 39