• 2Q18 Net sales growth of 5.4%; Net Sales, Constant Currency up 4.1%*
  • 2Q18 Net loss from continuing operations of $29.2 million
    • Net loss from continuing operations includes $59.8 million pre-tax debt refinancing charge
  • 2Q18 Diluted loss per share from continuing operations of $0.40; 2Q18 Adjusted EPS* growth of 17.4% to $0.27
  • 2Q18 Adjusted EBIT* decline of 19.3% to $33.9 million
  • Restructuring and repositioning global admixtures business to focus on core markets, reduce expenses by $25 million and accelerate VERIFI® penetration
  • Updating 2018 financial guidance

CAMBRIDGE, Mass., Aug. 07, 2018 (GLOBE NEWSWIRE) -- GCP Applied Technologies Inc. (NYSE: GCP) today announced second quarter 2018 results.

Total GCP Applied Technologies
($ Millions)

 2Q 2018 2Q 2017 % Change
Net sales$302.8 $287.2 5.4%
Net Sales, Constant Currency*$298.9 $287.2 4.1%
Gross margin36.9% 40.1% (320) bps
Adjusted Gross Margin*37.2% 40.9% (370) bps
(Loss) income from continuing operations attributable to GCP shareholders$(29.2) $1.3 NM
Net loss attributable to GCP shareholders$(27.9) $(4.7) (493.6)%
Diluted EPS from continuing operations attributable to GCP shareholders$(0.40) $0.02 NM
Adjusted EPS*$0.27 $0.23 17.4%
Adjusted EBIT*$33.9 $42.0 (19.3)%
Adjusted EBIT Margin*11.2% 14.6% (340) bps

Gregory E. Poling, GCP’s Chief Executive Officer, said, “GCP’s sales grew 5% in the second quarter due to higher volumes and increased prices. We are taking actions to improve the margins of our admixtures business and position ourselves for 2019. Inflation was significantly higher than expected, primarily in emerging markets due to rising raw materials costs and volatile foreign exchange rates, and had a disproportionate impact on Specialty Construction Chemicals.”

Poling continued, “We are implementing significant price increases in high inflation markets and rationalizing low profit admixtures geographies. We are restructuring our admixtures footprint to reduce our cost structure and generate annualized savings of $25 million. We are focusing investments on our core admixtures business as we accelerate penetration of VERIFI® and our integrated In-Transit Management (ITM) admixture system.”

Second quarter 2018:

  • Net sales increased 5.4% and Net Sales, Constant Currency increased 4.1% due to growth in Specialty Construction Chemicals
  • Gross margin of 36.9% decreased 320 basis points primarily due to increased raw materials and logistics costs, partially offset by price increases and productivity
  • Net loss from continuing operations attributable to GCP shareholders was $29.2 million compared to net income from continuing operations of $1.3 million in the second quarter of 2017. The change was primarily due to a $59.8 million pre-tax charge recognized on our debt refinancing transaction, which resulted in lowering the interest rate on our Senior Notes to 5.5%.
  • Adjusted EBIT of $33.9 million decreased 19.3% primarily due to lower segment operating income in both SCC and SBM

Second Quarter Segment Performance

Specialty Construction Chemicals
($ Millions)

 2Q 2018 2Q 2017 % Change
Net sales$175.0 $158.9 10.1%
Net Sales, Constant Currency*$173.7 $158.9 9.3%
Gross margin32.6% 37.1% (450) bps
Segment operating income$12.6 $20.2 (37.6)%
Segment operating margin7.2% 12.7% (550) bps
      
  • Net sales increased 10.1% and Net Sales, Constant Currency increased 9.3% due to higher volumes in our Concrete and Cement businesses
  • Gross margin declined 450 basis points as price increases and productivity were offset by raw material inflation, including the impact of unfavorable foreign exchange, and increases in logistics costs
  • Segment operating income decreased 37.6% and segment operating margin decreased 550 basis points due to lower gross margin, higher operating expenses primarily due to corporate allocations and the deconsolidation of Venezuela in the third quarter of 2017
  • Margin decline in SCC was concentrated primarily in emerging markets with high inflation and volatile foreign exchange rates
  • In the second quarter of 2017, SCC's Venezuelan operations contributed net sales of $3.1 million and operating income of $2.3 million. GCP deconsolidated its Venezuela operations on July 3, 2017.

Specialty Building Materials
($ Millions)

 2Q 2018 2Q 2017 % Change
Net sales$127.8 $128.3  (0.4)%
Net Sales, Constant Currency*$125.2 $128.3  (2.4)%
Gross margin43.5% 45.6%  (210) bps
Segment operating income$31.8 $35.3  (9.9)%
Segment operating margin24.9% 27.5%  (260) bps
  • Net sales decreased 0.4% and Net Sales, Constant Currency decreased 2.4% primarily due to revenue shifts driven by fewer price promotions, which reduced Residential volumes, and project timing in Building Envelope
  • Gross margin declined 210 basis points due to unfavorable product mix as a result of volume shifts, with price increases and productivity offsetting increased raw materials and logistics costs
  • Segment operating income decreased 9.9% to $31.8 million and segment operating margin decreased 260 basis points to 24.9% primarily due to lower gross margin

*Non-GAAP financial measures. See the tables herein for important information regarding these measures and a reconciliation to the most comparable GAAP measures.

NM - Not meaningful.

2018 Restructuring and Repositioning Plan
On August 1, 2018, the Board of Directors of the Company approved a business restructuring and repositioning plan (the “2018 Plan”). The 2018 Plan is designed to streamline operations and improve profitability primarily within the concrete admixtures product line of our Specialty Construction Chemicals segment by focusing on our core markets, rationalizing non-profitable geographies, reducing our global cost structure, and accelerating the integration of VERIFI® into our global admixtures business.

The Company expects that it will incur total pre-tax costs in connection with the 2018 Plan of approximately $30 million to $35 million, of which approximately $20 million to $25 million represents restructuring costs and approximately $10 million represents repositioning costs. The Company expects to realize total annualized pre-tax cost savings associated with the 2018 Plan of approximately $25 million, approximately $6 million to $8 million of which it expects to realize in 2018, with the entire annualized pre-tax savings of approximately $25 million expected to be realized in 2019. Substantially all of the restructuring actions under the 2018 Plan are expected to be completed by the end of 2019.

The 2018 Plan is separate and additional to the plan approved by the Company's Board of Directors on June 28, 2017 (the "2017 Plan"). The Company is on track to achieve the cost savings targets of the 2017 Plan.

Interest Expense and Related Financing Costs
Interest expense and related financing costs were $66.7 million for the second quarter of 2018 compared with $17.5 million for the prior-year quarter. The increase reflects a $59.8 million pre-tax charge recognized on our debt refinancing transaction which was completed in the second quarter of 2018. The charge was partially offset by lower interest expense due to the full repayment of the Term Loan principal balance previously outstanding under our Credit Agreement during the third quarter of 2017, as well as the lower interest rate on the 5.5% Senior Notes issued in the course of the debt refinancing transactions.

Debt Refinancing Transactions
On April 10, 2018, the Company announced the issuance of $350.0 million aggregate principal amount of 5.5% Senior Notes due 2026, an amendment to its Credit Agreement that, among other things, increased the aggregate principal amount of revolving commitments available to $350.0 million, and the redemption of $525.0 million outstanding aggregate principal amount of its 9.5% Senior Notes due 2023.

Income Taxes
Income tax benefit attributable to continuing operations for the quarter ended June 30, 2018 was $5.3 million compared to expense of $6.6 million for the prior year quarter, representing effective tax rates of 15.4% and 82.5%, respectively. The difference between the provision for income taxes at the U.S. federal income tax rate of 21.0% and GCP’s overall income tax rate for the three months ended June 30, 2018 is primarily attributable to the effect of tax rates in foreign jurisdictions of $0.7 million and permanent book to tax differences of $0.8 million. The difference between the provision for income taxes at the U.S. federal income tax rate of 35.0% and GCP's overall income tax rate for the three months ended June 30, 2017 was primarily attributable to $4.6 million of tax expense on undistributed foreign earnings.

Full-Year 2018 Outlook1

Guidance PriorCurrent
Net Sales, Constant Currency Growth of 5% to 10%Growth of 5% to 8%
Adjusted EBIT $135 million to $150 million$125 million to $135 million
Adjusted EPS(2)(3) $0.99 to $1.18$0.92 to $1.06
Adjusted Free Cash Flow $35 million to $45 million$25 million to $35 million

1GCP guidance figures assume average 2017 FX rates carried forward into the guidance period.
2Includes effective tax rate of 28% to 31%, which reflects the Company's current estimate of the impact of the Tax Cuts and Jobs Act of 2017.
3Assumes 72 million shares outstanding.

Investor Call
GCP has scheduled a conference call and webcast for 10:00 a.m. ET on Wednesday, August 8, 2018 to review its second quarter 2018 results and full-year outlook. Those who wish to listen to the conference call webcast should visit the Investors section of GCP's website at www.gcpat.com. The live call can be accessed by dialing (844) 887-9408 in the U.S. or +1 (412) 317-9261 internationally prior to the start of the call. Participants should ask to join the GCP Applied Technologies call. An accompanying slide presentation will also be available on the website.

For those unable to participate in the live conference call, a playback will be available until August 15, 2018. To listen to the playback, please dial (877) 344-7529 in the U.S. or +1 (412) 317-0088 internationally; the access code is 10121835.  A webcast replay will also be available in the “Events and Presentations” section of the company's website for approximately three months.

Non-GAAP Financial Measures
In this press release the Company refers to non-GAAP financial measures including Net Sales, Constant Currency, Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted EBIT, Adjusted EBIT Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Free Cash Flow, Adjusted EPS, and Adjusted EBIT Return On Invested Capital. These non-GAAP measures do not purport to represent income or liquidity measures as defined under United States generally accepted accounting principles ("GAAP"), and should not be considered as alternatives to such measures as an indicator of GCP's performance. These non-GAAP measures are provided to distinguish the operating results of GCP's current business.

The Analysis of Operations pages included in this press release provide reconciliations of these non-GAAP financial measures to their most comparable GAAP measures, as well as definitions for each of these non-GAAP financial measures and explanations as to why management finds them useful and believes they are useful to investors, potential investors and others.

Media Relations
Paul Keeffe
T +1 617.498.4461
mediainfo@gcpat.com
Investor Relations
Joseph DeCristofaro
T +1 617.498.2616
investors@gcpat.com

About GCP Applied Technologies

GCP is a leading global provider of construction products technologies that include additives for cement and concrete, the VERIFI® in-transit concrete management system, high-performance waterproofing products, and specialty systems. GCP products have been used to build some of the world’s most renowned structures. More information is available at www.gcpat.com.

This announcement contains “forward-looking statements,” that is, information related to future, not past, events. Such statements generally include the words “believes,” “plans,” “intends,” “targets,” “will,” “expects,” “suggests,” “anticipates,” “outlook,” “continues,” or similar expressions. Forward-looking statements include, without limitation, statements about expected financial positions; results of operations; cash flows; financing plans; business strategy; operating plans; capital and other expenditures; competitive positions; growth opportunities for existing products; benefits from new technology and cost reduction initiatives, plans and objectives; and markets for securities. Like other businesses, GCP is subject to risks and uncertainties that could cause its actual results to differ materially from its projections or that could cause other forward-looking statements to prove incorrect. Factors that could cause actual results to materially differ from those contained in the forward-looking statements, or that could cause other forward-looking statements to prove incorrect, include, without limitation, risks related to: the cyclical and seasonal nature of the industries that GCP serves; foreign operations, especially in emerging regions; changes in currency exchange rates; the cost and availability of raw materials and energy; the effectiveness of GCP’s research and development, new product introductions and growth investments; acquisitions and divestitures of assets and gains and losses from dispositions; developments affecting GCP’s outstanding liquidity and indebtedness, including debt covenants and interest rate exposure; developments affecting GCP’s funded and unfunded pension obligations; warranty and product liability claims; legal proceedings; the inability to establish or maintain certain business relationships and relationships with customers and suppliers or the inability to retain key personnel; and the handling of hazardous materials and the costs of compliance with environmental regulation. These and other factors are identified and described in more detail in GCP's Annual Report on Form 10-K, which has been filed with the U.S. Securities and Exchange Commission and is available online at www.sec.gov. Readers are cautioned not to place undue reliance on GCP’s projections and forward-looking statements, which speak only as the date thereof. GCP undertakes no obligation to publicly release any revision to the projections and forward-looking statements contained in this announcement, or to update them to reflect events or circumstances occurring after the date of this announcement.

 
 
GCP Applied Technologies Inc.
Consolidated Statements of Operations (unaudited)
 
 Three Months Ended
June 30,
 Six Months Ended
June 30,
(In millions, except per share amounts)2018 2017 2018 2017
Net sales$302.8  $287.2  $553.0  $512.5 
Cost of goods sold191.1  172.2  353.8  312.2 
Gross profit111.7  115.0  199.2  200.3 
Selling, general and administrative expenses77.6  72.8  152.5  145.6 
Research and development expenses5.3  5.2  10.2  10.0 
Interest expense and related financing costs66.7  17.5  80.5  34.5 
Repositioning expenses1.2  3.7  2.1  5.7 
Restructuring and asset impairments(0.6) 9.8  (1.1) 10.9 
Loss in Venezuela  1.6    1.6 
Other income, net(4.1) (3.6) (10.4) (2.6)
Total costs and expenses146.1  107.0  233.8  205.7 
(Loss) income from continuing operations before income taxes(34.4) 8.0  (34.6) (5.4)
Income tax benefit (expense)5.3  (6.6) (8.2) (18.2)
(Loss) income from continuing operations(29.1) 1.4  (42.8) (23.6)
Income (loss) from discontinued operations, net of income taxes1.3  (6.0) 8.5  2.1 
Net loss(27.8) (4.6) (34.3) (21.5)
Less: Net income attributable to noncontrolling interests(0.1) (0.1) (0.2) (0.1)
Net loss attributable to GCP shareholders$(27.9) $(4.7) $(34.5) $(21.6)
Amounts Attributable to GCP Shareholders:       
(Loss) income from continuing operations attributable to GCP shareholders(29.2) 1.3  (43.0) (23.7)
Income (loss) from discontinued operations, net of income taxes1.3  (6.0) 8.5  2.1 
Net loss attributable to GCP shareholders$(27.9) $(4.7) $(34.5) $(21.6)
(Loss) Earnings Per Share Attributable to GCP Shareholders       
Basic (loss) earnings per share:       
(Loss) income from continuing operations attributable to GCP shareholders$(0.40) $0.02  $(0.60) $(0.33)
Income (loss) from discontinued operations, net of income taxes$0.02  $(0.08) $0.12  $0.03 
Net loss attributable to GCP shareholders(1)$(0.39) $(0.07) $(0.48) $(0.30)
Weighted average number of basic shares72.1  71.5  72.0  71.0 
Diluted (loss) earnings per share:(2)       
(Loss) income from continuing operations attributable to GCP shareholders$(0.40) $0.02  $(0.60) $(0.33)
Income (loss) from discontinued operations, net of income taxes$0.02  $(0.08) $0.12  $0.03 
Net loss attributable to GCP shareholders(1)$(0.39) $(0.06) $(0.48) $(0.30)
Weighted average number of diluted shares72.1  72.7  72.0  71.0 

______________________________

(1)  Amounts may not sum due to rounding.

(2)  Dilutive effect only applicable to periods where there is net income from continuing operations.

 
 
GCP Applied Technologies Inc.
Consolidated Balance Sheets (unaudited)
(In millions, except par value and shares)June 30,
 2018
 December 31,
2017
ASSETS   
Current Assets   
Cash and cash equivalents$289.3  $721.5 
Trade accounts receivable (including allowances of $5.3 and $5.7, respectively)215.8  217.1 
Inventories, net114.8  106.3 
Other current assets44.9  48.6 
Current assets held for sale8.0  19.7 
Total Current Assets672.8  1,113.2 
Properties and equipment, net217.3  216.6 
Goodwill212.1  198.2 
Technology and other intangible assets, net95.2  91.8 
Deferred income taxes27.4  30.2 
Overfunded defined benefit pension plans26.3  26.4 
Other assets31.5  23.8 
Non-current assets held for sale2.4  2.8 
Total Assets$1,285.0  $1,703.0 
LIABILITIES AND STOCKHOLDERS' EQUITY   
Current Liabilities   
Debt payable within one year$18.4  $24.0 
Accounts payable132.4  134.8 
Other current liabilities151.5  316.2 
Current liabilities held for sale3.5  7.8 
Total Current Liabilities305.8  482.8 
Debt payable after one year346.7  520.3 
Income taxes payable49.2  58.3 
Deferred income taxes15.5  14.7 
Unrecognized tax benefits43.0  42.4 
Underfunded and unfunded defined benefit pension plans56.1  57.1 
Other liabilities19.8  35.1 
Non-current liabilities held for sale0.3  0.3 
Total Liabilities836.4  1,211.0 
Commitments and Contingencies   
Stockholders' Equity   
Common stock issued, par value $0.01; 300,000,000 shares authorized; outstanding:
  72,156,872 and 71,754,344, respectively
0.7  0.7 
Paid-in capital40.8  29.9 
Accumulated earnings514.2  548.7 
Accumulated other comprehensive loss(104.4) (85.7)
Treasury stock(4.7) (3.4)
Total GCP's Shareholders' Equity446.6  490.2 
Noncontrolling interests2.0  1.8 
Total Stockholders' Equity448.6  492.0 
Total Liabilities and Stockholders' Equity$1,285.0  $1,703.0 
        
        


GCP Applied Technologies Inc.
Consolidated Statements of Cash Flows (unaudited)
 Six Months Ended June 30,
(In millions)2018 2017
OPERATING ACTIVITIES   
Net loss$(34.3) $(21.5)
Less: Income from discontinued operations8.5  2.1 
Loss from continuing operations(42.8) (23.6)
Reconciliation to net cash (used in) provided by operating activities:   
Depreciation and amortization20.8  17.2 
Amortization of debt discount and financing costs0.9  1.6 
Stock-based compensation expense5.3  5.3 
Unrealized gain on foreign currency(0.8)  
Gain on termination and curtailment of pension and other postretirement plans(0.1) (5.1)
Currency and other losses in Venezuela  2.9 
Deferred income taxes(6.0) 12.6 
Loss on debt refinancing59.8   
Gain on disposal of property and equipment(1.1) (0.8)
Loss on sale of product line  2.1 
Changes in assets and liabilities, excluding effect of currency translation:   
Trade accounts receivable(3.3) (34.5)
Inventories(10.7) (11.5)
Accounts payable5.2  17.1 
Pension assets and liabilities, net(0.4) 3.1 
Other assets and liabilities, net(36.4) (10.7)
Net cash used in operating activities from continuing operations(9.6) (24.3)
Net cash (used in) provided by operating activities from discontinued operations(124.9) 8.4 
Net cash used in operating activities(134.5) (15.9)
INVESTING ACTIVITIES   
Capital expenditures(27.6) (21.5)
Businesses acquired, net of cash acquired(29.8) (87.7)
Proceeds from sale of product line  2.9 
Other investing activities(2.8) 3.1 
Net cash used in investing activities from continuing operations(60.2) (103.2)
Net cash used in investing activities from discontinued operations(0.2) (3.3)
Net cash used in investing activities(60.4) (106.5)
FINANCING ACTIVITIES   
Borrowings under credit arrangements53.5  116.1 
Repayments under credit arrangements(58.4) (15.2)
Proceeds from issuance of long term notes350.0   
Repayments of long term note obligations(578.3)  
Cash paid for debt financing costs(6.9)  
Share repurchases(1.3) (1.0)
Proceeds from exercise of stock options5.1  5.7 
Noncontrolling interest dividend  (0.6)
Other financing activities(0.2)  
Net cash (used in) provided by financing activities from continuing operations(236.5) 105.0 
Net cash provided by financing activities from discontinued operations  0.5 
Net cash (used in) provided by  financing activities(236.5) 105.5 
Effect of currency exchange rate changes on cash and cash equivalents(0.8) 0.9 
Decrease in cash and cash equivalents(432.2) (16.0)
Cash and cash equivalents, beginning of period721.5  163.3 
Cash and cash equivalents, end of period289.3  147.3 
Less: Cash and cash equivalents of discontinued operations  19.1 
Cash and cash equivalents of continuing operations, end of period$289.3  $128.2 
        

Analysis of Operations

The Company has set forth in the tables below GCP's key operating statistics with percentage changes for the second quarter compared with the corresponding prior-year periods. In the table, the Company presents financial information in accordance with U.S. GAAP, as well as certain non-GAAP financial measures, which it describes below in further detail. GCP believes that the non-GAAP financial information supplements its discussions about the performance of its businesses, improves period-to-period comparability and provides insight to the information that management uses to evaluate the performance of its businesses. Management uses non-GAAP measures in financial and operational decision-making processes, for internal reporting, and as part of its forecasting and budgeting processes, as these measures provide additional transparency to GCP's core operations.

In the table, the Company has provided reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP. These non-GAAP financial measures should not be considered substitutes for financial measures calculated in accordance with U.S. GAAP, and the financial results that the Company calculates and presents in the table in accordance with U.S. GAAP, as well as the corresponding reconciliations from those results, should be carefully evaluated.

Constant currency means current period revenue in local currency translated using prior period exchange rates. GCP uses constant currency in assessing trends in sales excluding the impact of fluctuations in foreign currency exchange rates.

The Company defines Adjusted EBIT (a non-GAAP financial measure) to be net income (loss) from continuing operations attributable to GCP shareholders adjusted for: (i) gains and losses on sales of businesses, product lines and certain other investments; (ii) currency and other financial losses in Venezuela; (iii) costs related to legacy product, environmental and other claims; (iv) restructuring expenses, repositioning and asset impairments; (v) defined benefit plan costs other than service and interest costs, expected returns on plan assets and amortization of prior service costs/credits; (vi) third-party and other acquisition-related costs; (vii) other financing costs associated with the modification or extinguishment of debt; (viii) amortization of acquired inventory fair value adjustments; (ix) tax indemnification adjustments; (x) interest income, interest expense and related financing costs; (xi) income taxes; and (xii) and certain other items that are not representative of underlying trends (such as legal settlements). GCP uses Adjusted EBIT to assess and measure its operating performance and in determining performance-based compensation. GCP uses Adjusted EBIT as a performance measure because it provides improved quarter-to-quarter and year-over-year comparability for decision-making and compensation purposes and because it allows management to measure the ongoing earnings results of the Company's strategic and operating decisions.

The Company defines Adjusted EBITDA (a non-GAAP financial measure) to be Adjusted EBIT adjusted for depreciation and amortization. GCP uses Adjusted EBITDA as a performance measure in making significant business decisions.

The Company defines Adjusted Earnings Per Share (a non-GAAP financial measure) to be earnings per share ("EPS") from continuing operations on a diluted basis adjusted for costs related to: (i) gains and losses on sales of businesses, product lines and certain other investments; (ii) currency and other financial losses in Venezuela; (iii) legacy product, environmental and other claims; (iv) restructuring and repositioning expenses and asset impairments; (v) defined benefit plan costs other than service and interest costs, expected returns on plan assets and amortization of prior service costs/credits; (vi) third-party and other acquisition-related costs; (vii) other financing costs associated with the modification or extinguishment of debt; (viii) amortization of acquired inventory fair value adjustments; (ix) tax indemnification adjustments; (x) certain other items that are not representative of underlying trends (such as legal settlements); and (xi) and certain discrete tax items. GCP uses Adjusted EPS as a performance measure to review its diluted earnings per share results on a consistent basis.

The Company defines Adjusted Gross Profit (a non-GAAP financial measure) to be gross profit adjusted for: (i) corporate and pension-related costs included in cost of goods sold; (ii) loss in Venezuela included in cost of goods sold; and (iii) amortization of acquired inventory fair value adjustment. Adjusted Gross Margin means Adjusted Gross Profit divided by net sales. Management uses this performance measure to understand trends and changes and to make business decisions regarding core operations.

The Company defines Adjusted Free Cash Flow (a non-GAAP financial measure) to be net cash provided by or used for operating activities minus capital expenditures plus cash paid for restructuring and repositioning; capital expenditures related to repositioning; cash paid for third-party and other acquisition-related costs; cash taxes paid for repositioning, restructuring, third-party and other acquisition-related costs; accelerated payments under defined benefit pension arrangements; and expenditures for legacy items. GCP uses Adjusted Free Cash Flow as a liquidity measure to evaluate its ability to generate cash to support its ongoing business operations, to invest in its businesses, to provide a return of capital to shareholders and to determine payments of performance-based compensation.

The Company defines Adjusted EBIT Return On Invested Capital (a non-GAAP financial measure) to be Adjusted EBIT (on a trailing four quarters basis) divided by the sum of net working capital, properties and equipment and certain other assets and liabilities. Management uses Adjusted EBIT Return On Invested Capital as a performance measure to review investments and to make capital allocation decisions.

Adjusted EBIT, Adjusted EBITDA, Adjusted EPS, Adjusted Gross Margin, Adjusted Free Cash Flow, and Adjusted EBIT Return on Invested Capital do not purport to represent income measures as defined under U.S. GAAP. These measures are provided to improve the period-to-period comparability and peer-to-peer comparability of GCP's financial results and to ensure that investors understand the information GCP uses to evaluate the performance of its businesses.

Adjusted EBIT has material limitations as an operating performance measure because it excludes costs related to income and expenses from restructuring and repositioning activities, which historically has been a material component of our net income (loss). Adjusted EBITDA also has material limitations as an operating performance measure because it excludes the impact of depreciation and amortization expense. GCP's business is substantially dependent on the successful deployment of capital, and depreciation and amortization expense is a necessary element of its costs. GCP compensates for the limitations of these measurements by using these indicators together with net income (loss) as measured under GAAP to present a complete analysis of its results of operations. Adjusted EBIT and Adjusted EBITDA should be evaluated together with net income (loss) measured under GAAP for a complete understanding of GCP's results of operations.

The Company does not provide GAAP earnings on a forward-looking basis because the Company is unable to estimate with reasonable certainty unusual or unanticipated charges, expenses or gains without unreasonable effort. These items are uncertain, depend on various factors, and could be material to the Company’s results computed in accordance with GAAP.

 
 
GCP Applied Technologies Inc.
Analysis of Operations (unaudited) 
 
Analysis of Operations
(In millions, except per share amounts)
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 % Change 2018 2017 % Change
Net sales:           
Specialty Construction Chemicals$175.0  $158.9  10.1% $322.0  $292.9  9.9%
Specialty Building Materials127.8  128.3  (0.4)% 231.0  219.6  5.2%
Total GCP net sales$302.8  $287.2  5.4% $553.0  $512.5  7.9%
Net sales by region:           
North America$149.3  $142.6  4.7% $272.3  $254.5  7.0%
Europe Middle East Africa (EMEA)69.2  66.4  4.2% 127.5  111.9  13.9%
Asia Pacific65.7  59.2  11.0% 117.7  110.4  6.6%
Latin America18.6  19.0  (2.1)% 35.5  35.7  (0.6)%
Total net sales by region$302.8  $287.2  5.4% $553.0  $512.5  7.9%
Net Sales, Constant Currency:           
Specialty Construction Chemicals$173.7  $158.9  9.3% $316.5  $292.9  8.1%
Specialty Building Materials125.2  128.3  (2.4)% 225.3  219.6  2.6%
Total GCP Net Sales, Constant Currency (non-GAAP)$298.9  $287.2  4.1% $541.8  $512.5  5.7%
Profitability performance measures:           
Adjusted EBIT(A):           
Specialty Construction Chemicals segment operating income$12.6  $20.2  (37.6)% $18.5  $28.8  (35.8)%
Specialty Building Materials segment operating income31.8  35.3  (9.9)% 49.9  50.5  (1.2)%
Corporate costs(B)(8.6) (11.2) 23.2% (17.5) (21.4) 18.2%
Certain pension costs(C)(1.9) (2.3) 17.4% (3.8) (4.9) 22.4%
Adjusted EBIT (non-GAAP)33.9  42.0  (19.3)% 47.1  53.0  (11.1)%
Currency and other financial losses in Venezuela  (2.4) NM    (2.4) NM 
Repositioning expenses(1.2) (3.7) 67.6% (2.1) (5.7) 63.2%
Restructuring and asset impairments0.6  (9.8) NM  1.1  (10.9) NM 
Pension MTM adjustment and other related costs, net(0.9) 0.1  NM  (0.9) 0.1  NM 
Gain on termination and curtailment of pension and other postretirement plans0.1  5.1  (98.0)% 0.1  5.1  (98.0)%
Loss on sale of product line  (2.1) NM    (2.1) NM 
Third-party and other acquisition-related costs(0.8) (2.6) 69.2% (1.6) (3.0) 46.7%
Amortization of acquired inventory fair value adjustment(0.2) (1.2) 83.3% (0.2) (2.7) 92.6%
Tax indemnification adjustments    NM    (2.4) NM 
Interest expense, net(66.0) (17.5) NM  (78.3) (34.5) NM 
Income tax benefit (expense)5.3  (6.6) NM  (8.2) (18.2) 54.9%
Loss (income) from continuing operations attributable to GCP shareholders (GAAP)$(29.2) $1.3  NM  $(43.0) $(23.7) (81.4)%
Diluted EPS from continuing operations (GAAP)$(0.40) $0.02  NM  $(0.60) $(0.33) (81.8)%
Adjusted EPS (non-GAAP)$0.27  $0.23  17.4% $0.28  $0.18  55.6%
                      
                      


GCP Applied Technologies Inc.
Analysis of Operations (unaudited) (continued)
 
Analysis of Operations
(In millions)
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 % Change 2018 2017 % Change
Adjusted profitability performance measures:           
Gross Profit:           
Specialty Construction Chemicals$57.0  $58.9  (3.2)% $103.0  $106.7  (3.5)%
Specialty Building Materials55.6  58.5  (5.0)% 97.5  98.0  (0.5)%
Adjusted Gross Profit (non-GAAP)112.6  117.4  (4.1)% 200.5  204.7  (2.1)%
Amortization of acquired inventory fair value adjustment(0.2) (1.2) 83.3% (0.2) (2.7) 92.6%
Loss in Venezuela in cost of goods sold  (0.8) NM    (0.8) NM 
Corporate costs and pension costs in cost of goods sold(0.7) (0.4) (75.0)% (1.1) (0.9) (22.2)%
Total GCP Gross Profit (GAAP)111.7  115.0  (2.9)% 199.2  200.3  (0.5)%
Gross Margin:             
Specialty Construction Chemicals32.6% 37.1% (4.5) pts  32.0% 36.4% (4.4) pts 
Specialty Building Materials43.5% 45.6% (2.1) pts  42.2% 44.6% (2.4) pts 
Adjusted Gross Margin (non-GAAP)37.2% 40.9% (3.7) pts  36.3% 39.9% (3.6) pts 
Loss in Venezuela in cost of goods sold% (0.3)% 0.3 pts  % (0.2)% 0.2 pts 
Amortization of acquired inventory fair value adjustment(0.1)% (0.4)% 0.3 pts  % (0.5)% 0.5 pts 
Corporate costs and pension costs in cost of goods sold(0.2)% (0.1)% (0.1) pts  (0.2)% (0.2)% 0.0 pts 
Total GCP Gross Margin (GAAP)36.9% 40.1% (3.2) pts  36.1% 39.0% (2.9) pts 
Adjusted EBIT(A)(B)(C):            
Specialty Construction Chemicals segment operating income$12.6  $20.2  (37.6)% $18.5  $28.8  (35.8)%
Specialty Building Materials segment operating income31.8  35.3  (9.9)% 49.9  50.5  (1.2)%
Corporate and certain pension costs(10.5) (13.5) 22.2% (21.3) (26.3) 19.0%
Total GCP Adjusted EBIT (non-GAAP)33.9  42.0  (19.3)% 47.1  53.0  (11.1)%
Depreciation and amortization:           
Specialty Construction Chemicals$6.0  $5.1  17.6% $12.0  $10.2  17.6%
Specialty Building Materials3.7  3.1  19.4% 7.1  6.0  18.3%
Corporate0.9  0.6  50.0% 1.7  1.0  70.0%
Total GCP depreciation and amortization10.6  8.8  20.5% 20.8  17.2  20.9%
Adjusted EBITDA:           
Specialty Construction Chemicals$18.6  $25.3  (26.5)% $30.5  $39.0  (21.8)%
Specialty Building Materials35.5  38.4  (7.6)% 57.0  56.5  0.9%
Corporate and certain pension costs(9.6) (12.9) 25.6% (19.6) (25.3) 22.5%
Total GCP Adjusted EBITDA (non-GAAP)44.5  50.8  (12.4)% 67.9  70.2  (3.3)%
Adjusted EBIT Margin:            
Specialty Construction Chemicals7.2% 12.7% (5.5) pts 5.7% 9.8% (4.1) pts 
Specialty Building Materials24.9% 27.5% (2.6) pts 21.6% 23.0% (1.4) pts 
Total GCP Adjusted EBIT Margin (non-GAAP)11.2% 14.6% (3.4) pts 8.5% 10.3% (1.8) pts 
Adjusted EBITDA Margin:            
Specialty Construction Chemicals10.6% 15.9% (5.3) pts 9.5% 13.3% (3.8) pts 
Specialty Building Materials27.8% 29.9% (2.1) pts 24.7% 25.7% (1.0) pts 
Total GCP Adjusted EBITDA Margin (non-GAAP)14.7% 17.7% (3.0) pts 12.3% 13.7% (1.4) pts 
                 
                 


Analysis of Operations
(In millions)
Four Quarters Ended
June 30, 2018 June 30, 2017
Calculation of Adjusted EBIT Return On Invested Capital (trailing four quarters):       
Adjusted EBIT$121.5  $122.9 
Invested Capital:   
Trade accounts receivable215.8  210.0 
Inventories114.8  104.0 
Accounts payable(132.4) (115.7)
Invested working capital198.2  198.3 
Other current assets (excluding income taxes)35.3  36.9 
Properties and equipment, net217.3  202.8 
Goodwill212.1  176.3 
Technology and other intangible assets, net95.2  76.3 
Other assets (excluding capitalized financing fees)27.0  26.5 
Other current liabilities (excluding income taxes, restructuring, repositioning, accrued
  interest and liabilities incurred in association with the Darex divestiture)
(83.5) (111.2)
Other liabilities (excluding other postretirement benefits liability and liabilities incurred in
  association with the Darex divestiture)
(17.3) (13.0)
Total invested capital$684.3  $592.9 
Adjusted EBIT Return On Invested Capital (non-GAAP)17.8% 20.7%

___________________________________________________________________________________________________________________
Amounts may not add due to rounding.

(A) GCP's segment operating income includes only GCP's share of income of consolidated joint ventures.

(B) Management allocates corporate costs to each segment to the extent such costs are directly attributable to the segments. Corporate costs include approximately $2.4 million and $5.4 million, respectively, of allocated costs for the three and six months ended June 30, 2017 that were previously reported within the Darex operating segment since such costs did not meet the criteria to be reclassified to discontinued operations. As of the third quarter of 2017, the Company began allocating these costs to its remaining operating segments.

(C) Certain pension costs include only ongoing costs recognized quarterly, which include service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits. SCC and SBM segment operating income and corporate costs do not include any amounts for pension expense. Other pension related costs including annual mark-to-market adjustments, actuarial gains and losses, gains or losses from curtailments and terminations, and other related costs are excluded from Adjusted EBIT. These amounts are not used by management to evaluate the performance of the GCP businesses and significantly affect the peer-to-peer and quarter-to-quarter comparability of our financial results. Mark-to-market adjustments, actuarial gains and losses, and other related costs relate primarily to changes in financial market values and actuarial assumptions and are not directly related to the operation of the GCP businesses.

NM  Not meaningful.

 
 
GCP Applied Technologies Inc.
Analysis of Operations (unaudited) (continued)
 
(In millions)Six Months Ended June 30, 2018
2018 2017
Cash flow measure:   
Net cash used in operating activities from continuing operations$(9.6) $(24.3)
Capital expenditures(27.6) (21.5)
Free Cash Flow (non-GAAP)(37.2) (45.8)
Cash paid for repositioning3.6  4.1 
Cash paid for restructuring4.3  1.1 
Cash paid for third-party and other acquisition-related costs1.0  4.7 
Capital expenditures related to repositioning2.5  1.2 
Cash taxes related to repositioning, restructuring, third-party and other acquisition-related costs(2.3) (1.9)
Accelerated pension plan contributions2.9   
Adjusted Free Cash Flow (non-GAAP)$(25.2) $(36.6)
        
        


GCP Applied Technologies Inc.
Adjusted Earnings Per Share (unaudited) 
 
 Three Months Ended June 30,
 2018 2017
(In millions, except per share amounts)Pre-
Tax
 Tax Effect After-
Tax
 Per
Share
 Pre-
Tax
 Tax Effect After-
Tax
 Per
Share
Diluted EPS from continuing operations (GAAP)      $(0.40)       $0.02 
Repositioning expenses$1.2  $0.3  $0.9  0.01  $3.7  $1.4  $2.3  0.03 
Restructuring and asset impairments(0.6) (0.2) (0.4) (0.01) 9.8  3.2  6.6  0.09 
Gain on termination and curtailment of pension and other postretirement plans(0.1)   (0.1)   (5.1) (2.0) (3.1) (0.04)
Pension MTM adjustment and other related costs, net0.9  0.2  0.7  0.01  (0.1)   (0.1)  
Currency and other financial losses in Venezuela        2.4    2.4  0.03 
Loss on sale of product line        2.1  0.8  1.3  0.02 
Third-party and other acquisition-related costs0.8  0.2  0.6  0.01  2.6  0.2  2.4  0.03 
Loss on debt refinancing59.8  13.0  46.8  0.65         
Amortization of acquired inventory fair value adjustment0.2    0.2    1.2  0.4  0.8  0.01 
Discrete tax items:               
Discrete tax items, including adjustments to uncertain tax positions  0.1  (0.1)     (2.6) 2.6  0.04 
Adjusted EPS (non-GAAP)      $0.27        $0.23 
                    
                    


 Six Months Ended June 30,
 2018 2017
(In millions, except per share amounts)Pre-
Tax
 Tax Effect After-
Tax
 Per
Share
 Pre-
Tax
 Tax Effect After-
Tax
 Per
Share
Diluted EPS from continuing operations (GAAP)      $(0.60)       $(0.33)
Repositioning expenses$2.1  $0.5  $1.6  0.02  $5.7  $2.2  $3.5  0.05 
Restructuring and asset impairments(1.1) (0.3) (0.8) (0.01) 10.9  4.3  6.6  0.09 
Gain on termination and curtailment of pension and other postretirement plans(0.1)   (0.1)   (5.1) (2.0) (3.1) (0.04)
Pension MTM adjustment and other related costs, net0.9  0.2  0.7  0.01  (0.1)   (0.1)  
Currency and other financial losses in Venezuela        2.4    2.4  0.03 
Loss on sale of product line        2.1  0.8  1.3  0.02 
Third-party and other acquisition-related costs1.6  0.3  1.3  0.02  3.0  0.2  2.8  0.04 
Loss on debt refinancing59.8  13.0  46.8  0.65         
Amortization of acquired inventory fair value adjustment0.2    0.2    2.7  0.8  1.9  0.03 
Tax indemnification adjustments        2.4  0.9  1.5  0.02 
Discrete tax items:               
Discrete tax items, including adjustments to uncertain tax positions  (13.4) 13.4  0.19    (19.3) 19.3  0.27 
Adjusted EPS (non-GAAP)      $0.28        $0.18