FERRO CORPORATION REPORTS THIRD-QUARTER 2019 RESULTS MACROECONOMIC UNCERTAINTIES CONTINUED TO PRESSURE TOP LINE; GROSS PROFIT MARGIN IMPROVED OVER PRIOR YEAR QUARTER; 2019 GUIDANCE REVISED FOR FOREIGN EXCHANGE |
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| GAAP Diluted EPS of $0.16 |  | Despite lower sales revenue, we increased gross profit margins in each of our reporting segments compared to the prior year quarter. The increase in gross profit margins resulted from both lower raw material costs and our optimization initiatives. Looking ahead, we expect global macroeconomic uncertainty to continue for the balance of 2019 and into 2020. Customer sentiment remains cautious and order patterns continue to reflect limited visibility. Weakness persists in some key end markets, including European construction and global auto production. Whatever the macroeconomic circumstances may be, we continue to execute our optimization initiatives to enhance Ferro’s operational efficiency and drive long-term value for our shareholders. Peter Thomas Chairman, President and CEO, Ferro Corporation | |
| Adjusted EPS of $0.35 |
| Net Sales declined 7.4% to $365.7 million |
| Net Sales on a constant currency basis declined 5.8% |
| Gross Profit of $100.3 million with Gross Profit Margin of 27.4%, an increase of 70 basis points | | |
| Net Income1 declined 20.2% to $12.8 million and Adjusted EBITDA declined 8.7% to $58.2 million | | 
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| Adjusted EPS and EBITDA guidance revised for foreign exchange and Adjusted Free Cash Flow Conversion reaffirmed |
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Key Results * (amounts in thousands, except EPS) | | | | | | | | |
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Sales and Gross Profits | Q3 2019 | % Change | YTD | % Change |
Net Sales | $ | 365,728 | | -7.4% | $ | 1,147,178 | | -5.7% |
Net Sales (Constant Currency) | | 365,728 | | -5.8% | | 1,147,178 | | -2.4% |
Gross Profit (GAAP) | | 100,291 | | -4.9% | | 310,405 | | -11.5% |
Adjusted Gross Profit (Constant Currency) | | 101,867 | | -2.7% | | 316,663 | | -7.3% |
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Net Income, EBITDA and EPS | Q3 2019 | % Change | YTD | % Change |
Net Income 1 | $ | 12,820 | | -20.2% | $ | 37,295 | | -46.0% |
Adjusted EBITDA | | 58,201 | | -8.7% | | 168,791 | | -16.8% |
GAAP diluted EPS | $ | 0.16 | | -15.8% | $ | 0.45 | | -44.4% |
Adjusted EPS | | 0.35 | | -5.4% | | 0.91 | | -22.2% |
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* Comparative information is relative to prior-year third quarter and year-to-date.
1 Note: Net Income attributable to Ferro Corporation common shareholders.
Net Sales in the third quarter of 2019 declined 7.4%. The decline was primarily driven by lower volumes and mix of $29.7 million within Performance Coatings, Performance Colors and Glass, and Color Solutions and foreign currency impact of $7.1 million. On a constant currency basis, net sales declined 5.8%. Net Income declined 20.2% to $12.8 million, with Adjusted EBITDA of $58.2 million. Adjusted EBITDA margin was down slightly at 15.9% of Net Sales compared to 16.1% in the prior year quarter.
Gross Profit decreased 4.9% to $100.3 million, while Gross Profit Margin increased approximately 70 basis points to 27.4% from 26.7% in the prior year quarter. Adjusted Gross Profit declined 3.4% on a constant currency basis. Impacting Gross Profit was a shift in sales volume and mix, as well as unfavorable manufacturing costs and foreign currency exchange rates, partially offset with higher pricing and lower raw material costs.
During the quarter, the Company did not repurchase any shares of common stock. Approximately $46.2 million remains available under the current share repurchase authorization.
Segment Results * (amounts in thousands) | |
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| | Performance Coatings | Q3 2019 | % Change | YTD | % Change |
| Net Sales | $ | 162,391 | | -7.7% | $ | 510,970 | | -7.8% |
| Net Sales (Constant Currency) | | 162,391 | | -6.0% | | 510,970 | | -4.2% |
| Gross Profit (GAAP) | | 35,436 | | -2.3% | | 108,903 | | -16.4% |
| Adjusted Gross Profit (Constant Currency) | | 35,882 | | 0.9% | | 110,661 | | -11.4% |
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| | Performance Colors & Glass | Q3 2019 | % Change | YTD | % Change |
| Net Sales | $ | 112,742 | | -8.5% | $ | 351,991 | | -4.8% |
| Net Sales (Constant Currency) | | 112,742 | | -6.8% | | 351,991 | | -1.5% |
| Gross Profit (GAAP) | | 36,829 | | -8.1% | | 115,672 | | -10.2% |
| Adjusted Gross Profit (Constant Currency) | | 37,114 | | -5.6% | | 116,484 | | -6.4% |
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| | Color Solutions | Q3 2019 | % Change | YTD | % Change |
| Net Sales | $ | 90,595 | | -5.6% | $ | 284,217 | | -3.0% |
| Net Sales (Constant Currency) | | 90,595 | | -3.9% | | 284,217 | | -0.1% |
| Gross Profit (GAAP) | | 29,122 | | -3.5% | | 87,220 | | -7.1% |
| Adjusted Gross Profit (Constant Currency) | | 29,017 | | -5.1% | | 89,128 | | -4.4% |
*Comparative information is relative to prior-year third quarter and year-to-date.
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Full Year 2019 Guidance (as of 11/11/2019) |
The Company is updating its guidance for full-year 2019 Adjusted EPS and Adjusted EBITDA, due to the lower USD/EUR exchange rate. The Company is reaffirming its guidance on Adjusted Free Cash Flow Conversion. The table below reflects our updated guidance.
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| M | | Adjusted Free Cash |
| Adjusted | Adjusted | Flow from Operations |
| EBITDA | EPS | Conversion1 |
Updated Guidance (11/11/2019) | $222M - $227M | $1.15 - $1.20 | 45% to 50% |
2019 Guidance (7/31/2019) | $225M to $240M | $1.17 to 1.27 | 45% to 50% |
The 2019 guidance assumes no acquisitions, divestitures, restructuring, acquisition-related professional fees, optimization programs spend, or repurchase of common stock.
Note: The full-year 2019 guidance uses foreign exchange rates as of Sept 30, 2019, which includes a USD/EUR exchange rate at 1.11.
Ferro is providing Adjusted Diluted EPS, Adjusted EBITDA and Adjusted Free Cash Flow from Operations Conversion guidance on a continuing operations basis. While it is likely that Ferro could incur charges for items excluded from Adjusted Diluted EPS, Adjusted EBITDA and Adjusted Free Cash Flow from Operations conversion such as mark-to-market adjustments of pension and other postretirement benefit obligations, restructuring and impairment charges, and legal and professional expenses related to certain business development activities, it is not possible, without unreasonable effort, to identify the amount or significance of these items or the potential for other transactions that may impact future GAAP net income and cash flow from operating activities. Management does not believe these items to be representative of underlying business performance. Management is unable to reconcile, without unreasonable effort, the Company's forecasted range of these adjusted non-GAAP financial measures to their most directly comparable GAAP financial measures.
Currency Exposure 2018 Weighting | | 2019 Guidance FX sensitivity |
EUR - Euro | 40% to 45% | | % Change | Operating Profit |
CNY -Yuan Renminbi | 6% to 8% | | +1% all FX change | ~ $1.5 million to ~$1.7 million |
MXN – Mexican Peso | 4% to 6% | | +1% Euro change | ~$1.1 million to ~$1.3 million |
EGP – Egyptian Pound | 3% to 5% | | | |
Constant Currency
Constant currency results reflect the remeasurement of 2018 reported and adjusted local currency results using 2019 exchange rates, which produces constant currency comparative figures to 2019 reported and adjusted results. These non-GAAP financial measures should not be considered as a substitute for the measures of financial performance prepared in accordance with GAAP.
Conference Call
Ferro will conduct an investor teleconference at 9:00 a.m. EDT Tuesday, November 12, 2019. Investors can access this conference via any of the following:
• Webcast can be accessed by clicking on the Investors link at the top of Ferro’s website at ferro.com.
• Live telephone: Call 800-926-7358 within the U.S. or +1 212-231-2937 outside the U.S. Please join the call at least 10 minutes before the start time.
• Webcast replay: Available on Ferro’s Investor website at ferro.com beginning at approximately 4:30 p.m. Eastern Time on November 12, 2019.
• Telephone replay: Call 800-633-8284 within the U.S. or +1 402-977-9140 outside the U.S. (for both U.S. and outside the U.S. access code is 21932210).
• Presentation material and podcast: Earnings presentation material and podcasts can be accessed through the Investors portion of the Company’s website at ferro.com.
About Ferro Corporation
Ferro Corporation (www.ferro.com) is a leading global supplier of technology-based functional coatings and color solutions. Ferro supplies functional coatings for glass, metal, ceramic and other substrates and color solutions in the form of specialty pigments and colorants for a broad range of industries and applications. Ferro products are sold into the building and construction, automotive, electronics, industrial products, household furnishings and appliance markets. The Company’s reportable segments include: Performance Coatings (metal and ceramic coatings), Performance Colors and Glass (glass coatings), and Color Solutions. Headquartered in Mayfield Heights, Ohio, the Company has approximately 5,900 associates globally and reported 2018 sales of $1.6 billion.
Cautionary Note on Forward-Looking Statements
Certain statements in this press release may constitute “forward-looking statements” within the meaning of federal securities laws. These statements are subject to a variety of uncertainties, unknown risks, and other factors concerning the Company’s operations and business environment. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements and that could adversely affect the Company’s future financial performance include the following:
| · | | demand in the industries into which Ferro sells its products may be unpredictable, cyclical, or heavily influenced by consumer spending; |
| · | | the effectiveness of the Company’s efforts to improve operating margins through sales growth, price increases, productivity gains, and improved purchasing techniques; |
| · | | currency conversion rates and economic, social, political, and regulatory conditions in the U.S. and around the world; |
| · | | the availability of reliable sources of energy and raw materials at a reasonable cost; |
| · | | Ferro’s ability to successfully implement and/or administer its optimization initiatives, including its investment and restructuring programs, and to produce the desired results; |
| · | | Ferro’s ability to successfully introduce new products and services or enter into new growth markets; |
| · | | Ferro’s ability to identify suitable acquisition candidates, complete acquisitions, effectively integrate the acquired businesses and achieve the expected synergies, as well as the acquisitions being accretive and Ferro achieving the expected returns on invested capital; |
| · | | competitive factors, including intense price competition; |
| · | | the impact of damage to, or the interruption, failure or compromise of the Company’s information systems due to events including but not limited to aging information systems infrastructure, computer viruses and cyber security breaches; |
| · | | the implementation and operations of business information systems and processes; |
| · | | increased, and possibly inconsistent, domestic and foreign regulations of privacy and data security; |
| · | | restrictive covenants in the Company’s credit facilities could affect its strategic initiatives and liquidity; |
| · | | Ferro’s ability to access capital markets, borrowings or financial transactions; |
| · | | increasingly aggressive domestic and foreign governmental regulation of hazardous and other materials and regulations affecting health, safety and the environment; |
| · | | our ability to address safety, human health, product liability and environmental risks associated with our current and historical products, product life cycles and production processes; |
| · | | exposure to lawsuits, governmental investigations and proceedings relating to current and historical operations and products; |
| · | | sale of products and materials into highly regulated industries; |
| · | | limited or no redundancy for certain of the Company’s manufacturing facilities and possible interruption of operations at those facilities; |
| · | | Ferro’s ability to protect its intellectual property, including trade secrets, or to successfully resolve claims of infringement brought against it; |
| · | | Ferro’s multi-jurisdictional tax structure and its ability to reduce its effective tax rate, including the impact of the Company’s performance on its ability to utilize significant deferred tax assets; |
| · | | the impact of the Tax Cuts and Jobs Act on our business; |
| · | | Ferro’s borrowing costs could be affected adversely by interest rate increases; |
| · | | stringent labor and employment laws and relationships with the Company’s employees; |
| · | | management of Ferro’s general and administrative expenses; |
| · | | the impact of requirements to fund employee benefit costs, especially post-retirement costs; |
| · | | implementation of business processes and information systems, including the outsourcing of functions to third parties; |
| · | | risks associated with the manufacture and sale of material into industries making products for sensitive applications; |
| · | | our ability to attract and retain key personnel; |
Cautionary Note on Forward-Looking Statements (continued)
| · | | changes in U.S. and other governments’ trade policies; |
| · | | risks and uncertainties associated with intangible assets; |
| · | | liens on the Company’s assets by its lenders affect its ability to dispose of property and businesses; |
| · | | amount and timing of any repurchase of Ferro’s common stock; |
| · | | challenges associated with a multi-national company such as Ferro competing lawfully with local competitors in certain regions of the world; |
| · | | the effectiveness of strategies to increase Ferro’s return on invested capital, internal rate of return and other return metrics, and the short-term impact that acquisitions may have on such metrics; and |
| · | | other factors affecting the Company’s business that are beyond its control, including disasters, accidents and governmental actions. |
The risks and uncertainties identified above are not the only risks the Company faces. Additional risks and uncertainties not presently known to the Company or that it currently believes to be immaterial also may adversely affect the Company. Should any known or unknown risks and uncertainties develop into actual events, these developments could have material adverse effects on our business, financial condition and results of operations.
This release contains time-sensitive information that reflects management’s best analysis only as of the date of this release. The Company does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this release.
Additional information regarding these risks can be found in our Annual Report on Form 10-K for the year ended December 31, 2018.
Ferro Corporation
Investor & Media Contact:
Kevin Cornelius Grant, 216.875.5451
Director of Investor Relations and Corporate Communications
kevincornelius.grant@ferro.com
Table 1
Ferro Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (unaudited)
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(In thousands, except per share amounts) | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
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Net sales | | $ | 365,728 | | $ | 395,163 | | $ | 1,147,178 | | $ | 1,216,934 |
Cost of sales | | | 265,437 | | | 289,676 | | | 836,773 | | | 866,116 |
Gross profit | | | 100,291 | | | 105,487 | | | 310,405 | | | 350,818 |
Selling, general and administrative expenses | | | 67,723 | | | 64,344 | | | 211,448 | | | 207,560 |
Restructuring and impairment charges | | | 6,226 | | | 2,561 | | | 18,613 | | | 10,435 |
Other expense (income): | | | | | | | | | | | | |
Interest expense | | | 8,138 | | | 8,553 | | | 25,198 | | | 24,715 |
Interest earned | | | (93) | | | (110) | | | (329) | | | (497) |
Foreign currency losses, net | | | 3,497 | | | 2,554 | | | 5,615 | | | 7,054 |
Loss on extinguishment of debt | | | - | | | - | | | - | | | 3,226 |
Miscellaneous expense (income), net | | | (2,139) | | | 74 | | | (1,505) | | | (523) |
Income before income taxes | | | 16,939 | | | 27,511 | | | 51,365 | | | 98,848 |
Income tax expense | | | 3,729 | | | 11,368 | | | 13,168 | | | 29,246 |
Net income | | | 13,210 | | | 16,143 | | | 38,197 | | | 69,602 |
Less: Net income attributable to noncontrolling interests | | | 390 | | | 85 | | | 902 | | | 485 |
Net income attributable to Ferro Corporation common shareholders | | $ | 12,820 | | $ | 16,058 | | $ | 37,295 | | $ | 69,117 |
Earnings per share attributable to Ferro Corporation common shareholders: | | | | | | | | | | | | |
Basic earnings per share | | | 0.16 | | | 0.19 | | | 0.45 | | | 0.82 |
Diluted earnings per share | | | 0.16 | | | 0.19 | | | 0.45 | | | 0.81 |
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Shares outstanding: | | | | | | | | | | | | |
Weighted-average basic shares | | | 81,942 | | | 83,893 | | | 82,118 | | | 84,154 |
Weighted-average diluted shares | | | 82,495 | | | 85,162 | | | 82,956 | | | 85,428 |
End-of-period basic shares | | | 81,968 | | | 83,657 | | | 81,968 | | | 83,657 |
Table 2
Ferro Corporation and Subsidiaries
Segment Net Sales, Gross Profit and SG&A (unaudited)
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(Dollars in thousands) | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
Segment Net Sales | | | | | | | | | | | | |
Performance Coatings | | $ | 162,391 | | $ | 175,939 | | $ | 510,970 | | $ | 554,036 |
Performance Colors and Glass | | | 112,742 | | | 123,277 | | | 351,991 | | | 369,809 |
Color Solutions | | | 90,595 | | | 95,947 | | | 284,217 | | | 293,089 |
Total segment net sales | | $ | 365,728 | | $ | 395,163 | | $ | 1,147,178 | | $ | 1,216,934 |
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Segment Gross Profit | | | | | | | | | | | | |
Performance Coatings | | $ | 35,436 | | $ | 36,257 | | $ | 108,903 | | $ | 130,319 |
Performance Colors and Glass | | | 36,829 | | | 40,095 | | | 115,672 | | | 128,785 |
Color Solutions | | | 29,122 | | | 30,174 | | | 87,220 | | | 93,864 |
Other costs of sales | | | (1,096) | | | (1,039) | | | (1,390) | | | (2,150) |
Total gross profit | | $ | 100,291 | | $ | 105,487 | | $ | 310,405 | | $ | 350,818 |
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Selling, general and administrative expenses | | | | | | | | | | | | |
Strategic services | | $ | 35,686 | | $ | 37,084 | | $ | 114,507 | | $ | 117,905 |
Functional services | | | 31,130 | | | 26,388 | | | 88,835 | | | 79,430 |
Incentive compensation | | | 607 | | | (489) | | | 2,161 | | | 5,008 |
Stock-based compensation | | | 300 | | | 1,361 | | | 5,945 | | | 5,217 |
Total selling, general and administrative expenses | | $ | 67,723 | | $ | 64,344 | | $ | 211,448 | | $ | 207,560 |
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Table 3
Ferro Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
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(Dollars in thousands) | | September 30, | | December 31, |
| | 2019 | | 2018 |
ASSETS | | | | | | |
Current assets | | | | | | |
Cash and cash equivalents | | $ | 51,741 | | $ | 104,301 |
Accounts receivable, net | | | 320,359 | | | 306,882 |
Inventories | | | 358,301 | | | 356,998 |
Other receivables | | | 90,209 | | | 91,143 |
Other current assets | | | 23,239 | | | 23,960 |
Total current assets | | | 843,849 | | | 883,284 |
Other assets | | | | | | |
Property, plant and equipment, net | | | 382,842 | | | 381,341 |
Goodwill | | | 203,595 | | | 216,464 |
Intangible assets, net | | | 169,947 | | | 184,953 |
Deferred income taxes | | | 103,648 | | | 103,488 |
Operating leased assets | | | 23,206 | | | - |
Other non-current assets | | | 55,595 | | | 42,930 |
Total assets | | $ | 1,782,682 | | $ | 1,812,460 |
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LIABILITIES AND EQUITY | | | | | | |
Current liabilities | | | | | | |
Loans payable and current portion of long-term debt | | $ | 18,136 | | $ | 10,260 |
Accounts payable | | | 178,412 | | | 256,573 |
Accrued payrolls | | | 34,931 | | | 39,989 |
Accrued expenses and other current liabilities | | | 91,185 | | | 77,995 |
Total current liabilities | | | 322,664 | | | 384,817 |
Other liabilities | | | | | | |
Long-term debt, less current portion | | | 827,791 | | | 811,137 |
Postretirement and pension liabilities | | | 168,218 | | | 173,046 |
Operating leased non-current liabilities | | | 14,905 | | | - |
Other non-current liabilities | | | 62,306 | | | 57,611 |
Total liabilities | | | 1,395,884 | | | 1,426,611 |
Equity | | | | | | |
Total Ferro Corporation shareholders’ equity | | | 377,586 | | | 376,631 |
Noncontrolling interests | | | 9,212 | | | 9,218 |
Total liabilities and equity | | $ | 1,782,682 | | $ | 1,812,460 |
Table 4
Ferro Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
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(Dollars in thousands) | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
Cash flows from operating activities | | | | | | | | | | | | |
Net income | | $ | 13,210 | | $ | 16,143 | | $ | 38,197 | | $ | 69,602 |
(Gain) loss on sale of assets | | | 272 | | | 197 | | | (947) | | | 485 |
Depreciation and amortization | | | 16,791 | | | 13,272 | | | 45,141 | | | 40,238 |
Interest amortization | | | 968 | | | 911 | | | 2,780 | | | 2,684 |
Restructuring and impairment | | | 3,079 | | | (1,202) | | | 9,837 | | | 4,277 |
Loss on extinguishment of debt | | | - | | | - | | | - | | | 3,226 |
Accounts receivable | | | (7,252) | | | 14,325 | | | (78,082) | | | (36,439) |
Inventories | | | 5,919 | | | 6,531 | | | (9,182) | | | (58,833) |
Accounts payable | | | (4,980) | | | 12,634 | | | (63,452) | | | 11,103 |
Other current assets and liabilities, net | | | 4,280 | | | 1,469 | | | 3,735 | | | (17,331) |
Other adjustments, net | | | (20,578) | | | 9,081 | | | (15,267) | | | 16,674 |
Net cash used in operating activities | | | 11,709 | | | 73,361 | | | (67,240) | | | 35,686 |
Cash flows from investing activities | | | | | | | | | | | | |
Capital expenditures for property, plant and equipment and other long lived assets | | | (3,186) | | | (20,585) | | | (40,820) | | | (64,154) |
Collections of financing receivables | | | 19,633 | | | - | | | 60,904 | | | - |
Business acquisitions, net of cash acquired | | | - | | | (42,882) | | | (251) | | | (47,802) |
Other investing activities | | | 32 | | | 6 | | | 1,930 | | | 37 |
Net cash provided by (used in) investing activities | | | 16,479 | | | (63,461) | | | 21,763 | | | (111,919) |
Cash flows from financing activities | | | | | | | | | | | | |
Net borrowings (repayments) under loans payable | | | 692 | | | (15,354) | | | 8,220 | | | (17,182) |
Principal payments on term loan facility - Credit Facility | | | - | | | - | | | - | | | (304,060) |
Principal payments on term loan facility - Amended Credit Facility | | | (2,050) | | | (2,050) | | | (6,150) | | | (4,100) |
Proceeds from revolving credit facility - Credit Facility | | | - | | | - | | | - | | | 134,950 |
Principal payments on revolving credit facility - Credit Facility | | | - | | | - | | | - | | | (212,950) |
Proceeds from revolving credit facility - Amended Credit Facility | | | 50,646 | | | 167,443 | | | 216,066 | | | 168,023 |
Proceeds from term loan facility - Amended Credit Facility | | | - | | | - | | | - | | | 466,075 |
Principal payments on revolving credit facility - Amended Credit Facility | | | (70,652) | | | (56,090) | | | (193,595) | | | (56,090) |
Payment of debt issuance costs | | | - | | | - | | | - | | | (3,466) |
Acquisition-related contingent consideration payment | | | (5,200) | | | (9,116) | | | (5,200) | | | (9,464) |
Purchase of treasury stock | | | - | | | (10,985) | | | (25,000) | | | (16,999) |
Other financing activities | | | (189) | | | (1,129) | | | (757) | | | (3,516) |
Net cash (used in) provided by financing activities | | | (26,753) | | | 72,719 | | | (6,416) | | | 141,221 |
Effect of exchange rate changes on cash and cash equivalents | | | (1,005) | | | (1,227) | | | (667) | | | (2,261) |
Decrease in cash and cash equivalents | | | 430 | | | 81,392 | | | (52,560) | | | 62,727 |
Cash and cash equivalents at beginning of period | | | 51,311 | | | 44,886 | | | 104,301 | | | 63,551 |
Cash and cash equivalents at end of period | | $ | 51,741 | | $ | 126,278 | | $ | 51,741 | | $ | 126,278 |
Cash paid during the period for: | | | | | | | | | | | | |
Interest | | $ | 8,518 | | $ | 8,407 | | $ | 25,475 | | $ | 24,857 |
Income taxes | | $ | 4,594 | | $ | 3,199 | | $ | 12,845 | | $ | 17,577 |
Table 5
Ferro Corporation and Subsidiaries
Supplemental Information
Reconciliation of Reported Income to Adjusted Income
For the Three Months Ended September 30 (unaudited)
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| | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands, except per share amounts) | | | Cost of sales | | | Selling general and administrative expenses | | | Restructuring and impairment charges | | | Other expense, net | | | Income tax expense4 | | | Net income attributable to common shareholders | | | Diluted earnings per share |
| | | | | | | | | | | | | | | | | | | | | |
| | 2019 |
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As reported | | $ | 265,437 | | $ | 67,723 | | $ | 6,226 | | $ | 9,403 | | $ | 3,729 | | $ | 12,820 | | $ | 0.16 |
Adjustments: | | | | | | | | | | | | | | | | | | | | | |
Restructuring | | | - | | | - | | | (6,226) | | | - | | | - | | | 6,226 | | | 0.08 |
Acquisition related costs1 | | | (479) | | | (8,387) | | | - | | | - | | | - | | | 8,866 | | | 0.11 |
Costs related to optimization projects | | | (1,097) | | | (1,053) | | | - | | | - | | | - | | | 2,150 | | | 0.03 |
Costs related to divested businesses and assets | | | - | | | (926) | | | - | | | (62) | | | - | | | 988 | | | 0.01 |
Other3 | | | - | | | - | | | - | | | (1,323) | | | - | | | 1,323 | | | - |
Tax on adjustments | | | - | | | - | | | - | | | - | | | 3,720 | | | (3,720) | | | (0.05) |
Total adjustments5 | | | (1,576) | | | (10,366) | | | (6,226) | | | (1,385) | | | 3,720 | | | 15,833 | | | 0.19 |
As adjusted | | $ | 263,861 | | $ | 57,357 | | $ | - | | $ | 8,018 | | $ | 7,449 | | $ | 28,653 | | $ | 0.35 |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | 2018 |
| | | | | | | | | | | | | | | | | | | | | |
As reported | | $ | 289,676 | | $ | 64,344 | | $ | 2,561 | | $ | 11,071 | | $ | 11,368 | | $ | 16,058 | | $ | 0.19 |
Adjustments: | | | | | | | | | | | | | | | | | | | | | |
Restructuring | | | - | | | - | | | (2,561) | | | - | | | - | | | 2,561 | | | 0.03 |
Acquisition related costs2 | | | (789) | | | (5,684) | | | - | | | (88) | | | - | | | 6,561 | | | 0.08 |
Costs related to optimization projects | | | (316) | | | (2,509) | | | - | | | - | | | - | | | 2,825 | | | 0.03 |
Costs related to divested businesses and assets | | | - | | | - | | | - | | | (180) | | | - | | | 180 | | | - |
Other3 | | | - | | | - | | | - | | | (987) | | | - | | | 987 | | | 0.01 |
Tax on adjustments | | | - | | | - | | | - | | | - | | | (2,405) | | | 2,405 | | | 0.03 |
Total adjustments5 | | | (1,105) | | | (8,193) | | | (2,561) | | | (1,255) | | | (2,405) | | | 15,519 | | | 0.18 |
As adjusted | | $ | 288,571 | | $ | 56,151 | | $ | - | | $ | 9,816 | | $ | 8,963 | | $ | 31,577 | | $ | 0.37 |
| (1) | | The adjustments to “Cost of Sales” primarily include environmental costs related to our recent acquisitions. The adjustments to “Selling general and administrative expenses” primarily include legal, professional and other expenses related to acquisition costs. The adjustments to “Other expense, net” relate to purchase price adjustments related to an acquisition that is beyond the measurement period. |
| (2) | | The adjustments to “Cost of Sales” primarily include the amortization of purchase accounting adjustments related to our recent acquisitions and environmental costs related to our recent acquisitions. The adjustments to “Selling general and administrative expenses” primarily include legal, professional and other expenses related to acquisition costs. The adjustments to “Other expense, net” relate to earn out adjustments related to an acquisition that are beyond the measurement period. |
| (3) | | The adjustments to “Other expense, net” primarily relate to impacts of currency related items in Argentina. |
| (4) | | Income tax expense reflects the reported expense, adjusted for adjustments being tax effected at the respective statutory rate where the item originated. |
| (5) | | Due to rounding, total earnings per share related to adjustments does not always add to the total adjusted earnings per share. |
It should be noted that adjusted net income, earnings per share and other adjusted items referred to above are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). These Non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP, and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures is presented. We believe this data provides investors with additional useful information on the underlying operations and trends of the business and enables period-to-period comparability of financial performance.
Table 6
Ferro Corporation and Subsidiaries
Supplemental Information
Reconciliation of Reported Income to Adjusted Income
For the Nine Months Ended September 30 (unaudited)
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands, except per share amounts) | | | Cost of sales | | | Selling general and administrative expenses | | | Restructuring and impairment charges | | | Other expense, net | | | Income tax expense5 | | | Net income attributable to common shareholders | | | Diluted earnings per share |
| | | | | | | | | | | | | | | | | | | | | |
| | 2019 |
| | | | | | | | | | | | | | | | | | | | | |
As reported | | $ | 836,773 | | $ | 211,448 | | $ | 18,613 | | $ | 28,979 | | $ | 13,168 | | $ | 37,295 | | $ | 0.45 |
Adjustments: | | | | | | | | | | | | | | | | | | | | | |
Restructuring | | | - | | | - | | | (18,613) | | | - | | | - | | | 18,613 | | | 0.22 |
Acquisition related costs1 | | | (875) | | | (16,115) | | | - | | | (768) | | | - | | | 17,758 | | | 0.21 |
Costs related to optimization projects | | | (5,383) | | | (3,688) | | | - | | | (50) | | | - | | | 9,121 | | | 0.11 |
Costs related to divested businesses and assets | | | - | | | (1,732) | | | - | | | (201) | | | - | | | 1,933 | | | 0.02 |
Other3 | | | - | | | - | | | - | | | (86) | | | - | | | 86 | | | - |
Tax on adjustments | | | - | | | - | | | - | | | - | | | 9,108 | | | (9,108) | | | (0.11) |
Total adjustments6 | | | (6,258) | | | (21,535) | | | (18,613) | | | (1,105) | | | 9,108 | | | 38,403 | | | 0.45 |
As adjusted | | $ | 830,515 | | $ | 189,913 | | $ | - | | $ | 27,874 | | $ | 22,276 | | $ | 75,698 | | $ | 0.91 |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | 2018 |
| | | | | | | | | | | | | | | | | | | | | |
As reported | | $ | 866,116 | | $ | 207,560 | | $ | 10,435 | | $ | 33,975 | | $ | 29,246 | | $ | 69,117 | | $ | 0.81 |
Adjustments: | | | | | | | | | | | | | | | | | | | | | |
Restructuring | | | - | | | - | | | (10,435) | | | - | | | - | | | 10,435 | | | 0.12 |
Acquisition related costs2 | | | (1,741) | | | (11,479) | | | - | | | (854) | | | - | | | 14,074 | | | 0.16 |
Costs related to optimization projects | | | (949) | | | (4,874) | | | - | | | - | | | - | | | 5,823 | | | 0.07 |
Costs related to divested businesses and assets | | | - | | | (384) | | | - | | | (269) | | | - | | | 653 | | | - |
Other4 | | | - | | | - | | | - | | | (2,567) | | | - | | | 2,567 | | | 0.03 |
Tax on adjustments | | | - | | | - | | | - | | | - | | | 2,862 | | | (2,862) | | | (0.03) |
Total adjustments6 | | | (2,690) | | | (16,737) | | | (10,435) | | | (3,690) | | | 2,862 | | | 30,690 | | | 0.35 |
As adjusted | | $ | 863,426 | | $ | 190,823 | | $ | - | | $ | 30,285 | | $ | 32,108 | | $ | 99,807 | | $ | 1.17 |
| (1) | | The adjustments to “Cost of Sales” primarily include the amortization of purchase accounting adjustments related to our recent acquisitions and environmental costs related to our recent acquisitions. The adjustments to “Selling general and administrative expenses” primarily include legal, professional and other expenses related to acquisition costs. The adjustments to “Other expense, net” relate to purchase price adjustments related to an acquisition that is beyond the measurement period. |
| (2) | | The adjustments to “Cost of Sales” primarily include the amortization of purchase accounting adjustments related to our recent acquisitions and environmental costs related to our recent acquisitions. The adjustments to “Selling general and administrative expenses” primarily include legal, professional and other expenses related to acquisition costs. The adjustments to “Other expense, net” primarily relate to earn out adjustments related to an acquisition that are beyond the measurement period. |
| (3) | | The adjustments to “Other expense, net” relate to gains and losses on asset sales and impacts of currency related items in Argentina. |
| (4) | | The adjustments to “Other expense, net” primarily relate to impacts of currency related items in Argentina, debt extinguishment charges, fees expensed associated with the Amended Credit Facility and a gain recognized on increasing our ownership interest in FMU. |
| (5) | | Income tax expense reflects the reported expense, adjusted for adjustments being tax effected at the respective statutory rate where the item originated. |
| (6) | | Due to rounding, total earnings per share related to adjustments does not always add to the total adjusted earnings per share. |
It should be noted that adjusted net income, earnings per share and other adjusted items referred to above are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). These Non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP, and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures is presented. We believe this data provides investors with additional useful information on the underlying operations and trends of the business and enables period-to-period comparability of financial performance.
Table 7
Ferro Corporation and Subsidiaries
Supplemental Information
Reconciliation of Adjusted Gross Profit
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(Dollars in thousands) | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | | | | |
Performance Coatings | | $ | 162,391 | | | $ | 175,939 | | | $ | 510,970 | | | $ | 554,036 | |
Performance Colors and Glass | | | 112,742 | | | | 123,277 | | | | 351,991 | | | | 369,809 | |
Color Solutions | | | 90,595 | | | | 95,947 | | | | 284,217 | | | | 293,089 | |
Total net sales | | $ | 365,728 | | | $ | 395,163 | | | $ | 1,147,178 | | | $ | 1,216,934 | |
| | | | | | | | | | | | | | | | |
Total net sales | | $ | 365,728 | | | $ | 395,163 | | | $ | 1,147,178 | | | $ | 1,216,934 | |
Adjusted cost of sales1 | | | 263,861 | | | | 288,571 | | | | 830,515 | | | | 863,426 | |
Adjusted gross profit | | $ | 101,867 | | | $ | 106,592 | | | $ | 316,663 | | | $ | 353,508 | |
Adjusted gross profit percentage | | | 27.9 | % | | | 27.0 | % | | | 27.6 | % | | | 29.0 | % |
| (1) | | Refer to Table 5 for the reconciliation of adjusted cost of sales for the three months ended September 30, 2019 and 2018, respectively. Refer to Table 6 for the reconciliation of adjusted cost of sales for the nine months ended September 30, 2019 and 2018, respectively. |
It should be noted that adjusted gross profit is a financial measure not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). This Non-GAAP financial measure should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of this financial measure to the most comparable U.S. GAAP financial measure is presented. We believe this data provides investors with additional useful information on the underlying operations and trends of the business and enables period-to-period comparability of financial performance.
Table 8
Ferro Corporation and Subsidiaries
Supplemental Information
Constant Currency Schedule of Adjusted Operating Profit (unaudited)
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Three Months Ended |
(Dollars in thousands) | | September 30, |
| | 2018 | | Adjusted 20181 | | 2019 | | 2019 vs Adjusted 2018 |
Segment net sales | | | | | | | | | | | | |
Performance Coatings | | $ | 175,939 | | $ | 172,835 | | $ | 162,391 | | $ | (10,444) |
Performance Colors and Glass | | | 123,277 | | | 120,930 | | | 112,742 | | | (8,188) |
Color Solutions | | | 95,947 | | | 94,288 | | | 90,595 | | | (3,693) |
Total segment net sales | | $ | 395,163 | | $ | 388,053 | | $ | 365,728 | | $ | (22,325) |
| | | | | | | | | | | | |
Segment adjusted gross profit | | | | | | | | | | | | |
Performance Coatings | | $ | 36,257 | | $ | 35,562 | | $ | 35,882 | | $ | 320 |
Performance Colors and Glass | | | 40,095 | | | 39,335 | | | 37,114 | | | (2,221) |
Color Solutions | | | 31,018 | | | 30,565 | | | 29,017 | | | (1,548) |
Other costs of sales | | | (778) | | | (759) | | | (146) | | | 613 |
Total adjusted gross profit2 | | $ | 106,592 | | $ | 104,703 | | $ | 101,867 | | $ | (2,836) |
| | | | | | | | | | | | |
Adjusted selling, general and administrative expenses | | | | | | | | | | | | |
Strategic services | | $ | 36,313 | | $ | 35,403 | | $ | 35,597 | | $ | 194 |
Functional services | | | 18,966 | | | 18,866 | | | 20,853 | | | 1,987 |
Incentive compensation | | | (489) | | | (590) | | | 607 | | | 1,197 |
Stock-based compensation | | | 1,361 | | | 1,361 | | | 300 | | | (1,061) |
Total adjusted selling, general and administrative expenses3 | | $ | 56,151 | | $ | 55,040 | | $ | 57,357 | | $ | 2,317 |
| | | | | | | | | | | | |
Adjusted operating profit | | $ | 50,441 | | $ | 49,663 | | $ | 44,510 | | $ | (5,153) |
Adjusted operating profit as a % of net sales | | | 12.8% | | | 12.8% | | | 12.2% | | | |
| (1) | | Reflects the remeasurement of 2018 reported and adjusted local currency results using 2019 exchange rates, resulting in constant currency comparative figures to 2019 reported and adjusted results. See Table 5 for Non-GAAP adjustments applicable to the three month period. |
| (2) | | Refer to Table 7 for the reconciliation of adjusted gross profit for the three months ended September 30, 2019 and 2018, respectively. |
| (3) | | Refer to Table 5 for the reconciliation of adjusted SG&A expenses for the three months ended September 30, 2019 and 2018, respectively. |
It should be noted that adjusted net sales, gross profit, SG&A expenses, and operating profit are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). These Non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures are presented within this table, as well as Table 5 and Table 7. We believe this data provides investors with additional useful information on the underlying operations and trends of the business and enables period-to-period comparability of financial performance.
Table 9
Ferro Corporation and Subsidiaries
Supplemental Information
Constant Currency Schedule of Adjusted Operating Profit (unaudited)
| | | | | | | | | | | | |
| | Nine Months Ended |
(Dollars in thousands) | | September 30, |
| | 2018 | | Adjusted 20181 | | 2019 | | 2019 vs Adjusted 2018 |
Segment net sales | | | | | | | | | | | | |
Performance Coatings | | $ | 554,036 | | $ | 533,276 | | $ | 510,970 | | $ | (22,306) |
Performance Colors and Glass | | | 369,809 | | | 357,253 | | | 351,991 | | | (5,262) |
Color Solutions | | | 293,089 | | | 284,373 | | | 284,217 | | | (156) |
Total segment net sales | | $ | 1,216,934 | | $ | 1,174,902 | | $ | 1,147,178 | | $ | (27,724) |
| | | | | | | | | | | | |
Segment adjusted gross profit | | | | | | | | | | | | |
Performance Coatings | | $ | 130,186 | | $ | 124,892 | | $ | 110,661 | | $ | (14,231) |
Performance Colors and Glass | | | 128,789 | | | 124,395 | | | 116,484 | | | (7,911) |
Color Solutions | | | 95,661 | | | 93,244 | | | 89,128 | | | (4,116) |
Other costs of sales | | | (1,128) | | | (1,104) | | | 390 | | | 1,494 |
Total adjusted gross profit2 | | $ | 353,508 | | $ | 341,427 | | $ | 316,663 | | $ | (24,764) |
| | | | | | | | | | | | |
Adjusted selling, general and administrative expenses | | | | | | | | | | | | |
Strategic services | | $ | 116,993 | | $ | 112,286 | | $ | 114,176 | | $ | 1,890 |
Functional services | | | 63,612 | | | 62,593 | | | 68,156 | | | 5,563 |
Incentive compensation | | | 5,001 | | | 4,702 | | | 2,161 | | | (2,541) |
Stock-based compensation | | | 5,217 | | | 5,216 | | | 5,420 | | | 204 |
Total adjusted selling, general and administrative expenses3 | | $ | 190,823 | | $ | 184,797 | | $ | 189,913 | | $ | 5,116 |
| | | | | | | | | | | | |
Adjusted operating profit | | $ | 162,685 | | $ | 156,630 | | $ | 126,750 | | $ | (29,880) |
Adjusted operating profit as a % of net sales | | | 13.4% | | | 13.3% | | | 11.0% | | | |
| (1) | | Reflects the remeasurement of 2018 reported and adjusted local currency results using 2019 exchange rates, resulting in constant currency comparative figures to 2019 reported and adjusted results. See Table 6 for Non-GAAP adjustments applicable to the nine month period. |
| (2) | | Refer to Table 7 for the reconciliation of adjusted gross profit for the nine months ended September 30, 2019 and 2018, respectively. |
| (3) | | Refer to Table 6 for the reconciliation of adjusted SG&A expenses for the nine months ended September 30, 2019 and 2018, respectively. |
It should be noted that adjusted net sales, gross profit, SG&A expenses, and operating profit are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). These Non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures are presented within this table, as well as Table 6 and Table 7. We believe this data provides investors with additional useful information on the underlying operations and trends of the business and enables period-to-period comparability of financial performance.
Table 10
Ferro Corporation and Subsidiaries
Supplemental Information
Reconciliation of Net income attributable to Ferro Corporation
common shareholders to Adjusted EBITDA (unaudited)
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(Dollars in thousands) | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | | | | | | | | | | |
Net income attributable to Ferro Corporation common shareholders | | $ | 12,820 | | | $ | 16,058 | | | $ | 37,295 | | | $ | 69,117 | |
Net income attributable to noncontrolling interests | | | 390 | | | | 85 | | | | 902 | | | | 485 | |
Restructuring and impairment charges | | | 6,226 | | | | 2,561 | | | | 18,613 | | | | 10,435 | |
Other expense, net | | | 1,265 | | | | 2,518 | | | | 3,781 | | | | 9,260 | |
Interest expense | | | 8,138 | | | | 8,553 | | | | 25,198 | | | | 24,715 | |
Income tax expense | | | 3,729 | | | | 11,368 | | | | 13,168 | | | | 29,246 | |
Depreciation and amortization | | | 14,659 | | | | 14,183 | | | | 44,821 | | | | 42,922 | |
Less: interest amortization expense and other | | | (968) | | | | (911) | | | | (2,780) | | | | (2,684) | |
Cost of sales adjustments1 | | | 1,576 | | | | 1,105 | | | | 6,258 | | | | 2,690 | |
SG&A adjustments1 | | | 10,366 | | | | 8,193 | | | | 21,535 | | | | 16,737 | |
Adjusted EBITDA | | $ | 58,201 | | | $ | 63,713 | | | $ | 168,791 | | | $ | 202,923 | |
| | | | | | | | | | | | | | | | |
Net sales | | $ | 365,728 | | | $ | 395,163 | | | $ | 1,147,178 | | | $ | 1,216,934 | |
Adjusted EBITDA as a % of net sales | | | 15.9 | % | | | 16.1 | % | | | 14.7 | % | | | 16.7 | % |
| (1) | | For details of Non-GAAP adjustments, refer to Table 5 and Table 6 for the reconciliation of adjusted cost of sales and adjusted SG&A for the three and nine months ended September 30, 2019 and 2018, respectively. |
It should be noted that adjusted EBITDA is a financial measure not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). This Non-GAAP financial measure should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of this financial measure to the most comparable U.S. GAAP financial measure is presented. We believe this data provides investors with additional useful information on the underlying operations and trends of the business and enables period-to-period comparability of financial performance.
Table 11
Ferro Corporation and Subsidiaries
Supplemental Information
Change in Net Debt (unaudited)
| | | | | | | | | | | | | |
(Dollars in thousands) | | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
Beginning of period | | | | | | | | | | | | | |
Gross debt | | $ | 872,184 | | $ | 846,039 | | $ | 826,224 | | $ | 759,078 | |
Cash | | | 51,311 | | | 44,886 | | | 104,301 | | | 63,551 | |
Debt, net of cash | | | 820,873 | | | 801,153 | | | 721,923 | | | 695,527 | |
| | | | | | | | | | | | | |
Unamortized debt issuance costs | | | 4,356 | | | 5,285 | | | 4,827 | | | 7,451 | |
Debt, net of cash and unamortized debt issuance costs | | | 816,517 | | | 795,868 | | | 717,096 | | | 688,076 | |
| | | | | | | | | | | | | |
End of period | | | | | | | | | | | | | |
Gross debt | | | 850,048 | | | 938,340 | | | 850,048 | | | 938,340 | |
Cash | | | 51,741 | | | 126,278 | | | 51,741 | | | 126,278 | |
Debt, net of cash | | | 798,307 | | | 812,062 | | | 798,307 | | | 812,062 | |
| | | | | | | | | | | | | |
Unamortized debt issuance costs | | | 4,121 | | | 5,063 | | | 4,121 | | | 5,063 | |
Debt, net of cash and unamortized debt issuance costs | | | 794,186 | | | 806,999 | | | 794,186 | | | 806,999 | |
| | | | | | | | | | | | | |
Change from FX on Euro term loan | | | - | | | - | | | - | | | (5,657) | |
Unamortized debt issuance costs | | | (235) | | | (222) | | | (706) | | | (2,388) | |
FX on cash | | | (1,005) | | | (1,227) | | | (667) | | | (2,261) | |
| | | | | | | | | | | | | |
Period (increase) in debt, net of cash, unamortized debt issuance costs and FX | | $ | 23,571 | | $ | (9,682) | | $ | (75,717) | | $ | (108,617) | |
| | | | | | | | | | | | | |
Period (increase) in debt, net of cash and unamortized debt issuance costs | | $ | 22,331 | | $ | (11,131) | | $ | (77,090) | | $ | (118,923) | |
It should be noted that the change in net debt is a financial measure not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). This Non-GAAP financial measure should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of this financial measure to the most comparable U.S. GAAP financial measure is presented. We believe this data provides investors with additional useful information on the underlying operations and trends of the business and enables period-to-period comparability of financial performance.
Table 12
Ferro Corporation and Subsidiaries
Supplemental Information
Reconciliation of Net Cash Provided by Operating Activities (GAAP) to
Adjusted Free Cash Flow from Continuing Operations (Non-GAAP) (unaudited)
| | | | | | | | | | | | |
(Dollars in thousands) | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
Cash flows from operating activities | | | | | | | | | | | | |
Net income | | $ | 13,210 | | $ | 16,143 | | $ | 38,197 | | $ | 69,602 |
(Gain) loss on sale of assets | | | 272 | | | 197 | | | (947) | | | 485 |
Depreciation and amortization | | | 13,691 | | | 13,272 | | | 42,041 | | | 40,238 |
Interest amortization | | | 968 | | | 911 | | | 2,780 | | | 2,684 |
Restructuring and impairment | | | 3,079 | | | (1,202) | | | 9,837 | | | 4,277 |
Loss on extinguishment of debt | | | - | | | - | | | - | | | 3,226 |
Accounts receivable | | | (7,252) | | | 14,325 | | | (78,082) | | | (36,439) |
Inventories | | | 5,919 | | | 6,531 | | | (9,182) | | | (58,833) |
Accounts payable | | | (4,980) | | | 12,634 | | | (63,452) | | | 11,103 |
Other current assets and liabilities, net | | | 4,280 | | | 1,469 | | | 3,735 | | | (17,331) |
Other adjustments, net | | | (17,478) | | | 9,081 | | | (12,167) | | | 16,674 |
Net cash provided by (used in) operating activities (GAAP) | | $ | 11,709 | | $ | 73,361 | | $ | (67,240) | | $ | 35,686 |
Less: Capital Expenditures | | | (3,186) | | | (20,585) | | | (40,820) | | | (64,154) |
Plus: Cash collected for AR securitization | | | 19,633 | | | - | | | 60,904 | | | - |
Free Cash Flow provided by (used in) Continuing Operations (Non-GAAP) | | | 28,156 | | | 52,776 | | | (47,156) | | | (28,468) |
Plus: cash used for restructuring | | | 3,141 | | | 2,638 | | | 8,770 | | | 6,158 |
Plus: cash used for capital expenditures related to optimization projects(1) | | | 5,011 | | | 11,885 | | | 19,026 | | | 31,787 |
Plus: Cash used for net working capital investment related to optimization projects(2) | | | (2,237) | | | 3,372 | | | 12,687 | | | 5,423 |
Plus: Cash used for acquisition related professional fees(3) | | | 9,471 | | | 5,591 | | | 16,702 | | | 10,297 |
Plus: Cash used for optimization projects(3) | | | 2,150 | | | 2,825 | | | 9,561 | | | 5,823 |
Plus: Cash used for divested businesses and assets(3) | | | 988 | | | - | | | 1,866 | | | 384 |
Plus: Other | | | - | | | - | | | (1,725) | | | - |
Adjusted Free Cash Flow used in Continuing Operations (Non-GAAP) | | | 46,680 | | | 79,087 | | | 19,731 | | | 31,404 |
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Net Income Attributable to Ferro Corporation Common Shareholders | | | 12,820 | | | 16,058 | | | 37,295 | | | 69,117 |
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Net Cash Provided by Operating Activities Conversion of Net Income Attributable to Ferro Corporation Common Shareholders | | | 91.3% | | | 456.9% | | | -180.3% | | | 51.6% |
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Adjusted EBITDA (Non-GAAP) - From Table 10 | | | 58,201 | | | 63,713 | | | 168,791 | | | 202,923 |
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Adjusted Free Cash Flow Conversion of Adjusted EBITDA from Continuing Operations (Non-GAAP) | | | 80.2% | | | 124.1% | | | 11.7% | | | 15.5% |
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Adjusted Free Cash Flow Conversion of Adjusted EBITDA from Continuing Operations, adjusted for AR Securitization impact (Non-GAAP)(4) | | | 81.1% | | | 124.1% | | | 10.1% | | | 15.5% |
| (1) | | The adjustment to capital expenditures represents capital spend for certain optimization projects that are not expected to recur in the long-term at the current rate. See Table 11 for the reconciliation of period change in debt, net of cash, unamortized debt issuance costs and FX. |
| (2) | | The adjustment to net working capital represents spend for the build in inventory related to the optimization project noted in (1) above. This build in inventory is considered to be outside of the normal operations of the underlying business, and expected to be temporary in nature. |
| (3) | | The adjustment represents those cash outlays for (a) acquisition related professional fees, (b) costs related to certain optimization projects, and (c) costs related to divested businesses and assets, as detailed in the description of Non-GAAP adjustments in Table 5 for the three months ended September 30, 2019 and 2018, respectively and Table 6 for the nine months ended September 30, 2019 and 2018, respectively. |
| (4) | | Adjusted free cash flow conversation of adjusted EBITDA from continuing operations adjusted for the change in the cash proceeds collected of ($.5) million and $2.7 million for the three and nine months ended September 30, 2019, respectively, that is required to be remitted back to the financial institution under the international receivable sales program. |
It should be noted that adjusted free cash flow from continuing operations is a financial measure not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). The Non-GAAP financial measure should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures is presented. We believe this data provides investors with additional useful information on the underlying operations and trends of the business and enables period-to-period comparability of financial performance. Additionally, certain elements of these measures are used in the calculation of certain incentive compensation programs for management.
