UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported): |
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February 25, 2021 |
Ferro Corporation
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(Exact name of registrant as specified in its charter)
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Ohio |
1-584 |
34-0217820 |
_____________________ (State or other jurisdiction |
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______________ (I.R.S. Employer |
of incorporation) |
File Number) |
Identification No.) |
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6060 Parkland Boulevard Suite 250, Mayfield Heights, Ohio
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44124 |
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Registrant’s telephone number, including area code: |
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216-875-5600 |
Not Applicable
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Former name or former address, if changed since last report
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Common Stock, par value $1.00 |
FOE |
New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
o Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Item 2.01 Completion of Disposition of Assets.
As previously announced, on December 15, 2019, Ferro Corporation (“Ferro”) and Pigments Spain, S.L. (“Buyer”) entered into an Asset and Stock Purchase Agreement (as amended, the “Agreement”) pursuant to which Ferro agreed to sell Ferro’s global tile coatings business (the “Tile Coatings Business”) to Buyer for $460 million in cash (the “Purchase Price”), with the potential for an additional $32 million in cash based on the performance of the business pre-closing, plus the assumption of certain liabilities of the Tile Coatings Business as specified in the Agreement. On February 25, 2021, Ferro completed the sale of the Tile Coatings Business (the “Transaction”) to Buyer for $460 million in cash. The Purchase Price will be subject to customary post-closing adjustments.
Item 2.02 Results of Operations and Financial Condition.
On February 25, 2021, Ferro issued a press release that discussed financial result for the three-month period and year ended December 31, 2020. A copy of the press release is attached hereto as Exhibit 99.1, which is incorporated herein by reference. This information, including Exhibit 99.1, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that section, nor shall it be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof and regardless of any general incorporation language in such filings, except to the extent expressly set forth by specific reference in such filings.
Item 9.01 Financial Statements and Exhibits.
(b) Pro Forma Financial Information.
Ferro has classified the Tile Coatings Business as held-for-sale in its consolidated balance sheets and has classified the related operating results, net of income tax, as discontinued operations in its consolidated statements of operations. Accordingly, Ferro has not provided pro forma financial statements in this Current Report on Form 8-K as the results of the Tile Coatings Business have previously been classified as discontinued operations and have been properly presented as such in Ferro’s historical financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2019, and its Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2020, June 30, 2020 and September 30, 2020. As such, there are no other pro forma adjustments necessary on the condensed consolidated statement of operations for the nine months ended September 30, 2020, and for the consolidated statements of operations for the fiscal years ended December 31, 2019, 2018 and 2017.
The adjustments to Ferro’s historical condensed consolidated balance sheet as of September 30, 2020 include unaudited pro forma effects of the Transaction as if the sale of the Tile Coatings Business had occurred on September 30, 2020. These pro forma adjustments include the derecognition of assets of $448.3 million and liabilities of $159.0 million of the Tile Coatings Business, which are classified as held for sale on the September 30, 2020 condensed consolidated balance sheet.
Pro forma financial information requires management to make estimates and assumptions based upon the information known at that time. Actual results could differ from these estimates.
(d) Exhibits
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Exhibit Number |
Exhibit Description |
2.1 |
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2.2 |
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2.3 |
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99.1 |
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104 |
The cover page from this Current Report on Form 8-K, formatted in iXBRL (Inline eXtensible Business Reporting Language). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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Ferro Corporation |
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March 1, 2021 |
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By: |
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/s/ Benjamin J. Schlater |
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Name: Benjamin J. Schlater |
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Title: Group Vice President and Chief Financial Officer |
Exhibit 2.2
ASSET AND STOCK PURCHASE AGREEMENT
This First Amendment To The ASSET AND STOCK PURCHASE AGREEMENT (this “Amendment”), dated December 15, 2020, is by and between Ferro Corporation, an Ohio corporation (the “Company”), and Pigments Spain, S.L., a limited liability company with registered office at Carretera Viver – Puerto Burriana Km 61,800, 12540 Vila-Real, (Castellón) Spain, with Tax ID number B86492915 (the “Buyer”), and amends that certain Asset and Stock Purchase Agreement (the “Agreement”), dated December 15, 2019, by and between the Company and the Buyer. The Company and the Buyer are each a “Party” and are collectively referred to as the “Parties.” Capitalized terms used but not defined herein have the meanings given to them in the Agreement.
RECITALS
WHEREAS, Section 10.4 of the Agreement provides that the Agreement may only be amended, modified or supplemented upon the execution and delivery of a written agreement executed by the Parties; and
WHEREAS, the Parties desire to amend the Agreement as set forth in this Amendment.
NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements herein contained and contained in the Agreement, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Parties hereby agree as follows:
ARTICLE 1: AMENDMENTS
1.1Amendment to Schedule 2.3(c)(ii). Schedule 2.3(c)(ii), which sets forth the leasehold interests in real property owned by the Remaining Ferro Group, including any prepaid rent, security deposits and options to renew or purchase in connection therewith, that constitute “Excluded Assets”, is hereby deleted in its entirety and replaced with the Schedule attached to this Amendment as Annex A.
1.2Amendment to Section 2.15. Section 2.15 is hereby deleted in its entirety and replaced with the following:
(a) The Company shall use all commercially reasonable efforts to procure that, at Closing, the Divested Companies shall hold the “minimum Cash amount” as set forth in Schedule 2.15 (“Minimum Cash Amount”).
(b) If and to the extent that, on Closing, the Cash held by a Divested Company would, but for this Section 2.15, be greater than the amount of Cash necessary to meet the Minimum Cash Amount, the Company shall use all commercially
reasonable efforts to withdraw (whether by dividend, distribution or otherwise) the excess Cash above such Minimum Cash Amount from the relevant Divested Company and procure that such Cash is distributed to a member of the Remaining Ferro Group prior to the date the Company is required to deliver the Pre-Closing Statement to the Buyer. The Company shall: (i) consult in good faith with the Buyer and take into account the reasonable representations of the Buyer prior to withdrawing excess Cash pursuant to this Section 2.15(b); and (ii) use all commercially reasonable efforts to structure the withdrawal of such Cash in the most tax efficient manner possible.
1.3 Amendment to Schedule 2.15. Schedule 2.15, which sets forth the “minimum Cash amount” to be held by the Divested Companies, is hereby deleted in its entirety and replaced with the Schedule attached to this Amendment as Annex B.
1.4Amendment to “Trapped Cash” definition. The definition of “Trapped Cash” in Section 1.1, is hereby deleted in its entirety and replaced with the following:
“Trapped Cash” means all Cash of the Divested Companies on hand at the Closing: (a) which is not capable of being lawfully spent, distributed as a dividend or released by any Divested Company from the jurisdiction in which it is situated within a period of 90 days without deduction, withholding or additional cost (other than general foreign exchange controls applicable in jurisdictions in which the relevant Divested Company operates and the de minimis administrative costs of transfer from a bank account incurred in the ordinary course of business); or (b) which is not available for immediate use because it is securing obligations or liabilities of any person, including pursuant to any Debt Obligations or any Contract to which a Divested Company is bound; or (c) which after deducting Trapped Cash as defined in (a) and (b) above and after deducting any Replacement Amount held by the relevant Divested Company is in excess of the Minimum Cash Amount for that Divested Company or group of Divested Companies (as applicable) as set forth in, and in accordance with, Schedule 2.15.
1.5Amendment to “Equity Sellers” definition. The definition of “Equity Sellers” in Section 1.1, is hereby deleted in its entirety and replaced with the following:
“Equity Sellers” means the direct and indirect subsidiaries of the Company set forth on Schedule 1.1(f) and any member of the Remaining Ferro Group who has with the Buyer’s prior written consent acquired any Shares after the execution of this Agreement and directly owns such Shares at Closing.
1.6Amendment to Article V. A new Section 5.37 will be included at the end of Article V immediately after the existing Section 5.36:
Notwithstanding anything in this Agreement to the contrary, if at Closing, the Buyer’s designated acquirer (the “Mexican Buyer”) under the Local Asset Purchase Agreement with Ferro Mexicana (the “Mexico APA”) has not obtained
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all the Permits required under Mexican Law to duly operate the Mexico City Site (as defined in the Mexico APA), the Company will use its reasonable best efforts to (subject to the Buyer during such time continuing to use, and causing the Mexican Buyer and its other Affiliates to use, its reasonable best efforts to obtain the relevant Permit in the name of the Mexican Buyer (or another Affiliate) as soon as practicable): (i) provide the Mexican Buyer with assistance, co-operation and information to the extent reasonably requested by the Mexican Buyer in connection with the Mexican Buyer obtaining the relevant Permit in its own name; (ii) cooperate in any reasonable and lawful arrangement (including, for the avoidance of doubt, as contemplated in sub-limb (iii) of this Section 5.37) designed to provide the benefit of the relevant Permits held by the Company (or its Affiliate) to the Mexican Buyer necessary for the Mexican Buyer to operate the Mexico City Site until it has obtained the necessary Permits; and (iii) not cancel, revoke, change (except as may be required by applicable Law, provided that the Company shall inform the Mexican Buyer of any such change as soon as reasonably practicable after becoming aware such a change is required by applicable Law), transfer, fail to renew or fail to maintain any Permit held by the Company (or its Affiliate) which relates to the Mexico City Site (as defined in the Mexico APA) until the Mexican Buyer (or an Affiliate) has obtained the relevant Permit in its own name; provided that it is acknowledged and agreed that, without prejudice to Section 9.1(e), the Buyer shall be responsible for any and all Liabilities arising from its (or its Affiliates’) operation at the Mexico City Site under any such Permit after Closing or arising from its (or its Affiliates’) direct or indirect breach of any such Permit in relation to the Mexico City Site after Closing, provided that the Buyer shall not be responsible for any Liabilities arising from any direct or indirect breach of any Permit by the Company or its Affiliates prior to Closing. If, prior to Closing, the Mexican Buyer obtains all the Permits it requires under Mexican Law to operate the Mexico City Site in its own name, it shall promptly notify the Company in writing and this Section 5.37 shall cease to apply or have any force or effect.
1.7 Amendment to Schedule 2.8. Schedule 2.8, which sets forth the allocation of Total Consideration, is hereby deleted in its entirety and replaced with the Schedule attached to this Amendment as Annex C.
1.8Amendment to “Debt Obligations” definition. Clause (n) in the definition of “Debt Obligations” in Section 1.1, is hereby deleted in its entirety and replaced with the following:
“(n) Intercompany Obligations which are payables in a Divested Company which are not settled prior to Closing (including the intercompany loans described in clauses (ii), (iii) and (iv) of the definition of Permitted Intercompany Obligations but excluding the intercompany loan described in clause (i) of that definition)”
1.9Amendment to “Permitted Intercompany Obligations” definition. The definition of “Permitted Intercompany Obligations” in Section 1.1, is hereby deleted in its entirety and replaced with the following:
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“Permitted Intercompany Obligations” means the following (unless settled by the Company or its Affiliates with the prior consent of the Buyer prior to the Closing): (i) the intercompany loan in the aggregate principal amount of Rp135,000,000,000 between PT Ferro Mas Dinamika, as lender, and PT Ferro Materials Utama, as borrower; (ii) the intercompany loans in the aggregate principal amount of €19,140,000 between Ferro Finco Ireland Limited, as lender, and Ferro Egypt for Frits and Glazes S.A.E., as borrower; (iii) the intercompany loan in the aggregate principal amount of €2,200,000 between Ferro Finco Ireland Limited, as lender, and Oximet S.r.l., as borrower; and (iv) the intercompany loan in the aggregate principal amount of €23,700,000 between Ferro Finco Ireland Limited, as lender, and Ferro Spain S.L.U., as borrower; provided, that the Company or its Affiliates may take either (or both) of the following actions: (x) increase the aggregate principal amount of the loan described in clause (iii) up to an amount of €4,250,000 or (y) decrease the aggregate principal amount of the loans described in clause (ii) down to an amount not to be less than €13,240,000 but only if the aggregate principal amount of the loan described in clause (iv) is increased by the same amount up to an amount not to exceed €29,600,000.
1.10Amendment to Section 1.1. A new defined term “Debt Swap Amount” will be inserted into Section 1.1 between the definitions of “Debt Obligations” and “Disclosure Schedules”) which reads as follows:
“Debt Swap Amount” means an amount equal to the sum of the following calculation: (a) an amount equal to 15% of the amount by which the aggregate principal amount of the loans described in clause (ii) of the definition of Permitted Intercompany Obligations is actually reduced prior to the Closing divided by (b) two, provided that the Debt Swap Amount shall not exceed $525,000.
1.11Amendment to Section 2.5. The last sentence of Section 2.5 is hereby deleted in its entirety and replaced with the following:
For purposes of this Section 2.5 and Section 2.6, any monetary conversion from the currency of a foreign country to U.S. dollars or from U.S. dollars to the currency of a foreign country will be calculated using the applicable exchange rates set forth in The Wall Street Journal, Eastern Edition as of the date that is two Business Days prior to the date on which the Company delivers the Pre-Closing Statement to the Buyer.
1.12Amendment to Section 2.6(a). Section 2.6(a) is hereby deleted in its entirety and replaced with the following:
(a) Pre‑Closing Statement. No later than twelve Business Days prior to the Closing Date, the Company will prepare and deliver to the Buyer a written statement (the “Pre‑Closing Statement”), together with any relevant supporting materials, which will include a supporting trial balance (which, for the avoidance
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of doubt, will not be prepared pursuant to the Accounting Methods)), setting forth the Company’s calculation of a good faith estimate of (A) the Closing Working Capital as derived therefrom (the “Estimated Working Capital”), (B) the combined amount of Cash of the Divested Companies and any other Cash which otherwise constitutes a Sold Asset anticipated to exist immediately prior to the Closing Date (the “Estimated Cash”), (C) the combined amount of Debt Obligations of the Divested Companies and any other Debt Obligations which otherwise constitute Assumed Liabilities anticipated to exist immediately prior to the Closing (the “Estimated Indebtedness”), (D) the combined amount of unpaid Transaction Expenses (the “Estimated Transaction Expenses”); (E) the Unspent Capital Expenditure Amount (the “Estimated Unspent Capital Expenditure Amount”), (F) the Cap Gemini Excess Amount, (G) the Esfel Amount, (H) the Separation Delay Amount, (I) the Earn-Out Amount, (J) the Debt Swap Amount and (K) the Closing Purchase Price calculated as the Initial Value: (i) adjusted to give effect to the Estimated Working Capital in accordance with this Section 2.6(a) plus (ii) the Estimated Cash, less (iii) the Estimated Indebtedness less (iv) the Estimated Transaction Expenses, less (v) the Estimated Unspent Capital Expenditure Amount, less (vi) the Cap Gemini Excess Amount, less (vii) the Esfel Amount, less (viii) the Separation Delay Amount, less the Debt Swap Amount; provided, that following the delivery of such Pre-Closing Statement, the Company shall provide any additional supporting materials and information reasonably requested by the Buyer and, at the Buyer’s request, meet with the Buyer and its advisors to discuss the Pre-Closing Statement and shall consider in good faith the Buyer’s reasonable comments thereto for the purposes of determining the Closing Purchase Price to be actually paid to the Company on the Closing Date. The Pre-Closing Statement will be prepared in accordance with the Accounting Methods and presented in the form attached hereto as Exhibit G. If the Estimated Working Capital (as set forth in the Pre‑Closing Statement) is less than the Target Working Capital, then the Initial Value will be adjusted downward by an amount equal to the amount of the deficiency between the Target Working Capital and the Estimated Working Capital. If the Estimated Working Capital (as set forth in the Pre‑Closing Statement) is greater than the Target Working Capital, then the Initial Value will be adjusted upward by an amount equal to the amount of the excess between the Estimated Working Capital and the Target Working Capital. If the Estimated Working Capital is equal to the Target Working Capital, then no adjustment will be made to the Initial Value with respect to the Estimated Working Capital. In addition, the Initial Value will be adjusted upward by the amount of any Estimated Cash, adjusted downward by the amount of any Estimated Indebtedness, any Estimated Transaction Expenses, any Estimated Unspent Capital Expenditure Amount, the Cap Gemini Excess Amount, the Esfel Amount, the Separation Delay Amount and the Debt Swap Amount. The Parties acknowledge and agree that, subject to Section 2.6, the consideration for the sale and transfer of the Shares and the Sold Assets set out in the Local Purchase Agreements will be deemed to have been fully paid by the Buyer to the respective Sellers under the Local Purchase Agreements upon payment of the Closing Purchase Price in accordance with this Section 2.5.
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1.13Amendment to Section 2.6(b). Section 2.6(b) is hereby deleted in its entirety and replaced with the following:
(b) Post‑Closing Statement. Within 120 days after the Closing Date, the Buyer will cause to be prepared and delivered to the Company a statement (the “Post‑Closing Statement”), together with any relevant supporting materials, which will include a supporting trial balance (which, for the avoidance of doubt, will not be prepared pursuant to the Accounting Methods)), setting forth the Buyer’s calculation of (A) the Closing Working Capital as derived therefrom (“Final Working Capital”), (B) the combined amount of Cash of the Divested Companies and any other Cash which otherwise constitutes Sold Assets immediately prior to the Closing (the “Final Cash”), (C) the combined amount of Debt Obligations of the Divested Companies and any other Debt Obligations which otherwise constitute Assumed Liabilities actually existing as of immediately prior to the Closing (the “Final Indebtedness”), (D) the combined amount of unpaid Transaction Expenses (the “Final Transaction Expenses”), (E) the Unspent Capital Expenditure Amount (the “Final Unspent Capital Expenditure Amount”), (F) the Cap Gemini Excess Amount, (G) the Esfel Amount, (H) the Separation Delay Amount, (I) the Earn-Out Amount, (J) the Debt Swap Amount and (K) the Purchase Price calculated as the Initial Value as adjusted as provided below to give effect to the Final Working Capital, the Final Cash, the Final Indebtedness, the Final Transaction Expenses, the Final Unspent Capital Expenditure Amount, the Cap Gemini Excess Amount, the Esfel Amount, the Separation Delay Amount, the Earn-Out Amount and the Debt Swap Amount. The Post-Closing Statement will be prepared in accordance with the Accounting Methods and presented in the form attached hereto as Exhibit G. During such 120‑day period, the Company will, at the request of the Buyer, on reasonable prior notice from the Buyer and during normal business hours, afford the Buyer reasonable access to the books, records and personnel with respect to the Business and otherwise retained by the Company or its Affiliates (to the extent relevant to the determination of the Final Working Capital, the Final Cash, the Final Indebtedness the Final Transaction Expenses and the Final Unspent Capital Expenditures Amount) and otherwise reasonably cooperate with the Buyer in connection with its preparation of the Post‑Closing Statement. The Company will assist, and will procure that its Affiliates assist, and cooperate with the Buyer in the preparation of the Post‑Closing Statement. If the Final Working Capital (as set forth in the Post‑Closing Statement) is less than the Target Working Capital, then the Initial Value will be adjusted downward by an amount equal to the amount of the deficiency between the Target Working Capital and the Final Working Capital. If the Final Working Capital (as set forth in the Post‑Closing Statement) is greater than the Target Working Capital, then the Initial Value will be adjusted upward by an amount equal to the amount of the excess between the Final Working Capital and the Target Working Capital. If the Final Working Capital is equal to the Target Working Capital, then no adjustment will be made to the Initial Value with respect to the Final Working Capital. In addition, the Initial
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Value will be adjusted upward by the amount of any Final Cash and any Earn-Out Amount, and adjusted downward by the amount of any Final Indebtedness, any Final Transaction Expenses, any Final Unspent Capital Expenditure Amount, the Cap Gemini Excess Amount, the Esfel Amount, the Separation Delay Amount and the Debt Swap Amount.
1.14Amendment to Section 5.23(a). The third sentence of Section 5.23(a) is hereby deleted in its entirety and replaced with the following:
The Company shall procure that the Permitted Intercompany Obligations shall remain outstanding immediately prior to Closing and the Buyer shall cause the intercompany loans set forth in clauses (ii), (iii) and (iv) of the definition of Permitted Intercompany Obligations to be refinanced through its applicable financing company in connection with the Closing, in each case, to the extent the applicable intercompany loan was not settled prior to the Closing (as potentially contemplated with the prior written consent of the Buyer under the definition of Permitted Intercompany Obligation); provided that, for purposes of the refinancings contemplated by the foregoing, any necessary monetary conversion from the currency of a foreign country to U.S. dollars will be calculated using the applicable exchange rates set forth in The Wall Street Journal, Eastern Edition on the date that is two Business Days prior to the date on which the Company delivers the Pre-Closing Statement to the Buyer.
ARTICLE 2: MISCELLANEOUS
2.1Effect of Amendment. Except as and to the extent expressly modified by this Amendment, the Agreement, as so amended by this Amendment, will remain in full force and effect in all respects. Each reference to “herein,” “hereof,” “hereby,” “hereto,” “hereunder,” “hereinafter,” and “this Agreement” in the Agreement will from and after the effective date hereof refer to the Agreement as amended by this Amendment. Notwithstanding anything to the contrary in this Amendment, the date of the Agreement, as amended hereby, will in all instances remain as December 15, 2019, and any references in the Agreement to “the date first above written,” “the date of the Agreement,” “the date hereof” and similar references will continue to refer to December 15, 2019.
2.2Miscellaneous Provisions. Article X of the Agreement is incorporated herein mutatis mutandis.
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IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first written above.
FERRO CORPORATION
By:/s/ Benjamin Schlater
Name: Benjamin Schlater
Title: Group Vice President and
Chief Financial Officer
PIGMENTS SPAIN, S.L.
By:/s/ Mark E. Keough
Name: Mark E. Keough
Title: Director
EXHIBIT 2.3
ASSET AND STOCK PURCHASE AGREEMENT
This Amendment To The ASSET AND STOCK PURCHASE AGREEMENT (this “Amendment”), dated February 24, 2021, is by and between Ferro Corporation, an Ohio corporation (the “Company”), and Pigments Spain, S.L., a limited liability company with registered office at Carretera Viver – Puerto Burriana Km 61,800, 12540 Vila-Real, (Castellón) Spain, with Tax ID number B86492915 (the “Buyer”), and amends that certain Asset and Stock Purchase Agreement, dated December 15, 2019, by and between the Company and the Buyer (as amended pursuant to the first amendment agreement dated December 15 2020 (the “First Amendment”) and, as may be amended from time to time, the “Agreement”). The Company and the Buyer are each a “Party” and are collectively referred to as the “Parties.” Capitalized terms used but not defined herein have the meanings given to them in the Agreement.
RECITALS
WHEREAS, Section 10.4 of the Agreement provides that the Agreement may only be amended, modified or supplemented upon the execution and delivery of a written agreement executed by the Parties; and
WHEREAS, the Parties desire to amend the Agreement as set forth in this Amendment.
NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements herein contained and contained in the Agreement, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Parties hereby agree as follows:
ARTICLE 1: AMENDMENTS
1.1 Amendment to Section 1.1. Section 1.1 which provides the definitions of certain defined terms shall be amended to replace the following definitions of Cash, Closing Working Capital, Debt Obligations, Post-Closing Tax Period and Pre-Closing Tax Period in their entirety with the following revised definitions and include the new definitions of Closing Balance Sheet Date and Option Agreement and Vendor Loan Note:
“Cash” means, with respect to any Person, as of the applicable measurement time, without duplication, the sum of cash and cash equivalents (which are readily convertible into cash within 30 days) and unpresented checks received net of all issued but uncleared checks, deposits in transit and other draws and drafts (including overdrafts) paid or written prior to the applicable measurement time but specifically excluding any Replacement Amounts, any Trapped Cash and any External Cash. For the avoidance of doubt, the Minimum Cash Amount shall constitute “Cash” for purposes of Section 2.6(a) and Section 2.6(b) to the extent the Divested Companies actually hold such Cash at the applicable measurement time.
“Closing Balance Sheet Date” means February 28, 2021.
“Closing Working Capital” means the Working Capital as of close of business on the Closing Balance Sheet Date.
“Debt Obligations” means, with respect to any Person, as of the applicable measurement time, without duplication, (a) all indebtedness (i) for borrowed money of such Person, or (ii) evidenced by notes, bonds, debentures or other similar instruments, (b) all Liabilities of such Person for the deferred purchase price of assets, goods or services, including any earn-out, holdback or similar payment amount owing with respect to the acquisition of any business, property, assets or services or accounts of any Person, or similar contingent obligations (other than accounts payables incurred in the ordinary course of business) valued at the maximum amount payable with respect thereto on the date of determination (provided that if the Tonnor Earn-Out has been finally determined prior to Closing and remains unpaid (if payable), this shall be valued at the amount to be actually paid (to the extent the amount is not accounted for in Cash or Working Capital at close of business on the Closing Balance Sheet Date) or agreed to be paid by the Company or its Affiliate), (c) all Liabilities of such Person created or arising under any factoring, conditional sale or other title retention Contract or policy with respect to property acquired by such Person (even though the rights and remedies of any lender under such Contract or policy in the event of default are limited to repossession or sale of such property), (d) all Liabilities of such Person in respect of banker’s acceptances, letters of credit, or surety arrangements (in each case, solely to the extent drawn), (e) all Liabilities (net of the fair market value of any related assets) with respect to the unfunded portion (as determined pursuant to the Accounting Methods) of the Acquired Plans set forth on Schedule 5.9(h) as they relate to the Business, (f) all Liabilities of such Person as lessee under leases that have been or should be, in accordance with GAAP, recorded as capital leases, (g) all recourse and nonrecourse Liabilities and other similar Liabilities of such Person arising from any transactions related to the assignment of receivables for financing purposes, (h) all mark-to market value of the Liabilities with respect to any derivative, currency swap and hedging arrangements and similar financial instruments and Contracts, whether optional or committed, whether accrued or not, (i) all dividends or distributions of such Person which have been approved on or before the date of determination and are unpaid, (j) Indemnified Taxes which are unpaid as of close of business on the Closing Balance Sheet Date, but only to the extent such amount reflects (1) a determination within the meaning of Section 1313 of the Code (or any similar provisions of Law), and (2) any accrued but unpaid income Taxes of the Company with respect to the Business, the Divested Companies and the Sold Assets and any income Taxes that should have been so accrued under GAAP as of the date hereof, using the same GAAP methodologies used by the Company in its SEC filing for the financial year ending December 31, 2018, net of any corresponding Tax asset for the prepayment of income Tax, as applicable, (k) the Environmental Capital Expenditure Amount, (l) all indebtedness or other Liabilities or obligations of any other Person of the types referred to in the preceding clauses secured by any Encumbrance on any assets of such Person, (m) guarantees of Liabilities or obligations of any other Person of any of the types
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described in the preceding clauses by such Person, (n) Intercompany Obligations which are payables in a Divested Company which are not settled prior to close of business on the Closing Balance Sheet Date (including the intercompany loans described in clause (ii), (iii) and (iv) of the definition of Permitted Intercompany Obligations but excluding the intercompany loans described in clause (i) of that definition), (o) redundancy provisions, early retirement provisions and long-term employment related Liabilities (excluding Liabilities related to the “Jubilaciones Parciales”) with respect to the employees subject to the internal corporate restructuring by the Company previously disclosed to the Buyer, and (p) in each case with respect to clauses (a) to (o) above, together with all accrued interest and accrued fees thereon as of close of business on the Closing Balance Sheet Date and all premiums, prepayment penalties and breakage costs arising from the repayment, liquidation or termination of such Debt Obligations, whether or not such amount arises as of close of business on the Closing Balance Sheet Date or thereafter pursuant to the terms thereof.
“Post-Closing Tax Period” means a taxable period that begins after the Closing Balance Sheet Date and the portion of a Straddle Period that begins immediately after the Closing Balance Sheet Date.
“Pre-Closing Tax Period” means a taxable period that ends on or prior to the Closing Balance Sheet Date and the portion of a Straddle Period that ends on and includes the Closing Balance Sheet Date.
“Option Agreement” means the sale and purchase option agreement, dated as of February 24, 2021, between Ferro Spain S.L.U. (as the seller) and Ferro Coverlink S.L.U. (as the Buyer).
“Vendor Loan Note” means the note to be issued at Closing by Esmalglass, S.A.U. (an Affiliate of the Buyer) in favor of Ferro Coverlink S.L.U. (an Affiliate of the Company) in respect of the assignment of an intragroup debt of a principal amount of EUR 9,000,000 between Ferro Coverlink S.L.U. (as lender) and Ferro Spain S.L.U. (as borrower) (the “Intra Group Loan”) to settle a portion of the Closing Purchase Price as set forth in Section 2.5.
1.2Amendment to Schedule 1.1(a) Accounting Methods. Schedule 1.1(a) which sets out the Accounting Methods shall be deleted in its entirety and replaced with the Schedule attached to this Amendment as Annex A
1.3Amendment to Section 2.5. Section 2.5, which sets forth the Purchase Price, is hereby modified to insert the following sentence as a new sentence after the fourth sentence therein:
Notwithstanding the foregoing, if the Option Agreement has not been terminated at or prior to the Closing, a portion of the Closing Purchase Price equal to an amount of U.S. dollars equivalent to the principal amount of the Intra Group Loan (being EUR 9,000,000) plus all accrued but unpaid interest thereon (calculated in accordance
3
with the immediately preceding sentence), will be satisfied by, in lieu of payment by wire transfer of immediately available funds, the issuance by Esmalglass, S.A.U. (an Affiliate of the Buyer) of the Vendor Loan Note (which Vendor Loan Note will formalize the payment of such deferred Closing Purchase Price amounts).
1.4Amendment to Section 2.5. The last sentence of Section 2.5 is hereby deleted in its entirety and replaced with the following:
For purposes of the preparation of the Pre-Closing Statement, any monetary conversion from the currency of a foreign country to U.S. dollars or from U.S. dollars to the currency of a foreign country will be calculated using the applicable exchange rates (the “Pre-Closing FX Rates”) set forth in The Wall Street Journal, Eastern Edition as of the date that is two Business Days prior to the date on which the Company delivers the Pre- Closing Statement to the Buyer. For the purposes of the preparation of the Post-Closing Statement, any monetary conversion from the currency of a foreign country to U.S. dollars or from U.S. dollars to the currency of a foreign country will be calculated using the applicable exchange rates used in the normal course of business under the Business’s financial reporting system (i.e., Bloomberg) (the “Closing FX Rates”), except that the Euro amounts outstanding under the intercompany loans set forth in clauses (ii), (iii) and (iv) of the definition of Permitted Intercompany Obligations (which are to be refinanced in connection with the Closing) shall be converted to U.S. dollars using the Pre-Closing FX Rate for Euro to U.S. Dollars rather than the Closing FX Rates.
1.5Amendment to Section 2.6(a). Section 2.6(a) is hereby deleted in its entirety and replaced with the following:
(a) Pre-Closing Statement. Prior to the Closing Date, the Company will prepare and deliver to the Buyer a written statement (the “Pre-Closing Statement”), together with any relevant supporting materials, which will include a supporting trial balance (which, for the avoidance of doubt, will not be prepared pursuant to the Accounting Methods)), setting forth the Company’s calculation of a good faith estimate of (A) the Closing Working Capital as derived therefrom (the “Estimated Working Capital”), (B) the combined amount of Cash of the Divested Companies and any other Cash which otherwise constitutes a Sold Asset anticipated to exist as of close of business on the Closing Balance Sheet Date (the “Estimated Cash”), (C) the combined amount of Debt Obligations of the Divested Companies and any other Debt Obligations which otherwise constitute Assumed Liabilities anticipated to exist as of close of business on the Closing Balance Sheet Date (the “Estimated Indebtedness”), (D) the combined amount of unpaid Transaction Expenses (the “Estimated Transaction Expenses”); (E) the Unspent Capital Expenditure Amount (the “Estimated Unspent Capital Expenditure Amount”), (F) the Cap Gemini Excess Amount, (G) the Esfel Amount, (H) the Separation Delay Amount, (I) the Earn-Out Amount, (J) the Debt Swap Amount and (K) the Closing Purchase Price calculated as the Initial Value: (i) adjusted to give effect to the Estimated Working Capital in accordance with this Section 2.6(a) plus (ii) the Estimated Cash, less (iii) the Estimated Indebtedness,
4
less (iv) the Estimated Transaction Expenses, less (v) the Estimated Unspent Capital Expenditure Amount, less (vi) the Cap Gemini Excess Amount, less (vii) the Esfel Amount, less (viii) the Separation Delay Amount, less (ix) the Debt Swap Amount; provided, that following the delivery of such Pre-Closing Statement, the Company shall provide any additional supporting materials and information reasonably requested by the Buyer and, at the Buyer’s request, meet with the Buyer and its advisors to discuss the Pre-Closing Statement and shall consider in good faith the Buyer’s reasonable comments thereto for the purposes of determining the Closing Purchase Price to be actually paid to the Company on the Closing Date. The Pre-Closing Statement will be prepared in accordance with the Accounting Methods and presented in the form attached hereto as Exhibit G. If the Estimated Working Capital (as set forth in the Pre-Closing Statement) is less than the Target Working Capital, then the Initial Value will be adjusted downward by an amount equal to the amount of the deficiency between the Target Working Capital and the Estimated Working Capital. If the Estimated Working Capital (as set forth in the Pre-Closing Statement) is greater than the Target Working Capital, then the Initial Value will be adjusted upward by an amount equal to the amount of the excess between the Estimated Working Capital and the Target Working Capital. If the Estimated Working Capital is equal to the Target Working Capital, then no adjustment will be made to the Initial Value with respect to the Estimated Working Capital. In addition, the Initial Value will be adjusted upward by the amount of any Estimated Cash, adjusted downward by the amount of any Estimated Indebtedness, any Estimated Transaction Expenses, any Estimated Unspent Capital Expenditure Amount, the Cap Gemini Excess Amount, the Esfel Amount, the Separation Delay Amount and the Debt Swap Amount. The Parties acknowledge and agree that, subject to Section 2.6, the consideration for the sale and transfer of the Shares and the Sold Assets set out in the Local Purchase Agreements will be deemed to have been fully paid by the Buyer to the respective Sellers under the Local Purchase Agreements upon payment of the Closing Purchase Price in accordance with Section 2.5.
1.6Amendment to Section 2.6(b). Section 2.6(b) is hereby deleted in its entirety and replaced with the following:
(b) Post-Closing Statement. Within 120 days after the Closing Balance Sheet Date, the Buyer will cause to be prepared and delivered to the Company a statement (the “Post-Closing Statement”), together with any relevant supporting materials, which will include a supporting trial balance (which, for the avoidance of doubt, will not be prepared pursuant to the Accounting Methods)), setting forth the Buyer’s calculation of (A) the Closing Working Capital as derived therefrom (“Final Working Capital”), (B) the combined amount of Cash of the Divested Companies and any other Cash which otherwise constitutes Sold Assets as of close of business on the Closing Balance Sheet Date (the “Final Cash”), (C) the combined amount of Debt Obligations of the Divested Companies and any other Debt Obligations which otherwise constitute Assumed Liabilities actually existing as of close of business on the Closing Balance Sheet Date (the “Final Indebtedness”), (D) the combined amount of unpaid Transaction Expenses (the “Final Transaction Expenses”), (E) the
5
Unspent Capital Expenditure Amount (the “Final Unspent Capital Expenditure Amount”), (F) the Cap Gemini Excess Amount, (G) the Esfel Amount, (H) the Separation Delay Amount, (I) the Earn-Out Amount, (J) the Debt Swap Amount and (K) the Purchase Price calculated as the Initial Value as adjusted as provided below to give effect to the Final Working Capital, the Final Cash, the Final Indebtedness, the Final Transaction Expenses, the Final Unspent Capital Expenditure Amount, the Cap Gemini Excess Amount, the Esfel Amount, the Separation Delay Amount, the Earn-Out Amount and the Debt Swap Amount. The Post-Closing Statement will be prepared in accordance with the Accounting Methods and presented in the form attached hereto as Exhibit G. During such 120-day period, the Company will, at the request of the Buyer, on reasonable prior notice from the Buyer and during normal business hours, afford the Buyer reasonable access to the books, records and personnel with respect to the Business and otherwise retained by the Company or its Affiliates (to the extent relevant to the determination of the Final Working Capital, the Final Cash, the Final Indebtedness, the Final Transaction Expenses and the Final Unspent Capital Expenditures Amount) and otherwise reasonably cooperate with the Buyer in connection with its preparation of the Post-Closing Statement. The Company will assist, and will procure that its Affiliates assist, and cooperate with the Buyer in the preparation of the Post-Closing Statement. If the Final Working Capital (as set forth in the Post-Closing Statement) is less than the Target Working Capital, then the Initial Value will be adjusted downward by an amount equal to the amount of the deficiency between the Target Working Capital and the Final Working Capital. If the Final Working Capital (as set forth in the Post-Closing Statement) is greater than the Target Working Capital, then the Initial Value will be adjusted upward by an amount equal to the amount of the excess between the Final Working Capital and the Target Working Capital. If the Final Working Capital is equal to the Target Working Capital, then no adjustment will be made to the Initial Value with respect to the Final Working Capital. In addition, the Initial Value will be adjusted upward by the amount of any Final Cash and any Earn- Out Amount, and adjusted downward by the amount of any Final Indebtedness, any Final Transaction Expenses, any Final Unspent Capital Expenditure Amount, the Cap Gemini Excess Amount, the Esfel Amount, the Separation Delay Amount and the Debt Swap Amount; provided that:
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a) |
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if, immediately prior to the close of business on the Closing Date, the aggregate amount of Cash in the Divested Companies (which is eligible to be treated as Cash for the purposes of this Agreement pursuant to Schedule 2.15) (the “Closing Date Cash”) is less than US$8,200,000, any Cash received by the Divested Companies in the period commencing after the close of business on the Closing Date and ending on close of business on the Closing Balance Sheet Date (the “Interim Period”) shall be taken into account in the determination of the Final Cash; or |
6
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b) |
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if the Closing Date Cash is greater than US$8,200,000, an amount equal to the Closing Date Cash less US$8,200,000 (the “Cash Surplus Amount”) shall be deducted from the aggregate amount of Cash in the Divested Companies as at close of business on the Closing Balance Sheet Date for the purposes of determining the Final Cash. |
1.7Amendment to Schedule 2.8. Schedule 2.8, which sets forth the allocation of the Total Consideration and was amended as part of the First Amendment, is hereby deleted in its entirety and replaced with the Schedule attached to this Amendment as Annex B.
1.8Amendment to Section 2.10(b)(i). Section 2.10(b)(i) is hereby deleted in its entirety and replaced with the following:
(i)the Closing Purchase Price by (x) wire transfer of immediately available funds in U.S. dollars (or the currency of a foreign country if payment in U.S. dollars is not permitted by Law in a foreign country where a Seller is located as set forth in the applicable Local Purchase Agreement) to an account designated by the Company, an amount equal to the Closing Purchase Price (as adjusted pursuant to Section 2.6(a) less the principal amount of the Vendor Loan Note; and (y) issue of the Vendor Loan Note;
1.9Amendment to Section 5.5(b). The references to the “Closing Date” in Section 5.5(b) shall hereby be replaced with references to the “Closing Balance Sheet Date”.
1.10Amendment to Section 5.9(l). Section 5.9(l) is hereby deleted in its entirety and replaced with the following:
Buyer Indemnity. The Buyer agrees to indemnify and hold harmless the Seller Indemnified Persons from and against any Liability or Loss suffered, paid or incurred by the Seller Indemnified Persons in relation to the wages, salaries, remuneration, compensation or any other benefits arising out of the employment of any Business Employees (excluding, for the avoidance of doubt, any Non-Tile Employee) of the Divested Companies or any Transferred Employee on or after the Closing Date and payable to or accrued by them on or after the Closing Date except to the extent included in the calculation of the Final Working Capital or the Final Indebtedness, including annual leave, leave loading, long service leave, sick leave and, subject to Section 5.9(j), any entitlement to severance or redundancy payments (other than any severance payment, end-of-service pay or gratuity, dismissal compensation, termination indemnity, seniority premium or other
7
separation or termination payments or liabilities which become payable as a result of, or in connection with, the closing of the transactions contemplated by this Agreement or any Ancillary Agreement or anything done or omitted to be done by the Company or its Affiliates prior to Closing).
ARTICLE 2: CLOSING DATE AND INTERIM PERIOD
2.1The Closing Date. Section 2.9 of the Agreement provides that Closing will occur on the fifteenth Business Day following satisfaction or waiver (to the extent legally permitted) of all of the conditions set forth in ARTICLE VI and ARTICLE VII (other than those conditions which are to be satisfied at the Closing), or at such other place and time as the Parties agree in writing. The Parties hereby agree that the Closing Date shall be February 25, 2021 and, except as provided herein, the Parties will treat the Closing as if it occurred as of the close of business on the Closing Date, provided that, notwithstanding anything to the contrary in this Agreement:
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a) |
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for the purposes of preparing the Pre-Closing Statement and the Post-Closing Statement, the relevant measurement time shall be close of business on the Closing Balance Sheet Date rather than the Closing Date; |
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b) |
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the Permitted Intercompany Obligations set out in sub-limbs (ii), (iii) and (iv) of that definition by the Buyer (or its Affiliate) that are repaid on the Closing Date shall be deemed to be outstanding Debt Obligations of the relevant Divested Companies as at close of business on the Closing Balance Sheet Date solely for the purposes of preparing the Post-Closing Statement; and |
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c) |
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to the extent any Cash is received by any Divested Company from the Buyer or any of its Affiliates after the close of business on the Closing Date (“External Cash”): (i) such External Cash shall be disregarded for the purposes of preparing the Post-Closing Statement and excluded from the determination of Final Cash; and (ii) if External Cash is used to settle any payables or Debt Obligations of the Divested Companies in the Interim Period, such payables or Debt Obligations shall be deemed to remain outstanding as at close of business on the Closing Balance Sheet Date for the purposes of preparing the Post-Closing Statement. |
2.2Interim Period. In the Interim Period, the Buyer shall not intentionally take any action, or intentionally fail to take any action, in bad faith to artificially change the Final Working Capital, Final Cash or Final Indebtedness for the purpose of reducing the Purchase Price. For the avoidance of doubt, nothing in this Section 2.2 shall restrict or
8
prohibit the Buyer or any of its Affiliates from taking any action reasonably necessary to facilitate Closing including any full or partial shut-down of operations or production in certain jurisdictions in which the Business operates in order to facilitate any cut-over processes on or around Closing.
2.3Egyptian Dividend. Prior to the date of this Second Amendment, Ferro Egypt for Frits and Glazes S.A.E. (“Ferro Egypt”) declared a dividend of EGP 30,825,000 to be distributed to the shareholders of Ferro Egypt (the “Egypt Dividend Distribution”) and the associated employee profit sharing of EGP 3,425,000 to be distributed to the employees of Ferro Egypt (the “Egypt Profit Distribution” and together with the Egypt Dividend Distribution, the “Distributions”) and Ferro Egypt holds cash in amount equal to the Distributions for purposes of the Distributions. If the Egypt Dividend Distribution and/or the Egypt Profit Distribution is not completed prior to the close of business on the Closing Date, then the amount of cash held by Ferro Egypt for payment of the Egypt Dividend Distribution and/or the Egypt Profit Distribution, as applicable, shall be disregarded for purposes of calculating Minimum Cash Amount and shall not be considered Trapped Cash, shall also be disregarded for purposes of calculating Final Cash, and shall not constitute a Debt Obligation under clause (i) of the definition of Debt Obligations for purposes of determining Final Indebtedness.
2.4VAT/GST. VAT/GST. A portion of the VAT and/or GST payable in connection with the asset sales in Mexico, India and Turkey is included in the Split Fees calculation to increase the aggregate amount to be included as Transaction Expenses pursuant to limb (h) of that definition to $2,000,000 (such incremental amount being the “VAT/GST Amount”). The Buyer shall reimburse the Company for the VAT/GST Amount solely from the VAT and/or GST cash refunds received by the Buyer’s subsidiary in Mexico (the “Mexico Buyer”) commencing with the cash refund attributable to the VAT/GST tax return filing by the Mexico Buyer for the month ended March 31, 2021 (the “Commencement”). Buyer will pay, or cause to be paid, the full VAT/GST cash refund amount received each month by the Mexico Buyer after the Commencement within 10 Business Days after the Mexico Buyer’s receipt of such VAT/GST cash refund until the Company’s portion of the VAT/GST Amount is reimbursed in full.
2.5Transfer Taxes. Notwithstanding anything in this Second Amendment to the contrary, Transfer Taxes shall not constitute Taxes of a Pre-Closing Tax Period and shall be treated as Split Fees pursuant to Section 5.4(e) of the ASPA.
2.6Goods in Transit. At the close of business on the Closing Date, there will be goods in transit from Divested Companies on route to the Asset Sellers (the “Goods”). In order to facilitate the Closing, including the proper importation of the Goods, the Goods will be considered excluded from the assets to be acquired under the Asset Seller’s applicable Local Purchase Agreement, and the corresponding account receivable owed
9
by the Asset Seller to the applicable Divested Company will not be settled prior to Closing. The Goods shall be considered Inventory (107009 - Finished Goods Inventory In Transit Intercompany) of the applicable Divested Company (and for avoidance of doubt no receivable owed by the Asset Seller shall be recognized in the Divested Company) only for purposes of the Post-Closing Statement. The Goods shall be recognized as Inventory (107009 - Finished Goods Inventory In Transit Intercompany) to the extent of the amount paid in cash by the Asset Seller within 60 days after Closing to settle the corresponding account receivable owed by the Asset Seller to the Divested Company (for the avoidance of doubt, any foreign exchange transaction loss that arises on settlement of account receivable in foreign currency shall reduce the amount recognized as Inventory (107009 - Finished Goods Inventory In Transit Intercompany) and any foreign exchange transaction gain shall not be taken into account). After the Closing, the Asset Seller will complete the importing of the Goods and will promptly sell the Goods to the applicable buyer at cost for cash and the Asset Seller will promptly and, in any event within 5 days of receipt of payment, pay in cash the corresponding account receivable of the Divested Company.
2.7Schedule 9.2(d). Schedule 9.2(d) of the ASPA is hereby amended by inserting new item 3 to Schedule 9.2(d) as attached to this Amendment as Annex C hereto. For the avoidance of any doubt, no Seller Indemnified Person will be entitled to be compensated more than once for the same Loss under the Transition Support Agreement dated February 25, 2021 between Soluciones Ceramicas Eimex, S.A. de C.V. and Ferro Mexican, S.A. de C.V. and/or under this Agreement.
ARTICLE 3: MISCELLANEOUS
3.1Effect of Amendment. Except as and to the extent expressly modified by this Amendment, the Agreement, as so amended by this Amendment, will remain in full force and effect in all respects. Each reference to “herein,” “hereof,” “hereby,” “hereto,” “hereunder,” “hereinafter,” and “this Agreement” in the Agreement will from and after the effective date hereof refer to the Agreement as amended by this Amendment. Notwithstanding anything to the contrary in this Amendment, the date of the Agreement, as amended hereby, will in all instances remain as December 15, 2019, and any references in the Agreement to “the date first above written,” “the date of the Agreement,” “the date hereof” and similar references will continue to refer to December 15, 2019.
3.2Miscellaneous Provisions. Article X of the Agreement is incorporated herein mutatis mutandis.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first written above.
FERRO CORPORATION
By:/s/ Benjamin Schlater
Name: Benjamin Schlater
Title: Group Vice President and
Chief Financial Officer
PIGMENTS SPAIN, S.L.
By:/s/ Mark E. Keough
Name: Mr. Mark Eagan Keough
Title: Individual representative of the Sole Director
FERRO REPORTS STRONG FOURTH QUARTER PERFORMANCE, ANNOUNCES COMPLETION OF TILE COATINGS SYSTEMS DIVESTITURE, AND PROVIDES FULL YEAR 2021 GUIDANCE |
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Fourth Quarter Continuing Operations* |
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Full Year Continuing Operations* |
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Net Sales increased 6.2% to $260.0M |
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Net Sales declined 5.5% to $959.0M |
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Net Sales increased 3.5% on a constant currency basis |
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Net Sales declined 5.3% on a constant currency basis |
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Gross Profit increased 5.6% to $79.1M, Gross Profit Margin of 30.4% |
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Gross Profit declined 4.6% to $293.8M, Gross Profit Margin of 30.6% |
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Adjusted Gross Profit increased 3.7% to $80.6M, Adjusted Gross Profit Margin of 31.0% |
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Adjusted Gross Profit declined 4.6%, Adjusted Gross Profit Margin of 31.3% |
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GAAP diluted EPS increased to $0.08 from a loss of $0.03, Adjusted diluted EPS increased 47.1% to $0.25 |
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GAAP diluted EPS declined 14.6% to $0.35, Adjusted diluted EPS declined 2.2% to $0.81 |
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Net Income1 increased to $17.7M, Adjusted EBITDA increased 22.1% to $45.2M, Adjusted EBITDA Margin increased 227 basis points to 17.4% |
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Net Income1 increased to $42.8M, Adjusted EBITDA declined 2.7% to $153.7M, Adjusted EBITDA Margin increased 46 basis points to 16.0% |
*Comparative information is relative to prior-year fourth quarter and full year for Continuing Operations
1 Note: Net Income attributable to Ferro Corporation common shareholders.
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Ferro associates around the world delivered strong performance during 2020. Despite the challenges of the global pandemic, our teams adapted very well, keeping safety and health paramount while delivering strong business and financial performance. Fourth quarter results were substantially stronger than the same period the prior year, exceeding our expectations and providing positive momentum as we moved into 2021. We were particularly pleased with the continued expansion of our adjusted gross margins during the quarter, which have achieved a level we expect to maintain or exceed in 2021.
Full-year results were lower than the prior year, primarily due to effects of the COVID-19 pandemic. However, as we noted in earlier reporting, Ferro experienced a “V-shaped” recovery during the second half of 2020 as our customers’ markets began to recover and demand grew for certain Ferro products as a result of pandemic-induced changes in behavior. We expect to continue to benefit from these trends in 2021.
We are optimistic about the opportunities for Ferro in 2021. In addition to favorable macro-economic circumstances, we intend to further strengthen Ferro’s market leadership positions with new functional coatings and color solutions products and applications. We remain focused on innovation and are committed to addressing customer needs with creative solutions and market-leading products and services. We also intend to continue with optimization initiatives across our global operations, removing stranded costs and improving efficiency.
At this time, we also are happy to report the completion of the previously announced divestiture of our Tile Coatings Systems business to Pigments Spain, S.L. This transaction has been an extraordinary undertaking, and with its completion, Ferro becomes a more focused, nimble, higher-margin, higher-growth business. We can all take pride in what we accomplished expanding and strengthening the Tile Coating business. On a more personal note, many of us have enjoyed close relationships with our Tile Coatings colleagues over the years. We will miss working with them and wish them much success as they join another internationally recognized leader in the tile coatings space.
Over the last several years, we have executed a strategy that has transformed our Company. I am very proud of the business we have created. My sincere thanks are sent to all the dedicated people of Ferro who have executed the strategy. They have transformed Ferro into a leading functional coatings and color solutions company.
Peter Thomas Chairman, President and CEO, Ferro Corporation
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Phase V. Genesis - Tile Coatings System Sale Completed |
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On Thursday, February 25, 2021, the Company successfully completed the sale of its Tile Coatings Systems business to Pigments Spain, S.L., a company in the Esmalglass-Itaca-Fritta group, which is a portfolio company of certain Lone Star Funds, for $460 million in cash, subject to post-closing adjustments.
With the completion of the sale of the Tile Coatings Systems business, Ferro shifts to the next phase of its strategy as a technology-focused higher-margin, higher-growth business. Ferro’s fourth quarter 2020 results and guidance for 2021 demonstrate the performance potential of its current portfolio. In this phase, Ferro expects higher sustained margins, stronger underlying market growth, more focus on innovation, more balance among end markets and geographies, less raw material consumption, lower capital intensity, a streamlined manufacturing footprint and less cyclicality. In addition, with the proceeds from the sale of the Tile Coatings Systems business, the Company substantially strengthens its balance sheet.
Sales and Gross Profits |
Q4 2020 |
% Change |
2020 |
% Change |
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Net Sales |
$ |
259,950 |
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6.2% |
$ |
958,954 |
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-5.5% |
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Net Sales (constant currency) |
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259,950 |
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3.5% |
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958,954 |
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-5.3% |
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Gross Profit (GAAP) |
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79,108 |
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5.6% |
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293,756 |
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-4.6% |
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Gross Profit Margin |
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30.4% |
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(18) bps |
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30.6% |
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27 bps |
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Adjusted Gross Profit (constant currency) |
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80,601 |
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3.7% |
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300,372 |
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-4.6% |
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Adjusted Gross Profit Margin |
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31.0% |
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7 bps |
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31.3% |
|
25 bps |
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Net Income, EBITDA and EPS |
Q4 2020 |
% Change |
2020 |
% Change |
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Net Income 1 |
$ |
17,742 |
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NM |
$ |
42,799 |
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NM |
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Adjusted EBITDA |
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45,246 |
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22.1% |
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153,720 |
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-2.7% |
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Adjusted EBITDA Margin |
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17.4% |
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227 bps |
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16.0% |
|
46 bps |
|
GAAP diluted EPS |
$ |
0.08 |
|
NM |
$ |
0.35 |
|
-14.6% |
|
Adjusted EPS |
|
0.25 |
|
47.1% |
|
0.81 |
|
-2.4% |
Cash Flow |
Q4 2020 |
% Change |
2020 |
% Change |
||||||
Net Cash provided by (used in) operating activities (GAAP) 2 |
$ |
93,289 |
|
9.8% |
$ |
(13,192) |
|
NM |
||
Adjusted Free Cash Flow from Operating Activities (Non-GAAP)3 |
|
115,857 |
|
37.2% |
|
84,994 |
|
127.8% |
* Comparative information is relative to prior-year fourth quarter and full year for Continuing Operations
1 Note: Net Income attributable to Ferro Corporation common shareholders
2 Note: Table 4 Condensed Consolidated Statements of Cash Flows
3 Note: Table 11 Adjusted Free Cash Flow from Operating Activities (Non-GAAP)
Fourth Quarter and Full Year 2020 Highlights |
|
|
|
|
|
|
|
|
Net sales in the fourth quarter of 2020 increased 6.2% to $260.0 million (an increase of 3.5% on a constant currency basis) compared to the fourth quarter of 2019. This improvement is attributable to continuing increases in demand as global markets strengthened following COVID-19 pandemic shutdowns in the second quarter and was the second consecutive quarter of increased top line revenue.
Demand continued to strengthen from late in the second quarter through the fourth quarter across the business, including for our automotive, industrial, construction, electronics and porcelain enamel products. This was offset by lower sales in our industrial printing applications, which had a relatively strong prior-year quarter, and continued weakness in demand for our decoration products, which are sold into the pandemic-afflicted travel and leisure industry.
Compared to the prior year quarter, gross profit in the fourth quarter increased 5.6% to $79.1 million (an increase of 3.7% to $80.6 million on an adjusted constant currency basis). This is the second consecutive quarter of gross profit increases. Gross Profit Margin in the fourth quarter was 30.4% compared to 30.6% in the prior year fourth quarter. Adjusted Gross Profit Margin was 31.0% compared to 30.9% in the prior year fourth quarter.
Fourth quarter GAAP diluted EPS was $0.08, compared to a loss of $0.03 in the prior year fourth quarter. Adjusted diluted EPS for the fourth quarter was $0.25, an increase of 47.1% from the prior year fourth quarter. Net Income1 increased to $17.7 million for the fourth quarter compared to a loss of $31.3 million in the prior year fourth quarter, and Adjusted EBITDA increased 22.1% to $45.2 million.
Full-year 2020 net sales declined 5.5% to $959.0 million, a decline of 5.3% on a constant currency basis. The primary driver for the decline was the impact of the COVID-19 pandemic. Total Selling, General and Administrative (SG&A) expenses declined 4.7% to $202.4 million and on an adjusted constant currency basis declined 6.3% to $186.9 million compared to the full year 2019.
The 2020 full-year GAAP Net Income1 from Continuing Operations was $42.8 million compared to $6.0 million in the prior year. Adjusted EBITDA from Continuing Operations was $153.7 million compared to $157.9 million. Adjusted EBITDA margins improved 46 basis points in 2020 to 16.0%. Diluted GAAP EPS for Continuing Operations was $0.35 compared to $0.41 and Adjusted EPS was $0.81 compared to $0.83.
Ferro’s strong fourth quarter performance resulted in the Company exceeding its most recent 2020 guidance for Adjusted EPS of $0.71 to $0.76 and Adjusted EBITDA of $141 million to $146 million.
As of December 31, 2020, total debt was approximately $800 million and debt, net of cash and unamortized debt issuance costs, was approximately $623 million. Net proceeds from the Tile Coatings Systems sale are expected to be approximately $420 million. The Company expects to use the net proceeds to reduce debt. As of December 31, 2020, giving effect to the closing of the sale of the Tile Coatings Systems business and the application of the net proceeds therefrom, we would have debt, net of cash and unamortized issuance costs, of approximately $203 million and our estimated debt, net of cash and unamortized issuance costs, to Adjusted EBITDA ratio would have been approximately 1.3x.
1 Note: Net Income attributable to Ferro Corporation common shareholders.
Segment Results Continuing Operations * (amounts in millions, except EPS) |
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
||
|
|
Functional Coatings |
Q4 2020 |
% Change |
2020 |
% Change |
||||||
|
Net Sales |
$ |
166,867 |
|
4.7% |
$ |
608,192 |
|
-5.7% |
|||
|
Net Sales (Constant Currency) |
|
166,867 |
|
2.0% |
|
608,192 |
|
-5.5% |
|||
|
Gross Profit (GAAP) |
|
49,759 |
|
4.0% |
|
175,601 |
|
-8.9% |
|||
|
Gross Profit Margin |
|
29.8% |
|
(22) bps |
|
28.9% |
|
(101) bps |
|||
|
Adjusted Gross Profit (Constant Currency) |
|
51,157 |
|
3.6% |
|
181,059 |
|
-7.2% |
|||
|
Adj. Gross Profit Margin (Constant Currency) |
|
30.7% |
|
50 bps |
|
29.8% |
|
(54) bps |
|||
|
|
|
|
|
|
|
|
|
|
|
||
|
|
Color Solutions |
Q4 2020 |
% Change |
2020 |
% Change |
||||||
|
Net Sales |
$ |
93,083 |
|
8.9% |
$ |
350,762 |
|
-5.1% |
|||
|
Net Sales (Constant Currency) |
|
93,083 |
|
6.4% |
|
350,762 |
|
-5.1% |
|||
|
Gross Profit (GAAP) |
|
29,849 |
|
7.7% |
|
119,071 |
|
3.6% |
|||
|
Gross Profit Margin |
|
32.1% |
|
(37) bps |
|
33.9% |
|
285 bps |
|||
|
Adjusted Gross Profit (Constant Currency) |
|
29,851 |
|
5.9% |
|
119,550 |
|
2.2% |
|||
|
Adj. Gross Profit Margin (Constant Currency) |
|
32.1% |
|
(17) bps |
|
34.1% |
|
243 bps |
* Comparative information is relative to prior-year fourth quarter and full-year for Continuing Operations
Full-Year 2021 Guidance * (amounts in millions, except EPS) |
|
Further details and assumptions regarding the 2021 guidance will be discussed on the fourth quarter and full-year earnings teleconference at 8:00 a.m. EDT Tuesday March 2, 2021.
|
|
|
|
|
|
|
|
Net Sales |
Adjusted |
Adjusted |
|
|
(% of PY Sales) |
EBITDA |
Diluted EPS |
2020 Results |
$959.0M |
$153.7M |
$0.81 |
2021 Guidance |
|
$175M - $185M |
$0.90 - $1.00 |
YoY Change |
8% to 12% |
14% to 20% |
11% to 23% |
The 2021 Full Year outlook assumes no acquisitions, divestitures, restructuring, acquisition related professional fees, optimization programs spend, or repurchase of common stock.
Note: The Full Year 2021 outlook uses foreign exchange rates as of December 31, 2020 which includes a USD/EUR exchange rate at 1.20.
Ferro is providing Adjusted Diluted EPS and Adjusted EBITDA guidance on a continuing operations basis. While it is likely that Ferro could incur charges for items excluded from Adjusted Diluted EPS and Adjusted EBITDA 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 2020 Weighting |
|
FX sensitivity |
||
EUR – Euro |
35% to 40% |
|
% Change |
Operating Profit |
CNY -Yuan Renminbi |
7% to 9% |
|
+1% all FX change |
~$0.7 million to ~$0.9 million |
MXN – Mexican Peso |
2% to 4% |
|
+1% Euro change |
~$0.3 million to ~$0.5 million |
|
|
|
|
|
Constant currency
Constant currency results reflect the remeasurement of 2019 reported and adjusted local currency results using 2020 exchange rates, which produces constant currency comparatives for 2020 reported and adjusted results. These non-GAAP financial measures should not be considered a substitute for the measures of financial performance prepared in accordance with GAAP.
Conference Call
Ferro will conduct an investor teleconference at 8:00 a.m. EDT Tuesday March 2, 2021. 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 877-210-0456 within the U.S. or +1 212-231-2924 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 March 2, 2021.
• 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 21991713).
• 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: Functional Coatings and Color Solutions. Headquartered in Mayfield Heights, Ohio, the Company has approximately 5,600 associates globally and reported 2020 sales of $959 million. Included within our employee count are approximately 2,100 employees in our foreign consolidated subsidiaries associated with the Tile Coatings Systems business.
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:
|
· |
|
factors affecting the Company’s business that are beyond its control, including disasters, pandemics (such as COVID-19), accidents and governmental actions; |
|
· |
|
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 margin 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; |
|
· |
|
challenges associated with a multi-national company such as Ferro competing lawfully with local competitors in certain regions of the world; |
|
· |
|
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; |
Cautionary Note on Forward-Looking Statements (continued)
|
· |
|
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; |
|
· |
|
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, social, product liability and environmental risks associated with our current and historical products, product life cycles and production processes; |
|
· |
|
competitive factors, including intense price competition; |
|
· |
|
increased, and possibly inconsistent, domestic and foreign regulations of privacy and data security; |
|
· |
|
changes in U.S. and other governments’ trade policies; |
|
· |
|
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; 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; |
|
· |
|
our ability to attract and retain key personnel; |
|
· |
|
exposure to lawsuits, governmental investigations and proceedings relating to current and historical operations and products; |
|
· |
|
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; |
|
· |
|
borrowing costs that could be affected adversely by interest rate increases; |
|
· |
|
management of Ferro’s general and administrative expenses; |
|
· |
|
stringent labor and employment laws and relationships with the Company’s employees; |
|
· |
|
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; |
|
· |
|
risks and uncertainties associated with intangible assets; |
|
· |
|
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; |
|
· |
|
liens on the Company’s assets by its lenders affect its ability to dispose of property and businesses; and |
|
· |
|
amount and timing of any repurchase of Ferro’s common stock. |
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, 2020 and in our subsequent Quarterly Reports on Form 10-Q.
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
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands, except per share amounts) |
|
Three Months Ended |
|
Twelve Months Ended |
||||||||
|
|
December 31, (Unaudited) |
|
December 31, |
||||||||
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
259,950 |
|
$ |
244,778 |
|
$ |
958,954 |
|
$ |
1,014,457 |
Cost of sales |
|
|
180,842 |
|
|
169,853 |
|
|
665,198 |
|
|
706,481 |
Gross profit |
|
|
79,108 |
|
|
74,925 |
|
|
293,756 |
|
|
307,976 |
Selling, general and administrative expenses |
|
|
48,006 |
|
|
54,642 |
|
|
202,413 |
|
|
212,365 |
Restructuring and impairment charges |
|
|
5,194 |
|
|
3,093 |
|
|
17,425 |
|
|
10,955 |
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
5,406 |
|
|
5,724 |
|
|
21,880 |
|
|
24,302 |
Interest earned |
|
|
(960) |
|
|
(869) |
|
|
(1,995) |
|
|
(3,325) |
Foreign currency losses, net |
|
|
2,349 |
|
|
1,504 |
|
|
3,627 |
|
|
9,166 |
Miscellaneous expense, net |
|
|
8,109 |
|
|
13,825 |
|
|
5,505 |
|
|
11,722 |
Income before income taxes |
|
|
11,004 |
|
|
(2,994) |
|
|
44,901 |
|
|
42,791 |
Income tax (benefit) expense |
|
|
4,497 |
|
|
(928) |
|
|
14,861 |
|
|
7,965 |
Income (loss) from continuing operations |
|
|
6,507 |
|
|
(2,066) |
|
|
30,040 |
|
|
34,826 |
Income (loss) from discontinued operations, net of taxes |
|
|
11,653 |
|
|
(28,716) |
|
|
14,003 |
|
|
(27,411) |
Net income (loss) |
|
|
18,160 |
|
|
(30,782) |
|
|
44,043 |
|
|
7,415 |
Less: Net income attributable to noncontrolling interests |
|
|
418 |
|
|
475 |
|
|
1,244 |
|
|
1,377 |
Net income (loss) attributable to Ferro Corporation common shareholders |
|
$ |
17,742 |
|
$ |
(31,257) |
|
$ |
42,799 |
|
$ |
6,038 |
Amounts attributable to Ferro Corporation: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Ferro Corporation from continuing operations, net of income tax |
|
|
6,226 |
|
|
(2,492) |
|
|
28,967 |
|
|
33,739 |
Net income (loss) attributable to Ferro Corporation from discontinued operations, net of income tax |
|
|
11,516 |
|
|
(28,765) |
|
|
13,832 |
|
|
(27,701) |
Earnings (loss) per share attributable to Ferro Corporation common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.08 |
|
$ |
(0.03) |
|
$ |
0.35 |
|
$ |
0.41 |
Discontinued operations |
|
$ |
0.14 |
|
$ |
(0.35) |
|
$ |
0.17 |
|
$ |
(0.34) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.08 |
|
$ |
(0.03) |
|
$ |
0.35 |
|
$ |
0.41 |
Discontinued operations |
|
$ |
0.14 |
|
$ |
(0.35) |
|
$ |
0.17 |
|
$ |
(0.34) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average basic shares |
|
|
82,325 |
|
|
81,977 |
|
|
82,232 |
|
|
82,083 |
Weighted-average diluted shares |
|
|
82,938 |
|
|
82,471 |
|
|
83,024 |
|
|
82,891 |
End-of-period basic shares |
|
|
82,365 |
|
|
82,004 |
|
|
82,365 |
|
|
82,004 |
Table 2
Ferro Corporation and Subsidiaries
Segment Net Sales and Gross Profit from Continuing Operations (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Three Months Ended |
|
Twelve Months Ended |
||||||||
|
|
December 31, |
|
December 31, |
||||||||
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||
Segment Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Functional Coatings |
|
|
166,867 |
|
|
159,321 |
|
|
608,192 |
|
|
644,783 |
Color Solutions |
|
|
93,083 |
|
|
85,457 |
|
|
350,762 |
|
|
369,674 |
Total segment net sales |
|
$ |
259,950 |
|
$ |
244,778 |
|
$ |
958,954 |
|
$ |
1,014,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
Functional Coatings |
|
|
49,759 |
|
|
47,856 |
|
|
175,601 |
|
|
192,668 |
Color Solutions |
|
|
29,849 |
|
|
27,719 |
|
|
119,071 |
|
|
114,939 |
Other costs of sales |
|
|
(500) |
|
|
(650) |
|
|
(916) |
|
|
369 |
Total gross profit |
|
$ |
79,108 |
|
$ |
74,925 |
|
$ |
293,756 |
|
$ |
307,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Strategic services |
|
|
23,205 |
|
|
23,502 |
|
|
92,679 |
|
|
103,603 |
Functional services |
|
|
22,083 |
|
|
28,779 |
|
|
94,357 |
|
|
98,897 |
Incentive compensation |
|
|
1,270 |
|
|
900 |
|
|
7,379 |
|
|
2,459 |
Stock-based compensation |
|
|
1,448 |
|
|
1,461 |
|
|
7,998 |
|
|
7,406 |
Total selling, general and administrative expenses |
|
$ |
48,006 |
|
$ |
54,642 |
|
$ |
202,413 |
|
$ |
212,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 3
Ferro Corporation and Subsidiaries
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
December 31, |
|
December 31, |
||
|
|
2020 |
|
2019 |
||
ASSETS |
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
174,077 |
|
$ |
96,202 |
Accounts receivable, net |
|
|
137,008 |
|
|
139,333 |
Inventories |
|
|
260,332 |
|
|
264,476 |
Other receivables |
|
|
72,272 |
|
|
69,365 |
Other current assets |
|
|
18,261 |
|
|
22,373 |
Current assets held-for-sale |
|
|
307,854 |
|
|
291,420 |
Total current assets |
|
|
969,804 |
|
|
883,169 |
Other assets |
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
315,330 |
|
|
302,672 |
Goodwill |
|
|
175,351 |
|
|
172,212 |
Intangible assets, net |
|
|
119,500 |
|
|
127,815 |
Deferred income taxes |
|
|
115,962 |
|
|
98,714 |
Operating leased assets |
|
|
15,446 |
|
|
20,088 |
Other non-current assets |
|
|
80,618 |
|
|
72,020 |
Non-current assets held-for-sale |
|
|
168,922 |
|
|
157,931 |
Total assets |
|
$ |
1,960,933 |
|
$ |
1,834,621 |
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Loans payable and current portion of long-term debt |
|
$ |
8,839 |
|
$ |
8,703 |
Accounts payable |
|
|
135,296 |
|
|
138,799 |
Accrued payrolls |
|
|
27,166 |
|
|
27,447 |
Accrued expenses and other current liabilities |
|
|
124,770 |
|
|
73,016 |
Current liabilities held-for-sale |
|
|
107,545 |
|
|
133,780 |
Total current liabilities |
|
|
403,616 |
|
|
381,745 |
Other liabilities |
|
|
|
|
|
|
Long-term debt, less current portion |
|
|
791,509 |
|
|
798,862 |
Postretirement and pension liabilities |
|
|
181,610 |
|
|
174,021 |
Operating leased non-current liabilities |
|
|
10,064 |
|
|
14,474 |
Other non-current liabilities |
|
|
62,050 |
|
|
56,976 |
Non-current liabilities held-for-sale |
|
|
71,149 |
|
|
38,341 |
Total liabilities |
|
|
1,519,998 |
|
|
1,464,419 |
Equity |
|
|
|
|
|
|
Total Ferro Corporation shareholders’ equity |
|
|
429,967 |
|
|
360,376 |
Noncontrolling interests |
|
|
10,968 |
|
|
9,826 |
Total liabilities and equity |
|
$ |
1,960,933 |
|
$ |
1,834,621 |
Table 4
Ferro Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Three Months Ended |
|
Twelve Months Ended |
||||||||
|
|
December 31, (Unaudited) |
|
December 31, |
||||||||
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
18,160 |
|
$ |
(30,782) |
|
$ |
44,043 |
|
$ |
7,415 |
Loss (gain) on sale of assets and businesses |
|
|
168 |
|
|
31 |
|
|
246 |
|
|
(916) |
Depreciation and amortization |
|
|
9,636 |
|
|
13,838 |
|
|
40,289 |
|
|
55,879 |
Interest amortization |
|
|
1,108 |
|
|
975 |
|
|
3,974 |
|
|
3,755 |
Restructuring and impairment charges |
|
|
2,843 |
|
|
34,865 |
|
|
9,787 |
|
|
44,702 |
Changes in current assets and liabilities, net of effects of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(33,779) |
|
|
3,638 |
|
|
(141,330) |
|
|
(74,444) |
Inventories |
|
|
26,463 |
|
|
(1,396) |
|
|
36,485 |
|
|
(10,578) |
Accounts payable |
|
|
51,905 |
|
|
53,377 |
|
|
(26,671) |
|
|
(10,075) |
Other current assets and liabilities, net |
|
|
7,701 |
|
|
(7,492) |
|
|
18,451 |
|
|
(3,757) |
Other adjustments, net |
|
|
9,084 |
|
|
17,896 |
|
|
1,534 |
|
|
5,729 |
Net cash provided by (used in) operating activities |
|
|
93,289 |
|
|
84,950 |
|
|
(13,192) |
|
|
17,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures for property, plant and equipment and other long-lived assets |
|
|
(10,102) |
|
|
(24,150) |
|
|
(31,783) |
|
|
(64,970) |
Collections of financing receivables |
|
|
32,670 |
|
|
23,663 |
|
|
129,969 |
|
|
84,567 |
Business acquisitions, net of cash acquired |
|
|
— |
|
|
— |
|
|
— |
|
|
(251) |
Other investing activities |
|
|
4 |
|
|
27 |
|
|
807 |
|
|
1,957 |
Net cash (used in) provided by investing activities |
|
|
22,572 |
|
|
(460) |
|
|
98,993 |
|
|
21,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings (repayments) under loans payable |
|
|
(26) |
|
|
(8,175) |
|
|
(709) |
|
|
45 |
Principal payments on term loan facility - Amended Credit Facility |
|
|
(2,050) |
|
|
(2,050) |
|
|
(8,200) |
|
|
(8,200) |
Proceeds from revolving credit facility - Amended Credit Facility |
|
|
774 |
|
|
11,035 |
|
|
399,110 |
|
|
227,101 |
Principal payments on revolving credit facility - Amended Credit Facility |
|
|
(6,514) |
|
|
(33,506) |
|
|
(399,110) |
|
|
(227,101) |
Acquisition related contingent consideration payment |
|
|
— |
|
|
— |
|
|
— |
|
|
(5,200) |
Proceeds from exercise of stock options |
|
|
756 |
|
|
1,052 |
|
|
756 |
|
|
1,052 |
Purchase of treasury stock |
|
|
— |
|
|
— |
|
|
— |
|
|
(25,000) |
Other financing activities |
|
|
(1,167) |
|
|
(1,135) |
|
|
(1,895) |
|
|
(1,892) |
Net cash (used in) provided by financing activities |
|
|
(8,227) |
|
|
(32,779) |
|
|
(10,048) |
|
|
(39,195) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
1,948 |
|
|
950 |
|
|
2,122 |
|
|
283 |
Increase in cash and cash equivalents |
|
|
109,582 |
|
|
52,661 |
|
|
77,875 |
|
|
101 |
Cash and cash equivalents at beginning of period |
|
|
72,695 |
|
|
51,741 |
|
|
104,402 |
|
|
104,301 |
Cash and cash equivalents at end of period |
|
|
182,277 |
|
|
104,402 |
|
|
182,277 |
|
|
104,402 |
Less: Cash and cash equivalents of discontinued operations at end of period |
|
|
8,200 |
|
|
8,200 |
|
|
8,200 |
|
|
8,200 |
Cash and cash equivalents of continuing operations at end of period |
|
$ |
174,077 |
|
$ |
96,202 |
|
$ |
174,077 |
|
$ |
96,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
11,109 |
|
$ |
9,053 |
|
$ |
31,285 |
|
$ |
33,429 |
Income taxes |
|
$ |
6,643 |
|
$ |
19,212 |
|
$ |
19,648 |
|
$ |
21,682 |
Table 5
Ferro Corporation and Subsidiaries
Supplemental Information
Reconciliation of Reported Income from Continuing Operations to Adjusted Income
From Continuing Operations for the Three Months Ended December 31 (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 expense6 |
|
|
Net income (loss) attributable to common shareholders |
|
|
Diluted earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 |
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported from Continuing Operations |
|
$ |
180,842 |
|
$ |
48,006 |
|
$ |
5,194 |
|
$ |
14,904 |
|
$ |
4,497 |
|
$ |
6,226 |
|
$ |
0.08 |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring |
|
|
— |
|
|
— |
|
|
(5,194) |
|
|
— |
|
|
— |
|
|
5,194 |
|
|
0.06 |
Pension1 |
|
|
— |
|
|
— |
|
|
— |
|
|
(10,029) |
|
|
— |
|
|
10,029 |
|
|
0.12 |
Acquisition related costs2 |
|
|
— |
|
|
(146) |
|
|
— |
|
|
653 |
|
|
— |
|
|
(507) |
|
|
(0.01) |
Costs related to optimization projects4 |
|
|
(1,494) |
|
|
(2,068) |
|
|
— |
|
|
— |
|
|
— |
|
|
3,562 |
|
|
0.04 |
Costs related to divested businesses and assets |
|
|
— |
|
|
(799) |
|
|
— |
|
|
(172) |
|
|
— |
|
|
971 |
|
|
0.01 |
Tax on adjustments |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
4,583 |
|
|
(4,583) |
|
|
(0.06) |
Total adjustments7 |
|
|
(1,494) |
|
|
(3,013) |
|
|
(5,194) |
|
|
(9,549) |
|
|
4,583 |
|
|
14,667 |
|
|
0.18 |
As adjusted from Continuing Operations |
|
$ |
179,348 |
|
$ |
44,993 |
|
$ |
— |
|
$ |
5,355 |
|
$ |
9,080 |
|
$ |
20,893 |
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 |
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported from Continuing Operations |
|
$ |
169,853 |
|
$ |
54,642 |
|
$ |
3,093 |
|
$ |
20,184 |
|
$ |
(928) |
|
$ |
(2,492) |
|
$ |
(0.03) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring |
|
|
— |
|
|
— |
|
|
(3,093) |
|
|
— |
|
|
— |
|
|
3,093 |
|
|
0.04 |
Pension1 |
|
|
— |
|
|
— |
|
|
— |
|
|
(13,192) |
|
|
— |
|
|
13,192 |
|
|
0.16 |
Acquisition related costs3 |
|
|
(15) |
|
|
(518) |
|
|
— |
|
|
— |
|
|
— |
|
|
533 |
|
|
0.01 |
Costs related to optimization projects5 |
|
|
(924) |
|
|
(3,542) |
|
|
— |
|
|
— |
|
|
— |
|
|
4,466 |
|
|
0.05 |
Costs related to divested businesses and assets |
|
|
— |
|
|
(1,239) |
|
|
|
|
|
(54) |
|
|
— |
|
|
1,293 |
|
|
0.02 |
Tax on adjustments |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
6,290 |
|
|
(6,290) |
|
|
(0.08) |
Total adjustments7 |
|
|
(939) |
|
|
(5,299) |
|
|
(3,093) |
|
|
(13,246) |
|
|
6,290 |
|
|
16,287 |
|
|
0.20 |
As adjusted from Continuing Operations |
|
$ |
168,914 |
|
$ |
49,343 |
|
$ |
— |
|
$ |
6,938 |
|
$ |
5,362 |
|
$ |
13,795 |
|
$ |
0.17 |
|
(1) |
|
The adjustments relate to pension and other postretirement benefit mark-to-market adjustments and settlements. |
|
(2) |
|
The adjustments to “Selling general and administrative expenses” primarily include legal, professional and other expenses related to acquisition costs. |
|
(3) |
|
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. |
|
(4) |
|
Costs related to Optimization projects of $3.6 million include costs associated with our Americas manufacturing optimization initiative of $2.5 million, which is comprised of costs for process development and production testing, professional fees for legal and tax services, supplies and equipment commissioning, and utility setup and testing. The remaining $1.1 million of costs relate to global optimization projects and discrete projects at our previous acquisitions |
|
(5) |
|
Costs related to Optimization projects of $4.5 million include costs associated with our Americas manufacturing optimization initiative of $3.0 million, which is comprised of costs for process development and production testing, professional fees for legal and tax services, supplies and equipment commissioning, and utility setup and testing. The remaining $1.5 million of costs relate to global optimization projects and discrete projects at our previous acquisitions. |
|
(6) |
|
Income tax expense reflects the reported expense, adjusted for adjustments being tax effected at the respective statutory rate where the item originated, as well as the impacts associated with the Tax Cuts and Jobs Act that were recorded in 2020 and 2019. |
|
(7) |
|
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 by excluding these costs, our adjusted earnings per share better reflect our underlying business performance, as well as being considered in our internal evaluation of financial performance. These costs are ones that we have concluded are not normal, recurring cash operating expenses necessary to operate our business, and we believe it is useful to present this non-GAAP financial measure to provide investors greater comparability of our base business.
Table 6
Ferro Corporation and Subsidiaries
Supplemental Information
Reconciliation of Reported Income from Continuing Operations to Adjusted Income
From Continuing Operations for the Twelve Months Ended December 31 (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 expense8 |
|
|
Net income attributable to common shareholders |
|
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 |
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported from Continuing Operations |
|
$ |
665,198 |
|
$ |
202,413 |
|
$ |
17,425 |
|
$ |
29,017 |
|
$ |
14,861 |
|
$ |
28,967 |
|
$ |
0.35 |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring |
|
|
— |
|
|
— |
|
|
(17,425) |
|
|
— |
|
|
— |
|
|
17,425 |
|
|
0.21 |
Pension1 |
|
|
— |
|
|
— |
|
|
— |
|
|
(10,029) |
|
|
— |
|
|
10,029 |
|
|
0.12 |
Acquisition related costs2 |
|
|
(9) |
|
|
(1,369) |
|
|
— |
|
|
653 |
|
|
— |
|
|
726 |
|
|
0.01 |
Costs related to optimization projects4 |
|
|
(6,156) |
|
|
(9,296) |
|
|
— |
|
|
— |
|
|
— |
|
|
15,452 |
|
|
0.19 |
Costs related to divested businesses and assets |
|
|
— |
|
|
(4,805) |
|
|
— |
|
|
(479) |
|
|
— |
|
|
5,284 |
|
|
0.06 |
Other6 |
|
|
(453) |
|
|
— |
|
|
— |
|
|
(1,044) |
|
|
— |
|
|
1,497 |
|
|
0.02 |
Tax on adjustments |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
11,842 |
|
|
(11,842) |
|
|
(0.14) |
Total adjustments9 |
|
|
(6,618) |
|
|
(15,470) |
|
|
(17,425) |
|
|
(10,900) |
|
|
11,842 |
|
|
38,571 |
|
|
0.46 |
As adjusted from Continuing Operations |
|
$ |
658,580 |
|
$ |
186,943 |
|
$ |
— |
|
$ |
18,117 |
|
$ |
26,703 |
|
$ |
67,538 |
|
$ |
0.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 |
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported from Continuing Operations |
|
$ |
706,481 |
|
$ |
212,365 |
|
$ |
10,955 |
|
$ |
41,865 |
|
$ |
7,965 |
|
$ |
33,739 |
|
$ |
0.41 |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring |
|
|
— |
|
|
— |
|
|
(10,955) |
|
|
— |
|
|
— |
|
|
10,955 |
|
|
0.13 |
Pension1 |
|
|
— |
|
|
— |
|
|
— |
|
|
(13,192) |
|
|
— |
|
|
13,192 |
|
|
0.16 |
Acquisition related costs3 |
|
|
(890) |
|
|
(3,486) |
|
|
— |
|
|
(768) |
|
|
— |
|
|
5,144 |
|
|
0.06 |
Costs related to optimization projects5 |
|
|
(6,307) |
|
|
(7,230) |
|
|
— |
|
|
(50) |
|
|
— |
|
|
13,587 |
|
|
0.16 |
Costs related to divested businesses and assets |
|
|
— |
|
|
(2,971) |
|
|
— |
|
|
(255) |
|
|
— |
|
|
3,226 |
|
|
0.04 |
Other7 |
|
|
— |
|
|
— |
|
|
— |
|
|
(86) |
|
|
— |
|
|
86 |
|
|
- |
Tax on adjustments |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
11,539 |
|
|
(11,539) |
|
|
(0.14) |
Total adjustments9 |
|
|
(7,197) |
|
|
(13,687) |
|
|
(10,955) |
|
|
(14,351) |
|
|
11,539 |
|
|
34,651 |
|
|
0.42 |
As adjusted from Continuing Operations |
|
$ |
699,284 |
|
$ |
198,678 |
|
$ |
— |
|
$ |
27,514 |
|
$ |
19,504 |
|
$ |
68,390 |
|
$ |
0.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The adjustments relate to pension and other postretirement benefit mark-to-market adjustments and settlements. |
|
(2) |
|
The adjustments to “Selling general and administrative expenses” primarily include legal, professional and other expenses related to acquisition costs. |
|
(3) |
|
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. |
|
(4) |
|
Cost related to Optimization projects of $15.5 million includes costs associated with our Americas manufacturing optimization initiative of $9.8 million, which is comprised of costs for process development and production testing, professional fees for legal and tax services, supplies and equipment commissioning, and utility setup and testing. The remaining $5.7 million of costs relate to global optimization projects and discrete projects at our previous acquisitions. |
|
(5) |
|
Cost related to Optimization projects of $13.6 million includes costs associated with our Americas manufacturing optimization initiative of $12.0 million, which is comprised of costs for process development and production testing, professional fees for legal and tax services, supplies and equipment commissioning, and utility setup and testing. The remaining $1.6 million of costs relate to global optimization projects and discrete projects at our previous acquisitions. |
|
(6) |
|
The adjustments to “Other expense, net” relate to losses from fire in Columbia and impacts of currency related items in Thailand. |
|
(7) |
|
The adjustments to “Other expense, net” relate to gains and losses on asset sales and impacts of currency related items in Argentina. |
|
(8) |
|
Income tax expense reflects the reported expense, adjusted for adjustments being tax effected at the respective statutory rate where the item originated, as well as the impacts associated with the Tax Cuts and Jobs Act that were recorded in 2020 and 2019. |
|
(9) |
|
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 by excluding these costs, our adjusted earnings per share better reflect our underlying business performance, as well as being considered in our internal evaluation of financial performance. These costs are ones that we have concluded are not normal, recurring cash operating expenses necessary to operate our business, and we believe it is useful to present this non-GAAP financial measure to provide investors greater comparability of our base business.
Table 7
Ferro Corporation and Subsidiaries
Supplemental Information
Constant Currency Schedule of Adjusted Operating Profit from Continuing Operations (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
||||||||||
(Dollars in thousands) |
|
December 31, |
||||||||||
|
|
2019 |
|
Adjusted 20191 |
|
2020 |
|
2020 vs Adjusted 2019 |
||||
Segment net sales |
|
|
|
|
|
|
|
|
|
|
|
|
Functional Coatings |
|
|
159,321 |
|
|
163,668 |
|
|
166,867 |
|
|
3,199 |
Color Solutions |
|
|
85,457 |
|
|
87,487 |
|
|
93,083 |
|
|
5,596 |
Total segment net sales |
|
$ |
244,778 |
|
$ |
251,155 |
|
$ |
259,950 |
|
$ |
8,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment adjusted gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
Functional Coatings |
|
|
48,272 |
|
|
49,359 |
|
|
51,157 |
|
|
1,798 |
Color Solutions |
|
|
27,823 |
|
|
28,201 |
|
|
29,851 |
|
|
1,650 |
Other costs of sales |
|
|
166 |
|
|
130 |
|
|
(407) |
|
|
(537) |
Total adjusted gross profit2 |
|
$ |
76,261 |
|
$ |
77,690 |
|
$ |
80,601 |
|
$ |
2,911 |
Adjusted gross profit percentage |
|
|
31.2% |
|
|
30.9% |
|
|
31.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Strategic services |
|
|
26,174 |
|
|
26,803 |
|
|
22,643 |
|
|
(4,160) |
Functional services |
|
|
19,192 |
|
|
20,085 |
|
|
19,656 |
|
|
(429) |
Incentive compensation |
|
|
1,678 |
|
|
1,733 |
|
|
1,246 |
|
|
(487) |
Stock-based compensation |
|
|
2,299 |
|
|
2,299 |
|
|
1,448 |
|
|
(851) |
Total adjusted selling, general and administrative expenses3 |
|
$ |
49,343 |
|
$ |
50,920 |
|
$ |
44,993 |
|
$ |
(5,927) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profit |
|
$ |
26,918 |
|
$ |
26,770 |
|
$ |
35,608 |
|
$ |
8,838 |
Adjusted operating profit as a % of net sales |
|
|
11.0% |
|
|
10.7% |
|
|
13.7% |
|
|
|
|
(1) |
|
Reflects the remeasurement of 2019 reported and adjusted local currency results using 2020 exchange rates, resulting in constant currency comparative figures to 2020 reported and adjusted results. See Table 5 for Non-GAAP adjustments applicable to the three month period. |
|
(2) |
|
Refer to Table 5 for the reconciliation of adjusted gross profit for the three months ended December 31, 2020 and 2019, respectively. |
|
(3) |
|
Refer to Table 5 for the reconciliation of adjusted SG&A expenses for the three months ended December 31, 2020 and 2019, 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. 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 from Continuing Operations (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended |
||||||||||
(Dollars in thousands) |
|
December 31, |
||||||||||
|
|
2019 |
|
Adjusted 20191 |
|
2020 |
|
2020 vs Adjusted 2019 |
||||
Segment net sales |
|
|
|
|
|
|
|
|
|
|
|
|
Functional Coatings |
|
|
644,783 |
|
|
643,520 |
|
|
608,192 |
|
|
(35,328) |
Color Solutions |
|
|
369,674 |
|
|
369,634 |
|
|
350,762 |
|
|
(18,872) |
Total segment net sales |
|
$ |
1,014,457 |
|
$ |
1,013,154 |
|
$ |
958,954 |
|
$ |
(54,200) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment adjusted gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
Functional Coatings |
|
|
195,811 |
|
|
195,054 |
|
|
181,059 |
|
|
(13,995) |
Color Solutions |
|
|
116,951 |
|
|
116,995 |
|
|
119,550 |
|
|
2,555 |
Other costs of sales |
|
|
2,965 |
|
|
2,744 |
|
|
(237) |
|
|
(2,981) |
Total adjusted gross profit2 |
|
$ |
315,727 |
|
$ |
314,793 |
|
$ |
300,372 |
|
$ |
(14,421) |
|
|
|
31.1% |
|
|
31.1% |
|
|
31.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Strategic services |
|
|
106,220 |
|
|
106,463 |
|
|
91,867 |
|
|
(14,596) |
Functional services |
|
|
81,592 |
|
|
82,202 |
|
|
79,699 |
|
|
(2,503) |
Incentive compensation |
|
|
3,148 |
|
|
3,212 |
|
|
7,379 |
|
|
4,167 |
Stock-based compensation |
|
|
7,718 |
|
|
7,718 |
|
|
7,998 |
|
|
280 |
Total adjusted selling, general and administrative expenses3 |
|
$ |
198,678 |
|
$ |
199,595 |
|
$ |
186,943 |
|
$ |
(12,652) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profit |
|
$ |
117,049 |
|
$ |
115,198 |
|
$ |
113,429 |
|
$ |
(1,769) |
Adjusted operating profit as a % of net sales |
|
|
11.5% |
|
|
11.4% |
|
|
11.8% |
|
|
|
|
(1) |
|
Reflects the remeasurement of 2019 reported and adjusted local currency results using 2020 exchange rates, resulting in constant currency comparative figures to 2019 reported and adjusted results. See Table 6 for Non-GAAP adjustments applicable to the twelve month period. |
|
(2) |
|
Refer to Table 6 for the reconciliation of adjusted gross profit for the twelve months ended December 31, 2020 and 2019, respectively. |
|
(3) |
|
Refer to Table 6 for the reconciliation of adjusted SG&A expenses for the twelve months ended December 31, 2020 and 2019, 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. 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
Reconciliation of Net income (loss) from Continuing Operations
to Adjusted EBITDA from Continuing Operations (unaudited)
|
(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 twelve months ended December 31, 2020 and 2019, 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 10
Ferro Corporation and Subsidiaries
Supplemental Information
Change in Net Debt (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Three Months Ended |
|
Twelve Months Ended |
||||||||
|
|
December 31, |
|
December 31, |
||||||||
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
||||
Beginning of period |
|
|
|
|
|
|
|
|
|
|
|
|
Gross debt |
|
$ |
811,556 |
|
$ |
850,048 |
|
$ |
811,450 |
|
$ |
826,224 |
Cash |
|
|
64,495 |
|
|
51,741 |
|
|
96,202 |
|
|
104,301 |
Debt, net of cash |
|
|
747,061 |
|
|
798,307 |
|
|
715,248 |
|
|
721,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized debt issuance costs |
|
|
4,017 |
|
|
4,121 |
|
|
3,885 |
|
|
4,827 |
Debt, net of cash and unamortized debt issuance costs |
|
|
743,044 |
|
|
794,186 |
|
|
711,363 |
|
|
717,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
|
|
|
|
|
|
|
|
|
|
|
Gross debt |
|
|
800,348 |
|
|
811,450 |
|
|
800,348 |
|
|
811,450 |
Cash |
|
|
174,077 |
|
|
96,202 |
|
|
174,077 |
|
|
96,202 |
Debt, net of cash |
|
|
626,271 |
|
|
715,248 |
|
|
626,271 |
|
|
715,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized debt issuance costs |
|
|
3,719 |
|
|
3,885 |
|
|
3,719 |
|
|
3,885 |
Debt, net of cash and unamortized debt issuance costs |
|
|
622,552 |
|
|
711,363 |
|
|
622,552 |
|
|
711,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized debt issuance costs |
|
|
(298) |
|
|
(236) |
|
|
(166) |
|
|
(942) |
FX on cash |
|
|
1,948 |
|
|
950 |
|
|
2,122 |
|
|
283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Period decrease (increase) in debt, net of cash, unamortized debt issuance costs, FX, and assumption of debt from acquisitions |
|
$ |
118,842 |
|
$ |
82,109 |
|
$ |
86,855 |
|
$ |
6,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Period decrease (increase) in debt, net of cash and unamortized debt issuance costs |
|
$ |
120,492 |
|
$ |
82,823 |
|
$ |
88,811 |
|
$ |
5,733 |
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 11
Ferro Corporation and Subsidiaries
Supplemental Information
Reconciliation of Net Cash Provided by Operating Activities (GAAP) to
Adjusted Free Cash Flow from Operating Activities (Non-GAAP) (unaudited)
It should be noted that Adjusted Free Cash Flow 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. Adjusted Free Cash Flow (Non-GAAP) is calculated as Cash Flow used in operating activities (GAAP), less capital expenditures and adding cash collected from the Accounts Receivable Securitization program. 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 Sales and Gross Profit (GAAP) to
Adjusted Net Sales and Gross Profit (Non-GAAP) (unaudited)
|
|
|
|
|
|
|
(Dollars in thousands) |
|
|
Net Sales |
|
|
Gross Profit |
|
|
|
|
|
|
|
|
|
2020 |
||||
As Reported (GAAP) |
|
$ |
958,954 |
|
$ |
293,756 |
Non-GAAP Adjustments1 |
|
|
- |
|
|
6,618 |
Constant Currency FX Impact2 |
|
|
- |
|
|
- |
As Adjusted from Continuing Operations (Non-GAAP measure) |
|
$ |
958,954 |
|
$ |
300,374 |
|
|
|
|
|
|
|
|
|
2019 |
||||
As Reported (GAAP) |
|
$ |
1,014,457 |
|
$ |
307,976 |
Non-GAAP Adjustments1 |
|
|
- |
|
|
7,197 |
Constant Currency FX Impact2 |
|
|
(9,716) |
|
|
(1,838) |
As Adjusted from Continuing Operations (Non-GAAP measure) |
|
$ |
1,004,741 |
|
$ |
313,335 |
|
|
|
|
|
|
|
|
|
2018 |
||||
As Reported (GAAP) |
|
$ |
1,074,696 |
|
$ |
338,389 |
Non-GAAP Adjustments1 |
|
|
- |
|
|
6,347 |
Constant Currency FX Impact2 |
|
|
(35,462) |
|
|
(11,122) |
As Adjusted from Continuing Operations (Non-GAAP measure) |
|
$ |
1,039,234 |
|
$ |
333,614 |
|
|
|
|
|
|
|
|
|
2017 |
||||
As Reported (GAAP) |
|
$ |
996,382 |
|
$ |
326,719 |
Non-GAAP Adjustments1 |
|
|
- |
|
|
8,774 |
Constant Currency FX Impact2 |
|
|
(25,275) |
|
|
(5,874) |
As Adjusted from Continuing Operations (Non-GAAP measure) |
|
$ |
971,107 |
|
$ |
329,619 |
|
|
|
|
|
|
|
|
|
2016 |
||||
As Reported (GAAP) |
|
$ |
794,465 |
|
$ |
270,226 |
Non-GAAP Adjustments1 |
|
|
- |
|
|
3,792 |
Constant Currency FX Impact2 |
|
|
(13,628) |
|
|
(3,165) |
As Adjusted from Continuing Operations (Non-GAAP measure) |
|
$ |
780,837 |
|
$ |
270,853 |
|
|
|
|
|
|
|
1. For 2020 and 2019, refer to Table 6 for a description of the Non-GAAP adjustments that were recorded in "Cost of Sales”. For 2018, 2017, and 2016, the Non-GAAP adjustments relate to acquisitions related costs, costs related to certain optimization projects, and costs related to divested businesses and assets.
2. Reflects the remeasurement of 2019, 2018, 2017, and 2016 reported and adjusted results using 2020 average exchange rates, resulting in a constant currency comparative figures to 2020 reported and adjusted results.
It should be noted that adjusted net sales and adjusted gross profit 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.