Delaware | 1-13953 | 65-0773649 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
7500 Grace Drive | ||
Columbia, Maryland | 21044 | |
(Address of principal executive offices) | (Zip Code) |
Emerging growth company o |
Item 2.02. | Results of Operations and Financial Condition. |
Item 9.01. | Financial Statements and Exhibits. |
Exhibit No. | Description | ||
99.1 |
W. R. GRACE & CO. | ||
(Registrant) | ||
By | /s/ William C. Dockman | |
William C. Dockman | ||
Vice President, Controller, and Principal Accounting Officer | ||
Dated: February 7, 2019 |
Exhibit No. | Description | ||
99.1 |
![]() | Grace News | |
Media Relations Rich Badmington +1 410.531.4370 rich.badmington@grace.com | Investor Relations Jeremy Rohen +1 410.531.8234 jeremy.rohen@grace.com |
• | 2018 sales increased 12.6% to $1.9 billion, including 5.0% contribution from the polyolefin catalysts acquisition |
• | 2018 Diluted EPS of $2.49 compared with $0.16 in the prior year |
• | 2018 Adjusted EPS increased 21.8% to $4.14, above the top-end of our October 2018 updated outlook range on strong business performance and $0.08 per share benefit from lower effective tax rate |
• | Returned $145 million to shareholders through share repurchase of $80 million and cash dividends of $65 million |
• | Sales growth of 6% to 7%, with continued demand strength across the portfolio |
• | Adjusted EBIT of $490 to $500 million, up 7% to 9%, and expanding margins |
• | Adjusted EPS of $4.53 to $4.63 per share, up 10% to 12% |
• | Increased annual cash dividend to $1.08 per share, up 13% |
• | Invest to accelerate growth and extend our competitive advantages |
• | Invest in great people to strengthen our high-performance culture |
• | Execute the Grace Value Model to drive operating excellence |
• | Acquire to build our technology and manufacturing capabilities for our customers |
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Summary Financial Results - Total Grace | |||||||||||||||||
(In $ millions, except per share amounts) | 4Q18 | 4Q17 | Change | FY18 | FY17 | Change | |||||||||||
Net sales | 520.0 | 459.5 | 13.2 | % | 1,932.1 | 1,716.5 | 12.6 | % | |||||||||
Net sales, constant currency | 14.3 | % | 11.4 | % | |||||||||||||
Net income | 69.1 | (123.0) | NM | 167.6 | 11.2 | NM | |||||||||||
Adjusted EBIT | 118.8 | 115.1 | 3.2 | % | 456.7 | 414.0 | 10.3 | % | |||||||||
Adjusted EBIT margin | 22.8 | % | 25.0 | % | (2.2) pts | 23.6 | % | 24.1 | % | (0.5) pts | |||||||
Diluted EPS | $1.03 | ($1.81) | NM | $2.49 | $0.16 | NM | |||||||||||
Adjusted EPS | $1.14 | $0.98 | 16.3 | % | $4.14 | $3.40 | 21.8 | % | |||||||||
Dividends per share | $0.24 | $0.21 | 14.3 | % | $0.96 | $0.84 | 14.3 | % | |||||||||
YTD 2018 | YTD 2017 | Change | |||||||||||||||
Net cash provided by operating activities | 342.0 | 319.2 | 7.1 | % | |||||||||||||
Adjusted Free Cash Flow | 234.6 | 274.0 | (14.4 | )% | |||||||||||||
TTM 2018 | TTM 2017 | Change | |||||||||||||||
Adjusted EBIT ROIC | 20.9 | % | 24.4 | % | (3.5) pts |
• | Sales increased 13.2% to $520.0 million, up 14.3% on constant currency. Sales growth was driven by higher sales volumes (6.1%) and improved pricing (2.1%). The 2Q18 polyolefin catalysts acquisition contributed 6.1% to sales growth in the quarter. |
• | Net income was $69.1 million and Diluted EPS was $1.03 per share. |
• | Adjusted EBIT increased 3.2% to $118.8 million. Adjusted EBIT margin was down 220 bps. |
• | During the fourth quarter when market concerns increased about the pace of 2019 global growth, we proactively reduced production rates for the quarter to ensure inventory levels were appropriate in the event demand weakness developed. We are not seeing any significant change in our customer demand and are well positioned for solid growth in 2019. We took advantage of this opportunity to use some of the available production time to run product trials in our specialty catalysts plants. Together, these actions reduced 4Q18 gross margins by 200 bps, primarily from the effect of lower capitalized overhead costs in inventory at year-end. |
• | In 4Q18, we recorded a restructuring and repositioning charge of $10.1 million related to closing two smaller manufacturing plants in the quarter. Activities at these plants have been moved to larger, more cost-effective plants as part of our strategy to capture synergies from our recent catalysts acquisitions. |
• | The 2018 income tax provision reflects our current assessment of the effects of changes in U.S. tax law under the Tax Cuts and Jobs Act of 2017 and may be subject to further adjustment before we issue the 10-K. Any further adjustment for this matter will not affect Adjusted EPS. |
• | Sales increased 12.6% to $1.9 billion, up 11.4% on constant currency. Sales growth was driven by strong customer demand for our innovative catalyst and process technology solutions and silicas technologies resulting in 4.8% volume growth and 1.6% improved pricing. The 2Q18 polyolefin catalysts acquisition contributed 5.0% to year-over-year growth. |
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• | Net income was $167.6 million compared with $11.2 million, and Diluted EPS was $2.49 per share up from $0.16 per share. Earnings growth was driven by strong business performance and a favorable benefit from pension mark-to-market adjustments. This was offset by a pretax charge of $70.0 million ($0.80 per diluted share) in 3Q18 for the estimated costs to remediate our former vermiculite mine site in Libby, Montana. 2017 included a $143 million charge related to U.S. tax reform. |
• | Adjusted EBIT of $456.7 million was up 10.3% driven by solid volume growth, improved pricing and the polyolefin catalysts acquisition, and higher Adjusted Gross Margin of 40.7%. |
• | Adjusted EPS was $4.14 per share, up 21.8%, above the top-end of our October 2018 updated outlook range on strong business performance and $0.08 per share benefit from lower effective tax rate. |
• | Adjusted Free Cash Flow was $234.6 million, including $91.1 million of higher capital spending related primarily to our multi-year investments to meet customer demand for our high-value polyolefin catalysts and silicas technologies, and to drive operating excellence. |
Summary Financial Results - Catalysts Technologies | |||||||||||||||||
(In $ millions) | 4Q18 | 4Q17 | Change | FY18 | FY17 | Change | |||||||||||
Net sales | 405.1 | 344.7 | 17.5 | % | 1,463.5 | 1,276.5 | 14.6 | % | |||||||||
Net sales, constant currency | 18.2 | % | 13.7 | % | |||||||||||||
Gross margin | 38.6 | % | 42.1 | % | (3.5) pts | 41.7 | % | 40.8 | % | 0.9 pts | |||||||
Operating income | 115.2 | 109.3 | 5.4 | % | 440.5 | 395.4 | 11.4 | % | |||||||||
Operating margin | 28.4 | % | 31.7 | % | (3.3) pts | 30.1 | % | 31.0 | % | (0.9) pts |
• | Sales increased 17.5% to $405.1 million driven by higher sales volumes (8.0%) and improved pricing (2.1%), and the polyolefin catalysts acquisition (8.1%). |
• | Gross margin of 38.6% was down 350 bps compared with prior year. During the fourth quarter when market concerns increased about the pace of 2019 global growth, we proactively reduced production rates for the quarter to ensure inventory levels were appropriate in the event demand weakness developed. We are not seeing any significant change in our customer demand and are well positioned for solid growth in 2019. We took advantage of this opportunity to use some of the available production time to run product trials in our specialty catalysts plants. Together, these actions reduced 4Q18 margins by 250 bps, primarily from the effect of lower capitalized overhead costs in inventory at year-end. |
• | Operating income increased 5.4% to $115.2 million driven by higher gross profit and $4.3 million of higher income from our ART joint venture. Operating margin declined from 31.7% to 28.4%, primarily due to lower gross profit. |
• | Sales increased 14.6% to $1.5 billion, up 13.7% on constant currency. Sales growth was driven by higher volumes of 5.3% reflecting the strong customer demand for our catalysts technologies, continued momentum in UNIPOL® process technology licensing and improved |
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• | Gross margin of 41.7% was up 90 bps including 210 bps from higher sales volumes, improved pricing and favorable mix, and 120 bps related to lower depreciation expense from the change in useful life estimate implemented in 1Q18, partially offset by 180 bps of inflation on raw materials and energy costs. |
• | Operating income increased 11.4% to $440.5 million, driven by higher gross profit, and $5.9 million of higher income from our ART joint venture. Operating margin declined from 31.0% to 30.1%. |
• | Business interruption insurance recoveries of $25 million recorded in 2017 did not repeat in 2018. This negatively impacted the year-over-year comparison of operating income growth by 6.3% and operating margin by approximately 170 bps. |
Summary Financial Results - Materials Technologies | |||||||||||||||||
(In $ millions) | 4Q18 | 4Q17 | Change | FY18 | FY17 | Change | |||||||||||
Net sales | 114.9 | 114.8 | 0.1 | % | 468.6 | 440.0 | 6.5 | % | |||||||||
Net sales, constant currency | 2.7 | % | 4.7 | % | |||||||||||||
Gross margin | 37.2 | % | 37.0 | % | 0.2 pts | 37.8 | % | 37.9 | % | (0.1) pts | |||||||
Operating income | 25.3 | 25.2 | 0.4 | % | 105.6 | 100.6 | 5.0 | % | |||||||||
Operating margin | 22.0 | % | 22.0 | % | 0.0 pts | 22.5 | % | 22.9 | % | (0.4) pts |
• | Sales increased 0.1% to $114.9 million, up 2.7% on constant currency. Improved pricing (2.1%) and higher sales volumes (0.6%), partially offset the 2.6% impact from unfavorable currency. |
• | Gross margin of 37.2% increased 20 bps. |
• | Operating income of $25.3 million increased 0.4%, or $0.1 million. Operating margin declined from 22.9% to 22.5%. |
• | Sales increased 6.5% to $468.6 million, up 4.7% on constant currency. Sales growth was driven by continued demand for our silicas technologies, particularly in our consumer/pharma and coatings markets, and improved pricing (1.6%). |
• | Gross margin of 37.8% was down 10 bps, primarily due to higher manufacturing costs (including 120 bps of higher raw materials and energy costs), partially offset by higher volumes and improved pricing and mix of 230 bps, and 90 bps related to lower depreciation expense from the change in useful life estimate implemented in 1Q18. |
• | Operating income increased 5.0% to $105.6 million. Operating margin was down 40 bps, primarily due to lower gross margin. |
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• | Capital expenditures: For 2018, we invested $216.3 million in capital expenditures as part of our previously outlined, multi-year investment program to accelerate growth, extend our competitive advantages and drive operating excellence. |
• | Share repurchase program: For 2018, we repurchased approximately 1,171,000 shares for $80 million, at an average per share price of $68.27. In 4Q18, we repurchased $20 million of our common stock, or approximately 305,000 shares, at an average per share price of $64.90. At the end of 2018, we have approximately $138 million remaining on our share repurchase authorization. |
• | Dividend: For 2018, we returned $65 million to shareholders in cash dividends. In 4Q18, we paid $16 million in cash dividends to shareholders. |
Full-Year 2019 Outlook | ||
2019 Outlook | ||
(In $ millions, except percents and per share amounts) | ||
Sales growth | 6% - 7% | |
Adjusted EBIT | $490 - $500 | |
Adjusted EPS | $4.53 - $4.63 | |
Adjusted Free Cash Flow | $235 - $250 | |
Note: We are unable to estimate the annual mark-to-market pension adjustment or 2019 net income or diluted EPS. |
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6 grace.com | Talent | Technology | Trust™ |
Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||
(In millions, except per share amounts) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Net sales | $ | 520.0 | $ | 459.5 | $ | 1,932.1 | $ | 1,716.5 | |||||||
Cost of goods sold | 323.7 | 275.1 | 1,165.4 | 1,040.4 | |||||||||||
Gross profit | 196.3 | 184.4 | 766.7 | 676.1 | |||||||||||
Selling, general and administrative expenses | 79.9 | 69.9 | 307.0 | 274.0 | |||||||||||
Research and development expenses | 16.2 | 14.8 | 62.7 | 56.3 | |||||||||||
Provision for environmental remediation, net | 0.5 | 4.8 | 73.8 | 24.4 | |||||||||||
Equity in earnings of unconsolidated affiliate | (12.3 | ) | (8.0 | ) | (31.8 | ) | (25.9 | ) | |||||||
Restructuring and repositioning expenses | 13.6 | 9.7 | 46.4 | 26.7 | |||||||||||
Interest expense and related financing costs | 20.6 | 19.8 | 80.2 | 79.5 | |||||||||||
Other (income) expense, net | (18.7 | ) | 45.2 | (16.5 | ) | 30.2 | |||||||||
Total costs and expenses | 99.8 | 156.2 | 521.8 | 465.2 | |||||||||||
Income (loss) before income taxes | 96.5 | 28.2 | 244.9 | 210.9 | |||||||||||
(Provision for) benefit from income taxes | (27.6 | ) | (151.3 | ) | (78.1 | ) | (200.5 | ) | |||||||
Net income (loss) | 68.9 | (123.1 | ) | 166.8 | 10.4 | ||||||||||
Less: Net (income) loss attributable to noncontrolling interests | 0.2 | 0.1 | 0.8 | 0.8 | |||||||||||
Net income (loss) attributable to W. R. Grace & Co. shareholders | $ | 69.1 | $ | (123.0 | ) | $ | 167.6 | $ | 11.2 | ||||||
Earnings Per Share Attributable to W. R. Grace & Co. Shareholders | |||||||||||||||
Basic earnings per share: | |||||||||||||||
Net income (loss) | $ | 1.03 | $ | (1.81 | ) | $ | 2.49 | $ | 0.16 | ||||||
Weighted average number of basic shares | 66.9 | 67.8 | 67.2 | 68.1 | |||||||||||
Diluted earnings per share: | |||||||||||||||
Net income (loss) | $ | 1.03 | $ | (1.81 | ) | $ | 2.49 | $ | 0.16 | ||||||
Weighted average number of diluted shares | 67.0 | 67.8 | 67.3 | 68.2 | |||||||||||
Dividends per common share | $ | 0.24 | $ | 0.21 | $ | 0.96 | $ | 0.84 |
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Year Ended December 31, | |||||||
(In millions) | 2018 | 2017 | |||||
OPERATING ACTIVITIES | |||||||
Net income (loss) | $ | 166.8 | $ | 10.4 | |||
Reconciliation to net cash provided by (used for) operating activities: | |||||||
Depreciation and amortization | 100.8 | 111.5 | |||||
Equity in earnings of unconsolidated affiliate | (31.8 | ) | (25.9 | ) | |||
Dividends received from unconsolidated affiliate | — | 19.0 | |||||
Costs related to legacy product, environmental and other claims | 84.6 | 30.8 | |||||
Cash paid for legacy product, environmental and other claims | (22.9 | ) | (54.5 | ) | |||
Provision for income taxes | 78.1 | 200.5 | |||||
Cash paid for income taxes | (54.0 | ) | (61.8 | ) | |||
Income tax refunds received | 0.7 | 34.2 | |||||
Loss on early extinguishment of debt | 4.8 | — | |||||
Interest expense and related financing costs | 80.2 | 79.5 | |||||
Cash paid for interest | (78.4 | ) | (70.2 | ) | |||
Defined benefit pension expense | 0.7 | 64.1 | |||||
Cash paid under defined benefit pension arrangements | (66.5 | ) | (17.8 | ) | |||
Accounts receivable reserve—Venezuela | — | 10.0 | |||||
Stock compensation expense | 18.6 | 11.0 | |||||
Changes in assets and liabilities, excluding effect of currency translation and acquisitions: | |||||||
Trade accounts receivable | 2.5 | (4.9 | ) | ||||
Inventories | (26.1 | ) | 4.4 | ||||
Accounts payable | 24.2 | (2.5 | ) | ||||
Deferred revenue | 35.6 | 4.7 | |||||
All other items, net | 24.1 | (23.3 | ) | ||||
Net cash provided by (used for) operating activities | 342.0 | 319.2 | |||||
INVESTING ACTIVITIES | |||||||
Capital expenditures | (216.3 | ) | (125.2 | ) | |||
Business acquired, net of cash acquired | (418.0 | ) | (3.5 | ) | |||
Proceeds from sale of assets | 2.4 | 0.6 | |||||
Other investing activities | 13.4 | (1.1 | ) | ||||
Net cash provided by (used for) investing activities | (618.5 | ) | (129.2 | ) | |||
FINANCING ACTIVITIES | |||||||
Borrowings under credit arrangements | 1,024.0 | 114.4 | |||||
Repayments under credit arrangements | (587.8 | ) | (143.9 | ) | |||
Cash paid for repurchases of common stock | (80.0 | ) | (65.0 | ) | |||
Cash paid for debt financing costs | (11.8 | ) | — | ||||
Proceeds from exercise of stock options | 6.7 | 16.4 | |||||
Dividends paid to shareholders | (64.6 | ) | (57.3 | ) | |||
Cash received from derivative settlement | 33.1 | — | |||||
Other financing activities | (3.1 | ) | 0.6 | ||||
Net cash provided by (used for) financing activities | 316.5 | (134.8 | ) | ||||
Effect of currency exchange rate changes on cash and cash equivalents | (2.5 | ) | 7.7 | ||||
Net increase (decrease) in cash and cash equivalents | 37.5 | 62.9 | |||||
Cash, cash equivalents, and restricted cash beginning of period | 163.5 | 100.6 | |||||
Cash, cash equivalents, and restricted cash, end of period | $ | 201.0 | $ | 163.5 |
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December 31, | |||||||
(In millions, except par value and shares) | 2018 | 2017 | |||||
ASSETS | |||||||
Current Assets | |||||||
Cash and cash equivalents | $ | 200.5 | $ | 152.8 | |||
Restricted cash and cash equivalents | 0.5 | 10.7 | |||||
Trade accounts receivable, less allowance of $11.6 (2017—$11.7) | 288.5 | 285.2 | |||||
Inventories | 281.1 | 230.9 | |||||
Other current assets | 86.7 | 49.0 | |||||
Total Current Assets | 857.3 | 728.6 | |||||
Properties and equipment, net of accumulated depreciation and amortization of $1,482.8 (2017—$1,463.4) | 1,011.7 | 799.1 | |||||
Goodwill | 540.4 | 402.4 | |||||
Technology and other intangible assets, net | 356.5 | 255.4 | |||||
Deferred income taxes | 529.4 | 556.5 | |||||
Investment in unconsolidated affiliate | 156.1 | 125.9 | |||||
Other assets | 113.9 | 39.1 | |||||
Total Assets | $ | 3,565.3 | $ | 2,907.0 | |||
LIABILITIES AND EQUITY | |||||||
Current Liabilities | |||||||
Debt payable within one year | $ | 22.3 | $ | 20.1 | |||
Accounts payable | 248.6 | 210.3 | |||||
Other current liabilities | 243.5 | 217.8 | |||||
Total Current Liabilities | 514.4 | 448.2 | |||||
Debt payable after one year | 1,961.0 | 1,523.8 | |||||
Unfunded defined benefit pension plans | 366.0 | 391.9 | |||||
Underfunded defined benefit pension plans | 67.1 | 110.5 | |||||
Other liabilities | 319.8 | 169.3 | |||||
Total Liabilities | 3,228.3 | 2,643.7 | |||||
Equity | |||||||
Common stock issued, par value $0.01; 300,000,000 shares authorized; outstanding: 66,792,968 (2017—67,780,410) | 0.7 | 0.7 | |||||
Paid-in capital | 481.1 | 474.8 | |||||
Retained earnings | 676.7 | 573.1 | |||||
Treasury stock, at cost: shares: 10,663,659 (2017—9,676,217) | (895.5 | ) | (832.1 | ) | |||
Accumulated other comprehensive income (loss) | 67.9 | 39.9 | |||||
Total W. R. Grace & Co. Shareholders’ Equity | 330.9 | 256.4 | |||||
Noncontrolling interests | 6.1 | 6.9 | |||||
Total Equity | 337.0 | 263.3 | |||||
Total Liabilities and Equity | $ | 3,565.3 | $ | 2,907.0 |
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Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||||||||
(In millions, except per share amounts) | 2018 | 2017 | % Change | 2018 | 2017 | % Change | |||||||||||||||
Net sales: | |||||||||||||||||||||
Catalysts Technologies | $ | 405.1 | $ | 344.7 | 17.5 | % | $ | 1,463.5 | $ | 1,276.5 | 14.6 | % | |||||||||
Materials Technologies | 114.9 | 114.8 | 0.1 | % | 468.6 | 440.0 | 6.5 | % | |||||||||||||
Total Grace net sales | $ | 520.0 | $ | 459.5 | 13.2 | % | $ | 1,932.1 | $ | 1,716.5 | 12.6 | % | |||||||||
Net sales by region: | |||||||||||||||||||||
North America | $ | 155.4 | $ | 130.7 | 18.9 | % | $ | 581.7 | $ | 486.0 | 19.7 | % | |||||||||
Europe Middle East Africa | 200.2 | 181.9 | 10.1 | % | 752.2 | 667.7 | 12.7 | % | |||||||||||||
Asia Pacific | 133.7 | 124.8 | 7.1 | % | 481.5 | 459.8 | 4.7 | % | |||||||||||||
Latin America | 30.7 | 22.1 | 38.9 | % | 116.7 | 103.0 | 13.3 | % | |||||||||||||
Total net sales by region | $ | 520.0 | $ | 459.5 | 13.2 | % | $ | 1,932.1 | $ | 1,716.5 | 12.6 | % | |||||||||
Performance measures: | |||||||||||||||||||||
Adjusted EBIT(A)(B): | |||||||||||||||||||||
Catalysts Technologies segment operating income | $ | 115.2 | $ | 109.3 | 5.4 | % | $ | 440.5 | $ | 395.4 | 11.4 | % | |||||||||
Materials Technologies segment operating income | 25.3 | 25.2 | 0.4 | % | 105.6 | 100.6 | 5.0 | % | |||||||||||||
Corporate costs | (17.4 | ) | (16.1 | ) | (8.1 | )% | (73.5 | ) | (69.0 | ) | (6.5 | )% | |||||||||
Certain pension costs(C) | (4.3 | ) | (3.3 | ) | (30.3 | )% | (15.9 | ) | (13.0 | ) | (22.3 | )% | |||||||||
Adjusted EBIT | 118.8 | 115.1 | 3.2 | % | 456.7 | 414.0 | 10.3 | % | |||||||||||||
Costs related to legacy product, environmental and other claims | (5.4 | ) | (5.3 | ) | (84.6 | ) | (30.8 | ) | |||||||||||||
Restructuring and repositioning expenses | (13.6 | ) | (9.7 | ) | (46.4 | ) | (26.7 | ) | |||||||||||||
Pension MTM adjustment and other related costs, net | 15.2 | (49.2 | ) | 15.2 | (51.1 | ) | |||||||||||||||
Third-party acquisition-related costs | (0.1 | ) | (2.5 | ) | (7.3 | ) | (2.9 | ) | |||||||||||||
Amortization of acquired inventory fair value adjustment | — | — | (6.9 | ) | — | ||||||||||||||||
Loss on early extinguishment of debt | — | — | (4.8 | ) | — | ||||||||||||||||
Income and expense items related to divested businesses | 1.9 | (1.0 | ) | 2.3 | (2.3 | ) | |||||||||||||||
Accounts receivable reserve—Venezuela | — | — | — | (10.0 | ) | ||||||||||||||||
Gain (loss) on sale of product line | — | 0.4 | — | — | |||||||||||||||||
Interest expense, net | (20.1 | ) | (19.5 | ) | (3.1 | )% | (78.5 | ) | (78.5 | ) | — | % | |||||||||
(Provision for) benefit from income taxes | (27.6 | ) | (151.3 | ) | 81.8 | % | (78.1 | ) | (200.5 | ) | 61.0 | % | |||||||||
Income (loss) attributable to W. R. Grace & Co. shareholders | $ | 69.1 | $ | (123.0 | ) | 156.2 | % | $ | 167.6 | $ | 11.2 | NM | |||||||||
Diluted EPS | $ | 1.03 | $ | (1.81 | ) | 156.9 | % | $ | 2.49 | $ | 0.16 | NM | |||||||||
Adjusted EPS(A) | $ | 1.14 | $ | 0.98 | 16.3 | % | $ | 4.14 | $ | 3.40 | 21.8 | % |
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Three Months Ended December 31, | Year Ended December 31, | ||||||||||||||||||||
(In millions) | 2018 | 2017 | % Change | 2018 | 2017 | % Change | |||||||||||||||
Adjusted profitability performance measures(A)(B)(C): | |||||||||||||||||||||
Gross Margin: | |||||||||||||||||||||
Catalysts Technologies | 38.6 | % | 42.1 | % | (3.5) pts | 41.7 | % | 40.8 | % | 0.9 pts | |||||||||||
Materials Technologies | 37.2 | % | 37.0 | % | 0.2 pts | 37.8 | % | 37.9 | % | (0.1) pts | |||||||||||
Adjusted Gross Margin | 38.3 | % | 40.8 | % | (2.5) pts | 40.7 | % | 40.1 | % | 0.6 pts | |||||||||||
Amortization of acquired inventory fair value adjustment | — | % | — | % | NM | (0.3 | )% | — | % | NM | |||||||||||
Pension costs in cost of goods sold | (0.5 | )% | (0.7 | )% | 0.2 pts | (0.7 | )% | (0.7 | )% | 0.0 pts | |||||||||||
Total Grace | 37.8 | % | 40.1 | % | (2.3) pts | 39.7 | % | 39.4 | % | 0.3 pts | |||||||||||
Adjusted EBIT: | |||||||||||||||||||||
Catalysts Technologies | $ | 115.2 | $ | 109.3 | 5.4 | % | $ | 440.5 | $ | 395.4 | 11.4 | % | |||||||||
Materials Technologies | 25.3 | 25.2 | 0.4 | % | 105.6 | 100.6 | 5.0 | % | |||||||||||||
Corporate, pension, and other | (21.7 | ) | (19.4 | ) | (11.9 | )% | (89.4 | ) | (82.0 | ) | (9.0 | )% | |||||||||
Total Grace | 118.8 | 115.1 | 3.2 | % | 456.7 | 414.0 | 10.3 | % | |||||||||||||
Depreciation and amortization: | |||||||||||||||||||||
Catalysts Technologies | $ | 20.3 | $ | 22.5 | (9.8 | )% | $ | 81.7 | $ | 87.1 | (6.2 | )% | |||||||||
Materials Technologies | 3.5 | 5.1 | (31.4 | )% | 15.5 | 19.6 | (20.9 | )% | |||||||||||||
Corporate | 0.9 | 1.3 | (30.8 | )% | 3.6 | 4.8 | (25.0 | )% | |||||||||||||
Total Grace | 24.7 | 28.9 | (14.5 | )% | 100.8 | 111.5 | (9.6 | )% | |||||||||||||
Adjusted EBITDA: | |||||||||||||||||||||
Catalysts Technologies | $ | 135.5 | $ | 131.8 | 2.8 | % | $ | 522.2 | $ | 482.5 | 8.2 | % | |||||||||
Materials Technologies | 28.8 | 30.3 | (5.0 | )% | 121.1 | 120.2 | 0.7 | % | |||||||||||||
Corporate, pension, and other | (20.8 | ) | (18.1 | ) | (14.9 | )% | (85.8 | ) | (77.2 | ) | (11.1 | )% | |||||||||
Total Grace | 143.5 | 144.0 | (0.3 | )% | 557.5 | 525.5 | 6.1 | % | |||||||||||||
Adjusted EBIT margin: | |||||||||||||||||||||
Catalysts Technologies | 28.4 | % | 31.7 | % | (3.3) pts | 30.1 | % | 31.0 | % | (0.9) pts | |||||||||||
Materials Technologies | 22.0 | % | 22.0 | % | 0.0 pts | 22.5 | % | 22.9 | % | (0.4) pts | |||||||||||
Total Grace | 22.8 | % | 25.0 | % | (2.2) pts | 23.6 | % | 24.1 | % | (0.5) pts | |||||||||||
Adjusted EBITDA margin: | |||||||||||||||||||||
Catalysts Technologies | 33.4 | % | 38.2 | % | (4.8) pts | 35.7 | % | 37.8 | % | (2.1) pts | |||||||||||
Materials Technologies | 25.1 | % | 26.4 | % | (1.3) pts | 25.8 | % | 27.3 | % | (1.5) pts | |||||||||||
Total Grace | 27.6 | % | 31.3 | % | (3.7) pts | 28.9 | % | 30.6 | % | (1.7) pts |
11 grace.com | Talent | Technology | Trust™ |
Year Ended December 31, | |||||||
(In millions) | 2018 | 2017 | |||||
Cash flow measure(A): | |||||||
Net cash provided by (used for) operating activities | $ | 342.0 | $ | 319.2 | |||
Capital expenditures | (216.3 | ) | (125.2 | ) | |||
Free Cash Flow | 125.7 | 194.0 | |||||
Cash paid for legacy product, environmental and other claims | 22.9 | 54.5 | |||||
Cash paid for repositioning | 20.7 | 11.0 | |||||
Cash paid for third-party acquisition-related costs | 9.2 | 0.7 | |||||
Cash paid for restructuring | 6.1 | 13.8 | |||||
Accelerated defined benefit pension plan contributions | 50.0 | — | |||||
Adjusted Free Cash Flow | $ | 234.6 | $ | 274.0 |
Four Quarters Ended December 31, | |||||||
(In millions) | 2018 | 2017 | |||||
Calculation of Adjusted EBIT Return On Invested Capital (trailing four quarters)(A): | |||||||
Adjusted EBIT | $ | 456.7 | $ | 414.0 | |||
Invested Capital: | |||||||
Trade accounts receivable | 288.5 | 285.2 | |||||
Inventories | 281.1 | 230.9 | |||||
Accounts payable | (248.6 | ) | (210.3 | ) | |||
321.0 | 305.8 | ||||||
Other current assets (excluding income taxes) | 76.5 | 42.1 | |||||
Properties and equipment, net | 1,011.7 | 799.1 | |||||
Goodwill | 540.4 | 402.4 | |||||
Technology and other intangible assets, net | 356.5 | 255.4 | |||||
Investment in unconsolidated affiliate | 156.1 | 125.9 | |||||
Other assets (excluding capitalized financing fees) | 111.0 | 37.4 | |||||
Other current liabilities (excluding income taxes, legacy environmental matters, accrued interest, and restructuring) | (189.8 | ) | (158.6 | ) | |||
Other liabilities (excluding income taxes and legacy environmental matters) | (201.5 | ) | (113.7 | ) | |||
Total invested capital | $ | 2,181.9 | $ | 1,695.8 | |||
Adjusted EBIT Return On Invested Capital | 20.9 | % | 24.4 | % |
12 grace.com | Talent | Technology | Trust™ |
Three Months Ended December 31, | |||||||||||||||||||||||||||||||
2018 | 2017 | ||||||||||||||||||||||||||||||
(In millions, except per share amounts) | Pre- Tax | Tax Effect | After- Tax | Per Share | Pre- Tax | Tax Effect | After- Tax | Per Share | |||||||||||||||||||||||
Diluted earnings per share | $ | 1.03 | $ | (1.81 | ) | ||||||||||||||||||||||||||
Pension MTM adjustment and other related costs, net | $ | (15.2 | ) | $ | (5.5 | ) | $ | (9.7 | ) | (0.14 | ) | $ | 49.2 | $ | 17.0 | $ | 32.2 | 0.47 | |||||||||||||
Restructuring and repositioning expenses | 13.6 | 2.9 | 10.7 | 0.16 | 9.7 | 2.9 | 6.8 | 0.10 | |||||||||||||||||||||||
Costs related to legacy product, environmental and other claims | 5.4 | 1.2 | 4.2 | 0.06 | 5.3 | 2.0 | 3.3 | 0.05 | |||||||||||||||||||||||
Income and expense items related to divested businesses | (1.9 | ) | (0.4 | ) | (1.5 | ) | (0.02 | ) | 1.0 | 0.3 | 0.7 | 0.01 | |||||||||||||||||||
Third-party acquisition-related costs | 0.1 | — | 0.1 | — | 2.5 | 1.0 | 1.5 | 0.02 | |||||||||||||||||||||||
Gain (loss) on sale of product line | — | — | — | — | (0.4 | ) | (0.1 | ) | (0.3 | ) | — | ||||||||||||||||||||
Income tax expense related to historical tax attributes(D) | (14.3 | ) | 14.3 | 0.21 | — | — | — | ||||||||||||||||||||||||
Provisional charge related to the U.S. Tax Cuts and Jobs Act of 2017 | 9.4 | (9.4 | ) | (0.14 | ) | (143.0 | ) | 143.0 | 2.11 | ||||||||||||||||||||||
Discrete tax items | 1.4 | (1.4 | ) | (0.02 | ) | (2.2 | ) | 2.2 | 0.03 | ||||||||||||||||||||||
Adjusted EPS(A) | $ | 1.14 | $ | 0.98 |
Year Ended December 31, | |||||||||||||||||||||||||||||||
2018 | 2017 | ||||||||||||||||||||||||||||||
(In millions, except per share amounts) | Pre- Tax | Tax Effect | After- Tax | Per Share | Pre- Tax | Tax Effect | After- Tax | Per Share | |||||||||||||||||||||||
Diluted earnings per share | $ | 2.49 | $ | 0.16 | |||||||||||||||||||||||||||
Costs related to legacy product, environmental and other claims | $ | 84.6 | $ | 18.2 | $ | 66.4 | 0.99 | $ | 30.8 | $ | 11.4 | $ | 19.4 | 0.28 | |||||||||||||||||
Restructuring and repositioning expenses | 46.4 | 10.0 | 36.4 | 0.54 | 26.7 | 8.9 | 17.8 | 0.26 | |||||||||||||||||||||||
Pension MTM adjustment and other related costs, net | (15.2 | ) | (3.5 | ) | (11.7 | ) | (0.17 | ) | 51.1 | 17.4 | 33.7 | 0.49 | |||||||||||||||||||
Third-party acquisition-related costs | 7.3 | 1.6 | 5.7 | 0.08 | 2.9 | 1.1 | 1.8 | 0.03 | |||||||||||||||||||||||
Amortization of acquired inventory fair value adjustment | 6.9 | 1.5 | 5.4 | 0.08 | — | — | — | — | |||||||||||||||||||||||
Loss on early extinguishment of debt | 4.8 | 1.0 | 3.8 | 0.06 | — | — | — | — | |||||||||||||||||||||||
Income and expense items related to divested businesses | (2.3 | ) | (0.5 | ) | (1.8 | ) | (0.03 | ) | 2.3 | 0.8 | 1.5 | 0.02 | |||||||||||||||||||
Accounts receivable reserve—Venezuela | — | — | — | — | 10.0 | 3.5 | 6.5 | 0.10 | |||||||||||||||||||||||
Income tax expense related to historical tax attributes(D) | (25.6 | ) | 25.6 | 0.38 | — | — | — | ||||||||||||||||||||||||
Provisional charge related to the U.S. Tax Cuts and Jobs Act of 2017 | 11.5 | (11.5 | ) | (0.17 | ) | (143.0 | ) | 143.0 | 2.10 | ||||||||||||||||||||||
Discrete tax items | 7.1 | (7.1 | ) | (0.11 | ) | 2.7 | (2.7 | ) | (0.04 | ) | |||||||||||||||||||||
Adjusted EPS(A) | $ | 4.14 | $ | 3.40 |
13 grace.com | Talent | Technology | Trust™ |
(A) | In the above, Grace presents financial information in accordance with U.S. generally accepted accounting principles (U.S. GAAP), as well as the non-GAAP financial information described below. Grace believes that this non-GAAP financial information provides useful supplemental information about the performance of its businesses, improves period-to-period comparability and provides clarity on the information management uses to evaluate the performance of its businesses. In the above charts, Grace has provided reconciliations of these non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP. These non-GAAP financial measures should not be considered as a substitute for financial measures calculated in accordance with U.S. GAAP, and the financial results calculated in accordance with U.S. GAAP and reconciliations from those results should be evaluated carefully. Grace defines these non-GAAP financial measures as follows: |
• | Adjusted EBIT means income from continuing operations attributable to W. R. Grace & Co. shareholders adjusted for interest income and expense; income taxes; costs related to legacy product, environmental and other claims; restructuring and repositioning expenses and asset impairments; pension costs other than service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits; income and expense items related to divested businesses, product lines, and certain other investments; gains and losses on sales of businesses, product lines, and certain other investments; third-party acquisition-related costs and the amortization of acquired inventory fair value adjustment; and certain other items that are not representative of underlying trends. |
• | Adjusted EBITDA means Adjusted EBIT adjusted for depreciation and amortization. |
• | Adjusted EBIT Return On Invested Capital means Adjusted EBIT (on a trailing four quarters basis) divided by the sum of net working capital, properties and equipment and certain other assets and liabilities. |
• | Adjusted Gross Margin means gross margin adjusted for pension-related costs included in cost of goods sold and the amortization of acquired inventory fair value adjustment. |
• | Adjusted EPS means diluted EPS adjusted for costs related to legacy product, environmental and other claims; restructuring and repositioning expenses and asset impairments; pension costs other than service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits; income and expense items related to divested businesses, product lines, and certain other investments; gains and losses on sales of businesses, product lines, and certain other investments; third-party acquisition-related costs and the amortization of acquired inventory fair value adjustment; certain other items that are not representative of underlying trends; and certain discrete tax items and income tax expense related to historical tax attributes. |
• | Adjusted Free Cash Flow means net cash provided by or used for operating activities minus capital expenditures plus cash flows related to legacy product, environmental and other claims; cash paid for restructuring and repositioning; capital expenditures related to repositioning; cash paid for third-party acquisition-related costs; and accelerated payments under defined benefit pension arrangements. |
• | Net Sales, constant currency means the period-over-period change in net sales calculated using the foreign currency exchange rates that were in effect during the previous comparable period. |
• | Organic sales growth means the period-over-period change in net sales excluding the sales growth attributable to acquisitions. |
14 grace.com | Talent | Technology | Trust™ |
(B) | Grace's segment operating income includes only Grace's share of income from consolidated and unconsolidated joint ventures. |
(C) | Certain pension costs include only ongoing costs recognized quarterly, which include service and interest costs, expected returns on plan assets, and amortization of prior service costs/credits. Catalysts Technologies and Materials Technologies segment operating income and corporate costs do not include any amounts for pension expense. Other pension related costs including annual mark-to-market adjustments and actuarial gains and losses are excluded from Adjusted EBIT. These amounts are not used by management to evaluate the performance of Grace's businesses and significantly affect the peer-to-peer and period-to-period comparability of our financial results. Mark-to-market adjustments and actuarial gains and losses relate primarily to changes in financial market values and actuarial assumptions and are not directly related to the operation of Grace's businesses. |
(D) | Grace's historical tax attribute carryforwards (net operating losses and tax credits) unfavorably affect its tax expense with respect to certain provisions of the Tax Cuts and Jobs Act of 2017. To normalize the effective tax rate, an adjustment is made to eliminate the tax expense impact associated with the historical tax attributes. |
15 grace.com | Talent | Technology | Trust™ |
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