MRO Magazine

Ferro Reports Third Quarter Adjusted Earnings from Continuing Operations of $0.24 Per Share


November 4, 2015
By Business Wire News

CLEVELAND

Ferro Corporation (NYSE: FOE, the “Company”) today reported results for the third quarter ended September 30, 2015. Third quarter income from continuing operations attributable to common shareholders was $0.17 per diluted share compared with a loss of $0.03 per diluted share in the third quarter of 2014. On an adjusted basis, earnings per diluted share were $0.24, versus $0.16 for the third quarter of 2014. The results in both years include charges relating to restructuring activities and other one-time items, and in the third quarter of 2014, costs associated with the refinancing of the Company’s debt. Please refer to the supplemental tables at the end of this release for additional information concerning adjusted financial results.

Third quarter 2015 net sales were $279 million, compared with $276 million in the third quarter of 2014. Value-added sales, which exclude precious metal sales, were $271 million in the third quarter of 2015, an increase of 2% versus the same period last year. The increase in value-added sales was primarily driven by sales from the recently acquired Vetriceramici and Nubiola businesses, which contributed approximately $45 million in sales. The sales contribution from the acquisitions was largely offset by the adverse impact of foreign currency translation.

On a constant currency basis, adjusting for the impact of changes in foreign currency, value-added sales increased by 18%, with sales from the recent acquisitions accounting for much of the increase. Excluding the contribution from acquisitions, value-added sales for Ferro’s legacy business declined by 2%, due to lower sales in the Performance Coatings segment. On a constant currency basis, gross profit improved by approximately $13 million with both the legacy business and the acquisitions contributing to the growth.

Adjusted earnings for the third quarter of 2015 benefited from increased sales and improved gross profit, lower selling, general and administrative (“SG&A”) expenses and lower interest expense.

Peter Thomas, Chairman, President and Chief Executive Officer, commented, “Results for the quarter were generally in line with our expectations, despite difficult economic conditions and continuing challenges in certain markets where we do business. We continue to hold the line on costs while pursuing both organic and inorganic growth opportunities, resulting in a 50% increase in adjusted diluted earnings per share for the third quarter.

“Looking ahead to the fourth quarter, we anticipate a continuation of the recent challenging economic conditions. In addition, we expect customers in certain regions will reduce manufacturing activity near the end of the year and reduce their inventory levels. Given this outlook, we expect the legacy business, on a constant currency basis, will be down 1% – 2% in the fourth quarter, primarily due to lower sales in the Performance Coatings segment, driven by weak demand in our legacy tile coatings business. We expect this modest decline to be offset by $40 million – $45 million in sales from our recent acquisitions of Vetriceramici and Nubiola. Given the difficult business conditions anticipated in the fourth quarter, we expect full-year adjusted diluted EPS will be at the low-to-mid point of the range of our prior guidance of $0.82 – $0.87.”

2015 Third-Quarter Results

Ferro reported net sales of $279 million in the third quarter of 2015, compared with net sales of $276 million in the third quarter of 2014. Value-added sales, which exclude precious metal sales, were $271 million in the third quarter of 2015 versus $265 million in the third quarter of the prior year. Consolidated value-added sales increased by 18%, on a constant currency basis, as a result of contributions from the Vetriceramici and Nubiola acquisitions and organic growth in the legacy Pigments, Powders and Oxides and Performance Colors and Glass segments. Constant currency organic growth in these two segments was offset by continued weakness in the tile coatings business within the Performance Coatings segment.

Vetriceramici, a producer of coatings for high-end ceramic tile, which Ferro acquired in December 2014, contributed $15 million to value-added sales growth in the quarter, while Nubiola, a producer of pigments for the coatings and plastics industries, which was acquired in July 2015, contributed $30 million. Almost all of Vetriceramici’s sales are reported in the Performance Coatings segment; Nubiola’s sales are reported in the Pigments, Powders and Oxides segment. Excluding the contribution from acquisitions, value-added sales in Ferro’s legacy business declined by 2%, due to lower sales in the Performance Coatings segment.

Gross profit was $77 million for the quarter compared with $73 million for the third quarter of 2014. The adjusted gross profit margin, as a percent of value-added sales, for the third quarter of 2015 was 28.3%, compared with 27.5% in the prior-year period. Included in the third quarter of 2015 is a nonrecurring purchase accounting adjustment of approximate $6 million related to the acquired Nubiola inventory. Excluding this item, the adjusted gross profit margin was approximately 30.5%.

SG&A expenses were $48 million in the third quarter of 2015 compared with $52 million in the prior-year quarter. Excluding special items in both periods, adjusted SG&A expenses declined by $4 million to $44 million from $48 million. On a constant currency basis, adjusted SG&A expenses increased approximately $2 million to $44 million in the third quarter of 2015, compared with $42 million in the same period last year. Included in the third quarter of 2015 is approximately $7 million of incremental SG&A expenses associated with the Vetriceramici and Nubiola acquisitions. On a constant currency basis, and excluding SG&A expenses associated with acquisitions, adjusted SG&A for the legacy business declined by approximately $6 million. This reduction in SG&A expenses was driven primarily by lower incentive compensation expenses.

Income from continuing operations for the quarter ended September 30, 2015, was $16 million, or $0.17 per diluted share, compared with a loss of $3 million, or a loss of $0.03 per diluted share, in the third quarter of 2014. Adjusted income attributable to common shareholders was $21 million, or $0.24 per diluted share, compared with $14 million, or $0.16 per diluted share, in the prior-year quarter.

The effective tax rate in the third quarter of 2015 was 19.6%. On an adjusted basis, the effective tax rate for the third quarter of 2015 was 21.2%, compared with 36.0% in the same period last year. The reported and adjusted effective tax rates for the third quarter of 2015 include certain discrete tax benefits. Excluding these discrete items, the normalized, effective tax rates would be in the range of 27% – 28%.

Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) were $47 million, compared with $34 million in the same period last year. Adjusted EBITDA margins, as a percentage of value-added sales, were 17.3% in the third quarter of 2015 and 12.7% in the same period last year. The adjusted return on invested capital (“ROIC”), excluding recent acquisitions, was 12.8% for the twelve-month period ending on September 30, 2015, compared with 11.1% for the year ending December 31, 2014.

Stock Repurchase

During the quarter, the Company purchased $7 million in shares of its common stock, or about 580,000 shares. Since the quarter ended September 30, 2015, the Company has repurchased an additional $10 million in shares of common stock, or about an additional 880,000 shares and has approximately $8 million remaining on the current stock repurchase authorization, which was approved during the third quarter of 2015. The Company’s Board of Directors has approved a follow-on share repurchase program under which the Company is authorized to repurchase up to an additional $25 million of the Company’s outstanding shares of commons stock on the open market, including through a Rule 10b5-1 plan, in privately negotiated transactions, or otherwise.

The timing and amount of any share repurchases will be determined by the Company’s management based on its evaluation of market and business conditions, share price, and other factors. The share repurchase program does not obligate the Company to repurchase any dollar amount or number of common shares and may be suspended or discontinued at any time.

Outlook

The Company anticipates global economic conditions will remain challenging, particularly in certain countries where Ferro does business, including Indonesia, China, Brazil, Russia, and Ukraine. Customers in certain regions are also expected to reduce manufacturing activity in the fourth quarter and reduce inventory levels to manage cash requirements. In addition, the Company expects demand for tile products, more broadly, to continue to be soft, including in Europe and the Middle East and North Africa (“MENA”) region.

Given this outlook, the Company is reducing its sales expectation for the remainder of the year but is maintaining its prior full-year adjusted diluted EPS guidance of $0.82 – $0.87.

Ferro expects value-added sales in the fourth quarter to be approximately $255 million – $265 million. Value-added sales, on a constant currency basis, are projected to decline by 1% – 2% for the legacy business, while acquisitions should add $40 million – $45 million in value-added sales. For the fourth quarter of 2015, gross profit, as a percent of value-added sales, is expected to be in the range of 28.5% – 29.0%, and operating profit is expected to be in the range of 10.0% – 10.5% of value-added sales. The Company anticipates the full-year effective tax rate will be approximately 25%.

For the year, the Company expects cash flow from continuing operations, excluding M&A activity and the stock repurchase program, to be in the range of $40 million – $50 million.

Al Salomi Acquisition

On September 3, 2015, the Company announced that it had signed a definitive agreement to acquire 100% of the equity of Egypt-based tile coatings manufacturer Al Salomi for Frits and Glazes (“Al Salomi”) on a cash-free and debt-free basis, for approximately $39 million in cash, subject to working capital and other customary adjustments. The transaction is expected to close in the fourth quarter, subject to customary closing conditions.

Conference Call

The Company will host a conference call to discuss its third-quarter financial results and its current outlook for 2015 on Thursday, November 5, 2015, at 10:00 a.m. Eastern Time. To listen to the call, dial 800-926-9795 if calling from the United States or Canada, or dial 212-231-2925 if calling from outside North America. Please call approximately 10 minutes before the conference call is scheduled to begin.

An audio replay of the call will be available through noon Eastern Time on November 12. To access the replay, dial 800-633-8284 if calling from the United States or Canada, or dial 402-977-9140 if calling from outside North America. Use the program ID #21783939 to access the audio replay.

The conference call also will be broadcast live over the Internet and will be available for replay through November 30, 2015. The live broadcast and replay can be accessed through the Investor Information portion of the Company’s Web site at www.ferro.com. A podcast of the conference call also will be available on the site.

About Ferro Corporation

Ferro Corporation (http://www.ferro.com) is a leading global supplier of technology-based performance materials, including glass-based coatings, pigments and colors, and polishing materials. Ferro products are sold into the building and construction, automotive, appliances, electronics, household furnishings, and industrial products markets. Headquartered in Mayfield Heights, Ohio, the Company has approximately 4,740 employees globally and reported 2014 sales of $1.1 billion.

Cautionary Note on Forward-Looking Statements

Certain statements in this press release may constitute “forward-looking statements” within the meaning of Federal securities laws. These statements are subject to a variety of uncertainties, unknown risks, and other factors concerning the Company’s operations and business environment. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements and that could adversely affect the Company’s future financial performance include the following:

  • Ferro’s ability to complete acquisitions, effectively integrate the businesses and achieve the expected synergies (including the Al Salomi, Nubiola and Vetriceramici transactions), as well as the acquisitions being accretive and Ferro achieving the expected returns on invested capital;
  • Ferro’s ability to successfully introduce new products or enter into new growth markets;
  • demand in the industries into which Ferro sells its products may be unpredictable, cyclical, or heavily influenced by consumer spending;
  • Ferro’s ability to successfully implement and/or administer its cost-saving initiatives, including its restructuring programs, and to produce the desired results;
  • currency conversion rates and economic, social, political, and regulatory conditions around the world;
  • the effectiveness of the Company’s efforts to improve operating margins through sales growth, price increases, productivity gains, and improved purchasing techniques;
  • the impact of interruption, damage to, failure, or compromise of the Company’s information systems;
  • the availability of reliable sources of energy and raw materials at a reasonable cost;
  • Ferro’s presence in certain geographic regions, including Latin America and Asia-Pacific, where it can be difficult to compete lawfully;
  • increasingly aggressive domestic and foreign governmental regulations on hazardous materials and regulations affecting health, safety and the environment;
  • sale of products into highly regulated industries;
  • limited or no redundancy for certain of the Company’s manufacturing facilities and possible interruption of operations at those facilities;
  • competitive factors, including intense price competition;
  • Ferro’s ability to protect its intellectual property or to successfully resolve claims of infringement brought against it;
  • the impact of operating hazards and investments made in order to meet stringent environmental, health and safety regulations;
  • management of Ferro’s general and administrative expenses;
  • Ferro’s multi-jurisdictional tax structure and its ability to reduce its effective tax rate, including the impact of the Company’s performance on its ability to utilize significant deferred tax assets;
  • the effectiveness of strategies to increase Ferro’s return on invested capital, and the short-term impact that acquisitions may have on return on invested capital;
  • 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 new business processes and information systems, including the outsourcing of functions to third parties;
  • exposure to lawsuits in the normal course of business;
  • Ferro’s borrowing costs could be affected adversely by interest rate increases;
  • 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;
  • liens on the Company’s assets by its lenders affect its ability to dispose of property and businesses;
  • risks and uncertainties associated with intangible assets;
  • Ferro may not pay dividends on its common stock in the foreseeable future;
  • amount and timing of any repurchase of common stock; and
  • other factors affecting the Company’s business that are beyond its control, including disasters, accidents and governmental actions.

The risks and uncertainties identified above are not the only risks the Company faces. Additional risks and uncertainties not presently known to the Company or that it currently believes to be immaterial also may adversely affect the Company. Should any known or unknown risks and uncertainties develop into actual events, these developments could have material adverse effects on our business, financial condition and results of operations.

This release contains time-sensitive information that reflects management’s best analysis only as of the date of this release. The Company does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information, or circumstances that arise after the date of this release. Additional information regarding these risks can be found in our Annual Report on Form 10-K for the period ended December 31, 2014.

 
Table 1
Ferro Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (unaudited)
       
(Dollars in thousands, except per share amounts) Three Months Ended Nine Months Ended
September 30, September 30,
2015 2014 2015 2014
 
Net sales $ 279,365 $ 275,754 $ 810,351 $ 850,698
Cost of sales   202,337     202,950     585,048     624,487  
Gross profit 77,028 72,804 225,303 226,211
Selling, general and administrative expenses 48,417 51,716 150,568 152,345
Restructuring and impairment charges 3,844 1,521 5,469 7,829
Other expense (income):
Interest expense 3,877 3,635 10,137 12,819
Interest earned (97 ) (23 ) (191 ) (52 )
Loss on debt extinguishment 14,352 14,352
Foreign currency losses (gains), net 1,203 (330 ) 5,758 1,043
Miscellaneous expense (income), net   467     (180 )   705     4,038  
Income before income taxes 19,317 2,113 52,857 33,837
Income tax expense   3,792     4,680     11,930     12,347  
Income (loss) from continuing operations 15,525 (2,567 ) 40,927 21,490
(Loss) income from discontinued operations, net of income taxes   (19,086 )   50,124     (28,688 )   53,188  
Net (loss) income (3,561 ) 47,557 12,239 74,678
Less: Net income (loss) attributable to noncontrolling interests   498     92     (1,271 )   49  
Net (loss) income attributable to Ferro Corporation common shareholders $ (4,059 ) $ 47,465   $ 13,510   $ 74,629  
 
Earnings (loss) per share attributable to Ferro Corporation common shareholders:
Basic earnings (loss):
Continuing operations $ 0.17 $ (0.03 ) $ 0.48 $ 0.25
Discontinued operations   (0.22 )   0.58     (0.33 )   0.61  
$ (0.05 ) $ 0.55   $ 0.15   $ 0.86  
 
Diluted earnings (loss):
Continuing operations $ 0.17 $ (0.03 ) $ 0.48 $ 0.24
Discontinued operations   (0.22 )   0.58     (0.32 )   0.60  
$ (0.05 ) $ 0.55   $ 0.16   $ 0.84  
Shares outstanding:
Weighted-average basic shares 87,130 86,979 87,169 86,898
Weighted-average diluted shares 88,400 86,979 88,413 88,338
End-of-period basic shares 86,700 86,986 86,700 86,986
 
 
Table 2
Ferro Corporation and Subsidiaries
Segment Net Sales and Gross Profit (unaudited)
       
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30, September 30,
2015 2014 2015 2014
Segment Net Sales
Performance Coatings $ 128,745 $ 144,900 $ 404,991 $ 446,928
Performance Colors and Glass 92,168 102,727 290,361 312,127
Pigments, Powders and Oxides   58,452   28,127     114,999     91,643  
Total segment net sales $ 279,365 $ 275,754   $ 810,351   $ 850,698  
 
Segment Gross Profit
Performance Coatings $ 32,107 $ 31,198 $ 96,126 $ 102,437
Performance Colors and Glass 31,662 33,945 99,540 103,669
Pigments, Powders and Oxides 13,179 8,285 30,325 22,948
Other costs of sales   80   (624 )   (688 )   (2,843 )
Total gross profit $ 77,028 $ 72,804 $ 225,303 $ 226,211
 
Selling, general and administrative expenses $ 48,417 $ 51,716 $ 150,568 $ 152,345
Restructuring and impairment charges 3,844 1,521 5,469 7,829
Other expense, net   5,450   17,454     16,409     32,200  
Income before income taxes $ 19,317 $ 2,113   $ 52,857   $ 33,837  
 
   
Table 3
Ferro Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
 
(Dollars in thousands) September 30, December 31,
2015 2014
ASSETS
Current assets
Cash and cash equivalents $ 69,493 $ 140,500
Accounts receivable, net 252,095 236,749
Inventories 193,051 158,368
Deferred income taxes 9,051 7,532
Other receivables 36,086 25,635
Other current assets 15,054 17,912
Current assets held-for-sale   16,844   27,087
Total current assets 591,674 613,783
Other assets
Property, plant and equipment, net 258,870 212,642
Goodwill 126,923 93,733
Intangible assets, net 87,070 57,309
Deferred income taxes 43,469 39,712
Other non-current assets 63,017 60,982
Non-current assets held-for-sale   23,728   18,737
Total assets $ 1,194,751 $ 1,096,898
 
LIABILITIES AND EQUITY
Current liabilities
Loans payable and current portion of long-term debt $ 9,788 $ 8,382
Accounts payable 130,092 129,236
Accrued payrolls 28,656 36,051
Accrued expenses and other current liabilities 62,021 53,133
Current liabilities held-for-sale   6,067   10,016
Total current liabilities 236,624 236,818
Other liabilities
Long-term debt, less current portion 416,491 303,629
Postretirement and pension liabilities 154,341 167,772
Other non-current liabilities 72,917 50,359
Non-current liabilities held-for-sale   2,134   2,304
Total liabilities 882,507 760,882
Equity
Total Ferro Corporation shareholders’ equity 304,012 324,384
Noncontrolling interests   8,232   11,632
Total liabilities and equity $ 1,194,751 $ 1,096,898
 
       
Table 4
Ferro Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
 
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30, September 30,
2015 2014 2015 2014
Cash flows from operating activities
Net income $ (3,561 ) $ 47,557 $ 12,239 $ 74,678
Gain on sale of assets and business 300 (53,701 ) 1,288 (50,128 )
Depreciation and amortization 16,145 8,219 32,877 31,465
Restructuring and impairment 11,314 7,193 11,282 12,156
Devaluation of Venezuela 3,343 1,094
Loss on extinguishment of debt 14,352 14,352
Accounts receivable 14,735 45,726 (3,022 ) 3,195
Inventories (2,379 ) 7,943 (1,226 ) (26,003 )
Accounts payable (8,134 ) (11,757 ) (9,645 ) 13,234
Other changes in current assets and liabilities, net 15,029 (8,458 ) (5,757 ) (7,542 )
Other adjustments, net   (15,885 )   (17,844 )   (9,881 )   (24,601 )
Net cash provided by operating activities 27,564 39,230 31,498 41,900
 
Cash flows from investing activities
Capital expenditures for property, plant and equipment and other long lived assets (9,697 ) (8,191 ) (36,251 ) (40,996 )
Proceeds from sale of businesses, net 88,337 88,337
Proceeds from sale of assets 19 156 144 5,911
Business acquisitions, net of cash acquired   (161,518 )   (6,726 )   (166,997 )   (6,726 )
Net cash (used in) provided by investing activities (171,196 ) 73,576 (203,104 ) 46,526
 
Cash flows from financing activities
Net borrowings (repayments) under loans payable (1) 2,722 (432 ) 1,791 (42,529 )
Proceeds from revolving credit facility 41,773 7,262 146,773 377,844
Principal payments on term loan facility (750 ) (2,250 )
Proceeds from term loan facility 300,000 300,000
Principal payments on revolving credit facility (30,737 ) (104,831 ) (30,737 ) (387,049 )
Repayment of 7.875% Senior Notes (260,451 ) (260,451 )
Payment of debt issuance costs (6,834 ) (6,834 )
Purchase of treasury stock (6,998 ) (6,998 )
Other financing activities   (979 )   (311 )   (1,160 )   54  
Net cash provided by (used in) financing activities 5,031 (65,597 ) 107,419 (18,965 )
Effect of exchange rate changes on cash and cash equivalents   (3,319 )   (2,112 )   (6,820 )   (2,503 )
(Decrease) increase in cash and cash equivalents (141,920 ) 45,097 (71,007 ) 66,958
Cash and cash equivalents at beginning of period   211,413     50,189     140,500     28,328  
Cash and cash equivalents at end of period $ 69,493   $ 95,286   $ 69,493   $ 95,286  
 
Cash paid during the period for:
Interest $ 4,096 $ 11,737 $ 11,141 $ 23,863
Income taxes $ 8,022 $ 3,171 $ 17,504 $ 4,329
 
      (1) Includes cash flows related to our domestic accounts receivable program and loans payable to banks.
 
             
Table 5
Ferro Corporation and Subsidiaries
Supplemental Information
Reconciliation of Reported Income to Adjusted Income
For the Three Months Ended September 30 (unaudited)
 
(Dollars in thousands, except per share amounts)

Cost of
sales

Selling
general and
administrative
expenses

Restructuring
and
impairment
charges

Other
expense, net

Income
tax
expense
(benefit)

Net (loss)
income
attributable
to common
shareholders

Diluted
(loss)
earnings
per share

                                       
2015
 
As reported $ 202,337 $ 48,417 $ 3,844 $ 5,450 $ 3,792 $ (4,059 ) $ (0.05 )
Special items:
Restructuring (3,844 ) 1,370 2,474 0.03
Other1 284 (4,845 ) 727 3,834 0.04
Discontinued operations                     19,086     0.22  
Total special items3   284   (4,845 )   (3,844 )       2,097     25,394     0.29  
As adjusted $ 202,621 $ 43,572   $   $ 5,450   $ 5,889   $ 21,335   $ 0.24  
 
                                       
2014
 
As reported $ 202,950 $ 51,716 $ 1,521 $ 17,454 $ 4,680 $ 47,465 $ 0.55
Special items:
Restructuring (1,521 ) 548 973 0.01
Other1 (4,206 ) (14,352 ) 6,681 11,877 0.14
Taxes2 (3,919 ) 3,919 0.04
Discontinued operations                     (50,124 )   (0.58 )
Total special items3     (4,206 )   (1,521 )   (14,352 )   3,309     (33,354 )   (0.39 )
As adjusted $ 202,950 $ 47,510   $   $ 3,102   $ 7,989   $ 14,111   $ 0.16  
 
(1)   Within “Selling, general and administrative expenses” in 2015, the adjustment primarily includes certain business development activities, and in 2014, the adjustment primarily includes certain business development activities and costs associated with certain reorganization projects. Within “Other expense, net” in 2014, the adjustment is debt extinguishment costs.
(2) Adjustment of adjusted earnings to a normalized 36% tax rate in 2014. In 2015, the tax rate reflects the reported tax rate, adjusted for pro forma adjustments being tax effected at the respective statutory rate where the item originated.
(3) Due to rounding, total earnings per share related to special items does not always add to the total adjusted earnings per share.
It should be noted that adjusted income, earnings per share and other adjusted items referred above are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). The adjusted income, earnings per share and other adjusted items presented above exclude certain special items including restructuring charges, certain business development activities, debt extinguishment costs and discontinued operations. We believe this data provides investors with additional information on the underlying operations of the business and enables period-to-period comparability of financial performance. In addition, these measures are used in the calculation of certain incentive compensation programs for selected employees.
 
             
Table 6
Ferro Corporation and Subsidiaries
Supplemental Information
Reconciliation of Reported Income to Adjusted Income
For the Nine Months Ended September 30 (unaudited)
 
(Dollars in thousands, except per share amounts)

Cost of
sales

Selling
general and
administrative
expenses

Restructuring
and
impairment
charges

Other
expense,
net

Income
tax
expense
(benefit)

Net income
(loss)
attributable
to common
shareholders

Diluted
earnings
(loss) per
share

                                       
2015
 
As reported $ 585,048 $ 150,568 $ 5,469 $ 16,409 $ 11,930 $ 13,510 $ 0.16
Special items:
Restructuring (5,469 ) 1,855 3,614 0.04
Other1 (2,470 ) (11,242 ) (4,763 ) 4,661 13,814 0.16
Discontinued operations 28,688 0.32
Noncontrolling interest                       (1,453 )   (0.02 )
Total special items3   (2,470 )   (11,242 )   (5,469 )   (4,763 )   6,516     44,663     0.50  
As adjusted $ 582,578   $ 139,326   $   $ 11,646   $ 18,446   $ 58,173   $ 0.66  
 
                                       
2014
 
As reported $ 624,487 $ 152,345 $ 7,829 $ 32,200 $ 12,347 $ 74,629 $ 0.84
Special items:
Restructuring (7,829 ) 2,818 5,011 0.06
Other1 322 (6,650 ) (19,526 ) 9,307 16,547 0.19
Taxes2 (166 ) 166
Discontinued operations (53,188 ) (0.60 )
Noncontrolling interest                       (461 )    
Total special items3   322     (6,650 )   (7,829 )   (19,526 )   11,959     (31,925 )   (0.35 )
As adjusted $ 624,809   $ 145,695   $   $ 12,674   $ 24,306   $ 42,704   $ 0.49  
 
(1)   Within “Cost of sales” in 2015, the adjustment primarily includes impacts of currency related items in Venezuela. Within “Selling general and administrative expenses” in 2015, the adjustment primarily includes certain business development activities, and in 2014, the adjustment primarily includes certain business development activities and costs associated with certain reorganization projects. Within “Other expense, net” in 2015, the adjustment primarily includes the impact of the loss on a foreign currency contract associated with the purchase of Nubiola and the impacts of currency related items in Venezuela, and it 2014, the adjustment primarily includes debt extinguishment costs, impacts of currency related items in Venezuela and gains/losses on asset sales.
(2) Adjustment of adjusted earnings to a normalized 36% tax rate in 2014. In 2015, the tax rate reflects the reported tax rate, adjusted for pro forma adjustments being tax effected at the respective statutory rate where the item originated.
(3) Due to rounding, total earnings per share related to special items does not always add to the total adjusted earnings per share.
It should be noted that adjusted income, earnings per share and other adjusted items referred above are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). The adjusted income, earnings per share and other adjusted items presented above exclude certain special items including restructuring charges, certain business development activities, the overall financial impact of currency related items in Venezuela, debt extinguishment costs and discontinued operations. We believe this data provides investors with additional information on the underlying operations of the business and enables period-to-period comparability of financial performance. In addition, these measures are used in the calculation of certain incentive compensation programs for selected employees.
 
       
Table 7
Ferro Corporation and Subsidiaries
Supplemental Information
Reconciliation of Segment Net Sales Excluding Precious Metals to Net Sales
and Schedule of Adjusted Gross Profit (unaudited)
 
(Dollars in thousands) Three months ended Nine months ended
September 30, September 30,
2015 2014 2015 2014
 
Performance Coatings $ 128,745 $ 144,900 $ 404,991 $ 446,928
Performance Colors and Glass 83,578 91,970 260,940 280,740
Pigments, Powders and Oxides   58,433     27,754     114,873     86,074  
Total segment net sales excluding precious metals 270,756 264,624 780,804 813,742
Sales of precious metals   8,609       11,130       29,547       36,956    
Total net sales $ 279,365     $ 275,754     $ 810,351     $ 850,698    
 
Net sales excluding precious metals $ 270,756 $ 264,624 $ 780,804 $ 813,742
Adjusted cost of sales1 202,621 202,950 582,578 624,809
Cost of sales from precious metals   (8,609 )     (11,130 )     (29,547 )     (36,956 )  
Adjusted cost of sales excluding precious metals   194,012       191,820       553,031       587,853    
Adjusted gross profit $ 76,744     $ 72,804     $ 227,773     $ 225,889    
Adjusted gross profit percentage 28.3 % 27.5 % 29.2 % 27.8 %
 
(1)   Primarily includes the adjustment for impacts of currency related items in Venezuela in the nine months ended September 30, 2015 and costs associated with closed sites/product lines in the nine months ended September 30, 2014.
It should be noted that segment net sales excluding precious metals, adjusted cost of sales and adjusted gross profit are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). The sales are presented here to exclude the impact of volatile precious metal raw material costs. The precious metal raw material costs are generally passed through directly to customers with minimal margin. Adjusted gross profit and adjusted cost of sales excludes special items, primarily comprised of certain business development activities, and the overall financial impact of currency related items in Venezuela. We believe this data provides investors with additional useful information on the underlying operations of the business and enables period-to-period comparability of financial performance.
 
       
Table 8
Ferro Corporation and Subsidiaries
Supplemental Information
Constant Currency Schedule of Adjusted Operating Profit (unaudited)
 
Three months ended
(Dollars in thousands) September 30,
2014

Adjusted
2014 (1)

2015

2015 vs
Adjusted 2014

Segment net sales excluding precious metals
Performance Coatings $ 144,900 $ 121,770 $ 128,745 $ 6,975
Performance Colors and Glass 91,970 81,975 83,578 1,603
Pigments, Powders and Oxides   27,754     26,298     58,433   32,135
Total segment net sales excluding precious metals $ 264,624   $ 230,043   $ 270,756 $ 40,713
 
 
Segment gross profit
Performance Coatings $ 31,198 $ 26,600 $ 32,107 $ 5,507
Performance Colors and Glass 33,945 30,545 31,662 1,117
Pigments, Powders and Oxides 8,285 7,964 13,179 5,215
Other costs of sales (624 ) (615 ) 80 695
Total gross profit $ 72,804   $ 64,494   $ 77,028 $ 12,534
 
Adjusted gross profit 72,804 64,494 76,744 12,250
 
Selling, general and administrative expenses 51,716 46,630 48,417 1,787
 
Adjusted selling, general and administrative expenses 47,510 42,446 43,572 1,126
 
Operating profit 21,088 17,864 28,611 10,747
 
Adjusted operating profit 25,294 22,048 33,172 11,124
 
(1)   Reflects the remeasurement of 2014 reported and adjusted local currency results using 2015 exchange rates, resulting in constant currency comparative figures to 2015 reported and adjusted results. See Table 5 for pro forma adjustments applicable to the three month comparative periods, respectively.
It should be noted that the adjusted 2014 results is a financial measure not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). Adjusted 2014 results is remeasured using the respective 2015 exchange rate. We believe this data provides investors with additional information on the underlying operations of the business and enables period-to-period comparability of financial performance.
 
       
Table 9
Ferro Corporation and Subsidiaries
Supplemental Information
Constant Currency Schedule of Adjusted Operating Profit (unaudited)
 
Nine months ended
(Dollars in thousands) September 30,
2014

Adjusted
2014 (1)

2015

2015 vs
Adjusted 2014

Segment net sales excluding precious metals
Performance Coatings $ 446,928 $ 380,103 $ 404,991 $ 24,888
Performance Colors and Glass 280,740 250,969 260,940 9,971
Pigments, Powders and Oxides   86,074     81,394     114,873     33,479
Total segment net sales excluding precious metals $ 813,742   $ 712,466   $ 780,804   $ 68,338
 
 
Segment gross profit
Performance Coatings $ 102,437 $ 87,969 $ 96,126 $ 8,157
Performance Colors and Glass 103,669 93,296 99,540 6,244
Pigments, Powders and Oxides 22,948 22,001 30,325 8,324
Other costs of sales (2,843 ) (2,829 ) (688 ) 2,141
Total gross profit $ 226,211   $ 200,437   $ 225,303   $ 24,866
 
Adjusted gross profit 225,889 200,703 227,773 27,070
 
Selling, general and administrative expenses 152,345 141,020 150,568 9,548
 
Adjusted selling, general and administrative expenses 145,695 134,588 139,326 4,738
 
Operating profit 73,866 59,417 74,735 15,318
 
Adjusted operating profit 80,194 66,115 88,447 22,332
 
(1)   Reflects the remeasurement of 2014 reported and adjusted local currency results using 2015 exchange rates, resulting in constant currency comparative figures to 2015 reported and adjusted results. See Table 6 for pro forma adjustments applicable to the nine month comparative periods, respectively.
It should be noted that the adjusted 2014 results is a financial measure not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). Adjusted 2014 results is remeasured using the respective 2015 exchange rate. We believe this data provides investors with additional information on the underlying operations of the business and enables period-to-period comparability of financial performance.
 
       
Table 10
Ferro Corporation and Subsidiaries
Reconciliation of Net Income to Adjusted EBITDA (unaudited)
 
(Dollars in thousands) Three months ended Nine months ended
September 30, September 30,
2015 2014 2015 2014
 
Net (loss) income attributable to Ferro Corporation common shareholders $ (4,059 ) $ 47,465 $ 13,510 $ 74,629
Loss (income) from discontinued operations, net of taxes 19,086 (50,124 ) 28,688 (53,188 )
Interest expense 3,877 3,635 10,137 12,819
Income tax expense 3,792 4,680 11,930 12,347
Depreciation and amortization 16,145 9,988 32,877 27,284
Less interest amortization expense and other (289 ) (1,990 ) (875 ) (2,722 )
Cost of sales adjustments (284 ) 2,470 (322 )
SG&A Adjustments 4,845 4,206 11,242 6,650
Restructuring and Impairment 3,844 1,521 5,469 7,829
Other expense adjustments 14,352 4,763 19,526
Noncontrolling interest adjustments               (1,453 )     (461 )  
Adjusted EBITDA $ 46,957     $ 33,733     $ 118,758     $ 104,391    
 
Net sales excluding precious metals $ 270,756 $ 264,624 $ 780,804 $ 813,742
Adjusted EBITDA as a % of net sales excluding precious metals 17.3 % 12.7 % 15.2 % 12.8 %
 
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). Adjusted EBITDA is net income before the effects of discontinued operations, interest, income taxes, depreciation and amortization, non-recurring adjustments to cost of sales, non-recurring adjustments to SG&A, restructuring and impairment charges, and non-recurring adjustments to miscellaneous income and expense. We believe this data provides investors with additional information on the underlying operations of the business and enables period-to-period comparability of financial performance. In addition, these measures are used in the calculation of certain incentive compensation programs for selected employees.
 
   
Table 11
Ferro Corporation and Subsidiaries
Supplemental Information
Return on Invested Capital
For the Rolling Twelve Months Ended (unaudited)
 
(Dollars in thousands) September 30, December 31,
2015 2014
 
Gross profit $ 284,178 $ 285,085
Selling, general and administrative expenses 284,985   286,762  
Total operating loss (807 ) (1,677 )
Pro forma adjustments1 108,114   101,624  
Adjusted operating profit before tax 107,307 99,947
Less: Tax at pro forma rate2   (29,509 )   (35,981 )
Net operating profit after tax including Vetriceramici and Nubiola $ 77,798   $ 63,966  
 
Vetriceramici and Nubiola NOPAT gain (loss)   5,165     (536 )
Net operating profit after tax excluding Vetriceramici and Nubiola $ 72,633   $ 64,502  
 
 
Equity 312,244 336,016
Equity – discontinued operations (32,371 ) (33,507 )
Debt 426,279 312,011
Off balance sheet precious metal leases 23,157 26,535
Postretirement and pension liabilities 154,341 167,772
Environmental liabilities 13,684 14,440
Cash   (69,493 )   (140,500 )
Invested capital including Vetriceramici and Nubiola $ 827,841   $ 682,767  
 
Return on invested capital including Vetriceramici and Nubiola9.4%9.4%
 
Less: Vetriceramici and Nubiola invested capital   258,702     100,430  
Invested capital excluding Vetriceramici and Nubiola $ 569,139   $ 582,337  
 
Return on invested capital excluding Vetriceramici and Nubiola12.8%11.1%
 
(1)   Primarily includes adjustments for the annual remeasurement of our pension and other postretirement benefit plans, certain business development activities, currency related items in Venezuela and costs associated with certain reorganization projects.
(2) Operating profit is tax effected at 27.5% for the rolling twelve months ended September 30, 2015, as this represents a normalized tax rate reflecting our current mix of business in 2015. This tax rate deviates from our full year 2015 estimate due to certain discrete items in 2015 that would not be considered normalized, as well as certain tax planning opportunities to be implemented. The pro forma tax rate in 2014 was 36%.
It should be noted that adjusted operating profit and return on invested capital are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). Adjusted operating profit is operating profit before the effects of discontinued operations, non-recurring adjustments to cost of sales, and non-recurring adjustments to SG&A. We believe this data provides investors with additional information on the underlying operations of the business and enables period-to-period comparability of financial performance. In addition, these measures are used in the calculation of certain incentive compensation programs for selected employees.

Ferro Corporation
Investor Contact:
John Bingle, 216-875-5411
Treasurer and Director of Investor Relations
john.bingle@ferro.com
or
Media Contact:
Mary Abood, 216-875-5401
Director, Corporate Communications
mary.abood@ferro.com