Ferro Reports Second Quarter Adjusted Earnings from Continuing Operations of $0.20 Per Share

  • Value-Added Sales Increase 5% on a Constant Currency Basis
  • Adjusted Operating Profit Increases 16% on a Constant Currency Basis
  • Profitability Metrics Continue to Improve:
    • Adjusted Gross Profit Margin Increases to 30.3% from 27.8%
    • Adjusted EBITDA Margin Improves to 14.5% from 13.8%
  • Full-Year 2015 Adjusted EPS Guidance Reduced to $0.82 - $0.87 Based on Reduced Sales Expectations for Performance Coatings Segment in Emerging Markets
  • The Board of Directors Authorizes the Repurchase of up to $25 Million of Company’s Common Stock

CLEVELAND--()--Ferro Corporation (NYSE: FOE, the “Company”) today reported results for the second quarter ended June 30, 2015. Second quarter income from continuing operations attributable to common shareholders was $0.14 per diluted share compared with $0.15 per diluted share in the second quarter of 2014. On an adjusted basis, earnings per diluted share were $0.20, versus $0.19 for the second quarter of 2014. The results in both years include a number of charges relating to, among other items, restructuring activities. Please refer to the supplemental tables at the end of this release for additional information concerning adjusted financial results.

Second quarter 2015 net sales were $268 million, while value-added sales, which exclude precious metal sales, were $257 million. In the same period last year, net sales and value-added sales were $294 million and $282 million, respectively. On a constant currency basis, value-added sales increased 5%. The impact of foreign currency translation reduced value-added sales by approximately $36 million.

On a constant currency basis, all three business segments recorded increased value-added sales: Performance Coatings increased by 5%; Performance Colors and Glass increased by 3%; and Pigments, Powders and Oxides increased by 9%. Vetriceramici, a producer of coatings for high-end ceramic tile, which Ferro acquired in December 2014, contributed $17 million to value-added sales growth in the quarter, primarily in the Performance Coatings segment. Excluding the value-added sales contribution from Vetriceramici, Ferro’s base business declined by 2%, due solely to reduced sales in the Performance Coatings Segment. On a constant currency basis, all three segments also delivered increased gross profit, compared with the second quarter of 2014.

Adjusted earnings for the second quarter of 2015 benefited from increased sales and improved gross profit in all three segments, on a constant currency basis, and lower interest expense partially offset by increased selling, general and administrative (“SG&A”) expenses, primarily related to increased incentive compensation costs.

Peter Thomas, Chairman, President and Chief Executive Officer, commented, “We continue to make progress on creating value through organic and inorganic sales growth and by improving our profit margins. For the quarter, value-added sales increased by 5% on a constant currency basis, aided by the Vetriceramici acquisition and organic growth in the Pigments, Powders, and Oxides and Performance Colors and Glass segments.

“In addition, we continue to drive improved profitability, with our gross profit margin increasing by approximately 250 basis points over the prior year to 30.3% and our adjusted EBITDA margin improving by approximately 75 basis points to 14.5%. Adjusted operating profit, on a constant currency basis, improved by 16% to $29 million. Adjusted for currency, we were able to achieve sales growth and profitability improvement despite continued economic weakness in certain regions where we conduct business, including in Asia and the Middle East and North Africa (“MENA”) region.”

Mr. Thomas continued, “In early July, we completed our €149 million acquisition of Nubiola, a worldwide producer of specialty inorganic pigments and the world’s largest producer of Ultramarine Blue. The acquisition substantially improves our position in inorganic pigments by expanding our product portfolio and geographic reach. We expect the transaction to add approximately $55 million - $60 million to our sales in the second half of 2015 and to be immediately accretive to earnings. Meanwhile, we are actively pursuing additional business opportunities to further strengthen our position in glass-based coatings and color solutions for industrial applications.

“Looking ahead, we anticipate economic conditions will continue to be challenging in certain regions, including Asia and in certain countries in Eastern Europe, including Russia and Ukraine. We expect this weakness to be offset by modest economic growth in the United States and Western Europe and an improving outlook for MENA. Despite the challenging economic conditions, particularly for our tile business, we expect to maintain profit margins, and will continue to execute against our strategy of pursuing value-creating growth while being keenly focused on cost controls.”

2015 Second-Quarter Results

Ferro reported net sales of $268 million in the second quarter of 2015, compared with net sales of $294 million in the second quarter of 2014. Value-added sales, which exclude precious metal sales, were $257 million in the second quarter of 2015 versus $282 million in the second quarter of the prior year. Consolidated value-added sales, reported on a constant currency basis, increased by 5%.

Gross profit was $78 million for the quarter, consistent with $78 million for the second quarter of 2014. Special charges in both periods were not significant. The adjusted gross profit margin, as a percent of value-added sales, for the second quarter of 2015 was 30.3% compared with 27.8% in the prior-year period. On a constant currency basis, adjusted gross profit increased by $9 million, or 13%.

SG&A expenses were $53 million in the second quarter of 2015 compared with $49 million in the prior-year quarter. Excluding special items in both periods, SG&A expenses increased to $49 million from $47 million. On a constant currency basis, and excluding SG&A expenses associated with acquisitions, adjusted SG&A for the historical business increased by approximately $1 million. The change in SG&A expenses for the quarter was primarily associated with increased incentive compensation expenses.

Income from continuing operations for the quarter ended June 30, 2015, was $12 million, or $0.14 per diluted share, compared with $14 million, or $0.15 per diluted share, in the second quarter of 2014. Adjusted income attributable to common shareholders was $17 million, or $0.20 per diluted share, compared with $17 million, or $0.19 per diluted share, in the prior-year quarter.

During 2014, the Company used a proforma effective tax rate of 36% in calculating adjusted earnings. For 2015, the Company is using an effective rate that is reflective of the progress being made on strategic tax restructuring projects and more in line with statutory tax rates in the legal entities where business is conducted. As a result, the adjusted effective tax rate for the second quarter of 2015 was 32.9% compared with 36.0% in the same period last year. The adjusted effective tax rate for the second quarter of 2015 was higher than the 15.2% for the first quarter of 2015. The higher rate in the second quarter of 2015 compared with the first quarter reflects recognizing tax expense on a year-to-date basis consistent with the Company’s expected rate for the full year of 2015. The Company continues to forecast its full-year 2015 effective tax rate to be approximately 25%.

Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) were $37 million compared with $39 million in the same period last year. Adjusted EBITDA margins, as a percentage of value-added sales, were 14.5% in the second quarter of 2015 and 13.8% in the same period last year.

Outlook

The Company expects continued global growth, but at a relatively low rate. Economic conditions in certain developing economies, including Indonesia, China, and Thailand, and certain Eastern European countries, including Russia and Ukraine, are expected to remain weak throughout the remainder of 2015, adversely impacting legacy business sales growth. In addition, the Company anticipates that foreign currency translation will continue to have a significant negative impact on reported results.

Including the recent acquisition of Nubiola and adjusting for expected foreign currency difference between periods, the Company expects second-half constant currency value-added sales growth of approximately 20% - 22% relative to the same period in 2014. Value-added sales in the second half of 2014 were $517 million, but would have been approximately $60 million lower if recorded using current foreign currency rate expectations. From this adjusted base of approximately $457 million, the legacy businesses are expected to add approximately 1% - 2% of organic sales growth, with acquisitions adding $85 million - $90 million. Precious metal sales in the second half are expected to be in the range of $15 million - $20 million.

For the second half of 2015, gross profit, as a percent of value-added sales, is expected to be in the range of 29.0% - 29.5%, and operating profit is expected to be in the range of 11.5% - 12.0% of value-added sales. The adjusted effective tax rate for the second quarter of 2015 was 32.9%, but the Company anticipates the full-year effective tax rate will be approximately 25%.

Given these expectations, the Company anticipates full-year adjusted earnings per share to be in the range of $0.82 - $0.87 compared with prior guidance of $0.89 - $0.96 per diluted share.

Stock Repurchase

The Company’s Board of Directors has approved a stock repurchase program under which the Company is authorized to repurchase up to $25 million of the Company’s outstanding shares of common stock on the open market, including through a Rule 10b5-1 plan, in privately negotiated transactions, or otherwise.

The timing and amount of any stock repurchases will be determined by the Company’s management based on its evaluation of market and business conditions, share price, and other factors. The stock 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.

Nubiola Acquisition

On July 7, 2015, the Company announced that it had completed the acquisition of the Nubiola Group (“Nubiola”) on a cash-free and debt-free basis for €149 million in cash, subject to customary working capital and other purchase price adjustments. Nubiola is a worldwide producer of specialty inorganic pigments and the world’s largest producer of Ultramarine Blue, a pigment for the plastics and construction industries, highly valued for its durability, unique color attributes and whitening capability. Nubiola also produces specialty Iron Oxides, Chrome Oxide Greens and Corrosion Inhibitors. Nubiola employs approximately 750 people around the world, including temporary employees, and has production facilities in Spain, Colombia, Romania, and India and a joint venture in China. Nubiola had 2014 annual sales of €105 million and achieved compound annual growth of 4.1% over the last three years.

Conference Call

The Company will host a conference call to discuss its second-quarter financial results and its current outlook for 2015 on Thursday, July 30, 2015, at 10:00 a.m. Eastern Time. To listen to the call, dial 800-940-2599 if calling from the United States or Canada, or dial 212-271-4651 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 August 6. 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 #21772542 to access the audio replay.

The conference call also will be broadcast live over the Internet and will be available for replay through August 31, 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 4,710 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 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, regulatory, and political 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 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 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;
  • The 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 Six Months Ended
June 30, June 30,
2015 2014 2015 2014
 

Net sales

$ 268,214 $ 294,217 $ 530,986 $ 574,944
Cost of sales   190,574     215,763     382,711     421,537  
Gross profit 77,640 78,454 148,275 153,407
Selling, general and administrative expenses 52,695 49,260 102,151 100,629
Restructuring and impairment charges 1,116 1,958 1,625 6,308
Other expense (income):
Interest expense 3,110 4,673 6,260 9,184
Interest earned (57 ) (14 ) (94 ) (29 )
Foreign currency losses, net 2,827 27 4,555 1,373
Miscellaneous (income) expense, net   (161 )   3,456     238     4,218  

Income before income taxes

18,110 19,094 33,540 31,724
Income tax expense   5,679     5,186     8,138     7,667  
Income from continuing operations 12,431 13,908 25,402 24,057
(Loss) income from discontinued operations, net of income taxes   (5,646 )   (3,520 )   (9,602 )   3,064  
Net income 6,785 10,388 15,800 27,121
Less: Net income (loss) attributable to noncontrolling interests   186     429     (1,769 )   (43 )
Net income attributable to Ferro Corporation common shareholders $ 6,599   $ 9,959   $ 17,569   $ 27,164  
 

Earnings (loss) per share attributable to Ferro Corporation common shareholders:

Basic earnings (loss):
Continuing operations $ 0.14 $ 0.15 $ 0.31 $ 0.28
Discontinued operations   (0.06 )   (0.04 )   (0.11 )   0.03  
$ 0.08   $ 0.11   $ 0.20   $ 0.31  
 
Diluted earnings (loss):
Continuing operations $ 0.14 $ 0.15 $ 0.31 $ 0.27
Discontinued operations   (0.06 )   (0.04 )   (0.11 )   0.04  
$ 0.08   $ 0.11   $ 0.20   $ 0.31  
Shares outstanding:
Weighted-average basic shares 87,264 86,936 87,189 86,857
Weighted-average diluted shares 88,800 88,315 88,656 88,309
End-of-period basic shares 87,270 86,974 87,270 86,974
 
 
Table 2
Ferro Corporation and Subsidiaries
Segment Net Sales and Gross Profit (unaudited)
         
(Dollars in thousands) Three Months Ended Six Months Ended
June 30, June 30,
2015 2014 2015 2014

Segment Net Sales

Performance Coatings $ 139,460 $ 156,789 $ 276,246 $ 301,949
Performance Colors and Glass 98,729 106,109 198,193 209,479
Pigments, Powders and Oxides   30,025     31,319     56,547     63,516  
Total segment net sales $ 268,214   $ 294,217   $ 530,986   $ 574,944  
 
Segment Gross Profit
Performance Coatings $ 35,144 $ 37,823 $ 64,019 $ 71,240
Performance Colors and Glass 33,389 35,352 67,878 69,724
Pigments, Powders and Oxides 9,292 7,121 17,146 14,663
Other costs of sales   (185 )   (1,842 )   (768 )   (2,220 )
Total gross profit $ 77,640 $ 78,454 $ 148,275 $ 153,407
 
Selling, general and administrative expenses $ 52,695 $ 49,260 $ 102,151 $ 100,629
Restructuring and impairment charges 1,116 1,958 1,625 6,308
Other expense, net   5,719     8,142     10,959     14,746  
Income before income taxes $ 18,110   $ 19,094   $ 33,540   $ 31,724  
 
 
Table 3
Ferro Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
     
(Dollars in thousands) June 30, December 31,
2015 2014

ASSETS

Current assets
Cash and cash equivalents $ 211,413 $ 140,500
Accounts receivable, net 242,482 236,749
Inventories 158,030 158,368
Deferred income taxes 6,508 7,532
Other receivables 26,753 25,635
Other current assets 14,424 17,912
Current assets held-for-sale   17,570   27,087
Total current assets 677,180 613,783
Other assets
Property, plant and equipment, net 194,459 212,642
Goodwill 92,976 93,733
Intangible assets, net 56,973 57,309
Deferred income taxes 36,186 39,712
Other non-current assets 63,863 60,982
Non-current assets held-for-sale   32,892   18,737
Total assets $ 1,154,529 $ 1,096,898
 

LIABILITIES AND EQUITY

Current liabilities
Loans payable and current portion of long-term debt $ 7,332 $ 8,382
Accounts payable 125,838 129,236
Accrued payrolls 25,048 36,051
Accrued expenses and other current liabilities 47,842 53,133
Current liabilities held-for-sale   6,841   10,016
Total current liabilities 212,901 236,818
Other liabilities
Long-term debt, less current portion 406,331 303,629
Postretirement and pension liabilities 157,924 167,772
Other non-current liabilities 47,087 50,359
Non-current liabilities held-for-sale   2,168   2,304
Total liabilities 826,411 760,882
Equity
Total Ferro Corporation shareholders’ equity 319,394 324,384
Noncontrolling interests   8,724   11,632
Total liabilities and equity $ 1,154,529 $ 1,096,898
 
 
Table 4
Ferro Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
         
(Dollars in thousands) Three Months Ended Six Months Ended
June 30, June 30,
2015 2014 2015 2014

Cash flows from operating activities

Net income $ 6,785 $ 10,388 $ 15,800 $ 27,121
Gain on sale of assets and business 694 3,469 988 3,573
Depreciation and amortization 8,621 11,910 16,732 23,246
Restructuring and impairment charges 775 10,097 (32 ) 4,963
Devaluation of Venezuela - - 3,343 1,094
Accounts receivable (5,912 ) (9,776 ) (17,757 ) (42,531 )
Inventories (274 ) (12,519 ) 1,153 (33,946 )
Accounts payable (2,432 ) (11,599 ) (1,511 ) 24,991
Other changes in current assets and liabilities, net 2,840 14,834 (20,786 ) 916
Other adjustments, net   3,106     8,106     6,004     (6,757 )
Net cash provided by operating activities 14,203 24,910 3,934 2,670
 
Cash flows from investing activities
Capital expenditures for property, plant and equipment and other long lived assets (11,675 ) (20,642 ) (26,554 ) (32,805 )
Proceeds from sale of assets 34 5,103 125 5,755
Acquisition of TherMark   -     -     (5,479 )   -  
Net cash used in investing activities (11,641 ) (15,539 ) (31,908 ) (27,050 )
 
Cash flows from financing activities
Net borrowings (repayments) under loans payable (1) 1,636 (42,620 ) (931 ) (42,097 )
Proceeds from revolving credit facility 105,000 215,281 105,000 370,582
Principal payments from term loan facility (750 ) - (1,500 ) -
Principal payments on revolving credit facility - (173,210 ) - (282,218 )
Other financing activities   (950 )   586     (181 )   365  
Net cash provided by financing activities 104,936 37 102,388 46,632
Effect of exchange rate changes on cash and cash equivalents   (1,260 )   (307 )   (3,501 )   (391 )
Increase in cash and cash equivalents 106,238 9,101 70,913 21,861
Cash and cash equivalents at beginning of period   105,175     41,088     140,500     28,328  
Cash and cash equivalents at end of period $ 211,413   $ 50,189   $ 211,413   $ 50,189  
 
Cash paid during the period for:
Interest $ 3,636 $ 1,256 $ 7,045 $ 12,126
Income taxes $ 3,341 $ 3,171 $ 9,482 $ 4,112
 

(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 June 30 (unaudited)
 
Net (loss) Diluted

 

Selling

Restructuring

Income

income earnings

(Dollars in

general and

and Other

tax

attributable (loss)

thousands, except

Cost of administrative impairment expense, expense to common per

per share amounts)

sales expenses charges net (benefit) shareholders share
                                       
2015  
 
As reported $ 190,574 $ 52,695 $ 1,116 $ 5,719 $ 5,679 $ 6,599 $ 0.08
Special items:
Restructuring - - (1,116 ) - 325 791 0.01

Other1

(116 ) (3,982 ) - (2,703 ) 2,498 4,303 0.05
Discontinued operations   -     -     -     -     -   5,646     0.06  

Total special items3

  (116 )   (3,982 )   (1,116 )   (2,703 )   2,823   10,740     0.12  
As adjusted $ 190,458   $ 48,713   $ -   $ 3,016   $ 8,502 $ 17,339   $ 0.20  
 
                                       
2014  
 
As reported $ 215,763 $ 49,260 $ 1,958 $ 8,142 $ 5,186 $ 9,959 $ 0.11
Special items:
Restructuring - - (1,958 ) - 705 1,253 0.02

Other1

113 (2,209 ) - (3,316 ) 1,948 3,464 0.04

Taxes2

- - - - 1,688 (1,688 ) (0.02 )
Discontinued operations   -     -     -     -     -   3,520     0.04  

Total special items3

  113     (2,209 )   (1,958 )   (3,316 )   4,341   6,549     0.07  
As adjusted $ 215,876   $ 47,051   $ -   $ 4,826   $ 9,527 $ 16,508   $ 0.19  
 
  (1)   Primarily includes adjustments for certain business development activities within “Selling general and administrative expenses” in 2015, and certain business development activities and costs associated with certain reorganization projects in 2014. Within “Other expense, net”, the adjustments primarily include the impact of the loss on a foreign currency contract associated with the purchase of Nubiola in 2015, and the impacts of gains/losses on asset sales in 2014.
(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 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 Six Months Ended June 30 (unaudited)
               
Net income

Diluted

 

Selling

Restructuring

Income

(loss)

earnings

(Dollars in

general and

and Other

tax

attributable

(loss)

thousands, except

Cost of administrative impairment expense, expense to common

per

per share amounts)

sales expenses charges net (benefit) shareholders

share

                                       
2015
 
As reported $ 382,711 $ 102,151 $ 1,625 $ 10,959 $ 8,138 $ 17,569 $ 0.20
Special items:
Restructuring - - (1,625 ) - 487 1,138 0.01
Other4 (2,754 ) (6,397 ) - (4,763 ) 3,460 10,454 0.12
Discontinued operations - - - - - 9,602 0.11
Noncontrolling interest   -     -     -     -     -   (1,453 )   (0.02 )
Total special items6   (2,754 )   (6,397 )   (1,625 )   (4,763 )   3,947   19,741     0.22  
As adjusted $ 379,957   $ 95,754   $ -   $ 6,196   $ 12,085 $ 37,310   $ 0.42  
 
                                       
2014
 
As reported $ 421,537 $ 100,629 $ 6,308 $ 14,746 $ 7,667 $ 27,164 $ 0.31
Special items:
Restructuring - - (6,308 ) - 2,271 4,037 0.05
Other4 322 (2,444 ) - (5,175 ) 2,627 4,670 0.05
Taxes5 - - - - 3,754 (3,754 ) (0.04 )
Discontinued operations - - - - - (3,064 ) (0.04 )
Noncontrolling interest   -     -     -     -     -   (461 )   (0.01 )
Total special items6   322     (2,444 )   (6,308 )   (5,175 )   8,652   1,428     0.01  
As adjusted $ 421,859   $ 98,185   $ -   $ 9,571   $ 16,319 $ 28,592   $ 0.32  
 
  (4)   Primarily includes adjustments for certain business development activities within “Selling general and administrative expenses” in 2015, and certain business development activities and the impacts of currency related items in Venezuela in 2014. Within “Other expense, net”, the adjustments primarily include the impact of the loss on a foreign currency contract associated with the purchase of Nubiola in 2015, and the impacts of currency related items in Venezuela, and gains/losses on asset sales in 2014.
(5) 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.
(6) 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 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 Six months ended
June 30, June 30,
2015 2014 2015 2014
 
Performance Coatings $ 139,460 $ 156,789 $ 276,246 $ 301,949
Performance Colors and Glass 87,434 95,632 177,362 188,772
Pigments, Powders and Oxides   29,994       29,178       56,440       58,320    
Total segment net sales excluding precious metals 256,888 281,599 510,048 549,041
Sales of precious metals   11,326       12,618       20,938       25,903    
Total net sales $ 268,214     $ 294,217     $ 530,986     $ 574,944    
 
Net sales excluding precious metals $ 256,888 $ 281,599 $ 510,048 $ 549,041

Adjusted cost of sales1

190,458 215,876 379,957 421,859
Cost of sales from precious metals   (11,326 )     (12,618 )     (20,938 )     (25,903 )  
Adjusted cost of sales excluding precious metals   179,132       203,258       359,019       395,956    
Adjusted gross profit $ 77,756     $ 78,341     $ 151,029     $ 153,085    
Adjusted gross profit percentage 30.3 % 27.8 % 29.6 % 27.9 %
 
  (1)   Primarily includes immaterial adjustments related to closed sites/product lines in the three months ended June 30, 2015 and 2014. Primarily includes the adjustment for impacts of currency related items in Venezuela in the six months ended June 30, 2015 and costs associated with closed sites/product lines in the six months ended June 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) June 30,
Adjusted 2015 vs
2014 2014 (1) 2015 Adjusted 2014

Segment net sales excluding precious metals

Performance Coatings $ 156,789 $ 132,384 $ 139,460 $ 7,076
Performance Colors and Glass 95,632 85,214 87,434 2,220
Pigments, Powders and Oxides   29,178     27,563     29,994     2,431
Total segment net sales excluding precious metals $ 281,599   $ 245,161   $ 256,888   $ 11,727
 
 
Segment gross profit
Performance Coatings $ 37,823 $ 32,223 $ 35,144 $ 2,921
Performance Colors and Glass 35,352 31,676 33,389 1,713
Pigments, Powders and Oxides 7,121 6,823 9,292 2,469
Other costs of sales (1,842 ) (1,810 ) (185 ) 1,625
Total gross profit $ 78,454   $ 68,912   $ 77,640   $ 8,728
 
Adjusted gross profit 78,341 68,809 77,756 8,947
 
Selling, general and administrative expenses 49,260 46,040 52,695 6,655
 
Adjusted selling, general and administrative expenses 47,051 43,831 48,713 4,882
 
Operating profit 29,194 22,872 24,945 2,073
 
Adjusted operating profit 31,290 24,978 29,043 4,065
 
  (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)
         
Six months ended
(Dollars in thousands) June 30,
Adjusted

2015 vs

2014 2014 (1) 2015

Adjusted 2014

Segment net sales excluding precious metals
Performance Coatings $ 301,949 $ 258,333 $ 276,246 $ 17,913
Performance Colors and Glass 188,772 168,994 177,362 8,368
Pigments, Powders and Oxides   58,320     55,096     56,440     1,344
Total segment net sales excluding precious metals $ 549,041   $ 482,423   $ 510,048   $ 27,625
 
 
Segment gross profit
Performance Coatings $ 71,240 $ 61,369 $ 64,019 $ 2,650
Performance Colors and Glass 69,724 62,751 67,878 5,127
Pigments, Powders and Oxides 14,663 14,037 17,146 3,109
Other costs of sales (2,220 ) (2,214 ) (768 ) 1,446
Total gross profit $ 153,407   $ 135,943   $ 148,275   $ 12,332
 
Adjusted gross profit 153,085 135,675 151,029 15,354
 
Selling, general and administrative expenses 100,629 94,390 102,151 7,761
 
Adjusted selling, general and administrative expenses 98,185 92,142 95,754 3,612
 
Operating profit 52,778 41,553 46,124 4,571
 
Adjusted operating profit 54,900 43,533 55,275 11,742
 
  (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 six 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 Six months ended
June 30, June 30,
2015 2014 2015 2014
 
Net income attributable to Ferro Corporation common shareholders $ 6,599 $ 9,959 $ 17,569 $ 27,164
Loss (income) from discontinued operations, net of taxes 5,646 3,520 9,602 (3,064 )
Interest expense 3,110 4,673 6,260 9,184
Income tax expense 5,679 5,186 8,138 7,667
Depreciation and amortization 8,621 8,469 16,732 17,296
Less interest amortization expense and other (289 ) (366 ) (586 ) (732 )
Cost of sales adjustments 116 (113 ) 2,754 (322 )
SG&A Adjustments 3,982 2,209 6,397 2,444
Restructuring and Impairment 1,116 1,958 1,625 6,308
Other expense and (income) adjustments 2,703 3,316 4,763 5,175
Noncontrolling interest adjustments   -       -       (1,453 )     (461 )  
Adjusted EBITDA $ 37,283     $ 38,811     $ 71,801     $ 70,659    
 
Net sales excluding precious metals $ 256,888 $ 281,599 $ 510,048 $ 549,041
Adjusted EBITDA as a % of net sales excluding precious metals 14.5 % 13.8 % 14.1 % 12.9 %
 

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) June 30, December 31,
2015 2014
 
Gross profit $ 279,954 $ 285,085
Selling, general and administrative expenses 288,284   286,762  
Total operating loss (8,330 ) (1,677 )

Pro forma adjustments1

108,010   101,624  

Adjusted operating profit before tax

99,680 99,947

Less: Tax at pro forma rate2

  (28,907 )   (35,981 )
Net operating profit after tax $ 70,773   $ 63,966  
 
Vetriceramici NOPAT gain (loss)   3,790     (536 )
Net operating profit after tax $ 66,982   $ 64,502  
 
Equity 328,118 336,016
Equity - discontinued operations (41,453 ) (33,507 )
Debt 413,663 312,011
Off balance sheet precious metal leases 26,711 26,535
Postretirement and pension liabilities 157,924 167,772
Environmental liabilities 13,667 14,440
Cash   (211,413 )   (140,500 )
Invested capital including Vetriceramici $ 687,217   $ 682,767  
 
Return on invested capital including Vetriceramici 10.3 % 9.4 %
 
Less: Vetriceramici invested capital   97,489     100,430  
Invested capital excluding Vetriceramici $ 589,728   $ 582,337  
 
Return on invested capital excluding Vetriceramici

11.4

% 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, gains/losses on asset sales and costs associated with certain reorganization projects.
(2) Operating profit is tax effected at 29% for the rolling twelve months ended June 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 in the second half of 2015. 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.

Contacts

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

Contacts

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