- Third-quarter net sales increased by
3.3% to $289 million; up 5.7% on constant currency basis
- Third-quarter diluted EPS from
continuing operations increased to $0.24 from $0.17 in the
third-quarter of 2015
- Adjusted third-quarter diluted EPS
from continuing operations increased to $0.27 from $0.24 in the
third quarter of 2015
Ferro Corporation (NYSE: FOE, the “Company”) today reported
results for the third quarter ended September 30, 2016.
Third-quarter income from continuing operations attributable to
common shareholders was $0.24 per diluted share compared with $0.17
per diluted share in the third quarter of 2015. On an adjusted
basis, earnings per diluted share from continuing operations were
$0.27 compared with $0.24 in the third quarter of 2015. Adjusted
earnings exclude charges relating to, among other items,
restructuring activities, transaction-related expenses and gains
and losses on asset sales. Please refer to the supplemental tables
at the end of this release for additional information concerning
adjusted financial results.
2016 Third-Quarter Results from Continuing Operations
Third-quarter 2016 net sales increased 3.3% to $289 million,
compared with $279 million in the prior year quarter. Foreign
currency translation reduced net sales by approximately $6 million.
On a constant currency basis, net sales increased by 5.7%. Sales
growth was driven by acquisitions, primarily in the Performance
Coatings segment, and organic growth in the Pigments, Powders and
Oxides segment. The organic growth was driven by strong sales
volume growth and gross margin improvement in both the Pigments and
Surface Technology product lines that comprise the majority of the
Pigments, Powders and Oxides segment.
Reported Earnings from Continuing
Operations: Third-quarter 2016 reported earnings per diluted
share were $0.24 versus $0.17 in the same period last year. Results
in the third quarter of 2016 benefited from higher sales and
profitability in all three reporting segments. Results were
particularly strong in the Pigments, Powders and Oxides segment
where results benefited from higher volumes and improved gross
margins. Higher gross profit was partially offset by increases in
Selling, General and Administrative (“SG&A”) expenses, as well
as interest expense and a higher effective tax rate.
The gross profit margin for the third quarter of 2016 increased
by more than 320 basis points to 30.8%, while SG&A expenses
increased by approximately $7 million to $56 million, primarily due
to higher incentive and stock-based compensation and a decrease in
pension income. Included in the third quarter of 2015 gross profit
was a nonrecurring purchase accounting adjustment of approximately
$6 million reflecting additional cost in the quarter related to the
acquired Nubiola inventory. Other expenses were approximately $1
million higher in the third quarter of 2016 compared with the third
quarter of 2015. The effective tax rate was 23.1% compared with
19.6% in the same period last year.
Income from continuing operations was $21 million in the third
quarter of 2016, compared with $16 million in the same period last
year. The Company recorded a net loss of $9 million for the third
quarter of 2016 compared with a net loss of $4 million in the prior
year same period. Both losses were primarily due to losses from
discontinued operations of $29 million in the third quarter of 2016
and $19 million in the third quarter of 2015.
Adjusted Earnings from Continuing
Operations: Third-quarter 2016 adjusted earnings per diluted
share were $0.27 versus $0.24 in the same period last year. Results
in the third quarter of 2016 benefited from a stronger adjusted
gross profit margin. Higher gross profit was partially offset by
increases in SG&A expense and interest expense and a higher
effective tax rate.
The adjusted gross profit margin for the third quarter of 2016
increased to 30.8% from 27.5% in the third quarter of 2015.
Adjusted SG&A expenses were approximately $8 million higher in
the third quarter of 2016 compared with the prior-year period.
Again, the increase in SG&A expense was primarily associated
with higher incentive and stock-based compensation and a decrease
in pension income.
In the third quarter of 2016, Adjusted Earnings before Interest,
Taxes, Depreciation and Amortization (“Adjusted EBITDA”) was $49
million, equivalent to the prior year period.
Peter Thomas Comments on Results
“The Ferro team delivered another quarter of strong results,
with increased sales and profitability,” said Peter Thomas,
Chairman, President and Chief Executive Officer. “Our acquisitions
are clearly creating value, as new businesses integrated in the
past 12 months are making significant contributions to consolidated
results. The Pigments, Powders and Oxides segment experienced a
particularly strong quarter, with double-digit sales growth in both
the Pigments and Surface Technology product lines. In our
Performance Colors and Glass segment, performance was lifted by
growing demand in Asia, which offset weaker demand for glass
enamels used in the automotive industry. In the Performance
Coatings segment, volume grew 27.3 percent in tile frits and
glazes, while demand also increased for porcelain enamel
products.”
Mr. Thomas continued, “During the quarter, we took a number of
actions to sustain the momentum we’ve achieved with our growth
strategy, and in October and November we announced three
acquisitions, each of which aligns with and extends our existing
markets and product portfolio. The acquisition of Cappelle
Pigments, which has sales of approximately $70 million, is expected
to close by year end and will enhance our pigments portfolio with
high-performance specialty inorganic and organic pigments. The
Delta Performance Products assets, which generate approximately $5
million in annual sales, adds to our technical capabilities in
color manufacturing. And, our most recently announced acquisition
of Electro-Science Laboratories, which has sales of approximately
$40 million, extends our presence in the electronic packaging
materials space and provides a very attractive platform for future
growth in our Performance Colors and Glass business.
“In addition to the acquisitions, we added talented leaders to
support our continued growth. Andrew Ross and Allen Spizzo were
appointed to our Board of Directors, bringing extensive experience
in growing specialty chemical and materials businesses. Ben
Schlater was appointed Vice President and Chief Financial Officer.
Joseph Vitale rejoined Ferro as Vice President of Corporate
Development. And Kevin Cornelius Grant was named head of Investor
Relations. These individuals join a team dedicated to driving
Ferro’s strategy, continuing to deliver profitable results and
creating value for our shareholders.
“Looking ahead to the fourth quarter, we expect some global
economic headwinds in what is traditionally our softest quarter. We
believe we have factored these into our planning and are affirming
our 2016 adjusted earnings guidance.”
Outlook
As a result of the performance of the business, and global
economics forecasts, Ferro is maintaining its full-year earnings
outlook. The Company expects Adjusted EPS of $1.00 to $1.05 and
Adjusted EBITDA of $190 to $195 million. The Company expects
full-year 2016 free cash flow from continuing operations will be in
a range of $70 - $80 million. Free cash flow from continuing
operations is defined as adjusted EBITDA from continuing operations
less cash items used to operate the business, including cash taxes
and interest, investment in working capital, capital expenditures
and other cash items.
Adjusted Guidance: Earnings, EBITDA, and Free Cash
Flow from Continuing Operations
The Company’s guidance relating to adjusted earnings per diluted
share, EBITDA and free cash flow from continuing operations exclude
the impact of certain items, primarily associated with
restructuring activities, transaction-related expenses, gains and
losses on asset sales, and mark-to-market adjustments to the
Company’s pension and postretirement benefit liabilities. The
impact of adjusting for these items for the first nine months of
2016 was a benefit of approximately $9.0 million to pre-tax income,
which resulted in an increase to GAAP earnings per diluted share
from continuing operations of $0.06, from $0.77 to $0.83, as
presented and reconciled in Table 6, as well as corresponding
impacts to Adjusted EBITDA as presented and reconciled in Table 10,
and Adjusted Free Cash Flow from Continuing Operations, as
presented in Table 13. It is not possible at this time to identify
the potential amount or significance of these items for the balance
of the year, as they have not yet occurred. Therefore, the Company
is unable to reconcile its full-year 2016 adjusted earnings per
diluted share, and related EBITDA and free cash flow from
continuing operations guidance.
Conference Call
The Company will host a conference call to discuss its
third-quarter financial results and its current outlook for 2016 on
Thursday, November 3, 2016, at 10:00 a.m. Eastern Time. To listen
to the call, dial 888-222-3913 if calling from the United States or
Canada, or dial 303-223-2686 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 10, 2016. To access the replay, dial
800-633-8284 (toll free) if calling from the United States or
Canada, or dial 402-977-9140 if calling from outside North America.
Use the program ID #21820061 to access the audio replay.
The conference call will also be broadcast live over the
Internet and will be available for replay for 30 days. The live
broadcast, replay and earnings presentation material 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
functional coatings and color solutions company that supplies
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 4,990 employees globally and reported
2015 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 Electro-Science Laboratories,
Cappelle Pigments, Delta, Pinturas Benicarló, Ferer, and Al
Salomi transactions), as well as the acquisitions being accretive
and Ferro achieving the expected returns on invested capital;
- the exploration of strategic
alternatives and the potential results therefrom;
- Ferro’s ability to successfully
implement and/or administer its cost-saving initiatives, including
its restructuring programs, and to produce the desired
results;
- demand in the industries into which
Ferro sells its products may be unpredictable, cyclical, or heavily
influenced by consumer spending;
- the effectiveness of the Company’s
efforts to improve operating margins through sales growth, price
increases, productivity gains, and improved purchasing
techniques;
- currency conversion rates and economic,
social, political, and regulatory conditions around the world;
- Ferro’s ability to successfully
introduce new products or enter into new growth markets;
- the impact of interruption, damage to,
failure, or compromise of the Company’s information systems;
- 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;
- the availability of reliable sources of
energy and raw materials at a reasonable cost;
- 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;
- risks associated with the manufacture
and sale of material into industries making products for sensitive
applications;
- exposure to lawsuits in the normal
course of business;
- risks and uncertainties associated with
intangible assets;
- Ferro’s borrowing costs could be
affected adversely by interest rate increases;
- liens on the Company’s assets by its
lenders affect its ability to dispose of property and
businesses;
- Ferro may not pay dividends on its
common stock in the foreseeable future;
- amount and timing of any repurchase of
Ferro’s 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,
2015.
Table 1 Ferro Corporation and
Subsidiaries Condensed Consolidated Statements of Operations
(unaudited) (In thousands, except per share amounts)
Three Months Ended Nine Months Ended September 30, September 30,
2016 2015 2016 2015
Net sales $ 288,527 $ 279,365 $
863,955 $ 810,351 Cost of sales 199,546 202,337
592,372 585,048 Gross profit 88,981 77,028 271,583
225,303 Selling, general and administrative expenses 55,588 48,417
166,105 150,568 Restructuring and impairment charges 26 3,844 1,694
5,469 Other expense (income): Interest expense 5,304 3,877 15,579
10,137 Interest earned (214) (97) (414) (191) Foreign currency
losses, net 867 1,203 2,867 5,758 Miscellaneous expense (income),
net 705 467 (2,079) 705
Income
before income taxes 26,705 19,317 87,831 52,857 Income tax
expense 6,157 3,792 22,659 11,930
Income from continuing operations 20,548 15,525 65,172
40,927 (Loss) from discontinued operations, net of income taxes
(29,222) (19,086) (64,464) (28,688)
Net (loss) income (8,674) (3,561) 708 12,239 Less: Net
income (loss) attributable to noncontrolling interests 210
498 589 (1,271)
Net (loss) income
attributable to Ferro Corporation common shareholders $ (8,884)
$ (4,059) $ 119 $ 13,510
Earnings (loss) per share
attributable to Ferro Corporation common shareholders: Basic
earnings (loss): Continuing operations $ 0.24 $ 0.17 $ 0.78 $ 0.48
Discontinued operations (0.35) (0.22) (0.77)
(0.33) $ (0.11) $ (0.05) $ 0.01 $ 0.15 Diluted
earnings (loss): Continuing operations $ 0.24 $ 0.17 $ 0.77 $ 0.48
Discontinued operations (0.35) (0.22) (0.77)
(0.32) $ (0.11) $ (0.05) $ - $ 0.16 Shares outstanding:
Weighted-average basic shares 83,268 87,130 83,263 87,169
Weighted-average diluted shares 84,476 88,400 84,239 88,413
End-of-period basic shares 83,386 86,700 83,386 86,700
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, 2016 2015 2016 2015
Segment Net Sales Performance Coatings $ 130,453 $ 128,745 $
399,166 $ 404,991 Performance Colors and Glass 92,793 92,168
276,896 290,361 Pigments, Powders and Oxides 65,281
58,452 187,893 114,999 Total segment net sales $
288,527 $ 279,365 $ 863,955 $ 810,351
Segment Gross
Profit Performance Coatings $ 33,636 $ 32,107 $ 104,985 $
96,126 Performance Colors and Glass 32,282 31,662 100,825 99,540
Pigments, Powders and Oxides 23,178 13,179 65,868 30,325 Other
costs of sales (115) 80 (95) (688)
Total gross profit $ 88,981 $ 77,028 $ 271,583 $ 225,303
Selling, general and administrative expenses Strategic
services $ 29,385 $ 27,319 $ 86,801 $ 79,301 Functional services
22,608 20,687 66,726 61,152 Incentive compensation 2,153 940 7,299
2,664 Stock-based compensation 1,442 (529)
5,279 7,451 Total selling, general and administrative
expenses $ 55,588 $ 48,417 $ 166,105 $ 150,568 Restructuring
and impairment charges 26 3,844 1,694 5,469 Other expense, net
6,662 5,450 15,953 16,409 Income before
income taxes $ 26,705 $ 19,317 $ 87,831 $ 52,857
Table 3 Ferro Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(Dollars in thousands) September 30, December 31, 2016 2015
ASSETS Current assets Cash and cash equivalents $
40,556 $ 58,380 Accounts receivable, net 282,827 231,970
Inventories 211,261 184,854 Deferred income taxes - 12,088 Other
receivables 36,360 34,088 Other current assets 8,013 15,695 Current
assets held-for-sale - 16,215 Total current assets
579,017 553,290
Other assets Property, plant and equipment,
net 249,497 260,429 Goodwill 142,880 145,669 Intangible assets, net
112,021 106,633 Deferred income taxes 99,326 87,385 Other
non-current assets 50,247 48,767 Non-current assets held-for-sale
- 23,178 Total assets $ 1,232,988 $ 1,225,351
LIABILITIES AND EQUITY Current liabilities Loans
payable and current portion of long-term debt $ 10,221 $ 7,446
Accounts payable 123,325 120,380 Accrued payrolls 32,255 28,584
Accrued expenses and other current liabilities 60,708 54,664
Current liabilities held-for-sale - 7,156 Total
current liabilities 226,509 218,230
Other liabilities
Long-term debt, less current portion 477,100 466,108 Postretirement
and pension liabilities 147,682 148,249 Other non-current
liabilities 65,533 66,990 Non-current liabilities held-for-sale
- 1,493 Total liabilities 916,824 901,070
Equity Total Ferro Corporation shareholders’ equity 308,394
316,459 Noncontrolling interests 7,770 7,822 Total
liabilities and equity $ 1,232,988 $ 1,225,351
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, 2016 2015 2016 2015
Cash flows from
operating activities Net income $ (8,674) $ (3,561) $ 708 $
12,239 Loss (gain) on sale of assets and business 315 300 (3,459)
1,288 Depreciation and amortization 11,670 15,856 33,599 32,002
Interest amortization 347 289 991 875 Restructuring and impairment
13,522 11,314 37,173 11,282 Devaluation of Venezuela - - - 3,343
Accounts receivable (2,683) 14,735 (44,370) (3,022) Inventories
(2,758) (2,379) (20,453) (1,226) Accounts payable (6,435) (8,134)
(3,209) (9,645) Other current assets and liabilities, net 6,511
15,029 9,479 (5,757) Other adjustments, net (3,098)
(15,885) (3,717) (9,881) Net cash provided by
operating activities 8,717 27,564 6,742 31,498
Cash flows
from investing activities Capital expenditures for property,
plant and equipment and other long lived assets (4,173) (9,697)
(18,217) (36,251) Proceeds from sale of assets 1 19 3,598 144
Business acquisitions, net of cash acquired (4,778)
(161,518) (11,417) (166,997) Net cash (used in)
investing activities (8,950) (171,196) (26,036) (203,104)
Cash flows from financing activities Net (repayments)
borrowings under loans payable (425) 2,722 2,606 1,791 Proceeds
from revolving credit facility 49,390 41,773 212,906 146,773
Principal payments on revolving credit facility (56,990) (30,737)
(149,696) (30,737) Principal payments on term loan facility (750)
(750) (52,250) (2,250) Payment of debt issuance costs (360) - (661)
- Purchase of treasury stock - (6,998) (11,429) (6,998) Other
financing activities 205 (979) 416
(1,160) Net cash (used in) provided by financing activities (8,930)
5,031 1,892 107,419 Effect of exchange rate changes on cash and
cash equivalents 303 (3,319) (422)
(6,820)
(Decrease) in cash and cash equivalents (8,860)
(141,920) (17,824) (71,007) Cash and cash equivalents at beginning
of period 49,416 211,413 58,380 140,500
Cash and cash equivalents at end of period $ 40,556 $ 69,493
$ 40,556 $ 69,493 Cash paid during the period for: Interest
$ 5,749 $ 4,096 $ 15,032 $ 11,141 Income taxes $ 5,497 $ 8,022 $
12,929 $ 17,504
Table 5 Ferro Corporation and Subsidiaries
Supplemental Information Reconciliation of Reported
Income to Adjusted Income For the Three Months Ended
September 30 (unaudited) Net (loss) Selling Restructuring
income Diluted (Dollars in general and and Other attributable
(loss) thousands, except Cost of administrative impairment expense,
Income tax to common earnings per share amounts) sales expenses
charges net
expense3
shareholders per share
2016 As reported $
199,546 $ 55,588 $ 26 $ 6,662 $ 6,157 $ (8,884) $ (0.11) Special
items: Restructuring - - (26) - 7 19 - Other1 - (4,098) - - 1,493
2,605 0.03 Discontinued operations - -
- - - 29,222 0.35 Total special items4
- (4,098) (26) - 1,500
31,846 0.38 As adjusted $ 199,546 $ 51,490 $ - $ 6,662 $
7,657 $ 22,962 $ 0.27
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 Other2 284
(4,845) - - 727 3,834 0.04 Discontinued operations -
- - - - 19,086 0.22 Total
special items4 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 (1) The
adjustments to “Selling general and administrative expenses”
primarily include legal, professional and other expenses related to
certain business development activities. (2) The adjustments to
“Selling general and administrative expenses” primarily include
legal, professional and other expenses related to certain business
development activities as well as fees associated with certain
reorganization projects. (3) The tax rate reflects the reported tax
rate, adjusted for non-GAAP adjustments being tax effected at the
respective statutory rate where the item originated. (4) 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 to above are financial measures not
required by, or presented in accordance with, accounting principles
generally accepted in the United States (U.S. GAAP). These non-GAAP
financial measures should be considered as a supplement to, and not
as a substitute for, the financial measures prepared in accordance
with U.S. GAAP and a reconciliation of these financial measures to
the most comparable U.S. GAAP financial measures is presented. The
adjusted income, earnings per share and other adjusted items
presented above exclude certain special items including
restructuring charges, certain business development activities,
gains on sale of assets, and discontinued operations. We believe
this data provides investors with additional information on the
underlying operations and trends of the business and enables
period-to-period comparability of financial performance.
Table 6
Ferro Corporation and Subsidiaries Supplemental
Information Reconciliation of Reported Income to Adjusted
Income For the Nine Months Ended September 30
(unaudited) Net (loss) Selling Restructuring Other
income Diluted (Dollars in general and and expense Income
attributable earnings thousands, except Cost of administrative
impairment (income), tax to common (loss) per per share amounts)
sales expenses charges net
expense3
shareholders share
2016 As reported $ 592,372 $
166,105 $ 1,694 $ 15,953 $ 22,659 $ 119 $ - Special items:
Restructuring - - (1,694) - 522 1,172 0.01 Other1 - (10,339) -
3,065 2,760 4,514 0.05 Discontinued operations - -
- - - 64,464 0.77 Total special
items4 - (10,339) (1,694) 3,065
3,282 70,150 0.83 As adjusted $ 592,372 $ 155,766 $ -
$ 19,018 $ 25,941 $ 70,269 $ 0.83
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
Other2 (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 items4 (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 (1)
The adjustments to “Selling general and administrative expenses”
include legal, professional and other expenses related to certain
business development activities as well as fees associated with
certain reorganization projects; and, the adjustment to “Other
expense (income), net” primarily relates to the gain on an asset
sale that was recognized during the first quarter and to a change
on the finalization of the purchase price for the acquisition of
Vetriceramici. (2) The adjustments to “Cost of sales” relate to
impacts of currency-related items in Venezuela; the adjustments to
“Selling general and administrative expenses” primarily include
legal, professional and other expenses related to certain business
development activities as well as fees associated with certain
reorganization projects; and, the adjustments to “Other expense
(income), net” primarily relate to impacts of currency-related
items in Venezuela and the impact of the loss on a foreign currency
contract associated with the purchase of Nubiola. (3) The tax rate
reflects the reported tax rate, adjusted for non-GAAP adjustments
being tax effected at the respective statutory rate where the item
originated. (4) 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 to above are financial measures not
required by, or presented in accordance with, accounting principles
generally accepted in the United States (U.S. GAAP). These non-GAAP
financial measures should be considered as a supplement to, and not
as a substitute for, the financial measures prepared in accordance
with U.S. GAAP and a reconciliation of these financial measures to
the most comparable U.S. GAAP financial measures is presented. The
adjusted income, earnings per share and other adjusted items
presented above exclude certain special items including
restructuring charges, certain business development activities,
gains on sale of assets, 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 and trends of the business and enables
period-to-period comparability of financial performance.
Table 7 Ferro Corporation and
Subsidiaries Supplemental Information Reconciliation
of Adjusted Gross Profit (unaudited) (Dollars in
thousands) Three Months Ended Nine Months Ended September 30,
September 30, 2016 2015 2016 2015 Performance Coatings $
130,453 $ 128,745 $ 399,166 $ 404,991 Performance Colors and Glass
92,793 92,168 276,896 290,361 Pigments, Powders and Oxides
65,281 58,452 187,893
114,999 Total net sales $ 288,527 $ 279,365 $
863,955 $ 810,351 Total net sales $ 288,527 $
279,365 $ 863,955 $ 810,351 Adjusted cost of sales1 199,546
202,621 592,372 582,578
Adjusted gross profit $ 88,981 $ 76,744 $
271,583 $ 227,773 Adjusted gross profit percentage
30.8 % 27.5 % 31.4 % 28.1 % (1) Refer to table 5 and table 6
for the reconciliation of cost of sales to adjusted cost of sales
for the three and nine months ended September 30, 2016 and 2015,
respectively.
It should be noted that 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). These non-GAAP financial measures should
be considered as a supplement to, and not as a substitute for, the
financial measures prepared in accordance with U.S. GAAP and a
reconciliation of these financial measures to the most comparable
U.S. GAAP financial measures is presented. Adjusted gross profit
and adjusted cost of sales excludes certain items, primarily
comprised of the impact of currency-related items in Venezuela in
the nine months ended September 30, 2015. We believe this data
provides investors with additional information on the underlying
operations and trends of the business and enables period-to-period
comparability of financial performance.
Table 8 Ferro Corporation and
Subsidiaries Supplemental Information Constant
Currency Schedule of Adjusted Operating Profit (unaudited)
Three Months Ended (Dollars in thousands) September 30,
Adjusted
2016 vs
2015
2015(1)
2016
Adjusted 2015
Segment net sales Performance Coatings $ 128,745 $ 122,967 $
130,453 $ 7,486 Performance Colors and Glass 92,168 91,635 92,793
1,158 Pigments, Powders and Oxides 58,452 58,353
65,281 6,928 Total segment net sales $ 279,365 $
272,955 $ 288,527 $ 15,572 Segment adjusted gross profit
Performance Coatings $ 32,107 $ 30,714 $ 33,636 $ 2,922 Performance
Colors and Glass 31,662 31,437 32,282 845 Pigments, Powders and
Oxides 13,179 13,186 23,178 9,992 Other costs of sales (204)
(204) (115) 89 Total adjusted gross profit(2)
$ 76,744 $ 75,133 $ 88,981 $ 13,848 Adjusted selling,
general and administrative expenses Strategic services $ 27,319 $
26,998 $ 29,385 $ 2,387 Functional services 15,842 15,533 18,510
2,977 Incentive compensation 940 917 2,153 1,236 Stock-based
compensation (529) (529) 1,442 1,971
Total adjusted selling, general and administrative expenses(3) $
43,572 $ 42,919 $ 51,490 $ 8,571 Adjusted operating profit $
33,172 $ 32,214 $ 37,491 $ 5,277 Adjusted operating profit as a %
of net sales 11.9% 11.8% 13.0% (1) Reflects the
remeasurement of 2015 reported and adjusted local currency results
using 2016 exchange rates, resulting in constant currency
comparative figures to 2016 reported and adjusted results. See
table 5 for non-GAAP adjustments applicable to the three-month
comparative periods, respectively. (2) Refer to table 7 for the
reconciliation of gross profit to adjusted gross profit for the
three months ended September 30, 2016 and 2015, respectively. (3)
Refer to table 5 for the reconciliation of SG&A expenses to
adjusted SG&A expenses for the three months ended September 30,
2016 and 2015, respectively.
It should be noted that the adjusted 2015 results is a financial
measure not required by, or presented in accordance with,
accounting principles generally accepted in the United States (U.S.
GAAP). These non-GAAP financial measures should be considered as a
supplement to, and not as a substitute for, the financial measures
prepared in accordance with U.S. GAAP and a reconciliation of these
financial measures to the most comparable U.S. GAAP financial
measures is presented. Adjusted 2015 results are remeasured using
the respective 2016 exchange rates. We believe this data provides
investors with additional information on the underlying operations
and trends of the business and enables period-to-period
comparability of financial performance.
Table 9 Ferro Corporation and
Subsidiaries Supplemental Information Constant
Currency Schedule of Adjusted Operating Profit (unaudited)
Nine Months Ended (Dollars in thousands) September 30,
Adjusted 2016 vs 2015
2015(1)
2016 Adjusted 2015 Segment net sales Performance Coatings $ 404,991
$ 376,671 $ 399,166 $ 22,495 Performance Colors and Glass 290,361
286,475 276,896 (9,579) Pigments, Powders and Oxides 114,999
114,509 187,893 73,384 Total segment net sales
$ 810,351 $ 777,655 $ 863,955 $ 86,300 Segment adjusted
gross profit Performance Coatings $ 98,764 $ 93,082 $ 104,985 $
11,903 Performance Colors and Glass 99,540 98,272 100,825 2,553
Pigments, Powders and Oxides 30,325 30,225 65,868 35,643 Other
costs of sales (856) (856) (95) 761
Total adjusted gross profit(2) $ 227,773 $ 220,723 $ 271,583 $
50,860 Adjusted selling, general and administrative expenses
Strategic services $ 79,301 $ 77,563 $ 86,801 $ 9,238 Functional
services 49,910 48,447 56,387 7,940 Incentive compensation 2,664
2,517 7,299 4,782 Stock-based compensation 7,451
7,451 5,279 (2,172) Total adjusted selling, general
and administrative expenses(3) $ 139,326 $ 135,978 $ 155,766 $
19,788 Adjusted operating profit $ 88,447 $ 84,745 $ 115,817
$ 31,072 Adjusted operating profit as a % of net sales 10.9% 10.9%
13.4% (1) Reflects the remeasurement of 2015 reported and
adjusted local currency results using 2016 exchange rates,
resulting in constant currency comparative figures to 2016 reported
and adjusted results. See table 6 for non-GAAP adjustments
applicable to the nine-month comparative periods, respectively. (2)
Refer to table 7 for the reconciliation of gross profit to adjusted
gross profit for the nine months ended September 30, 2016 and 2015,
respectively. (3) Refer to table 6 for the reconciliation of
SG&A expenses to adjusted SG&A expenses for the nine months
ended September 30, 2016 and 2015, respectively.
It should be noted that the adjusted 2015 results is a financial
measure not required by, or presented in accordance with,
accounting principles generally accepted in the United States (U.S.
GAAP). These non-GAAP financial measures should be considered as a
supplement to, and not as a substitute for, the financial measures
prepared in accordance with U.S. GAAP and a reconciliation of these
financial measures to the most comparable U.S. GAAP financial
measures is presented. Adjusted 2015 results are remeasured using
the respective 2016 exchange rates. We believe this data provides
investors with additional information on the underlying operations
and trends of the business and enables period-to-period
comparability of financial performance.
Table 10 Ferro Corporation
and Subsidiaries Supplemental Information
Reconciliation of Net income attributable to Ferro
Corporation common shareholders to Adjusted EBITDA
(unaudited) (Dollars in thousands) Three Months Ended
Nine Months Ended September 30, September 30, 2016 2015 2016 2015
Net (loss) income attributable to Ferro Corporation common
shareholders $ (8,884) $ (4,059) $ 119 $ 13,510 Net income (loss)
attributable to noncontrolling interests 210 498 589 (1,271) Loss
from discontinued operations, net of income taxes 29,222 19,086
64,464 28,688 Restructuring and impairment charges 26 3,844 1,694
5,469 Other expense, net 1,358 1,573 374 6,272 Interest expense
5,304 3,877 15,579 10,137 Income tax expense 6,157 3,792 22,659
11,930 Depreciation and amortization 12,017 16,145 34,590 32,877
Less: interest amortization expense and other (347) (289) (991)
(875) Cost of sales adjustments(1) - (284) - 2,470 SG&A
adjustments(1) 4,098 4,845
10,339 11,242 Adjusted EBITDA $ 49,161
$ 49,028 $ 149,416 $ 120,449 Net sales
$ 288,527 $ 279,365 $ 863,955 $ 810,351 Adjusted EBITDA as a % of
net sales 17.0 % 17.5 % 17.3 % 14.9 % (1) For details on
Non-GAAP adjustments, refer to table 5 and table 6 for the
reconciliation of cost of sales to adjusted cost of sales and
SG&A to adjusted SG&A for the three and nine months ended
September 30, 2016 and 2015, respectively.
It should be noted that adjusted EBITDA is a financial measure
not required by, or presented in accordance with, accounting
principles generally accepted in the United States (U.S. GAAP).
These non-GAAP financial measures should be considered as a
supplement to, and not as a substitute for, the financial measures
prepared in accordance with U.S. GAAP and a reconciliation of these
financial measures to the most comparable U.S. GAAP financial
measures is presented. Adjusted EBITDA is net income attributable
to Ferro Corporation common shareholders before the effects of net
income (loss) attributable to noncontrolling interest, discontinued
operations, restructuring and impairment charges, other (income)
expense, net, interest expense, income tax expense, depreciation
and amortization, non-GAAP adjustments to cost of sales and
non-GAAP adjustments to SG&A. We believe this data provides
investors with additional information on the underlying operations
and trends of the business and enables period-to-period
comparability of financial performance.
Table 11 Ferro Corporation and
Subsidiaries Supplemental Information Return on
Invested Capital For the Rolling Twelve Months Ended
(unaudited) (Dollars in thousands) September 30,
December 31, 2016 2015 Gross profit $ 347,960 $ 301,680
Selling, general and administrative expenses 232,436 216,899 Total
operating profit 115,524 84,781 Non-GAAP adjustments1 26,193 29,539
Adjusted operating profit before tax 141,717 114,320 Less: Tax
expense2 (36,846) (29,723) Net adjusted operating
profit after tax $ 104,871 $ 84,597 Recent acquisitions3
NOPAT gain 23,554 11,083 Net adjusted operating
profit after tax excluding recent acquisitions $ 81,316 $ 73,514
Equity 316,164 324,281 Equity - discontinued operations -
(30,744) Debt 487,321 473,554 Off balance sheet precious metal
leases 26,790 20,464 Postretirement and pension liabilities 147,682
148,249 Environmental liabilities 15,667 13,824 Release of
valuation allowance - (63,289) Cash (40,556) (58,380)
Invested capital $ 953,068 $ 827,959 Return on invested
capital 11.0% 10.2% Less: recent acquisitions invested
capital 239,368 292,543 Invested capital excluding
recent acquisitions $ 713,700 $ 535,416 Return on invested
capital excluding recent acquisitions 11.4% 13.7% (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 26.0%, as this represents a
normalized tax rate reflecting our current mix of business. This
tax rate deviates from our full year 2016 estimate and 2015 due to
certain discrete items that would not be considered normalized, as
well as certain tax planning opportunities to be implemented. (3)
For the rolling twelve months ended September 30, 2016, the recent
acquisitions include Nubiola, Al Salomi, Ferer, Pinturas and Delta
Performance Products. For the rolling twelve months ended December
31, 2015, the recent acquisitions include Vetriceramici, Nubiola
and Al Salomi. Acquisitions are removed from being included in the
recent acquisitions line item the first quarter after the
operations of the acquisitions are included in the Company for a
full year.
It should be noted that net adjusted operating profit after tax
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). These non-GAAP
financial measures should be considered as a supplement to, and not
as a substitute for, the financial measures prepared in accordance
with U.S. GAAP and a reconciliation of these financial measures to
the most comparable U.S. GAAP financial measures is presented. Net
adjusted operating profit after tax is operating profit before the
effects of discontinued operations, non-GAAP adjustments to cost of
sales and non-GAAP adjustments to SG&A tax effected. We believe
this data provides investors with additional information on the
underlying operations and trends 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 12 Ferro Corporation
and Subsidiaries Supplemental Information Change in
Net Debt (unaudited) (Dollars in thousands) Three Months
Ended Nine Months Ended September 30, September 30, September 30,
September 30, 2016 2015 2016 2015 Beginning of period Total debt $
495,887 $ 408,657 (1) $ 473,554 $ 306,667 (1) Cash 49,416
211,413 58,380 140,500 Net Debt 446,471
197,244 415,174 166,167 End of period Total debt 487,321
421,544 (1) 487,321 421,544 (1) Cash 40,556 69,493
40,556 69,493 Net Debt 446,765 352,051 446,765
352,051
Period change in net debt $ (294) $ (154,807) $ (31,591) $
(185,884) (1) Reflects adjustment for debt issuance costs
for term loan that are now presented in the balance sheet as a
reduction of the related debt liability rather than an asset. This
change was due to ASU 2015-03 which was adopted by the Company as
of December 31, 2015. The adoption resulted in the reclassification
of unamortized debt issuance costs related to the term loan from
other non-current assets to a reduction in long-term debt, less
current portion of $5.3 million as of December 31, 2014, $5.0
million as of June 30, 2015 and $4.7 million as of September 30,
2015.
Table 13 Ferro
Corporation and Subsidiaries Supplemental Information
Adjusted Free Cash Flow from Continuing Operations
(unaudited) (Dollars in thousands) Three Months Ended
Nine Months Ended September 30, September 30, September 30,
September 30, 2016 2015 2016 2015 As Adjusted
Adjusted EBITDA(1) $ 49,161 $ 49,028 $ 149,416 $ 120,449
Capital expenditures (4,074) (5,899) (17,296) (14,127) Working
capital (10,775) 5,062 (62,292) (21,284) Cash income taxes (5,497)
(8,022) (12,929) (17,504) Cash interest (5,749) (4,096) (15,032)
(11,141) Pension (423) (1,080) (2,921) (2,824) Incentive
compensation payments - - (8,802) (14,584) Other 2,434
(1,913) 4,992 (2,907) Free Cash Flow from
Continuing Operations $ 25,077 $ 33,080 $ 35,136 $ 36,078
Discontinued operations (16,805) (10,235) (32,534) (28,372)
Restructuring/Other (129) (4,324) (2,205) (8,881) (Outflows) from
M&A activity (8,437) (166,330) (20,559) (177,711) Stock
repurchase - (6,998) (11,429) (6,998)
Change in Net Debt $ (294) $ (154,807)
$ (31,591) $ (185,884) (1) See table 10 for the
reconciliation of net income attributable to Ferro Corporation
common shareholders to adjusted EBITDA.
It should be noted that adjusted EBITDA and free cash flow from
continuing operations are financial measures not required by, or
presented in accordance with, accounting principles generally
accepted in the United States (U.S. GAAP). These non-GAAP financial
measures should be considered as a supplement to, and not as a
substitute for, the financial measures prepared in accordance with
U.S. GAAP and a reconciliation of these financial measures to the
most comparable U.S. GAAP financial measures is presented. Adjusted
EBITDA is net income before the effects of income (loss)
attributable to noncontrolling interest, discontinued operations,
restructuring and impairment charges, other (income) expense net,
interest expense, income tax expense, depreciation and
amortization, non-GAAP adjustments to cost of sales, and non-GAAP
adjustments to SG&A. Free cash flow from Continuing Operations
is adjusted EBITDA less capital expenditures, working capital, cash
income taxes, cash interest, pension contributions, incentive
compensation payments, and other continuing operating cash items.
We believe this data provides investors with additional information
on the underlying operations and trends 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.
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version on businesswire.com: http://www.businesswire.com/news/home/20161102006803/en/
Ferro CorporationInvestor Contact:Kevin Cornelius Grant,
216-875-5451Manager, Investor
Relationskevincornelius.grant@ferro.comorMedia Contact:Mary Abood,
216-875-5401Director, Corporate
Communicationsmary.abood@ferro.com
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