FOE Ferro Corp

Company generates fourth consecutive quarter of strong organic volume and sales growth,

13.6% increase in GAAP earnings, and record quarterly adjusted EPS;

Company updates fiscal 2017 outlook

Ferro Corporation (NYSE: FOE), a leading global provider of functional coatings and color solutions, today reported results for the second quarter ended June 30, 2017.

Second Quarter Financial and Operating Highlights *:

• Net sales increased 17.0%, to $348.6 million
  • Organic sales rose 6.5% on a constant currency basis
• Total volume grew 11.6% and organic volume grew 8.2%
• Achieved gross margin of 31.1% despite raw material headwinds
  • Adjusted gross margin was 31.5%
• Earnings per diluted share increased 13.6% to $0.25
  • Adjusted earnings per diluted share increased 8.8% to $0.37
• Net income attributable to Ferro Corporation common shareholders increased 10.8% to $21.0 million
• Adjusted EBITDA grew 13.6% to $64.3 million

* Comparative percentages are relative to prior-year second quarter.

The results and guidance in this release, including in the highlights above, contain references to non-GAAP measures from continuing operations. Reconciliation of GAAP to non-GAAP results can be found at the end of this release.

Peter Thomas, Chairman, President and CEO, said, “We’ve spent the last few years purposefully developing a growth-oriented culture. Our results over the last few quarters are strong validation that our work is paying off, with market-beating organic growth and strong financial performance. In fact, this was our fourth consecutive quarter of strong sales and earnings growth. We did experience raw material price headwinds in the second quarter, as we anticipated, but our team was able to achieve margins within our expectations through a combination of pricing and optimization actions.

“During the current phase of our strategy, organic and inorganic growth has accelerated. As for organic growth, 20 percent of our revenue now comes from products developed in the last three years and our vitality index continues to expand as a result of our focus on building out our technology platforms. Regarding inorganic growth, we have closed and successfully integrated a range of strategic acquisitions across all three of our major business units.

“The growth and value we have delivered, as well as the healthy pipelines we have for further organic and inorganic growth, give us confidence that the time is right to move on to the next phase of our value creation strategy: Dynamic Innovation and Optimization.

“The Dynamic Innovation and Optimization phase involves more of the same – growth, technology leadership, and efficiency – but with deliberate concentration on extending our portfolio into innovative, next-generation technologies to lead our customers into the future and reinforce our role as a technology market leader. In this phase, we also intend to continually upgrade key facets of our business, positioning the Company for sustainable, profitable growth and more efficient and effective use of our resources. We will invest in initiatives intended to expand our leadership positions, protect our franchises, and generate solid long-term returns for Ferro shareholders as a premier global functional coatings and color solutions company.

2017 Consolidated Second Quarter Results from Continuing Operations

Second quarter net sales were $348.6 million, an increase of 17.0% from $298.0 million in the prior-year quarter. On a constant currency basis, second quarter net sales increased 19.6% compared to the prior-year quarter. Gross profit increased 10.1% to $108.3 million, from $98.4 million. Adjusted gross profit increased 11.8% to $110.0 million from $98.4 million, and the Company achieved an adjusted gross margin of 31.5% despite increases in raw materials costs. Ferro reported net income in the second quarter of $21.2 million, or $0.25 per diluted share, compared with net income of $19.1 million, or $0.22 per diluted share, in the prior-year quarter. On an adjusted basis, earnings per diluted share from continuing operations were $0.37, an increase of 8.8% from $0.34 per diluted share in the prior-year quarter.

 

           

Earnings Per Diluted Share

Q2 2017

Q2 2016

GAAP $ 0.25 $ 0.22 Adjusted (Non-GAAP) $ 0.37 $ 0.34  

In the second quarter of 2017, organic net sales (which exclude acquisitions owned less than 12 months) increased 6.5% on a constant currency basis. This is the Company’s fourth consecutive quarter of organic sales growth.

Net cash provided by operating activities improved 59.7% to $13.1 million, compared to $8.2 million in the prior-year quarter. Ferro’s adjusted free cash flow from continuing operations was $10.1 million, compared to $13.2 million in the prior-year quarter. Adjusted free cash flow from continuing operations is defined as adjusted EBITDA from continuing operations less cash items used to operate the businesses, including cash taxes and interest, changes in working capital, capital expenditures and other cash items.

Second Quarter Segment Results

All three of Ferro’s reporting segments delivered improved financial performance in the quarter.

• Color Solutions (CS) increased sales by 46.9%, to $90.2 million, grew gross profit to $28.4 million, and generated a gross profit margin of 31.5%
• Performance Color & Glass (PCG) increased sales by 11.2%, to $106.6 million, grew gross profit to $40.1 million, and generated a gross profit margin of 37.6%
• Performance Coatings (PC) increased sales by 7.9%, to $151.7 million, grew gross profit to $40.2 million, and generated a gross profit margin of 26.5%.

Outlook

Management is providing adjusted diluted EPS, adjusted EBITDA and adjusted free cash flow from operations guidance on a continuing operations basis. While it is likely that Ferro could incur charges, or have cash flows for items excluded from adjusted diluted EPS, adjusted EBITDA and adjusted free cash flow from continuing operations such as mark-to-market adjustments of pension and other postretirement benefit obligations, restructuring and impairment charges, and legal and professional expenses related to certain business development activities, it is not possible, without unreasonable effort, to identify the amount or significance of these items or the potential for other transactions that may impact future GAAP net income and cash flow from operating activities. Management does not believe these items to be representative of underlying business performance. Management is unable to reconcile, without unreasonable effort, the Company's forecasted range of adjusted EPS, adjusted EBITDA and adjusted free cash from continuing operations to a comparable GAAP measure.

Ferro is updating its full year 2017 guidance based on the Company’s year-to-date performance and the acquisition of SPC in the second quarter of 2017. This guidance reflects the foreign exchange rates consistent with those from our prior guidance of foreign exchange rates as of 12/31/2016.

• Adjusted EPS of $1.22 - $1.27 per diluted share, up from $1.17 - $1.22 per diluted share
• Adjusted EBITDA of $223 million - $228 million, up from $214 million - $219 million
• Adjusted Free Cash Flow from Continuing Operations of $90 million - $100 million, up from $85 million - $95 million
• Consolidated sales growth of 12.0% - 13.0%, up from 8.5% - 9.5%

Ferro’s outlook assumes an exchange rate of 1.05 USD/EUR for the second half of 2017. Ferro generates approximately 35% – 40% of its revenue in Euros, and approximately 25% - 30% in U.S. Dollars. Ferro estimates that a 1% overall change in foreign currency exchange rates, weighted for the countries where it does business, would impact sales and operating profit by approximately $9.0 million and $1.3 million, respectively. Isolating the impact of the Euro, a 1% change in the Euro exchange rate would impact sales and operating profit by approximately $4.9 million and $0.7 million, respectively. If foreign exchange rates stay at the June 30, 2017 levels, Ferro estimates that this would provide a one to two cent tailwind to the above-mentioned EPS outlook.

Constant Currency

Constant currency results reflect the re-measurement of 2016 reported and adjusted local currency results using 2017 exchange rates, resulting in constant currency comparative figures to 2017 reported and adjusted results. These non-GAAP financial measures presented should not be considered as a substitute for the measures of financial performance prepared in accordance with GAAP.

Conference Call

Ferro will conduct an investor teleconference at 10:00 a.m. EDT July 27, 2017. Investors can access this conference via the following:

• Webcast can be accessed by clicking on the Investor Information link at the top of Ferro’s website at ferro.com.
• Live telephone: Call 800-704-8781 within the U.S. or +1 303-223-4364 outside the U.S. Please join the call at least 10 minutes before the start time.
• Webcast replay: Available on Ferro’s Investor website at ferro.com beginning at approximately 12:00 noon Eastern Time on July 27, 2017
• Telephone replay: Call 800-633-8284 within the U.S. or +1 402-977-9140 outside the U.S. (for both U.S. and outside the U.S. access code is 21854980).
• Presentation material & podcast: Earnings presentation material and podcasts can be accessed through the Investor Information portion of the Company’s Web site at ferro.com.

About Ferro Corporation

Ferro Corporation (www.ferro.com) is a leading global supplier of technology-based functional coatings and color solutions. Ferro supplies functional coatings for glass, metal, ceramic and other substrates and color solutions in the form of specialty pigments and colorants for a broad range of industries and applications. Ferro products are sold into the building and construction, automotive, electronics, industrial products, household furnishings and appliance markets. The Company’s reportable segments include: Performance Coatings (metal and ceramic coatings), Performance Colors and Glass (glass coatings), and Color Solutions. Headquartered in Mayfield Heights, Ohio, the Company has approximately 5,230 associates globally and reported 2016 sales of $1.15 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:

• 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 optimization initiatives, including its investment and restructuring programs, and to produce the desired results;
• currency conversion rates and economic, social, political, and regulatory conditions in the U.S. and around the world;
• Ferro’s ability to identify suitable acquisition candidates, complete acquisitions, effectively integrate the businesses and achieve the expected synergies (including, but not limited to, the Smalti per Cermaiche, Cappelle Pigments, Electro-Science Laboratories, Delta Performance Products, Pinturas Benicarló, Ferer, Al Salomi, Nubiola and Vetriceramici transactions), as well as the acquisitions being accretive and Ferro achieving the expected returns on invested capital;
• the effectiveness of the Company’s efforts to improve operating margins through sales growth, price increases, productivity gains, and improved purchasing techniques;
• 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;
• competitive factors, including intense price competition;
• Ferro’s ability to protect its intellectual property, including trade secrets, or to successfully resolve claims of infringement brought against it;
• sale of products and materials into highly regulated industries;
• the impact of operating hazards and investments made in order to meet stringent environmental, health and safety regulations;
• limited or no redundancy for certain of the Company’s manufacturing facilities and possible interruption of operations at those facilities;
• 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 year ended December 31, 2016.

Table 1Ferro Corporation and SubsidiariesCondensed Consolidated Statements of Operations (unaudited)

        (In thousands, except per share amounts) Three Months Ended Six Months Ended June 30, June 30, 2017 2016 2017 2016   Net sales $ 348,632 $ 297,977 $ 669,187 $ 575,428 Cost of sales   240,290   199,604   462,051   392,826 Gross profit 108,342 98,373 207,136 182,602 Selling, general and administrative expenses 62,514 57,871 121,472 110,517 Restructuring and impairment charges 3,224 787 6,242 1,668 Other expense (income): Interest expense 6,449 5,428 12,673 10,275 Interest earned (175) (115) (355) (200) Foreign currency losses, net 4,868 389 4,554 2,000 Loss on extinguishment of debt - - 3,905 - Miscellaneous expense (income), net   1,538   669   (538)   (2,784) Income before income taxes 29,924 33,344 59,183 61,126 Income tax expense   8,695   8,484   15,833   16,502 Income from continuing operations 21,229 24,860 43,350 44,624 Loss from discontinued operations, net of income taxes   -   (5,748)   -   (35,242) Net income 21,229 19,112 43,350 9,382 Less: Net income attributable to noncontrolling interests   204   143   427   379 Net income attributable to Ferro Corporation common shareholders $ 21,025 $ 18,969 $ 42,923 $ 9,003   Earnings (loss) per share attributable to Ferro Corporation common shareholders: Basic earnings (loss): Continuing operations $ 0.25 $ 0.30 $ 0.51 $ 0.53 Discontinued operations   -   (0.07)   -   (0.42) $ 0.25 $ 0.23 $ 0.51 $ 0.11   Diluted earnings (loss): Continuing operations $ 0.25 $ 0.29 $ 0.50 $ 0.53 Discontinued operations   -   (0.07)   -   (0.42) $ 0.25 $ 0.22 $ 0.50 $ 0.11 Shares outstanding: Weighted-average basic shares 83,673 83,209 83,602 83,260 Weighted-average diluted shares 85,277 84,424 85,080 84,199 End-of-period basic shares 83,694 83,228 83,694 83,228  

Table 2Ferro Corporation and SubsidiariesSegment Net Sales and Gross Profit (unaudited)

        (Dollars in thousands) Three Months Ended Six Months Ended June 30, June 30, 2017 2016 2017 2016 Segment Net Sales Performance Coatings $ 151,746 $ 140,589 $ 278,311 $ 268,713 Performance Colors and Glass 106,637 95,933 210,155 184,103 Color Solutions   90,249   61,455   180,721   122,612 Total segment net sales $ 348,632 $ 297,977 $ 669,187 $ 575,428   Segment Gross Profit Performance Coatings $ 40,246 $ 39,234 $ 73,735 $ 71,349 Performance Colors and Glass 40,087 36,705 77,505 68,543 Color Solutions 28,416 22,404 56,598 42,690 Other costs of sales   (407)   30   (702)   20 Total gross profit $ 108,342 $ 98,373 $ 207,136 $ 182,602   Selling, general and administrative expenses Strategic services $ 33,013 $ 29,012 $ 64,673 $ 57,416 Functional services 24,368 23,487 47,113 44,118 Incentive compensation 2,465 3,161 4,295 5,146 Stock-based compensation   2,668   2,211   5,391   3,837 Total selling, general and administrative expenses $ 62,514 $ 57,871 $ 121,472 $ 110,517   Restructuring and impairment charges 3,224 787 6,242 1,668 Other expense, net   12,680   6,371   20,239   9,291 Income before income taxes $ 29,924 $ 33,344 $ 59,183 $ 61,126  

Table 3Ferro Corporation and SubsidiariesCondensed Consolidated Balance Sheets (unaudited)

    (Dollars in thousands) June 30, December 31, 2017 2016 ASSETS Current assets Cash and cash equivalents $ 78,866 $ 45,582 Accounts receivable, net 330,461 259,687 Inventories 272,180 229,847 Other receivables 40,893 37,814 Other current assets   13,808   9,087 Total current assets 736,208 582,017 Other assets Property, plant and equipment, net 273,964 262,026 Goodwill 157,828 148,296 Intangible assets, net 142,524 137,850 Deferred income taxes 115,181 106,454 Other non-current assets   52,096   47,126 Total assets $ 1,477,801 $ 1,283,769   LIABILITIES AND EQUITY Current liabilities Loans payable and current portion of long-term debt $ 23,051 $ 17,310 Accounts payable 158,659 127,655 Accrued payrolls 35,151 35,859 Accrued expenses and other current liabilities   70,571   65,203 Total current liabilities 287,432 246,027 Other liabilities Long-term debt, less current portion 637,863 557,175 Postretirement and pension liabilities 168,231 162,941 Other non-current liabilities   61,383   62,594 Total liabilities 1,154,909 1,028,737 Equity Total Ferro Corporation shareholders’ equity 314,904 247,113 Noncontrolling interests   7,988   7,919 Total liabilities and equity $ 1,477,801 $ 1,283,769  

Table 4Ferro Corporation and SubsidiariesCondensed Consolidated Statements of Cash Flows (unaudited)

        (Dollars in thousands) Three Months Ended Six Months Ended June 30, June 30, 2017 2016 2017 2016 Cash flows from operating activities Net income $ 21,229 $ 19,112 $ 43,350 $ 9,382 Loss (gain) on sale of assets and business 866 309 1,285 (3,774) Depreciation and amortization 11,781 11,257 23,156 21,929 Interest amortization 953 329 1,432 644 Restructuring and impairment 1,046 (513) 3,874 23,651 Loss on extinguishment of debt - - 3,905 - Accounts receivable (21,564) (18,105) (48,183) (41,687) Inventories (11,545) (9,989) (28,659) (17,695) Accounts payable 5,934 (2,329) 14,122 3,226 Other current assets and liabilities, net (1,846) 1,092 (5,111) 2,968 Other adjustments, net   6,221   7,023   5,534   (619) Net cash provided by (used in) operating activities 13,075 8,186 14,705 (1,975)   Cash flows from investing activities Capital expenditures for property, plant and equipment and other long lived assets (10,128) (6,679) (16,894) (14,044) Proceeds from sale of assets 143 11 145 3,597 Business acquisitions, net of cash acquired   (14,752)   1,270   (14,752)   (6,639) Net cash used in investing activities (24,737) (5,398) (31,501) (17,086)   Cash flows from financing activities Net (repayments) borrowings under loans payable (1,660) (530) (5,645) 3,031 Proceeds from revolving credit facility, maturing 2019 - 45,682 15,628 163,516 Principal payments on revolving credit facility, maturing 2019 - (52,494) (327,183) (92,706) Principal payments on term loan facility, maturing 2021 - (750) (243,250) (51,500) Principal payments on term loan facility, maturing 2024 (1,596) (1,596) Proceeds from term loan facility, maturing 2024 - - 623,827 - Payment of debt issuance costs (215) - (12,927) (301) Purchase of treasury stock - - - (11,429) Other financing activities   (540)   (286)   (930)   211 Net cash (used in) provided by financing activities (4,011) (8,378) 47,924 10,822 Effect of exchange rate changes on cash and cash equivalents   1,710   (859)   2,156   (725) (Decrease) increase in cash and cash equivalents (13,963) (6,449) 33,284 (8,964) Cash and cash equivalents at beginning of period   92,829   55,865   45,582   58,380 Cash and cash equivalents at end of period $ 78,866 $ 49,416 $ 78,866 $ 49,416   Cash paid during the period for: Interest $ 8,179 $ 4,520 $ 14,714 $ 9,283 Income taxes $ 5,416 $ 4,763 $ 9,513 $ 7,432  

Table 5Ferro Corporation and SubsidiariesSupplemental InformationReconciliation of Reported Income to Adjusted IncomeFor the Three Months Ended June 30 (unaudited)

                (Dollars in thousands, except per share amounts)

Cost ofsales

Sellinggeneral andadministrativeexpenses

Restructuringandimpairmentcharges

Otherexpense,net

Income taxexpense3

Net incomeattributableto commonshareholders

Dilutedearningsper share

                                        2017   As reported $ 240,290 $ 62,514 $ 3,224 $ 12,680 $ 8,695 $ 21,025 $ 0.25 Special items: Restructuring - - (3,224) - 584 2,640 0.03 Other1   (1,631)     (5,023)   -   (4,159)   3,267   7,546   0.09 Total special items4   (1,631)   (5,023)   (3,224)   (4,159)   3,851   10,186   0.12 As adjusted $ 238,659 $ 57,491 $ - $ 8,521 $ 12,546 $ 31,211 $ 0.37                                           2016   As reported $ 199,604 $ 57,871 $ 787 $ 6,371 $ 8,484 $ 18,969 $ 0.22 Special items: Restructuring - - (787) - 244 543 0.01 Other2 - (4,810) - (700) 1,902 3,608 0.04 Discontinued operations     -   -   -   -   -   5,748   0.07 Total special items4   -   (4,810)   (787)   (700)   2,146   9,899   0.12 As adjusted $ 199,604 $ 53,061 $ - $ 5,671 $ 10,630 $ 28,868 $ 0.34         (1)   The adjustments to “Cost of Sales” primarily include the amortization of purchase accounting adjustments related to our recent acquisitions, and other acquisition costs. The adjustments to “Selling, general and administrative expenses” primarily include legal, professional and other expenses related to certain business development activities. The adjustments to “Other expense, net” primarily relate to the FX loss incurred on our Euro-denominated term loan, a loss on an equity method investment, and a loss on an asset sale during the quarter. (2) The adjustments to “Selling, general and administrative expenses” primarily include legal, professional and other expenses related to certain business development activities. The adjustments to “Other expense, net” primarily relate to the finalization of the purchase price for the acquisition of Vetriceramici. (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, certain purchase accounting adjustments 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 6Ferro Corporation and SubsidiariesSupplemental InformationReconciliation of Reported Income to Adjusted IncomeFor the Six Months Ended June 30 (unaudited)

              (Dollars in thousands, except per share amounts)

Cost ofsales

Sellinggeneral andadministrativeexpenses

Restructuringandimpairmentcharges

Otherexpense,net

Incometaxexpense3

Net incomeattributableto commonshareholders

Dilutedearningsper share

                                        2017   As reported $ 462,051 $ 121,472 $ 6,242 $ 20,239 $ 15,833 $ 42,923 $ 0.50 Special items: Restructuring - - (6,242) - 1,596 4,646 0.05 Other1   (4,268)   (7,573)   -   (5,333)   6,942   10,232   0.12 Total special items4   (4,268)   (7,573)   (6,242)   (5,333)   8,538   14,878   0.17 As adjusted $ 457,783 $ 113,899 $ - $ 14,906 $ 24,371 $ 57,801 $ 0.68                                           2016   As reported $ 392,826 $ 110,517 $ 1,668 $ 9,291 $ 16,502 $ 9,003 $ 0.11 Special items: Restructuring - - (1,668) - 515 1,153 0.01 Other2 - (6,241) - 3,065 1,267 1,909 0.02 Discontinued operations   -   -   -   -   -   35,242   0.42 Total special items4   -   (6,241)   (1,668)   3,065   1,782   38,304   0.45 As adjusted $ 392,826 $ 104,276 $ - $ 12,356 $ 18,284 $ 47,307 $ 0.56         (1)   The adjustments to “Cost of Sales” primarily include the amortization of purchase accounting adjustments related to our recent acquisitions, and other acquisition costs. The adjustments to “Selling, general and administrative expenses” primarily include legal, professional and other expenses related to certain business development activities. The adjustments to “Other expense, net” primarily relate to the FX loss incurred on our Euro-denominated term loan, a loss on an equity method investment, the loss/gain on an asset sale, debt extinguishment costs and a reduction of a contingent liability in Argentina. (2) The adjustments to “Selling, general and administrative expenses” primarily include legal, professional and other expenses related to certain business development activities. The adjustments to “Other expense, net” primarily relate to the gain on an asset sale that was recognized, and the finalization of the purchase price for the acquisition of Vetriceramici. (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, gain on sale of assets, debt extinguishment costs, certain purchase accounting adjustments 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 7Ferro Corporation and SubsidiariesSupplemental InformationReconciliation of Adjusted Gross Profit (unaudited)

        (Dollars in thousands) Three Months Ended Six Months Ended June 30, June 30, 2017 2016 2017 2016   Performance Coatings $ 151,746 $ 140,589 $ 278,311 $ 268,713 Performance Colors and Glass 106,637 95,933 210,155 184,103 Color Solutions   90,249     61,455     180,721     122,612   Total net sales $ 348,632   $ 297,977   $ 669,187   $ 575,428     Total net sales $ 348,632 $ 297,977 $ 669,187 $ 575,428 Adjusted cost of sales1   238,659     199,604     457,783     392,826   Adjusted gross profit $ 109,973   $ 98,373   $ 211,404   $ 182,602   Adjusted gross profit percentage 31.5 % 33.0 % 31.6 % 31.7 %         (1)   Refer to Table 5 and Table 6 for the reconciliation of cost of sales to adjusted cost of sales for the three and six months ended June 30, 2017 and 2016, 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 exclude certain items, primarily comprised of the amortization of purchase accounting adjustments related to our recent acquisitions, and other acquisition costs. 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 8Ferro Corporation and SubsidiariesSupplemental InformationConstant Currency Schedule of Adjusted Operating Profit (unaudited)

        Three Months Ended (Dollars in thousands) June 30, 2016

Adjusted20161

2017

2017 vs Adjusted2016

Segment net sales Performance Coatings $ 140,589 $ 136,083 $ 151,746 $ 15,663 Performance Colors and Glass 95,933 94,423 106,637 12,214 Color Solutions   61,455   60,907   90,249   29,342 Total segment net sales $ 297,977 $ 291,413 $ 348,632 $ 57,219   Segment adjusted gross profit Performance Coatings $ 39,234 $ 37,998 $ 40,889 $ 2,891 Performance Colors and Glass 36,705 36,123 40,405 4,282 Color Solutions 22,404 22,249 28,962 6,713 Other costs of sales   30   28   (283)   (311) Total adjusted gross profit2 $ 98,373 $ 96,398 $ 109,973 $ 13,575   Adjusted selling, general and administrative expenses Strategic services $ 29,012 $ 28,349 $ 32,715 $ 4,366 Functional services 18,677 18,477 19,643 1,166 Incentive compensation 3,161 3,138 2,465 (673) Stock-based compensation   2,211   2,211   2,668   457 Total adjusted selling, general and administrative expenses3 $ 53,061 $ 52,175 $ 57,491 $ 5,316   Adjusted operating profit $ 45,312 $ 44,223 $ 52,482 $ 8,259 Adjusted operating profit as a % of net sales 15.2% 15.2% 15.1%         (1)   Reflects the remeasurement of 2016 reported and adjusted local currency results using 2017 exchange rates, resulting in constant currency comparative figures to 2017 reported and adjusted results. See Table 5 for non-GAAP adjustments applicable to the three month period. (2) Refer to Table 7 for the reconciliation of adjusted gross profit for the three months ended June 30, 2017 and 2016, respectively. (3) Refer to Table 5 for the reconciliation of SG&A expenses to adjusted SG&A expenses for the three months ended June 30, 2017 and 2016, respectively.   It should be noted that adjusted 2016 results is a financial measure not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). This non-GAAP financial measure should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of this financial measure to the most comparable U.S. GAAP financial measures is presented. 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 9Ferro Corporation and SubsidiariesSupplemental InformationConstant Currency Schedule of Adjusted Operating Profit (unaudited)

        Six Months Ended (Dollars in thousands) June 30, 2016

Adjusted20161

2017

2017 vsAdjusted 2016

Segment net sales Performance Coatings $ 268,713 $ 258,819 $ 278,311 $ 19,492 Performance Colors and Glass 184,103 180,998 210,155 29,157 Color Solutions   122,612   121,435   180,721   59,286 Total segment net sales $ 575,428 $ 561,252 $ 669,187 $ 107,935   Segment adjusted gross profit Performance Coatings $ 71,349 $ 68,646 $ 74,378 $ 5,732 Performance Colors and Glass 68,543 67,411 78,290 10,879 Color Solutions 42,690 42,320 59,262 16,942 Other costs of sales   20   18   (526)   (544) Total adjusted gross profit2 $ 182,602 $ 178,395 $ 211,404 $ 33,009   Adjusted selling, general and administrative expenses Strategic services $ 57,416 $ 55,934 $ 64,300 $ 8,366 Functional services 37,877 37,507 39,913 2,406 Incentive compensation 5,146 5,084 4,295 (789) Stock-based compensation   3,837   3,837   5,391   1,554 Total adjusted selling, general and administrative expenses3 $ 104,276 $ 102,362 $ 113,899 $ 11,537   Adjusted operating profit $ 78,326 $ 76,033 $ 97,505 $ 21,472 Adjusted operating profit as a % of net sales 13.6% 13.5% 14.6%         (1)   Reflects the remeasurement of 2016 reported and adjusted local currency results using 2017 exchange rates, resulting in constant currency comparative figures to 2017 reported and adjusted results. See Table 6 for non-GAAP adjustments applicable to the six month period. (2) Refer to Table 7 for the reconciliation of adjusted gross profit for the six months ended June 30, 2017 and 2016, respectively. (3) Refer to Table 6 for the reconciliation of SG&A expenses to adjusted SG&A expenses for the six months ended June 30, 2017 and 2016, respectively.   It should be noted that adjusted 2016 results is a financial measure not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). This non-GAAP financial measure should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of this financial measure to the most comparable U.S. GAAP financial measures is presented. 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 10Ferro Corporation and SubsidiariesSupplemental InformationReconciliation of Net income attributable to Ferro Corporation common shareholders to Adjusted EBITDA (unaudited)

        (Dollars in thousands) Three Months Ended Six Months Ended June 30, June 30, 2017 2016 2017 2016   Net income attributable to Ferro Corporation common shareholders $ 21,025 $ 18,969 $ 42,923 $ 9,003 Net income attributable to noncontrolling interests 204 143 427 379 Loss from discontinued operations, net of income taxes - 5,748 - 35,242 Restructuring and impairment charges 3,224 787 6,242 1,668 Other expense (income), net 6,231 943 7,566 (984) Interest expense 6,449 5,428 12,673 10,275 Income tax expense 8,695 8,484 15,833 16,502 Depreciation and amortization 12,734 11,586 24,588 22,573 Less: interest amortization expense and other (953) (329) (1,432) (644) Cost of sales adjustments1 1,631 - 4,268 - SG&A adjustments1   5,023     4,810     7,573     6,241   Adjusted EBITDA $ 64,263   $ 56,569   $ 120,661   $ 100,255     Net sales $ 348,632 $ 297,977 $ 669,187 $ 575,428 Adjusted EBITDA as a % of net sales 18.4 % 19.0 % 18.0 % 17.4 %         (1)   For details of 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 six months ended June 30, 2017 and 2016, respectively.   It should be noted that adjusted EBITDA is a financial measure not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). This non-GAAP financial measure should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of this financial measure to the most comparable U.S. GAAP financial measures is presented. Adjusted EBITDA is net income attributable to Ferro Corporation common shareholders before the effects of net income attributable to noncontrolling interests, discontinued operations, restructuring and impairment charges, other expense (income), 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 11Ferro Corporation and SubsidiariesSupplemental InformationReturn on Invested CapitalFor the Rolling Twelve Months Ended (unaudited)

    (Dollars in thousands) June 30, December 31, 2017 2016   Gross profit $ 375,751 $ 351,217 Selling, general and administrative expenses 252,657 241,702 Total operating profit 123,094 109,515 Non-GAAP adjustments1 48,410 42,688 Adjusted operating profit before tax 171,504 152,203 Less: Tax expense2   (47,164)   (40,182) Adjusted net operating profit after tax (NOPAT) $ 124,340 $ 112,021   Recent acquisitions3 NOPAT gain   8,532   2,535 Adjusted net operating profit after tax excluding recent acquisitions $ 115,808 $ 109,486   Equity 322,892 255,032 Debt 660,914 574,485 Off balance sheet precious metal leases 33,415 28,743 Postretirement and pension liabilities 168,231 162,941 Environmental liabilities 12,090 15,531 Cash   (78,866)   (45,582) Invested capital $ 1,118,676 $ 991,150   Return on invested capital 11.1% 11.3%   Less: recent acquisitions3 invested capital   148,509   143,047 Invested capital excluding recent acquisitions $ 970,167 $ 848,103   Return on invested capital excluding recent acquisitions 11.9% 12.9%         (1)   The “Non-GAAP adjustments” include non-GAAP adjustments to cost of sales and non-GAAP adjustments to SG&A for the rolling twelve months ended June 30, 2017 and December 31, 2016. The “Non-GAAP adjustments” also includes precious metal lease fees which were $0.9 million and $0.8 million for the rolling twelve months ended June 30, 2017 and December 31, 2016, respectively. (2) Operating profit for 2017 and 2016 is tax effected at 27.5% and 26.4%, respectively. (3) For the rolling twelve months ended June 30, 2017, the recent acquisitions include Delta Performance Products, ESL, Cappelle and SPC. For the rolling twelve months ended December 31, 2016, the recent acquisitions include Ferer, Pinturas, Delta Performance Products, ESL and Cappelle. Acquisitions are removed from being included in the recent acquisitions line item after the acquisitions are included in the Company for a full year.   It should be noted that adjusted net 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. Adjusted net operating profit after tax is operating profit from continuing operations, adjusted for 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 12Ferro Corporation and SubsidiariesSupplemental InformationChange in Net Debt (unaudited)

        (Dollars in thousands) Three Months Ended Six Months Ended June 30, June 30, 2017 2016 2017 2016 Beginning of period Gross debt $ 643,173 $ 508,689 $ 578,205 $ 478,087 Cash   92,829   55,865   45,582   58,380 Debt, net of cash 550,344 452,824 532,623 419,707   Unamortized debt issuance costs   8,206   4,329   3,720   4,533 Debt, net of cash and unamortized debt issuance costs 542,138 448,495 528,903 415,174   End of period Gross debt 668,993 500,039 668,993 500,039 Cash   78,866   49,416   78,866   49,416 Debt, net of cash 590,127 450,623 590,127 450,623   Unamortized debt issuance costs   8,079   4,152   8,079   4,152 Debt, net of cash and unamortized debt issuance costs 582,048 446,471 582,048 446,471   Change from FX on Euro term loan debt (19,259) - (19,232) - Assumption of debt from acquisitions (7,975) - (7,975) -   Period (increase) decrease in debt, net of cash, unamortized debt issuance costs, FX, and assumption of debt from acquisitions $ (12,549) $ 2,201 $ (30,297) $ (30,916)   Period (increase) decrease in debt, net of cash and unamortized debt issuance costs $ (39,910) $ 2,024 $ (53,145) $ (31,297)   We believe that given the significant cash and cash equivalents on the balance sheet that the change in net cash against outstanding debt, net debt, between periods is a meaningful measure.  

Table 13Ferro Corporation and SubsidiariesSupplemental InformationAdjusted Free Cash Flow from Continuing Operations (unaudited)

      (Dollars in thousands) Three Months Ended Six Months Ended June 30, June 30, 2017   2016   2017   2016 As Adjusted   Adjusted EBITDA1 $ 64,263 $ 56,569 $ 120,661 $ 100,255 Capital expenditures (10,128) (6,016) (16,894) (13,222) Working capital (27,175) (28,833) (62,720) (51,517) Cash income taxes (5,416) (4,763) (9,513) (7,432) Cash interest (8,179) (4,520) (14,714) (9,283) Pension (820) (1,576) (1,439) (2,498) Incentive compensation payments - - (12,224) (8,802) Other   (2,463)   2,332   4,683   2,939 Free Cash Flow from Continuing Operations $ 10,082 $ 13,193 $ 7,840 $ 10,440   Discontinued operations - (7,146) - (15,729) Restructuring/Other (3,761) (1,271) (4,197) (2,076) Outflows from M&A activity (18,655) (2,575) (21,013) (12,122) Debt issuance costs (215) - (12,927) - Stock repurchase - - - (11,429)                 Period (increase) decrease in debt, net of cash, unamortized debt issuance costs, FX, and assumption of debt from acquisitions $ (12,549) $ 2,201 $ (30,297) $ (30,916)   Change in unamortized debt issuance costs (127) (177) 4,359 (381) Change from FX on Euro term loan debt (19,259) - (19,232) - Assumption of debt from acquisitions (7,975) - (7,975) -                 Period (increase) decrease in debt, net of cash and unamortized debt issuance costs $ (39,910) $ 2,024 $ (53,145) $ (31,297)         (1)   See Table 10 for the reconciliation of net income attributable to Ferro Corporation common shareholders to adjusted EBITDA. (2) See Table 12 for the reconciliation of gross and net debt.   It should be noted that adjusted EBITDA and adjusted 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 attributable to Ferro Corporation common shareholders before the effects of income attributable to noncontrolling interest, discontinued operations, restructuring and impairment charges, other expense (income) net, interest expense, income tax expense, depreciation and amortization, non-GAAP adjustments to cost of sales, and non-GAAP adjustments to SG&A. Adjusted Free Cash Flow from Continuing Operations is adjusted EBITDA less capital expenditures, changes in working capital, cash income taxes, cash interest, pension contributions, incentive compensation payments, and other continuing operations 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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Ferro CorporationInvestor Contact:Kevin Cornelius Grant, 216-875-5451Investor Relationskevincornelius.grant@ferro.comorMedia Contact:Mary Abood, 216-875-5401Director, Corporate Communicationsmary.abood@ferro.com