Ferro Corporation and Subsidiaries
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On December 19, 2014, Ferro Corporation (the “Company”) and its subsidiaries, Ferro (Belgium) Sprl and Ferro Mexicana S.A. de C.V. (the “Sellers”), sold substantially all of the assets related to the Company’s North America-based Polymer Additives business for a cash purchase price of $153.5 million, subject to customary working capital and other purchase price adjustments, to Polymer Additives, Inc., a wholly owned portfolio company of H.I.G. Capital, LLC, pursuant to the terms and conditions of an asset purchase agreement (the “Asset Purchase Agreement”) that the Company, the Sellers, and Polymer Additives, Inc. entered into concurrently with the sale. Assets included in the transaction are the Company’s four plants in the United States, its manufacturing operation in Newport, United Kingdom, certain assets at the Company’s former Baton Rouge, Louisiana plant and its polymer additives research and development lab in Independence, Ohio. The four plants in the United States that were sold are located in Bridgeport, New Jersey; Cleveland, Ohio; Walton Hills, Ohio; and Fort Worth, Texas. The net cash proceeds are estimated to be approximately $142.5 million after expenses and income taxes.
Excluded from this transaction are the Company’s Europe-based Polymer Additives assets, including the Antwerp, Belgium dibenzoates manufacturing assets, and related Polymer Additives European headquarters and lab facilities.
The following unaudited pro forma condensed consolidated financial information of Ferro Corporation and its subsidiaries is presented to comply with Article 11 of Regulation S-X and follows prescribed SEC regulations. The unaudited pro forma condensed consolidated financial information is not intended to present what the Company’s results would have been had the disposition actually occurred on the dates indicated or to project the Company’s results from operations or financial position for any future period. The prescribed regulations limit pro forma adjustments to those that are directly attributable to the disposition. Consequently, the Company has not reflected within the pro forma condensed consolidated financial information an allocation of any indirect corporate overhead or costs, such as administrative corporate functions, or any other costs that were shared with any retained business of the Company. As a result, such costs are reflected within the retained business. The pro forma adjustments are described in the accompanying notes to the unaudited pro forma condensed consolidated financial information.
The unaudited pro forma condensed consolidated balance sheet as of September 30, 2014, presents pro forma effects of the transaction as if the sale of the assets related to the Company’s North America-based Polymer Additives business and the Specialty Plastics business had occurred on September 30, 2014. The unaudited pro forma condensed consolidated statement of operations for the nine months ended September 30, 2014, and the fiscal years ended December 31, 2013, 2012, and 2011, present the pro forma effects as if the sale of the assets related to the Company’s North America-based Polymer Additives business and the Specialty Plastics business had occurred on January 1, 2011. The sale of the Specialty Plastics business was previously disclosed.
The preparation of this unaudited condensed consolidated pro forma financial information requires management to make estimates and assumptions based upon the information known at that time. Actual results could differ from these estimates.
This unaudited pro forma condensed consolidated financial information should be read in conjunction with the historical financial information and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014.
Ferro Corporation (Pro Forma – unaudited): | Page |
Condensed Consolidated Statement of Operations for the Nine Months Ended September 30, 2014 | F-2 |
Condensed Consolidated Statement of Operations for the Year Ended December 31, 2013 | F-3 |
Condensed Consolidated Statement of Operations for the Year Ended December 31, 2012 | F-4 |
Condensed Consolidated Statement of Operations for the Year Ended December 31, 2011 | F-5 |
Condensed Consolidated Balance Sheet as of September 30, 2014 | F-6 |
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information | F-7 |
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Ferro Corporation and Subsidiaries |
Unaudited Pro Forma Condensed Consolidated Statement of Operations |
Nine Months Ended September 30, 2014 |
| | | | | | | | | | | | |
| | | | | | Pro Forma Adjustments | | | |
| | | As Reported | | | Specialty Plastics Disposition
(a) | | | Polymer Additives Disposition
(b) | | | Pro Forma |
| | | (In thousands, except per share amounts) |
| | | | | | | | | | | | |
Net sales | | $ | 850,698 | | $ | — | | $ | — | | $ | 850,698 |
Cost of sales | | | 624,487 | | | — | | | — | | | 624,487 |
Gross profit | | | 226,211 | | | — | | | — | | | 226,211 |
Selling, general and administrative expenses | | | 152,345 | | | — | | | — | | | 152,345 |
Restructuring and impairment charges | | | 7,829 | | | — | | | — | | | 7,829 |
Other expense (income): | | | | | | | | | | | | |
Interest expense | | | 12,819 | | | — | | | — | | | 12,819 |
Interest earned | | | (52) | | | — | | | — | | | (52) |
Loss on extinguishment of debt | | | 14,352 | | | — | | | — | | | 14,352 |
Foreign currency gains, net | | | 1,043 | | | — | | | — | | | 1,043 |
Miscellaneous income, net | | | 4,038 | | | — | | | — | | | 4,038 |
Income before income taxes | | | 33,837 | | | — | | | — | | | 33,837 |
Income tax expense | | | 12,347 | | | — | | | — | | | 12,347 |
Loss from continuing operations | | | 21,490 | | | — | | | — | | | 21,490 |
Income (loss) from discontinued operations, net of taxes | | | 53,188 | | | (59,989) | | | (13,018) | | | (19,819) |
Net income (loss) | | | 74,678 | | | (59,989) | | | (13,018) | | | 1,671 |
Less: Net income attributable to noncontrolling interests | | | 49 | | | — | | | — | | | 49 |
Net income (loss) attributable to Ferro Corporation common shareholders | | $ | 74,629 | | $ | (59,989) | | $ | (13,018) | | $ | 1,622 |
| | | | | | | | | | | | |
Weighted-average common shares outstanding | | | 86,898 | | | | | | | | | 86,898 |
Incremental common shares attributable to performance shares, deferred stock units, restricted stock units and stock options | | | 1,440 | | | | | | | | | 1,440 |
Weighted-average diluted shares outstanding | | | 88,338 | | | | | | | | | 88,338 |
| | | | | | | | | | | | |
(Loss) earnings per share attributable to Ferro Corporation common shareholders: | | | | | | | | | | | | |
Basic (loss) earnings: | | | | | | | | | | | | |
Continuing operations | | $ | 0.25 | | | | | | | | $ | 0.25 |
Discontinued operations | | | 0.61 | | | | | | | | | (0.23) |
| | $ | 0.86 | | | | | | | | $ | 0.02 |
Diluted (loss) earnings: | | | | | | | | | | | | |
Continuing operations | | $ | 0.24 | | | | | | | | $ | 0.24 |
Discontinued operations | | | 0.60 | | | | | | | | | (0.23) |
| | $ | 0.84 | | | | | | | | $ | 0.01 |
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
Ferro Corporation and Subsidiaries |
Unaudited Pro Forma Condensed Consolidated Statement of Operations |
For the Year Ended December 31, 2013 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | Pro Forma Adjustments | | | |
| | | As Reported | | | Specialty Plastics Disposition
(a) | | | Polymer Additives Disposition
(b) | | | Pro Forma |
| | | (In thousands, except per share amounts) |
| | | | | | | | | | | | |
Net sales | | $ | 1,635,406 | | $ | (154,171) | | $ | (234,031) | | $ | 1,247,204 |
Cost of sales | | | 1,305,682 | | | (129,486) | | | (207,558) | | | 968,638 |
Gross profit | | | 329,724 | | | (24,685) | | | (26,473) | | | 278,566 |
Selling, general and administrative expenses | | | 176,282 | | | (11,058) | | | (10,283) | | | 154,941 |
Restructuring and impairment charges | | | 41,733 | | | (422) | | | (79) | | | 41,232 |
Other expense (income): | | | | | | | | | | | | |
Interest expense | | | 27,333 | | | (1,327) | | | (5,019) | | | 20,987 |
Interest earned | | | (271) | | | — | | | — | | | (271) |
Foreign currency losses, net | | | 4,183 | | | 10 | | | — | | | 4,193 |
Miscellaneous income, net | | | (15,269) | | | 14 | | | (112) | | | (15,367) |
Income before income taxes | | | 95,733 | | | (11,902) | | | (10,980) | | | 72,851 |
Income tax expense | | | 14,867 | | | (433) | | | (154) | | | 14,280 |
Income from continuing operations | | | 80,866 | | | (11,469) | | | (10,826) | | | 58,571 |
Less: Net income attributable to noncontrolling interests | | | 503 | | | — | | | — | | | 503 |
Income from continuing operations attributable to Ferro Corporation | | $ | 80,363 | | $ | (11,469) | | $ | (10,826) | | $ | 58,068 |
| | | | | | | | | | | | |
Weighted-average common shares outstanding | | | 86,484 | | | | | | | | | 86,484 |
Incremental common shares attributable to performance shares, deferred stock units, restricted stock units and stock options | | | 1,013 | | | | | | | | | 1,013 |
Weighted-average diluted shares outstanding | | | 87,497 | | | | | | | | | 87,497 |
| | | | | | | | | | | | |
Earnings per share attributable to Ferro Corporation common shareholders: | | | | | | | | | | | | |
Basic earnings: | | | | | | | | | | | | |
Continuing operations | | $ | 0.93 | | | | | | | | $ | 0.67 |
Diluted earnings: | | | | | | | | | | | | |
Continuing operations | | $ | 0.92 | | | | | | | | $ | 0.66 |
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
Ferro Corporation and Subsidiaries |
Unaudited Pro Forma Condensed Consolidated Statement of Operations |
For the Year Ended December 31, 2012 |
| | | | | | | | | | | | |
| | | | | | Pro Forma Adjustments | | | |
| | | As Reported | | | Specialty Plastics Disposition
(a) | | | Polymer Additives Disposition
(b) | | | Pro Forma |
| | | (In thousands, except per share amounts) |
| | | | | | | | | | | | |
Net sales | | $ | 1,744,613 | | $ | (156,312) | | $ | (259,780) | | $ | 1,328,521 |
Cost of sales | | | 1,455,043 | | | (130,003) | | | (230,257) | | | 1,094,783 |
Gross profit | | | 289,570 | | | (26,309) | | | (29,523) | | | 233,738 |
Selling, general and administrative expenses | | | 297,755 | | | (10,908) | | | (10,126) | | | 276,721 |
Restructuring and impairment charges | | | 225,724 | | | — | | | — | | | 225,724 |
Other expense (income): | | | | | | | | | | | | |
Interest expense | | | 26,461 | | | (1,007) | | | (3,764) | | | 21,690 |
Interest earned | | | (311) | | | — | | | — | | | (311) |
Foreign currency losses, net | | | 2,186 | | | (10) | | | — | | | 2,176 |
Miscellaneous expense, net | | | 3,095 | | | 16 | | | (322) | | | 2,789 |
Loss before income taxes | | | (265,340) | | | (14,400) | | | (15,311) | | | (295,051) |
Income tax expense | | | 108,850 | | | (5,329) | | | (5,982) | | | 97,539 |
Loss from continuing operations | | | (374,190) | | | (9,071) | | | (9,329) | | | (392,590) |
Less: Net income attributable to noncontrolling interests | | | 1,234 | | | — | | | — | | | 1,234 |
Loss from continuing operations attributable to Ferro Corporation | | $ | (375,424) | | $ | (9,071) | | $ | (9,329) | | $ | (393,824) |
| | | | | | | | | | | | |
Weighted-average common shares outstanding | | | 86,288 | | | | | | | | | 86,288 |
Incremental common shares attributable to performance shares, deferred stock units, restricted stock units and stock options | | | — | | | | | | | | | — |
Weighted-average diluted shares outstanding | | | 86,288 | | | | | | | | | 86,288 |
| | | | | | | | | | | | |
Loss per share attributable to Ferro Corporation common shareholders: | | | | | | | | | | | | |
Basic loss: | | | | | | | | | | | | |
Continuing operations | | $ | (4.35) | | | | | | | | $ | (4.56) |
Diluted loss earnings: | | | | | | | | | | | | |
Continuing operations | | $ | (4.35) | | | | | | | | $ | (4.56) |
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
Ferro Corporation and Subsidiaries |
Unaudited Pro Forma Condensed Consolidated Statement of Operations |
For the Year Ended December 31, 2011 |
| | | | | | | | | | | | |
| | | | | | Pro Forma Adjustments | | | |
| | | As Reported | | | Specialty Plastics Disposition
(a) | | | Polymer Additives Disposition
(b) | | | Pro Forma |
| | | (In thousands, except per share amounts) |
| | | | | | | | | | | | |
Net sales | | $ | 2,130,853 | | $ | (159,357) | | $ | (261,726) | | $ | 1,709,770 |
Cost of sales | | | 1,728,048 | | | (136,454) | | | (235,157) | | | 1,356,437 |
Gross profit | | | 402,805 | | | (22,903) | | | (26,569) | | | 353,333 |
Selling, general and administrative expenses | | | 330,450 | | | (11,659) | | | (10,797) | | | 307,994 |
Restructuring and impairment charges | | | 17,030 | | | — | | | (8) | | | 17,022 |
Other expense (income): | | | | | | | | | | | | |
Interest expense | | | 27,190 | | | (819) | | | (3,277) | | | 23,094 |
Interest earned | | | (285) | | | — | | | — | | | (285) |
Foreign currency losses, net | | | 4,758 | | | — | | | — | | | 4,758 |
Miscellaneous expense, net | | | 2,572 | | | 10 | | | (469) | | | 2,113 |
Income (loss) before income taxes | | | 21,090 | | | (10,435) | | | (12,018) | | | (1,363) |
Income tax expense | | | 18,132 | | | (3,532) | | | (2,669) | | | 11,931 |
Income (loss) from continuing operations | | | 2,958 | | | (6,903) | | | (9,349) | | | (13,294) |
Less: Net income attributable to noncontrolling interests | | | 730 | | | — | | | — | | | 730 |
Income (loss) from continuing operations attributable to Ferro Corporation | | $ | 2,228 | | $ | (6,903) | | $ | (9,349) | | $ | (14,024) |
| | | | | | | | | | | | |
Weighted-average common shares outstanding | | | 86,119 | | | | | | | | | 86,119 |
Incremental common shares attributable to performance shares, deferred stock units, restricted stock units and stock options | | | 659 | | | | | | | | | — |
Weighted-average diluted shares outstanding | | | 86,778 | | | | | | | | | 86,119 |
| | | | | | | | | | | | |
Earnings (loss) per share attributable to Ferro Corporation common shareholders: | | | | | | | | | | | | |
Basic earnings (loss): | | | | | | | | | | | | |
Continuing operations | | $ | 0.02 | | | | | | | | $ | (0.16) |
Diluted earnings (loss): | | | | | | | | | | | | |
Continuing operations | | $ | 0.02 | | | | | | | | $ | (0.16) |
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
Ferro Corporation and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Balance Sheet
September 30, 2014
| | | | | | Pro Forma Adjustments | | | | |
| | | As Reported | | | Polymer Additives Disposition | | | | Pro Forma |
| | | (Dollars in thousands) |
ASSETS | | | | |
Current assets | | | | | | | | | | |
Cash and cash equivalents | | $ | 95,286 | | $ | 153,500 | (d) | | $ | 248,786 |
Accounts receivable, net | | | 229,942 | | | | | | | 229,942 |
Inventories | | | 157,764 | | | | | | | 157,764 |
Deferred income taxes | | | 6,775 | | | | | | | 6,775 |
Other receivables | | | 20,600 | | | | | | | 20,600 |
Other current assets | | | 22,527 | | | | | | | 22,527 |
Current assets held-for-sale | | | 86,480 | | | (44,887) | (c) | | | 41,593 |
Total current assets | | | 619,374 | | | 108,613 | | | | 727,987 |
Other assets | | | | | | | | | | |
Property, plant and equipment, net | | | 201,820 | | | | | | | 201,820 |
Goodwill | | $ | 62,443 | | | | | | $ | 62,443 |
Amortizable intangible assets, net | | | 17,710 | | | | | | | 17,710 |
Deferred income taxes | | | 17,793 | | | | | | | 17,793 |
Other non-current assets | | | 61,139 | | | | | | | 61,139 |
Non-current assets held-for-sale | | | 54,530 | | | (41,901) | (c) | | | 12,629 |
Total assets | | $ | 1,034,809 | | $ | 66,712 | | | $ | 1,101,521 |
LIABILITIES AND EQUITY | | | | |
Current liabilities | | | | | | | | | | |
Loans payable and current portion of long-term debt | | $ | 8,402 | | $ | — | | | $ | 8,402 |
Accounts payable | | | 134,937 | | | 3,000 | (d) | | | 137,937 |
Accrued payrolls | | | 34,313 | | | — | | | | 34,313 |
Accrued expenses and other current liabilities | | | 66,504 | | | 8,000 | (d) | | | 74,504 |
Current liabilities held-for-sale | | | 30,303 | | | (14,534) | (c) | | | 15,769 |
Total current liabilities | | | 274,459 | | | (3,534) | | | | 270,925 |
Other liabilities | | | | | | | | | | |
Long-term debt, less current portion | | | 300,772 | | | — | | | | 300,772 |
Postretirement and pension liabilities | | | 85,174 | | | — | | | | 85,174 |
Other non-current liabilities | | | 30,393 | | | — | | | | 30,393 |
Non-current liabilities held-for-sale | | | 2,863 | | | (1,324) | (c) | | | 1,539 |
Total liabilities | | | 693,661 | | | (4,858) | | | | 688,803 |
Equity | | | | | | | | | | |
Ferro Corporation shareholders’ equity: | | | | | | | | | | |
Common stock | | | 93,436 | | | — | | | | 93,436 |
Paid-in capital | | | 316,133 | | | — | | | | 316,133 |
Retained earnings | | | 59,965 | | | 71,570 | (c) | | | 131,535 |
Accumulated other comprehensive loss | | | (3,893) | | | — | | | | (3,893) |
Common shares in treasury, at cost | | | (136,221) | | | — | | | | (136,221) |
Total Ferro Corporation shareholders’ equity | | | 329,420 | | | 71,570 | | | | 400,990 |
Noncontrolling interests | | | 11,728 | | | | | | | 11,728 |
Total equity | | | 341,148 | | | 71,570 | | | | 412,718 |
Total liabilities and equity | | $ | 1,034,809 | | $ | 66,712 | | | $ | 1,101,521 |
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
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Ferro Corporation and Subsidiaries |
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information |
Note 1 – Pro Forma Adjustments
| (a) | | This pro forma adjustments column represents the historical financial results of the Specialty Plastics business sold on July 1, 2014, in accordance with ASC 205 – Presentation of Financial Statements, including the allocation of interest expense based on the ratio of net assets of the Specialty Plastics business to consolidated net assets of the Company, excluding debt. Pro forma adjustments exclude certain corporate costs attributable to or allocated to the business that was sold. |
| (b) | | This pro forma adjustments column represents the historical financial results of the North America-based Polymer Additives business sold on December 19, 2014, in accordance with ASC 205 – Presentation of Financial Statements, including the allocation of interest expense based on the ratio of net assets of the North America-based Polymer Additives business to consolidated net assets of the Company, excluding debt. Pro forma adjustments exclude certain corporate costs attributable to or allocated to the business that was sold. |
| (c) | | These adjustments represent the elimination of the assets and liabilities of the North America-based Polymer Additives business sold as if the transaction had occurred on September 30, 2014. |
| (d) | | These amounts represent adjustments for the gain from the transaction, including proceeds of $153.5 million, net of estimated transaction costs and income tax expense of $3.0 million and $8.0 million, respectively, resulting in an estimated gain of $71.6 million. The estimate is based on the information as of December 19, 2014. The actual gain may differ due to post-closing adjustments and the change in assets and liabilities between September 30, 2014 and closing. The gain is calculated as follows (in thousands): |
| | | |
| | | |
| | | |
Purchase Price | | $ | 153,500 |
Net assets sold | | | (70,930) |
Transaction costs | | | (3,000) |
Pre-tax gain | | | 79,570 |
Income taxes (1) | | | (8,000) |
Gain, net of tax (2) | | $ | 71,570 |
| (1) | | This amount represents the estimated tax expense associated with the gain from the transaction, using statutory tax rates and available tax attributes based on the applicable jurisdictions. |
| (2) | | For purposes of this pro forma condensed consolidated financial information, the net gain is excluded from the condensed consolidated statement of operations. |
No pro forma balance sheet adjustments are necessary for the Specialty Plastics disposition since this transaction is reflected in the Company’s historical condensed consolidated balance sheet as of September 30, 2014.
