FERRO REPORTS THIRD QUARTER ADJUSTED EARNINGS FROM CONTINUING OPERATIONS OF $0.24 PER SHARE
| · | | Value-Added Sales Increase 18% on a Constant Currency Basis, Including Recently Acquired Vetriceramici and Nubiola Businesses |
| · | | Profitability Metrics Continue to Improve: |
| o | | Adjusted Gross Profit Margin Increases to 28.3% from 27.5% |
| o | | Adjusted EBITDA Margin Improves to 17.3% from 12.7% |
| o | | Adjusted Return on Invested Capital Increases to 12.8% from 11.1% |
| · | | Company Affirms Full-Year 2015 Adjusted EPS from Continuing Operations Guidance of $0.82 - $0.87 |
CLEVELAND, Ohio – November 4, 2015 – Ferro Corporation (NYSE: FOE, the “Company”) today reported results for the third quarter ended September 30, 2015. Third quarter income from continuing operations attributable to common shareholders was $0.17 per diluted share compared with a loss of $0.03 per diluted share in the third quarter of 2014. On an adjusted basis, earnings per diluted share were $0.24, versus $0.16 for the third quarter of 2014. The results in both years include charges relating to restructuring activities and other one-time items, and in the third quarter of 2014, costs associated with the refinancing of the Company’s debt. Please refer to the supplemental tables at the end of this release for additional information concerning adjusted financial results.
Third quarter 2015 net sales were $279 million, compared with $276 million in the third quarter of 2014. Value-added sales, which exclude precious metal sales, were $271 million in the third quarter of 2015, an increase of 2% versus the same period last year. The increase in value-added sales was primarily driven by sales from the recently acquired Vetriceramici and Nubiola businesses, which contributed approximately $45 million in sales. The sales contribution from the acquisitions was largely offset by the adverse impact of foreign currency translation.
On a constant currency basis, adjusting for the impact of changes in foreign currency, value-added sales increased by 18%, with sales from the recent acquisitions accounting for much of the increase. Excluding the contribution from acquisitions, value-added sales for Ferro’s legacy business declined by 2%, due to lower sales in the Performance Coatings
segment. On a constant currency basis, gross profit improved by approximately $13 million with both the legacy business and the acquisitions contributing to the growth.
Adjusted earnings for the third quarter of 2015 benefited from increased sales and improved gross profit, lower selling, general and administrative (“SG&A”) expenses and lower interest expense.
Peter Thomas, Chairman, President and Chief Executive Officer, commented, “Results for the quarter were generally in line with our expectations, despite difficult economic conditions and continuing challenges in certain markets where we do business. We continue to hold the line on costs while pursuing both organic and inorganic growth opportunities, resulting in a 50% increase in adjusted diluted earnings per share for the third quarter.
“Looking ahead to the fourth quarter, we anticipate a continuation of the recent challenging economic conditions. In addition, we expect customers in certain regions will reduce manufacturing activity near the end of the year and reduce their inventory levels. Given this outlook, we expect the legacy business, on a constant currency basis, will be down 1% - 2% in the fourth quarter, primarily due to lower sales in the Performance Coatings segment, driven by weak demand in our legacy tile coatings business. We expect this modest decline to be offset by $40 million - $45 million in sales from our recent acquisitions of Vetriceramici and Nubiola. Given the difficult business conditions anticipated in the fourth quarter, we expect full-year adjusted diluted EPS will be at the low-to-mid point of the range of our prior guidance of $0.82 - $0.87.”
2015 Third-Quarter Results
Ferro reported net sales of $279 million in the third quarter of 2015, compared with net sales of $276 million in the third quarter of 2014. Value-added sales, which exclude precious metal sales, were $271 million in the third quarter of 2015 versus $265 million in the third quarter of the prior year. Consolidated value-added sales increased by 18%, on a constant currency basis, as a result of contributions from the Vetriceramici and Nubiola acquisitions and organic growth in the legacy Pigments, Powders and Oxides and Performance Colors and Glass segments. Constant currency organic growth in these two segments was offset by continued weakness in the tile coatings business within the Performance Coatings segment.
Vetriceramici, a producer of coatings for high-end ceramic tile, which Ferro acquired in December 2014, contributed $15 million to value-added sales growth in the quarter, while Nubiola, a producer of pigments for the coatings and plastics industries, which was acquired in July 2015, contributed $30 million. Almost all of Vetriceramici’s sales are reported in the Performance Coatings segment; Nubiola’s sales are reported in the Pigments, Powders and Oxides segment. Excluding the contribution from acquisitions,
value-added sales in Ferro’s legacy business declined by 2%, due to lower sales in the Performance Coatings segment.
Gross profit was $77 million for the quarter compared with $73 million for the third quarter of 2014. The adjusted gross profit margin, as a percent of value-added sales, for the third quarter of 2015 was 28.3%, compared with 27.5% in the prior-year period. Included in the third quarter of 2015 is a nonrecurring purchase accounting adjustment of approximate $6 million related to the acquired Nubiola inventory. Excluding this item, the adjusted gross profit margin was approximately 30.5%.
SG&A expenses were $48 million in the third quarter of 2015 compared with $52 million in the prior-year quarter. Excluding special items in both periods, adjusted SG&A expenses declined by $4 million to $44 million from $48 million. On a constant currency basis, adjusted SG&A expenses increased approximately $2 million to $44 million in the third quarter of 2015, compared with $42 million in the same period last year. Included in the third quarter of 2015 is approximately $7 million of incremental SG&A expenses associated with the Vetriceramici and Nubiola acquisitions. On a constant currency basis, and excluding SG&A expenses associated with acquisitions, adjusted SG&A for the legacy business declined by approximately $6 million. This reduction in SG&A expenses was driven primarily by lower incentive compensation expenses.
Income from continuing operations for the quarter ended September 30, 2015, was $16 million, or $0.17 per diluted share, compared with a loss of $3 million, or a loss of $0.03 per diluted share, in the third quarter of 2014. Adjusted income attributable to common shareholders was $21 million, or $0.24 per diluted share, compared with $14 million, or $0.16 per diluted share, in the prior-year quarter.
The effective tax rate in the third quarter of 2015 was 19.6%. On an adjusted basis, the effective tax rate for the third quarter of 2015 was 21.2%, compared with 36.0% in the same period last year. The reported and adjusted effective tax rates for the third quarter of 2015 include certain discrete tax benefits. Excluding these discrete items, the normalized, effective tax rates would be in the range of 27% - 28%.
Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) were $47 million, compared with $34 million in the same period last year. Adjusted EBITDA margins, as a percentage of value-added sales, were 17.3% in the third quarter of 2015 and 12.7% in the same period last year. The adjusted return on invested capital (“ROIC”), excluding recent acquisitions, was 12.8% for the twelve-month period ending on September 30, 2015, compared with 11.1% for the year ending December 31, 2014.
Stock Repurchase
During the quarter, the Company purchased $7 million in shares of its common stock, or about 580,000 shares. Since the quarter ended September 30, 2015, the Company has
repurchased an additional $10 million in shares of common stock, or about an additional 880,000 shares and has approximately $8 million remaining on the current stock repurchase authorization, which was approved during the third quarter of 2015. The Company’s Board of Directors has approved a follow-on share repurchase program under which the Company is authorized to repurchase up to an additional $25 million of the Company’s outstanding shares of commons stock on the open market, including through a Rule 10b5-1 plan, in privately negotiated transactions, or otherwise.
The timing and amount of any share repurchases will be determined by the Company’s management based on its evaluation of market and business conditions, share price, and other factors. The share repurchase program does not obligate the Company to repurchase any dollar amount or number of common shares and may be suspended or discontinued at any time.
Outlook
The Company anticipates global economic conditions will remain challenging, particularly in certain countries where Ferro does business, including Indonesia, China, Brazil, Russia, and Ukraine. Customers in certain regions are also expected to reduce manufacturing activity in the fourth quarter and reduce inventory levels to manage cash requirements. In addition, the Company expects demand for tile products, more broadly, to continue to be soft, including in Europe and the Middle East and North Africa (“MENA”) region.
Given this outlook, the Company is reducing its sales expectation for the remainder of the year but is maintaining its prior full-year adjusted diluted EPS guidance of $0.82 - $0.87.
Ferro expects value-added sales in the fourth quarter to be approximately $255 million - $265 million. Value-added sales, on a constant currency basis, are projected to decline by 1% - 2% for the legacy business, while acquisitions should add $40 million - $45 million in value-added sales. For the fourth quarter of 2015, gross profit, as a percent of value-added sales, is expected to be in the range of 28.5% - 29.0%, and operating profit is expected to be in the range of 10.0% - 10.5% of value-added sales. The Company anticipates the full-year effective tax rate will be approximately 25%.
For the year, the Company expects cash flow from continuing operations, excluding M&A activity and the stock repurchase program, to be in the range of $40 million - $50 million.
Al Salomi Acquisition
On September 3, 2015, the Company announced that it had signed a definitive agreement to acquire 100% of the equity of Egypt-based tile coatings manufacturer Al Salomi for Frits and Glazes (“Al Salomi”) on a cash-free and debt-free basis, for approximately $39 million
in cash, subject to working capital and other customary adjustments. The transaction is expected to close in the fourth quarter, subject to customary closing conditions.
Conference Call
The Company will host a conference call to discuss its third-quarter financial results and its current outlook for 2015 on Thursday, November 5, 2015, at 10:00 a.m. Eastern Time. To listen to the call, dial 800-926-9795 if calling from the United States or Canada, or dial 212-231-2925 if calling from outside North America. Please call approximately 10 minutes before the conference call is scheduled to begin.
An audio replay of the call will be available through noon Eastern Time on November 12. To access the replay, dial 800-633-8284 if calling from the United States or Canada, or dial 402-977-9140 if calling from outside North America. Use the program ID #21783939 to access the audio replay.
The conference call also will be broadcast live over the Internet and will be available for replay through November 30, 2015. The live broadcast and replay can be accessed through the Investor Information portion of the Company’s Web site at www.ferro.com. A podcast of the conference call also will be available on the site.
About Ferro Corporation
Ferro Corporation (http://www.ferro.com) is a leading global supplier of technology-based performance materials, including glass-based coatings, pigments and colors, and polishing materials. Ferro products are sold into the building and construction, automotive, appliances, electronics, household furnishings, and industrial products markets. Headquartered in Mayfield Heights, Ohio, the Company has approximately 4,740 employees globally and reported 2014 sales of $1.1 billion.
Cautionary Note on Forward-Looking Statements
Certain statements in this press release may constitute “forward-looking statements” within the meaning of Federal securities laws. These statements are subject to a variety of uncertainties, unknown risks, and other factors concerning the Company’s operations and business environment. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements and that could adversely affect the Company’s future financial performance include the following:
| · | | Ferro’s ability to complete acquisitions, effectively integrate the businesses and achieve the expected synergies (including the Al Salomi, Nubiola and Vetriceramici |
transactions), as well as the acquisitions being accretive and Ferro achieving the expected returns on invested capital; |
| · | | Ferro’s ability to successfully introduce new products or enter into new growth markets; |
| · | | demand in the industries into which Ferro sells its products may be unpredictable, cyclical, or heavily influenced by consumer spending; |
| · | | Ferro’s ability to successfully implement and/or administer its cost-saving initiatives, including its restructuring programs, and to produce the desired results; |
| · | | currency conversion rates and economic, social, political, and regulatory conditions around the world; |
| · | | the effectiveness of the Company’s efforts to improve operating margins through sales growth, price increases, productivity gains, and improved purchasing techniques; |
| · | | the impact of interruption, damage to, failure, or compromise of the Company’s information systems; |
| · | | the availability of reliable sources of energy and raw materials at a reasonable cost; |
| · | | Ferro’s presence in certain geographic regions, including Latin America and Asia-Pacific, where it can be difficult to compete lawfully; |
| · | | increasingly aggressive domestic and foreign governmental regulations on hazardous materials and regulations affecting health, safety and the environment; |
| · | | sale of products into highly regulated industries; |
| · | | limited or no redundancy for certain of the Company’s manufacturing facilities and possible interruption of operations at those facilities; |
| · | | competitive factors, including intense price competition; |
| · | | Ferro’s ability to protect its intellectual property or to successfully resolve claims of infringement brought against it; |
| · | | the impact of operating hazards and investments made in order to meet stringent environmental, health and safety regulations; |
| · | | management of Ferro’s general and administrative expenses; |
| · | | Ferro’s multi-jurisdictional tax structure and its ability to reduce its effective tax rate, including the impact of the Company’s performance on its ability to utilize significant deferred tax assets; |
| · | | the effectiveness of strategies to increase Ferro’s return on invested capital, and the short-term impact that acquisitions may have on return on invested capital; |
| · | | stringent labor and employment laws and relationships with the Company’s employees; |
| · | | the impact of requirements to fund employee benefit costs, especially post-retirement costs; |
| · | | implementation of new business processes and information systems, including the outsourcing of functions to third parties; |
| · | | exposure to lawsuits in the normal course of business; |
| · | | Ferro’s borrowing costs could be affected adversely by interest rate increases; |
| · | | restrictive covenants in the Company’s credit facilities could affect its strategic initiatives and liquidity; |
| · | | Ferro’s ability to access capital markets, borrowings, or financial transactions; |
| · | | liens on the Company’s assets by its lenders affect its ability to dispose of property and businesses; |
| · | | risks and uncertainties associated with intangible assets; |
| · | | Ferro may not pay dividends on its common stock in the foreseeable future; |
| · | | amount and timing of any repurchase of common stock; and |
| · | | other factors affecting the Company’s business that are beyond its control, including disasters, accidents and governmental actions. |
The risks and uncertainties identified above are not the only risks the Company faces. Additional risks and uncertainties not presently known to the Company or that it currently believes to be immaterial also may adversely affect the Company. Should any known or unknown risks and uncertainties develop into actual events, these developments could have material adverse effects on our business, financial condition and results of operations.
This release contains time-sensitive information that reflects management’s best analysis only as of the date of this release. The Company does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information, or circumstances that arise after the date of this release. Additional information regarding these risks can be found in our Annual Report on Form 10-K for the period ended December 31, 2014.
# # #
Company Contacts:
Investor Contact:
John Bingle, 216-875-5411
Treasurer and Director of Investor Relations
john.bingle@ferro.com
Media Contact:
Mary Abood, 216-875-5401
Director, Corporate Communications
mary.abood@ferro.com
Table 1
Ferro Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (unaudited)
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(Dollars in thousands, except per share amounts) | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2015 | | 2014 | | 2015 | | 2014 |
| | | | | | | | | | | | |
Net sales | | $ | 279,365 | | $ | 275,754 | | $ | 810,351 | | $ | 850,698 |
Cost of sales | | | 202,337 | | | 202,950 | | | 585,048 | | | 624,487 |
Gross profit | | | 77,028 | | | 72,804 | | | 225,303 | | | 226,211 |
Selling, general and administrative expenses | | | 48,417 | | | 51,716 | | | 150,568 | | | 152,345 |
Restructuring and impairment charges | | | 3,844 | | | 1,521 | | | 5,469 | | | 7,829 |
Other expense (income): | | | | | | | | | | | | |
Interest expense | | | 3,877 | | | 3,635 | | | 10,137 | | | 12,819 |
Interest earned | | | (97) | | | (23) | | | (191) | | | (52) |
Loss on debt extinguishment | | | - | | | 14,352 | | | - | | | 14,352 |
Foreign currency losses (gains), net | | | 1,203 | | | (330) | | | 5,758 | | | 1,043 |
Miscellaneous expense (income), net | | | 467 | | | (180) | | | 705 | | | 4,038 |
Income before income taxes | | | 19,317 | | | 2,113 | | | 52,857 | | | 33,837 |
Income tax expense | | | 3,792 | | | 4,680 | | | 11,930 | | | 12,347 |
Income (loss) from continuing operations | | | 15,525 | | | (2,567) | | | 40,927 | | | 21,490 |
(Loss) income from discontinued operations, net of income taxes | | | (19,086) | | | 50,124 | | | (28,688) | | | 53,188 |
Net (loss) income | | | (3,561) | | | 47,557 | | | 12,239 | | | 74,678 |
Less: Net income (loss) attributable to noncontrolling interests | | | 498 | | | 92 | | | (1,271) | | | 49 |
Net (loss) income attributable to Ferro Corporation common shareholders | | $ | (4,059) | | $ | 47,465 | | $ | 13,510 | | $ | 74,629 |
| | | | | | | | | | | | |
Earnings (loss) per share attributable to Ferro Corporation common shareholders: | | | | | | | | | | | | |
Basic earnings (loss): | | | | | | | | | | | | |
Continuing operations | | $ | 0.17 | | $ | (0.03) | | $ | 0.48 | | $ | 0.25 |
Discontinued operations | | | (0.22) | | | 0.58 | | | (0.33) | | | 0.61 |
| | $ | (0.05) | | $ | 0.55 | | $ | 0.15 | | $ | 0.86 |
| | | | | | | | | | | | |
Diluted earnings (loss): | | | | | | | | | | | | |
Continuing operations | | $ | 0.17 | | $ | (0.03) | | $ | 0.48 | | $ | 0.24 |
Discontinued operations | | | (0.22) | | | 0.58 | | | (0.32) | | | 0.60 |
| | $ | (0.05) | | $ | 0.55 | | $ | 0.16 | | $ | 0.84 |
Shares outstanding: | | | | | | | | | | | | |
Weighted-average basic shares | | | 87,130 | | | 86,979 | | | 87,169 | | | 86,898 |
Weighted-average diluted shares | | | 88,400 | | | 86,979 | | | 88,413 | | | 88,338 |
End-of-period basic shares | | | 86,700 | | | 86,986 | | | 86,700 | | | 86,986 |
Table 2
Ferro Corporation and Subsidiaries
Segment Net Sales and Gross Profit (unaudited)
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(Dollars in thousands) | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2015 | | 2014 | | 2015 | | 2014 |
Segment Net Sales | | | | | | | | | | | | |
Performance Coatings | | $ | 128,745 | | $ | 144,900 | | $ | 404,991 | | $ | 446,928 |
Performance Colors and Glass | | | 92,168 | | | 102,727 | | | 290,361 | | | 312,127 |
Pigments, Powders and Oxides | | | 58,452 | | | 28,127 | | | 114,999 | | | 91,643 |
Total segment net sales | | $ | 279,365 | | $ | 275,754 | | $ | 810,351 | | $ | 850,698 |
| | | | | | | | | | | | |
Segment Gross Profit | | | | | | | | | | | | |
Performance Coatings | | $ | 32,107 | | $ | 31,198 | | $ | 96,126 | | $ | 102,437 |
Performance Colors and Glass | | | 31,662 | | | 33,945 | | | 99,540 | | | 103,669 |
Pigments, Powders and Oxides | | | 13,179 | | | 8,285 | | | 30,325 | | | 22,948 |
Other costs of sales | | | 80 | | | (624) | | | (688) | | | (2,843) |
Total gross profit | | $ | 77,028 | | $ | 72,804 | | $ | 225,303 | | $ | 226,211 |
| | | | | | | | | | | | |
Selling, general and administrative expenses | | $ | 48,417 | | $ | 51,716 | | $ | 150,568 | | $ | 152,345 |
Restructuring and impairment charges | | | 3,844 | | | 1,521 | | | 5,469 | | | 7,829 |
Other expense, net | | | 5,450 | | | 17,454 | | | 16,409 | | | 32,200 |
Income before income taxes | | $ | 19,317 | | $ | 2,113 | | $ | 52,857 | | $ | 33,837 |
Table 3
Ferro Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
| | | | | | |
| | | | | | |
(Dollars in thousands) | | September 30, | | December 31, |
| | 2015 | | 2014 |
ASSETS | | | | | | |
Current assets | | | | | | |
Cash and cash equivalents | | $ | 69,493 | | $ | 140,500 |
Accounts receivable, net | | | 252,095 | | | 236,749 |
Inventories | | | 193,051 | | | 158,368 |
Deferred income taxes | | | 9,051 | | | 7,532 |
Other receivables | | | 36,086 | | | 25,635 |
Other current assets | | | 15,054 | | | 17,912 |
Current assets held-for-sale | | | 16,844 | | | 27,087 |
Total current assets | | | 591,674 | | | 613,783 |
Other assets | | | | | | |
Property, plant and equipment, net | | | 258,870 | | | 212,642 |
Goodwill | | | 126,923 | | | 93,733 |
Intangible assets, net | | | 87,070 | | | 57,309 |
Deferred income taxes | | | 43,469 | | | 39,712 |
Other non-current assets | | | 63,017 | | | 60,982 |
Non-current assets held-for-sale | | | 23,728 | | | 18,737 |
Total assets | | $ | 1,194,751 | | $ | 1,096,898 |
| | | | | | |
LIABILITIES AND EQUITY | | | | | | |
Current liabilities | | | | | | |
Loans payable and current portion of long-term debt | | $ | 9,788 | | $ | 8,382 |
Accounts payable | | | 130,092 | | | 129,236 |
Accrued payrolls | | | 28,656 | | | 36,051 |
Accrued expenses and other current liabilities | | | 62,021 | | | 53,133 |
Current liabilities held-for-sale | | | 6,067 | | | 10,016 |
Total current liabilities | | | 236,624 | | | 236,818 |
Other liabilities | | | | | | |
Long-term debt, less current portion | | | 416,491 | | | 303,629 |
Postretirement and pension liabilities | | | 154,341 | | | 167,772 |
Other non-current liabilities | | | 72,917 | | | 50,359 |
Non-current liabilities held-for-sale | | | 2,134 | | | 2,304 |
Total liabilities | | | 882,507 | | | 760,882 |
Equity | | | | | | |
Total Ferro Corporation shareholders’ equity | | | 304,012 | | | 324,384 |
Noncontrolling interests | | | 8,232 | | | 11,632 |
Total liabilities and equity | | $ | 1,194,751 | | $ | 1,096,898 |
Table 4
Ferro Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(Dollars in thousands) | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2015 | | 2014 | | 2015 | | 2014 |
Cash flows from operating activities | | | | | | | | | | | | |
Net income | | $ | (3,561) | | $ | 47,557 | | $ | 12,239 | | $ | 74,678 |
Gain on sale of assets and business | | | 300 | | | (53,701) | | | 1,288 | | | (50,128) |
Depreciation and amortization | | | 16,145 | | | 8,219 | | | 32,877 | | | 31,465 |
Restructuring and impairment | | | 11,314 | | | 7,193 | | | 11,282 | | | 12,156 |
Devaluation of Venezuela | | | - | | | - | | | 3,343 | | | 1,094 |
Loss on extinguishment of debt | | | - | | | 14,352 | | | - | | | 14,352 |
Accounts receivable | | | 14,735 | | | 45,726 | | | (3,022) | | | 3,195 |
Inventories | | | (2,379) | | | 7,943 | | | (1,226) | | | (26,003) |
Accounts payable | | | (8,134) | | | (11,757) | | | (9,645) | | | 13,234 |
Other changes in current assets and liabilities, net | | | 15,029 | | | (8,458) | | | (5,757) | | | (7,542) |
Other adjustments, net | | | (15,885) | | | (17,844) | | | (9,881) | | | (24,601) |
Net cash provided by operating activities | | | 27,564 | | | 39,230 | | | 31,498 | | | 41,900 |
| | | | | | | | | | | | |
Cash flows from investing activities | | | | | | | | | | | | |
Capital expenditures for property, plant and equipment and other long lived assets | | | (9,697) | | | (8,191) | | | (36,251) | | | (40,996) |
Proceeds from sale of businesses, net | | | - | | | 88,337 | | | - | | | 88,337 |
Proceeds from sale of assets | | | 19 | | | 156 | | | 144 | | | 5,911 |
Business acquisitions, net of cash acquired | | | (161,518) | | | (6,726) | | | (166,997) | | | (6,726) |
Net cash (used in) provided by investing activities | | | (171,196) | | | 73,576 | | | (203,104) | | | 46,526 |
| | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | | | | | |
Net borrowings (repayments) under loans payable (1) | | | 2,722 | | | (432) | | | 1,791 | | | (42,529) |
Proceeds from revolving credit facility | | | 41,773 | | | 7,262 | | | 146,773 | | | 377,844 |
Principal payments on term loan facility | | | (750) | | | - | | | (2,250) | | | - |
Proceeds from term loan facility | | | - | | | 300,000 | | | - | | | 300,000 |
Principal payments on revolving credit facility | | | (30,737) | | | (104,831) | | | (30,737) | | | (387,049) |
Repayment of 7.875% Senior Notes | | | - | | | (260,451) | | | - | | | (260,451) |
Payment of debt issuance costs | | | - | | | (6,834) | | | - | | | (6,834) |
Purchase of treasury stock | | | (6,998) | | | - | | | (6,998) | | | - |
Other financing activities | | | (979) | | | (311) | | | (1,160) | | | 54 |
Net cash provided by (used in) financing activities | | | 5,031 | | | (65,597) | | | 107,419 | | | (18,965) |
Effect of exchange rate changes on cash and cash equivalents | | | (3,319) | | | (2,112) | | | (6,820) | | | (2,503) |
(Decrease) increase in cash and cash equivalents | | | (141,920) | | | 45,097 | | | (71,007) | | | 66,958 |
Cash and cash equivalents at beginning of period | | | 211,413 | | | 50,189 | | | 140,500 | | | 28,328 |
Cash and cash equivalents at end of period | | $ | 69,493 | | $ | 95,286 | | $ | 69,493 | | $ | 95,286 |
| | | | | | | | | | | | |
Cash paid during the period for: | | | | | | | | | | | | |
Interest | | $ | 4,096 | | $ | 11,737 | | $ | 11,141 | | $ | 23,863 |
Income taxes | | $ | 8,022 | | $ | 3,171 | | $ | 17,504 | | $ | 4,329 |
| (1) | | Includes cash flows related to our domestic accounts receivable program and loans payable to banks. |
Table 5
Ferro Corporation and Subsidiaries
Supplemental Information
Reconciliation of Reported Income to Adjusted Income
For the Three Months Ended September 30 (unaudited)
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands, except per share amounts) | | | Cost of sales | | | Selling general and administrative expenses | | | Restructuring and impairment charges | | | Other expense, net | | | Income tax expense (benefit) | | | Net (loss) income attributable to common shareholders | | | Diluted (loss) earnings per share |
| | | | | | | | | | | | | | | | | | | | | |
| | 2015 |
| | | | | | | | | | | | | | | | | | | | | |
As reported | | $ | 202,337 | | $ | 48,417 | | $ | 3,844 | | $ | 5,450 | | $ | 3,792 | | $ | (4,059) | | $ | (0.05) |
Special items: | | | | | | | | | | | | | | | | | | | | | |
Restructuring | | | - | | | - | | | (3,844) | | | - | | | 1,370 | | | 2,474 | | | 0.03 |
Other1 | | | 284 | | | (4,845) | | | - | | | - | | | 727 | | | 3,834 | | | 0.04 |
Discontinued operations | | | - | | | - | | | - | | | - | | | - | | | 19,086 | | | 0.22 |
Total special items3 | | | 284 | | | (4,845) | | | (3,844) | | | - | | | 2,097 | | | 25,394 | | | 0.29 |
As adjusted | | $ | 202,621 | | $ | 43,572 | | $ | - | | $ | 5,450 | | $ | 5,889 | | $ | 21,335 | | $ | 0.24 |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | 2014 |
| | | | | | | | | | | | | | | | | | | | | |
As reported | | $ | 202,950 | | $ | 51,716 | | $ | 1,521 | | $ | 17,454 | | $ | 4,680 | | $ | 47,465 | | $ | 0.55 |
Special items: | | | | | | | | | | | | | | | | | | | | | |
Restructuring | | | - | | | - | | | (1,521) | | | - | | | 548 | | | 973 | | | 0.01 |
Other1 | | | - | | | (4,206) | | | - | | | (14,352) | | | 6,681 | | | 11,877 | | | 0.14 |
Taxes2 | | | - | | | - | | | - | | | - | | | (3,919) | | | 3,919 | | | 0.04 |
Discontinued operations | | | - | | | - | | | - | | | - | | | - | | | (50,124) | | | (0.58) |
Total special items3 | | | - | | | (4,206) | | | (1,521) | | | (14,352) | | | 3,309 | | | (33,354) | | | (0.39) |
As adjusted | | $ | 202,950 | | $ | 47,510 | | $ | - | | $ | 3,102 | | $ | 7,989 | | $ | 14,111 | | $ | 0.16 |
| (1) | | Within “Selling, general and administrative expenses” in 2015, the adjustment primarily includes certain business development activities, and in 2014, the adjustment primarily includes certain business development activities and costs associated with certain reorganization projects. Within “Other expense, net” in 2014, the adjustment is debt extinguishment costs. |
| (2) | | Adjustment of adjusted earnings to a normalized 36% tax rate in 2014. In 2015, the tax rate reflects the reported tax rate, adjusted for pro forma adjustments being tax effected at the respective statutory rate where the item originated. |
| (3) | | Due to rounding, total earnings per share related to special items does not always add to the total adjusted earnings per share. |
It should be noted that adjusted income, earnings per share and other adjusted items referred above are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). The adjusted income, earnings per share and other adjusted items presented above exclude certain special items including restructuring charges, certain business development activities, debt extinguishment costs and discontinued operations. We believe this data provides investors with additional information on the underlying operations of the business and enables period-to-period comparability of financial performance. In addition, these measures are used in the calculation of certain incentive compensation programs for selected employees.
Table 6
Ferro Corporation and Subsidiaries
Supplemental Information
Reconciliation of Reported Income to Adjusted Income
For the Nine Months Ended September 30 (unaudited)
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands, except per share amounts) | | | Cost of sales | | | Selling general and administrative expenses | | | Restructuring and impairment charges | | | Other expense, net | | | Income tax expense (benefit) | | | Net income (loss) attributable to common shareholders | | | Diluted earnings (loss) per share |
| | | | | | | | | | | | | | | | | | | | | |
| | 2015 |
| | | | | | | | | | | | | | | | | | | | | |
As reported | | $ | 585,048 | | $ | 150,568 | | $ | 5,469 | | $ | 16,409 | | $ | 11,930 | | $ | 13,510 | | $ | 0.16 |
Special items: | | | | | | | | | | | | | | | | | | | | | |
Restructuring | | | - | | | - | | | (5,469) | | | - | | | 1,855 | | | 3,614 | | | 0.04 |
Other1 | | | (2,470) | | | (11,242) | | | - | | | (4,763) | | | 4,661 | | | 13,814 | | | 0.16 |
Discontinued operations | | | - | | | - | | | - | | | - | | | - | | | 28,688 | | | 0.32 |
Noncontrolling interest | | | - | | | - | | | - | | | - | | | - | | | (1,453) | | | (0.02) |
Total special items3 | | | (2,470) | | | (11,242) | | | (5,469) | | | (4,763) | | | 6,516 | | | 44,663 | | | 0.50 |
As adjusted | | $ | 582,578 | | $ | 139,326 | | $ | - | | $ | 11,646 | | $ | 18,446 | | $ | 58,173 | | $ | 0.66 |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | 2014 |
| | | | | | | | | | | | | | | | | | | | | |
As reported | | $ | 624,487 | | $ | 152,345 | | $ | 7,829 | | $ | 32,200 | | $ | 12,347 | | $ | 74,629 | | $ | 0.84 |
Special items: | | | | | | | | | | | | | | | | | | | | | |
Restructuring | | | - | | | - | | | (7,829) | | | - | | | 2,818 | | | 5,011 | | | 0.06 |
Other1 | | | 322 | | | (6,650) | �� | | - | | | (19,526) | | | 9,307 | | | 16,547 | | | 0.19 |
Taxes2 | | | - | | | - | | | - | | | - | | | (166) | | | 166 | | | - |
Discontinued operations | | | - | | | - | | | - | | | - | | | - | | | (53,188) | | | (0.60) |
Noncontrolling interest | | | - | | | - | | | - | | | - | | | - | | | (461) | | | - |
Total special items3 | | | 322 | | | (6,650) | | | (7,829) | | | (19,526) | | | 11,959 | | | (31,925) | | | (0.35) |
As adjusted | | $ | 624,809 | | $ | 145,695 | | $ | - | | $ | 12,674 | | $ | 24,306 | | $ | 42,704 | | $ | 0.49 |
| (1) | | Within “Cost of sales” in 2015, the adjustment primarily includes impacts of currency related items in Venezuela. Within “Selling general and administrative expenses” in 2015, the adjustment primarily includes certain business development activities, and in 2014, the adjustment primarily includes certain business development activities and costs associated with certain reorganization projects. Within “Other expense, net” in 2015, the adjustment primarily includes the impact of the loss on a foreign currency contract associated with the purchase of Nubiola and the impacts of currency related items in Venezuela, and it 2014, the adjustment primarily includes debt extinguishment costs, impacts of currency related items in Venezuela and gains/losses on asset sales. |
| (2) | | Adjustment of adjusted earnings to a normalized 36% tax rate in 2014. In 2015, the tax rate reflects the reported tax rate, adjusted for pro forma adjustments being tax effected at the respective statutory rate where the item originated. |
| (3) | | Due to rounding, total earnings per share related to special items does not always add to the total adjusted earnings per share. |
It should be noted that adjusted income, earnings per share and other adjusted items referred above are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). The adjusted income, earnings per share and other adjusted items presented above exclude certain special items including restructuring charges, certain business development activities, the overall financial impact of currency related items in Venezuela, debt extinguishment costs and discontinued operations. We believe this data provides investors with additional information on the underlying operations of the business and enables period-to-period comparability of financial performance. In addition, these measures are used in the calculation of certain incentive compensation programs for selected employees.
Table 7
Ferro Corporation and Subsidiaries
Supplemental Information
Reconciliation of Segment Net Sales Excluding Precious Metals to Net Sales
and Schedule of Adjusted Gross Profit (unaudited)
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(Dollars in thousands) | | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2015 | | 2014 | | 2015 | | 2014 |
| | | | | | | | | | | | | | | | |
Performance Coatings | | $ | 128,745 | | | $ | 144,900 | | | $ | 404,991 | | | $ | 446,928 | |
Performance Colors and Glass | | | 83,578 | | | | 91,970 | | | | 260,940 | | | | 280,740 | |
Pigments, Powders and Oxides | | | 58,433 | | | | 27,754 | | | | 114,873 | | | | 86,074 | |
Total segment net sales excluding precious metals | | | 270,756 | | | | 264,624 | | | | 780,804 | | | | 813,742 | |
Sales of precious metals | | | 8,609 | | | | 11,130 | | | | 29,547 | | | | 36,956 | |
Total net sales | | $ | 279,365 | | | $ | 275,754 | | | $ | 810,351 | | | $ | 850,698 | |
| | | | | | | | | | | | | | | | |
Net sales excluding precious metals | | $ | 270,756 | | | $ | 264,624 | | | $ | 780,804 | | | $ | 813,742 | |
Adjusted cost of sales1 | | | 202,621 | | | | 202,950 | | | | 582,578 | | | | 624,809 | |
Cost of sales from precious metals | | | (8,609) | | | | (11,130) | | | | (29,547) | | | | (36,956) | |
Adjusted cost of sales excluding precious metals | | | 194,012 | | | | 191,820 | | | | 553,031 | | | | 587,853 | |
Adjusted gross profit | | $ | 76,744 | | | $ | 72,804 | | | $ | 227,773 | | | $ | 225,889 | |
Adjusted gross profit percentage | | | 28.3 | % | | | 27.5 | % | | | 29.2 | % | | | 27.8 | % |
| (1) | | Primarily includes the adjustment for impacts of currency related items in Venezuela in the nine months ended September 30, 2015 and costs associated with closed sites/product lines in the nine months ended September 30, 2014. |
It should be noted that segment net sales excluding precious metals, adjusted cost of sales and adjusted gross profit are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). The sales are presented here to exclude the impact of volatile precious metal raw material costs. The precious metal raw material costs are generally passed through directly to customers with minimal margin. Adjusted gross profit and adjusted cost of sales excludes special items, primarily comprised of certain business development activities, and the overall financial impact of currency related items in Venezuela. We believe this data provides investors with additional useful information on the underlying operations of the business and enables period-to-period comparability of financial performance.
Table 8
Ferro Corporation and Subsidiaries
Supplemental Information
Constant Currency Schedule of Adjusted Operating Profit (unaudited)
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Three months ended |
(Dollars in thousands) | | September 30, |
| | 2014 | | Adjusted 2014 (1) | | 2015 | | 2015 vs Adjusted 2014 |
Segment net sales excluding precious metals | | | | | | | | | | | | |
Performance Coatings | | $ | 144,900 | | $ | 121,770 | | $ | 128,745 | | $ | 6,975 |
Performance Colors and Glass | | | 91,970 | | | 81,975 | | | 83,578 | | | 1,603 |
Pigments, Powders and Oxides | | | 27,754 | | | 26,298 | | | 58,433 | | | 32,135 |
Total segment net sales excluding precious metals | | $ | 264,624 | | $ | 230,043 | | $ | 270,756 | | $ | 40,713 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Segment gross profit | | | | | | | | | | | | |
Performance Coatings | | $ | 31,198 | | $ | 26,600 | | $ | 32,107 | | $ | 5,507 |
Performance Colors and Glass | | | 33,945 | | | 30,545 | | | 31,662 | | | 1,117 |
Pigments, Powders and Oxides | | | 8,285 | | | 7,964 | | | 13,179 | | | 5,215 |
Other costs of sales | | | (624) | | | (615) | | | 80 | | | 695 |
Total gross profit | | $ | 72,804 | | $ | 64,494 | | $ | 77,028 | | $ | 12,534 |
| | | | | | | | | | | | |
Adjusted gross profit | | | 72,804 | | | 64,494 | | | 76,744 | | | 12,250 |
| | | | | | | | | | | | |
Selling, general and administrative expenses | | | 51,716 | | | 46,630 | | | 48,417 | | | 1,787 |
| | | | | | | | | | | | |
Adjusted selling, general and administrative expenses | | | 47,510 | | | 42,446 | | | 43,572 | | | 1,126 |
| | | | | | | | | | | | |
Operating profit | | | 21,088 | | | 17,864 | | | 28,611 | | | 10,747 |
| | | | | | | | | | | | |
Adjusted operating profit | | | 25,294 | | | 22,048 | | | 33,172 | | | 11,124 |
| (1) | | Reflects the remeasurement of 2014 reported and adjusted local currency results using 2015 exchange rates, resulting in constant currency comparative figures to 2015 reported and adjusted results. See Table 5 for pro forma adjustments applicable to the three month comparative periods, respectively. |
It should be noted that the adjusted 2014 results is a financial measure not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). Adjusted 2014 results is remeasured using the respective 2015 exchange rate. We believe this data provides investors with additional information on the underlying operations of the business and enables period-to-period comparability of financial performance.
Table 9
Ferro Corporation and Subsidiaries
Supplemental Information
Constant Currency Schedule of Adjusted Operating Profit (unaudited)
| | | | | | | | | | | | |
| | Nine months ended |
(Dollars in thousands) | | September 30, |
| | 2014 | | Adjusted 2014 (1) | | 2015 | | 2015 vs Adjusted 2014 |
Segment net sales excluding precious metals | | | | | | | | | | | | |
Performance Coatings | | $ | 446,928 | | $ | 380,103 | | $ | 404,991 | | $ | 24,888 |
Performance Colors and Glass | | | 280,740 | | | 250,969 | | | 260,940 | | | 9,971 |
Pigments, Powders and Oxides | | | 86,074 | | | 81,394 | | | 114,873 | | | 33,479 |
Total segment net sales excluding precious metals | | $ | 813,742 | | $ | 712,466 | | $ | 780,804 | | $ | 68,338 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Segment gross profit | | | | | | | | | | | | |
Performance Coatings | | $ | 102,437 | | $ | 87,969 | | $ | 96,126 | | $ | 8,157 |
Performance Colors and Glass | | | 103,669 | | | 93,296 | | | 99,540 | | | 6,244 |
Pigments, Powders and Oxides | | | 22,948 | | | 22,001 | | | 30,325 | | | 8,324 |
Other costs of sales | | | (2,843) | | | (2,829) | | | (688) | | | 2,141 |
Total gross profit | | $ | 226,211 | | $ | 200,437 | | $ | 225,303 | | $ | 24,866 |
| | | | | | | | | | | | |
Adjusted gross profit | | | 225,889 | | | 200,703 | | | 227,773 | | | 27,070 |
| | | | | | | | | | | | |
Selling, general and administrative expenses | | | 152,345 | | | 141,020 | | | 150,568 | | | 9,548 |
| | | | | | | | | | | | |
Adjusted selling, general and administrative expenses | | | 145,695 | | | 134,588 | | | 139,326 | | | 4,738 |
| | | | | | | | | | | | |
Operating profit | | | 73,866 | | | 59,417 | | | 74,735 | | | 15,318 |
| | | | | | | | | | | | |
Adjusted operating profit | | | 80,194 | | | 66,115 | | | 88,447 | | | 22,332 |
| (1) | | Reflects the remeasurement of 2014 reported and adjusted local currency results using 2015 exchange rates, resulting in constant currency comparative figures to 2015 reported and adjusted results. See Table 6 for pro forma adjustments applicable to the nine month comparative periods, respectively. |
It should be noted that the adjusted 2014 results is a financial measure not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). Adjusted 2014 results is remeasured using the respective 2015 exchange rate. We believe this data provides investors with additional information on the underlying operations of the business and enables period-to-period comparability of financial performance.
Table 10
Ferro Corporation and Subsidiaries
Reconciliation of Net Income to Adjusted EBITDA (unaudited)
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(Dollars in thousands) | | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2015 | | 2014 | | 2015 | | 2014 |
| | | | | | | | | | | | | | | | |
Net (loss) income attributable to Ferro Corporation common shareholders | | $ | (4,059) | | | $ | 47,465 | | | $ | 13,510 | | | $ | 74,629 | |
Loss (income) from discontinued operations, net of taxes | | | 19,086 | | | | (50,124) | | | | 28,688 | | | | (53,188) | |
Interest expense | | | 3,877 | | | | 3,635 | | | | 10,137 | | | | 12,819 | |
Income tax expense | | | 3,792 | | | | 4,680 | | | | 11,930 | | | | 12,347 | |
Depreciation and amortization | | | 16,145 | | | | 9,988 | | | | 32,877 | | | | 27,284 | |
Less interest amortization expense and other | | | (289) | | | | (1,990) | | | | (875) | | | | (2,722) | |
Cost of sales adjustments | | | (284) | | | | - | | | | 2,470 | | | | (322) | |
SG&A Adjustments | | | 4,845 | | | | 4,206 | | | | 11,242 | | | | 6,650 | |
Restructuring and Impairment | | | 3,844 | | | | 1,521 | | | | 5,469 | | | | 7,829 | |
Other expense adjustments | | | - | | | | 14,352 | | | | 4,763 | | | | 19,526 | |
Noncontrolling interest adjustments | | | - | | | | - | | | | (1,453) | | | | (461) | |
Adjusted EBITDA | | $ | 46,957 | | | $ | 33,733 | | | $ | 118,758 | | | $ | 104,391 | |
| | | | | | | | | | | | | | | | |
Net sales excluding precious metals | | $ | 270,756 | | | $ | 264,624 | | | $ | 780,804 | | | $ | 813,742 | |
Adjusted EBITDA as a % of net sales excluding precious metals | | | 17.3 | % | | | 12.7 | % | | | 15.2 | % | | | 12.8 | % |
It should be noted that adjusted EBITDA is a financial measure not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). Adjusted EBITDA is net income before the effects of discontinued operations, interest, income taxes, depreciation and amortization, non-recurring adjustments to cost of sales, non-recurring adjustments to SG&A, restructuring and impairment charges, and non-recurring adjustments to miscellaneous income and expense. We believe this data provides investors with additional information on the underlying operations of the business and enables period-to-period comparability of financial performance. In addition, these measures are used in the calculation of certain incentive compensation programs for selected employees.
Table 11
Ferro Corporation and Subsidiaries
Supplemental Information
Return on Invested Capital
For the Rolling Twelve Months Ended (unaudited)
| | | | | | |
| | | | | | |
(Dollars in thousands) | | September 30, | | December 31, |
| | 2015 | | 2014 |
| | | | | | |
Gross profit | | $ | 284,178 | | $ | 285,085 |
Selling, general and administrative expenses | | | 284,985 | | | 286,762 |
Total operating loss | | | (807) | | | (1,677) |
Pro forma adjustments1 | | | 108,114 | | | 101,624 |
Adjusted operating profit before tax | | | 107,307 | | | 99,947 |
Less: Tax at pro forma rate2 | | | (29,509) | | | (35,981) |
Net operating profit after tax including Vetriceramici and Nubiola | | $ | 77,798 | | $ | 63,966 |
| | | | | | |
Vetriceramici and Nubiola NOPAT gain (loss) | | | 5,165 | | | (536) |
Net operating profit after tax excluding Vetriceramici and Nubiola | | $ | 72,633 | | $ | 64,502 |
| | | | | | |
| | | | | | |
Equity | | | 312,244 | | | 336,016 |
Equity - discontinued operations | | | (32,371) | | | (33,507) |
Debt | | | 426,279 | | | 312,011 |
Off balance sheet precious metal leases | | | 23,157 | | | 26,535 |
Postretirement and pension liabilities | | | 154,341 | | | 167,772 |
Environmental liabilities | | | 13,684 | | | 14,440 |
Cash | | | (69,493) | | | (140,500) |
Invested capital including Vetriceramici and Nubiola | | $ | 827,841 | | $ | 682,767 |
| | | | | | |
Return on invested capital including Vetriceramici and Nubiola | | | 9.4% | | | 9.4% |
| | | | | | |
Less: Vetriceramici and Nubiola invested capital | | | 258,702 | | | 100,430 |
Invested capital excluding Vetriceramici and Nubiola | | $ | 569,139 | | $ | 582,337 |
| | | | | | |
Return on invested capital excluding Vetriceramici and Nubiola | | | 12.8% | | | 11.1% |
| | | | | | |
| (1) | | Primarily includes adjustments for the annual remeasurement of our pension and other postretirement benefit plans, certain business development activities, currency related items in Venezuela and costs associated with certain reorganization projects. |
| (2) | | Operating profit is tax effected at 27.5% for the rolling twelve months ended September 30, 2015, as this represents a normalized tax rate reflecting our current mix of business in 2015. This tax rate deviates from our full year 2015 estimate due to certain discrete items in 2015 that would not be considered normalized, as well as certain tax planning opportunities to be implemented. The pro forma tax rate in 2014 was 36%. |
It should be noted that adjusted operating profit and return on invested capital are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). Adjusted operating profit is operating profit before the effects of discontinued operations, non-recurring adjustments to cost of sales, and non-recurring adjustments to SG&A. We believe this data provides investors with additional information on the underlying operations of the business and enables period-to-period comparability of financial performance. In addition, these measures are used in the calculation of certain incentive compensation programs for selected employees.
