FERRO GROWS SALES AND PROFITABILITY IN THIRD QUARTER;
AFFIRMS 2016 GUIDANCE
| · | | Third-quarter net sales increased by 3.3% to $289 million; up 5.7% on constant currency basis |
| · | | Third-quarter diluted EPS from continuing operations increased to $0.24 from $0.17 in the third-quarter of 2015 |
| · | | Adjusted third-quarter diluted EPS from continuing operations increased to $0.27 from $0.24 in the third quarter of 2015 |
CLEVELAND, Ohio – November 2, 2016 – Ferro Corporation (NYSE: FOE, the “Company”) today reported results for the third quarter ended September 30, 2016. Third-quarter income from continuing operations attributable to common shareholders was $0.24 per diluted share compared with $0.17 per diluted share in the third quarter of 2015. On an adjusted basis, earnings per diluted share from continuing operations were $0.27 compared with $0.24 in the third quarter of 2015. Adjusted earnings exclude charges relating to, among other items, restructuring activities, transaction-related expenses and gains and losses on asset sales. Please refer to the supplemental tables at the end of this release for additional information concerning adjusted financial results.
2016 Third-Quarter Results from Continuing Operations
Third-quarter 2016 net sales increased 3.3% to $289 million, compared with $279 million in the prior year quarter. Foreign currency translation reduced net sales by approximately $6 million. On a constant currency basis, net sales increased by 5.7%. Sales growth was driven by acquisitions, primarily in the Performance Coatings segment, and organic growth in the Pigments, Powders and Oxides segment. The organic growth was driven by strong sales volume growth and gross margin improvement in both the Pigments and Surface Technology product lines that comprise the majority of the Pigments, Powders and Oxides segment.
Reported Earnings from Continuing Operations: Third-quarter 2016 reported earnings per diluted share were $0.24 versus $0.17 in the same period last year. Results in the third quarter of 2016 benefited from higher sales and profitability in all three reporting segments. Results were particularly strong in the Pigments, Powders and Oxides segment where results benefited from higher volumes and
improved gross margins. Higher gross profit was partially offset by increases in Selling, General and Administrative (“SG&A”) expenses, as well as interest expense and a higher effective tax rate.
The gross profit margin for the third quarter of 2016 increased by more than 320 basis points to 30.8%, while SG&A expenses increased by approximately $7 million to $56 million, primarily due to higher incentive and stock-based compensation and a decrease in pension income. Included in the third quarter of 2015 gross profit was a nonrecurring purchase accounting adjustment of approximately $6 million reflecting additional cost in the quarter related to the acquired Nubiola inventory. Other expenses were approximately $1 million higher in the third quarter of 2016 compared with the third quarter of 2015. The effective tax rate was 23.1% compared with 19.6% in the same period last year.
Income from continuing operations was $21 million in the third quarter of 2016, compared with $16 million in the same period last year. The Company recorded a net loss of $9 million for the third quarter of 2016 compared with a net loss of $4 million in the prior year same period. Both losses were primarily due to losses from discontinued operations of $29 million in the third quarter of 2016 and $19 million in the third quarter of 2015.
Adjusted Earnings from Continuing Operations: Third-quarter 2016 adjusted earnings per diluted share were $0.27 versus $0.24 in the same period last year. Results in the third quarter of 2016 benefited from a stronger adjusted gross profit margin. Higher gross profit was partially offset by increases in SG&A expense and interest expense and a higher effective tax rate.
The adjusted gross profit margin for the third quarter of 2016 increased to 30.8% from 27.5% in the third quarter of 2015. Adjusted SG&A expenses were approximately $8 million higher in the third quarter of 2016 compared with the prior-year period. Again, the increase in SG&A expense was primarily associated with higher incentive and stock-based compensation and a decrease in pension income.
In the third quarter of 2016, Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) was $49 million, equivalent to the prior year period.
Peter Thomas Comments on Results
“The Ferro team delivered another quarter of strong results, with increased sales and profitability,” said Peter Thomas, Chairman, President and Chief Executive Officer. “Our acquisitions are clearly creating value, as new businesses integrated in the past 12 months are making significant contributions to consolidated results. The Pigments, Powders and Oxides segment experienced a particularly strong quarter, with double-digit sales growth in both the Pigments and Surface Technology product lines. In our Performance Colors and Glass segment, performance was lifted by growing demand in Asia, which offset weaker demand for glass enamels used in the automotive industry. In the Performance Coatings segment, volume grew 27.3 percent in tile frits and glazes, while demand also increased for porcelain enamel products.”
Mr. Thomas continued, “During the quarter, we took a number of actions to sustain the momentum we’ve achieved with our growth strategy and in October and November we announced three
acquisitions, each of which aligns with and extends our existing markets and product portfolio. The acquisition of Cappelle Pigments, which has sales of approximately $70 million, is expected to close by year end and will enhance our pigments portfolio with high-performance specialty inorganic and organic pigments. The Delta Performance Products assets, which generate approximately $5 million in annual sales, adds to our technical capabilities in color manufacturing. And, our most recently announced acquisition of Electro-Science Laboratories, which has sales of approximately $40 million, extends our presence in the electronic packaging materials space and provides a very attractive platform for future growth in our Performance Colors and Glass business.
“In addition to the acquisitions, we added talented leaders to support our continued growth. Andrew Ross and Allen Spizzo were appointed to our Board of Directors, bringing extensive experience in growing specialty chemical and materials businesses. Ben Schlater was appointed Vice President and Chief Financial Officer. Joseph Vitale rejoined Ferro as Vice President of Corporate Development. And Kevin Cornelius Grant was named head of Investor Relations. These individuals join a team dedicated to driving Ferro’s strategy, continuing to deliver profitable results and creating value for our shareholders.
“Looking ahead to the fourth quarter, we expect some global economic headwinds in what is traditionally our softest quarter. We believe we have factored these into our planning and are affirming our 2016 adjusted earnings guidance.”
Outlook
As a result of the performance of the business, and global economics forecasts, Ferro is maintaining its full-year earnings outlook. The Company expects Adjusted EPS of $1.00 to $1.05 and Adjusted EBITDA of $190 to $195 million. The Company expects full-year 2016 free cash flow from continuing operations will be in a range of $70 - $80 million. Free cash flow from continuing operations is defined as adjusted EBITDA from continuing operations less cash items used to operate the business, including cash taxes and interest, investment in working capital, capital expenditures and other cash items.
Adjusted Guidance: Earnings, EBITDA, and Free Cash Flow from Continuing Operations
The Company’s guidance relating to adjusted earnings per diluted share, EBITDA and free cash flow from continuing operations exclude the impact of certain items, primarily associated with restructuring activities, transaction-related expenses, gains and losses on asset sales, and mark-to-market adjustments to the Company’s pension and postretirement benefit liabilities. The impact of adjusting for these items for the first nine months of 2016 was a benefit of approximately $9.0 million to pre-tax income, which resulted in an increase to GAAP earnings per diluted share from continuing operations of $0.06, from $0.77 to $0.83, as presented and reconciled in Table 6, as well as corresponding impacts to Adjusted EBITDA as presented and reconciled in Table 10, and Adjusted Free Cash Flow from Continuing Operations, as presented in Table 13. It is not possible at this time to identify the potential amount or significance of these items for the balance of the year, as they have not occurred yet. Therefore, the Company is unable to reconcile its full-year 2016 adjusted earnings per diluted share, and related EBITDA and free cash flow from continuing operations guidance.
Conference Call
The Company will host a conference call to discuss its third-quarter financial results and its current outlook for 2016 on Thursday, November 3, 2016, at 10:00 a.m. Eastern Time. To listen to the call, dial 888-222-3913 if calling from the United States or Canada, or dial 303-223-2686 if calling from outside North America. Please call approximately 10 minutes before the conference call is scheduled to begin.
An audio replay of the call will be available through noon Eastern Time on November 10, 2016. To access the replay, dial 800-633-8284 (toll free) if calling from the United States or Canada, or dial 402-977-9140 if calling from outside North America. Use the program ID #21820061 to access the audio replay.
The conference call will also be broadcast live over the Internet and will be available for replay for 30 days. The live broadcast, replay and earnings presentation material can be accessed through the Investor Information portion of the Company’s Web site at www.ferro.com. A podcast of the conference call also will be available on the site.
About Ferro Corporation
Ferro Corporation (http://www.ferro.com) is a leading global functional coatings and color solutions company that supplies technology-based performance materials, including glass-based coatings, pigments and colors, and polishing materials. Ferro products are sold into the building and construction, automotive, appliances, electronics, household furnishings, and industrial products markets. Headquartered in Mayfield Heights, Ohio, the Company has approximately 4,990 employees globally and reported 2015 sales of $1.1 billion.
Cautionary Note on Forward-Looking Statements
Certain statements in this press release may constitute “forward-looking statements” within the meaning of Federal securities laws. These statements are subject to a variety of uncertainties, unknown risks, and other factors concerning the Company’s operations and business environment. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements and that could adversely affect the Company’s future financial performance include the following:
| · | | Ferro's ability to complete acquisitions, effectively integrate the businesses and achieve the expected synergies (including the Electro-Science Laboratories, Cappelle Pigments, Delta, Pinturas Benicarló, Ferer, and Al Salomi transactions), as well as the acquisitions being accretive and Ferro achieving the expected returns on invested capital; |
| · | | the exploration of strategic alternatives and the potential results therefrom; |
| · | | Ferro’s ability to successfully implement and/or administer its cost-saving initiatives, including its restructuring programs, and to produce the desired results; |
| · | | demand in the industries into which Ferro sells its products may be unpredictable, cyclical, or heavily influenced by consumer spending; |
| · | | the effectiveness of the Company’s efforts to improve operating margins through sales growth, price increases, productivity gains, and improved purchasing techniques; |
| · | | currency conversion rates and economic, social, political, and regulatory conditions around the world; |
| · | | Ferro’s ability to successfully introduce new products or enter into new growth markets; |
| · | | the impact of interruption, damage to, failure, or compromise of the Company’s information systems; |
| · | | restrictive covenants in the Company’s credit facilities could affect its strategic initiatives and liquidity; |
| · | | Ferro’s ability to access capital markets, borrowings, or financial transactions; |
| · | | the availability of reliable sources of energy and raw materials at a reasonable cost; |
| · | | increasingly aggressive domestic and foreign governmental regulations on hazardous materials and regulations affecting health, safety and the environment; |
| · | | sale of products into highly regulated industries; |
| · | | limited or no redundancy for certain of the Company’s manufacturing facilities and possible interruption of operations at those facilities; |
| · | | competitive factors, including intense price competition; |
| · | | Ferro’s ability to protect its intellectual property or to successfully resolve claims of infringement brought against it; |
| · | | the impact of operating hazards and investments made in order to meet stringent environmental, health and safety regulations; |
| · | | management of Ferro’s general and administrative expenses; |
| · | | Ferro’s multi-jurisdictional tax structure and its ability to reduce its effective tax rate, including the impact of the Company’s performance on its ability to utilize significant deferred tax assets; |
| · | | the effectiveness of strategies to increase Ferro’s return on invested capital, and the short-term impact that acquisitions may have on return on invested capital; |
| · | | stringent labor and employment laws and relationships with the Company’s employees; |
| · | | the impact of requirements to fund employee benefit costs, especially post-retirement costs; |
| · | | implementation of new business processes and information systems, including the outsourcing of functions to third parties; |
| · | | risks associated with the manufacture and sale of material into industries making products for sensitive applications; |
| · | | exposure to lawsuits in the normal course of business; |
| · | | risks and uncertainties associated with intangible assets; |
| · | | Ferro’s borrowing costs could be affected adversely by interest rate increases; |
| · | | liens on the Company’s assets by its lenders affect its ability to dispose of property and businesses; |
| · | | Ferro may not pay dividends on its common stock in the foreseeable future; |
| · | | amount and timing of any repurchase of Ferro’s common stock; and |
| · | | other factors affecting the Company’s business that are beyond its control, including disasters, accidents and governmental actions. |
The risks and uncertainties identified above are not the only risks the Company faces. Additional risks and uncertainties not presently known to the Company or that it currently believes to be immaterial also may adversely affect the Company. Should any known or unknown risks and uncertainties develop into actual events, these developments could have material adverse effects on our business, financial condition and results of operations.
This release contains time-sensitive information that reflects management’s best analysis only as of the date of this release. The Company does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information, or circumstances that arise after the date of this release. Additional information regarding these risks can be found in our Annual Report on Form 10-K for the period ended December 31, 2015.
Company Contacts:
Investor Contact:
Kevin Cornelius Grant, 216-875-5451
Manager, Investor Relations
kevincornelius.grant@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)
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(In thousands, except per share amounts) | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2016 | | 2015 | | 2016 | | 2015 |
| | | | | | | | | | | | |
Net sales | | $ | 288,527 | | $ | 279,365 | | $ | 863,955 | | $ | 810,351 |
Cost of sales | | | 199,546 | | | 202,337 | | | 592,372 | | | 585,048 |
Gross profit | | | 88,981 | | | 77,028 | | | 271,583 | | | 225,303 |
Selling, general and administrative expenses | | | 55,588 | | | 48,417 | | | 166,105 | | | 150,568 |
Restructuring and impairment charges | | | 26 | | | 3,844 | | | 1,694 | | | 5,469 |
Other expense (income): | | | | | | | | | | | | |
Interest expense | | | 5,304 | | | 3,877 | | | 15,579 | | | 10,137 |
Interest earned | | | (214) | | | (97) | | | (414) | | | (191) |
Foreign currency losses, net | | | 867 | | | 1,203 | | | 2,867 | | | 5,758 |
Miscellaneous expense (income), net | | | 705 | | | 467 | | | (2,079) | | | 705 |
Income before income taxes | | | 26,705 | | | 19,317 | | | 87,831 | | | 52,857 |
Income tax expense | | | 6,157 | | | 3,792 | | | 22,659 | | | 11,930 |
Income from continuing operations | | | 20,548 | | | 15,525 | | | 65,172 | | | 40,927 |
(Loss) from discontinued operations, net of income taxes | | | (29,222) | | | (19,086) | | | (64,464) | | | (28,688) |
Net (loss) income | | | (8,674) | | | (3,561) | | | 708 | | | 12,239 |
Less: Net income (loss) attributable to noncontrolling interests | | | 210 | | | 498 | | | 589 | | | (1,271) |
Net (loss) income attributable to Ferro Corporation common shareholders | | $ | (8,884) | | $ | (4,059) | | $ | 119 | | $ | 13,510 |
| | | | | | | | | | | | |
Earnings (loss) per share attributable to Ferro Corporation common shareholders: | | | | | | | | | | | | |
Basic earnings (loss): | | | | | | | | | | | | |
Continuing operations | | $ | 0.24 | | $ | 0.17 | | $ | 0.78 | | $ | 0.48 |
Discontinued operations | | | (0.35) | | | (0.22) | | | (0.77) | | | (0.33) |
| | $ | (0.11) | | $ | (0.05) | | $ | 0.01 | | $ | 0.15 |
| | | | | | | | | | | | |
Diluted earnings (loss): | | | | | | | | | | | | |
Continuing operations | | $ | 0.24 | | $ | 0.17 | | $ | 0.77 | | $ | 0.48 |
Discontinued operations | | | (0.35) | | | (0.22) | | | (0.77) | | | (0.32) |
| | $ | (0.11) | | $ | (0.05) | | $ | - | | $ | 0.16 |
Shares outstanding: | | | | | | | | | | | | |
Weighted-average basic shares | | | 83,268 | | | 87,130 | | | 83,263 | | | 87,169 |
Weighted-average diluted shares | | | 84,476 | | | 88,400 | | | 84,239 | | | 88,413 |
End-of-period basic shares | | | 83,386 | | | 86,700 | | | 83,386 | | | 86,700 |
Table 2
Ferro Corporation and Subsidiaries
Segment Net Sales and Gross Profit (unaudited)
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(Dollars in thousands) | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2016 | | 2015 | | 2016 | | 2015 |
Segment Net Sales | | | | | | | | | | | | |
Performance Coatings | | $ | 130,453 | | $ | 128,745 | | $ | 399,166 | | $ | 404,991 |
Performance Colors and Glass | | | 92,793 | | | 92,168 | | | 276,896 | | | 290,361 |
Pigments, Powders and Oxides | | | 65,281 | | | 58,452 | | | 187,893 | | | 114,999 |
Total segment net sales | | $ | 288,527 | | $ | 279,365 | | $ | 863,955 | | $ | 810,351 |
| | | | | | | | | | | | |
Segment Gross Profit | | | | | | | | | | | | |
Performance Coatings | | $ | 33,636 | | $ | 32,107 | | $ | 104,985 | | $ | 96,126 |
Performance Colors and Glass | | | 32,282 | | | 31,662 | | | 100,825 | | | 99,540 |
Pigments, Powders and Oxides | | | 23,178 | | | 13,179 | | | 65,868 | | | 30,325 |
Other costs of sales | | | (115) | | | 80 | | | (95) | | | (688) |
Total gross profit | | $ | 88,981 | | $ | 77,028 | | $ | 271,583 | | $ | 225,303 |
| | | | | | | | | | | | |
Selling, general and administrative expenses | | | | | | | | | | | | |
Strategic services | | $ | 29,385 | | $ | 27,319 | | $ | 86,801 | | $ | 79,301 |
Functional services | | | 22,608 | | | 20,687 | | | 66,726 | | | 61,152 |
Incentive compensation | | | 2,153 | | | 940 | | | 7,299 | | | 2,664 |
Stock-based compensation | | | 1,442 | | | (529) | | | 5,279 | | | 7,451 |
Total selling, general and administrative expenses | | $ | 55,588 | | $ | 48,417 | | $ | 166,105 | | $ | 150,568 |
| | | | | | | | | | | | |
Restructuring and impairment charges | | | 26 | | | 3,844 | | | 1,694 | | | 5,469 |
Other expense, net | | | 6,662 | | | 5,450 | | | 15,953 | | | 16,409 |
Income before income taxes | | $ | 26,705 | | $ | 19,317 | | $ | 87,831 | | $ | 52,857 |
Table 3
Ferro Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
| | | | | | |
| | | | | | |
(Dollars in thousands) | | September 30, | | December 31, |
| | 2016 | | 2015 |
ASSETS | | | | | | |
Current assets | | | | | | |
Cash and cash equivalents | | $ | 40,556 | | $ | 58,380 |
Accounts receivable, net | | | 282,827 | | | 231,970 |
Inventories | | | 211,261 | | | 184,854 |
Deferred income taxes | | | - | | | 12,088 |
Other receivables | | | 36,360 | | | 34,088 |
Other current assets | | | 8,013 | | | 15,695 |
Current assets held-for-sale | | | - | | | 16,215 |
Total current assets | | | 579,017 | | | 553,290 |
Other assets | | | | | | |
Property, plant and equipment, net | | | 249,497 | | | 260,429 |
Goodwill | | | 142,880 | | | 145,669 |
Intangible assets, net | | | 112,021 | | | 106,633 |
Deferred income taxes | | | 99,326 | | | 87,385 |
Other non-current assets | | | 50,247 | | | 48,767 |
Non-current assets held-for-sale | | | - | | | 23,178 |
Total assets | | $ | 1,232,988 | | $ | 1,225,351 |
| | | | | | |
LIABILITIES AND EQUITY | | | | | | |
Current liabilities | | | | | | |
Loans payable and current portion of long-term debt | | $ | 10,221 | | $ | 7,446 |
Accounts payable | | | 123,325 | | | 120,380 |
Accrued payrolls | | | 32,255 | | | 28,584 |
Accrued expenses and other current liabilities | | | 60,708 | | | 54,664 |
Current liabilities held-for-sale | | | - | | | 7,156 |
Total current liabilities | | | 226,509 | | | 218,230 |
Other liabilities | | | | | | |
Long-term debt, less current portion | | | 477,100 | | | 466,108 |
Postretirement and pension liabilities | | | 147,682 | | | 148,249 |
Other non-current liabilities | | | 65,533 | | | 66,990 |
Non-current liabilities held-for-sale | | | - | | | 1,493 |
Total liabilities | | | 916,824 | | | 901,070 |
Equity | | | | | | |
Total Ferro Corporation shareholders’ equity | | | 308,394 | | | 316,459 |
Noncontrolling interests | | | 7,770 | | | 7,822 |
Total liabilities and equity | | $ | 1,232,988 | | $ | 1,225,351 |
Table 4
Ferro Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(Dollars in thousands) | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2016 | | 2015 | | 2016 | | 2015 |
Cash flows from operating activities | | | | | | | | | | | | |
Net income | | $ | (8,674) | | $ | (3,561) | | $ | 708 | | $ | 12,239 |
Loss (gain) on sale of assets and business | | | 315 | | | 300 | | | (3,459) | | | 1,288 |
Depreciation and amortization | | | 11,670 | | | 15,856 | | | 33,599 | | | 32,002 |
Interest amortization | | | 347 | | | 289 | | | 991 | | | 875 |
Restructuring and impairment | | | 13,522 | | | 11,314 | | | 37,173 | | | 11,282 |
Devaluation of Venezuela | | | - | | | - | | | - | | | 3,343 |
Accounts receivable | | | (2,683) | | | 14,735 | | | (44,370) | | | (3,022) |
Inventories | | | (2,758) | | | (2,379) | | | (20,453) | | | (1,226) |
Accounts payable | | | (6,435) | | | (8,134) | | | (3,209) | | | (9,645) |
Other current assets and liabilities, net | | | 6,511 | | | 15,029 | | | 9,479 | | | (5,757) |
Other adjustments, net | | | (3,098) | | | (15,885) | | | (3,717) | | | (9,881) |
Net cash provided by operating activities | | | 8,717 | | | 27,564 | | | 6,742 | | | 31,498 |
| | | | | | | | | | | | |
Cash flows from investing activities | | | | | | | | | | | | |
Capital expenditures for property, plant and equipment and other long lived assets | | | (4,173) | | | (9,697) | | | (18,217) | | | (36,251) |
Proceeds from sale of assets | | | 1 | | | 19 | | | 3,598 | | | 144 |
Business acquisitions, net of cash acquired | | | (4,778) | | | (161,518) | | | (11,417) | | | (166,997) |
Net cash (used in) investing activities | | | (8,950) | | | (171,196) | | | (26,036) | | | (203,104) |
| | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | | | | | |
Net (repayments) borrowings under loans payable | | | (425) | | | 2,722 | | | 2,606 | | | 1,791 |
Proceeds from revolving credit facility | | | 49,390 | | | 41,773 | | | 212,906 | | | 146,773 |
Principal payments on revolving credit facility | | | (56,990) | | | (30,737) | | | (149,696) | | | (30,737) |
Principal payments on term loan facility | | | (750) | | | (750) | | | (52,250) | | | (2,250) |
Payment of debt issuance costs | | | (360) | | | - | | | (661) | | | - |
Purchase of treasury stock | | | - | | | (6,998) | | | (11,429) | | | (6,998) |
Other financing activities | | | 205 | | | (979) | | | 416 | | | (1,160) |
Net cash (used in) provided by financing activities | | | (8,930) | | | 5,031 | | | 1,892 | | | 107,419 |
Effect of exchange rate changes on cash and cash equivalents | | | 303 | | | (3,319) | | | (422) | | | (6,820) |
(Decrease) in cash and cash equivalents | | | (8,860) | | | (141,920) | | | (17,824) | | | (71,007) |
Cash and cash equivalents at beginning of period | | | 49,416 | | | 211,413 | | | 58,380 | | | 140,500 |
Cash and cash equivalents at end of period | | $ | 40,556 | | $ | 69,493 | | $ | 40,556 | | $ | 69,493 |
| | | | | | | | | | | | |
Cash paid during the period for: | | | | | | | | | | | | |
Interest | | $ | 5,749 | | $ | 4,096 | | $ | 15,032 | | $ | 11,141 |
Income taxes | | $ | 5,497 | | $ | 8,022 | | $ | 12,929 | | $ | 17,504 |
Table 5
Ferro Corporation and Subsidiaries
Supplemental Information
Reconciliation of Reported Income to Adjusted Income
For the Three Months Ended September 30 (unaudited)
| | | | �� | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands, except per share amounts) | | | Cost of sales | | | Selling general and administrative expenses | | | Restructuring and impairment charges | | | Other expense, net | | | Income tax expense3 | | | Net (loss) income attributable to common shareholders | | | Diluted (loss) earnings per share |
| | | | | | | | | | | | | | | | | | | | | |
| | 2016 |
| | | | | | | | | | | | | | | | | | | | | |
As reported | | $ | 199,546 | | $ | 55,588 | | $ | 26 | | $ | 6,662 | | $ | 6,157 | | $ | (8,884) | | $ | (0.11) |
Special items: | | | | | | | | | | | | | | | | | | | | | |
Restructuring | | | - | | | - | | | (26) | | | - | | | 7 | | | 19 | | | - |
Other1 | | | - | | | (4,098) | | | - | | | - | | | 1,493 | | | 2,605 | | | 0.03 |
Discontinued operations | | | - | | | - | | | - | | | - | | | - | | | 29,222 | | | 0.35 |
Total special items4 | | | - | | | (4,098) | | | (26) | | | - | | | 1,500 | | | 31,846 | | | 0.38 |
As adjusted | | $ | 199,546 | | $ | 51,490 | | $ | - | | $ | 6,662 | | $ | 7,657 | | $ | 22,962 | | $ | 0.27 |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | 2015 |
| | | | | | | | | | | | | | | | | | | | | |
As reported | | $ | 202,337 | | $ | 48,417 | | $ | 3,844 | | $ | 5,450 | | $ | 3,792 | | $ | (4,059) | | $ | (0.05) |
Special items: | | | | | | | | | | | | | | | | | | | | | |
Restructuring | | | - | | | - | | | (3,844) | | | - | | | 1,370 | | | 2,474 | | | 0.03 |
Other2 | | | 284 | | | (4,845) | | | - | | | - | | | 727 | | | 3,834 | | | 0.04 |
Discontinued operations | | | - | | | - | | | - | | | - | | | - | | | 19,086 | | | 0.22 |
Total special items4 | | | 284 | | | (4,845) | | | (3,844) | | | - | | | 2,097 | | | 25,394 | | | 0.29 |
As adjusted | | $ | 202,621 | | $ | 43,572 | | $ | - | | $ | 5,450 | | $ | 5,889 | | $ | 21,335 | | $ | 0.24 |
| (1) | | The adjustments to “Selling general and administrative expenses” primarily include legal, professional and other expenses related to certain business development activities. |
| (2) | | The adjustments to “Selling general and administrative expenses” primarily include legal, professional and other expenses related to certain business development activities as well as fees associated with certain reorganization projects. |
| (3) | | The tax rate reflects the reported tax rate, adjusted for non-GAAP adjustments being tax effected at the respective statutory rate where the item originated. |
| (4) | | Due to rounding, total earnings per share related to special items does not always add to the total adjusted earnings per share. |
It should be noted that adjusted income, earnings per share and other adjusted items referred to above are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures is presented. The adjusted income, earnings per share and other adjusted items presented above exclude certain special items including restructuring charges, certain business development activities, gains on sale of assets, and discontinued operations. We believe this data provides investors with additional information on the underlying operations and trends of the business and enables period-to-period comparability of financial performance.
Table 6
Ferro Corporation and Subsidiaries
Supplemental Information
Reconciliation of Reported Income to Adjusted Income
For the Nine Months Ended September 30 (unaudited)
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
(Dollars in thousands, except per share amounts) | | | Cost of sales | | | Selling general and administrative expenses | | | Restructuring and impairment charges | | | Other expense (income), net | | | Income tax expense3 | | | Net (loss) income attributable to common shareholders | | | Diluted earnings (loss) per share |
| | | | | | | | | | | | | | | | | | | | | |
| | 2016 |
| | | | | | | | | | | | | | | | | | | | | |
As reported | | $ | 592,372 | | $ | 166,105 | | $ | 1,694 | | $ | 15,953 | | $ | 22,659 | | $ | 119 | | $ | - |
Special items: | | | | | | | | | | | | | | | | | | | | | |
Restructuring | | | - | | | - | | | (1,694) | | | - | | | 522 | | | 1,172 | | | 0.01 |
Other1 | | | - | | | (10,339) | | | - | | | 3,065 | | | 2,760 | | | 4,514 | | | 0.05 |
Discontinued operations | | | - | | | - | | | - | | | - | | | - | | | 64,464 | | | 0.77 |
Total special items4 | | | - | | | (10,339) | | | (1,694) | | | 3,065 | | | 3,282 | | | 70,150 | | | 0.83 |
As adjusted | | $ | 592,372 | | $ | 155,766 | | $ | - | | $ | 19,018 | | $ | 25,941 | | $ | 70,269 | | $ | 0.83 |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | 2015 |
| | | | | | | | | | | | | | | | | | | | | |
As reported | | $ | 585,048 | | $ | 150,568 | | $ | 5,469 | | $ | 16,409 | | $ | 11,930 | | $ | 13,510 | | $ | 0.16 |
Special items: | | | | | | | | | | | | | | | | | | | | | |
Restructuring | | | - | | | - | | | (5,469) | | | - | | | 1,855 | | | 3,614 | | | 0.04 |
Other2 | | | (2,470) | | | (11,242) | | | - | | | (4,763) | | | 4,661 | | | 13,814 | | | 0.16 |
Discontinued operations | | | - | | | - | | | - | | | - | | | - | | | 28,688 | | | 0.32 |
Noncontrolling interest | | | - | | | - | | | - | | | - | | | - | | | (1,453) | | | (0.02) |
Total special items4 | | | (2,470) | | | (11,242) | | | (5,469) | | | (4,763) | | | 6,516 | | | 44,663 | | | 0.50 |
As adjusted | | $ | 582,578 | | $ | 139,326 | | $ | - | | $ | 11,646 | | $ | 18,446 | | $ | 58,173 | | $ | 0.66 |
| (1) | | The adjustments to “Selling general and administrative expenses” include legal, professional and other expenses related to certain business development activities as well as fees associated with certain reorganization projects; and, the adjustment to “Other expense (income), net” primarily relates to the gain on an asset sale that was recognized during the first quarter and to a change on the finalization of the purchase price for the acquisition of Vetriceramici. |
| (2) | | The adjustments to “Cost of sales” relate to impacts of currency-related items in Venezuela; the adjustments to “Selling general and administrative expenses” primarily include legal, professional and other expenses related to certain business development activities as well as fees associated with certain reorganization projects; and, the adjustments to “Other expense (income), net” primarily relate to impacts of currency-related items in Venezuela and the impact of the loss on a foreign currency contract associated with the purchase of Nubiola. |
| (3) | | The tax rate reflects the reported tax rate, adjusted for non-GAAP adjustments being tax effected at the respective statutory rate where the item originated. |
| (4) | | Due to rounding, total earnings per share related to special items does not always add to the total adjusted earnings per share. |
It should be noted that adjusted income, earnings per share and other adjusted items referred to above are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures is presented. The adjusted income, earnings per share and other adjusted items presented above exclude certain special items including restructuring charges, certain business development activities, gains on sale of assets, the overall financial impact of currency related items in Venezuela and discontinued operations. We believe this data provides investors with additional information on the underlying operations and trends of the business and enables period-to-period comparability of financial performance.
Table 7
Ferro Corporation and Subsidiaries
Supplemental Information
Reconciliation of Adjusted Gross Profit (unaudited)
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(Dollars in thousands) | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2016 | | 2015 | | 2016 | | 2015 |
| | | | | | | | | | | | | | | | |
Performance Coatings | | $ | 130,453 | | | $ | 128,745 | | | $ | 399,166 | | | $ | 404,991 | |
Performance Colors and Glass | | | 92,793 | | | | 92,168 | | | | 276,896 | | | | 290,361 | |
Pigments, Powders and Oxides | | | 65,281 | | | | 58,452 | | | | 187,893 | | | | 114,999 | |
Total net sales | | $ | 288,527 | | | $ | 279,365 | | | $ | 863,955 | | | $ | 810,351 | |
| | | | | | | | | | | | | | | | |
Total net sales | | $ | 288,527 | | | $ | 279,365 | | | $ | 863,955 | | | $ | 810,351 | |
Adjusted cost of sales1 | | | 199,546 | | | | 202,621 | | | | 592,372 | | | | 582,578 | |
Adjusted gross profit | | $ | 88,981 | | | $ | 76,744 | | | $ | 271,583 | | | $ | 227,773 | |
Adjusted gross profit percentage | | | 30.8 | % | | | 27.5 | % | | | 31.4 | % | | | 28.1 | % |
| (1) | | Refer to table 5 and table 6 for the reconciliation of cost of sales to adjusted cost of sales for the three and nine months ended September 30, 2016 and 2015, respectively. |
It should be noted that adjusted cost of sales and adjusted gross profit are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures is presented. Adjusted gross profit and adjusted cost of sales excludes certain items, primarily comprised of the impact of currency-related items in Venezuela in the nine months ended September 30, 2015. We believe this data provides investors with additional information on the underlying operations and trends of the business and enables period-to-period comparability of financial performance.
Table 8
Ferro Corporation and Subsidiaries
Supplemental Information
Constant Currency Schedule of Adjusted Operating Profit (unaudited)
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Three Months Ended |
(Dollars in thousands) | | September 30, |
| | 2015 | | Adjusted 2015(1) | | 2016 | | 2016 vs Adjusted 2015 |
Segment net sales | | | | | | | | | | | | |
Performance Coatings | | $ | 128,745 | | $ | 122,967 | | $ | 130,453 | | $ | 7,486 |
Performance Colors and Glass | | | 92,168 | | | 91,635 | | | 92,793 | | | 1,158 |
Pigments, Powders and Oxides | | | 58,452 | | | 58,353 | | | 65,281 | | | 6,928 |
Total segment net sales | | $ | 279,365 | | $ | 272,955 | | $ | 288,527 | | $ | 15,572 |
| | | | | | | | | | | | |
Segment adjusted gross profit | | | | | | | | | | | | |
Performance Coatings | | $ | 32,107 | | $ | 30,714 | | $ | 33,636 | | $ | 2,922 |
Performance Colors and Glass | | | 31,662 | | | 31,437 | | | 32,282 | | | 845 |
Pigments, Powders and Oxides | | | 13,179 | | | 13,186 | | | 23,178 | | | 9,992 |
Other costs of sales | | | (204) | | | (204) | | | (115) | | | 89 |
Total adjusted gross profit(2) | | $ | 76,744 | | $ | 75,133 | | $ | 88,981 | | $ | 13,848 |
| | | | | | | | | | | | |
Adjusted selling, general and administrative expenses | | | | | | | | | | | | |
Strategic services | | $ | 27,319 | | $ | 26,998 | | $ | 29,385 | | $ | 2,387 |
Functional services | | | 15,842 | | | 15,533 | | | 18,510 | | | 2,977 |
Incentive compensation | | | 940 | | | 917 | | | 2,153 | | | 1,236 |
Stock-based compensation | | | (529) | | | (529) | | | 1,442 | | | 1,971 |
Total adjusted selling, general and administrative expenses(3) | | $ | 43,572 | | $ | 42,919 | | $ | 51,490 | | $ | 8,571 |
| | | | | | | | | | | | |
Adjusted operating profit | | $ | 33,172 | | $ | 32,214 | | $ | 37,491 | | $ | 5,277 |
Adjusted operating profit as a % of net sales | | | 11.9% | | | 11.8% | | | 13.0% | | | |
| (1) | | Reflects the remeasurement of 2015 reported and adjusted local currency results using 2016 exchange rates, resulting in constant currency comparative figures to 2016 reported and adjusted results. See table 5 for non-GAAP adjustments applicable to the three-month comparative periods, respectively. |
| (2) | | Refer to table 7 for the reconciliation of gross profit to adjusted gross profit for the three months ended September 30, 2016 and 2015, respectively. |
| (3) | | Refer to table 5 for the reconciliation of SG&A expenses to adjusted SG&A expenses for the three months ended September 30, 2016 and 2015, respectively. |
It should be noted that the adjusted 2015 results is a financial measure not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures is presented. Adjusted 2015 results are remeasured using the respective 2016 exchange rates. We believe this data provides investors with additional information on the underlying operations and trends of the business and enables period-to-period comparability of financial performance.
Table 9
Ferro Corporation and Subsidiaries
Supplemental Information
Constant Currency Schedule of Adjusted Operating Profit (unaudited)
| | | | | | | | | | | | |
| | Nine Months Ended |
(Dollars in thousands) | | September 30, |
| | 2015 | | Adjusted 2015(1) | | 2016 | | 2016 vs Adjusted 2015 |
Segment net sales | | | | | | | | | | | | |
Performance Coatings | | $ | 404,991 | | $ | 376,671 | | $ | 399,166 | | $ | 22,495 |
Performance Colors and Glass | | | 290,361 | | | 286,475 | | | 276,896 | | | (9,579) |
Pigments, Powders and Oxides | | | 114,999 | | | 114,509 | | | 187,893 | | | 73,384 |
Total segment net sales | | $ | 810,351 | | $ | 777,655 | | $ | 863,955 | | $ | 86,300 |
| | | | | | | | | | | | |
Segment adjusted gross profit | | | | | | | | | | | | |
Performance Coatings | | $ | 98,764 | | $ | 93,082 | | $ | 104,985 | | $ | 11,903 |
Performance Colors and Glass | | | 99,540 | | | 98,272 | | | 100,825 | | | 2,553 |
Pigments, Powders and Oxides | | | 30,325 | | | 30,225 | | | 65,868 | | | 35,643 |
Other costs of sales | | | (856) | | | (856) | | | (95) | | | 761 |
Total adjusted gross profit(2) | | $ | 227,773 | | $ | 220,723 | | $ | 271,583 | | $ | 50,860 |
| | | | | | | | | | | | |
Adjusted selling, general and administrative expenses | | | | | | | | | | | | |
Strategic services | | $ | 79,301 | | $ | 77,563 | | $ | 86,801 | | $ | 9,238 |
Functional services | | | 49,910 | | | 48,447 | | | 56,387 | | | 7,940 |
Incentive compensation | | | 2,664 | | | 2,517 | | | 7,299 | | | 4,782 |
Stock-based compensation | | | 7,451 | | | 7,451 | | | 5,279 | | | (2,172) |
Total adjusted selling, general and administrative expenses(3) | | $ | 139,326 | | $ | 135,978 | | $ | 155,766 | | $ | 19,788 |
| | | | | | | | | | | | |
Adjusted operating profit | | $ | 88,447 | | $ | 84,745 | | $ | 115,817 | | $ | 31,072 |
Adjusted operating profit as a % of net sales | | | 10.9% | | | 10.9% | | | 13.4% | | | |
| (1) | | Reflects the remeasurement of 2015 reported and adjusted local currency results using 2016 exchange rates, resulting in constant currency comparative figures to 2016 reported and adjusted results. See table 6 for non-GAAP adjustments applicable to the nine-month comparative periods, respectively. |
| (2) | | Refer to table 7 for the reconciliation of gross profit to adjusted gross profit for the nine months ended September 30, 2016 and 2015, respectively. |
| (3) | | Refer to table 6 for the reconciliation of SG&A expenses to adjusted SG&A expenses for the nine months ended September 30, 2016 and 2015, respectively. |
It should be noted that the adjusted 2015 results is a financial measure not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures is presented. Adjusted 2015 results are remeasured using the respective 2016 exchange rates. We believe this data provides investors with additional information on the underlying operations and trends of the business and enables period-to-period comparability of financial performance.
Table 10
Ferro Corporation and Subsidiaries
Supplemental Information
Reconciliation of Net income attributable to Ferro Corporation
common shareholders to Adjusted EBITDA (unaudited)
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(Dollars in thousands) | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2016 | | 2015 | | 2016 | | 2015 |
| | | | | | | | | | | | | | | | |
Net (loss) income attributable to Ferro Corporation common shareholders | | $ | (8,884) | | | $ | (4,059) | | | $ | 119 | | | $ | 13,510 | |
Net income (loss) attributable to noncontrolling interests | | | 210 | | | | 498 | | | | 589 | | | | (1,271) | |
Loss from discontinued operations, net of income taxes | | | 29,222 | | | | 19,086 | | | | 64,464 | | | | 28,688 | |
Restructuring and impairment charges | | | 26 | | | | 3,844 | | | | 1,694 | | | | 5,469 | |
Other expense, net | | | 1,358 | | | | 1,573 | | | | 374 | | | | 6,272 | |
Interest expense | | | 5,304 | | | | 3,877 | | | | 15,579 | | | | 10,137 | |
Income tax expense | | | 6,157 | | | | 3,792 | | | | 22,659 | | | | 11,930 | |
Depreciation and amortization | | | 12,017 | | | | 16,145 | | | | 34,590 | | | | 32,877 | |
Less: interest amortization expense and other | | | (347) | | | | (289) | | | | (991) | | | | (875) | |
Cost of sales adjustments(1) | | | - | | | | (284) | | | | - | | | | 2,470 | |
SG&A adjustments(1) | | | 4,098 | | | | 4,845 | | | | 10,339 | | | | 11,242 | |
Adjusted EBITDA | | $ | 49,161 | | | $ | 49,028 | | | $ | 149,416 | | | $ | 120,449 | |
| | | | | | | | | | | | | | | | |
Net sales | | $ | 288,527 | | | $ | 279,365 | | | $ | 863,955 | | | $ | 810,351 | |
Adjusted EBITDA as a % of net sales | | | 17.0 | % | | | 17.5 | % | | | 17.3 | % | | | 14.9 | % |
| (1) | | For details on Non-GAAP adjustments, refer to table 5 and table 6 for the reconciliation of cost of sales to adjusted cost of sales and SG&A to adjusted SG&A for the three and nine months ended September 30, 2016 and 2015, respectively. |
It should be noted that adjusted EBITDA is a financial measure not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures is presented. Adjusted EBITDA is net income attributable to Ferro Corporation common shareholders before the effects of net income (loss) attributable to noncontrolling interest, discontinued operations, restructuring and impairment charges, other (income) expense, net, interest expense, income tax expense, depreciation and amortization, non-GAAP adjustments to cost of sales and non-GAAP adjustments to SG&A. We believe this data provides investors with additional information on the underlying operations and trends of the business and enables period-to-period comparability of financial performance.
Table 11
Ferro Corporation and Subsidiaries
Supplemental Information
Return on Invested Capital
For the Rolling Twelve Months Ended (unaudited)
| | | | | | |
| | | | | | |
(Dollars in thousands) | | September 30, | | December 31, |
| | 2016 | | 2015 |
| | | | | | |
Gross profit | | $ | 347,960 | | $ | 301,680 |
Selling, general and administrative expenses | | | 232,436 | | | 216,899 |
Total operating profit | | | 115,524 | | | 84,781 |
Non-GAAP adjustments1 | | | 26,193 | | | 29,539 |
Adjusted operating profit before tax | | | 141,717 | | | 114,320 |
Less: Tax expense2 | | | (36,846) | | | (29,723) |
Net adjusted operating profit after tax | | $ | 104,871 | | $ | 84,597 |
| | | | | | |
Recent acquisitions3 NOPAT gain | | | 23,554 | | | 11,083 |
Net adjusted operating profit after tax excluding recent acquisitions | | $ | 81,316 | | $ | 73,514 |
| | | | | | |
Equity | | | 316,164 | | | 324,281 |
Equity - discontinued operations | | | - | | | (30,744) |
Debt | | | 487,321 | | | 473,554 |
Off balance sheet precious metal leases | | | 26,790 | | | 20,464 |
Postretirement and pension liabilities | | | 147,682 | | | 148,249 |
Environmental liabilities | | | 15,667 | | | 13,824 |
Release of valuation allowance | | | - | | | (63,289) |
Cash | | | (40,556) | | | (58,380) |
Invested capital | | $ | 953,068 | | $ | 827,959 |
| | | | | | |
Return on invested capital | | | 11.0% | | | 10.2% |
| | | | | | |
Less: recent acquisitions invested capital | | | 239,368 | | | 292,543 |
Invested capital excluding recent acquisitions | | $ | 713,700 | | $ | 535,416 |
| | | | | | |
Return on invested capital excluding recent acquisitions | | | 11.4% | | | 13.7% |
| | | | | | |
| (1) | | Primarily includes adjustments for the annual remeasurement of our pension and other postretirement benefit plans, certain business development activities, currency-related items in Venezuela and costs associated with certain reorganization projects. |
| (2) | | Operating profit is tax effected at 26.0%, as this represents a normalized tax rate reflecting our current mix of business. This tax rate deviates from our full year 2016 estimate and 2015 due to certain discrete items that would not be considered normalized, as well as certain tax planning opportunities to be implemented. |
| (3) | | For the rolling twelve months ended September 30, 2016, the recent acquisitions include Nubiola, Al Salomi, Ferer, Pinturas and Delta Performance Products. For the rolling twelve months ended December 31, 2015, the recent acquisitions include Vetriceramici, Nubiola and Al Salomi. Acquisitions are removed from being included in the recent acquisitions line item the first quarter after the operations of the acquisitions are included in the Company for a full year. |
It should be noted that net adjusted operating profit after tax and return on invested capital are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures is presented. Net adjusted operating profit after tax is operating profit before the effects of discontinued operations, non-GAAP adjustments to cost of sales and non-GAAP adjustments to SG&A tax effected. We believe this data provides investors with additional information on the underlying operations and trends of the business and enables period-to-period comparability of financial performance. In addition, these measures are used in the calculation of certain incentive compensation programs for selected employees.
Table 12
Ferro Corporation and Subsidiaries
Supplemental Information
Change in Net Debt (unaudited)
| | | | | | | | | | | | | |
(Dollars in thousands) | | Three Months Ended | | Nine Months Ended | |
| | September 30, 2016 | | September 30, 2015 | | September 30, 2016 | | September 30, 2015 | |
Beginning of period | | | | | | | | | | | | | |
Total debt | | $ | 495,887 | | $ | 408,657 | (1) | $ | 473,554 | | $ | 306,667 | (1) |
Cash | | | 49,416 | | | 211,413 | | | 58,380 | | | 140,500 | |
Net Debt | | | 446,471 | | | 197,244 | | | 415,174 | | | 166,167 | |
| | | | | | | | | | | | | |
End of period | | | | | | | | | | | | | |
Total debt | | | 487,321 | | | 421,544 | (1) | | 487,321 | | | 421,544 | (1) |
Cash | | | 40,556 | | | 69,493 | | | 40,556 | | | 69,493 | |
Net Debt | | | 446,765 | | | 352,051 | | | 446,765 | | | 352,051 | |
| | | | | | | | | | | | | |
Period change in net debt | | $ | (294) | | $ | (154,807) | | $ | (31,591) | | $ | (185,884) | |
| (1) | | Reflects adjustment for debt issuance costs for term loan that are now presented in the balance sheet as a reduction of the related debt liability rather than an asset. This change was due to ASU 2015-03 which was adopted by the Company as of December 31, 2015. The adoption resulted in the reclassification of unamortized debt issuance costs related to the term loan from other non-current assets to a reduction in long-term debt, less current portion of $5.3 million as of December 31, 2014, $5.0 million as of June 30, 2015 and $4.7 million as of September 30, 2015. |
Table 13
Ferro Corporation and Subsidiaries
Supplemental Information
Adjusted Free Cash Flow from Continuing Operations (unaudited)
| | | | | | | | | | | | |
| | | | | | | | |
(Dollars in thousands) | | Three Months Ended | | Nine Months Ended |
| | September 30, 2016 | | September 30, 2015 | | September 30, 2016 | | September 30, 2015 |
| | As Adjusted |
| | | | | | | | | | | | |
Adjusted EBITDA(1) | | $ | 49,161 | | $ | 49,028 | | $ | 149,416 | | $ | 120,449 |
Capital expenditures | | | (4,074) | | | (5,899) | | | (17,296) | | | (14,127) |
Working capital | | | (10,775) | | | 5,062 | | | (62,292) | | | (21,284) |
Cash income taxes | | | (5,497) | | | (8,022) | | | (12,929) | | | (17,504) |
Cash interest | | | (5,749) | | | (4,096) | | | (15,032) | | | (11,141) |
Pension | | | (423) | | | (1,080) | | | (2,921) | | | (2,824) |
Incentive compensation payments | | | - | | | - | | | (8,802) | | | (14,584) |
Other | | | 2,434 | | | (1,913) | | | 4,992 | | | (2,907) |
Free Cash Flow from Continuing Operations | | $ | 25,077 | | $ | 33,080 | | $ | 35,136 | | $ | 36,078 |
| | | | | | | | | | | | |
Discontinued operations | | | (16,805) | | | (10,235) | | | (32,534) | | | (28,372) |
Restructuring/Other | | | (129) | | | (4,324) | | | (2,205) | | | (8,881) |
(Outflows) from M&A activity | | | (8,437) | | | (166,330) | | | (20,559) | | | (177,711) |
Stock repurchase | | | - | | | (6,998) | | | (11,429) | | | (6,998) |
| | | | | | | | | | | | |
Change in Net Debt | | $ | (294) | | $ | (154,807) | | $ | (31,591) | | $ | (185,884) |
| (1) | | See table 10 for the reconciliation of net income attributable to Ferro Corporation common shareholders to adjusted EBITDA. |
It should be noted that adjusted EBITDA and free cash flow from continuing operations are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). These non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with U.S. GAAP and a reconciliation of these financial measures to the most comparable U.S. GAAP financial measures is presented. Adjusted EBITDA is net income before the effects of income (loss) attributable to noncontrolling interest, discontinued operations, restructuring and impairment charges, other (income) expense net, interest expense, income tax expense, depreciation and amortization, non-GAAP adjustments to cost of sales, and non-GAAP adjustments to SG&A. Free cash flow from Continuing Operations is adjusted EBITDA less capital expenditures, working capital, cash income taxes, cash interest, pension contributions, incentive compensation payments, and other continuing operating cash items. We believe this data provides investors with additional information on the underlying operations and trends of the business and enables period-to-period comparability of financial performance. In addition, these measures are used in the calculation of certain incentive compensation programs for selected employees.
