Ferro Reports 2011 Fourth-Quarter and Full-Year Results
CLEVELAND, Ohio – February 28, 2012 – Ferro Corporation (NYSE: FOE, the “Company”) today announced net sales of $443 million for the three-month period ended December 31, 2011 compared with net sales of $537 million in the fourth quarter of 2010. The Company recorded a net loss attributable to Ferro Corporation common shareholders of $28.8 million, or $0.33 per diluted share, in the 2011 fourth quarter, compared with net income attributable to Ferro Corporation common shareholders of $1.8 million, or $0.02 per diluted share, in the prior-year quarter. The adjusted net loss attributable to Ferro Corporation common shareholders, excluding special charges, was $6.8 million, or $0.08 per diluted share, compared with adjusted net income attributable to Ferro Corporation common shareholders of $20.4 million, or $0.24 per diluted share, in the fourth quarter of 2010.
“We began 2011 with high expectations following a strong performance in 2010 that was driven by worldwide economic growth and surging demand for solar power. During the year, the anticipated demand for conductive pastes used in solar cells did not materialize, resulting in significant booking reductions by our customers throughout the world, adversely affecting earnings. Our non-solar Electronic Materials businesses performed well in 2011, as did our Color and Glass Performance Materials and Pharmaceuticals businesses. However, improvements in these businesses did not offset the impact of the steep decline in solar paste revenues,” said Chairman, President and Chief Executive Officer James F. Kirsch.
“We responded quickly to the slowing customer demand through appropriate limits on spending, reduced hiring and adjustments in our manufacturing operations. Our focus on working capital resulted in $71 million of cash from operations in the fourth quarter as we continued to manage our business in line with market conditions,” Kirsch noted.
“Looking forward, we will continue making investments designed to fuel future sales growth, including new product development and enhanced customer technical support, as well as investments that will enhance our productivity and manufacturing efficiency.”
2011 Fourth-Quarter Results Net sales for the three months ended December 31, 2011, were $443 million, a decline of 18 percent from net sales of $537 million in the fourth quarter of 2010. Reduced sales of electronic materials products, including precious metal sales, were the primary driver of the decline in consolidated net sales. Excluding the Electronic Materials segment, sales increased by 2.4 percent. Reduced customer demand for conductive pastes used in solar cell applications and metal powders used in a variety of electronic products resulted in a $103 million decline in sales for the Electronic Materials segment, including a $65 million decline in sales of precious metals due to reduced volume and lower silver prices. Demand for conductive pastes remains weak due to low end-market demand and excess inventory of completed solar power modules, particularly in the European solar market. Sales increased in the Performance Coatings, Polymer Additives, Specialty Plastics and Pharmaceuticals segments compared with the prior-year quarter, while sales declined in the Color and Glass Performance Materials segment.
Gross profit was $75 million, or 16.9 percent of net sales, during the 2011 fourth quarter, compared with $109 million, or 20.3 percent of net sales, during the fourth quarter of 2010. Excluding special charges, gross profit was 19.3 percent of sales excluding precious metals during the quarter, compared with 26.8 percent in the fourth quarter of 2010. The primary driver of the decline in gross profit dollars was the reduced sales volume in our Electronic Materials segment, including conductive pastes sold to manufacturers of solar cells. Electronic materials are among the Company’s highest margin products. During the 2011 fourth quarter, gross profit was reduced by charges of $1.1 million, primarily related to residual costs at closed manufacturing sites that were affected by prior-period restructuring actions. In the fourth quarter of 2010, gross profit was reduced by charges of $4.1 million, primarily as a result of a multi-year settlement of taxes owed on certain raw materials purchases and costs related to manufacturing rationalization activities.
Selling, general and administrative (“SG&A”) expenses were $77 million during the fourth quarter compared with $78 million in the prior-year quarter. SG&A expenses were 17.4 percent of net sales during the quarter, compared with 14.5 percent of net sales in the fourth quarter of 2010. Reduced incentive compensation expenses, lower special charges and lower pension expenses reduced SG&A expenses during the quarter. Offsetting these declines were increased costs related to an initiative to streamline and standardize the Company’s business processes and to improve management information systems tools, increased SG&A expenses at non-U.S. operations resulting from changes in foreign currency exchange rates, and the costs of annual salary adjustments. SG&A expenses during the 2011 fourth quarter included special charges of $0.8 million, primarily related to expenses at sites that were closed during earlier restructuring initiatives. During the fourth quarter of 2010, SG&A expense included $4.6 million in charges, primarily related to manufacturing rationalization activities.
Restructuring and impairment charges were $13.0 million in the fourth quarter of 2011, compared with $19.6 million in the prior-year quarter. The fourth-quarter 2011 total included fixed asset impairment charges of $8.2 million and a $3.9 million impairment of goodwill in the Performance Coatings segment.
Interest expense was $7.2 million during the 2011 fourth quarter, down $0.2 million from the prior-year period as a result of slightly lower average borrowing balances.
Losses on extinguishment of debt were minimal in the 2011 fourth quarter, down from losses of $3.7 million in the 2010 fourth quarter which were related to debt refinancing.
The net loss attributable to Ferro Corporation common shareholders for the 2011 fourth quarter was $28.8 million, or $0.33 per diluted share, compared with net income attributable to Ferro Corporation common shareholders of $1.8 million, or $0.02 per diluted share, in the fourth quarter of 2010. The adjusted net loss attributable to Ferro Corporation common shareholders for the 2011 fourth quarter was $0.08 per diluted share, excluding special charges. A reconciliation of reported results to adjusted results excluding special charges is available in the supplementary financial data included in this press release.
Cash flow from operations was $70.6 million during the fourth quarter of 2011, compared with $18.4 million in the prior-year quarter. The cash flow from operations in the final three months of 2011 was driven by a $62.8 million reduction in working capital.
2011 Full-Year Results
Net sales for the year ended December 31, 2011 increased to $2.2 billion, an increase of 2.6 percent compared with 2010. Sales increased in all segments except Electronic Materials where reduced demand and excess inventories of solar power modules resulted in decreased demand for the Company’s conductive metal pastes. Excluding the Electronic Materials segment, sales increased by 7.5 percent compared with 2010. Sales of precious metals increased, primarily in the first half of the year when demand for conductive pastes was stronger and silver prices were higher. During 2011, changes in product pricing and mix were the primary drivers of increased sales, accounting for 10 percentage points of sales growth. Changes in foreign currency exchange rates contributed an additional 2 percentage points of sales growth. Lower sales volume reduced growth by 9 percentage points.
Net income attributable to Ferro Corporation common shareholders was $31.5 million, or $0.36 per diluted share in 2011, compared with $5.0 million, or $0.06 per diluted share, in 2010. The improvement was driven by significantly lower restructuring and impairment charges, reduced losses on extinguishment of debt and lower interest expense. These profitability improvements were partially offset by reduced gross profit and higher income tax expense.
Adjusted net income attributable to Ferro Corporation common shareholders for 2011, excluding special charges, was $61.8 million, or $0.71 per diluted share. The adjusted earnings exclude special charges of $26.3 million, consisting of $17.0 million of restructuring and impairment charges, and other charges of $9.3 million primarily related to residual costs at closed manufacturing sites that were involved in restructuring initiatives in prior periods. The adjusted net income attributable to Ferro Corporation common shareholders in 2010, excluding special charges, was $93.2 million, or $1.08 per diluted share. The 2010 adjusted net income excluded charges of $125.4 million, consisting of $63.7 million of restructuring and impairment charges, losses on extinguishment of debt of $23.0 million, and other charges of $38.6 million primarily related to manufacturing rationalization, the refinancing of debt and other expense reduction activities.
Gross profit percentage declined to 19.2 percent of net sales during 2011, compared with 21.8 percent of net sales in 2010. The decline was primarily driven by reduced sales of high-margin electronic materials products, particularly conductive pastes used in solar applications. During 2011, gross profit was reduced by special charges of $4.8 million, primarily related to residual costs at manufacturing locations that were closed as a result of prior-period restructuring actions. In 2010, gross profit was reduced by special charges of $9.0 million, primarily the result of a multi-year settlement of taxes owed on certain raw materials and costs associated with manufacturing rationalization activities.
SG&A expenses were nearly unchanged at $294.8 million during 2011. SG&A expenses as a percent of net sales declined to 13.6 percent in 2011, from 14.0 percent during 2010. Reduced incentive compensation, lower special charges and less pension expense contributed to the reduced SG&A expense. These declines were offset by increased spending for an initiative to streamline and standardize business processes and improve management information systems tools, increased SG&A expenses in the Company’s non-U.S. operations resulting from changes in foreign currency exchange rates, and the cost of annual salary adjustments. SG&A during 2011 included special charges of $4.1 million, primarily related to expenses at closed sites that were part of prior-period restructuring actions. During 2010, SG&A expenses included charges of $18.1 million, primarily related to manufacturing rationalization actions, employee severance and corporate development activities.
Restructuring and impairment charges declined to $17.0 million, down from $63.7 million in the prior year. The lower charges reflected the reduction in restructuring activities as the Company completes the final actions related to its multi-year manufacturing rationalization efforts. Included in the 2011 restructuring and impairment charges were fixed asset impairment charges of $8.2 million and a $3.9 million impairment of goodwill in the Performance Coatings segment.
Interest expense declined to $28.4 million in 2011, a reduction of $16.2 million compared with 2010. The reduction was driven by lower average borrowing levels, reduced average interest rates on borrowings and reduced amortization of debt issuance costs. Interest expense in 2010 included a $2.3 million write-off of debt issuance costs related to prepayments of the Company’s term loans.
Losses on extinguishment of debt were minimal in 2011, down from $23.0 million in 2010. The 2010 losses included a write-off of unamortized fees and the difference between the carrying value and the fair value of the portion of the Company’s 6.5% Convertible Senior Notes purchased during 2010. The purchases were made as a result of a tender offer and subsequent purchases of the notes. The losses on extinguishment also included a write-off of unamortized fees associated with the Company’s previous credit facility.
Total debt on December 31, 2011 was $309 million compared with $295 million at the end of 2010. Cash flow from operations was $53.2 million during 2011 driven by net income, depreciation and amortization, and the elimination of precious metal deposits, partially offset by increased working capital requirements.
2012 Outlook
The Company expects 2012 sales, excluding precious metal pass-throughs, to be approximately the same as in 2011, after adjusting for the negative impact of lower forecasted foreign exchange rates. Sales of precious metals are expected to decline due to lower average prices and lower volume. The sales outlook assumes that cautious customer ordering patterns will continue in response to generally lower regional growth forecasts. However, the Company’s sales outlook does not anticipate a broad recessionary environment in any region. Foreign currency exchange rates used to estimate 2012 sales are assumed to be equal to year-end 2011 values, which were lower than the average rates for 2011.
Sales of electronic materials products are expected to be lower in 2012 compared with 2011. Sales of these products are expected to improve during the course of 2012, with most of the improvement expected in the second half of the year. However, the strength and timing of a global recovery in demand for solar pastes remains uncertain.
Adjusted earnings per share are expected to be in the range of $0.40 to $0.65 per diluted share in 2012. The expected reduction of 2012 adjusted earnings compared with the prior-year adjusted earnings is driven by lower income expectations in the Electronic Materials segment. The size of the range is driven primarily by uncertainties related to demand for electronic materials products.
While the Company expects lower segment income from the Electronic Materials segment, total income from all other segments is expected to grow by 10 to 15 percent in 2012.
Non-GAAP Measures
Adjusted earnings per share is equal to income (loss) before taxes, plus restructuring and impairment charges, charges related to debt refinancing and other special charges, adjusted for a normalized tax rate that is consistent with the Company’s expected future effective tax rate excluding discrete items, and divided by the average number of common shares outstanding. The Company’s expected future effective tax rate is lower than the U.S. statutory rate because of expected earnings in foreign jurisdictions with lower tax rates. 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.
Conference Call
The Company will host a conference call to discuss its 2011 fourth-quarter and full-year financial results, its outlook for general business conditions and its current outlook for 2012 on Wednesday, February 29, 2012, at 10:00 a.m. Eastern time. To participate in the call, dial 800-750-5845 if calling from the United States or Canada, or dial 212-231-2929 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 from noon Eastern time on February 29 through noon Eastern time on March 7. 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 #21579704 to access the audio replay.
The conference call also will be broadcast live over the Internet and will be available for replay through June 30, 2012. The live broadcast and replay can be accessed through the Investor Information portion of the Company’s Web site atwww.ferro.com. A podcast of the conference call will also be available on the Company’s Web site.
About Ferro Corporation
Ferro Corporation (http://www.ferro.com) is a leading global supplier of technology-based performance materials for manufacturers. Ferro materials enhance the performance of products in a variety of end markets, including electronics, solar energy, telecommunications, pharmaceuticals, building and renovation, appliances, automotive, household furnishings, and industrial products.
Headquartered in Mayfield Heights, Ohio, the Company has approximately 5,100 employees globally and reported 2011 sales of $2.2 billion.
Cautionary Note on Forward-Looking Statements
Certain statements in this press release may constitute “forward-looking statements” within the meaning of Federal securities laws. These statements are subject to a variety of uncertainties, unknown risks and other factors concerning the Company’s operations and business environment. Important factors that could cause actual results to differ materially from those suggested by these forward-looking statements and that could adversely affect the Company’s future financial performance include the following:
•
demand in the industries into which Ferro sells its products may be unpredictable, cyclical or heavily influenced by consumer spending;
•
uncertainty in the development of the solar energy market;
•
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 effectiveness of the Company’s efforts to improve operating margins through sales growth, price increases, productivity gains, and improved purchasing techniques;
•
implementation of new business information systems and processes;
•
the availability of reliable sources of energy and raw materials at a reasonable cost;
•
currency conversion rates and economic, social, regulatory, and political conditions around the world;
•
Ferro’s presence in the Asia-Pacific region 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;
•
Ferro’s ability to successfully introduce new products;
•
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;
•
Ferro’s ability to complete future acquisitions or successfully integrate future acquisitions into our business;
•
the impact of the Company’s performance on its ability to utilize significant deferred tax assets;
•
competitive factors, including intense price competition;
•
Ferro’s ability to protect its intellectual property or to successfully resolve claims of infringement brought against the Company;
•
the impact of operating hazards and investments made in order to meet stringent environmental, health and safety regulations;
•
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;
•
the impact of interruption, damage to, failure, or compromise of the Company’s information systems;
•
manufacture and sale of products into the pharmaceutical industry;
•
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’s ability to successfully implement and/or administer our restructuring programs and produce the desired results;
•
Ferro may not pay dividends on its common stock in the foreseeable future; 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, 2011.
# # #
INVESTOR CONTACT:
David Longfellow Director, Investor Relations, Ferro Corporation Phone: 216-875-5488 E-mail:david.longfellow@ferro.com
MEDIA CONTACT:
Mary Abood Director, Corporate Communications, Ferro Corporation Phone: 216-875-5401 E-mail:mary.abood@ferro.com
Ferro Corporation and Subsidiaries
Consolidated Statements of Operations
Three months ended
December 31,
Twelve months ended
(Unaudited)
December 31,
(Dollars in thousands, except share
and per share amounts)
2011
2010
2011
2010
Net sales
$
442,695
$
536,951
$
2,155,792
$
2,101,865
Cost of sales
367,991
427,846
1,742,605
1,643,200
Gross profit
74,704
109,105
413,187
458,665
Selling, general and administrative expenses
76,906
78,101
294,802
293,736
Restructuring and impairment charges
12,986
19,625
17,030
63,732
Other expense (income):
Interest expense
7,201
7,372
28,409
44,568
Interest earned
(92
)
(109
)
(285
)
(651
)
Losses on extinguishment of debt
45
3,670
45
23,001
Foreign currency losses, net
709
1,080
4,758
4,724
Miscellaneous expense, net
2,034
3,291
2,492
5,814
(Loss) income before income taxes
(25,085
)
(3,925
)
65,936
23,741
Income tax expense (benefit)
3,582
(6,778
)
33,569
16,468
Net (loss) income
(28,667
)
2,853
32,367
7,273
Less: Net income attributable to noncontrolling interests
157
844
730
1,577
Net (loss) income attributable to Ferro Corporation
(28,824
)
2,009
31,637
5,696
Dividends on preferred stock
0
(165
)
(165
)
(660
)
Net (loss) income attributable to Ferro Corporation common shareholders
$
(28,824
)
$
1,844
$
31,472
$
5,036
(Loss) earnings per share attributable to Ferro Corporation common shareholders:
Basic (loss) earnings per share
$
(0.33
)
$
0.02
$
0.37
$
0.06
Diluted (loss) earnings per share
(0.33
)
0.02
0.36
0.06
Shares outstanding:
Weighted-average basic shares
86,174,555
85,867,752
86,119,380
85,822,887
Weighted-average diluted shares
86,771,135
86,517,511
86,778,335
86,539,924
End-of-period basic shares
86,175,117
85,873,376
86,175,117
85,873,376
1
Ferro Corporation and Subsidiaries Segment Net Sales and Segment Income
Three months ended
December 31,
Twelve months ended
(Dollars in thousands)
(Unaudited)
December 31,
2011
2010
2011
2010
Segment Net Sales
Electronic Materials
$
84,187
$
186,687
$
622,977
$
675,401
Performance Coatings
149,020
140,477
602,566
555,023
Color and Glass Perf. Materials
89,511
93,959
396,317
382,155
Polymer Additives
74,198
70,921
336,965
302,352
Specialty Plastics
39,283
38,693
172,028
163,058
Pharmaceuticals
6,496
6,214
24,939
23,876
Total Segment Net Sales
$
442,695
$
536,951
$
2,155,792
$
2,101,865
Segment Income
Electronic Materials
$
612
$
35,312
$
74,869
$
132,585
Performance Coatings
7,526
4,190
37,988
39,416
Color and Glass Perf. Materials
2,538
5,057
32,327
31,514
Polymer Additives
414
4,590
15,221
18,387
Specialty Plastics
2,140
1,773
9,521
11,348
Pharmaceuticals
73
426
3,050
814
Total Segment Income
13,303
51,348
172,976
234,064
Unallocated corporate expenses
15,505
20,344
54,591
69,135
Restructuring and impairment charges
12,986
19,625
17,030
63,732
Interest expense
7,201
7,372
28,409
44,568
Other expense, net
2,696
7,932
7,010
32,888
(Loss) income before income taxes
$
(25,085
)
$
(3,925
)
$
65,936
$
23,741
2
Ferro Corporation and Subsidiaries Consolidated Balance Sheets
(Dollars in thousands)
December 31, 2011
December 31, 2010
Assets
Current assets:
Cash and cash equivalents
$
22,991
$
29,035
Accounts receivable, net
306,775
302,448
Inventories
228,813
202,067
Deposits for precious metals
0
28,086
Deferred income taxes
17,395
24,924
Other receivables
37,839
27,762
Other current assets
17,086
7,432
Total current assets
630,899
621,754
Property, plant and equipment, net
379,336
391,496
Goodwill
215,601
219,716
Amortizable intangible assets, net
11,056
11,869
Deferred income taxes
117,658
121,640
Other non-current assets
86,101
67,880
Total assets
$
1,440,651
$
1,434,355
Liabilities and Equity
Current liabilities:
Loans payable and current portion of long-term debt
$
11,241
$
3,580
Accounts payable
214,460
207,770
Accrued payrolls
31,055
49,590
Accrued expenses and other current liabilities
67,878
84,735
Total current liabilities
324,634
345,675
Long-term debt, less current portion
298,082
290,971
Postretirement and pension liabilities
215,732
189,058
Other non-current liabilities
19,709
25,044
Total liabilities
858,157
850,748
Series A convertible preferred stock
0
9,427
Shareholders’ equity
572,262
563,409
Noncontrolling interests
10,232
10,771
Total liabilities and equity
$
1,440,651
$
1,434,355
3
Ferro Corporation and Subsidiaries Consolidated Statements of Cash Flows
Three months ended
December 31,
Twelve months ended
(Dollars in thousands)
(Unaudited)
December 31,
2011
2010
2011
2010
Cash flows from operating activities
Net income (loss)
$
(28,667
)
$
2,853
$
32,367
$
7,273
Depreciation and amortization
14,970
17,426
63,493
76,936
Other non-cash adjustments, net
36,038
5,924
18,684
29,181
Precious metals deposits
0
(28,086
)
28,086
84,348
Accounts receivable
50,289
27,167
(13,444
)
(24,697
)
Inventories
11,760
7,898
(29,790
)
(22,654
)
Accounts payable
726
(19,968
)
4,715
12,618
Other changes in current assets and liabilities, net
(14,513
)
5,196
(50,878
)
35,860
Net cash provided by operating activities
70,603
18,410
53,233
198,865
Cash flows from investing activities
Capital expenditures for property, plant and equipment and other long-lived assets
(20,790
)
(17,004
)
(72,713
)
(44,737
)
Expenditures for acquisitions, net of cash acquired
0
(6,938
)
0
(6,938
)
Proceeds from sale of assets and businesses
4,067
4,902
6,441
18,214
Other investing activities
952
0
1,145
139
Net cash used for investing activities
(15,771
)
(19,040
)
(65,127
)
(33,322
)
Cash flow from financing activities
Net (repayments) borrowings under loans payable
(46,835
)
1,005
8,661
(21,495
)
Proceeds from long-term debt
116,660
55,559
646,834
632,299
Principal payments on long-term debt
(122,063
)
(55,559
)
(639,128
)
(392,061
)
Extinguishment of debt
(725
)
(36,310
)
(725
)
(362,997
)
Debt issue costs
0
612
0
(9,848
)
Redemption of convertible preferred stock
0
0
(9,427
)
0
Cash dividends paid
0
(165
)
(165
)
(660
)
Other financing activities
34
(1,714
)
(146
)
(2,502
)
Net cash (used for) provided by financing activities
(52,929
)
(36,572
)
5,904
(157,264
)
Effect of exchange rate changes on cash and cash equivalents
(812
)
881
(54
)
2,249
Increase (decrease) in cash and cash equivalents
1,091
(36,321
)
(6,044
)
10,528
Cash and cash equivalents at beginning of period
21,900
65,356
29,035
18,507
Cash and cash equivalents at end of period
$
22,991
$
29,035
$
22,991
$
29,035
Cash paid during the period for:
Interest
$
1,300
$
1,590
$
25,920
$
31,881
Income taxes
1,414
4,656
22,060
20,379
4
Ferro Corporation and Subsidiaries Supplemental Information
Reconciliation of Adjusted Earnings to Reported Earnings for the Three Months Ended December 31 (Unaudited)
Three months ended December 31, 2011
Three months ended December 31, 2010
(Dollars in thousands, except per share amounts)
As Reported
Adjust- ments
Non- GAAP
As Reported
Adjust- ments
Non- GAAP
Net sales
$
442,695
$
442,695
$
536,951
$
536,951
Cost of sales
367,991
$
(1,137
)
366,854
427,846
$
(4,053
)
423,793
Gross profit
74,704
75,841
109,105
113,158
Selling, general and administrative expenses
76,906
(760)
76,146
78,101
(4,565)
73,536
Restructuring and impairment charges
12,986
(12,986)
0
19,625
(19,625)
0
Other expense, net
2,696
(397
)
2,299
7,932
(9,203
)
(1,271
)
(Loss) earnings before interest, taxes and noncontrolling interest
(17,884)
(2,604)
3,447
40,893
Interest expense
7,201
7,201
7,372
7,372
Total adjustments
$
(15,280
)
$
(37,446
)
(Loss) income before taxes
(25,085
)
(9,805
)
(3,925
)
33,521
Income tax expense (benefit)
3,582
(6,778)
Income tax benefit1
(3,138
)
Income tax expense2
12,068
Net (loss) income
(28,667
)
(6,667
)
2,853
21,453
Less: Net income attributable to noncontrolling interest
157
157
844
844
Net (loss) income attributable to Ferro
(28,824)
(6,824)
2,009
20,609
Dividends on preferred stock
0
0
(165)
(165)
Net (loss) income attributable to Ferro common shareholders
$(28,824)
$ (6,824)
$ 1,844
$ 20,444
Diluted (loss) earnings per share
$ (0.33)
$ (0.08)
$ 0.02
$ 0.24
1 2011 tax rate of 32%, consistent with the Company’s expectation for future effective tax rates, excluding discrete items. The Company’s expected future effective tax rate is lower than the U.S. statutory rate because of expected earnings in foreign jurisdictions with lower tax rates.
2 2010 tax rate of 36%, consistent with the Company’s 2010 expectation for normalized effective tax rates, excluding discrete items.
It should be noted that adjusted earnings is a financial measure not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). The adjusted earnings presented here exclude certain special charges including restructuring and impairment charges, charges related to debt refinancing, and other charges that are not related to production of products for sale. 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. In addition, these measures are used in the calculation of certain incentive compensation programs for selected employees.
5
Ferro Corporation and Subsidiaries Supplemental Information
Reconciliation of Adjusted Earnings to Reported Earnings for the Twelve Months Ended December 31 (Unaudited)
Twelve months ended December 31, 2011
Twelve months ended December 31, 2010
(Dollars in thousands, except per share amounts)
As Reported
Adjust- ments
Non- GAAP
As Reported
Adjust- ments
Non- GAAP
Net sales
$
2,155,792
$
2,155,792
$
2,101,865
$
2,101,865
Cost of sales
1,742,605
$
(4,761
)
1,737,844
1,643,200
$
(8,965
)
1,634,235
Gross profit
413,187
417,948
458,665
467,630
Selling, general and administrative expenses
294,802
(4,100)
290,702
293,736
(18,064)
275,672
Restructuring and impairment charges
17,030
(17,030)
0
63,732
(63,732)
0
Other expense, net
7,010
(397
)
6,613
32,888
(32,336
)
552
Earnings before interest, taxes and noncontrolling interest
94,345
120,633
68,309
191,406
Interest expense
28,409
28,409
44,568
(2,280
)
42,288
Total adjustments
$
(26,288
)
$
(125,377
)
Income before taxes
65,936
92,224
23,741
149,118
Income tax expense
33,569
16,468
Income tax expense1
29,512
Income tax expense2
53,682
Net income
32,367
62,712
7,273
95,436
Less: Net income attributable to noncontrolling interest
730
730
1,577
1,577
Net income attributable to Ferro
31,637
61,982
5,696
93,859
Dividends on preferred stock
(165
)
(165
)
(660
)
(660
)
Net income attributable to Ferro common shareholders
$ 31,472
$ 61,817
$ 5,036
$ 93,199
Diluted earnings per share
$
0.36
$
0.71
$
0.06
$
1.08
1 2011 tax rate of 32%, consistent with the Company’s expectation for future effective tax rates, excluding discrete items. The Company’s expected future effective tax rate is lower than the U.S. statutory rate because of expected earnings in foreign jurisdictions with lower tax rates.
2 2010 tax rate of 36%, consistent with the Company’s 2010 expectation for normalized effective tax rates, excluding discrete items.
It should be noted that adjusted earnings is a financial measure not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). The adjusted earnings presented here exclude certain special charges including restructuring and impairment charges, charges related to debt refinancing, and other charges that are not related to production of products for sale. 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. In addition, these measures are used in the calculation of certain incentive compensation programs for selected employees.
6
Ferro Corporation and Subsidiaries Supplemental Information
Segment Net Sales Excluding Precious Metals and Reconciliation of Sales Excluding Precious Metals to Net Sales (Unaudited)
Three months ended
Twelve months ended
(Dollars in thousands)
December 31,
December 31,
2011
2010
2011
2010
Electronic Materials
$
41,443
$
78,621
$
257,991
$
321,990
Performance Coatings
149,020
140,349
602,566
554,796
Color and Glass Performance Materials
81,718
87,967
362,232
357,359
Polymer Additives
74,198
70,921
336,965
302,352
Specialty Plastics
39,283
38,693
172,028
163,058
Pharmaceuticals
6,496
6,214
24,939
23,876
Total segment net sales excluding precious metals
392,158
422,765
1,756,721
1,723,431
Sales of precious metals
50,537
114,186
399,071
378,434
Total net sales
$
442,695
$
536,951
$
2,155,792
$
2,101,865
It should be noted that segment net sales excluding precious metals is a financial measure 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. 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.
7
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