FOE
$15.57
Ferro
$.06
.39%
Earnings Details
3rd Quarter September 2016
Wednesday, November 02, 2016 5:08:00 PM
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Summary

Ferro Misses

Ferro (FOE) reported 3rd Quarter September 2016 earnings of $0.27 per share on revenue of $288.5 million. The consensus earnings estimate was $0.27 per share on revenue of $283.8 million. The Earnings Whisper number was $0.29 per share. Revenue grew 3.3% on a year-over-year basis.

The company said it continues to expect 2016 earnings of $1.00 to $1.05 per share. The current consensus earnings estimate is $1.05 per share for the year ending December 31, 2016.

Ferro Corp is a producer of specialty materials and chemicals that are sold to the manufacturers who, in turn, make products for many end-use markets. It offers electronic materials, color and glass performance materials, pigments, powders & oxides.

Results
Reported Earnings
$0.27
Earnings Whisper
$0.29
Consensus Estimate
$0.27
Reported Revenue
$288.5 Mil
Revenue Estimate
$283.8 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Ferro Grows Sales and Profitability in Third Quarter; Affirms 2016 Guidance

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

Ferro Corporation (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 yet occurred. 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 Benicarlo, 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.

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
$
(8,884)
$
(4,059)
$
119
$
13,510
shareholders
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
(4,173)
(9,697)
(18,217)
(36,251)
long lived assets
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)
Net (loss)
Selling
Restructuring
income
Diluted
(Dollars in
general and
and
Other
attributable
(loss)
thousands, except
Cost of
administrative
impairment
expense,
Income tax
to common
earnings
per share amounts)
sales
expenses
charges
net
expense(3)
shareholders
per share
2016
As reported
$
199,546
$
55,588
$
26
$
6,662
$
6,157
$
(8,884)
$
(0.11)
Special items:
Restructuring
-
-
(26)
-
7
19
-
Other(1)
-
(4,098)
-
-
1,493
2,605
0.03
Discontinued operations
-
-
-
-
-
29,222
0.35
Total special items(4)
-
(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
Other(2)
284
(4,845)
-
-
727
3,834
0.04
Discontinued operations
-
-
-
-
-
19,086
0.22
Total special items(4)
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)
Net (loss)
Selling
Restructuring
Other
income
Diluted
(Dollars in
general and
and
expense
Income
attributable
earnings
thousands, except
Cost of
administrative
impairment
(income),
tax
to common
(loss) per
per share amounts)
sales
expenses
charges
net
expense(3)
shareholders
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
Other(1)
-
(10,339)
-
3,065
2,760
4,514
0.05
Discontinued operations
-
-
-
-
-
64,464
0.77
Total special items(4)
-
(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
Other(2)
(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 items(4)
(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 sales(1)
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,
Adjusted
2016 vs
2015
2015(1)
2016
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,
Adjusted
2016 vs
2015
2015(1)
2016
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
$ (8,884)
$ (4,059)
$
119
$
13,510
shareholders
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 adjustments(1)
26,193
29,539
Adjusted operating profit before tax
141,717
114,320
Less: Tax expense(2)
(36,846)
(29,723)
Net adjusted operating profit after tax
$
104,871
$
84,597
Recent acquisitions(3) 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,
September 30,
September 30,
September 30,
2016
2015
2016
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,
September 30,
September 30,
September 30,
2016
2015
2016
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.

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SOURCE: Ferro Corporation

Ferro Corporation
Investor Contact:
Kevin Cornelius Grant, 216-875-5451
Manager, Investor Relations
kevincornelius.grant@ferro.com
or
Media Contact:
Mary Abood, 216-875-5401
Director, Corporate Communications
mary.abood@ferro.com