FERRO CORP - FORM 8-K - EX-99.1

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8-K - LIVE FILING - FERRO CORP	htm_49356.htm

For Immediate Release

FERRO REPORTS ADJUSTED EPS OF $0.09 FOR FOURTH QUARTER 2013 AND $0.47 FOR FULL-YEAR 2013

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Full-year 2014 adjusted EPS guidance established at $0.65 — $0.70

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Company reaffirms 2015 adjusted EPS target in excess of $1.00

CLEVELAND, Ohio – February 24, 2014 – Ferro Corporation (NYSE: FOE, the “Company”) today reported results for the fourth quarter and full year ended December 31, 2013. The fourth-quarter income from continuing operations attributable to common shareholders was $0.69 per diluted share compared with a net loss of $0.74 per share in the fourth quarter of 2012. On an adjusted basis, earnings per diluted share were $0.09 in the fourth quarter of 2013, compared with a net loss of $0.07 per share in the fourth quarter of 2012. For the full year 2013, income from continuing operations attributable to common shareholders was $0.92 per diluted share compared with a net loss of $4.35 per share in the prior year. On an adjusted basis, earnings per diluted share for the full-year 2013 were $0.47 per share compared with net income of $0.07 per share in 2012. The Company attributed the increase in profitability to the successful execution of its value creation strategy. The results in both years include a number of charges, relating to, among other items, restructuring activities, asset impairments, divestitures, and a pension and other postretirement benefits mark-to-market adjustment of the related net liabilities. Please refer to the supplemental tables at the end of this release for additional information concerning adjusted financial results.

Peter Thomas, President and Chief Executive Officer, commented, “We have accomplished a great deal over the last year in adjusting our business portfolio, realigning our business operations and reducing our cost base. The Ferro team has been successful in making Ferro more competitive and more profitable, and we are better positioned for future growth. Full year 2013 cost savings are estimated to have exceeded $47 million with an estimated year-end run rate of $70 million. We expect to accomplish our goal of greater than $100 million of cost reductions by the end of 2015. Based on our growth expectations for 2014 and continued reductions in costs associated with our value creation strategy, we expect adjusted earnings per share for 2014 to be in the range of $0.65 to $0.70.”

2013 Fourth-Quarter Results

Ferro reported net sales of $374 million in the fourth quarter of 2013, compared with net sales of $400 million in the fourth quarter of 2012. Value-added sales, which exclude precious metal sales, decreased nearly 1% to $357 million from $360 million in the fourth quarter last year. Adjusting for the impact of business lines exited during the year (approximately $3 million and $9 million in the fourth quarter of 2013 and 2012, respectively), value-added sales increased by 1%. In the quarter, sales were also adversely impacted by continued product deselection of phthalates in the Polymer Additives Segment. This led to a reduction in sales of approximately $6 million. Adjusting for this impact, sales in the Company’s other underlying businesses increased by 3%.

In 2012, the Company changed its method of recognizing defined benefit pension and other postretirement benefit expense. We now recognize actuarial gains and losses in our operating results in the year in which the gains or losses occur, and these are generally measured annually as of December 31 and recorded in the fourth quarter. The pension adjustments impact cost of goods sold and selling, general and administrative (“SG&A”) costs. The fourth quarter 2013 pension adjustment resulted in a gain, reducing SG&A expenses by $70 million. For the fourth quarter of 2012, the adjustment resulted in a charge, increasing cost of goods sold by $4 million and SG&A expenses by $23 million.

Gross profit was $79 million for the 2013 fourth quarter, compared with $57 million for the fourth quarter of 2012. Excluding special charges, adjusted gross profit was $79 million (22.1% of value-added sales) compared with $63 million (17.5% of value-added sales) in the prior-year period. In addition to the pension adjustment described above, fourth quarter adjusted gross profit excluded special charges of $0.5 million and $2 million in 2013 and 2012, respectively.

For the fourth quarter of 2013, SG&A expenses were recorded as income of $9 million compared with expenses of $95 million in the prior-year quarter. Excluding special items in both periods, including the pension adjustments described above, SG&A expenses declined 5% to $61 million from $63 million. Included in both periods is the impact of incentive and stock-based compensation accruals, including a charge of approximately $7 million in the fourth quarter of 2013 and a credit of approximately $2 million in the same quarter last year. Excluding special charges and the impact of incentive compensation, SG&A expenses for the fourth quarter were reduced by approximately $12 million on a year-over-year basis. In addition to the pension adjustments, adjusted SG&A expenses for the fourth quarter of 2013 exclude special charges of $0.9 million compared with special charges of $8 million in the same period last year.

During the fourth quarter of both years, the Company incurred restructuring and impairment charges. The charges in both quarters are related to the Company’s ongoing efforts to restructure operations and exit underperforming assets. The charge in the fourth quarter of 2013 was $15 million compared with $22 million in the same period last year.

Net income attributable to common shareholders for the quarter ended December 31, 2013, was $61 million, or $0.69 per diluted share, compared with a net loss of $64 million, or $0.74 per diluted share, in the fourth quarter of 2012. Adjusted net income from continuing operations attributable to common shareholders was $8 million, or $0.09 per diluted share, compared with a net loss of $6 million, or $0.07 per diluted share, in the prior-year quarter.

Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) were approximately $31 million in the fourth quarter of 2013, compared with $12 million in the same period last year. Adjusted EBITDA margins, as a percentage of value-added sales, were 8.6% in the fourth quarter of 2013 and 3.2% in the same period last year.

2013 Full Year Results

Ferro reported net sales of $1.6 billion for the full year 2013, compared with net sales of $1.7 billion for 2012. Value-added sales, which exclude precious metal sales, decreased 2%, to $1.5 billion from $1.6 billion in the prior year. Adjusting for the impact of business lines that have been exited (approximately $27 million and $52 million in 2013 and 2012, respectively), value-added sales declined by less than 1%. For the full year, deselection of phthalate products in the Polymer Additives Segment adversely impacted sales by approximately $22 million. Excluding this impact and that of business lines that have been exited, discussed above, sales for the underlying businesses increased by nearly 1%.

Gross profit was $330 million for the full year 2013, compared with $290 million for 2012. Excluding special charges, adjusted gross profit was $334 million (21.7% of value-added sales) compared with $302 million (19.2% of value-added sales) in the prior year. During 2013, gross profit was increased by special charges of $4 million compared with special charges of $9 million last year. These items are in addition to the pension-related adjustments.

SG&A expenses were $176 million for the full-year 2013 compared with $298 million in the prior year. Excluding special charges in both periods, including the pension adjustment described above, SG&A expenses declined 8% to $239 million from $260 million. Included in both years is the impact of incentive and stock-based compensation accruals, including a charge of approximately $25 million in 2013 compared with a charge of approximately $3 million in 2012. Adjusting for the significant difference in compensation accruals and the special charges, SG&A expenses declined by $43 million or 17%. In addition to the pension adjustments described above, SG&A expense for 2013 included special charges of $8 million compared with special charges of $14 million 2014.

In 2013, the Company recorded $42 million of restructuring and impairment charges compared with $226 million in 2012. The charges are related to the Company’s ongoing efforts to restructure operations and exit underperforming assets.

Net income attributable to common shareholders for the year ended December 31, 2013, was $72 million, or $0.82 per diluted share compared with a net loss of $374 million, or $4.34 per diluted share, in 2012. Adjusted net income from continuing operations attributable to common shareholders was $41 million, or $0.47 per diluted share, compared with $6 million, or $0.07 per diluted share, in the prior year.

Adjusted EBITDA was approximately $138 million for 2013, compared with $90 million in 2012. Adjusted EBITDA margins, represented as a percentage of value-added sales, were 9.0% in 2013 and 5.7% in 2012.

Total debt at December 31, 2013 was $312 million, a reduction of $35 million from December 31, 2012. Cash balances declined by just over $1 million to $28 million, resulting in a reduction in net debt (debt less cash) of $34 million. In comparison, for 2012 net debt increased by $31 million.

Outlook

The Company expects adjusted earnings for 2014 to be in the range of $0.65 to $0.70 per diluted share driven primarily by additional cost savings and modest growth in value-added sales.

Excluding the impact of divested business lines, 2013 value-added sales were $1.5 billion ($1.05 billion in the Performance Materials Group and $463 million in the Performance Chemicals Group). For 2014, Ferro estimates global real gross domestic product (“GDP”), weighted for the Company’s sales participation in the geographies it serves, will be 2.6%. In line with this estimate, value-added sales for the Performance Materials Group are expected to increase by approximately 3.6%, or GDP plus 100 basis points. In the Performance Chemicals Group, 2014 sales will continue to be adversely impacted by deselection of certain phthalates in the Polymer Additives segment. Management estimates that 2014 revenue losses associated with this deselection will be approximately $30 million. Adjusting for this loss, 2014 Performance Chemicals sales are also expected to increase by approximately 3.6%.

The 2014 adjusted gross profit margin, expressed as a percent of value-added sales, is expected to be approximately equal to the level attained in the fourth quarter of 2013, at approximately 22%, and SG&A expenses, excluding pension adjustments and special items, are expected to be approximately 14% of value-added sales.

The Company expects to use approximately $25 million in cash in 2014. Uses of cash include continued funding of restructuring efforts and a higher level of capital spending versus the 2013 level. The Company expects capital spending to be approximately $65 million, with the largest commitment of capital associated with the previously announced investment in manufacturing capacity in Belgium for dibenzoates, a phthalate replacement. Excluding cash restructuring payments and the impact of higher than normal bonus payments earned in 2013 but paid in 2014, cash flow is expected to be break even.

The Company also reaffirms its prior 2015 adjusted earnings per share target in excess of $1.00 per diluted share.

Conference Call

The Company will host a conference call to discuss its fourth-quarter financial results and current outlook for 2014 on Tuesday, February 25, 2014, at 10:00 a.m. Eastern Time. To listen to the call, dial 800-354-6885 if calling from the United States or Canada, or dial 303-223-2685 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 March 4th. 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 #21707283 to access the audio replay.

The conference call also will be broadcast live over the Internet and will be available for replay through March 31, 2014. The live broadcast and replay can be accessed through the Investor Information portion of the Company’s Web site at www.ferro.com. A podcast of the conference call will also be available on the site.

About Ferro Corporation

Ferro Corporation (http://www.ferro.com) is a leading global supplier of technology-based performance materials and chemicals for manufacturers. 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 4,360 employees globally and reported 2013 sales of $1.6 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:

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demand in the industries into which Ferro sells its products may be unpredictable, cyclical, or heavily influenced by consumer spending;

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Ferro’s ability to successfully implement its value creation strategy;

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Ferro’s ability to successfully implement and/or administer its cost-saving initiatives, including its restructuring programs and indirect spend optimization initiative, and to produce the desired results, including projected savings;

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restrictive covenants in the Company’s credit facilities could affect its strategic initiatives and liquidity;

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the effectiveness of the Company’s efforts to improve operating margins through sales growth, price increases, productivity gains, and improved purchasing techniques;

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the impact of interruption, damage to, failure, or compromise of the Company’s information systems;

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the availability of reliable sources of energy and raw materials at a reasonable cost;

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currency conversion rates and economic, social, regulatory, and political conditions around the world;

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Ferro’s presence in certain geographic regions, including Latin America and Asia-Pacific, where it can be difficult to compete lawfully;

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increasingly aggressive domestic and foreign governmental regulations on hazardous materials and regulations affecting health, safety and the environment;

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Ferro’s ability to successfully introduce new products or enter into new growth markets;

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Ferro’s ability to complete future acquisitions or dispositions, or successfully integrate future acquisitions;

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sale of products into highly regulated industries;

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limited or no redundancy for certain of the Company’s manufacturing facilities and possible interruption of operations at those facilities;

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competitive factors, including intense price competition;

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Ferro’s ability to protect its intellectual property or to successfully resolve claims of infringement brought against it;

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the impact of operating hazards and investments made in order to meet stringent environmental, health and safety regulations;

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management of Ferro’s general and administrative expenses;

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Ferro’s multi-jurisdictional tax structure;

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the impact of the Company’s performance on its ability to utilize significant deferred tax assets;

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the effectiveness of strategies to increase Ferro’s return on capital;

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stringent labor and employment laws and relationships with the Company’s employees;

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the impact of requirements to fund employee benefit costs, especially post-retirement costs;

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implementation of new business processes and information systems;

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exposure to lawsuits in the normal course of business;

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risks and uncertainties associated with intangible assets;

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Ferro’s borrowing costs could be affected adversely by interest rate increases;

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Ferro’s ability to access capital markets, borrowings, or financial transactions;

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liens on the Company’s assets by its lenders affect its ability to dispose of property and businesses;

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Ferro may not pay dividends on its common stock in the foreseeable future; and

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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, 2013.

# # #

Contacts:

Investor Contact:
John Bingle, 216-875-5411
Treasurer and Director of Investor Relations
john.bingle@ferro.com

Media Contact:
Mary Abood, 216-875-5401
Director, Corporate Communications
mary.abood@ferro.com


Table 1
Ferro Corporation and Subsidiaries
Consolidated Statements of Operations
	Three months ended												Twelve months ended
(Dollars in thousands, except share and per share amounts)	December 31, (Unaudited)												December 31,
	2013						2012						2013				2012
Net sales	$	374,323					$	399,777					$	1,635,406			$	1,744,613
Cost of sales		295,737						342,456						1,305,682				1,455,043

Gross profit		78,586						57,321						329,724				289,570
Selling, general and administrative expenses		(8,704	)					95,080						176,282				297,755
Restructuring and impairment charges		14,995						21,990						41,733				225,724
Other expense (income):
Interest expense		6,299						6,895						27,333				26,461
Interest earned		(100	)					(118	)					(271	)			(311	)
Foreign currency losses, net		167						1,394						4,183				2,186
Miscellaneous (income) expense, net		(5,776	)					58						(15,269	)			3,095

Income (loss) before income taxes		71,705						(67,976	)					95,733				(265,340	)
Income tax expense (benefit)		10,842						(4,265	)					14,867				108,850

Income (loss) from continuing operations					60,863					(63,711)			80,866							(374,190)
Income (loss) from discontinued operations, net of income
taxes					0							239	(8,421)							1,156

Net income (loss)					60,863					(63,472)			72,445							(373,034)
Less: Net income attributable to noncontrolling interests		326						404						503				1,234
Net income (loss) attributable to Ferro Corporation	$	60,537					$	(63,876	)				$	71,942			$	(374,268	)

Earnings (loss) per share attributable to Ferro Corporation common shareholders:
Basic (loss) earnings per share
From continuing operations	$	0.70					$	(0.74	)				$	0.93			$	(4.35	)
From discontinued operations		—						—						(0.10	)			0.01

	$	0.70					$	(0.74	)				$	0.83			$	(4.34	)
Diluted (loss) earnings per share
From continuing operations	$	0.69					$	(0.74	)				$	0.92			$	(4.35	)
From discontinued operations		—						—						(0.10	)			0.01

	$	0.69					$	(0.74	)				$	0.82			$	(4.34	)
Shares outstanding:
Weighted-average basic shares					86,541,322					86,331,679			86,483,603							86,288,481
Weighted-average diluted shares					87,695,505					86,331,679			87,497,387							86,288,481
End-of-period basic shares					86,653,440					86,368,096			86,653,440							86,367,096
Table 2
Ferro Corporation and Subsidiaries
Segment Net Sales and Gross Profit
				Three months ended												Twelve months ended
(Dollars in thousands)				December 31, (Unaudited)												December 31,

	2013						2012							2013			2012

Segment Net Sales
Pigments, Powders and Oxides				$	34,378		$59,627						$190,326				$279,025
Performance Colors and Glass					91,374		91,732						390,007				386,538
Performance Coatings					146,006		140,633						591,975				587,698
Polymer Additives					63,302		69,580						292,568				320,635
Specialty Plastics					39,263		38,205						170,530				170,717
Total Segment Net Sales				$	374,323		$399,777						$1,635,406				$1,744,613

Segment Gross Profit
Pigments, Powders and Oxides				$	8,343		$3,417						$34,225				$31,780
Performance Colors and Glass					25,622		24,627						112,825				101,847
Performance Coatings					32,458		26,281						132,695				111,609
Polymer Additives					6,523						3,080		27,139				29,951
Specialty Plastics					6,250						5,979		28,366				29,186
Other costs of sales					(610	)				(6,063)			(5,526)							(14,803)

Total Gross Profit					78,586		57,321						329,724							289,570
Selling, general and administrative expenses					(8,704	)				95,080			176,282							297,755
Restructuring and impairment charges					14,995		21,990						41,733				225,724
Other expense, net					590						8,227		15,976				31,431

Income (Loss) before income taxes				$	71,705		$(67,976					)	$95,733				$(265,340				)
												=									=


Table 3
Ferro Corporation and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)	December 31,
	2013		2012
Assets
Current assets:
Cash and cash equivalents	$	28,328	$	29,576
Accounts receivable, net		287,925		306,463
Inventories		190,216		200,824
Deferred income taxes		6,584		7,995
Other receivables		25,775		31,554
Other current assets		16,561		10,802
Current assets of discontinued operations		—		6,289

Total current assets		555,389		593,503
Property, plant and equipment, net		297,104		309,374
Goodwill		63,473		62,975
Amortizable intangible assets, net		13,027		14,410
Deferred income taxes		19,451		21,554
Other non-current assets		59,748		61,941
Other assets of discontinued operations		—		15,346

Total assets	$	1,008,192	$	1,079,103

Liabilities and Equity
Current liabilities:
Loans payable and current portion of long-term debt	$	44,230	$	85,152
Accounts payable		153,877		182,024
Accrued payrolls		44,509		31,643
Accrued expenses and other current liabilities		71,115		76,384
Current liabilities of discontinued operations		—		1,300

Total current liabilities		313,731		376,503
Long-term debt, less current portion		267,469		261,624
Postretirement and pension liabilities		120,527		216,167
Other non-current liabilities		32,622		18,135

Total liabilities		734,349		872,429
Shareholders’ equity		261,518		193,527
Noncontrolling interests		12,325		13,147

Total liabilities and equity	$	1,008,192	$	1,079,103


Table 4
Ferro Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
	Three months ended						Twelve months ended
(Dollars in thousands)	December 31, (Unaudited)						December 31,
	2013			2012			2013			2012
Cash flows from operating activities
Net income (loss)	$	60,863		$	(63,472	)	$	72,445		$	(373,034	)
(Gain) loss on sale of assets and businesses		(4,918	)		(513	)		(15,604	)		505
Depreciation and amortization		12,028			15,650			50,028			57,384
Restructuring and impairment charges		16,226			(89,488	)		20,581			221,596
Accounts receivable		39,303			17,748			16,224			(5,258	)
Inventories		5,938			6,650			18,056			22,287
Accounts payable		(22,099	)		(14,105	)		(27,963	)		(18,359	)
Other changes in current assets and liabilities, net		598			9,787			(7,765	)		17,601
Other adjustments, net		(92,478	)		121,865			(107,538	)		100,936

Net cash provided by operating activities		15,461			4,122			18,464			23,658
Cash flows from investing activities
Capital expenditures for property, plant and equipment and other long-lived assets		(13,033	)		(12,440	)		(34,220	)		(58,685	)
Proceeds from sale of assets and businesses		17,227			657			50,173			3,043
Other investing activities		96			238			1,215			334

Net cash provided by (used for) investing activities		4,290			(11,545	)		17,168			(55,308	)
Cash flow from financing activities
Net (repayments) borrowings under loans payable		(15,107	)		17,847			(5,884	)		39,934
Proceeds from revolving credit facility		80,951			72,425			449,268			395,576
Payments on revolving credit facility		(91,255	)		(80,761	)		(442,659	)		(400,687	)
Extinguishment of convertible Senior notes		0			0			(35,066	)		0
Other financing activities		(1,640	)		874			(2,374	)		1,634

Net cash (used for) provided by financing activities		(27,051	)		10,385			(36,715	)		36,457
Effect of exchange rate changes on cash and cash equivalents		(225	)		1,797			(165	)		1,778

(Decrease) increase in cash and cash equivalents		(7,525	)		4,759			(1,248	)		6,585
Cash and cash equivalents at beginning of period		35,853			24,817			29,576			22,991
Cash and cash equivalents at end of period	$	28,328		$	29,576		$	28,328		$	29,576

Cash paid during the period for:
Interest	$	1,291		$	1,125		$	26,775		$	26,468
Income taxes		2,910			1,527			5,815			4,657


Table 5
Ferro Corporation and Subsidiaries
Supplemental Information
Reconciliation of Reported Loss to Adjusted Loss
for the Three Months Ended December 31 (Unaudited)
(Dollars in thousands,				Selling, general and												Net (loss) income
except per share				administrative			Restructuring and						Income tax (benefit)			attributable to common			Diluted (loss)
amounts)	Cost of sales			expenses			impairment charges				Other expense, net		expense			shareholders			earnings per share

										Three months ended December 31, 2013

As reported	$	295,737		$	(8,704	)	$	14,995			$	590	$	10,842		$	60,537		$	0.69
Special items:
Impairments								(9,586	)					3,451			6,135			0.07
Restructuring								(5,409	)					1,947			3,462			0.04
Pension¹		19			70,096									(25,241	)		(44,874	)		(0.51	)
Other²		(550	)		(878	)						4,939		(1,264	)		(2,247	)		(0.03	)
Taxes³														14,972			(14,972	)		(0.17	)

Total special items		(531	)		69,218			(14,995	)			4,939		(6,135	)		(52,496	)		(0.60	)
As adjusted	$	295,206		$	60,514		$	—			$	5,529	$	4,707		$	8,041		$	0.09

										Three months ended December 31, 2012

As reported	$	342,456		$	95,080		$	21,990			$	8,229	$	(4,265	)	$	(63,876	)	$	(0.74	)
Special items:
Impairments		—			—			(16,403	)			—		5,905			10,498			0.12
Restructuring		—			—			(5,587	)			—		2,011			3,576			0.04
Pension¹		(3,758	)		(23,480	)		—				—		9,806			17,432			0.20
Other²		(1,861	)		(8,222	)		—				—		3,630			6,453			0.07
Taxes³		—			—			—				—		(20,073	)		20,073			0.23
Discontinued operations																	239			—

Total special items		(5,619	)		(31,702	)		(21,990	)			—		1,279			58,271			0.67
As adjusted	$	336,837		$	63,378		$	—			$	8,229	$	(2,986	)	$	(5,605	)	$	(0.07	)

Pension and other postretirement benefits mark-to-market adjustment of the related net liabilities.

Includes certain costs related to divested businesses and product lines, severance costs, ongoing costs at facilities that have been idled, gain/loss on divestitures, certain business development costs, and costs related to a flood that occurred in Germany.

Adjustment of reported earnings and of special items to a normalized 36% rate for 2013 and 2012.

It should be noted that adjusted earnings and earnings per share are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). The adjusted earnings and earnings per share presented here exclude certain special items including restructuring and impairment charges, mark-to-market pension and other postretirement benefit gains and losses, certain costs related to divested businesses and product lines, ongoing costs at facilities that have been idled, gain/loss on divestitures, certain business development costs, and costs related to a flood that occurred in Germany. We believe this data provides investors with additional information on the underlying operations of the business and enables period-to-period comparability of financial performance. In addition, these measures are used in the calculation of certain incentive compensation programs for selected employees.


Table 6
Ferro Corporation and Subsidiaries
Supplemental Information
Reconciliation of Reported (Loss) Income to Adjusted Income
for the Twelve Months Ended December 31 (Unaudited)
(Dollars in thousands,				Selling, general and													Net (loss) income
except per share				administrative			Restructuring and							Income tax expense			attributable to common			Diluted earnings
amounts)	Cost of sales			expenses			impairment charges				Other expense, net			(benefit)			shareholders			(loss) per share

										Twelve months ended December 31, 2013

As reported	$	1,305,682		$	176,282		$	41,733			$	15,976		$	14,867		$	71,942		$	0.82
Special items:
Impairments		—			—			(9,586	)			—			3,451			6,135			0.07
Restructuring		—			—			(32,147	)			—			11,573			20,574			0.24
Pension¹		19			70,096			—				—			(25,241	)		(44,874	)		(0.51	)
Other²		(4,015	)		(7,660	)		—				13,795			(763	)		(1,357	)		(0.02	)
Taxes³		—			—			—				—			19,597			(19,597	)		(0.22	)
Solar Pastes ⁴																		205			—
Discontinued operations																		8,421			0.10
Noncontrolling interest																		(394	)		(0.01	)

Total special items		(3,996	)		62,436			(41,733	)			13,795			8,617			(30,887	)		(0.35	)
As adjusted	$	1,301,686		$	238,718		$	—			$	29,771		$	23,484		$	41,055		$	0.47

										Twelve months ended December 31, 2012

As reported	$	1,455,043		$	297,755		$	225,724			$	31,431		$	108,850		$	(374,268	)	$	(4.34	)
Special items:
Impairments		—			—			(215,184	)			—			77,466			137,718			1.59
Restructuring		—			—			(10,540	)			—			3,794			6,746			0.08
Pension¹		(3,758	)		(23,480	)		—				—			9,806			17,432			0.20
Other²		(9,065	)		(14,191	)		—				(808	)		8,663			15,401			0.18
Taxes³		—			—			—				—			(204,372	)		204,372			2.37
Discontinued operations																		(1,156	)		(0.01	)

Total special items		(12,823	)		(37,671	)		(225,724	)			(808	)		(104,643	)		380,513			4.41
As adjusted	$	1,442,220		$	260,084		$	—			$	30,623		$	4,207		$	6,245		$	0.07

Pension and other postretirement benefits mark-to-market adjustment of the related net liabilities.

Includes certain costs related to divested businesses and product lines, severance costs, ongoing costs at facilities that have been idled, gain/loss on divestitures, proxy contest related costs, certain business development costs and costs related to a flood that occurred in Germany.

Adjustment of reported earnings and of special items to a normalized 36% rate for 2013 and 2012.

Adjustment to exclude the operations of the solar pastes product line prior to the completion of the transaction on February 6, 2013 where certain solar pastes assets were sold and the Company exited the product line. We believe this adjustment, in combination with the adjustment to exclude the gain on the sale of solar pastes assets of $8,954 included within the adjustments to the other expense, net column, provides investors with additional information on the underlying operations of the business.

It should be noted that adjusted earnings and earnings per share are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). The adjusted earnings and earnings per share presented here exclude certain special items including, restructuring and impairment charges, mark-to-market pension and other postretirement benefit gains and losses, certain costs related to divested businesses and product lines, severance costs, ongoing costs at facilities that have been idled, gain/loss on divestitures, proxy contest related costs, certain business development costs, and costs related to a flood that occurred in Germany. We believe this data provides investors with additional information on the underlying operations of the business and enables period-to-period comparability of financial performance. In addition, these measures are used in the calculation of certain incentive compensation programs for selected employees.


Table 7
Ferro Corporation and Subsidiaries
Supplement Information
Reconciliation of Segment Net Sales Excluding Precious Metals to Net Sales and Schedule of
Adjusted Gross Profit (Unaudited)
	Three months ended								Twelve months ended
(Dollars in thousands)	December 31,								December 31,
	2013				2012				2013				2012
Pigments, Powders and Oxides	$	27,039			$	32,243			$	137,185			$156,672
Performance Colors and Glass		81,604				79,210				346,426			336,141
Performance Coatings		146,006				140,633				591,975			587,698
Polymer Additives		63,302				69,580				292,568			320,635
Specialty Plastics		39,263				38,205				170,530			170,717

Total segment net sales excluding precious metals		357,214				359,871				1,538,684			1,571,863
Sales of precious metals		17,109				39,906				96,722			172,750

Total net sales	$	374,323			$	399,777			$	1,635,406			$1,744,613

Net sales excluding precious metals	$	357,214			$	359,871			$	1,538,684			$1,571,863
Adjusted cost of sales		295,206				336,837				1,301,686			1,442,220
Cost of sales from precious metals		(17,109	)			(39,906	)			(96,722	)		(172,750)
Adjusted cost of sales excluding precious metals		278,097				296,931				1,204,964			1,269,470

Adjusted gross profit	$	79,117			$	62,940			$	333,720			$302,393

Adjusted gross profit percentage		22.1		%		17.5		%		21.7		%		19.2	%

It should be noted that segment net sales excluding precious metals and adjusted gross profit are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). The sales are presented here to exclude the impact of volatile precious metal raw material costs. The precious metal raw material costs are generally passed through directly to customers with minimal margin. Adjusted gross profit excludes sales and cost of sales from precious metals as well as other special items, primarily comprised of ongoing costs at facilities that have been idled, the portion of mark-to-market pension and other postretirement benefit gains and losses that impact cost of sales, certain costs related to divested businesses and product lines, and costs related to a flood that occurred in Germany. We believe this data provides investors with additional useful information on the underlying operations of the business and enables period-to-period comparability of financial performance.


Table 8
Ferro Corporation and Subsidiaries
Supplemental Information
Segment Detail
	Three months ended				Twelve months ended
(Dollars in thousands)	December 31,				December 31,
Performance Materials	2013		2012		2013		2012
Sales

Pigments, Powders & Oxides	$	34,378	$	59,627		190,326		279,025
Performance Colors & Glass		91,374		91,732		390,007		386,538
Performance Coatings		146,006		140,633		591,975		587,698

Total Performance Materials Sales		271,758		291,992		1,172,308		1,253,261
Gross profit

Pigments, Powders & Oxides		8,343		3,417		34,225		31,780
Performance Colors & Glass		25,622		24,627		112,825		101,847
Performance Coatings		32,458		26,281		132,695		111,609

Total Performance Materials Gross Profit		66,423		54,325		279,745		245,236
Selling, general and administrative charges		36,872		18,124		150,572		155,517

Performance Materials Operating Profit	$	29,551	$	36,201	$	129,173	$	89,719

Performance Chemicals
Sales

Polymer Additives	$	63,302	$	69,580		292,568		320,635
Specialty Plastics		39,263		38,205		170,530		170,717

Total Performance Chemicals Sales		102,565		107,785		463,098		491,352
Gross Profit

Polymer Additives		6,523		3,080		27,139		29,951
Specialty Plastics		6,250		5,979		28,366		29,186

Total Performance Chemicals Gross Profit		12,773		9,059		55,505		59,137
Selling, general and administrative charges		5,138		2,086		22,713		26,380

Performance Chemicals Operating Profit	$	7,635	$	6,973	$	32,792	$	32,757


Table 9
Ferro Corporation and Subsidiaries
Supplemental Information
Reconciliation of Operating Group Non-GAAP Measures to
Consolidated GAAP Balances
	Three months ended										Twelve months ended
(Dollars in thousands)	December 31,										December 31,
	2013					2012					2013					2012
Total Sales	$	374,323				$	399,777				$1,635,406					$1,744,613
Performance Materials		66,423					54,325					279,745					245,236
Performance Chemicals		12,773					9,059					55,505					59,137
Other cost of sales		(610	)				(6,063	)				(5,526	)				(14,803	)

Total gross profit	78,586					57,321						329,724					289,570
Performance Materials		36,872					18,124					150,572					155,517
Performance Chemicals		5,138					2,086					22,713					26,380
Corporate		19,101					47,959					72,812					88,947
Pension and other postretirement benefits mark-to-market adjustment		(69,815	)				26,911					(69,815	)				26,911

Total selling, general and administrative charges	(8,704)					95,080					176,282					297,755
Total operating profit		87,290					(37,759	)				153,442					(8,185	)
Restructuring and impairment charges	14,995					21,990					41,733					225,724
Interest expense				6,299					6,895		27,333					26,461
Interest earned				(100	)				(118	)				(271	)				(311	)
Foreign currency losses, net				167					1,394			4,183					2,186
Miscellaneous (income) expense, net	(5,777)								58			(15,269	)				3,095

Income (loss) from continuing operations before taxes	$	71,705				$	(67,976	)			$	95,733				$	(265,340	)

It should be noted that operating group sales, gross profit, selling, general and administrative charges, and operating profit are financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). The respective information has been aggregated in a manner consistent with the operating groups of the company. We believe this data provides investors with additional information on the underlying operations of the business and enables period-to-period comparability of financial performance.


Table 10
Ferro Corporation and Subsidiaries
Reconciliation of Net Income (Loss) to Adjusted EBITDA
	Three months ended								Twelve months ended
(Dollars in thousands)	December 31,								December 31,
	2013				2012				2013				2012
Net Income (Loss) Attributable to Ferro Corporation		60,537				(63,876	)			71,942			$	(374,268	)
Loss (Income) from Discontinued Operations, net of Income Tax		—				(239	)			8,421				(1,156	)
Interest Expense		6,299				6,895				27,333				26,461
Income Tax Expense		10,842				(4,265	)			14,867				108,850
Depreciation and Amortization		12,028				15,650				50,028				57,384
Less Interest Amortization Expense and Other		(316	)			(1,805	)			(2,932	)			(3,954	)
Cost of Sales Adjustments		531				5,619				3,996				12,823
SG&A Adjustments		(69,218	)			31,702				(62,436	)			37,671
Restructuring and Impairment		14,995				21,990				41,733				225,724
Other (Income) and Expense Adjustments		8,334				—				7,814				808
Noncontrolling Interest Adjustments		—								(394	)			—
Gain on Sale of assets and business		(13,273	)							(22,227	)			—
Solar Pastes Operations		—				—				323				—
Adjusted EBITDA	$	30,759			$	11,671			$	138,468			$	90,343

Net sales excluding precious metals	$	357,214			$	359,871			$	1,538,684			$	1,571,863
Adjusted EBITDA as a % of net sales excluding precious metals		8.6		%		3.2		%		9.0		%		5.7		%

It should be noted that adjusted EBITDA is a financial measures not required by, or presented in accordance with, accounting principles generally accepted in the United States (U.S. GAAP). Adjusted EBITDA is net income before the effects of discontinued operations, interest, income taxes, depreciation and amortization, special items impacting cost of sales, SG&A and other income and expense, restructuring and impairment charges, gain/loss on divestitures, and the impact of solar operations on Q1 2013. We believe this data provides investors with additional information on the underlying operations of the business and enables period-to-period comparability of financial performance. In addition, these measures are used in the calculation of certain incentive compensation programs for selected employees.

Attached files

FERRO CORP Reports

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