News Column

Ferro Reports Adjusted EPS of $0.09 for Fourth Quarter 2013 and $0.47 for Full-Year 2013

February 24, 2014

  • Full-year 2014 adjusted EPS guidance established at $0.65 - $0.70
  • Company reaffirms 2015 adjusted EPS target in excess of $1.00

    CLEVELAND--(BUSINESS WIRE)-- 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:

  • demand in the industries into which Ferro sells its products may be unpredictable, cyclical, or heavily influenced by consumer spending;
  • Ferro's ability to successfully implement its value creation strategy;
  • 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;
  • restrictive covenants in the Company’s credit facilities could affect its strategic initiatives and liquidity;
  • the effectiveness of the Company’s efforts to improve operating margins through sales growth, price increases, productivity gains, and improved purchasing techniques;
  • the impact of interruption, damage to, failure, or compromise of the Company’s information systems;
  • the availability of reliable sources of energy and raw materials at a reasonable cost;
  • currency conversion rates and economic, social, regulatory, and political conditions around the world;
  • Ferro’s presence in certain geographic regions, including Latin America and Asia-Pacific, where it can be difficult to compete lawfully;
  • increasingly aggressive domestic and foreign governmental regulations on hazardous materials and regulations affecting health, safety and the environment;
  • Ferro’s ability to successfully introduce new products or enter into new growth markets;
  • Ferro’s ability to complete future acquisitions or dispositions, or successfully integrate future acquisitions;
  • 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;
  • 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 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;
  • 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;
  • Ferro’s ability to access capital markets, borrowings, or financial transactions;
  • liens on the Company’s assets by its lenders affect its ability to dispose of property and businesses;
  • 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, 2013.

           
    Table 1
    Ferro Corporation and Subsidiaries
    Consolidated Statements of Operations
     
    (Dollars in thousands, except share and per share amounts)

    Three months ended

    December 31, (Unaudited)

    Twelve months ended

    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
     
    (Dollars in thousands)

    Three months ended

    December 31, (Unaudited)

    Twelve months ended

    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
     
    (Dollars in thousands)

    Three months ended

    December 31, (Unaudited)

    Twelve months ended

    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, except per share amounts) Cost of sales

    Selling, general

    and administrative

    expenses

    Restructuring

    and impairment

    charges

    Other expense,

    net

    Income tax

    (benefit)

    expense

    Net (loss) income

    attributable to

    common

    shareholders

    Diluted (loss)

    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 )


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

    2) 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.

    3) 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, except per share amounts) Cost of sales

    Selling, general

    and administrative

    expenses

    Restructuring

    and impairment

    charges

    Other expense,

    net

    Income tax

    expense

    (benefit)

    Net (loss) income

    attributable to

    common

    shareholders

    Diluted

    earnings (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  


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

    2) 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.

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

    4) 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)
     
    (Dollars in thousands)

    Three months ended

    December 31,

    Twelve months ended

    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
           
    (Dollars in thousands)

    Three months ended

    December 31,

    Twelve months ended

    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 Sales271,758291,9921,172,3081,253,261

    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 Profit66,42354,325279,745245,236
    Selling, general and administrative charges36,872   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 Sales102,565107,785463,098491,352

    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 Profit12,7739,05955,50559,137
    Selling, general and administrative charges5,138   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
       
    (Dollars in thousands)

    Three months ended

    December 31,

    Twelve months ended

    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
           
    (Dollars in thousands)

    Three months ended

    December 31,

    Twelve months ended

    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.



    Ferro Corporation

    Investor Contact:

    John Bingle, 216-875-5411

    Treasurer and Director of Investor Relations

    john.bingle@ferro.com

    or

    Media Contact:

    Mary Abood, 216-875-5401

    Director, Corporate Communications

    mary.abood@ferro.com

    Source: Ferro Corporation


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