Ferro Corporation has a market cap of $362.4 million; its shares were traded at around $3.78 with a P/E ratio of 9.1 and P/S ratio of 0.2.
Highlight of Business Operations:Gross profit declined as a result of reduced sales and a change in product mix due to the decline in Electronic Materials sales. Gross profit percentage declined to 18.6% of net sales from 20.1% of net sales in the first six months of 2011. In aggregate, raw material costs increased by approximately $14 million compared with the first two quarters of 2011 and these costs were offset by increased product prices. Charges primarily related to residual costs at closed manufacturing sites involved in earlier restructuring initiatives reduced gross profit by $1.4 million during the first six months of 2012. Gross profit was reduced by charges of $2.9 million in the first six months of 2011. These charges were also primarily due to residual costs at closed manufacturing sites involved in prior-period restructuring initiatives.
Selling, general and administrative (SG&A) expenses increased by $2 million compared with the first six months of 2011. Due primarily to reduced sales, SG&A expenses increased to 16.1% of net sales compared with 12.9% of net sales in the prior-year period. Increased pension expenses, healthcare benefit expenses for U.S. employees and expenses related to an initiative to streamline and standardize business processes and improve management information systems tools contributed to higher SG&A expenses during the first six months of 2012. Partially offsetting these increases were declines in other SG&A expenses including depreciation expense, business travel costs and professional fees. SG&A expenses in the first six months of 2012 included charges of $2.7 million that were primarily related to residual expenses at sites that were closed during earlier restructuring initiatives and severance costs. SG&A expenses in the first six months of 2011 included charges of $2.5 million, primarily related to expenses at closed sites impacted by previous restructuring initiatives.
Specialty Plastics Segment Results. Sales increased in Specialty Plastics primarily due to changes in product pricing and mix. Changes in product pricing and mix increased sales by $6 million compared with the first six months of 2011. Partially offsetting the increase was a sales decline of $2 million due to reduced sales volume and a further $2 million due to changes in foreign currency exchange rates. Sales increased in the United States and declined in Europe-Middle East-Africa. Segment income increased as a result of a $3 million improvement in gross profit driven by product pricing and a $1 million decline in SG&A expense.
Cash flows from operating activities increased by $25.9 million in the first six months of 2012 compared with the prior-year period. Year-over-year cash flows from operating activities increased $51.7 million due to changes in inventories, $23.0 million due to changes in other adjustments to reconcile net income to net cash used for operating activities, $22.3 million due to other changes in current assets and liabilities, and $17.9 million due to changes in accounts receivable. Partially offsetting these effects, year-over-year cash flows from operating activities decreased $43.9 million due to changes in net income, $28.1 million due to changes in precious metals deposits, and $12.1 million due to changes in accounts payable. Accounts receivable and accounts payable excluding unpaid capital expenditures increased in the first six months of 2012 and 2011 as a result of improved customer demand over the final months of the respective prior years. While in the first half of 2011 inventory also increased, in the first half of 2012 we successfully lowered inventory levels in response to weakening demand. Other adjustments to reconcile net income to net cash provided by (used for) operating activities include noncash foreign currency gains and losses, restructuring charges, retirement benefits, stock-based compensation, and deferred taxes, as well as changes to other non-current assets and liabilities. In the first six months of 2012, other adjustments used $3.1 million of cash, primarily for retirement benefit payments in excess of expenses recognized, partially offset by noncash restructuring charges and stock-based compensation. In the first six months of 2011, other adjustments used $26.1 million of cash, primarily related to noncash foreign currency gains and payments toward retirement benefits and restructuring activities greater than the expenses recognized. Other changes in current assets and liabilities provided $8.1 million of cash in the first half of 2012, primarily from net receipts of other receivables. Other changes in current assets and liabilities used $14.1 million of cash in the first half of 2011, primarily from the payment of 2010 year-end incentive compensation. Net income declined $43.9 million in the first six months of 2012 compared with the prior-year period primarily as a result of lower net sales and the resulting decline in gross profit. The return of precious metal deposits provided $28.1 million of cash in the first six months of 2011 due to additional credit lines not requiring collateral.
Cash flows from financing activities decreased $15.9 million in the first six months of 2012 compared with the prior-year period. In the first three months of 2012, we borrowed $30.0 million through our domestic accounts receivable asset securitization program. In the same period of 2011, we borrowed $45.0 million through our domestic accounts receivable asset securitization program and $11.0 million through our international accounts receivable sales program, and we redeemed in cash all outstanding 7% Series A ESOP Convertible Preferred Stock for $9.4 million plus earned but unpaid dividends.
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