Ferro does not break out sales for its pharmaceutical business, which includes the Ferro Pfanstiehl unit created through the acquisition of Pfanstiehl Laboratories in November 2000.
But pharmaceuticals and fine chemicals - spanning high-potency active pharmaceutical ingredients, low-endotoxin carbohydrates, large-volume parenterals, food additives, dietary supplements, electrolytes, glymes and phosphine derivatives - are incorporated in the 'other businesses' segment, where net sales dipped 3.3 per cent to $83.5m last year.
In the fourth quarter, sales from other businesses were 8.1 per cent down at $20m. During a conference call, Sallie Bailey, Ferro's vice-president and chief financial officer, said the Q4 decline was down to lower sales of pharmaceutical products.
"These product sales continue to be affected by uneven demand as our customers enter and exit production cycles in various stages of their drug development programme," she commented.
Fourth-quarter income from other businesses dropped 30.4 per cent to $1.16m. The picture improved over the full year, with income of $9.15m from the other businesses segment, up by 61.2 per cent on 2006.
Another jolt to the pharmaceutical business was the $128.7m impairment charge levied in the fourth quarter on goodwill and other long-lived assets associated with Ferro's polymer additives and pharmaceutical operations.
Impairment charges are a way of writing off inflated goodwill and as such help to determine the wisdom or otherwise of investment decisions. The charge basically reflects the difference between the value of an asset in the company's accounts and its actual worth or fair market value.
In the case of Ferro's pharmaceutical business, impairment of goodwill resulted primarily from "the longer time necessary to transition the business from a supplier of food supplements and additives to a supplier of high-value pharmaceutical products and services", the company explained.
Ferro had flagged up the charge earlier in February, when it lowered its earning per share forecast for the fourth quarter. Having completed the first step of its annual goodwill assessment, the company said, it expected to record a material, pre-tax, non-cash impairment charge that "may represent a substantial portion, and potentially all, of the approximately $114m of goodwill recorded on its balance sheet for the polymer additives and pharmaceutical businesses".
As of 31 December 2006, the recorded goodwill associated with Ferro's pharmaceutical business came to $40m.
The impact of the $129m charge, as well as $9.16m in restructuring charges, was to plunge Ferro into a $110.7m loss from continuing operations for the fourth quarter of 2007, compared with a $3.29m operating loss in the same quarter of 2006. The company recorded gross profit of $102.2m for the latest quarter, up by 4.1 per cent.
An operating loss of $94.2 million was sustained for the whole of 2007, against a $20.6m operating profit for the previous year. Net sales improved company-wide, though, rising 8.0 per cent to $2.20bn in the year and 14.8 per cent to $570.7m in the fourth quarter.
