UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended ~~September~~June 30, ~~2020~~2021


o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________

Commission File Number 1-584

FERRO CORPORATION

(Exact name of registrant as specified in its charter)


	OH (State or other jurisdiction of incorporation or organization)		34-0217820 (I.R.S. Employer Identification No.)

	6060 Parkland Boulevard Suite 250 Mayfield Heights, OH (Address of principal executive offices)		44124 (Zip Code)

	216-875-5600 (Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES x NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	x	Accelerated Filer	o
Non-accelerated Filer	o	Smaller Reporting Company	o
		Emerging Growth Company	o

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO x

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.00	FOE	NYSE

At ~~September~~June 30, ~~2020,~~2021, there were ~~82,290,617~~82,704,290 shares of Ferro Common Stock, par value $1.00, outstanding.

Table of Contents

TABLE OF CONTENTS


		Page
PART I
Item 1. Financial Statements (Unaudited)	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2625
Item 3. Quantitative and Qualitative Disclosures about Market Risk	3836
Item 4. Controls and Procedures	3937
PART II
Item 1. Legal Proceedings	4038
Item 1A. Risk Factors	4038
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4138
Item 3. Defaults Upon Senior Securities	4138
Item 4. Mine Safety Disclosures	4138
Item 5. Other Information	4139
Item 6. Exhibits	4139

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Operations



	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
(Dollars in thousands, except per share amounts)	2020		2019		2020		2019		2021		2020		2021		2020
Net sales	$	241,877	$	245,339	$	699,004	$	769,679	$	294,331	$	204,801	$	582,689	$	457,127
Cost of sales		171,711		169,277		484,356		536,628		199,496		141,057		392,751		312,645
Gross profit		70,166		76,062		214,648		233,051		94,835		63,744		189,938		144,482
Selling, general and administrative expenses		47,820		47,543		154,407		157,723		59,026		50,541		112,864		106,587
Restructuring and impairment charges		2,447		2,065		12,231		7,862		1,970		8,619		7,154		9,784
Other expense (income):
Interest expense		4,767		6,002		16,474		18,578		5,006		6,177		14,443		11,707
Interest earned		(474)		(813)		(1,035)		(2,456)		(52)		(307)		(649)		(561)
Foreign currency losses, net		1,450		3,655		1,278		7,662
Miscellaneous expense (income), net		(438)		(2,467)		(2,604)		(2,103)
Income before income taxes		14,594		20,077		33,897		45,785
Foreign currency losses (gains), net										3,209		1,143		4,367		(172)
Loss on extinguishment of debt										—		—		1,981		—
Miscellaneous income, net										(253)		(703)		(2,353)		(2,166)
Income (loss) before income taxes										25,929		(1,726)		52,131		19,303
Income tax expense		5,047		3,347		10,364		8,893		8,502		200		16,146		5,317
Income from continuing operations		9,547		16,730		23,533		36,892
Income (loss) from continuing operations										17,427		(1,926)		35,985		13,986
Income (loss) from discontinued operations, net of income taxes		5,367		(3,520)		2,350		1,305		(1,536)		(3,238)		88,306		(3,017)
Net income		14,914		13,210		25,883		38,197
Net income (loss)										15,891		(5,164)		124,291		10,969
Less: Net income attributable to noncontrolling interests		440		390		826		902		382		376		819		386
Net income attributable to Ferro Corporation common shareholders	$	14,474	$	12,820	$	25,057	$	37,295
Net income (loss) attributable to Ferro Corporation common shareholders									$	15,509	$	(5,540)	$	123,472	$	10,583
Earnings (loss) per share attributable to Ferro Corporation common shareholders:
Basic earnings (loss):
Basic earnings:
Continuing operations	$	0.11	$	0.20	$	0.28	$	0.44	$	0.21	$	(0.03)	$	0.43	$	0.17
Discontinued operations		0.07		(0.04)		0.03		0.01		(0.02)		(0.04)		1.07		(0.04)
	$	0.18	$	0.16	$	0.31	$	0.45	$	0.19	$	(0.07)	$	1.50	$	0.13
Diluted earnings (loss):
Diluted earnings:
Continuing operations	$	0.11	$	0.20	$	0.27	$	0.44	$	0.20	$	(0.03)	$	0.42	$	0.16
Discontinued operations		0.06		(0.04)		0.03		0.01		(0.02)		(0.04)		1.06		(0.04)
	$	0.17	$	0.16	$	0.30	$	0.45	$	0.18	$	(0.07)	$	1.48	$	0.12

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in thousands)
2020
2019
2020
2019
Net income
$
14,914
$
13,210
$
25,883
$
38,197
Other comprehensive income (loss), net of income tax:
Foreign currency translation income (loss)
13,831
(10,966)
(678)
(3,585)
Cash flow hedging instruments, unrealized income (loss)
269
(1,644)
(10,331)
(13,307)
Other comprehensive income (loss), net of income tax
14,100
(12,610)
(11,009)
(16,892)
Total comprehensive income
29,014
600
14,874
21,305
Less: Comprehensive income attributable to noncontrolling interests
197
146
453
648
Comprehensive income attributable to Ferro Corporation
$
28,817
$
454
$
14,421
$
20,657



	Three Months Ended				Six Months Ended
	June 30,				June 30,
(Dollars in thousands)	2021		2020		2021		2020
Net income (loss)	$	15,891	$	(5,164)	$	124,291	$	10,969
Other comprehensive income (loss), net of income tax:
Foreign currency translation gain (loss)		687		3,857		(60,414)		(14,509)
Cash flow hedging instruments, unrealized income (loss)		1,283		(1,560)		8,069		(10,600)
Postretirement benefit liabilities income		(1)		—		129		—
Other comprehensive income (loss), net of income tax		1,969		2,297		(52,216)		(25,109)
Total comprehensive income (loss)		17,860		(2,867)		72,075		(14,140)
Less: Comprehensive income (loss) attributable to noncontrolling interests		(157)		340		206		256
Comprehensive income (loss) attributable to Ferro Corporation	$	18,017	$	(3,207)	$	71,869	$	(14,396)

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Ferro Corporation and Subsidiaries

Condensed Consolidated Balance Sheets



		September 30,		December 31,			June 30,		December 31,
(Dollars in thousands)		2020		2019			2021		2020
ASSETS	ASSETS					ASSETS
Current assets
Cash and cash equivalents		$	64,495	$	96,202		$	143,717	$	174,077
Accounts receivable, net			148,050		139,333			162,375		137,008
Inventories			272,797		264,476			260,237		260,332
Other receivables			69,933		69,365			64,240		72,272
Other current assets			15,724		22,373			20,988		18,261
Current assets held-for-sale			285,229		291,420			—		307,854
Total current assets			856,228		883,169			651,557		969,804
Other assets
Property, plant and equipment, net			303,291		302,672			332,197		330,045
Goodwill			173,241		172,209			174,005		175,351
Intangible assets, net			120,658		127,815			112,545		119,500
Deferred income taxes			103,380		98,714			110,735		115,962
Operating leased assets			14,246		20,088			13,817		15,446
Other non-current assets			88,361		72,023			25,825		80,618
Non-current assets held-for-sale			163,103		157,931			—		154,207
Total assets		$	1,822,508	$	1,834,621		$	1,420,681	$	1,960,933
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities
Loans payable and current portion of long-term debt		$	8,764	$	8,703		$	8,871	$	8,839
Accounts payable			92,702		138,799			136,303		135,296
Accrued payrolls			30,232		27,447			28,366		27,166
Accrued expenses and other current liabilities			103,344		73,016			150,463		124,770
Current liabilities held-for-sale			89,481		133,780			—		107,545
Total current liabilities			324,523		381,745			324,003		403,616
Other liabilities
Long-term debt, less current portion			798,775		798,862			354,729		791,509
Postretirement and pension liabilities			170,467		174,021			165,951		181,610
Operating leased non-current liabilities			9,000		14,474			8,588		10,064
Other non-current liabilities			59,300		56,976			55,118		62,050
Non-current liabilities held-for-sale			69,535		38,341			—		71,149
Total liabilities			1,431,600		1,464,419			908,389		1,519,998
Equity
Ferro Corporation shareholders’ equity:
Common stock, par value $1 per share; 300.0 million shares authorized; 93.4 million shares issued; 82.3 million and 82.0 million shares outstanding at September 30, 2020, and December 31, 2019, respectively			93,436		93,436
Common stock, par value $1 per share; 300.0 million shares authorized; 93.4 million shares issued; 82.7 million and 82.4 million shares outstanding at June 30, 2021, and December 31, 2020, respectively								93,436		93,436
Paid-in capital			294,077		294,543			289,285		293,682
Retained earnings			287,073		262,016			428,287		304,815
Accumulated other comprehensive loss			(120,012)		(109,376)			(141,313)		(89,710)
Common shares in treasury, at cost			(173,945)		(180,243)			(165,689)		(172,256)
Total Ferro Corporation shareholders’ equity			380,629		360,376			504,006		429,967
Noncontrolling interests			10,279		9,826			8,286		10,968
Total equity			390,908		370,202			512,292		440,935
Total liabilities and equity		$	1,822,508	$	1,834,621		$	1,420,681	$	1,960,933

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Equity



	Ferro Corporation Shareholders															Ferro Corporation Shareholders
	Common Shares									Accumulated						Common Shares									Accumulated
	in Treasury									Other		Non-				in Treasury									Other		Non-
				Common		Paid-in		Retained		Comprehensive		controlling		Total					Common		Paid-in		Retained		Comprehensive		controlling		Total
(In thousands)	Shares	Amount		Stock		Capital		Earnings		Loss		Interests		Equity		Shares	Amount		Stock		Capital		Earnings		Loss		Interests		Equity
Balances at December 31, 2019	11,431	$	(180,243)	$	93,436	$	294,543	$	262,016	$	(109,376)	$	9,826	$	370,202
Balances at December 31, 2020																11,065	$	(172,256)	$	93,436	$	293,682	$	304,815	$	(89,710)	$	10,968	$	440,935
Net income (loss)																—		—		—		—		107,963		—		437		108,400
Other comprehensive income (loss)																—		—		—		—		—		(54,111)		(74)		(54,185)
Change in ownership interest																—		—		—		(2,530)		—		—		(2,888)		(5,418)
Stock-based compensation transactions																(255)		5,154		—		(2,614)		—		—		—		2,540
Balances at March 31, 2021																10,810	$	(167,102)	$	93,436	$	288,538	$	412,778	$	(143,821)	$	8,443	$	492,272
Net income (loss)	—		—		—		—		16,123		—		10		16,133	—		—		—		—		15,509		—		382		15,891
Other comprehensive income (loss)	—		—		—		—		—		(27,312)		(94)		(27,406)	—		—		—		—		—		2,508		(539)		1,969
Stock-based compensation transactions	(238)		5,332		—		(2,723)		—		—		—		2,609	(79)		1,413		—		747		—		—		—		2,160
Balances at March 31, 2020	11,193		(174,911)		93,436		291,820		278,139		(136,688)		9,742		361,538
Net income (loss)	—		—		—		—		(5,540)		—		376		(5,164)
Other comprehensive income (loss)	—		—		—		—		—		2,333		(36)		2,297
Stock-based compensation transactions	(8)		159		—		1,825		—		—		—		1,984
Balances at June 30, 2020	11,185		(174,752)		93,436		293,645		272,599		(134,355)		10,082		360,655
Net income (loss)	—		—		—		—		14,474		—		440		14,914
Other comprehensive income (loss)	—		—		—		—		—		14,343		(243)		14,100
Stock-based compensation transactions	(40)		807		—		432		—		—		—		1,239
Balances at September 30, 2020	11,145	$	(173,945)	$	93,436	$	294,077	$	287,073	$	(120,012)	$	10,279	$	390,908
Balances at June 30, 2021																10,731	$	(165,689)	$	93,436	$	289,285	$	428,287	$	(141,313)	$	8,286	$	512,292


	Ferro Corporation Shareholders															Ferro Corporation Shareholders
	Common Shares									Accumulated						Common Shares									Accumulated
	in Treasury									Other		Non-				in Treasury									Other		Non-
				Common		Paid-in		Retained		Comprehensive		controlling		Total					Common		Paid-in		Retained		Comprehensive		controlling		Total
(In thousands)	Shares	Amount		Stock		Capital		Earnings		Loss		Interests		Equity		Shares	Amount		Stock		Capital		Earnings		Loss		Interests		Equity
Balances at December 31, 2018	10,433	$	(165,545)	$	93,436	$	298,123	$	255,978	$	(105,361)	$	9,218	$	385,849
Net income (loss)	—		—		—		—		13,604		—		274		13,878
Other comprehensive income (loss)	—		—		—		—		—		(912)		106		(806)
Purchase of treasury stock	1,441		(25,000)		—		—		—		—		—		(25,000)
Stock-based compensation transactions	(370)		8,422		—		(6,446)		—		—		—		1,976
Balances at March 31, 2019	11,504		(182,123)		93,436		291,677		269,582		(106,273)		9,598		375,897
Balances at December 31, 2019																11,431	$	(180,243)	$	93,436	$	294,543	$	262,016	$	(109,376)	$	9,826	$	370,202
Net income (loss)	—		—		—		—		10,871		—		238		11,109	—		—		—		—		16,123		—		10		16,133
Other comprehensive income (loss)	—		—		—		—		—		(3,360)		(116)		(3,476)	—		—		—		—		—		(27,312)		(94)		(27,406)
Stock-based compensation transactions	(1)		37		—		2,181		—		—		—		2,218	(238)		5,332		—		(2,723)		—		—		—		2,609
Distributions to noncontrolling interests	—		—		—		—		—		—		(654)		(654)
Balances at June 30, 2019	11,503	$	(182,086)	$	93,436	$	293,858	$	280,453	$	(109,633)	$	9,066	$	385,094
Net income	—		—		—		—		12,820		—		390		13,210
Balances at March 31, 2020																11,193	$	(174,911)	$	93,436	$	291,820	$	278,139	$	(136,688)	$	9,742	$	361,538
Net income (loss)																—		—		—		—		(5,540)		—		376		(5,164)
Other comprehensive income (loss)	—		—		—		—		—		(12,366)		(244)		(12,610)	—		—		—		—		—		2,333		(36)		2,297
Stock-based compensation transactions	(36)		992		—		112		—		—		—		1,104	(8)		159		—		1,825		—		—		—		1,984
Balances at September 30, 2019	11,467	$	(181,094)	$	93,436	$	293,970	$	293,273	$	(121,999)	$	9,212	$	386,798
Balances at June 30, 2020																11,185	$	(174,752)	$	93,436	$	293,645	$	272,599	$	(134,355)	$	10,082	$	360,655

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Ferro Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows



	Nine Months Ended				Six Months Ended
	September 30,				June 30,
(Dollars in thousands)	2020		2019		2021		2020
Cash flows from operating activities
Net cash used in operating activities	$	(106,481)	$	(67,240)	$	(46,410)	$	(104,561)
Cash flows from investing activities
Capital expenditures for property, plant and equipment and other long-lived assets		(21,681)		(40,820)		(20,574)		(14,982)
Collections of financing receivables		97,299		60,904		59,326		62,580
Proceeds from sale of businesses, net						415,230		—
Business acquisitions, net of cash acquired		—		(251)		(2,200)		—
Other investing activities		803		1,930		236		778
Net cash provided by investing activities		76,421		21,763		452,018		48,376
Cash flows from financing activities
Net borrowings under loans payable		(683)		8,220
Net borrowings (payments) under loans payable						(112)		11,420
Principal payments on term loan facility - Amended Credit Facility		(6,150)		(6,150)		(439,100)		(4,100)
Proceeds from revolving credit facility - Amended Credit Facility		398,336		216,066		50,000		360,000
Principal payments on revolving credit facility - Amended Credit Facility		(392,596)		(193,595)		(50,000)		(343,383)
Acquisition-related contingent consideration payment		—		(5,200)
Purchase of treasury stock		—		(25,000)
Other financing activities		(728)		(757)		(3,551)		(1,418)
Net cash used in financing activities		(1,821)		(6,416)
Net cash provided by (used in) financing activities						(442,763)		22,519
Effect of exchange rate changes on cash and cash equivalents		174		(667)		(1,405)		(505)
Decrease in cash and cash equivalents		(31,707)		(52,560)		(38,560)		(34,171)
Cash and cash equivalents at beginning of period		104,402		104,301		182,277		104,402
Cash and cash equivalents at end of period		72,695		51,741		143,717		70,231
Less: Cash and cash equivalents of discontinued operations at end of period		8,200		8,200		—		8,200
Cash and cash equivalents of continuing operations at end of period	$	64,495	$	43,541	$	143,717	$	62,031
Cash paid during the period for:
Interest	$	20,176	$	25,475	$	16,438	$	16,736
Income taxes	$	13,005	$	12,845	$	12,751	$	7,722

See accompanying notes to condensed consolidated financial statements.

Table of Contents

Ferro Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Ferro Corporation (“Ferro,” “we,” “us” or “the Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, the instructions to Form 10-Q, and Article 10 of Regulation S-X. These statements reflect all normal and recurring adjustments which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

We produce our products primarily in the Europe, Middle East and Africa (“EMEA”) region, the ~~United States (“U.S.”),~~Americas region and the Asia Pacific ~~region, and Latin America.~~region.

Operating results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, are not necessarily indicative of the results expected in subsequent quarters or for the full year ending December 31, ~~2020.~~2021.

During the fourth quarter of 2019, substantially all of the assets and liabilities of our Tile Coatings business were classified as held-for-sale in the accompanying consolidated balance sheets. As further discussed in Note 4, we entered into a definitive agreement to sell our Tile Coatings business, which has historically been included in the Performance Coatings reportable segment. Therefore, the associated operating results, net of income tax, have been classified as discontinued operations in the accompanying consolidated statements of operations for all periods presented. Throughout this Quarterly Report on Form 10-Q, with the exception of the statements of cash flows and unless otherwise indicated, amounts and activity are presented on a continuing operations basis.

~~Subsequent to~~On February 25, 2021, we completed the ~~treatment~~sale of ~~the~~our Tile Coatings business ~~as discontinued operations,~~to Pigments Spain, S.L., a company of the ~~remaining businesses within Performance Coatings were included within the Performance Colors and Glass reportable segment,~~Esmalglass-Itaca-Fritta group, which asis a portfolio company of ~~January 1, 2020, was renamed Functional Coatings.~~certain Lone Star Funds.

Certain reclassifications have been made to the prior year financial statements to conform to current year classifications. The reclassification relates to the balance sheet presentation of assets ~~and liabilities~~ as held for sale ~~and statement of operations presentation of results classified as discontinued operations~~ in relation to the Tile Coatings business transaction.Additional reclassification relates to the disclosure of revenue disaggregation by geographic regions. As of January 1, 2021, the United States and Latin America regions were combined into the Americas region.

Pending Merger

On May 11, 2021, Ferro, PMHC II Inc., a Delaware corporation (“Prince”) and PMHC Fortune Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Prince (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, on the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Ferro (the “Merger”), with Ferro continuing as the surviving corporation in the Merger and as a direct or indirect wholly owned subsidiary of Prince. The board of directors of Ferro has approved the Merger Agreement.

On the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), and as a result of the Merger, each share of common stock of Ferro (“Ferro Common Stock”) that is issued and outstanding immediately prior to the Effective Time (other than (i) shares of Ferro Common Stock held by Ferro as treasury stock or held directly by Prince or any subsidiary of Prince (including Merger Sub) immediately prior to the Effective Time (which will be canceled without payment of any consideration), (ii) shares of Ferro Common Stock for which dissenters rights have been properly exercised and perfected and not withdrawn and (iii) shares of restricted stock) will be converted into the right to receive $22.00 in cash, without interest (the “Merger Consideration”).

Pursuant to the Merger Agreement, as of the Effective Time, each option to acquire shares of Ferro Common Stock, whether vested or unvested, that is outstanding immediately prior to the Effective Time will be converted into the right to receive an amount in cash (less any applicable withholding taxes) equal to (A) the number of shares of Ferro Common Stock subject to such option, multiplied by (B) the excess, if any, of the Merger Consideration over the applicable per share exercise price of such option.

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In addition, pursuant to the Merger Agreement, as of the Effective Time, (i) each outstanding share of Ferro restricted stock, each restricted share unit (other than performance share units), deferred share unit, phantom share unit or similar stock right, whether vested or unvested, that is outstanding immediately prior to the Effective Time will be converted into the right to receive an amount in cash (less any applicable withholding taxes) equal to (A) the number of shares of Ferro Common Stock subject to such right, multiplied by (B) the Merger Consideration, and (ii) each Ferro performance-based share unit, whether vested or unvested, that is outstanding immediately prior to the Effective Time will be converted into the right to receive an amount in cash (less any applicable withholding taxes) equal to (A) the number of shares of Ferro Common Stock subject to such performance-based share unit, calculated based on the greater of (x) actual performance achieved in accordance with the terms of such performance-based share unit and the Merger Agreement and (y) target level performance over the entire performance period applicable with respect to such performance-based share unit, multiplied by (B) the Merger Consideration.

Ferro and Prince have agreed to use their respective reasonable best efforts to consummate the Merger, including making filings with and seeking approvals from certain governmental entities necessary in connection with the Merger, including under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”). In furtherance thereof, Prince has agreed to accept certain divestitures or restrictions on the assets of Prince, Ferro and their respective subsidiaries, if and to the extent necessary to obtain such approvals, subject to certain specified limitations set forth in the Merger Agreement.

Consummation of the Merger is subject to certain customary conditions, including (i) the adoption of the Merger Agreement by the holders of two-thirds of the outstanding shares of Ferro Common Stock, (ii) the absence of any law prohibiting or order preventing the consummation of the Merger, (iii) the receipt of certain regulatory approvals, including expiration or termination of any applicable waiting period under the HSR Act, (iv) the absence of a material adverse effect with respect to Ferro, and (v) compliance in all material respects on the part of each of Ferro and Prince with such party’s covenants under the Merger Agreement. The obligation of each party to consummate the Merger is also conditioned upon the other party’s representations and warranties being true and correct, subject to certain materiality exceptions.

2. Recent Accounting Pronouncements

Recently Adopted Accounting Standards

This section provides a description of new accounting pronouncements ("Accounting Standard Update" or "ASU") issued by the Financial Accounting Standards Board ("FASB") that are applicable to the Company.

New Accounting Standards Not Yet Adopted

We are currently evaluating the impact on our financial statements of the following ASUs:



Standard		Description
ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, issued March, 2020		Provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU are effective for all entities through December 31, 2022.
~~ASU No. 2018-14,~~ ~~Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans, issued August, 2018~~		Modifies disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This ASU is effective for fiscal years beginning after December 15, 2020 and is to be applied using a retrospective approach for all periods presented. Early adoption is permitted.

No other new accounting pronouncements issued had, or are expected to have, a material impact on the Company’s consolidated financial statements.

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3. Revenue

Revenues disaggregated by geography and reportable segment for the three months ended ~~September~~June 30, ~~2020,~~2021, follow:


(Dollars in thousands)	EMEA		United States		Asia Pacific		Latin America		Total		EMEA		Americas		Asia Pacific		Total
Functional Coatings	$	65,081	$	49,580	$	26,779	$	12,778	$	154,218	$	92,569	$	72,046	$	30,294	$	194,909
Color Solutions		30,472		36,705		10,766		9,716		87,659		37,958		50,014		11,450		99,422
Total net sales	$	95,553	$	86,285	$	37,545	$	22,494	$	241,877	$	130,527	$	122,060	$	41,744	$	294,331

Revenues disaggregated by geography and reportable segment for the three months ended ~~September~~June 30, ~~2019,~~2020, follow:


(Dollars in thousands)	EMEA		United States		Asia Pacific		Latin America		Total		EMEA		Americas		Asia Pacific		Total
Functional Coatings	$	70,048	$	46,657	$	26,364	$	11,675	$	154,744	$	51,071	$	58,868	$	21,733	$	131,672
Color Solutions		33,349		38,758		10,412		8,076		90,595		27,874		36,145		9,110		73,129
Total net sales	$	103,397	$	85,415	$	36,776	$	19,751	$	245,339	$	78,945	$	95,013	$	30,843	$	204,801

Revenues disaggregated by geography and reportable segment for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, follow:


(Dollars in thousands)	EMEA		United States		Asia Pacific		Latin America		Total		EMEA		Americas		Asia Pacific		Total
Functional Coatings	$	192,009	$	148,468	$	70,268	$	30,580	$	441,325	$	179,941	$	139,964	$	59,826	$	379,731
Color Solutions		96,235		108,384		29,172		23,888		257,679		77,000		103,868		22,090		202,958
Total net sales	$	288,244	$	256,852	$	99,440	$	54,468	$	699,004	$	256,941	$	243,832	$	81,916	$	582,689

Revenues disaggregated by geography and reportable segment for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, follow:


(Dollars in thousands)	EMEA		United States		Asia Pacific		Latin America		Total		EMEA		Americas		Asia Pacific		Total
Functional Coatings	$	223,310	$	149,574	$	73,962	$	38,616	$	485,462	$	126,928	$	116,690	$	43,489	$	287,107
Color Solutions		105,960		125,499		28,248		24,510		284,217		65,763		85,851		18,406		170,020
Total net sales	$	329,270	$	275,073	$	102,210	$	63,126	$	769,679	$	192,691	$	202,541	$	61,895	$	457,127

4. Discontinued Operations

During the fourth quarter of 2019, substantially all of the assets and liabilities of our Tile Coatings business were classified as held-for-sale in the accompanying consolidated balance sheets. We entered into a definitive agreement to sell our Tile Coatings business, which has historically been a part of our Performance Coatings reportable segment. Therefore, the associated operating results, net of income tax, have been classified as discontinued operations in the accompanying consolidated statements of operations for all periods presented.

On February 25, 2021, we completed the sale of our Tile Coatings business to Pigments Spain, S.L., a company of the Esmalglass-Itaca-Fritta group (the “Buyer”), which is a portfolio company of certain Lone Star Funds, for $460.0 million in cash, subject to post-closing adjustments. The transaction resulted in net proceeds of approximately $415.2 million after expenses and a gain of $100.1 million, which is recorded within Income from discontinued operations, net of income taxes in our consolidated statement of operations for the quarter ended March 31, 2021. We entered into a Transition Services Agreement (“TSA”) with the Buyer, which is designed to facilitate an orderly transfer of business operations. The services provided under the TSA will terminate at various points in times between six to twelve months from the completion of the sale. Except for customary post-closing adjustments and transition services, we have no continuing involvement with the Buyer subsequent to the completion of the sale.

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The table below summarizes results for the Tile Coatings business for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, which are reflected in our consolidated statements of operations as discontinued ~~operations.~~operations, net of income taxes. Interest expense has been allocated to the discontinued operations based on the ratio of net assets of the business to consolidated net assets excluding debt.



	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
(Dollars in thousands)	2020		2019		2020		2019		2021		2020		2021		2020
Net sales	$	120,163	$	120,389	$	310,167	$	377,499	$	—	$	75,254	$	83,579	$	190,004
Cost of sales		89,120		96,160		235,095		300,145		—		59,073		60,634		145,975
Gross profit		31,043		24,229		75,072		77,354		—		16,181		22,945		44,029
Selling, general and administrative expenses		18,549		20,180		52,899		53,725		—		15,542		20,327		34,350
Restructuring and impairment charges		269		4,161		2,306		10,751		—		1,758		303		2,037
Interest expense		2,950		2,880		7,698		8,838		—		2,517		1,682		4,748
Interest earned		(21)		(24)		(174)		(91)		—		(129)		(189)		(153)
Foreign currency losses (gains), net		113		(158)		5,074		(2,047)		—		(804)		363		4,961
Gain on sale of business, net										—		—		(100,057)		—
Miscellaneous expense, net		173		328		1,420		598		—		705		251		1,247
Income (loss) from discontinued operations before income taxes		9,010		(3,138)		5,849		5,580		—		(3,408)		100,265		(3,161)
Income tax expense		3,643		382		3,499		4,275
Income tax expense (benefit)										1,536		(170)		11,959		(144)
Income (loss) from discontinued operations, net of income taxes		5,367		(3,520)		2,350		1,305		(1,536)		(3,238)		88,306		(3,017)
Less: Net income (loss) attributable to noncontrolling interests		(11)		92		33		242
Less: Net income attributable to noncontrolling interests										—		67		64		44
Net income (loss) attributable to Tile Coatings business	$	5,378	$	(3,612)	$	2,317	$	1,063	$	(1,536)	$	(3,305)	$	88,242	$	(3,061)

The following table summarizes the assets and liabilities which are classified as held-for-sale at ~~September 30, 2020 and~~ December 31, ~~2019:~~2020:

September 30,
December 31,
(Dollars in thousands)
2020
2019
Cash and cash equivalents
$
8,200
$
8,200
Accounts receivable, net
186,457
156,645
Inventories
84,422
101,127
Other receivables
3,331
22,442
Other current assets
2,819
3,006
Current assets held-for-sale
285,229
291,420
Property, plant and equipment, net
100,944
96,762
Goodwill
3
3
Amortizable intangible assets, net
40,947
39,692
Deferred income taxes
14,695
14,425
Other non-current assets
6,514
7,049
Non-current assets held-for-sale
163,103
157,931
Total assets held-for-sale
$
448,332
$
449,351

Loans payable and current portion of long-term debt
$
3,759
$
3,678
Accounts payable
66,082
96,998
Accrued payrolls
7,597
4,838
Accrued expenses and other current liabilities
12,043
28,266
Current liabilities held-for-sale
89,481
133,780
Long-term debt, less current portion
54,755
25,805
Postretirement and pension liabilities
8,378
7,473
Other non-current liabilities
6,402
5,063
Non-current liabilities held-for-sale
69,535
38,341
Total liabilities held-for-sale
$
159,016
$
172,121



	December 31,
(Dollars in thousands)	2020
Cash and cash equivalents	$	8,200
Accounts receivable, net		211,548
Inventories		84,239
Other receivables		1,630
Other current assets		2,237
Current assets held-for-sale		307,854
Property, plant and equipment, net		93,430
Intangible assets, net		42,126
Deferred income taxes		12,267
Other non-current assets		6,384
Non-current assets held-for-sale		154,207
Total assets held-for-sale	$	462,061

Loans payable and current portion of long-term debt	$	3,927
Accounts payable		85,308
Accrued payrolls		5,946
Accrued expenses and other current liabilities		12,364
Current liabilities held-for-sale		107,545
Long-term debt, less current portion		56,359
Postretirement and pension liabilities		8,119
Other non-current liabilities		6,671
Non-current liabilities held-for-sale		71,149
Total liabilities held-for-sale	$	178,694

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The following table summarizes cash flow data relating to discontinued operations for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:



	Nine Months Ended				Six Months Ended
	September 30,				June 30,
(Dollars in thousands)	2020		2019		2021		2020
Depreciation	$	—	$	8,702
Amortization of intangible assets		—		2,388
Capital expenditures		(3,048)		(9,114)	$	(1,074)	$	(1,909)
Non-cash operating activities - goodwill impairment		—		9,100
Gain on sale of discontinued operations						(100,057)		—
Non-cash operating activities - restructuring and impairment charges		1,091		127		—		1,070
Non-cash investing activities - capital expenditures, consisting of unpaid capital expenditure liabilities at period end		683		738		—		507

5. Inventories



	September 30,		December 31,		June 30,		December 31,
(Dollars in thousands)	2020		2019		2021		2020
Raw materials	$	84,417	$	80,176	$	75,348	$	81,344
Work in process		50,548		49,717		45,566		48,770
Finished goods		137,832		134,583		139,323		130,218
Total inventories	$	272,797	$	264,476	$	260,237	$	260,332

In the production of some of our products, we use precious metals, which we obtain from financial institutions under consignment agreements with terms of one year or less. The financial institutions retain ownership of the precious metals and charge us fees based on the amounts we consign. These fees were ~~$0.6~~$0.8 million and ~~$0.5~~$0.6 million for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~were $2.3~~$1.4 million and ~~$2.2~~$1.7 million for the ~~nine~~six months ended ~~September~~June 30, 2021 and 2020, ~~and 2019.~~respectively. We had on-hand precious metals owned by participants in our precious metals consignment program of ~~$87.5~~$100.7 million at ~~September~~June 30, ~~2020,~~2021, and ~~$66.2~~$87.2 million at December 31, ~~2019,~~2020, measured at fair value based on market prices for identical assets.

6. Property, Plant and Equipment

Property, plant and equipment is reported net of accumulated depreciation of ~~$430.8~~$452.4 million at ~~September~~June 30, ~~2020~~2021 and ~~$413.9~~$456.3 million at December 31, ~~2019.~~2020. As discussed in Note 4, the assets of our Tile Coatings business were classified as held-for-sale under ASC Topic 360; Property, Plant, and Equipment. As such, additional accumulated depreciation of ~~$141.4 million at September 30, 2020 and $136.7~~$135.3 million at December 31, ~~2019 were~~2020 was classified as Non-current assets held for sale.

Unpaid capital expenditure liabilities, which are non-cash investing activities, were ~~$2.9~~$1.1 million at ~~September~~June 30, ~~2020~~2021 and ~~$3.3~~$0.3 million at ~~September~~June 30, ~~2019.~~2020.

7. Goodwill and Other Intangible Assets

Details and activity in the Company’s goodwill by segment follow:



	Functional		Color				Functional		Color
(Dollars in thousands)	Coatings		Solutions		Total		Coatings		Solutions		Total
Goodwill, net at December 31, 2019	$	121,902	$	50,307	$	172,209
Goodwill, net at December 31, 2020							$	123,570	$	51,781	$	175,351
Foreign currency adjustments		335		697		1,032		(1,061)		(285)		(1,346)
Goodwill, net at September 30, 2020	$	122,237	$	51,004	$	173,241
Goodwill, net at June 30, 2021							$	122,509	$	51,496	$	174,005


	September 30,		December 31,		June 30,		December 31,
(Dollars in thousands)	2020		2019		2021		2020
Goodwill, gross	$	231,708	$	230,676	$	232,472	$	233,818
Accumulated impairment		(58,467)		(58,467)		(58,467)		(58,467)
Goodwill, net	$	173,241	$	172,209	$	174,005	$	175,351

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Goodwill is tested for impairment at the reporting unit level on an annual basis in the fourth quarter, and between annual tests if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying value. As of ~~September~~June 30, ~~2020,~~2021, the Company is not aware of any events or circumstances that occurred which would require a goodwill impairment test.

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Amortizable intangible assets consisted of the following:


	September 30,		December 31,		June 30,		December 31,
(Dollars in thousands)	2020		2019		2021		2020
Gross amortizable intangible assets:
Patents	$	5,504	$	5,434	$	5,540	$	5,589
Land rights		3,053		2,900		3,209		3,173
Technology/know-how and other		115,270		112,940		116,455		116,015
Customer relationships		66,815		66,454		66,944		68,142
Total gross amortizable intangible assets		190,642		187,728		192,148		192,919
Accumulated amortization:
Patents		(5,482)		(5,413)		(5,518)		(5,566)
Land rights		(1,549)		(1,378)		(1,693)		(1,630)
Technology/know-how and other		(58,973)		(50,973)		(66,116)		(61,104)
Customer relationships		(16,923)		(14,831)		(19,290)		(18,317)
Total accumulated amortization		(82,927)		(72,595)		(92,617)		(86,617)
Amortizable intangible assets, net	$	107,715	$	115,133	$	99,531	$	106,302

Indefinite-lived intangible assets consisted of the following:


	September 30,		December 31,		June 30,		December 31,
(Dollars in thousands)	2020		2019		2021		2020
Indefinite-lived intangibles assets:
Trade names and trademarks	$	12,943	$	12,682	$	13,014	$	13,198

8. Debt

Loans payable and current portion of long-term debt consisted of the following:



	September 30,		December 31,		June 30,		December 31,
(Dollars in thousands)	2020		2019		2021		2020
Loans payable	$	—	$	—
Current portion of long-term debt		8,764		8,703	$	8,871	$	8,839
Current portion of long-term debt	$	8,764	$	8,703
Loans payable and current portion of long-term debt					$	8,871	$	8,839

Long-term debt consisted of the following:



	September 30,		December 31,		June 30,		December 31,
(Dollars in thousands)	2020		2019		2021		2020
Term loan facility, net of unamortized issuance costs, maturing 2024⁽¹⁾	$	795,483	$	801,764	$	356,978	$	793,731
Revolving credit facility		5,740		—
Finance lease obligations		2,610		2,305		2,733		2,911
Other notes		3,706		3,496		3,889		3,706
Total long-term debt		807,539		807,565		363,600		800,348
Current portion of long-term debt		(8,764)		(8,703)		(8,871)		(8,839)
Long-term debt, less current portion	$	798,775	$	798,862	$	354,729	$	791,509

(1)The carrying value of the term loan facility, maturing 2024, is net of unamortized debt issuance costs of ~~$4.0~~$1.4 million at ~~September~~June 30, ~~2020~~2021 and ~~$3.9~~$3.7 million at December 31, ~~2019.~~

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2020.

Amended Credit Facility

On April 25, 2018, the Company entered into an amendment (the “Amended Credit Facility”) to its existing credit facility (the “Credit Facility”), which Amended Credit Facility (a) provided a new revolving facility (the “2018 Revolving Facility”), which replaced the Company’s existing revolving facility, (b) repriced the (“Tranche B-1 Loans”), and (c) provided new tranches of term loans (“Tranche B-2 Loans” and “Tranche B-3 Loans”) denominated in U.S. dollars. On May 4, 2020, the Company entered into an amendment (Third Amendment to Credit Agreement) to the Amended Credit Facility, which added an approval to Section 7.2.8 Permitted Dispositions for the Tile Coatings Business Disposition. The Amended Credit Facility will be used for ongoing working capital requirements and general corporate purposes. The Tranche B-2 Loans are borrowed by the Company and the Tranche B-3 Loans are borrowed on a joint and several basis by Ferro GmbH and Ferro Europe Holdings LLC.

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The Amended Credit Facility consists of a $500 million secured revolving line of credit with a maturity of February 14, 2023, a $355 million secured term loan facility with a maturity of February 14, 2024, a $235 million secured term loan facility with a maturity of February 14, 2024 and a $230 million secured term loan facility with a maturity of February 14, 2024. The term loans are payable in equal quarterly installments in an amount equal to 0.25% of the original principal amount of the term loans, with the remaining balance due on the maturity date thereof. In addition, the Company is required, on an annual basis, to make a prepayment in an amount equal to a portion of the Company’s excess cash flow, as calculated pursuant to the Amended Credit Facility, which prepayment will be applied first to the term loans until they are paid in full, and then to the revolving loans.

Subject to the satisfaction of certain conditions, the Company can request additional commitments under the revolving line of credit or term loans in the aggregate principal amount of up to $250 million to the extent that existing or new lenders agree to provide such additional commitments and/or term loans. The Company can also raise certain additional debt or credit facilities subject to satisfaction of certain covenant levels.

Certain of the Company’s U.S. subsidiaries have guaranteed the Company’s obligations under the Amended Credit Facility and such obligations are secured by (a) substantially all of the personal property of the Company and the U.S. subsidiary guarantors and (b) a pledge of 100% of the stock of certain of the Company’s U.S. subsidiaries and 65% of the stock of certain of the Company’s direct foreign subsidiaries. The Tranche B-3 Loans are guaranteed by the Company, the U.S. subsidiary guarantors and a cross-guaranty by the borrowers of the Tranche B-3 Loans and are secured by the collateral securing the revolving loans and the other term loans, in addition to a pledge of the equity interests of Ferro GmbH.

Interest Rate – Term Loans: The interest rates applicable to the term loans will be, at the Company’s option, equal to either a base rate or a LIBOR rate plus, in both cases, an applicable margin.

The base rate for term loans will be the highest of (i) the federal funds rate plus 0.50%, (ii) the syndication agent’s prime rate, (iii) the daily LIBOR rate plus 1.00% or (iv) 0.00%. The applicable margin for base rate loans is 1.25%.

The LIBOR rate for term loans shall not be less than 0.0% and the applicable margin for LIBOR rate term loans is 2.25%.

For LIBOR rate term loans, the Company may choose to set the duration on individual borrowings for periods of one, two, three or six months, with the interest rate based on the applicable LIBOR rate for the corresponding duration.

At ~~September~~June 30, ~~2020,~~2021, the Company had borrowed ~~$346.1~~$155.1 million under the Tranche B-1 Loans at an interest rate of ~~2.47%~~2.40%, ~~$229.1~~$102.7 million under the Tranche B-2 Loans at an interest rate of ~~2.47%~~2.40%, and ~~$224.3~~$100.5 million under the Tranche B-3 Loans at an interest rate of ~~2.47%~~2.40%. At ~~September~~June 30, ~~2020,~~2021, there were 0 additional borrowings available under the Tranche B-1 Loans, Tranche B-2 Loans, or Tranche B-3 Loans. In connection with these borrowings, we entered into swap agreements in the second quarter of 2018. At ~~September~~June 30, ~~2020,~~2021, the effective interest rate for all tranches of the ~~Tranche B-1 Loans, Tranche B-2 Loans, and Tranche B-3 Loans, after adjusting for the interest rate swap,~~term loan facility, inclusive of hedging activities, was ~~4.93%, 2.05%, and 2.48%, respectively.~~4.83%.

Interest Rate – Revolving Credit Line: The interest rates applicable to loans under the 2018 Revolving Credit Facility will be, at the Company’s option, equal to either a base rate or a LIBOR rate plus, in both cases, an applicable variable margin. The variable margin will be based on the ratio of (a) the Company’s total consolidated net debt outstanding (as defined in the Amended Credit Agreement) at such time to (b) the Company’s consolidated EBITDA (as defined in the Amended Credit Agreement) computed for the period of four consecutive fiscal quarters most recently ended.

The base rate for revolving loans will be the highest of (i) the federal funds rate plus 0.50%, (ii) the syndication agent’s prime rate, (iii) the daily LIBOR rate plus 1.00% or (iv) 0.00%. The applicable margin for base rate loans will vary between 0.50% to 1.50%.

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The LIBOR rate for revolving loans shall not be less than 0% and the applicable margin for LIBOR rate revolving loans will vary between 1.50% and 2.50%.

For LIBOR rate revolving loans, the Company may choose to set the duration on individual borrowings for periods of one, two, three or six months, with the interest rate based on the applicable LIBOR rate for the corresponding duration.

At ~~September~~June 30, ~~2020,~~2021, there were ~~$5.7 million of~~0 borrowings under the 2018 Revolving Credit Facility. After reductions for outstanding letters of credit secured by these facilities, we had ~~$490.0~~$495.8 million of additional borrowings available under the revolving credit facilities at ~~September~~June 30, ~~2020.~~2021.

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The Amended Credit Facility contains customary restrictive covenants including, but not limited to, limitations on use of loan proceeds, limitations on the Company’s ability to pay dividends and repurchase stock, limitations on acquisitions and dispositions, and limitations on certain types of investments. The Amended Credit Facility also contains standard provisions relating to conditions of borrowing and customary events of default, including the non-payment of obligations by the Company and the bankruptcy of the Company.

Specific to the 2018 Revolving Facility, the Company is subject to a financial covenant regarding the Company’s maximum leverage ratio. If an event of default occurs, all amounts outstanding under the Amended Credit Facility agreement may be accelerated and become immediately due and payable. At ~~September~~June 30, ~~2020,~~2021, we were in compliance with the covenants of the Amended Credit Facility.

~~Credit Facility~~

OnAs noted in Note 4, on February ~~14, 2017,~~25, 2021, we completed the ~~Company entered into~~sale of our Tile Coatings business. Proceeds from the ~~Credit Facility with a group~~close of ~~lenders~~the transaction, in addition to ~~refinance its then outstanding credit facility debt and~~current cash balances, were used to provide liquidity for ongoing working capital requirements and general corporate purposes. The Credit Facility consisted of a $400 million secured revolving line of credit with a term of five years, a $357.5 million securedpay down our term loan facility ~~with a term~~in the amount of ~~seven years and a €250~~$435.0 million ~~secured Euro term loan facility with a term of seven years. For further discussion~~on February 25, 2021. The debt pay-down reduced outstanding amounts of the ~~Company’s Credit Facility, refer to Note 9~~Tranche B-1 Loans, Tranche B-2 Loans, and Tranche B-3 Loans, by $188.3 million, $124.7 million and $122.0 million, respectively. In conjunction with the prepayment of debt, we recorded a charge of $2.0 million in connection with the ~~Company’s Annual Report~~write-off of unamortized issuance costs, which is recorded within Loss on ~~Form 10-K~~extinguishment of debt in our consolidated statement of operations for the ~~year~~six months ended ~~December 31, 2019.~~June 30, 2021.

Receivable Sales Programs

We have several international programs to sell without recourse trade accounts receivable to financial institutions. During the third quarter of 2020, these programs were amended to include a domestic program. These transactions are treated as a sale and are accounted for as a reduction in accounts receivable because the agreements transfer effective control over and risk related to the receivables to the buyers. The Company continues to service the receivables sold in exchange for a fee. The servicing fee for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, was immaterial. The program, whose maximum capacity is €85 million, is scheduled to expire on December 31, 2023. Generally, at the transfer date, the Company receives cash equal to approximately ~~85%~~80% of the value of the sold receivable. Cash proceeds at the transfer date from these arrangements are reflected in operating activities in our consolidated statement of cash flows. The proceeds from the deferred purchase price are reflected in investing activities.

The outstanding principal amount of receivables sold under this program, which has not yet been collected from the customer, was ~~$20.3~~$45.1 million at ~~September~~June 30, ~~2020~~2021 and ~~$19.3~~$24.5 million at December 31, ~~2019.~~2020. The carrying amount of deferred purchase price was ~~$11.6~~$9.9 million at ~~September~~June 30, ~~2020~~2021 and ~~$6.6~~$9.8 million at December 31, ~~2019~~2020 and is recorded in Other receivables. Trade accounts receivable collected from customers to be remitted to financial institutions were ~~$33.1~~$44.5 million at ~~September~~June 30, ~~2020~~2021 and ~~$12.8~~$36.0 million at December 31, ~~2019 and is~~2020 recorded in Accrued expenses and other current liabilities. As discussed in Note 4, during the fourth quarter of 2019, we entered into a definitive agreement to sell our Tile Coatings business. As such, our Tile Coatings business was classified as held-for-sale. At December 31, 2019, $52.6 million of the outstanding gross principal amount of receivables sold under this program, pertained to the Tile Coatings business, and, at September 30, 2020, 0 amount remained. The carrying amount of the deferred purchase price at December 31, 2019 was $20.5 million, and, at September 30, 2020, 0 amount remained. Both are recorded in Current assets held-for-sale in our consolidated balance sheets.

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Activity from these programs for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020 is detailed below:



	Nine Months Ended				Six Months Ended
	September 30,				June 30,
(Dollars in thousands)	2020		2019		2021		2020
Trade accounts receivable sold to financial institutions	$	206,104	$	29,432	$	312,676	$	91,048
Cash proceeds from financial institutions ⁽¹⁾		139,549		18,293		250,927		58,794

(1)Excluded from the table above, in the ~~nine~~six months ended ~~September~~June 30, 2020, ~~and 2019,~~ our Tile Coatings business received cash proceeds from financial institutions of $47.3 ~~million and $100.4 million, respectively.~~million. Refer to Note 4 for additional discussion of the Tile Coatings business and its classification as discontinued operations.

Other Financing Arrangements

We maintain other lines of credit to provide global flexibility for our short-term liquidity requirements. These facilities are uncommitted lines for our international operations and totaled $25.0 million and $28.1 million at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020, respectively. The unused portions of these lines provided additional liquidity of $25.0 million at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019.~~2020.

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9. Financial Instruments

The following financial instrument assets (liabilities) are presented at their respective carrying amount, fair value and classification within the fair value hierarchy:



	September 30, 2020										June 30, 2021
	Carrying		Fair Value								Carrying		Fair Value
(Dollars in thousands)	Amount		Total		Level 1		Level 2		Level 3		Amount		Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	64,495	$	64,495	$	64,495	$	—	$	—	$	143,717	$	143,717	$	143,717	$	—	$	—
Term loan facility - Amended Credit Facility ⁽¹⁾		(795,483)		(781,721)		—		(781,721)		—		(356,978)		(356,149)		—		(356,149)		—
Revolving credit facility		(5,740)		(6,046)		—		(6,046)		—
Other long-term notes payable		(3,706)		(3,186)		—		(3,186)		—		(3,889)		(2,342)		—		(2,342)		—
Cross currency swaps		6,962		6,962		—		6,962		—		495		495		—		495		—
Interest rate swaps		(26,380)		(26,380)		—		(26,380)		—		(19,385)		(19,385)		—		(19,385)		—
Foreign currency forward contracts, net		128		128		—		128		—		(3,454)		(3,454)		—		(3,454)		—



	December 31, 2019										December 31, 2020
	Carrying		Fair Value								Carrying		Fair Value
(Dollars in thousands)	Amount		Total		Level 1		Level 2		Level 3		Amount		Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	96,202	$	96,202	$	96,202	$	—	$	—	$	174,077	$	174,077	$	174,077	$	—	$	—
Term loan facility - Amended Credit Facility ⁽¹⁾		(801,764)		(799,750)		—		(799,750)		—		(793,731)		(783,143)		—		(783,143)		—
Other long-term notes payable		(3,496)		(1,557)		—		(1,557)		—		(3,706)		(1,887)		—		(1,887)		—
Cross currency swaps		22,111		22,111		—		22,111		—		(5,162)		(5,162)		—		(5,162)		—
Interest rate swaps		(14,698)		(14,698)		—		(14,698)		—		(24,694)		(24,694)		—		(24,694)		—
Foreign currency forward contracts, net		601		601		—		601		—		2,019		2,019		—		2,019		—

(1)The carrying value of the term loan facility is net of unamortized debt issuance costs of ~~$4.0~~$1.4 million and ~~$3.9~~$3.7 million for the period ended ~~September~~June 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, respectively.

The fair value of cash and cash equivalents are based on the fair values of identical assets. The fair value of loans payable is based on the present value of expected future cash flows and approximate their carrying amounts due to the short periods to maturity. The fair value of the term loan facility is based on market price information and is measured using the last available bid price of the instrument on a secondary market. The fair value of revolving credit facility and other long-term notes payable are based on the present value of expected future cash flows and interest rates that would be currently available to the Company for issuance of similar types of debt instruments with similar terms and remaining maturities adjusted for the Company's performance risk. The fair values of our interest rate swaps and cross currency swaps are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. The fair value of the foreign currency forward contracts are based on market prices for comparable contracts.

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Derivative Instruments

The Company may use derivative instruments to partially offset its business exposure to foreign currency and interest rate risk on expected future cash flows, on net investments in certain foreign subsidiaries and on certain existing assets and liabilities. However, the Company may choose not to hedge in countries where it is not economically feasible to enter into hedging arrangements or where hedging inefficiencies exist, such as timing of transactions.

Derivatives Designated as Hedging Instruments

Cash Flow Hedges. For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative is recorded as a component of Accumulated other comprehensive loss (“AOCL”) and reclassified into earnings in the same period during which the hedged transaction affects earnings.

The Company utilizes interest rate swaps to limit exposure to market fluctuations on floating-rate debt.

During the second quarter of 2018, the Company entered into variable to fixed interest rate swaps with a maturity date of February 14, 2024. The notional amount is ~~$312.0~~$309.6 million at ~~September~~June 30, ~~2020.~~2021. These swaps are hedging risk associated with the Tranche B-1, B-2 and B-3 Loans. These interest rate swaps are designated as cash flow hedges. As of ~~September~~June 30, ~~2020,~~2021, the Company expects it will reclassify net losses of approximately $8.4 million, currently recorded in AOCL, into interest expense in earnings within the next twelve months. However, the actual amount reclassified could vary due to future changes in the fair value of these derivatives.

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The Company has converted a U.S. dollar denominated, variable rate debt obligation into a Euro fixed rate obligation using receive-float, pay-fixed cross currency swaps in the second quarter of 2018. These swaps are hedging currency and interest rate risk associated with the Tranche B-3 ~~Loans.~~Loan. These cross-currency swaps are designated as cash flow hedges. In conjunction with the pay-down of debt discussed in Note 8, we terminated all cross-currency swaps, except for one, which we de-designated and re-designated to hedge the remaining Tranche B-3 Loan after the interest rate swaps. Due to the original designation layering, the other comprehensive loss from the cross-currency swap at re-designation and the other comprehensive loss from the terminated cross-currency swaps were written-off as the interest payments were deemed remote. The Company paid counterparties $3.5 million to settle the terminated derivatives, resulting in a net $4.5 million being reclassified from AOCL to Interest expense as a result of this remote transaction. The remaining notional amount is ~~$224.3~~$38.7 million at ~~September~~June 30, ~~2020,~~2021, with a maturity date of February 14, 2024. As of ~~September~~June 30, ~~2020,~~2021, the Company expects it will reclassify net ~~gains~~losses of approximately ~~$0.3~~$0.1 million, currently recorded in AOCL, into interest expense in earnings within the next twelve months. However, the actual amount reclassified could vary due to future changes in the fair value of ~~these derivatives.~~this derivative.

The amount of ~~loss~~gain (loss) recognized in AOCL and the amount of loss (gain) reclassified into earnings for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, follow:



					Amount of Loss (Gain)									Amount of Loss (Gain)
	Amount of Gain (Loss)				Reclassified from				Location of Gain (Loss)	Amount of Gain (Loss)				Reclassified from				Location of Gain (Loss)
	Recognized in AOCL				AOCL into Income				Reclassified from	Recognized in AOCL				AOCL into Income				Reclassified from
(Dollars in thousands)	2020		2019		2020		2019		AOCL into Income	2021		2020		2021		2020		AOCL into Income
Interest rate swaps	$	(975)	$	(2,328)	$	(1,648)	$	(363)	Interest expense	$	(385)	$	(1,934)	$	(1,841)	$	(824)	Interest expense
Cross currency swaps		(10,286)		10,750		116		1,419	Interest expense		(388)		(3,902)		(113)		851	Interest expense
					$	(1,532)	$	1,056	Total Interest expense					$	(1,954)	$	27	Total Interest expense
Cross currency swaps						(9,825)		9,497	Foreign currency losses, net						(433)		(4,204)	Foreign currency losses (gains), net
					$	(9,825)	$	9,497	Total Foreign currency losses, net					$	(433)	$	(4,204)	Total Foreign currency losses (gains), net

The amount of gain (loss) recognized in AOCL and the amount of loss (gain) reclassified into earnings for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, follow:



					Amount of Loss (Gain)									Amount of Loss (Gain)
	Amount of Gain (Loss)				Reclassified from				Location of Gain (Loss)	Amount of Gain (Loss)				Reclassified from				Location of Gain (Loss)
	Recognized in AOCL				AOCL into Income				Reclassified from	Recognized in AOCL				AOCL into Income				Reclassified from
(Dollars in thousands)	2020		2019		2020		2019		AOCL into Income	2021		2020		2021		2020		AOCL into Income
Interest rate swaps	$	(15,783)	$	(13,248)	$	(2,970)	$	(149)	Interest expense	$	1,053	$	(14,808)	$	(3,613)	$	(1,322)	Interest expense
Cross currency swaps		(8,930)		11,122		2,135		4,579	Interest expense		2,308		1,356		(123)		2,019	Interest expense
					$	(835)	$	4,430	Total Interest expense					$	(3,736)	$	697	Total Interest expense
Cross currency swap						(10,407)		11,275	Foreign currency losses, net
Cross currency swaps															2,494		(582)	Foreign currency losses (gains), net
					$	(10,407)	$	11,275	Total Foreign currency losses, net					$	2,494	$	(582)	Total Foreign currency losses (gains), net

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The total amounts of expense and the respective line items in which the effect of cash flow hedges is presented in the condensed consolidated statement of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, are as follows:


	Three months ended				Nine Months Ended				Three months ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
(Dollars in thousands)	2020		2019		2020		2019		2021		2020		2021		2020
Interest expense	$	4,767	$	6,002	$	16,474	$	18,578	$	5,006	$	6,177	$	14,443	$	11,707
Foreign currency losses, net		1,450		3,655		1,278		7,662
Foreign currency losses (gains), net										3,209		1,143		4,367		(172)

Net Investment Hedges. For derivatives that are designated and qualify as net investment hedges, the gain or loss on the derivative is reported as a component of the currency translation adjustment in AOCL. These cross-currency swaps are designated as hedges of our net investment in European operations. Time value is excluded from the assessment of effectiveness and the amount of interest paid or received on the swaps will be recognized as an adjustment to interest expense in earnings over the life of the swaps.

In the second quarter of 2018, the Company entered into cross currency swap agreements under which we pay variable rate interest in Euros and receive variable rate interest in U.S. dollars. The ~~notional amount is €95.5 million at September 30, 2020, with a maturity date~~net investment hedge was terminated in the fourth quarter of ~~February 14, 2024~~2020. . These swaps ~~are~~were hedging risk associated with the net investment in Euro denominated operations due to fluctuating exchange rates and ~~are~~were designated as net investment hedges. The changes in the fair value of these designated cross-currency swaps ~~will be~~were recognized in AOCL.

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The amount of ~~loss~~gain (loss) on net investment hedges recognized in AOCL ~~the amount reclassified into earnings~~ and the amount of gain recognized in income on derivative (amount excluded from effectiveness testing) for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, follow:


									Amount of Gain									Amount of Gain
					Amount of Gain				Recognized in Income on									Recognized in Income on
	Amount of Gain (Loss)				Reclassified from				Derivative (Amount Excluded				Location of Gain	Amount of Gain (Loss)				Derivative (Amount Excluded				Location of Gain
	Recognized in AOCL				AOCL into Income				from Effectiveness Testing)				in Earnings	Recognized in AOCL				from Effectiveness Testing)				in Earnings
(Dollars in thousands)	2020		2019		2020		2019		2020		2019			2021		2020		2021		2020
Cross currency swaps	$	(4,285)	$	5,977	$	—	$	—	$	259	$	897	Interest expense	$	—	$	(1,569)	$	—	$	612	Interest expense

The amount of ~~loss~~gain on net investment hedges recognized in AOCL ~~the amount reclassified into earnings~~ and the amount of gain recognized in income on derivative (amount excluded from effectiveness testing) for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, follow:


									Amount of Gain									Amount of Gain
					Amount of Gain				Recognized in Income on									Recognized in Income on
	Amount of Gain (Loss)				Reclassified from				Derivative (Amount Excluded				Location of Gain	Amount of Gain (Loss)				Derivative (Amount Excluded				Location of Gain
	Recognized in AOCL				AOCL into Income				from Effectiveness Testing)				in Earnings	Recognized in AOCL				from Effectiveness Testing)				in Earnings
(Dollars in thousands)	2020		2019		2020		2019		2020		2019			2021		2020		2021		2020
Cross currency swaps	$	(3,195)	$	8,454	$	—	$	—	$	1,651	$	2,847	Interest expense	$	—	$	1,090	$	—	$	1,392	Interest expense

Derivatives Not Designated as Hedging Instruments

Foreign Currency Forward Contracts. We manage foreign currency risks principally by entering into forward contracts to mitigate the impact of currency fluctuations on transactions. These forward contracts are not formally designated as hedges. Gains and losses on these foreign currency forward contracts are netted with gains and losses from currency fluctuations on transactions arising from international trade and reported as Foreign currency losses (gains), net in the condensed consolidated statements of operations. We recognized net gains of ~~$3.6~~$0.2 million and ~~$4.0~~net losses of $6.1 million in the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, and net ~~losses~~gains of ~~$1.6~~$0.1 million and $0.4 million in the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively, arising from the change in fair value of our financial instruments, which partially offset the related net gains and losses on international trade transactions. The notional amount of foreign currency forward contracts was $~~554.6~~776.7 million at ~~September~~June 30, ~~2020~~2021 and ~~$625.9~~$494.2 million at December 31, ~~2019.~~

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2020.

The following table presents the effect on our condensed consolidated statements of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, of our foreign currency forward contracts:



	Amount of Gain (Loss)				Amount of Gain					Amount of Gain (Loss)				Amount of Gain (Loss)
	Recognized in Earnings				Recognized in Earnings					Recognized in Earnings				Recognized in Earnings
	Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
	September 30,				September 30,				Location of Gain (Loss) in Earnings	June 30,				June 30,				Location of Gain (Loss) in Earnings
(Dollars in thousands)	2020		2019		2020		2019			2021		2020		2021		2020
Foreign currency forward contracts	$	3,586	$	(1,642)	$	3,996	$	(1,615)	Foreign currency losses, net	$	(1,280)	$	142	$	(7,546)	$	410	Foreign currency losses (gains), net

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Location and Fair Value Amount of Derivative Instruments

The following table presents the fair values of our derivative instruments on our condensed consolidated balance sheets. All derivatives are reported on a gross basis.



	September 30,		December 31,			June 30,		December 31,
(Dollars in thousands)	2020		2019		Balance Sheet Location	2021		2020		Balance Sheet Location
Asset derivatives:
Cross currency swaps	$	1,331	$	6,711	Other current assets	$	9	$	9	Other current assets
Cross currency swaps		5,631		15,400	Other non-current assets		486		—	Other non-current assets
Foreign currency forward contracts		2,107		1,474	Other current assets		1,118		2,649	Other current assets
Liability derivatives:
Interest rate swaps	$	(8,369)	$	(3,723)	Accrued expenses and other current liabilities	$	(8,415)	$	(8,436)	Accrued expenses and other current liabilities
Interest rate swaps		(18,011)		(10,975)	Other non-current liabilities		(10,970)		(16,258)	Other non-current liabilities
Cross currency swaps							—		(67)	Accrued expenses and other current liabilities
Cross currency swaps							—		(5,104)	Other non-current liabilities
Foreign currency forward contracts		(1,979)		(873)	Accrued expenses and other current liabilities		(4,572)		(630)	Accrued expenses and other current liabilities

10. Income Taxes

Income tax expense for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$10.4~~$16.1 million, or ~~30.6%~~31.0% of pre-tax income. Income tax expense for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~$8.9~~$5.3 million, or ~~19.4%~~27.5% of pre-tax income. The tax expense during the ~~nine~~six months ended ~~September~~June 30, 2021 and June 30, 2020, as a percentage of pre-tax income, is higher than the U.S. federal statutory income tax rate of 21% primarily as a result of foreign statutory rate differences and U.S. taxation of foreign earnings. The tax expense during the nine months ended September 30, 2019, as a percentage of pre-tax income, is lower than the U.S. federal statutory income tax rate of 21% primarily as a result of tax credits.differences.

11. Contingent Liabilities

We have recorded environmental liabilities of ~~$5.8~~$5.7 million at ~~September~~June 30, ~~2020~~2021 and ~~$7.2 million at~~ December 31, ~~2019,~~2020, for costs associated with the remediation of certain of our current or former properties that have been contaminated. The balance at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, were primarily comprised of liabilities related to a non-operating facility in Brazil, and for retained environmental obligations related to a site in the United States that was part of the sale of our North American and Asian metal powders product line in 2013. These costs include, but are not limited to, legal and consulting fees, site studies, the design and implementation of remediation plans, post-remediation monitoring, and related activities. The ultimate liability could be affected by numerous uncertainties, including the extent of contamination found, the required period of monitoring, the ultimate cost of required remediation, and other circumstances.

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In November 2017, Suffolk County Water Authority filed a complaint, Suffolk County Water Authority v. The Dow Chemical Company et al., against the Company and a number of other companies in the U.S. Federal Court for the Eastern District of New York with regard to the product 1,4 dioxane. The plaintiff alleges, among other things, that the Suffolk County water supply is contaminated with 1,4 dioxane and that the defendants are liable for unspecified costs of cleanup and remediation of the water supply, among other damages. The Company has not manufactured 1,4 dioxane since 2008, denies the allegations related to liability for the plaintiff’s claims, and is vigorously defending this proceeding. Since December 2018, additional complaints were filed in the same court by 25 other New York municipal water suppliers and in New York State Supreme Court by one water supplier against the Company and others making substantially similar allegations regarding the contamination of their respective water supplies with 1,4 dioxane. The Company is likewise vigorously defending these additional actions. The Company currently does not expect the outcome of these proceedings to have a material adverse impact on its consolidated financial condition, results of operations, or cash flows, net of any insurance coverage. However, it is not possible to predict the ultimate outcome of these proceedings due to the unpredictable nature of litigation.

In addition to the proceedings described above, the Company and its consolidated subsidiaries are subject from time to time to various claims, lawsuits, investigations, and proceedings related to products, services, contracts, environmental, health and safety, employment, intellectual property, and other matters, including with respect to divested businesses. The outcome of such matters is unpredictable, our assessment of them may change, and resolution of them could have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows. We do not currently expect the resolution of such matters to materially affect the consolidated financial position, results of operations, or cash flows of the Company.

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12. Retirement Benefits

Net periodic benefit cost (credit) of our U.S. pension plans (including our unfunded nonqualified plans), non-U.S. pension plans, and postretirement health care and life insurance benefit plans for the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, follow:



	U.S. Pension Plans				Non-U.S. Pension Plans				Other Benefit Plans				U.S. Pension Plans				Non-U.S. Pension Plans				Other Benefit Plans
	Three Months Ended September 30,												Three Months Ended June 30,
(Dollars in thousands)	2020		2019		2020		2019		2020		2019		2021		2020		2021		2020		2021		2020
Service cost	$	3	$	3	$	325	$	266	$	1	$	1	$	—	$	3	$	333	$	294	$	—	$	—
Interest cost		2,387		2,963		379		405		132		175		1,881		2,388		343		343		68		133
Expected return on plan assets		(3,708)		(3,153)		(128)		(144)		—		—		(3,824)		(3,708)		(116)		(116)		—		—
Amortization of prior service cost		—		—		(5)		(6)		—		—		—		—		(21)		(4)		—		—
Net periodic benefit (credit) cost	$	(1,318)	$	(187)	$	571	$	521	$	133	$	176	$	(1,943)	$	(1,317)	$	539	$	517	$	68	$	133

Net periodic benefit cost (credit) ~~cost~~of our U.S. pension plans (including our unfunded nonqualified plans), non-U.S. pension plans, and postretirement health care and life insurance benefit plans for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively, follow:



	U.S. Pension Plans				Non-U.S. Pension Plans				Other Benefit Plans				U.S. Pension Plans				Non-U.S. Pension Plans				Other Benefit Plans
	Nine Months Ended September 30,												Six Months Ended June 30,
(Dollars in thousands)	2020		2019		2020		2019		2020		2019		2021		2020		2021		2020		2021		2020
Service cost	$	9	$	8	$	904	$	877	$	2	$	2	$	—	$	6	$	672	$	579	$	—	$	1
Interest cost		7,162		8,889		1,052		1,353		397		526		3,761		4,775		678		673		136		265
Expected return on plan assets		(11,124)		(9,458)		(356)		(480)		—		—		(7,648)		(7,416)		(230)		(228)		—		—
Amortization of prior service cost		—		—		(14)		(15)		—		—		—		—		(41)		(9)		—		—
Net periodic benefit (credit) cost	$	(3,953)	$	(561)	$	1,586	$	1,735	$	399	$	528	$	(3,887)	$	(2,635)	$	1,079	$	1,015	$	136	$	266

Interest cost, expected return on plan assets and amortization of prior service cost are recorded in Miscellaneous ~~expense (income),~~income, net on the condensed consolidated statement of operations.

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13. Stock-Based Compensation

On May 3, 2018, our shareholders approved the 2018 Omnibus Incentive Plan (the “Plan”), which was adopted by the Board of Directors on February 22, 2018. The Plan’s purpose is to promote the Company’s long-term financial interests and growth by attracting, retaining and motivating high-quality key employees and directors, motivating such employees and directors to achieve the Company’s short- and long-range performance goals and objectives, and thereby align their interests with those of the Company’s shareholders. The Plan reserves 4,500,000 shares of common stock to be issued for grants of several different types of long-term incentives including stock options, stock appreciation rights, restricted awards, performance awards, other common stock-based awards, and dividend equivalent rights.

The Plan replaced the 2013 Omnibus Incentive Plan (the “Previous Plan”), and no future grants may be made under the Previous Plan. However, any outstanding awards or grants made under the Previous Plan will continue until the end of their specified terms.

In the first ~~nine months~~half of ~~2020,~~2021, our Board of Directors granted 0.3 million stock options, 0.2 million performance share units, and 0.2 million restricted ~~stock~~share units under the Plan.

We estimate the fair value of each stock option on the date of grant using the Black-Scholes option pricing model. The following table details the weighted-average grant-date fair values and the assumptions used for estimating the fair values of stock option grants made during the ~~nine~~six months ended ~~September~~June 30, ~~2020:~~2021:



	Stock Options
Weighted-average grant-date fair value	$	~~5.28~~5.94
Expected life, in years		~~5.2~~6.0
Risk-free interest rate		~~1.4~~0.76	%
Expected volatility		~~35.1~~40.39	%

The ~~weighted average~~weighted-average grant date fair value of our performance share units granted in the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, was ~~$14.64.~~$16.00. We measure the fair value of performance share units based on the closing market price of our common stock on the date of the grant. These shares are evaluated each reporting period for respective attainment rates against the performance criteria.

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The weighted-average grant date fair value of our restricted share units granted in the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, was ~~$14.64.~~$15.07. We measure the fair value of restricted share units based on the closing market price of our common stock on the date of the grant. The restricted share units vest over three years.

We recognized stock-based compensation expense of ~~$1.6~~$2.7 million and ~~$7.1~~$5.1 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, and ~~$0.3~~$2.7 million and ~~$5.9~~$5.5 million ~~and~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively. At ~~September~~June 30, ~~2020,~~2021, unearned compensation cost related to the unvested portion of all stock-based compensation awards was approximately ~~$9.9~~$11.9 million and is expected to be recognized over the remaining vesting period of the respective grants, through the ~~second~~first quarter of ~~2023.~~2024.

14. Restructuring and Optimization Programs

Total restructuring charges were ~~$2.4~~$2.0 million and ~~$12.2~~$7.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, and ~~$2.1~~$8.6 million and ~~$7.9~~$9.8 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively. As discussed in Note 4, our Tile Coatings business was classified as held-for-sale during the fourth quarter of 2019. As such, there were additional restructuring charges of $0.3 million for the six months ended June 30, 2021 and ~~$2.3~~$1.7 million and $2.0 million for the three and ~~nine~~six months ended ~~September~~June 30, 2020, ~~respectively, and $4.2 million and $10.8 million for the three and nine months ended September 30, 2019,~~ respectively, classified as Net income from discontinued operations, net of income taxes.

Organizational Optimization Plan

In conjunction with the ~~pending~~ sale of the Tile Coatings business, discussed in Note 4, we developed our Organizational Optimization Plan and initiated a program across the organization with the objective of realigning the business and lowering our cost ~~structure in anticipation of the pending sale.~~structure. As a result of these actions, the Company expects to incur total charges of approximately $~~1.5~~5.7 million, substantially all of which will be for anticipated severance costs. The remaining activities of the program are expected to be recognized throughout the remainder of ~~2020 and~~ 2021. Charges associated with the program were~~$1.2~~ $1.0 million and $3.1 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020.~~

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2021, respectively.

Americas Manufacturing Optimization Plan

In the second quarter of 2019, we developed our Americas Manufacturing Optimization Plan and initiated a program across the organization with the objective of realigning the business and lowering our cost structure. The Americas Manufacturing Optimization Plan is focused on the construction of a new manufacturing center of excellence located in Villagran, Mexico. We are in the process of consolidating two plants located in the United States and two sites in Latin America into the expanded Villagran location. As a result of these actions, the Company expects to incur total charges of approximately ~~$8.7~~$9.5 million, substantially all of which will be for anticipated severance costs. The remaining activities of the program are expected to be recognized within the next 12 months. Charges associated with the program were ~~$1.1 million for the nine months ended September 30, 2020, and $1.9~~$0.7 million and ~~$5.8~~$2.4 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2021, respectively, and $0.8 million and $1.0 million for the three and six months ended June 30, 2020, respectively.

Global Optimization Plan

The program involves our global operations and certain functions and initiatives to increase operational efficiencies, some of which is associated with integration of our ~~recent~~ acquisitions. Actions associated with the Global Optimization Plan were substantially completed, ~~during 2020,~~ and as such, we do not anticipate material charges related to this plan for the remainder of ~~2020.~~2021. Charges associated with the program were ~~$1.2~~$0.3 million and ~~$9.9~~$1.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, and ~~$0.2~~$7.8 million and ~~$2.1~~$8.8 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively.

The charges associated with these programs are further summarized below.



	Employee		Other				Employee		Other
(Dollars in thousands)	Severance		Costs		Total		Severance		Costs		Total
Balances at December 31, 2019	$	747	$	1,492	$	2,239
Balances at December 31, 2020							$	5,510	$	4,460	$	9,970
Restructuring charges		9,792		2,439		12,231		5,439		1,715		7,154
Cash payments		(4,236)		(736)		(4,972)		(6,005)		(1,025)		(7,030)
Non-cash items		280		98		378
Balances at September 30, 2020	$	6,583	$	3,293	$	9,876
Balances at June 30, 2021							$	4,944	$	5,150	$	10,094

We expect to make cash payments to settle the remaining liability for employee severance benefits and other costs over the next twelve months, except where legal or contractual obligations would require it to extend beyond that period.

~~15. Leases~~

The Company has leases for equipment, office space, plant sites and distribution centers. Certain of these leases include options to extend the lease and some include options to terminate the lease early. Leases with an initial term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the lease term.

~~There are no leases that have not yet commenced that create significant rights and obligations for the Company.~~

~~The components of lease cost are shown below:~~

Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in thousands)
2020
2019
2020
2019
Income Statement Location
Operating lease cost⁽¹⁾
$
1,143
$
1,239
$
3,606
$
3,885
Selling, general and administrative expenses
Operating lease cost⁽²⁾
1,871
2,161
5,608
6,687
Cost of sales
Finance lease cost
Amortization of right-of-use assets
81
45
217
158
Cost of sales
Interest of lease liabilities
10
4
24
10
Interest expense
Net lease cost
$
3,105
$
3,449
$
9,455
$
10,740

~~(1)~~Included in operating lease cost is $0.3 million and $0.7 million of short-term lease costs for the three and nine months ended September 30, 2020, respectively, and $0.2 million and $0.6 million for the three and nine months ended September 30, 2019 and $0.1 million and $0.3 million of variable lease costs for the three and nine months ended September 30, 2020, respectively, and $0.1 million and $0.3 million for the three and nine months ended September 30, 2019, respectively.

~~(2)~~Included in operating lease cost is $0.7 million and $2.0 million of short-term lease costs for the three and nine months ended September 30, 2020, respectively, and $0.5 and $1.8 million of short-term lease costs for the three and nine months ended September 30, 2019 and $0.1 million and $0.5 million of variable lease costs for the three and nine months ended September 30, 2020, respectively, and $0.2 million and $0.7 million of variable lease costs for the three and nine months ended September 30, 2019, respectively.

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~~Supplemental balance sheet information related to leases is shown below:~~

September 30,
December 31,
(Dollars in thousands)
2020
2019
Balance Sheet Location
Assets
Operating leased assets
$
14,246
$
20,088
Operating leased assets
Finance leased assets ⁽¹⁾
1,189
859
Property, plant and equipment, net
Total leased assets
$
15,435
$
20,947
Liabilities
Current
Operating
$
5,262
$
6,515
Accrued expenses and other current liabilities
Finance
564
438
Loans payable and current portion of long-term debt
Noncurrent
Operating
9,000
14,474
Operating lease non-current liabilities
Finance
2,046
1,867
Long-term debt, less current portion
Total lease liabilities
$
16,872
$
23,294

~~(1)Finance leases are net of accumulated depreciation of $3.4 million and $3.4 million for September 30, 2020 and December 31, 2019, respectively.~~

~~Supplemental cash flow information related to leases are shown below:~~

Three Months Ended
Nine Months Ended
September 30,
September 30,
(Dollars in thousands)
2020
2019
2020
2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases
$
10
$
4
$
24
$
10
Operating cash flows from operating leases
1,922
1,941
5,749
6,610
Financing cash flows from finance leases
97
49
239
151
Leased assets obtained in exchange for new finance lease liabilities
379
419
534
637
Leased assets obtained in exchange for new operating lease liabilities
1,580
1,107
4,142
25,326


	~~September 30,~~
	~~2020~~
~~Weighted-average remaining lease term (years)~~
~~Operating leases~~		~~3.8~~
~~Finance leases~~		~~5.4~~
~~Weighted-average discount rate~~
~~Operating leases~~		~~4.2%~~
~~Finance leases~~		~~4.9%~~

~~Maturities of lease liabilities are shown below as of September 30, 2020:~~

Finance
Operating
(Dollars in thousands)
Leases
Leases
Remaining in 2020
$
201
$
1,788
2021
748
5,834
2022
728
3,607
2023
658
1,842
2024
549
872
2025
443
697
Thereafter
455
1,689
Net minimum lease payments
$
3,782
$
16,329
Less: interest
1,172
2,068
Present value of lease liabilities
$
2,610
$
14,261

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~~16.~~15. Earnings Per Share

Details of the calculation of basic and diluted earnings per share are shown below:



	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
(Dollars in thousands, except per share amounts)	2020		2019		2020		2019		2021		2020		2021		2020
Basic earnings per share computation:
Income from continuing operations	$	9,547	$	16,730	$	23,533	$	36,892
Income (loss) from continuing operations									$	17,427	$	(1,926)	$	35,985	$	13,986
Less: Net income attributable to noncontrolling interests from continuing operations		451		298		793		660		382		309		755		342
Net income attributable to Ferro Corporation from continuing operations		9,096		16,432		22,740		36,232
Net income (loss) attributable to Ferro Corporation from continuing operations										17,045		(2,235)		35,230		13,644
Income (loss) from discontinued operations, net of income taxes		5,367		(3,520)		2,350		1,305		(1,536)		(3,238)		88,306		(3,017)
Less: Net income attributable to noncontrolling interests from discontinued operations		(11)		92		33		242		—		67		64		44
Net income (loss) attributable to Ferro Corporation from discontinued operations		5,378		(3,612)		2,317		1,063		(1,536)		(3,305)		88,242		(3,061)
Total	$	14,474	$	12,820	$	25,057	$	37,295	$	15,509	$	(5,540)	$	123,472	$	10,583

Weighted-average common shares outstanding		82,261		81,942		82,201		82,118		82,665		82,246		82,581		82,171
Basic earnings per share from continuing operations attributable to Ferro Corporation common shareholders	$	0.11	$	0.20	$	0.28	$	0.44
Basic earnings (loss) per share from continuing operations attributable to Ferro Corporation common shareholders									$	0.21	$	(0.03)	$	0.43	$	0.17
Diluted earnings per share computation:
Net income attributable to Ferro Corporation from continuing operations	$	9,096	$	16,432	$	22,740	$	36,232
Net income (loss) attributable to Ferro Corporation from continuing operations									$	17,045	$	(2,235)	$	35,230	$	13,644
Net income (loss) attributable to Ferro Corporation from discontinued operations		5,378		(3,612)		2,317		1,063		(1,536)		(3,305)		88,242		(3,061)
Total	$	14,474	$	12,820	$	25,057	$	37,295	$	15,509	$	(5,540)	$	123,472	$	10,583

Weighted-average common shares outstanding		82,261		81,942		82,201		82,118		82,665		82,246		82,581		82,171
Assumed exercise of stock options		272		319		260		470		562		543		478		799
Assumed satisfaction of restricted stock unit conditions		157		143		300		232		123		93		169		109
Assumed satisfaction of performance share unit conditions		81		91		130		136		159		45		128		200
Weighted-average diluted shares outstanding		82,771		82,495		82,891		82,956		83,509		82,927		83,356		83,279
Diluted earnings per share from continuing operations attributable to Ferro Corporation common shareholders	$	0.11	$	0.20	$	0.27	$	0.44
Diluted earnings (loss) per share from continuing operations attributable to Ferro Corporation common shareholders									$	0.20	$	(0.03)	$	0.42	$	0.16

The number of anti-dilutive shares were ~~2.8 million and 2.7 million for the three and nine months ended September 30, 2020, respectively, and 2.5~~2.1 million and 2.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2021, respectively, and 2.7 million and 2.3 million for the three and six months ended June 30, 2020, respectively. These shares are excluded from the calculation of diluted earnings per share due to their anti-dilutive impact.

~~17.~~16. Share Repurchase ~~Program~~Programs

The Company’s Board of Directors has approved a share repurchase ~~program~~programs under which the Company is authorized to repurchase up to $150 million of the Company’s outstanding shares of common stock on the open market, including through a Rule 10b5-1 plan, or in privately negotiated transactions.

The timing and amount of shares to be repurchased will be determined by the Company, based on evaluation of market and business conditions, share price, and other ~~factors.~~factors, including limitations contained in the Merger Agreement with Prince. The share repurchase programs do not obligate the Company to repurchase any dollar amount or number of common shares, and may be suspended or discontinued at any time.

As of ~~September~~June 30, ~~2020,~~2021, $46.2 million remains authorized under the ~~program~~programs for the repurchase of common stock.

2322

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~~18.~~17. Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss by component, net of tax, were as follows:



	Three Months Ended September 30,									Three Months Ended June 30,
		Postretirement		Foreign		Net Gain (Loss)					Postretirement		Foreign		Net Gain (Loss)
		Benefit Liability		Currency		on Cash Flow					Benefit Liability		Currency		on Cash Flow
(Dollars in thousands)		Adjustments		Items		Hedges		Total			Adjustments		Items		Hedges		Total
Balances at June 30, 2019		$	1,126	$	(95,799)	$	(14,960)	$	(109,633)
Balances at March 31, 2020											$	1,206	$	(115,847)	$	(22,047)	$	(136,688)
Other comprehensive income (loss) before reclassifications, before tax			—		(9,547)		8,422		(1,125)			—		3,388		(5,836)		(2,448)
Reclassification to earnings:
Cash flow hedge income (loss), before tax			—		—		(10,553)		(10,553)			—		—		4,177		4,177
Current period other comprehensive income (loss), before tax			—		(9,547)		(2,131)		(11,678)			—		3,388		(1,659)		1,729
Tax effect			—		1,175		(487)		688			—		(505)		(99)		(604)
Current period other comprehensive income (loss), net of tax			—		(10,722)		(1,644)		(12,366)			—		3,893		(1,560)		2,333
Balances at September 30, 2019		$	1,126	$	(106,521)	$	(16,604)	$	(121,999)
Balances at June 30, 2020											$	1,206	$	(111,954)	$	(23,607)	$	(134,355)

Balances at June 30, 2020		$	1,206	$	(111,954)	$	(23,607)	$	(134,355)
Balances at March 31, 2021											$	3,329	$	(131,509)	$	(15,641)	$	(143,821)
Other comprehensive income (loss) before reclassifications, before tax			—		13,022		(11,261)		1,761			—		1,564		(773)		791
Reclassification to earnings:
Postretirement benefit liabilities income (loss), before tax												(1)		—		—		(1)
Cash flow hedge income (loss), before tax			—		—		11,357		11,357			—		—		2,387		2,387
Current period other comprehensive income (loss), before tax			—		13,022		96		13,118			(1)		1,564		1,614		3,177
Tax effect			—		(1,052)		(173)		(1,225)			—		338		331		669
Current period other comprehensive income (loss), net of tax			—		14,074		269		14,343			(1)		1,226		1,283		2,508
Balances at September 30, 2020		$	1,206	$	(97,880)	$	(23,338)	$	(120,012)
Balances at June 30, 2021											$	3,328	$	(130,283)	$	(14,358)	$	(141,313)

Nine Months Ended September 30,
Postretirement
Foreign
Net Loss
Benefit Liability
Currency
on Cash
(Dollars in thousands)
Adjustments
Items
Flow Hedges
Total
Balances at December 31, 2018
$
1,126
$
(103,190)
$
(3,297)
$
(105,361)
Other comprehensive income (loss) before reclassifications, before tax
—
(2,033)
(2,126)
(4,159)
Reclassification to earnings:
Cash flow hedge income (loss), before tax
—
—
(15,705)
(15,705)
Current period other comprehensive income (loss), before tax
—
(2,033)
(17,831)
(19,864)
Tax effect
—
1,298
(4,524)
(3,226)
Current period other comprehensive income (loss), net of tax
—
(3,331)
(13,307)
(16,638)
Balances at September 30, 2019
$
1,126
$
(106,521)
$
(16,604)
$
(121,999)
Balances at December 31, 2019
$
1,206
$
(97,575)
$
(13,007)
$
(109,376)
Other comprehensive income (loss) before reclassifications, before tax
—
(1,427)
(24,713)
(26,140)
Reclassification to earnings:
Cash flow hedge income (loss), before tax
—
—
11,242
11,242
Current period other comprehensive income (loss), before tax
—
(1,427)
(13,471)
(14,898)
Tax effect
—
(1,122)
(3,140)
(4,262)
Current period other comprehensive income (loss), net of tax
—
(305)
(10,331)
(10,636)
Balances at September 30, 2020
$
1,206
$
(97,880)
$
(23,338)
$
(120,012)

~~19. Reporting for Segments~~

As discussed in Note 4, during the fourth quarter of 2019, we entered into a definitive agreement to sell our Tile Coatings business which has historically been the majority of our Performance Coatings reportable segment. Substantially all of the assets and liabilities of our Tile Coatings business were classified as held-for-sale in the accompanying consolidated balance sheets and results are included within discontinued operations in the consolidated statement of operations for all periods presented. The retained assets, liabilities and operations of the Performance Coatings reportable segment are reflected within our Functional Coatings reportable segment.



	Six Months Ended June 30,
		Postretirement		Foreign		Net Gain (Loss)
		Benefit Liability		Currency		on Cash Flow
(Dollars in thousands)		Adjustments		Items		Hedges		Total
Balances at December 31, 2019		$	1,206	$	(97,575)	$	(13,007)	$	(109,376)
Other comprehensive income (loss) before reclassifications, before tax			—		(14,449)		(13,452)		(27,901)
Reclassification to earnings:
Cash flow hedge income (loss), before tax			—		—		(115)		(115)
Current period other comprehensive income (loss), before tax			—		(14,449)		(13,567)		(28,016)
Tax effect			—		(70)		(2,967)		(3,037)
Current period other comprehensive income (loss), net of tax			—		(14,379)		(10,600)		(24,979)
Balances at June 30, 2020		$	1,206	$	(111,954)	$	(23,607)	$	(134,355)

Balances at December 31, 2020		$	3,199	$	(70,482)	$	(22,427)	$	(89,710)
Other comprehensive income (loss) before reclassifications, before tax			—		(76,466)		3,361		(73,105)
Reclassification to earnings:
Postretirement benefit liabilities income (loss), before tax			129		—		—		129
Currency translation reclassification to income on divestiture			—		17,305		—		17,305
Amount reclassification to income (remote transaction)			—		—		4,509		4,509
Cash flow hedge income (loss), before tax			—		—		1,242		1,242
Current period other comprehensive income (loss), before tax			129		(59,161)		9,112		(49,920)
Tax effect			—		640		1,043		1,683
Current period other comprehensive income (loss), net of tax			129		(59,801)		8,069		(51,603)
Balances at June 30, 2021		$	3,328	$	(130,283)	$	(14,358)	$	(141,313)

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18. Reporting for Segments

Net sales to external customers by segment are presented in the table below. Sales between segments were not material.



	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
(Dollars in thousands)	2020		2019		2020		2019		2021		2020		2021		2020
Functional Coatings	$	154,218	$	154,744	$	441,325	$	485,462	$	194,909	$	131,672	$	379,731	$	287,107
Color Solutions		87,659		90,595		257,679		284,217		99,422		73,129		202,958		170,020
Total net sales	$	241,877	$	245,339	$	699,004	$	769,679	$	294,331	$	204,801	$	582,689	$	457,127

Each segment’s gross profit and reconciliation to income before income taxes are presented in the table below:



	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
(Dollars in thousands)	2020		2019		2020		2019		2021		2020		2021		2020
Functional Coatings	$	41,906	$	47,275	$	125,842	$	144,812	$	59,521	$	36,119	$	121,397	$	83,936
Color Solutions		28,450		29,122		89,222		87,220		36,692		26,985		70,360		60,772
Other cost of sales		(190)		(335)		(416)		1,019		(1,378)		640		(1,819)		(226)
Total gross profit		70,166		76,062		214,648		233,051		94,835		63,744		189,938		144,482
Selling, general and administrative expenses		47,820		47,543		154,407		157,723		59,026		50,541		112,864		106,587
Restructuring and impairment charges		2,447		2,065		12,231		7,862		1,970		8,619		7,154		9,784
Other expense, net		5,305		6,377		14,113		21,681		7,910		6,310		17,789		8,808
Income before income taxes	$	14,594	$	20,077	$	33,897	$	45,785
Income (loss) before income taxes									$	25,929	$	(1,726)	$	52,131	$	19,303

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Net sales for the three months ended ~~September~~June 30, ~~2020, decreased~~2021, increased by ~~$3.4~~$89.5 million, or ~~1.4%~~43.7%, compared with the prior-year same period. Net sales ~~decreased~~increased by ~~$2.9~~$63.2 million in Functional Coatings and $26.3 million in Color ~~Solutions and $0.5 million in Functional Coatings.~~Solutions. During the three months ended ~~September~~June 30, ~~2020,~~2021, gross profit ~~decreased $5.9~~increased $31.1 million, or ~~7.8%~~48.8%, compared with the prior-year same period; as a percentage of net sales, it ~~decreased~~increased approximately ~~200~~110 basis points to ~~29.0%~~32.2%. Our total gross profit for the ~~third~~second quarter of ~~2020~~2021 was ~~$70.2~~$94.8 million, compared with ~~$76.1~~$63.7 million for the three months ended ~~September~~June 30, ~~2019.~~2020. The ~~decrease~~increase in gross profit was attributable to ~~lower~~higher gross profit in Functional Coatings of ~~$5.4~~$23.4 million and in Color Solutions of ~~$0.7~~$9.7 million.

For the three months ended ~~September~~June 30, ~~2020,~~2021, selling, general and administrative (“SG&A”) expenses increased ~~$0.3~~$8.5 million, or ~~0.6%~~16.8%, compared with the prior-year same period. As a percentage of net sales, it ~~increased~~decreased approximately 40460 basis points to ~~19.8%~~20.1%.

For the three months ended ~~September~~June 30, ~~2020,~~2021, net income was ~~$14.9~~$15.9 million, compared with ~~$13.2~~net loss of $5.2 million for the prior-year same period, and net income attributable to common shareholders was ~~$14.5~~$15.5 million, compared with ~~$12.8~~net loss attributable to common shareholders of $5.5 million for the prior-year same period. Income from continuing operations was ~~$9.5~~$17.4 million for the three months ended ~~September~~June 30, ~~2020,~~2021, compared with ~~$16.7~~loss from continuing operations of $1.9 million ~~in 2019.~~for the prior-year same period.

Outlook

~~The improving~~Ferro continued to experience higher demand ~~for Ferro’s products that began~~across all business segments in the ~~latter part~~quarter as customer markets recover. The impact of the COVID pandemic through the remainder of 2021 is unknown, even with the rollout of vaccines. Ferro expects to continue to benefit from strategic actions taken prior to and during the pandemic to optimize our business, invest in technology platforms, align with macrotrends, and focus on higher-margin, higher-growth markets, all of which contributed to gross margin expansion in the second quarter ~~continued in the third quarter, despite the continued impact~~ of ~~the novel coronavirus (“COVID-19”) pandemic on macroeconomic conditions around the globe.~~2021.

Ferro ~~has market leadership positions in a diverse portfolio of~~provides products and ~~many of~~services that are essential to our customers as they innovate to address trends in their markets and develop next generation products. We sell our products and services ~~support niche~~in multiple markets ~~in “critical”~~and geographies around the world, which limits exposure to any one industry or ~~“essential”~~region. In addition, we serve a diverse set of industries, ~~such as~~including automotive, construction, appliances, healthcare, food and beverage, ~~energy,~~ information technology, energy and ~~defense, which generally~~defense. COVID-related behavior changes have ~~continued to operate during the pandemic. We believe these characteristics, together with improved economic activity more broadly~~accelerated demand for certain products, especially those in ~~the markets we serve, should continue to provide certain end market demand~~industries supporting mobility, entertainment and ~~margin tailwinds for the balance of the year.~~personal technology, smart appliances, construction, and sustainable product packaging.

~~Along with managing through the COVID-19 pandemic,~~ Ferro continues to ~~execute its strategic priorities, which include advancing~~maintain protocols for the safety and well-being of our ~~optimization initiatives, preparing for and completing~~personnel. We monitor the ~~sale~~impact of ~~the Tile Coatings business and continuing to develop innovative products for our customers.~~

We recognize the potential continued uncertainty in macroeconomic conditions going forward. This uncertainty may result in volatility in demand in our end markets, foreign exchange rates and in interest rates, which could impact our reported results through the remainder of 2020 and into 2021.

~~COVID-19~~

~~In March 2020, the World Health Organization declared~~ the outbreak of COVID-19 on our business, including how it may impact our customers, employees, supply chain and distribution network and take action, as appropriate, to be a global pandemic and recommended containment and mitigation measures worldwide. COVID-19 has spread through Asia, Europe, the Middle East and North and South America, all regions in which we have operations. In response, government authorities have issued an evolving set of mandates, including requirements to shelter-in-place, curtail business operations, restrict travel, and avoid physical interaction. These mandates and the continued spread of COVID-19 have disrupted normal business activities in many segments of the global economy, resulting in weakened economic conditions.address these circumstances. In some areas around the world, government mandates have been lifted ~~by certain public authorities~~ and economic conditions have improved in certain sectors of the economy relative to ~~early in the second quarter. Meanwhile,~~2020. Recently, some regions have experienced increasing numbers of COVID-19 cases, and if this continues and if public authorities intensify efforts to contain the spread of COVID-19, normal business activity may be further disrupted, and economic conditions could weaken.

~~We continue to monitor~~In 2021, following the ~~impact~~completion of the ~~outbreak~~sale of ~~COVID-19 on~~ our Tile Coatings Business, we are transitioning to a smaller, more agile and more streamlined global business ~~including how~~with a more coherent and focused portfolio aligned with evolving megatrends. On May 11, 2021, Ferro announced that it ~~may impact our customers, employees, supply chain and distribution network and~~has entered into a definitive agreement to ~~take action, as appropriate,~~be acquired by Prince International Corporation, a portfolio company of American Securities LLC. The transaction is expected to ~~address these circumstances.~~

~~Table of Contents~~

~~Our manufacturing facilities generally have continued to operate since the pandemic was declared~~close in ~~early March 2020, with most sites experiencing only relatively brief or no suspensions of activity. While COVID-19 did not have a significant effect on our reported results for~~ the first quarter of 2020, it had a more pronounced effect on our business during the second quarter, primarily as a result of reduced demand in certain of our end markets, such as the automotive sector. During the third quarter, the favorable momentum in our business that we experienced in the latter part of the second quarter continued, with improving demand from many of our customers across multiple product lines. Nevertheless, if certain regions of the world experience increasing numbers of COVID-19 cases, we may be required to take further actions to comply with mandates of national, state or local authorities, and we may take additional actions that we determine to be in the best interests of our employees, customers, suppliers and other stakeholders, which could disrupt or restrict our ability to operate our facilities and travel to our domestic and international sites. The extent to which our operations may be impacted by COVID-19 in the remainder of 2020 depends on a variety of factors, including the duration, severity, and scope of the pandemic, which remain uncertain.2022.

We believe we are well positioned from a liquidity perspective to manage through the effects of the COVID-19 pandemic. As of September 30, 2020, we had liquidity of approximately $562.7 million, consisting of cash and availability under our various credit facilities, primarily our revolving credit facility. We are in compliance with the covenants under our various credit facilities and expect to remain in compliance. We will continue to ~~evaluate~~refine our manufacturing footprint, optimize logistics and ~~take action~~streamline sourcing and procurement in our operations around the world.

Foreign currency rates may continue to ~~preserve liquidity~~be volatile through 2021 and ~~generate~~changes in interest rates could adversely impact reported results. We continue to expect cash flow ~~during the crisis, including by limiting capital expenditures and discretionary spending, as appropriate and where possible.~~from operating activities to be positive for 2021.

Factors that could adversely affect our future performance include those described under the heading “Risk Factors” in Item 1A of Part ~~II of this Quarterly Report on Form 10-Q and Item 1A of Part~~ I of the Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

‎

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Results of Operations - Consolidated

Comparison of the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020

For the three months ended ~~September~~June 30, ~~2020,~~2021, net income from continuing operations was ~~$9.5~~$17.4 million, compared with ~~$16.7~~net loss of $1.9 million for the three months ended ~~September~~June 30, ~~2019.~~2020. For the three months ended ~~September~~June 30, ~~2020,~~2021, net income attributable to common shareholders was ~~$14.5~~$15.5 million, or earnings per share of ~~$0.18,~~$0.19, compared with net ~~income attributable to common shareholders~~loss of ~~$12.8~~$5.5 million, or ~~earnings~~loss per share of ~~$0.16,~~$0.07, for the three months ended ~~September~~June 30, ~~2019.~~2020.

Net Sales



	Three Months Ended										Three Months Ended
	September 30,										June 30,
(Dollars in thousands)	2020			2019			$ Change		% Change		2021			2020			$ Change		% Change
Net sales	$	241,877		$	245,339		$	(3,462)	(1.4)	%	$	294,331		$	204,801		$	89,530	43.7	%
Cost of sales		171,711			169,277			2,434	1.4	%		199,496			141,057			58,439	41.4	%
Gross profit	$	70,166		$	76,062		$	(5,896)	(7.8)	%	$	94,835		$	63,744		$	31,091	48.8	%
Gross profit as a % of net sales		29.0	%		31.0	%						32.2	%		31.1	%

Net sales ~~decreased~~increased by ~~$3.4~~$89.5 million, or ~~1.4%~~43.7%, for the three months ended ~~September~~June 30, ~~2020,~~2021, compared with the prior-year same period, driven by ~~lower~~higher sales in Functional Coatings and Color Solutions ~~and Functional Coatings~~ of ~~$2.9~~$63.2 million and ~~$0.5~~$26.3 million, respectively. The ~~decrease~~increase in net sales was driven by ~~lower~~favorable volume and mix of ~~$6.6~~$78.0 million, ~~partially mitigated by~~ favorable foreign currency impacts of ~~$1.7~~$9.5 million and higher product pricing of ~~$1.5~~$2.0 million.

Gross Profit

Gross profit ~~decreased $5.9~~increased $31.1 million, or ~~7.8%~~48.8%, for the three months ended ~~September~~June 30, ~~2020,~~2021, compared with the prior-year same period. As a percentage of net sales, gross profit ~~decreased 200~~increased approximately 110 basis points to ~~29.0%~~32.2%. The ~~decrease~~increase in gross profit was primarily attributable to ~~lower gross profit~~an increase in Functional Coatings and Color Solutions of ~~$5.4~~$23.4 million and ~~$0.7~~$9.7 million, respectively. The ~~decrease~~increase in gross profit was primarily driven by ~~lower~~favorable sales ~~volumes~~volume and mix of ~~$6.7~~$20.1 million, ~~and higher~~favorable manufacturing costs of ~~$4.4~~$4.2 million, ~~partially mitigated by~~favorable foreign currency impacts of $3.6 million, higher product pricing of $2.0 million and lower raw material costs of ~~$3.4 million, favorable product pricing of $1.5 million and favorable foreign currency impacts of $0.3~~$1.2 million.

Geographic Revenues

The following table presents our sales on the basis of where sales originated.



	Three Months Ended								Three Months Ended
	September 30,								June 30,
(Dollars in thousands)	2020		2019		$ Change		% Change		2021		2020		$ Change		% Change
Geographic Revenues on a sales origination basis
EMEA	$	95,553	$	103,397	$	(7,844)	(7.6)	%	$	130,527	$	78,945	$	51,582	65.3	%
United States		86,285		85,415		870	1.0	%		122,060		95,013		27,047	28.5	%
Asia Pacific		37,545		36,776		769	2.1	%		41,744		30,843		10,901	35.3	%
Latin America		22,494		19,751		2,743	13.9	%
Net sales	$	241,877	$	245,339	$	(3,462)	(1.4)	%	$	294,331	$	204,801	$	89,530	43.7	%

The ~~decline~~increase in net sales of ~~$3.4~~$89.5 million, compared with the prior-year same period, was driven by ~~a decrease~~increases in sales from ~~EMEA, partially mitigated by higher sales in Latin America, United States and Asia Pacific~~all regions. The ~~decrease~~increase in sales from EMEA was attributable to ~~lower~~higher sales in Functional Coatings and Color Solutions of ~~$5.0~~$41.5 million and ~~$2.8~~$10.1 million, respectively. The increase in sales from ~~Latin America~~the Americas was attributable to higher sales in Color Solutions and Functional Coatings of ~~$1.6~~$13.9 million and ~~$1.1~~$13.1 million, respectively. ~~The increase in sales from the United States was attributable to higher sales in Functional Coatings of $2.9 million, partially offset by a decrease in Color Solutions of $2.0 million.~~ The increase in sales from Asia Pacific was attributable to higher sales in Functional Coatings and Color Solutions of ~~$0.4~~$8.6 million and ~~$0.4~~$2.3 million, respectively.

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Selling, General and Administrative (“SG&A”) Expenses

The following table includes SG&A ~~components with significant~~component changes between ~~2020~~2021 and ~~2019.~~2020.



	Three Months Ended								Three Months Ended
	September 30,								June 30,
(Dollars in thousands)	2020		2019		$ Change		% Change		2021		2020		$ Change		% Change
Personnel expenses (excluding R&D personnel expenses)	$	19,827	$	21,867		(2,040)	(9.3)	%	$	22,266	$	19,779		2,487	12.6	%
Research and development expenses		8,488		9,903		(1,415)	(14.3)	%		7,932		8,331		(399)	(4.8)	%
Business development		3,113		666		2,447	367.4	%		7,599		5,303		2,296	43.3	%
Incentive compensation		2,018		356		1,662	466.9	%		1,883		1,971		(88)	(4.5)	%
Stock-based compensation		1,608		300		1,308	436.0	%		2,085		2,183		(98)	(4.5)	%
Intangible asset amortization		1,504		2,053		(549)	(26.7)	%		1,712		1,411		301	21.3	%
Pension and other postretirement benefits		213		256		(43)	(16.8)	%		333		183		150	82.0	%
Bad debt		62		5		57	NM	%		13		(40)		53	NM	%
All other expenses		10,987		12,137		(1,150)	(9.5)	%		15,203		11,420		3,783	33.1	%
Selling, general and administrative expenses	$	47,820	$	47,543	$	277	0.6	%	$	59,026	$	50,541	$	8,485	16.8	%

SG&A expenses were ~~$0.3~~$8.5 million higher in the three months ended ~~September~~June 30, ~~2020,~~2021, compared with the prior-year same period. The higher SG&A expenses compared to the prior-year same period are primarily driven by other expense, primarily associated with consulting and professional fees, higher personnel expenses and business development ~~costs, incentive and stock-based compensation expense, partially offset by lower personnel costs and research and development expenses.~~costs.

The following table presents SG&A expenses attributable to sales, research and development and operations costs as strategic services and other SG&A costs as functional services.



	Three Months Ended								Three Months Ended
	September 30,								June 30,
(Dollars in thousands)	2020		2019		$ Change		% Change		2021		2020		$ Change		% Change
Strategic services	$	22,363	$	25,254	$	(2,891)	(11.4)	%	$	23,674	$	21,495	$	2,179	10.1	%
Functional services		21,831		21,633		198	0.9	%		31,384		24,892		6,492	26.1	%
Incentive compensation		2,018		356		1,662	NM	%		1,883		1,971		(88)	(4.5)	%
Stock-based compensation		1,608		300		1,308	436.0	%		2,085		2,183		(98)	(4.5)	%
Selling, general and administrative expenses	$	47,820	$	47,543	$	277	0.6	%	$	59,026	$	50,541	$	8,485	16.8	%

Restructuring and Impairment Charges



	Three Months Ended								Three Months Ended
	September 30,								June 30,
(Dollars in thousands)	2020		2019		$ Change		% Change		2021		2020		$ Change		% Change
Employee severance	$	1,960	$	1,906	$	54	2.8	%	$	1,590	$	7,174	$	(5,584)	(77.8)	%
Other restructuring costs		487		159		328	206.3	%		380		1,445		(1,065)	(73.7)	%
Restructuring and impairment charges	$	2,447	$	2,065	$	382	18.5	%	$	1,970	$	8,619	$	(6,649)	(77.1)	%

Restructuring and impairment charges ~~increased~~decreased in the ~~third quarter of 2020~~three months ended June 30, 2021, compared with the prior-year same period. The ~~increase~~decrease primarily relates to previously disclosed plans being substantially completed with any remaining costs ~~associated with our Global Optimization and Organizational Optimization Plans, compared with~~expected to be recognized within the ~~prior-year same period.~~next 12 months. Refer to Note 14 to the consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for a discussion of our optimization plans and related costs.

Interest Expense



	Three Months Ended								Three Months Ended
	September 30,								June 30,
(Dollars in thousands)	2020		2019		$ Change		% Change		2021		2020		$ Change		% Change
Interest expense	$	4,810	$	6,260	$	(1,450)	(23.2)	%	$	5,397	$	6,383	$	(986)	(15.4)	%
Amortization of bank fees		1,071		968		103	10.6	%		498		866		(368)	(42.5)	%
Interest swap amortization		(315)		(315)		—	—	%		(316)		(316)		—	—	%
Interest capitalization		(799)		(911)		112	(12.3)	%		(573)		(756)		183	(24.2)	%
Interest expense	$	4,767	$	6,002	$	(1,235)	(20.6)	%	$	5,006	$	6,177	$	(1,171)	(19.0)	%

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Interest expense decreased in the ~~third quarter of 2020~~three months ended June 30, 2021, compared with the prior-year same period. The decrease in interest expense was primarily due to a decrease in the average ~~interest rate and the average~~ long-term debt balance, partially offset by higher average interest rate during the ~~third quarter of 2020~~three months ended June 30, 2021, compared with the prior-year same period.

Income Tax Expense

Income tax expense for the three months ended ~~September~~June 30, ~~2020~~2021 was ~~$5.0~~$8.5 million, or ~~34.6%~~32.8% of pre-tax ~~inome.~~income. Income tax expense for the three months ended ~~September~~June 30, ~~2019~~2020 was ~~$3.3~~$0.2 million, or ~~16.7%~~(11.6%) of pre-tax ~~income.~~loss. The tax expense ~~during~~for the three months ended ~~September~~June 30, ~~2020,~~2021, as a percentage of pre-tax income, is higher than the U.S. federal statutory income tax rate of 21% primarily as a result of foreign statutory rate ~~differences and U.S. taxation of foreign earnings.~~ differences. The tax expense during the three months ended ~~September~~ June 30, ~~2019,~~2020, as a percentage of pre-tax ~~income,~~loss, is lower than the U.S. federal statutory income tax rate of 21% primarily as a result of tax ~~credits.~~rate changes enacted during 2020.

Results of Operations - Segment Information

Comparison of the three months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020

Functional Coatings



	Three Months Ended											Change due to							Three Months Ended											Change due to
	September 30,												Volume /						June 30,												Volume /
(Dollars in thousands)	2020			2019			$ Change		% Change		Price		Mix		Currency		Other		2021			2020			$ Change		% Change		Price		Mix		Currency		Other
Segment net sales	$	154,218		$	154,744		$	(526)	(0.3)	%	$	1,804	$	(3,026)	$	696	$	—	$	194,909		$	131,672		$	63,237	48.0	%	$	1,403	$	55,739	$	6,095	$	—
Segment gross profit		41,906			47,275			(5,369)	(11.4)	%		1,804		(4,897)		146		(2,422)		59,521			36,119			23,402	64.8	%		1,403		12,128		2,054		7,817
Gross profit as a % of segment net sales		27.2	%		30.6	%														30.5	%		27.4	%

Net sales ~~decreased~~increased compared with the prior-year same period, primarily driven by ~~lower~~higher sales in porcelain enamel, decoration, automotive, industrial, and ~~industrial~~electronics products of ~~$3.1~~$17.1 million, ~~$2.0~~$16.9 million, $13.0 million, $8.8 million and ~~$1.2~~$7.4 million, ~~respectively, partially mitigated by increased sales in electronic products.~~respectively. The ~~decrease~~increase in net sales was driven by ~~unfavorable~~favorable volume and mix of ~~$3.0~~$55.7 million, ~~partially mitigated by higher product pricing of $1.8 million and favorable~~ foreign currency impacts of ~~$0.7~~$6.1 million and increased product pricing of $1.4 million. Gross profit ~~decreased~~increased from the prior-year same period primarily due to ~~unfavorable manufacturing costs of $4.5 million and unfavorable~~favorable volume and mix of ~~$4.9~~$12.1 million, ~~partially mitigated by~~favorable manufacturing costs of $6.1 million, favorable foreign currency impacts of $2.1 million, favorable raw material costs of ~~$2.1~~$1.7 million ~~higher~~and increased product pricing of ~~$1.8 million and favorable foreign currency impacts of $0.1~~$1.4 million.



	Three Months Ended								Three Months Ended
	September 30,								June 30,
(Dollars in thousands)	2020		2019		$ Change		% Change		2021		2020		$ Change		% Change
Segment net sales by Region
EMEA	$	65,081	$	70,048	$	(4,967)	(7.1)	%	$	92,569	$	51,071	$	41,498	81.3	%
United States		49,580		46,657		2,923	6.3	%
Americas										72,046		58,868		13,178	22.4	%
Asia Pacific		26,779		26,364		415	1.6	%		30,294		21,733		8,561	39.4	%
Latin America		12,778		11,675		1,103	9.4	%
Total	$	154,218	$	154,744	$	(526)	(0.3)	%	$	194,909	$	131,672	$	63,237	48.0	%

The net sales ~~decrease~~increase of ~~$0.5~~$63.2 million was primarily driven ~~by lower sales from EMEA, partially mitigated~~ by higher sales from ~~the United States, Latin America and Asia Pacific.~~all regions. The ~~decrease~~increase in sales from EMEA was primarily attributable to ~~lower~~higher sales of decoration, industrial, porcelain enamel, automotive and ~~decoration~~electronics products of ~~$2.7~~$11.9 million, $9.4 million, $8.2 million, $6.7 million and ~~$2.0~~$5.3 million, respectively. The increase in sales from the United States was primarily attributable to an increase in sales of electronic products of $4.7 million, partially offset by lower sales of porcelain enamel and automotive products of $1.3 million and $0.6 million, respectively. The increase in sales from Latin AmericaAmericas was primarily attributable to higher sales of porcelain enamel, automotive, electronics and decoration products of ~~$0.8~~$7.0 million, $3.5 million, $1.4 million and ~~$0.4~~$1.3 million, respectively. The increase in sales from Asia Pacific was primarily attributable to ~~increased~~higher sales of ~~industrial and~~decoration, automotive, porcelain enamel and electronics products of ~~$1.6~~$3.7 million, $2.8 million, $1.9 million and ~~$1.1~~$0.7 million, respectively, partially offset by lower sales ~~in decoration and automotive~~of industrial products of ~~$1.9 million and $0.4 million, respectively.~~$0.5 million.

Color Solutions



	Three Months Ended											Change due to
	June 30,												Volume /
(Dollars in thousands)	2021			2020			$ Change		% Change		Price		Mix		Currency		Other
Segment net sales	$	99,422		$	73,129		$	26,293	36.0	%	$	589	$	22,281	$	3,423	$	—
Segment gross profit		36,692			26,985			9,707	36.0	%		589		7,926		1,568		(376)
Gross profit as a % of segment net sales		36.9	%		36.9	%

3028

Table of Contents

~~Color Solutions~~

Three Months Ended
Change due to
September 30,
Volume /
(Dollars in thousands)
2020
2019
$ Change
% Change
Price
Mix
Currency
Other
Segment net sales
$
87,659
$
90,595
$
(2,936)
(3.2)
%
$
(313)
$
(3,576)
$
953
$
—
Segment gross profit
28,450
29,122
(672)
(2.3)
%
(313)
(1,964)
150
1,455
Gross profit as a % of segment net sales
32.5
%
32.1
%

Net sales ~~decreased~~increased compared with the prior-year same period, primarily ~~due to lower sales of pigment products of $3.5 million, partially mitigated~~driven by higher sales of pigment, surface technology and dispersions and colorants products of ~~$0.4~~$19.8 million, $4.3 million and ~~$0.2~~$2.2 million, respectively. The ~~decrease~~increase in net sales was driven by ~~unfavorable sales~~favorable volume and mix of ~~$3.6~~$22.3 million, ~~and lower product pricing of $0.3 million, partially mitigated by~~ favorable foreign currency impacts of ~~$1.0~~$3.4 million and increased product pricing of $0.6 million. Gross profit ~~decreased~~increased from the prior-year same period, primarily due to ~~unfavorable~~favorable sales volume and mix of ~~$2.0~~$7.9 million, favorable foreign currency impacts of $1.6 million, increased product pricing of $0.6 million and favorable manufacturing costs of $0.1 million, partially ~~mitigated~~offset by ~~lower~~unfavorable raw material costs of ~~$1.3~~$0.5 million.



	Three Months Ended								Three Months Ended
	September 30,								June 30,
(Dollars in thousands)	2020		2019		$ Change		% Change		2021		2020		$ Change		% Change
Segment net sales by Region
United States	$	36,705	$	38,758	$	(2,053)	(5.3)	%
EMEA		30,472		33,349		(2,877)	(8.6)	%	$	37,958	$	27,874	$	10,084	36.2	%
Americas										50,014		36,145		13,869	38.4	%
Asia Pacific		10,766		10,412		354	3.4	%		11,450		9,110		2,340	25.7	%
Latin America		9,716		8,076		1,640	20.3	%
Total	$	87,659	$	90,595	$	(2,936)	(3.2)	%	$	99,422	$	73,129	$	26,293	36.0	%

The net sales ~~decrease~~increase of ~~$2.9~~$26.3 million was driven by ~~lower sales from EMEA and the United States, partially mitigated by~~ higher sales from ~~Latin America.~~all regions. The ~~decrease~~increase in sales from the Americas was primarily driven by increased sales of pigment, surface technology and dispersions and colorants products of $7.6 million, $5.2 million and $1.1 million, respectively. The increase in sales from EMEA was primarily attributable to ~~lower~~higher sales of pigment and dispersions and colorants products of ~~$2.5~~$9.0 million and ~~$0.3~~$1.1 million, respectively. The ~~decrease~~increase in sales from ~~the United States~~Asia Pacific was ~~primarily driven by lower~~attributable to increased sales of pigment products of ~~$2.8 million. The increase in sales from Latin America was primarily attributable to higher~~$3.2 million, partially offset by lower sales of ~~pigment products~~surface technology of ~~$1.5 million.~~$0.9 million, respectively.

Comparison of the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020

For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, net income from continuing operations was ~~$23.5~~$36.0 million, compared with ~~$36.9~~$14.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, net income attributable to common shareholders was ~~$25.1~~$123.5 million, or earnings per share of ~~$0.31,~~$1.50, compared with net income attributable to common shareholders of ~~$37.3~~$10.6 million, or earnings per share of ~~$0.45,~~$0.13, for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020.

Net Sales



	Nine Months Ended										Six Months Ended
	September 30,										June 30,
(Dollars in thousands)	2020			2019			$ Change		% Change		2021			2020			$ Change		% Change
Net sales	$	699,004		$	769,679		$	(70,675)	(9.2)	%	$	582,689		$	457,127		$	125,562	27.5	%
Cost of sales		484,356			536,628			(52,272)	(9.7)	%		392,751			312,645			80,106	25.6	%
Gross profit	$	214,648		$	233,051		$	(18,403)	(7.9)	%	$	189,938		$	144,482		$	45,456	31.5	%
Gross profit as a % of net sales		30.7	%		30.3	%						32.6	%		31.6	%

Net sales ~~decreased~~increased by ~~$70.7~~$125.6 million, or ~~9.2%~~27.5%, for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared with the prior-year same period, driven by ~~lower~~higher sales in Functional Coatings and Color Solutions of ~~$44.1~~$92.6 million and ~~$26.5~~$33.0 million, respectively. The ~~decrease~~increase in net sales was driven by ~~unfavorable~~favorable volume and mix of ~~$63.2~~$102.6 million, ~~and unfavorable~~favorable foreign currency impacts of ~~$9.8~~$18.8 million ~~partially mitigated by~~and higher product pricing of ~~$2.3~~$4.2 million.

~~Table of Contents~~

Gross Profit

Gross profit ~~decreased $18.4~~increased $45.5 million, or ~~7.9%~~31.5%, for the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared with the prior-year same period. As a percentage of net sales, gross profit increased approximately 40100 basis points to ~~30.7%~~32.6%. The ~~decrease~~increase in gross profit was primarily attributable to ~~a decrease~~an increase in Functional Coatings of ~~$19.0~~$37.5 million ~~partially offset by an increase~~and in Color Solutions of ~~$2.0~~$9.6 million. The ~~decrease~~increase in gross profit was primarily driven by ~~unfavorable~~favorable sales volume and mix of ~~$32.7~~$29.7 million, ~~and unfavorable~~favorable foreign currency impacts of ~~$2.7~~$6.5 million, ~~partially mitigated by~~higher product pricing of $4.2 million, lower raw material costs of ~~$13.2 million, higher product pricing of $2.3~~$3.4 million and ~~lower~~favorable manufacturing costs of ~~$1.5~~$1.7 million.

Table of Contents

Geographic Revenues

The following table presents our sales on the basis of where sales originated.



	Nine Months Ended								Six Months Ended
	September 30,								June 30,
(Dollars in thousands)	2020		2019		$ Change		% Change		2021		2020		$ Change		% Change
Geographic Revenues on a sales origination basis
EMEA	$	288,244	$	329,270	$	(41,026)	(12.5)	%	$	256,941	$	192,691	$	64,250	33.3	%
United States		256,852		275,073		(18,221)	(6.6)	%
Americas										243,832		202,541		41,291	20.4	%
Asia Pacific		99,440		102,210		(2,770)	(2.7)	%		81,916		61,895		20,021	32.3	%
Latin America		54,468		63,126		(8,658)	(13.7)	%
Net sales	$	699,004	$	769,679	$	(70,675)	(9.2)	%	$	582,689	$	457,127	$	125,562	27.5	%

The ~~decline~~increase in net sales of ~~$70.7~~$125.6 million, compared with the prior-year same period, was driven by ~~a decrease~~increases in sales from all regions. The ~~decrease~~increase in sales from EMEA was attributable to ~~lower~~higher sales in Functional Coatings and Color Solutions of ~~$31.3~~$53.0 million and ~~$9.7~~$11.3 million, respectively. The ~~decrease~~increase in sales from the ~~United States~~Americas was attributable to ~~lower sales in Color Solutions and Functional Coatings of $17.1 million and $1.1 million, respectively. The decrease in sales from Latin America was attributable to lower~~higher sales in Functional Coatings and Color Solutions of ~~$8.0~~$23.3 million and ~~$0.6~~$18.0 million, respectively. The ~~decrease~~increase in sales from Asia Pacific was attributable to ~~lower~~higher sales in Functional Coatings ~~of $3.7 million, partially offset by higher sales in~~and Color Solutions of ~~$0.9 million.~~$16.3 million and $3.7 million, respectively.

Selling, General and Administrative (“SG&A”) Expenses

The following table includes SG&A ~~components with significant~~component changes between ~~2020~~2021 and ~~2019.~~2020.



	Nine Months Ended								Six Months Ended
	September 30,								June 30,
(Dollars in thousands)	2020		2019		$ Change		% Change		2021		2020		$ Change		% Change
Personnel expenses (excluding R&D personnel expenses)	$	62,355	$	70,878	$	(8,523)	(12.0)	%	$	44,612	$	42,528	$	2,084	4.9	%
Research and development expenses		26,906		31,079		(4,173)	(13.4)	%		17,115		18,418		(1,303)	(7.1)	%
Business development		8,951		6,520		2,431	37.3	%		11,247		5,838		5,409	92.7	%
Incentive compensation		6,109		1,559		4,550	291.9	%		4,000		4,091		(91)	(2.2)	%
Stock-based compensation		6,550		5,945		605	10.2	%		4,715		4,942		(227)	(4.6)	%
Intangible asset amortization		4,593		6,607		(2,014)	(30.5)	%		3,062		3,089		(27)	(0.9)	%
Pension and other postretirement benefits		554		772		(218)	(28.2)	%		672		341		331	97.1	%
Bad debt		158		259		(101)	(39.0)	%		42		96		(54)	(56.3)	%
All other expenses		38,231		34,104		4,127	12.1	%		27,399		27,244		155	0.6	%
Selling, general and administrative expenses	$	154,407	$	157,723	$	(3,316)	(2.1)	%	$	112,864	$	106,587	$	6,277	5.9	%

SG&A expenses were ~~$3.3~~$6.3 million ~~lower~~higher in the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared with the prior-year same period. The ~~lower~~higher SG&A expenses compared to the prior-year same period are primarily driven by ~~lower~~higher business development costs and personnel ~~expenses and research and development~~ expenses, partially offset by ~~higher incentive compensation~~lower research and ~~business~~ development ~~costs.~~

~~Table of Contents~~

expenses.

The following table presents SG&A expenses attributable to sales, research and development and operations costs as strategic services and other SG&A costs as functional services.


	Nine Months Ended								Six Months Ended
	September 30,								June 30,
(Dollars in thousands)	2020		2019		$ Change		% Change		2021		2020		$ Change		% Change
Strategic services	$	69,474	$	80,101	$	(10,627)	(13.3)	%	$	48,128	$	47,111	$	1,017	2.2	%
Functional services		72,274		70,118		2,156	3.1	%		56,021		50,443		5,578	11.1	%
Incentive compensation		6,109		1,559		4,550	291.9	%		4,000		4,091		(91)	(2.2)	%
Stock-based compensation		6,550		5,945		605	10.2	%		4,715		4,942		(227)	(4.6)	%
Selling, general and administrative expenses	$	154,407	$	157,723	$	(3,316)	(2.1)	%	$	112,864	$	106,587	$	6,277	5.9	%

Table of Contents

Restructuring and Impairment Charges



	Nine Months Ended								Six Months Ended
	September 30,								June 30,
(Dollars in thousands)	2020		2019		$ Change		% Change		2021		2020		$ Change		% Change
Employee severance	$	9,792	$	5,748	$	4,044	70.4	%	$	5,439	$	7,832	$	(2,393)	(30.6)	%
Other restructuring costs		2,439		2,114		325	15.4	%		1,715		1,952		(237)	(12.1)	%
Restructuring and impairment charges	$	12,231	$	7,862	$	4,369	55.6	%	$	7,154	$	9,784	$	(2,630)	(26.9)	%

Restructuring and impairment charges ~~increased~~decreased in the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared with the prior-year same period. The ~~increase~~decrease primarily relates to previously disclosed plans being substantially completed with any remaining costs ~~associated with our Global Optimization Plan, compared with~~expected to be recognized within the ~~prior-year same period.~~next 12 months. Refer to Note 14 to the consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for a discussion of our optimization plans and related costs.

Interest Expense



	Nine Months Ended								Six Months Ended
	September 30,								June 30,
(Dollars in thousands)	2020		2019		$ Change		% Change		2021		2020		$ Change		% Change
Interest expense	$	17,039	$	19,004	$	(1,965)	(10.3)	%	$	15,122	$	12,229	$	2,893	23.7	%
Amortization of bank fees		2,866		2,780		86	3.1	%		1,102		1,795		(693)	(38.6)	%
Interest swap amortization		(947)		(947)		—	—	%		(632)		(632)		—	—	%
Interest capitalization		(2,484)		(2,259)		(225)	10.0	%		(1,149)		(1,685)		536	(31.8)	%
Interest expense	$	16,474	$	18,578	$	(2,104)	(11.3)	%	$	14,443	$	11,707	$	2,736	23.4	%

Interest expense ~~decreased~~increased in the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared with the prior-year same period. The ~~decrease~~increase in interest expense was primarily due to ~~a decrease in~~incremental interest expense recognized associated with the termination of certain cross-currency swap instruments and higher average interest rate, partially offset by ~~an increase~~a decrease in the average long-term debt balance during the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared with the prior-year same period.

Income Tax Expense

Income tax expense for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$10.4~~$16.1 million, or ~~30.6%~~31.0% of pre-tax income. Income tax expense for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~$8.9~~$5.3 million, or ~~19.4%~~27.5% of pre-tax income. The tax expense for the ~~nine~~six months ended ~~September~~June 30, 2021 and June 30, 2020, as a percentage of pre-tax income, is higher than the U.S. federal statutory income tax rate of 21% primarily as a result of foreign statutory rate differences and U.S. taxation of foreign earnings. The tax expense during the nine months ended September 30, 2019, as a percentage of pre-tax income, is lower than the U.S. federal statutory income tax rate of 21% primarily as a result of tax credits.

~~Table of Contents~~

differences.

Results of Operations - Segment Information

Comparison of the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020

Functional Coatings



	Nine Months Ended											Change due to							Six Months Ended											Change due to
	September 30,												Volume /						June 30,												Volume /
(Dollars in thousands)	2020			2019			$ Change		% Change		Price		Mix		Currency		Other		2021			2020			$ Change		% Change		Price		Mix		Currency		Other
Segment net sales	$	441,325		$	485,462		$	(44,137)	(9.1)	%	$	2,371	$	(39,012)	$	(7,496)	$	—	$	379,731		$	287,107		$	92,624	32.3	%	$	3,980	$	76,756	$	11,888	$	—
Segment gross profit		125,842			144,812			(18,970)	(13.1)	%		2,371		(17,331)		(2,277)		(1,733)		121,397			83,936			37,461	44.6	%		3,980		22,691		3,984		6,806
Gross profit as a % of segment net sales		28.5	%		29.8	%														32.0	%		29.2	%

Net sales ~~decreased~~increased compared with the prior-year same period, primarily driven by ~~lower~~higher sales in ~~automotive,~~ porcelain enamel, automotive, decoration, electronics and industrial products of ~~$17.1~~$26.9 million, ~~$15.8~~$19.8 million, ~~$15.2~~$16.5 million, $14.8 million and ~~$13.2~~$14.6 million, ~~respectively, partially mitigated by higher sales in electronic products of $16.0 million.~~respectively. The ~~decrease~~increase in net sales was driven by ~~unfavorable~~favorable volume and mix of ~~$39.0~~$76.7 million, ~~and~~ foreign currency impacts of $7.5 million, partially mitigated by increased product pricing of $2.4 million. Gross profit decreased from the prior-year same period primarily due to unfavorable volume and mix of $17.3 million, unfavorable manufacturing costs of $9.1 million and unfavorable foreign currency impacts of $2.3 million, partially offset by favorable raw material costs of $7.3$11.9 million and increased product pricing of ~~$2.4 million.~~

Nine Months Ended
September 30,
(Dollars in thousands)
2020
2019
$ Change
% Change
Segment net sales by Region
EMEA
$
192,009
$
223,310
$
(31,301)
(14.0)
%
United States
148,468
149,574
(1,106)
(0.7)
%
Asia Pacific
70,268
73,962
(3,694)
(5.0)
%
Latin America
30,580
38,616
(8,036)
(20.8)
%
Total
$
441,325
$
485,462
$
(44,137)
(9.1)
%

The net sales decrease of $44.1 million was primarily driven by lower sales from all regions. The decrease in sales from EMEA was primarily attributable to lower sales of industrial, decoration and automotive products of $13.1 million, $9.6 million and $6.9 million. The decrease in sales from Latin America was primarily attributable to lower sales of porcelain enamel, automotive and industrial products of $5.7 million, $1.6 million and $0.6 million, respectively. The decrease in sales from Asia Pacific was primarily attributable to decreased sales of decoration and automotive products of $3.8 million and $2.9 million, respectively, partially mitigated by higher sales of industrial products of $3.2 million. The decrease in sales from the United States was primarily attributable to lower sales of automotive, porcelain enamel, industrial and decoration products of $5.7 million, $4.5 million, $2.7 million and $1.8 million, respectively, partially mitigated by higher sales of electronic products of $13.6 million.

~~Color Solutions~~

Nine Months Ended
Change due to
September 30,
Volume /
(Dollars in thousands)
2020
2019
$ Change
% Change
Price
Mix
Currency
Other
Segment net sales
$
257,679
$
284,217
$
(26,538)
(9.3)
%
$
(53)
$
(24,181)
$
(2,304)
$
—
Segment gross profit
89,222
87,220
2,002
2.3
%
(53)
(13,973)
(400)
16,428
Gross profit as a % of segment net sales
34.6
%
30.7
%

Net sales decreased compared with the prior-year same period, primarily driven by lower sales of surface technology, pigment and dispersions and colorants products of $13.7 million, $11.1 million and of $1.5 million, respectively. The decrease in net sales was driven by unfavorable volume and mix of $24.2 million and unfavorable foreign currency impacts of $2.3$4.0 million. Gross profit increased from the prior-year same period primarily due to favorable volume and mix of $22.7 million, favorable manufacturing costs of ~~$10.5~~$4.3 million, increased product pricing of $4.0 million, favorable foreign currency impacts of $4.0 million and favorable raw material costs of ~~$5.9 million, partially offset by unfavorable sales volume and mix of $14.0 million and unfavorable foreign currency impacts of $0.4~~$2.5 million.

3431

Table of Contents



	Nine Months Ended								Six Months Ended
	September 30,								June 30,
(Dollars in thousands)	2020		2019		$ Change		% Change		2021		2020		$ Change		% Change
Segment net sales by Region
United States	$	108,384	$	125,499	$	(17,115)	(13.6)	%
EMEA		96,235		105,960		(9,725)	(9.2)	%	$	179,941	$	126,928	$	53,013	41.8	%
Americas										139,964		116,690		23,274	19.9	%
Asia Pacific		29,172		28,248		924	3.3	%		59,826		43,489		16,337	37.6	%
Latin America		23,888		24,510		(622)	(2.5)	%
Total	$	257,679	$	284,217	$	(26,538)	(9.3)	%	$	379,731	$	287,107	$	92,624	32.3	%

The net sales ~~decrease~~increase of ~~$26.5~~$92.6 million was primarily driven ~~by lower sales from the United States, EMEA and Latin America, partially offset~~ by higher sales from ~~Asia Pacific.~~all regions. The decrease in sales from the United States was primarily driven by lower sales of surface technology, and pigment of $14.2 million and $3.1 million, respectively, partially mitigated by increased sales of dispersions and colorants products of $0.2 million. The decreaseincrease in sales from EMEA was primarily attributable to ~~lower~~higher sales of porcelain enamel, industrial, decoration, automotive and electronics products of $12.2 million, $12.2 million, $11.1 million, $9.5 million and $8.0 million, respectively. The increase in sales from the Americas was primarily attributable to higher sales of porcelain enamel, electronics, automotive and decoration products of $10.8 million, $5.7 million, $5.5 million and $1.5 million, respectively. The increase in sales from Asia Pacific was primarily attributable to increased sales of automotive, decoration, porcelain enamel, industrial and electronics products of $4.8 million, $3.9 million, $3.9 million, $2.6 million and $1.1 million, respectively.

Color Solutions



	Six Months Ended											Change due to
	June 30,												Volume /
(Dollars in thousands)	2021			2020			$ Change		% Change		Price		Mix		Currency		Other
Segment net sales	$	202,958		$	170,020		$	32,938	19.4	%	$	192	$	25,839	$	6,907	$	—
Segment gross profit		70,360			60,772			9,588	15.8	%		192		7,016		2,557		(177)
Gross profit as a % of segment net sales		34.7	%		35.7	%

Net sales increased compared with the prior-year same period, primarily driven by higher sales of pigment, surface technology and dispersions and colorants products of $23.6 million, $6.3 million and $3.0 million, respectively. The increase in net sales was driven by favorable volume and mix of $25.8 million, favorable foreign currency impacts of $6.9 million and increased product pricing of $0.2 million. Gross profit increased from the prior-year same period, primarily due to favorable sales volume and mix of $7.0 million, favorable foreign currency impacts of $2.6 million, favorable raw material costs of $0.9 million and increased product pricing of $0.2 million, partially offset by unfavorable manufacturing costs of $1.1 million.



	Six Months Ended
	June 30,
(Dollars in thousands)	2021		2020		$ Change		% Change
Segment net sales by Region
EMEA	$	77,000	$	65,763	$	11,237	17.1	%
Americas		103,868		85,851		18,017	21.0	%
Asia Pacific		22,090		18,406		3,684	20.0	%
Total	$	202,958	$	170,020	$	32,938	19.4	%

The net sales increase of $32.9 million was driven by higher sales from all regions. The increase in sales from the Americas was primarily driven by increased sales of pigment, surface technology and dispersions and colorants products of $8.4 million, $8.0 million and $1.6 million, respectively. The increase in sales from EMEA was primarily attributable to higher sales of pigment and dispersions and colorants products of ~~$7.9~~$9.8 million and ~~$1.6~~$1.4 million, respectively. ~~The decrease in sales from Latin America was attributable to lower sales of pigment products.~~ The increase in sales from Asia Pacific was attributable to increased sales of pigment ~~and~~products of $5.4 million, partially offset by lower sales of surface technology ~~products~~ of ~~$0.5 million and $0.4 million, respectively.~~$1.7 million.

Summary of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020



	Nine Months Ended						Six Months Ended
	September 30,						June 30,
(Dollars in thousands)	2020		2019		$ Change		2021		2020		$ Change
Net cash used in operating activities	$	(106,481)	$	(67,240)	$	(39,241)	$	(46,410)	$	(104,561)	$	58,151
Net cash provided by investing activities		76,421		21,763		54,658		452,018		48,376		403,642
Net cash used in financing activities		(1,821)		(6,416)		4,595
Net cash provided by (used in) financing activities								(442,763)		22,519		(465,282)
Effect of exchange rate changes on cash and cash equivalents		174		(667)		841		(1,405)		(505)		(900)
Decrease in cash and cash equivalents	$	(31,707)	$	(52,560)	$	20,853	$	(38,560)	$	(34,171)	$	(4,389)

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The following table includes details of net cash provided by operating activities.



	Nine Months Ended						Six Months Ended
	September 30,						June 30,
(Dollars in thousands)	2020		2019		$ Change		2021		2020		$ Change
Cash flows from operating activities:
Net income	$	25,883	$	38,197	$	(12,314)	$	124,291	$	10,969	$	113,322
Loss (gain) on sale of assets		78		(947)		1,025		(98,746)		506		(99,252)
Depreciation and amortization		30,653		42,041		(11,388)		19,817		20,854		(1,037)
Interest amortization		2,866		2,780		86		1,102		1,795		(693)
Restructuring and impairment		6,944		9,837		(2,893)		124		6,916		(6,792)
Loss on extinguishment of debt								1,981		—		1,981
Accounts receivable		(107,551)		(78,082)		(29,469)		(96,052)		(51,017)		(45,035)
Inventories		10,022		(9,182)		19,204		(9,183)		(34,771)		25,588
Accounts payable		(78,576)		(63,452)		(15,124)		7,696		(45,089)		52,785
Other current asset, liabilities and adjustments, net		3,200		(8,432)		11,632		2,560		(14,724)		17,284
Net cash used in operating activities	$	(106,481)	$	(67,240)	$	(39,241)	$	(46,410)	$	(104,561)	$	58,151

Cash flows from operating activities. Cash flows from operating activities ~~decreased $39.2~~increased $58.2 million during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared with the prior-year same period. The ~~decrease~~increase in cash from operating activities was primarily due to ~~higher~~lower cash outflows for net working capital of ~~$25.4~~$33.3 million and ~~a decrease~~an increase in net income, net of ~~$12.3 million.~~the gain on the sale of the Tile Coatings business.

Cash flows used in investing activities. Cash flows from investing activities increased ~~$54.7~~$403.6 million during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared with the prior-year same period. The increase in cash from investing activities was primarily due to ~~higher collections of financing receivables~~the proceeds from the ~~receivable sales program (Note 8)~~sale of ~~$36.4~~the Tile Coatings business of $415.2 million, ~~and lower~~partially offset by higher cash outflows for capital expenditures of ~~$19.1~~$5.6 million and lower collection of financing receivables of $3.3 million in the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared to the prior-year same period.

~~Table of Contents~~

Cash flows from financing activities. Cash flows from financing activities ~~increased $4.6~~decreased $465.3 million during the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared with the prior-year same period. ~~Compared~~The decrease in cash from financing activities was primarily due to increased principal payments on the ~~prior-year same period, cash outflows for the purchase~~Amended Credit Facility of ~~treasury stock were lower by $25.0~~$435.0 million, ~~and cash outflows for acquisition-related contingency payments were lower by $5.2 million, partially offset by lower~~decreased net proceeds from the revolving credit ~~facility~~facilities of ~~$16.7~~$16.6 million and decreased net ~~borrowings~~proceeds from loans payable ~~increased by $8.9 million.~~of $11.5 million compared to the prior-year same period.

Capital Resources and Liquidity

Refer to Note 8 to the consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for a discussion of major debt instruments that were outstanding during ~~2020.~~2021.

Off Balance Sheet Arrangements

Consignment and Customer Arrangements for Precious Metals. We use precious metals, primarily silver, in the production of some of our products. We obtain precious metals from financial institutions under consignment agreements. The financial institutions retain ownership of the precious metals and charge us fees based on the amounts we consign and the period of consignment. These fees were ~~$0.6~~$0.8 million and ~~$0.5~~ $0.6 million for the three months ended ~~September~~June 30, 2021 and 2020, respectively, and ~~2019, respectively~~ ~~and were $2.3~~$1.4 million and $~~2.2~~1.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019,~~2020, respectively. We had on hand precious metals owned by participants in our precious metals program of ~~$87.5~~$100.7 million at ~~September~~June 30, ~~2020,~~2021, and ~~$66.2~~$87.2 million at December 31, ~~2019,~~2020, measured at fair value based on market prices for identical assets.

The consignment agreements under our precious metals program involve short-term commitments that typically mature within 30 to 90 days of each transaction and are typically renewed on an ongoing basis. As a result, the Company relies on the continued willingness of financial institutions to participate in these arrangements to maintain this source of liquidity. On occasion, we have been required to deliver cash collateral. While no deposits were outstanding at ~~September~~June 30, ~~2020~~2021, or December 31, ~~2019,~~2020, we may be required to furnish cash collateral in the future based on the quantity and market value of the precious metals under consignment and the amount of collateral-free lines provided by the financial institutions. The amount of cash collateral required is subject to review by the financial institutions and can be changed at any time at their discretion, based in part on their assessment of our creditworthiness.

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Bank Guarantees and Standby Letters of ~~Credit.~~Credit

At ~~September~~June 30, ~~2020,~~2021, the Company and its subsidiaries had bank guarantees and standby letters of credit issued by financial institutions that totaled $~~5.0~~4.8 million. These agreements primarily relate to Ferro’s insurance programs, foreign energy purchase contracts and foreign tax payments.

Liquidity Requirements

Our primary sources of liquidity are available cash and cash equivalents, available lines of credit under the revolving credit facility, and cash flows from operating activities. As of ~~September~~June 30, ~~2020,~~2021, we had ~~$72.7~~$143.7 million of cash and cash equivalents. ~~The majority of our cash and cash equivalents were held by foreign subsidiaries.~~ Cash generated in the U.S. is generally used to pay down amounts outstanding under our revolving credit facility and for general corporate purposes, including acquisitions. If needed, we could repatriate the majority of cash held by foreign subsidiaries without the need to accrue and pay U.S. income taxes. We do not anticipate a liquidity need requiring such repatriation of these funds to the U.S.

~~During~~On February 25, 2021, we completed the ~~fourth quarter~~sale of ~~2019, we entered into a definitive agreement to sell~~ our Tile Coatings business to Pigments Spain, S.L., a company of the Esmalglass-Itaca-Fritta group (the “Buyer”), which ~~has historically been~~is a ~~part~~portfolio company of ~~our Performance Coatings reportable segment. We expect~~certain Lone Star Funds, for $460.0 million in cash, subject to ~~use the~~post-closing adjustments. The transaction resulted in net proceeds of approximately $415.2 million after expenses. Proceeds from the ~~sale~~close of the transaction, in addition to ~~settle long-term obligations.~~current cash balances, were used to pay down our term loan facility in the amount of $435.0 million on February 25, 2021. The debt pay-down reduced outstanding amounts of the Tranche B-1 Loans, Tranche B-2 Loans, and Tranche B-3 Loans, by $188.3 million, $124.7 million and $122.0 million, respectively. In conjunction with the prepayment of debt, we recorded a charge of $2.0 million in connection with the write-off of unamortized issuance costs, which is recorded within Loss on extinguishment of debt in our consolidated statement of operations for the six months ended June 30, 2021.

Our liquidity requirements and uses primarily include debt service, purchase commitments, labor costs, working capital requirements, restructuring expenditures, acquisition costs, capital investments, strategic optimization plans, precious metals cash collateral requirements, and postretirement obligations. We expect to meet these requirements in the long term through cash provided by operating activities and availability under existing credit facilities or other financing arrangements. Cash flows provided by operating activities are primarily driven by earnings before non-cash charges and changes in working capital needs. As of ~~September~~June 30, ~~2020,~~2021, we had liquidity of approximately ~~$562.7~~$664.5 million, consisting of cash and availability under our various credit facilities, primarily our revolving credit facility.

The 2018 Revolving Facility subjects us to a customary financial covenant regarding the Company’s maximum leverage ratio. This covenant under our Amended Credit Facility restricts the amount of our borrowings, reducing our flexibility to fund ongoing operations and strategic initiatives.

~~Table of Contents~~

As of ~~September~~June 30, ~~2020,~~2021, we were in compliance with our maximum leverage ratio covenant of 4.00x as our actual ratio was ~~3.08,~~1.38, providing ~~$57.7~~$149.3 million of EBITDA cushion on the leverage ratio, as defined within the Amended Credit Facility. To the extent that economic conditions in key markets deteriorate or we are unable to meet our business projections and EBITDA, as defined within the Amended Credit Facility, falls below approximately ~~$192~~$78 million for the most recently ended trailing four quarters, based on reasonably consistent net debt levels with those as of ~~September~~June 30, ~~2020,~~2021, we could become unable to maintain compliance with our leverage ratio covenant. In such case, our lenders could demand immediate payment of outstanding amounts and we would need to seek alternate financing sources to pay off such debts and to fund our ongoing operations. Such financing may not be available on favorable terms, if at all.

Difficulties experienced in global capital markets could affect the ability or willingness of counterparties to perform under our various lines of credit, forward contracts, and precious metals program. These counterparties are major, reputable, multinational institutions, all having investment-grade credit ratings. Accordingly, we do not anticipate counterparty default. However, an interruption in access to external financing could adversely affect our business prospects and financial condition.

We assess on an ongoing basis our portfolio of businesses, as well as our financial and capital structure, to ensure that we have sufficient capital and liquidity to meet our strategic objectives. As part of this process, from time to time we evaluate the possible divestiture of businesses that are not critical to our core strategic objectives and, where appropriate, pursue the sale of such businesses and assets. We also evaluate and pursue acquisition opportunities that we believe will enhance our strategic position. Generally, we publicly announce divestiture and acquisition transactions only when we have entered into a material definitive agreement or closed on those transactions.

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Critical Accounting Policies and Their Application

There were no material changes to our critical accounting policies described in “Critical Accounting Policies” within Item 7 of our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Impact of Newly Issued Accounting Pronouncements

Refer to Note 2 to the condensed consolidated financial statements under Item 1 of this Quarterly Report on Form 10-Q for a discussion of accounting standards we recently adopted or will be required to adopt.

Risk Factors

Certain statements contained here and in future filings with the SEC reflect the Company’s expectations with respect to future performance and constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are subject to a variety of uncertainties, unknown risks and other factors concerning the Company’s operations and business environment, which are difficult to predict and are beyond the control of the Company. Factors that could adversely affect our future financial performance include those described under the heading “Risk Factors” in Item 1A of Part ~~II of this Quarterly Report on Form 10-Q and Item 1A of Part~~ I of our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our exposure to instruments that are sensitive to fluctuations in interest rates and foreign currency exchange rates.

Our exposure to interest rate risk arises from our debt portfolio. We manage this risk by controlling the mix of fixed-rate versus variable-rate debt after considering the interest rate environment and expected future cash flows. To reduce our exposure to interest rate changes on variable-rate debt, we have entered into interest rate swap agreements. These swaps effectively convert a portion of our variable-rate debt to a fixed rate. Our objective is to limit variability in earnings, cash flows and overall borrowing costs caused by changes in interest rates, while preserving operating flexibility.

We operate internationally and enter into transactions denominated in foreign currencies. These transactions expose us to gains and losses arising from exchange rate movements between the dates foreign currencies are recorded and the dates they are settled. We manage this risk by entering into forward currency contracts in an effort to substantially offset these gains and losses.

The notional amounts, carrying amounts of assets (liabilities), and fair values associated with our exposure to these market risks and sensitivity analysis about potential gains (losses) resulting from hypothetical changes in market rates are presented in the table below.



	September 30,		December 31,		June 30,		December 31,
(Dollars in thousands)	2020		2019		2021		2020
Variable-rate debt:
Carrying amount⁽¹⁾	$	801,223	$	801,764	$	356,978	$	793,731
Fair value		787,767		799,750		356,149		783,143
Increase in annual interest expense from 1% increase in interest rates		2,690		2,656		100		2,626
Decrease in annual interest expense from 1% decrease in interest rates		(2,690)		(2,656)		(100)		(2,626)
Fixed-rate debt:
Carrying amount		3,706		3,496		3,889		3,706
Fair value		3,186		1,557		2,342		1,887
Change in fair value from 1% increase in interest rates		NM		NM		NM		NM
Change in fair value from 1% decrease in interest rates		NM		NM		NM		NM
Interest rate swaps:
Notional amount		312,018		314,412		309,624		311,220
Carrying amount and fair value		(26,380)		(14,698)		(19,385)		(24,694)
Change in fair value from 1% increase in interest rates		8,947		11,399		7,074		8,407
Change in fair value from 1% decrease in interest rates		(3,723)		(10,676)		(4,074)		(3,131)
Cross currency swaps:
Notional amount		338,813		341,419		38,700		223,675
Carrying amount and fair value		6,962		22,111		495		(5,162)
Change in fair value from 10% appreciation of U.S. dollar		(35,730)		(34,795)		(4,048)		(24,475)
Change in fair value from 10% depreciation of U.S. dollar		35,730		34,795		4,048		24,475
Foreign currency forward contracts:
Notional amount		554,586		625,908		776,659		494,187
Carrying amount and fair value		128		601		(3,454)		2,019
Change in fair value from 10% appreciation of U.S. dollar		(4,875)		3,540		(6,885)		(2,810)
Change in fair value from 10% depreciation of U.S. dollar		5,959		(4,144)		8,415		3,435

(1)The carrying value of the term loan facility is net of unamortized debt issuance costs of ~~$4.0~~$1.4 million and ~~$3.9~~$3.7 million for the period ended ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Ferro is committed to maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(b) of the Exchange Act, Ferro has carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. The evaluation examined those disclosure controls and procedures as of ~~September~~June 30, ~~2020,~~2021, the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the disclosure controls and procedures were effective as of ~~September~~June 30, ~~2020.~~2021.

Changes in Internal Control over Financial Reporting

During the ~~third~~second quarter of ~~2020,~~2021, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not observed any material impact to our internal controls over financial reporting despite the fact that many of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

In November 2017, Suffolk County Water Authority filed a complaint, Suffolk County Water Authority v. The Dow Chemical Company et al., against the Company and a number of other companies in the U.S. Federal Court for the Eastern District of New York with regard to the product 1,4 dioxane. The plaintiff alleges, among other things, that the Suffolk County water supply is contaminated with 1,4 dioxane and that the defendants are liable for unspecified costs of cleanup and remediation of the water supply, among other damages. The Company has not manufactured 1,4 dioxane since 2008, denies the allegations related to liability for the plaintiff’s claims, and is vigorously defending this proceeding. Since December 2018, additional complaints were filed in the same court by 25 other New York water suppliers against the Company and others making substantially similar allegations regarding the contamination of their respective water supplies with 1,4 dioxane. An additional complaint also was filed by the Hicksville Water District against the Company and others in New York State Supreme Court making substantially similar allegations and seeking damages of $900 million. The Company is likewise vigorously defending these additional actions. The Company currently does not expect the outcome of these proceedings to have a material adverse impact on its consolidated financial condition, results of operations, or cash flows, net of any insurance coverage. However, it is not possible to predict the ultimate outcome of these proceedings due to the unpredictable nature of litigation.

Item 1A. Risk Factors

~~Reference is made~~There have been no material changes in our risk factors from those disclosed in Part I, Item 1A to ~~Part 1, Item 1A. “Risk Factors” included in the Company’s~~our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The risk factor set forth below updates, and should be read together with, such risk factors. Furthermore, the impact of the novel coronavirus (“COVID-19”) may exacerbate the risks discussed therein, any of which could have a material effect on the Company.

COVID-19 has spread around the world, including in Asia, Europe, the Middle East, and North and South America, all of which are regions in which Ferro has operations. The spread of COVID-19 has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and business shutdowns. The measures taken by the authorities have impacted and may further impact certain of our workforce and operations, the operations of our customers, and those of our vendors and suppliers. Although certain jurisdictions have begun to ease restrictions, there still is considerable uncertainty regarding measures that authorities may implement in the future, which may restrict our operations and those of our suppliers and customers and disrupt logistics and other supply and distribution service providers. The spread of COVID-19 has caused us to modify certain of our business practices with respect to certain products (including site operations, employee workplace practices, travel, and participation in meetings, events, and conferences), and we may take further actions as required or recommended by authorities or deemed to be in the best interests of our employees and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and our ability to perform critical functions could be adversely affected. These circumstances could negatively impact our business, results of operations, financial condition and cash flows.

The degree to which COVID-19 will impact our results depends on many factors, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, actions to contain the virus or limit its impact, and the speed and extent to which normal economic and operating conditions resume. Even after the COVID-19 outbreak has subsided, we may experience material adverse impacts to our business as a result of the economic impact and any recession or other macroeconomic weakness that may occur.

~~Table of Contents~~

2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Our Board of Directors ~~has~~have not declared any dividends on common stock during ~~2020~~2021 or ~~2019.~~2020. The Company’s Amended Credit Facility restricts the amount of dividends we can pay on our common stock. Any future dividends declared would be at the discretion of our Board of Directors and would depend on our financial condition, results of operations, cash flows, contractual obligations, the terms our financing agreements at the time a dividend is considered, and other relevant factors.

The following table summarizes purchases of our common stock by the Company and affiliated purchasers during the three months ended ~~September~~June 30, ~~2020:~~2021:

Total Amount of
Maximum Dollar
Shares Purchased
Amount that May
Total Number
as Part of Publicly
Yet Be Purchased
of Shares
Average Price
Announced Plans
Under the Plans
(Dollars in thousands, except for per share amounts)
Purchased
Paid per Share
or Programs
or Programs
July 1, 2020 to July 31, 2020
—
$
—
$
—
$
46,192,535
August 1, 2020 to August 31, 2020
—
$
—
$
—
$
46,192,535
September 1, 2020 to September 30, 2020
—
$
—
$
—
$
46,192,535
Total
—
$
—



				Total Amount of		Maximum Dollar
				Shares Purchased		Amount that May
	Total Number			as Part of Publicly		Yet Be Purchased
	of Shares	Average Price		Announced Plans		Under the Plans
(Dollars in thousands, except for per share amounts)	Purchased	Paid per Share		or Programs		or Programs
April 1, 2021 to April 30, 2021	—	$	—	$	—	$	46,192,535
May 1, 2021 to May 31, 2021	—	$	—	$	—	$	46,192,535
June 1, 2021 to June 30, 2021	—	$	—	$	—	$	46,192,535
Total	—			$	—

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

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Item 5. Other Information

Not applicable.

Item 6. Exhibits

The exhibits listed in the attached Exhibit Index are the exhibits required by Item 601 of Regulation S-K.

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		FERRO CORPORATION (Registrant)

Date:	~~November~~August 4, ~~2020~~2021
		/s/ Peter T. Thomas
		Peter T. Thomas
		Chairman, President and Chief Executive Officer (Principal Executive Officer)

Date:	~~November~~August 4, ~~2020~~2021
		/s/ Benjamin J. Schlater
		Benjamin J. Schlater
		Group Vice President and Chief Financial Officer (Principal Financial Officer)

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EXHIBIT INDEX

The following exhibits are filed with this report or are incorporated here by reference to a prior filing in accordance with Rule 12b-32 under the Securities and Exchange Act of 1934.

Exhibit:


2	Plan of acquisition, reorganization, arrangement or successor:
2.1	Agreement and Plan Merger, dated as of May 11, 2021, by and among Ferro Corporation, PMHC II Inc. and PMHC Fortune Merger Sub, Inc. (incorporated by reference to Exhibit 2.1 to Ferro Corporation’s Current Report on Form 8-K, filed May 11, 2021).
3	Articles of incorporation and by-laws:
3.1	Eleventh Amended Articles of Incorporation of Ferro Corporation (incorporated by reference to Exhibit 4.1 to Ferro Corporation’s Registration Statement on Form S‑3, filed March 5, 2008).
3.2	Certificate of Amendment to the Eleventh Amended Articles of Incorporation of Ferro Corporation filed December 29, 1994 (incorporated by reference to Exhibit 4.2 to Ferro Corporation’s Registration Statement on Form S‑3, filed March 5, 2008).
3.3	Certificate of Amendment to the Eleventh Amended Articles of Incorporation of Ferro Corporation filed on June 23, 1998 (incorporated by reference to Exhibit 4.3 to Ferro Corporation’s Registration Statement on Form S‑3, filed March 5, 2008).
3.4	Certificate of Amendment to the Eleventh Amended Articles of Incorporation of Ferro Corporation filed on October 17, 2011 (incorporated by reference to Exhibit 3.1 to Ferro Corporation’s Current Report on Form 8-K, filed October 17, 2011).
3.5	Certificate of Amendment to the Eleventh Amended Articles of Incorporation of Ferro Corporation filed on April 25, 2014 (incorporated by reference to Exhibit 3.5 to Ferro’s Quarterly Report on Form 10-Q, for the quarter ended June 30, 2014).
3.6	Ferro Corporation Amended and Restated Code of Regulations (incorporated by reference to Exhibit 3.1 to Ferro Corporation's current Report on Form 8-K filed December 12, 2016).
31	Certifications:
31.1	Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).
31.2	Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a).
32.1	Certification of Principal Executive Officer Pursuant to 18 U.S.C. 1350.
32.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. 1350.
101		Inline XBRL Documents:
101.INS		Inline XBRL Instance Document
101.SCH		Inline XBRL Schema Document
101.CAL		Inline XBRL Calculation Linkbase Document
101.LAB		Inline XBRL Labels Linkbase Document
101.PRE		Inline XBRL Presentation Linkbase Document
101.DEF		Inline XBRL Definition Linkbase Document
104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2020,~~2021, formatted in Inline XBRL and contained in Exhibit 101.

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	Finance		Operating
(Dollars in thousands)	Leases		Leases
Remaining in 2020	$	201	$	1,788
2021		748		5,834
2022		728		3,607
2023		658		1,842
2024		549		872
2025		443		697
Thereafter		455		1,689
Net minimum lease payments	$	3,782	$	16,329
Less: interest		1,172		2,068
Present value of lease liabilities	$	2,610	$	14,261